NOTE 7 – Reinsurance

Our condensed consolidated statements of operations include earned consolidated property casualty insurance premiums on assumed and ceded business:

(In millions)	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Direct earned premiums	$	807		$	769		$	1,587		$	1,513
Assumed earned premiums		2			2			7			5
Ceded earned premiums		(79	)		(43	)		(119	)		(82	)
Net earned premiums	$	730		$	728		$	1,475		$	1,436

Changes in 2011 ceded earned premiums compared with prior periods are related to earned reinstatement premiums as a result of the increase in catastrophe losses for the second quarter of 2011.

Our condensed consolidated statements of operations include incurred consolidated property casualty insurance loss and loss expenses on assumed and ceded business:

(In millions)	Three months ended June 30,					Six months ended June 30,
	2011			2010		2011			2010
Direct incurred loss and loss expenses	$	981		$	528	$	1,508		$	977
Assumed incurred loss and loss expenses		5			3		20			5
Ceded incurred loss and loss expenses		(229	)		21		(241	)		44
Net incurred loss and loss expenses	$	757		$	552	$	1,287		$	1,026

Changes in 2011 ceded loss and loss expenses compared with prior periods are related to our increase in catastrophe losses for the second quarter of 2011.

Because of a $33 million reduction in ceded reserves, total ceded incurred loss and loss expenses for the three months ended June 30, 2010, increased net incurred loss and loss expenses by $21 million. This reserve reduction occurred in our USAIG pool, as discussed in our Annual Report on Form 10-K, Item 1A, Risk Factors, Page 28. Direct reserves were correspondingly reduced by $33 million, so there was no effect on net incurred loss and loss adjustment expenses. A reduction of $7 million in ceded IBNR reserves in the first quarter 2010 is included in the $44 million ceded incurred loss and loss expenses for the six months ended June 30, 2010.

Our condensed consolidated statements of operations include earned life insurance premiums on ceded business:

(In millions)	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Direct earned premiums	$	55		$	54		$	105		$	104
Assumed earned premiums		0			0			0			0
Ceded earned premiums		(12	)		(14	)		(25	)		(25	)
Net earned premiums	$	43		$	40		$	80		$	79

Our condensed consolidated statements of operations include life insurance contract holders’ benefits incurred on ceded business:

(In millions)	Three months ended June 30,						Six months ended June 30,
	2011			2010			2011			2010
Direct contract holders' benefits incurred	$	56		$	57		$	109		$	114
Assumed contract holders' benefits incurred		0			0			0			0
Ceded contract holders' benefits incurred		(12	)		(14	)		(20	)		(29	)
Net incurred loss and loss expenses	$	44		$	43		$	89		$	85