Reinsurance

12 Months Ended

Dec. 31, 2019

10 - Reinsurance

Unaffiliated Reinsurers

Our insurance subsidiaries and Donegal Mutual implemented a combined third-party reinsurance program effective January 1, 2019. The coverage and parameters of the fully consolidated program are common to all of our insurance subsidiaries and Donegal Mutual. Our insurance subsidiaries use several different reinsurers, all of which 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 following information describes the external reinsurance our insurance subsidiaries had in place for 2019:

•

excess of loss reinsurance, under which the losses of Donegal Mutual and our insurance subsidiaries were automatically reinsured, through a series of contracts, over a set retention of $1.0 million for property losses and a retention of $2.0 million for casualty losses (including workers’ compensation losses); and

•

catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered, through a series of reinsurance agreements, 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention of $10.0 million and after exceeding an annual aggregate deductible of $1.2 million up to aggregate losses of $190.0 million per occurrence.

Our insurance subsidiaries and Donegal Mutual also purchased facultative reinsurance to cover exposures in excess of the covered limits of their third-party reinsurance agreements.

As many as 31 reinsurers provided coverage for 2019 on any one treaty with no reinsurer taking more than 40% of any one treaty.

The amount of coverage provided under each of these types of reinsurance depended upon the amount, nature, size and location of the risks being reinsured. 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.

In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual, under which each of our insurance subsidiaries recovered 100% of an accumulation of multiple losses resulting from a single event, including natural disasters, over a set retention of $2.0 million up to aggregate losses of $8.0 million per occurrence. The agreement also provided additional coverage for an accumulation of losses from a single event including a combination of our insurance subsidiaries over a combined retention of $5.0 million.

The following amounts represent ceded reinsurance transactions with unaffiliated reinsurers during 2019, 2018 and 2017:


	2019		2018		2017
Premiums written	$	36,941,997	$	50,160,604	$	51,241,267
Premiums earned		39,732,282		51,266,000		49,633,348
Losses and loss expenses		33,615,819		50,652,202		44,575,268
Prepaid reinsurance premiums		7,067,989		10,108,269		11,213,665
Liability for losses and loss expenses		139,694,097		137,904,346		116,689,871

Total Reinsurance

The following amounts represent total ceded reinsurance transactions with both affiliated and unaffiliated reinsurers during 2019, 2018 and 2017:


	2019		2018		2017
Premiums earned	$	314,859,014	$	326,198,234	$	310,179,267
Losses and loss expenses		240,241,845		246,223,074		218,523,260
Prepaid reinsurance premiums		142,475,767		135,379,777		135,032,641
Liability for losses and loss expenses		362,768,427		339,267,525		293,271,257

The following amounts represent the effect of reinsurance on premiums written for 2019, 2018 and 2017:


	2019			2018			2017
Direct	$	589,572,526		$	594,078,723		$	584,007,351
Assumed		485,233,762			476,482,451			466,087,983
Ceded		(322,204,999	)		(326,545,370	)		(320,956,412	)

Net premiums written	$	752,601,289		$	744,015,804		$	729,138,922

The following amounts represent the effect of reinsurance on premiums earned for 2019, 2018 and 2017:


	2019			2018			2017
Direct	$	591,101,804		$	593,976,241		$	561,178,447
Assumed		479,835,610			473,512,866			451,515,575
Ceded		(314,859,014	)		(326,198,234	)		(310,179,267	)

Net premiums earned	$	756,078,400		$	741,290,873		$	702,514,755

Percentage of assumed premiums earned to net premiums earned		63.5	%		63.9	%		64.3	%