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Reinsurance
 12 Months Ended
Dec. 31, 2011
Reinsurance and Insurance Operations [Abstract]  
REINSURANCE

NOTE 4 – REINSURANCE

UPCIC seeks to reduce its 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. Amounts due from our largest reinsurer as of December 31, 2011, represents 69% of total amounts due from reinsurers as of the same date. See Note 1 – SIGNIFICANT ACCOUNTING POLICIES – Concentrations of Credit Risk.

UPCIC’s in-force policyholder coverage for windstorm exposures as of December 31, 2011, was approximately $129.2 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 Consolidated Statements of Income (in thousands):

 

                         
    Year Ended December 31, 2011  
    Premiums
Written		     Premiums
Earned		     Loss and Loss
Adjustment
Expenses		  

Direct

   $ 721,462     $ 689,955     $ 245,335  

Ceded

     (512,979 )      (490,970 )      (121,026 ) 
   

 

 

    

 

 

    

 

 

  

Net

   $ 208,483     $ 198,985     $ 124,309  
   

 

 

    

 

 

    

 

 

  
   
    Year Ended December 31, 2010  
  Premiums
Written		     Premiums
Earned		     Loss and Loss
Adjustment
Expenses		  

Direct

   $ 666,309     $ 616,345     $ 229,044  

Ceded

     (466,694 )      (445,902 )      (115,689 ) 
   

 

 

    

 

 

    

 

 

  

Net

   $ 199,615     $ 170,443     $ 113,355  
   

 

 

    

 

 

    

 

 

  
   
    Year Ended December 31, 2009  
    Premiums
Written		     Premiums
Earned		     Loss and Loss
Adjustment
Expenses		  

Direct

   $ 562,672     $ 542,791     $ 214,981  

Ceded

     (428,384 )      (401,137 )      (108,848 ) 
   

 

 

    

 

 

    

 

 

  

Net

   $ 134,288     $ 141,654     $ 106,133  
   

 

 

    

 

 

    

 

 

  

The following prepaid reinsurance premiums and reinsurance recoverables are reflected in the Consolidated Balance Sheets (in thousands):

 

                 
    As of December 31,  
    2011     2010  

Prepaid reinsurance premiums

   $ 243,095     $ 221,086  
   

 

 

    

 

 

  

Reinsurance recoverable on unpaid losses and LAE

   $ 88,002     $ 79,114  

Reinsurance recoverable on paid losses

     (2,296 )      438  
   

 

 

    

 

 

  

Reinsurance recoverables

   $ 85,706     $ 79,552  
   

 

 

    

 

 

  

 

Segregated Account T25

UIH owns and maintains a segregated account, Segregated Account T25 – Universal Insurance Holdings of White Rock Insurance (SAC) Ltd. (“T25”), established in accordance with Bermuda law. As part of the Company’s overall reinsurance program, T25 at times enters into underlying excess catastrophe contracts with the Insurance Entities for the purpose of assuming certain risk for specified loss occurrences, including hurricanes. The agreements between T25 and the Insurance Entities are a cost-effective alternative to reinsurance that the Insurance Entities would otherwise purchase from third-party reinsurers. While the Company retains risk that otherwise would be transferred to third party reinsurers, these agreements provide benefits to the Insurance Entities in “no-loss” years that cannot be replicated in the open reinsurance market. These benefits include the return to the Insurance Entities of a substantial portion of the earned reinsurance premiums under the contract. All the related intercompany transactions with respect to these agreements are eliminated in consolidation.

Under the T25 agreement effective June 1, 2011 through May 31, 2012, T25 retained a maximum, pre-tax liability of $140.2 million, in excess of $44.8 million, for the first catastrophic event up to $1.781 billion of losses. The Insurance Entities were required to make premium installment payments aggregating $111.4 million to T25, subject to the terms of the agreement. Through capital contributions made to T25 by UIH, T25 contributes an amount equal to its liability for losses, net of the Insurance Entities’ required premium payments and expenses thereon, to a trust account as collateral. The trust account was funded with the amount of required collateral at the inception of the agreement and invested in a cash reserve fund. The amounts held in the cash reserve fund are included in restricted cash and cash equivalents in the Company’s Consolidated Balance Sheets. The collateral held in trust was available to be used to pay any claims that may have arisen from the occurrence of covered events. The collateral was required to be held in trust for the benefit of the Insurance Entities until the occurrence of a covered event or expiration or termination of the agreement between T25 and the Insurance Entities. UIH has no requirement to fund T25 in the event losses exceed the amount of collateral held in trust.

Reinsurance agreements between T25 and the Insurance Entities are generally terminated on or about May 31 and December 31 each year and replaced with similarly structured agreements or with agreements with third party reinsurers effective June 1 and January 1, respectively. The terminations effective May 31 are intended to coordinate and integrate the replacement contracts into the Insurance Entities’ overall reinsurance program and the related changes to limits and retention levels for the subsequent contract year (i.e., June 1 through May 31). The terminations effective December 31 are intended to provide the aforementioned benefit of return premium to the Insurance Entities.

The T25 agreement effective June 1, 2011 through May 31, 2012 was terminated effective December 31, 2011, pursuant to the terms of the agreement. In anticipation of the termination of the agreement, the affiliates agreed to release funds held in trust due to the beneficiary (i.e., the Insurance Entities) during December 2011 and the balance to the grantor (i.e., UIH) in December 2011 and January 2012. See “Note 18. SUBSEQUENT EVENTS” for information about a replacement contract entered into by the Company with a non-affiliated third party.