| 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 a gross and net (after reinsurance) basis. 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, 2020 2019 2018 Property and Casualty segment Gross reserves, beginning of year (1) $ 386,976 $ 367,180 $ 319,182 Less: reinsurance recoverables 120,506 89,725 57,409 Net reserves, beginning of year (2) 266,470 277,455 261,773 Incurred claims and claim expenses: Claims occurring in the current year 441,191 483,062 547,959 Decrease in estimated reserves for claims occurring in prior years (3) (10,200) (7,500) (300) Total claims and claim expenses incurred (4) 430,991 475,562 547,659 Claims and claim expense payments for claims occurring during: Current year 291,393 329,475 369,194 Prior years 146,796 157,072 162,783 Total claims and claim expense payments 438,189 486,547 531,977 Net reserves, end of year (2) 259,272 266,470 277,455 Plus: reinsurance recoverables 112,881 120,506 89,725 Gross reserves, end of year (1) $ 372,153 $ 386,976 $ 367,180 (1) Unpaid claims and claim expenses as reported in the Consolidated Balance Sheets also include reserves for Supplemental, Retirement and Life of $66.6 million, $55.9 million and $29.5 million as of December 31, 2020, 2019 and 2018, respectively, in addition to Property and Casualty reserves. (2) Reserves are 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 prior years' reserve development recognized in 2020, 2019 and 2018. (4) Benefits, claims and settlement expenses as reported in the Consolidated Statements of Operations also include amounts for Supplemental, Retirement and Life of $137.9 million, $109.5 million, and $89.9 million for the years ended December 31, 2020, 2019 and 2018, 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, which 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), IBNR claims 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 recognizes 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, the Company 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 was 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 74.0% as of December 31, 2020) 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 26.0% of the Company's total loss reserves as of December 31, 2020, 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 74.0% of the Company's total loss reserves as of December 31, 2020, 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 that 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 claim 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 7 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, automobile Liability, and automobile physical damage, which represents 99.0% of the Company's incurred losses for 2020. 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 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 $12.0 million of net income as of December 31, 2020. 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 $10.2 million in 2020, $7.5 million in 2019 and $0.3 million in 2018. In 2020, the favorable development was predominantly the result of favorable loss trends in property for accident years 2019 and prior including the recognition of $4.8 million of subrogation received on the 2018 Camp Fire event. In 2019, the favorable development was predominantly the result of favorable loss trends in automobile for accident years 2018 and prior. In 2018, the favorable development was predominantly the result of favorable loss trends in property for accident years 2017 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, 2020 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: Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance Years 1 2 3 4 5 6 7 8 9 10 Homeowners 80.4 % 16.2 % 2.0 % 0.7 % 0.5 % 0.2 % — — — — Automobile liability 40.9 % 34.4 % 13.8 % 6.3 % 3.1 % 1.1 % 0.3 % 0.1 % — — Automobile physical damage 95.5 % 4.5 % — — — — — — — — The following tables illustrate the incurred and paid claims development by accident year on a net basis for the lines of homeowners, automobile liability and automobile 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. The information about incurred and paid claims development for the years ended December 31, 2011 to 2019 is presented as unaudited supplementary information. ($ in thousands) Homeowners Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, As of December 31, 2020 Total of Incurred- Cumulative Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 150,141 $ 150,334 $ 150,791 $ 148,860 $ 148,755 $ 148,414 $ 148,370 $ 148,079 $ 148,067 $ 148,067 $ — 29,532 2012 108,754 109,156 109,360 106,486 106,308 106,348 106,000 106,028 106,032 — 21,578 2013 105,584 107,489 103,982 102,407 102,345 101,769 101,709 101,711 — 19,222 2014 111,647 113,505 109,059 106,844 106,554 106,458 106,414 — 20,084 2015 111,706 115,134 114,404 114,053 115,050 114,942 67 18,716 2016 115,931 118,604 117,009 117,933 117,940 241 19,860 2017 126,285 129,818 132,666 130,693 585 19,850 2018 166,793 157,404 158,861 1,352 21,037 2019 130,391 129,901 1,949 17,463 2020 155,721 32,267 18,229 Total $ 1,270,282 ($ in thousands) 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 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 123,046 $ 142,846 $ 145,852 $ 146,908 $ 147,451 $ 148,026 $ 148,014 $ 148,069 $ 148,067 $ 148,067 2012 84,260 101,566 104,203 105,156 105,561 105,909 105,993 106,021 106,025 2013 76,890 96,599 99,361 100,968 101,527 101,677 101,709 101,711 2014 83,314 103,030 105,704 106,081 106,258 106,388 106,419 2015 90,704 109,303 111,882 113,321 114,648 114,861 2016 95,772 113,186 115,053 117,537 117,688 2017 106,800 128,518 129,767 130,017 2018 130,548 152,356 157,004 2019 103,790 126,208 2020 106,781 Total 1,214,781 Outstanding prior to 2011 32 Prior years paid Liabilities for claims and claim adjustment expenses, net of reinsurance $ 55,533 ($ in thousands) Automobile Liability Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, As of December 31, 2020 Total of Incurred- Cumulative Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 150,803 $ 146,713 $ 145,735 $ 143,133 $ 142,488 $ 139,840 $ 138,891 $ 138,949 $ 138,849 $ 139,530 $ 90 46,163 2012 156,448 153,815 150,336 149,346 147,594 145,847 145,620 145,515 145,946 233 46,008 2013 153,860 152,858 150,720 150,657 148,111 147,993 148,135 148,288 668 47,336 2014 155,105 157,249 158,470 159,937 159,794 159,355 159,263 62 49,347 2015 165,517 172,553 177,021 178,325 178,654 179,186 828 50,579 2016 180,380 184,440 184,567 186,568 188,079 805 52,003 2017 187,983 188,756 188,625 189,095 3,321 48,876 2018 200,314 195,284 192,866 12,931 47,684 2019 181,141 180,060 29,004 45,915 2020 136,977 51,452 30,032 Total $ 1,659,290 ($ in thousands) Automobile 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 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 61,070 $ 108,837 $ 126,812 $ 133,931 $ 136,906 $ 138,151 $ 138,358 $ 138,689 $ 138,692 $ 138,708 2012 61,279 109,574 127,185 138,641 142,916 144,622 145,121 145,184 145,256 2013 62,224 108,856 131,214 139,954 145,291 146,770 147,409 147,443 2014 61,329 117,468 139,463 149,059 155,758 157,596 158,644 2015 70,836 134,473 157,980 170,088 174,495 176,728 2016 73,073 140,901 166,815 177,834 184,489 2017 70,682 139,531 166,614 179,782 2018 77,528 141,537 168,628 2019 69,665 129,101 2020 51,486 Total 1,480,265 Outstanding prior to 2011 724 Prior years paid Liabilities for claims and claim adjustment expenses, net of reinsurance $ 179,749 ($ in thousands) Automobile Physical Damage Incurred Claims and Allocated Claim Adjustment Expense, Net of Reinsurance Years Ended December 31, As of December 31, 2020 Total of Incurred- Cumulative Accident Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Year 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 86,205 $ 85,507 $ 86,023 $ 85,120 $ 85,143 $ 85,116 $ 85,108 $ 85,102 $ 85,090 $ 85,089 $ — 80,804 2012 83,770 82,337 83,402 83,431 83,354 83,342 83,334 83,322 83,323 — 78,166 2013 91,448 88,856 88,672 88,627 88,455 88,525 88,457 88,452 — 80,920 2014 95,572 95,634 95,422 95,239 95,232 95,241 95,242 — 87,901 2015 99,291 97,994 97,624 97,455 97,612 97,608 — 87,502 2016 112,430 109,515 109,348 109,603 109,597 (18) 93,229 2017 115,483 111,798 110,520 110,569 (17) 91,290 2018 109,040 108,886 108,333 (161) 94,458 2019 111,577 110,495 (326) 92,068 2020 86,959 (6,829) 66,650 Total $ 975,667 ($ in thousands) Automobile Physical Damage 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 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2011 $ 83,227 $ 85,254 $ 85,181 $ 85,148 $ 85,127 $ 85,116 $ 85,108 $ 85,095 $ 85,090 $ 85,082 2012 80,519 83,418 83,372 83,355 83,347 83,342 83,326 83,322 83,318 2013 85,110 88,688 88,580 88,532 88,484 88,471 88,452 88,442 2014 88,939 95,444 95,266 95,256 95,258 95,243 95,228 2015 92,138 97,850 97,685 97,638 97,625 97,608 2016 106,459 109,686 109,536 109,611 109,589 2017 105,156 110,817 110,674 110,630 2018 103,559 109,103 108,272 2019 106,243 110,692 2020 84,105 Total 972,966 Outstanding prior to 2011 10 Prior years paid Liabilities for claims and claim adjustment expenses, net of reinsurance $ 2,711 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) Year Ended December 31, 2020 Property and Casualty segment Net reserves Homeowners $ 55,533 Automobile liability 179,749 Automobile physical damage 2,711 Other short duration lines 3,189 Total net reserves for unpaid claims and claim adjustment expense, net of reinsurance 241,182 Reinsurance recoverable on unpaid claims Homeowners 6,386 Automobile liability 99,717 Other short duration lines 6,778 Total reinsurance recoverable on unpaid claims 112,881 Insurance lines other than short duration (1) 66,601 Unallocated claims adjustment expenses 18,090 Total other than short duration and unallocated claims adjustment expenses 84,691 Gross reserves, end of year (1) $ 438,754 (1) This line includes Supplemental, Retirement and Life reserves included in the Consolidated Balance Sheet. |
