Reinsurance

Our Financial Statements reflect the effects of assumed and ceded reinsurance transactions. Assumed reinsurance refers to the acceptance of certain insurance risks that other insurance entities have underwritten. Ceded reinsurance involves transferring certain insurance risks (along with the related written and earned premiums) that we have underwritten to other insurance companies that agree to share these risks. The primary purpose of ceded reinsurance is to protect the Insurance Subsidiaries from potential losses in excess of the amount that we are prepared to accept. Our major treaties covering property, property catastrophe, and casualty business are excess of loss contracts. In addition, we have an intercompany quota share pooling arrangement and other minor quota share treaties.

As a Standard Commercial Lines and E&S Lines writer, we are required to participate in Terrorism Risk Insurance Program Reauthorization Act ("TRIPRA"), which was extended by Congress to December 31, 2020. TRIPRA requires private insurers and the United States government to share the risk of loss on future acts of terrorism certified by the U.S. Secretary of the Treasury. Under TRIPRA, each participating insurer is responsible for paying a deductible of specified losses before federal assistance is available. This deductible is based on a percentage of the prior year’s applicable Standard Commercial Lines and E&S Lines premiums. In 2016, our deductible is approximately $280 million. For losses above the deductible, the federal government will pay 84% of losses to an industry limit of $100 billion, and the insurer retains 16%. The federal share of losses will be reduced by 1% each year to 80% by 2020.

The Insurance Subsidiaries remain liable to policyholders to the extent that any reinsurer becomes unable to meet their contractual obligations. We evaluate and monitor the financial condition of our reinsurers under voluntary reinsurance arrangements to minimize our exposure to significant losses from reinsurer insolvencies. On an ongoing basis, we review amounts outstanding, length of collection period, changes in reinsurer credit ratings, and other relevant factors to determine collectability of reinsurance recoverables. The allowance for uncollectible reinsurance recoverables was $5.7 million at December 31, 2015 and $6.9 million at December 31, 2014.

The following table represents our total reinsurance balances segregated by reinsurer to depict our concentration of risk throughout our reinsurance portfolio:



	As of December 31, 2015					As of December 31, 2014
($ in thousands)	Reinsurance Balances			% of Reinsurance Balance		Reinsurance Balances			% of Reinsurance Balance
Total reinsurance recoverables	$	561,968				$	581,548
Total prepaid reinsurance premiums	140,889					146,993
Total reinsurance balance	702,857					728,541

Federal and state pools¹:
NFIP	164,130			24	%	172,547			24	%
NJ Unsatisfied Claim Judgment Fund	71,884			10		76,342			11
Other	3,136			—		2,557			—
Total federal and state pools	239,150			34		251,446			35
Remaining reinsurance balance	$	463,707		66		$	477,095		65

Munich Re Group (A.M. Best rated "A+")	$	112,889		16		$	110,270		15
Hannover Ruckversicherungs AG (A.M. Best rated "A+")	99,535			14		100,959			14
AXIS Reinsurance Company (A.M. Best rated "A+")	53,374			8		51,014			7
Swiss Re Group (A.M. Best rated "A+")	51,340			7		55,026			8
Partner Reinsurance Company of the U.S. (A.M. Best rated “Au”)	20,748			3		25,424			3
All other reinsurers	125,821			18		134,402			18
Total reinsurers	463,707			66	%	477,095			65	%
Less: collateral²	(106,449		)			(114,843		)
Reinsurers, net of collateral	$	357,258				$	362,252

¹Considered to have minimal risk of default.

²Includes letters of credit, trust funds, and funds held against reinsurance recoverables.

Note: Some amounts may not foot due to rounding.

Under our reinsurance arrangements, which are prospective in nature, reinsurance premiums ceded are recorded as prepaid reinsurance and amortized over the remaining contract period in proportion to the reinsurance protection provided, or recorded periodically, as per the terms of the contract, in a direct relationship to the gross premium recording. Reinsurance recoveries are recognized as gross losses are incurred.

The following table contains a listing of direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and losses and loss expenses incurred:



($ in thousands)	2015			2014		2013
Premiums written:
Direct	$	2,403,519		2,228,270		2,133,793
Assumed	23,848			26,306		43,650
Ceded	(357,463		)	(369,296	)	(367,284	)
Net	$	2,069,904		1,885,280		1,810,159

Premiums earned:
Direct	$	2,330,267		2,183,258		2,048,530
Assumed	23,209			34,653		44,464
Ceded	(363,567		)	(365,302	)	(356,922	)
Net	$	1,989,909		1,852,609		1,736,072

Losses and loss expenses incurred:
Direct	$	1,274,872		1,314,864		1,370,293
Assumed	16,996			26,187		32,678
Ceded	(143,327		)	(183,550	)	(281,233	)
Net	$	1,148,541		1,157,501		1,121,738

The ceded premiums and losses related to our participation in the NFIP, under which 100% of our flood premiums, losses and loss expenses are ceded to the NFIP, are as follows:



Ceded to NFIP ($ in thousands)	2015			2014		2013
Ceded premiums written	$	(228,907	)	(237,718	)	(236,309	)
Ceded premiums earned	(233,940		)	(234,224	)	(228,650	)
Ceded losses and loss expenses incurred	(62,078		)	(57,323	)	(183,142	)