Reinsurance

12 Months Ended

Dec. 31, 2011

Reinsurance

Reinsurance

Note 15.   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 90 days advance written notice.  Intercompany pooling accounts are settled in cash within 30 days after the end of each quarterly accounting period.  On December 31, 2010, Indemnity sold all of the outstanding capital stock of its wholly owned subsidiaries, EIC and ENY, to the Exchange.  Under this structure, all property and casualty insurance operations are owned by the Exchange, and Indemnity functions solely as the management company.  There was no impact on the existing reinsurance pooling agreement between the Exchange and EIC or ENY as a result of the sale.

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 2011, a first treaty provided coverage of up to 90% of a loss of $500 million in excess of the Property and Casualty Group’s loss retention of $350 million per occurrence, and a second treaty provided coverage of up to 90% of a loss of $25 million in excess of $850 million.  These treaties were renewed for 2012, with the first property catastrophe reinsurance treaty providing coverage of up to 90% of a loss of $500 million in excess of the Property and Casualty Group’s loss retention of $350 million per occurrence, and the second treaty providing coverage of up to 70% of a loss of $275 million in excess of $850 million.  In addition, a third property catastrophe reinsurance treaty was entered into with a nonaffiliated reinsurer providing coverage of up to 70% of a loss of $25 million in excess of $1.125 billion.  The treaties exclude losses from acts of terrorism.  There have been no losses subject to these treaties.

EFL maintains several reinsurance treaties with nonaffiliated life reinsurance companies in order to reduce claims volatility.  EFL had direct life insurance in force totaling $42 billion and $40 billion at December 31, 2011 and 2010, respectively.  Of these amounts, EFL ceded $23 billion and $22 billion of life insurance in force at December 31, 2011 and 2010, respectively.  At December 31, 2011 and 2010, the largest amount of in force life insurance ceded to one reinsurer totaled $11 billion.

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:	2011		2010		2009
Premiums written:
Direct	$4,271		$4,035		$3,861
Assumed	21		19		30
Ceded	(37	)	(35	)	(30	)
Premiums written, net	4,255		4,019		3,861
Premiums earned:
Direct	4,164		3,939		3,806
Assumed	21		20		42
Ceded	(36	)	(34	)	(40	)
Premiums earned, net	4,149		3,925		3,808
Insurance losses and loss expenses:
Direct	3,311		2,834		2,655
Assumed	11		(15	)	12
Ceded	22		(9	)	(28	)
Insurance losses and loss expenses, net	$3,344		$2,810		$2,639
Life insurance:
Premiums earned:
Direct	$   108		$   104		$   100
Ceded	(43	)	(42	)	(39	)
Premiums earned, net	65		62		61
Insurance losses and loss expenses:
Direct	120		102		114
Ceded	(20	)	(12	)	(25	)
Insurance losses and loss expenses, net	$   100		$    90		$   89
Total:
Premiums earned:
Property and casualty	$4,149		$3,925		$3,808
Life	65		62		61
Premiums earned, net	4,214		3,987		3,869
Insurance losses and loss expenses:
Property and casualty	3,344		2,810		2,639
Life	100		90		89
Insurance losses and loss expenses, net	$3,444		$2,900		$2,728