Note 7 - Reinsurance

9 Months Ended

Sep. 30, 2015

Reinsurance

In the normal course of business, the Company seeks to minimize the loss that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with reinsurers. Although reinsurance does not discharge the direct insurer from liability to its policyholder, the insurance companies participate in such treaty and facultative reinsurance agreements in order to limit their loss exposure, protect them against catastrophic losses and diversify their business. The Company primarily ceded all specific risks in excess of $500,000 in 2015, and $300,000 in 2014. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of its reinsurers and monitors the concentration of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. To date, the Company has not experienced any significant difficulties in collecting reinsurance recoverables.

Effective December 31, 2014, the Company entered into a quota share reinsurance agreement in which it ceded 25% of the subject premium, net of other reinsurance, and ceded 25% of the related losses within the Company’s retention which is between $0 and $500,000. The subject premium represents substantially all product lines other than the Florida homeowners and personal automobile policies. The Company recorded $9.5 million of ceded earned premiums during the nine months ended September 30, 2015, under the quota share reinsurance agreement. This agreement was terminated by the Company in August 2015. The purpose of the quota share arrangement was to reduce the capital requirements necessary to support the premium growth initiatives prior to the completion of the IPO. The IPO is expected to provide sufficient capital to support the current growth initiatives, and therefore management deemed the quota share was no longer necessary.

Beginning in December 2014, the Company assumed written premium of $5.5 million under a policy assumption agreement with Citizens Property and Casualty Corporation (“Citizens”). Citizens is a Florida government-sponsored insurer that provides homeowners insurance to Florida residences that cannot find coverage in the voluntary market. Upon assuming this premium, the Company becomes the primary insurer to the policyholders. The Company is responsible for claims occurring on or after the effective date of the assumption.

In the first quarter of 2015, another assumption from Citizens took place for $1.4 million. This assumption was offset during the nine months ended September 30, 2015 by a return of $1.3 million of assumed premiums from the 2014 assumption and $702,000 of assumed premiums from the 2015 assumption. The return premiums are related to the policyholders opting out of the related assumptions.

The Company assumed $1.2 million and $3.4 million of written premiums under insurance fronting arrangements for the three and nine months ended September 30, 2015, respectively. These fronting arrangements are with unaffiliated insurers who write on behalf of the Company in markets that require a higher A.M. Best rating than the Company’s rating, the business is written in a state where the Company is not licensed or for other strategic reasons.

The following table presents the effects of such reinsurance and assumption transactions on premiums, losses and loss adjustment expenses, and policy acquisition costs (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2015			2014			2015			2014
Written premiums:
Direct	$	22,438		$	18,912		$	65,067		$	55,580
Assumed		1,804			-			3,438			-
Ceded		4,357			(2,695	)		(10,298	)		(5,962	)
Net written premiums	$	28,599		$	16,217		$	58,207		$	49,618

Earned premiums:
Direct	$	21,136		$	17,248		$	60,487		$	47,868
Assumed		1,906			-			5,716			-
Ceded		(5,159	)		(2,677	)		(18,712	)		(6,665	)
Net earned premiums	$	17,883		$	14,571		$	47,491		$	41,203

Loss and loss adjustment expenses:
Direct	$	10,605		$	10,420		$	31,149		$	33,850
Assumed		1,082			16			1,887			14
Ceded		(1,874	)		(221	)		(5,677	)		(3,387	)
Net Loss and loss adjustment expenses	$	9,813		$	10,215		$	27,359		$	30,477

Policy acquisition costs:
Policy acquisition costs	$	5,184		$	3,738		$	13,359		$	10,488
Ceding commissions		(579	)		-			(3,520	)		-
Net Policy acquisition costs	$	4,605		$	3,738		$	9,839		$	10,488

- Definition

The entire disclosure pertaining to the existence, magnitude and information about insurance that has been ceded to or assumed from another insurance company, including the methodologies and assumptions used in determining recorded amounts.

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