5. Reinsurance Ceded

(a) Overview

Alleghany’s reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite in order to reduce the effect of individual or aggregate exposure to losses, manage capacity, protect capital resources, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns and enable them to increase gross premium writings and risk capacity without requiring additional capital. Alleghany’s reinsurance and insurance subsidiaries purchase reinsurance and retrocessional coverages from highly-rated third-party reinsurers. If the assuming reinsurers are unable or unwilling to meet the obligations assumed under the applicable reinsurance agreements, Alleghany’s reinsurance and insurance subsidiaries would remain liable for such reinsurance portion not paid by these reinsurers. As such, funds, trust agreements and letters of credit are held to collateralize a portion of Alleghany’s reinsurance recoverables and Alleghany’s reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple reinsurance programs.

(b) Reinsurance Recoverables

Amounts recoverable from reinsurers are recognized in a manner consistent with the claims liabilities associated with the reinsurance placement and presented on the balance sheet as reinsurance recoverables. Such balances as of December 31, 2017 and 2016 are presented in the table below:


	As of December 31,
	2017		2016
	($ in millions)
Reinsurance recoverables on paid losses	$	96.4	$	36.0
Ceded outstanding loss and LAE		1,650.1		1,236.2

Total	$	1,746.5	$	1,272.2

The following table presents information regarding concentration of Alleghany’s reinsurance recoverables and the ratings profile of its reinsurers as of December 31, 2017:


Reinsurer⁽¹⁾	Rating⁽²⁾	Amount		Percentage
		($ in millions)
Swiss Reinsurance Company	A+ (Superior)	$	154.2		8.8%
Syndicates at Lloyd’s of London	A (Excellent)		133.8		7.7%
PartnerRe Ltd	A (Excellent)		119.4		6.8%
Fairfax Financial Holdings Ltd⁽³⁾	A (Excellent)		101.5		5.8%
RenaissanceRe Holdings Ltd	A+ (Superior)		97.3		5.6%
W.R. Berkley Corporation	A+ (Superior)		88.2		5.1%
Chubb Corporation	A++ (Superior)		86.0		4.9%
Kane SAC Ltd⁽⁴⁾	not rated		75.5		4.3%
Liberty Mutual	A (Excellent)		74.0		4.2%
Hannover Ruck SE	A+ (Superior)		55.4		3.2%
All other reinsurers			761.2		43.6%

Total reinsurance recoverables⁽⁵⁾		$	1,746.5		100.0%

Secured reinsurance recoverables⁽⁴⁾		$	525.7		30.1%

(1)	Reinsurance recoverables reflect amounts due from one or more reinsurance subsidiaries of the listed company.

(2)	Represents the A.M. Best Company, Inc. financial strength rating for the applicable reinsurance subsidiary or subsidiaries from which the reinsurance recoverable is due.

(3)	In July 2017, Fairfax Financial Holdings Ltd acquired Allied World Assurance Company Holdings, AG.

(4)	Represents reinsurance recoverables secured by funds held, trust agreements or letters of credit.

(5)	Approximately 78 percent of Alleghany’s reinsurance recoverables balance as of December 31, 2017 was due from reinsurers having an A.M. Best Company, Inc. financial strength rating of A (Excellent) or higher.

Alleghany had no allowance for uncollectible reinsurance as of December 31, 2017 and 2016.

Reinsured loss and LAE ceded included in Alleghany’s consolidated statements of earnings were $777.4 million, $325.8 million and $309.6 million for 2017, 2016 and 2015, respectively.

(c) Premiums Written and Earned

The following table presents property and casualty premiums written and earned for 2017, 2016 and 2015:


	Year Ended December 31,

	2017		2016		2015
	($ in millions)
Gross premiums written – direct	$	1,528.7	$	1,490.3	$	1,505.6
Gross premiums written – assumed		4,168.2		4,276.8		3,616.6
Ceded premiums written		(731.0)		(675.3)		(633.0)

Net premiums written	$	4,965.9	$	5,091.8	$	4,489.2


Gross premiums earned – direct	$	1,932.0	$	1,871.1	$	1,515.9
Gross premiums earned – assumed		3,790.3		3,833.9		3,403.3
Ceded premiums earned		(767.3)		(729.2)		(688.9)

Net premiums earned	$	4,955.0	$	4,975.8	$	4,230.3

(d) Significant Reinsurance Contracts

Alleghany’s reinsurance and insurance subsidiaries reinsure portions of the risks they underwrite or assume with multiple reinsurance programs. A summary of the more significant programs follows.

TransRe enters into retrocession arrangements, including property catastrophe retrocession arrangements, in order to reduce the effect of individual or aggregate exposure to losses, reduce volatility in specific lines of business, improve risk-adjusted portfolio returns and increase gross premium writings and risk capacity without requiring additional capital.

RSUI reinsures its property lines of business through a program consisting of surplus share treaties, facultative placements, per risk and catastrophe excess-of-loss treaties. RSUI’s catastrophe reinsurance program and property per risk reinsurance program run on an annual basis from May 1 to the following April 30 and portions expired on April 30, 2017. Both programs were renewed on May 1, 2017 with substantially similar terms as the expired programs.

(e) Significant Intercompany Reinsurance Contracts

In the third quarter of 2015, AIHL Re and CapSpecialty (specifically, the insurance subsidiaries of CapSpecialty) entered into an intercompany reinsurance contract, effective July 1, 2015, pursuant to which AIHL Re provides CapSpecialty with coverage primarily for adverse development on certain net loss and allocated LAE in excess of its carried reserves at June 30, 2015. AIHL Re’s commitments are intended to cover the statutory collateral requirements at CapSpecialty, if and when necessary, and AIHL Re’s obligations are subject to an aggregate limit of $50.0 million. In connection with such intercompany reinsurance agreement, Alleghany and AIHL Re entered into a contract whereby Alleghany will guarantee the recoverable balances owed to CapSpecialty from AIHL Re up to $50.0 million. The above agreements had no impact on Alleghany’s consolidated results of operations and financial condition.