REINSURANCE

The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three and six months ended June 30, 2013 and 2012 is presented below. The classification of the assumed and ceded reinsurance amounts between affiliates and nonaffiliates is based on the participants in the underlying reinsurance agreements, and is intended to provide an understanding of the actual source of the reinsurance activities. This presentation differs from the classifications used in the consolidated financial statements, where all amounts resulting from transactions associated with the pooling, quota share and excess of loss reinsurance agreements with Employers Mutual are reported as “affiliated” balances.



	Three months ended June 30, 2013
	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	89,858,633		$	—		$	89,858,633
Assumed from nonaffiliates	881,471			38,996,771			39,878,242
Assumed from affiliates	110,140,434			—			110,140,434
Ceded to nonaffiliates	(5,762,930		)	(5,090,151		)	(10,853,081		)
Ceded to affiliates	(89,858,633		)	(3,051,596		)	(92,910,229		)
Net premiums written	$	105,258,975		$	30,855,024		$	136,113,999

Premiums earned
Direct	$	90,492,083		$	—		$	90,492,083
Assumed from nonaffiliates	762,811			36,951,395			37,714,206
Assumed from affiliates	102,769,917			—			102,769,917
Ceded to nonaffiliates	(5,715,841		)	(4,528,406		)	(10,244,247		)
Ceded to affiliates	(90,492,083		)	(3,051,596		)	(93,543,679		)
Net premiums earned	$	97,816,887		$	29,371,393		$	127,188,280

Losses and settlement expenses incurred
Direct	$	71,466,885		$	—		$	71,466,885
Assumed from nonaffiliates	34,672			16,691,552			16,726,224
Assumed from affiliates	76,772,044			211,016			76,983,060
Ceded to nonaffiliates	(2,725,773		)	(2,179,090		)	(4,904,863		)
Ceded to affiliates	(71,466,885		)	164,259			(71,302,626		)
Net losses and settlement expenses incurred	$	74,080,943		$	14,887,737		$	88,968,680



	Three months ended June 30, 2012
	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	85,475,102		$	—		$	85,475,102
Assumed from nonaffiliates	629,166			24,330,820			24,959,986
Assumed from affiliates	100,988,467			—			100,988,467
Ceded to nonaffiliates	(5,106,734		)	(101,057		)	(5,207,791		)
Ceded to affiliates	(85,475,102		)	(2,422,976		)	(87,898,078		)
Net premiums written	$	96,510,899		$	21,806,787		$	118,317,686

Premiums earned
Direct	$	80,728,225		$	—		$	80,728,225
Assumed from nonaffiliates	566,213			25,963,256			26,529,469
Assumed from affiliates	92,648,120			—			92,648,120
Ceded to nonaffiliates	(5,389,048		)	(1,095,105		)	(6,484,153		)
Ceded to affiliates	(80,728,225		)	(2,422,976		)	(83,151,201		)
Net premiums earned	$	87,825,285		$	22,445,175		$	110,270,460

Losses and settlement expenses incurred
Direct	$	60,175,887		$	—		$	60,175,887
Assumed from nonaffiliates	422,298			18,769,976			19,192,274
Assumed from affiliates	72,306,985			246,580			72,553,565
Ceded to nonaffiliates	(2,108,899		)	(1,651,925		)	(3,760,824		)
Ceded to affiliates	(60,175,887		)	414,936			(59,760,951		)
Net losses and settlement expenses incurred	$	70,620,384		$	17,779,567		$	88,399,951



	Six months ended June 30, 2013
	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	178,746,396		$	—		$	178,746,396
Assumed from nonaffiliates	1,494,815			73,709,518			75,204,333
Assumed from affiliates	209,541,500			—			209,541,500
Ceded to nonaffiliates	(10,996,153		)	(9,748,876		)	(20,745,029		)
Ceded to affiliates	(178,746,396		)	(5,756,458		)	(184,502,854		)
Net premiums written	$	200,040,162		$	58,204,184		$	258,244,346

Premiums earned
Direct	$	175,634,513		$	—		$	175,634,513
Assumed from nonaffiliates	1,424,139			70,187,140			71,611,279
Assumed from affiliates	200,365,704			—			200,365,704
Ceded to nonaffiliates	(11,267,938		)	(7,267,055		)	(18,534,993		)
Ceded to affiliates	(175,634,513		)	(5,756,458		)	(181,390,971		)
Net premiums earned	$	190,521,905		$	57,163,627		$	247,685,532

Losses and settlement expenses incurred
Direct	$	121,070,474		$	—		$	121,070,474
Assumed from nonaffiliates	427,293			35,698,772			36,126,065
Assumed from affiliates	133,357,438			435,111			133,792,549
Ceded to nonaffiliates	(3,736,414		)	(3,627,027		)	(7,363,441		)
Ceded to affiliates	(121,070,474		)	(1,012,835		)	(122,083,309		)
Net losses and settlement expenses incurred	$	130,048,317		$	31,494,021		$	161,542,338



	Six months ended June 30, 2012
	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	165,243,694		$	—		$	165,243,694
Assumed from nonaffiliates	987,792			49,645,507			50,633,299
Assumed from affiliates	191,533,210			—			191,533,210
Ceded to nonaffiliates	(10,115,007		)	(886,118		)	(11,001,125		)
Ceded to affiliates	(165,243,694		)	(4,875,939		)	(170,119,633		)
Net premiums written	$	182,405,995		$	43,883,450		$	226,289,445

Premiums earned
Direct	$	158,255,916		$	—		$	158,255,916
Assumed from nonaffiliates	959,009			55,361,326			56,320,335
Assumed from affiliates	183,109,927			—			183,109,927
Ceded to nonaffiliates	(11,212,261		)	(3,311,846		)	(14,524,107		)
Ceded to affiliates	(158,255,916		)	(4,875,939		)	(163,131,855		)
Net premiums earned	$	172,856,675		$	47,173,541		$	220,030,216

Losses and settlement expenses incurred
Direct	$	101,198,850		$	—		$	101,198,850
Assumed from nonaffiliates	706,357			33,836,168			34,542,525
Assumed from affiliates	125,650,482			420,184			126,070,666
Ceded to nonaffiliates	(3,718,202		)	(3,605,544		)	(7,323,746		)
Ceded to affiliates	(101,198,850		)	350,795			(100,848,055		)
Net losses and settlement expenses incurred	$	122,638,637		$	31,001,603		$	153,640,240

Individual lines in the above tables are defined as follows:


•	“Direct” represents business produced by the property and casualty insurance subsidiaries.

•

“Assumed from nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of involuntary business assumed by the pool participants pursuant to state law. For the reinsurance subsidiary, this line represents the reinsurance business assumed through the quota share agreement (including “fronting” activities initiated by Employers Mutual) and the business assumed outside the quota share agreement.

•

“Assumed from affiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of all the pool members’ direct business. The amounts reported under the caption “Losses and settlement expenses incurred” also include claim-related services provided by Employers Mutual that are allocated to the property and casualty insurance subsidiaries and the reinsurance subsidiary.

•

“Ceded to nonaffiliates” for the property and casualty insurance subsidiaries represents their aggregate 30 percent pool participation percentage of the amounts ceded to nonaffiliated reinsurance companies in accordance with the terms of the reinsurance agreements providing protection to the pool and each of its participants. For the reinsurance subsidiary, this line includes reinsurance business that is ceded to other insurance companies in connection with “fronting” activities initiated by Employers Mutual.


•	“Ceded to affiliates” for the property and casualty insurance subsidiaries represents the cession of their direct business to Employers Mutual under the terms of the pooling agreement. For the reinsurance subsidiary this line represents amounts ceded to Employers Mutual under the terms of the excess of loss reinsurance agreement.