• Filing Date: 2018-03-07
  • Form Type: 10-K
  • Description: Annual report
12 Months Ended
Dec. 31, 2017
Insurance [Abstract]  

Note 14 — Reinsurance

The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance treaties and one quota share reinsurance agreement. Under the terms of the quota share reinsurance agreement effective January 1, 2017, the Company was entitled to a 30% ceding commission on ceded premiums written. During the third quarter of 2017, the Company entered into a three-year flood catastrophe excess of loss reinsurance contract effective July 1, 2017. The reinsurance premiums under this three-year contract are generally determined on a quarterly basis based on the premiums associated with the applicable flood total insured value in force on the last day of the preceding quarter. Effective September 1, 2017, the quota share reinsurance agreement was terminated and replaced with a new quota share agreement with revised terms and conditions. Under the new agreement, the Company is also entitled to a 30% ceding commission on ceded premiums written.


The Company remains liable for claims payments in the event that any reinsurer is unable to meet its obligations under the reinsurance agreements. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company contracts with a number of reinsurers to secure its annual reinsurance coverage, which generally becomes effective June 1st each year. The Company purchases reinsurance each year taking into consideration probable maximum losses and reinsurance market conditions.

The impact of the reinsurance treaties on premiums written and earned is as follows:


     Years Ended December 31,  
     2017      2016      2015  

Premiums Written:



   $ 346,188      $ 352,803      $ 393,009  


     1,158        14,388        3,329  










Gross written

     347,346        367,191        396,338  


     (133,635      (135,051      (140,614










Net premiums written

   $ 213,711      $ 232,140      $ 255,724  










Premiums Earned:



   $ 347,235      $ 372,699      $ 360,878  


     11,018        5,979        62,242  










Gross earned

     358,253        378,678        423,120  


     (133,635      (135,051      (140,614










Net premiums earned

   $ 224,618      $ 243,627      $ 282,506  










During the year ended December 31, 2017, ceded losses of $214,082 were recognized as a reduction in losses and LAE, $7,400 of which related to Oxbridge Reinsurance Limited, a related party. The reduction in 2017 was primarily related to Hurricane Irma which made landfall in the Florida peninsula and caused significant property damages across the region. During the years ended December 31, 2016 and 2015, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. At December 31, 2017 and 2016, there were 37 and 35 reinsurers, respectively, participating in the Company’s reinsurance program. Amounts receivable with respect to reinsurers at December 31, 2017 and 2016 were $103,104 and $0, respectively. Approximately 29.7% of the reinsurance recoverable balance at December 31, 2017 was concentrated in two reinsurers. Based on the insurance ratings, the payment history and the financial strength of the reinsurers, management believes there was no significant credit risk associated with its reinsurers’ obligations to perform on any prepaid reinsurance contract and to fund any reinsurance recoverable balance as of December 31, 2017. The ratio of assumed premiums earned to net premiums earned for the years ended December 31, 2017, 2016 and 2015 was 4.9%, 2.5%, and 22.0%, respectively.

Certain of the reinsurance contracts include retrospective provisions that adjust premiums, increase the amount of future coverage, or result in a profit commission in the event losses are minimal or zero. Due to the losses incurred by Hurricane Irma, the balances of previously accrued benefits and deferred reinsurance premiums were adjusted with the changes recognized in the consolidated statement of income as additional ceded premiums.

For the year ended December 31, 2017, the Company recognized net premiums ceded of $5,740, related to these adjustments. Included in these amounts attributable to the Company’s contract with Oxbridge for the year ended December 31, 2017 were $933. In contrast, these adjustments were reflected as a net reduction in premiums ceded of $12,677 and $18,322 for the years ended December 31, 2016 and 2015, respectively, of which $1,929 and $2,797 related to the Company’s contract with Oxbridge. In June 2016, the Company received a total of $37,800 in cash benefits related to two retrospective reinsurance contracts that terminated May 31, 2016 of which $7,560 was received from Oxbridge. In September 2016, the Company received the final cash payment of $5,716 under the terms of the remaining retrospective reinsurance contract which terminated May 31, 2016.

In addition, these adjustments are reflected in other assets and prepaid reinsurance premiums. At December 31, 2017 and 2016, other assets included $2,393 and $5,810, respectively, of which $479 and $1,043 related to the contract with Oxbridge and prepaid reinsurance premiums included $0 and $2,152, respectively, of which $0 and $338 related to the contract with Oxbridge. Management believes the credit risk associated with the collectability of these accrued benefits is minimal as the amount receivable is concentrated with one reinsurer and the Company monitors the creditworthiness of this reinsurer based on available information about the reinsurer’s financial condition.