REINSURANCE

Our reinsurance program is designed, utilizing our risk management methodology, to address our exposure to catastrophes. Our program provides reinsurance protection for catastrophes including hurricanes, tropical storms and tornadoes. These reinsurance agreements are part of our catastrophe management strategy, which is intended to provide our stockholders an acceptable return on the risks assumed in our property business, and to reduce variability of earnings, while providing protection to our policyholders. Although reinsurance agreements contractually obligate our reinsurers to reimburse us for the agreed-upon portion of our gross paid losses, they do not discharge our primary liability.

Our program includes excess of loss, aggregate excess of loss and quota share treaties. Our excess of loss contract, in effect from June 1, 2018 through May 31, 2019, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to a $3,100,000,000 exhaustion point. In addition to this contract, we have an aggregate excess of loss contract, effective January 1, 2018, which provides coverage for all catastrophe perils other than hurricanes, tropical storms, tropical depressions and earthquakes. We ceded $20,000,000 of catastrophe losses for this treaty for the year ended December 31, 2018. The quota share agreement provides coverage for all catastrophe perils and attritional losses incurred by our insurance subsidiary, UPC. For all catastrophe perils, the quota share agreement provides ground-up protection effectively reducing our retention for catastrophe losses.

Reinsurance recoverable at the balance sheet dates consists of the following:



	December 31,
	2018		2017
Reinsurance recoverable on unpaid losses and LAE	$	477,870	$	305,673
Reinsurance recoverable on paid losses and LAE	148,128		90,101
Reinsurance recoverable	$	625,998	$	395,774

We write flood insurance under an agreement with the National Flood Insurance Program. We cede 100% of the premiums written and the related risk of loss to the federal government. We earn commissions for the issuance of flood policies based upon a fixed percentage of net written premiums and the processing of flood claims based upon a fixed percentage of incurred losses, and we can earn additional commissions by meeting certain growth targets for the number of in-force policies. We recognized commission revenue from our flood program of $1,575,000, $1,255,000, and $1,056,000 for the years ended December 31, 2018, 2017, and 2016, respectively.

The following table depicts written premiums, earned premiums and losses, showing the effects that our reinsurance transactions have on these components of our Consolidated Statements of Comprehensive Income (Loss):



	Year ended December 31,
	2018			2017			2016
Premium written:
Direct	$	1,148,190		$	989,525		$	708,252
Assumed	104,211			51,323			(96		)
Ceded	(512,270		)	(447,329		)	(262,340		)
Net premium written	$	740,131		$	593,519		$	445,816
Change in unearned premiums:
Direct	$	(49,048	)	$	(49,386	)	$	(57,759	)
Assumed	(22,392		)	(5,439		)	16,432
Ceded	20,585			46,796			52,442
Net decrease (increase)	$	(50,855	)	$	(8,029	)	$	11,115
Premiums earned:
Direct	$	1,099,142		$	940,139		$	650,493
Assumed	81,819			45,884			16,336
Ceded	(491,685		)	(400,533		)	(209,898		)
Net premiums earned	$	689,276		$	585,490		$	456,931
Losses and LAE incurred:
Direct	$	1,101,328		$	863,928		$	335,542
Assumed	97,444			60,836			3,747
Ceded	(790,183		)	(559,229		)	(40,936		)
Net losses and LAE incurred	$	408,589		$	365,535		$	298,353

Ceded losses incurred increased by $230,954,000 during the year ended December 31, 2018, compared to the year ended December 31, 2017, primarily because we incurred more ceded losses in 2018 than in 2017 as a result of the development on Hurricane Irma, which occurred during 2017, and Hurricanes Florence and Michael, which occurred during 2018. A portion of the losses we incurred in 2018, 2017, and 2016 exceeded our retained loss thresholds; therefore, we received reinsurance recoveries for losses that we incurred on these storms and expect to receive additional recoveries during 2019.

The following table highlights the effects that our reinsurance transactions have on unpaid losses and loss adjustment expenses and unearned premiums in our Consolidated Balance Sheets:



	December 31,
	2018			2017			2016
Unpaid losses and LAE:
Direct	$	579,710		$	441,355		$	138,345
Assumed	81,493			40,877			2,510
Gross unpaid losses and LAE	661,203			482,232			140,855
Ceded	(477,870		)	(305,673		)	(18,724		)
Net unpaid losses and LAE	$	183,333		$	176,559		$	122,131
Unearned premiums:
Direct	$	577,467		$	528,419		$	371,149
Assumed	49,846			27,454			1,074
Gross unearned premiums	627,313			555,873			372,223
Ceded	(217,885		)	(201,904		)	(132,564		)
Net unearned premiums	$	409,428		$	353,969		$	239,659