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Donegal Group Inc. Announces Second Quarter and First Half 2022 Results
المصدر: Nasdaq GlobeNewswire / 28 يوليو 2022 05:30:00 America/Chicago
MARIETTA, Pa., July 28, 2022 (GLOBE NEWSWIRE) -- Donegal Group Inc. (NASDAQ: DGICA) and (NASDAQ: DGICB) today reported its financial results for the second quarter and first half of 2022.
Significant Items for Second Quarter of 2022 (all comparisons to second quarter of 2021):
- Net loss of $8.2 million, or 26 cents per Class A share, compared to net income of $16.2 million, or 53 cents per diluted Class A share
- Net premiums earned increased 6.0% to $204.1 million
- Net premiums written1 increased 4.2% to $218.4 million
- Combined ratio of 105.0%, compared to 96.1%
- Net loss included after-tax net investment losses of $6.6 million, or 21 cents per Class A share, compared to after-tax net investment gains of $3.4 million, or 11 cents per diluted Class A share
- Book value per share of $15.87 at June 30, 2022
Financial Summary
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands, except per share amounts) Income Statement Data Net premiums earned $ 204,128 $ 192,489 6.0 % $ 403,377 $ 379,740 6.2 % Investment income, net 8,204 7,652 7.2 16,063 15,163 5.9 Net investment (losses) gains (8,377 ) 4,241 NM2 (8,453 ) 6,710 NM Total revenues 204,311 205,146 -0.4 411,938 403,116 2.2 Net (loss) income (8,208 ) 16,164 NM 4,937 26,694 -81.5 Non-GAAP operating (loss) income1 (1,590 ) 12,814 NM 11,615 21,393 -45.7 Annualized (loss) return on average equity -6.3 % 12.0 % NM 1.9 % 10.0 % -8.1 pts Per Share Data Net (loss) income – Class A (diluted) $ (0.26 ) $ 0.53 NM $ 0.16 $ 0.88 -81.8 % Net (loss) income – Class B (0.24 ) 0.48 NM 0.14 0.80 -82.5 Non-GAAP operating (loss) income – Class A (diluted) (0.05 ) 0.42 NM 0.37 0.71 -47.9 Non-GAAP operating (loss) income – Class B (0.05 ) 0.38 NM 0.34 0.64 -46.9 Book value 15.87 17.64 -10.0 % 15.87 17.64 -10.0 1The “Definitions of Non-GAAP Financial Measures” section of this release defines data that the Company prepares on an accounting basis other than U.S. generally accepted accounting principles (“GAAP”) and reconciles such data to GAAP measures.
2Not meaningful.
Management Commentary
Kevin G. Burke, President and Chief Executive Officer, stated, “Our second quarter of 2022 results reflected a number of factors, including after-tax investment losses of $6.6 million related to the market-driven decline in the value of our equity investment holdings as well as elevated weather-related and large fire losses during the quarter. The above-average weather-related losses for the second quarter of 2022 resulted primarily from multiple localized wind and hail events, with only one event generating claims that exceeded our insurance subsidiaries’ reinsurance retention amount. While claim frequency levels generally remained consistent with historical trends, inflationary pressures contributed to higher loss costs in our homeowners, commercial multi-peril and automobile lines of business. We expect the premium rate increases we have implemented to date, and plan to implement during the remainder of 2022 and 2023 will lead to improved results as those increases are earned over the terms of the underlying policies. In spite of the elevated loss activity in the second quarter, our underwriting results for the first half of 2022 largely met our expectations. We are making excellent progress on our ongoing strategic and business transformation initiatives. Maintaining a long-term view, we believe that we are well-positioned to enhance our profitability and achieve our operational and financial objectives over time.”
Insurance Operations
Donegal Group is an insurance holding company whose insurance subsidiaries and affiliates offer personal and commercial property and casualty lines of insurance in three Mid-Atlantic states (Delaware, Maryland and Pennsylvania), three New England states (Maine, New Hampshire and Vermont), six Southern states (Alabama, Georgia, North Carolina, South Carolina, Tennessee and Virginia), eight Midwestern states (Illinois, Indiana, Iowa, Michigan, Nebraska, Ohio, South Dakota and Wisconsin) and four Southwestern states (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, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Net Premiums Earned Commercial lines $ 126,854 $ 115,300 10.0 % $ 251,183 $ 224,525 11.9 % Personal lines 77,274 77,189 0.1 152,194 155,215 -1.9 Total net premiums earned $ 204,128 $ 192,489 6.0 % $ 403,377 $ 379,740 6.2 % Net Premiums Written Commercial lines: Automobile $ 43,588 $ 42,574 2.4 % $ 92,216 $ 89,813 2.7 % Workers' compensation 29,343 28,567 2.7 62,240 63,508 -2.0 Commercial multi-peril 51,117 47,912 6.7 105,314 99,715 5.6 Other 10,496 9,970 5.3 21,607 20,421 5.8 Total commercial lines 134,544 129,023 4.3 281,377 273,457 2.9 Personal lines: Automobile 44,988 44,296 1.6 87,228 87,303 -0.1 Homeowners 32,785 30,369 8.0 56,300 53,057 6.1 Other 6,129 5,917 3.6 11,983 11,650 2.9 Total personal lines 83,902 80,582 4.1 155,511 152,010 2.3 Total net premiums written $ 218,446 $ 209,605 4.2 % $ 436,888 $ 425,467 2.7 % Net Premiums Written
The 4.2% increase in net premiums written for the second quarter of 2022 compared to the second quarter of 2021, as shown in the table above, represents 4.3% growth in commercial lines net premiums written and 4.1% growth in personal lines net premiums written. The $8.8 million increase in net premiums written for the second quarter of 2022 compared to the second quarter of 2021 included:
- Commercial Lines: $5.5 million increase that we attribute primarily to modest 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 regions we have targeted for profit improvement.
- Personal Lines: $3.3 million increase that we attribute to premium rate increases our insurance subsidiaries have implemented over the past four quarters, strong policy retention and modest new business writings in certain states where we have introduced an updated suite of products.
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, 2022 and 2021:
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 GAAP Combined Ratios (Total Lines) Loss ratio (non-weather) 59.8 % 53.1 % 57.5 % 56.5 % Loss ratio (weather-related) 9.6 6.1 6.8 4.9 Expense ratio 35.0 36.0 35.4 35.1 Dividend ratio 0.6 0.9 0.7 0.8 Combined ratio 105.0 % 96.1 % 100.4 % 97.3 % Statutory Combined Ratios Commercial lines: Automobile 100.1 % 105.5 % 94.7 % 103.9 % Workers' compensation 78.7 84.0 87.8 89.3 Commercial multi-peril 119.5 94.5 109.8 100.8 Other 87.1 77.2 79.9 68.8 Total commercial lines 101.6 94.3 97.6 96.6 Personal lines: Automobile 104.0 91.1 98.9 92.2 Homeowners 123.5 110.1 115.9 102.4 Other 51.3 74.5 47.6 75.7 Total personal lines 107.5 96.9 101.2 94.7 Total lines 103.8 % 95.4 % 99.0 % 95.9 % Loss Ratio
For the second quarter of 2022, the loss ratio increased to 69.4%, compared to 59.2% for the second quarter of 2021. Weather-related losses were $19.6 million, or 9.6 percentage points of the loss ratio, for the second quarter of 2022, compared to $11.7 million, or 6.1 percentage points of the loss ratio, for the second quarter of 2021. Weather-related loss activity for the second quarter of 2022 was higher than our previous five-year average of $17.1 million 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 2022 were $13.4 million, or 6.6 percentage points of the loss ratio. That amount exceeded the large fire losses of $11.7 million, or 6.1 percentage points of the loss ratio, for the second quarter of 2021. We experienced a $1.5 million increase in commercial property fire losses compared to the prior-year quarter.
Net favorable development of reserves for losses incurred in prior accident years of $7.9 million decreased the loss ratio for the second quarter of 2022 by 3.9 percentage points, compared to $13.4 million that decreased the loss ratio for the second quarter of 2021 by 6.9 percentage points. Our insurance subsidiaries experienced favorable development primarily relating to reserves for accident years 2021 and 2020 in the commercial automobile, personal automobile and workers’ compensation lines of business.
Expense Ratio
The expense ratio was 35.0% for the second quarter of 2022, compared to 36.0% for the second quarter of 2021. The decrease in the expense ratio reflected lower underwriting-based incentive costs for our agents and employees for the second quarter of 2022 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 92.9% of our consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at June 30, 2022.
June 30, 2022 December 31, 2021 Amount % Amount % (dollars in thousands) Fixed maturities, at carrying value: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 134,746 10.4 % $ 121,453 9.5 % Obligations of states and political subdivisions 448,206 34.5 428,814 33.6 Corporate securities 398,017 30.6 412,758 32.3 Mortgage-backed securities 226,412 17.4 237,709 18.6 Total fixed maturities 1,207,381 92.9 1,200,734 94.0 Equity securities, at fair value 45,261 3.5 63,420 5.0 Short-term investments, at cost 46,685 3.6 12,692 1.0 Total investments $ 1,299,327 100.0 % $ 1,276,846 100.0 % Average investment yield 2.5 % 2.6 % Average tax-equivalent investment yield 2.6 % 2.6 % Average fixed-maturity duration (years) 6.1 4.7 Total investments at June 30, 2022 increased by $22.5 million compared to December 31, 2021, as new funds invested were largely offset by $41.5 million of unrealized losses within our available-for-sale fixed-maturity portfolio due to a substantial increase in market interest rates during the first half of 2022.
Net investment income of $8.2 million for the second quarter of 2022 increased 7.2% compared to $7.7 million for the second quarter of 2021. The increase in net investment income reflected primarily an increase in average invested assets relative to the prior-year second quarter.
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. Net investment gains of $4.2 million for the second quarter of 2021 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2021.
Our book value per share was $15.87 at June 30, 2022, compared to $16.95 at December 31, 2021, with the decrease primarily related to after-tax unrealized losses within our available-for-sale fixed-maturity portfolio during the first half of 2022 that reduced our book value by $1.02 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, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Reconciliation of Net Premiums Earned to Net Premiums Written Net premiums earned $ 204,128 $ 192,489 6.0 % $ 403,377 $ 379,740 6.2 % Change in net unearned premiums 14,318 17,116 -16.3 33,511 45,727 -26.7 Net premiums written $ 218,446 $ 209,605 4.2 % $ 436,888 $ 425,467 2.7 % The following table provides a reconciliation of net (loss) income to operating (loss) income for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands, except per share amounts) Reconciliation of Net (Loss) Income to Non-GAAP Operating (Loss) Income Net (loss) income $ (8,208 ) $ 16,164 NM $ 4,937 $ 26,694 -81.5 % Investment losses (gains) (after tax) 6,618 (3,350 ) NM 6,678 (5,301 ) NM Non-GAAP operating (loss) income $ (1,590 ) $ 12,814 NM $ 11,615 $ 21,393 -45.7 % Per Share Reconciliation of Net (loss) Income to Non-GAAP Operating (Loss) Income Net (loss) income – Class A (diluted) $ (0.26 ) $ 0.53 NM $ 0.16 $ 0.88 -81.8 % Investment losses (gains) (after tax) 0.21 (0.11 ) NM 0.21 (0.17 ) NM Non-GAAP operating (loss) income – Class A $ (0.05 ) $ 0.42 NM $ 0.37 $ 0.71 -47.9 % Net (loss) income – Class B $ (0.24 ) $ 0.48 NM $ 0.14 $ 0.80 -82.5 % Investment losses (gains) (after tax) 0.19 (0.10 ) NM 0.20 (0.16 ) NM Non-GAAP operating (loss) income – Class B $ (0.05 ) $ 0.38 NM $ 0.34 $ 0.64 -46.9 % 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 21, 2022, we declared a regular quarterly cash dividend of $0.165 per share for our Class A common stock and $0.1475 per share for our Class B common stock, which is payable on August 15, 2022 to stockholders of record as of the close of business on August 1, 2022.
Pre-Recorded Webcast
At approximately 8:30 am EDT on Thursday, July 28, 2022, we will make available in the Investors section of our website a pre-recorded audio webcast featuring management commentary and a question and answer session. 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, prolonged economic challenges resulting from the COVID-19 pandemic, 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, 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) 836-9623
E-mail: kdaly@equityny.comJeffrey D. Miller, Executive Vice President & Chief Financial Officer
Phone: (717) 426-1931
E-mail: investors@donegalgroup.comFinancial Supplement
Donegal Group Inc. Consolidated Statements of (Loss) Income (unaudited; in thousands, except share data) Quarter Ended June 30, 2022 2021 Net premiums earned $ 204,128 $ 192,489 Investment income, net of expenses 8,204 7,652 Net investment (losses) gains (8,377 ) 4,241 Lease income 98 108 Installment payment fees 258 656 Total revenues 204,311 205,146 Net losses and loss expenses 141,608 113,957 Amortization of deferred acquisition costs 35,172 33,103 Other underwriting expenses 36,235 36,230 Policyholder dividends 1,289 1,629 Interest 240 217 Other expenses, net 346 313 Total expenses 214,890 185,449 (Loss) income before income tax (benefit) expense (10,579 ) 19,697 Income tax (benefit) expense (2,371 ) 3,533 Net (loss) income $ (8,208 ) $ 16,164 (Loss) earnings per common share: Class A - basic and diluted $ (0.26 ) $ 0.53 Class B - basic and diluted $ (0.24 ) $ 0.48 Supplementary Financial Analysts' Data Weighted-average number of shares outstanding: Class A - basic 26,069,692 25,341,989 Class A - diluted 26,294,147 25,594,024 Class B - basic and diluted 5,576,775 5,576,775 Net premiums written $ 218,446 $ 209,605 Book value per common share at end of period $ 15.87 $ 17.64 Donegal Group Inc. Consolidated Statements of Income (unaudited; in thousands, except share data) Six Months Ended June 30, 2022 2021 Net premiums earned $ 403,377 $ 379,740 Investment income, net of expenses 16,063 15,163 Net investment (losses) gains (8,453 ) 6,710 Lease income 203 216 Installment payment fees 748 1,287 Total revenues 411,938 403,116 Net losses and loss expenses 259,491 233,176 Amortization of deferred acquisition costs 69,354 63,282 Other underwriting expenses 73,342 70,012 Policyholder dividends 2,937 2,924 Interest 393 530 Other expenses, net 774 744 Total expenses 406,291 370,668 Income before income tax expense 5,647 32,448 Income tax expense 710 5,754 Net income $ 4,937 $ 26,694 Net income per common share: Class A - basic $ 0.16 $ 0.89 Class A - diluted $ 0.16 $ 0.88 Class B - basic and diluted $ 0.14 $ 0.80 Supplementary Financial Analysts' Data Weighted-average number of shares outstanding: Class A - basic 25,928,952 25,056,610 Class A - diluted 26,052,149 25,246,791 Class B - basic and diluted 5,576,775 5,576,775 Net premiums written $ 436,888 $ 425,467 Book value per common share at end of period $ 15.87 $ 17.64 Donegal Group Inc. Consolidated Balance Sheets (in thousands) June 30, December 31, 2022 2021 (unaudited) ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost $ 700,335 $ 668,105 Available for sale, at fair value 507,046 532,629 Equity securities, at fair value 45,261 63,420 Short-term investments, at cost 46,685 12,692 Total investments 1,299,327 1,276,846 Cash 21,811 57,709 Premiums receivable 190,324 168,863 Reinsurance receivable 445,151 455,411 Deferred policy acquisition costs 74,247 68,028 Prepaid reinsurance premiums 172,406 176,936 Receivable from Michigan Catastrophic Claims Association - 18,113 Other assets 46,582 33,269 Total assets $ 2,249,848 $ 2,255,175 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Losses and loss expenses $ 1,083,354 $ 1,077,620 Unearned premiums 601,939 572,958 Accrued expenses 4,797 4,029 Borrowings under lines of credit 35,000 35,000 Cash refunds due to Michigan policyholders - 18,113 Other liabilities 13,736 16,419 Total liabilities 1,738,826 1,724,139 Stockholders' equity: Class A common stock 296 288 Class B common stock 56 56 Additional paid-in capital 317,940 304,889 Accumulated other comprehensive (loss) income (29,477 ) 3,284 Retained earnings 263,433 263,745 Treasury stock (41,226 ) (41,226 ) Total stockholders' equity 511,022 531,036 Total liabilities and stockholders' equity $ 2,249,848 $ 2,255,175