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Transactions with Affiliates | 12 Months Ended
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Dec. 31, 2019
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Transactions with Affiliates | 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 9 , 201 8 and 201 7 , 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.

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