• Filing Date: 2020-03-06
  • Form Type: 10-K
  • Description: Annual report
v3.19.3.a.u2
Reinsurance
12 Months Ended
Dec. 31, 2019
Insurance [Abstract]  
Reinsurance

Note 14 -- Reinsurance

The Company cedes a portion of its homeowners’ insurance exposure to other entities under catastrophe excess of loss reinsurance contracts and one quota share reinsurance agreement. Ceded premiums under most catastrophe excess of loss reinsurance contracts are subject to revision resulting from subsequent adjustments in total insured value. Under the terms of the quota share reinsurance agreement, the Company is entitled to a 30% ceding commission on ceded premiums written. The reinsurance premiums under one multi-year flood catastrophe excess of loss reinsurance 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.

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,

 

 

 

2019

 

 

2018

 

 

2017

 

Premiums Written:

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

360,525

 

 

$

336,565

 

 

$

346,188

 

Assumed

 

 

4,430

 

 

 

(109

)

 

 

1,158

 

Gross written

 

 

364,955

 

 

 

336,456

 

 

 

347,346

 

Ceded

 

 

(125,765

)

 

 

(129,643

)

 

 

(133,635

)

Net premiums written

 

$

239,190

 

 

$

206,813

 

 

$

213,711

 

Premiums Earned:

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

340,656

 

 

$

340,966

 

 

$

347,235

 

Assumed

 

 

1,423

 

 

 

2,099

 

 

 

11,018

 

Gross earned

 

 

342,079

 

 

 

343,065

 

 

 

358,253

 

Ceded

 

 

(125,765

)

 

 

(129,643

)

 

 

(133,635

)

Net premiums earned

 

$

216,314

 

 

$

213,422

 

 

$

224,618

 

 

During the years ended December 31, 2019, 2018, and 2017, ceded losses of $114,443, $149,120, and $214,082, respectively, were recognized as reductions in losses and LAE. Ceded losses related to Hurricane Irma, Hurricane Michael, other non-catastrophe claims were $103,613, $10,750, and $80, respectively, for 2019 and $143,890 and $5,230, respectively, for 2018. For 2017, the reduction in losses and LAE entirely related to Hurricane Irma. Ceded losses recognized in 2018 included $7,400 attributable to Oxbridge Reinsurance Limited, a related party. At December 31, 2019 and 2018, there were 31 and 38 reinsurers, respectively, participating in the Company’s reinsurance program. Amounts receivable with respect to reinsurers at December 31, 2019 and 2018 were $132,678 and $123,911, respectively. Approximately 61.4% of the reinsurance recoverable balance at December 31, 2019 was receivable from the Florida Hurricane Catastrophe Fund, a tax-exempt state trust fund. 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’ obligation to perform on any prepaid reinsurance contract and to fund any reinsurance recoverable balance as of December 31, 2019. The ratio of assumed premiums earned to net premiums earned for the years ended December 31, 2019, 2018 and 2017 was 0.66%, 0.98%, and 4.9%, respectively.

One of the reinsurance contracts includes retrospective provisions that adjust premiums in the event losses are minimal or zero. For the year ended December 31, 2019, the Company recognized a reduction in ceded premiums of $6,778. For the year ended December 31, 2018, the Company recognized a net reduction in ceded premiums of $485 in contrast 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.  

In addition, adjustments related to retrospective provisions are reflected in other assets. At December 31, 2019 and 2018, other assets included $9,480 and $3,136, respectively. 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.