Reinsurance

12 Months Ended

Dec. 31, 2020

9.	Reinsurance

The Company cedes risk to unrelated reinsurers on a pro rata (“quota share”) and excess of loss basis in the ordinary course of business to limit its net loss exposure on insurance contracts. Reinsurance ceded arrangements do not discharge the Company of primary liability. Moreover, reinsurers may fail to pay the Company due to a lack of reinsurer liquidity, perceived improper underwriting, and losses for risks that are excluded from reinsurance coverage and other similar factors, all of which could adversely affect the Company’s financial results.

The Company had the following reinsurance balances as of December 31, 2020 and 2019:

(Dollars in thousands)	December 31, 2020			December 31, 2019
Reinsurance receivables, net	$	88,708		$	83,938
Collateral securing reinsurance receivables		(4,984	)		(3,802	)
Reinsurance receivables, net of collateral	$	83,724		$	80,136
Allowance for uncollectible reinsurance receivables	$	8,992		$	8,992
Prepaid reinsurance premiums		12,881			16,716

The reinsurance receivables above are net of a purchase accounting adjustment related to discounting acquired loss reserves to their present value and applying a risk margin to the discounted reserves. This adjustment was $0.4 million at December 31, 2019. There was no adjustment at December 31, 2020.

As of December 31, 2020, the Company had one aggregate unsecured reinsurance receivables that exceeded 3% of shareholders’ equity from the following reinsurer. Unsecured reinsurance receivables include amounts receivable for paid and unpaid losses and loss adjustment expenses, less amounts secured by collateral.

(Dollars in thousands)

Reinsurance Receivables

AM Best Ratings

(As of December 31, 2020)

Munich Re America Corporation

44,785

A+

The effect of reinsurance on premiums written and earned is as follows:

(Dollars in thousands)	Written			Earned
For the year ended December 31, 2020:
Direct business	$	554,617		$	560,658
Reinsurance assumed		51,986			69,312
Reinsurance ceded (1)		(58,436	)		(62,271	)
Net premiums	$	548,167		$	567,699
For the year ended December 31, 2019:
Direct business	$	548,618		$	527,018
Reinsurance assumed		88,243			76,893
Reinsurance ceded (1)		(74,772	)		(78,649	)
Net premiums	$	562,089		$	525,262
For the year ended December 31, 2018:
Direct business	$	495,129		$	483,229
Reinsurance assumed		52,768			68,156
Reinsurance ceded (1)		(75,350	)		(83,610	)
Net premiums	$	472,547		$	467,775

(1)	Includes ceded written premiums of less than $0.1 million, ($0.3) million, and ($2.1) million and ceded earned premiums of $1.6 million, $2.3 million and $7.3 million to American Bankers Insurance Company for the years ended December 31, 2020, 2019, and 2018, respectively.