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Reinsurance | 12 Months Ended
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Dec. 31, 2020
Reinsurance Disclosures [Abstract] |
Reinsurance | REINSURANCE Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophes. Our program provides reinsurance protection for catastrophes including hurricanes, tropical storms and tornadoes. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our stockholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our policyholders. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for the agreed-upon portion of our gross paid losses, they do not discharge our primary liability. Our program includes excess of loss, aggregate excess of loss and quota share treaties. Our excess of loss treaty, in effect from June 1, 2020 through May 31, 2021, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to an exhaustion point of approximately $3,300,000,000. In addition to this treaty, we had an aggregate excess of loss treaty, effective January 1, 2020, which provided coverage for all catastrophe perils other than hurricanes, tropical storms, tropical depressions and earthquakes. We ceded $30,000,000 of catastrophe losses under this treaty for the year ended December 31, 2020. In addition, we had an all other perils excess of loss treaty, effective January 1, 2020, which provided coverage for all catastrophe perils other than hurricanes, tropical storms, tropical depressions, and earthquakes up to an exhaustion point of approximately $110,000,000. The quota share agreements effective June 1, 2020 through May 31, 2021, provide coverage for all catastrophe perils and attritional losses incurred by our insurance subsidiaries UPC and FSIC, and were extended to cover ACIC effective December 31, 2020 through May 31, 2022 with an additional 8% coverage for UPC and FSIC. For all catastrophe perils, the quota share agreement provides ground-up protection effectively reducing our retention for catastrophe losses. Finally, effective December 31, 2020, we entered into a quota share reinsurance agreement with Homeowners Choice Property and Casualty Insurance Company, Inc (HCP). Under the terms of this agreement, HCP will provide 69.5% quota share reinsurance on in-force, new and renewal policies in Connecticut, Massachusetts, New Jersey, and Rhode Island effective December 31, 2020, until June 1, 2021. Reinsurance recoverable at the balance sheet dates consists of the following:
| December 31,
| 2020 |  | 2019
Reinsurance recoverable on unpaid losses and LAE | $ | 674,746 |  |  | $ | 482,315 |
Reinsurance recoverable on paid losses and LAE | 146,410 |  |  | 67,821 |
Reinsurance recoverable | $ | 821,156 |  |  | $ | 550,136 |
We write the majority of flood insurance under an agreement with the National Flood Insurance Program. We cede 100% of the premiums written and the related risk of loss to the federal government. We earn commissions for the issuance of flood policies based upon a fixed percentage of net written premiums and the processing of flood claims based upon a fixed percentage of incurred losses, and we can earn additional commissions by meeting certain growth targets for the number of in-force policies. We recognized commission revenue from our flood program of $1,467,000, $1,506,000, and $1,575,000 for the years ended December 31, 2020, 2019, and 2018, respectively. The following table depicts written premiums, earned premiums and losses, showing the effects that our reinsurance transactions have on these components of our Consolidated Statements of Comprehensive Loss:
| Year ended December 31,
| 2020 |  | 2019 |  | 2018
Premium written: |  |  |  |  |
Direct | $ | 1,411,558 |  |  | $ | 1,278,504 |  |  | $ | 1,148,190 |
Assumed | 45,305 |  |  | 101,764 |  |  | 104,211 |
Ceded | (755,871) |  |  | (633,275) |  |  | (512,270) |
Net premium written | $ | 700,992 |  |  | $ | 746,993 |  |  | $ | 740,131 |
Change in unearned premiums: |  |  |  |  |
Direct | $ | (66,483) |  |  | $ | (59,660) |  |  | $ | (49,048) |
Assumed | 16,600 |  |  | 12,918 |  |  | (22,392) |
Ceded | 114,554 |  |  | 52,149 |  |  | 20,585 |
Net decrease (increase) | $ | 64,671 |  |  | $ | 5,407 |  |  | $ | (50,855) |
Premiums earned: |  |  |  |  |
Direct | $ | 1,345,075 |  |  | $ | 1,218,844 |  |  | $ | 1,099,142 |
Assumed | 61,905 |  |  | 114,682 |  |  | 81,819 |
Ceded | (641,317) |  |  | (581,126) |  |  | (491,685) |
Net premiums earned | $ | 765,663 |  |  | $ | 752,400 |  |  | $ | 689,276 |
Losses and LAE incurred: |  |  |  |  |
Direct | $ | 1,186,401 |  |  | $ | 1,003,767 |  |  | $ | 1,101,328 |
Assumed | 67,119 |  |  | 44,914 |  |  | 97,444 |
Ceded | (645,204) |  |  | (549,188) |  |  | (790,183) |
Net losses and LAE incurred | $ | 608,316 |  |  | $ | 499,493 |  |  | $ | 408,589 |
Ceded losses incurred increased by $96,016,000 during the year ended December 31, 2020, compared to the year ended December 31, 2019, primarily as a result of thirteen named storms that made landfall in 2020. Of these storms, five exceeded the retention threshold of our excess of loss contracts, resulting in total incurred and IBNR ceded losses of $142,145,000 to these treaties. We have billed and received reinsurance recoveries for losses that we incurred on these storms and expect to receive additional recoveries during 2021. The following table highlights the effects that our reinsurance transactions have on unpaid losses and loss adjustment expenses and unearned premiums in our Consolidated Balance Sheets:
| December 31,
| 2020 |  | 2019 |  | 2018
Unpaid losses and LAE: |  |  |  |  |
Direct | $ | 1,042,994 |  |  | $ | 716,559 |  |  | $ | 579,710 |
Assumed | 46,972 |  |  | 43,798 |  |  | 81,493 |
Gross unpaid losses and LAE | 1,089,966 |  |  | 760,357 |  |  | 661,203 |
Ceded | (674,746) |  |  | (482,315) |  |  | (477,870) |
Net unpaid losses and LAE | $ | 415,220 |  |  | $ | 278,042 |  |  | $ | 183,333 |
Unearned premiums: |  |  |  |  |
Direct | $ | 703,612 |  |  | $ | 637,128 |  |  | $ | 577,467 |
Assumed | 20,326 |  |  | 36,927 |  |  | 49,846 |
Gross unearned premiums | 723,938 |  |  | 674,055 |  |  | 627,313 |
Ceded | (384,588) |  |  | (270,034) |  |  | (217,885) |
Net unearned premiums | $ | 339,350 |  |  | $ | 404,021 |  |  | $ | 409,428 |

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- Definition The entire disclosure pertaining to the existence, magnitude and information about insurance that has been ceded to or assumed from another insurance company, including the methodologies and assumptions used in determining recorded amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -URI http://asc.fasb.org/topic&trid=2303980 + Details
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