Transactions with Affiliates

12 Months Ended

Dec. 31, 2023

Transactions with Affiliates [Abstract]

Transactions with Affiliates

3 - Transactions with Affiliates

Our insurance subsidiaries conduct business and have various agreements with Donegal Mutual that we describe in the following subparagraphs:

a. Reinsurance Pooling and Other Reinsurance Arrangements

Atlantic States, our largest insurance subsidiary, and Donegal Mutual have a pooling agreement under which both companies contribute substantially all of their direct written business to the pool and receive an allocated percentage of the pooled underwriting results, excluding certain reinsurance Donegal Mutual assumes from our insurance subsidiaries. Beginning with policies effective in 2021, Donegal Mutual began to place the business of the Mountain States Insurance Group into the underwriting pool. In addition, Donegal Mutual has a 100% quota-share reinsurance agreement with Southern Mutual Insurance Company, or Southern Mutual, and Donegal Mutual places its assumed business from Southern Mutual into the underwriting pool. Atlantic States has an 80% share of the results of the pool, and Donegal Mutual has a 20% share of the results of the pool. The intent of the pooling agreement is to produce more uniform and stable underwriting results from year to year for each pool participant than they would experience individually and to spread the risk of loss between the participants based on each participant’s relative amount of surplus and relative access to capital. Each participant in the pool has at its disposal the capacity of the entire pool, rather than being limited to policy exposures of a size commensurate with its own capital and surplus.

The following amounts represent reinsurance Atlantic States ceded to the pool during 2023, 2022 and 2021:

	2023		2022		2021
Premiums earned	$	332,272,662	$	314,321,443	$	305,729,418
Losses and loss expenses		238,055,099		202,228,589		222,737,225
Prepaid reinsurance premiums		161,991,511		154,472,615		152,323,262
Liability for losses and loss expenses		299,947,390		277,641,902		274,033,812

The following amounts represent reinsurance Atlantic States assumed from the pool during 2023, 2022 and 2021:

	2023		2022		2021
Premiums earned	$	583,559,746	$	578,216,706	$	573,891,394
Losses and loss expenses		409,051,306		395,794,813		383,455,320
Unearned premiums		286,147,727		280,031,908		289,976,879
Liability for losses and loss expenses		507,527,839		496,849,769		455,564,733

Donegal Mutual and MICO had a quota-share reinsurance agreement under which Donegal Mutual assumed 25% of the premiums and losses related to the business of MICO for policies effective through December 31, 2021. Donegal Mutual and MICO terminated this reinsurance agreement on a run-off basis effective January 1, 2022. Donegal Mutual and Peninsula had a quota-share reinsurance agreement under which Donegal Mutual assumed 100% of the premiums and losses related to the workers’ compensation product line of Peninsula in certain states for policies effective through December 31, 2021. Donegal Mutual and Peninsula terminated this reinsurance agreement on a run-off basis effective January 1, 2022. Donegal Mutual places its assumed business from MICO and Peninsula into the underwriting pool.

The following amounts represent reinsurance ceded to Donegal Mutual pursuant to these quota-share reinsurance agreements during 2023, 2022 and 2021:

	2023		2022		2021
Premiums earned	$	168,243	$	17,989,939	$	37,996,474
Losses and loss expenses		2,902,422		5,194,974		20,037,608
Prepaid reinsurance premiums		—		—		18,548,821
Liability for losses and loss expenses		17,852,153		22,642,908		36,659,853

In 2023, each of our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual that provided coverage under any one catastrophic occurrence above a set retention of $3,000,000, with a combined retention of $6,000,000 for a catastrophe involving a combination of our insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retained under catastrophe reinsurance agreements with unaffiliated reinsurers. Through December 31, 2022, each of our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual that provided coverage under any one catastrophic occurrence above a set retention of $2,000,000, with a combined retention of $5,000,000 for a catastrophe involving a combination of our insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retained under catastrophe reinsurance agreements with unaffiliated reinsurers.

The following amounts represent reinsurance that our insurance subsidiaries ceded to Donegal Mutual pursuant to these reinsurance agreements during 2023, 2022 and 2021:

	2023		2022		2021
Premiums earned	$	13,215,814	$	13,800,018	$	17,574,161
Losses and loss expenses		17,895,306		10,517,709		9,309,624
Liability for losses and loss expenses		2,497,244		1,271,006		1,658,057

The following amounts represent the effect of affiliated reinsurance transactions on net premiums our insurance subsidiaries earned during 2023, 2022 and 2021:

	2023			2022			2021
Assumed	$	583,559,746		$	578,216,706		$	573,891,394
Ceded		(345,656,717	)		(346,111,400	)		(361,300,053	)
Net	$	237,903,029		$	232,105,306		$	212,591,341

The following amounts represent the effect of affiliated reinsurance transactions on net losses and loss expenses our insurance subsidiaries incurred during 2023, 2022 and 2021:

	2023			2022			2021
Assumed	$	409,051,306		$	395,790,312		$	383,452,056
Ceded		(258,852,827	)		(217,941,272	)		(252,084,457	)
Net	$	150,198,479		$	177,849,040		$	131,367,599

b. Expense Sharing

Donegal Mutual provides facilities, management and other services to us and our insurance subsidiaries. In addition, Donegal Mutual purchases and maintains the information technology systems that support the business of Donegal Mutual and our insurance subsidiaries. Donegal Mutual allocates certain related expenses to Atlantic States in relation to the relative participation of Atlantic States and Donegal Mutual in the pooling agreement. Our insurance subsidiaries other than Atlantic States reimburse Donegal Mutual for allocated costs of services Donegal Mutual provides on their behalf based on their proportion of the total direct premiums written of the Donegal Insurance Group and other metrics. Donegal Mutual allocates costs related to its development and maintenance of information technology systems over the estimated useful life of those systems (generally five years) and charges a proportionate share of those costs to our insurance subsidiaries based on their percentage of the total net premiums written of the Donegal Insurance Group. Allocated expenses from Donegal Mutual for services it provided to our insurance subsidiaries totaled $218,974,132, $199,177,393 and $186,568,897 for 2023, 2022 and 2021, respectively.

Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key technology infrastructure and application systems. Donegal Mutual placed three releases of new systems into service in 2020, 2021 and 2023, respectively. Donegal Mutual allocated $10.5 million, $7.6 million and $5.1 million of related costs to our insurance subsidiaries in 2023, 2022 and 2021, respectively. Donegal Mutual will allocate to our insurance subsidiaries their proportionate share of the remaining $40.9 million of related costs over the next five years. Donegal Mutual incurred an additional $888,904 of deferred costs related to releases under development that were not yet ready for their intended use at December 31, 2023.

Our management believes that the allocation methods Donegal Mutual utilizes are reasonable. In addition, Donegal Mutual and we maintain a coordinating committee that consists of two members of our board of directors, neither of whom is a member of Donegal Mutual’s board of directors, and two members of Donegal Mutual’s board of directors, neither of whom is a member of our board of directors. The purpose of the coordinating committee is to maintain a process for an ongoing evaluation of the fairness of the terms of all transactions between Donegal Mutual and our insurance subsidiaries.

c. Lease Agreement

We lease office equipment with terms ranging from 3 to 10 years to Donegal Mutual under a lease agreement dated January 1, 2011.