Reinsurance

We use reinsurance agreements to limit potential losses, reduce exposure to larger risks and provide capital relief with regard to certain reserves.

The amount of risk ceded depends on our evaluation of the specific risk and applicable retention limits. For business sold prior to December 31, 2010, our retention limit on any one life is $10 million for single life and joint first-to-die policies and $12 million for joint last-to-die policies. Beginning January 1, 2011, our retention limit on new business is $5 million for single life and joint first-to-die policies and $6 million for second-to-die policies. We also assume reinsurance from other insurers.

Our reinsurance program cedes various types of risks to other reinsurers primarily under yearly renewable term and coinsurance agreements. Yearly renewable term and coinsurance agreements result in passing all or a portion of the risk to the reinsurer. Under coinsurance agreements on our term insurance policies, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and expenses and is liable for a corresponding proportionate amount of all benefit payments. Under our yearly renewable term agreements, the ceded premium represents a charge for the death benefit coverage.

During 2008, the Company and Phoenix Life, a related party, entered into a reinsurance agreement. Under this agreement, the Company cedes risk associated with certain universal life contracts and the associated riders to Phoenix Life. The reinsurance transaction between the Company and Phoenix Life is structured as a coinsurance agreement. At the inception of the contract a gain was recognized primarily due to the ceding commission received from Phoenix Life and the difference between the U.S. GAAP and statutory basis reserve balances. The gain on this transaction is being amortized over the remaining life of the reinsured contracts.

Effective October 1, 2009, the Company and Phoenix Life and Annuity Company coinsured all the benefit risks, net of existing reinsurance, on their term life business in force.

On July 1, 2012 the Company recaptured the business associated with a reinsurance contract with Phoenix Life, whereby we ceded to Phoenix Life certain of the liabilities related to guarantees on our annuity products. This contract qualified as a freestanding derivative and the derivative asset previously reported within receivable from related parties was reversed at the time of recapture.

Trust agreements and irrevocable letters of credit aggregating $26.7 million at December 31, 2013 have been arranged with commercial banks in our favor to collateralize the ceded reserves.

Reinsurance recoverable includes balances due from reinsurers for paid and unpaid losses and is presented net of an allowance for uncollectable reinsurance. The reinsurance recoverable balance is $500.6 million and $427.1 million as of December 31, 2013 and 2012, respectively. Other reinsurance activity is shown below.


3.	Reinsurance (continued)



Direct Business and Reinsurance:	Years Ended December 31,
($ in millions)	2013			2012			2011

Direct premiums	$	80.9		$	79.2		$	77.1
Premiums ceded to non-affiliate reinsurers [1]	(67.0		)	(70.7		)	(74.8		)
Premiums	$	13.9		$	8.5		$	2.3

Direct policy benefits incurred	$	258.5		$	281.4		$	161.4
Policy benefits assumed from non-affiliate reinsureds	0.2			1.0			3.8
Policy benefits ceded to:
Affiliate reinsurers	(18.0		)	(13.7		)	(5.3		)
Non-affiliate reinsurers	(119.5		)	(114.7		)	(86.0		)
Policy benefits ceded to reinsurers	(137.5		)	(128.4		)	(91.3		)
Premiums paid to:
Affiliate reinsurers	22.3			20.1			19.7
Non-affiliate reinsurers	44.4			60.8			58.7
Premiums paid to reinsurers [2]	66.7			80.9			78.4
Policy benefits [3]	$	187.9		$	234.9		$	152.3

Direct life insurance in-force	$	58,198.8		$	62,701.8		$	68,205.1
Life insurance in-force assumed from reinsureds	93.2			78.5			66.1
Life insurance in-force ceded to:
Affiliate reinsurers	(1,622.9		)	(1,859.3		)	(2,520.7		)
Non-affiliate reinsurers	(42,957.9		)	(46,950.4		)	(49,800.1		)
Life insurance in-force ceded to reinsurers	(44,580.8		)	(48,809.7		)	(52,320.8		)
Life insurance in-force	$	13,711.2		$	13,970.6		$	15,950.4
Percentage of amount assumed to net insurance in-force	0.7%			0.6%			0.4%

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[1]	Primarily represents premiums ceded to reinsurers related to term insurance policies.


[2]	For universal life and variable universal life contracts, premiums paid to reinsurers are reflected within policy benefits. See Note 2 to these financial statements for additional information regarding significant accounting policies.


[3]	Policy benefit amounts above exclude changes in reserves, interest credited to policyholders and other items, which total $98.6 million, $161.9 million and $150.3 million, net of reinsurance, for the years ended December 31, 2013, 2012 and 2011, respectively.

We remain liable to the extent that reinsuring companies may not be able to meet their obligations under reinsurance agreements in effect. Failure of the reinsurers to honor their obligations could result in losses to the Company. Since we bear the risk of nonpayment, on a quarterly basis we evaluate the financial condition of our reinsurers and monitor concentrations of credit risk. Based on our review of their financial statements, reputation in the reinsurance marketplace and other relevant information, we believe that we have no material exposure to uncollectible life reinsurance. At December 31, 2013, five major reinsurance companies account for approximately 73% of the reinsurance recoverable.