Transactions with Affiliates

12 Months Ended

Dec. 31, 2019

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.

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

2019, 2018 and 2017:


	2019		2018		2017
Premiums earned	$	218,642,984	$	212,928,238	$	200,752,599
Losses and loss expenses		173,238,503		159,495,489		140,015,950
Prepaid reinsurance premiums		116,189,929		106,224,424		103,991,861
Liability for losses and loss expenses		183,326,589		158,081,925		136,786,070

The following amounts represent reinsurance Atlantic States assumed from the pool during 2019, 2018 and 2017:


	2019		2018		2017
Premiums earned	$	479,835,362	$	473,512,781	$	451,470,894
Losses and loss expenses		309,852,141		335,789,280		289,503,373
Unearned premiums		237,106,338		231,958,181		228,988,598
Liability for losses and loss expenses		322,658,731		303,546,744		252,263,547

Donegal Mutual and MICO have a quota-share reinsurance agreement under which Donegal Mutual assumes 25% of the premiums and losses related to the business of MICO. Donegal Mutual and Peninsula have a quota-share reinsurance agreement under which Donegal Mutual assumes 100% of the premiums and losses related to the workers’ compensation product line of Peninsula in certain states.

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 2019, 2018 and 2017:


	2019		2018		2017
Premiums earned	$	42,079,112	$	42,813,929	$	42,578,047
Losses and loss expenses		19,617,787		23,175,456		24,978,631
Prepaid reinsurance premiums		19,217,849		19,047,084		19,827,115
Liability for losses and loss expenses		36,597,834		38,434,078		36,396,109

In 2019, 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. Through

December 31, 2018, Atlantic States, Southern and Le Mars each had a catastrophe reinsurance agreement with Donegal Mutual that provided coverage under any one catastrophic occurrence above a set retention ($2,500,000, $2,000,000 and $1,000,000 for Atlantic States, Southern and Le Mars, respectively, for 2018), with a combined retention of $5,000,000 for a catastrophe involving a combination of these subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retained under catastrophe reinsurance agreements with unaffiliated reinsurers. The set retention was $2,000,000, $1,500,000 and $750,000 for Atlantic States, Southern and Le Mars, respectively, for 2017. Through December 31, 2018, Donegal Mutual and Southern had an excess of loss reinsurance agreement in which Donegal Mutual assumed up to $500,000 of Southern’s losses in excess of $500,000.

The following amounts represent reinsurance that our insurance subsidiaries ceded to Donegal Mutual pursuant to these reinsurance agreements during 2019, 2018 and 2017:


	2019		2018		2017
Premiums earned	$	14,404,636	$	19,190,067	$	17,215,273
Losses and loss expenses		13,769,736		12,899,927		8,953,411
Liability for losses and loss expenses		3,149,907		4,847,176		3,399,207

The following amounts represent the effect of affiliated reinsurance transactions on net premiums our insurance subsidiaries earned during 2019, 2018 and 2017:


	2019			2018			2017
Assumed	$	479,835,362		$	473,512,781		$	451,470,623
Ceded		(275,126,732	)		(274,932,234	)		(260,545,919	)

Net	$	204,708,630		$	198,580,547		$	190,924,704

The following amounts represent the effect of affiliated reinsurance transactions on net losses and loss expenses our insurance subsidiaries incurred during 2019, 2018 and 2017:


	2019			2018			2017
Assumed	$	309,844,705		$	335,684,463		$	288,813,105
Ceded		(206,626,026	)		(195,570,872	)		(173,947,992	)

Net	$	103,218,679		$	140,113,591		$	114,865,113

b. Expense Sharing

Donegal Mutual provides facilities, management and other services to us 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 their personnel costs and bear their proportionate share of information services costs based on their percentage of the total written premiums of the Donegal Insurance Group. Charges for these services totaled $134,143,158, $126,153,511 and $124,999,770 for 201

, 201

and 201

, respectively.

c. Lease Agreement

We lease office equipment

with terms ranging from 3 to 10 years to Donegal Mutual under a

10-year

lease agreement dated January 1, 2011.