Reinsurance and Catastrophes

12 Months Ended

Dec. 31, 2019

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 catastrophe losses incurred of approximately $52.0 million, $107.3 million and $61.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. For 2019, catastrophe losses were impacted by winter storm events in the first part of the year, wind/hail/tornado events in spring and summer months as well as losses from several storms in the latter part of the year.

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:



($ in thousands)	December 31,
	2019		2018
Reinsurance recoverables on reserves and unpaid claims
Property and Casualty
Reinsurance companies	$	19,640	$	33,754
State insurance facilities	100,866		55,971
Life and health	8,707		9,785
Total	$	129,213	$	99,510

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, IBNR claims 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:



($ in thousands)	Gross Amount		Ceded to Other Companies⁽¹⁾		Assumed from Other Companies		Net Amount
Year Ended December 31, 2019
Premiums written and contract deposits ⁽²⁾	$	1,337,847	$	23,872	$	10,567	$	1,324,542
Premiums and contract charges earned	917,610		30,412		10,756		897,954
Benefits, claims and settlement expenses	633,874		56,325		7,519		585,068

Year Ended December 31, 2018
Premiums written and contract deposits ⁽²⁾	1,255,557		28,773		8,259		1,235,043
Premiums and contract charges earned	841,147		28,837		5,023		817,333
Benefits, claims and settlement expenses	769,664		136,601		4,497		637,560

Year Ended December 31, 2017
Premiums written and contract deposits ⁽²⁾	1,244,500		21,989		4,606		1,227,117
Premiums and contract charges earned	812,099		22,036		4,640		794,703
Benefits, claims and settlement expenses	588,621		10,472		4,157		582,306


⁽¹⁾	Excludes the annuity reinsurance agreement accounted for under the deposit method that is discussed in Note 6.


⁽²⁾	This measure is not based on accounting principles generally accepted in the U.S. (non-GAAP). An explanation of this non-GAAP measure is contained in the Glossary of Selected Terms included as an exhibit in the Company's reports filed with the SEC.

There were no losses from uncollectible reinsurance recoverables in the three years ended December 31, 2019. Past due reinsurance recoverables as of December 31, 2019 were not material.

The Company maintains catastrophe excess of loss reinsurance coverage. For 2019, the Company's catastrophe excess of loss coverage consisted of one contract in addition to a minimal amount of coverage by the Florida Hurricane Catastrophe Fund (FHCF). The catastrophe excess of loss contract provided 95% coverage for catastrophe losses above a retention of $25.0 million per occurrence up to $175.0 million per occurrence. This contract consisted of three layers, each of which provided for one mandatory reinstatement. The layers were $25.0 million excess of $25.0 million, $40.0 million excess of $50.0 million and $85.0 million excess of $90.0 million.

For liability coverages, in 2019, the Company reinsured each loss above a retention of $1.0 million with coverage up to $5.0 million on a per occurrence basis and $20.0 million 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 2019, the Company

reinsured each loss above a retention of $1.0 million up to $5.0 million on a per risk basis, including catastrophe losses. Also, the Company could submit to the reinsurers two per risk losses from the same occurrence for a total of $8.0 million of property recovery in any one event.

The maximum individual life insurance risk retained by the Company is $0.5 million on any individual life, while either $0.1 million or $0.125 million 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 2019, the Company reinsured 100% of the catastrophe risk in excess of $1.0 million up to $35.0 million 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.

The Company retains all of the risk on its supplemental health product lines, including accidental death risk embedded within certain products. However, the Company’s other accidental death and dismemberment risk issued through all other policies and riders are ceded 100%. The maximum risk retained on any individual life by the Company is $0.1 million.