Reinsurance

9 Months Ended

Sep. 30, 2020

SEC Schedule, 12-17, Insurance Companies, Reinsurance [Abstract]

REINSURANCE

The Company purchases reinsurance and other protection to manage its risk portfolio and to reduce its exposure to large losses. The Company currently has in place contracts that provide for recovery of a portion of certain claims and claim expenses, generally in excess of various retentions or on a proportional basis. In addition to loss recoveries, certain of the Company’s ceded reinsurance contracts provide for payments of additional premiums, for reinstatement premiums and for lost no-claims bonuses, which are incurred when losses are ceded to the respective reinsurance contracts. The Company remains liable to the extent that any reinsurer fails to meet its obligations.

The following table sets forth the effect of reinsurance and retrocessional activity on premiums written and earned and on net claims and claim expenses incurred:



	Three months ended				Nine months ended
	September 30, 2020		September 30, 2019		September 30, 2020		September 30, 2019
Premiums written
Direct	$	138,208	$	108,478	$	463,462	$	318,984
Assumed	1,004,850		752,590		4,407,189		3,583,287
Ceded	(243,647)		(156,938)		(1,520,629)		(1,246,145)
Net premiums written	$	899,411	$	704,130	$	3,350,022	$	2,656,126
Premiums earned
Direct	$	128,621	$	103,446	$	401,177	$	283,898
Assumed	1,301,871		1,146,831		3,732,961		3,114,408
Ceded	(430,309)		(343,529)		(1,210,761)		(1,030,028)
Net premiums earned	$	1,000,183	$	906,748	$	2,923,377	$	2,368,278
Claims and claim expenses
Gross claims and claim expenses incurred	$	1,192,132	$	714,714	$	2,587,073	$	1,804,889
Claims and claim expenses recovered	(250,102)		(60,194)		(563,817)		(469,961)
Net claims and claim expenses incurred	$	942,030	$	654,520	$	2,023,256	$	1,334,928

The Company adopted ASU 2016-13 effective January 1, 2020. In assessing an allowance for reinsurance assets, which includes reinsurance balances receivable and reinsurance recoverables, the Company considers historical information, financial strength of reinsurers, collateralization amounts, and ratings to determine the appropriateness of the allowance. In assessing future default for reinsurance assets, the Company evaluates the valuation allowance under the probability of default and loss given default method. The Company utilizes its internal capital and risk models which uses counterparty ratings from major rating agencies, as well as assessing the current market conditions for the likelihood of default. Historically, the Company has not experienced material credit losses from reinsurance assets. The adoption of ASU 2016-13 did not have a material impact on the Company’s consolidated statements of operations and financial position.

At September 30, 2020, the Company’s reinsurance recoverable balance was $2.9 billion (December 31, 2019 - $2.8 billion). Of the Company’s reinsurance recoverable balance at September 30, 2020, 49.5% is fully collateralized by our reinsurers, 49.3% is recoverable from reinsurers rated A- or higher by major rating agencies and 1.2% is recoverable from reinsurers rated lower than A- by major rating agencies (December 31, 2019 - 57.5%, 41.0% and 1.5%, respectively). The reinsurers with the three largest balances accounted for 15.8%, 9.8% and 6.9%, respectively, of the Company’s reinsurance recoverable balance at September 30, 2020 (December 31, 2019 - 12.7%, 7.2% and 7.0%, respectively). The valuation allowance recorded against reinsurance recoverable was $10.2 million at September 30, 2020 (December 31, 2019 - $7.3 million). The three largest company-specific components of the valuation allowance represented 16.0%, 7.4% and 5.7%, respectively, of the Company’s total valuation allowance at September 30, 2020 (December 31, 2019 - 18.1%, 7.9% and 7.2%, respectively).