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Reinsurance
 6 Months Ended
Jun. 30, 2011
Reinsurance and Insurance Operation [Abstract]  
Reinsurance
4. Reinsurance
UPCIC seeks to reduce the risk of loss by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers, generally, as of the beginning of the hurricane season on June 1 of each year. UPCIC’s reinsurance program consists of excess of loss, quota share and catastrophe reinsurance, subject to the terms and conditions of the applicable agreements. UPCIC is responsible for insured losses related to catastrophes and other events in excess of coverage provided by its reinsurance program. UPCIC also remains responsible for the settlement of insured losses notwithstanding the failure of any of its reinsurers to make payments otherwise due to UPCIC.
UPCIC’s in-force policyholder coverage for windstorm exposures as of June 30, 2011 was approximately $128 billion.
Amounts recoverable from reinsurers are estimated in a manner consistent with the reinsurance contracts. Reinsurance premiums, losses and loss adjustment expenses (“LAE”) are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Reinsurance ceding commissions received are deferred and netted against policy acquisition costs and amortized over the effective period of the related insurance policies.
The Company’s reinsurance arrangements had the following effect on certain items in the Condensed Consolidated Statements of Income (in thousands):
                                                 
    Three Months Ended June 30, 2011     Three Months Ended June 30, 2010  
    Premiums     Premiums     Loss and Loss     Premiums     Premiums     Loss and Loss  
    Written     Earned     Adjustment     Written     Earned     Adjustment  
                    Expenses                     Expenses  
Direct
  $ 213,479     $ 170,134     $ 53,360     $ 208,020     $ 150,600     $ 50,345  
Ceded
    (145,798 )     (120,610 )     (27,508 )     (121,304 )     (109,240 )     (25,510 )
 
                                   
 
                                               
Net
  $ 67,681     $ 49,524     $ 25,852     $ 86,716     $ 41,360     $ 24,835  
 
                                   
                                                 
    Six Months Ended June 30, 2011     Six Months Ended June 30, 2010  
    Premiums     Premiums     Loss and Loss     Premiums     Premiums     Loss and Loss  
    Written     Earned     Adjustment     Written     Earned     Adjustment  
                    Expenses                     Expenses  
Direct
  $ 386,654     $ 334,721     $ 106,491     $ 368,119     $ 290,754     $ 97,026  
Ceded
    (269,689 )     (237,193 )     (54,454 )     (248,872 )     (216,080 )     (48,539 )
 
                                   
 
                                               
Net
  $ 116,965     $ 97,528     $ 52,037     $ 119,247     $ 74,674     $ 48,487  
 
                                   
The following prepaid reinsurance premiums and reinsurance recoverables are reflected in the Condensed Consolidated Balance Sheets (in thousands):
                 
    As of     As of  
    June 30, 2011     December 31, 2010  
Prepaid reinsurance premiums
  $ 253,582     $ 221,086  
 
               
Reinsurance recoverable on unpaid losses and LAE
  $ 76,307     $ 79,114  
Reinsurance recoverable on paid losses
    896       438  
 
           
Reinsurance recoverables
  $ 77,203     $ 79,552  
 
           
The Company has determined that a right of offset exists between UPCIC and its reinsurers. Reinsurance payable to reinsurers has been offset by ceding commissions and inuring premiums receivable from reinsurers as follows (in thousands):
                 
    As of     As of  
    June 30, 2011     December 31, 2010  
Reinsurance payable, net of ceding commissions
               
due from reinsurers
  $ 140,530     $ 75,553  
Inuring premiums receivable
    (48,026 )     (37,607 )
 
           
Reinsurance payable,net
  $ 92,504     $ 37,946  
 
           
Segregated Account T25
The Company owns and maintains a segregated account, Segregated Account T25 — Universal Insurance Holdings of White Rock Insurance (SAC) Ltd. (“T25”) established by a third-party reinsurer in accordance with Bermuda law. T25 enters into underlying excess catastrophe contracts with UPCIC for the purpose of assuming the risk of certain policies issued by UPCIC, covering certain loss occurrences including hurricanes. The Company secures the obligations of T25 to UPCIC under these contracts by contributing the amount of T25’s liability for losses, net of UPCIC’s required premium payments, to a trust account as collateral. The collateral will be used to pay any claims that may arise in the event of the occurrence of covered events. Transactions related to this arrangement are eliminated in consolidation, however, and the amount of collateral is held in trust for the benefit of UPCIC until the occurrence of a covered event, expiration or termination of the agreement between T25 and UPCIC.
On May 31, 2011, T25 and UPCIC mutually agreed to a Commutation and Settlement Agreement related to the underlying Property Catastrophe Excess of Loss Reinsurance Contract that was effective January 1, 2011. A replacement contract was entered into between the parties on June 1, 2011 as part of UPCIC’s reinsurance program in effect for the period June 1, 2011, through May 31, 2012. In conjunction with entering into the replacement contract, the Company contributed additional funds to T25 due to the increased reinsurance coverage and collateral requirements. The amount of collateral in the trust account at June 30, 2011 was $31 million.