Note 14. Reinsurance

Members of the Property and Casualty Group participate in an intercompany reinsurance pooling agreement. Under the pooling agreement, all insurance business of the Property and Casualty Group is pooled in the Exchange. EIC and ENY share in the underwriting results of the reinsurance pool through retrocession. Since 1995, the Board of Directors has set the allocation of the pooled underwriting results at 5.0% participation for EIC, 0.5% participation for ENY, and 94.5% participation for the Exchange. The purpose of the pooling agreement is to spread the risks of the members of the Property and Casualty Group collectively across the different lines of business they underwrite and geographic regions in which each operates. This agreement may be terminated by any party as of the end of any calendar year by providing not less than 365 days advance written notice. Intercompany pooling accounts are settled in cash within 30 days after the end of each quarterly accounting period.

Reinsurance contracts do not relieve the Property and Casualty Group or EFL from their primary obligations to policyholders. A contingent liability exists with respect to reinsurance recoverables in the event reinsurers are unable to meet their obligations under the reinsurance agreements.

The Property and Casualty Group maintains several property catastrophe reinsurance treaties with nonaffiliated reinsurers to mitigate future potential catastrophe loss exposures. During 2013, a first treaty provided coverage of up to 90% of a loss of $550 million in excess of the Property and Casualty Group’s loss retention of $350 million per occurrence, a second treaty provided coverage of up to 70% of a loss of $225 million in excess of $900 million, and a third treaty provided coverage of up to 70% of a loss of $25 million in excess of $1.125 billion. The property catastrophe reinsurance treaties that became effective for January 1, 2014 included a first property catastrophe reinsurance treaty providing coverage of up to 30% of a loss of $100 million in excess of the Property and Casualty Group’s loss retention of $300 million per occurrence, a second treaty providing coverage of up to 90% of a loss of $500 million in excess of $400 million, a third treaty providing coverage of up to 85% of a loss of $200 million in excess of $900 million, and a fourth treaty providing coverage of up to 100% of a loss of $25 million in excess of $1.1 billion. There have been no losses subject to these treaties.

In addition to the property catastrophe treaties, the Property and Casualty Group also cedes certain individual lines of business to unaffiliated reinsurers and cedes certain individual risks on a facultative basis. The Property and Casualty Group maintains several 100% quota share agreements with A.M. Best A++ rated Hartford Steam Boiler Inspection and Insurance Company. These agreements cede 100% of the covered insurance risk relating to the reinsured portions of the equipment breakdown, employment practices liability, and identity recovery lines of business. During 2013, the Property and Casualty Group ceded a total of $21 million in premium to Hartford Steam Boiler. The cessions for 2012 and 2011 were $17 million and $14 million respectively.

EFL maintains several reinsurance treaties with nonaffiliated life reinsurance companies in order to reduce claims volatility. EFL had direct life insurance in force totaling $45 billion and $44 billion at December 31, 2013 and 2012, respectively. Of these amounts, EFL ceded $21 billion and $22 billion of life insurance in force at December 31, 2013 and 2012, respectively. The largest amount of in force life insurance ceded to one reinsurer totaled $10 billion and $11 billion at December 31, 2013 and 2012, respectively.

The following tables summarize the direct insurance and reinsurance for our property and casualty and life insurance activities, respectively, for the years ended December 31:



(in millions)
	Erie Insurance Group
Property and casualty insurance:	2013			2012			2011
Premiums written:
Direct	$	5,076		$	4,631		$	4,271
Assumed	26			21			21
Ceded	(57		)	(49		)	(37		)
Premiums written, net	5,045			4,603			4,255
Premiums earned:
Direct	4,850			4,449			4,164
Assumed	24			21			21
Ceded	(54		)	(48		)	(36		)
Premiums earned, net	4,820			4,422			4,149
Insurance losses and loss expenses:
Direct	3,366			3,382			3,311
Assumed	7			10			11
Ceded	(13		)	(13		)	22
Insurance losses and loss expenses, net	$	3,360		$	3,379		$	3,344

Life insurance:
Premiums earned:
Direct	$	119		$	113		$	108
Ceded	(41		)	(42		)	(43		)
Premiums earned, net	78			71			65
Insurance losses and loss expenses:
Direct	124			120			120
Ceded	(17		)	(19		)	(20		)
Insurance losses and loss expenses, net	$	107		$	101		$	100

Total:
Premiums earned:
Property and casualty	$	4,820		$	4,422		$	4,149
Life	78			71			65
Premiums earned, net	4,898			4,493			4,214
Insurance losses and loss expenses:
Property and casualty	3,360			3,379			3,344
Life	107			101			100
Insurance losses and loss expenses, net	$	3,467		$	3,480		$	3,444