XML 26 R15.htm IDEA: XBRL DOCUMENT v3.20.2
Reinsurance
 9 Months Ended
Sep. 30, 2020
Insurance [Abstract]  
Reinsurance Reinsurance
The Company utilizes various excess of loss, quota share, state-based industry pools or facilities, and catastrophe reinsurance programs to limit its exposure. Reinsurance agreements transfer portions of the underlying risk of the business the Company writes. Reinsurance does not discharge or diminish the Company’s obligation to pay claims covered by the insurance policies it issues; however, it does permit the Company to recover certain incurred losses from its reinsurers and the Company’s reinsurance recoveries reduce the maximum loss that it may incur as a result of a covered loss event. The Company’s reinsurers generally carry at least an A.M. Best rating of “A-” (Excellent) or the reinsurance recoverable balances are collateralized. The Company also maintains funds held liabilities under the auto quota share reinsurance agreement. The total amount, cost and limits relating to the reinsurance coverage the Company purchases may vary from year to year based upon a variety of factors, including the availability of quality reinsurance at an acceptable price and the level of risk that the Company chooses to retain for its account.

The Company assumes and cedes insurance risks under various reinsurance agreements, on both a pro-rata basis and excess of loss basis. The Company purchases reinsurance to mitigate the volatility of direct and assumed business, which may be caused by the aggregate value or the concentration of written exposures in a particular geographic area or business segment and may arise from catastrophes or other events. The Company pays a premium as consideration for ceding the risk.

Reinsurance recoverable is as follows:
September 30, 2020December 31, 2019
Reinsurance recoverable on paid losses$201,194 $282,500 
Reinsurance recoverable on unpaid losses1,086,468 1,111,808 
Allowance for uncollectible reinsurance(810)— 
Reinsurance recoverable, net$1,286,852 $1,394,308 

The following is the effect of reinsurance on unpaid loss and LAE reserves and unearned premiums:

September 30, 2020December 31, 2019
AssumedCededAssumedCeded
Unpaid Loss and LAE reserves$43,707 $1,086,468 $50,884 $1,111,808 
Unearned premiums18,264 458,960 15,278 575,747 
The following is the effect of reinsurance on premiums and loss and LAE:

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Premiums:WrittenEarnedWrittenEarnedWrittenEarnedWrittenEarned
Direct$1,457,135 $1,429,247 $1,417,792 $1,407,731 $4,240,217 $4,189,569 $4,200,571 $4,080,131 
Assumed15,992 16,318 17,365 19,029 51,065 48,078 58,272 59,872 
Total Gross Premium1,473,127 1,445,565 1,435,157 1,426,760 4,291,282 4,237,647 4,258,843 4,140,003 
Ceded(207,871)(266,992)(400,553)(373,122)(801,515)(918,301)(1,064,177)(1,091,557)
Net Premium$1,265,256 $1,178,573 $1,034,604 $1,053,638 $3,489,767 $3,319,346 $3,194,666 $3,048,446 

Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
AssumedCededAssumedCededAssumedCededAssumedCeded
Loss and LAE $5,888 $192,884 $7,024 $245,095 $19,659 $579,535 $23,670 $605,126 

Industry Pools and Facilities

The Company’s reinsurance programs include premiums written under state-mandated involuntary plans for automobile, motorcycle and commercial vehicles and premiums ceded to state-provided reinsurance facilities such as Michigan Catastrophic Claims Association (“MCCA”) and North Carolina Reinsurance Facility (“NCRF”), for which the Company retains no loss indemnity risk. Prepaid reinsurance premiums are recognized on a pro-rata basis over the period of risk, consistent with premiums written.

The Company believes that it is unlikely to incur any material loss as a result of non-payment of amounts owed to the Company by MCCA and NCRF because (i) the payment obligations are extended over many years, resulting in relatively small current payment obligations, (ii) both MCCA and NCRF are supported by assessments permitted by statute, and (iii) the Company has not historically incurred losses as a result of non-payment. Because MCCA and NCRF are supported by assessments permitted by statute, and there have been no significant and uncollectible balances from MCCA and NCRF, the Company believes that it has no significant exposure to uncollectible reinsurance balances from these entities.

Reinsurance Agreements

In 2017, the Company entered into an Auto Quota Share Agreement (the “Auto Quota Share Agreement”) covering the Company’s auto lines of business. Effective January 1, 2019, the Company ceded 7.0% of net liability. On July 1, 2019, the Company renewed its Auto Quota Share Agreement for a two-year term. Effective July 1, 2019, the Company ceded 10.0% of net liability. The Company receives a 31.2% provisional ceding commission on premiums ceded to the reinsurer during the term of the Auto Quota Share Agreement, subject to a sliding scale adjustment to a maximum of 32.8% if the loss ratio for the reinsured business is 64.7% or less and a minimum of 30.0% if the loss ratio is 67.5% or higher. Effective January 1, 2020, the Company cedes 5.0% of net liability under new and renewal auto policies written.

In 2017, the Company entered into a Homeowners Quota Share Agreement (the “HO Quota Share Agreement”) covering the Company’s homeowners line of business. On July 1, 2019, the Company renewed its HO Quota Share Agreement for a one-year term. Effective July 1, 2019, the Company ceded 40.0% of net liability and received a 36.0% ceding commission on new and renewal business and a portion of the in-force business. A portion of the in-force business is being run-off under the prior agreements. On July 1, 2020, the Company renewed its HO Quota Share Agreement for a one-year term. Effective July 1, 2020, the Company cedes 20.0% of net liability and receives a 37.0% ceding commission on in-force, new and renewal business.
Effective May 1, 2020, with additional purchases made at June 1, 2020, and July 1, 2020, the Company renewed its property catastrophe excess of loss program, protecting the Company against catastrophic events and other large losses. The program provides coverage up to $650,000 with one reinstatement and attaches at $70,000 for the first event and $50,000 for the second event. The Company purchased additional first event coverage for named wind that attaches at $50,000. Effective October 1, 2020, the Company’s casualty program provides $35,000 in coverage in excess of a $5,000 retention.

Reciprocal Exchanges

In 2019, the Reciprocal Exchanges entered into a personal lines quota share agreement for a one-year term. The Reciprocal Exchanges ceded 42.3% of net liability on new and renewal homeowners multiple peril, dwelling fire, and automobile physical damage (comprehensive only) policies written in the states of New Jersey and New York. Effective July 1, 2020, the Reciprocal Exchanges renewed their personal lines quota share agreement for a one-year term, ceding 42.0% combined weighted average of net liability. This includes a 55.0% quota share covering homeowners multiple peril, dwelling fire, and automobile physical damage (comprehensive only) policies written in the states of New Jersey and New York as well as a 25.0% quota share on automobile liability and collision coverages.

Effective July 1, 2020, the Reciprocal Exchanges’ property catastrophe excess of loss program provided coverage up to $475,000 with a $20,000 retention, and one reinstatement.