Note 17. Insurance Products and Reinsurance of Certain Risks

RMC Reinsurance, Ltd. is a wholly-owned insurance subsidiary of the Company. The Company sells optional insurance products to its customers in connection with its lending operations. These optional products include credit life, credit accident and health, credit property insurance, and credit involuntary unemployment insurance. The Company also collects a fee for collateral protection and purchases non-recording insurance in lieu of recording and perfecting the Company’s security interest in the assets pledged on certain loans. Insurance premiums are remitted to an unaffiliated company that issues the policy to the customer. This unaffiliated company cedes the premiums to RMC Reinsurance, Ltd. Life insurance premiums are ceded to the Company as written and non-life products are ceded as earned.

The Company maintains a cash reserve for life insurance claims in an amount determined by the ceding company. As of December 31, 2016 and 2015, the cash reserves were $3.9 million and $2.9 million, respectively. The Company also purchased a cash collateralized letter of credit in favor of the ceding company. The letter of credit was $2.0 million and $2.9 million as of December 31, 2016 and 2015, respectively.

Reinsurance income is accounted for over the period of the underlying reinsured policies using assumptions consistent with the policy terms. Following are total net premiums written and reinsured and total earned premiums for the years ended December 31, 2016, 2015, and 2014:


In thousands	Net Written Premiums		Earned Premiums
2016	$	31,576	$	22,498
2015		30,812		20,257
2014		17,831		17,385

Prior to May 2016, the Company had a collateral protection insurance (“CPI”) program. CPI was added to a loan when a customer failed to provide the Company with proof of collision insurance on an automobile securing a loan. The CPI program was administered by an independent third party, which tracked insurance lapses and cancellations and issued a policy when the customer did not provide proof of insurance. The insurance was added to the loan, which increased the customer’s monthly loan payment. The third party and its insurance partner retained a percentage of the premium and paid all claims. The Company earned a commission for policies issued prior to July 1, 2014. Income was recognized on the constant yield method over the life of the insurance policy, which was generally one year. The Company did not earn a commission on policies issued on and after July 1, 2014. For automobile purchase loans originated beginning in May 2016, the Company is covered under a blanket vendor single interest insurance policy. The policy protects the Company’s interest when the customer fails to maintain the required insurance coverage on an automobile securing an automobile purchase loan. The customer’s loan and monthly payment are not impacted by this insurance policy.

The Company offers a self-insured Guaranteed Asset Protection (“GAP”) coverage to customers in North Carolina and Alabama. A GAP program is a contractual arrangement whereby the Company forgives the remaining balance of the insured customer’s automobile purchase loan if the automobile is determined to be a total loss by the primary insurance carrier and insurance proceeds are not sufficient to pay off the customer’s loan. This revenue is recognized over the life of the loan. Losses are recognized in the period in which they occur.