Reinsurance

12 Months Ended

Dec. 31, 2012

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). For property insurance, our insurance subsidiaries had excess of loss treaties that provided for coverage up to $5.0 million per loss. For liability insurance, our insurance subsidiaries had excess of loss treaties that provided for coverage up to $40.0 million per occurrence. For workers’ compensation insurance, our insurance subsidiaries had excess of loss treaties that provided for coverage 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 36.0% 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 the treaty reinsurance Donegal Mutual and our insurance subsidiaries purchased. In order to write automobile insurance in the State of Michigan, MICO is required to be a member of the Michigan Catastrophic Claims Association (“MCCA”). The MCCA provides reinsurance to MICO for personal automobile and commercial automobile personal injury claims in the State of Michigan over a set retention.

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.

MICO maintains a quota-share reinsurance agreement with third-party reinsurers to reduce its net exposures. Effective from December 1, 2010 to December 31, 2011, the quota-share reinsurance percentage was 50%. Effective January 1, 2012, MICO reduced the quota-share reinsurance percentage from 50% to 40%. Effective January 1, 2013, MICO reduced the quota-share reinsurance percentage from 40% to 30%.

The following amounts represent ceded reinsurance transactions with unaffiliated reinsurers during 2012, 2011 and 2010:

	2012		2011		2010
Premiums written	$	76,736,510	$	80,265,127	$	24,357,938
Premiums earned		79,680,782		88,297,408		26,551,687
Losses and loss expenses		56,179,284		82,836,893		19,764,441
Prepaid reinsurance premiums		25,126,276		28,054,302		26,991,912
Liability for losses and loss expenses		103,775,940		106,231,527		92,945,915

Total Reinsurance

The following amounts represent our total ceded reinsurance transactions with both affiliated and unaffiliated reinsurers during 2012, 2011 and 2010:

	2012		2011		2010
Premiums earned	$	258,064,301	$	242,186,814	$	144,554,336
Losses and loss expenses		181,995,838		216,776,966		111,080,953
Prepaid reinsurance premiums		111,156,162		106,450,018		89,365,771
Liability for losses and loss expenses		207,891,560		199,392,836		165,442,373

The following amounts represent the effect of reinsurance on premiums written for 2012, 2011 and 2010:

	2012			2011			2010
Direct	$	419,811,847		$	397,810,566		$	279,627,255
Assumed		339,389,274			306,416,861			262,574,572
Ceded		(262,754,201	)		(250,176,390	)		(150,679,539	)
Net premiums written	$	496,446,920		$	454,051,037		$	391,522,288

The following amounts represent the effect of reinsurance on premiums earned for 2012, 2011 and 2010:

	2012			2011			2010
Direct	$	408,846,530		$	385,737,801		$	269,394,549
Assumed		324,219,993			287,919,197			253,189,916
Ceded		(258,064,301	)		(242,186,814	)		(144,554,336	)
Net premiums earned	$	475,002,222		$	431,470,184		$	378,030,129