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Reinsurance
 12 Months Ended
Dec. 31, 2011
Notes to Financial Statements  
Reinsurance

NOTE 12 – REINSURANCE

A reinsurance transaction occurs when an insurance company transfers (cedes) a portion of its exposure on policies written to a reinsurer that assumes that risk for a premium (ceded premium). Reinsurance does not legally discharge the Company from primary liability under its policies. If the reinsurer fails to meet its obligations, the Company must nonetheless pay its policy obligations.

 

 

Crusader’s primary excess of loss reinsurance agreements since January 1, 2003, are as follows:

 

 

Loss Year(s)

 

 

Reinsurer(s)

 A.M. Best Rating

 

 

Retention

 Annual Aggregate  Deductible
         
2011

Platinum Underwriters Reinsurance, Inc.

& Hannover Ruckversicherungs AG

& TOA Reinsurance

A

A

A+

 

 

$500,000

 

 

$-

2005 – 2010

Platinum Underwriters Reinsurance, Inc.

& Hannover Ruckversicherungs AG

A

A

 

$300,000

 

$500,000

         
2004

Platinum Underwriters Reinsurance, Inc.

& Hannover Ruckversicherungs AG

A

A

 

$250,000

 

$500,000

         
2003

Platinum Underwriters Reinsurance, Inc.

& Hannover Ruckversicherungs AG

& QBE Reinsurance Corporation

A

A

A

 

 

$250,000

 

 

$500,000

 

In 2011 Crusader retained a participation in its excess of loss reinsurance treaties of 10% in its 1st layer ($500,000 in excess of $500,000), 5% in its 2nd layer ($1,000,000 in excess of $1,000,000), and 0% in its property and casualty clash treaty. The Company evaluates each of its ceded reinsurance contracts at its inception to determine if there is a sufficient risk transfer to allow the contract to be accounted for as reinsurance under current accounting literature. As of December 31, 2011, all such ceded contracts are accounted for as risk transfer reinsurance.

 

In 2010, 2009 and 2008 Crusader retained a participation in its excess of loss reinsurance treaties of 20% in its 1st layer ($700,000 in excess of $300,000), 15% in its 2nd layer ($1,000,000 in excess of $1,000,000), and 0% in its property and casualty clash treaty. In 2007 Crusader retained a participation in its excess of loss reinsurance treaties of 15% in its 1st layer ($700,000 in excess of $300,000), 15% in its 2nd layer ($1,000,000 in excess of $1,000,000), and 15% in its property clash treaty. In 2006 and 2005 Crusader retained a participation in its excess of loss reinsurance treaties of 10% in its 1st layer ($700,000 in excess of $300,000), 10% in its 2nd layer ($1,000,000 in excess of $1,000,000), and 30% in its property clash treaty. In 2004 Crusader retained a participation in its excess of loss reinsurance treaties of 10% in its 1st layer ($750,000 in excess of $250,000), 10% in its 2nd layer ($1,000,000 in excess of $1,000,000), and 30% in its property clash treaty. In 2003 Crusader retained a participation in its excess of loss reinsurance treaties of 5% in its 1st layer ($750,000 in excess of $250,000), 10% in its 2nd layer ($1,000,000 in excess of $1,000,000), and 30% in its property clash treaty.

 

The 2007 through 2010 excess of loss treaties do not provide for a contingent commission. Crusader’s 2006 1st layer primary excess of loss treaty provides for a contingent commission equal to 20% of the net profit, if any, accruing to the reinsurer. The first accounting period for the contingent commission covers the period from January 1, 2006, through December 31, 2006. The 2005 excess of loss treaties do not provide for a contingent commission. Crusader’s 2004 and 2003 1st layer primary excess of loss treaties provide for a contingent commission to the Company equal to 45% of the net profit, if any, accruing to the reinsurer. The first accounting period for the contingent commission covers the period from January 1, 2003, through December 31, 2004. For each accounting period as described above, the Company will calculate and report to the reinsurers its net profit (excluding incurred but not reported losses), if any, within 90 days after 36 months following the end of the first accounting period, and within 90 days after the end of each 12-month period thereafter until all losses subject to the agreement have been finally settled. Any contingent commission received is subject to return based on future development of ceded losses and loss adjustment expenses. As of December 31, 2011, the Company has received a total net contingent commission of $3,643,758 for the years subject to contingent commission. Of this amount, the Company has recognized $2,842,157 of contingent commission income, of which $518,301 was recognized in the year ended December 31, 2011. The remaining balance of the net payments received of $801,601 is currently unearned and included in “Accrued Expenses and Other Liabilities” in the consolidated balance sheets. The unearned contingent commission may be subsequently earned or returned to the reinsurer depending on the future development of the ceded IBNR for the years subject to contingent commission.

 

Crusader also has catastrophe reinsurance from various highly rated California authorized and unauthorized reinsurance companies. These reinsurance agreements help protect Crusader against liabilities in excess of certain retentions, including major or catastrophic losses that may occur from any one or more of the property and/or casualty risks which Crusader insures. The Company has no reinsurance recoverable balances in dispute.

 

 

 

On most of the premium that Crusader cedes to the reinsurer, the reinsurer pays a commission to Crusader that includes a reimbursement of the cost of acquiring the portion of the premium that is ceded. Crusader does not currently assume any reinsurance. The Company intends to continue obtaining reinsurance although the availability and cost may vary from time to time. The unpaid losses ceded to the reinsurer are recorded as an asset on the balance sheet.

 

The effect of reinsurance on premiums written, premiums earned, and incurred losses are as follows:

  Year ended December 31
  2011  2010  2009 
Premiums written:      
  Direct business $32,054,590  $32,697,971  $38,900,176 
  Reinsurance assumed -  -  - 
  Reinsurance ceded (5,334,743) (7,427,651) (9,264,278)
     Net premiums written $26,719,847  $25,270,320  $29,635,898 
       
Premiums earned:      
  Direct business $32,072,262  $35,579,438  $40,050,878 
  Reinsurance assumed -  -  - 
  Reinsurance ceded (5,348,319) (7,427,236) (9,276,407)
     Net premiums earned $26,723,943  $28,152,202  $30,774,471 
       
Incurred losses and loss adjustment expenses:      
  Direct $11,970,100  $16,706,756  $19,221,640 
  Assumed -  -  - 
  Ceded 2,417,227  1,763,359  324,121 
     Net incurred losses and loss adjustment expenses $14,387,327  $18,470,115  $19,545,761 

 

Earned reinsurance ceded premium as a percentage of direct earned premium was 17% in 2011, 21% in 2010 and 23% in 2009.