• Filing Date: 2019-03-08
  • Form Type: 10-K
  • Description: Annual report
v3.10.0.1
Reinsurance
12 Months Ended
Dec. 31, 2018
Insurance [Abstract]  
Reinsurance
Note 15 — 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,
 
 
 
2018
 
 
2017
 
 
2016
 
Premiums Written:
 
 
 
 
 
 
 
 
 
 
 
 
Direct
 
$
336,565
 
 
$
346,188
 
 
$
352,803
 
Assumed
 
 
(109
)
 
 
1,158
 
 
 
14,388
 
Gross written
 
 
336,456
 
 
 
347,346
 
 
 
367,191
 
Ceded
 
 
(129,643
)
 
 
(133,635
)
 
 
(135,051
)
Net premiums written
 
$
206,813
 
 
$
213,711
 
 
$
232,140
 
Premiums Earned:
 
 
 
 
 
 
 
 
 
 
 
 
Direct
 
$
340,966
 
 
$
347,235
 
 
$
372,699
 
Assumed
 
 
2,099
 
 
 
11,018
 
 
 
5,979
 
Gross earned
 
 
343,065
 
 
 
358,253
 
 
 
378,678
 
Ceded
 
 
(129,643
)
 
 
(133,635
)
 
 
(135,051
)
Net premiums earned
 
$
213,422
 
 
$
224,618
 
 
$
243,627
 
During the year ended December 31, 2018, ceded losses of $149,120 were recognized as a reduction in losses and LAE compared with ceded losses of $214,082 during the year ended December 31, 2017, $7,400 of which related to Oxbridge Reinsurance Limited, a related party. For 2018, ceded losses related to Hurricane Irma and Hurricane Michael were $143,890 and $5,230, respectively. For 2017, the reduction in losses and LAE entirely related to Hurricane Irma. During the year ended December 31, 2016, there were no recoveries pertaining to reinsurance contracts that were deducted from losses incurred. At December 31, 2018 and 2017, there were 38 and 37 reinsurers, respectively, participating in the Company’s reinsurance program. Amounts receivable with respect to reinsurers at December 31, 2018 and 2017 were $123,911 and $103,104, respectively. Approximately 29.1% of the reinsurance recoverable balance at December 31, 2018 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, 2018. The ratio of assumed premiums earned to net premiums earned for the years ended December 31, 2018, 2017 and 2016 was 0.98%, 4.9%, and 2.5%, 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, 2018, the Company recognized a net reduction in ceded premiums of $485 compared with a net increase in ceded premiums of $5,740 for the year ended December 31, 2017. Included in these adjustments attributable to the Company’s contract with Oxbridge for the years ended December 31, 2018 and 2017 were $448 and $933, respectively, of net increase in ceded premiums. These adjustments were reflected as a net reduction in premiums ceded of $12,677 for the year ended December 31, 2016, of which $1,929 related to the Company’s contract with Oxbridge.
In addition, adjustments related to retrospective provisions are reflected in other assets. At December 31, 2018 and 2017, other assets included $3,136 and $2,393, respectively, of which $0 and $479 related to the 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. See Note 26 — “Related Party Transaction” regarding the termination of the Company’s reinsurance 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.