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, 2017 and 2016 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 and quota share agreements and inter-company reinsurance programs with Employers Mutual are reported as “affiliated” balances.



	Three months ended June 30, 2017
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	93,392		$	—		$	93,392
Assumed from nonaffiliates	1,290			35,596			36,886
Assumed from affiliates	136,726			—			136,726
Ceded to nonaffiliates	(8,444		)	(5,830		)	(14,274		)
Ceded to affiliates	(96,373		)	(1,212		)	(97,585		)
Net premiums written	$	126,591		$	28,554		$	155,145

Premiums earned
Direct	$	95,376		$	—		$	95,376
Assumed from nonaffiliates	1,130			37,411			38,541
Assumed from affiliates	125,179			—			125,179
Ceded to nonaffiliates	(7,142		)	(2,549		)	(9,691		)
Ceded to affiliates	(98,356		)	(1,212		)	(99,568		)
Net premiums earned	$	116,187		$	33,650		$	149,837

Losses and settlement expenses incurred
Direct	$	72,811		$	—		$	72,811
Assumed from nonaffiliates	693			26,177			26,870
Assumed from affiliates	100,380			301			100,681
Ceded to nonaffiliates	(3,564		)	(757		)	(4,321		)
Ceded to affiliates	(88,812		)	(1		)	(88,813		)
Net losses and settlement expenses incurred	$	81,508		$	25,720		$	107,228



	Three months ended June 30, 2016
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	96,707		$	—		$	96,707
Assumed from nonaffiliates	1,252			37,527			38,779
Assumed from affiliates	128,283			—			128,283
Ceded to nonaffiliates	(5,847		)	(5,851		)	(11,698		)
Ceded to affiliates	(99,862		)	(1,270		)	(101,132		)
Net premiums written	$	120,533		$	30,406		$	150,939

Premiums earned
Direct	$	94,715		$	—		$	94,715
Assumed from nonaffiliates	1,135			37,680			38,815
Assumed from affiliates	119,665			—			119,665
Ceded to nonaffiliates	(5,874		)	(1,735		)	(7,609		)
Ceded to affiliates	(97,870		)	(1,270		)	(99,140		)
Net premiums earned	$	111,771		$	34,675		$	146,446

Losses and settlement expenses incurred
Direct	$	66,942		$	—		$	66,942
Assumed from nonaffiliates	784			21,379			22,163
Assumed from affiliates	85,822			365			86,187
Ceded to nonaffiliates	(3,526		)	(485		)	(4,011		)
Ceded to affiliates	(68,556		)	95			(68,461		)
Net losses and settlement expenses incurred	$	81,466		$	21,354		$	102,820



	Six months ended June 30, 2017
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	190,144		$	—		$	190,144
Assumed from nonaffiliates	2,209			69,101			71,310
Assumed from affiliates	261,526			—			261,526
Ceded to nonaffiliates	(16,577		)	(7,854		)	(24,431		)
Ceded to affiliates	(196,104		)	(2,425		)	(198,529		)
Net premiums written	$	241,198		$	58,822		$	300,020

Premiums earned
Direct	$	191,274		$	—		$	191,274
Assumed from nonaffiliates	2,145			72,100			74,245
Assumed from affiliates	247,276			—			247,276
Ceded to nonaffiliates	(13,626		)	(5,186		)	(18,812		)
Ceded to affiliates	(197,234		)	(2,425		)	(199,659		)
Net premiums earned	$	229,835		$	64,489		$	294,324

Losses and settlement expenses incurred
Direct	$	135,572		$	—		$	135,572
Assumed from nonaffiliates	1,445			47,417			48,862
Assumed from affiliates	177,122			665			177,787
Ceded to nonaffiliates	(4,965		)	(1,587		)	(6,552		)
Ceded to affiliates	(152,146		)	(10		)	(152,156		)
Net losses and settlement expenses incurred	$	157,028		$	46,485		$	203,513



	Six months ended June 30, 2016
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	191,693		$	—		$	191,693
Assumed from nonaffiliates	2,209			71,786			73,995
Assumed from affiliates	247,129			—			247,129
Ceded to nonaffiliates	(11,228		)	(7,831		)	(19,059		)
Ceded to affiliates	(198,003		)	(2,540		)	(200,543		)
Net premiums written	$	231,800		$	61,415		$	293,215

Premiums earned
Direct	$	187,551		$	—		$	187,551
Assumed from nonaffiliates	2,162			72,396			74,558
Assumed from affiliates	237,927			—			237,927
Ceded to nonaffiliates	(11,562		)	(2,890		)	(14,452		)
Ceded to affiliates	(193,861		)	(2,540		)	(196,401		)
Net premiums earned	$	222,217		$	66,966		$	289,183

Losses and settlement expenses incurred
Direct	$	107,996		$	—		$	107,996
Assumed from nonaffiliates	1,505			44,581			46,086
Assumed from affiliates	147,276			753			148,029
Ceded to nonaffiliates	(3,603		)	(1,392		)	(4,995		)
Ceded to affiliates	(109,610		)	423			(109,187		)
Net losses and settlement expenses incurred	$	143,564		$	44,365		$	187,929

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 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 1) reinsurance business that is ceded to other insurance companies in connection with “fronting” activities initiated by Employers Mutual, and 2) amounts ceded to purchase additional reinsurance protection in peak exposure territories from external parties.

•

“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 and amounts ceded to Employers Mutual under the terms of the inter-company reinsurance program. For the reinsurance subsidiary this line represents amounts ceded to Employers Mutual under the terms of the inter-company reinsurance program.