In the normal course of business, the Company seeks to reduce the losses that may arise from catastrophes or other events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. Reinsurance transactions are accounted for in accordance with the provisions of ASC 944.

Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company determines the appropriate amount of reinsurance based on evaluations of the risks accepted and analyses prepared by consultants and on market conditions (including the availability and pricing of reinsurance). The Company also believes that the terms of its reinsurance contracts are consistent with industry practice in that they contain standard terms with respect to lines of business covered, limits and retention, arbitration and occurrence. The Company believes that its reinsurers are financially sound, based upon an ongoing review of financial strength ratings assigned to them by rating agencies, their reputations in the reinsurance marketplace, collections history, advice from third parties, and the analysis and guidance of the Company’s reinsurance advisors.

As a condition to conduct certain business in various states, the Company is required to participate in residual market mechanisms, facilities, and pooling arrangements such as the Michigan Catastrophic Claims Association (“MCCA”). The Company is subject to concentration of risk with respect to reinsurance ceded to the MCCA. Funding for MCCA comes from assessments against automobile insurers based upon their share of insured automobiles in the state for which the policyholders have elected unlimited personal injury protection (“PIP”) benefits. Insurers are allowed to pass along this cost to Michigan automobile policyholders that have elected unlimited PIP benefits.

In 2021, the MCCA Board voted unanimously to return approximately $3.0 billion of its estimated surplus to policyholders through its member insurance companies. Since policyholders are the ultimate payers of the MCCA premium, this return of MCCA surplus was passed through to policyholders. The refund was paid to policyholders and was recorded as a refund of premium transaction in the Company’s financial statements, reducing both direct written premium and ceded written premium. There was no effect on net written premium or net earned premium. The total amount of the refund was approximately $183.2 million, comprised of $179.1 million for personal automobile and $4.1 million for commercial automobile policyholders. Direct and ceded premium numbers in the table below reflect this refund.

Additionally, in 2019, Michigan enacted major reforms to its prior system governing personal and commercial automobile insurance. Among other things, the reform legislation set forth cost saving measures for PIP claims, including MCCA-reinsured claims, that took effect in July 2021. The Company’s current estimate of MCCA reinsurance receivables was reduced for these potential future claim cost savings. This resulted in a $122.9 million decrease in MCCA reinsurance recoverables during 2021, and a corresponding decrease in MCCA ceded losses incurred. This estimate of MCCA reinsurance receivables is subject to change and will be revised further as the actual impacts of these cost saving measures emerge in the future.

The Company ceded to the MCCA premiums earned and losses and LAE incurred of $32.9 million and $72.8 million in 2023 and $34.6 million and $32.6 million, respectively, in 2022. Including the refund of $183.2 million, during 2021 the Company’s MCCA net impact was a reduction to both direct premiums earned and premiums ceded of $143.7 million. Including the decrease in the Company’s estimated MCCA reinsurance recoverables of $122.9 million, during 2021 the Company’s MCCA net impact was a reduction to ceded incurred losses and LAE of $68.0 million.

The MCCA represented 44.3% of the total reinsurance receivable balance at December 31, 2023. Reinsurance recoverables related to the MCCA were $911.7 million and $883.0 million at December 31, 2023 and 2022, respectively. Since the MCCA is supported by assessments permitted by statute, and there have been no significant uncollectible balances from the MCCA identified during the three years ending December 31, 2023, the Company believes it has no significant exposure to uncollectible reinsurance balances from this entity.

The following table provides the effects of reinsurance.


YEARS ENDED DECEMBER 31	2023				2022				2021
(in millions)
Premiums written:(1)
Direct	$	6,411.9			$	6,024.4			$	5,310.7
Assumed		21.0				56.4				33.6
Ceded		(622.7	)			(604.3	)			(350.9	)
Net premiums written	$	5,810.2			$	5,476.5			$	4,993.4
Premiums earned:(1)
Direct	$	6,255.1			$	5,817.6			$	5,131.3
Assumed		37.4				47.6				27.7
Ceded		(629.4	)			(612.9	)			(388.8	)
Net premiums earned	$	5,663.1			$	5,252.3			$	4,770.2
Percentage of assumed to net premiums earned		0.7		%		0.9		%		0.6		%
Losses and LAE:
Direct	$	4,489.4			$	3,940.8			$	3,407.1
Assumed		42.5				44.2				17.7
Ceded(2)		(397.3	)			(361.6	)			(290.6	)
Net losses and LAE	$	4,134.6			$	3,623.4			$	3,134.2

(1)

Direct and ceded premiums written and earned in 2021 were reduced by the $183.2 million MCCA refund of premium, as discussed above.

(2)

The ceded losses and LAE in 2021 were reduced by the decrease in MCCA incurred losses that resulted from Michigan automobile reform, as discussed above.