Reinsurance

12 Months Ended

Dec. 31, 2019

We reinsure certain risks with other insurance companies. Such arrangements serve to limit our maximum loss on certain individual risks as well as on catastrophes and large or unusually hazardous risks. We are liable to our insureds for reinsurance ceded in the event our reinsurers do not meet their obligations. Thus, a credit exposure exists with respect to reinsurance ceded to the extent that any reinsurer is unable or unwilling to meet the obligations assumed under the reinsurance contracts. Our allowance for uncollectible reinsurance balances receivable on paid losses and incurred claims was $1.1 million and $1.8 million as of December 31, 2019 and 2018, respectively. Under certain reinsurance agreements, collateral, including letters of credit, is held to secure performance of reinsurers in meeting their obligations. The amount of such collateral was $1,184.7 million and $944.0 million at December 31, 2019 and 2018, respectively. The collateral we hold does not apply to our entire outstanding reinsurance recoverable. Rather, collateral is provided on an individual contract basis as appropriate. For each individual reinsurer, the collateral held may exceed or fall below the total outstanding recoverable from that individual reinsurer.

The long-term nature of the reinsurance contracts creates a credit risk to us over time arising from potentially uncollectible reinsurance. To mitigate that counterparty risk, we evaluate our reinsurers to assess their financial condition. The factors that underlie these reviews include a financial risk assessment as well as an internal assessment of the capitalization and the operational risk of the reinsurer. As a result of these reviews, we may make changes to the approved markets that are used in both our treaty and facultative reinsurance programs.

Estimated losses recoverable from reinsurers and the ceded portion of unearned premiums are reported as assets in our consolidated balance sheets. Included in “reinsurance recoverables” are paid loss recoverables of $669.7 million and $596.6 million as of December 31, 2019 and 2018, respectively. “Earned premiums” and “losses and loss adjustment expenses” are reported net of reinsurance in our consolidated statements of income (loss).

Losses and loss adjustment expenses of $1,220.7 million, $1,040.8 million and $1,050.2 million for the years ended December 31, 2019, 2018 and 2017, respectively, are net of amounts ceded to reinsurers of $1,031.1 million, $888.9 million and $992.6 million, respectively.

We are required to accept certain assigned risks and other legally mandated reinsurance obligations. Prior to the mid-1980s, we assumed various forms of casualty reinsurance for which we continue to maintain reserves for losses and loss adjustment expenses (see Note 6, “Run-off Lines”). For such assumed reinsurance transactions, we engage in various monitoring steps that are common with assumed reinsurance such as ongoing claims reviews. We currently assume property related reinsurance primarily through our subsidiaries, Argo Re and Ariel Re, and casualty related reinsurance primarily through Syndicate 1200.

Premiums were as follows:



	For the Years Ended December 31,
(in millions)	2019			2018			2017
Direct written premiums	$	2,509.5		$	2,293.8		$	2,029.2
Reinsurance ceded to other companies	(1,374.8		)	(1,189.7		)	(1,043.7		)
Reinsurance assumed from other companies	619.7			661.4			668.0
Net written premiums	$	1,754.4		$	1,765.5		$	1,653.5
Direct earned premiums	$	2,411.5		$	2,201.9		$	1,912.2
Reinsurance ceded to other companies	(1,286.0		)	(1,137.9		)	(1,033.6		)
Reinsurance assumed from other companies	604.0			667.7			693.7
Net earned premiums	$	1,729.5		$	1,731.7		$	1,572.3
Percentage of reinsurance assumed to net earned premiums	34.9		%	38.6		%	44.1		%