Liability for Unpaid Claims and Claim Adjustment Expenses

12 Months Ended

Dec. 31, 2021

Liability for Unpaid Claims and Claim Adjustment Expenses

Roll forward of Claim Liability

The following table presents the activity in the net liability for unpaid losses and allocated loss adjustment expenses of short duration contracts for the following periods:



	2021		2020
Policy liabilities and unpaid claims balance as of January 1,	$	233,438	$	144,384
Less: liabilities of policy-holder account balances, gross	(5,419)		(11,589)
Less: non-insurance warranty benefit claim liabilities	(30,664)		(85)
Gross liabilities for unpaid losses and loss adjustment expenses	197,355		132,710
Less: reinsurance recoverable on unpaid losses - short duration	(113,163)		(88,599)
Less: other lines, gross	(247)		(230)
Net balance as of January 1, short duration	83,945		43,881

Incurred (short duration) related to:
Current year	250,300		172,007
Prior years	2,606		5,443
Total incurred	252,906		177,450

Paid (short duration) related to:
Current year	174,334		127,721
Prior years	8,105		9,665
Total paid	182,439		137,386

Net balance as of December 31, short duration	154,412		83,945
Plus: reinsurance recoverable on unpaid losses - short duration	165,129		113,163
Plus: other lines, gross	576		247
Gross liabilities for unpaid losses and loss adjustment expenses	320,117		197,355
Plus: liabilities of policy-holder account balances, gross	801		5,419
Plus: non-insurance warranty benefit claim liabilities	10,785		30,664
Policy liabilities and unpaid claims balance as of December 31,	$	331,703	$	233,438

The following schedule reconciles the total short duration contracts per the table above to the amount of total losses incurred as presented in the consolidated statements of operations, excluding the amount for member benefit claims:


	For the Year Ended December 31,
		2021		2020		2019
Short duration incurred		$	252,906	$	177,450	$	150,094
Other lines incurred		(284)		27		184
Unallocated loss adjustment expenses		851		771		731
Total losses incurred		$	253,473	$	178,248	$	151,009

During the year ended December 31, 2021, the Company experienced an increase in prior year development of $2,606, primarily as a result of higher-than-expected claim severity from business written by a small group of producers of our personal and commercial lines of business.

During the year ended December 31, 2020, the Company experienced an increase in prior year development of $5,443, primarily as a result of higher than expected claim frequency from business written by a small group of producers of our personal and commercial lines of business. The underlying cause of this development was the result of a subset of risk where the loss ratio pegs used in our year end actuarial determination was low given the ultimate frequency that emerged.

During the year ended December 31, 2019, the Company experienced an increase in prior year development of $5,169, primarily in our non-standard auto business. The underlying cause of this development was higher than expected claim frequency.

Management considers the prior year development for each of these years to be insignificant when considered in the context of our annual earned premiums, net as well as our net losses and loss adjustment expenses and member benefit claims expenses. We analyze our development on a quarterly basis and given the short duration nature of our products, favorable or adverse development emerges quickly and allows for timely reserve strengthening, if necessary, or modifications to our product pricing or offerings. The prior year development in 2021, 2020, and 2019 of $2,606, $5,443 and $5,169, respectively, represented 3.7%, 20.2% and 13.9% of pretax income of our insurance business of $69,857, $26,948 and $37,030 in each year, and 3.1%, 12.4% and 18.7% of the opening net liability for losses and loss adjustment expenses of $83,945, $43,881 and $27,615, as of January 1 of each year.

Based upon our internal analysis and our review of the statement of actuarial opinions provided by our actuarial consultants, we believe that the amounts recorded for policy liabilities and unpaid claims reasonably represent the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.

Incurred and Paid Development

The following table presents information about incurred and paid loss development and average claim duration as of December 31, 2021, net of reinsurance, as well as cumulative claim frequency and the total of IBNR liabilities plus expected development on reported claims included within the net incurred claims amounts. The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated count of unreported claims. The number of claims is measured by claim event. The Company considers a claim that does not result in a liability as a claim closed without payment. In 2020 and 2021, timing effects related to the COVID 19 pandemic impacted claim activity and, consequently, the duration of paid claims relative to incurred losses. We believe these impacts are temporary and do not reflect a long term fundamental change in duration or the relationship between paid claims and incurred losses.



Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance													As of December 31, 2021
	For the Years Ended December 31,													Total of IBNR Liabilities Plus Expected Development of Reported Claims		Cumulative Number of Reported Claims
Accident Year	2016 (Unaudited)		2017 (Unaudited)		2018 (Unaudited)		2019 (Unaudited)		2020 (Unaudited)		2021


2016	$	84,178	$	87,290	$	87,993	$	88,615	$	89,629	$	89,981		$	39	257
2017			103,306		104,898		105,601		105,787		106,446			$	—	326
2018					129,352		133,225		133,158		134,392			$	17,195	399
2019							144,925		149,166		151,772			$	8,852	403
2020									172,007		169,706			$	30,661	330
2021											250,300			59,994		473
									Total		$	902,597

Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance

Accident Year	2016 (Unaudited)		2017 (Unaudited)		2018 (Unaudited)		2019 (Unaudited)		2020 (Unaudited)		2021


2016	62,989		$	84,185	$	86,531	$	88,482	$	88,976	$	89,474
2017			84,493		102,620		105,075		105,852		106,402
2018					105,740		112,619		114,490		115,407
2019							122,348		128,787		132,747
2020									127,721		129,832
2021											174,334
									Total		$	748,196
All outstanding liabilities before 2016, net of reinsurance									11
Liabilities for loss and loss adjustment expenses, net of reinsurance									$	154,412

Duration

The following table presents supplementary information about average historical claims duration as of December 31, 2021 for short duration contracts:



Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance (Unaudited)
Years	1	2	3	4	5	6
Short duration	75.6%	10.3%	2.2%	1.2%	0.5%	0.6%

Reconciliation of Reserves to Balance Sheet

The following table presents a reconciliation of net outstanding liabilities for unpaid loss and loss adjustment expenses of short-duration contracts to the consolidated balance sheets value of policy liabilities and unpaid claims:



	As of December 31, 2021
Net outstanding liabilities:
Short duration	$	154,412
Insurance lines other than short duration	576
Total liabilities for unpaid losses and loss adjustment expenses, net of reinsurance	154,988

Reinsurance recoverable on unpaid losses and loss adjustment expenses:
Short duration	165,129

Total reinsurance recoverable on unpaid losses and loss adjustment expenses	165,129

Total gross liability for unpaid losses and loss adjustment expenses	320,117
Liabilities of policy-holder account balances, gross	801
Non-insurance warranty benefit claim liabilities	10,785
Total policy liabilities and unpaid claims	$	331,703