Reinsurance

In the normal course of business, the Company seeks to minimize the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with reinsurers. The Company participates in reinsurance agreements in order to limit its loss exposure including protecting against catastrophe losses. The Company primarily ceded all specific commercial risks in excess of $500,000 in both 2018 and 2017. Reinsurance does not discharge the direct insurer from liability to its policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors the concentration 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. To date, the Company has not experienced any significant difficulties in collecting reinsurance recoverables.

The Company assumes written premiums under a few fronting arrangements, most of which are net of other reinsurance arrangements. The fronting arrangements are with unaffiliated insurers who write on behalf of the Company in markets that require a higher A.M. Best rating than the Company’s current rating, or where the policies are written in a state where the Company is not licensed or for other strategic reasons.

The consideration for the ADC entered into in the third quarter of 2017 was a payment of $7.2 million, which resulted in a one-time charge to ceded premiums fully earned in the third quarter. There is a 35% contingent recovery depending on the performance of the reserves over time. No recovery is currently reflected in the financial statements.

The following table presents the effects of such reinsurance and assumption transactions on premiums and losses and LAE (dollars in thousands). The 2018 ceded written and earned premium amounts include $367,000 of reinsurance reinstatement costs relating to Hurricane Irma.



	Three Months Ended March 31,
	2018			2017
Written premiums:
Direct	$	18,855		$	20,900
Assumed	4,882			5,574
Ceded	(3,892		)	(4,150		)
Net written premiums	$	19,845		$	22,324

Earned premiums:
Direct	$	21,224		$	22,060
Assumed	6,500			6,204
Ceded	(3,924		)	(4,124		)
Net earned premiums	$	23,800		$	24,140

Losses and LAE:
Direct	$	12,958		$	16,033
Assumed	3,554			3,875
Ceded	(3,184		)	(4,175		)
Net Losses and LAE	$	13,328		$	15,733