INSURANCE

We conduct insurance underwriting operations primarily through The American Road Insurance Company (“TARIC”). TARIC is a wholly owned subsidiary of Ford Credit operating in the United States and Canada. TARIC provides physical damage insurance coverage for Ford Credit financed vehicles at dealer locations and Ford and Lincoln vehicles in transit between final assembly plants and dealer locations. In addition, TARIC provides a variety of other insurance products and services to Ford and its affiliates, including contractual liability insurance on extended service contracts. TARIC provides commercial automobile and general liability insurance and surety bonds for Ford in the United States.

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.

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.

Reinsurance activity primarily consists of ceding a majority of the contractual liability insurance business related to automotive extended service plan contracts for a ceding commission. Commissions on ceded amounts 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.

Insurance Assets

Cash, cash equivalents, and marketable securities related to insurance activities at December 31 were as follows (in millions):



	2016		2017
Cash and cash equivalents	$	99	$	162
Marketable securities	475		449
Total cash, cash equivalents, and marketable securities	$	574	$	611

TARIC is required by law to maintain deposits with regulatory authorities. These deposited securities totaled $12 million at December 31, 2016 and 2017 and were included in Marketable securities.

Amounts paid to reinsurers relating to the unexpired portion of the underlying automotive service contracts, and amounts recoverable from reinsurers on unpaid losses, including incurred but not reported losses are reported in Other assets. Prepaid reinsurance premiums and other reinsurance recoverables were $546 million and $611 million at December 31, 2016 and 2017, respectively. This includes amounts ceded to Ford and its affiliates of $91 million and $95 million at December 31, 2016 and 2017, respectively.

Insurance Liabilities

Other liabilities and deferred income includes unearned insurance premiums and fees of $650 million and $723 million at December 31, 2016 and 2017, respectively. This includes amounts from Ford and its affiliates of $556 million and $621 million at December 31, 2016 and 2017.

NOTE 14. INSURANCE (Continued)

The reserve for reported insurance losses and an estimate of unreported insurance losses, based on past experience, was $6 million and $8 million at December 31, 2016 and 2017, respectively, and was included in Other liabilities and deferred income.

Insurance Premiums

Insurance premiums written and earned for the years ended December 31 were as follows (in millions):



	2015						2016						2017
	Written			Earned			Written			Earned			Written			Earned
Direct	$	328		$	254		$	371		$	298		$	385		$	320
Assumed	—			—			—			—			—			—
Ceded	(194		)	(121		)	(215		)	(142		)	(227		)	(162		)
Net premiums	$	134		$	133		$	156		$	156		$	158		$	158

The net premiums earned with Ford and its affiliates were $90 million, $133 million, and $154 million for the years ended December 31, 2015, 2016, and 2017, respectively.

Insurance Expenses

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



	2015			2016			2017
Insurance losses	$	80		$	146		$	143
Loss adjustment expenses	5			5			8
Reinsurance income and other expenses, net	(16		)	(26		)	(27		)
Insurance expenses	$	69		$	125		$	124

Insurance expenses with Ford and its affiliates were $36 million, $55 million, and $63 million for the years ended December 31, 2015, 2016, and 2017, respectively.

Insurance expenses were reduced by ceded insurance expenses of $76 million, $95 million, and $104 million for the years ended December 31, 2015, 2016, and 2017, respectively.