10 - 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), and “catastrophic reinsurance,” under which they recover, through a series of contracts, 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention (generally $5.0 million) and after exceeding an annual aggregate deductible ($1.0 million in 2017, $975,000 in 2016 and $1.5 million in 2015). For property insurance, our insurance subsidiaries have excess of loss treaties that provide for coverage up to $5.0 million per loss. For liability insurance, our insurance subsidiaries have excess of loss treaties that provide for coverage up to $50.0 million per occurrence. For workers’ compensation insurance, our insurance subsidiaries have excess of loss treaties that provide for coverage up to $10.0 million on any one life. Our insurance subsidiaries and Donegal Mutual have property catastrophe coverage through a series of layered treaties up to aggregate losses of $175.0 million for any single event. As many as 27 reinsurers provided coverage for 2017 on any one treaty with no reinsurer taking more than 25% 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 Mutual Insurance Company (“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.

For policies effective through December 31, 2014, MICO maintained a quota-share reinsurance agreement with third-party reinsurers to reduce its net exposures. Effective January 1, 2015, MICO no longer maintains a quota-share reinsurance agreement with third-party reinsurers.

The following amounts represent ceded reinsurance transactions with unaffiliated reinsurers during 2017, 2016 and 2015:


	2017		2016		2015
Premiums written	$	51,241,267	$	45,354,233	$	40,997,351
Premiums earned		49,633,348		44,318,542		49,758,371
Losses and loss expenses		44,575,268		18,588,114		30,722,807
Prepaid reinsurance premiums		11,213,665		9,605,746		8,570,055
Liability for losses and loss expenses		116,689,871		103,694,418		113,023,942

Total Reinsurance

The following amounts represent total ceded reinsurance transactions with both affiliated and unaffiliated reinsurers during 2017, 2016 and 2015:


	2017		2016		2015
Premiums earned	$	310,179,267	$	282,646,219	$	271,712,289
Losses and loss expenses		218,523,260		156,479,885		172,302,366
Prepaid reinsurance premiums		135,032,641		124,255,495		113,522,505
Liability for losses and loss expenses		293,271,257		259,147,147		256,150,860

The following amounts represent the effect of reinsurance on premiums written for 2017, 2016 and 2015:


	2017			2016			2015
Direct	$	584,007,351		$	537,880,237		$	492,073,587
Assumed		466,087,983			437,532,812			406,126,275
Ceded		(320,956,412	)		(293,379,217	)		(269,363,012	)

Net premiums written	$	729,138,922		$	682,033,832		$	628,836,850

The following amounts represent the effect of reinsurance on premiums earned for 2017, 2016 and 2015:


	2017			2016			2015
Direct	$	561,178,447		$	515,721,745		$	480,210,534
Assumed		451,515,575			423,129,271			397,142,483
Ceded		(310,179,267	)		(282,646,219	)		(271,712,289	)

Net premiums earned	$	702,514,755		$	656,204,797		$	605,640,728

Percentage of assumed premiums earned to net premiums earned		64.3	%		64.5	%		65.6	%