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. Management’s decisions about the appropriate level of risk retention are affected by various factors, including changes in our underwriting practices, capacity to retain risks and reinsurance market conditions. Primary components of our property and casualty reinsurance program include a property risk treaty, casualty per occurrence treaty and property catastrophe treaty.

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



(In millions)	Years ended December 31,
		2012		2011		2010
Direct earned premiums	$	3,520	$	3,236	$	3,080
Assumed earned premiums		9		12		10
Ceded earned premiums		(185)		(219)		(166)
Net earned premiums	$	3,344	$	3,029	$	2,924

Changes in 2012 ceded earned premiums compared with 2011 are related to ceded earned reinstatement premiums for additional reinsurance coverage as a result of the increase in catastrophe losses that occurred during 2011.

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



(In millions)	Years ended December 31,
		2012		2011		2010
Direct incurred loss and loss expenses	$	2,235	$	2,588	$	2,003
Assumed incurred loss and loss expenses		6		24		11
Ceded incurred loss and loss expenses		(104)		(277)		(4)
Net incurred loss and loss expenses	$	2,137	$	2,335	$	2,010

Changes in 2012 ceded loss and loss expenses compared with 2011 are related to our increase in catastrophe losses in 2011 that resulted in increased ceded incurred losses to our reinsurers.

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.

Our life insurance company 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 comprehensive income include earned life insurance premiums on ceded business:



(In millions)	Years ended December 31,
		2012		2011		2010
Direct earned premiums	$	235	$	220	$	211

Ceded earned premiums		(57)		(55)		(53)
Net earned premiums	$	178	$	165	$	158

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



(In millions)	Years ended December 31,
		2012		2011		2010
Direct contract holders' benefits incurred	$	232	$	232	$	233

Ceded contract holders' benefits incurred		(47)		(43)		(63)
Net incurred loss and loss expenses	$	185	$	189	$	170

The ceded benefits incurred can vary depending on the type of life insurance policy held and the year the policy was sold.