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Reinsurance | 12 Months Ended
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Dec. 31, 2023
Reinsurance Disclosures [Abstract] |
Reinsurance | REINSURANCE Our catastrophe reinsurance programs are designed primarily by utilizing third-party catastrophe modeling software and consulting with third-party reinsurance experts to project our exposure to catastrophe events. We evaluate modeled expected losses developed by the catastrophe modeling software using our risk portfolio data to estimate probable maximum losses (PML) across multiple return periods and the average annual loss. The Company monitors and manages its catastrophe risk using this model output along with other internal and external data sources, such as our historical loss experience and industry loss experience, to develop our view of catastrophe risk. Our catastrophe reinsurance coverages consists of three separate placements: 1.AmCoastal’s core catastrophe reinsurance program in effect June 1 through May 31, annually, which includes excess of loss and quota share treaties providing coverage for catastrophe losses from named or numbered windstorms and earthquakes; 2.AmCoastal’s all other perils catastrophe excess of loss agreement in effect January 1, through December 31, annually, which provides protection from catastrophe loss events other than named windstorms and earthquakes; and 3.IIC’s core catastrophe reinsurance program in effect June 1, through May 31, annually, which provides protection from all catastrophe losses. This reinsurance protection is an essential part of our catastrophe risk management strategy. It is intended to provide our stockholders an acceptable return on the risks assumed by our insurance entities, and to reduce variability of earnings, while providing surplus protection. 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. In the event one or more of our reinsurers fail to fulfill their obligation, the surplus of our statutory entities may decline, and we may not be able to fulfill our obligation to policyholders, or we may not be able to maintain compliance with various regulatory financial requirements. Additionally, we face the risk that actual losses incurred from one or more catastrophic events may be above the modeled expected loss resulting in losses exceeding our reinsurance coverage, which may result in a decline in surplus, and as a result we may not be able to fulfill our obligations to policyholders, or we may not be able to maintain compliance with various regulatory financial requirements. The details of our programs and likelihood of a catastrophic event exceeding these three coverages are outlined below. AmCoastal’s core catastrophe reinsurance program provides occurrence-based coverage up to an exhaustion point of approximately $1,100,000,000 for a first occurrence and $1,300,000,000 in the aggregate. Under this program, our retention on a first and second event is $10,000,000 each, plus $2,250,000 retained separately by our captive. AmCoastal’s program provides sufficient coverage for a 1-in-150-year return period, indicating that the probability of a single occurrence exceeding protection purchased is roughly 0.7% estimated by equally blending the AIR and RMS catastrophe models using long-term catalogs including demand surge. AmCoastal’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. While we believe these catastrophe models are very good tools and their output provides reasonable proxies for the probability of exhausting our reinsurance protections, they are imperfect so actual results could vary dramatically from those expected. AmCoastal’s all other perils catastrophe excess of loss agreement provides protection from catastrophe loss events other than named windstorms and earthquakes up to $101,000,000. This agreement provides sufficient coverage for a 1-in-250-year return period, indicating that the probability of a single occurrence exceeding protection purchased is no more than 0.4%. IIC’s core catastrophe reinsurance program provides coverage up to an exhaustion point of approximately $82,000,000 in the aggregate, with a retention of $3,000,000 per occurrence. Based on IIC’s PML, the program provides sufficient coverage for a 1-in-130 year return period, indicating the probability of a single occurrence exceeding protection purchased is no more than 0.8%. IIC’s program also provides sufficient coverage for a 1-in-100-year event followed by a 1-in-50-year event in the same treaty year, the probability of which is less than 0.1%. Effective December 15, 2023, we agreed to commute a private reinsurer’s share of core catastrophe reinsurance coverage and replace this gap in coverage with new coverage provided by one of our other private reinsurers. This transaction resulted in additional expense of approximately $6,300,000 for the year ended December 31, 2023. 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 Hurricane Ian all of which is attributable to AmCoastal only. After reinstatement premiums of approximately $15.4 million, the Company, with its former subsidiary UPC, has approximately $980 million of aggregate limit remaining for events subsequent to Hurricane Ian, based on our estimated ultimate net loss subject to the core catastrophe reinsurance program. 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 our former subsidiary 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, 2023 and 2022. The impacts of these quota share agreements on our former subsidiary, UPC's financial statements are included in discontinued operations.
Reinsurer | Companies in Scope (1) | Effective Dates | Cession Rate | States in Scope
External third-party | AmCoastal | 06/01/2023 - 06/01/2024 | 40% (2) | Florida
External third-party | UPC, FSIC & AmCoastal | 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 & AmCoastal | 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 & AmCoastal (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
(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 AmCoastal. Reinsurance recoverable at the balance sheet dates consists of the following:
| December 31,
| 2023 |  | 2022
Reinsurance recoverable on unpaid losses and LAE | $ | 271,948 |  |  | $ | 732,341 |
Reinsurance recoverable on paid losses and LAE | 69,154 |  |  | 64,205 |
Reinsurance recoverable(1) | $ | 341,102 |  |  | $ | 796,546 |
(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 14. 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,
| 2023 |  | 2022 |  | 2021
Premium written: |  |  |  |  |
Direct | $ | 669,927 |  |  | $ | 532,818 |  |  | $ | 443,115 |
Assumed | 116 |  |  | 39,525 |  |  | 41,412 |
Ceded | (422,731) |  |  | (244,190) |  |  | (258,371) |
Net premium written | $ | 247,312 |  |  | $ | 328,153 |  |  | $ | 226,156 |
Change in unearned premiums: |  |  |  |  |
Direct | $ | (44,280) |  |  | $ | (47,497) |  |  | $ | (30,309) |
Assumed | 10,201 |  |  | 10,523 |  |  | 11,541 |
Ceded | 68,651 |  |  | (21,833) |  |  | 13,741 |
Net decrease (increase) | $ | 34,572 |  |  | $ | (58,807) |  |  | $ | (5,027) |
Premiums earned: |  |  |  |  |
Direct | $ | 625,647 |  |  | $ | 485,321 |  |  | $ | 412,806 |
Assumed | 10,317 |  |  | 50,048 |  |  | 52,953 |
Ceded | (354,080) |  |  | (266,023) |  |  | (244,630) |
Net premiums earned | $ | 281,884 |  |  | $ | 269,346 |  |  | $ | 221,129 |
Losses and LAE incurred: |  |  |  |  |
Direct | $ | 136,707 |  |  | $ | 756,233 |  |  | $ | 77,515 |
Assumed | 2,997 |  |  | 45,521 |  |  | 38,440 |
Ceded | (76,843) |  |  | (666,949) |  |  | (26,904) |
Net losses and LAE incurred | $ | 62,861 |  |  | $ | 134,805 |  |  | $ | 89,051 |
Ceded losses incurred decreased by $590,106,000 during the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily as a result of Hurricane Ian, which made landfall in Florida as a Category Four hurricane. We had no similar catastrophe related activity 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,
| 2023 |  | 2022 |  | 2021
Unpaid losses and LAE: |  |  |  |  |
Direct | $ | 344,389 |  |  | $ | 829,862 |  |  | $ | 228,423 |
Assumed | 25,832 |  |  | 13,096 |  |  | 22,219 |
Gross unpaid losses and LAE | 370,221 |  |  | 842,958 |  |  | 250,642 |
Ceded | (271,948) |  |  | (732,341) |  |  | (176,183) |
Net unpaid losses and LAE | $ | 98,273 |  |  | $ | 110,617 |  |  | $ | 74,459 |
Unearned premiums: |  |  |  |  |
Direct | $ | 293,057 |  |  | $ | 248,777 |  |  | $ | 201,280 |
Assumed | — |  |  | 10,201 |  |  | 20,728 |
Gross unearned premiums | 293,057 |  |  | 258,978 |  |  | 222,008 |
Ceded | (159,147) |  |  | (90,496) |  |  | (112,329) |
Net unearned premiums | $ | 133,910 |  |  | $ | 168,482 |  |  | $ | 109,679 |

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