DGICA Donegal Group Inc

Donegal Group Inc. (NASDAQ: DGICA) and (NASDAQ: DGICB) today reported its financial results for the third quarter and first nine months of 2024.

Significant Items for third quarter of 2024 (all comparisons to third quarter of 2023):

• Net income of $16.8 million, or 51 cents per diluted Class A share, compared to net loss of $0.8 million, or 2 cents per Class A share
• Net premiums earned increased 6.0% to $238.0 million
• Net premiums written1 increased 5.9% to $232.2 million
• Combined ratio of 96.4%, compared to 104.5%
• Net income included after-tax net investment gains of $1.5 million, or 5 cents per diluted Class A share, compared to after-tax net investment losses of $1.0 million, or 3 cents per Class A share
• Book value per share of $15.22 at September 30, 2024, compared to $14.26

Financial Summary

	Three Months Ended September 30,											Nine Months Ended September 30,
		2024				2023			% Change				2024				2023			% Change
	(dollars in thousands, except per share amounts)
Income Statement Data
Net premiums earned	$	237,957			$	224,393			6.0	%		$	700,017			$	655,886			6.7	%
Investment income, net		10,827				10,536			2.8				32,868				30,143			9.0
Net investment gains (losses)		1,876				(1,243	)		NM2				4,725				930			408.1
Total revenues		251,738				233,928			7.6				739,651				687,870			7.5
Net income (loss)		16,752				(805	)		NM				26,860				6,396			319.9
Non-GAAP operating income1		15,270				176			NM				23,127				5,661			308.5
Annualized return on average equity		13.4	%			-0.7	%		14.1 pts				7.2	%			1.8	%		5.4 pts
Per Share Data
Net income (loss) – Class A (diluted)	$	0.51			$	(0.02	)		NM			$	0.81			$	0.20			305.0	%
Net income (loss) – Class B		0.46				(0.02	)		NM				0.74				0.17			335.3
Non-GAAP operating income – Class A (diluted)		0.46				0.01			NM				0.70				0.17			311.8
Non-GAAP operating income – Class B		0.42				-			NM				0.63				0.15			320.0
Book value		15.22				14.26			6.7	%			15.22				14.26			6.7

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 pleased that many of the strategic initiatives we implemented in recent years contributed to significant improvement in our financial results for the third quarter of 2024,” said Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc.

“With the exit from commercial lines markets in Georgia and Alabama essentially completed at the end of the second quarter of 2024, solid new business writings, rate achievement and retention levels led to a 6.4% increase in commercial lines net premiums written for the third quarter of 2024. Our personal lines net premiums written growth rate for the third quarter was 5.4%, primarily attributable to strong rate increases and policy retention that were partially offset by intentional strategic actions to slow growth and further improve profitability.

“Despite higher-than-average weather-related losses during the quarter, primarily attributable to Hurricane Helene in late September, our combined ratio improved significantly to 96.4%, compared to 104.5% for the prior-year quarter. Our core loss ratios improved across all of our major lines of business. We attribute that improvement to the favorable impact of numerous ongoing underwriting initiatives and higher net premiums earned from renewal rate increases that we implemented over the past two years.”

Mr, Burke concluded, “We have growing confidence that the continuing execution of our strategies will deliver sustained excellent financial performance.”

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), 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 September 30,									Nine Months Ended September 30,
		2024			2023		% Change				2024			2023		% Change
	(dollars in thousands)
Net Premiums Earned
Commercial lines	$	136,401		$	135,432		0.7	%		$	402,982		$	399,427		0.9	%
Personal lines		101,556			88,961		14.2				297,035			256,460		15.8
Total net premiums earned	$	237,957		$	224,393		6.0	%		$	700,017		$	655,887		6.7	%
Net Premiums Written
Commercial lines:
Automobile	$	41,464		$	37,535		10.5	%		$	142,067		$	134,853		5.3	%
Workers' compensation		23,934			24,371		-1.8				82,599			85,315		-3.2
Commercial multi-peril		50,155			44,949		11.6				163,528			147,622		10.8
Other		10,548			11,639		-9.4				35,649			39,913		-10.7
Total commercial lines		126,101			118,494		6.4				423,843			407,703		4.0
Personal lines:
Automobile		65,150			58,038		12.3				188,958			161,348		17.1
Homeowners		38,288			39,633		-3.4				109,655			105,035		4.4
Other		2,669			3,021		-11.7				8,383			8,917		-6.0
Total personal lines		106,107			100,692		5.4				306,996			275,300		11.5
Total net premiums written	$	232,208		$	219,186		5.9	%		$	730,839		$	683,003		7.0	%

Net Premiums Written

The 5.9% increase in net premiums written for the third quarter of 2024 compared to the third quarter of 2023, as shown in the table above, represents the combination of 6.4% growth in commercial lines net premiums written and 5.4% growth in personal lines net premiums written. The $13.0 million increase in net premiums written for the third quarter of 2024 compared to the third quarter of 2023 included:

• Commercial Lines: $7.6 million increase that we attribute primarily to new business writings, strong premium retention, and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition in states in which we are executing ongoing profit improvement initiatives as part of our state-specific strategies.
• Personal Lines: $5.4 million increase that we attribute primarily to a continuation of renewal premium rate increases and strong policy retention, offset partially by planned attrition due to non-renewal actions.

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 nine months ended September 30, 2024 and 2023:

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2024			2023			2024			2023
GAAP Combined Ratios (Total Lines)
Loss ratio - core losses	50.1	%		56.7	%		54.5	%		56.0	%
Loss ratio - weather-related losses	10.3			11.5			8.6			9.1
Loss ratio - large fire losses	3.7			4.9			5.2			5.3
Loss ratio - net prior-year reserve development	-2.6			-3.3			-2.2			-2.4
Loss ratio	61.5			69.8			66.1			68.0
Expense ratio	34.5			34.1			34.0			34.9
Dividend ratio	0.4			0.6			0.5			0.6
Combined ratio	96.4	%		104.5	%		100.6	%		103.5	%
Statutory Combined Ratios
Commercial lines:
Automobile	101.5	%		86.5	%		98.2	%		94.8	%
Workers' compensation	84.7			97.7			104.1			93.1
Commercial multi-peril	88.4			114.8			100.4			113.8
Other	59.4			76.2			78.4			82.7
Total commercial lines	89.8			97.5			98.6			100.2
Personal lines:
Automobile	97.8			109.8			97.8			106.1
Homeowners	116.8			128.9			107.5			111.2
Other	102.2			46.4			97.2			81.3
Total personal lines	104.7			119.4			101.2			107.2
Total lines	96.0	%		105.2	%		99.7	%		102.9	%

Loss Ratio

For the third quarter of 2024, the loss ratio decreased to 61.5%, compared to 69.8% for the third quarter of 2023. For the commercial lines segment, the core loss ratio of 48.5% for the third quarter of 2024 decreased from 53.7% for the third quarter of 2023, due largely to lower severity of large casualty losses. For the personal lines segment, the core loss ratio of 52.5% for the third quarter of 2024 decreased from 61.8% for the third quarter of 2023, due largely to the favorable impact of premium rate increases on net premiums earned for that segment. Core loss ratios in both segments improved compared to the respective ratios for the first half of 2024.

Weather-related losses were $24.4 million, or 10.3 percentage points of the loss ratio, for the third quarter of 2024, compared to $25.7 million, or 11.5 percentage points of the loss ratio, for the third quarter of 2023. Weather-related loss activity for the third quarter of 2024 was higher than our previous five-year average of $18.8 million, or 9.4 percentage points of the loss ratio, for third-quarter weather-related losses. Our insurance subsidiaries incurred $6.0 million in net losses from Hurricane Helene in September 2024.

Large fire losses, which we define as individual fire losses in excess of $50,000, for the third quarter of 2024 were $8.8 million, or 3.7 percentage points of the loss ratio. That amount was lower than large fire losses of $11.0 million, or 4.9 percentage points of the loss ratio, for the third quarter of 2023. We experienced a decrease in commercial property fire losses compared to the prior-year quarter.

Net favorable development of reserves for losses incurred in prior accident years of $6.2 million decreased the loss ratio for the third quarter of 2024 by 2.6 percentage points, compared to $7.3 million that decreased the loss ratio for the third quarter of 2023 by 3.3 percentage points. Our insurance subsidiaries experienced favorable development primarily in the commercial multi-peril and other commercial lines of business.

Expense Ratio

The expense ratio was 34.5% for the third quarter of 2024, compared to 34.1% for the third quarter of 2023. The modest increase in the expense ratio primarily reflected an increase in underwriting-based incentive costs as well as higher technology systems-related expenses that were primarily due to increased costs related to our ongoing systems modernization project, a portion of which Donegal Mutual Insurance Company allocates to our insurance subsidiaries. This increase was offset partially by impacts of various expense reduction initiatives, including agency incentive program revisions, commission schedule adjustments, targeted staffing reductions, and hiring restrictions for open employment positions, among others. We expect the impact from allocated costs from Donegal Mutual Insurance Company to our insurance subsidiaries related to the ongoing systems modernization project will peak at approximately 1.3 percentage points of the expense ratio for the full year of 2024 before beginning to subside gradually in subsequent years.

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 96.2% of our consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at September 30, 2024.

	September 30, 2024							December 31, 2023
	Amount				%			Amount				%
	(dollars in thousands)
Fixed maturities, at carrying value:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	173,663			12.7	%		$	176,991			13.3	%
Obligations of states and political subdivisions		413,040			30.1				415,280			31.3
Corporate securities		427,372			31.2				399,640			30.1
Mortgage-backed securities		304,911			22.3				278,260			21.0
Allowance for expected credit losses		(1,483	)		-0.1				(1,326	)		-0.1
Total fixed maturities		1,317,503			96.2				1,268,845			95.6
Equity securities, at fair value		35,957			2.6				25,903			2.0
Short-term investments, at cost		15,805			1.2				32,306			2.4
Total investments	$	1,369,265			100.0	%		$	1,327,054			100.0	%
Average investment yield		3.3	%						3.1	%
Average tax-equivalent investment yield		3.3	%						3.2	%
Average fixed-maturity duration (years)		5.1							4.3

Net investment income of $10.8 million for the third quarter of 2024 increased modestly compared to $10.5 million for the third quarter of 2023. The increase in net investment income primarily reflected an increase in average investment yield relative to the prior-year third quarter.

Net investment gains of $1.9 million for the third quarter of 2024 were primarily related to unrealized gains in the fair value of equity securities held at September 30, 2024. Net investment losses of $1.2 million for the third quarter of 2023 were primarily related to unrealized losses in the fair value of equity securities held at September 30, 2023.

Our book value per share was $15.22 at September 30, 2024, compared to $14.39 at December 31, 2023, with the increase related to net income as well as $11.9 million of after-tax unrealized gains within our available-for-sale fixed-maturity portfolio during 2024 that increased our book value by $0.37 per share, offset partially by cash dividends declared.

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 September 30,											Nine Months Ended September 30,
		2024				2023			% Change				2024			2023		% Change
	(dollars in thousands)
Reconciliation of Net Premiums
Earned to Net Premiums Written
Net premiums earned	$	237,957			$	224,393			6.0	%		$	700,017		$	655,886		6.7	%
Change in net unearned premiums		(5,749	)			(5,207	)		10.4				30,822			27,117		13.7
Net premiums written	$	232,208			$	219,186			5.9	%		$	730,839		$	683,003		7.0	%

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

	Three Months Ended September 30,										Nine Months Ended September 30,
		2024				2023			% Change			2024				2023			% Change
	(dollars in thousands, except per share amounts)
Reconciliation of Net Income (Loss)
to Non-GAAP Operating Income
Net income (loss)	$	16,752			$	(805	)		NM		$	26,860			$	6,396			319.9	%
Investment (gains) losses (after tax)		(1,482	)			981			NM			(3,733	)			(735	)		407.9
Non-GAAP operating income	$	15,270			$	176			NM		$	23,127			$	5,661			308.5	%
Per Share Reconciliation of Net Income (Loss)
to Non-GAAP Operating Income
Net income (loss) – Class A (diluted)	$	0.51			$	(0.02	)		NM		$	0.81			$	0.20			305.0	%
Investment (gains) losses (after tax)		(0.05	)			0.03			NM			(0.11	)			(0.03	)		266.7
Non-GAAP operating income – Class A	$	0.46			$	0.01			NM		$	0.70			$	0.17			311.8	%
Net income (loss) – Class B	$	0.46			$	(0.02	)		NM		$	0.74			$	0.17			335.3	%
Investment (gains) losses (after tax)		(0.04	)			0.02			NM			(0.11	)			(0.02	)		450.0
Non-GAAP operating income – Class B	$	0.42			$	-			NM		$	0.63			$	0.15			320.0	%

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 October 17, 2024, we declared a regular quarterly cash dividend of $0.1725 per share for our Class A common stock and $0.155 per share for our Class B common stock, which are payable on November 15, 2024 to stockholders of record as of the close of business on November 1, 2024.

Pre-Recorded Webcast

At approximately 8:30 am ET on Thursday, October 24, 2024, 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, 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 social inflation, 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), 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) 836-9623E-mail: kdaly@equityny.com

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

Financial Supplement

Donegal Group Inc.
Consolidated Statements of Income (Loss)
(unaudited; in thousands, except share data)
			Quarter Ended September 30,
				2024			2023
Net premiums earned			$	237,957		$	224,393
Investment income, net of expenses				10,827			10,536
Net investment gains (losses)				1,876			(1,243	)
Lease income				77			86
Installment payment fees				1,001			156
	Total revenues			251,738			233,928
Net losses and loss expenses				146,426			156,683
Amortization of deferred acquisition costs				40,200			39,332
Other underwriting expenses				41,827			37,155
Policyholder dividends				1,007			1,399
Interest				367			156
Other expenses, net				1,499			208
	Total expenses			231,326			234,933
Income (loss) before income tax expense (benefit)				20,412			(1,005	)
Income tax expense (benefit)				3,660			(200	)
Net income (loss)			$	16,752		$	(805	)
Net income (loss) per common share:
	Class A - basic and diluted		$	0.51		$	(0.02	)
	Class B - basic and diluted		$	0.46		$	(0.02	)
Supplementary Financial Analysts' Data
Weighted-average number of shares
	outstanding:
	Class A - basic			27,978,435			27,594,973
	Class A - diluted			28,058,399			27,665,293
	Class B - basic and diluted			5,576,775			5,576,775
Net premiums written			$	232,208		$	219,186
Book value per common share
	at end of period		$	15.22		$	14.26

Donegal Group Inc.
Consolidated Statements of Income
(unaudited; in thousands, except share data)
			Nine Months Ended September 30,
				2024			2023
Net premiums earned			$	700,017		$	655,886
Investment income, net of expenses				32,868			30,143
Net investment gains				4,725			930
Lease income				237			262
Installment payment fees				1,804			649
	Total revenues			739,651			687,870
Net losses and loss expenses				462,683			446,024
Amortization of deferred acquisition costs				120,458			115,065
Other underwriting expenses				117,604			113,715
Policyholder dividends				3,248			4,088
Interest				677			464
Other expenses, net				2,309			969
	Total expenses			706,979			680,325
Income before income tax expense				32,672			7,545
Income tax expense				5,812			1,149
Net income			$	26,860		$	6,396
Net income per common share:
	Class A - basic		$	0.82		$	0.20
	Class A - diluted		$	0.81		$	0.20
	Class B - basic and diluted		$	0.74		$	0.17
Supplementary Financial Analysts' Data
Weighted-average number of shares outstanding:
	Class A - basic			27,878,552			27,390,883
	Class A - diluted			27,916,904			27,507,706
	Class B - basic and diluted			5,576,775			5,576,775
Net premiums written			$	730,839		$	683,003
Book value per common share
	at end of period		$	15.22		$	14.26

Donegal Group Inc.
Consolidated Balance Sheets
(in thousands)
			September 30,				December 31,
				2024				2023
			(unaudited)
ASSETS
Investments:
	Fixed maturities:
		Held to maturity, at amortized cost	$	694,663			$	679,497
		Available for sale, at fair value		622,840				589,348
	Equity securities, at fair value			35,957				25,903
	Short-term investments, at cost			15,805				32,306
		Total investments		1,369,265				1,327,054
Cash				28,651				23,792
Premiums receivable				194,254				179,592
Reinsurance receivable				434,078				441,431
Deferred policy acquisition costs				78,484				75,043
Prepaid reinsurance premiums				185,364				168,724
Other assets				56,030				50,658
		Total assets	$	2,346,126			$	2,266,294
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Losses and loss expenses		$	1,134,853			$	1,126,157
	Unearned premiums			646,870				599,411
	Accrued expenses			2,987				3,947
	Borrowings under lines of credit			35,000				35,000
	Other liabilities			13,046				22,034
		Total liabilities		1,832,756				1,786,549
Stockholders' equity:
	Class A common stock			312				308
	Class B common stock			56				56
	Additional paid-in capital			342,186				335,694
	Accumulated other comprehensive loss			(20,951	)			(32,882	)
	Retained earnings			232,993				217,795
	Treasury stock			(41,226	)			(41,226	)
		Total stockholders' equity		513,370				479,745
		Total liabilities and stockholders' equity	$	2,346,126			$	2,266,294