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, 2019 through May 31, 2020, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to an exhaustion point of approximately $3,200,000,000. In addition to this contract, we have an aggregate excess of loss contract, effective January 1, 2019, which provides coverage for all catastrophe perils other than hurricanes, tropical storms, tropical depressions and earthquakes. We ceded $26,488,000 of catastrophe losses under this treaty for the year ended December 31, 2019. The quota share agreement effective June 1, 2019 to May 31, 2020, provides coverage for all catastrophe perils and attritional losses incurred by two of our insurance subsidiaries, UPC and FSIC. 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,
	2019		2018
Reinsurance recoverable on unpaid losses and LAE	$	482,315	$	477,870
Reinsurance recoverable on paid losses and LAE	67,821		148,128
Reinsurance recoverable	$	550,136	$	625,998

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 $1,506,000, $1,575,000, and $1,255,000 for the years ended December 31, 2019, 2018, and 2017, 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,
	2019			2018			2017
Premium written:
Direct	$	1,278,504		$	1,148,190		$	989,525
Assumed	101,764			104,211			51,323
Ceded	(633,275		)	(512,270		)	(447,329		)
Net premium written	$	746,993		$	740,131		$	593,519
Change in unearned premiums:
Direct	$	(59,660	)	$	(49,048	)	$	(49,386	)
Assumed	12,918			(22,392		)	(5,439		)
Ceded	52,149			20,585			46,796
Net decrease (increase)	$	5,407		$	(50,855	)	$	(8,029	)
Premiums earned:
Direct	$	1,218,844		$	1,099,142		$	940,139
Assumed	114,682			81,819			45,884
Ceded	(581,126		)	(491,685		)	(400,533		)
Net premiums earned	$	752,400		$	689,276		$	585,490
Losses and LAE incurred:
Direct	$	1,003,767		$	1,101,328		$	863,928
Assumed	44,914			97,444			60,836
Ceded	(549,188		)	(790,183		)	(559,229		)
Net losses and LAE incurred	$	499,493		$	408,589		$	365,535

Ceded losses incurred decreased by $240,995,000 during the year ended December 31, 2019, compared to the year ended December 31, 2018, primarily as a result of the occurrence of Hurricanes Irma, Florence and Michael, which all occurred in years prior to 2019 and exceeded our retention thresholds, while the named storms occurring in 2019 did not exceed the retention threshold for the catastrophe excess-of-loss contract, resulting in fewer ceded losses. We have billed and received reinsurance recoveries for losses that we incurred on these storms and expect to receive additional recoveries during 2020.

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,
	2019			2018			2017
Unpaid losses and LAE:
Direct	$	716,559		$	579,710		$	441,355
Assumed	43,798			81,493			40,877
Gross unpaid losses and LAE	760,357			661,203			482,232
Ceded	(482,315		)	(477,870		)	(305,673		)
Net unpaid losses and LAE	$	278,042		$	183,333		$	176,559
Unearned premiums:
Direct	$	637,128		$	577,467		$	528,419
Assumed	36,927			49,846			27,454
Gross unearned premiums	674,055			627,313			555,873
Ceded	(270,034		)	(217,885		)	(201,904		)
Net unearned premiums	$	404,021		$	409,428		$	353,969