(5) REINSURANCE

Overview

The Company reinsures (cedes) a portion of written premiums on an excess of loss or a quota-share basis to nonaffiliated insurance companies in order to limit our loss exposure. To the extent that reinsuring companies are unable to meet their obligations assumed under these reinsurance agreements, we remain primarily liable to our policyholders.

Reinsurance Recoverables

Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the balance sheet as reinsurance recoverables. The following reinsurance recoverable is reflected in the consolidated balance sheets as of the dates presented as follows:

	Year Ended December 31,
	2015		2014
	(in thousands)
Reinsurance recoverable on paid losses	$	5,218	$	2,140
Reinsurance recoverable on unpaid losses		7,496		10,394
Reinsurance recoverable, net	$	12,714	$	12,534

Premiums Written and Earned

The following table indicates premiums written and earned as follows:

	Year Ended December 31,
	2015			2014			2013
	(in thousands)
Premiums written:
Direct	$	493,770		$	377,156		$	243,373
Ceded		(268,517	)		(201,998	)		(82,709	)
	$	225,253		$	175,158		$	160,664
Premiums earned:
Direct	$	432,233		$	313,075		$	174,037
Ceded		(222,213	)		(142,170	)		(69,656	)
	$	210,020		$	170,905		$	104,381

Significant Reinsurance Contracts

FNIC operates primarily by underwriting and accepting risks for their direct account on a gross basis and reinsuring a portion of the exposure on either an individual risk or an aggregate basis to the extent those exceed the desired retention level. We continually evaluate the relative attractiveness of different forms of reinsurance contracts and different markets that may be used to achieve our risk and profitability objectives. MNIC does not have any material reinsurance contracts as of December 31, 2015. All of our reinsurance contracts do not relieve FNIC from their direct obligations to insured.

The Company’s reinsurance program, which generally runs from July 1 to June 30 of the following year, consists of excess of loss, Florida Hurricane Catastrophe Fund (“FHCF”) and quota share, which is a form of proportional reinsurance, treaties which insure the homeowners’ property lines from catastrophes in Florida and other states. The excess of loss and FHCF treaties, which became effective on July 1, 2015, insures for approximately $1.82 billion of aggregate catastrophic losses and LAE with a maximum single event coverage totaling approximately $1.26 billion, with the Company retaining the first $12.9 million in Florida and $5.0 million in Louisiana, Alabama and South Carolina for losses and LAE from each event. The FHCF treaty only affords coverage for losses sustained in Florida and represents only a portion of the reinsurance coverage in Florida.

The Company’s quota share treaties, which are included in the reinsurance program, runs from July 1 to June 30 of the following year. The quota share treaties consist of two different treaties, one for 30% which became effective July 1, 2014 and the other for 10% which became effective July 1, 2015. The combined treaties provide a 40% quota share reinsurance treaty on the first $100 million of covered losses for the homeowners’ insurance program in Florida.

The quota share reinsurance agreements require FNIC to secure the credit, regulatory and business risk. Fully funded trust agreements securing these risks totaled $3.5 million and $4.9 million, as of December 31, 2015 and 2014, respectively.