REINSURANCE

Property and Casualty Insurance Segment

Ceded and Assumed Reinsurance

Reinsurance is a contract by which one insurer, called the reinsurer, agrees to cover, under certain defined circumstances, a portion of the losses incurred by a primary insurer if a claim is made under a policy issued by the primary insurer. Our property and casualty insurance companies follow the industry practice of reinsuring a portion of their exposure by ceding to reinsurers a portion of the premium received and a portion of the risk under the policies written. We purchase reinsurance to reduce the net liability on individual risks to predetermined limits and to protect us against catastrophic losses from a single catastrophe, such as a hurricane or tornado. We do not engage in any reinsurance transactions classified as finite risk reinsurance.

We account for premiums, written and earned, and losses incurred net of reinsurance ceded. The ceding of insurance does not legally discharge us from primary liability under our policies, and we must pay the loss if the reinsurer fails to meet its obligation. We periodically monitor the financial condition of our reinsurers to confirm that they are financially stable. We believe that all of our reinsurers are in an acceptable financial condition and there were no reinsurance balances at December 31, 2013, for which collection is at risk that would result in a material impact on our Consolidated Financial Statements. The amount of reinsurance recoverable on paid losses totaled $6,090 and $4,669 at December 31, 2013 and 2012, respectively.

We also assume both property and casualty insurance from other insurance or reinsurance companies. Most of the business we have assumed is property insurance, with an emphasis on catastrophe coverage.

Premiums and loss and loss settlement expenses related to our ceded and assumed business are as follows:




Years Ended December 31,	2013			2012		2011
Ceded Business
Ceded premiums written	$	50,711		$	44,240	$	43,921
Ceded premiums earned	50,514			47,467		45,604
Loss and loss settlement expenses ceded⁽¹⁾	(8,552		)	5,525		39,335

Assumed Business
Assumed premiums written	$	18,938		$	17,181	$	14,954
Assumed premiums earned	18,485			16,889		14,869
Loss and loss settlement expenses assumed	8,268			16,873		24,151

(1) In 2013, a reduction in our direct IBNR reserves caused a corresponding reduction in ceded IBNR reserves. This factor, coupled with a lack of significant large losses exceeding our reinsurance retentions resulted in negative loss and loss settlement expenses ceded for the year.

In 2013, we renewed our participation in all but one of our assumed programs and added two new programs to our portfolio. Loss and loss settlement expenses assumed decreased in 2013 as compared to 2012 primarily due to a decrease in catastrophe losses. We added two new programs to replace the lost premium from the program not renewed and to take advantage of areas where we had exposure capacity. One of the new programs has worldwide exposure and the other has exposure in the United Kingdom and Japan.

In 2012, we renewed our participation in all of our assumed programs. We reduced our participation in programs with heavier Northeast U.S. exposure in response to the exposure added in this region from the Mercer Insurance Group acquisition. Loss and loss settlement expenses assumed were less than 2011, but were still elevated from historic levels due to several natural disasters, primarily the Thailand floods and Super Storm Sandy.

In 2011, we renewed our participation in all of our assumed programs, while increasing the participation level on one contract, that generated the growth of our assumed premiums written and earned. Loss and loss settlement expenses were higher than historical levels due to several natural disasters, primarily in New Zealand and Japan, that impacted our assumed program.

Refer to Note 5 “Reserves for Loss and Loss Settlement Expenses” for an analysis of changes in our overall property and casualty insurance reserves.

Reinsurance Programs and Retentions

We have several programs that provide reinsurance coverage. This reinsurance coverage limits the risk of loss that we retain by reinsuring direct risks in excess of our retention limits. The following table provides a summary of our primary reinsurance programs. Retention amounts reflect the accumulated retentions and co-participation of all layers within a program. In 2012, we added a $3,000 aggregate annual deductible to our core program multi-line (casualty excess and property excess).



	2013, 2012 & 2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss	$	2,000	$	40,000	100	%	of	$	38,000
Property excess of loss	2,000		15,000		100	%	of	$	13,000
Surety excess of loss	1,500		28,000		91	%	of	$	26,500
Property catastrophe, excess	20,000		200,000		95	%	of	$	180,000
Boiler and machinery	N/A		50,000		100	%	of	$	50,000

The following table provides a summary of Mercer Insurance Group’s primary reinsurance programs for 2011:



	2011 Reinsurance Programs
Type of Reinsurance	Stated Retention		Limits		Coverage
Casualty excess of loss ⁽¹⁾	$	1,000	$	5,000	100	%	of	$	4,000
Property excess of loss⁽¹⁾	1,000		10,000		100	%	of	$	9,000
Umbrella excess of loss⁽¹⁾	1,000		11,000		75	%	of first	$	1,000
					100	%	of remaining	$	9,000
Surety excess of loss	500		4,500		90	%	of	$	4,000
							less	$500 deductible
Property catastrophe, excess⁽²⁾	5,000		55,000		100	%	of	$	50,000

(1) On August 1, 2011, Mercer Insurance Group’s reinsurance retention and limits were changed to match those of the Company.

(2) On January 1, 2012, Mercer Insurance Group’s catastrophe reinsurance programs were changed to match those of the Company.

If we incur catastrophe losses and loss settlement expenses that exceed the coverage limits of our reinsurance program, our property catastrophe program provides one guaranteed reinstatement. In such an instance, we are required to pay the reinsurers a reinstatement premium equal to the full amount of the original premium, which will reinstate the full amount of reinsurance available under the property catastrophe program.

Life Insurance Segment

Ceded and Assumed Reinsurance

United Life purchases reinsurance to limit the dollar amount of any one risk of loss. Our retention on standard individual life cases is $300. Our accidental death benefit rider on an individual policy is reinsured at 100 percent, up to a maximum benefit of $250. Our group coverage, both life and accidental death and dismemberment, is reinsured at 50.0 percent. Catastrophe excess reinsurance coverage applies when three or more insureds die in a catastrophic accident. For catastrophe excess claims, we retain the first $1,000 of ultimate net loss and the reinsurer agrees to indemnify us for the excess up to a maximum of $5,000. We supplement this coverage when appropriate with “known concentration” coverage. Known concentration coverage is typically tied to a specific event and time period, with a threshold of a minimum number of lives involved in the event, minimum event deductible (stated retention limit) and a maximum payout.

Premiums and losses and loss settlement expenses related to our ceded business is as follows:




Years Ended December 31,	2013		2012		2011
Ceded Business
Ceded insurance in-force	$	1,112,688	$	1,083,410	$	974,556
Ceded premiums earned	2,792		2,621		2,318
Loss and loss settlement expenses ceded	1,971		2,435		3,786

The ceding of insurance does not legally discharge United Life from primary liability under its policies. United Life must pay the loss if the reinsurer fails to meet its obligations. We periodically monitor the financial condition of our reinsurers to confirm that they are financially stable. We believe that all of our reinsurers are in an acceptable financial condition. Approximately 99.0 percent of ceded life insurance in force as of December 31, 2013, has been ceded to five reinsurers.