Reinsurance

ProAssurance purchases reinsurance from third-party reinsurers and insurance enterprises in order to reduce its net exposure to losses. ProAssurance also uses reinsurance arrangements as a mechanism for sharing risk with insureds or their affiliates.

The effect of reinsurance on premiums written and earned was as follows:



(In thousands)	2016 Premiums						2015 Premiums						2014 Premiums
	Written			Earned			Written			Earned			Written			Earned
Direct	$	794,377		$	790,791		$	780,982		$	772,968		$	761,043		$	755,623
Assumed	40,637			37,805			31,236			22,691			18,566			12,987
Ceded	(96,481		)	(95,315		)	(102,933		)	(101,510		)	(77,760		)	(68,879		)
Net premiums	$	738,533		$	733,281		$	709,285		$	694,149		$	701,849		$	699,731

The receivable from reinsurers on unpaid losses and loss adjustment expenses represents management’s estimate of amounts that will be recoverable under ProAssurance reinsurance agreements. Most Company reinsurance agreements base the amount of premium that is due to the reinsurer in part on losses reimbursed or to be reimbursed under the agreement, and terms may also include maximum and minimum amounts of ceded premium. Ceded premium amounts are estimated based on management’s expectation of ultimate losses and the portion of those losses that are allocable to reinsurers according to the terms of the agreements, including any minimums or maximums. Given the uncertainty of the ultimate amounts of losses, management’s estimates of losses and related amounts recoverable may vary significantly from the eventual outcome. During the years ended December 31, 2016, 2015 and 2014 ProAssurance reduced premiums ceded by $7.1 million, $1.1 million and $15.7 million, respectively, due to changes in management’s estimates of amounts due to reinsurers related to prior accident year loss recoveries.

Reinsurance contracts do not relieve ProAssurance from its obligations to policyholders and ProAssurance remains liable to its policyholders whether or not reinsurers honor their contractual obligations. ProAssurance continually monitors its reinsurers to minimize its exposure to significant losses from reinsurer insolvencies.

At December 31, 2016, the net total amounts due from reinsurers was $288.6 million (including receivables related to paid and unpaid losses and LAE and prepaid reinsurance premiums, less reinsurance premiums payable). No one reinsurer had an individual balance which exceeded $26.0 million.

At December 31, 2016 reinsurance recoverables totaling approximately $48.5 million were collateralized by letters of credit or funds withheld. ProAssurance had no allowance for credit losses related to its reinsurance receivables at December 31, 2016 or 2015 as all reinsurance balances were considered collectible. During the years ended December 31, 2016, 2015 and 2014 no reinsurance balances were written off for credit reasons.

During 2016, ProAssurance entered into a novation agreement which represents a legal replacement of one insurer by another extinguishing the ceding entity's liability to the policyholder. The novation resulted in approximately $11.8 million of one-time assumed premium which was fully earned at the inception of the agreement as all of the underlying loss events covered by the policy occurred in the past.

During 2016, ProAssurance commuted the 2014 calendar year quota share reinsurance arrangement between the Specialty P&C segment and Syndicate 1729 which resulted in a net cash receipt of approximately $6.8 million. The commutation reduced the Receivable from reinsurers on unpaid losses and loss adjustment expenses, combined, by approximately $7.1 million. There were no significant reinsurance commutations in 2015 or 2014.