| Property and Casualty Unpaid Claims and Claim Expenses | NOTE 5 - Property and Casualty Unpaid Claims and Claim Expenses The following table is a summary reconciliation of the beginning and ending Property and Casualty unpaid claims and claim expense reserves for the periods indicated. The table presents reserves on both gross and net (after reinsurance) bases. The total net Property and Casualty insurance claims and claim expense incurred amounts are reflected in the Consolidated Statements of Operations. The end of the year gross reserve (before reinsurance) balances and the reinsurance recoverable balances are reflected on a gross basis in the Consolidated Balance Sheets. ($ in thousands) Years Ended December 31, 2017 2016 2015 Property and Casualty segment Gross reserves, beginning of year (1) $ 307,757 $ 301,569 $ 311,097 Less: reinsurance recoverables 61,199 50,332 43,740 Net reserves, beginning of year (2) 246,558 251,237 267,357 Incurred claims and claim expenses: Claims occurring in the current year 498,989 471,099 432,811 Decrease in estimated reserves for claims occurring in prior years (3) (2,700 ) (7,000 ) (12,500 ) Total claims and claim expenses incurred (4) 496,289 464,099 420,311 Claims and claim expense payments for claims occurring during: Current year 333,385 323,025 294,449 Prior years 147,689 145,753 141,982 Total claims and claim expense payments 481,074 468,778 436,431 Net reserves, end of year (2) 261,773 246,558 251,237 Plus: reinsurance recoverables 57,409 61,199 50,332 Gross reserves, end of year (1) $ 319,182 $ 307,757 $ 301,569 ____________________ (1) Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Life and Retirement of $28,567 thousand , $22,131 thousand and $22,151 thousand as of December 31, 2017 , 2016 and 2015 , respectively, in addition to Property and Casualty reserves. (2) Reserves net of anticipated reinsurance recoverables. (3) Shows the amounts by which the Company decreased its reserves in each of the periods indicated for claims occurring in previous periods to reflect subsequent information on such claims and changes in their projected final settlement costs. Also refer to the paragraphs below for additional information regarding the reserve development recorded in 2017 , 2016 and 2015 . (4) Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Life and Retirement of $86,017 thousand , $76,905 thousand , and $76,053 thousand for the years ended December 31, 2017 , 2016 and 2015 , respectively, in addition to Property and Casualty amounts. Underwriting results for Property and Casualty are significantly influenced by estimates of the Company's ultimate liability for insured events. There is a high degree of uncertainty inherent in the estimates of ultimate losses underlying the liability for unpaid claims and claim settlement expenses. This inherent uncertainty is particularly significant for liability-related exposures due to the extended period, often many years, that transpires between a loss event, receipt of related claims data from policyholders and ultimate settlement of the claim. Reserves for Property and Casualty claims include provisions for payments to be made on reported claims (case reserves), claims incurred but not yet reported (IBNR) and associated settlement expenses (together, loss reserves). The process by which these reserves are established requires reliance upon estimates based on known facts and on interpretations of circumstances, including the Company's experience with similar cases and historical trends involving claim payments and related patterns, pending levels of unpaid claims and product mix, as well as other factors including court decisions, economic conditions, public attitudes and medical costs. The Company believes the Property and Casualty loss reserves are appropriately established based on available facts, laws, and regulations. The Company calculates and records a single best estimate of the reserve (which is equal to the actuarial point estimate) as of each reporting date, for each line of business and its coverages for reported losses and for IBNR losses and as a result believes no other estimate is better than the recognized amount. Due to uncertainties involved, the ultimate cost of losses may vary materially from recognized amounts. The Company continually updates loss estimates using both quantitative and qualitative information from its reserving actuaries and information derived from other sources. Adjustments may be required as information develops which varies from experience, or, in some cases, augments data which previously were not considered sufficient for use in determining liabilities. The effects of these adjustments may be significant and are charged or credited to income in the period in which the adjustments are made. Numerous risk factors will affect more than one product line. One of these factors is changes in claim department practices, including claim closure rates, number of claims closed without payment, the use of third-party claim adjusters and the level of needed case reserve estimated by the adjuster. Other risk factors include changes in claim frequency, changes in claim severity, regulatory and legislative actions, court actions, changes in economic conditions and trends (e.g. medical costs, labor rates and the cost of materials), the occurrence of unusually large or frequent catastrophic loss events, timeliness of claim reporting, the state in which the claim occurred and degree of claimant fraud. The extent of the impact of a risk factor will also vary by coverages within a product line. Individual risk factors are also subject to interactions with other risk factors within product line coverages. While all product lines are exposed to these risks, there are some loss types or product lines for which the financial effect will be more significant. For instance, given the relatively large proportion (approximately 80.0% as of December 31, 2017 ) of the Company's reserves that are in the longer-tail automobile liability coverages, regulatory and court actions, changes in economic conditions and trends, and medical costs could be expected to impact this product line more extensively than others. Reserves are established for claims as they occur for each line of business based on estimates of the ultimate cost to settle the claims. The actual loss results are compared to prior estimates and differences are recorded as re-estimates. The primary actuarial techniques (development of paid loss dollars, development of reported loss dollars, methods based on expected loss ratios and methods utilizing frequency and severity of claims) used to estimate reserves and provide for losses are applied to actual paid losses and reported losses (paid losses plus individual case reserves set by claim adjusters) for an accident year to create an estimate of how losses are likely to develop over time. An accident year refers to classifying claims based on the year in which the claims occurred. For estimating short-tail coverage reserves (e.g., homeowners and automobile physical damage), which comprise approximately 15.0% of the Company's total loss reserves as of December 31, 2017 , the primary actuarial technique utilized is the development of paid loss dollars due to the relatively quick claim settlement period. As it relates to estimating long-tail coverage reserves (primarily related to automobile liability), which comprise approximately 85.0% of the Company's total loss reserves as of December 31, 2017 , the primary actuarial technique utilized is the development of reported loss dollars due to the relatively long claim settlement period. In all of the loss estimation techniques referred to above, a ratio (development factor) is calculated which compares current results to results in the prior period for each accident year. Various development factors, based on historical results, are multiplied by the current experience to estimate the development of losses of each accident year from the current time period into the next time period. The development factors for the next time period for each accident year are compounded over the remaining calendar years to calculate an estimate of ultimate losses for each accident year. Occasionally, unusual aberrations in loss patterns are caused by factors such as changes in claim reporting, settlement patterns, unusually large losses, process changes, legal or regulatory environment changes, and other influences. In these instances, analyses of alternate development factor selections are performed to evaluate the effect of these factors and judgment is applied to make appropriate development factor assumptions needed to develop a best estimate of ultimate losses. Paid losses are then subtracted from estimated ultimate losses to determine the indicated loss reserves. The difference between indicated reserves and recorded reserves is the amount of reserve re-estimate. Reserves are re-estimated quarterly. When new development factors are calculated from actual losses, and they differ from estimated development factors used in previous reserve estimates, assumptions about losses and required reserves are revised based on the new development factors. Changes to reserves are recognized in the period in which development factor changes result in reserve re-estimates. Claim count estimates are also established for claims as they occur for each line of business based on estimates of the ultimate claim counts. (These counts are derived by counting the number of claimants by insurance coverage.) The primary actuarial techniques (development of paid claim counts and development of reported claim counts) used to estimate ultimate claim counts are applied to actual paid claim counts and reported claim counts (paid claims plus individual unpaid claims set by claim adjusters) for an accident year to create an estimate of how claims are likely to develop over time. An accident year refers to classifying claims based on the year in which the claim occurred. The ultimate claim count generally gives equal consideration to the results of the two actuarial techniques described. Occasionally, unusual aberrations in claim reporting patterns or claims payment patterns may occur. In these instances, analyses of alternate development factor selections are performed to evaluate the effect of these factors and judgment is applied to make appropriate development factor assumptions needed to develop a best estimate of ultimate claims. See tables on the following pages of Note 5 for details of the average annual percentage payout of incurred claims by age, also referred to as a history of claims duration and tables illustrating the incurred and paid claims development information by accident year on a net basis for the lines of Homeowners, Auto Liability, and Auto Physical Damage, which represents 99.0% of the Company's incurred losses for 2017 . Numerous actuarial estimates of the types described above are prepared each quarter to monitor losses for each line of business, including the line's individual coverages; for reported losses and IBNR. Often, several different estimates are prepared for each detailed component, incorporating alternative analyses of changing claim settlement patterns and other influences on losses, from which the Company selects the best estimate for each component, occasionally incorporating additional analyses and judgment, as described above. These estimates also incorporate the historical impact of inflation into reserve estimates, the implicit assumption being that a multi-year average development factor represents an adequate provision. Based on the Company's review of these estimates, as well as the review of the independent reserve studies, the best estimate of required reserves for each line of business, including the line's individual coverages, is determined by management and is recognized for each accident year, then the required reserves for each component are summed to create the reserve balances carried on the Company's Consolidated Balance Sheets. Based on the Company's products and coverages, historical experience, and various actuarial methodologies used to develop reserve estimates, the Company estimates that the potential variability of the Property and Casualty loss reserves within a reasonable probability of other possible outcomes may be approximately plus or minus 6.0% of reserves, which equates to plus or minus approximately $10,000 thousand of net income as of December 31, 2017 . Although this evaluation reflects the most likely outcomes, it is possible the final outcome may fall below or above these estimates. Net favorable development of total reserves for Property and Casualty claims occurring in prior years was $2,700 thousand in 2017 , $7,000 thousand in 2016 and $12,500 thousand in 2015 . In 2017 , the favorable development was predominantly the result of favorable severity trends in property for accident years 2015 and prior. In 2016 , the favorable development was predominantly the result of favorable severity trends in property for accident years 2014 and prior. In 2015 , the favorable development was predominantly the result of favorable frequency and severity trends in automobile liability loss emergence for accident years 2013 and prior, as well as favorable severity trends in property for accident years 2013 and prior. The Company completes a detailed study of Property and Casualty reserves based on information available at the end of each quarter and year. Trends of reported losses (paid amounts and case reserves on claims reported to the Company) for each accident year are reviewed and ultimate loss costs for those accident years are estimated. The Company engages an independent property and casualty actuarial consulting firm to prepare an independent study of the Company's Property and Casualty reserves at December 31 st of each year. The result of the independent actuarial study at December 31, 2017 was consistent with management's analysis and selected estimates and did not result in any adjustments to the Company's Property and Casualty reserves recognized. At the time each of the reserve analyses was performed, the Company believed that each estimate was based upon sound methodology and such methodologies were appropriately applied and that there were no trends which indicated the likelihood of future loss reserve development. The financial impact of the net reserve development was therefore accounted for in the period that the development was determined. No other adjustments were made in the determination of the liabilities during the periods covered by these consolidated financial statements. Management believes that, based on data currently available, it has reasonably estimated the Company's ultimate losses. Below is the average annual percentage payout of incurred claims by age, also referred to as a history of claims duration: ($ in thousands) Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Years 1 2 3 4 5 6 7 8 9 10 Homeowners 78.2 % 17.1 % 2.5 % 1.0 % 0.9 % 0.2 % 0.1 % — — — Auto liability 41.0 % 34.9 % 13.8 % 6.3 % 2.5 % 1.0 % 0.3 % 0.1 % — — Auto physical damage 95.4 % 4.6 % — — — — — — — — The following tables illustrate the incurred and paid claims development by accident year on a net basis for the lines of homeowners, auto liability and auto physical damage. Conditions and trends that have affected the development of these reserves in the past will not necessarily reoccur in the future. It may not be appropriate to use this cumulative history in the projection of future performance. ($ in thousands) Homeowners Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, As of December 31, 2017 Total of Incurred- But-Not-Reported Liabilities Plus Expected Development on Reported Claims Cumulative Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 140,469 $ 136,743 $ 136,002 $ 139,743 $ 139,232 $ 139,511 $ 139,472 $ 139,348 $ 139,306 $ 139,311 $ — 32,277 2009 113,274 112,280 112,970 113,096 113,357 113,230 113,216 112,900 112,958 — 21,809 2010 140,994 136,907 133,358 133,235 133,216 133,136 132,859 132,905 74 25,149 2011 150,141 150,334 150,791 148,860 148,755 148,414 148,370 326 29,526 2012 108,754 109,156 109,360 106,486 106,308 106,348 433 21,576 2013 105,584 107,489 103,982 102,407 102,345 718 19,214 2014 111,647 113,505 109,059 106,844 654 20,076 2015 111,706 115,134 114,404 1,667 18,673 2016 115,931 118,604 4,677 19,733 2017 126,285 12,834 17,494 Total $ 1,208,374 Homeowners Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 105,401 $ 130,888 $ 134,235 $ 136,923 $ 138,802 $ 138,992 $ 139,121 $ 139,224 $ 139,256 $ 139,257 2009 81,570 104,407 108,217 110,324 112,554 112,720 112,827 112,848 112,851 2010 98,190 124,326 129,790 132,246 132,523 132,604 132,599 132,602 2011 123,046 142,846 145,852 146,908 147,451 148,026 148,014 2012 84,260 101,566 104,203 105,156 105,561 105,909 2013 76,890 96,599 99,361 100,968 101,527 2014 83,314 103,030 105,704 106,081 2015 90,704 109,303 111,882 2016 95,772 113,186 2017 106,800 Total 1,178,109 Outstanding prior to 2008 37 Prior years paid — Liabilities for claims and claim adjustment expenses, net of reinsurance $ 30,302 ($ in thousands) Auto Liability Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, As of December 31, 2017 Total of Incurred- But-Not-Reported Liabilities Plus Expected Development on Reported Claims Cumulative Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 144,694 $ 145,669 $ 142,279 $ 149,225 $ 141,666 $ 140,648 $ 139,938 $ 139,131 $ 138,975 $ 138,973 $ — 47,245 2009 159,934 158,703 153,662 157,941 151,418 150,919 150,568 149,822 149,888 (1 ) 49,232 2010 157,712 160,058 156,369 154,222 152,483 151,653 149,818 149,425 14 48,939 2011 150,803 146,713 145,735 143,133 142,488 139,840 138,891 325 45,973 2012 156,448 153,815 150,336 149,346 147,594 145,847 758 45,983 2013 153,860 152,858 150,720 150,657 148,111 1,521 47,353 2014 155,105 157,249 158,470 159,937 4,397 49,332 2015 165,517 172,553 177,021 7,703 50,428 2016 180,380 184,440 17,107 51,575 2017 187,983 67,236 41,269 Total $ 1,580,516 Auto Liability Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 54,750 $ 103,370 $ 123,062 $ 134,377 $ 137,980 $ 138,539 $ 138,758 $ 138,875 $ 138,962 $ 138,970 2009 60,011 110,921 133,568 142,524 146,383 148,783 149,608 149,801 149,855 2010 63,416 118,345 137,012 144,255 147,337 148,751 149,247 149,364 2011 61,070 108,837 126,812 133,931 136,906 138,151 138,358 2012 61,279 109,574 127,185 138,641 142,916 144,622 2013 62,224 108,856 131,214 139,954 145,291 2014 61,329 117,468 139,463 149,059 2015 70,836 134,473 157,980 2016 73,073 140,901 2017 70,682 Total 1,385,082 Outstanding prior to 2008 205 Prior years paid — Liabilities for claims and claim adjustment expenses, net of reinsurance $ 195,636 ($ in thousands) Auto Physical Damage Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, As of December 31, 2017 Total of Incurred- But-Not-Reported Liabilities Plus Expected Development on Reported Claims Cumulative Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 89,088 $ 87,854 $ 87,834 $ 86,900 $ 87,992 $ 87,979 $ 87,976 $ 87,966 $ 87,954 $ 87,947 $ — 76,517 2009 84,539 83,515 83,202 82,635 82,000 81,986 81,972 81,963 81,972 — 77,449 2010 84,112 83,420 83,103 83,046 83,052 83,050 83,036 83,028 — 81,581 2011 86,205 85,507 86,023 85,120 85,143 85,116 85,108 — 80,803 2012 83,770 82,337 83,402 83,431 83,354 83,342 — 78,162 2013 91,448 88,856 88,672 88,627 88,455 (29 ) 80,916 2014 95,572 95,634 95,422 95,239 (17 ) 87,896 2015 99,291 97,994 97,624 (62 ) 87,472 2016 112,430 109,515 (211 ) 93,098 2017 115,483 (1,520 ) 84,684 Total $ 927,713 Auto Physical Damage Cumulative Paid Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Year Ended December 31, Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2008 $ 82,412 $ 87,963 $ 87,905 $ 87,949 $ 87,992 $ 87,979 $ 87,976 $ 87,966 $ 87,954 $ 87,947 2009 78,456 82,117 82,039 82,015 82,000 81,985 81,973 81,963 81,955 2010 79,329 83,120 83,103 83,087 83,067 83,051 83,036 83,028 2011 83,227 85,254 85,181 85,148 85,127 85,116 85,108 2012 80,519 83,418 83,372 83,355 83,347 83,342 2013 85,110 88,688 88,580 88,532 88,484 2014 88,939 95,444 95,266 95,256 2015 92,138 97,850 97,685 2016 106,459 109,686 2017 105,156 Total 917,647 Outstanding prior to 2008 — Prior years paid — Liabilities for claims and claim adjustment expenses, net of reinsurance $ 10,066 The reconciliation of the net incurred and paid claims development tables to the liability for claims and claim adjustment expenses in the Consolidated Balance Sheet is as follows: ($ in thousands) Years Ended December 31, 2017 Property and Casualty segment Net reserves Homeowners $ 30,302 Auto liability 195,636 Auto physical damage 10,066 Other short duration lines 2,723 Total net reserves for unpaid claims and claim adjustment expense, net of reinsurance 238,727 Reinsurance recoverable on unpaid claims Homeowners 298 Auto liability 50,713 Other short duration lines 6,398 Total reinsurance recoverable on unpaid claims 57,409 Insurance lines other than short duration (1) 28,567 Unallocated claims adjustment expenses 23,046 Total other than short duration and unallocated claims adjustment expenses 51,613 Gross reserves, end of year (1) $ 347,749 ____________________ (1) |
