Reinsurance

12 Months Ended

Dec. 31, 2019

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, 2027. TRIPRA requires private insurers and the U. S. 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 2020, our deductible, before tax, is approximately $359 million. For losses above the deductible, the federal government will pay 80% of losses to an industry limit of $100 billion, and the insurer retains 20%.

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. The allowance for uncollectible reinsurance recoverables was $4.4 million at December 31, 2019 and $4.5 million at December 31, 2018.

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, 2019					As of December 31, 2018
($ in thousands)	Reinsurance Balances			% of Reinsurance Balance		Reinsurance Balances			% of Reinsurance Balance
Total reinsurance recoverables	$	573,235				$	549,172
Total prepaid reinsurance premiums	166,705					157,723
Total reinsurance balance	739,940					706,895

Federal and state pools¹:
NFIP	175,472			24	%	170,453			24	%
New Jersey Unsatisfied Claim Judgment Fund	53,732			6		55,167			7
Other	2,449			1		3,602			1
Total federal and state pools	231,653			31		229,222			32
Remaining reinsurance balance	$	508,287		69		$	477,673		68

Munich Re Group (A.M. Best rated "A+")	$	119,748		16		$	112,841		16
Hannover Ruckversicherungs AG (A.M. Best rated "A+")	107,474			15		101,835			14
AXIS Reinsurance Company (A.M. Best rated "A+")	73,009			10		69,102			10
Swiss Re Group (A.M. Best rated "A+")	37,190			5		37,519			5
Transatlantic Reinsurance Company (A.M. Best rated “A+”)	21,824			3		17,686			3
All other reinsurers	149,042			20		138,690			20
Total reinsurers	508,287			69	%	477,673			68	%
Less: collateral²	(110,549		)			(112,201		)
Reinsurers, net of collateral	$	397,738				$	365,472

¹Considered to have minimal risk of default.

²Includes 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)	2019			2018		2017
Premiums written:
Direct	$	3,084,451		2,890,633		2,733,459
Assumed	24,339			26,250		26,685
Ceded	(429,366		)	(402,597	)	(389,503	)
Net	$	2,679,424		2,514,286		2,370,641

Premiums earned:
Direct	$	2,993,157		2,808,764		2,647,488
Assumed	24,399			25,831		25,831
Ceded	(420,385		)	(398,366	)	(382,292	)
Net	$	2,597,171		2,436,229		2,291,027

Loss and loss expense incurred:
Direct	$	1,714,880		1,706,951		1,570,678
Assumed	22,879			21,469		17,588
Ceded	(186,268		)	(230,286	)	(243,192	)
Net	$	1,551,491		1,498,134		1,345,074

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)	2019			2018		2017
Ceded premiums written	$	(266,925	)	(248,053	)	(241,345	)
Ceded premiums earned	(259,119		)	(244,238	)	(235,088	)
Ceded loss and loss expense incurred	(71,676		)	(144,967	)	(160,922	)