Reinsurance

12 Months Ended

Dec. 31, 2012

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 AggregateDeductible
2011 – 2012	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 calendar years 2012 and 2011 Crusader retained a participation in its excess of loss reinsurance treaties of 10% in its 1^st layer ($500,000 in excess of $500,000), 5% in its 2^nd layer ($1,000,000 in excess of $1,000,000), and 0% in its property and casualty clash treaty.

In calendar years 2010, 2009 and 2008 Crusader retained a participation in its excess of loss reinsurance treaties of 20% in its 1^st layer ($700,000 in excess of $300,000), 15% in its 2^nd 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 1^st layer ($700,000 in excess of $300,000), 15% in its 2^nd 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 1^st layer ($700,000 in excess of $300,000), 10% in its 2^nd 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 1^st layer ($750,000 in excess of $250,000), 10% in its 2^nd 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 1^st layer ($750,000 in excess of $250,000), 10% in its 2^nd layer ($1,000,000 in excess of $1,000,000), and 30% in its property clash treaty.

The 2007 through 2012 excess of loss reinsurance treaties do not provide for a contingent commission. Crusader’s 2006 1^st layer primary excess of loss reinsurance 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 reinsurance treaties do not provide for a contingent commission. Crusader’s 2004 and 2003 1^st layer primary excess of loss reinsurance 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, 2012, the Company has received a total net contingent commission of $3,651,935 for the years subject to contingent commission. Of this amount, the Company has recognized $3,285,855 of contingent commission income, of which $443,697 was recognized in the year ended December 31, 2012. The remaining balance of the net payments received of $366,080 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
	2012			2011			2010
Premiums written:
Direct business	$	32,572,047		$	32,054,590		$	32,697,971
Reinsurance assumed		—			—			—
Reinsurance ceded		(5,180,758	)		(5,334,743	)		(7,427,651	)
Net premiums written	$	27,391,289		$	26,719,847		$	25,270,320
Premiums earned:
Direct business	$	32,454,089		$	32,072,262		$	35,579,438
Reinsurance assumed		—			—			—
Reinsurance ceded		(5,135,929	)		(5,348,319	)		(7,427,236	)
Net premiums earned	$	27,318,160		$	26,723,943		$	28,152,202
Incurred losses and loss adjustment expenses:
Direct	$	16,795,237		$	11,970,100		$	16,706,756
Assumed		—			—			—
Ceded		(1,561,834	)		2,417,227			1,763,359
Net incurred losses and loss adjustment expenses	$	15,233,403		$	14,387,327		$	18,470,115

Earned reinsurance ceded premium as a percentage of direct earned premium was 16% in 2012, 17% in 2011 and 21% in 2010.