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Reinsurance
 12 Months Ended
Dec. 31, 2014
Reinsurance [Abstract]  
Reinsurance

(4) Reinsurance

In the normal course of business, our insurance companies cede a portion of their premium to 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.

201420132012
Direct written premium$ 2,689,478 $ 2,545,054 $ 2,422,517
Reinsurance assumed 312,140 335,195 361,556
Reinsurance ceded (628,373) (624,926) (530,677)
Net written premium$ 2,373,245 $ 2,255,323 $ 2,253,396
Direct earned premium$ 2,633,433 $ 2,482,527 $ 2,396,756
Reinsurance assumed 306,896 333,344 351,611
Reinsurance ceded (616,702) (576,631) (505,742)
Net earned premium$ 2,323,627 $ 2,239,240 $ 2,242,625
Direct loss and loss adjustment expense$ 1,551,700 $ 1,616,097 $ 1,467,393
Reinsurance assumed 119,980 151,145 162,534
Reinsurance ceded (344,845) (444,788) (291,853)
Net loss and loss adjustment expense $ 1,326,835 $ 1,322,454 $ 1,338,074

Policy acquisition costs$ 445,794 $ 413,782 $ 398,453
Ceding commissions (151,124) (134,343) (117,252)
Net policy acquisition costs$ 294,670 $ 279,439 $ 281,201

The table below shows the components of our reinsurance recoverables in our consolidated balance sheets at December 31, 2014 and 2013.

20142013
Reinsurance recoverable on paid losses $99,937 $156,026
Reinsurance recoverable on outstanding losses 443,059 459,134
Reinsurance recoverable on incurred but not reported losses 627,404 663,597
Reserve for uncollectible reinsurance (1,500)(1,500)
Total reinsurance recoverables $1,168,900 $1,277,257

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 $30.0 million at December 31, 2014 and 2013. The companies’ ratings were the latest published by A.M. Best Company, Inc. as of February 13, 2015 (for 2014) and February 14, 2014 (for 2013). 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 and cash that are available to us as collateral, as well as amounts we owe reinsurers that can be offset against amounts due to us.

TotalTotalNet
ReinsurerRatingLocationrecoverablescreditsrecoverables
December 31, 2014
Transatlantic Reinsurance CompanyANew York$157,349 $8,063 $149,286
Axis Reinsurance CompanyA+New York103,836 12,593 91,243
Hannover Rück SEA+Germany107,125 18,468 88,657
ACE Property & Casualty Insurance CompanyA++Pennsylvania58,996 5,552 53,444
Swiss Reinsurance America CorporationA+New York45,756 5,314 40,442
Arch Reinsurance CompanyA+Nebraska37,172 602 36,570
December 31, 2013
Transatlantic Reinsurance CompanyANew York$172,165 $18,196 $153,969
Hannover Rück SEA+Germany128,518 20,559 107,959
Axis Reinsurance CompanyA+New York92,562 11,983 80,579
ACE Property & Casualty Insurance CompanyA+Pennsylvania67,742 4,267 63,475
Arch Reinsurance CompanyA+Nebraska40,481 3,693 36,788

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, 2014 and 2013 were $48.5 million and $56.5 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. We had a $1.5 million reserve for potentially uncollectible amounts in 2014 and 2013. Reinsurance recoverables related to our settlement of Spanish surety bond claims totaled $107.7 million at December 31, 2014, including $49.9 million on paid losses. Our reinsurers have paid our reinsurance claims related to Spanish surety bonds in full on a timely basis, with the exception of a small number of reinsurers that are currently in run-off and disputing balances owed us. Recoverables from these run-off reinsurers totaled $46.2 million, including $39.4 million on paid losses, at December 31, 2014. No payments have been received from these reinsurers despite their participation in substantially the same contracts and terms of our other reinsurers. We are vigorously pursuing collection of these recoverables, including through arbitration where necessary, and believe these amounts are fully recoverable. Accordingly, we have not recorded a reserve for uncollectibility related to these amounts. While we believe our reserve at year-end 2014 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, at December 31, 2014 and 2013, the amounts of letters of credit and cash that are available to us as collateral, as well as amounts we owe reinsurers that can be offset against amounts due to us.

20142013
Payables to reinsurers$172,871 $208,850
Letters of credit96,895 100,529
Funds held in trust133,981 88,310
Total credits$403,747 $397,689