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 in the event of the failure of any of its reinsurers to make payments otherwise due to the Company. The estimated insured value of the Company’s in-force policyholder coverage for windstorm exposures as of June 30, 2013 was approximately $124.8 billion.

The Company has reduced the percentage of premiums ceded by UPCIC to its quota share reinsurers to 45% beginning with 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 two quota share reinsurance contracts, which became effective June 1, 2013, provide coverage to UPCIC through May 31, 2014 and one extends and provides coverage through May 31, 2015. 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, 2013, 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 Consolidated Statements of Income for the periods presented (in thousands):


	Three Months Ended June 30, 2013									Six Months Ended June 30, 2013
	Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses			Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses
Direct	$	219,946		$	197,302		$	50,350		$	424,085		$	391,470		$	100,946
Ceded		(133,897	)		(130,435	)		(25,151	)		(275,214	)		(259,194	)		(49,264	)

Net	$	86,049		$	66,867		$	25,199		$	148,871		$	132,276		$	51,682


	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

The following prepaid reinsurance premiums and reinsurance recoverable and receivable are reflected in the Consolidated Balance Sheets as of the periods presented (in thousands):


	As of June 30, 2013		As of December 31, 2012
Prepaid reinsurance premiums	$	255,941	$	239,921


Reinsurance recoverable on unpaid losses and LAE	$	67,820	$	81,415
Reinsurance recoverable on paid losses		11,331		7,776
Reinsurance receivable, net		24,542		24,334

Reinsurance recoverable and receivable	$	103,693	$	113,525