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Reserves for Losses and Loss Settlement Expenses
 12 Months Ended
Dec. 31, 2021
Insurance Loss Reserves [Abstract]  
Reserves for Losses and Loss Settlement Expenses RESERVES FOR LOSSES AND LOSS SETTLEMENT EXPENSES
Property insurance indemnifies an insured with an interest in physical property for loss of, or damage to, such property or the loss of its income-producing abilities. Casualty insurance primarily covers liability for damage to property of, or injury to, a person or entity other than the insured. In most cases, casualty insurance also obligates the insurance company to provide a defense for the insured in litigation, arising out of events covered by the policy.

Liabilities for losses and loss settlement expenses reflect management's best estimates at a given point in time of what we expect to pay for claims that have been reported and those that have been incurred but not reported ("IBNR"), based on known facts, circumstances, and historical trends. Because property and casualty insurance reserves are estimates of the unpaid portions of incurred losses that have been reported to us, as well as losses that have been incurred but not reported, the establishment of appropriate reserves, including reserves for catastrophes, is an inherently uncertain and complex process. The ultimate cost of losses and related loss settlement expenses may vary materially from recorded amounts. We regularly update our reserve estimates as new information becomes available and as events unfold that may affect the resolution of unsettled claims. Changes in prior year reserve estimates, which may be material, are reported as a component of losses and loss settlement expenses incurred in the period such changes are determined.

The determination of reserves (particularly those relating to liability lines of insurance that have relatively longer lag in claim reporting) requires significant work to reasonably project expected future claim reporting and payment patterns. If, during the course of our regular monitoring of reserves, we determine that coverages previously written are incurring higher than expected losses, we will evaluate an appropriate response that may include, among other things, increasing the related reserves. Any adjustments we make to reserves are reflected in operating results in the year in which we make those adjustments. We engage an independent actuary, Regnier Consulting Group, Inc. ("Regnier"), to render an opinion as to the reasonableness of our statutory reserves annually. The actuarial opinion is filed in those states where we are licensed.

On a quarterly basis, United Fire's team of internal actuaries performs a detailed actuarial review of IBNR reserves. This review includes a comparison of results from the most recent analysis of reserves completed by both our internal and external actuaries. Senior management meets with our internal actuary to review, on a regular and quarterly basis, the adequacy of carried reserves based on results from this actuarial analysis. There are two fundamental types or sources of IBNR reserves. We record IBNR reserves for "normal" types of claims and also specific IBNR reserves related to unique circumstances or events. A major hurricane is an example of an event that might necessitate establishing specific IBNR reserves because an analysis of existing historical data would not provide an appropriate estimate.

Our IBNR methodologies and assumptions are reviewed periodically, but changes are infrequent. In response to an increase in severity of losses and an increase in distracted driving claims, we revised our commercial automobile assumptions, resulting in an increase to our carried loss IBNR. We also reviewed our methodology and assumptions in our product liability line, associated with our construction defects business, and assumptions due to improvement in development patterns related to the statute of limitations on accident years that have matured 13 to 15 years which haven't developed to the extent we initially expected. Besides the changes to our assumptions used for our commercial automobile line and product liability line, we continually review and revise items affecting our projections of required reserves for unpaid loss and loss adjustment expense ("LAE"). Items reviewed and revised include development factors for paid and reported loss, paid development factors for allocated LAE, and the ratios of paid unallocated LAE to paid loss.

We do not discount loss reserves based on the time value of money. 
The following table provides an analysis of changes in our property and casualty losses and loss settlement expense reserves for 2021, 2020 and 2019 (net of reinsurance amounts):
   
Years Ended December 31,202120202019
Gross liability for losses and loss settlement expenses
at beginning of year		$1,578,131 $1,421,754 $1,312,483 
Ceded losses and loss settlement expenses(131,843)(68,536)(57,094)
Net liability for losses and loss settlement expenses
at beginning of year		$1,446,288 $1,353,218 $1,255,389 
Losses and loss settlement expenses incurred
for claims occurring during
   Current year$701,064 $887,119 $835,507 
   Prior years(48,909)(17,652)(5,335)
Total incurred$652,155 $869,467 $830,172 
Losses and loss settlement expense payments
for claims occurring during
   Current year$277,115 $354,635 $333,975 
   Prior years419,963 421,762 398,368 
Total paid$697,078 $776,397 $732,343 
Net liability for losses and loss settlement expenses
at end of year		$1,401,365 $1,446,288 $1,353,218 
Ceded loss and loss settlement expenses112,900 131,843 68,536 
Gross liability for losses and loss settlement expenses
at end of year		$1,514,265 $1,578,131 $1,421,754 

There are a multitude of factors that can impact loss reserve development. Those factors include, but are not limited to: historical data, the potential impact of various loss reserve development factors and trends including historical loss experience, legislative enactments, judicial decisions, legal developments in imposition of damages, experience with alternative dispute resolution, results of our medical bill review process, the potential impact of salvage and subrogation and changes and trends in general economic conditions, including the effects of inflation. All of these factors influence our estimates of required reserves and for long tail lines these factors can change over the course of the settlement of the claim. However, there is no precise method for evaluating the specific monetary impact of any individual factor on the development of reserves.
Generally, we base reserves for each claim on the estimated ultimate exposure for that claim. We believe that it is appropriate and reasonable to establish a best estimate for reserves within a range of reasonable estimates, especially when we are reserving for claims for bodily injury, disabilities and similar claims, for which settlements and verdicts can vary widely. Our reserving philosophy may result in favorable reserve development in future years that may decrease losses and loss settlement expenses for prior year claims in the year of adjustment. We realize that this philosophy, coupled with what we believe to be aggressive and successful claims management and loss settlement practices, has resulted in year-to-year redundancies in reserves. We believe our approach produces recorded reserves that are reasonably consistent as to their relative position within a range of reasonable reserves from year-to-year. However, conditions and trends that have affected the reserve development for a given year do change. Therefore, such development cannot be used to project future reserve redundancies or deficiencies.
We are not aware of any significant contingent liabilities related to environmental issues. Because of the type of property coverage we write, we have potential exposure to environmental pollution, mold and asbestos claims. Our underwriters are aware of these exposures and use riders or endorsements to limit exposure.
Reserve Development

The significant drivers of the favorable reserve development in 2021 were commercial automobile along with a favorable contribution from workers' compensation. This favorable development was partially offset by unfavorable development from commercial other liability. Favorable development for both commercial automobile and workers' compensation was from both loss and LAE. Reserve reductions for unpaid loss and LAE were more than sufficient to offset payments. Commercial other liability was adversely affected by reserve strengthening for reported claims and reserve strengthening for incurred but unreported claims. Commercial other liability reserve strengthening resulted in unfavorable development because paid loss exceeded the reduction in unpaid claim reserves but favorable development for LAE partially offset the unfavorable loss development.

The significant drivers of the favorable reserve development in 2020 were workers' compensation, commercial fire and allied lines, fidelity and surety and personal automobile. The favorable development for workers' compensation was primarily from reductions in reserves for reported claims which were more than sufficient to offset paid loss. Reductions in reserves for IBNR claims also contributed favorable development in addition to LAE where reductions in reserves more than sufficient to offset payments. Commercial fire and allied lines developed favorably because reductions in reserves for reported claims combined with reductions in reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Fidelity and surety loss developed favorably because a reduction in reserves for IBNR claims was more than sufficient to offset both paid loss and increases in reserves for reported claims. The personal automobile line of business developed favorably because reductions of reserves for reported claims combined with reductions of reserves for IBNR claims were more than sufficient to offset paid loss. LAE also contributed favorable development with reductions in reserves more than sufficient to offset payments. Much of the favorable development was offset by unfavorable development from three lines: commercial liability, reinsurance assumed and commercial automobile. The commercial liability line of business experienced unfavorable development due to paid loss which was greater than reductions in reserves for unpaid loss. LAE developed favorably and partially offset the unfavorable loss development. The unfavorable development for reinsurance assumed was due to paid loss which was greater than reductions in reserves for unpaid loss. The commercial automobile line of business experienced unfavorable development because paid loss was greater than reductions in reserves for unpaid loss, but a portion of the unfavorable loss development was offset by favorable development from LAE where payments were more than offset by reductions of reserves for unpaid loss adjustment expense. On an all lines combined basis, favorable development is attributable to LAE which continues to benefit from additional litigation management efforts.

The significant drivers of the favorable reserve development in 2019 were our workers' compensation partially offset by unfavorable development primarily for commercial liability and commercial automobile. Workers' compensation favorable development was primarily from reserve reductions for both reported claims and loss IBNR which were more than sufficient to offset paid loss with additional favorable development coming from LAE, where the reduction in LAE reserves was more than sufficient to offset paid LAE. The other lines with relatively small contributions to development, either favorable or unfavorable, generally experienced favorable development for LAE. Commercial liability unfavorable development was primarily from paid loss which exceeded reserve reductions for both reported claims and loss IBNR; additional unfavorable development came from LAE where paid LAE exceeded reductions of LAE reserves. Commercial liability and commercial automobile continue to be adversely affected by reserve strengthening for both reported claims and loss IBNR in response to an increase in severity of claims. Commercial liability continues to receive umbrella claims which flow in from commercial automobile.
The following tables provide information about incurred and paid losses and loss settlement expense development as of December 31, 2021, net of reinsurance, as well as cumulative development, cumulative claim frequency and IBNR liabilities. Claim data for Mercer Insurance Group, Inc., which was acquired on March 28, 2011, is presented retrospectively.
The cumulative number of reported claims, for calendar year 2021, 2020 and 2019, are counted for all lines of business on a per claimant per coverage basis and a single event may result in multiple claims due to the involvement of multiple individual claimants and / or multiple independent coverages. Claim counts for calendar years 2016 and prior are counted on a per claim and per coverage basis. Claim counts include open claims, claims that have been paid and closed, and reported claims that have been closed without the need for any payment.

Line of business: Commercial other liability
Incurred losses and allocated loss settlement expenses, net of reinsuranceAs of December 31, 2021
For the years ended December 31,Total of incurred but not reported liabilities plus expected development on reported claimsCumulative developmentCumulative number of reported claims
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$100,389 $96,158 $94,195 $91,980 $92,537 $91,346 $89,731 $91,571 $89,900 $89,445 $11,818 (10,944)5,905 
2013104,982 91,460 90,502 86,119 85,399 88,816 86,082 85,999 94,808 3,962 (10,174)6,489 
2014118,928 117,958 106,486 97,809 102,487 105,507 107,417 111,517 3,837 (7,411)6,680 
2015137,386 125,307 120,005 127,091 129,945 131,325 132,694 8,651 (4,692)7,849 
2016139,144 130,041 136,275 142,397 140,784 148,324 12,640 9,180 9,132 
2017139,602 139,032 152,547 156,369 159,653 19,305 20,051 9,063 
2018163,059 172,894 176,496 187,841 29,864 24,782 8,872 
2019149,173 169,344 183,918 37,331 34,745 8,102 
2020171,013 158,022 43,673 (12,991)5,673 
2021145,822 76,825 2,343 
Total$1,412,044 
Line of business: Commercial other liability
Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
For the years ended December 31,
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$6,875 $24,620 $39,948 $55,316 $64,574 $69,800 $71,773 $73,819 $74,644 $75,187 
20139,835 25,228 39,953 54,559 65,773 72,115 75,961 78,448 83,491 
201410,207 29,679 50,211 70,363 83,109 93,060 96,509 102,042 
201511,185 27,182 53,901 74,292 96,339 104,472 109,540 
201613,782 38,184 63,526 88,885 102,757 115,107 
201717,716 43,172 70,500 91,984 111,085 
201816,200 44,772 79,168 105,515 
201918,221 46,986 72,179 
202017,011 43,596 
202112,434 
Total$830,176 
All outstanding liabilities for unpaid losses and loss settlement expenses before 2012, net of reinsurance30,242 
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance$612,108 
Line of business: Commercial fire and allied
Incurred losses and allocated loss settlement expenses, net of reinsuranceAs of December 31, 2021
For the years ended December 31,Total of incurred but not reported liabilities plus expected development on reported claimsCumulative developmentCumulative number of reported claims
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$138,602 $110,448 $108,774 $108,047 $107,958 $108,623 $109,687 $109,480 $110,245 $109,911 $318 (28,691)6,477 
201391,521 88,550 91,498 92,212 93,826 93,858 92,988 92,855 93,498 62 1,977 6,675 
2014126,216 131,198 128,762 128,185 128,503 126,811 127,068 128,180 70 1,964 7,940 
2015103,177 108,293 110,633 108,235 105,218 104,646 105,043 209 1,866 7,592 
2016147,473 144,208 143,721 143,724 143,108 144,109 493 (3,364)9,860 
2017155,139 160,240 160,946 161,693 161,232 676 6,093 13,478 
2018143,280 146,951 146,378 146,010 1,765 2,730 10,746 
2019164,030 155,482 158,475 3,614 (5,555)11,146 
2020207,207 201,391 6,528 (5,816)14,354 
2021156,794 27,009 4,796 
Total$1,404,643 
Line of business: Commercial fire and allied
Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
For the years ended December 31,
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$71,008 $94,380 $100,078 $103,197 $105,250 $106,521 $106,740 $107,992 $108,123 $108,859 
201359,331 78,226 82,853 86,115 89,200 91,493 92,012 92,472 93,200 
201484,456 113,663 116,750 122,370 123,697 125,745 126,307 127,883 
201567,217 90,454 95,515 101,367 104,115 103,975 104,127 
201692,895 125,962 132,429 137,909 139,353 141,104 
201799,484 137,058 145,900 152,219 157,512 
201892,770 123,559 133,703 137,794 
2019100,980 136,084 142,342 
2020128,704 173,055 
202197,451 
Total$1,283,327 
All outstanding liabilities for unpaid losses and loss settlement expenses before 2012, net of reinsurance1,422 
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance$122,739 
Line of business: Commercial automobile
Incurred losses and allocated loss settlement expenses, net of reinsuranceAs of December 31, 2021
For the years ended December 31,Total of incurred but not reported liabilities plus expected development on reported claimsCumulative developmentCumulative number of reported claims
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$100,039 $90,848 $94,755 $95,321 $96,594 $96,389 $96,305 $96,059 $96,176 $96,174 $— (3,865)14,365 
2013104,356 98,037 102,943 103,726 104,980 105,248 104,886 106,140 106,288 323 1,932 15,528 
2014107,723 106,076 113,720 118,869 120,385 121,077 120,599 119,214 381 11,491 17,326 
2015125,506 129,816 132,206 138,987 137,395 137,335 136,826 271 11,320 20,085 
2016174,018 175,357 174,337 175,657 173,823 174,588 843 570 27,302 
2017227,919 224,553 235,110 233,159 233,007 2,581 5,088 32,878 
2018236,629 245,173 253,045 255,017 5,739 18,388 34,440 
2019279,229 291,139 289,929 12,144 10,700 34,669 
2020243,360 216,951 19,907 (26,409)23,949 
2021179,880 33,802 11,104 
Total$1,807,874 
Line of business: Commercial automobile
Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
For the years ended December 31,
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$39,247 $57,201 $71,469 $82,944 $90,292 $93,179 $94,747 $94,983 $96,176 $96,174 
201343,592 67,630 79,663 90,780 96,375 100,058 101,580 103,037 103,368 
201445,704 68,033 87,590 99,922 109,682 113,751 116,843 117,770 
201550,782 78,225 99,201 118,395 129,317 134,100 135,462 
201666,013 103,528 128,157 148,224 164,341 168,950 
201781,311 126,644 166,170 197,893 212,947 
201881,572 138,092 187,405 211,123 
201991,919 153,244 205,614 
202067,660 109,686 
202164,381 
Total$1,425,475 
All outstanding liabilities for unpaid losses and loss settlement expenses before 2012, net of reinsurance749 
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance$383,149 
Line of business: Workers' compensation
Incurred losses and allocated loss settlement expenses, net of reinsuranceAs of December 31, 2021
For the years ended December 31,Total of incurred but not reported liabilities plus expected development on reported claimsCumulative developmentCumulative number of reported claims
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$48,848 $46,279 $42,158 $38,423 $38,553 $39,015 $39,182 $39,063 $38,290 $38,562 $228 (10,286)4,001 
201364,048 62,579 56,369 54,584 52,761 51,753 50,984 50,349 49,801 215 (14,247)4,259 
201464,051 60,729 58,284 56,630 54,636 53,023 52,889 52,388 637 (11,663)4,804 
201553,788 55,578 51,003 46,682 46,019 44,706 43,751 377 (10,037)5,678 
201670,419 66,575 61,648 55,168 53,964 52,870 571 (17,549)7,959 
201776,184 69,528 55,982 51,874 49,362 688 (26,822)8,194 
201871,972 67,883 59,192 56,109 1,075 (15,863)8,022 
201952,136 49,189 49,336 1,373 (2,800)7,332 
202045,365 46,612 2,153 1,247 4,389 
202145,177 5,142 1,623 
Total$483,968 
Line of business: Workers' compensation
Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
For the years ended December 31,
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$11,802 $23,023 $28,397 $30,933 $33,063 $34,330 $35,388 $36,060 $36,520 $36,762 
201314,136 30,209 38,023 42,941 45,078 47,071 47,572 48,093 48,327 
201413,965 30,289 38,441 42,964 45,193 45,825 46,299 46,664 
201512,063 27,304 35,229 38,424 39,305 40,034 41,006 
201614,413 32,345 40,680 45,743 47,082 48,277 
201714,647 31,309 38,083 41,672 43,833 
201816,949 35,369 43,189 47,173 
201913,582 29,668 38,382 
202017,603 29,605 
202117,949 
Total$397,978 
All outstanding liabilities for unpaid losses and loss settlement expenses before 2012, net of reinsurance17,864 
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance$103,856 
Line of business: Personal
Incurred losses and allocated loss settlement expenses, net of reinsuranceAs of December 31, 2021
For the years ended December 31,Total of incurred but not reported liabilities plus expected development on reported claimsCumulative developmentCumulative number of reported claims
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$47,924 $46,199 $46,403 $46,150 $44,715 $44,352 $44,165 $44,158 $44,160 $44,178 $— (3,746)10,792 
201339,232 38,525 37,262 37,086 36,729 36,661 36,486 36,467 36,466 — (2,766)9,252 
201453,910 52,661 52,944 52,782 52,615 52,702 52,810 52,854 21 (1,056)10,963 
201542,848 41,088 40,336 40,368 40,220 40,194 40,189 11 (2,659)9,553 
201648,072 45,840 45,379 45,961 45,113 45,297 39 (2,775)11,905 
201760,330 59,342 58,695 58,544 59,023 107 (1,307)14,709 
201851,639 51,721 52,715 52,062 183 423 13,677 
201959,547 58,378 58,745 554 (802)13,576 
202081,206 73,761 899 (7,445)16,884 
202128,537 2,644 2,437 
Total$491,112 
Line of business: Personal
Cumulative paid losses and allocated loss settlement expenses, net of reinsurance
For the years ended December 31,
Accident Year2012201320142015201620172018201920202021
(Unaudited)
2012$30,415 $41,979 $43,375 $44,448 $43,569 $44,139 $44,158 $44,158 $44,159 $44,178 
201325,505 32,788 34,297 35,306 36,155 36,323 36,397 36,466 36,466 
201437,055 47,912 49,710 51,837 52,018 52,543 52,519 52,526 
201529,551 37,431 39,027 39,428 39,865 40,029 40,053 
201632,999 40,910 42,660 44,046 44,618 44,737 
201742,135 53,111 55,982 57,169 57,824 
201837,410 47,433 49,464 50,185 
201940,544 52,390 54,935 
202054,181 68,124 
202120,298 
Total$469,326 
All outstanding liabilities for unpaid losses and loss settlement expenses before 2012, net of reinsurance719 
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance$22,503 
The reconciliation of the net incurred and loss development tables to the liability for unpaid losses and loss settlement expenses in the consolidated statement of financial position is as follows.

December 31, 2021
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses:
Commercial other liability$612,108 
Commercial fire and allied122,739 
Commercial automobile383,149 
Commercial workers' compensation103,856 
Personal22,503 
All other lines64,083 
Net outstanding liabilities for unpaid losses and allocated loss settlement expenses1,308,438 
Net outstanding liabilities for unpaid unallocated loss settlement expenses92,084 
Fair value adjustment (purchase accounting adjustment for Mercer acquisition)843 
Liabilities for unpaid losses and loss settlement expenses, net of reinsurance1,401,365 
Reinsurance recoverable on unpaid losses and allocated loss settlement expenses:
Commercial other liability22,522 
Commercial fire and allied21,309 
Commercial automobile4,819 
Commercial workers' compensation53,189 
Personal3,236 
All other lines8,631 
Reinsurance recoverable on unpaid losses and allocated loss settlement expenses113,706 
Reinsurance fair value amortization (purchase accounting adjustment for Mercer acquisition)(806)
Total reinsurance recoverable on unpaid losses and loss settlement expenses112,900 
Total gross liability for unpaid losses and loss settlement expenses$1,514,265 
The following is supplementary information about average historical claims duration as of December 31, 2021.
Average annual percentage payout of incurred claims by age, net of reinsurance
Year 1Year 2Year 3Year 4Year 5Year 6Year 7Year 8Year 9Year 10
(Unaudited)
Commercial other liability9.4 %16.2 %17.2 %15.8 %11.9 %7.2 %3.3 %3.3 %3.1 %0.6 %
Commercial fire and allied63.7 %22.0 %4.8 %3.8 %2.2 %1.3 %0.3 %1.0 %0.4 %0.7 %
Commercial automobile36.1 %20.4 %15.8 %11.6 %7.5 %3.2 %1.7 %0.8 %0.8 %— %
Commercial workers' compensation30.5 %31.8 %15.5 %8.0 %3.8 %2.5 %1.7 %1.2 %0.8 %0.6 %
Personal71.2 %20.1 %4.0 %2.4 %0.7 %0.7 %0.1 %0.1 %— %— %