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,
	2017			2016
Summary of claims and claim adjustment expense reserves
Balance, beginning of year	$	7,531		$	9,645
Less reinsurance recoverable on unpaid losses	1,184			1,380
Net balances at beginning of year	6,347			8,265
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	39,604			35,659
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,213		)	(1,460		)
Total increases	38,391			34,199
Claims and claim adjustment expense payments for claims arising in:
Current year	34,609			31,265
Prior years	3,381			4,852
Total payments	37,990			36,117
Net balance at end of period	6,748			6,347
Plus reinsurance recoverable on unpaid losses	327			1,184
Claims and claim adjustment expense reserves at end of period	$	7,075		$	7,531

The increase in claim and claim adjustment expense reserves before reinsurance recoverable is primarily due to the increase in catastrophe losses during the period. The estimate for claims arising in prior years was reduced $1,213,000 in 2017 (reduced $1,460,000 in 2016) 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, 2017, the Company's estimate of unpaid losses and adjustment expenses for claims incurred in prior years related to catastrophes that exceeded our retention totaled $115,000 before reinsurance ($462,000 in 2016). 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,
	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
																					IBNR Reserves Dec. 31, 2017		Cumulative Number of Reported Claims
2008	$	40,544	$	38,807	$	38,639	$	38,912	$	39,327	$	39,069	$	39,420	$	39,180	$	39,117	$	39,115	$	—	13,609
2009			31,425		30,236		30,442		30,432		30,484		30,362		30,306		30,280		30,280		—		7,992
2010					30,610		29,918		29,805		29,718		29,687		29,672		29,641		29,660		—		5,886
2011							35,203		33,957		34,233		34,711		34,806		34,650		34,658		8		8,125
2012									29,959		30,190		30,402		30,091		29,948		29,885		28		5,190
2013											27,436		27,147		27,076		27,023		27,191		277		5,198
2014													25,929		26,422		26,290		26,225		105		4,744
2015															31,484		30,861		30,360		120		5,836
2016																	36,287		35,343		384		5,178
2017																			40,210		2,990		5,087
																	Total		$	322,927



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

2008	$	34,664	$	37,986	$	38,312	$	38,498	$	38,617	$	38,935	$	39,090	$	39,105	$	39,108	$	39,111
2009			25,245		29,281		29,869		29,847		30,004		30,265		30,274		30,280		30,280
2010					26,064		29,201		29,404		29,507		29,639		29,640		29,640		29,660
2011							31,488		33,080		33,484		34,167		34,622		34,621		34,641
2012									26,162		29,135		29,614		29,765		29,834		29,835
2013											24,157		26,114		26,487		26,661		26,788
2014													22,844		25,461		25,800		26,033
2015															25,923		30,066		30,190
2016																	31,893		34,722
2017																			35,209
																	Total		$	316,469
			All outstanding liabilities before 2008, net of reinsurance																188
			Liabilities for claims and claim adjustment expenses, net of reinsurance																$	6,646

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



	Average Annual Percentage Payout of Incurred Claims by Age (in Years), Net of Reinsurance
	Unaudited
Years	1		2		3		4		5		6		7		8		9		10
	87.7	%	9.5	%	1.0	%	0.5	%	0.5	%	0.5	%	0.1	%	0.04	%	—	%	—	%

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 2017 compared to prior years.

As shown in the table above depicting average annual payout of incurred claims, 87.7% of claims are settled within twelve months of the date of loss and cumulatively, 97.2% of claims are settled within two years of the date of loss. While reserves 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, 2017		December 31, 2016
Net outstanding liabilities
Homeowners' insurance	$	2,384	$	1,972
Dwelling fire insurance	2,799		2,938
Other Liability insurance	1,463		1,382
Other short-duration insurance lines	102		55
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance	6,748		6,347

Reinsurance recoverable on unpaid claims
Homeowners' insurance	327		889
Dwelling fire insurance	—		295
Other Liability insurance	—		—
Other short-duration insurance lines	—		—
Total reinsurance recoverable on unpaid claims	327		1,184

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

Total gross liability for unpaid claims and claim adjustment expense	$	7,075	$	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 are typically settled in three years or less and the reserve for unpaid claims totaled $367,000 at December 31, 2017 ($391,000 at December 31, 2016). These claims are a component of policy and contract claims which totaled $903,000 at December 31, 2017 ($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,
	2015		2016		2017
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
							IBNR Reserves Dec. 31, 2017		Cumulative Number of Reported Claims
2015	$	765	$	813	$	736	$	—	1,122
2016			960		962		—		1,175
2017					1,008		367		1,266



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

2015	$	568	$	724	$	736
2016			658		874
2017					725



	Average Annual Percentage Payout of Incurred Claims by Age
	Unaudited
Years	1		2		3
	72.5	%	22.1	%	5.4	%