NAVG » Topics » Reinsurance Recoverables

This excerpt taken from the NAVG 10-Q filed May 3, 2007.

Reinsurance Recoverables

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, and to stabilize loss ratios and underwriting results.  Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders.  Accordingly, we bear credit risk with respect to our reinsurers.  Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims.  Either of these events would increase our costs and could have a material adverse effect on our business.  We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement.  Hurricanes Katrina and Rita increased our reinsurance recoverables significantly which increased our credit risk.

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We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets.  To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have an A.M. Best Company and/or Standard & Poor’s rating of “A” or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’ surplus.  Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers.  The reinsurance is placed either directly by us or through reinsurance intermediaries.  The reinsurance intermediaries are compensated by the reinsurers.

The increase in reinsurance receivable on paid losses was primarily due to the ceded portion of paid losses resulting from Hurricanes Katrina and Rita which are in the process of being collected from various reinsurers.

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

This excerpt taken from the NAVG 10-Q filed Nov 1, 2006.

Reinsurance Recoverables

 

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net written premium to statutory surplus and to stabilize loss ratios and underwriting results. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay

 

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claims to our policyholders. Accordingly, we bear credit risk with respect to our reinsurers. Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. Either of these events would increase our costs and could have a material adverse effect on our business. We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement. Hurricanes Katrina and Rita increased our reinsurance recoverables significantly which increased our credit risk.

 

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have an A.M. Best Company and/or Standard & Poor’s rating of “A” or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’ surplus. Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers. The reinsurance is placed either directly by us or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

 

The increase in reinsurance receivable on paid losses was primarily due to the ceded portion of paid losses resulting from Hurricanes Katrina and Rita which are in the process of being collected from various reinsurers.

 

Charges (recoveries) for uncollectible reinsurance amounts, all of which were recorded to incurred losses, were $218,000 and ($505,000) for the three months ended September 30, 2006 and 2005, respectively, and $516,000 and $109,000 for the nine months ended September 30, 2006 and 2005, respectively.

 

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

 

This excerpt taken from the NAVG 10-Q filed Aug 2, 2006.

Reinsurance Recoverables

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net written premium to statutory surplus and to stabilize loss ratios and underwriting results.  Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders.  Accordingly, we bear credit risk with respect to our reinsurers.  Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims.

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Either of these events would increase our costs and could have a material adverse effect on our business.  We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement.  Hurricanes Katrina and Rita increased our reinsurance recoverables significantly which increased our credit risk.

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets.  To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have an A.M. Best Company and/or Standard & Poor’s rating of ‘‘A’’ or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’ surplus.  Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers.  The reinsurance is placed either directly by us or through reinsurance intermediaries.  The reinsurance intermediaries are compensated by the reinsurers.

Charges (recoveries) for uncollectible reinsurance amounts, all of which were recorded to incurred losses, were $153,000 and ($420,000) for the three months ended June 30, 2006 and 2005, respectively, and $299,000 and $613,000 for the six months ended June 30, 2006 and 2005, respectively.

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

This excerpt taken from the NAVG 10-Q filed May 3, 2006.

Reinsurance Recoverables

 

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net written premium to statutory surplus and to stabilize loss ratios and underwriting results. Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders. Accordingly, we bear credit risk with respect to our reinsurers. Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. Either of these events would increase our costs and could have a material adverse effect on our business. We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement. Hurricanes Katrina and Rita increased our reinsurance recoverables significantly which increased our credit risk.

 

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We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have an A.M. Best Company and/or Standard & Poor’s rating of “A” or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’ surplus. Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers. The reinsurance is placed either directly by us or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

 

An allowance for doubtful recoveries is maintained for any amounts considered to be uncollectible. At March 31, 2006 and December 31, 2005, we had allowances for uncollectible reinsurance of $32.9 million and $33.1 million, respectively. The allowances include $21.6 million for uncollectible reinsurance as a result of loss reserves established in 2003 for asbestos exposures on marine and aviation business written mostly prior to 1986. Charges (recoveries) for uncollectible reinsurance amounts, all of which were recorded to incurred losses, were $0.3 and $1.0 million for the three months ended March 31, 2006 and 2005, respectively.

 

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

 

This excerpt taken from the NAVG 10-Q filed Nov 3, 2005.

Reinsurance Recoverables

 

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net written premium to statutory surplus and to stabilize loss ratios and underwriting results.  Although reinsurance makes the reinsurer liable to us to the extent the risk is transferred or ceded to the reinsurer, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders. Accordingly, we bear credit risk with respect to our reinsurers. Specifically, our reinsurers may not pay claims made by us on a timely basis, or they may not pay some or all of these claims. Either of these events would increase our costs and could have a material adverse effect on our business. We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement.  Hurricanes Katrina and Rita increased our reinsurance recoverables significantly which increased our credit risk.

 

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have an A.M. Best Company and/or Standard & Poor’s rating of ‘‘A’’ or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’ surplus.  Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related

 

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reinsurance receivables and periodically reviews the list of acceptable reinsurers. The reinsurance is placed either directly by us or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers. 

 

The Company was recently advised informally by Equitas, a lead reinsurer participating on excess of loss reinsurance agreements, that it does not intend to satisfy a loss payment recovery demand that the Company presented to it on June 1, 2005.  The Company has not yet received a formal written response to its demand.  The recovery is for the 2004 settlement of a class action suit involving a large asbestos claim (the “Settled Claim”) which settlement is being paid over seven years starting in June 2005.  Equitas has not indicated any dispute with respect to recoveries on related pro rata reinsurance agreements.

 

Equitas also participates as a lead reinsurer in respect of the Company’s two other large asbestos claims that involve class action lawsuits.  The Company believes it is likely that Equitas will take a similar position when such claims are eventually settled and presented to Equitas for payment.

 

The aggregate amount of excess of loss recoveries due from Equitas on all three of these claims is approximately $9 million, and represents approximately 50% of the total excess of loss recoveries for such claims.  The Company has not been advised of any disputes by other excess of loss reinsurers with respect to such asbestos claims.

 

The Company has filed a demand for arbitration against Equitas in New York with respect to the Settled Claim in accordance with the applicable provisions of the excess of loss reinsurance agreements.  The Company believes that the refusal of Equitas to satisfy the Company’s payment demand is without merit and it intends to vigorously pursue collection of its reinsurance recoveries.   While it is too early to predict with any certainty the outcome of this matter, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an unexpected adverse resolution could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

 

An allowance for doubtful recoveries is maintained for any amounts considered to be uncollectible. At September 30, 2005 and December 31, 2004, we had allowances for uncollectible reinsurance of $32.1 million and $32.4 million, respectively.  The allowances include $25.7 million for uncollectible reinsurance as a result of loss reserves established in 2003 for asbestos exposures on marine and aviation business written mostly prior to 1986.  Charges (recoveries) for uncollectible reinsurance amounts, all of which were recorded to incurred losses, were ($505,000) and $80,000 for the three months ended September 30, 2005 and 2004, respectively, and $109,000 and ($201,000) for the nine months ended September 30, 2005 and 2004, respectively. 

 

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

 

This excerpt taken from the NAVG 10-Q filed Aug 4, 2005.

Reinsurance Recoverables

 

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net written premium to statutory surplus and to stabilize loss ratios and underwriting results.  The purchase of reinsurance does not discharge us, the original insurer, from our primary liability to the policyholder. We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement.

 

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have an A.M. Best Company and/or Standard & Poor’s rating of ‘‘A’’ or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’ surplus.  Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers. The reinsurance is placed either directly by us or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

 

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The Company was recently advised informally by Equitas, a lead reinsurer participating on excess of loss reinsurance agreements, that it does not intend to satisfy a loss payment recovery demand that the Company presented to it on June 1, 2005.  The Company has not yet received a formal written response to its demand.  The recovery is for the 2004 settlement of a class action suit involving a large asbestos claim (the “Settled Claim”) which settlement is being paid over seven years starting in June 2005.  Equitas has not indicated any dispute with respect to recoveries on related pro rata reinsurance agreements.

 

Equitas also participates as a lead reinsurer in respect of the Company’s two other large asbestos claims that involve class action lawsuits.  The Company believes it is likely that Equitas will take a similar position when such claims are eventually settled and presented to Equitas for payment.

 

The aggregate amount of excess of loss recoveries due from Equitas on all three of these claims is approximately $9 million, and represents approximately 50% of the total excess of loss recoveries for such claims.  The Company has not been advised of any disputes by other excess of loss reinsurers with respect to such asbestos claims.

 

The Company has filed a demand for arbitration against Equitas in New York with respect to the Settled Claim in accordance with the applicable provisions of the excess of loss reinsurance agreements.  The Company believes that the refusal of Equitas to satisfy the Company’s payment demand is without merit and it intends to vigorously pursue collection of its reinsurance recoveries.   While it is too early to predict with any certainty the outcome of this matter, the Company believes that the ultimate outcome would not be expected to have a significant adverse effect on its results of operations, financial condition or liquidity, although an unexpected adverse resolution could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

 

An allowance for doubtful recoveries is maintained for any amounts considered to be uncollectible. At June 30, 2005 and December 31, 2004, we had allowances for uncollectible reinsurance of $32.2 million and $32.4 million, respectively.  The allowances include $25.7 million for uncollectible reinsurance as a result of loss reserves established in 2003 for asbestos exposures on marine and aviation business written mostly prior to 1986.  Charges (recoveries) for uncollectible reinsurance amounts, all of which were recorded to incurred losses, were ($420,000) and ($164,000) for the three months ended June 30, 2005 and 2004, respectively, and $613,000 and ($281,000) for the six months ended June 30, 2005 and 2004, respectively.

 

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

 

This excerpt taken from the NAVG 10-Q filed May 6, 2005.

Reinsurance Recoverables

 

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses, to maintain desired ratios of net written premium to statutory surplus and to stabilize loss ratios and underwriting results.  The purchase of reinsurance does not discharge us, the original insurer, from our primary liability to the policyholder. We are required to pay the losses even if the reinsurer fails to meet its obligations under the reinsurance agreement.

 

We are protected by various treaty and facultative reinsurance agreements. Our exposure to credit risk from any one reinsurer is managed through diversification by reinsuring with a number of different reinsurers, principally in the United States and European reinsurance markets. To meet our standards of acceptability, when the reinsurance is placed, a reinsurer generally must have an A.M. Best Company and/or Standard & Poor’s rating of ‘‘A’’ or better, or equivalent financial strength if not rated, plus at least $250 million in policyholders’

 

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surplus.  Our Reinsurance Security Committee monitors the financial strength of our reinsurers and the related reinsurance receivables and periodically reviews the list of acceptable reinsurers. The reinsurance is placed either directly by us or through reinsurance intermediaries. The reinsurance intermediaries are compensated by the reinsurers.

 

The Company was recently informed by a lead reinsurer participating on excess of loss reinsurance agreements that it may formally dispute a loss payment recovery when billed.  The recovery is for the 2004 settlement of a class action suit involving a large asbestos claim which settlement will be paid over seven years starting in June 2005.  The reinsurer has not indicated any dispute with respect to recoveries on related pro rata reinsurance agreements.

 

The Company believes such a dispute, if it should arise, is without merit and intends to vigorously pursue collection of its reinsurance recoveries.  While it is too early to predict with any certainty the outcome of this matter, the Company believes that the ultimate outcome of this matter would not be expected to have a significant adverse effect on results of operations, financial condition or liquidity, although an unexpected adverse resolution could have a material adverse effect on the Company’s results of operations in a particular fiscal quarter or year.

 

An allowance for doubtful recoveries is maintained for any amounts considered to be uncollectible. At March 31, 2005 and December 31, 2004, we had allowances for uncollectible reinsurance of $33.4 million and $32.4 million, respectively.  The allowances include $25.7 million for uncollectible reinsurance as a result of loss reserves established in 2003 for asbestos exposures on marine and aviation business written mostly prior to 1986.  Charges (recoveries) for uncollectible reinsurance amounts, all of which were recorded to incurred losses, were $1.0 million and ($117,000) for the three months ended March 31, 2005 and 2004, respectively.

 

The Company continues to periodically monitor the financial condition and ongoing activities of its reinsurers, in order to assess the adequacy of its allowance for uncollectible reinsurance.

 

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