Reinsurance Balances Recoverable

3 Months Ended

Mar. 31, 2014

Insurance [Abstract]

Reinsurance Balances Recoverable

6. REINSURANCE BALANCES RECOVERABLE

	March 31, 2014										December 31, 2013
	Non-life Run-off			Active Underwriting		Life and Annuities		Total			Non-life Run-off			Active Underwriting		Life and Annuities		Total
Recoverable from reinsurers on:
Outstanding losses		$741,055			$9,436		$28,172		$778,663			$788,705			$10,777		$28,556		$828,038
Losses incurred but not reported		346,518			11,799		751		359,068			402,675			9,887		782		413,344
Fair value adjustments		(59,411	)		4,391		—		(55,020	)		(69,847	)		4,391		—		(65,456	)
Total reinsurance reserves recoverable		1,028,162			25,626		28,923		1,082,711			1,121,533			25,055		29,338		1,175,926
Paid losses recoverable		168,756			1,129		3,634		173,519			177,459			7,845		2,589		187,893
		$1,196,918			$26,755		$32,557		$1,256,230			$1,298,992			$32,900		$31,927		$1,363,819

The Company’s acquired insurance and reinsurance run-off subsidiaries, prior to acquisition, used retrocessional agreements to reduce their exposure to the risk of insurance and reinsurance assumed. The Company’s insurance and reinsurance subsidiaries remain liable to the extent that retrocessionaires do not meet their obligations under these agreements, and therefore, the Company evaluates and monitors concentration of credit risk among its reinsurers. Provisions are made for amounts considered potentially uncollectible.

On an annual basis, Atrium purchases a tailored outwards reinsurance program designed to manage the risk profile of Lloyd’s Syndicate 609. The majority of Atrium’s total third party reinsurance cover is with Lloyd’s Syndicates or other highly rated reinsurers.

The fair value adjustments, determined on acquisition of insurance and reinsurance subsidiaries, are based on the estimated timing of loss and loss adjustment expense recoveries and an assumed interest rate equivalent to a risk free rate for securities with similar duration to the reinsurance recoverables acquired plus a spread to reflect credit risk, and are amortized over the estimated recovery period, as adjusted for accelerations in timing of payments as a result of commutation settlements.

As of March 31, 2014 and December 31, 2013, the Company had, excluding reinsurance recoverables related to its life and annuities segment, reinsurance balances recoverable of $1.22 billion and $1.33 billion, respectively. The decrease of $108.2 million in reinsurance balances recoverable was primarily a result of commutations and cash collections made, partially offset by balances acquired during the period ended March 31, 2014.

At March 31, 2014 and December 31, 2013, the provision for uncollectible reinsurance recoverable relating to reinsurance balances recoverable was $339.8 million and $338.6 million, respectively. To estimate the provision for uncollectible reinsurance recoverable, the balances are first allocated to applicable reinsurers which involve management judgment. As part of this process, ceded incurred but not reported (“IBNR”) reserves are allocated by reinsurer. The ratio of the provision for uncollectible reinsurance recoverable to total non-life run-off reinsurance balances recoverable (excluding provision for uncollectible reinsurance recoverable) as of March 31, 2014 increased to 21.3% as compared to 19.9% as of December 31, 2013, primarily as a result of commutations and cash collections from reinsurers with minimal bad debt provisions in the three months ended March 31, 2014 slightly offset by reinsurance balances recoverable of new business acquired requiring minimal provisions for uncollectible reinsurance recoverable.

Life and annuities

As at March 31, 2014, the reinsurance balances recoverable associated with the Company’s life and annuities business consisted of term life business ceded by Pavonia to reinsurers under various quota share arrangements. All of the reinsurers are rated A- and above by a major rating agency.

Top Ten Reinsurers

At both March 31, 2014 and December 31, 2013, the top ten reinsurers of the Company’s business accounted for 68.6% of total reinsurance balances recoverable (which includes loss reserves recoverable and recoverables on paid losses) and included $253.4 million and $290.1 million, respectively, of IBNR reserves recoverable. With the exception of one BBB+ rated reinsurer and one non-rated reinsurer from which $32.4 million and $229.3 million, respectively, was recoverable (December 31, 2012: $41.4 million and $256.2 million, respectively), the other top ten reinsurers, as at March 31, 2014 and December 31, 2013, were all rated A- or better. Reinsurance balances recoverable by reinsurer were as follows:

	March 31, 2014					December 31, 2013
	Reinsurance Recoverables		% of Total			Reinsurance Recoverables		% of Total
Top 10 reinsurers	$	862,124		68.6	%	$	930,943		68.3	%
Other reinsurers’ balances > $1 million		386,362		30.8	%		423,013		31.0	%
Other reinsurers’ balances < $1 million		7,744		0.6	%		9,863		0.7	%
Total	$	1,256,230		100.0	%	$	1,363,819		100.0	%

As at March 31, 2014 and December 31, 2013, reinsurance balances recoverable with a carrying value of $229.3 million and $256.2 million, respectively, were associated with one reinsurer, which represented 10% or more of total non-life run-off reinsurance balances recoverable and were secured by trust funds held for the benefit of the Company’s insurance and reinsurance subsidiaries.