Reinsurance Activity

3 Months Ended

Mar. 31, 2016

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, 2016, reinsurance receivables had a carrying value of $13.1 million, which is included in other assets within the consolidated balance sheet. There was no allowance for uncollectible accounts at March 31, 2016, 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,
	2016				2015
	Written		Earned		Written		Earned
Premiums from direct business	$	39,079	$	40,886	$	42,749	$	42,089
Reinsurance assumed		2,679		2,669		2,516		2,443
Reinsurance ceded		(3,498)		(3,822)		(4,705)		(4,965)
Net premiums	$	38,260	$	39,733	$	40,560	$	39,567

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

	Three Months Ended March 31,
	2016		2015
Loss and LAE incurred	$	23,489	$	23,331
Reinsurance recoverables		(1,530)		(4,471)
Net loss and LAE incurred	$	21,959	$	18,860

Catastrophic coverage

At March 31, 2016, NLC had catastrophic excess of loss reinsurance coverage of losses per event in excess of $8.0 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 $8.0 million is comprised of four layers of protection: $17 million in excess of $8 million retention; $25 million in excess of $25 million loss; $25 million in excess of $50 million loss and $50 million in excess of $75 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, 2016, total retention for any one catastrophe that affects both NLIC and ASIC was limited to $8 million in the aggregate.

Effective January 1, 2016, NLC did not renew its multi-line excess of loss coverage that previously limited each risk with respect to property and liability. NLC renewed its underlying excess of loss contract that provides $10.0 million aggregate coverage in excess of NLC’s per event retention and aggregate retention for sub-catastrophic events. NLC retains no participation beyond the first $1 million, down from 9% participation in this coverage during 2015.