Reinsurance

3 Months Ended

Mar. 31, 2021

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. Effective January 1, 2021, we renewed our all other perils catastrophe excess of loss agreement agreement. The agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $110,000,000. During the three-months ended March 31, 2021, we ceded $70,256,000. As a result of Winter Storm Uri, we incurred reinstatement premiums totaling $15,059,000 related to this agreement as of March 31, 2021.

The quota share agreements, effective June 1, 2020 to May 31, 2021, provide coverage for all catastrophe perils and attritional losses incurred by two of 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 agreements provide ground-up protection effectively reducing our retention for catastrophe losses. Effective December 31, 2020, we entered into a quota share reinsurance agreement with Homeowners Choice Property and Casualty, 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, through June 1, 2021.

Reinsurance recoverable at the balance sheet dates consists of the following:


	March 31,		December 31,
	2021		2020
Reinsurance recoverable on unpaid losses and loss adjustment expenses	$	821,364	$	674,746
Reinsurance recoverable on paid losses and loss adjustment expenses	134,694		146,410
Reinsurance recoverable	$	956,058	$	821,156

We write the majority of our flood insurance policies 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 $282,000 and $333,000 for the three-month periods ended March 31, 2021 and 2020, respectively.