Trust - TMLT

Notes to ConsolidatedFinancial Statementsadditional uncertainty related to the strength of case reserves and the effect ofchanges in the reinsurance of ALAE. Accordingly, should management’s assumptionsas to case reserve redundancies or reinsurance recoverables differ from theactual closure of claims, reserves are likely to develop adversely. Loss and lossadjustment reserve estimates are reviewed regularly and adjusted, as appropriate.4. ReinsuranceThe Trust cedes certain risks to various reinsurers. These reinsurance arrangementsallow management to control exposure to potential losses arising from large risksand provide additional capacity for growth. A significant portion of the reinsuranceis affected under quota-share reinsurance contracts and, in some cases, stop-losscoverage.Ceded premiums are charged to operations as a deduction from premiums written.The effect of reinsurance on premiums written and earned are as follows:2005 Premiums 2004 PremiumsWritten Earned Written Earned(in thousands)Direct $ 190,710 $ 191,466 $ 188,591 $184,184Ceded (23,727) (26,810) (21,869) (16,445)Net premiums $ 166,983 $ 164,656 $ 166,722 $ 167,739The amounts deducted from losses and loss adjustment expenses in the statements ofoperations that related to reinsurance were $8,126 for 2005 and $22,991 for 2004.Reinsurance ceded contracts do not relieve the Trust from its obligations to policyholders.The Trust remains liable to its policyholders for the portion reinsured to theextent that any reinsurer does not meet the obligations assumed under the reinsuranceagreements. To minimize its exposure to significant losses from reinsurer insolvencies,the Trust evaluates the financial condition of its reinsurers and monitorsconcentrations of credit risk arising from similar geographic regions, activities oreconomic characteristics of the reinsurers.5. Federal Income TaxesSignificant components of the provision for income tax expense (benefit) were asfollows:Years ended December 31,2005 2004(in thousands)Current expense $ 25,338 $ 8,293Deferred expense (benefit) (700) (5,208)$ 24,638 $ 3,08536 TRUST - The Annual Report Magazine