Loss and Loss Adjustment Expense Reserves

The following table presents the activity in loss and loss adjustment expense reserves:



	Year Ended December 31,
	2018			2017			2016
	(Amounts in thousands)
Gross reserves at January 1	$	1,510,613		$	1,290,248		$	1,146,688
Less reinsurance recoverables on unpaid losses	(64,001		)	(13,161		)	(14,253		)
Net reserves at January 1	1,446,612			1,277,087			1,132,435
Incurred losses and loss adjustment expenses related to:
Current year	2,483,693			2,390,453			2,269,769
Prior years	93,096			54,431			85,369
Total incurred losses and loss adjustment expenses	2,576,789			2,444,884			2,355,138
Loss and loss adjustment expense payments related to:
Current year	1,543,828			1,550,789			1,508,362
Prior years	831,020			724,570			702,124
Total payments	2,374,848			2,275,359			2,210,486
Net reserves at December 31	1,648,553			1,446,612			1,277,087
Reinsurance recoverables on unpaid losses	180,859			64,001			13,161
Gross reserves at December 31	$	1,829,412		$	1,510,613		$	1,290,248

The increase in the provision for insured events of prior years in 2018 of approximately $93.1 million primarily resulted from higher than estimated California automobile losses resulting from severity in excess of expectations for bodily injury claims as well as higher than estimated defense and cost containment expenses in the California automobile line of insurance business.

The increase in the provision for insured events of prior years in 2017 of approximately $54.4 million primarily resulted from higher than estimated losses in California automobile and property lines, which experienced higher loss severity on liability coverages including bodily injury and property damage and higher loss adjustment expenses than originally estimated.

The increase in the provision for insured events of prior years in 2016 of approximately $85.4 million primarily resulted from the California and Florida automobile lines of business which experienced higher loss severity on liability coverages including bodily injury, combined single limits and property damage than was originally estimated.

The Company experienced pre-tax catastrophe losses and loss adjustment expenses of approximately $289 million ($67 million, net of reinsurance benefits), $168 million ($79 million, net of reinsurance benefits), and $27 million in 2018, 2017, and 2016, respectively. There were no reinsurance benefits used for catastrophe losses in 2016. The losses in 2018 were primarily due to wildfires in Northern and Southern California and weather-related catastrophes across several states. The losses in 2017 were primarily due to wildfires in Northern and Southern California, severe rainstorms in California, and the impact of hurricanes in Texas, Florida and Georgia. The losses in 2016 were primarily due to severe storms outside of California, and rainstorms in California.

The following is information about incurred and paid claims development as of December 31, 2018, net of reinsurance, as well as cumulative claim frequency and the total of incurred-but-not-reported liabilities plus expected development on reported claims included within the net incurred claims amounts for our two major product lines: automobile and homeowners lines of business. As the information presented is for these two major product lines only, the total incurred and paid claims development shown below does not correspond to the aggregate development presented in the table above, which is for all product lines and includes unallocated claims adjustment expenses. The cumulative number of reported claims represents open claims, claims closed with payment, and claims closed without payment. It does not include an estimated amount for unreported claims. The number of claims is measured by claim event (such as a car accident or storm damage) and an individual claim event may result in more than one reported claim. The Company considers a claim that does not result in a liability as a claim closed without payment.

The information about incurred and paid claims development for the years ended December 31, 2009 to 2017 is presented as unaudited supplementary information.



Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Automobile Insurance)																					As of December 31, 2018
																					Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	For the Years Ended December 31,
Accident Year	2009⁽¹⁾		2010⁽¹⁾		2011⁽¹⁾		2012⁽¹⁾		2013⁽¹⁾		2014⁽¹⁾		2015⁽¹⁾		2016⁽¹⁾		2017⁽¹⁾		2018
	(Amounts in thousands)																				(Amounts in thousands)
2009	$	1,372,833	$	1,349,025	$	1,361,116	$	1,361,652	$	1,365,551	$	1,371,779	$	1,372,694	$	1,372,259	$	1,371,812	$	1,371,971	$	109	186
2010			1,367,547		1,357,750		1,364,307		1,374,638		1,379,336		1,381,056		1,386,105		1,388,077		1,388,055		171		184
2011					1,343,919		1,367,000		1,380,557		1,388,363		1,393,878		1,398,518		1,405,112		1,401,178		443		181
2012							1,424,754		1,408,222		1,409,104		1,414,878		1,426,735		1,436,034		1,438,250		1,075		181
2013									1,448,567		1,431,058		1,447,881		1,458,421		1,464,071		1,468,294		2,818		185
2014											1,467,175		1,454,366		1,473,545		1,486,322		1,498,504		6,626		180
2015													1,551,105		1,588,443		1,610,839		1,634,435		19,491		170
2016															1,672,853		1,669,642		1,713,696		50,261		154
2017																	1,703,857		1,727,277		133,587		148
2018																			1,781,817		390,346		139
																	Total		$	15,423,477

__________

⁽¹⁾The information for the years 2009 to 2017 is presented as unaudited supplemental information.



Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Automobile Insurance)
	For the Years Ended December 31,
Accident Year	2009⁽¹⁾		2010⁽¹⁾		2011⁽¹⁾		2012⁽¹⁾		2013⁽¹⁾		2014⁽¹⁾		2015⁽¹⁾		2016⁽¹⁾		2017⁽¹⁾		2018
	(Amounts in thousands)
2009	$	913,340	$	1,137,807	$	1,260,424	$	1,326,439	$	1,355,210	$	1,363,526	$	1,370,564	$	1,371,956	$	1,371,933	$	1,372,090
2010			908,954		1,143,984		1,268,142		1,335,871		1,365,464		1,375,799		1,384,333		1,387,835		1,388,140
2011					926,983		1,152,459		1,277,808		1,347,082		1,378,920		1,391,101		1,394,684		1,400,441
2012							955,647		1,194,648		1,304,511		1,372,828		1,409,911		1,422,705		1,434,956
2013									974,445		1,217,906		1,340,724		1,413,999		1,447,004		1,460,352
2014											967,481		1,231,413		1,358,472		1,432,472		1,476,944
2015													1,040,253		1,336,223		1,466,368		1,560,480
2016															1,094,006		1,395,199		1,554,217
2017																	1,076,079		1,399,202
2018																			1,082,127
																	Total		$	14,128,949
							All outstanding liabilities before 2009, net of reinsurance												(505		)
							Loss and allocated loss adjustment expense reserves, net of reinsurance												$	1,294,025

__________

⁽¹⁾The information for the years 2009 to 2017 is presented as unaudited supplemental information.



Incurred Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Homeowners' Insurance)																					As of December 31, 2018
																					Total of Incurred But Not Reported Liabilities Plus Expected Development on Reported Claims		Cumulative Number of Reported Claims
Accident Year	For the Years Ended December 31,
Accident Year	2009⁽¹⁾		2010⁽¹⁾		2011⁽¹⁾		2012⁽¹⁾		2013⁽¹⁾		2014⁽¹⁾		2015⁽¹⁾		2016⁽¹⁾		2017⁽¹⁾		2018
	(Amounts in thousands)																				(Amounts in thousands)
2009	$	135,889	$	135,000	$	131,680	$	133,087	$	133,121	$	134,718	$	134,597	$	134,478	$	134,359	$	134,374	$	62	17
2010			165,727		157,566		160,983		160,472		160,206		160,015		159,608		159,662		159,720		136		21
2011					167,414		170,623		170,052		169,600		169,390		169,621		170,126		170,334		310		23
2012							196,063		188,010		190,376		191,548		192,057		191,804		192,905		674		25
2013									191,903		188,915		188,026		186,795		187,165		188,014		780		23
2014											199,298		202,621		203,218		202,513		204,986		1,341		25
2015													234,800		234,881		233,501		236,855		3,131		24
2016															250,691		259,489		259,497		6,525		24
2017																	309,491		295,163		12,186		30
2018																			311,798		59,689		23
																	Total		$	2,153,646

__________

⁽¹⁾The information for the years 2009 to 2017 is presented as unaudited supplemental information.



Cumulative Paid Losses and Allocated Loss Adjustment Expenses, Net of Reinsurance (Homeowners' Insurance)
	For the Years Ended December 31,
Accident Year	2009⁽¹⁾		2010⁽¹⁾		2011⁽¹⁾		2012⁽¹⁾		2013⁽¹⁾		2014⁽¹⁾		2015⁽¹⁾		2016⁽¹⁾		2017⁽¹⁾		2018
	(Amounts in thousands)
2009	$	86,034	$	119,306	$	126,591	$	130,928	$	132,180	$	134,381	$	134,378	$	134,301	$	134,229	$	134,193
2010			95,057		137,628		149,084		155,191		156,853		158,053		158,943		159,268		159,435
2011					111,909		153,845		162,870		166,375		167,806		168,621		168,914		169,757
2012							128,618		175,029		182,756		188,121		190,373		190,649		191,660
2013									133,528		174,295		180,858		183,860		185,168		186,132
2014											139,615		186,996		194,605		198,758		202,193
2015													163,196		213,994		224,178		230,480
2016															173,537		234,215		245,878
2017																	217,900		269,254
2018																			213,038
																	Total		$	2,002,020
							All outstanding liabilities before 2009, net of reinsurance												2,416
							Loss and allocated loss adjustment expense reserves, net of reinsurance												$	154,043

__________

⁽¹⁾The information for the years 2009 to 2017 is presented as unaudited supplemental information.

The following is unaudited supplementary information about average historical claims duration as of December 31, 2018.



Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Years	1		2		3		4		5		6		7		8		9		10
Automobile insurance	64.7	%	17.3	%	8.7	%	5.0	%	2.5	%	0.8	%	0.6	%	0.3	%	0.1	%	—	%



Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Years	1		2		3		4		5		6		7		8		9		10
Homeowners insurance	67.3	%	23.0	%	4.7	%	2.6	%	1.1	%	0.7	%	0.3	%	0.2	%	0.1	%	—	%

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.

Reconciliation of the Disclosure of Incurred and Paid Claims Development

to the Loss and Loss Adjustment Expense Reserves



	December 31, 2018
	(Amounts in thousands)
Net outstanding liabilities
Automobile insurance	$	1,294,025
Homeowners' insurance	154,043
WAIC automobile insurance	17,508
Other short-duration insurance lines	90,003
Loss and loss adjustment expense reserves, net of reinsurance recoverables on unpaid losses	1,555,579
Reinsurance recoverables on unpaid losses
Automobile insurance	41,316
Homeowners' insurance	138,096
Other short-duration insurance lines	1,447
Total reinsurance recoverables on unpaid losses	180,859
Insurance lines other than short-duration	1,079
Unallocated claims adjustment expenses	91,895
	92,974
Total gross loss and loss adjustment expense reserves	$	1,829,412