Note 15. Reinsurance

Members of the Property and Casualty Group participate in an intercompany reinsurance pooling agreement. Under the pooling agreement, all insurance business of the Property and Casualty Group is pooled in the Exchange. EIC and ENY share in the underwriting results of the reinsurance pool through retrocession. Since 1995, the Board of Directors has set the allocation of the pooled underwriting results at 5.0% participation for EIC, 0.5% participation for ENY and 94.5% participation for the Exchange. The purpose of the pooling agreement is to spread the risks of the members of the Property and Casualty Group collectively across the different lines of business they underwrite and geographic regions in which each operates. This agreement may be terminated by any party as of the end of any calendar year by providing not less than 365 days advance written notice. Intercompany pooling accounts are settled in cash within 30 days after the end of each quarterly accounting period. On December 31, 2010, Indemnity sold all of the outstanding capital stock of its wholly owned subsidiaries, EIC and ENY, to the Exchange. Under this structure, all property and casualty insurance operations are owned by the Exchange, and Indemnity functions solely as the management company. There was no impact on the existing reinsurance pooling agreement between the Exchange and EIC or ENY as a result of the sale.

Reinsurance contracts do not relieve the Property and Casualty Group or EFL from their primary obligations to policyholders. A contingent liability exists with respect to reinsurance recoverables in the event reinsurers are unable to meet their obligations under the reinsurance agreements.

The Property and Casualty Group maintains several property catastrophe reinsurance treaties with nonaffiliated reinsurers to mitigate future potential catastrophe loss exposures. During 2012, a first treaty provided coverage of up to 90% of a loss of $500 million in excess of the Property and Casualty Group’s loss retention of $350 million per occurrence, a second treaty provided coverage of up to 70% of a loss of $275 million in excess of $850 million, and a third treaty provided coverage of up to 70% of a loss of $25 million in excess of $1.125 billion. The property catastrophe reinsurance treaties were renewed for 2013, with the first property catastrophe reinsurance treaty providing coverage of up to 90% of a loss of $550 million in excess of the Property and Casualty Group’s loss retention of $350 million per occurrence, the second treaty providing coverage of up to 70% of a loss of $225 million in excess of $900 million, and a third treaty providing coverage of up to 70% of a loss of $25 million in excess of $1.125 billion. There have been no losses subject to these treaties.

EFL maintains several reinsurance treaties with nonaffiliated life reinsurance companies in order to reduce claims volatility. EFL had direct life insurance in force totaling $44 billion and $42 billion at December 31, 2012 and 2011, respectively. Of these amounts, EFL ceded $22 billion and $23 billion of life insurance in force at December 31, 2012 and 2011, respectively. At December 31, 2012 and 2011, the largest amount of in force life insurance ceded to one reinsurer totaled $11 billion.

The following tables summarize the direct insurance and reinsurance for our property and casualty and life insurance activities, respectively, for the years ended December 31:



(in millions)
	Erie Insurance Group
Property and casualty insurance:	2012			2011			2010
Premiums written:
Direct	$	4,631		$	4,271		$	4,035
Assumed	21			21			19
Ceded	(49		)	(37		)	(35		)
Premiums written, net	4,603			4,255			4,019
Premiums earned:
Direct	4,449			4,164			3,939
Assumed	21			21			20
Ceded	(48		)	(36		)	(34		)
Premiums earned, net	4,422			4,149			3,925
Insurance losses and loss expenses:
Direct	3,382			3,311			2,834
Assumed	10			11			(15		)
Ceded	(13		)	22			(9		)
Insurance losses and loss expenses, net	$	3,379		$	3,344		$	2,810

Life insurance:
Premiums earned:
Direct	$	113		$	108		$	104
Ceded	(42		)	(43		)	(42		)
Premiums earned, net	71			65			62
Insurance losses and loss expenses:
Direct	120			120			102
Ceded	(19		)	(20		)	(12		)
Insurance losses and loss expenses, net	$	101		$	100		$	90

Total:
Premiums earned:
Property and casualty	$	4,422		$	4,149		$	3,925
Life	71			65			62
Premiums earned, net	4,493			4,214			3,987
Insurance losses and loss expenses:
Property and casualty	3,379			3,344			2,810
Life	101			100			90
Insurance losses and loss expenses, net	$	3,480		$	3,444		$	2,900