Loss and Loss Adjustment Expenses

12 Months Ended

Dec. 31, 2012

Loss and Loss Adjustment Expenses [Abstract]

Loss and Loss Adjustment Expenses

10. Loss and Loss Adjustment Expenses

The following table provides a reconciliation of the beginning and ending reserve balances, net of related amounts recoverable from reinsurers, for 2012, 2011 and 2010:

	Year Ended December 31,
	2012			2011			2010
	(In thousands)
Reserves for loss and loss adjustment expenses (“LAE”)	$	538,214		$	532,204		$	534,655
Less amounts recoverable from reinsurers on unpaid loss and LAE		60,937			65,536			60,435
Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at beginning of year		477,277			466,668			474,220
Add:
Provision for loss and LAE for claims occurring in the current year, net of reinsurance		222,393			196,269			179,022
Change in estimated loss and LAE for claims occurring in prior years, net of reinsurance		(2,490	)		(6,563	)		(21,634	)
Incurred losses during the current year, net of reinsurance		219,903			189,706			157,388
Less loss and LAE payments for claims, net of reinsurance, occurring during:
Current year		50,423			53,213			47,385
Prior years		131,497			125,884			117,555
		181,920			179,097			164,940
Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at end of year		515,260			477,277			466,668
Add amounts recoverable from reinsurers on unpaid loss and LAE		55,190			60,937			65,536
Reserves for loss and LAE	$	570,450		$	538,214		$	532,204

The foregoing reconciliation reflects favorable development of the net reserves at December 31, 2012, 2011, and 2010. The favorable development reduced loss and loss adjustment expense incurred by $2.5 million, $6.6 million and $21.6 million in 2012, 2011 and 2010, respectively. The revisions to the Company’s reserves reflect new information gained by claims adjusters in the normal course of adjusting claims and is reflected in the financial statements when the information becomes available. It is typical for more serious claims to take several years or longer to settle and the Company continually revises estimates as more information about claimants’ medical conditions and potential disability becomes known and the claims get closer to being settled.

Reserves established for workers’ compensation insurance have included the exposure to occupational disease or accidents related to asbestos or environmental claims. The exposure to asbestos claims emanate from the direct sale of workers’ compensation insurance. These claims resulted from industry workers who were exposed to tremolite asbestos dust and electricians and carpenters who were exposed to products that contained asbestos. There has been no known exposure to asbestos claims arising from assumed business. The emergence of these claims is slow and highly unpredictable. The Company estimates full impact of the asbestos exposure by establishing full case basis reserves on all known losses. Reserves for losses incurred but not reported (IBNR) include a provision for development of reserves on reported losses. Reserves are established for loss adjustment expenses (LAE) associated with these case and IBNR loss reserves.

The following table details our exposures to various asbestos related claims:

	Year Ended December 31,
	2012		2011		2010
	(In thousands)
Reserves for loss and LAE at beginning of year	$	—	$	—	$	—
Incurred losses and LAE during the current year		168		—		—
Less loss and LAE payments for claims occurring during the current year		1		—		—
Reserves for loss and LAE at end of year	$	167	$	—	$	—

The Company has historically written general liability coverages that are reported in other liability lines of business. These coverages may be associated with the property and casualty’s industry exposure to environmental claims. However, the Company has not been notified by any insured for which exposure exists due to these types of claims. Company management believes potential exposure to environmental claims to be remote. Therefore, the Company has no loss or loss adjustment expense reserves for such liabilities.

The anticipated effect of inflation is implicitly considered when estimating liabilities for loss and loss adjustment expenses. Average severities are projected based on historical trends adjusted for implemented changes in underwriting standards, policy provisions and general economic trends. These anticipated trends are monitored based on actual development and are modified if necessary.