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Reinsurance | 12 Months Ended
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Dec. 31, 2022
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 and tropical storms. 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 catastrophe reinsurance program, in effect from June 1, 2022 through May 31, 2023, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to an exhaustion point of approximately $2,500,000,000 in the aggregate. Under our core catastrophe excess of loss treaty, retention on a first and second event is $16,400,000 each. During the third quarter, one of the our reinsurer's participating on the $25,000,000 excess of $20,000,000 layer of the core catastrophe program exercised a contractual right to terminate their participation due to Demotech's downgrade of UPC's Financial Stability Rating. We were unsuccessful in replacing this coverage in the open market so our captive reinsurer, UPC Re, stepped into the $25,000,000 excess of $20,000,000 layer which was subsequently impacted by Hurricane Ian resulting in an additional retained loss of $20,100,000. The exhaustion point of IIC's catastrophe reinsurance program is approximately $200,000,000 in the aggregate, with a retention of $3,000,000 per occurrence, covering all perils. During the third quarter of 2022, the Company's core catastrophe reinsurance program was impacted by Hurricane Ian. As a result, the Company has approximately $508 million of occurrence limit remaining for Ian, all of which is attributable to ACIC only. After reinstatement premiums of approximately $15.4 million, the Company has approximately $993 million of aggregate limit remaining after Ian, based on our estimated ultimate net loss subject to the core catastrophe reinsurance program. Effective December 13, 2021, we renewed our all other perils catastrophe excess of loss agreement. The agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $110,000,000. During the third quarter of 2022, one of our private reinsurers who held a 100% share of the $15,000,000 in excess of $15,000,000 layer on our all other perils catastrophe excess of loss agreement notified us of their intent to terminate the agreement due to the contractual provision regarding the change in UPC's statutory surplus being greater than 25%. We agreed to a termination and commutation date of August 22, 2022 for this contract. This change resulted in approximately $1,300,000 of ceded premium savings that would have otherwise been due in the fourth quarter of 2022 and the Company retaining all the risk for any non-hurricane catastrophe losses up to $30,000,000, excluding any quota share recoveries. The table below outlines our quota share agreements in effect for the years ended December 31, 2022 and 2021.
Reinsurer | Companies in Scope (1) | Effective Dates | Cession Rate | States in Scope
External third-party | UPC, FSIC & ACIC | 06/01/2022 - 06/01/2023 | 10% (2) | Florida, Louisiana, Texas
TypTap | UPC | 06/01/2022 - 06/01/2023 | 100% (3) | Georgia, North Carolina, South Carolina
External third-party | UPC, FSIC & ACIC | 12/31/2021 - 12/31/2022 | 8% (2) | Florida, Louisiana, Texas
HCPCI | UPC | 12/31/2021 - 06/01/2022 | 85% | Georgia, North Carolina, South Carolina
External third-party | UPC & FSIC | 12/31/2021 - 12/31/2022 | 25% (4) | Florida, Louisiana, Texas
HCPCI / TypTap (5) | UPC | 06/01/2021 - 06/01/2022 | 100% (3) | Connecticut, New Jersey, Massachusetts, Rhode Island
External third-party | UPC, FSIC & ACIC (6) | 06/01/2021 - 06/01/2022 | 15% (2) | Florida, Georgia, Louisiana, North Carolina, South Carolina, Texas
IIC | UPC | 12/31/2020 - 12/31/2022 | 100% | New York
HCPCI | UPC | 12/31/2020 - 06/01/2021 | 69.5% | Connecticut, New Jersey, Massachusetts, Rhode Island
External third-party | UPC, FSIC & ACIC | 12/30/2020 - 12/31/2021 | 8% (2) | Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas
External third-party | UPC, FSIC & ACIC (6) | 06/01/2020 - 06/01/2021 | 15% (2) | Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas
External third-party | UPC & FSIC | 06/01/2020 - 06/01/2021 | 7.5% (2) | Connecticut, Florida, Georgia, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina, Texas
(1) Effective May 31, 2022, FSIC was merged into UPC, with UPC being the surviving entity. (2) This treaty provides coverage for all catastrophe perils and attritional losses incurred. For all catastrophe perils, the quota share agreement provides ground-up protection effectively reducing our retention for catastrophe losses. (3) This treaty provides coverage on our in-force, new and renewal policies until these states are transitioned to HCPCI or TypTap upon renewal. (4) This treaty provides coverage on non-catastrophe losses on policies in-force on the effective date of the agreement. (5) Cessions are split 50% to HCPCI and 50% to TypTap. (6) This treaty was amended effective December 31, 2020 to include ACIC. Reinsurance recoverable at the balance sheet dates consists of the following:
| December 31,
| 2022 |  | 2021
Reinsurance recoverable on unpaid losses and LAE | $ | 1,431,000 |  |  | $ | 749,600 |
Reinsurance recoverable on paid losses and LAE | 200,408 |  |  | 247,520 |
Reinsurance recoverable(1) | $ | 1,631,408 |  |  | $ | 997,120 |
(1) Our reinsurance recoverable balance is net of our allowance for expected credit losses. More information related to this allowance can be found in Note 13. 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 $919,000, $1,501,000, and $1,467,000 for the years ended December 31, 2022, 2021 and 2020, respectively. On June 9, 2022, we entered into a renewal rights agreement with Wright National Flood Insurance Company to sell our entire NFIP Write Your Own flood insurance business. 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,
| 2022 |  | 2021 |  | 2020
Premium written: |  |  |  |  |
Direct | $ | 1,123,537 |  |  | $ | 1,329,129 |  |  | $ | 1,411,558 |
Assumed | 526 |  |  | 316 |  |  | 45,305 |
Ceded | (542,954) |  |  | (864,725) |  |  | (755,871) |
Net premium written | $ | 581,109 |  |  | $ | 464,720 |  |  | $ | 700,992 |
Change in unearned premiums: |  |  |  |  |
Direct | $ | 98,478 |  |  | $ | 59,547 |  |  | $ | (66,483) |
Assumed | 642 |  |  | 19,451 |  |  | 16,600 |
Ceded | (217,603) |  |  | 46,043 |  |  | 114,554 |
Net decrease (increase) | $ | (118,483) |  |  | $ | 125,041 |  |  | $ | 64,671 |
Premiums earned: |  |  |  |  |
Direct | $ | 1,222,015 |  |  | $ | 1,388,676 |  |  | $ | 1,345,075 |
Assumed | 1,168 |  |  | 19,767 |  |  | 61,905 |
Ceded | (760,557) |  |  | (818,682) |  |  | (641,317) |
Net premiums earned | $ | 462,626 |  |  | $ | 589,761 |  |  | $ | 765,663 |
Losses and LAE incurred: |  |  |  |  |
Direct | $ | 2,389,152 |  |  | $ | 1,319,606 |  |  | $ | 1,186,401 |
Assumed | 6,689 |  |  | 13,969 |  |  | 67,119 |
Ceded | (1,758,194) |  |  | (911,441) |  |  | (645,204) |
Net losses and LAE incurred | $ | 637,647 |  |  | $ | 422,134 |  |  | $ | 608,316 |
Ceded losses incurred increased by $846,753,000 during the year ended December 31, 2022, compared to the year ended December 31, 2021, primarily as a result of Hurricane Ian, which made landfall in Florida as a category four hurricane. We have billed and received reinsurance recoveries for losses that we incurred on this activity and expect to receive additional recoveries during 2023. 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,
| 2022 |  | 2021 |  | 2020
Unpaid losses and LAE: |  |  |  |  |
Direct | $ | 1,942,612 |  |  | $ | 1,062,567 |  |  | $ | 1,042,994 |
Assumed | 4,326 |  |  | 21,883 |  |  | 46,972 |
Gross unpaid losses and LAE | 1,946,938 |  |  | 1,084,450 |  |  | 1,089,966 |
Ceded | (1,431,000) |  |  | (749,600) |  |  | (674,746) |
Net unpaid losses and LAE | $ | 515,938 |  |  | $ | 334,850 |  |  | $ | 415,220 |
Unearned premiums: |  |  |  |  |
Direct | $ | 545,587 |  |  | $ | 644,065 |  |  | $ | 703,612 |
Assumed | 233 |  |  | 875 |  |  | 20,326 |
Gross unearned premiums | 545,820 |  |  | 644,940 |  |  | 723,938 |
Ceded | (213,028) |  |  | (430,631) |  |  | (384,588) |
Net unearned premiums | $ | 332,792 |  |  | $ | 214,309 |  |  | $ | 339,350 |

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