| Reinsurance Activity |
The effect of reinsurance on premiums earned and claims incurred is as follows: | | | Premiums Earned | | | Claims Incurred(1) | | | | | 2016 | | | 2015 | | | 2014 | | | 2016 | | | 2015 | | | 2014 | | | | | | | | | | | | | | | | | | | | | | Gross | | $ | 2,949,673 | | | $ | 2,847,288 | | | $ | 2,199,351 | | | $ | 2,458,447 | | | $ | 2,313,191 | | | $ | 1,748,972 | | Ceded | | | (59,032 | ) | | | (64,134 | ) | | | (70,785 | ) | | | (15,008 | ) | | | (19,430 | ) | | | (25,184 | ) | Net | | $ | 2,890,641 | | | $ | 2,783,154 | | | $ | 2,128,566 | | | $ | 2,443,439 | | | $ | 2,293,761 | | | $ | 1,723,788 | |
| (1) | The claims incurred disclosed in this table exclude the portion of the change in the liability for future policy benefits amounting to $28,752, $24,954, and $23,806 that is included within the consolidated claims incurred during the years ended December 31, 2016, 2015 and 2014, respectively. |
TSS, TSP and TSV, in accordance with general industry practices, annually purchase reinsurance to protect them from the impact of large unforeseen losses and prevent sudden and unpredictable changes in net income and stockholders’ equity of the Company. Reinsurance contracts do not relieve any of the subsidiaries from their obligations to policyholders. In the event that all or any of the reinsuring companies might be unable to meet their obligations under existing reinsurance agreements, the subsidiaries would be liable for such defaulted amounts. During 2016, 2015, and 2014 TSP placed 13.16%, 14.06%, and 13.26% of its reinsurance business with one reinsurance company.
TSS has excess of loss reinsurance treaties whereby it cedes a portion of its premiums to third parties. Reinsurance contracts are primarily for periods of one year, and are subject to modifications and negotiations in each renewal date. Premiums ceded under these contracts amounted to $3,148, $3,678, and $4,901 in 2016, 2015 and 2014, respectively. Claims ceded amounted to $1,700, $2,665, and $5,487, in 2016, 2015 and 2014, respectively. Principal reinsurance agreements include an organ transplant excess of loss treaty, which covers:
| · | For group policies, 80% of the claims up to a maximum of $800 (80% of $1,000), per person, per life. For other group policies with other options, the agreement covers 80% of the claims up to a maximum of $400 (80% of $500), per person, per life, or 80% of the claims up to a maximum of $200 (80% of $250), per person, per life. |
| · | For policies provided to the active and retired employees of the Commonwealth of Puerto Rico and its instrumentalities, the treaty covers 100% of the claims up to a maximum of $500 per person, per life with a basic coverage, and $1,000 per person, per life with Major medical coverage. |
| · | For policies provided to the municipalities of Puerto Rico, the treaty covers 100% of the claims up to a maximum of $250 with plans with lifetime limits and all other plans 100% of the claims up to a maximum of $1,000. |
| · | For U.S. Virgin Islands policies, the treaty covers 100% of the claims up to a maximum of $2,000 per person, per life. The first $200 are retained by Triple-S and the excess up to $800 are reinsured. |
TSP has a number of pro rata and excess of loss reinsurance treaties whereby the subsidiary retains for its own account all loss payments for each occurrence that does not exceed the stated amount in the agreements and a catastrophe cover, whereby it protects itself from a loss or disaster of a catastrophic nature. Under these treaties, TSP ceded premiums of $45,957, $48,676, and $52,058, in 2016, 2015, and 2014, respectively.
Reinsurance cessions are made on excess of loss and on a proportional basis. Principal reinsurance agreements are as follows:
| · | Property quota share treaty covering for a maximum of $30,000 for any one risk. Under this treaty 30% of the risk is ceded to reinsurers. The remaining exposure is covered by a property per risk excess of loss treaty that provides reinsurance in excess of $500 up to a maximum of $21,000, or the remaining 70% for any one risk. In addition, TSP has an additional property catastrophe excess of loss contract that provides protection for losses in excess of $8,000 resulting from any catastrophe, subject to a maximum loss of $15,000. |
| · | Personal property catastrophe excess of loss. This treaty provides protection for losses in excess of $5,000 resulting from any catastrophe, subject to a maximum loss of $80,000. |
| · | Commercial property catastrophe excess of loss. This treaty provides protection for losses in excess of $10,000 resulting from any catastrophe, subject to a maximum loss of $135,000. |
| · | Property catastrophe excess of loss. This treaty provides a $235,000 protection in excess of $80,000 and $135,000 with respect to personal and commercial lines, respectively, resulting from any catastrophe, subject to a maximum loss of $175,000 in respect of the ceded portion of the Commercial Lines Quota Share. |
| · | Reinstatement premium protection. This treaty provides a maximum limit of approximately $3,400 for personal lines and $10,000 in commercial lines to cover the necessity of reinstating the catastrophe program in the event it is activated. |
| · | Casualty excess of loss treaty. This treaty provides reinsurance for losses in excess of $225 up to a maximum of $12,000. |
| · | Medical malpractice excess of loss. This treaty provides reinsurance in excess of $150 up to a maximum of $3,000 per incident. |
| · | Builders’ risk quota share and first surplus covering contractors’ risk. This treaty provides protection on a 20/80 quota share basis for the initial $2,500 and a first surplus of $12,500 for a maximum of $14,500 for any one risk. |
| · | Surety quota share treaty covering contract and miscellaneous surety bond business. This treaty provides reinsurance of up to $5,000 for contract surety bonds, subject to an aggregate of $10,000 per contractor and $3,000 per miscellaneous surety bond. |
Facultative reinsurance is obtained when coverage per risk is required. All principal reinsurance contracts are for a period of one year, on a calendar basis, and are subject to modifications and negotiations in each renewal.
The ceded unearned reinsurance premiums on TSP arising from these reinsurance transactions amounted to $9,202 and $10,291 at December 31, 2016 and 2015, respectively, and are reported as other assets in the accompanying consolidated balance sheets.
TSV also cedes insurance with various reinsurance companies under a number of pro rata, excess of loss and catastrophe treaties. Under these treaties, TSV ceded premiums of $8,838, $9,596, and $10,328, in 2016, 2015, and 2014, respectively. Principal reinsurance agreements are as follows:
| · | Group life insurance facultative agreement, reinsuring risk in excess of $25 of certain group life policies and a combined pro rata and excess of loss agreement effective July 1, 2008, reinsuring 50% of the risk up to $200 and ceding the excess. |
| · | Facultative pro rata agreements for the long‑term disability insurance, reinsuring 65% of the risk. |
| · | Several reinsurance agreements, mostly on an excess of loss basis up to a maximum retention of $50. For certain new life products that have been issued after 1999, the retention limit is $175, and for others issued after January 1, 2015, the retention limit is $200. |
| · | A quota share agreement for group major medical and an excess of loss agreements for group and individual major medical, where TSV cedes 40% of all claims up to a maximum retention of $100 and 70% of all claims over $100 up to a maximum of $2,000. |
| · | Excess of loss agreement for the Major Medical Business in Costa Rica reinsuring 100% of all claims over $25. |
TSV participates in various retrocession reinsurance agreements since early 2014. The retrocessions are based on group life and health reinsurance business pools for which TSV has participations ranging from 6.7% to 15% of the total reinsurance facility. TSV share of the reinsurer’s gross liability is limited to a maximum that ranges depending on the agreement from $50 to $500 per covered life. The agreements cover new and renewal business for a period of twelve months and may be cancelled subject to ninety days written notice at any anniversary date. |