Reinsurance

12 Months Ended

Dec. 31, 2011

Reinsurance [Abstract]

Reinsurance

(5) Reinsurance

In the normal course of business, our insurance companies cede a portion of their premium to domestic and foreign reinsurers through treaty and facultative reinsurance agreements. Although reinsurance does not discharge the direct insurer from liability to its policyholder, our insurance companies participate in such agreements in order to limit their loss exposure, protect them against catastrophic losses and diversify their business. The following tables present the effect of such reinsurance transactions on our premium, loss and loss adjustment expense and policy acquisition costs.

	2011		2010		2009
Direct written premium	$	2,305,190	$	2,269,858	$	2,308,667
Reinsurance assumed		343,936		309,050		251,124
Reinsurance ceded		(466,968)		(552,711)		(513,502)
Net written premium	$	2,182,158	$	2,026,197	$	2,046,289
Direct earned premium	$	2,308,810	$	2,284,396	$	2,265,500
Reinsurance assumed		340,745		298,475		250,133
Reinsurance ceded		(522,385)		(540,947)		(478,398)
Net earned premium	$	2,127,170	$	2,041,924	$	2,037,235
Direct loss and loss adjustment expense	$	1,535,270	$	1,360,761	$	1,335,571
Reinsurance assumed		224,655		176,096		153,325
Reinsurance ceded		(360,678)		(323,828)		(273,137)
Net loss and loss adjustment expense	$	1,399,247	$	1,213,029	$	1,215,759

Policy acquisition costs	$	454,181	$	440,410	$	422,254
Ceding commissions		(126,047)		(118,364)		(113,700)
Net policy acquisition costs	$	328,134	$	322,046	$	308,554

The table below shows the components of our reinsurance recoverables at December 31, 2011 and 2010.

	2011		2010
Reinsurance recoverable on paid losses	$	83,109	$	75,262
Reinsurance recoverable on outstanding losses		477,760		452,882
Reinsurance recoverable on incurred but not reported losses		497,074		481,204
Reserve for uncollectible reinsurance		(1,875)		(2,493)
Total reinsurance recoverables	$	1,056,068	$	1,006,855

In order to reduce our exposure to reinsurance credit risk, we evaluate the financial condition of our reinsurers and place our reinsurance with a diverse group of companies and syndicates, which we believe to be financially sound. Our recoverables are due principally from highly-rated reinsurers. The following table shows reinsurance balances with our reinsurers that had a net recoverable balance greater than $25.0 million at December 31, 2011 and 2010. The companies' ratings are the latest published by A.M. Best Company, Inc as of February 17, 2012. The total recoverables column includes paid losses recoverable, outstanding losses recoverable, incurred but not reported losses recoverable, and ceded unearned premium. The total credits column includes letters of credit, cash deposits and other payables.

			Total		Total		Net
Reinsurer	Rating	Location	recoverables		credits		recoverables
December 31, 2011
Transatlantic Reinsurance Company	A	New York	$	165,121	$	18,454	$	146,667
ACE Property & Casualty Insurance Co.	A	Germany		89,864		698		89,166
Hannover Ruckversicherungs AG	A+	Pennsylvania		105,123		20,165		84,958
Axis Reinsurance Company	A	New York		89,366		11,292		78,074
Arch Reinsurance Company	A+	Bermuda		52,284		3,430		48,854
Swiss Reinsurance America Corporation	A+	New York		46,123		10,475		35,648
Everest Reinsurance Co.	A+	Delaware		37,762		9,952		27,810
December 31, 2010
Transatlantic Reinsurance Company	A	New York	$	151,799	$	20,283	$	131,516
Hannover Ruckversicherungs AG	A	Germany		108,099		24,528		83,571
ACE Property & Casualty Insurance Co.	A+	Pennsylvania		72,615		8,658		63,957
Axis Reinsurance Company	A	New York		73,424		11,779		61,645
Arch Reinsurance Company	A	Bermuda		57,048		8,192		48,856
Swiss Reinsurance America Corporation	A	New York		47,046		9,354		37,692
Harco National Insurance Company	A-	Illinois		29,862		439		29,423

HCC Life Insurance Company previously sold its entire block of individual life insurance and annuity business to Swiss Re Life & Health America, Inc. (rated "A" by A.M. Best Company, Inc.) in the form of an indemnity reinsurance contract. Ceded life and annuity benefits included in our consolidated balance sheets at December 31, 2011 and 2010were $61.1 million and $58.4 million, respectively.

At each quarter end, we review our financial exposure to the reinsurance market based on our individual reinsurance recoverable balances as of the prior quarter end. We take actions to collect outstanding balances or to mitigate our exposure to possible loss, including offsetting past due amounts against letters of credit and other payables. We have a reserve forpotentially uncollectible amounts as follows:

	2011		2010		2009
Balance at beginning of year	$	2,493	$	2,945	$	8,427
Provision recovery		(618)		(452)		(4,552)
Amounts written off		-		-		(930)
Balance at December 31	$	1,875	$	2,493	$	2,945

If we collect cash from or resolve a dispute with a reinsurer, we reduce the allowance account. While we believe the reserve is adequate based on information currently available, market conditions may change or additional information might be obtained that may require us to change the reserve in the future.

Reinsurers not authorized by the respective states of domicile of our U.S. domiciled insurance companies are required to collateralize reinsurance obligations due to us. The table below shows the amounts of letters of credit and cash deposits held by us as collateral, plus other credits available for potential offset at December 31, 2011 and 2010.

		2011		2010
Payables to reinsurers		$	195,806	$	243,990
Letters of credit			120,589		145,914
Cash deposits			83,731		81,966
	Total credits	$	400,126	$	471,870

The tables below show the calculation of net reserves, net unearned premium and net deferred policy acquisition costs at December 31, 2011 and 2010.

	2011		2010
Loss and loss adjustment expense payable	$	3,658,317	$	3,471,858
Reinsurance recoverable on outstanding losses		(477,760)		(452,882)
Reinsurance recoverable on incurred but not reported losses		(497,074)		(481,204)
Net reserves	$	2,683,483	$	2,537,772
Unearned premium	$	1,031,034	$	1,045,877
Ceded unearned premium		(222,300)		(278,663)
Net unearned premium	$	808,734	$	767,214
Deferred policy acquisition costs	$	217,608	$	212,786
Deferred ceding commissions		(62,364)		(72,565)
Net deferred policy acquisition costs	$	155,244	$	140,221