9. Insurance Operations

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


	Three Months Ended March 31
($ in thousands)	2020		2019
Written premiums
Direct written premiums	$	212,951	$	254,985
Assumed from other companies		833		853
Ceded to other companies		23,601		45,936
Net written premiums	$	190,183	$	209,902

Earned premiums
Direct earned premiums	$	228,580	$	223,002
Assumed from other companies		742		942
Ceded to other companies		23,660		28,336
Net earned premiums	$	205,662	$	195,608
Percent of amount assumed to net		0.4%		0.5%

Losses and loss adjustment expenses incurred
Direct net losses and loss adjustment expenses incurred	$	144,377	$	135,348
Assumed from other companies		(1,357)		2,819
Ceded to other companies		15,463		19,834
Net losses and loss adjustment expenses incurred	$	127,557	$	118,333

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. In January 2020, the WAQS were commuted at no gain or loss to the Company.

Allowances for Credit Losses

The following table is rollforward of the receivable allowance balances related to the risk of credit default as of March 31, 2020:


($ in thousands)	Beginning Balance		Current Provision		Write-offs		Recoveries		Ending Balance
Premium receivable	$	5,056	$	1,076	$	(130)	$	54	$	6,056
Reinsurance receivable on paid and unpaid losses		505		52		—		—		557
Total receivable allowance	$	5,561	$	1,128	$	(130)	$	54	$	6,613

The allowance for credit loss for premium receivable is an assessment of ultimate non-collectability based on historical experience applicable to the respective current collection action status, age of the amount outstanding and expected collection costs.

The majority of the allowance relates to audit premium on workers’ compensation coverages assessed during or after the period of coverage whereby there is limited ability to cancel or limit coverage. In the final collection action at the insured level, collection agencies are typically engaged. The amount currently with collection agencies is $5.2 million.

The reinsurance receivable allowance for credit loss is based on sources of credit ratings of reinsurers and applies probabilities of default and loss given default to the total uncollateralized exposure including incurred but not reported (“IBNR”) by rating class. The amount of uncollateralized exposure on unrated or counterparties rated below investment grade at March 31, 2020 is $2.8 million. At March 31, 2020, 97.6% of uncollateralized exposures are rated above investment grade.

Distribution Partners

The three distribution partners contributing the largest amounts of direct written premium (excluding the distribution partner below) totaled $69.1 million and $50.2 million for the three months ended March 31, 2020 and 2019, respectively.

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. The Company does not anticipate any future premiums from this distribution partner other than audit premiums after the first quarter of 2019.

Unpaid Losses

Unpaid losses are based on individual case estimates for losses reported and include a provision for 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:


	March 31
($ in thousands)	2020		2019
Gross reserve for unpaid losses and loss expenses, at beginning of year	$	1,521,648	$	1,396,812
Ceded reserve for unpaid losses and loss expenses, at beginning of year		193,952		185,295
Net reserve for unpaid losses and loss expenses, at beginning of year		1,327,696		1,211,517
Add:
Incurred losses and loss expenses occurring in the:
Current year		121,001		118,728
Prior years		198		(395)
Prior years attributable to adjusted premium		6,358		—
Total net losses and loss adjustment expenses incurred		127,557		118,333
Less:
Paid losses and loss expenses for claims occurring in the:
Current year		3,665		3,528
Prior years		62,655		78,676
Total paid losses and loss expenses for claims		66,320		82,204
Net reserve for unpaid losses and loss expenses, at end of period		1,388,933		1,247,646
Ceded reserve for unpaid losses and loss expenses, at end of period		156,866		201,889
Gross reserve for unpaid losses and loss expenses, at end of period	$	1,545,799	$	1,449,535

During the three months ended March 31, 2020, the Company’s reserve for unpaid losses and loss adjustment expenses for accident years 2019 and prior developed unfavorably by $0.2 million driven by $7.1 million unfavorable development of Commercial Multiple Peril and $4.4 million unfavorable development in General Liability offset by $5.2 million favorable development in Commercial Auto, $4.9 million in Workers’ Compensation and $1.3 million in All Other lines. In addition, the Company incurred $6.4 million of losses and loss adjustment expenses related to premium adjustments earned during the three months ended March 31, 2020 attributable to prior accident years 2019 and 2018.

The unfavorable development in Commercial Multiple Peril and General Liability related to 2013 through 2017 accident years due largely to increased severities in the runoff components within the Other customer segment. The favorable development in Workers’ Compensation derived from lower than expected claims severity across all customer segments primarily in accident years 2013 through 2015 and 2017. The favorable development in Commercial Auto was driven by physical damage and liability bodily injury in accident years 2017 through 2019. The favorable development in All Other lines was in Surety and Ocean Marine lines of business.

There were no significant drivers of favorable development of $0.4 for the three months ended March 31, 2019.