Reinsurance

12 Months Ended

Dec. 31, 2022

Reinsurance

Reinsurance

14. Reinsurance

Certain premiums and benefits are ceded to other insurance companies under various reinsurance agreements. The reinsurance agreements provide HOA with increased capacity to write larger risks and maintain its exposure to loss within its capital resources. Ceded reinsurance contracts do not relieve HOA from its obligations to policyholders. HOA remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements.

2022 Program:

The Company’s third-party quota share reinsurance program is split into two separate placements to maximize coverage and cost efficiency. The 2022 Coastal program, which covers the Company’s business in certain Texas coastal regions and the Houston metropolitan area as well as all business in South Carolina, is placed at 61.75% of subject property and casualty losses. The 2022 Core program covers the remainder of the Company’s business and is placed at 90% of subject property and casualty losses. Both programs are effective for the period January 1, 2022 through December 31, 2022, and are subject to certain limits, which vary by participating reinsurer, for single loss occurrences and/or aggregate losses.

Property catastrophe excess of loss treaties which were in effect through March 31, 2022, developed over four layers and limited the Company’s net retention to $2 million per loss occurrence. Effective April 1, 2022, the Company purchased property catastrophe excess of loss reinsurance from third party reinsurers which develops over 5 layers to provide coverage up to a net loss of $336 million, in excess of $4 million per occurrence. The Company also places reinstatement premium protection to cover any reinstatement premiums due on the first three layers.

The Company purchases property per risk reinsurance covering non-weather losses in excess of $500 thousand per occurrence for all property coverage lines, to limit the Company’s net retention to $50 thousand per covered event for Core and $191 thousand per covered event for Coastal. These contracts are subject to certain limits for single loss occurrences and/or aggregate losses and provide a certain number of free reinstatements during the treaty period, all of which varies by contract.

2021 Program:

The Company’s 2021 third-party quota share reinsurance program was split into two separate placements to maximize coverage and cost efficiency. The 2021 Coastal program, which covered the Company’s business in certain Texas coastal regions and the Houston metropolitan area as well as all business in South Carolina, was placed at 90% of subject property and casualty losses. The 2021 Core program covered the remainder of the Company’s business and was placed at 90% of subject property and casualty losses. Both programs were effective for the period since the acquisition date of April 5, 2021 and through December 31, 2021, and were subject to certain limits, which varied by participating reinsurer, for single loss occurrences and/or aggregate losses

The effects of reinsurance on premiums written and earned for the period since the acquisition date of April 5, 2021 were as follows:

	Year Ended December 31,
	2022				2021
	Written		Earned		Written		Earned
Direct premiums	$	462,179	$	395,968	$	266,609	$	213,423
Ceded premiums		(399,400)		(349,952)		(237,102)		(199,366)
Net premiums	$	62,779	$	46,016	$	29,507	$	14,057

The effects of reinsurance on incurred losses and LAE for the period since the acquisition date of April 5, 2021 were as follows:

	Year Ended December 31,
	2022		2021
Direct losses and LAE	$	280,505	$	181,256
Ceded losses and LAE		(224,202)		(162,752)
Net losses and LAE	$	56,303	$	18,504

The detail of reinsurance balances due is as follows:

	December 31, 2022		December 31, 2021
Ceded unearned premium	$	203,157	$	153,710
Losses and LAE reserve		76,999		56,752
Reinsurance recoverable		18,765		17,780
Other		139		174
Reinsurance balance due	$	299,060	$	228,416