Current Expected Credit Losses Current Expected Credit Losses

3 Months Ended

Mar. 31, 2020

Current Expected Credit Losses [Abstract]

Credit Loss, Financial Instrument [Text Block]

Current Expected Credit Losses

The Company is exposed to third-party credit risk both directly through its cessions to reinsurers and indirectly through its participation in the Pooling Arrangement. In addition to exposure to credit risk on reinsurance recoverables, the Company is also exposed to credit risk on amounts due from insureds and agents through the Pooling Arrangement. When settling the intercompany balances, State Auto Mutual provides the STFC Pooled Companies with full credit for the premiums written and net losses paid during the quarter and retains all receivable amounts from insureds and agents and reinsurance recoverable on paid losses from unaffiliated reinsurers.

At March 31, 2020, the determination of the allowance for credit losses for premiums receivable and reinsurance recoverables included considerations for the potential impacts of the COVID-19 pandemic on the Company's ability to collect balances due from its insureds, agents, and reinsurers.

Reinsurance recoverables

The State Auto Group monitors the credit quality of its reinsurance recoverables through the use of A.M. Best’s Financial Strength rating ("FSR"), or in the absence of an FSR consideration of credit ratings issued by approved rating agencies such as S&P, Moody’s, or Fitch. At March 31, 2020, the determination of the allowance for credit losses on reinsurance recoverables included analysis of (i) reinsurance recoverable balances by reinsurer FSR, (ii) estimated payment patterns associated with the claims underlying the reinsurance balances and (iii) historical default rates by reinsurer FSR as published by A.M. Best. In addition to the quantitative analysis, qualitative factors considered include but are not limited to (i) global reinsurer capital level, (ii) reinsurance market trends, (iii) the low interest rate environment and (iv) the stressed global economy, including the impact of COVID-19. The allowance for credit losses is included in the "reinsurance recoverables on losses and loss expenses payable" and "losses and loss expenses payable" line items in the Company's condensed consolidated balance sheets.

The following table sets forth the amortized cost of the Company's direct third-party reinsurance recoverables by FSR, net of the allowance for credit losses, at March 31, 2020:

($ millions)	Amortized Cost
Financial strength rating:
A++	$	1.1
A+	16.5
A	22.1
Reinsurance recoverable on losses and loss expenses payable, net of allowance for credit losses	$	39.7

The following table sets forth the changes in the Company’s allowance for credit losses on reinsurance recoverables, for the three months ended March 31, 2020:

($ millions)	Allowance for credit losses on reinsurance recoverables
Beginning balance at January 1, 2020	$	—
Cumulative effect of change in accounting to establish an allowance for expected credit losses at January 1, 2020	0.7
Credit loss expense	0.2
Ending balance at March 31, 2020	$	0.9

Premiums Receivables

Management utilizes a premiums receivables aging schedule to estimate an allowance for uncollectible premiums receivable on the State Auto Group’s premiums receivable balance. In addition to reliance upon recent and historical collection trends, determination of the allowance for uncollectible premiums receivable at March 31, 2020 included consideration of other factors,

including macro economic conditions and trends, in particular the estimated impact of COVID-19. Credit risk is partially mitigated by the State Auto Group's ability to cancel a policy if the policyholder does not pay the premium due. Pursuant to the Pooling Arrangement, bad debt expense for uncollectible premiums receivable is allocated to pool members on the basis of pool participation. The Company's share of bad debt expense for uncollectible premiums receivable for the three months ended March 31, 2020 and 2019 was $2.7 million and $0.3 million, respectively, and is included in "other expenses" on the condensed consolidated statements of income and in “due to/from affiliates” on the Company's condensed consolidated balance sheets.