Reinsurance

9 Months Ended

Sep. 30, 2020

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 treaty, in effect from June 1, 2020 through May 31, 2021, provides coverage for catastrophe losses from named or numbered windstorms and earthquakes up to an exhaustion point of approximately $3,300,000,000. In addition to this treaty, we have an aggregate excess of loss treaty effective January 1, 2020, which provides coverage for all catastrophe perils other than hurricanes, tropical storms, tropical depressions and earthquakes. We ceded $30,000,000 in catastrophe losses under this treaty for the nine months ended September 30, 2020. The quota share agreement, effective June 1, 2020 to May 31, 2021, 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:


	September 30,		December 31,
	2020		2019
Reinsurance recoverable on unpaid losses and loss adjustment expenses	$	701,715	$	482,315
Reinsurance recoverable on paid losses and loss adjustment expenses	78,583		67,821
Reinsurance recoverable	$	780,298	$	550,136

We write the majority of our flood insurance policies 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 $431,000 and $394,000 for the three month periods ended September 30, 2020 and 2019, respectively, and $1,195,000 and $1,034,000 for the nine month periods ended September 30, 2020 and 2019, respectively.