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):



	Years ended December 31,
	2018			2017
Summary of claims and claim adjustment expense reserves
Balance, beginning of year	$	7,075		$	7,531
Less reinsurance recoverable on unpaid losses	327			1,184
Net balances at beginning of year	6,748			6,347
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	36,457			39,604
Estimated claims and claim adjustment expenses for claims arising in prior years	(722		)	(1,213		)
Total increases	35,735			38,391
Claims and claim adjustment expense payments for claims arising in:
Current year	31,833			34,609
Prior years	3,826			3,381
Total payments	35,659			37,990
Net balance at end of period	6,824			6,748
Plus reinsurance recoverable on unpaid losses	1,384			327
Claims and claim adjustment expense reserves at end of period	$	8,208		$	7,075

The slight increase in claim and claim adjustment expense reserves before reinsurance recoverable is primarily due to the increase in reserves associated with Hurricane Florence which occurred in September of 2018. The estimate for claims arising in prior years was reduced $250,000 in 2018 (reduced $1,355,000 in 2017) 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, 2018, the Company's estimate of unpaid losses and adjustment expenses for claims incurred in prior years related to catastrophes that exceeded our retention totaled $18,000 before reinsurance ($115,000 in 2017). 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,
	2009		2010		2011		2012		2013		2014		2015		2016		2017		2018
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
																					IBNR Reserves Dec. 31, 2018		Cumulative Number of Reported Claims
2009	$	31,425	$	30,236	$	30,442	$	30,432	$	30,484	$	30,362	$	30,306	$	30,280	$	30,280	$	30,280	$	—	7,996
2010	—		30,610		29,918		29,805		29,718		29,687		29,672		29,641		29,660		29,659		—		5,888
2011	—		—		35,203		33,957		34,233		34,711		34,806		34,650		34,658		34,663		7		8,127
2012	—		—		—		29,959		30,190		30,402		30,091		29,948		29,885		29,827		—		5,198
2013	—		—		—		—		27,436		27,147		27,076		27,023		27,191		27,236		154		5,204
2014	—		—		—		—		—		25,929		26,422		26,290		26,225		26,130		8		4,747
2015	—		—		—		—		—		—		31,484		30,861		30,360		30,890		372		5,842
2016	—		—		—		—		—		—		—		36,287		35,343		35,399		204		5,183
2017	—		—		—		—		—		—		—		—		40,210		38,958		425		5,321
2018	—		—		—		—		—		—		—		—		—		37,079		3,254		4,500
																	Total		$	320,121



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

2009	$	25,245	$	29,281	$	29,869	$	29,847	$	30,004	$	30,265	$	30,274	$	30,280	$	30,280	$	30,280
2010	—		26,064		29,201		29,404		29,507		29,639		29,640		29,640		29,660		29,659
2011	—		—		31,488		33,080		33,484		34,167		34,622		34,621		34,641		34,647
2012	—		—		—		26,162		29,135		29,614		29,765		29,834		29,835		29,823
2013	—		—		—		—		24,157		26,114		26,487		26,661		26,788		26,976
2014	—		—		—		—		—		22,844		25,461		25,800		26,033		26,095
2015	—		—		—		—		—		—		25,923		30,066		30,190		30,296
2016	—		—		—		—		—		—		—		31,893		34,722		35,029
2017	—		—		—		—		—		—		—		—		35,209		38,245
2018	—		—		—		—		—		—		—		—		—		32,456
																	Total		$	313,506
			All outstanding liabilities before 2008, net of reinsurance																209
			Liabilities for claims and claim adjustment expenses, net of reinsurance																$	6,824

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
	87.8	%	9.5	%	1.1	%	0.5	%	0.7	%	0.2	%	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 2018 compared to prior years.

As shown in the table above depicting average annual payout of incurred claims, 87.8% 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 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, 2018		December 31, 2017
Net outstanding liabilities
Homeowners' insurance	$	2,418	$	2,384
Dwelling fire insurance	2,602		2,799
Other Liability insurance	1,804		1,463
Other short-duration insurance lines	—		102
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance	6,824		6,748

Reinsurance recoverable on unpaid claims
Homeowners' insurance	537		327
Dwelling fire insurance	847		—
Other Liability insurance	—		—
Other short-duration insurance lines	—		—
Total reinsurance recoverable on unpaid claims	1,384		327

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

Total gross liability for unpaid claims and claim adjustment expense	$	8,208	$	7,075

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 $358,000 at December 31, 2018 ($367,000 at December 31, 2017). These claims are a component of policy and contract claims which totaled $792,000 at December 31, 2018 ($903,000 at December 31, 2017).

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,
	2016		2017		2018
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
							IBNR Reserves Dec. 31, 2018		Cumulative Number of Reported Claims
2016	$	960	$	962	$	883	$	—	1,185
2017			1,008		964		—		1,826
2018					1,037		358		1,141



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

2016	$	658	$	874	$	882
2017			725		881
2018					747



	Average Annual Percentage Payout of Incurred Claims by Age
	Unaudited
Years	1		2		3
	73.9	%	21.3	%	4.7	%