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## NOTE 7 

## REINSURANCE 

Retrocession reinsurance treaties do not relieve the Company from its obligations to direct writing companies. Failure of retrocessionaires to honor their obligations could result in losses to the Company Consequently, allowances would be established for amounts deemed uncollectible. At December 31, 2003 and 2002, no allowances were deemed necessary. The Company regularly evaluates the financial condition of its reinsurers / retrocessionaires. 

The effect of reinsurance on net premiums and amounts earned is as follows (in thousands): 

<img src='content_image/34437.jpg'>

The effect of reinsurance on policyholder claims and other policy benefits is as follows (in thousands): 

<img src='content_image/34436.jpg'>

At December 31, 2003 and 2002, there were no reinsurance ceded receivables associated with a single reinsurer with a carrying value in excess of 5% of total assets. 

The impact of reinsurance on life insurance in force is shown in the following schedule (in millions): 

<img src='content_image/34439.jpg'>

At December 31, 2003, the Company has provided approximately $811.3 million of statutory financial reinsurance, as measured by pre-tax statutory surplus, to other insurance companies under financial reinsurance transactions to assist ceding companies in meeting applicable regulatory requirements and to enhance ceding companies’ financial strength. Generally, such financial reinsurance is provided by the Company committing cash or assuming insur- ance liabilities, which are collateralized by future profits on the reinsured business. The Company retrocedes the majority of the assumed financial reinsurance. The Company earns a fee based on the amount of net outstanding financial reinsurance. 

provide for recapture rights on the part of the ceding company. Recapture rights permit the ceding company to reassume all or a portion of the risk formerly ceded to the reinsurer after an agreed- upon period of time, generally 10 years, or in some cases due to changes in the financial condition or ratings of the reinsurer. 

Recapture of business previously ceded does not affect premiums ceded prior to the recapture of such business, but would reduce premiums in subsequent periods. Additionally, some treaties give the ceding company the right to request the Company to place assets in trust for their benefit to support their reserve credits, in the event of a downgrade of the Company’s ratings to specified levels. As of December 31, 2003, these treaties had approximately $308.4 million in reserves. Assets placed in trust continue to be owned by the Company, but their use is restricted based on the terms of the trust agreement. Securities with an amortized cost of 

