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.

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.

In order to reduce credit risk for amounts due from reinsurers, the Insurance Entities seek to do business with financially sound reinsurance companies and regularly evaluate the financial strength of all reinsurers used.

The following table presents ratings from rating agencies and the unsecured amounts due from the Company’s reinsurers whose aggregate balance exceeded 3% of the Company’s stockholders’ equity as of the dates presented (in thousands):

Ratings as of March 31, 2014

Due from as of

Reinsurer

AM Best
Company

Standard
and Poor’s
Rating
Services

Moody’s
Investors
Service, Inc.

March 31, 2014

December 31,
2013

Everest Reinsurance Company

A+

79,920

87,789

Florida Hurricane Catastrophe Fund

n/a

13,480

33,593

Odyssey Reinsurance Company

A-

138,013

142,190

Total (1)

231,413

263,572

(1)	Amounts represent prepaid reinsurance premiums, reinsurance receivables, and net recoverables for paid and unpaid losses, including incurred but not reported reserves, loss adjustment expenses, and offsetting reinsurance payables.

n/a—No rating available

The Company’s reinsurance arrangements had the following effect on certain items in the Condensed Consolidated Statements of Income for the periods presented (in thousands):


	Three Months Ended March 31, 2014
	Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses
Direct	$	191,917		$	190,644		$	50,722
Ceded		(121,649	)		(126,837	)		(23,897	)

Net	$	70,268		$	63,807		$	26,825


	Three Months Ended March 31, 2013
	Premiums Written			Premiums Earned			Loss and Loss Adjustment Expenses
Direct	$	204,139		$	194,168		$	50,596
Ceded		(141,317	)		(128,759	)		(24,113	)

Net	$	62,822		$	65,409		$	26,483

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


	As of March 31, 2014		As of December 31, 2013
Prepaid reinsurance premiums	$	236,026	$	241,214

Reinsurance recoverable on unpaid losses and LAE	$	64,109	$	68,584
Reinsurance recoverable on paid losses		11,988		39,263
Reinsurance receivable, net		7,004		203

Reinsurance recoverable and receivable	$	83,101	$	108,050