Reinsurance

12 Months Ended

Dec. 31, 2020

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