LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

6 Months Ended

Jun. 30, 2016

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES [Abstract]

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

6. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

The liability for loss and LAE reserves is determined on an individual-case basis for all claims reported. The liability also includes amounts for unallocated expenses, anticipated future claim development and incurred but not yet reported (“IBNR”).

Activity in the liability for loss and LAE reserves is summarized as follows:

	Six Months Ended June 30, 2016			Year Ended December 31, 2015
	(in thousands)
Gross reserves, beginning of period	$	97,340		$	78,330
Less: reinsurance recoverable (1)		(7,496	)		(10,394	)
Net reserves, beginning of period		89,844			67,936
Incurred loss, net of reinsurance, related to:
Current year		66,118			113,819
Prior years		10,452			(9,466	)
Total incurred loss and LAE, net of reinsurance		76,570			104,353
Paid loss, net of reinsurance, related to:
Current year		27,707			49,531
Prior years		32,190			32,914
Total paid loss and LAE, net of reinsurance		59,897			82,445
Net reserves, end of period		106,515			89,844
Plus: reinsurance recoverable (1)		14,208			7,496
Gross reserves, end of period	$	120,723		$	97,340

(1) Reinsurance recoverable in this table includes only ceded loss and LAE reserves.

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 six months ended June 30, 2016, the Company experienced $10.5 million of unfavorable loss and LAE reserve development on prior year accident years primarily in its’ all other peril homeowners’ coverage in the state of Florida. The deficiency primarily relates to higher severity above the expected development factor anticipated at December 31, 2015 which was driven by the impact from assignment of benefits and related ligation costs.

During the year ended December 31, 2015, the Company experienced $9.5 million of redundancy on prior year accident years primarily a result of continued favorable loss experience (mostly caused by decreased severity in reported claims) in the Company’s all other peril homeowners coverage caused in part by the absence of severe weather in Florida. Specifically, we have experienced better severity than expected on the 2014 and 2013 accident years.