Ceded Reinsurance

12 Months Ended

Dec. 31, 2016

Insurance [Abstract]

Ceded Reinsurance

NOTE 6.  CEDED REINSURANCE

We utilize reinsurance principally to reduce our exposure on individual risks, to protect against catastrophic losses and to stabilize loss ratios and net underwriting results.  Reinsurers are liable to us to the extent the risk is transferred or ceded to them. However, ceded reinsurance arrangements do not eliminate our obligation to pay claims to our policyholders.  Accordingly, we bear credit risk with respect to our reinsurers.

We are protected by various treaty and facultative reinsurance agreements.  Our exposure to credit risk from any one reinsurer is managed through diversification of reinsurers, principally in the U.S. and European reinsurance markets.   A reinsurer generally must have a rating from A.M. Best and/or S&P of “A” or better, or an equivalent financial strength if not rated, plus at least $500 million in policyholders’ surplus to meet our standards of acceptability.  Our Reinsurance Security Committee, which is part of our Enterprise Risk Management Finance and Credit Sub-Committee of our Board of Directors, monitors the financial strength of our reinsurers and the related reinsurance recoverables and periodically reviews the list of acceptable reinsurers.

The following table lists our Company’s 10 largest reinsurers measured by the amount of total reinsurance recoverables as of December 31, 2016, and the reinsurers’ ratings from A.M. Best and S&P:

	Reinsurance Recoverables
	Unearned		Paid/Unpaid				Collateral
amounts in thousands	Premium		Losses (1)		Total		Held		A.M. Best	S&P
Everest Reinsurance Company	$	25,321	$	82,154	$	107,475	$	6,571	A+	A+
National Indemnity Company		7,467		98,759		106,226		3,183	A++	AA+
Swiss Reinsurance America Corporation		22,442		77,199		99,641		6,440	A+	AA-
Transatlantic Reinsurance Company		7,669		53,347		61,016		2,494	A+	A+
Munich Reinsurance America Inc.		8,959		50,612		59,571		3,477	A+	AA-
Allied World Reinsurance		6,319		35,931		42,250		1,575	A	A
Employers Mutual Casualty Company		8,856		32,687		41,543		5,551	A	NR
Aspen Insurance UK Ltd.		11,281		22,737		34,018		5,452	A	A
Ace Property and Casualty Insurance Company		10,192		22,352		32,544		2,722	A++	AA
Partner Reinsurance Europe		6,868		20,681		27,549		25,045	A	A+
Top 10	$	115,374	$	496,459	$	611,833	$	62,510
All Others		98,003		365,399		463,402		89,198
Total	$	213,377	$	861,858	$	1,075,235	$	151,708

(1) - Net of reserve for uncollectible reinsurance of approximately $12.1 million.

Our Company holds reserves for uncollectible reinsurance in the amounts of $12.1 million and $6.9 million as of December 31, 2016 and 2015, respectively. This reserve is determined by reinsurer specific default risk as indicated by their financial strength ratings as well as additional default risk for asbestos and environmental related recoverables. Actual uncollectible reinsurance could exceed or be less than our reserve balance. The increase in our reserves for uncollectible reinsurance as compared to 2015 is driven primarily by one of our reinsurers having been placed under supervision of a conservator by the State of California. We will continue to monitor the conservation process and assess our potential exposure.

Our Company holds collateral of $151.7 million, which consists of $109.0 million in ceded balances payable, $39.7 million in letters of credit and $3.0 million of funds held.   NIC and NSIC are required to collateralize reinsurance obligations due to us from reinsurers not authorized by their respective states of domicile.

The following table summarizes the components of Net written premium:

	Years Ended December 31,
amounts in thousands	2016			2015			2014
Direct	$	1,403,865		$	1,277,728		$	1,232,012
Assumed		165,046			175,774			200,341
Ceded		(382,687	)		(409,642	)		(432,215	)
Net written premiums	$	1,186,224		$	1,043,860		$	1,000,138

The following table summarizes the components of Net earned premium:

	Years Ended December 31,
amounts in thousands	2016			2015			2014
Direct	$	1,330,265		$	1,223,840		$	1,183,120
Assumed		171,978			175,153			193,431
Ceded		(401,898	)		(414,906	)		(440,656	)
Net earned premiums	$	1,100,345		$	984,087		$	935,895

The following table summarizes the components of Net losses and LAE incurred:

	Years Ended December 31,
amounts in thousands	2016			2015			2014
Direct	$	795,414		$	703,361		$	657,059
Assumed		87,995			97,947			118,352
Ceded		(217,961	)		(228,710	)		(230,182	)
Net losses and LAE	$	665,448		$	572,598		$	545,229