Reinsurance

The Company enters into reinsurance and retrocession agreements in order to mitigate its accumulation of loss, reduce its liability on individual risks, enable it to underwrite policies with higher limits and increase its aggregate capacity. The cession of insurance and reinsurance does not legally discharge the Company from its primary liability for the full amount of the policies, and the Company is required to pay the loss and bear collection risk if the reinsurer fails to meet its obligations under the reinsurance or retrocession agreement. Amounts recoverable from reinsurers are estimated in a manner consistent with the underlying liabilities.

Credit risk

The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from its exposure to individual reinsurers. The reinsurance program is generally placed with reinsurers whose rating, at the time of placement, was A- or better as rated by Standard & Poor's or the equivalent with other rating agencies. Exposure to a single reinsurer is also controlled with restrictions dependent on rating. At March 31, 2014, 98.5% (December 31, 2013: 96.7%) of reinsurance recoverables (which includes loss reserves recoverable and recoverables on paid losses and $183,858 of total IBNR recoverable (December 31, 2013: $196,840)) were fully collateralized or from reinsurers rated A- or better.

Reinsurance recoverables by reinsurer as at March 31, 2014 and December 31, 2013 are as follows:



	March 31, 2014				December 31, 2013
	Reinsurance Recoverable		% of Total		Reinsurance Recoverable		% of Total
Top 10 reinsurers	$	291,958	75.7	%	$	340,253	75.6	%
Other reinsurers’ balances > $1 million	85,348		22.2	%	100,784		22.4	%
Other reinsurers’ balances < $1 million	8,133		2.1	%	9,197		2.0	%
Total	$	385,439	100.0	%	$	450,234	100.0	%



	March 31, 2014
Top 10 Reinsurers	Rating	Reinsurance Recoverable		% of Total
Lloyd's Syndicates	A+	$	66,563	17.3	%
Everest Re	A+	49,838		12.9	%
Fully Collateralized	NR	39,120		10.1	%
Hannover Re	AA-	36,377		9.4	%
Third Point Reinsurance Ltd	A-	34,081		8.8	%
Swiss Re	AA-	17,108		4.5	%
Transatlantic Re	A+	13,449		3.5	%
XL Re	A+	12,608		3.3	%
Munich Re	AA-	12,333		3.2	%
Merrimack Mutual Fire Insurance	A+	10,481		2.7	%
Total		$	291,958	75.7	%



	December 31, 2013
Top 10 Reinsurers	Rating	Reinsurance Recoverable		% of Total
Lloyd's Syndicates	A+	$	73,398	16.3	%
National Indemnity	AA+	51,037		11.3	%
Everest Re	A+	48,055		10.7	%
Hannover Re	AA-	41,483		9.2	%
Fully Collateralized	NR	36,683		8.1	%
Third Point Reinsurance Ltd	A-	30,428		6.8	%
Swiss Re	AA-	20,022		4.5	%
Transatlantic Re	A+	14,114		3.1	%
XL Re	A+	12,673		2.8	%
Munich Re	AA-	12,360		2.8	%
Total		$	340,253	75.6	%

NR: Not rated

At March 31, 2014 and December 31, 2013, the provision for uncollectible reinsurance relating to reinsurance recoverables was $5,427 and $5,794, respectively. To estimate the provision for uncollectible reinsurance, the reinsurance recoverable is first allocated to applicable reinsurers. This determination is based on a process rather than an estimate, although an element of judgment is applied, especially in relation to ceded IBNR. The Company then uses default factors to determine the portion of a reinsurer’s balance deemed to be uncollectible. Default factors require considerable judgment and are determined in part using the current rating, or rating equivalent, of each reinsurer as well as other key considerations and assumptions.