Note 6. Third party reinsurance

In the normal course of business, Sirius Group seeks to protect its businesses from losses due to concentration of risk and losses arising from catastrophic events by reinsuring with third-party reinsurers. Sirius Group remains liable for risks reinsured in the event that the reinsurer does not honor its obligations under reinsurance contracts. The effects of reinsurance on Sirius Group’s written and earned premiums and on losses and LAE were as follows:


(Millions)	2018		2017		2016
Written premiums:
Direct	$	454.5	$	450.2	$	368.5
Assumed		1,366.5		989.1		900.5
Gross written premiums		1,821.0		1,439.3		1,269.0
Ceded		(463.9)		(349.1)		(330.9)
Net written premiums	$	1,357.1	$	1,090.2	$	938.1
Earned premiums:
Direct	$	432.6	$	405.7	$	351.6
Assumed		1,236.2		942.2		877.7
Gross earned premiums		1,668.8		1,347.9		1,229.3
Ceded		(406.5)		(312.6)		(339.2)
Net earned premiums	$	1,262.3	$	1,035.3	$	890.1
Losses and LAE:
Direct	$	260.5	$	294.9	$	216.9
Assumed		819.1		701.3		463.8
Gross losses and LAE		1,079.6		996.2		680.7
Ceded		(179.6)		(185.0)		(161.4)
Net losses and LAE	$	900.0	$	811.2	$	519.3

Sirius Group’s reinsurance protection primarily consists of pro‑rata and excess of loss protections that protect all of its reportable segments. Attachment points and coverage limits vary by region around the world.

Sirius Group’s core proportional property reinsurance programs provide protection for parts of the non proportional treaty accounts written in Europe, the Americas, Caribbean, Asia, the Middle East and Australia. These reinsurance protections are designed to increase underwriting capacity where appropriate, and to reduce exposure both to large catastrophe losses and to a frequency of smaller loss events.

Sirius Group has in place excess of loss retrocessional coverage for its worldwide earthquake related exposures. This coverage was renewed for one year at May 1, 2018, providing $40.0 million of reinsurance protection in excess of Sirius Group’s retention of $35.0 million and a further $35.0 million of coverage in excess of $75.0 million.

Sirius Group periodically purchases industry loss warranties (“ILW”) contracts to augment its overall retrocessional program. The following ILW contracts are currently in force:


Scope	Limit		Trigger		Expiration Date
United States excluding North East, all natural perils	$	5.0 million	$	40.0 billion	July 5, 2019
Europe, wind	$	5.0 million	$	7.5 billion	April 30, 2019

Sirius Group purchases excess of loss reinsurance protection for its facultative and primary insurance property books. The protection was renewed at January 1, 2019 for business written in Stockholm, Hamburg and Singapore, providing $32.5 million of protection in excess of $2.5 million. For the business written by Syndicate 1945, an excess of loss reinsurance protection of $10.0 million in excess of retention of $5.0 million on a per risk basis was placed for 12 months at June 30, 2018. Due to reduced exposures, this was cancelled December 31, 2018 and not replaced. For catastrophe losses from business written by Syndicate 1945, Sirius Group has 50% of a $12.0 million protection in excess of retention of $3.0 million placed for 12 months at January 1, 2019.

Almost all of Sirius Group’s excess of loss reinsurance protections, excluding ILWs which tend to only cover one loss event, include provisions that reinstate coverage at a cost of 100% or more of the original reinsurance premium.

In connection with the CMIG International acquisition, White Mountains required Sirius Group to purchase ILWs, referred to as the WTM Covers, to mitigate the potential impact of major natural catastrophe events on Sirius Group’s balance sheet pending the close of the sale to CMIG International. The cost and potential economic benefit provided by the WTM Covers inure to White Mountains. All but one of these contracts expired in May or June 2016; the other was a United States second event cover for an industry loss at $15 billion with a limit of $5 million that expired on July 15, 2016. Under the Stock Purchase Agreement (“SPA”) between CMIG International and White Mountains, shortly after the sale of the Company, White Mountains paid the Company $16.5 million on an after-tax basis, which the Company recorded as paid-in surplus. The costs of these programs are part of the Runoff & Other reportable segment.

The following table summarizes the WTM Covers purchased in connection with the CMIG International acquisition that expired in 2016:


Scope	Limit		Industry Loss Trigger
United States first event	$	75.0 million	$	40.0 billion
United States first event	$	22.5 million	$	50.0 billion
United States second event	$	45.0 million	$	15.0 billion
Japan first event	$	25.0 million	$	12.5 billion

At December 31, 2018, Sirius Group had reinsurance recoverables on paid losses of $55.0 million and reinsurance recoverables of $350.2 million on unpaid losses. At December 31, 2017, Sirius Group had reinsurance recoverables on paid losses of $17.5 million and reinsurance recoverables of $319.7 million on paid unpaid losses. Because retrocessional reinsurance contracts do not relieve Sirius Group of its obligation to its insureds, the collectability of balances due from Sirius Group’s reinsurers is important to its financial strength. Sirius Group monitors the financial strength and ratings of retrocessionaires on an ongoing basis. Uncollectible amounts historically have not been significant.

The following tables provide a listing of Sirius Group’s gross and net recoverable amounts by the reinsurer’s Standard & Poor’s Financial Services LLC (“Standard & Poor’s”) rating and the percentage of total recoverables as of December 31, 2018 and 2017. With certain reinsurers if Standard & Poor’s rating was not available, an A.M. Best rating was used.


December 31, 2018
Rating(1)	Gross		Collateral		Net		% of Net Total
AA	$	115.1	$	1.5	$	113.6	35	%
A		212.9		45.4		167.5	52	%
BBB+		—		—		—	0	%
BBB or lower		19.5		13.3		6.2	2	%
Not rated		57.7		23.2		34.5	11	%
Total	$	405.2	$	83.4	$	321.8	100	%

(1)

Standard & Poor’s ratings as detailed above are: “AA” (Very strong), “A” (Strong), and “BBB+” and “BBB” (Adequate).


December 31, 2017
Rating(1)	Gross		Collateral		Net		% of Net Total
AA	$	116.9	$	1.0	$	115.9	43	%
A		153.9		27.9		126.0	46	%
BBB+		—		—		—	0	%
BBB or lower		13.4		12.5		0.9	1	%
Not rated		53.0		23.9		29.1	10	%
Total	$	337.2	$	65.3	$	271.9	100	%

(1)

Standard & Poor’s ratings as detailed above are: “AA” (Very strong), “A” (Strong), and “BBB+” and “BBB” (Adequate).

The following tables provide a listing of the five highest gross recoverable amounts by reinsurer, along with percentage of total recoverable amount, the reinsurer’s Standard & Poor’s reinsurer rating, and the percentage that the recoverable is collateralized as of December 31, 2018 and 2017:


	December 31, 2018
(Millions)	Balance		% of Total		S&P rating	% Collateralized
Reinsurer:
General Insurance Corporation of India(1)	$	82.7	20	%	A−	97	%
Swiss Reinsurance Company Ltd.		44.1	11	%	AA−	0	%
Berkshire Hathaway, Inc.		39.3	10	%	AA+	1	%
Argo Capital Group Ltd.		16.7	4	%	A−	87	%
Lloyd's of London		13.4	3	%	A+	5	%

(1)

Reflects an A.M. Best rating of “A-” (Excellent).


	December 31, 2017
(Millions)	Balance		% of Total		S&P rating	% Collateralized
Reinsurer:
Swiss Reinsurance Company Ltd.	$	45.5	13	%	AA−	0	%
Berkshire Hathaway, Inc.		41.1	12	%	AA+	0	%
Lloyd's of London		19.4	6	%	A+	16	%
Argo Capital Group Ltd.		18.2	5	%	A−	78	%
General Insurance Corporation of India(1)		17.3	5	%	A−	11	%

(1)

Reflects an A.M. Best rating of “A-” (Excellent).