Reinsurance

12 Months Ended

Dec. 31, 2012

Reinsurance [Abstract]

Reinsurance

(4) 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.

	2012		2011		2010
Direct written premium	$	2,422,517	$	2,305,190	$	2,269,858
Reinsurance assumed		361,555		343,936		309,050
Reinsurance ceded		(530,676)		(466,968)		(552,711)
Net written premium	$	2,253,396	$	2,182,158	$	2,026,197
Direct earned premium	$	2,396,756	$	2,308,810	$	2,284,396
Reinsurance assumed		351,611		340,745		298,475
Reinsurance ceded		(505,742)		(522,385)		(540,947)
Net earned premium	$	2,242,625	$	2,127,170	$	2,041,924
Direct loss and loss adjustment expense	$	1,434,830	$	1,535,270	$	1,360,761
Reinsurance assumed		162,534		224,655		176,096
Reinsurance ceded		(291,853)		(360,678)		(323,828)
Net loss and loss adjustment expense	$	1,305,511	$	1,399,247	$	1,213,029

Policy acquisition costs	$	398,453	$	392,172	$	373,500
Ceding commissions		(117,252)		(126,047)		(118,364)
Net policy acquisition costs	$	281,201	$	266,125	$	255,136

The table below shows the components of our reinsurance recoverables in our consolidated balance sheets at December 31, 2012 and 2011.

	2012		2011
Reinsurance recoverable on paid losses	$	54,675	$	83,109
Reinsurance recoverable on outstanding losses		479,026		477,760
Reinsurance recoverable on incurred but not reported losses		539,021		497,074
Reserve for uncollectible reinsurance		(1,500)		(1,875)
Total reinsurance recoverables	$	1,071,222	$	1,056,068

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, 2012 and 2011. The companies'ratings were the latest published by A.M. Best Company, Inc. as of February 15, 2013(for 2012) and February 17, 2012(for 2011).The total recoverables column includes paid losses recoverable, outstanding losses recoverable and incurred but not reported losses recoverable. The total credits column includes letters of credit, cash and other payables.

			Total		Total		Net
Reinsurer	Rating	Location	recoverables		credits		recoverables
December 31, 2012
Transatlantic Reinsurance Company	A	New York	$	145,733	$	15,166	$	130,567
Hannover Ruckversicherungs AG	A+	Germany		97,281		18,587		78,694
Axis Reinsurance Company	A	New York		80,956		11,777		69,179
ACE Property & Casualty Insurance Co.	A+	Pennsylvania		70,248		4,195		66,053
Arch Reinsurance Company	A+	Bermuda		41,472		2,544		38,928
December 31, 2011
Transatlantic Reinsurance Company	A	New York	$	129,516	$	18,454	$	111,062
ACE Property & Casualty Insurance Co.	A+	Pennsylvania		81,471		698		80,773
Hannover Ruckversicherungs AG	A	Germany		80,986		20,165		60,821
Axis Reinsurance Company	A	New York		63,481		11,292		52,189
Arch Reinsurance Company	A+	Bermuda		44,185		3,430		40,755

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, 2012 and 2011were $58.6million and $61.1million, 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. We have a reserve forpotentially uncollectible amounts as follows:

	2012		2011		2010
Balance at beginning of year	$	1,875	$	2,493	$	2,945
Provision recovery		(375)		(618)		(452)
Balance at December 31	$	1,500	$	1,875	$	2,493

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 available to us as collateral, plus other potential offsets at December 31, 2012 and 2011.

		2012		2011
Payables to reinsurers		$	190,228	$	195,806
Letters of credit			89,832		120,589
Cash			116,597		83,731
	Total credits	$	396,657	$	400,126

The tables below show the calculation of net reserves, net unearned premium and net deferred policy acquisition costs at December 31, 2012 and 2011.

	2012		2011
Loss and loss adjustment expense payable	$	3,767,850	$	3,658,317
Reinsurance recoverable on outstanding losses		(479,026)		(477,760)
Reinsurance recoverable on incurred but not reported losses		(539,021)		(497,074)
Net reserves	$	2,749,803	$	2,683,483
Unearned premium	$	1,069,956	$	1,031,034
Ceded unearned premium		(256,988)		(222,300)
Net unearned premium	$	812,968	$	808,734
Deferred policy acquisition costs	$	191,960	$	189,633
Deferred ceding commissions		(74,609)		(62,364)
Net deferred policy acquisition costs	$	117,351	$	127,269