7Reinsurance
The effect of reinsurance on premiums written and earned for the years ended December 31 was as follows:
 2009 |
2008 | 2007 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (millions) | Written | Earned | Written | Earned | Written | Earned | ||||||
| Direct premiums | $ | 14,196.3 | $ | 14,199.4 | $ | 13,775.6 | $ | 13,810.1 | $ | 13,982.4 | $ | 14,107.0 |
| Ceded | (193.4) | (186.6) | (171.3) | (178.7) | (209.9) | (229.6) | ||||||
| Net premiums | $ | 14,002.9 | $ | 14,012.8 | $ | 13,604.3 | $ | 13,631.4 | $ | 13,772.5 | $ | 13,877.4 |
Our ceded premiums are attributable to premiums written under state-mandated involuntary Commercial Auto Insurance Procedures/Plans and premiums ceded to state-provided reinsurance facilities (together referred to as “State Plans”), for which we retain no loss indemnity risk, and premiums ceded related to our non-auto programs.
Reinsurance contracts do not relieve us from our obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to Progressive. Since the majority of our reinsurance is through State Plans, our exposure to losses from their failure is minimal, since the plans are funded by mechanisms supported by the insurance companies in the state. We evaluate the financial condition of our other reinsurers and monitor concentrations of credit risk to minimize our exposure to significant losses from reinsurer insolvencies. We also require unauthorized reinsurers to secure reinsurance through collateral, such as lines of credit or trust accounts.
At December 31, 2009, approximately 50% of the “prepaid reinsurance premiums” was comprised of State Plans, compared to about 55% at December 31, 2008. As of December 31, 2009 and 2008, approximately 90% and 80%, respectively, of the “reinsurance recoverables” were attributable to State Plans. The remainder of the “prepaid reinsurance premiums” and “reinsurance recoverables” was primarily related to non-auto programs.
Losses and loss adjustment expenses were net of reinsurance ceded of $417.6 million in 2009, $109.2 million in 2008, and $109.6 million in 2007. During 2009, we changed our loss reserving process regarding lifetime estimates for claims ceded to a state-provided reinsurance program, which increased both the amount of ceded loss reserves and the corresponding reinsurance recoverables on unpaid losses and, therefore, had no impact on our results of operations.