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Reinsurance | 12 Months Ended
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Dec. 31, 2018
Reinsurance Disclosures [Abstract] |
Reinsurance | 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 reinsurance treaties. As a Standard Commercial Lines and E&S Lines writer, we are subject to the 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 2019, our deductible is approximately $339 million. For losses above the deductible, the federal government will pay 81% of losses to an industry limit of $100 billion, and the insurer retains 19%. The federal share of losses will be reduced to 80% in 2020. The Insurance Subsidiaries remain liable to policyholders to the extent that any reinsurer becomes unable to meet their contractual obligations. In addition to this direct counterparty credit risk, we have indirect counterparty credit risk as our reinsurers often enter into their own reinsurance programs, or retrocessions, as part of managing their exposure to large losses. 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 $4.5 million at December 31, 2018 and $4.6 million at December 31, 2017. The following table represents our total reinsurance balances segregated by reinsurer to illustrate our concentration of risk throughout our reinsurance portfolio:
|  | As of December 31, 2018 |  | As of December 31, 2017
($ in thousands) |  | Reinsurance Balances |  | % of Reinsurance Balance |  | Reinsurance Balances |  | % of Reinsurance Balance
Total reinsurance recoverables |  | $ | 549,172 |  |  |  |  |  | $ | 594,832 |  |  |  |
Total prepaid reinsurance premiums |  | 157,723 |  |  |  |  |  | 153,493 |  |  |  |
Total reinsurance balance |  | 706,895 |  |  |  |  |  | 748,325 |  |  |  |
Federal and state pools 1: |  |  |  |  |  |  |  |  |  |  |  |
NFIP |  | 170,453 |  |  | 24 | % |  | 204,161 |  |  | 27 | %
New Jersey Unsatisfied Claim Judgment Fund |  | 55,167 |  |  | 7 |  |  | 62,947 |  |  | 9 |
Other |  | 3,602 |  |  | 1 |  |  | 3,634 |  |  | — |
Total federal and state pools |  | 229,222 |  |  | 32 |  |  | 270,742 |  |  | 36 |
Remaining reinsurance balance |  | $ | 477,673 |  |  | 68 |  |  | $ | 477,583 |  |  | 64 |
Munich Re Group (A.M. Best rated "A+") |  | $ | 112,841 |  |  | 16 |  |  | $ | 117,460 |  |  | 16 |
Hannover Ruckversicherungs AG (A.M. Best rated "A+") |  | 101,835 |  |  | 14 |  |  | 101,652 |  |  | 14 |
AXIS Reinsurance Company (A.M. Best rated "A+") |  | 69,102 |  |  | 10 |  |  | 62,396 |  |  | 8 |
Swiss Re Group (A.M. Best rated "A+") |  | 37,519 |  |  | 5 |  |  | 40,772 |  |  | 5 |
Transatlantic Reinsurance Company (A.M. Best rated “A+”) |  | 17,686 |  |  | 3 |  |  | 13,237 |  |  | 2 |
Endurance Specialty Ins. LTD. (A.M. Best rated “A+”) |  | 15,163 |  |  | 2 |  |  | 18,469 |  |  | 2 |
Partner Reinsurance Company of the U.S. (A.M. Best rated “A”) |  | 12,261 |  |  | 2 |  |  | 16,925 |  |  | 2 |
All other reinsurers |  | 111,266 |  |  | 16 |  |  | 106,672 |  |  | 15 |
Total reinsurers |  | 477,673 |  |  | 68 | % |  | 477,583 |  |  | 64 | %
Less: collateral 2 |  | (112,201 | ) |  |  |  | (122,413 | ) |  |
Reinsurers, net of collateral |  | $ | 365,472 |  |  |  |  | $ | 355,170 |  |  |
1 Considered to have minimal risk of default. 2 Includes letters of credit, trust funds, and funds held against reinsurance recoverables. 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 loss and loss expense incurred:
($ in thousands) |  | 2018 |  | 2017 |  | 2016
Premiums written: |  |  |  |  |  |  |  |  |
Direct |  | $ | 2,890,633 |  |  | 2,733,459 |  |  | 2,577,259 |
Assumed |  | 26,250 |  |  | 26,685 |  |  | 28,779 |
Ceded |  | (402,597 | ) |  | (389,503 | ) |  | (368,750 | )
Net |  | $ | 2,514,286 |  |  | 2,370,641 |  |  | 2,237,288 |
Premiums earned: |  |  |  |  |  |  |  |  |
Direct |  | $ | 2,808,764 |  |  | 2,647,488 |  |  | 2,484,715 |
Assumed |  | 25,831 |  |  | 25,831 |  |  | 28,214 |
Ceded |  | (398,366 | ) |  | (382,292 | ) |  | (363,357 | )
Net |  | $ | 2,436,229 |  |  | 2,291,027 |  |  | 2,149,572 |
Loss and loss expense incurred: |  |  |  |  |  |  |  |  |
Direct |  | $ | 1,706,951 |  |  | 1,570,678 |  |  | 1,560,356 |
Assumed |  | 21,469 |  |  | 17,588 |  |  | 22,708 |
Ceded |  | (230,286 | ) |  | (243,192 | ) |  | (348,267 | )
Net |  | $ | 1,498,134 |  |  | 1,345,074 |  |  | 1,234,797 |
The ceded premiums and losses related to our participation in the NFIP, under which 100% of our flood premiums, and loss and loss expense are ceded to the NFIP, are as follows:
Ceded to NFIP ($ in thousands) |  | 2018 |  | 2017 |  | 2016
Ceded premiums written |  | $ | (248,053 | ) |  | (241,345 | ) |  | (232,245 | )
Ceded premiums earned |  | (244,238 | ) |  | (235,088 | ) |  | (227,882 | )
Ceded loss and loss expense incurred |  | (144,967 | ) |  | (160,922 | ) |  | (239,891 | )

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- Definition The entire disclosure pertaining to the existence, magnitude and information about insurance that has been ceded to or assumed from another insurance company, including the methodologies and assumptions used in determining recorded amounts. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 944 -URI http://asc.fasb.org/topic&trid=2303980 + Details
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