Reinsurance

3 Months Ended

Mar. 31, 2021

(5) Reinsurance

We use reinsurance extensively, which has a significant effect on our results of operations. Reinsurance arrangements do not relieve us of our primary obligation to the policyholder.

Details on in-force life insurance were as follows:

	March 31, 2021			December 31, 2020
	(Dollars in thousands)
Direct life insurance in-force	$	872,182,702		$	861,392,223
Amounts ceded to other companies		(750,682,975	)		(742,356,917	)
Net life insurance in-force	$	121,499,727		$	119,035,306
Percentage of reinsured life insurance in-force		86	%		86	%

Benefits and claims ceded to reinsurers during the three months ended March 31, 2021 and 2020 were $552.6 million and $349.1 million, respectively.

Reinsurance recoverables as of March 31, 2021 and December 31, 2020 include ceded reserve balances, ceded claim liabilities, and ceded claims paid. Reinsurance recoverables and financial strength ratings by reinsurer were as follows:

	March 31, 2021				December 31, 2020
	Reinsurance recoverables			A.M. Best rating	Reinsurance recoverables			A.M. Best rating
	(In thousands)
Pecan Re Inc. ^{(1) (2)}	$	2,687,103		N/R	$	2,654,698		NR
SCOR Global Life Reinsurance Companies ⁽³⁾		407,516		A+		395,804		A+
Munich Re of Malta ^{(2) (5)}		290,049		N/R		285,350		NR
Swiss Re Life & Health America Inc. ⁽⁴⁾		247,324		A+		251,409		A+
American Health and Life Insurance Company ⁽²⁾		163,221		B++		163,082		B++
Munich American Reassurance Company		140,007		A+		137,312		A+
RGA Reinsurance		131,639		A+		123,568		A
Korean Reinsurance Company		130,516		A		125,492		A+
Hannover Life Reassurance Company		46,565		A+		41,201		A+
TOA Reinsurance Company		39,625		A		34,212		A
All other reinsurers		69,281		-		68,920		-
Allowance for credit losses		(7,363	)			(7,144	)
Reinsurance recoverables	$	4,345,483			$	4,273,904

NR – not rated

⁽¹⁾	^{Pecan Re Inc. is a wholly owned subsidiary of Swiss Re Life & Health America Inc.}

⁽²⁾

Reinsurance recoverables includes balances ceded under coinsurance transactions of term life insurance policies that were in-force as of December 31, 2009. Amounts shown are net of their share of the reinsurance recoverables from other reinsurers. Arrangements with these reinsurers include collateral trust agreements held in support of reinsurance recoverables.

⁽³⁾	Includes amounts ceded to Transamerica Reinsurance Companies and fully retroceded to SCOR Global Life Reinsurance Companies.

⁽⁴⁾	Includes amounts ceded to Lincoln National Life Insurance and fully retroceded to Swiss Re Life & Health America Inc.

⁽⁵⁾	^{Entity is rated AA- by S&P.}

We estimate and recognize lifetime expected credit losses for reinsurance recoverables. In estimating the allowance for expected credit losses for reinsurance recoverables, we factor in the underlying collateral for reinsurance agreements where available. Specifically, for reinsurers with underlying trust assets, we compare the reinsurance recoverables balance to the underlying trust assets that mitigate the potential exposure to credit losses. We also analyze the financial condition of the reinsurers, as determined by third-party rating

agencies, to determine the probability of default for the reinsurers. We then utilize a third-party credit default study to calculate an expected credit loss given default rate or recovery rate. The probability of default and loss given default rates are then applied to the reinsurers’ recoverable balance, while also factoring in any third-party letters of credit that support the reinsurance agreement, in order to calculate our current expected credit loss allowance.

The rollforward of the allowance for credit losses on reinsurance recoverables were as follows:

	Three months ended March 31,
	2021		2020
	(In thousands)
Balance, beginning of period	$	7,144	$	3,917
Current period provision for expected credit losses		219		1,625
Balance, at the end of period	$	7,363	$	5,542