
	Year Ended December 31,
	2019		2018		2017
	(In thousands)
Gross reserves, beginning-of-period	$	296,230	$	230,515	$	158,110
Less: reinsurance recoverable (1)	(166,396)		(98,345)		(40,412)
Net reserves, beginning-of-period	129,834		132,170		117,698

Net reserves from Maison acquisition	11,825		—		—

Incurred loss, net of reinsurance, related to:
Current year	262,118		231,133		245,545
Prior year loss development (2)	13,460		2,166		13,926
Ceded losses subject to offsetting experience account adjustments (3)	(2,489)		(4,883)		(11,914)
Prior years	10,971		(2,717)		2,012
Amortization of acquisition fair value adjustment	(9)		—		—
Total incurred loss and LAE, net of reinsurance	273,080		228,416		247,557

Paid loss, net of reinsurance, related to:
Current year	173,313		155,462		160,945
Prior years	81,493		75,290		72,140
Total paid loss and LAE, net of reinsurance	254,806		230,752		233,085

Net reserves, end-of-period	159,933		129,834		132,170
Plus: reinsurance recoverable (1)	164,429		166,396		98,345
Gross reserves, end-of-period	$	324,362	$	296,230	$	230,515

The establishment of loss reserves is an inherently uncertain process and changes in loss reserve estimates are expected as such estimates are subject to the outcome of future events. The factors influencing changes in claim costs are often difficult to isolate or quantify and developments in paid and incurred losses from historical trends are frequently subject to multiple interpretations. Changes in estimates, or differences between estimates and amounts ultimately paid, are reflected in the operating results of the period during which such adjustments are made.

During the year ended December 31, 2019, the Company experienced $13.5 million of unfavorable loss and LAE reserve development on prior accident years, primarily in its personal automobile and commercial general liability lines of businesses. The development in commercial general liability is being driven by late reported claims as well as large losses that are driving up the overall severity metrics. Additionally, the unfavorable automobile development primarily related to 2017 accident year from our auto programs in the states of Georgia and Texas, and is being driven by claims reopening and higher severity.

During the year ended December 31, 2018, the Company experienced $2.2 million of unfavorable loss and LAE reserve development on prior accident years, primarily in our personal automobile and homeowners line of business. The unfavorable automobile

development primarily related to the 2016 accident year in the state of Georgia. The homeowners unfavorable development primarily related to the continued impact from assignment of benefits ("AOB") and related ligation costs in the state of Florida.

As previously disclosed, the Company entered into 30% and 10% retrospectively-rated Florida-only property quota-share treaties, which ended on July 1, 2016 and 2017, respectively. These agreements included a profit share (experience account) provision, under which the Company will receive ceded premium adjustments at the end of the treaty to the extent there is a positive balance in the experience account. This experience account is based on paid losses rather than incurred losses. Due to the retrospectively-rated nature of this treaty, when the experience account is positive we cede losses under these treaties as the claims are paid with an equal and offsetting adjustment to ceded premiums (in recognition of the related change to the experience account receivable), with no impact on net income. Conversely, when the experience account is negative, the Company cedes losses on an incurred basis with no offsetting adjustment to ceded premiums, which impacts net income. Loss development can be either favorable or unfavorable regardless of whether the experience account is in a positive or negative position.

During the year ended December 31, 2017, the Company experienced unfavorable loss and LAE reserve development on prior accident years primarily in its all other peril homeowners coverage in Florida. In the first half of 2016, the Company began to experience a new and higher level of AOB claims both in frequency and severity in our homeowners business in Florida, which caused adverse experience on the loss activity in accident years 2015 and 2016. This increased level of AOB claims was the significant driver in the Company’s decision to increase the Company’s 2015 accident year reserves related to the Company’s homeowners Florida policies.

AOB is a legal construct that allows a third party to step into the shoes of the insured and is then paid directly by an insurance company for services rendered on behalf of the insured for a covered loss. Absent an AOB, the insured would pay the third party and those costs would be reimbursed by the insurance company to the insured. AOB is commonly used when a homeowner experiences a water loss, for example a leaky pipe, an overflow from a sink, or a damaged appliance, and contacts a contractor or water remediation company.

Misuse of this legal construct has led to contractors over inflating costs of claims and/or submitting improper claims, causing insurance companies to have to either pay the overinflated claim, fight the claim in court, or both. In all cases, AOB claims cost the insurance company, on average, more than five times the cost to settle non-AOB claims, which has been a primary driver the increase to our overall loss and loss adjustment in comparison to historical severity averages.

The following tables provide incurred losses and ALAE and cumulative paid losses and ALAE, net of reinsurance, for the prior 10 accident years, and the total of IBNR reserves plus expected development on reported claims and the cumulative number of reported claims (in thousands, except number of reported claims), as of the most recent reporting period, by the Company’s significant lines of business, which are homeowners, commercial general liability and automobile.


																									IBNR & Expected	Cumulative
	Homeowners Incurred Losses and ALAE, Net of Reinsurance																							Development on	Number of
	For the Years Ended December 31,																							Reported Claims	Reported Claims (1)
	(Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		2019		2019
2010	$	24,825	$	25,056	$	26,151	$	27,895	$	28,968	$	29,407	$	29,945	$	30,459	$	30,602	$	30,651	$	66	2,393
2011			20,492		21,344		23,007		23,932		24,582		25,957		26,143		26,394		26,394		33		2,429
2012					23,032		23,301		24,186		24,468		25,889		26,356		26,836		26,951		63		2,694
2013							43,807		42,021		35,834		35,859		37,185		37,880		37,978		102		3,434
2014									64,312		63,300		61,770		62,206		61,817		62,043		144		7,657
2015											99,497		92,411		95,129		94,760		94,703		887		13,227
2016													171,264		162,043		158,764		157,880		4,709		24,219
2017															202,844		192,769		188,548		5,228		67,237
2018																	210,158		213,128		9,975		36,555
2019																			245,819		58,908		17,670
																	Total		$	1,084,095



	Homeowners Cumulative Paid Losses and ALAE, Net of Reinsurance
	For the Years Ended December 31,
	(Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	14,052	$	21,350	$	24,730	$	26,886	$	27,984	$	29,092	$	29,739	$	30,376	$	30,449	$	30,585
2011			11,119		19,250		21,323		22,723		24,047		25,580		25,982		26,287		26,340
2012					13,693		20,728		23,120		23,923		25,186		26,113		26,777		26,861
2013							19,986		31,606		33,867		35,123		35,803		37,473		37,688
2014									37,033		53,831		57,891		59,722		60,555		61,441
2015											52,214		79,359		86,647		90,415		92,327
2016													102,556		142,716		148,274		152,258
2017															135,589		176,580		179,327
2018																	141,173		194,160
2019																			157,768
																			$	958,755

Acquired balance from acquisition																					11,825
All outstanding liabilities for unpaid claims and ALAE prior to 2010, net of reinsurance																					3
Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance																					$	137,168


																									IBNR & Expected	Cumulative
	Commercial General Liability Incurred Losses and ALAE, Net of Reinsurance																							Development on	Number of
	For the Years Ended December 31,																							Reported Claims	Reported Claims
	(Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		2019		2019
2010	$	8,552	$	7,582	$	7,474	$	7,045	$	7,535	$	7,597	$	7,645	$	7,809	$	8,252	$	8,401	$	106	761
2011			6,436		5,854		4,749		4,603		4,760		5,409		6,254		6,828		7,817		81		1,224
2012					5,279		4,952		4,801		4,700		4,658		4,346		4,509		5,109		94		712
2013							7,095		5,069		5,221		5,502		5,704		5,580		5,984		125		670
2014									7,475		7,709		6,384		6,620		6,348		6,697		149		761
2015											8,082		7,008		6,020		5,377		7,947		584		783
2016													10,727		5,809		6,561		8,502		858		743
2017															8,289		7,853		6,558		2,345		577
2018																	6,553		6,233		4,395		388
2019																			1,604		789		78
																	Total		$	64,852


	Commercial General Liability Cumulative Paid Losses and ALAE, Net of Reinsurance
	For the Years Ended December 31,
	(Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	1,187	$	2,279	$	3,855	$	5,553	$	6,363	$	7,238	$	7,382	$	7,631	$	7,918	$	8,165
2011			764		2,763		3,366		3,673		4,246		4,866		5,831		6,349		7,365
2012					871		1,714		2,632		3,342		3,686		3,841		4,098		4,521
2013							882		2,233		3,366		3,867		4,606		5,033		5,467
2014									717		2,593		3,855		4,375		5,130		6,270
2015											798		2,296		3,249		3,827		5,866
2016													1,515		3,657		5,088		6,606
2017															1,592		2,478		3,293
2018																	963		1,554
2019																			147
																	Total		$	49,254

All outstanding liabilities for unpaid claims and ALAE prior to 2010, net of reinsurance																					1,416
Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance																					$	17,014


	Average Annual Payout of Losses and ALAE, Net of Reinsurance
	(Unaudited)
	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7		Year 8		Year 9		Year 10
Commercial general liability	13.2	%	17.7	%	13.9	%	10.5	%	11.4	%	8.6	%	6.0	%	5.1	%	7.3	%	3.5	%


																									IBNR & Expected	Cumulative
	Automobile Incurred Losses and ALAE, Net of Reinsurance																							Development on	Number of
	For the Years Ended December 31,																							Reported Claims	Reported Claims
	(Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019		2019		2019
2010	$	2,823	$	2,963	$	3,111	$	3,088	$	3,044	$	3,035	$	3,059	$	3,041	$	3,042	$	3,042	$	—	969
2011			3,580		3,350		2,954		2,912		2,762		2,848		2,796		2,756		2,762		—		789
2012					1,735		1,741		1,717		1,424		1,455		1,491		1,448		1,444		1		822
2013							1,517		1,863		1,826		1,829		2,161		2,123		2,127		5		3,471
2014									2,038		3,213		3,551		4,315		4,379		4,417		10		6,015
2015											3,045		2,882		2,781		2,878		2,915		8		6,538
2016													13,414		20,205		24,346		25,918		21		56,541
2017															20,411		22,472		24,579		243		42,064
2018																	3,513		4,623		600		7,975
2019																			(3)		1		92
																	Total		$	71,824



	Automobile Cumulative Paid Losses and ALAE, Net of Reinsurance
	For the Years Ended December 31,
	(Unaudited)
Accident Year	2010		2011		2012		2013		2014		2015		2016		2017		2018		2019
2010	$	1,713	$	2,482	$	2,715	$	2,863	$	2,942	$	2,978	$	2,984	$	3,035	$	3,037	$	3,037
2011			1,417		2,381		2,562		2,644		2,726		2,755		2,755		2,755		2,755
2012					867		1,293		1,333		1,384		1,393		1,430		1,444		1,447
2013							907		1,609		1,906		2,069		2,109		2,112		2,116
2014									1,455		3,120		3,678		4,122		4,291		4,383
2015											1,393		2,293		2,670		2,807		2,890
2016													8,084		17,258		23,053		25,582
2017															12,821		20,762		23,860
2018																	2,331		3,626
2019																			(5)
																	Total		$	69,691

All outstanding liabilities for unpaid claims and ALAE prior to 2010, net of reinsurance																					9
Total outstanding liabilities for unpaid claims and ALAE, net of reinsurance																					$	2,142


	December 31,
	2019		2018
	(In thousands)
Liabilities for unpaid losses and ALAE:
Homeowners	$	137,168	$	102,279
Commercial general liability	17,014		18,888
Automobile	2,142		4,374
Flood	—		—
Total liabilities for unpaid losses and ALAE, net of reinsurance	156,324		125,541

Reinsurance recoverables:
Homeowners	160,578		158,043
Commercial general liability	500		—
Automobile	3,228		8,275
Flood	123		78
Total reinsurance recoverables	164,429		166,396

Unallocated loss adjustment expenses	3,609		4,293
Gross liability for unpaid losses and LAE	$	324,362	$	296,230

Management establishes a liability on an aggregate basis to provide for the estimated IBNR. The estimates of the liability for loss and LAE reserves are subject to the effect of trends in claims severity and frequency and are continually reviewed. As part of this process, we review historical data and consider various factors, including known and anticipated legal developments, inflation and economic conditions. As experience develops and other data become available, these estimates are revised, as required, resulting in increases or decreases to the existing liability for loss and LAE reserves. Adjustments are reflected in results of operations in the period in which they are made and the liabilities may deviate substantially from prior estimates.

Various actuarial methods are utilized to determine the reserves that are booked to our financial statements. Weightings of tests and methods at a detailed level may change from evaluation to evaluation based on a number of observations, measures and time elements. On an overall basis, changes to methods and/or assumptions underlying reserve estimations and selections as of December 31, 2019 and 2018, were not considered material.

IBNR reserves are established for the quarter and year-end based on a quarterly reserve analysis by our actuarial staff. Various standard actuarial tests are applied to subsets of the business at a line of business and coverage basis. Included in the analyses are the following:

•Reported Loss Development Method: A reported loss development pattern is calculated based on historical loss development data, and this pattern is then used to project the latest evaluation of cumulative reported losses for each accident year or underwriting year, as appropriate, to ultimate levels;

•Paid Development Method: A paid loss development pattern is calculated based on historical paid loss development data, and this pattern is then used to project the latest evaluation of cumulative paid losses for each accident year or underwriting year, as appropriate, to ultimate levels;

•Expected Loss Ratio Method: Expected loss ratios are applied to premiums earned, based on historical company experience, or historical insurance industry results when company experience is deemed not to be sufficient; and