9. Insurance Operations

Total reinsurance ceded and assumed relating to premiums written, earned premiums and net losses and loss adjustment expenses incurred, are as follows:


	Three Months Ended September 30				Nine Months Ended September 30
($ in thousands)	2019		2018		2019		2018
Written premiums
Direct written premiums	$	226,209	$	200,316	$	715,500	$	668,521
Assumed from other companies		987		980		2,566		4,750
Ceded to other companies		17,722		21,780		88,122		19,368
Net written premiums	$	209,474	$	179,516	$	629,944	$	653,903

Earned premiums
Direct earned premiums	$	229,816	$	212,084	$	683,906	$	623,820
Assumed from other companies		920		1,603		2,794		8,767
Ceded to other companies		28,281		26,579		86,157		94,900
Net earned premiums	$	202,455	$	187,108	$	600,543	$	537,687
Percent of amount assumed to net		0.5%		0.9%		0.5%		1.6%

Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$	101,855	$	109,524	$	403,899	$	364,977
Assumed from other companies		29,366		4,440		6,162		(2,238)
Ceded to other companies		4,025		3,988		37,417		40,976
Net losses and loss adjustment expenses incurred	$	127,196	$	109,976	$	372,644	$	321,763

In 2017, the Company ceded significant amounts of premium under the whole account quota share reinsurance agreements (WAQS). In 2018, the WAQS were terminated. To the extent of unearned premium at the time of termination, ceded written premiums, net of the ceding commission, was returned.

For the three and nine months ended September 30, 2019 and 2018 under the WAQS, the Company recorded the following:


	Three Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium	$	6	$	55
Ceded earned premium		—		56
(Increase) reduction to net loss and loss adjustment expenses incurred		(1,632)		874
Reduction (increase) to policy acquisition expenses		1,632		(823)
Reduction to pre-tax income	$	-	$	5


	Nine Months Ended September 30
($ in thousands)	2019		2018
Ceded written premium (return of ceded prepaid)	$	3	$	(68,745)
Ceded earned premium		(3)		14,600
(Increase) reduction to net loss and loss adjustment expenses incurred		(3,839)		9,422
Reduction to policy acquisition expenses		3,837		4,083
(Increase) reduction to pre-tax income	$	(1)	$	1,095

Distribution Partners

The Company negotiates with distribution partners to write direct premium on behalf of the Company’s affiliates. In January 2019, a distribution partner of the Company was acquired by a third-party insurance carrier. In 2018, the Company has sourced 13.5% of direct premium from this distribution partner. The Company does not anticipate any future premiums from this distribution partner after the first quarter of 2019. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $75.4 million and $52.0 million for the three months ended September 30, 2019 and 2018, respectively. The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner above) totaled $208.4 million and $183.9 million for the nine months ended September 30, 2019 and 2018, respectively.

Unpaid Losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for incurred but not reported (IBNR) losses and loss adjustment expenses. The following table provides a roll forward of the Company’s reserve for unpaid losses and loss adjustment expenses:


	September 30
($ in thousands)	2019		2018
Gross unpaid losses and loss expenses, at beginning of year	$	1,396,812	$	1,258,237
Ceded unpaid losses and loss expenses, at beginning of year		185,295		201,156
Net reserves for losses and loss expenses, at beginning of year		1,211,517		1,057,081
Add:
Incurred losses and loss expenses occurring in the:
Current year		356,926		325,810
Prior years		2,367		(4,047)
Prior years attributable to adjusted premium		13,351		—
Total incurred losses and loss expenses		372,644		321,763
Less:
Paid losses and loss expenses for claims occurring in the:
Current year		39,742		34,359
Prior years		243,172		178,268
Total paid losses and loss expenses for claims		282,914		212,627
Net reserves for losses and loss expenses, at end of period		1,301,247		1,166,217
Ceded unpaid losses and loss expenses, at end of period		213,977		202,891
Gross unpaid losses and loss expenses, at end of period	$	1,515,224	$	1,369,108

During the nine months ended September 30, 2019, the Company’s estimated losses and loss expenses for accident years 2018 and prior developed unfavorably by $2.4 million driven by $23.2 million unfavorable development in General Liability lines partially offset by $18.7 million favorable development in Workers’ Compensation lines and $2.7 in Surety lines. In addition, the Company incurred $13.4 million of losses and loss adjustment expenses related to premium adjustments earned during the nine months ended September 30, 2019 attributable to prior accident years.

During the nine months ended September 30, 2018, the Company’s estimated losses and loss expenses for accident years 2017 and prior developed favorably by $4.0 million driven by $10.8 million of favorable development in Workers’ Compensation, $11.7 million of favorable development in Commercial Auto lines and $3.1 million of favorable development in Marine Liability lines within the All Other Lines category, partially offset by $12.4 million of unfavorable development in General Liability lines and $9.2 million of unfavorable development in Commercial Multiple Peril lines.