Reinsurance

12 Months Ended

Dec. 31, 2014

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 during years ended December 31, 2014, 2013 and 2012 are as follows:

Loss Year(s)	Reinsurer(s)	A.M. Best Rating		Retention		Annual Aggregate Deductible
2012 – 2014	Platinum Underwriters Reinsurance, Inc. & Hannover Ruckversicherungs AG & TOA Reinsurance	A  A+  A+	$	500,000	$	—

In calendar year 2014, 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), 0% 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 2013 and 2012, 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.

Crusader’s excess of loss reinsurance treaties provided for a contingent commission for accident years 2006, 2004 and 2003. Crusader’s 2006 1^st layer primary excess of loss reinsurance treaty provided for a contingent commission equal to 20% of the net profit, if any, accruing to the reinsurer. Crusader’s 2004 and 2003 1^st layer primary excess of loss reinsurance treaties provided for a contingent commission to the Company equal to 45% of the net profit, if any, accruing to the reinsurer. Any contingent commission received is subject to return based on future development of ceded losses and loss adjustment expenses. As of December 31, 2014, Crusader has received a total net contingent commission of $3,647,706 for the years subject to the contingent commission. Of this amount, Crusader has recognized $3,569,867 as contingent commission income. The remaining balance of the net payments received of $77,839 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 losses including IBNR for the years subject to the contingent commission. The contingent commission income (loss) recognized was $(17,092), $301,102 and $443,697 in the years ended December 31, 2014, 2013 and 2012, respectively.

Crusader also has catastrophe reinsurance treaties from various highly rated California authorized and California unauthorized reinsurance companies. These reinsurance treaties help protect Crusader against losses in excess of certain retentions, from catastrophic events that may occur on property risks which Crusader insures. In calendar year 2014, Crusader retained a participation in its Catastrophe excess of loss reinsurance treaties of 5% in its 1^st layer ($9,000,000 in excess of $1,000,000) and 0% in its 2^nd layer ($31,000,000 in excess of $10,000,000). In calendar years 2013 and 2012, Crusader retained a participation in its Catastrophe excess of loss reinsurance treaties of 10% in its 1^st layer ($9,000,000 in excess of $1,000,000) and 0% in its 2^nd layer ($31,000,000 in excess of $10,000,000).

Crusader 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. Crusader intends to continue obtaining reinsurance although the availability and cost may vary from time to time. The unpaid losses and loss adjustment expenses ceded to the reinsurer are recorded as an asset on the Consolidate Balance Sheets.

The effect of reinsurance on written premium, earned premium and incurred losses loss adjustment expenses is as follows:

	Year ended December 31
	2014			2013			2012
Written premium:
Direct business	$	32,810,088		$	31,214,091		$	32,572,047
Reinsurance ceded		(5,025,798	)		(5,120,808	)		(5,180,758	)
Net written premium	$	27,784,290		$	26,093,283		$	27,391,289
Earned premium:
Direct business	$	31,463,691		$	31,983,540		$	32,454,089
Reinsurance ceded		(5,090,268	)		(5,121,233	)		(5,135,929	)
Net earned premium	$	26,373,423		$	26,862,307		$	27,318,160
Incurred losses and loss adjustment expenses:
Direct	$	16,795,536		$	15,491,895		$	16,795,237
Ceded		(2,178,418	)		597,280			(1,561,834	)
Net incurred losses and loss adjustment expenses	$	14,617,118		$	16,089,175		$	15,233,403

Ceded earned premium as a percentage of direct earned premium was 16% in 2014, 2013 and 2012. Crusader did not assume any premium or losses during the years ended December 31, 2014, 2013 and 2012.