Claims Reserve (Notes)

12 Months Ended

Dec. 31, 2022

Liability for Unpaid Claims and Claims Adjustment Expense, Claims Paid [Abstract]

Reserve for Veterinary Invoices

Reserve for Veterinary Invoices

The reserve for veterinary invoices is an estimate of the future amount the Company will pay for veterinary invoices that are dated as of, or prior to, its balance sheet date. The reserve also includes the Company's estimate of related internal processing costs. The reserve estimate involves actuarial projections, and is based on management's assessment of facts and circumstances currently known, and assumptions about anticipated patterns. The Company uses generally accepted actuarial methodologies, such as paid loss development methods, in estimating the amount of the reserve for veterinary invoices. The reserve is made for each of the Company's segments, subscription and other business, and is continually refined as the Company receives and pays veterinary invoices. Changes in management's assumptions and estimates may have a relatively large impact to the reserve and associated expense.

Reserve for veterinary invoices

Summarized below are the changes in the total liability for the Company's subscription business segment (in thousands):

	Year Ended December 31,
Subscription	2022		2021		2020
Reserve at beginning of year	$	22,407	$	19,925	$	15,541
Veterinary invoices during the period related to:
Current year	439,679		357,859		278,776
Prior years	(2,799)		(1,411)		229
Total veterinary invoice expense	436,880		356,448		279,005
Amounts paid during the period related to:
Current year	414,778		333,182		259,971
Prior years	18,739		16,109		13,387
Total paid	433,517		349,291		273,358
Non-cash expenses	4,227		4,675		1,263
Reserve at end of period	$	21,543	$	22,407	$	19,925

The Company's reserve for the subscription business segment decreased $0.9 million from $22.4 million at December 31, 2021 to $21.5 million at December 31, 2022. This change was primarily comprised of $436.9 million in expense recorded during the period less $433.5 million in payments of veterinary invoices. This $436.9 million in veterinary invoice expense incurred included a reduction of $2.8 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. The Company's adjustments to prior year reserves were a reduction of $1.4 million and an increase of $0.2 million as a result of analysis of payment trends in the years ended December 31, 2021 and 2020, respectively.

Summarized below are the changes in total liability for the Company's other business segment (in thousands):

	Year Ended December 31,
Other Business	2022		2021		2020
Reserve at beginning of year	$	17,264	$	9,004	$	5,653
Veterinary invoices during the period related to:
Current year	211,729		129,826		72,286
Prior years	1,128		(212)		(167)
Total veterinary invoice expense	212,857		129,614		72,119
Amounts paid during the period related to:
Current year	190,031		112,574		63,359
Prior years	17,899		8,780		5,409
Total paid	207,930		121,354		68,768
Non-cash expenses	—		—		—
Reserve at end of period	$	22,191	$	17,264	$	9,004

The Company’s reserve for the other business segment increased $4.9 million from $17.3 million at December 31, 2021 to $22.2 million at December 31, 2022. This change was comprised of $212.9 million in expense recorded during the period less $207.9 million in payments of veterinary invoices. This $212.9 million in veterinary invoice expense incurred included an increase of $1.1 million to the reserves relating to prior years, which was the result of ongoing analysis of recent payment trends. The Company's adjustments to decrease prior year reserves were $0.2 million and $0.2 million as a result of analysis of payment trends in each of the years ended December 31, 2021 and 2020, respectively.

Veterinary invoice expenses

In the following tables, the cumulative number of veterinary invoices represents the total number received as of December 31, 2022, by year the veterinary invoice relates to, referred to as the year of occurrence. If a pet is injured or becomes ill, multiple trips to the veterinarian may result in several invoices. Each of these veterinary invoices is included in the cumulative number, regardless of whether the veterinary invoice was paid. Information for years 2019 through 2021 is provided as required supplementary information. Amounts in these tables are presented on a constant currency basis to remove the impact of changes in the foreign currency exchange rate on development. The cumulative expenses as of the end of each year are revalued using the currency exchange rate as of December 31, 2022.

The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's subscription business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data):

	Cumulative veterinary invoice expenses								Reserve		Cumulative number of veterinary invoices
	As of December 31,								As of December 31,
Subscription	2019		2020		2021		2022		2022		2022
Year of Occurrence	(unaudited)		(unaudited)		(unaudited)
2019	$	231,064	$	231,451	$	231,271	$	231,004	$	—	1,062,289
2020			$	278,199	$	277,297	$	276,811	$	—	1,196,283
2021					$	352,736	$	350,462	$	869	1,461,528
2022							$	436,406	$	20,674	1,647,508
							$	1,294,683	$	21,543

The following table summarizes the development of veterinary invoice expense, on a constant currency basis, for the Company's other business segment by year of occurrence (in thousands, except for cumulative number of veterinary invoices data):

	Cumulative veterinary invoice expenses								Reserve		Cumulative number of veterinary invoices
	As of December 31,								As of December 31,
Other Business	2019		2020		2021		2022		2022		2022
Year of Occurrence	(unaudited)		(unaudited)		(unaudited)
2019	$	38,879	$	38,604	$	38,676	$	38,725	$	—	283,095
2020			$	72,284	$	72,021	$	72,251	$	—	535,071
2021					$	129,809	$	130,645	$	493	901,453
2022							$	211,720	$	21,698	1,210,566
							$	453,341	$	22,191

Cumulative paid veterinary invoice expense

In the following tables, amounts are by the year the veterinary invoice relates to, referred to as the year of occurrence. Amounts in these tables are presented on a constant currency basis to remove the impact of changes in the foreign currency exchange rate. The cumulative amounts paid as of the end of each year are revalued using the currency exchange rate as of December 31, 2022. Information for years 2019 through 2021 is provided as required supplementary information.

The following table summarizes the amounts paid for veterinary invoices, inclusive of related internal processing costs and reported on a constant currency basis, for the subscription segment (in thousands):

	Year Ended December 31,
Subscription	2019		2020		2021		2022
Year of Occurrence	(unaudited)		(unaudited)		(unaudited)
2019	$	217,546	$	229,779	$	230,609	$	231,004
2020			$	260,786	$	275,564	$	276,811
2021					$	332,895	$	349,593
2022							$	415,732
							$	1,273,140
Total amounts unpaid and recorded as a liability							$	21,543

The following table summarizes the amounts paid for veterinary invoices, inclusive of related internal processing costs and reported on a constant currency basis, for the other business segment (in thousands):

	Year Ended December 31,
Other Business	2019		2020		2021		2022
Year of Occurrence	(unaudited)		(unaudited)		(unaudited)
2019	$	33,252	$	38,572	$	38,676	$	38,725
2020			$	63,357	$	72,009	$	72,251
2021					$	112,557	$	130,152
2022							$	190,022
							$	431,150
Total amounts unpaid and recorded as a liability							$	22,191