Loss and Loss Adjustment Expense Reserves

9 Months Ended

Sep. 30, 2023

Loss And Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Reserves

Note 5. Loss and Loss Adjustment Expense Reserves

A significant degree of judgment is required to determine amounts recorded in the consolidated financial statements for the provision for loss and loss adjustment expense (“LAE”) reserves. The process for establishing this provision reflects the uncertainties and significant judgmental factors inherent in predicting future results of both known and unknown loss events. The process of establishing the provision for loss and LAE reserves relies on the judgment and opinions of many individuals, including the opinions of the Company’s management, as well as the management of ceding companies and their actuaries.

In estimating losses, the Company may assess any of the following:

● a review of in-force treaties that may provide coverage and incur losses;

● general forecasts, catastrophe and scenario modelling analyses and results shared by cedents;

● reviews of industry insured loss estimates and market share analyses;

● management’s judgment; and

● loss development factor selections, initial expected loss ratio selections, and weighting of methods used

Under the terms of certain of our quota-share agreements, and due to the nature of claims and premium reporting, a lag exists between (i) claims being reported by the underlying insured to the Company’s cedent and (ii) claims being reported by the Company’s cedent to the Company. This lag may impact the Company’s loss reserve estimates. The reports we receive from our cedents have pre-determined due dates. In the case of the Company’s FAL contracts, third quarter 2023 premium and loss information will not be made available to the Company until subsequent to the filing of this quarterly report. Thus, our third quarter results, including the loss and loss adjustment expense reserves presented herein, have been based upon a combination of actual results from the 2023 calendar year as well as forecasts for 2023 reported to us by the ceding companies. We have approximated third quarter 2023 results under our FAL contracts based upon this historical and forecasted information.

While the Company believes its estimate of loss and loss adjustment expense reserves are adequate as of September 30, 2023, based on available information, actual losses may ultimately differ materially from the Company’s current estimates. The Company will continue to monitor the appropriateness of its assumptions as new information is provided.

A summary of changes in outstanding loss and loss adjustment expense reserves for the nine months ended September 30, 2023 and 2022, is as follows:

(in thousands)	Nine months ended September 30,
	2023			2022
Balance, beginning of period, net of reinsurance	$	4,409		$	2,133
Incurred related to:
Current year		5,420			4,984
Prior year		661			814
Paid related to:
Current year		(3,675	)		(2,568	)
Prior years		(903	)		(1,230	)
Balance, September 30, net of reinsurance	$	5,912		$	4,133