6. REINSURANCE

In the ordinary course of business, the Company assumes and cedes premiums and selected insured risks with other insurance companies, known as reinsurance. A large portion of the reinsurance is put into effect under contracts known as treaties and, in some instances, by negotiation on each individual risk (known as facultative reinsurance). In addition, there are several types of treaties including quota share, excess of loss and catastrophe reinsurance contracts that protect against losses over stipulated amounts arising from any one occurrence or event. The arrangements allow the Company to pursue greater diversification of business and serve to limit the maximum net loss to a single event, such as a catastrophe. Through the quantification of exposed policy limits in each region and the extensive use of computer-assisted modeling techniques, management monitors the concentration of risks exposed to catastrophic events.

Through the purchase of reinsurance, the Company also generally limits its net loss on any individual risk to a maximum of $750,000 for casualty business, $350,000 for property, and $500,000 for workers compensation, although certain treaties contain an annual aggregate deductible before reinsurance applies.

Premiums, written and earned, along with losses and settlement expenses incurred for the years ended December 31 are summarized as follows:


	2017		2016
WRITTEN
Direct	$	53,670,397	$	51,031,003
Reinsurance assumed		269,184		307,597
Reinsurance ceded		(7,952,661)		(8,111,446)
Net	$	45,986,920	$	43,227,154
EARNED
Direct	$	51,862,625	$	50,190,888
Reinsurance assumed		299,086		318,476
Reinsurance ceded		(7,948,440)		(7,898,000)
Net	$	44,213,271	$	42,611,365
LOSSES AND SETTLEMENT EXPENSES INCURRED
Direct	$	37,543,652	$	33,388,283
Reinsurance assumed		150,051		149,719
Reinsurance ceded		(8,683,870)		(9,193,451)
Net	$	29,009,833	$	24,344,551

The reinsurance assumed business consists of assigned risk pools, which require the Company to participate in certain workers’ compensation and other liability pools, as a result of their licensure and premium writings in the various states in which it does business.

At December 31, 2017 and 2016, the Company had reinsurance recoverable on unpaid losses and settlement expenses totaling $10,029,834 and $12,114,998, respectively. More than 98% of the Company’s reinsurance recoverables are due from companies with financial strength ratings of “A” or better by A.M. Best.

The following table displays net reinsurance balances recoverable, after consideration of collateral, on paid losses and settlement expenses, known case and IBNR loss and settlement expense reserves, unearned premiums, and contingent commissions from the Company’s top 10 reinsurers as of December 31, 2017. These reinsurers all have financial strength ratings of “A” or better by A.M. Best. Also shown are the amounts of written premium ceded to these reinsurers during the calendar year 2017.



			Net Reinsurer		Ceded
	A.M. Best	S & P	Exposure as of	Percent of	Premiums	Percent of
(In thousands)	Rating	Rating	December 31, 2017	Total	Written	Total
Everest Reinsurance Company	A+	A+	2,700	24.1%	856	10.8%
Aspen Insurance UK Ltd	A	A	2,111	18.9%	1,308	16.4%
Hannover Ruckversicherungs	A+	AA-	1,885	16.9%	1,114	14.0%
Partner Reinsurance Company	A	A+	1,268	11.3%	461	5.8%
Arch Reinsurance Company	A+	A+	1,241	11.1%	86	1.1%
Platinum Underwriters	A	A-	1,169	10.5%	765	9.6%
Swiss Reinsurance	A+	AA-	1,120	10.0%	385	4.8%
Toa Reinsurance Company	A	A+	1,017	9.1%	2	0.0%
Allied World Reinsurance	A	A	680	6.1%	883	11.1%
Endurance Reinsurance	A	A	521	4.7%	547	6.9%
All other reinsurers including anticipated subrogation			(2,529)	-22.6%	1,546	19.4%
			11,183	100.0%	7,953	100.0%

Ceded unearned premiums and reinsurance balances recoverable on paid losses and settlement expenses are reported separately as an asset, rather than being netted with the related liability, since reinsurance does not relieve the Company of its liability to policyholders. Such balances are subject to the credit risk associated with the individual reinsurer. On a quarterly basis, the financial condition of the Company’s reinsurers is monitored. As part of the monitoring efforts, management reviews annual summarized financial data and publically available information. The credit risk associated with the reinsurance balances recoverable is analyze by monitoring the A.M. Best and S&P ratings of the reinsurers. In addition, the Company subjects its reinsurance recoverables to detailed recoverability tests, including one based on average default by A.M. Best rating.

Once regulatory action (such as receivership, finding of insolvency, order of conservation or order of liquidation) is taken against a reinsurer, the paid and unpaid recoverable for the reinsurer are specifically identified and written off through the use of the allowance for estimated unrecoverable amounts from reinsurers. When such a balance is written off, it is done in full. The Company then re-evaluates the remaining allowance and determines whether the balance is sufficient as detailed above, and if needed, an additional allowance is recognized and income charged. The Company had no allowance recorded related to uncollectible amounts on paid and unpaid recoverables at December 31, 2017 and 2016. The Company has no receivables with a due date that extends beyond 90 days from the date of billing that are not included in the allowance for uncollectible amounts.