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Reinsurance

6 Months Ended

Jun. 30, 2024

Reinsurance [Abstract]

5. Reinsurance

External Reinsurance

The Company’s consolidated financial statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance companies have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) the Company has underwritten to other insurance companies who agree to share these risks. The Company reinsures a portion of the risks it underwrites, through these ceded reinsurance agreements, in order to control its exposure to losses. Our ceded reinsurance is placed either on an automatic basis under general reinsurance contracts known as treaties or through facultative contracts placed on substantial individual risks. These contracts do not relieve the Company from its obligations to policyholders.

During the six-month period ended June 30, 2024, the Company maintained property catastrophe reinsurance protection covering $133,000 in excess of a $20,000 retention. With the exception of Westminster, per risk excess of loss treaties provided coverage of $4,000 in excess of $1,000 for property risks and $11,000 in excess of $1,000 for casualty risks. For Westminster, per risk excess of loss treaties provided coverage of $3,000 in excess of $2,000 for property risks and $10,000 in excess of $2,000 for casualty risks. Additionally, facultative contracts are in place to provide coverage up to $20,000 in excess of $5,000 per property. Aggregate stop loss reinsurance agreements were placed for both crop hail and multi-peril crop coverage. The crop hail aggregate attached at a 100% net loss ratio providing 50 points of cover. The multi-peril crop aggregate attached at a 105% net loss ratio providing 45 points of cover. In addition to the aggregate covers, underlying multi-peril crop reinsurance was provided through the Federal Crop Insurance Corporation (“FCIC”).

Effective July 1, 2024, the Company’s reinsurance contracts were modified to exclude any Westminster losses occurring on or after that date, while maintaining all other existing limits, retentions, and attachment points.

For the year ended December 31, 2023, the Company’s catastrophe retention and retention limit were consistent with those for the six-month period ended June 30, 2024. In addition, limits, retentions, and attachment points in our other reinsurance contracts were also consistent with those for the six-month period ended June 30, 2024 (with the exception of Westminster for which per risk excess of loss treaties provided coverage of $4,000 in excess of $1,000 for property risks and $11,000 in excess of $1,000 for casualty risks).

The Company actively monitors and evaluates the financial condition of the reinsurers and develops estimates of the uncollectible amounts due from reinsurers. Beginning on December 31, 2022, credit losses are recognized through an allowance account developed using a new credit loss model (current expected credit losses or “CECL”). See the Part II, Item 8, Note 2 “Recent Accounting Pronouncements” section of the 2023 Annual Report for additional information. Credit loss estimates are made based on periodic evaluation of balances due from reinsurers, changes in reinsurer credit standing, judgments regarding reinsurers’ solvency, known disputes, reporting characteristics of the underlying reinsured business, historical experience, current economic conditions, and the state of reinsurer relations in general. Collection risk is mitigated by entering into reinsurance arrangements only with reinsurers that have strong credit ratings and statutory surplus above certain levels. At June 30, 2024, and December 31, 2023, management has concluded that it is not necessary to record an allowance for expected credit losses related to reinsurance recoverables. All of our significant reinsurance partners are rated “A-” (Excellent) or better by AM Best, and there is no history of write-offs.

A reconciliation of direct to net premiums on both a written and an earned basis, presented on a consolidated basis, including both continuing and discontinued operations, is as follows:

		Three Months Ended June 30, 2024								Three Months Ended June 30, 2023
		Premiums Written				Premiums Earned				Premiums Written				Premiums Earned
Direct premium		$	140,488			$	111,082			$	144,250			$	106,162
Assumed premium			2,340				653				2,440				827
Ceded premium			(16,265	)			(11,183	)			(20,439	)			(12,843	)
Net premiums		$	126,563			$	100,552			$	126,251			$	94,146

		Six Months Ended June 30, 2024								Six Months Ended June 30, 2023
		Premiums Written				Premiums Earned				Premiums Written				Premiums Earned
Direct premium		$	243,145			$	205,982			$	234,806			$	191,636
Assumed premium			2,477				804				2,839				1,403
Ceded premium			(26,072	)			(20,677	)			(28,898	)			(21,266	)
Net premiums		$	219,550			$	186,109			$	208,747			$	171,773

The reconciliations for current quarter continuing and discontinued operations by duration of the Company’s direct to net premiums on both a written and an earned basis are shown below.

		Three Months Ended June 30, 2024								Three Months Ended June 30, 2023
		Premiums Written				Premiums Earned				Premiums Written				Premiums Earned
Continuing operations:
Direct premium		$	118,472			$	91,500			$	121,576			$	86,622
Assumed premium			2,340				653				2,440				827
Ceded premium			(11,663	)			(6,984	)			(15,984	)			(8,614	)
Net premiums		$	109,149			$	85,169			$	108,032			$	78,835

		Three Months Ended June 30, 2024								Three Months Ended June 30, 2023
		Premiums Written				Premiums Earned				Premiums Written				Premiums Earned
Discontinued operations:
Direct premium		$	22,016			$	19,582			$	22,674			$	19,540
Assumed premium			—				—				—				—
Ceded premium			(4,602	)			(4,199	)			(4,455	)			(4,229	)
Net premiums		$	17,414			$	15,383			$	18,219			$	15,311

The reconciliations for year-to-date continuing and discontinued operations by duration of the Company’s direct to net premiums on both a written and an earned basis are shown below.

		Six Months Ended June 30, 2024								Six Months Ended June 30, 2023
		Premiums Written				Premiums Earned				Premiums Written				Premiums Earned
Continuing operations:
Direct premium		$	201,513			$	166,899			$	193,948			$	153,292
Assumed premium			2,477				804				2,839				1,403
Ceded premium			(17,329	)			(12,650	)			(20,359	)			(12,989	)
Net premiums		$	186,661			$	155,053			$	176,428			$	141,706

		Six Months Ended June 30, 2024								Six Months Ended June 30, 2023
		Premiums Written				Premiums Earned				Premiums Written				Premiums Earned
Discontinued operations:
Direct premium		$	41,632			$	39,083			$	40,858			$	38,344
Assumed premium			—				—				—				—
Ceded premium			(8,743	)			(8,027	)			(8,539	)			(8,277	)
Net premiums		$	32,889			$	31,056			$	32,319			$	30,067

A reconciliation of direct to net losses and loss adjustment expenses, presented on a consolidated basis, including both continuing and discontinued operations, is as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Direct losses and loss adjustment expenses		$	88,568			$	95,149			$	143,222			$	166,010
Assumed losses and loss adjustment expenses			224				67				269				157
Ceded losses and loss adjustment expenses			(7,993	)			(17,710	)			(10,483	)			(29,836	)
Net losses and loss adjustment expenses		$	80,799			$	77,506			$	133,008			$	136,331

The reconciliations for current and prior year continuing and discontinued operations of direct to net losses and loss adjustment expenses is as follows:

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Continuing operations:
Direct losses and loss adjustment expenses		$	73,350			$	66,211			$	114,869			$	108,164
Assumed losses and loss adjustment expenses			224				67				269				157
Ceded losses and loss adjustment expenses			(4,216	)			(6,201	)			(5,636	)			(7,119	)
Net losses and loss adjustment expenses		$	69,358			$	60,077			$	109,502			$	101,202

		Three Months Ended June 30,								Six Months Ended June 30,
		2024				2023				2024				2023
Discontinued operations:
Direct losses and loss adjustment expenses		$	15,218			$	28,938			$	28,353			$	57,846
Assumed losses and loss adjustment expenses			—				—				—				—
Ceded losses and loss adjustment expenses			(3,777	)			(11,509	)			(4,847	)			(22,717	)
Net losses and loss adjustment expenses		$	11,441			$	17,429			$	23,506			$	35,129

If 100% of our ceded reinsurance was cancelled as of June 30, 2024, or December 31, 2023, no ceded commissions would need to be returned to the reinsurers. Reinsurance contracts are typically effective from January 1 through December 31 each year.

Intercompany Reinsurance Pooling Arrangement

Effective January 1, 2020, all of our insurance subsidiary and affiliate companies entered into an intercompany reinsurance pooling agreement. Nodak Insurance is the lead company of the pool, and assumes the net premiums, net losses, and underwriting expenses from each of the other five companies. Nodak Insurance then retrocedes balances back to each company, while retaining its own share of the pool’s net underwriting results, based on individual pool percentages established in the respective pooling agreement. This arrangement allows each insurance company to rely upon the capacity of the pool’s total statutory capital and surplus. As a result, they are evaluated by AM Best on a group basis and hold a single combined financial strength rating, long-term issuer credit rating, and financial size category. Subsequent to the June 30, 2024, date of sale, Westminster will cease to be a member of the pool.

For the six months ended June 30, 2024, and the year ended December 31, 2023, the pooling share percentages by insurance company were:

		Pool Percentage
Nodak Insurance Company			66.0%
American West Insurance Company			7.0%
Primero Insurance Company			3.0%
Battle Creek Insurance Company			2.0%
Direct Auto Insurance Company			13.0%
Westminster American Insurance Company			9.0%
Total			100.0%