Reinsurance

6 Months Ended

Jun. 30, 2020

(5) Reinsurance

We use reinsurance extensively, which has a significant effect on our results of operations. Reinsurance arrangements do not relieve us of our primary obligation to the policyholder.

Details on in force life insurance were as follows:

	June 30, 2020			December 31, 2019
	(Dollars in thousands)
Direct life insurance in force	$	824,641,546		$	810,995,295
Amounts ceded to other companies		(713,665,521	)		(702,727,956	)
Net life insurance in force	$	110,976,025		$	108,267,339
Percentage of reinsured life insurance in force		87	%		87	%

Benefits and claims ceded to reinsurers during the three and six months ended June 30, 2020 were $460.5 million and $809.6 million, respectively, compared to $327.4 million and $660.0 million, respectively, for the three and six months ended June 30, 2019.

Reinsurance recoverables as of June 30, 2020 and December 31, 2019 include ceded reserve balances, ceded claim liabilities, and ceded claims paid. Reinsurance recoverables and financial strength ratings by reinsurer were as follows:

	June 30, 2020				December 31, 2019
	Reinsurance recoverables			A.M. Best rating	Reinsurance recoverables			A.M. Best rating
	(In thousands)
Pecan Re Inc. ^{(1) (2)}	$	2,690,787		N/R	$	2,696,924		NR
SCOR Global Life Reinsurance Companies ⁽³⁾		370,047		A+		352,049		A+
Munich Re of Malta ^{(2) (5)}		268,527		N/R		286,433		NR
Swiss Re Life & Health America Inc. ⁽⁴⁾		233,397		A+		233,572		A+
American Health and Life Insurance Company ⁽²⁾		164,853		B++		167,471		B++
Munich American Reassurance Company		128,362		A+		118,372		A+
Korean Reinsurance Company		117,399		A		108,410		A
RGA Reinsurance Company		115,602		A+		100,328		A+
Hannover Life Reassurance Company		37,822		A+		33,772		A+
TOA Reinsurance Company		33,839		A		26,160		A
All other reinsurers		62,096		-		48,679		-
Allowance for credit losses		(5,602	)			(2,347	)
Reinsurance recoverables	$	4,217,129			$	4,169,823

NR – not rated

⁽¹⁾	^{Pecan Re Inc. is a wholly owned subsidiary of Swiss Re Life & Health America Inc.}

⁽²⁾	Reinsurance recoverables includes balances ceded under coinsurance transactions of term life insurance policies that were in force as of December 31, 2009. Amounts shown are net of their share of the reinsurance recoverables from other reinsurers.

⁽³⁾	Includes amounts ceded to Transamerica Reinsurance Companies and fully retroceded to SCOR Global Life Reinsurance Companies.

⁽⁴⁾	Includes amounts ceded to Lincoln National Life Insurance and fully retroceded to Swiss Re Life & Health America Inc.

⁽⁵⁾	^{Entity is rated AA- by S&P.}

Upon the adoption of ASC 326, we estimate and recognize lifetime expected credit losses for reinsurance recoverables. In estimating the allowance for expected credit losses for reinsurance recoverables, we factor in the underlying collateral for reinsurance agreements where available. Specifically, for reinsurers with underlying trust assets, we compare the reinsurance recoverables balance to the underlying trust assets that mitigate the potential exposure to credit losses. We also analyze the financial condition of the reinsurers, as determined by third-party rating agencies, to determine the probability of default for the reinsurers. We then utilize a third-party credit default study to calculate an expected credit loss given default rate or recovery rate. The probability of default and loss given default rates are then applied to the reinsurers’ recoverable balance, while also factoring in any third-party letters of credit that support the reinsurance agreement, in order to calculate our current expected credit loss allowance.

The rollforward of the allowance for credit losses on reinsurance recoverables for the three and six months ended June 30, 2020 was as follows:

	Three months ended June 30, 2020		Six months ended June 30, 2020
	(In thousands)
Balance, beginning of period ⁽¹⁾	$	5,542	$	3,917
Current period provision for expected credit losses		60		1,685
Balance, at the end of period	$	5,602	$	5,602

⁽¹⁾ The beginning balance for the six months ended June 30, 2020 reflects the adjustment made to the allowance for credit losses balance for the adoption of ASC 326 on January 1, 2020.

Prior to the adoption of ASC 326, credit losses on reinsurance recoverables were recognized based on an incurred loss model that recognized credit losses if probable and reasonably estimable. No credit losses were recognized under the incurred loss model during the three and six months ended June 30, 2019.