Reinsurance

12 Months Ended

Dec. 31, 2021

Medicare Advantage Reinsurance Agreement

On January 1, 2021, the Corporation renewed a specific excess loss reinsurance agreement to reinsure its MA plan liabilities in excess of approximately $0.6 million per covered person per agreement terms for the year ended December 31, 2021, and $0.5 million per covered person per agreement terms for the years ended December 31, 2020 and 2019, respectively.

The effects of the reinsurance agreements on the accompanying consolidated financial statements for the years ended December 31, 2021, 2020, and 2019, respectively, are as follows:


Years ended December 31,	2021		2020		2019
	(in thousands)
Premiums earned, gross	$	799,903	$	666,297	$	457,758
Premiums earned, ceded	(489)		(599)		(832)
Net premiums earned	$	799,414	$	665,698	$	456,926


Years ended December 31,	2021		2020		2019
	(in thousands)
Claims incurred, gross	$	839,136	$	585,915	$	448,308
Claims incurred, ceded	(1,002)		(483)		(1,616)
Net claims incurred	$	838,134	$	585,432	$	446,692

Reinsurance recoverable for the MA plan as of December 31, 2021 and 2020, respectively, were comprised of the following:


Years ended December 31,	2021		2020
	(in thousands)
Reinsurance recoverable on paid claims, gross and net	$	96	$	—

Direct Contracting Reinsurance Arrangement

Within the DCE arrangement there is an option election for each direct contracting entity participant to elect participation in a reinsurance, which is not a separate contract and is included in the current DCE arrangement. The stop loss (charges) premiums and recoupments are incurred in accordance with the regulations set forth in the participation agreement in direct relation to the direct contracting program and will reduce the exposure of high dollar claims to the Corporation. The premiums (recoupments) will be recognized as revenue (contra-revenue), respectively, in Direct Contracting revenue on the Statement of Operations as there is a right to the recoupments as the point of attachment in the stop loss agreement.

The effects of the DCE reinsurance arrangements on the accompanying consolidated financial statements for the year ended December 31, 2021 are as follows:


Year ended December 31, 2021
	(in thousands)
Direct Contracting revenue, gross and net	$	667,639
Claims incurred, gross and net	705,407
Reinsurance recoverable, gross and net	12,170

Reinsurance recoverable represents the portion of paid claims and unpaid claims that are covered by reinsurance. Amounts recoverable from reinsurers are estimated in a manner consistent with the methods used to determine unpaid claims as detailed in Note 2 (Summary of Significant Accounting Policies).

Clover acquired certain policies and related reinsurance agreements with the purchase of stock of Union Life Labor Insurance Company (Ullico) in April 2016. Ullico originally underwrote those policies which are primarily life policies and annuity contracts, prior to entering “run-off.” All of the underwriting risk related to those policies and contracts has been ceded to third party reinsurers. A large portion of these cessions are in the form of 100% coinsurance where, in addition to the underwriting risk, administrative responsibilities, including premium collections and claim payments, are ceded to third party reinsurers.

Approximately $5.3 million of life insurance reserves as of both December 31, 2021 and 2020, respectively, related to life insurance policies originally issued by Ullico are 100% coinsured with Southern Financial Life Insurance Company (SFLIC), a Louisiana domestic company, in full transfer of risk related to these policies. The life reserves are computed principally in accordance with Net Level Premium Method using mortality and persistency assumptions based upon the Corporation’s experience and industry data. Interest rate assumptions used in establishing such reserves range from less than 1.0% to 4.5%. Under the arrangement, SFLIC is required to hold in trust all of the outstanding liabilities as of the reporting date.

Approximately $0.9 million of annuity reserves as of both December 31, 2021 and 2020, respectively, related to annuity contracts originally issued by Ullico, are 100% ceded to Sagicor Life Insurance Company, a Texas domestic company, in full transfer of risk related to these contracts. The annuity reserves are computed principally using assumptions based on the Corporation’s experience and industry data. Interest rate assumptions used in establishing such reserves range from less than 1.0% to 5.8%. Ceded life insurance and

annuity reserves are included in other assets and gross life insurance and annuity reserves are included in other liabilities on the Consolidated Balance Sheets, respectively.

A reinsurance agreement between two entities transfers the underwriting risk and liabilities to the reinsurer while the insurer retains the contractual relationship with the ultimate insured. As such, these reinsurance agreements do not completely relieve the Corporation of its potential liability to the ultimate insured. However, given the transfer of underwriting risk, such potential liability is limited to the credit exposure which exists should the reinsurer be unable to meet its obligations under these reinsurance agreements. The Corporation evaluates its reinsurers on a regular basis including their ratings and financial conditions.