Reinsurance

12 Months Ended

Dec. 31, 2020

The Company cedes insurance to reinsurers to limit its maximum loss, provide greater diversification of risk, minimize exposures on larger risks and to exit certain lines of business. The ceding of insurance does not discharge the primary liability of the Company. A credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable to meet its obligations. A collectibility exposure also exists to the extent that the reinsurer disputes the liabilities assumed under reinsurance agreements. Property and casualty reinsurance coverages are tailored to the specific risk characteristics of each product line and the Company's retained amount varies by type of coverage. Reinsurance contracts are purchased to protect specific lines of business such as property and workers' compensation. Corporate catastrophe reinsurance is also purchased for property and workers' compensation exposure. The Company also utilizes facultative reinsurance in certain lines. In addition, the Company assumes reinsurance primarily through Hardy and as a member of various reinsurance pools and associations.

The following table presents the amounts receivable from reinsurers.


December 31
(In millions)	2020		2019
Reinsurance receivables related to insurance reserves:
Ceded claim and claim adjustment expenses	$	4,005	$	3,835
Ceded future policy benefits	263		226
Reinsurance receivables related to paid losses	210		143
Reinsurance receivables	4,478		4,204
Allowance for uncollectible reinsurance	(21)		(25)
Reinsurance receivables, net of allowance for uncollectible reinsurance	$	4,457	$	4,179

The Company has established an allowance for uncollectible voluntary reinsurance receivables which relates to both amounts already billed on ceded paid losses as well as ceded reserves that will be billed when losses are paid in the future. The following table summarizes the outstanding amount of voluntary reinsurance receivables, gross of any collateral arrangements, by financial strength rating.


(In millions)	December 31, 2020
A- to A++	$	2,820
B- to B++	904
Insolvent	3
Total voluntary reinsurance outstanding balance(1)	$	3,727

(1) Expected credit losses for legacy A&EP receivables are ceded to NICO and the reinsurance limit on the LPT has not been exhausted, therefore no allowance is recorded for these receivables and they are excluded from the table above. Refer to Note E to the Consolidated Financial Statements for information regarding the LPT. The Company has also excluded receivables from involuntary pools.

The Company attempts to mitigate its credit risk related to reinsurance by entering into reinsurance arrangements with reinsurers that have credit ratings above certain levels and by obtaining collateral. On a limited basis, the Company may enter into reinsurance agreements with reinsurers that are not rated, primarily captive reinsurers. Receivables from captive reinsurers are backed by collateral arrangements and comprise the majority of the voluntary reinsurance receivables within the B- to B++ rating distribution in the table above. The primary methods of obtaining collateral are through reinsurance trusts, letters of credit and funds withheld balances. Such collateral, limited by the balance of open recoverables, was approximately $3.3 billion and $3.2 billion as of December 31, 2020 and 2019.

The Company's largest recoverables from a single reinsurer as of December 31, 2020, including ceded unearned premium reserves, were approximately $1.9 billion from subsidiaries of the Berkshire Hathaway Insurance Group, $377 million from the Gateway Rivers Insurance Company and $314 million from the Palo Verde Insurance Company. These amounts are substantially collateralized or otherwise secured. The recoverable from subsidiaries of the Berkshire Hathaway Insurance Group includes amounts related to third-party

reinsurance for which NICO has assumed the credit risk under the terms of the LPT as discussed in Note E to the Consolidated Financial Statements.

The effects of reinsurance on earned premiums and written premiums are presented in the following tables.


(In millions)	Direct		Assumed		Ceded		Net		Assumed/ Net %
2020 Earned Premiums
Property and casualty	$	11,547	$	238	$	4,640	$	7,145	3.3	%
Long term care	454		50		—		504		9.9	%
Total earned premiums	$	12,001	$	288	$	4,640	$	7,649	3.8	%

2019 Earned Premiums
Property and casualty	$	11,021	$	288	$	4,401	$	6,908	4.2	%
Long term care	470		50		—		520		9.6	%
Total earned premiums	$	11,491	$	338	$	4,401	$	7,428	4.6	%

2018 Earned Premiums
Property and casualty	$	10,857	$	305	$	4,380	$	6,782	4.5	%
Long term care	480		50		—		530		9.4	%
Total earned premiums	$	11,337	$	355	$	4,380	$	7,312	4.9	%


(In millions)	Direct		Assumed		Ceded		Net		Assumed/ Net %
2020 Written Premiums
Property and casualty	$	12,168	$	229	$	4,832	$	7,565	3.0	%
Long term care	444		50		—		494		10.1	%
Total written premiums	$	12,612	$	279	$	4,832	$	8,059	3.5	%

2019 Written Premiums
Property and casualty	$	11,421	$	281	$	4,569	$	7,133	3.9	%
Long term care	473		50		—		523		9.6	%
Total written premiums	$	11,894	$	331	$	4,569	$	7,656	4.3	%

2018 Written Premiums
Property and casualty	$	11,094	$	310	$	4,583	$	6,821	4.5	%
Long term care	474		50		—		524		9.5	%
Total written premiums	$	11,568	$	360	$	4,583	$	7,345	4.9	%

Included in the direct and ceded earned premiums for the years ended December 31, 2020, 2019 and 2018 are $3,543 million, $3,578 million and $3,740 million related to property business that is 100% reinsured under a significant third-party captive program. The third-party captives that participate in this program are affiliated with the non-insurance company policyholders, therefore this program provides a means for the policyholders to self-insure this property risk. The Company receives and retains a ceding commission.

Long term care premiums are from long-duration contracts; property and casualty premiums are from short-duration contracts.

Insurance claims and policyholders' benefits reported on the Consolidated Statements of Operations are net of estimated reinsurance recoveries of $3,158 million, $2,733 million and $2,836 million for the years ended December 31, 2020, 2019 and 2018, including $2,375 million, $2,080 million and $1,927 million, respectively, related to the significant third-party captive program discussed above.