REINSURANCE

The effect of reinsurance on premiums written and earned for the years ended December 31, was as follows:



	2013						2012						2011
(millions)	Written			Earned			Written			Earned			Written			Earned
Direct premiums	$	17,562.8		$	17,317.9		$	16,558.8		$	16,207.6		$	15,333.1		$	15,107.5
Ceded	(223.1		)	(214.5		)	(186.1		)	(189.6		)	(186.5		)	(204.7		)
Net premiums	$	17,339.7		$	17,103.4		$	16,372.7		$	16,018.0		$	15,146.6		$	14,902.8

Our ceded premiums consist of “State Plans” and “Non-State Plans.” State Plans include: (i) amounts ceded to state-provided reinsurance facilities, including the Michigan Catastrophic Claims Association (“MCCA”) and the North Carolina Reinsurance Facility (“NCRF”), and (ii) state-mandated involuntary Commercial Auto Insurance Procedures/Plans (“CAIP”). Collectively, the State Plans accounted for 97%, 98%, and 94% of our ceded premiums for the years ended December 31, 2013, 2012, and 2011, respectively; the MCCA and NCRF together accounted for 77%, 80%, and 80% of the ceded premiums for these same time periods.

Losses and loss adjustment expenses were net of reinsurance ceded of $347.0 million in 2013, $230.7 million in 2012, and $219.7 million in 2011. Nearly half of the 2013 increase related to MCCA ceded reserves, while about one-third was on our professional liability group business based on recent internal actuarial reviews of our claims history.

Our prepaid reinsurance premiums and reinsurance recoverables were comprised of the following at December 31:



	Prepaid Reinsurance Premiums								Reinsurance Recoverables
($ in millions)	2013				2012				2013				2012
MCCA	$	29.5	40	%	$	25.4	38	%	$	875.9	80	%	$	739.2	82	%
CAIP	21.1		28		15.4		23		79.3		7		66.3		7
NCRF	20.5		27		19.5		30		50.1		5		50.6		6
State Plans	71.1		95		60.3		91		1,005.3		92		856.1		95
Non-State Plans	3.8		5		6.0		9		84.9		8		44.9		5
Total	$	74.9	100	%	$	66.3	100	%	$	1,090.2	100	%	$	901.0	100	%

Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to Progressive. Since the majority of our reinsurance is through State Plans, our exposure to losses from their failure is minimal, since the plans are funded by mechanisms supported by the insurance companies in the state. We evaluate the financial condition of our other reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies.