Effective as of March 27, 2019, Positive Insurance Company entered into a new policy reinsurance agreement. Under the new agreement, we retain a portion of our exposure and pay to the reinsurers a portion of the premiums received on all policies reinsured. Insurance policies written by us are reinsured with other insurance companies principally to:

Under Pennsylvania law, each insured must maintain MPLI of at least $1,000,000 for each claim and $3,000,000 of annual aggregate coverage. We provide primary insurance coverage up to $500,000 per claim and $1,500,000 of annual aggregate coverage. The Pennsylvania Medical Care Availability and Reduction of Error (“MCARE”) Fund provides coverage for any losses above $500,000 per claim up to $1,000,000. In cases where coverage under the Pennsylvania MCARE Fund does not apply, the primary insurance provides coverage up to $1,000,000 per claim and $3,000,000 of annual aggregate coverage. We retain the first $300,000 on all polices and reinsurance covers the excess up to $1,000,000 that is not covered by the Pennsylvania MCARE Fund, and cede to reinsurers claims in excess of $1,000,000.

Other states in which we write insurance require doctors to maintain certain minimum coverage and provide a fund that provides coverage for losses above a certain amount, but many states do not prescribe insurance requirements for doctors.

We offer primary coverage up to $1,000,000 for each claim and $3,000,000 of annual aggregate coverage in Delaware, Maryland, Michigan, Ohio, New Jersey, and South Carolina. We retain the first $300,000 on all polices, and reinsurance covers the excess up to $1,000,000. If an insured in New Jersey requests, additional coverage of $1,000,000, each claim, each insured, each policy can be provided and is fully ceded to the reinsurer up to a maximum aggregate liability of $2,000,000 to the reinsurer per the term of the reinsurance agreement. In South Carolina and Michigan, the policy limits are $200,000, each claim, each insured, and we retain the first $100,000 and the reinsurer covers the next $100,000.

We also purchase additional reinsurance coverage for clash, loss in excess of policy limits and extra contractual obligation claims.

Our premiums under the new reinsurance agreement is based on a percentage of our earned premiums during the term of the agreement. The agreement terminates on April 1, 2020.

Reinsurance does not legally discharge the insurance company issuing the policy from primary liability for the full amount due under the reinsured policies. However, the assuming reinsurer is obligated to reimburse the company issuing the policy to the extent of the coverage ceded. A primary factor in the selection of reinsurers from whom we purchase reinsurance is their financial strength. Our reinsurance arrangements are generally renegotiated annually. The insolvency or inability of any reinsurer to meet its obligations to us could have a material adverse effect on our results of operations or financial condition. Our reinsurance providers, the majority of whom are longstanding partners that understand our business, are all carefully selected with the help of our reinsurance broker. We monitor the solvency of reinsurers through regular review of their financial statements and, if available, their A.M. Best ratings. Hanover Re, our current reinsurance partner, has at least an “A” rating from A.M. Best. According to A.M. Best, companies with a rating of “A” or better “have an excellent ability to meet their ongoing obligations to policyholders.”

We generally do not assume risks from other insurance companies. However, we are required by statute to participate in certain residual market pools. This participation requires us to assume business for exposures that are not insured in the voluntary marketplace. We participate in these residual markets pro rata on a market share basis, and as of June 30, 2019, our participation was not material.

The effect of reinsurance on premiums written, amounts earned, and losses incurred for the three months and six months ended June 30, 2019 and 2018 is as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2019		2018		2019		2018
Premiums written:
Direct	$	3,783,325	$	3,411,489	$	11,980,842	$	11,959,869
Ceded		648,254		273,366		2,600,731		2,167,424
Premiums written, net of reinsurance	$	3,135,071	$	3,138,123	$	9,380,111	$	9,792,445
Premiums earned:
Direct	$	6,075,535	$	5,968,691	$	12,428,915	$	12,735,067
Ceded		747,541		730,412		1,609,714		1,543,410
Premiums earned, net of reinsurance	$	5,327,994	$	5,238,279	$	10,819,201	$	11,191,657
Losses and loss adjustment expenses incurred:
Direct	$	6,365,077	$	5,854,917	$	10,276,266	$	9,804,686
Ceded		2,097,637		1,216,534		2,687,150		1,816,602
Losses and loss adjustment expenses incurred, net of reinsurance	$	4,267,440	$	4,638,383	$	7,589,116	$	7,988,084