INSURANCE

We conduct insurance underwriting operations primarily through The American Road Insurance Company ("TARIC") and other subsidiaries. TARIC is a wholly owned subsidiary of Ford Credit. TARIC offers a variety of products and services, including contractual liability insurance on extended service contracts, physical damage insurance covering vehicles at dealer locations and vehicles in-transit between final assembly plants and dealer locations, commercial automobile liability and general liability to support Ford business operations, physical damage/liability reinsurance covering Ford dealer daily rental vehicles, and surety bonds issued to Ford and its subsidiaries.

Insurance premiums earned are reported net of reinsurance as Insurance premiums earned. These premiums are earned over their respective policy periods. Physical damage insurance premiums, including premiums on vehicles financed at wholesale by us, are recognized as income on a monthly basis. Premiums from extended service plan contracts and other contractual liability coverages are earned over the life of the policy based on historical loss experience. Commissions and premium taxes are deferred and amortized over the term of the related policies on the same basis on which premiums are earned.

TARIC is required by law to maintain deposits with regulatory authorities. These deposited securities totaled $13 million and $14 million at December 31, 2012 and 2011, respectively.

Insurance Expenses and Liabilities

Insurance underwriting losses and expenses are reported as Insurance expenses. The components of insurance expenses were as follows for the years ended December 31 (in millions):



	2012			2011			2010
Insurance losses	$	75		$	77		$	43
Loss adjustment expenses	4			6			4
Reinsurance income and other expenses, net	(9		)	(3		)	(1		)
Insurance expenses	$	70		$	80		$	46

Reserves for insurance losses and loss adjustment expenses are established based on actuarial estimates and historical loss development patterns, which represents management's best estimate. If management believes the reserves do not reflect all losses due to changes in conditions, or other relevant factors, an adjustment is made based on management judgment. The reserve for reported insurance losses and an estimate of unreported insurance losses, based on past experience, was $6 million and $14 million at December 31, 2012 and 2011, respectively, and was included in Other liabilities and deferred income.

Reinsurance

TARIC's reinsurance activity primarily consists of ceding a majority of its automotive extended service plan contracts for a ceding commission. Amounts recoverable from reinsurers on unpaid losses, including incurred but not reported losses, and amounts paid to reinsurers relating to the unexpired portion of reinsurance contracts are reported in Other assets. Ceded insurance expenses that were deducted from the amounts reported as Insurance expenses were $64 million, $74 million and $87 million for the years ended December 31, 2012, 2011 and 2010, respectively.

The effect of reinsurance on premiums written and earned was as follows for the years ended December 31 (in millions):



	2012						2011						2010
	Written			Earned			Written			Earned			Written			Earned
Direct	$	234		$	202		$	219		$	205		$	167		$	229
Assumed	2			2			8			8			4			5
Ceded	(136		)	(99		)	(137		)	(113		)	(89		)	(136		)
Net premiums	$	100		$	105		$	90		$	100		$	82		$	98

NOTE 13. INSURANCE (Continued)

Commissions on reinsurance ceded are earned on the same basis as related premiums. Reinsurance contracts do not relieve TARIC from its obligations to its policyholders. Failure of reinsurers to honor their obligations could result in losses to TARIC. Therefore, TARIC either directly or indirectly (via insurance brokers) monitors the underlying business and financial performance of the reinsurers. In addition, where deemed necessary, TARIC may require collateral or utilize multiple reinsurers to mitigate concentration risk.