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Reinsurance
 6 Months Ended
Jun. 30, 2012
Reinsurance/Insurance Operations [Abstract]  
Reinsurance
4. Reinsurance

The Company 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. The Company’s reinsurance program consists of excess of loss, quota share and catastrophe reinsurance, subject to the terms and conditions of the applicable agreements. The Company is responsible for insured losses related to catastrophes and other events in excess of coverage provided by its reinsurance program. The Company also remains responsible for the settlement of insured losses notwithstanding the failure of any of its reinsurers to make payments otherwise due to the Company. The Company’s in-force policyholder coverage for windstorm exposures as of June 30, 2012 was approximately $126.2 billion.

 

The Company has reduced the percentage of premiums ceded by UPCIC to its quota share reinsurer to 45% under the reinsurance program which became effective June 1, 2012, from 50% under the prior year quota share contract effective June 1, 2011 through May 31, 2012. The Company’s intent is to increase its profitability over the contract term by ceding 5% less premium to its quota share reinsurer. This reduction of cession rate also decreases the amount of losses and loss adjustment expenses that may be ceded by UPCIC and effectively increases the amount of risk retained by UPCIC and the Company. The reduction of cession rate also reduces the amount of ceding commissions earned from the Company’s quota share reinsurer during the contract term and decreases the amount of deferred ceding commission, as of June 30, 2012, that is a component of net deferred policy acquisition costs.

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. Deferred ceding commissions are 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, 2012     Six Months Ended June 30, 2012  
    Premiums
Written		     Premiums
Earned		     Loss and Loss
Adjustment
Expenses		     Premiums
Written		     Premiums
Earned		     Loss and Loss
Adjustment
Expenses		  

Direct

   $ 222,568     $ 186,656     $ 56,533     $ 412,571     $ 365,460     $ 109,140  

Ceded

     (102,433 )      (130,962 )      (27,096 )      (265,867 )      (261,126 )      (53,529 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net

   $ 120,135     $ 55,694     $ 29,437     $ 146,704     $ 104,334     $ 55,611  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

                                                 
    Three Months Ended June 30, 2011     Six Months Ended June 30, 2011  
    Premiums
Written		     Premiums
Earned		     Loss and Loss
Adjustment
Expenses		     Premiums
Written		     Premiums
Earned		     Loss and Loss
Adjustment
Expenses		  

Direct

   $ 213,479     $ 170,134     $ 53,360     $ 386,654     $ 334,721     $ 106,491  

Ceded

     (145,798 )      (120,610 )      (27,508 )      (269,689 )      (237,193 )      (54,454 ) 
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Net

   $ 67,681     $ 49,524     $ 25,852     $ 116,965     $ 97,528     $ 52,037  
   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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

 

                 
    As of     As of  
    June 30, 2012     December 31, 2011  
     

Prepaid reinsurance premiums

   $ 247,835     $ 243,095  
   

 

 

    

 

 

  
     

Reinsurance recoverable on unpaid losses and LAE

   $ 73,169     $ 88,002  

Reinsurance recoverable on paid losses

     42,290       (2,296 ) 

Reinsurance receivables, net

     125,664       55,205  
   

 

 

    

 

 

  

Reinsurance recoverables and receivables

   $ 241,123     $ 140,911