Insurance

12 Months Ended

Dec. 31, 2021

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. TARIC also provides physical damage insurance coverage for non-affiliated company financed vehicles, serviced by Ford Credit, at 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.

NOTE 11. INSURANCE (Continued)

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 requires all of its reinsurers to hold collateral and monitors the underlying business and financial performance of its reinsurers to mitigate risk.

Insurance Assets

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


	2020		2021
Cash and cash equivalents	$	22	$	28
Marketable securities	703		696
Total cash, cash equivalents, and marketable securities	$	725	$	724

TARIC is required by law to maintain deposits with regulatory authorities. These deposited securities totaled $12 million at both December 31, 2020 and 2021 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 $708 million and $743 million at December 31, 2020 and 2021, respectively. This includes amounts ceded to Ford affiliates of $97 million and $103 million at December 31, 2020 and 2021, respectively.

Insurance Liabilities

Other liabilities and deferred income includes unearned insurance premiums and fees of $822 million and $857 million at December 31, 2020 and 2021, respectively. This includes amounts from Ford and its affiliates of $711 million and $742 million at December 31, 2020 and 2021, respectively.

NOTE 11. INSURANCE (Continued)

The reserve for reported insurance losses and an estimate of unreported insurance losses, based on past experience, was $12 million and $15 million at December 31, 2020 and 2021, 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):


	2019				2020				2021
	Written		Earned		Written		Earned		Written		Earned
Direct	$	406	$	377	$	366	$	350	$	324	$	293
Assumed	—		—		—		—		—		—
Ceded	(223)		(195)		(229)		(207)		(252)		(218)
Net premiums	$	183	$	182	$	137	$	143	$	72	$	75

The direct premiums earned with Ford and its affiliates were $207 million, $213 million, and $223 million for the years ended December 31, 2019, 2020, and 2021, 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):


	2019		2020		2021
Insurance losses	$	128	$	110	$	45
Loss adjustment expenses	7		5		2
Reinsurance income and other expenses, net	(32)		(33)		(37)
Insurance expenses	$	103	$	82	$	10

Insurance expenses with Ford and its affiliates were $84 million, $88 million, and $92 million for the years ended December 31, 2019, 2020, and 2021, respectively.

Insurance expenses were reduced by ceded insurance expenses of $127 million, $130 million, and $150 million for the years ended December 31, 2019, 2020, and 2021, respectively.