10.

Reinsurance

Reinsurance mitigates the risk of highly uncertain exposures and limits the maximum net loss that can arise from large risks or risks concentrated in areas of exposure. Primary components of our property and casualty reinsurance program include a property per risk treaty, casualty per occurrence treaty and property catastrophe treaty.

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

	Years ended December 31,
(In millions)	2011			2010			2009
Direct earned premiums	$	3,236		$	3,080		$	3,068
Assumed earned premiums		12			10			12
Ceded earned premiums		(219	)		(166	)		(169	)
Net earned premiums	$	3,029		$	2,924		$	2,911

Changes in 2011 ceded earned premiums compared with prior periods are related to earned reinstatement premiums for additional reinsurance coverage as a result of the increase in catastrophe losses that occurred during 2011.

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

	Years ended December 31,
(In millions)	2011			2010			2009
Direct incurred loss and loss expenses	$	2,588		$	2,003		$	2,135
Assumed incurred loss and loss expenses		24			11			10
Ceded incurred loss and loss expenses		(277	)		(4	)		(63	)
Net incurred loss and loss expenses	$	2,335		$	2,010		$	2,082

Changes in 2011 ceded loss and loss expenses compared with prior periods are related to our increase in catastrophe losses that resulted in increased ceded incurred losses to our reinsurers in 2011.

For the year ended December 31, 2010, a reserve reduction occurred in our USAIG pool. Direct and ceded incurred loss and loss expenses were reduced by $33 million, and there was no effect on net incurred loss and loss expenses.

Cincinnati Life purchases reinsurance for protection of a portion of the risk that is written. Primary components of our life reinsurance program include individual mortality coverage and aggregate catastrophe and accidental death coverage in excess of certain deductibles. Our consolidated statements of income include earned life insurance premiums on assumed and ceded business:

	Years ended December 31,
(In millions)	2011			2010			2009
Direct earned premiums	$	220		$	211		$	196
Assumed earned premiums		-			-			-
Ceded earned premiums		(55	)		(53	)		(53	)
Net earned premiums	$	165		$	158		$	143

Our consolidated statements of income include life insurance contract holders’ benefits incurred on assumed and ceded business:

	Years ended December 31,
(In millions)	2011			2010			2009
Direct contract holders' benefits incurred	$	232		$	233		$	201
Assumed contract holders' benefits incurred		-			-			-
Ceded contract holders' benefits incurred		(43	)		(63	)		(41	)
Net incurred loss and loss expenses	$	189		$	170		$	160

The reduction in 2011 ceded contract holders’ benefits incurred compared with 2010 related to ceded death claims. The ceded benefits incurred can vary depending on the type of life insurance policy held and the year the policy was sold.