• Donegal Group Inc. Announces Second Quarter and First Half 2023 Results

    Source: Nasdaq GlobeNewswire / 27 Jul 2023 06:30:00   America/New_York

    MARIETTA, Pa., July 27, 2023 (GLOBE NEWSWIRE) -- Donegal Group Inc. (NASDAQ: DGICA) and (NASDAQ: DGICB) today reported its financial results for the second quarter and first half of 2023.

    Significant Items for Second Quarter of 2023 (all comparisons to second quarter of 2022):

    • Net income of $2.0 million, or 6 cents per diluted Class A share, compared to net loss of $8.2 million, or 26 cents per Class A share
    • Net premiums earned increased 5.9% to $216.3 million
    • Net premiums written1 increased 3.7% to $226.5 million
    • Combined ratio of 104.7%, compared to 105.0%
    • Net income included after-tax net investment gains of $2.0 million, or 6 cents per diluted Class A share, compared to after-tax net investment losses of $6.6 million, or 21 cents per Class A share
    • Book value per share of $14.68 at June 30, 2023

    Financial Summary

                
     Three Months Ended June 30, Six Months Ended June 30,
      2023   2022  % Change  2023   2022  % Change
      
     (dollars in thousands, except per share amounts)
                
    Income Statement Data           
    Net premiums earned$216,260  $204,128  5.9% $431,493  $403,377  7.0%
    Investment income, net 10,157   8,204  23.8   19,607   16,063  22.1 
    Net investment gains (losses) 2,504   (8,377) NM2  2,173   (8,453) NM
    Total revenues 229,196   204,311  12.2   453,942   411,938  10.2 
    Net income (loss) 1,997   (8,208) NM  7,201   4,937  45.9 
    Non-GAAP operating income (loss)1 19   (1,590) NM  5,484   11,615  -52.8 
    Annualized return (loss) on average equity 1.6%  -6.3% NM  3.0%  1.9% 1.1 pts
                
    Per Share Data           
    Net income (loss) – Class A (diluted)$0.06  $(0.26) NM $0.22  $0.16  37.5%
    Net income (loss) – Class B 0.05   (0.24) NM  0.20   0.14  42.9 
    Non-GAAP operating income (loss) – Class A (diluted) -   (0.05) NM  0.17   0.37  -54.1 
    Non-GAAP operating income (loss) – Class B -   (0.05) NM  0.15   0.34  -55.9 
    Book value 14.68   15.87  -7.5%  14.68   15.87  -7.5 
                
                

    1The “Definitions of Non-GAAP Financial Measures” section of this release defines and reconciles data that we prepare on an accounting basis other than U.S. generally accepted accounting principles (“GAAP”).

    2Not meaningful.

    Management Commentary

    “We are continuing to navigate through a challenging time for the insurance industry as we respond to the ongoing effects of elevated loss cost inflation. During the quarter, we intentionally slowed our new business growth in personal lines, a strategic decision due to the ongoing inflationary increases in the cost and duration of automobile and property repairs seen across the industry. Personal lines premium growth of 14.8% was primarily driven by rating actions, with average renewal rate increases of 13.6% for the second quarter. For our commercial lines segment, we have continued the rollout of modernized commercial automobile, umbrella and businessowners products with enhanced straight-through processing capabilities for our agents. After a successful initial rollout in three states in the first quarter of 2023, we have launched the enhanced products and agency portal in the remaining 19 states where we offer commercial lines for policies effective beginning August 1. Commercial premium retention and rate increases remained strong during the second quarter, but they were more than offset by policy attrition in several states we are exiting or have targeted for profit improvement and the effect of reinsurance reinstatement premiums resulting from utilization of reinsurance for several large property losses. Renewal rate increases averaged 10.1% for commercial lines other than workers’ compensation for the second quarter of 2023. We remain confident in our ability to grow our business profitably as we continue to execute numerous strategies over the next few years,” said Kevin G. Burke, President and Chief Executive Officer.

    He continued, “We saw modest improvement in profitability, as expected, in the second quarter of 2023. While no large catastrophe weather event impacted the quarterly loss ratio, the frequency of losses from smaller weather-related events across our footprint increased. We remain committed to implementing rate increases across our operating regions and taking specific data-driven underwriting actions to improve our geographic spread of risk in response to the uptick in the frequency of weather events. We are committed to enhancing our operational efficiency, profitability and long-term value creation for the benefit of our policyholders, agents and stockholders.”

    Insurance Operations

    Donegal Group is an insurance holding company whose insurance subsidiaries and affiliates offer property and casualty lines of insurance in three Mid-Atlantic states (Delaware, Maryland and Pennsylvania), two New England states (Maine and New Hampshire), five Southern states (Georgia, North Carolina, South Carolina, Tennessee and Virginia), eight Midwestern states (Illinois, Indiana, Iowa, Michigan, Nebraska, Ohio, South Dakota and Wisconsin) and five Southwestern states (Arizona, Colorado, New Mexico, Texas and Utah). Donegal Mutual Insurance Company and the insurance subsidiaries of Donegal Group conduct business together as the Donegal Insurance Group.

                
     Three Months Ended June 30, Six Months Ended June 30,
      2023  2022 % Change  2023  2022 % Change
      
     (dollars in thousands)
      
    Net Premiums Earned           
    Commercial lines$128,092 $126,854 1.0% $258,558 $251,183 2.9%
    Personal lines 88,168  77,274 14.1   172,935  152,194 13.6 
    Total net premiums earned$216,260 $204,128 5.9% $431,493 $403,377 7.0%
                
    Net Premiums Written           
    Commercial lines:           
    Automobile$45,249 $43,588 3.8% $97,318 $92,216 5.5%
    Workers' compensation 27,743  29,343 -5.5   60,944  62,240 -2.1 
    Commercial multi-peril 46,823  51,117 -8.4   102,673  105,314 -2.5 
    Other 10,379  10,496 -1.1   22,269  21,607 3.1 
    Total commercial lines 130,194  134,544 -3.2   283,204  281,377 0.6 
    Personal lines:           
    Automobile 53,329  44,988 18.5   103,310  87,228 18.4 
    Homeowners 37,213  32,785 13.5   65,402  56,300 16.2 
    Other 5,776  6,129 -5.8   11,900  11,983 -0.7 
    Total personal lines 96,318  83,902 14.8   180,612  155,511 16.1 
    Total net premiums written$226,512 $218,446 3.7% $463,816 $436,888 6.2%
                
                

    Net Premiums Written

    The 3.7% increase in net premiums written for the second quarter of 2023 compared to the second quarter of 2022, as shown in the table above, represents a 3.2% decline in commercial lines net premiums written and 14.8% growth in personal lines net premiums written. The $8.1 million increase in net premiums written for the second quarter of 2023 compared to the second quarter of 2022 included:

    • Commercial Lines: $4.3 million decrease that we attribute primarily to planned attrition in states we are exiting or have targeted for profit improvement, lower new business writings and reinsurance reinstatement premiums on our property excess of loss reinsurance program, offset partially by strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation.
    • Personal Lines: $12.4 million increase that we attribute to a continuation of renewal premium increases and strong premium retention.

    Underwriting Performance

    We evaluate the performance of our commercial lines and personal lines segments primarily based upon the underwriting results of our insurance subsidiaries as determined under statutory accounting practices. The following table presents comparative details with respect to the GAAP and statutory combined ratios1 for the three and six months ended June 30, 2023 and 2022:

     Three Months Ended Six Months Ended
     June 30, June 30,
     2023  2022  2023  2022 
            
    GAAP Combined Ratios (Total Lines)       
    Loss ratio - core losses55.0% 57.1% 55.8% 57.9%
    Loss ratio - weather-related losses9.1  9.6  7.8  6.8 
    Loss ratio - large fire losses5.9  6.6  5.5  5.7 
    Loss ratio - net prior-year reserve development-0.1  -3.9  -2.0  -6.1 
    Loss ratio69.9  69.4  67.1  64.3 
    Expense ratio34.2  35.0  35.3  35.4 
    Dividend ratio0.6  0.6  0.6  0.7 
    Combined ratio104.7% 105.0% 103.0% 100.4%
            
    Statutory Combined Ratios       
    Commercial lines:       
    Automobile101.9% 100.1% 99.1% 94.7%
    Workers' compensation95.7  78.7  91.0  87.8 
    Commercial multi-peril111.8  119.5  113.3  109.8 
    Other95.7  87.1  88.2  79.9 
    Total commercial lines103.6  101.6  101.8  97.6 
    Personal lines:       
    Automobile104.4  104.0  104.1  98.9 
    Homeowners103.4  123.5  101.8  115.9 
    Other105.9  51.3  77.4  47.6 
    Total personal lines104.3  107.5  101.6  101.2 
    Total lines103.8% 103.8% 101.7% 99.0%
            
            

    Loss Ratio

    For the second quarter of 2023, the loss ratio increased slightly to 69.9%, compared to 69.4% for the second quarter of 2022. Weather-related losses were $19.7 million, or 9.1 percentage points of the loss ratio, for the second quarter of 2023, compared to $19.6 million, or 9.6 percentage points of the loss ratio, for the second quarter of 2022. Weather-related loss activity for the second quarter of 2023 was higher than our previous five-year average of $16.9 million, or 8.9 percentage points of the loss ratio, for second-quarter weather-related losses.

    Large fire losses, which we define as individual fire losses in excess of $50,000, for the second quarter of 2023 were $12.7 million, or 5.9 percentage points of the loss ratio. That amount was less than the large fire losses of $13.4 million, or 6.6 percentage points of the loss ratio, for the second quarter of 2022. We experienced a $1.4 million decrease in homeowners fire losses, offset partially by a modest increase in commercial property fire losses, compared to the prior-year quarter.

    Net favorable development of reserves for losses incurred in prior accident years was negligible and had virtually no impact on the loss ratio for the second quarter of 2023, compared to $7.9 million that decreased the loss ratio for the second quarter of 2022 by 3.9 percentage points. Our insurance subsidiaries experienced modest levels of favorable development in the commercial automobile, personal automobile and homeowners lines of business, offset by modest levels of adverse development in workers’ compensation and other lines of business that we primarily attribute to higher-than-anticipated case reserve development.

    Expense Ratio

    The expense ratio was 34.2% for the second quarter of 2023, compared to 35.0% for the second quarter of 2022. The decrease in the expense ratio reflected lower underwriting-based incentive costs for our agents and employees for the second quarter of 2023 compared to the prior-year quarter.

    Investment Operations

    Donegal Group’s investment strategy is to generate an appropriate amount of after-tax income on its invested assets while minimizing credit risk through investment in high-quality securities. As a result, we had invested 95.5% of our consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at June 30, 2023.

            
     June 30, 2023 December 31, 2022
     Amount % Amount %
      
     (dollars in thousands)
    Fixed maturities, at carrying value:       
    U.S. Treasury securities and obligations of U.S.       
    government corporations and agencies$167,416  12.8% $166,883  12.8%
    Obligations of states and political subdivisions 418,919  32.1   422,253  32.4 
    Corporate securities 395,819  30.3   393,787  30.2 
    Mortgage-backed securities 265,310  20.4   229,308  17.5 
    Allowance for expected credit losses (1,324) -0.1   -  0.0 
    Total fixed maturities 1,246,140  95.5   1,212,231  92.9 
    Equity securities, at fair value 38,619  3.0   35,105  2.7 
    Short-term investments, at cost 19,465  1.5   57,321  4.4 
    Total investments$1,304,224  100.0% $1,304,657  100.0%
            
    Average investment yield 3.0%    2.6%  
    Average tax-equivalent investment yield 3.1%    2.7%  
    Average fixed-maturity duration (years) 5.8     5.9   
            
            

    Net investment income of $10.2 million for the second quarter of 2023 increased 23.8% compared to $8.2 million for the second quarter of 2022. The increase in net investment income primarily reflected an increase in average investment yield relative to the prior-year second quarter.

    Net investment gains of $2.5 million for the second quarter of 2023 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2023. Net investment losses of $8.4 million for the second quarter of 2022 were primarily related to unrealized losses in the fair value of equity securities held at June 30, 2022.

    Our book value per share was $14.68 at June 30, 2023, compared to $14.79 at December 31, 2022, with the decrease partially related to $3.6 million of after-tax unrealized losses within our available-for-sale fixed-maturity portfolio during 2023 that decreased our book value by $0.11 per share.

    Definitions of Non-GAAP Financial Measures

    We prepare our consolidated financial statements on the basis of GAAP. Our insurance subsidiaries also prepare financial statements based on statutory accounting principles state insurance regulators prescribe or permit (“SAP”). In addition to using GAAP-based performance measurements, we also utilize certain non-GAAP financial measures that we believe provide value in managing our business and for comparison to the financial results of our peers. These non-GAAP measures are net premiums written, operating income or loss and statutory combined ratio.

    Net premiums written and operating income or loss are non-GAAP financial measures investors in insurance companies commonly use. We define net premiums written as the amount of full-term premiums our insurance subsidiaries record for policies effective within a given period less premiums our insurance subsidiaries cede to reinsurers. We define operating income or loss as net income or loss excluding after-tax net investment gains or losses, after-tax restructuring charges and other significant non-recurring items. Because our calculation of operating income or loss may differ from similar measures other companies use, investors should exercise caution when comparing our measure of operating income or loss to the measure of other companies.

    The following table provides a reconciliation of net premiums earned to net premiums written for the periods indicated:

                
     Three Months Ended June 30, Six Months Ended June 30,
      2023  2022 % Change  2023  2022 % Change
      
     (dollars in thousands)
                
    Reconciliation of Net Premiums           
    Earned to Net Premiums Written           
    Net premiums earned$216,260 $204,128 5.9% $431,493 $403,377 7.0%
    Change in net unearned premiums 10,252  14,318 -28.4   32,323  33,511 -3.5 
    Net premiums written$226,512 $218,446 3.7% $463,816 $436,888 6.2%
                
                

    The following table provides a reconciliation of net income (loss) to operating income (loss) for the periods indicated:

     Three Months Ended June 30, Six Months Ended June 30,
      2023   2022  % Change  2023   2022 % Change
      
     (dollars in thousands, except per share amounts)
                
    Reconciliation of Net Income (Loss)            
    to Non-GAAP Operating Income (Loss)           
    Net income (loss)$1,997  $(8,208) NM $7,201  $4,937 45.9%
    Investment (gains) losses (after tax) (1,978)  6,618  NM  (1,717)  6,678 NM
    Non-GAAP operating income (loss)$19  $(1,590) NM $5,484  $11,615 -52.8%
                
    Per Share Reconciliation of Net Income (Loss)           
    to Non-GAAP Operating Income (Loss)            
    Net income (loss) – Class A (diluted)$0.06  $(0.26) NM $0.22  $0.16 37.5%
    Investment (gains) losses (after tax) (0.06)  0.21  NM  (0.05)  0.21 NM
    Non-GAAP operating income (loss) – Class A$-  $(0.05) NM $0.17  $0.37 -54.1%
                
    Net income (loss) – Class B$0.05  $(0.24) NM $0.20  $0.14 42.9%
    Investment (gains) losses (after tax) (0.05)  0.19  NM  (0.05)  0.20 NM
    Non-GAAP operating income (loss) – Class B$-  $(0.05) NM $0.15  $0.34 -55.9%
                
                

    The statutory combined ratio is a non-GAAP standard measurement of underwriting profitability that is based upon amounts determined under SAP. The statutory combined ratio is the sum of:

    • the statutory loss ratio, which is the ratio of calendar-year incurred losses and loss expenses, excluding anticipated salvage and subrogation recoveries, to premiums earned;
    • the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to premiums written; and
    • the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to premiums earned.

    The statutory combined ratio does not reflect investment income, federal income taxes or other non-operating income or expense. A statutory combined ratio of less than 100% generally indicates underwriting profitability.

    Dividend Information

    On July 20, 2023, we declared a regular quarterly cash dividend of $0.17 per share for our Class A common stock and $0.1525 per share for our Class B common stock, which are payable on August 15, 2023 to stockholders of record as of the close of business on August 1, 2023.

    Pre-Recorded Webcast

    At approximately 8:30 am ET on Thursday, July 27, 2023, we will make available in the Investors section of our website a pre-recorded audio webcast featuring management commentary on our quarterly results and general business updates. You may listen to the pre-recorded webcast by accessing the link on our website at http://investors.donegalgroup.com. A supplemental investor presentation is also available via our website.

    About the Company

    Donegal Group Inc. is an insurance holding company whose insurance subsidiaries and affiliates offer property and casualty lines of insurance in certain Mid-Atlantic, Midwestern, New England, Southern and Southwestern states. Donegal Mutual Insurance Company and the insurance subsidiaries of Donegal Group Inc. conduct business together as the Donegal Insurance Group. The Donegal Insurance Group has an A.M. Best rating of A (Excellent).

    The Class A common stock and Class B common stock of Donegal Group Inc. trade on the NASDAQ Global Select Market under the symbols DGICA and DGICB, respectively. We are focused on several primary strategies, including achieving sustained excellent financial performance, strategically modernizing our operations and processes to transform our business, capitalizing on opportunities to grow profitably and delivering a superior experience to our agents and customers.

    Safe Harbor

    We base all statements contained in this release that are not historic facts on our current expectations. Such statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and necessarily involve risks and uncertainties. Forward-looking statements we make may be identified by our use of words such as “will,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “seek,” “estimate” and similar expressions. Our actual results could vary materially from our forward-looking statements. The factors that could cause our actual results to vary materially from the forward-looking statements we have previously made include, but are not limited to, adverse litigation and other trends that could increase our loss costs (including labor shortages and escalating medical, automobile and property repair costs), adverse and catastrophic weather events (including from changing climate conditions), our ability to maintain profitable operations (including our ability to underwrite risks effectively and charge adequate premium rates), prolonged economic challenges resulting from the COVID-19 pandemic, the adequacy of the loss and loss expense reserves of our insurance subsidiaries, the availability and successful operation of the information technology systems our insurance subsidiaries utilize, the successful development of new information technology systems to allow our insurance subsidiaries to compete effectively, business and economic conditions in the areas in which we and our insurance subsidiaries operate, interest rates, competition from various insurance and other financial businesses, terrorism, the availability and cost of reinsurance, legal and judicial developments (including those related to COVID-19 business interruption coverage exclusions), changes in regulatory requirements, our ability to attract and retain independent insurance agents, changes in our A.M. Best rating and the other risks that we describe from time to time in our filings with the Securities and Exchange Commission. We disclaim any obligation to update such statements or to announce publicly the results of any revisions that we may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

    Investor Relations Contacts

    Karin Daly, Vice President, The Equity Group Inc.

    Phone: (212) 836-9623
    E-mail: kdaly@equityny.com

    Jeffrey D. Miller, Executive Vice President & Chief Financial Officer
    Phone: (717) 426-1931
    E-mail: investors@donegalgroup.com

    Financial Supplement

    Donegal Group Inc.
    Consolidated Statements of Income (Loss)
    (unaudited; in thousands, except share data)
          
       Quarter Ended June 30,
        2023  2022 
          
    Net premiums earned$216,260 $204,128 
    Investment income, net of expenses 10,157  8,204 
    Net investment gains (losses) 2,504  (8,377)
    Lease income 87  98 
    Installment payment fees 188  258 
     Total revenues 229,196  204,311 
          
    Net losses and loss expenses 151,235  141,608 
    Amortization of deferred acquisition costs 37,935  35,172 
    Other underwriting expenses 35,948  36,235 
    Policyholder dividends 1,346  1,289 
    Interest  155  240 
    Other expenses, net 324  346 
     Total expenses 226,943  214,890 
          
    Income (loss) before income tax expense (benefit) 2,253  (10,579)
    Income tax expense (benefit) 256  (2,371)
          
    Net income (loss)$1,997 $(8,208)
          
    Net income (loss) per common share:   
     Class A - basic and diluted$0.06 $(0.26)
     Class B - basic and diluted$0.05 $(0.24)
          
    Supplementary Financial Analysts' Data   
          
    Weighted-average number of shares   
     outstanding:   
     Class A - basic 27,382,442  26,069,692 
     Class A - diluted 27,489,338  26,294,147 
     Class B - basic and diluted 5,576,775  5,576,775 
          
    Net premiums written$226,512 $218,446 
          
    Book value per common share   
     at end of period$14.68 $15.87 
          


    Donegal Group Inc.
    Consolidated Statements of Income
    (unaudited; in thousands, except share data)
          
       Six Months Ended June 30,
        2023  2022 
          
    Net premiums earned$431,493 $403,377 
    Investment income, net of expenses 19,607  16,063 
    Net investment gains (losses) 2,173  (8,453)
    Lease income 176  203 
    Installment payment fees 493  748 
     Total revenues 453,942  411,938 
          
    Net losses and loss expenses 289,341  259,491 
    Amortization of deferred acquisition costs 75,733  69,354 
    Other underwriting expenses 76,560  73,342 
    Policyholder dividends 2,689  2,937 
    Interest  308  393 
    Other expenses, net 761  774 
     Total expenses 445,392  406,291 
          
    Income before income tax expense 8,550  5,647 
    Income tax expense 1,349  710 
          
    Net income$7,201 $4,937 
          
    Net income per common share:   
     Class A - basic and diluted$0.22 $0.16 
     Class B - basic and diluted$0.20 $0.14 
          
    Supplementary Financial Analysts' Data   
          
    Weighted-average number of shares   
     outstanding:   
     Class A - basic 27,287,717  25,928,952 
     Class A - diluted 27,427,848  26,052,149 
     Class B - basic and diluted 5,576,775  5,576,775 
          
    Net premiums written$463,816 $436,888 
          
    Book value per common share   
     at end of period$14.68 $15.87 
          


    Donegal Group Inc.
    Consolidated Balance Sheets
    (in thousands)
          
       June 30, December 31,
        2023   2022 
       (unaudited)  
          
    ASSETS
    Investments:   
     Fixed maturities:   
      Held to maturity, at amortized cost$685,402  $688,439 
      Available for sale, at fair value 560,738   523,792 
     Equity securities, at fair value 38,619   35,105 
     Short-term investments, at cost 19,465   57,321 
      Total investments 1,304,224   1,304,657 
    Cash  28,435   25,123 
    Premiums receivable 195,252   173,846 
    Reinsurance receivable 450,680   456,522 
    Deferred policy acquisition costs 78,903   73,170 
    Prepaid reinsurance premiums 175,079   160,591 
    Other assets 56,362   49,440 
      Total assets$2,288,935  $2,243,349 
          
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities:    
     Losses and loss expenses$1,122,683  $1,121,046 
     Unearned premiums 624,463   577,653 
     Accrued expenses 4,528   4,226 
     Borrowings under lines of credit 35,000   35,000 
     Other liabilities 16,068   21,831 
      Total liabilities 1,802,742   1,759,756 
    Stockholders' equity:   
     Class A common stock 305   301 
     Class B common stock 56   56 
     Additional paid-in capital 332,073   325,602 
     Accumulated other comprehensive loss (45,201)  (41,704)
     Retained earnings 240,186   240,564 
     Treasury stock (41,226)  (41,226)
      Total stockholders' equity 486,193   483,593 
      Total liabilities and stockholders' equity$2,288,935  $2,243,349 
          

     


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