| 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, 2024 Premiums written $ 102,819,939 $ - $ (23,299,863 ) $ 79,520,076 Change in unearned premiums (1,813,141 ) - (18,583,421 ) (20,396,562 ) Premiums earned $ 101,006,798 $ - $ (41,883,284 ) $ 59,123,514 Six months ended June 30, 2023 Premiums written $ 95,244,390 $ - $ (27,646,623 ) $ 67,597,767 Change in unearned premiums 5,577,883 - (15,412,501 ) (9,834,618 ) Premiums earned $ 100,822,273 $ - $ (43,059,124 ) $ 57,763,149 Three months ended June 30, 2024 Premiums written $ 53,495,323 $ - $ (12,070,646 ) $ 41,424,677 Change in unearned premiums (2,484,903 ) - (8,636,162 ) (11,121,065 ) Premiums earned $ 51,010,420 $ - $ (20,706,808 ) $ 30,303,612 Three months ended June 30, 2023 Premiums written $ 47,646,944 $ - $ (11,541,070 ) $ 36,105,874 Change in unearned premiums 3,244,999 - (9,842,677 ) (6,597,678 ) Premiums earned $ 50,891,943 $ - $ (21,383,747 ) $ 29,508,196 Premium receipts in advance of the policy effective date are recorded as advance premiums. The balance of advance premiums as of June 30, 2024 and December 31, 2023 was $4,955,431 and $3,797,590, respectively. Loss and Loss Adjustment Expense Reserves The following table provides a reconciliation of the beginning and ending balances for unpaid loss and LAE reserves: Six months ended June 30, 2024 2024 2023 Balance at beginning of period $ 121,817,862 $ 118,339,513 Less reinsurance recoverables (33,288,650 ) (27,659,500 ) Net balance, beginning of period 88,529,212 90,680,013 Incurred related to: Current year 33,094,050 44,639,365 Prior years (996,155 ) (19,253 ) Total incurred 32,097,895 44,620,112 Paid related to: Current year 14,180,114 22,840,144 Prior years 18,883,752 25,346,289 Total paid 33,063,866 48,186,433 Net balance at end of period 87,563,241 87,113,692 Add reinsurance recoverables 29,014,249 30,447,918 Balance at end of period $ 116,577,490 $ 117,561,610 Incurred losses and LAE are presented net of reinsurance recoveries under reinsurance contracts of $9,820,083 and $23,510,756 for the six months ended June 30, 2024 and 2023, 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, 2024 and 2023 was $996,155 favorable and $19,253 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. 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 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, 2021 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, 2024, net of reinsurance, as well as the cumulative reported claims by accident year and total IBNR reserves as of June 30, 2024 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, 2015 to December 31, 2023 is presented as supplementary unaudited information. All Lines of Business (in thousands, except reported claims data) As of Incurred Loss and Allocated Loss Adjustment Expenses, Net of Reinsurance June 30, 2024 For the Years Ended December 31, Six Months Ended June 30, Cumulative Number of Reported Claims by Accident Accident Year 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 IBNR Year (Unaudited 2015 - 2023) (Unaudited) 2015 $ 22,340 $ 21,994 $ 22,148 $ 22,491 $ 23,386 $ 23,291 $ 23,528 $ 23,533 $ 23,428 $ 23,523 $ 285 2,559 2016 26,062 24,941 24,789 27,887 27,966 27,417 27,352 27,271 27,328 157 2,882 2017 31,605 32,169 35,304 36,160 36,532 36,502 36,819 37,012 308 3,401 2018 54,455 56,351 58,441 59,404 61,237 61,145 61,358 637 4,237 2019 75,092 72,368 71,544 71,964 73,310 73,740 1,320 4,506 2020 63,083 62,833 63,217 63,562 63,659 1,060 5,892 2021 96,425 96,673 96,134 96,683 3,023 5,824 2022 79,835 78,759 79,099 5,263 4,700 2023 78,978 75,352 13,484 4,052 2024 30,054 9,649 1,635 Total $ 567,809 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 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 (Unaudited 2015 - 2023) (Unaudited) 2015 $ 12,295 $ 16,181 $ 18,266 $ 19,984 $ 21,067 $ 22,104 $ 22,318 $ 22,473 $ 22,519 $ 22,528 2016 15,364 19,001 21,106 23,974 25,234 25,750 26,382 26,854 26,805 2017 16,704 24,820 28,693 31,393 32,529 33,522 34,683 34,938 2018 32,383 44,516 50,553 52,025 54,424 56,199 56,527 2019 40,933 54,897 58,055 60,374 63,932 65,532 2020 39,045 50,719 53,432 56,523 58,759 2021 56,282 77,756 82,317 84,723 2022 45,856 65,732 67,446 2023 46,280 55,579 2024 12,543 Total $ 485,382 Net liability for unpaid loss and allocated loss adjustment expenses for the accident years presented $ 82,427 All outstanding liabilities before 2015, net of reinsurance 1,006 Liabilities for loss and allocated loss adjustment expenses, net of reinsurance $ 83,434 (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 condensed 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, 2024 Liabilities for allocated loss and loss adjustment expenses, net of reinsurance $ 83,434 Total reinsurance recoverable on unpaid losses 29,014 Unallocated loss adjustment expenses 4,130 Total gross liability for loss and LAE reserves $ 116,577 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”). Upon the expiration of the 2021/2023 Treaty on January 1, 2023, the Company entered into a new 30% quota share reinsurance treaty for its personal lines business, covering the period from January 1, 2023 through January 1, 2024 (“2023/2024 Treaty”). Upon the expiration of the 2023/2024 Treaty on January 1, 2024, the Company entered into a new 27% quota share reinsurance treaty for its personal lines business, covering the period from January 1, 2024 through January 1, 2025 (“2024/2025 Treaty”). The Company’s excess of loss and catastrophe reinsurance treaties expired on June 30, 2024 and the Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2024. Effective January 1, 2022, the Company entered into an underlying excess of loss reinsurance treaty (“Underlying XOL Treaty”) covering the period from January 1, 2022 through January 1, 2023. The treaty provided 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty. Effective January 1, 2023, the Underlying XOL Treaty was renewed covering the period from January 1, 2023 through January 1, 2024. Effective January 1, 2024, the Underlying XOL Treaty was renewed covering the period from January 1, 2024 through January 1, 2025. Material terms for reinsurance treaties in effect for the treaty years shown below are as follows: Treaty Period 2024/2025 Treaty 2023/2024 Treaty 2021/2023 Treaty January 2, 2025 July 1, 2024 January 1, 2024 July 1, 2023 January 1, 2023 July 1, 2022 December 31, 2021 to to to to to to to Line of Business June 30, 2025 January 1, 2025 June 30, 2024 January 1, 2024 June 30, 2023 January 1, 2023 June 30, 2022 Personal Lines: Homeowners, dwelling fire and canine legal liability Quota share treaty: Percent ceded (7) (6 ) 27 % 27 % 30 % 30 % 30 % 30 % Risk retained on initial $1,000,000 of losses (5) (6) (7) $ 1,000,000 $ 730,000 $ 730,000 $ 700,000 $ 700,000 $ 700,000 $ 700,000 Losses per occurrence subject to quota share reinsurance coverage (6 ) $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 $ 1,000,000 Expiration date (6 ) January 1, 2025 January 1, 2025 January 1, 2024 January 1, 2024 January 1, 2023 January 1, 2023 Excess of loss coverage and facultative facility coverage (1) (5) (6) $ 8,000,000 $ 8,400,000 $ 8,400,000 $ 8,400,000 $ 8,400,000 $ 8,400,000 $ 8,400,000 in excess of in excess of in excess of in excess of in excess of in excess of in excess of $ 1,000,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000 $ 600,000 Total reinsurance coverage per occurrence (5) (6) $ 8,000,000 $ 8,470,000 $ 8,470,000 $ 8,500,000 $ 8,500,000 $ 8,500,000 $ 8,500,000 Losses per occurrence subject to reinsurance coverage (6) $ 9,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 $ 9,000,000 Expiration date (6) June 30, 2025 June 30, 2025 June 30, 2024 June 30, 2024 June 30, 2023 June 30, 2023 June 30, 2022 Catastrophe Reinsurance: Initial loss subject to personal lines quota share treaty (6) (6 ) $ 5,000,000 $ 10,000,000 $ 10,000,000 $ 10,000,000 $ 10,000,000 $ 10,000,000 Risk retained per catastrophe occurrence (6) (7) (8) 5,000,000 4,750,000 $ 9,500,000 $ 8,750,000 $ 8,750,000 $ 7,400,000 $ 7,400,000 Catastrophe loss coverage in excess of quota share coverage (2) (6) $ 275,000,000 $ 275,000,000 $ 315,000,000 $ 315,000,000 $ 335,000,000 $ 335,000,000 $ 490,000,000 Reinstatement premium protection (3) (4) Yes Yes 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, 2025. (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, 2022 through June 30, 2023, reinstatement premium protection for $12,500,000 of catastrophe coverage in excess of $10,000,000. For the period July 1, 2023 through June 30, 2024, reinstatement premium protection for $50,000,000 of catastrophe coverage in excess of $10,000,000. (4) For the period July 1, 2024 through June 30, 2025 (expiration date of the catastrophe reinsurance treaty), reinstatement premium protection for $10,500,000 of catastrophe coverage in excess of $10,000,000. (5) For the period January 1, 2022 through January 1, 2025, Underlying XOL Treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Excludes losses from named storms. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty and 2023/2024 Treaty. Reduces retention to $530,000 from $730,000 under the 2024/2025 Treaty. After the expiration of the Underlying XOL Treaty and 2024/2025 Treaty on January 1, 2025, retention will be $1,000,000. (6) Personal lines quota share (homeowners, dwelling fire and canine liability) and underlying excess of loss reinsurance will expire on January 1, 2025, with none of these coverages to be in effect during the period from January 2, 2025 through June 30, 2025. Reinsurance coverage in effect from January 2, 2025 through June 30, 2025 is only for excess of loss and catastrophe reinsurance treaties. (7) For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2023/2024 Treaty, 17.5% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2024/2025 Treaty, 22% of the 27% total of losses ceded under this treaty are excluded from a named catastrophe event. (8) Plus losses in excess of catastrophe coverage Treaty Year July 1, 2023 July 1, 2022 to to Line of Business June 30, 2024 June 30, 2023 Personal Lines: Personal Umbrella Quota share treaty: Percent ceded - first $1,000,000 of coverage 90 % 90 % Percent ceded - excess of $1,000,000 dollars of coverage 95 % 95 % Risk retained $ 300,000 $ 300,000 Total reinsurance coverage per occurrence $ 4,700,000 $ 4,700,000 Losses per occurrence subject to quota share reinsurance coverage $ 5,000,000 $ 5,000,000 Expiration date June 30, 2024 June 30, 2023 Commercial Lines (1) (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 2024/2025 Treaty for the six months ended June 30, 2024, and under the 2023/2024 Treaty for the six months ended June 30, 2023, based on a fixed provisional commission rate at which provisional ceding commissions are earned. The Company earned ceding commission revenue under its quota share reinsurance agreements that expired prior to the 2021/2023 Treaty based on: (i) a fixed provisional commission rate at which provisional ceding commissions were earned, and (ii) under certain of the quota share reinsurance agreements, 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 increase when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decrease when the estimated ultimate loss ratio increases. Ceding commission revenue consists of the following: Three months ended Six months ended June 30, June 30, 2024 2023 2024 2023 Provisional ceding commissions earned $ 4,561,998 $ 5,294,025 $ 9,117,238 $ 10,740,833 Contingent ceding commissions earned (37 ) 118,185 11,834 116,784 $ 4,561,961 $ 5,412,210 $ 9,129,072 $ 10,857,617 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, 2024 and December 31, 2023, net contingent ceding commissions payable to reinsurers under all treaties was approximately $723,000 and $3,302,000, respectively, which is recorded in reinsurance balances payable on the accompanying condensed consolidated balance sheets. Expected Credit Losses – Uncollectible Reinsurance The Company reviews reinsurance receivables which relate to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. The Company has not recorded an allowance for uncollectible reinsurance as there is no perceived credit risk. The principal credit quality indicator used in the valuation of the allowance on reinsurance receivables is the financial strength rating of the reinsurer sourced from major rating agencies. Changes in the allowance are presented as a component of other underwriting expenses on the condensed consolidated statements of operations and comprehensive income (loss). |
