NOTE 6 - Reinsurance and Catastrophes

In the normal course of business, the Company’s insurance subsidiaries assume and cede reinsurance with other insurers. Reinsurance is ceded primarily to limit losses from large events and to permit recovery of a portion of direct losses; however, such a transfer does not relieve the originating insurance company of primary liability.

The Company is a national underwriter and therefore has exposure to catastrophic losses in certain coastal states and other regions throughout the U.S. Catastrophes can be caused by various events including hurricanes, windstorms, hail, severe winter weather, wildfires and earthquakes, and the frequency and severity of catastrophes are inherently unpredictable. The financial impact from catastrophic losses results from both the total amount of insured exposure in the area affected by the catastrophe as well as the severity of the event. The Company seeks to reduce its exposure to catastrophe losses through the geographic diversification of its insurance coverage, deductibles, maximum coverage limits and the purchase of catastrophe reinsurance.

The Company’s net catastrophe losses incurred of approximately $44,429, $37,500 and $40,225 for the years ended December 31, 2015, 2014 and 2013, respectively, reflected losses from winter storm events in the first part of each year, wind/hail/tornado events in the spring and summer months of each year, as well as losses from several storms recorded in the fourth quarter of 2015.

The total amounts of reinsurance recoverable on unpaid insurance reserves classified as assets and reported in Other Assets in the Consolidated Balance Sheets were as follows:

	December 31,
	2015		2014
Reinsurance recoverables on reserves and unpaid claims
Property and casualty
Reinsurance companies	$	9,026	$	7,772
State insurance facilities		41,306		35,968
Life and health		9,780		9,592
Total	$	60,112	$	53,332

The Company recognizes the cost of reinsurance premiums over the contract periods for such premiums in proportion to the insurance protection provided. Amounts recoverable from reinsurers for unpaid claims and claim settlement expenses, including estimated amounts for unsettled claims, claims incurred but not yet reported and policy benefits, are estimated in a manner consistent with the insurance liability associated with the policy. The effects of reinsurance on premiums written and contract deposits; premiums and contract charges earned; and benefits, claims and settlement expenses were as follows:

			Ceded to		Assumed
	Gross		Other		from Other		Net
	Amount		Companies		Companies		Amount
Year ended December 31, 2015
Premiums written and contract deposits	$	1,277,066		$24,737		$4,184	$	1,256,513
Premiums and contract charges earned		752,798		25,077		4,159		731,880
Benefits, claims and settlement expenses		508,904		16,221		3,681		496,364

Year ended December 31, 2014
Premiums written and contract deposits		1,191,123		27,144		3,676		1,167,655
Premiums and contract charges earned		739,281		27,276		3,755		715,760
Benefits, claims and settlement expenses		504,550		39,236		3,112		468,426

Year ended December 31, 2013
Premiums written and contract deposits		1,120,852		30,115		3,456		1,094,193
Premiums and contract charges earned		717,494		29,990		3,434		690,938
Benefits, claims and settlement expenses		455,298		10,018		3,037		448,317

There were no losses from uncollectible reinsurance recoverables in the three years ended December 31, 2015. Past due reinsurance recoverables as of December 31, 2015 were not material.

The Company maintains catastrophe excess of loss reinsurance coverage. For 2015, the Company’s catastrophe excess of loss coverage consisted of one contract and it provided 95% coverage for catastrophe losses above a retention of $25,000 per occurrence up to $175,000 per occurrence. This contract consisted of three layers, each of which provided for one mandatory reinstatement. The layers were $25,000 excess of $25,000, $40,000 excess of $50,000 and $85,000 excess of $90,000.

For liability coverages, in 2015, the Company reinsured each loss above a retention of $900 with coverage up to $2,500 on a per occurrence basis and $20,000 in a clash event. (A clash cover is a reinsurance casualty excess contract requiring two or more casualty coverages or policies issued by the Company to be involved in the same loss occurrence for coverage to apply.) For property coverages, in 2015 the Company reinsured each loss above a retention of $900 up to $2,500 on a per risk basis, including catastrophe losses. Also, the Company could submit to the reinsurers three per risk losses from the same occurrence for a total of $4,800 of property recovery in any one event.

The maximum individual life insurance risk retained by the Company is $300 on any individual life, while either $100 or $125 is retained on each group life policy depending on the type of coverage. Excess amounts are reinsured. The Company also maintains a life catastrophe reinsurance program. For 2015, the Company reinsured 100% of the catastrophe risk in excess of $1,000 up to $35,000 per occurrence, with one reinstatement. The Company’s life catastrophe risk reinsurance program covers acts of terrorism and includes nuclear, biological and chemical explosions but excludes other acts of war.