Loss And Loss Adjustment Expense Reserves

9 Months Ended

Sep. 30, 2019

Loss And Loss Adjustment Expense Reserves

Loss and Loss Adjustment Expense Reserves

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



	Nine Months Ended September 30,
	2019			2018

	(Amounts in thousands)
Gross reserves at January 1	$	1,829,412		$	1,510,613
Less reinsurance recoverables on unpaid losses	(180,859		)	(64,001		)
Net reserves at January 1	1,648,553			1,446,612
Incurred losses and loss adjustment expenses related to:
Current year	1,957,598			1,781,452
Prior years	10,323			70,398
Total incurred losses and loss adjustment expenses	1,967,921			1,851,850
Loss and loss adjustment expense payments related to:
Current year	1,149,659			1,072,758
Prior years	715,451			695,678
Total payments	1,865,110			1,768,436
Net reserves at September 30	1,751,364			1,530,026
Reinsurance recoverables on unpaid losses	103,847			50,028
Gross reserves at September 30	$	1,855,211		$	1,580,054

The increase in the provision for insured events of prior years in 2019 of $10.3 million was primarily attributable to higher than estimated defense and cost containment expenses in the California automobile line of insurance business, partially offset by favorable development in certain of the Company's other lines of insurance business. The increase in the provision for insured events of prior years in 2018 of $70.4 million was primarily attributable to 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.

For the nine months ended September 30, 2019 and 2018, the Company recorded catastrophe losses net of reinsurance of approximately $17 million and $24 million, respectively. Catastrophe losses due to the catastrophe events that occurred during the nine months ended September 30, 2019 totaled approximately $20 million, with no reinsurance benefits used for these losses, resulting primarily from winter storms in California, a hurricane in Texas, and tornadoes and wind and hail storms in the Midwest. These losses were partially offset by favorable development of approximately $3 million on prior years' catastrophe losses, primarily from reductions in the Company’s retained portion of losses on the Camp and Woolsey Fires, as described further below. Catastrophe losses before reinsurance benefits totaled approximately $34 million for the nine months ended September 30, 2018. The majority of the 2018 catastrophe losses were caused by the Carr Wildfire in Northern California, which resulted in $21 million of gross losses ($10 million of net losses after reinsurance benefits). Weather-related catastrophes across several states made up the remainder of the 2018 catastrophe losses.

During the first quarter of 2019, the Company completed the sale of its subrogation rights related to the 2018 Camp and Woolsey Fires and the 2017 Thomas Fire (which was a component of the "2017 Southern California fires") to a third party. The Company’s reinsurers were the primary beneficiaries of this transaction, as they had absorbed most of the losses under the terms of the Treaty. The Company re-estimated its gross and net losses from the 2018 Camp and Woolsey Fires and the 2017 Southern California fires in conjunction with this sale, and its total gross losses from these catastrophes, after accounting for the assignment of subrogation rights and adjustments made to claims reserves as part of normal reserving procedures, were approximately $208 million, and its total net losses, after reinsurance benefits, were approximately $40 million at March 31, 2019. The Company benefited by approximately $10 million, before taxes, in the first quarter of 2019 from the sale of the subrogation rights, including adjustments made to the associated claims as a result of normal reserving procedures, reductions in the Company's retained portion of losses on the Camp and Woolsey Fires, and reduced reinstatement premiums recognized.