Reinsurance

12 Months Ended

Dec. 31, 2011

Deferred Policy Acquisition Costs/Reinsurance [Abstract]

Reinsurance

11 - Reinsurance

Unaffiliated Reinsurers

Our insurance subsidiaries and Donegal Mutual purchase certain third-party reinsurance on a combined basis. Le Mars, MICO, Peninsula and Sheboygan also have separate third-party reinsurance programs that provide certain coverage that is commensurate with their relative size and exposures. Our insurance subsidiaries use several different reinsurers, all of which, consistent with the requirements of our insurance subsidiaries and Donegal Mutual, have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- rating from A.M. Best. The external reinsurance our insurance subsidiaries and Donegal Mutual purchase includes “excess of loss reinsurance,” under which their losses are automatically reinsured, through a series of contracts, over a set retention (generally $1.0 million for 2012 and $750,000 prior to 2012), and “catastrophic reinsurance,” under which they recover, through a series of contracts, 90% to 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention (generally $5.0 million). Our insurance subsidiaries’ principal third party reinsurance agreement in 2011 was a multi-line per risk excess of loss treaty that provided 100% coverage up to $1.0 million for both property and liability losses over the set retention of $750,000. For property insurance, our insurance subsidiaries also had excess of loss treaties that provided for additional coverage over the multi-line treaty up to $5.0 million per loss. For liability insurance, our insurance subsidiaries had excess of loss treaties that provided for additional coverage over the multi-line treaty up to $40.0 million per occurrence. For workers’ compensation insurance, our insurance subsidiaries had excess of loss treaties that provided for additional coverage over the multi-line treaty up to $10.0 million on any one life. Our insurance subsidiaries and Donegal Mutual had property catastrophe coverage through a series of layered treaties up to aggregate losses of $135.0 million for any single event. As many as 20 reinsurers provided coverage on any one treaty with no reinsurer taking more than 27.0% of any one treaty. The amount of coverage provided under each of these types of reinsurance depends upon the amount, nature, size and location of the risks being reinsured. Donegal Mutual and our insurance subsidiaries also purchased facultative reinsurance to cover exposures from losses that exceeded the limits provided by our respective treaty reinsurance.

Through December 1, 2010, MICO and West Bend were parties to quota-share reinsurance agreements whereby MICO ceded 75% of its business to West Bend. MICO and West Bend agreed to terminate the reinsurance agreement in effect at November 30, 2010 on a run-off basis. West Bend’s obligations related to all past reinsurance agreements with MICO remain in effect for all policies effective prior to December 1, 2010 as we discuss in Note 4-Business Combinations.

The following amounts represent ceded reinsurance transactions with unaffiliated reinsurers during 2011, 2010 and 2009:

	2011		2010		2009
Premiums written	$	80,265,127	$	24,357,938	$	19,758,224
Premiums earned		88,297,408		26,551,687		19,870,265
Losses and loss expenses		82,836,893		19,764,441		6,796,388
Prepaid reinsurance premiums		28,054,302		26,991,912		1,985,821
Liability for losses and loss expenses		106,231,527		92,945,915		22,692,993

Total Reinsurance

The following amounts represent our total ceded reinsurance transactions with both affiliated and unaffiliated reinsurers during 2011, 2010 and 2009:

	2011		2010		2009
Premiums earned	$	242,186,814	$	144,554,336	$	127,203,132
Losses and loss expenses		216,776,966		111,080,953		87,129,668
Prepaid reinsurance premiums		106,450,018		89,365,771		56,040,728
Liability for losses and loss expenses		199,392,836		165,442,373		83,336,726

The following amounts represent the effect of reinsurance on premiums written for 2011, 2010 and 2009:

	2011			2010			2009
Direct	$	397,810,566		$	279,627,255		$	250,989,795
Assumed		306,416,861			262,574,572			244,046,312
Ceded		(250,176,390	)		(150,679,539	)		(131,807,381	)
Net premiums written	$	454,051,037		$	391,522,288		$	363,228,726

The following amounts represent the effect of reinsurance on premiums earned for 2011, 2010 and 2009:

	2011			2010			2009
Direct	$	385,737,801		$	269,394,549		$	246,074,766
Assumed		287,919,197			253,189,916			236,153,843
Ceded		(242,186,814	)		(144,554,336	)		(127,203,132	)
Net premiums earned	$	431,470,184		$	378,030,129		$	355,025,477