
	Nine months ended September 30,
	2026		2025

	in thousands
Gross reserves for unpaid losses and loss adjustment expenses, beginning	$	168,851	$	168,492
Less: Reinsurance recoverable on unpaid losses and loss adjustment expenses	5,644		5,769
Net reserves for unpaid losses and loss adjustment expenses, beginning	163,207		162,723
Incurred losses and loss adjustment expenses:
Current accident year	304,558		224,969
Prior accident years	(5,669)		—
Total incurred losses and loss adjustment expenses	298,889		224,969
Payments:
Current accident year	171,121		61,819
Prior accident years	72,812		63,571
Total payments	243,933		125,390
Effect of foreign currency rate changes	(516)		(63)
Net reserves for unpaid losses and loss adjustment expenses, ending	217,647		262,239
Reinsurance recoverable on unpaid losses and loss adjustment expenses	14,485		14,406
Gross reserves for unpaid losses and loss adjustment expenses, ending	$	232,132	$	276,645

During the nine months ended September 30, 2026, prior year loss experience developed favorably resulting in a $5.7 million reserve reduction, primarily driven by the continued emergence of lower physical damage losses for the 2025 accident year. During the nine months ended September 30, 2025, losses and loss adjustment expenses included $10.3 million of pre-tax losses related to the Southern California wildfires.

The Company records a quarterly estimate of losses and loss adjustment expenses for the current accident year using an annual loss ratio, which is based on statistical analysis performed by its internal and external actuarial teams. The annual loss ratio is reviewed regularly throughout the year and adjusted, as necessary. Management believes this approach provides a more consistent view of loss experience over the year given the seasonality of the Company's business.

The reserves for unpaid losses and loss adjustment expenses recorded on the Condensed Consolidated Balance Sheets represents (i) the difference between management's estimate of the ultimate cost of losses and loss adjustment expenses incurred by the Company; and (ii) the amount of paid losses and loss adjustment expenses as of the reporting date. These reserves reflect management's best estimate of unpaid losses related to reported claims and IBNR claims and also include management's best estimate of all expenses associated with processing and settling reported and unreported claims.

Reserves are reviewed by management quarterly and monitored throughout the year by combining historical results and current actual results. Claims are analyzed and reported based on the year in which the loss occurred (i.e., on an accident year basis). Accident year data is classified and utilized within actuarial models to prepare estimates of required reserves for payments to be made in the future.

When estimating reserves, the Company utilizes several actuarial reserving methods which consider historical claim reporting patterns, claim cycle time, claim frequency and severity, claims settlement practices, adequacy of case reserves over time, seasonality, and current economic conditions. Reserve estimates produced by various actuarial reserving methods are further analyzed to determine the actuarial central estimate which represents the expected value over the range of reasonably possible outcomes.

Any adjustments to the Company's reserves for unpaid losses and loss adjustment expenses are recognized in its Condensed Consolidated Statements of Operations in the period in which management determines that an adjustment is necessary.