Reinsurance

3 Months Ended

Jun. 30, 2020

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 following table provides (i) a disaggregation of our reinsurance recoverable balance by financial strength rating, and (ii) an aging analysis of our past due reinsurance recoverable balances as of September 30, 2020:


	September 30, 2020
($ in thousands)	Current		Past Due		Total Reinsurance Recoverables
Financial strength rating of rated reinsurers1
A++	$	23,497	$	230	$	23,727
A+	251,341		3,102		254,443
A	103,560		1,569		105,129
A-	115,196		—		115,196
B++	95		288		383
B+	10		—		10
Total rated reinsurers	$	493,699	$	5,189	$	498,888

Non-rated reinsurers
Federal and state pools	$	111,399	$	—	$	111,399
Other than federal and state pools	2,919		81		3,000
Total non-rated reinsurers	$	114,318	$	81	$	114,399

Total reinsurance recoverable, gross	$	608,017	$	5,270	$	613,287
Less: allowance for credit losses2					(1,831)
Total reinsurance recoverable, net					$	611,456

1Credit ratings as of September 30, 2020.

2Represents our current expectation of credit losses on total current and past due reinsurance recoverables, and is not identifiable by reinsurer.

We evaluate our estimate of expected credit losses through the methodology outlined in Note 1. “Basis of Presentation and Accounting Policies” above.

The following table provides a rollforward of the allowance for credit losses on our reinsurance recoverable balance for the periods indicated:


($ in thousands)	Quarter ended September 30, 2020		Nine Months ended September 30, 2020
Balance at beginning of period	$	2,396	$	4,400
Cumulative effect adjustment1	—		(2,903)
Balance at beginning of period, as adjusted	$	2,396	$	1,497
Current period provision for expected credit losses	(565)		334

Write-offs charged against the allowance for credit losses	—		—
Recoveries	—		—
Allowance for credit losses, end of period	$	1,831	$	1,831

1See Note 2. "Adoption of Accounting Pronouncements" for additional information regarding our adoption of ASU 2016-13.

The following table contains a listing of direct, assumed, and ceded reinsurance amounts for premiums written, premiums earned, and loss and loss expenses incurred for the periods indicated. For more information concerning reinsurance, refer to Note 8. “Reinsurance” in Item 8. “Financial Statements and Supplementary Data.” of our 2019 Annual Report.


	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020		2019
Premiums written:
Direct	$	839,275	785,680	$	2,420,350	2,359,441
Assumed	5,450		6,882	17,902		18,770
Ceded	(125,217)		(115,634)	(346,665)		(326,939)
Net	$	719,508	676,928	$	2,091,587	2,051,272
Premiums earned:
Direct	$	803,957	752,872	$	2,292,495	2,221,257
Assumed	6,147		6,356	18,375		18,660
Ceded	(115,563)		(105,608)	(333,955)		(311,105)
Net	$	694,541	653,620	$	1,976,915	1,928,812
Loss and loss expenses incurred:
Direct	$	530,192	437,617	$	1,407,000	1,297,975
Assumed	4,232		4,362	13,430		13,975
Ceded	(86,622)		(43,304)	(168,355)		(145,712)
Net	$	447,802	398,675	$	1,252,075	1,166,238

Direct premiums written ("DPW") increased in Third Quarter 2020 and Nine Months 2020 compared to Third Quarter 2019 and Nine Months 2019, respectively. Nine Months 2020 was reduced by a $75 million return audit and mid-term endorsement premium accrual recorded during the first quarter of 2020. This accrual reflects a premium reduction due to lower payroll and sales exposures on the workers compensation and general liability lines of business resulting from the economic impacts of the COVID-19 pandemic. In addition, DPW for Nine Months 2020 was reduced by a $19.7 million premium credit to our personal and commercial automobile policyholders. Because of the unprecedented nature of the COVID-19-related governmental directives and the associated expected short-term favorable claims frequency impact, we obtained regulatory approval during April to provide this premium credit to our personal and commercial automobile customers. The premium credit to customers with in-force policies was equivalent to 15% of their April and May premiums.

The $19.7 million of personal and commercial auto premium actions impacted DPW and direct premiums earned. Because lower exposures drove the reduction in premium, there was a reduction in direct loss and loss expenses incurred. The reduction in direct loss and loss expenses incurred for the premium credit was $13.3 million in casualty lines and $6.4 million in non-catastrophe property losses. Direct loss and loss expenses in Nine Months 2020 were impacted by $10.0 million in ultimate net losses estimated and recorded in the first quarter of 2020 for losses related to a small portion of our policies that provide a $25,000 sub-limited coverage for specified extra expenses to clean or disinfect a property when ordered by a Board of Health.


COVID-19 Impact	Quarter ended September 30, 2020				Nine Months ended September 30, 2020
($ in thousands)	Premium Audit		Premium Credit	Total		Premium Audit		Property IBNR	Premium Credit	Total
DPW	$	—	—	—		$	(75,000)	—	(19,740)	(94,740)
Direct premiums earned	(16,303)		—	(16,303)		(64,636)		—	(19,740)	(84,376)
Direct loss and loss expenses incurred	(9,468)		—	(9,468)		(37,541)		10,000	(19,740)	(47,281)

Direct and ceded loss and loss expenses incurred in Third Quarter and Nine Months 2020 also were impacted by increased catastrophe losses, due to the severity of the storms and individual claims that met the retention of our property excess of loss treaty. Catastrophe losses were $79.5 million in Third Quarter 2020, compared to $24.2 million in Third Quarter 2019, and $195.9 million in Nine Months 2020, compared to $74.5 million in Nine Months 2019.

Ceded premiums written, ceded premiums earned, and ceded loss and loss expenses incurred related to our participation in the NFIP, to which we cede 100% of our flood premiums, losses, and loss expenses are as follows:


Ceded to NFIP	Quarter ended September 30,			Nine Months ended September 30,
($ in thousands)	2020		2019	2020		2019
Ceded premiums written	$	(77,318)	(74,863)	$	(213,592)	(206,451)
Ceded premiums earned	(68,427)		(65,846)	(202,656)		(191,914)
Ceded loss and loss expenses incurred	(48,132)		(27,459)	(66,219)		(62,208)