3. REINSURANCE

The effect of reinsurance on premiums written and earned, and losses and settlement expenses incurred, for the three months and nine months ended September 30, 2011 and 2010 is presented below.

	Three months ended September 30, 2011
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	96,286,937		$	-		$	96,286,937
Assumed from nonaffiliates		578,928			32,363,185			32,942,113
Assumed from affiliates		109,194,449			-			109,194,449
Ceded to nonaffiliates		(7,473,697	)		(3,669,773	)		(11,143,470	)
Ceded to affiliates		(96,286,937	)		(2,869,341	)		(99,156,278	)
Net premiums written	$	102,299,680		$	25,824,071		$	128,123,751

Premiums earned
Direct	$	74,330,476		$	-		$	74,330,476
Assumed from nonaffiliates		474,357			31,692,494			32,166,851
Assumed from affiliates		88,073,825			-			88,073,825
Ceded to nonaffiliates		(6,252,425	)		(3,702,653	)		(9,955,078	)
Ceded to affiliates		(74,330,476	)		(2,869,341	)		(77,199,817	)
Net premiums earned	$	82,295,757		$	25,120,500		$	107,416,257

Losses and settlement expenses incurred
Direct	$	59,667,253		$	-		$	59,667,253
Assumed from nonaffiliates		427,383			26,609,406			27,036,789
Assumed from affiliates		76,633,840			218,689			76,852,529
Ceded to nonaffiliates		(6,531,312	)		(4,595,308	)		(11,126,620	)
Ceded to affiliates		(59,667,253	)		(1,402,021	)		(61,069,274	)

Net losses and settlement expenses incurred	$	70,529,911		$	20,830,766		$	91,360,677

	Three months ended September 30, 2010
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	81,394,172		$	-		$	81,394,172
Assumed from nonaffiliates		479,401			28,820,228			29,299,629
Assumed from affiliates		99,302,343			-			99,302,343
Ceded to nonaffiliates		(6,764,258	)		(7,479,832	)		(14,244,090	)
Ceded to affiliates		(81,394,172	)		-			(81,394,172	)
Net premiums written	$	93,017,486		$	21,340,396		$	114,357,882

Premiums earned
Direct	$	63,131,881		$	-		$	63,131,881
Assumed from nonaffiliates		468,565			26,962,298			27,430,863
Assumed from affiliates		82,236,907			-			82,236,907
Ceded to nonaffiliates		(5,731,160	)		(6,652,373	)		(12,383,533	)
Ceded to affiliates		(63,131,881	)		-			(63,131,881	)
Net premiums earned	$	76,974,312		$	20,309,925		$	97,284,237

Losses and settlement expenses incurred
Direct	$	49,032,278		$	-		$	49,032,278
Assumed from nonaffiliates		415,104			14,627,067			15,042,171
Assumed from affiliates		56,912,799			226,058			57,138,857
Ceded to nonaffiliates		(890,982	)		(3,717,527	)		(4,608,509	)
Ceded to affiliates		(49,032,278	)		-			(49,032,278	)

Net losses and settlement expenses incurred	$	56,436,921		$	11,135,598		$	67,572,519

	Nine months ended September 30, 2011
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	236,464,970		$	-		$	236,464,970
Assumed from nonaffiliates (1)		1,149,037			88,108,827			89,257,864
Assumed from affiliates		282,462,185			-			282,462,185
Ceded to nonaffiliates		(19,777,316	)		(12,241,458	)		(32,018,774	)
Ceded to affiliates (1)		(236,464,970	)		(7,586,737	)		(244,051,707	)
Net premiums written	$	263,833,906		$	68,280,632		$	332,114,538

Premiums earned
Direct	$	208,935,272		$	-		$	208,935,272
Assumed from nonaffiliates		1,101,953			86,765,065			87,867,018
Assumed from affiliates		255,503,378			-			255,503,378
Ceded to nonaffiliates		(18,617,074	)		(12,531,985	)		(31,149,059	)
Ceded to affiliates		(208,935,272	)		(7,586,737	)		(216,522,009	)
Net premiums earned	$	237,988,257		$	66,646,343		$	304,634,600

Losses and settlement expenses incurred
Direct	$	194,629,900		$	-		$	194,629,900
Assumed from nonaffiliates		1,212,075			98,483,897			99,695,972
Assumed from affiliates		206,238,698			559,036			206,797,734
Ceded to nonaffiliates		(13,133,654	)		(13,421,015	)		(26,554,669	)
Ceded to affiliates		(194,629,900	)		(13,437,993	)		(208,067,893	)

Net losses and settlement expenses incurred	$	194,317,119		$	72,183,925		$	266,501,044

(1)

The “Reinsurance” and “Total” amounts include $1,022,885 associated with a portfolio adjustment related to the January 1, 2011 increase in participation in the MRB pool. Ten percent of this amount ($102,288) is included in the ceded to affiliates amounts in accordance with the terms of the excess of loss reinsurance protection provided by Employers Mutual.

	Nine months ended September 30, 2010
	Property and
	casualty
	insurance			Reinsurance			Total
Premiums written
Direct	$	204,537,723		$	-		$	204,537,723
Assumed from nonaffiliates		1,538,687			79,832,753			81,371,440
Assumed from affiliates		263,962,168			-			263,962,168
Ceded to nonaffiliates		(17,908,066	)		(20,692,109	)		(38,600,175	)
Ceded to affiliates		(204,537,723	)		-			(204,537,723	)
Net premiums written	$	247,592,789		$	59,140,644		$	306,733,433

Premiums earned
Direct	$	183,888,408		$	-		$	183,888,408
Assumed from nonaffiliates		1,587,343			75,391,944			76,979,287
Assumed from affiliates		243,094,381			-			243,094,381
Ceded to nonaffiliates		(17,083,150	)		(16,930,104	)		(34,013,254	)
Ceded to affiliates		(183,888,408	)		-			(183,888,408	)
Net premiums earned	$	227,598,574		$	58,461,840		$	286,060,414

Losses and settlement expenses incurred
Direct	$	128,610,391		$	-		$	128,610,391
Assumed from nonaffiliates		1,456,825			44,733,410			46,190,235
Assumed from affiliates		160,005,878			585,975			160,591,853
Ceded to nonaffiliates		(4,214,468	)		(7,800,409	)		(12,014,877	)
Ceded to affiliates		(128,610,391	)		-			(128,610,391	)

Net losses and settlement expenses incurred	$	157,248,235		$	37,518,976		$	194,767,211

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 performed by Employers Mutual, which were expanded significantly during 2010, most notably with MRB) 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. Losses and settlement expenses incurred also includes 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 ceded reinsurance agreements that provide 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 the above referenced “fronting” activities performed 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, starting in 2011 this line includes amounts ceded to Employers Mutual in connection with the stand-alone excess of loss reinsurance agreement.