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Reinsurance (Tables)

9 Months Ended

Sep. 30, 2020

The effect of all of our reinsurance agreements on premiums earned and losses incurred is shown in table 4.1 below.


Reinsurance
Table	4.1
		Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)		2020		2019		2020		2019
Premiums earned:
Direct		$	300,557	$	294,909	$	896,346	$	861,705
Assumed		2,729		1,388		8,719		3,275
Ceded (1)		(47,173)		(28,440)		(144,489)		(100,260)
Net premiums earned		$	256,113	$	267,857	$	760,576	$	764,720

Losses incurred:
Direct		$	61,164	$	36,755	$	383,950	$	102,835
Assumed		229		(34)		528		(110)
Ceded		(20,707)		(2,736)		(65,462)		(7,841)
Losses incurred, net		$	40,686	$	33,985	$	319,016	$	94,884

(1)Ceded premiums earned on our quota share reinsurance agreements are net of profit commission. The profit commission varies directly and inversely with the level of ceded losses on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than we experienced in the first nine months of 2020. As a result, lower levels of losses result in a higher profit commission and less benefit from ceded losses; higher levels of losses result in more benefit from ceded losses and a lower profit commission.

Effect of quota share reinsurance agreements on premiums earned and losses incurred

Table 4.2 below provides a summary of our quota share reinsurance agreements, excluding captive agreements, for the three and nine months ended September 30, 2020 and 2019.


Quota Share Reinsurance
Table	4.2
		Three Months Ended September 30,				Nine Months Ended September 30,
(In thousands)		2020		2019		2020		2019
Ceded premiums written and earned, net of profit commission (1)		$	43,448	$	23,032	$	131,651	$	87,721
Ceded losses incurred		20,707		2,729		65,493		7,845
Ceding commissions (2)		12,128		11,042		35,518		37,807
Profit commission (3)		17,191		32,177		45,939		108,079

(1)Under our QSR Transactions, premiums are ceded on an earned and received basis as defined in the agreements. The nine months ended September 30, 2019 include a $6.8 million termination fee related to our 2015 QSR Transaction.

(2)Ceding commissions are reported within Other underwriting and operating expenses, net on the consolidated statements of operations.

(3)The profit commission varies directly and inversely with the level of ceded losses on a “dollar for dollar” basis and can be eliminated at ceded loss levels higher than we experienced in the first nine months of 2020. As a result, lower levels of losses result in a higher profit commission and less benefit from ceded losses; higher levels of losses result in a lower profit commission and more benefit from ceded losses.

Schedule of coverages and retention

Table 4.3 provides a summary of our excess of loss reinsurance agreements as of September 30, 2020 and December 31, 2019.


Excess of Loss Reinsurance
Table	4.3
(In thousands)				September 30, 2020				December 31, 2019
Home Re Entity (Issue Date)		Policy Inforce Dates	Termination Option Date (1)	Remaining First Layer Retention		Remaining Excess of Loss Reinsurance Coverages		Remaining First Layer Retention		Remaining Excess of Loss Reinsurance Coverages
Home Re 2018-1 Ltd. (Oct. - 2018)		July 1, 2016 - December 31, 2017	October 25, 2025	$	166,246	$	218,343	$	167,779	$	260,957
Home Re 2019-1 Ltd. (May - 2019)		January 1, 2018 - March 31, 2019	May 25, 2026	184,797		208,146		185,636		271,021
Total				$	351,043	$	426,489	$	353,415	$	531,978

(1)We have the right to terminate the excess-of-loss reinsurance agreements under certain circumstances and on any payment date on or after the respective termination option date.

Schedule of total assets of Home Re

Table 4.4 presents the total assets of the Home Re Entities as of September 30, 2020 and December 31, 2019.


Home Re total assets
Table	4.4
(In thousands)
Home Re Entity (Issue date)		Total VIE Assets
September 30, 2020
Home Re 2018-01 Ltd. (Oct - 2018)		$	218,343
Home Re 2019-01 Ltd. (May - 2019)		208,146

December 31, 2019
Home Re 2018-01 Ltd. (Oct - 2018)		$	269,451
Home Re 2019-01 Ltd. (May - 2019)		283,150

- Definition

Tabular disclosure of the significant judgments and assumptions made in determining whether a variable interest (as defined) held by the entity requires the variable interest entity (VIE) (as defined) to be consolidated and (or) disclose information about its involvement with the VIE, individually or in aggregate (as applicable); the nature of restrictions, if any, on the consolidated VIE's assets and on the settlement of its liabilities reported by an entity in its statement of financial position, including the carrying amounts of such assets and liabilities; the nature of, and changes in, the risks associated with involvement in the VIE; how involvement with the VIE affects the entity's financial position, financial performance, and cash flows; the lack of recourse if creditors (or beneficial interest holders) of the consolidated VIE have no recourse to the general credit of the primary beneficiary (if applicable); the terms of arrangements, giving consideration to both explicit arrangements and implicit variable interests, if any, that could require the entity to provide financial support to the VIE, including events or circumstances that could expose the entity to a loss; the methodology used by the entity for determining whether or not it is the primary beneficiary of the variable interest entity; the significant factors considered and judgments made in determining that the power to direct the activities of a VIE that most significantly impact the VIE's economic performance are shared (as defined); the carrying amounts and classification of assets and liabilities of the VIE included in the statement of financial position; the entity's maximum exposure to loss, if any, as a result of its involvement with the VIE, including how the maximum exposure is determined and significant sources of the entity's exposure to the VIE; a comparison of the carrying amounts of the assets and liabilities and the entity's maximum exposure to loss; information about any liquidity arrangements, guarantees, and (or) other commitments by third parties that may affect the fair value or risk of the entity's variable interest in the VIE; whether or not the entity has provided financial support or other support (explicitly or implicitly) to the VIE that it was not previously contractually required to provide or whether the entity intends to provide that support, including the type and amount of the support and the primary reasons for providing the support; and supplemental information the entity determines necessary to provide.

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