| Note 6 - Property and Casualty Insurance Activity | Note 6 – Property and Casualty Insurance Activity Premiums Earned Premiums written, ceded and earned are as follows: Direct Assumed Ceded Net Six months ended June 30, 2022 Premiums written $ 92,762,360 $ - $ (37,818,392 ) $ 54,943,968 Change in unearned premiums (393,353 ) - 24,833 (368,520 ) Premiums earned $ 92,369,007 $ - $ (37,793,559 ) $ 54,575,448 Six months ended June 30, 2021 Premiums written $ 82,744,761 $ - $ (14,630,872 ) $ 68,113,889 Change in unearned premiums 1,936,706 - (24,951 ) 1,911,755 Premiums earned $ 84,681,467 $ - $ (14,655,823 ) $ 70,025,644 Three months ended June 30, 2022 Premiums written $ 49,778,463 $ - $ (19,752,683 ) $ 30,025,780 Change in unearned premiums (2,786,080 ) - 662,368 (2,123,712 ) Premiums earned $ 46,992,383 $ - $ (19,090,315 ) $ 27,902,068 Three months ended June 30, 2021 Premiums written $ 44,615,644 $ - $ (7,301,365 ) $ 37,314,279 Change in unearned premiums (1,852,772 ) - (25,081 ) (1,877,853 ) Premiums earned $ 42,762,872 $ - $ (7,326,446 ) $ 35,436,426 Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of June 30, 2022 and December 31, 2021 was $5,773,444 and $2,693,466, respectively. Loss and Loss Adjustment Expense Reserves The following table provides a reconciliation of the beginning and ending balances for unpaid losses and loss adjustment expense (“LAE”) reserves: Six months ended June 30, 2022 2021 Balance at beginning of period $ 94,948,745 $ 82,801,228 Less reinsurance recoverables (10,637,679 ) (20,154,251 ) Net balance, beginning of period 84,311,066 62,646,977 Incurred related to: Current year 41,326,838 43,328,342 Prior years 270,401 (8,460 ) Total incurred 41,597,239 43,319,882 Paid related to: Current year 23,188,157 19,716,893 Prior years 21,700,500 14,799,794 Total paid 44,888,657 34,516,687 Net balance at end of period 81,019,648 71,450,172 Add reinsurance recoverables 17,883,412 13,574,866 Balance at end of period $ 98,903,060 $ 85,025,038 Incurred losses and LAE are net of reinsurance recoveries under reinsurance contracts of $18,267,384 and $881,729 for the six months ended June 30, 2022 and 2021, respectively. Prior year incurred loss and LAE development is based upon estimates by line of business and accident year. Prior year loss and LAE development incurred during the six months ended June 30, 2022 and 2021 was $270,401 unfavorable and $8,460 favorable, respectively. Management, on a quarterly basis, performs a review of open liability claims to assess carried case and incurred but not reported (“IBNR”) reserve levels, giving consideration to both Company and industry trends. Loss and LAE reserves The reserving process for loss and LAE reserves provides for the Company’s best estimate at a particular point in time of the ultimate unpaid cost of all losses and LAE incurred, including settlement and administration of losses, and is based on facts and circumstances then known including losses that have occurred but that have not yet been reported. The process relies on standard actuarial reserving methodologies, judgments relative to estimates of ultimate claim severity and frequency, the length of time before losses will develop to their ultimate level (‘tail’ factors), and the likelihood of changes in the law or other external factors that are beyond the Company’s control. Several actuarial reserving methodologies are used to estimate required loss reserves. The process produces carried reserves set by management based upon the actuaries’ best estimate and is the cumulative combination of the best estimates made by line of business, accident year, and loss and LAE. The amount of loss and LAE reserves for individual reported claims (the “case reserve”) is determined by the claims department and changes over time as new information is gathered. Such information is critical to the review of appropriate IBNR reserves and includes a review of coverage applicability, comparative liability on the part of the insured, injury severity, property damage, replacement cost estimates, and any other information considered pertinent to estimating the exposure presented by the claim. The amounts of loss and LAE reserves for unreported claims and development on known claims (IBNR reserves) are determined using historical information aggregated by line of insurance as adjusted to current conditions. Since this process produces loss reserves set by management based upon the actuaries’ best estimate, there is no explicit or implicit provision for uncertainty in the carried loss reserves. Due to the inherent uncertainty associated with the reserving process, the ultimate liability may differ, perhaps substantially, from the original estimate. Such estimates are regularly reviewed and updated and any resulting adjustments are included in the current period’s results. Reserves are closely monitored and are recomputed periodically using the most recent information on reported claims and a variety of statistical techniques. On at least a quarterly basis, the Company reviews by line of business existing reserves, new claims, changes to existing case reserves, and paid losses with respect to the current and prior periods. Several methods are used, varying by line of business and accident year, in order to select the estimated period-end loss reserves. These methods include the following: Paid Loss Development Incurred Loss Development Paid Bornhuetter-Ferguson (“BF”) Incurred Bornhuetter-Ferguson (“BF”) Incremental Claim-Based Methods Frequency / Severity Based Methods Management’s best estimate of required reserves is generally based on an average of the methods above, with appropriate weighting of methods based on the line of business and accident year being projected. In some cases, additional methods or historical data from industry sources are employed to supplement the projections derived from the methods listed above. Three key assumptions that materially affect the estimate of loss reserves are the loss ratio estimate for the current accident year used in the BF methods, the loss development factor selections used in the loss development methods, and the loss severity assumptions used in the frequency / severity method described above. The loss ratio estimates used in the BF methods are selected after reviewing historical accident year loss ratios adjusted for rate changes, trend, and mix of business. The severity assumptions used in the frequency / severity method are determined by reviewing historical average claim severity for older more mature accident periods, trended forward to less mature accident periods. COVID-19 has introduced additional uncertainty to recent claim trends. The Company reviews the carried reserves levels on a regular basis as additional information becomes available and makes adjustments in the periods in which such adjustments are determined to be necessary. The Company is not aware of any other claim trends that have emerged or that would cause future adverse development that have not already been contemplated in setting current carried reserves levels. In New York State, lawsuits for negligence are subject to certain limitations and must be commenced within three years from the date of the accident or are otherwise barred. Accordingly, the Company’s exposure to unreported claims (“pure” IBNR) for accident dates of June 30, 2019 and prior is limited, although there remains the possibility of adverse development on reported claims (“case development” IBNR). In certain rare circumstances states have retroactively revised a statute of limitations. The Company is not aware of any such effort that would have a material impact on the Company’s results. The following is information about incurred and paid claims development as of June 30, 2022, net of reinsurance, as well as the cumulative reported claims by accident year and total IBNR reserves as of June 30, 2022 included in the net incurred loss and allocated expense amounts. The historical information regarding incurred and paid claims development for the years ended December 31, 2013 to December 31, 2021 is presented as supplementary unaudited information. All Lines of Business (in thousands, except reported claims data) Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance As of For the Years Ended December 31, June 30, 2022 Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 Six Months Ended June 30, 2022 IBNR Cumulative Number of Reported Claims by Accident Year (Unaudited 2013 - 2021) (Unaudited) 2013 $ 10,728 $ 9,745 $ 9,424 $ 9,621 $ 10,061 $ 10,089 $ 10,607 $ 10,495 $ 10,529 $ 10,503 $ 6 1,564 2014 14,193 14,260 14,218 14,564 15,023 16,381 16,428 16,434 16,505 35 2,138 2015 22,340 21,994 22,148 22,491 23,386 23,291 23,528 23,541 266 2,558 2016 26,062 24,941 24,789 27,887 27,966 27,417 27,423 108 2,881 2017 31,605 32,169 35,304 36,160 36,532 36,512 310 3,398 2018 54,455 56,351 58,441 59,404 59,838 647 4,226 2019 75,092 72,368 71,544 71,327 4,094 4,485 2020 63,083 62,833 62,261 3,848 5,854 2021 96,425 97,124 10,253 5,762 2022 38,506 10,000 2,096 Total $ 443,540 All Lines of Business (in thousands) Cumulative Paid Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance For the Years Ended December 31, Six Months Ended June 30, Accident Year 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 (Unaudited 2013 - 2021) (Unaudited) 2013 $ 3,405 $ 5,303 $ 6,633 $ 7,591 $ 8,407 $ 9,056 $ 9,717 $ 10,016 $ 10,392 $ 10,402 2014 5,710 9,429 10,738 11,770 13,819 14,901 15,491 15,770 16,074 2015 12,295 16,181 18,266 19,984 21,067 22,104 22,318 22,452 2016 15,364 19,001 21,106 23,974 25,234 25,750 25,977 2017 16,704 24,820 28,693 31,393 32,529 32,821 2018 32,383 44,516 50,553 52,025 53,176 2019 40,933 54,897 58,055 59,819 2020 39,045 50,719 51,982 2021 56,282 72,020 2022 21,245 Total $ 365,966 Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented $ 77,574 All outstanding liabilities before 2013, net of reinsurance 275 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $ 77,850 (Components may not sum to totals due to rounding) Reported claim counts are measured on an occurrence or per event basis. A single claim occurrence could result in more than one loss type or claimant; however, the Company counts claims at the occurrence level as a single claim regardless of the number of claimants or claim features involved. The reconciliation of the net incurred and paid loss development tables to the loss and LAE reserves in the consolidated balance sheet is as follows: Reconciliation of the Disclosure of Incurred and Paid Loss Development to the Liability for Loss and LAE Reserves As of (in thousands) June 30, 2022 Liabilities for allocated loss and loss adjustment expenses, net of reinsurance $ 77,850 Total reinsurance recoverable on unpaid losses 17,883 Unallocated loss adjustment expenses 3,170 Total gross liability for loss and LAE reserves $ 98,903 (Components may not sum to totals due to rounding) Reinsurance Effective December 31, 2021, the Company entered into a quota share reinsurance treaty for its personal lines business, which primarily consists of homeowners’ and dwelling fire policies, covering the period from December 31, 2021 through January 1, 2023 (“2021/2023 Treaty”). The Company’s excess of loss and catastrophe reinsurance treaties expired on June 30, 2022 and the Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2022. Effective October 18, 2021, the Company entered into a stub catastrophe reinsurance treaty covering the period from October 18, 2021 through December 31, 2021. The treaty provided reinsurance coverage for catastrophe losses of $5,000,000 in excess of $5,000,000. Effective January 1, 2022, the Company entered into an underlying excess of loss reinsurance treaty covering the period from January 1, 2022 through January 1, 2023. The treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty. Material terms for reinsurance treaties in effect for the treaty years shown below are as follows: Treaty Period (2021/2023 Treaty) January 2, July 1, December 31, July 1, December 31, 2023 2022 2021 2021 2020 to to to to to June 30, January 1, June 30, December 30, June 30, Line of Business 2023 2023 2022 2021 2021 Personal Lines: Homeowners, dwelling fire and and canine legal liability Quota share treaty: Percent ceded (9) None (8) 30 % 30 % None (5) None (5) Risk retained on intial $1,000,000 of losses (5) (7) (8) (9) $ 1,000,000 $ 700,000 $ 700,000 $ 1,000,000 $ 1,000,000 Losses per occurrence subject to quota share reinsurance coverage None (8) $ 1,000,000 $ 1,000,000 None (5) None (5) Expiration date (8 ) January 1, 2023 January 1, 2023 NA (5) NA (5) Excess of loss coverage and facultative facility coverage (1) (7) $ 8,000,000 $ 8,400,000 $ 8,400,000 $ 8,000,000 $ 8,000,000 in excess of in excess of in excess of in excess of in excess of $ 1,000,000 $ 600,000 $ 600,000 $ 1,000,000 $ 1,000,000 Total reinsurance coverage per occurrence (5) (7) (8) $ 8,000,000 $ 8,500,000 $ 8,500,000 $ 8,000,000 $ 8,000,000 Losses per occurrence subject to reinsurance coverage (5) (8) $ 8,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 Expiration date (8) June 30, 2023 June 30, 2023 June 30, 2022 June 30, 2022 June 30, 2021 Catastrophe Reinsurance: Initial loss subject to personal lines quota share treaty (8 ) 10,000,000 10,000,000 None (5) None (5) Risk retained per catastrophe occurrence (5) (8) (9) (10) $ 10,000,000 $ 7,400,000 $ 7,400,000 $ 10,000,000 $ 10,000,000 Catastrophe loss coverage in excess of quota share coverage (2) (5) (8) $ 335,000,000 $ 335,000,000 $ 490,000,000 $ 490,000,000 $ 475,000,000 Catastrophe stub coverage for the period from October 18, 2021 through December 31, 2021 (6) NA NA NA $ 5,000,000 NA in excess of $ 5,000,000 Reinstatement premium protection (3) (4) Yes Yes Yes Yes Yes (1) For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $9,000,000 in total insured value, which covers direct losses from $3,500,000 to $9,000,000 through June 30, 2023. (2) Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone. (3) For the period July 1, 2020 through June 30, 2021, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000. For the period July 1, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000. (4) For the period July 1, 2022 through June 30, 2023, reinstatement premium protection for $9,800,000 of catastrophe coverage in excess of $10,000,000. (5) The personal lines quota share (homeowners, dwelling fire and canine legal liability) expired on December 30, 2020; reinsurance coverage from December 31, 2020 through December 30, 2021 is only for excess of loss and catastrophe reinsurance. (6) Excludes freeze and freeze related claims. (7) For the period January 1, 2022 through January 1, 2023, underlying excess of loss treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty. Excludes losses from named storms. (8) Personal lines quota share (homeowners, dwelling fire and canine liability) and underlying excess of loss reinsurance will expire on January 1, 2023; reinsurance coverage in effect from January 2, 2023 through June 30, 2023 is only for excess of loss and catastrophe reinsurance treaties. (9) For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. (10) Plus losses in excess of catastrophe coverage. Treaty Year July 1, 2022 July 1, 2021 July 1, 2020 to to to Line of Business June 30, 2023 June 30, 2022 June 30, 2021 Personal Lines: Personal Umbrella Quota share treaty: Percent ceded - first $1,000,000 of coverage 90 % 90 % 90 % Percent ceded - excess of $1,000,000 dollars of coverage 95 % 95 % 95 % Risk retained $ 300,000 $ 300,000 $ 300,000 Total reinsurance coverage per occurrence $ 4,700,000 $ 4,700,000 $ 4,700,000 Losses per occurrence subject to quota share reinsurance coverage $ 5,000,000 $ 5,000,000 $ 5,000,000 Expiration date June 30, 2023 June 30, 2022 June 30, 2021 Commercial Lines (1): General liability commercial policies Quota share treaty None Risk retained $ 750,000 Excess of loss coverage above risk retained $ 3,750,000 in excess of $ 750,000 Total reinsurance coverage per occurrence $ 3,750,000 Losses per occurrence subject to reinsurance coverage $ 4,500,000 Commercial Umbrella Quota share treaty None (1) Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss. The Company’s reinsurance program has been structured to enable the Company to grow its premium volume while maintaining regulatory capital and other financial ratios generally within or below the expected ranges used for regulatory oversight purposes. The reinsurance program also provides income as a result of ceding commissions earned pursuant to the quota share reinsurance contracts. The Company’s participation in reinsurance arrangements does not relieve the Company of its obligations to policyholders. Ceding Commission Revenue The Company earned ceding commission revenue under the 2021/2023 Treaty for the three months and six months ended June 30, 2022 based on a fixed provisional commission rate at which provisional ceding commissions will be earned. There was no quota share treaty in effect during the three months and six months ended June 30, 2021. The Company earned ceding commission revenue under its expired quota share reinsurance agreements based on: (i) a fixed provisional commission rate at which provisional ceding commissions were earned, and (ii) a continuing sliding scale of commission rates and ultimate treaty year loss ratios on the policies reinsured under each of these agreements based upon which contingent ceding commissions are earned. The sliding scale includes minimum and maximum commission rates in relation to specified ultimate loss ratios. The commission rate and contingent ceding commissions earned increases when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decreases when the estimated ultimate loss ratio increases. Ceding commission revenue consists of the following: Three months ended Six months ended June 30, June 30, 2022 2021 2022 2021 Provisional ceding commissions earned $ 4,692,931 $ 49,589 $ 9,234,464 $ 95,088 Contingent ceding commissions earned 22,656 (3,848 ) 162,519 (50,412 ) $ 4,715,587 $ 45,741 $ 9,396,983 $ 44,676 Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled periodically based on the Loss Ratio of each treaty year that ends on June 30, for the expired treaties that were subject to contingent commissions. As discussed above, the Loss Ratios from prior years’ treaties are subject to change as incurred losses from those periods develop, resulting in an increase or decrease in the commission rate and contingent ceding commissions earned. As of June 30, 2022 and December 31, 2021, net contingent ceding commissions payable to reinsurers under all treaties was approximately $2,718,000 and $2,881,000, respectively, which is recorded in reinsurance balances payable on the accompanying condensed consolidated balance sheets. |
