Liability for Unpaid Losses and Loss Adjustment Expenses

9 Months Ended

Sep. 30, 2019

Insurance [Abstract]

Liability for Unpaid Losses and Loss Adjustment Expenses

6. Liability for Unpaid Losses and Loss Adjustment Expenses

Activity in the liability for unpaid losses and loss adjustment expenses is summarized as follows:

	Quarters Ended September 30,						Nine Months Ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
Balance at beginning of period	$	608,773		$	613,670		$	680,031		$	634,664
Less: Ceded reinsurance receivables		59,834			91,397			109,342			97,243
Net balance at beginning of period		548,939			522,273			570,689			537,421
Incurred losses and loss adjustment expenses related to:
Current year		80,533			92,469			225,022			222,916
Prior years		(6,950	)		(11,976	)		(23,043	)		(27,490	)
Total incurred losses and loss adjustment expenses		73,583			80,493			201,979			195,426
Paid losses and loss adjustment expenses related to:
Current year		47,290			53,121			102,806			103,695
Prior years		20,789			27,312			115,419			106,819
Total paid losses and loss adjustment expenses		68,079			80,433			218,225			210,514
Net balance at end of period		554,443			522,333			554,443			522,333
Plus:  Ceded reinsurance receivables		78,844			86,274			78,844			86,274
Balance at end of period	$	633,287		$	608,607		$	633,287		$	608,607

When analyzing loss reserves and prior year development, the Company considers many factors, including the frequency and severity of claims, loss trends, case reserve settlements that may have resulted in significant development, and any other additional or pertinent factors that may impact reserve estimates.

During the third quarter of 2019, the Company reduced its prior accident year loss reserves by $7.0 million, which consisted of a $5.2 million decrease related to Commercial Specialty, $1.3 million decrease related to Specialty Property, $1.2 million decrease related to Farm, Ranch, & Stable, and a $0.7 million increase related to Reinsurance Operations.

The $5.2 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

• General Liability:  A $4.4 million reduction in aggregate with $0.5 million of favorable development in the construction defect reserve category and $3.9 million of favorable development in the other general liability reserve categories.  The decreases in the construction defect reserve category recognize lower than expected claims severity primarily in the 2004 through 2009, 2011 and 2012 accident years, partially offset by increases in the 2010 and 2016 accident years.  For the other general liability reserve categories, lower than anticipated claims severity was the primary driver of the favorable development mainly in accident years 1999 through 2014 accident years, partially offset by increases in the 2016 and 2017 accident years.

• Commercial Auto Liability:   A $0.6 million decrease in total, primarily in the 2012, 2013 and 2016 accident years.  The decreases recognize lower than anticipated claims severity.

The $1.3 million reduction of prior accident year loss reserves related to Specialty Property primarily consisted of the following:

• General Liability:  A $0.4 million decrease in aggregate primarily recognizes lower than anticipated claims severity mostly in the 2015, 2016 and 2018 accident years, partially offset by increases in the 2010, 2014 and 2017 accident years, recognizing higher than expected claims severity.

• Property: A $0.9 million reduction recognizes an additional $0.6 million decrease in the catastrophe reserve category for anticipated subrogation recoveries from the California Camp wildfire loss in the 2018 accident year and a $0.2 million decrease in the 2017 accident year, mainly recognizing lower than expected claims severity.

The $1.2 million reduction of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

• Property:  A $1.1 million decrease primarily reflects ceded recoveries from a second accident quarter catastrophe in the 2018 accident year.

The $0.7 million increase in prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

• Property:  A $0.7 million increase primarily in the 2012 and 2015 through 2017 accident years, partially offset by decreases in the 2011, 2014 and 2018 accident years.  The accident year changes were based on a review of the experience reported from cedants. 

During the third quarter of 2018, the Company reduced its prior accident year loss reserves by $12.0 million, which consisted of a $1.2 million decrease related to Commercial Specialty, a $5.2 million decrease related to Specialty Property, a $2.3 million decrease related to Farm, Ranch, & Stable, and a $3.3 million decrease related to Reinsurance Operations.

The $1.2 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

• Commercial Auto Liability:   A $1.1 million decrease primarily due to a $1.5 million reduction in the 2013 accident year resulting from lower than anticipated claims severity, partially offset by a $0.4 million increase in the 2015 accident year reflecting higher than expected case incurred emergence.

The $5.2 million reduction of prior accident year loss reserves related to Specialty Property primarily consisted of the following:

• General Liability:  A $1.5 million reduction primarily in accident years 2011 through 2014 and 2017, partially offset by an increase in the 2015 accident year.  The reductions mainly reflect lower than anticipated claims severity.

• Property: A $3.7 million reduction primarily recognizes lower than expected claims severity in the 2014 through 2017 accident years.

The $2.3 million decrease of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

• Property: A $0.4 million decrease primarily in the 2014, 2016 and 2017 accident years mainly from lower than expected claims severity.

• Liability:  A $1.8 million reduction primarily in the 2014 through 2017 accident years mainly recognizes lower than anticipated claims severity.

The $3.3 million reduction of prior accident year loss reserves related to Reinsurance Operations was from the property lines for accident years 2007, 2009 through 2012 and 2014 through 2016 partially offset by an increase in the 2017 accident year.  The accident year changes were based on a review of the experience reported from cedants.

During the first nine months of 2019, the Company reduced its prior accident year loss reserves by $23.0 million, which consisted of a $12.1 million decrease related to Commercial Specialty, $10.5 million decrease related to Specialty Property, $4.0 million decrease related to Farm, Ranch, & Stable, and a $3.5 million increase related to Reinsurance Operations.

The $12.1 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

• General Liability:  A $9.6 million reduction in aggregate with $1.0 million of favorable development in the construction defect reserve category and $8.6 million of favorable development in the other general liability reserve categories.  The decreases in the construction defect reserve category recognize lower than expected claims frequency and severity in the 2004 through 2009, 2011 and 2012 accident years, partially offset by increases in the 2010 and 2016 accident years.  For the other general liability reserve categories, lower than anticipated claims severity was the primary driver of the favorable development mainly in accident years 1999 through 2014, 2016 and 2017, partially offset by increases in the 2015 and 2018 accident years which reflects higher than expected claims severity.

• Commercial Auto Liability:   A $1.4 million decrease in total, primarily in the 2000 through 2002, 2010, 2012 and 2013 accident years.  The decreases recognize lower than anticipated claims severity.

• Property:  A $0.9 million decrease in aggregate mainly recognizes lower than anticipated claims severity primarily in the 2012 through 2017 accident years, partially offset by increases in the 2010 and 2018 accident years.

• Professional:  A $1.1 million decrease primarily in the 2009 and 2010 accident years reflects lower than expected claims severity.

• Reinsurance:  A $1.0 million increase was recognized based on a review of expected ceded recoverables by reinsurer.  The increase was primarily in the general liability reserve categories and older accident years.

The $10.5 million reduction of prior accident year loss reserves related to Specialty Property primarily consisted of the following:

• Property: A $10.1 million reduction recognizes an $8.9 million decrease in the catastrophe reserve category for subrogation recoveries from the California Camp wildfire loss in the 2018 accident year.  The remaining $1.2 million decrease was primarily in the 2016 and 2017 accident years, mainly recognizing lower than expected claims severity.

• General Liability:  A $0.4 million decrease in aggregate primarily recognizes lower than anticipated claims severity mostly in the 2015 and 2016 accident years, partially offset by increases in the 2010 and 2017 accident years, recognizing higher than expected claims severity.

The $4.0 million reduction of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

• Liability:  A $1.7 million decrease in total, mainly recognizes lower than expected claims severity in the 2016 and 2017 accident years, partially offset by increases in the 2013 through 2015 accident years.

• Property:  A $2.2 million reduction in aggregate recognizes a $2.0 million decrease in the 2018 accident year which is comprised of a $1.1 million decrease reflecting ceded recoveries from a second accident quarter catastrophe and a $0.9 million decrease reflecting lower than expected claims frequency and severity.  Decreases in the 2015 through 2017 accident years primarily reflects lower than expected claims severity, partially offset by an increase in the 2013 accident year.

The $3.5 million increase in prior accident year loss reserves related to Reinsurance Operations primarily consisted of the following:

• Property:  A $3.8 million increase in aggregate reflects an increase of $7.6 million in the 2018 accident year for Typhoon Jebi and decreases totaling $4.1 million in the 2010 through 2017 accident years.

• Professional:  A $0.3 million decrease primarily in the 2008 and 2010 accident years, partially offset by an increase in the 2007 accident year based on a review of the experience reported from the cedants.

During the first nine months of 2018, the Company reduced its prior accident year loss reserves by $27.5 million, which consisted of a $9.1 million decrease related to Commercial Specialty, $7.0 million decrease related to Specialty Property, $3.6 million decrease related to Farm, Ranch, & Stable, and a $7.8 million decrease related to Reinsurance Operations.

The $9.1 million reduction of prior accident year loss reserves related to Commercial Specialty primarily consisted of the following:

• General Liability:  A $3.1 million reduction in reserve categories excluding construction defect.  Lower than expected claims severity was the primary driver of the favorable development, mainly in the 2002 through 2004, 2006 through 2010, 2012 through 2014, and 2016 accident years which was partially offset by increases in the 2011, 2015 and 2017 accident years.

• Commercial Auto Liability: A $3.3 million decrease in the 2010, 2012 and 2013 accident years recognizes lower than anticipated claims severity, partially offset by an increase in the 2015 accident year.

• Professional Liability: A $0.8 million decrease reflects lower than expected claims severity mainly in the 2010 through 2011 and 2014 accident years.

• Property: A $1.9 million decrease in aggregate recognizes lower than anticipated claims severity primarily in the 2014 through 2015 and 2017 accident years, partially offset by an increase in the 2016 accident year.  

The $7.0 million reduction of prior accident year loss reserves related to Specialty Propertyprimarily consisted of the following:

• General Liability:  A $1.5 million reduction primarily in accident years 2011 through 2014, 2016 and 2017, partially offset by an increase in the 2015 accident year.  The reductions mainly reflect lower than anticipated claims severity.

• Property:   A $5.5 million reduction primarily in the 2014 through 2017 accident years mainly reflects lower than anticipated claims severity.

The $3.6 million reduction of prior accident year loss reserves related to Farm, Ranch, & Stable primarily consisted of the following:

• Property: A $1.4 million reduction primarily in the 2015 through 2017 accident years mainly reflects lower than anticipated claims severity.

• Liability:  A $2.2 million decrease primarily in the 2012, 2014, 2016 and 2017 accident years, partially offset by increases in the 2007 and 2013 accident years.  The decreases mainly recognize lower than expected claims severity.

The $7.8 million reduction of prior accident year loss reserves related to Reinsurance Operations was from the property lines for accident years 2007, 2009 through 2012 and 2015 through 2016, partially offset by an increases in the 2013 through 2014 and 2017 accident years.  The accident year changes were based on a review of the experience reported from cedants.

Loss indemnification related to Purchase of American Reliable

On March 8, 2018, the Company settled its final reserve calculation which resulted in $41.5 million being due to Global Indemnity Group, Inc. in accordance with the Stock Purchase Agreement between Global Indemnity Group, Inc. and American Bankers Insurance Group, Inc. for the purchase of American Reliable.  The settlement is comprised of (i) receipt of $38.8 million for loss and loss adjustment expenses paid on or after January 1, 2015 or payable as of December 31, 2017 with respect to losses incurred prior to January 1, 2015, (ii) receipt of $6.2 million for accrued interest and (iii) payment of $3.5 million for the difference between the agreed upon purchase price and actual settlement on January 1, 2015. These amounts, which were included in other assets on the consolidated balance sheets as of December 31, 2017, were received on March 9, 2018.