UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

9 Months Ended

Sep. 30, 2014

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES [Abstract]

UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

8. UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Losses and loss adjustment expenses (LAE), less related reinsurance and deductibles, are charged to operations as incurred. Unpaid losses and LAE are based on claims adjusters' estimates of the cost of settlement plus an estimate for losses IBNR based upon historical experience, industry loss experience, and management's estimates. Loss reserves reflect Company management's best estimate of the total cost of (i) claims that have been incurred but not yet paid, and (ii) claims that have been incurred, but not yet reported (IBNR). Loss reserves that are established by Company management are not an exact calculation of our liability, but rather loss reserves represent management's best estimate for our Company's liability based on the application of actuarial techniques and other projection methodology, taking into consideration other facts and circumstances known as of the balance sheet date. The process of setting reserves is complex and necessarily imprecise. The impact of both internal and external variables on ultimate loss and LAE costs is difficult to estimate. To arrive as its best estimate for losses, the Company uses damage estimating software developed and owned by acknowledged industry leader, Insurance Service Office. Reserves factors for IBNR are reviewed quarterly by an independent actuarial consultant. In addition, our appointed independent actuary attests to the adequacy of our unpaid claim reserve, including IBNR at calendar year end.

Losses and Loss Adjustment Expenses

The following table provides the reconciliation of the beginning and ending reserve balances for losses and LAE, gross of reinsurance for the three and nine months ended September 30, 2014 and for September 30, 2013:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2014			2013			2014			2013
Reserve for losses and LAE, beginning of period	$	21,873,167		$	15,019,644		$	15,884,062		$	11,641,296
Reinsurance recoverables on losses and LAE		(21,025,809	)		(13,943,102	)		(15,090,175	)		(10,618,032	)
Reserve for losses and LAE, net of reinsurance recoverables at beginning of year		847,358			1,076,542			793,887			1,023,264

Add provision for claims and LAE occurring in:
Current year		157,986			437,080			1,293,220			1,958,627
Prior years		396,500			110,000			697,405			9,000

Net incurred losses and LAE during the current period		554,486			547,080			1,990,625			1,967,627

Deduct payments for claims and LAE occurring in:
Current year		419,573			569,658			1,432,689			1,430,927
Prior years		144,171			13,000			513,723			519,000

Net claim and LAE payments during the current period		563,744			582,658			1,946,412			1,949,927

Reserve for losses and LAE, net of reinsurance recoverables, at end of period		838,100			1,040,964			838,100			1,040,964

Reinsurance recoverables on losses and LAE		16,899,909			14,559,112			16,899,909			14,559,112

Reserve for losses and LAE, end of period	$	17,738,009		$	15,600,076		$	17,738,009		$	15,600,076

As a result of additional information on claims occurring in prior years becoming available to management, changes in estimates of provisions of claims and claim adjustment expenses were made resulting in an increase of $396,500 and $110,000 for the three months ended September 30, 2014 and 2013, respectively.

The changes in estimates of provisions of claims and claim adjustment expenses for the nine months ended September 30, 2014 and 2013 resulted in an increase of $697,405 and $9,000, respectively.

- Definition

The entire disclosure for required supplementary insurance information giving segment detail in support of various balance sheet and income statement captions. The balance sheet information generally is presented as of the date of each audited balance sheet filed, and the income statement information generally is presented for each period for which an audited income statement is required to be filed. Supplementary insurance information table includes segment name; deferred policy acquisition costs; future policy benefits, losses, claims and loss expenses; unearned premiums; other policy claims and benefits payable; premium revenue; net investment income; benefits, claims, losses and settlement expenses; amortization of deferred policy acquisition costs; other operating expenses; and premiums written.

+ References+ Details

Homeowners of America Holding Corp 10-Q