POLICY AND CLAIM RESERVES

12 Months Ended

Dec. 31, 2019

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 reserve 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:



($ in thousands)	Year ended December 31,
	2019			2018
Summary of claims and claim adjustment expense reserves
Balance, beginning of year	$	8,208		$	7,075
Less reinsurance recoverable on unpaid losses	1,384			327
Net balances at beginning of year	6,824			6,748
Net losses:
Provision for claims and claim adjustment expenses for claims arising in current year	35,312			36,457
Estimated claims and claim adjustment expenses for claims arising in prior years	(1,333		)	(722		)
Total increases	33,979			35,735
Claims and claim adjustment expense payments for claims arising in:
Current year	30,179			31,833
Prior years	3,674			3,826
Total payments	33,853			35,659
Net balance at end of period	6,950			6,824
Plus reinsurance recoverable on unpaid losses	249			1,384
Claims and claim adjustment expense reserves at end of period	$	7,199		$	8,208

Claim and claim adjustment expense reserves before reinsurance recoverable at December 31, 2019 was down compared to the same period last year. Reserves were higher at December 31, 2018 primarily due to losses associated with Hurricane Michael. Reinsurance recoverable on unpaid losses was also higher in 2018 due to amounts recoverable on unpaid losses associated with Hurricane Michael. The estimate for claims arising in prior years was reduced $1,332,000 in 2019 (reduced $722,000 in 2018) 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, 2019, the Company's estimate of unpaid losses and adjustment expenses for claims incurred in prior years related to catastrophes that exceeded our retention totaled $24,000 before reinsurance ($18,000 in 2018).

The claim development table that follows presents incurred and cumulative paid claims and adjustment expense by accident year. Information presented is undiscounted and net of reinsurance.

Homeowners, Dwelling Fire and Other Liability



	For the Years Ended December 31,
	2010¹		2011¹		2012¹		2013¹		2014¹		2015¹		2016¹		2017¹		2018¹		2019
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	($ in thousands)
Years																					IBNR Reserves Dec. 31, 2019		Cumulative Number of Reported Claims
2010	$	30,610	$	29,918	$	29,805	$	29,718	$	29,687	$	29,672	$	29,641	$	29,660	$	29,659	$	29,654	$	—	5,891
2011	—		35,203		33,957		34,233		34,711		34,806		34,650		34,658		34,663		34,751		50		8,132
2012	—		—		29,959		30,190		30,402		30,091		29,948		29,885		29,827		29,834		5		5,203
2013	—		—		—		27,436		27,147		27,076		27,023		27,191		27,236		27,022		7		5,213
2014	—		—		—		—		25,929		26,422		26,290		26,225		26,130		26,096		—		4,752
2015	—		—		—		—		—		31,484		30,861		30,360		30,890		30,960		363		5,852
2016	—		—		—		—		—		—		36,287		35,343		35,399		35,144		—		5,189
2017	—		—		—		—		—		—		—		40,210		38,958		38,642		99		5,328
2018	—		—		—		—		—		—		—		—		37,079		36,195		438		4,788
2019	—		—		—		—		—		—		—		—		—		35,929		2,827		4,616
																	Total		$	324,227

¹Required supplementary information (unaudited)



	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance
	Unaudited
	($ in thousands)
Years	2010¹		2011¹		2012¹		2013¹		2014¹		2015¹		2016¹		2017¹		2018¹		2019
2010	$	26,064	$	29,201	$	29,404	$	29,507	$	29,639	$	29,640	$	29,640	$	29,660	$	29,659	$	29,654
2011	—		31,488		33,080		33,484		34,167		34,622		34,621		34,641		34,647		34,650
2012	—		—		26,162		29,135		29,614		29,765		29,834		29,835		29,823		29,824
2013	—		—		—		24,157		26,114		26,487		26,661		26,788		26,976		27,011
2014	—		—		—		—		22,844		25,461		25,800		26,033		26,095		26,094
2015	—		—		—		—		—		25,923		30,066		30,190		30,296		30,366
2016	—		—		—		—		—		—		31,893		34,722		35,029		35,139
2017	—		—		—		—		—		—		—		35,209		38,245		38,499
2018	—		—		—		—		—		—		—		—		32,456		35,543
2019	—		—		—		—		—		—		—		—		—		30,796
																	Total		$	317,576
			All outstanding liabilities before 2008, net of reinsurance																290
			Liabilities for claims and claim adjustment expenses, net of reinsurance																$	6,941

¹Required supplementary information (unaudited)

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
	(Required Supplementary Information - Unaudited)
Years	1		2		3		4		5		6		7		8		9		10
	88.4	%	9.2	%	0.9	%	0.6	%	0.3	%	0.4	%	0.1	%	—	%	—	%	0.1	%

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 2019 compared to prior years.

As shown in the table above depicting average annual payout of incurred claims, 88.4% of claims are settled within twelve months of the date of loss and cumulatively, 97.6% 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
($ in thousands)	December 31, 2019		December 31, 2018
Net outstanding liabilities
Homeowners' insurance	$	2,651	$	2,418
Dwelling fire insurance	2,623		2,602
Other Liability insurance	1,667		1,804
Other short-duration insurance lines	9		—
Liabilities for unpaid claims and claim adjustment expenses, net of reinsurance	6,950		6,824

Reinsurance recoverable on unpaid claims
Homeowners' insurance	203		537
Dwelling fire insurance	46		847
Other Liability insurance	—		—
Other short-duration insurance lines	—		—
Total reinsurance recoverable on unpaid claims	249		1,384

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

Total gross liability for unpaid claims and claim adjustment expense	$	7,199	$	8,208

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 $417,000 at December 31, 2019 ($358,000 at December 31, 2018). These claims are a component of policy and contract claims which totaled $1,053,000 at December 31, 2019 ($792,000 at December 31, 2018).

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



	For the Years Ended December 31,
	2017¹		2018¹		2019
	Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance ($ in thousands)
Years							IBNR Reserves Dec. 31, 2019		Cumulative Number of Reported Claims
2017	$	1,008	$	964	$	917	$	—	1,612
2018			1,037		1,120		—		1,469
2019					935		417		1,174

¹Required supplementary information (unaudited)



	Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance ($ in thousands)
Years	2017¹		2018¹		2019
2017	$	725	$	881	$	916
2018			747		991
2019					614

¹Required supplementary information (unaudited)



	Average Annual Percentage Payout of Incurred Claims by Age
	Required supplementary information (unaudited)
Years	1	2	3
	70.5%	21.8%	7.6%