Reinsurance

9 Months Ended

Sep. 30, 2011

Reinsurance [Abstract]

Reinsurance

(5) Reinsurance

In the normal course of business, our insurance companies cede a portion of their premium to domestic and foreign reinsurers through treaty and facultative reinsurance agreements. Although ceding for reinsurance purposes does not discharge the direct insurer from liability to its policyholder, our insurance companies participate in such agreements in order to limit their loss exposure, protect them against catastrophic loss and diversify their business. The following tables present the effect of such reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs.

	Nine months ended September 30,				Three months ended September 30,
	2011		2010		2011		2010
Direct written premium	$	1,724,869	$	1,697,054	$	555,427	$	565,417
Reinsurance assumed		295,268		257,676		73,420		75,239
Reinsurance ceded		(359,046)		(415,239)		(116,513)		(146,218)
Net written premium	$	1,661,091	$	1,539,491	$	512,334	$	494,438
Direct earned premium	$	1,728,082	$	1,714,252	$	574,571	$	575,216
Reinsurance assumed		255,293		217,621		96,799		76,473
Reinsurance ceded		(406,388)		(399,735)		(127,114)		(135,523)
Net earned premium	$	1,576,987	$	1,532,138	$	544,256	$	516,166
Direct loss and loss adjustment expense	$	1,197,225	$	1,059,094	$	410,573	$	340,225
Reinsurance assumed		186,805		131,202		44,600		25,413
Reinsurance ceded		(321,790)		(267,651)		(74,801)		(68,500)
Net loss and loss adjustment expense	$	1,062,240	$	922,645	$	380,372	$	297,138

Policy acquisition costs	$	338,625	$	330,174	$	114,778	$	111,216
Ceding commissions		(99,465)		(88,096)		(43,479)		(30,468)
Net policy acquisition costs	$	239,160	$	242,078	$	71,299	$	80,748

The table below shows the components of our reinsurance recoverables in our consolidated balance sheets.

		September 30,		December 31,
		2011		2010
Reinsurance recoverable on paid losses		$	55,778	$	75,262
Reinsurance recoverable on outstanding losses			475,671		452,882
Reinsurance recoverable on incurred but not reported losses			542,049		481,204
Reserve for uncollectible reinsurance			(2,232)		(2,493)
	Total reinsurance recoverables	$	1,071,266	$	1,006,855

At each quarter end, we review our financial exposure to the reinsurance market based on our individual reinsurance recoverable balances as of the prior quarter-end. We take actions to collect outstanding balances or to mitigate our exposure to possible loss, including offsetting past due amounts against letters of credit and other payables. There was no material change in recoverables on paid losses that were outstanding for over 90 days as of September 30, 2011 compared to December 31, 2010.We have a reserve for potentially uncollectible amounts as follows:

		Nine months ended September 30,
		2011		2010
Balance at beginning of year		$	2,493	$	2,945
Provision expense (recovery)			(261)		-
	Balance at September 30	$	2,232	$	2,945

If we collect cash from or resolve a dispute with the reinsurer, we reduce the allowance account. While we believe the reserve is adequate based on information currently available, market conditions may change or additional information might be obtained that may require us to change the reserve in the future.

Reinsurers not authorized by the respective states of domicile of our U.S. domiciled insurance companies are required to collateralize reinsurance obligations due to us. The table below shows the amounts of letters of credit and cash deposits held by us as collateral, plus other credits available for potential offset at September 30, 2011 and December 31, 2010.

		September 30,		December 31,
		2011		2010
Payables to reinsurers		$	230,503	$	243,990
Letters of credit			135,299		145,914
Cash deposits			91,380		81,966
	Total credits	$	457,182	$	471,870

The tables below show the calculation of net reserves, net unearned premium and net deferred policy acquisition costs.

		September 30,		December 31,
		2011		2010
Loss and loss adjustment expense payable		$	3,686,570	$	3,471,858
Reinsurance recoverable on outstanding losses			(475,671)		(452,882)
Reinsurance recoverable on incurred but not reported losses			(542,049)		(481,204)
	Net reserves	$	2,668,850	$	2,537,772
Unearned premium		$	1,071,340	$	1,045,877
Ceded unearned premium			(231,537)		(278,663)
	Net unearned premium	$	839,803	$	767,214
Deferred policy acquisition costs		$	225,190	$	212,786
Deferred ceding commissions			(66,059)		(72,565)
	Net deferred policy acquisition costs	$	159,131	$	140,221