REINSURANCE

The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three and nine months ended September 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 September 30, 2017
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	122,665		$	—		$	122,665
Assumed from nonaffiliates	1,333			38,955			40,288
Assumed from affiliates	153,900			—			153,900
Ceded to nonaffiliates	(10,532		)	(1,220		)	(11,752		)
Ceded to affiliates	(123,355		)	(1,212		)	(124,567		)
Net premiums written	$	144,011		$	36,523		$	180,534

Premiums earned
Direct	$	96,547		$	—		$	96,547
Assumed from nonaffiliates	1,225			38,463			39,688
Assumed from affiliates	128,325			—			128,325
Ceded to nonaffiliates	(8,388		)	(2,533		)	(10,921		)
Ceded to affiliates	(97,237		)	(1,212		)	(98,449		)
Net premiums earned	$	120,472		$	34,718		$	155,190

Losses and settlement expenses incurred
Direct	$	62,745		$	—		$	62,745
Assumed from nonaffiliates	961			57,268			58,229
Assumed from affiliates	81,047			277			81,324
Ceded to nonaffiliates	(4,435		)	(3,039		)	(7,474		)
Ceded to affiliates	(66,279		)	(8,969		)	(75,248		)
Net losses and settlement expenses incurred	$	74,039		$	45,537		$	119,576



	Three months ended September 30, 2016
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	119,849		$	—		$	119,849
Assumed from nonaffiliates	1,221			39,592			40,813
Assumed from affiliates	146,289			—			146,289
Ceded to nonaffiliates	(7,841		)	(983		)	(8,824		)
Ceded to affiliates	(120,614		)	(1,270		)	(121,884		)
Net premiums written	$	138,904		$	37,339		$	176,243

Premiums earned
Direct	$	96,730		$	—		$	96,730
Assumed from nonaffiliates	1,170			39,394			40,564
Assumed from affiliates	122,058			—			122,058
Ceded to nonaffiliates	(6,091		)	(2,315		)	(8,406		)
Ceded to affiliates	(97,495		)	(1,270		)	(98,765		)
Net premiums earned	$	116,372		$	35,809		$	152,181

Losses and settlement expenses incurred
Direct	$	59,831		$	—		$	59,831
Assumed from nonaffiliates	793			27,206			27,999
Assumed from affiliates	85,196			280			85,476
Ceded to nonaffiliates	(895		)	(944		)	(1,839		)
Ceded to affiliates	(63,282		)	(12		)	(63,294		)
Net losses and settlement expenses incurred	$	81,643		$	26,530		$	108,173



	Nine months ended September 30, 2017
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	312,809		$	—		$	312,809
Assumed from nonaffiliates	3,542			108,056			111,598
Assumed from affiliates	415,426			—			415,426
Ceded to nonaffiliates	(27,109		)	(9,074		)	(36,183		)
Ceded to affiliates	(319,459		)	(3,637		)	(323,096		)
Net premiums written	$	385,209		$	95,345		$	480,554

Premiums earned
Direct	$	287,821		$	—		$	287,821
Assumed from nonaffiliates	3,370			110,563			113,933
Assumed from affiliates	375,601			—			375,601
Ceded to nonaffiliates	(22,014		)	(7,719		)	(29,733		)
Ceded to affiliates	(294,471		)	(3,637		)	(298,108		)
Net premiums earned	$	350,307		$	99,207		$	449,514

Losses and settlement expenses incurred
Direct	$	198,317		$	—		$	198,317
Assumed from nonaffiliates	2,406			104,685			107,091
Assumed from affiliates	258,169			942			259,111
Ceded to nonaffiliates	(9,400		)	(4,626		)	(14,026		)
Ceded to affiliates	(218,425		)	(8,979		)	(227,404		)
Net losses and settlement expenses incurred	$	231,067		$	92,022		$	323,089



	Nine months ended September 30, 2016
($ in thousands)	Property and casualty insurance			Reinsurance			Total
Premiums written
Direct	$	311,542		$	—		$	311,542
Assumed from nonaffiliates	3,430			111,378			114,808
Assumed from affiliates	393,418			—			393,418
Ceded to nonaffiliates	(19,069		)	(8,814		)	(27,883		)
Ceded to affiliates	(318,617		)	(3,810		)	(322,427		)
Net premiums written	$	370,704		$	98,754		$	469,458

Premiums earned
Direct	$	284,281		$	—		$	284,281
Assumed from nonaffiliates	3,332			111,790			115,122
Assumed from affiliates	359,985			—			359,985
Ceded to nonaffiliates	(17,653		)	(5,205		)	(22,858		)
Ceded to affiliates	(291,356		)	(3,810		)	(295,166		)
Net premiums earned	$	338,589		$	102,775		$	441,364

Losses and settlement expenses incurred
Direct	$	167,827		$	—		$	167,827
Assumed from nonaffiliates	2,298			71,787			74,085
Assumed from affiliates	232,472			1,033			233,505
Ceded to nonaffiliates	(4,498		)	(2,336		)	(6,834		)
Ceded to affiliates	(172,892		)	411			(172,481		)
Net losses and settlement expenses incurred	$	225,207		$	70,895		$	296,102

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.