POLICY AND CLAIM RESERVES

The Company regularly updates its reserve estimates as new information becomes available and events occur that may impact the resolution of unsettled claims. Reserve estimation can be an inherently uncertain process and reserves estimates can be revised up or down depending on changes in circumstances. Changes in prior years' reserve estimates are reflected in the results of operations in the year such changes are determined.

The following table is a reconciliation of beginning and ending property and casualty reserve balances for claims and claim adjustment expense (dollars in thousands):



	Year ended December 31,
	2016			2015
Summary of claims and claim adjustment expense reserves
Balance, beginning of year	$	9,645		$	8,321
Less reinsurance recoverable on unpaid losses	1,380			839
Net balances at beginning of year	8,265			7,482
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	35,659			30,900
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,460		)	(962		)
Total increases	34,199			29,938
Claims and claim adjustment expense payments for claims arising in:
Current year	31,265			25,339
Prior years	4,852			3,816
Total payments	36,117			29,155
Net balance at end of year	6,347			8,265
Plus reinsurance recoverable on unpaid losses	1,184			1,380
Claims and claim adjustment expense reserves at end of year	$	7,531		$	9,645

The decrease in claim and claim adjustment expense reserves is primarily due to a reduction in non-catastrophe reported claims in the fourth quarter of 2016 compared to last year. The Company did experience an overall increase in claims in 2016 versus 2015, primarily due to claims associated with Hurricane Matthew which occurred in October of 2016. However, over 95% of reported claims from Hurricane Matthew were paid at December 31, 2016. The estimate for claims arising in prior years was reduced $1,460,000 in 2016 (reduced $962,000 in 2015) due to favorable loss development during the year on claims arising in prior years.

The Company has a geographic exposure to catastrophe losses in certain areas of the country. Catastrophes can be caused by various events including hurricanes, windstorms, earthquakes, hail, severe winter weather, explosions and fires, and the incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophe losses are restricted to small geographic areas; however, hurricanes and earthquakes may produce significant damage in large, heavily populated areas. The Company generally seeks to reduce its exposure to catastrophes through individual risk selection and the purchase of catastrophe reinsurance. At December 31, 2016, the Company's estimate of unpaid losses and adjustment expenses for claims incurred in prior years related to catastrophes that exceeded our retention totaled $462,000 before reinsurance ($856,000 in 2015). Because the Company has exhausted its catastrophe coverage limits available for Hurricane Katrina any additional development will not be covered by reinsurance.

The claim development table that follows present incurred and cumulative paid claims and adjustment expense by accident year. Information presented is undiscounted and net of reinsurance (dollars in thousands).

Homeowners, Dwelling Fire and Other Liability



	For the Years Ended December 31,
	2007		2008		2009		2010		2011		2012		2013		2014		2015		2016
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
																					IBNR Reserves Dec. 31, 2016			Cumulative Number of Reported Claims
2007	$	29,056	$	27,990	$	27,636	$	27,415	$	27,356	$	27,343	$	27,341	$	27,422	$	27,433	$	27,333	$	—		5,927
2008			40,544		38,807		38,639		38,912		39,327		39,069		39,420		39,180		39,117		(56		)	13,609
2009					31,425		30,236		30,442		30,432		30,484		30,362		30,306		30,280		—			7,989
2010							30,610		29,918		29,805		29,718		29,687		29,672		29,641		1			5,884
2011									35,203		33,957		34,233		34,711		34,806		34,650		23			8,121
2012											29,959		30,190		30,402		30,091		29,948		69			5,188
2013													27,436		27,147		27,076		27,023		174			5,191
2014															25,929		26,422		26,290		328			4,734
2015																	31,484		30,861		694			5,826
2016																			36,287		2,386			4,909
																	Total		$	311,430



	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited

2007	$	24,545	$	27,178	$	27,195	$	27,250	$	27,300	$	27,286	$	27,283	$	27,222	$	27,223	$	27,323
2008			34,664		37,986		38,312		38,498		38,617		38,935		39,090		39,105		39,108
2009					25,245		29,281		29,869		29,847		30,004		30,265		30,274		30,280
2010							26,064		29,201		29,404		29,507		29,639		29,640		29,640
2011									31,488		33,080		33,484		34,167		34,622		34,621
2012											26,162		29,135		29,614		29,765		29,834
2013													24,157		26,114		26,487		26,661
2014															22,844		25,461		25,800
2015																	25,923		30,066
2016																			31,893
																	Total		$	305,226
			All outstanding liabilities before 2007, net of reinsurance																88
			Liabilities for claims and claim adjustment expenses, net of reinsurance																$	6,292

The cumulative number of reported claims presented above is reported on a per claimant basis.



	Average Annual Percentage Payout of Incurred Claims by Age
	Unaudited
Years	1		2		3		4		5		6		7		8		9		10
	87.6	%	9.7	%	1.1	%	0.6	%	0.6	%	0.3	%	0.1	%	(0.1	)%	(0.1	)%	0.2	%

The tables presented above represent homeowners, dwelling fire and other liability lines of business. The Company combined the data for these lines of business because the policy coverage and payout pattern for homeowners and dwelling fire are not materially different. Also, other liability is combined with dwelling fire because liability coverage is only sold as an additional coverage offered only with the dwelling fire policy. The Company offers no stand alone liability products.

Management periodically estimates the liability for claims that have been reported but not paid and for claims incurred but not reported (IBNR). Management utilizes expected losses along with historical data analysis of paid and incurred loss development patterns over the past ten years to aide in establishing the claims liability. Management also separately evaluates any recent large events in establishing claim reserves. The Company also engages a consulting actuary to review managements' estimates of claim liabilities each year. There has been no material change in reserving methodology in 2016 compared to prior years.

As shown in the table above depicting average annual payout of incurred claims, 87.6% of claims are settled within twelve months of the date of loss and cumulatively, 97.3% of claims are settled within two years of the date of loss. While reserve for reported but unpaid and incurred but not reported claims can ultimately prove to be excessive or deficient, the short duration of the Company's claim liabilities serves to lesson the uncertainty compared to longer tail lines of insurance. The Company has no material exposure to difficult to estimate long tail liabilities such as toxic waste cleanup, asbestos related illness or other environmental remediation exposures.



Reconciliation of the Disclosure of Incurred and Paid Claims Development to the Liability for Unpaid Claims and Claim Adjustment Expenses

	December 31, 2016
Net outstanding liabilities
Homeowners' insurance	$	1,972
Dwelling fire insurance	2,938
Other Liability insurance	1,382
Other short-duration insurance lines	55
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance	6,347

Reinsurance recoverable on unpaid claims
Homeowners' insurance	889
Dwelling fire insurance	295
Other Liability insurance	—
Other short-duration insurance lines	—
Total reinsurance recoverable on unpaid claims	1,184

Insurance lines other than short-duration	—
Unallocated claims adjustment expenses	—
Other	—
	—

Total gross liability for unpaid claims and claim adjustment expense	$	7,531

Accident and Health Claim Reserves

The Company, through its life insurance subsidiary, underwrites a limited number of short duration accident and health contracts. These claims tend to be of short duration with claims typically settled in three years or less and the reserve for unpaid claims totaled $391,000 at December 31, 2016. These claims are a component of policy and contract claims which totaled $1,008,000 at December 31, 2016.

Cumulative incurred and paid claims over the last three years, along with annual percentage payouts related to accident and health claims, is as follows (dollars in thousands):



	For the Years Ended December 31,
	2014		2015		2016
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
							IBNR Reserves Dec. 31, 2016		Cumulative Number of Reported Claims
2014	$	742	$	903	$	835	$	—	1,299
2015			765		813		—		1,120
2016					960		341		947



	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited

2014	$	539	$	808	$	836
2015			568		724
2016					657



	Average Annual Percentage Payout of Incurred Claims by Age
	Unaudited
Years	1		2		3
	67.6	%	25.3	%	7.2	%