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 2017, our deductible is approximately $304 million. For losses above the deductible, the federal government will pay 83% of losses to an industry limit of $100 billion, and the insurer retains 17%. 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 $5.5 million at December 31, 2016 and $5.7 million at December 31, 2015.

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, 2016					As of December 31, 2015
($ in thousands)	Reinsurance Balances			% of Reinsurance Balance		Reinsurance Balances			% of Reinsurance Balance
Total reinsurance recoverables	$	621,537				$	561,968
Total prepaid reinsurance premiums	146,282					140,889
Total reinsurance balance	767,819					702,857

Federal and state pools¹:
NFIP	211,181			27	%	164,130			24	%
New Jersey Unsatisfied Claim Judgment Fund	65,574			9		71,884			10
Other	3,227			—		3,136			—
Total federal and state pools	279,982			36		239,150			34
Remaining reinsurance balance	$	487,837		64		$	463,707		66

Munich Re Group (A.M. Best rated "A+")	$	119,520		16		$	112,889		16
Hannover Ruckversicherungs AG (A.M. Best rated "A+")	106,298			13		99,535			14
AXIS Reinsurance Company (A.M. Best rated "A+")	59,737			8		53,374			8
Swiss Re Group (A.M. Best rated "A+")	50,494			7		51,340			7
Partner Reinsurance Company of the U.S. (A.M. Best rated “A”)	21,125			3		20,748			3
All other reinsurers	130,663			17		125,821			18
Total reinsurers	487,837			64	%	463,707			66	%
Less: collateral²	(113,763		)			(106,449		)
Reinsurers, net of collateral	$	374,074				$	357,258

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)	2016			2015		2014
Premiums written:
Direct	$	2,577,259		2,403,519		2,228,270
Assumed	28,779			23,848		26,306
Ceded	(368,750		)	(357,463	)	(369,296	)
Net	$	2,237,288		2,069,904		1,885,280

Premiums earned:
Direct	$	2,484,715		2,330,267		2,183,258
Assumed	28,214			23,209		34,653
Ceded	(363,357		)	(363,567	)	(365,302	)
Net	$	2,149,572		1,989,909		1,852,609

Losses and loss expenses incurred:
Direct	$	1,560,356		1,274,872		1,314,864
Assumed	22,708			16,996		26,187
Ceded	(348,267		)	(143,327	)	(183,550	)
Net	$	1,234,797		1,148,541		1,157,501

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



Ceded to NFIP ($ in thousands)	2016			2015		2014
Ceded premiums written	$	(232,245	)	(228,907	)	(237,718	)
Ceded premiums earned	(227,882		)	(233,940	)	(234,224	)
Ceded losses and loss expenses incurred	(239,891		)	(62,078	)	(57,323	)