REINSURANCE

The parties to the pooling agreement cede insurance business to other insurers in the ordinary course of business for the purpose of limiting their maximum loss exposure through diversification of their risks. In its consolidated financial statements, the Company treats risks to the extent they are reinsured as though they were risks for which the Company is not liable. Insurance ceded by the pool participants does not relieve their primary liability as the originating insurers. Employers Mutual evaluates the financial condition of the reinsurers of the parties to the pooling agreement and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize exposure to significant losses from reinsurer insolvencies.

As of December 31, 2014 and 2013, amounts recoverable from nonaffiliated reinsurers (three in 2014 and four in 2013) totaled $16,308 and $24,261 respectively, which represents a significant portion of the total prepaid reinsurance premiums and reinsurance receivables for losses and settlement expenses. The largest balance due is from the Mutual Reinsurance Bureau (MRB) underwriting association, of which the Company (through Employers Mutual) is a member with other unaffiliated reinsurers. All members of MRB have joint and several liability for MRB's obligations. For one of the other nonaffiliated reinsurers (two at December 31, 2013), the amounts reflect the property and casualty insurance subsidiaries’ aggregate pool participation percentage of amounts ceded by Employers Mutual to the organizations on a mandatory basis. Credit risk associated with these amounts are minimal, as all companies participating in the organizations are responsible for the liabilities of the organizations on a pro rata basis.

The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three years ended December 31, 2014 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 flowing through the pooling, quota share and excess of loss agreements with Employers Mutual are reported as “affiliated” balances.



	Year ended December 31, 2014
	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	367,732		$	—		$	367,732
Assumed from nonaffiliates	3,955			143,564			147,519
Assumed from affiliates	455,183			—			455,183
Ceded to nonaffiliates	(25,431		)	(14,322		)	(39,753		)
Ceded to affiliates	(367,732		)	(10,339		)	(378,071		)
Net premiums written	$	433,707		$	118,903		$	552,610

Premiums earned
Direct	$	372,658		$	—		$	372,658
Assumed from nonaffiliates	3,787			144,439			148,226
Assumed from affiliates	443,440			—			443,440
Ceded to nonaffiliates	(24,846		)	(15,759		)	(40,605		)
Ceded to affiliates	(372,658		)	(10,339		)	(382,997		)
Net premiums earned	$	422,381		$	118,341		$	540,722

Losses and settlement expenses incurred
Direct	$	227,382		$	—		$	227,382
Assumed from nonaffiliates	2,201			96,281			98,482
Assumed from affiliates	304,579			1,278			305,857
Ceded to nonaffiliates	(8,747		)	(10,838		)	(19,585		)
Ceded to affiliates	(227,382		)	720			(226,662		)
Net losses and settlement expenses incurred	$	298,033		$	87,441		$	385,474



	Year ended December 31, 2013
	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	368,532		$	—		$	368,532
Assumed from nonaffiliates	3,501			162,291			165,792
Assumed from affiliates	425,218			—			425,218
Ceded to nonaffiliates	(23,670		)	(20,502		)	(44,172		)
Ceded to affiliates	(368,532		)	(12,761		)	(381,293		)
Net premiums written	$	405,049		$	129,028		$	534,077

Premiums earned
Direct	$	361,010		$	—		$	361,010
Assumed from nonaffiliates	3,275			151,978			155,253
Assumed from affiliates	412,665			—			412,665
Ceded to nonaffiliates	(23,221		)	(16,430		)	(39,651		)
Ceded to affiliates	(361,010		)	(12,761		)	(373,771		)
Net premiums earned	$	392,719		$	122,787		$	515,506

Losses and settlement expenses incurred
Direct	$	237,109		$	—		$	237,109
Assumed from nonaffiliates	2,281			80,854			83,135
Assumed from affiliates	267,292			1,199			268,491
Ceded to nonaffiliates	(8,656		)	(8,860		)	(17,516		)
Ceded to affiliates	(237,109		)	(823		)	(237,932		)
Net losses and settlement expenses incurred	$	260,917		$	72,370		$	333,287



	Year ended December 31, 2012
	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	341,306		$	—		$	341,306
Assumed from nonaffiliates	2,459			121,500			123,959
Assumed from affiliates	390,982			—			390,982
Ceded to nonaffiliates	(22,206		)	(2,338		)	(24,544		)
Ceded to affiliates	(341,306		)	(11,916		)	(353,222		)
Net premiums written	$	371,235		$	107,246		$	478,481

Premiums earned
Direct	$	328,227		$	—		$	328,227
Assumed from nonaffiliates	2,297			119,502			121,799
Assumed from affiliates	377,690			—			377,690
Ceded to nonaffiliates	(22,848		)	(5,879		)	(28,727		)
Ceded to affiliates	(328,227		)	(11,916		)	(340,143		)
Net premiums earned	$	357,139		$	101,707		$	458,846

Losses and settlement expenses incurred
Direct	$	191,282		$	—		$	191,282
Assumed from nonaffiliates	1,718			83,988			85,706
Assumed from affiliates	237,723			962			238,685
Ceded to nonaffiliates	(5,549		)	(5,528		)	(11,077		)
Ceded to affiliates	(191,282		)	(9,926		)	(201,208		)
Net losses and settlement expenses incurred	$	233,892		$	69,496		$	303,388

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. Contractual changes in 2012 on selected accounts resulted in a reduction in "fronting" activity for that year.

•

“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 1) 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, and 2) the amounts ceded on a mandatory basis to state organizations in connection with various programs. 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. Contractual changes in 2012 on selected accounts resulted in a reduction in "fronting" activity for that year.


•	“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.