Claims Liabilities | CLAIMS LIABILITIES Unpaid claims and claims adjustment expenses The changes in the provision for unpaid claims and claims adjustment expenses, net of amounts recoverable from reinsurers, for the years ended December 31, 2017, 2016, and 2015 were as follows ($ in ‘000s): As of the year ended December 31, 2017 2016 2015 Unpaid claims and claims adjustment expenses, beginning of period $ 139,004 $ 127,011 $ 102,430 Less: reinsurance recoverable 35,370 29,399 18,421 Net unpaid claims and claims adjustment expenses, beginning of period 103,634 97,612 84,009 Net reserves acquired — — 19,396 Change in retroactive reinsurance ceded 1,361 107 2,037 Incurred related to: Current year 128,476 102,133 89,828 Prior years 75,397 32,613 166 203,873 134,746 89,994 Paid related to: Current year 50,626 39,652 32,402 Prior years 99,996 89,179 65,422 150,622 128,831 97,824 Net unpaid claims and claims adjustment expenses, end of period 158,246 103,634 97,612 Add: reinsurance recoverable 53,402 35,370 29,399 Unpaid claims and claims adjustment expenses, end of period $ 211,648 $ 139,004 $ 127,011 The process of establishing the estimated provision for unpaid claims and claims adjustment expenses is complex and imprecise, as it relies on the judgment and opinions of a large number of individuals, on historical precedent and trends, on prevailing legal, economic, social and regulatory trends and on expectations as to future developments. The process of determining the provision necessarily involves risks that the actual results may deviate, perhaps substantially, from the best estimates made. Atlas experienced $75.4 million in unfavorable prior accident year development for the year ended December 31, 2017 as reflected as incurred related to prior years in the table above. The unfavorable development is primarily from our core commercial automobile liability line. Atlas previously identified that claim expenses in Michigan were significantly outpacing other states and took a significant charge. Although exposure in Michigan was reduced to approximately 1.4% of the Company’s insured vehicles inforce by year end 2017, payments for claims in this state continued to be disproportionate to historic premiums earned. In addition, the remaining liability for non-New York Global Liberty business written prior to 2016 is expected to settle for greater amounts than previously expected. Overall, the actuarially determined liability for remaining claims related to accident year 2015 and prior in general, across all jurisdictions, was indicated to be higher than carried reserves. Atlas experienced $32.6 million in unfavorable prior accident year development for the year ended December 31, 2016 as reflected as incurred related to prior years in the table above. The unfavorable development is primarily from our core commercial automobile liability line. Excluding pre-acquisition Global Liberty reserve development, the development of our core lines on prior accident years was $23.2 million for the year ended December 31, 2016 . Michigan commercial automobile claims accounted for approximately 62.5% of this development. Pre-acquisition Global Liberty claims reserve development was $7.9 million for the year ended December 31, 2016 . The remaining unfavorable prior year development of $1.5 million for the year ended December 31, 2016 is attributable to assigned risk pools and run-off of non-core business. Atlas experienced $166,000 in unfavorable prior accident year development during the year ended December 31, 2015 as reflected as incurred related to prior years in the table above. Prior accident year unfavorable development on non-core lines and assigned risk pools was $870,000 for the year ended December 31, 2015 . The unfavorable development on non-core lines and assigned risk pools was offset by favorable prior accident year development of $475,000 and $230,000 on our core lines and pre-acquisition Global Liberty claims reserves, respectively. This favorable development on our core lines was attributable to our traditional taxi and excess taxi products. Short-duration insurance contracts For purposes of this discussion, Atlas will disaggregate data based on the type of coverage into commercial automobile liability, including personal injury protection, and all other lines. Commercial automobile liability is the main line of business that Atlas operates. All other lines includes commercial automobile physical damage, taxi workers’ compensation, other liability and Atlas’ short duration lines that are currently in run-off. Amounts related to the Gateway and Global Liberty acquisitions have been included retrospectively for all years presented in the tables below. Claims payments and changes in reserves may be made on accidents that occurred in prior years, not solely on business that is currently insured. Calendar year claims consist of payments and reserve changes that have been recorded in the financial statements during the applicable reporting period, without regard to the period in which the accident occurred. Calendar year results do not change after the end of the applicable reporting period, even as new claim information develops. Accident year claims consist of payments and reserve changes that are assigned to the period in which the accident occurred. Accident year results will change over time as the estimates of claims change due to payments and reserve changes for all accidents that occurred during that period. The following is information about incurred and paid claims and claims adjustment expenses development for the year ended 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. The information about incurred and paid claims development for the years ended December 31, 2008 to 2015, is presented as unaudited supplementary information. Commercial Automobile Liability Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance ($ in ‘000s, except cumulative number of reported claims) For the Years Ended December 31, As of the year ended December 31, 2017 Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Incurred but Not Reported Liabilities, Net of Reinsurance Cumulative Number of Reported Claims 2008 $ 29,391 $ 29,434 $ 29,225 $ 29,543 $ 27,922 $ 28,015 $ 27,474 $ 28,005 $ 28,496 $ 28,789 $ 31 15,764 2009 37,394 40,309 43,889 43,604 42,909 42,326 42,987 43,728 43,902 61 13,238 2010 35,877 34,677 35,711 37,026 37,205 38,002 38,841 39,246 122 8,575 2011 31,044 38,822 34,887 34,720 35,136 36,080 36,472 149 7,833 2012 35,948 37,839 38,972 40,429 44,627 46,755 804 9,376 2013 48,449 48,636 53,656 64,687 73,749 3,446 11,725 2014 61,145 53,005 69,555 92,245 8,432 14,659 2015 69,060 67,184 96,521 14,255 19,021 2016 80,824 87,516 20,274 19,373 2017 101,983 46,580 18,516 Total Total $ 647,178 Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance ($ in ‘000s) For the Years Ended December 31, Accident Year 2008 2009 1 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 6,201 $ (6,438 ) $ 7,256 $ 16,010 $ 20,234 $ 23,282 $ 25,060 $ 27,039 $ 28,136 $ 28,601 2009 (3,218 ) 10,711 24,468 31,784 36,385 39,664 42,030 43,287 43,707 2010 10,097 20,483 26,654 31,300 34,831 37,051 38,187 38,930 2011 8,725 18,980 24,978 29,660 33,217 35,324 36,058 2012 8,385 18,230 26,995 35,563 41,587 44,835 2013 10,358 27,198 43,117 59,973 68,612 2014 15,404 38,257 60,486 81,141 2015 18,597 49,556 76,398 2016 21,850 53,812 2017 27,977 Total $ 500,071 All outstanding liabilities before 2008, net of reinsurance 200 Liabilities for claims and allocated claims adjustment expenses, net of reinsurance $ 147,307 1 - year 2009 - negative amounts resulted from the termination of reinsurance agreements Other short-duration lines Incurred Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance ($ in ‘000s, except cumulative number of reported claims) For the Years Ended December 31, As of the year ended December 31, 2017 Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Incurred but Not Reported Liabilities, Net of Reinsurance Cumulative Number of Reported Claims 2008 $ 34,673 $ 38,502 $ 36,796 $ 36,489 $ 36,580 $ 36,576 $ 36,222 $ 36,254 $ 36,260 $ 36,233 $ 4 47,047 2009 35,688 34,764 34,626 35,453 36,343 36,202 36,736 37,061 37,070 54 27,847 2010 26,884 27,729 24,714 24,922 24,392 24,456 24,477 24,478 4 14,330 2011 20,315 22,176 22,310 21,782 22,122 22,941 22,414 22 10,002 2012 13,054 12,723 13,634 13,854 13,934 14,109 308 3,615 2013 5,897 4,754 4,556 4,687 4,711 90 2,149 2014 6,645 6,849 6,978 7,580 571 2,945 2015 8,320 8,616 9,591 1,148 3,968 2016 9,357 9,960 428 4,686 2017 11,086 775 5,013 Total Total $ 177,232 Cumulative Paid Claims and Allocated Claims Adjustment Expenses, Net of Reinsurance ($ in ‘000s) For the Years Ended December 31, Accident Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 21,304 $ 23,263 $ 30,657 $ 33,915 $ 35,442 $ 36,112 $ 36,149 $ 36,222 $ 36,224 $ 36,224 2009 11,296 25,422 30,343 33,186 34,375 35,785 36,164 36,499 36,714 2010 14,182 20,420 22,596 23,812 24,225 24,368 24,414 24,452 2011 11,517 17,419 19,696 20,939 21,600 22,235 22,326 2012 6,446 9,789 11,554 12,782 13,343 13,317 2013 4,195 4,602 4,603 4,612 4,641 2014 6,154 6,677 6,728 6,820 2015 7,886 8,154 8,291 2016 9,413 9,802 2017 10,619 Total $ 173,206 All outstanding liabilities before 2008, net of reinsurance 699 Liabilities for claims and allocated claims adjustment expenses, net of reinsurance $ 4,725 Incurred claims and allocated claim adjustment expenses, net of reinsurance, show how the initial estimate of incurred claims develop for each of the past 10 accident years. Incurred but not reported liabilities, net of reinsurance, by accident year are estimates that are based on the difference between the reported claims and the estimate of the ultimate paid claims and claims adjustment expenses for known and unknown claims. These estimates involve actuarial and statistical projections at a given point in time of what we expect the cost of the ultimate settlement and administration of known and unknown claims. The process reflects the uncertainties and significant judgmental factors inherent in estimating future results of both known and unknown claims, and as such, the process is inherently complex and imprecise. We utilize a third party actuarial firm to assist us in the estimation process. The cumulative number of reported claims for commercial automobile liability was calculated using actual number of claims at the feature/coverage level. For the other lines, claim counts were calculated using actual claim counts at the feature/coverage level for all claims excluding those from assigned risk pools and surety. The actual claim counts for assigned risk pools and surety may not be available for all years presented and are therefore not included in the reported claims amounts. The reconciliation of the net incurred and paid claims and claims adjustment expenses development tables to the liability for claims and claims adjustment expenses in the consolidated statement of financial position as of December 31, 2017 is as follows ($ in ‘000s): As of December 31, 2017 Net outstanding liabilities: Commercial automobile liability $ 147,307 Other short-duration lines 4,725 Unpaid claims and allocated claims adjustment expenses, net of reinsurance 152,032 Reinsurance recoverable on unpaid claims and claims adjustment expenses: Commercial automobile liability 51,335 Other short-duration lines 2,067 Total reinsurance recoverable on unpaid claims and claims adjustment expenses 53,402 Unallocated claims adjustment expenses 6,214 Unpaid claims and claims adjustment expenses, gross of reinsurance $ 211,648 The following is supplementary information about the average annual percentage payout of incurred claims by age, net of amounts recoverable from reinsurers, for the year ended December 31, 2017 (amounts are unaudited). Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Years 1 2 3 4 5 6 7 8 9 10 Commercial automobile liability 18.4 % 20.0 % 25.4 % 19.3 % 11.4 % 7.3 % 4.1 % 3.9 % 2.4 % 1.6 % Other short-duration lines 68.7 % 15.7 % 8.4 % 5.3 % 2.8 % 1.8 % 0.4 % 0.4 % 0.3 % — % |