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Reinsurance

12 Months Ended

Dec. 31, 2022

Reinsurance

Note 7 - Reinsurance

Effective December 31, 2021, the Company entered into a quota share reinsurance treaty for its personal lines business, which primarily consists of homeowners’ and dwelling fire policies, covering the period from December 31, 2021 through January 1, 2023 (“2021/2023 Treaty”). Upon the expiration of the 2021/2023 Treaty on January 1, 2023, the Company entered into a new quota share reinsurance treaty for its personal lines business, covering the period from January 1, 2023 through January 1, 2024 (“2023/2024 Treaty”).

The Company’s excess of loss and catastrophe reinsurance treaties expired on June 30, 2022 and the Company entered into new excess of loss and catastrophe reinsurance treaties effective July 1, 2022. Effective October 20, 2021, the Company entered into a stub catastrophe reinsurance treaty covering the period from October 20, 2021 through December 31, 2021. The treaty provided reinsurance coverage for catastrophe losses of $5,000,000 in excess of $5,000,000. Effective January 1, 2022, the Company entered into an underlying excess of loss reinsurance treaty (“Underlying XOL Treaty”) covering the period from January 1, 2022 through January 1, 2023. The treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Losses from named storms are excluded from the treaty. Effective January 1, 2023, the Underlying XOL Treaty was renewed covering the period from January 1, 2023 through January 1, 2024. Material terms for reinsurance treaties in effect for the treaty years shown below are as follows:

		Treaty Period
		2023/2024 Treaty								2021/2023 Treaty
		July 1,				January 1,				July 1,				December 31,				July 1,				December 31,
		2023				2023				2022				2021				2021				2020
		to				to				to				to				to				to
		January 1,				June 30,				January 1,				June 30,				December 30,				June 30,
Line of Business		2024				2023				2023				2022				2021				2021

Personal Lines:
Homeowners, dwelling fire and and canine legal liability
Quota share treaty:
Percent ceded (9)			30	%			30	%			30	%			30	%		None (5)				None (5)
Risk retained on intial $1,000,000 of losses (5) (7) (8) (9)		$	700,000			$	700,000			$	700,000			$	700,000			$	1,000,000			$	1,000,000
Losses per occurrence subject to quota share reinsurance coverage		$	1,000,000			$	1,000,000			$	1,000,000			$	1,000,000			None (5)				None (5)
Expiration date		January 1, 2024				January 1, 2024				January 1, 2023				January 1, 2023				NA (5)				NA (5)


Excess of loss coverage and facultative facility coverage (1) (7)			(8	)		$	8,400,000			$	8,400,000			$	8,400,000			$	8,000,000			$	8,000,000
							in excess of				in excess of				in excess of				in excess of				in excess of
						$	600,000			$	600,000			$	600,000			$	1,000,000			$	1,000,000
Total reinsurance coverage per occurrence (5) (7) (8)		$	500,000			$	8,500,000			$	8,500,000			$	8,500,000			$	8,000,000			$	8,000,000
Losses per occurrence subject to reinsurance coverage (5)			(8	)		$	8,000,000			$	9,000,000			$	9,000,000			$	9,000,000			$	9,000,000
Expiration date			(8	)		June 30, 2023				June 30, 2023				June 30, 2022				June 30, 2022				June 30, 2021

Catastrophe Reinsurance:

Initial loss subject to personal lines quota share treaty (8)		$	10,000,000			$	10,000,000			$	10,000,000			$	10,000,000			None (5)				None (5)
Risk retained per catastrophe occurrence (5) (9) (10)			(8	)		$	8,750,000			$	7,400,000			$	7,400,000			$	10,000,000			$	10,000,000
Catastrophe loss coverage in excess of quota share coverage (2) (5)			(8	)		$	335,000,000			$	335,000,000			$	490,000,000			$	490,000,000			$	475,000,000
Catastrophe stub coverage for the period from October 18, 2021 through December 31, 2021 (6)		NA				NA				NA				NA				$	5,000,000			NA
																			in excess of
																		$	5,000,000
Reinstatement premium protection (3) (4)			(8	)		Yes				Yes				Yes				Yes				Yes

	(1)	For personal lines, includes the addition of an automatic facultative facility allowing KICO to obtain homeowners single risk coverage up to $9,000,000 in total insured value, which covers direct losses from $3,500,000 to $9,000,000 through June 30, 2023.
	(2)	Catastrophe coverage is limited on an annual basis to two times the per occurrence amounts. Duration of 168 consecutive hours for a catastrophe occurrence from windstorm, hail, tornado, hurricane and cyclone.
	(3)	For the period July 1, 2020 through June 30, 2021, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000. For the period July 1, 2021 through June 30, 2022, reinstatement premium protection for $70,000,000 of catastrophe coverage in excess of $10,000,000.

	(4)	For the period July 1, 2022 through June 30, 2023, reinstatement premium protection for $9,800,000 of catastrophe coverage in excess of $10,000,000.
	(5)	The personal lines quota share (homeowners, dwelling fire and canine legal liability) expired on December 30, 2020; reinsurance coverage from December 31, 2020 through December 30, 2021 is only for excess of loss and catastrophe reinsurance.
	(6)	Excludes freeze and freeze related claims.
	(7)	For the period January 1, 2022 through January 1, 2024, underlying excess of loss treaty provides 50% reinsurance coverage for losses of $400,000 in excess of $600,000. Reduces retention to $500,000 from $700,000 under the 2021/2023 Treaty and 2022/2023 Treaty. Excludes losses from named storms.
	(8)	Excess of loss and facultative facility, and catastrophe treaties will expire on June 30, 2023; reinsurance coverage in effect from July 1, 2023 through January 1, 2024 is only for Personal lines quota share (homeowners, dwelling fire and canine liability) and underlying excess of loss reinsurance.
	(9)	For the 2021/2023 Treaty, 4% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event. For the 2023/2024 Treaty, 17.5% of the 30% total of losses ceded under this treaty are excluded from a named catastrophe event.
	(10)	Plus losses in excess of catastrophe coverage

		Treaty Year
		July 1, 2022				July 1, 2021				July 1, 2020
		to				to				to
Line of Business		June 30, 2023				June 30, 2022				June 30, 2021

Personal Lines:
Personal Umbrella
Quota share treaty:
Percent ceded - first $1,000,000 of coverage			90	%			90	%			90	%
Percent ceded - excess of $1,000,000 dollars of coverage			95	%			95	%			95	%
Risk retained		$	300,000			$	300,000			$	300,000
Total reinsurance coverage per occurrence		$	4,700,000			$	4,700,000			$	4,700,000
Losses per occurrence subject to quota share reinsurance coverage		$	5,000,000			$	5,000,000			$	5,000,000
Expiration date		June 30, 2023				June 30, 2022				June 30, 2021

Commercial Lines (1):
General liability commercial policies
Quota share treaty										None
Risk retained										$	750,000
Excess of loss coverage above risk retained										$	3,750,000
										in excess of
										$	750,000
Total reinsurance coverage per occurrence										$	3,750,000
Losses per occurrence subject to reinsurance coverage										$	4,500,000

Commercial Umbrella
Quota share treaty										None

(1)

Coverage on all commercial lines policies expired in September 2020; reinsurance coverage is based on treaties in effect on the date of loss.

The Company’s reinsurance program has been structured to enable the Company to grow its premium volume while maintaining regulatory capital and other financial ratios generally within or below the expected ranges used for regulatory oversight purposes. The reinsurance program also provides income as a result of ceding commissions earned pursuant to the quota share reinsurance contracts. The Company’s participation in reinsurance arrangements does not relieve the Company of its obligations to policyholders.

Approximate reinsurance recoverables on unpaid and paid losses by reinsurer at December 31, 2022 and 2021 are as follows:

		Unpaid				Paid
($ in thousands)		Losses				Losses				Total					Security
December 31, 2022
Swiss Reinsurance America Corporation			9,469				4,823				14,292				-
Hanover Rueck SE			8,681				2,698				11,379				-
Others			9,510				6,067				15,577				2,399	(2)
Total		$	27,660			$	13,588			$	41,248			$	2,399

December 31, 2021
Cavello Bay Reinsurance Limited (1)		$	2,134			$	3,245			$	5,379			$	3,006	(3)
Swiss Reinsurance America Corporation			4,069				631				4,700				-
Hanover Rueck SE			2,474				1,176				3,650				-
Allied World Assurance Company			1,098				29				1,127				-
Others			863				1,415				2,278				791	(4)
Total		$	10,638			$	6,496			$	17,134			$	3,797

(Columns in the tables above may not sum to totals due to rounding)

(1) On December 27, 2018, Enstar Group Limited announced that one of its wholly owned subsidiaries, Cavello Bay Reinsurance Limited, acquired Maiden Reinsurance North America, Inc.

(2) As of December 31, 2022, represents $1,918,000 secured pursuant to collateralized trust agreement and $481,000 guaranteed by irrevocable letters of credit.

(3) As of December 31, 2021, represents $3,006,000 secured pursuant to collateralized trust agreement.

(4) As of December 31, 2021, represents $791,000 guaranteed by irrevocable letters of credit.

Assets held in the trusts referred to in footnotes (2) and (3) in the table above are not included in the Company’s invested assets, and investment income earned on these assets is credited to the reinsurers respectively. In addition to reinsurance recoverables on unpaid and paid losses, reinsurance receivables in the accompanying consolidated balance sheets as of December 31, 2022 and 2021 include unearned ceded premiums of approximately $25,217,000 and $23,159,000, respectively.

Ceding Commission Revenue

The Company earned ceding commission revenue under the 2021/2023 Treaty for the year ended December 31, 2022 based on a fixed provisional commission rate at which provisional ceding commissions will be earned. The 2021/2023 Treaty was effective as of December 31, 2021; there was no other personal lines quota share treaty in effect for the year ended December 31, 2021. The Company will earn ceding commission revenue under the 2023/2024 Treaty based on a fixed provisional commission rate at which provisional ceding commissions will be earned. The Company earned ceding commission revenue under its expired quota share reinsurance agreements based on: (i) a fixed provisional commission rate at which provisional ceding commissions were earned, and (ii) a continuing sliding scale of commission rates and ultimate treaty year loss ratios on the policies reinsured under each of these agreements based upon which contingent ceding commissions are earned. The sliding scale includes minimum and maximum commission rates in relation to specified ultimate loss ratios. The commission rate and contingent ceding commissions earned increase when the estimated ultimate loss ratio decreases and, conversely, the commission rate and contingent ceding commissions earned decrease when the estimated ultimate loss ratio increases.

Ceding commission revenue consists of the following:

		Year ended
		December 31,
		2022				2021

Provisional ceding commissions earned		$	19,105,779			$	233,990
Contingent ceding commissions earned			213,612				(144,309	)
		$	19,319,391			$	89,681

Provisional ceding commissions are settled monthly. Balances due from reinsurers for contingent ceding commissions on quota share treaties are settled periodically based on the Loss Ratio of each treaty year that ends on June 30, for the expired treaties that were subject to contingent commissions. As discussed above, the Loss Ratios from prior years’ treaties are subject to change as incurred losses from those periods develop, resulting in an increase or decrease in the commission rate and contingent ceding commissions earned. As of December 31, 2022 and 2021, net contingent ceding commissions payable to reinsurers under all treaties was approximately $2,667,000 and $2,881,000, respectively, which is recorded in reinsurance balances payable on the accompanying consolidated balance sheets.