Reinsurance

12 Months Ended

Dec. 31, 2015

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, 2015, 2014 and 2013 are as follows:

Loss Years	Reinsurers	A.M. Best Rating		Retention		Annual Aggregate Deductible
2013 – 2015	Platinum Underwriters Reinsurance, Inc. & Hannover Ruckversicherungs AG & TOA Reinsurance	A  A+  A+	$	500,000	$	—

In calendar years 2015 and 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 ($2,000,000 in excess of $1,000,000) and 0% in its property and casualty clash treaty. In calendar year 2013, 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 2015 and 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 ($2,000,000 in excess of $1,000,000) and 0% in its property and casualty clash treaty.

In calendar year 2013, 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 was subject to return based on future development of ceded losses and loss adjustment expenses. The contingent commission income (loss) recognized was $91,686, $(17,092) and $301,102 for the years ended December 31, 2015, 2014 and 2013, respectively. As of December 31, 2015, the contingent commission agreements had expired, and all contingent commission income due on these agreements had been recognized. As of December 31, 2015 and 2014, the unearned contingent commission balance included in “Accrued expenses and other liabilities” in the Consolidated Balance Sheets was $0 and $77,839, 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 years 2015 and 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 year 2013, 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 and loss adjustment expenses is as follows:

	Year ended December 31
	2015			2014			2013
Written premium:
Direct business	$	36,374,509		$	32,810,088		$	31,214,091
Reinsurance ceded		(5,345,398	)		(5,025,798	)		(5,120,808	)
Net written premium	$	31,029,111		$	27,784,290		$	26,093,283
Earned premium:
Direct business	$	34,902,435		$	31,463,691		$	31,983,540
Reinsurance ceded		(5,328,639	)		(5,090,268	)		(5,121,233	)
Net earned premium	$	29,573,796		$	26,373,423		$	26,862,307
Incurred losses and loss adjustment expenses:
Direct	$	26,495,410		$	16,795,536		$	15,491,895
Ceded		(7,332,094	)		(2,178,418	)		597,280
Net incurred losses and loss adjustment expenses	$	19,163,316		$	14,617,118		$	16,089,175

Ceded earned premium as a percentage of direct earned premium was 15% in 2015 and 16% in 2014 and 2013, respectively. Crusader did not assume any premium or losses during the years ended December 31, 2015, 2014 and 2013.