Donegal Mutual Insurance Co. and Mountain States Mutual Casualty Co. have agreed to merge, with Donegal Mutual as the surviving company.

Mountain States' insurance units, Mountain States Indemnity Co. and Mountain States Commercial Insurance Co., will become insurance units of Donegal Mutual. Mountain States Mutual and its units conduct business together as the Mountain States Insurance Group in Colorado, New Mexico, Texas and Utah. The group writes commercial lines in those four states and had net premiums written of $42.3 million in 2015.

The proposed affiliation allows Donegal Mutual to expand into the Southwest. The executive officers of Mountain States Mutual will become officers of Donegal Mutual and will retain their current responsibilities in the Albuquerque headquarters of the Mountain States Insurance Group.

Once the deal closes, Donegal Mutual will enter into quota share reinsurance, services and technology license agreements with Mountain States Mutual's insurance units, with the plan of making them eligible for A.M. Best's assignment of Donegal Mutual's group rating to those units and reducing their operating costs through economies of scale. Donegal Mutual and those insurance units will market their products together as the Mountain States Insurance Group in the Southwest.

Donegal Mutual will exclude the Mountain States Insurance Group business for an indefinite time after the deal closes from its pooling agreement with Atlantic States Insurance Co.