Note 6 - Reinsurance

12 Months Ended

Dec. 31, 2022

Notes to Financial Statements

Reinsurance [Text Block]

6. REINSURANCE

In the ordinary course of business, the Company assumes and cedes premiums and selected insured risks with other insurance companies, known as reinsurance. A large portion of the reinsurance is put into effect under contracts known as treaties and, in some instances, by negotiation on each individual risk (known as facultative reinsurance). In addition, there are several types of treaties including quota share, excess of loss and catastrophe reinsurance contracts that protect against losses over stipulated amounts arising from any one occurrence or event. The arrangements allow the Company to pursue greater diversification of business and serve to limit the maximum net loss to a single event, such as a catastrophe. Through the quantification of exposed policy limits in each region and the extensive use of computer-assisted modeling techniques, management monitors the concentration of risks exposed to catastrophic events.

Through the purchase of reinsurance, the Company also generally limits its net loss on any individual risk to a maximum of $1,000,000 for casualty and workers’ compensation business and $1,000,000 for property, although certain treaties contain an annual aggregate deductible before reinsurance applies.

Premiums, written and earned, along with losses and settlement expenses incurred for the years ended December 31 are summarized as follows:

	2022			2021
WRITTEN
Direct	$	82,726,634		$	71,091,961
Reinsurance assumed		157,268			78,699
Reinsurance ceded		(9,492,472	)		(10,960,325	)
Net	$	73,391,430		$	60,210,335
EARNED
Direct	$	78,411,890		$	64,652,638
Reinsurance assumed		157,097			94,590
Reinsurance ceded		(9,511,644	)		(10,854,208	)
Net	$	69,057,343		$	53,893,020
LOSS AND SETTLEMENT EXPENSES INCURRED
Direct	$	50,290,695		$	45,685,603
Reinsurance assumed		94,482			47,536
Reinsurance ceded		(5,852,448	)		(11,033,596	)
Net	$	44,532,729		$	34,699,543

The reinsurance assumed business consists of assigned risk pools, which require the Company to participate in certain workers’ compensation and other liability pools, as a result of their licensure and premium writings in the various states in which it does business.

At December 31, 2022 and 2021, the Company had reinsurance recoverable on unpaid losses and settlement expenses totaling $13,610,295 and $14,521,219, respectively. All the Company’s reinsurance recoverables are due from companies with financial strength ratings of “A” or better by A.M. Best.

The following table displays net reinsurance balances recoverable, after consideration of collateral, on paid losses and settlement expenses, known case and IBNR loss and settlement expense reserves, unearned premiums, and contingent commissions from the Company’s top 10 reinsurers as of December 31, 2022. These reinsurers all have financial strength ratings of “A” or better by A.M. Best. Also shown are the amounts of written premium ceded to these reinsurers during the calendar year 2022.

		Net Reinsurer		Percent			Ceded		Percent
	A.M. Best	Exposure as of		of			Premiums		of
(In thousands)	Rating	December 31, 2022		Total			Written		Total
General Reinsurance Corporation	A++	$	8,423		53.9	%	$	6,325		66.6	%
Aspen Insurance UK Ltd	A		1,250		8.0	%		—		0.0	%
Partner Reinsurance Company	A+		1,076		6.9	%		—		0.0	%
Renaissance Reinsurance US Incorporated	A+		1,046		6.7	%		640		6.7	%
Everest Reinsurance Company	A+		896		5.7	%		—		0.0	%
Swiss Reinsurance	A+		810		5.2	%		308		3.2	%
Axis Reinsurance Company	A		443		2.8	%		—		0.0	%
Endurance Assurance Corporation	A+		407		2.6	%		2		0.0	%
Hannover Rueck SE	A+		392		2.5	%		278		3.0	%
Houston Casualty Company	A++		254		1.6	%		377		4.0	%
All other reinsurers including anticipated subrogation			643		4.1	%		1,562		16.5	%
		$	15,640		100.0	%	$	9,492		100.0	%

Ceded unearned premiums and reinsurance balances recoverable on paid losses and settlement expenses are reported separately as an asset, rather than being netted with the related liability, since reinsurance does not relieve the Company of its liability to policyholders. Such balances are subject to the credit risk associated with the individual reinsurer. On a quarterly basis, the financial condition of the Company’s reinsurers is monitored. As part of the monitoring efforts, management reviews annual summarized financial data and publicly available information. The credit risk associated with the reinsurance balances recoverable is analyzed by monitoring the A.M. Best and S&P ratings of the reinsurers. In addition, the Company subjects its reinsurance recoverables to detailed recoverability tests, including one based on average default by A.M. Best rating.

Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is taken against a reinsurer, the paid and unpaid recoverable for the reinsurer are specifically identified and written off through the use of the allowance for estimated unrecoverable amounts from reinsurers. When such a balance is written off, it is done in full. The Company then re-evaluates the remaining allowance and determines whether the balance is sufficient as detailed above, and if needed, an additional allowance is recognized, and income charged. The Company had no allowance recorded related to uncollectible amounts on paid and unpaid recoverables at December 31, 2022 and 2021. The Company has no receivables with a due date that extends beyond 90 days from the date of billing that are not included in the allowance for uncollectible amounts.