Loss and loss adjustment expenses reserves represent management’s best estimate of the ultimate cost of all reported and unreported losses incurred for the years ended December 31, 2021, 2020, and 2019. The Company does not

discount loss and loss adjustment expense reserves. The reserves for unpaid losses and loss adjustment expenses are estimated using individual case-basis valuations and statistical analyses. Those estimates are subject to the effects of trends in loss severity and frequency.

In addition to case reserves, which are generally based on reported claims, the Company establishes reserves for incurred but not reported claims (“IBNR”). IBNR reserves are developed to provide for (i) the estimated amount of future loss payments on incurred claims not yet reported, and (ii) potential development on reported claims. IBNR reserves are estimated based on generally accepted actuarial reserving techniques that consider quantitative loss experience data and, where appropriate, qualitative factors. With the assistance of an independent, actuarial firm, the Company uses statistical analysis to estimate the cost of losses and loss adjustment expenses related to IBNR. Those estimates are based on historical information, industry information and practices, and estimates of trends that may affect the ultimate frequency of incurred but not reported claims and changes in ultimate claims severity.

The Company regularly reviews its reserve estimates and adjusts them as necessary as experience develops or as new information becomes known. Such adjustments are included in current operations. During the loss settlement period, if there are indications that claims frequency or severity exceeds initial expectations, the Company generally increases its reserves for losses and loss adjustment expenses. Conversely, when claims frequency and severity trends are more favorable than initially anticipated, the Company generally reduces its reserves for losses and loss adjustment expenses once it has sufficient data to confirm the validity of the favorable trends. Even after such adjustments, the ultimate liability may exceed or be less than the revised estimates. Accordingly, the ultimate settlement of losses and the related loss adjustment expenses may vary significantly from the estimate included in the Company’s consolidated financial statements.

Although considerable variability is inherent in such estimates, management believes the reserves for losses and loss adjustment expenses are adequate. The estimates are continually reviewed and adjusted as necessary as experience develops or new information becomes known. Any adjustments to estimates are recorded in the current period.

The following table provides a reconciliation of the beginning and ending reserve balances for losses and LAE on a net of reinsurance basis to the gross amounts reported in the accompanying consolidated balance sheets:

The foregoing reconciliation shows loss and loss adjustment expense reserve redundancies of $3.6 million, $0.1 million and $0.2 million developed in 2021, 2020 and 2019, respectively. During 2021, this net favorable reserve

development was primarily due to the effect of ceding gross unfavorable development under our reinsurance program and lower than anticipated severity of catastrophe losses associated with certain hurricanes that occurred during the second half of 2020. During 2020, this favorable reserve development related to lower than anticipated frequency and severity of claims in our homeowners and special property lines of business offset by higher than anticipated frequency and severity of claims in our assumed reinsurance line. During 2019, this favorable reserve development was primarily related to lower than originally anticipated frequency and severity of claims in our homeowners lines of business, offset by higher than originally anticipated frequency and severity of claims in our special property lines of business.

The Company compiles and aggregates its claims data by grouping the claims according to the year in which the claim occurred (“Accident Year”) when analyzing claim payment and emergence patterns and trends over time. For the purpose of defining claims frequency, the number of reported claims is by loss occurrence and includes claims that do not result in a liability or payment associated with them.

The Company analyzed the usefulness of disaggregation of its results and determined the characteristics associated with the policies and the related unpaid loss reserves, incurred losses, and payment patterns are similar in nature. The Company separates its special property and other claim experience from its homeowner claim experience when analyzing losses and allocated loss adjustment expenses incurred and paid development and claim count triangles, as there are distinct differences in the development and claim count emergence patterns as well as methods of IBNR projection. The Special Property classification includes fire, allied lines, inland marine, and earthquake claims.

As such, the following tables show the Company’s historical homeowner and special property incurred and cumulative paid losses and LAE development, net of reinsurance, as well as IBNR loss reserves and the number of reported claims on an aggregate basis as of December 31, 2021 and for previous accident years.

The information provided herein about incurred and paid accident year claims development for the years ended December 31, 2020 and prior is presented as unaudited supplementary information.

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance Homeowners’ Insurance (unaudited)


	Year 1		Year 2		Year 3		Year 4		Year 5 (2)		Year 6 (2)		Year 7
Payout percentage	77.58	%	14.60	%	0.61	%	0.35	%	(4.23)	%	(0.18)	%	0.43	%

(2) Negative payout percentages are due to timing of reinsurance payments, allocations of reinsurance between different lines of business based on actual results, and allocation of reinsurance to different periods for reinsurance treaties in effect for multiple periods. These are primarily associated with larger recoveries from catastrophe events in earlier years of operation.

Incurred Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Special Property Insurance (in thousands)


															As of December 31, 20201
															Incurred but		Cumulative
	Year Ended December 31,														Not Reported		Number of
Accident Year	2015(1)		2016(1)		2017(1)		2018(1)		2019(1)		2020(1)		2021		Liabilities		Claims
2015	$	630	$	719	$	671	$	671	$	678	$	677	$	673	$	—	523
2016				1,381		1,249		1,251		1,454		1,453		1,453		—	1,353
2017						3,071		3,475		4,014		4,264		4,974		—	3,615
2018								5,970		6,095		6,009		6,021		—	1,317
2019										3,661		3,385		3,140		33	1,780
2020												42,334		42,160		2,328	2,573
2021														21,383		3,689	1,542
Total													$	79,804	$	6,050	12,703

Cumulative Paid Losses and Allocated Loss Adjustment Expenses,

Net of Reinsurance Special Property Insurance (in thousands)


Accident Year	2015(1)		2016(1)		2017(1)		2018(1)		2019(1)		2020(1)		2021
2015	$	265	$	438	$	586	$	626	$	666	$	673	$	673
2016				703		1,064		1,216		1,444		1,453		1,453
2017						1,967		3,344		4,011		4,269		4,974
2018								2,859		6,036		6,009		6,021
2019										1,633		2,825		3,072
2020												18,274		36,127
2021														7,004

Total																					59,324
Reserve for losses and loss adjustment expense, net of reinsurance																					20,480

(1)	Data presented for these calendar years is required supplementary information, which is unaudited.

Average Annual Percentage Payout of Incurred Claims by Age,

Net of Reinsurance Special Property Insurance (unaudited)


	Year 1		Year 2		Year 3		Year 4		Year 5		Year 6		Year 7
Payout percentage	43.27	%	35.22	%	10.66	%	6.76	%	6.91	%	0.52	%	—	%

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated balance sheets is as follows:


	2021
	(in thousands)
Net outstanding liabilities:
Homeowners’ insurance	$	6,225
Special property		20,480
Reinsurance- Nonproportional assumed property(1)		9,542
Other		9,172
Reserve for losses and loss adjustment expense, net of reinsurance		45,419
Reinsurance recoverable on unpaid claims:
Homeowners’ insurance	$	17,214
Special property		108,906
Other		1,827
Total reinsurance recoverable on unpaid claims		127,947
Total reserve for losses and loss adjustment expenses	$	173,366

(1)

Reflects the Company’s share of Loss and Loss Adjustment Expense related to non-proportional assumed reinsurance business. This amount reflects gross and net reserves related to this treaty and the ultimate incurred amount reflects IBNR only. The Company does not have direct access to individual claim information underlying the assumed quota arrangement. The Company does not use claim frequency information in the determination of loss reserves or for other internal purposes. Based on these considerations, the Company does not believe providing claims frequency information is practicable as it relates to this line of business.