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, 2017, 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		29,333		90,005		119,338		9,564	A+	A+
Swiss Reinsurance America Corporation		18,987		71,062		90,049		8,069	A+	AA-
National Indemnity Company		5,770		61,413		67,183		5,423	A++	AA+
Transatlantic Reinsurance Company		8,587		50,487		59,074		2,588	A+	A+
Munich Reinsurance America Inc.		10,991		46,751		57,742		5,171	A+	AA-
Allied World Reinsurance		6,511		32,422		38,933		1,637	A	A-
Aspen Insurance UK Ltd.		8,921		29,093		38,014		8,775	A	A
Employers Mutual Casualty Company		12,096		22,509		34,605		11,172	A	NR
Scor Global P&C SE		5,938		25,228		31,166		6,393	A+	AA-
Partner Reinsurance Europe		5,257		25,472		30,729		11,408	A	A+
Top 10 Reinsurers		112,391		454,442		566,833		70,200
Others		116,178		427,817		543,995		110,464
Total		228,569		882,259		1,110,828		180,664

(1) - Net of reserve for uncollectible reinsurance of approximately $12.6 million.

Our Company holds reserves for uncollectible reinsurance in the amounts of $12.6 million and $12.1 million as of December 31, 2017 and 2016, 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 2016 is driven primarily by one of our reinsurers having been placed in liquidation by the State of California. We continue to monitor the liquidation process and assess our potential exposure.

Our Company holds collateral of $180.7 million, which consists of $136.4 million in ceded balances payable, $41.3 million in letters of credit and $3.0 million of funds held as trust account balances. 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	2017			2016			2015
Direct	$	1,489,422		$	1,403,865		$	1,277,728
Assumed		223,843			165,046			175,774
Ceded		(441,935	)		(382,687	)		(409,642	)
Net Written Premiums	$	1,271,330		$	1,186,224		$	1,043,860

The following table summarizes the components of Net Earned Premium:

	Years Ended December 31,
amounts in thousands	2017			2016			2015
Direct	$	1,425,582		$	1,330,265		$	1,223,840
Assumed		187,609			171,978			175,153
Ceded		(426,771	)		(401,898	)		(414,906	)
Net Earned Premiums	$	1,186,420		$	1,100,345		$	984,087

The following table summarizes the components of Net Losses and LAE Incurred:

	Years Ended December 31,
amounts in thousands	2017			2016			2015
Direct	$	938,640		$	795,414		$	703,361
Assumed		148,606			87,995			97,947
Ceded		(280,981	)		(217,961	)		(228,710	)
Net Losses and LAE	$	806,265		$	665,448		$	572,598