LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

9 Months Ended

Sep. 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:

	Nine Months		Year
	Ended		Ended
	September 30,		December 31,
	2016		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		109,237		113,819
Prior years		10,946		(9,466)
Total incurred loss and LAE, net of reinsurance		120,183		104,353
Paid loss, net of reinsurance, related to:
Current year		46,073		49,531
Prior years		53,526		32,914
Total paid loss and LAE, net of reinsurance		99,599		82,445
Net reserves, end of period		110,428		89,844
Plus: reinsurance recoverable (1)		17,057		7,496
Gross reserves, end of period	$	127,485	$	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 nine months ended September 30, 2016, the Company experienced unfavorable loss and LAE reserve development on prior year accident years primarily in its all other peril homeowners’ coverage in 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 other related adjusting expenses.

During the year ended December 31, 2015, the Company experienced a 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.