The Company cedes insurance to affiliated and unaffiliated insurers to enable the Company to manage capital and risk exposure. Such arrangements do not relieve the Company of its primary liability to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company's procedures include carefully selecting its reinsurers, structuring agreements to provide collateral funds where necessary, and regularly monitoring the financial condition and ratings of its reinsurers.

Effective December 31, 2016, the Company entered into an asbestos and environmental adverse development cover (“ADC”) reinsurance agreement with National Indemnity Company (“NICO”), a subsidiary of Berkshire Hathaway Inc. (“Berkshire”), to reduce uncertainty about potential adverse development. Under the ADC, the Company paid a reinsurance premium of $650 for NICO to assume adverse net loss reserve development up to$1.5 billion above the Company’s existing net asbestos and environmental (“A&E”) reserves as of December 31, 2016 of approximately $1.7 billion. The $650 reinsurance premium was placed into a collateral trust account as security for NICO’s claim payment obligations to the Company. As of December 31, 2016, other liabilities included $650 for the accrued reinsurance premium. The Company has retained the risk of collection on amounts due from other third-party reinsurers and continues to be responsible for claims handling and other administrative services, subject to certain conditions. The ADC covers substantially all the Company’s A&E reserve development up to the reinsurance limit. The ADC excludes risk of adverse development on net asbestos and environmental reserves held by the Company’s U.K. Property and Casualty run-off subsidiaries which have been accounted for as liabilities held for sale in the Consolidated Balance Sheets as of December 31, 2016.

The ADC has been accounted for as retroactive reinsurance and the Company reported the $650 cost as a loss on reinsurance transaction in 2016 in the Consolidated Statements of Operations. Under retroactive reinsurance accounting, net adverse asbestos and environmental reserve development after December 31, 2016, if any, will result in an offsetting reinsurance recoverable up to the $1.5 billion limit. Cumulative ceded losses up to the $650 reinsurance premium paid would be recognized as a dollar-for-dollar offset to direct losses incurred. Cumulative ceded losses exceeding the $650 reinsurance premium paid would result in a deferred gain. The deferred gain would be recognized over the claim settlement period in the proportion of the amount of cumulative ceded losses collected from the reinsurer to the estimated ultimate reinsurance recoveries. Consequently, until periods when the deferred gain is recognized as a benefit to earnings, cumulative adverse development of asbestos and environmental claims after December 31, 2016 in excess of $650 may result in significant charges against earnings.

Reinsurance Recoverables

Reinsurance recoverables include balances due from reinsurance companies and are presented net of an allowance for uncollectible reinsurance. Reinsurance recoverables include an estimate of the amount of gross losses and loss adjustment expense reserves that may be ceded under the terms of the reinsurance agreements, including incurred but not reported unpaid losses. The Company’s estimate of losses and loss adjustment expense reserves ceded to reinsurers is based on assumptions that are consistent with those used in establishing the gross reserves for amounts the Company owes to its claimants. The Company estimates its ceded reinsurance recoverables based on the terms of any applicable facultative and treaty reinsurance, including an estimate of how incurred but not reported losses will ultimately be ceded under reinsurance agreements. Accordingly, the Company’s estimate of reinsurance recoverables is subject to similar risks and uncertainties as the estimate of the gross reserve for unpaid losses and loss adjustment expenses.

Reinsurance Recoverables



	As of
	December 31, 2016			December 31, 2015
Property and Casualty Insurance Products
Paid loss and loss adjustment expenses	$	89		$	119
Unpaid loss and loss adjustment expenses	2,449			2,662
Gross reinsurance recoverables [1]	2,538			2,781
Allowance for uncollectible reinsurance	(165		)	(266		)
Net reinsurance recoverables	$	2,373		$	2,515
Group Benefits and Life Insurance Products
Future policy benefits and unpaid loss and loss adjustment expenses and other policyholder funds and benefits payable
Sold businesses (MassMutual and Prudential)	$	19,729		$	19,369
Other reinsurers	1,209			1,305
Net reinsurance recoverables [2]	$	20,938		$	20,674
Reinsurance recoverables, net	$	23,311		$	23,189

[1] Excludes reinsurance recoverables of $178 to be transferred to the buyer in connection with the pending sale of the Company's U.K. property and casualty run-off subsidiaries.

[2] No allowance for uncollectible reinsurance is required as of December 31, 2016 and December 31, 2015.

As of December 31, 2016, the Company has reinsurance recoverables from MassMutual and Prudential of $8.6 billion and $11.1 billion, respectively. As of December 31, 2015, the Company had reinsurance recoverables from MassMutual and Prudential of $8.6 billion and $10.8 billion, respectively. The Company's obligations to its direct policyholders that have been reinsured to MassMutual and Prudential are secured by invested assets held in trust. Net of invested assets held in trust, as of December 31, 2016, the Company has no reinsurance-related concentrations of credit risk greater than 10% of the Company’s Consolidated Stockholders’ Equity.

The allowance for uncollectible reinsurance reflects management’s best estimate of reinsurance cessions that may be uncollectible in the future due to reinsurers’ unwillingness or inability to pay. The Company analyzes recent developments in commutation activity between reinsurers and cedants, recent trends in arbitration and litigation outcomes in disputes between reinsurers and cedants and the overall credit quality of the Company’s reinsurers. Based on this analysis, the Company may adjust the allowance for uncollectible reinsurance or charge off reinsurer balances that are determined to be uncollectible. Where its contracts permit, the Company secures future claim obligations with various forms of collateral, including irrevocable letters of credit, secured trusts, funds held accounts and group-wide offsets.

Due to the inherent uncertainties as to collection and the length of time before reinsurance recoverables become due, it is possible that future adjustments to the Company’s reinsurance recoverables, net of the allowance, could be required, which could have a material adverse effect on the Company’s consolidated results of operations or cash flows in a particular quarter or annual period.

Insurance Revenues

The effect of reinsurance on insurance revenues is as follows:

Property and Casualty Insurance Revenue



	For the years ended December 31,
Premiums Written	2016			2015			2014
Direct	$	10,906		$	10,861		$	10,571
Assumed	253			297			275
Ceded	(591		)	(580		)	(602		)
Net	$	10,568		$	10,578		$	10,244
Premiums Earned
Direct	$	10,871		$	10,704		$	10,531
Assumed	261			298			264
Ceded	(583		)	(586		)	(699		)
Net	$	10,549		$	10,416		$	10,096

Ceded losses, which reduce losses and loss adjustment expenses incurred, were $388, $336 and $502 for the years ended December 31, 2016, 2015 and 2014, respectively.

Group Benefits and Life Insurance Revenue



	For the years ended December 31,
	2016			2015			2014
Gross earned premiums, fees and other considerations	$	5,682		$	5,767		$	6,029
Reinsurance assumed	236			209			193
Reinsurance ceded	(1,651		)	(1,707		)	(1,720		)
Net earned premiums, fees and other considerations	$	4,267		$	4,269		$	4,502

For its life insurance and group benefits products, the Company reinsures certain of its risks to other reinsurers under yearly renewable term, coinsurance, and modified coinsurance arrangements, and variations thereto. Yearly renewable term and coinsurance arrangements result in passing all or a portion of the risk to the reinsurer. Generally, the reinsurer receives a proportionate amount of the premiums less an allowance for commissions and expenses and is liable for a corresponding proportionate amount of all benefit payments. Under modified coinsurance, cash and investments that support the liabilities for contract benefits are not transferred to the assuming company, and settlements are made on a net basis between the companies.

The cost of reinsurance related to long-duration contracts is accounted for over the life of the underlying reinsured policies using assumptions consistent with those used to account for the underlying policies. Insurance recoveries on ceded life reinsurance agreements, which reduce death and other benefits, were $1,145, $1,111, and $863 for the years ended December 31, 2016, 2015, and 2014, respectively.

In addition to reinsurance of life insurance risks, the Company has reinsured a portion of the risk associated with variable annuities and the associated GMDB and GMWB riders.