| Reserve for Losses and Loss Adjustment Expenses | Reserve for Losses and Loss Adjustment Expenses In establishing the reserve for losses and loss adjustment expenses, the Company’s internal actuaries estimate an initial expected ultimate loss ratio for each of our lines of business by accident year (or for our Casualty Reinsurance segment, on a contract by contract basis). Input from the Company’s underwriting and claims departments, including premium pricing assumptions and historical experience, are considered by the Company’s internal actuaries in estimating the initial expected loss ratios. The Company’s internal actuaries generally utilize five actuarial methods in their estimation process for the reserve for losses and loss adjustment expenses. These five methods utilize, to varying degrees, the initial expected loss ratio, detailed statistical analysis of past claims reporting and payment patterns, claims frequency and severity, paid loss experience, industry loss experience, and changes in market conditions, policy forms, exclusions, and exposures. In applying these methods to develop an estimate of the reserve for losses and loss adjustment expenses, our internal actuaries use judgment to determine three key parameters for each accident year and line of business: the initial expected loss ratios, the incurred and paid loss development factors and the weighting of the five actuarial methods to be used for each accident year and line of business. For the Excess and Surplus Lines and Specialty Admitted Insurance segments, the internal actuaries perform a study on each of these parameters annually and make recommendations for the initial expected loss ratios, the incurred and paid loss development factors and the weighting of the five actuarial methods by accident year and line of business. Members of management’s Reserve Committee review and approve the parameter review actuarial recommendations, and absent any developments requiring an earlier review, these approved parameters are used in the reserve estimation process for the next four quarters at which time a new parameter study is performed. For the Casualty Reinsurance segment, periodic assessments are made on a contract by contract basis. Method weights are generally less rigid for the Casualty Reinsurance segment given the heterogeneous nature of the various contracts, and the potential for significant changes in mix of business within individual treaties. Different reserving methods are appropriate in different situations, and the Company’s internal actuaries use their judgment and experience to determine the weighting of the methods to use for each accident year and each line of business and, for our Casualty Reinsurance segment, on a contract by contract basis. For example, the current accident year has very little incurred and paid loss development data on which to base reserve projections. As a result, the Company relies heavily on the initial expected loss ratio in estimating reserves for the current accident year. The Company generally sets the initial expected loss ratio for the current accident year consistent with the internal actuaries’ pricing assumptions adjusted upward where warranted based on management's judgment in order to produce the best estimate. We believe that this is a reasonable and appropriate reserving assumption for the current accident year since our pricing assumptions are actuarially driven and since the Company expects to make an acceptable return on the new business written. If actual loss emergence is better than our initial expected loss ratio assumptions, we will experience favorable development and if it is worse than our initial expected loss ratio assumptions, we will experience adverse development. Conversely, sufficient incurred and paid loss development data is available for the oldest accident years, so more weight is given to this development data and less weight is given to the initial expected loss ratio. The following table provides a reconciliation of the beginning and ending reserve balances for losses and loss adjustment expenses, net of reinsurance, to the gross amounts reported in the consolidated balance sheets. Reinsurance recoverables on unpaid losses and loss adjustment expenses are presented gross of an allowance for credit losses on reinsurance balances of $631,000 and $335,000 at December 31, 2021 and 2020, respectively. Year Ended December 31, 2021 2020 2019 (in thousands) Reserve for losses and loss adjustment expenses net of reinsurance recoverables at beginning of period $ 1,386,061 $ 1,377,461 $ 1,194,088 Add: Incurred losses and loss adjustment expenses net of reinsurance: Current year 466,574 386,341 603,094 Prior years 325,778 92,204 69,008 Total incurred losses and loss and adjustment expenses 792,352 478,545 672,102 Deduct: Loss and loss adjustment expense payments net of reinsurance: Current year 35,006 31,952 75,249 Prior years 487,741 437,993 413,480 Total loss and loss adjustment expense payments 522,747 469,945 488,729 Deduct: Loss reserves ceded in LPT Transaction 256,452 — — Reserve for losses and loss adjustment expenses net of reinsurance recoverables at end of period 1,399,214 1,386,061 1,377,461 Add: Reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period 1,349,259 806,019 668,045 Reserve for losses and loss adjustment expenses gross of reinsurance recoverables on unpaid losses and loss adjustment expenses at end of period $ 2,748,473 $ 2,192,080 $ 2,045,506 The foregoing reconciliation shows that $325.8 million of adverse development was experienced in 2021 on the reserve for losses and loss adjustment expenses held at December 31, 2020. This adverse reserve development included $190.7 million of adverse development in the Excess and Surplus Lines segment, including $200.1 million of adverse development in the commercial auto line of business that was primarily related to the 2019 and prior accident years with Rasier LLC and its affiliates (collectively, “Rasier”) . The adverse development for commercial auto was partially offset by $9.4 million of favorable development in other Excess and Surplus Lines underwriting divisions. Favorable reserve development in the Specialty Admitted Insurance segment was $2.5 million as losses on our workers’ compensation business written prior to 2020 continued to develop more favorably than we had anticipated. The Casualty Reinsurance segment experienced $137.6 million of adverse development on prior underwriting years. Actual reported and paid losses in the Casualty Reinsurance segment significantly exceeded expectations in 2021, particularly in the fourth quarter of 2021, causing us to refine some of the assumptions used to determine our best estimate of ultimate losses for this segment. Specifically, we responded to this highly elevated loss emergence by making significant adjustments to our assumed tail factors, other development factors, initial expected loss ratios, and weights given to various actuarial methods. In particular, we gave significantly more weight to incurred loss development methods and Bornhuetter – Ferguson incurred loss development methods than had been done previously. These actuarial refinements resulted in material deterioration in ultimate loss selections for underwriting years 2014 through 2018. The adverse development was concentrated in four treaties, three of which were general liability and one which was professional liability. Of the $137.6 million of adverse development recognized in 2021, $113.4 million was concentrated in these four treaties. The foregoing reconciliation shows that $92.2 million of adverse development was experienced in 2020 on the reserve for losses and loss adjustment expenses held at December 31, 2019. This adverse reserve development included $59.4 million of adverse development in the Excess and Surplus Lines segment including $91.4 million of adverse development in the commercial auto line of business that was primarily related to the 2018 and prior accident years with Rasier. The adverse development for commercial auto was partially offset by $32.0 million of favorable development in other Excess and Surplus Lines underwriting divisions that was primarily related to the 2018 and 2019 accident years. The Company also experienced $5.0 million of favorable development on prior accident years in the Specialty Admitted Insurance segment, as losses on our workers’ compensation business written prior to 2019 continued to develop more favorably than we had anticipated. The Casualty Reinsurance segment experienced $37.8 million of adverse development on prior accident years primarily in accident years 2014 through 2018. This adverse development was mainly in the general liability and commercial auto lines of business. The foregoing reconciliation shows that $69.0 million of adverse development was experienced in 2019 on the reserve for losses and loss adjustment expenses held at December 31, 2018. This adverse reserve development included $51.2 million of adverse development in the Excess and Surplus Lines segment including $57.4 million of adverse development in the commercial auto line of business that was primarily related to the 2016 and 2017 accident years with Rasier. The adverse development for commercial auto was partially offset by $6.2 million of favorable development in other Excess and Surplus Lines underwriting divisions. The Company also experienced $5.3 million of favorable development on prior accident years in the Specialty Admitted Insurance segment, as losses on our workers’ compensation business written prior to 2018 continued to develop more favorably than we had anticipated. The Casualty Reinsurance segment experienced $23.1 million of adverse development on prior accident years primarily in accident years 2011 through 2016. This adverse development was mainly in the general liability and commercial auto lines of business. The following tables present incurred and paid losses and loss adjustment expenses, net of reinsurance as of December 31, 2021 for: (1) the Excess and Surplus Lines segment split between all excess and surplus lines business excluding commercial auto, and separately, commercial auto, (2) the Specialty Admitted Insurance segment split between individual risk workers’ compensation and fronting and programs, and (3) the Casualty Reinsurance segment. The information provided herein about incurred and paid accident year claims development for the years ended December 31, 2020 and prior is presented as “unaudited” supplementary information. Excess and Surplus Lines — Excluding Commercial Auto Incurred losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 97,908 $ 98,672 $ 97,829 $ 96,497 $ 97,306 $ 99,619 $ 101,271 $ 103,061 $ 106,118 $ 108,336 2013 96,729 96,064 85,433 81,009 82,830 83,855 82,732 82,517 83,594 2014 114,942 104,092 90,267 82,232 84,074 88,904 90,191 90,944 2015 126,443 113,417 104,847 102,434 103,688 110,466 114,398 2016 138,507 125,093 126,050 126,971 125,097 132,235 2017 144,349 131,897 132,136 124,265 128,674 2018 167,004 158,458 146,633 150,687 2019 214,653 194,759 189,671 2020 239,897 211,732 2021 304,435 Total $ 1,514,706 Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 6,944 $ 33,757 $ 49,604 $ 63,216 $ 74,869 $ 82,545 $ 88,812 $ 94,588 $ 99,628 $ 101,669 2013 3,867 14,509 30,382 44,421 59,641 66,553 71,035 74,635 76,295 2014 3,412 16,969 28,212 43,891 58,774 71,549 76,523 79,980 2015 4,048 17,164 34,801 55,911 73,455 87,344 94,494 2016 5,180 22,852 46,045 70,105 90,166 102,072 2017 5,290 22,956 42,764 64,924 81,303 2018 6,000 26,160 50,679 76,494 2019 8,235 31,346 62,227 2020 8,642 34,561 2021 11,693 Total $ 720,788 All outstanding losses and loss adjustment expenses prior to 2012, net of reinsurance (44 claims outstanding) $ 6,714 Total outstanding losses and loss adjustment expenses, net of reinsurance $ 800,632 Excess and Surplus Lines — Commercial Auto Incurred losses and adjustment expenses, net of reinsurance (in thousands) Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 $ 1,255 $ 1,300 $ 1,451 $ 1,351 $ 1,301 $ 1,277 $ 1,277 $ 1,277 $ 1,277 2014 20,487 14,071 17,233 18,953 19,779 18,303 19,196 20,013 2015 30,109 33,113 35,149 36,139 36,636 37,839 38,046 2016 74,340 109,286 126,791 147,122 157,712 164,399 2017 207,355 208,743 272,421 319,472 355,713 2018 255,881 230,220 283,408 349,067 2019 262,306 240,773 339,771 2020 19,133 10,899 2021 21,154 Total $ 1,300,339 Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 $ 60 $ 1,182 $ 1,285 $ 1,291 $ 1,275 $ 1,275 $ 1,275 $ 1,275 $ 1,275 2014 6,166 8,645 12,679 16,359 18,678 17,745 18,301 19,163 2015 8,356 15,234 24,282 31,592 34,819 35,983 36,710 2016 18,295 54,054 89,381 125,108 141,545 152,030 2017 41,467 107,377 192,961 252,169 309,860 2018 45,136 119,099 184,686 257,346 2019 44,225 107,182 192,982 2020 628 2,854 2021 2,810 Total $ 975,030 Total outstanding losses and loss adjustment expenses, net of reinsurance before Rasier LPT $ 325,309 Reinsurance recoverable for Rasier LPT $ 256,452 Total outstanding losses and loss adjustment expenses, net of reinsurance $ 68,857 Specialty Admitted — Individual Risk Workers’ Compensation Incurred losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 32,116 $ 32,420 $ 31,490 $ 29,689 $ 28,255 $ 28,174 $ 28,186 $ 28,186 $ 27,741 $ 27,386 2013 12,525 13,668 12,786 11,578 10,907 10,909 10,909 10,598 10,573 2014 16,638 16,652 14,620 13,890 12,704 12,704 12,573 12,685 2015 20,938 21,274 19,741 18,376 17,626 16,492 16,468 2016 21,678 20,299 18,050 15,800 14,050 13,069 2017 24,869 22,071 19,779 18,810 16,606 2018 16,432 16,288 16,038 14,200 2019 20,253 21,056 20,631 2020 20,137 22,240 2021 14,519 Total $ 168,377 Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 9,222 $ 20,308 $ 24,755 $ 26,435 $ 26,897 $ 26,932 $ 26,963 $ 26,994 $ 27,128 $ 27,140 2013 4,487 8,723 9,846 10,246 10,263 10,309 10,337 10,335 10,336 2014 4,633 10,648 12,041 12,236 12,282 12,282 12,276 12,287 2015 6,604 13,285 15,118 15,889 15,901 16,068 16,069 2016 4,664 10,227 12,135 12,432 12,481 12,483 2017 6,546 12,782 14,285 15,195 15,210 2018 4,497 9,034 11,412 11,746 2019 5,473 13,776 16,254 2020 7,394 14,668 2021 5,874 Total $ 142,067 All outstanding losses and loss adjustment expenses prior to 2012, net of reinsurance (6 claims outstanding) $ 927 Outstanding losses and loss adjustment expenses assumed from involuntary workers’ compensation pools $ 3,941 Total outstanding losses and loss adjustment expenses, net of reinsurance $ 31,178 Specialty Admitted — Fronting and Programs Incurred losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 $ 104 $ 80 $ 52 $ 52 $ 52 $ 52 $ 52 $ 52 $ 52 2014 3,460 3,468 3,818 3,425 3,228 3,083 3,081 3,068 2015 7,136 9,632 9,358 8,974 8,384 8,444 8,436 2016 11,542 15,670 14,682 15,522 14,468 15,090 2017 21,229 24,271 25,201 24,728 25,097 2018 21,758 20,677 19,822 20,158 2019 18,832 19,020 19,991 2020 25,433 28,131 2021 39,999 Total $ 160,022 Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2013 $ 28 $ 52 $ 52 $ 52 $ 52 $ 52 $ 52 $ 52 $ 52 2014 883 1,687 2,369 2,728 2,854 2,916 2,917 2,926 2015 2,058 4,666 6,165 6,919 7,329 7,654 7,728 2016 1,894 5,123 6,888 10,732 10,896 11,711 2017 1,223 6,682 13,065 15,854 18,219 2018 885 4,972 10,495 12,631 2019 4,358 5,125 9,958 2020 5,375 15,678 2021 8,347 Total $ 87,250 All outstanding losses and loss adjustment expenses, net of reinsurance $ 72,772 Outstanding losses and loss adjustment expenses, assumed from involuntary pools $ 781 Total outstanding losses and loss adjustment expenses, net of reinsurance $ 73,553 Casualty Reinsurance Incurred losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 148,251 $ 132,388 $ 131,281 $ 135,594 $ 136,813 $ 139,978 $ 143,305 $ 146,045 $ 147,413 $ 148,103 2013 133,230 130,361 131,352 134,446 137,801 143,124 146,760 149,682 153,622 2014 118,881 115,927 114,636 116,981 121,200 126,160 130,822 139,208 2015 119,157 108,870 108,699 109,117 114,517 120,185 133,790 2016 112,759 105,533 103,544 108,222 114,979 132,058 2017 134,628 128,472 129,800 138,831 176,828 2018 121,529 119,098 125,715 163,957 2019 86,022 85,549 100,895 2020 80,374 81,800 2021 82,610 Total $ 1,312,871 Cumulative paid losses and loss adjustment expenses, net of reinsurance (in thousands) Accident Year 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012 $ 73,124 $ 81,859 $ 97,215 $ 113,943 $ 121,026 $ 128,567 $ 133,606 $ 137,430 $ 139,719 $ 141,563 2013 59,756 75,094 93,902 108,396 119,256 127,732 134,644 139,250 142,824 2014 41,421 58,601 76,302 89,899 101,366 110,374 117,971 125,444 2015 40,021 53,986 68,002 80,208 90,661 100,548 110,692 2016 36,268 50,905 65,409 78,145 90,356 104,115 2017 47,739 72,891 90,117 106,942 126,747 2018 30,903 50,274 69,123 90,054 2019 12,646 25,453 37,488 2020 5,589 15,270 2021 2,082 Total $ 896,279 All outstanding losses and loss adjustment expenses prior to 2012, net of reinsurance $ 8,402 Total outstanding losses and loss adjustment expenses, net of reinsurance $ 424,994 The reconciliation of the net incurred and paid claims development tables to the reserve for losses and loss adjustment expenses in the consolidated balance sheet at December 31, 2021 is as follows (in thousands): E&S – excluding commercial auto $ 800,632 E&S – commercial auto 68,857 Specialty Admitted – individual risk workers’ compensation 31,178 Specialty Admitted – fronting and programs 73,553 Casualty Reinsurance 424,994 Net reserve for losses and loss adjustment expenses 1,399,214 Reinsurance recoverables on unpaid losses (gross of $631,000 allowance for credit losses on reinsurance recoverables) 1,349,259 Gross reserve for losses and loss adjustment expenses $ 2,748,473 The following is unaudited supplementary information about average annual percentage payouts of incurred claims by age, net of reinsurance, as of December 31, 2021. Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 E&S – excluding commercial auto 8.7 % 15.1 % 17.1 % 18.2 % 14.7 % 8.4 % 5.3 % 4.1 % 2.3 % 1.8 % E&S – commercial auto 17.7 % 35.0 % 17.9 % 13.9 % 8.4 % 3.2 % 1.1 % 0.6 % 2.1 % Specialty Admitted – individual risk workers’ compensation 27.8 % 31.3 % 15.2 % 8.7 % 6.5 % 3.4 % 2.2 % 1.1 % 1.2 % 0.9 % Specialty Admitted – fronting and programs 17.8 % 22.3 % 21.2 % 14.1 % 9.3 % 6.0 % 4.7 % 2.3 % 2.3 % Casualty Reinsurance 13.2 % 9.7 % 7.7 % 7.0 % 7.5 % 7.4 % 7.4 % 7.0 % 6.8 % 6.1 % In determining the cumulative number of reported claims, the Company measures claim counts by individual claimant for individual risk workers’ compensation policies in the Specialty Admitted Insurance segment. In the Excess and Surplus Lines insurance segment and for fronting and programs in the Specialty Admitted Insurance segment, the Company measures claim counts by claim event. The claim counts include all claims reported, even if the Company does not establish a liability for the claim (i.e. reserve for loss and loss adjustment expenses). The Casualty Reinsurance segment typically assumes written premium under quota share arrangements. The Company typically does not have direct access to claim frequency information underlying its assumed quota share arrangements given the nature of that business. In addition, multiple claims are often aggregated by the ceding company before being reported to the Company. We do not use claim frequency information in the Casualty Reinsurance segment in the determination of loss reserves or for other internal purposes. Based on these considerations, the Company does not believe providing claims frequency information is practicable as it relates to the Casualty Reinsurance segment. The table below provides information on IBNR liabilities and claims frequency for: (1) the Excess and Surplus Lines segment split between commercial auto and all non commercial auto, and (2) the Specialty Admitted Insurance segment split between individual risk workers’ compensation and fronting and programs: Excess and Surplus Lines — Excluding Commercial Auto Accident Year Incurred Losses IBNR Cumulative # of ($ in thousands) 2012 $ 108,336 $ 1,449 1,868 2013 83,594 2,624 2,510 2014 90,944 4,040 2,225 2015 114,398 5,543 2,636 2016 132,235 10,541 3,102 2017 128,674 14,307 3,197 2018 150,687 31,961 4,465 2019 189,671 77,244 5,417 2020 211,732 128,364 4,442 2021 304,435 252,419 2,964 Excess and Surplus Lines — Commercial Auto Accident Year Incurred Losses IBNR Cumulative # of ($ in thousands) 2013 $ 1,277 $ 2 54 2014 20,013 266 7,764 2015 38,046 741 41,770 2016 164,399 4,895 89,117 2017 355,713 9,690 134,150 2018 349,067 22,594 97,334 2019 339,771 54,011 71,428 2020 10,899 3,442 594 2021 21,154 14,481 699 Specialty Admitted - Individual Risk Workers’ Compensation Accident Year Incurred Losses IBNR Cumulative # of ($ in thousands) 2012 $ 27,386 $ 247 1,323 2013 10,573 237 540 2014 12,685 319 851 2015 16,468 391 975 2016 13,069 585 836 2017 16,606 1,283 1,093 2018 14,200 2,253 1,238 2019 20,631 3,057 1,552 2020 22,240 3,890 1,367 2021 14,519 2,845 1,238 Specialty Admitted — Fronting and Programs Accident Year Incurred Losses IBNR Cumulative # of ($ in thousands) 2013 $ 52 $ — 22 2014 3,068 134 858 2015 8,436 502 1,361 2016 15,090 2,241 2,816 2017 25,097 4,630 6,788 2018 20,158 4,000 7,360 2019 19,991 5,316 8,084 2020 28,131 5,843 8,680 2021 39,999 22,373 8,253 The table below provides information on IBNR liabilities for the Casualty Reinsurance segment: Accident Year Incurred Losses IBNR ($ in thousands) 2012 $ 148,103 $ 906 2013 153,622 2,566 2014 139,208 5,712 2015 133,790 9,817 2016 132,058 14,766 2017 176,828 33,463 2018 163,957 42,942 2019 100,895 49,980 2020 81,800 94,855 2021 82,610 24,450 The Company has not provided insurance coverage that could reasonably be expected to produce material levels of asbestos claims activity. In addition, management does not believe that the Company is exposed to environmental liability claims other than those which it has specifically underwritten and priced as an environmental exposure. |
