NOTE 10 - Reinsurance and Catastrophes

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 exposures 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, earthquakes, hail, severe winter weather and wildfires, 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 net catastrophe losses incurred of approximately $40,225 for the year ended December 31, 2013 reflected significant losses from wind/hail/tornado events in the spring and summer months. The Company’s net catastrophe losses incurred of approximately $43,319 for the year ended December 31, 2012 reflected losses primarily from wind/hail/tornado events in the spring and summer months, as well as from Hurricane Isaac. The Company’s net catastrophe losses incurred of approximately $86,000 for the year ended December 31, 2011 reflected losses primarily from wind/hail/tornado events in the spring and summer months, as well as from Hurricane Irene.

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:

	December 31,
	2013		2012
Reinsurance recoverables on reserves and unpaid claims
Property and casualty
Reinsurance companies	$	10,152	$	10,419
State insurance facilities		3,955		3,286
Life and health		10,395		10,344
Total	$	24,502	$	24,049

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, claims incurred but not yet reported 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:

			Ceded to		Assumed
	Gross		Other		from Other		Net
	Amount		Companies		Companies		Amount

Year ended December 31, 2013
Premiums written and contract deposits	$	1,120,852	$	30,115	$	3,456	$	1,094,193
Premiums and contract charges earned		717,494		29,990		3,434		690,938
Benefits, claims and settlement expenses		455,298		10,018		3,037		448,317

Year ended December 31, 2012
Premiums written and contract deposits		1,093,937		29,691		3,481		1,067,727
Premiums and contract charges earned		696,721		29,634		3,440		670,527
Benefits, claims and settlement expenses		457,332		12,177		3,095		448,250

Year ended December 31, 2011
Premiums written and contract deposits		1,106,012		31,271		3,708		1,078,449
Premiums and contract charges earned		695,264		31,940		3,796		667,120
Benefits, claims and settlement expenses		519,935		20,767		3,266		502,434

There were no losses from uncollectible reinsurance recoverables in the three years ended December 31, 2013. Past due reinsurance recoverables as of December 31, 2013 were not material.

The Company maintains catastrophe excess of loss reinsurance coverage. For 2013, the Company’s catastrophe excess of loss coverage consisted of one contract in addition to the Florida Hurricane Catastrophe Fund (“FHCF”). The catastrophe excess of loss contract provided 95% coverage for catastrophe losses above a retention of $25,000 per occurrence up to $175,000 per occurrence. This contract consisted of three layers, each of which provided for one mandatory reinstatement. The layers were $25,000 excess of $25,000, $40,000 excess of $50,000 and $85,000 excess of $90,000. In addition, the Company’s predominant insurance subsidiary for property and casualty business written in Florida reinsured 90% of hurricane losses in that state above an estimated retention of $5,600 up to $20,300, based on the FHCF’s financial resources. The FHCF contract is a one-year contract, effective June 1, 2013.

For liability coverages, in 2013, the Company reinsured each loss above a retention of $800 with coverage up to $2,500 per occurrence and $20,000 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 2013 the Company reinsured each loss above a retention of $800 up to $2,500 on a per risk basis, including catastrophe losses that in the aggregate were less than the retention levels above. Also, the Company could submit to the reinsurers three per risk losses from the same occurrence for a total of $5,100 of property recovery in any one event.

The maximum individual life insurance risk retained by the Company is $200 on any individual life, while either $100 or $125 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 2013, the Company reinsured 100% of the catastrophe risk in excess of $1,000 up to $35,000 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.