● The differing treatment of income and expense items results in a corresponding difference in federal income tax expense. Changes in deferred income taxes are reflected as an item of income tax benefit or expense, rather than recorded directly to surplus as regards policyholders, as required by SAP. Admittance testing may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets. Under GAAP reporting, a valuation allowance may be recorded against the deferred tax asset and reflected as an expense.
We are a participant in CAR, a state-established body that runs the residual market reinsurance programs for commercial automobile insurance in Massachusetts under which premiums, expenses, losses and loss adjustment expenses on ceded business are shared by all insurers writing commercial automobile insurance in Massachusetts. We also participate in the FAIR Plan in which premiums, expenses, losses and loss adjustment expenses on homeowners business that cannot be placed in the voluntary market are shared by all insurers writing homeowners insurance in Massachusetts. The FAIR Plan buys reinsurance to reduce their exposure to catastrophe losses. On July 1, 2020, the FAIR Plan purchased $2,000,000 of catastrophe reinsurance for property losses with retention of $100,000.
Our GAAP loss ratio for the years ended December 31, 2020 and 2019 were 52.5% and 64.6%, respectively. Our GAAP loss ratio excluding loss adjustment expenses was 43.7% and 56.1% for the years ended December 31, 2020
The following table presents information by line of business for prior year development of our net reserves for losses and LAE for the year ended December 31, 2020.
● The impact of COVID-19 and related economic conditions, including the Company's assessment of the vulnerability of certain categories of investments due to the economic disruptions associated with COVID-19;
The principal considerations for our determination that performing procedures relating to the valuation of loss and loss adjustment expense reserves is a critical audit matter are the significant judgment by management when developing their estimate, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence relating to the various actuarial techniques, which included significant assumptions related to loss development factors. Also, the audit effort involved the use of professionals with specialized skill and knowledge to assist in performing these procedures and evaluating the audit evidence obtained.
All of the Company’s restricted stock awards are issued as incentive compensation and are equity classified.
The Company is subject to concentration of credit risk with respect to reinsurance ceded. At December 31, 2020, reinsurance receivables on paid and unpaid loss and LAE with a carrying value of $117,681 and ceded unearned premiums of $20,589 were associated with CAR. At December 31, 2019, reinsurance receivables on paid and unpaid loss and LAE with a carrying value of $130,005 and ceded unearned premiums of $33,587 were associated with CAR. The Company assumes a proportionate share of the obligations from CAR. The Company makes an estimate of its share of assumed activity from the most recent quarter reported by CAR and records adjustments to the reported activity to reflect its anticipated final assumed obligations. The Company’s participation in CAR resulted in assumed net losses of $3,480, $3,595 and $5,362 for the years ended December 31, 2020, 2019 and 2018, respectively.
● Obligations of states and political subdivisions: overall credit quality, including assessments of market sectors and the level and variability of sources of payment such as general obligation, revenue or lease; credit support such as insurance, state or local economic and political base, prefunded and escrowed to maturity covenants.