Reinsurance

6 Months Ended

Jun. 30, 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, 2021 through May 31, 2022, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to an exhaustion point of approximately $2,900,000,000. Under our core catastrophe excess of loss treaty and excess of loss aggregate treaty, retention on a first and second event is $15,000,000 each and retention on subsequent events totals $1,000,000, resulting in a maximum retention of $31,000,000. Retentions for JIC are $4,000,000 for a first event and $1,000,000 for subsequent events, covering all perils. Retention for IIC is $3,000,000 per occurrence, covering all perils.

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 six-months ended June 30, 2021, we ceded $101,667,000. As a result of Winter Storm Uri, we incurred reinstatement premiums totaling $15,061,000 related to this agreement as of June 30, 2021.

The quota share agreements, effective June 1, 2020 to May 31, 2021, provided coverage for all catastrophe perils and attritional losses incurred by two of our insurance subsidiaries, UPC and FSIC. These were extended to cover ACIC effective December 31, 2020 through May 31, 2022 with an additional 8% coverage for UPC and FSIC. On May 31, 2021 our 7.5% quota share agreement expired and was not renewed. 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 HCP. Under the terms of this agreement, HCP provided 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.

Effective June 1, 2021, we entered into a quota share reinsurance agreement with HCP and Typtap. Under the terms of this agreement, we will cede 100% of our in-force, new, and renewal policies in the states of Connecticut, New Jersey, Massachusetts, and Rhode Island. The cession of these policies is 50% to HPC and 50% to Typtap. As a result, our quota share and excess of loss agreements were modified to exclude policies in these states effective June 1, 2021.

In addition, effective June 1, 2021 the quota share was also modified to exclude policies in New York. This modification was made as the result of our 100% internal quota share agreement, effective June 1, 2021, which cedes 100% of UPC's in-force, new, and renewal policies in the state of New York to our subsidiary IIC.

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


	June 30,		December 31,
	2021		2020
Reinsurance recoverable on unpaid losses and loss adjustment expenses	$	751,092	$	674,746
Reinsurance recoverable on paid losses and loss adjustment expenses	176,335		146,410
Reinsurance recoverable	$	927,427	$	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 $608,000 and $431,000 for the three-month periods ended June 30, 2021 and 2020, respectively, and $890,000 and $764,000 for the six-month periods ended June 30, 2021 and 2020, respectively.