(a) On February 12, 2015, Homeowners of America Insurance Company (HAIC) entered into a 21 month quota share reinsurance program with a panel of third party reinsurers, covering its property insurance business.  This program replaces HAIC's program which expires on March 31, 2015 and will provide coverage through December 31, 2016.  Under this program HAIC will cede 90% of the property risk and approximately 35% of the casualty risk associated with residential property insurance.  Treaties covering approximately 50% of the program contain provisions for HAIC to share in profits based on loss experience attained during the term of the treaty.

In addition, on February 17, 2015, HAIC completed the placement of an excess of loss catastrophe reinsurance program, effective April 1, 2015, with a panel of third party reinsurers. These treaties replace HAIC's excess of loss reinsurance program expiring on March 31, 2015 and provides coverage on HAIC's retained risk on its property insurance business.  Approximately 60% of the program will be for a period of 24 months, while the remaining 40% will have a term of 12 months.  The treaties provide coverage up to $175,000,000, in excess of $5,000,000, for losses arising from a single event.   HAIC has utilized forecasting models to ensure that these treaties will provide coverage in excess of its estimated probable maximum loss associated with a single one-in-100 year storm event.  HAIC has also purchased reinstatement premium coverage for the term of these treaties, which reimburses it for the cost to reinstate the coverage after an initial event.

The coverage of the quota share and excess of loss reinsurance programs, when taken together, leave HAIC with a retention of $500,000 per event.  Although the terms of individual treaties may vary, management believes that the overall terms of the 2015 – 2016 program are more favorable than the 2014 – 2015 program.

In the normal course of business, HAIC seeks to limit its exposure to loss from large risks and catastrophic events, thereby protecting stockholders equity and its capital and surplus.  Without these reinsurance agreements, HAIC would be more exposed to catastrophic loss and therefore increasing the likelihood that those losses could exceed its available capital and surplus.  HAIC remains responsible for insured losses that are in excess of coverage provided by these reinsurance programs.  HAIC also remains responsible for insured losses, notwithstanding the failure of any reinsurer to make payments called for under these treaties.  To minimize this risk, third party reinsurers on these programs are rated A- or better by AM Best and BBB or better by Standard & Poors.