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c .0 c Florida Municipal Insurance Trust NOTES TO FINANCIAL STATEMENTS September 30,2010 Note 6 - Excess Reinsurance The Trust uses reinsurance agreements to reduce its exposure to large losses on all types of insured events, Reinsurance permits recovery of a portion of losses from reinsurers, although it does not discharge the primary liability of the Trust as direct insurer of the risks reinsured, The Trust does not report reinsured risks as liabilities unless it is probable that those risks will not be covered by reinsurers, The amount deducted from claims liabilities as of September 30, 2010 for reinsurance was approximately $72,000,000, In the event that any of the reinsuring companies do not meet their obligations under existing reinsurance agreements, the Trust would be liable for such amounts, Reinsurance recoveries receivable represents recoverable amounts for claims paid on or before September 30, 2010, of which approximately $674,000 is expected to be collected after one year, Prepaid reinsurance consists of the unexpired premiums for property risk excess and catastrophe policies expiring March 31, 2011 and April 30, 2011, Note 7 - Deposits The Trust is a pool member of the NLC Mutual Company, a public entity risk pool providing one or more layers of reinsurance coverage to political subdivisions of state governments, A capital contribution of $340,043 is recorded as a deposit. The capital contribution is non-transferable, and the right to withdraw capital is suspended by the By-Laws to four or more years after the election to withdraw is first made, Note 8 - Claims and Claim Expenses The provision for claims and claim expenses includes paid and unpaid claims and expenses associated with settling claims, including legal fees. The liability for claims and claim expenses is based on claims adjusters' evaluations of individual claims, management's evaluation, and an actuarial review of experience- with respect to the probable number and nature of claims arising from losses that have been incurred but have not yet been reported, The liability represents the estimated ultimate cost of settling the claims, including the effects of inflation and other societal and economic factors, Any adjustments resulting from the settlement of losses will be reflected in earnings at the time the adjustments are determined, Members may choose to retain a level of risk by adding deductible provisions to their policies, The receivable for members' deductibles represents the members' retained portion of the claims paid on or before September 30, 2010, of which approximately $746,000 is expected to be collected after one year, 17