Reinsurance Activity

3 Months Ended

Mar. 31, 2015

Reinsurance Activity

Reinsurance Activity

20. Reinsurance Activity

NLC limits the maximum net loss that can arise from large risks or risks in concentrated areas of exposure by reinsuring (ceding) certain levels of risk. Substantial amounts of business are ceded, and these reinsurance contracts do not relieve NLC from its obligations to policyholders. Such reinsurance includes quota share, excess of loss, catastrophe, and other forms of reinsurance on essentially all property and casualty lines of insurance. Net insurance premiums earned, losses and LAE and policy acquisition and other underwriting expenses are reported net of the amounts related to reinsurance ceded to other companies. Amounts recoverable from reinsurers related to the portions of the liability for losses and LAE and unearned insurance premiums ceded to them are reported as assets. Failure of reinsurers to honor their obligations could result in losses to NLC; consequently, allowances are established for amounts deemed uncollectible as NLC evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. At March 31, 2015, reinsurance receivables have a carrying value of $8.9 million, which is included in other assets within the consolidated balance sheet. There was no allowance for uncollectible accounts at March 31, 2015, based on NLC’s quality requirements.

The effects of reinsurance on premiums written and earned are summarized as follows (in thousands).

	Three Months Ended March 31,
	2015						2014
	Written			Earned			Written			Earned
Premiums from direct business	$	42,749		$	42,089		$	43,770		$	42,759
Reinsurance assumed	2,516			2,443			2,233			2,020
Reinsurance ceded	(4,705		)	(4,965		)	(4,186		)	(4,460		)
Net premiums	$	40,560		$	39,567		$	41,817		$	40,319

The effects of reinsurance on incurred losses are as follows (in thousands).

	Three Months Ended March 31,
	2015			2014
Loss and LAE incurred	$	23,331		$	17,752
Reinsurance recoverables	(4,471		)	585
Net loss and LAE incurred	$	18,860		$	18,337

Multi-line excess of loss coverage

In addition to the catastrophe reinsurance noted below, both NLIC and ASIC participate in an excess of loss program placed with various reinsurers. This program is limited to each risk with respect to property and liability in the amount of $500,000 for each of NLIC and ASIC. Each of NLIC and ASIC retain $500,000 in this program.

Catastrophic coverage

At March 31, 2015, NLC had catastrophic excess of loss reinsurance coverage of losses per event in excess of $8 million retention by NLIC and $1.5 million retention by ASIC. ASIC maintained an underlying layer of coverage, providing $6.5 million in excess of its $1.5 million retention to bridge to the primary program. The reinsurance in excess of $8 million is comprised of four layers of protection: $17 million in excess of $8 million retention; $25 million in excess of $25 million loss; $50 million in excess of $50 million loss and $40 million in excess of $100 million loss. NLIC and ASIC retain no participation in any of the layers, beyond the first $8 million and $1.5 million, respectively. At March 31, 2015, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective January 1, 2015, NLC renewed its underlying excess of loss contract that provides $10 million aggregate coverage for sub-catastrophic events. NLC retains a 9% participation in this coverage.