Note C – Loss and Loss Expense Reserves

Activity in the reserves for losses and loss expenses is summarized as follows. All amounts are shown net of reinsurance, unless otherwise indicated.

	2017		2016		2015
Reserves, gross of reinsurance
recoverable, at the beginning of the year	$	576,330	$	513,596	$	506,102
Reinsurance recoverable on unpaid losses at the beginning of the year		251,563		211,843		210,519
Reserves at the beginning of the year		324,767		301,753		295,583

Provision for losses and loss expenses:
Claims occurring during the current year		228,303		172,645		165,812
Claims occurring during prior years		19,215		13,836		(10,062	)
Total incurred losses and loss expenses		247,518		186,481		155,750

Loss and loss expense payments:
Claims occurring during the current year		67,234		54,239		56,710
Claims occurring during prior years		132,920		109,228		92,870
Total paid		200,154		163,467		149,580
Reserves at the end of the year		372,131		324,767		301,753

Reinsurance recoverable on unpaid losses at the end of the year		308,143		251,563		211,843
Reserves, gross of reinsurance
recoverable, at the end of the year	$	680,274	$	576,330	$	513,596

The table above shows that a reserve deficiency of $19,215 developed during 2017 in the settlement of claims occurring on or before December 31, 2016, compared to a reserve deficiency of $13,836 in 2016 and a reserve savings of $10,062 in 2015. The developments for each year are composed of individual claim savings and deficiencies which, in the aggregate have resulted from the settlement of claims at amounts higher or lower than previously reserved and from changes in estimates of losses incurred but not reported as part of the normal reserving process.

The $19,215 prior accident year deficiency that developed during 2017 primarily related to: (1) infrequent, but severe, transportation losses that experienced adverse development primarily during the first six months of 2017 and (2) higher than expected loss development for discontinued lines of business. This 2017 deficiency compares to a deficiency of $13,836 for 2016, which was also impacted by discontinued lines of business.

Loss reserves have been reduced by estimated salvage and subrogation recoverable of approximately $7,559 and $4,151 at December 31, 2017 and 2016, respectively.

The following is information about incurred and paid claims development as of December 31, 2017, net of reinsurance, as well as cumulative claim frequency and the total of incurred‐but‐not‐reported liabilities plus expected development on reported claims included within the net incurred claims amounts.

																					As of December 31, 2017
																					Total of Incurred-
Workers' Compensation																					but-Not-Reported
																					Liabilities Plus
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Expected		Number of
Accident	For the Years Ended December 31 (2008-2016 is Supplementary Information and Unaudited)																				Development on		Reported Claims
Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Reported Claims		Per Year
2008	$	19,833	$	23,640	$	24,715	$	24,721	$	24,855	$	25,109	$	23,916	$	24,048	$	24,352	$	25,077	$	661		3,656
2009				17,270		20,931		21,447		21,261		21,268		20,767		20,641		20,817		20,946		877		3,784
2010						20,644		20,111		19,400		19,300		18,849		18,344		19,195		19,541		1,096		4,222
2011								26,057		26,628		26,958		26,767		25,515		27,293		26,617		2,399		4,545
2012										23,965		25,544		24,887		24,485		25,616		27,020		3,151		4,479
2013												27,619		30,638		29,913		32,121		32,553		5,344		5,271
2014														36,768		36,968		34,009		33,427		5,848		5,394
2015																26,277		23,115		25,889		6,921		6,284
2016																		35,240		29,757		9,795		6,003
2017																				42,387		25,679		14,490
																	Total		$	283,214	$	61,771

	Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Accident	For the Years Ended December 31 (2008-2016 is Supplementary Information and Unaudited)
Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	6,046	$	13,919	$	17,320	$	18,943	$	20,055	$	20,839	$	21,306	$	21,883	$	22,199		22,910
2009				4,186		10,073		13,343		15,576		16,592		17,448		18,028		18,514		18,982
2010						3,974		9,134		11,963		13,845		14,966		15,835		16,590		16,789
2011								4,916		11,912		15,973		18,884		20,617		21,622		22,569
2012										4,597		11,004		14,834		17,415		18,946		20,276
2013												4,880		12,792		18,065		21,655		23,643
2014														5,328		13,665		19,075		22,387
2015																2,918		10,128		15,020
2016																		5,784		13,377
2017																				6,150
																	Total		$	182,103
																	Outstanding liabilities prior to 2008 net of reinsurance			12,640
																	Liabilities for claims and claims adjustment expenses, net of reinsurance		$	113,751

																					As of December 31, 2017
																					Total of Incurred-
Commercial Liability																					but-Not-Reported
																					Liabilities Plus
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																				Expected		Number of
Accident	For the Years Ended December 31 (2008-2016 is Supplementary Information and Unaudited)																				Development on		Reported Claims
Year	2008		2009		2010		2011		2012		2013		2014		2015		2016		2017		Reported Claims		Per Year
2008	$	34,693	$	28,591	$	27,311	$	25,511	$	23,989	$	24,892	$	24,902	$	23,480	$	23,482	$	23,733	$	110		1,280
2009				29,707		30,406		30,203		26,280		27,259		25,872		25,373		25,320		25,485		136		1,161
2010						31,124		22,161		21,899		19,139		20,300		19,764		19,377		19,081		96		2,384
2011								46,829		43,832		31,633		36,894		35,805		37,122		36,076		271		2,764
2012										49,743		54,269		49,743		51,367		48,708		51,475		478		3,211
2013												53,817		39,143		37,701		36,371		46,690		664		3,611
2014														49,971		52,254		52,483		52,964		1,451		3,091
2015																61,420		70,174		64,323		2,278		3,340
2016																		61,638		68,974		6,725		3,581
2017																				103,126	$	43,880		4,387
																	Total		$	491,927	$	56,089

	Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Accident	For the Years Ended December 31 (2008-2016 is Supplementary Information and Unaudited)
Year		2008		2009		2010		2011		2012		2013		2014		2015		2016		2017
2008	$	2,612	$	8,942	$	15,733	$	21,220	$	21,396	$	23,169	$	23,354	$	23,444	$	23,500	$	23,510
2009				928		17,880		19,718		23,521		24,866		25,066		25,114		25,125		25,199
2010						1,649		7,166		11,635		16,052		18,627		18,517		18,866		18,662
2011								1,809		11,350		23,615		30,795		33,255		34,009		35,561
2012										3,086		23,252		32,942		45,303		47,601		50,036
2013												5,167		15,772		25,270		34,481		44,865
2014														4,023		9,046		28,393		45,075
2015																10,923		27,582		49,267
2016																		6,843		30,377
2017																				11,415
																	Total		$	333,967
																	Outstanding liabilities prior to 2008 net of reinsurance			4,621
																	Liabilities for claims and claims adjustment expenses, net of reinsurance		$	162,581

																			As of December 31, 2017
																			Total of Incurred-
Professional Liability Reinsurance Assumed (in runoff)																			but-Not-Reported
																			Liabilities Plus
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance																		Expected		Number of
Accident	For the Years Ended December 31 (2008-2016 is Supplementary Information and Unaudited)																		Development on		Reported Claims
Year	2008	2009	2010		2011		2012		2013		2014		2015		2016		2017		Reported Claims		Per Year
2008
2009
2010			$	2,196	$	4,277	$	7,827	$	7,946	$	9,733	$	10,740	$	11,689	$	11,893	$	175		N/A
2011						10,492		8,314		9,017		9,859		10,779		12,735		12,744		290		N/A
2012								10,041		9,276		5,569		10,157		14,605		16,555		3,049		N/A
2013										14,370		13,034		11,618		17,694		23,256		4,653		N/A
2014												12,675		8,825		7,259		9,837		2,621		N/A
2015														11,638		7,859		7,147		3,290		N/A
2016																6,368		2,482		2,273		N/A
2017																		-		-		N/A
															Total		$	83,914	$	16,351

	Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance
Accident	For the Years Ended December 31 (2008-2016 is Supplementary Information and Unaudited)
Year	2008	2009		2010		2011		2012		2013		2014		2015		2016		2017
2008
2009
2010			$	41	$	729	$	3,505	$	5,844	$	7,758	$	9,904	$	11,132	$	11,334
2011						50		637		2,061		4,983		8,104		10,404		11,679
2012								103		992		2,388		5,077		8,355		11,239
2013										123		1,135		5,088		10,988		14,779
2014												723		761		2,241		3,999
2015														10		390		1,899
2016																-		5
2017																		-
															Total		$	54,934
															Outstanding liabilities prior to 2008 net of reinsurance			-
															Liabilities for claims and claims adjustment expenses, net of reinsurance		$	28,980

The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the consolidated statement of financial position at December 31 is as follows.

	2017		2016
Net outstanding liabilities
Commercial Liability	$	162,581	$	133,139
Workers' Compensation		113,751		101,883
Professional Liability Assumed		28,980		34,700
Other short-duration insurance lines		48,970		38,556
Liabilities for unpaid claims and claim adjustment
expenses, net of reinsurance		354,282		308,278

Reinsurance recoverable on unpaid claims
Commercial Liability		124,695		85,549
Workers' Compensation		170,394		153,847
Other short-duration insurance lines		13,053		12,167
Reinsurance recoverable on unpaid losses at the
end of the year		308,142		251,563

Unallocated claims adjustment expenses		17,850		16,489

Total gross liability for unpaid claims and
claims adjustment expense	$	680,274	$	576,330

The following is supplementary information about average historical claims duration as of December 31, 2017.

	Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
	(Supplementary Information and Unaudited)
Years		1		2		3		4		5		6		7		8		9		10

Commercial Liability		9.1	%	31.1	%	25.3	%	22.3	%	7.0	%	2.9	%	1.8	%	0.1	%	0.3	%	0.1	%
Workers' Compensation		17.6	%	26.5	%	15.5	%	9.7	%	5.6	%	4.1	%	3.0	%	1.9	%	1.7	%	2.8	%
Professional Liability Assumed		1.3	%	3.7	%	16.0	%	20.4	%	19.2	%	17.8	%	10.2	%	1.7	%

Reserve methodologies for incurred but not reported losses

The Company uses both standard actuarial techniques common to most insurance companies as well as proprietary techniques developed by the Company in connection with its specialty business products. For its short-tail lines of business, the Company uses predominantly the incurred or paid loss development factor methods. The Company has found that the use of accident quarter loss development triangles, rather than those based upon accident year, are most responsive to claim settlement trends and fluctuations in premium exposure for its short-tail lines. A minimum of 12 running accident quarters is used to project the reserve necessary for incurred but not reported losses for its short-tail lines.

The Company also uses the loss development factor approach for its long-tail lines of business, including workers' compensation. A minimum of 15 accident years is included in the loss development triangles used to calculate link ratios and the selected loss development factors used to determine the reserves for incurred but not reported losses. Significant emphasis is placed on the use of tail factors for the Company's long-tail lines of business.

For the Company's fleet transportation risks, which are covered by regularly updated reinsurance agreements and which contain wide-ranging self-insured retentions ("SIR"), traditional actuarial methods are supplemented by other methods, as described below, in consideration of the Company's exposures to loss. In situations where the Company's reinsurance structure, the insured's SIR selections, policy volume, and other factors are changing, current accident period loss exposures may not be homogenous enough with historical loss data to allow for reliable projection of future developed losses. Therefore, the Company supplements the above-described actuarial methods with loss ratio reserving techniques developed from the Company's extensive, proprietary databases to arrive at the reserve for incurred but not reported losses for the calendar/accident period under review. As losses for a given calendar/accident period develop with the passage of time, management evaluates such development on a monthly and quarterly basis and adjusts reserve factors, as necessary, to reflect current judgment with regard to the anticipated ultimate incurred losses. This process continues until all losses are settled for each period subject to this method.

Claim count methodology

The Company uses a claim event and coverage combination to estimate frequency. For example, a single claim event involving loss for physical damage of a vehicle and personal injury to a claimant would be considered two claims for purposes of the calculation of frequency. A single claim event causing personal injury to two claimants would be considered a single claim under the methodology. Due to the number of reinsurance assumed treaties entered into (and the varying structures: both quota share and excess of loss) the Company deems it impractical to collect claim frequency information related to this business and this information has not been made available to the Company.