• Donegal Group Inc. Announces Second Quarter and First Half 2024 Results

    المصدر: Nasdaq GlobeNewswire / 25 يوليو 2024 06:30:01   America/New_York

    MARIETTA, Pa., July 25, 2024 (GLOBE NEWSWIRE) -- Donegal Group Inc. (NASDAQ: DGICA) and (NASDAQ: DGICB) today reported its financial results for the second quarter and first half of 2024.

    Significant Items for Second Quarter of 2024 (all comparisons to second quarter of 2023):

    • Net income of $4.2 million, or 13 cents per diluted Class A share, compared to $2.0 million, or 6 cents per diluted Class A share
    • Net premiums earned increased 8.3% to $234.3 million
    • Net premiums written1 increased 9.1% to $247.2 million
    • Combined ratio of 103.0%, compared to 104.7%
    • Net income included after-tax net investment gains of $0.6 million, or 2 cents per diluted Class A share, compared to $2.0 million, or 6 cents per diluted Class A share
    • Book value per share of $14.48 at June 30, 2024, compared to $14.68

    Financial Summary

     Three Months Ended June 30, Six Months Ended June 30,   
     2024 2023 % Change 2024 2023 % Change
     (dollars in thousands, except per share amounts)      
                      
    Income Statement Data                 
    Net premiums earned$   234,311  $216,260  8.3% $462,06  $431,493  7.1%
    Investment income, net11,068  10,157  9.0  22,041  19,607  12.4 
    Net investment gains737  2,504  -70.6  2,850  2,173  31.2 
    Total revenues246,773  229,196  7.7  487,913  453,942  7.5 
    Net income4,153  1,997  108.0  10,108  7,201  40.4 
    Non-GAAP operating income13,571  19  NM2  7,857  5,484  43.3 
    Annualized return on average equity 3.4%  1.6% 1.8pts   4.2% 3.0% 1.2 pts 
                      
    Per Share Data                 
    Net income – Class A (diluted)$         0.13  $       0.06  116.7% $       0.31  $       0.22  40.9%
    Net income – Class B0.11  0.05  120.0  0.28  0.20  40.0 
    Non-GAAP operating income – Class A (diluted)0.11  -  NM  0.24  0.17  41.2 
    Non-GAAP operating income – Class B0.10  -  NM  0.22  0.15  46.7 
    Book value14.48  14.68  -1.4  14.48  14.68  -1.4 
                      

    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 continued to execute successfully on several important objectives during the second quarter of 2024 that we expect will further enhance our financial performance in future periods,” said Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc.

    “During the quarter, we achieved net premiums written growth of 9.1%, reflecting ongoing strong renewal premium rate increases and policy retention. We are actively controlling personal lines new business writings given our strategy to emphasize commercial lines growth. We are executing on various strategic initiatives, including enhancing our small commercial underwriting capabilities, to achieve higher levels of new business within the commercial lines segment. While carefully pursuing profitable top-line growth, we are also actively managing our geographic risk concentrations. This ongoing initiative served us well in mitigating the weather-related loss impact to our results during a quarter marked by severe convective storm activity, including the highest number of tornadoes reported in the first half of the year since 2011.”

    Mr. Burke concluded, “Our core loss ratio for the second quarter of 2024 remained constant relative to the prior-year period but improved sequentially by 3.7 percentage points from the first quarter of 2024 as net premiums earned reflected higher impact of recent premium rate increases. Despite peak impact during 2024 from expenses related to our systems modernization project, our expense ratio declined by 2.3 percentage points compared to the prior-year quarter due primarily to ongoing expense reduction initiatives. While we have more work to do, we are confident in our ability to execute our business strategies and create long-term value for our 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,
     2024 2023 % Change 2024 2023 % Change
     (dollars in thousands)  
                  
    Net Premiums Earned             
    Commercial lines$   134,489 $130,808 2.8% $266,581 $263,995 1.0%
    Personal lines99,822 85,452 16.8  195,479 167,498 16.7 
    Total net premiums earned$   234,311 $216,260 8.3% $462,060 $431,493 7.1%
                  
    Net Premiums Written             
    Commercial lines:             
    Automobile$     47,089 $   45,249 4.1% $100,603 $   97,318 3.4%
    Workers' compensation27,591 27,743 -0.5  58,665 60,944 -3.7 
    Commercial multi-peril55,870 46,823 19.3  113,373 102,673 10.4 
    Other11,698 13,061 -10.4  25,101 28,274 -11.2 
    Total commercial lines142,248 132,876 7.1  297,742 289,209 3.0 
    Personal lines:             
    Automobile62,427 53,329 17.1  123,808 103,310 19.8 
    Homeowners39,608 37,213 6.4  71,367 65,402 9.1 
    Other2,906 3,094 -6.1  5,714 5,895 -3.1 
    Total personal lines104,941 93,636 12.1  200,889 174,607 15.1 
    Total net premiums written$   247,189 $226,512 9.1% $498,631 $463,816 7.5%
                  
                  

    Net Premiums Written

    The 9.1% increase in net premiums written for the second quarter of 2024 compared to the second quarter of 2023, as shown in the table above, represents the combination of 7.1% growth in commercial lines net premiums written and 12.1% growth in personal lines net premiums written. The $20.7 million increase in net premiums written for the second quarter of 2024 compared to the second quarter of 2023 included:

    • Commercial Lines: $9.4 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 we are exiting or executing ongoing profit improvement initiatives as part of our state-specific strategies.
    • Personal Lines: $11.3 million increase that we attribute primarily to a continuation of renewal premium rate increases and strong policy 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, 2024 and 2023:

     Three Months Ended   Six Months Ended  
     June 30,   June 30,  
     2024  2023  2024  2023 
                
    GAAP Combined Ratios (Total Lines)           
    Loss ratio - core losses55.0% 55.0% 56.8% 55.8%
    Loss ratio - weather-related losses10.6  9.1  7.7  7.8 
    Loss ratio - large fire losses5.3  5.9  5.9  5.5 
    Loss ratio - net prior-year reserve development-0.3  -0.1  -2.0  -2.0 
    Loss ratio70.6  69.9  68.4  67.1 
    Expense ratio31.9  34.2  33.8  35.3 
    Dividend ratio0.5  0.6  0.5  0.6 
    Combined ratio103.0% 104.7% 102.7% 103.0%
                
    Statutory Combined Ratios           
    Commercial lines:           
    Automobile93.5% 101.9% 96.6% 99.1%
    Workers' compensation117.0  95.7  114.2  91.0 
    Commercial multi-peril110.6  111.8  106.7  113.3 
    Other94.3  95.7  88.3  88.2 
    Total commercial lines104.9  103.6  103.3  101.8 
    Personal lines:           
    Automobile95.6  104.4  97.7  104.1 
    Homeowners103.1  103.4  102.7  101.8 
    Other104.7  105.9  94.8  77.4 
    Total personal lines98.6  104.3  99.4  101.6 
    Total lines102.2% 103.8% 101.7% 101.7%
                
                

    Loss Ratio

    For the second quarter of 2024, the loss ratio increased modestly to 70.6%, compared to 69.9% for the second quarter of 2023. For the commercial lines segment, the core loss ratio of 54.8% for the second quarter of 2024 increased modestly from 54.0% for the second quarter of 2023. For the personal lines segment, the core loss ratio of 55.3% for the second quarter of 2024 decreased from 56.5% for the second quarter of 2023, due largely to the favorable impact of premium rate increases on net earned premiums for that segment. Core loss ratios in both segments improved compared to the respective ratios for the first quarter of 2024.

    Weather-related losses were $24.7 million, or 10.6 percentage points of the loss ratio, for the second quarter of 2024, compared to $19.7 million, or 9.1 percentage points of the loss ratio, for the second quarter of 2023. Weather-related loss activity for the second quarter of 2024 was significantly higher than our previous five-year average of $17.3 million, or 8.8 percentage points of the loss ratio, for second-quarter weather-related losses. Our insurance subsidiaries incurred $6.0 million in net losses from a catastrophic wind and hail loss event in May 2024.

    Large fire losses, which we define as individual fire losses in excess of $50,000, for the second quarter of 2024 were $12.5 million, or 5.3 percentage points of the loss ratio. That amount was comparable to the large fire losses of $12.7 million, or 5.9 percentage points of the loss ratio, for the second quarter of 2023. We experienced slight decreases in both homeowners fire losses and commercial property fire losses compared to the prior-year quarter.

    Modest net favorable development of reserves for losses incurred in prior accident years had virtually no impact for the second quarter of 2024 or 2023. Our insurance subsidiaries experienced favorable development primarily in the commercial automobile line of business, largely offset by adverse development in workers’ compensation that we primarily attribute to higher-than-anticipated case reserve development.

    Expense Ratio

    The expense ratio was 31.9% for the second quarter of 2024, compared to 34.2% for the second quarter of 2023. The decrease in the expense ratio primarily reflected impacts of various expense reduction initiatives, including agency incentive program revisions, commission schedule adjustments, targeted staffing reductions, and deferred replacement of open employment positions, among others. These reductions were offset partially by higher technology systems-related expenses that were primarily due to increased costs as we continue implementations with respect to our ongoing systems modernization project, a portion of which Donegal Mutual Insurance Company allocates to our insurance subsidiaries. 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 96.3% of our consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at June 30, 2024.

     June 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$   183,978  13.7% $  176,991  13.3%
    Obligations of states and political subdivisions414,435  30.9  415,280  31.3 
    Corporate securities403,540  30.0  399,640  30.1 
    Mortgage-backed securities294,149  21.9  278,260  21.0 
    Allowance for expected credit losses(1,354)  -0.1  (1,326)  -0.1 
    Total fixed maturities1,294,748  96.4  1,268,845  95.6 
    Equity securities, at fair value32,456  2.4  25,903  2.0 
    Short-term investments, at cost16,571  1.2  32,306  2.4 
    Total investments$1,343,775  100.0% $1,327,054  100.0%
                
    Average investment yield3.3%    3.1%   
    Average tax-equivalent investment yield3.4%    3.2%   
    Average fixed-maturity duration (years)5.2     4.3    
                
                

    Net investment income of $11.1 million for the second quarter of 2024 increased 9.0% compared to $10.2 million for the second quarter of 2023. 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 $0.7 million for the second quarter of 2024 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2024. 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.

    Our book value per share was $14.48 at June 30, 2024, compared to $14.39 at December 31, 2023, with the increase related to net income, offset partially by cash dividends declared as well as $2.0 million of after-tax unrealized losses within our available-for-sale fixed-maturity portfolio during 2024 that decreased our book value by $0.05 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, 
     2024 2023 % Change 2024 2023 % Change 
     (dollars in thousands)  
                  
    Reconciliation of Net Premiums             
    Earned to Net Premiums Written             
    Net premiums earned$234,311 $216,260 8.3% $462,060 $431,493 7.1%
    Change in net unearned premiums12,878 10,252 25.6  36,571 32,323 13.1 
    Net premiums written$247,189 $226,512 9.1% $498,631 $463,816 7.5%
                  
                  

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

     Three Months Ended June 30,  Six Months Ended June 30, 
     2024 2023 % Change 2024 2023 % Change 
     (dollars in thousands, except per share amounts)  
                  
    Reconciliation of Net Income              
    to Non-GAAP Operating Income             
    Net income$4,153 $1,997 108.0% $10,108 $7,201 40.4%
    Investment gains (after tax)(582) (1,978) -70.6  (2,251) (1,717) 31.1 
    Non-GAAP operating income$3,571 $19 NM  $7,857 $5,484 43.3%
                  
    Per Share Reconciliation of Net Income             
    to Non-GAAP Operating Income              
    Net income – Class A (diluted)$0.13 $0.06 116.7% $0.31 $0.22 40.9%
    Investment gains (after tax)(0.02) (0.06) -66.7  (0.07) (0.05) 40.0 
    Non-GAAP operating income – Class A$0.11 $- NM  $0.24 $0.17 41.2%
                  
    Net income – Class B$0.11 $0.05 120.0% $0.28 $0.20 40.0%
    Investment gains (after tax)(0.01) (0.05) -80.0  (0.06) (0.05) 20.0 
    Non-GAAP operating income – Class B$0.10 $- NM  $0.22 $0.15 46.7%
                  
                  

    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 18, 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 August 15, 2024 to stockholders of record as of the close of business on August 1, 2024.

    Pre-Recorded Webcast

    At approximately 8:30 am ET on Thursday, July 25, 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, 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 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) 836-9623
    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
    (unaudited; in thousands, except share data)
        
     Quarter Ended June 30,
     2024 2023
        
    Net premiums earned$234,311 $216,260
    Investment income, net of expenses11,068 10,157
    Net investment gains737 2,504
    Lease income78 87
    Installment payment fees579 188
    Total revenues246,773 229,196
        
    Net losses and loss expenses165,360 151,235
    Amortization of deferred acquisition costs40,656 37,935
    Other underwriting expenses34,037 35,948
    Policyholder dividends1,187 1,346
    Interest155 155
    Other expenses, net365 324
    Total expenses241,760 226,943
        
    Income before income tax expense5,013 2,253
    Income tax expense860 256
        
    Net income$4,153 $1,997
        
    Net income per common share:   
    Class A - basic and diluted$0.13 $0.06
    Class B - basic and diluted$0.11 $0.05
        
    Supplementary Financial Analysts' Data   
        
    Weighted-average number of shares   
    outstanding:   
    Class A - basic27,844,811 27,382,442
    Class A - diluted27,844,903 27,489,338
    Class B - basic and diluted5,576,775 5,576,775
        
    Net premiums written$247,189 $226,512
        
    Book value per common share   
    at end of period$14.48 $14.68
        


    Donegal Group Inc.
    Consolidated Statements of Income
    (unaudited; in thousands, except share data)
          
       Six Months Ended June 30,
       2024 2023
          
    Net premiums earned$     462,060 $     431,493
    Investment income, net of expenses22,041 19,607
    Net investment gains2,850 2,173
    Lease income159 176
    Installment payment fees803 493
    Total revenues487,913 453,942
        
    Net losses and loss expenses316,257 289,341
    Amortization of deferred acquisition costs80,258 75,733
    Other underwriting expenses75,777 76,560
    Policyholder dividends2,241 2,689
    Interest309 308
    Other expenses, net810 761
    Total expenses475,652 445,392
        
    Income before income tax expense12,261 8,550
    Income tax expense2,153 1,349
        
    Net income$        10,108 $          7,201
        
    Net income per common share:   
    Class A - basic and diluted$            0.31 $            0.22
    Class B - basic and diluted$            0.28 $            0.20
        
    Supplementary Financial Analysts' Data   
        
    Weighted-average number of shares   
    outstanding:   
    Class A - basic27,828,062 27,287,717
    Class A - diluted27,845,608 27,427,848
    Class B - basic and diluted5,576,775 5,576,775
        
    Net premiums written$     498,631 $     463,816
        
    Book value per common share   
    at end of period$          14.48 $          14.68
        


    Donegal Group Inc.  
    Consolidated Balance Sheets  
    (in thousands)  
            
       June 30,  December 31, 
       2024  2023 
       (unaudited)    
            
    ASSETS  
    Investments:     
    Fixed maturities:     
    Held to maturity, at amortized cost$     690,580  $    679,497 
    Available for sale, at fair value604,168  589,348 
    Equity securities, at fair value32,456  25,903 
    Short-term investments, at cost16,571  32,306 
    Total investments1,343,775  1,327,054 
    Cash24,226  23,792 
    Premiums receivable203,814  179,592 
    Reinsurance receivable440,858  441,431 
    Deferred policy acquisition costs80,926  75,043 
    Prepaid reinsurance premiums186,323  168,724 
    Other assets55,331  50,658 
    Total assets$  2,335,253  $2,266,294 
          
    LIABILITIES AND STOCKHOLDERS' EQUITY  
    Liabilities:     
    Losses and loss expenses$  1,147,419  $1,126,157 
    Unearned premiums653,579  599,411 
    Accrued expenses3,511  3,947 
    Borrowings under lines of credit35,000  35,000 
    Other liabilities11,668  22,034 
    Total liabilities1,851,177  1,786,549 
    Stockholders' equity:     
    Class A common stock309  308 
    Class B common stock56  56 
    Additional paid-in capital337,773  335,694 
    Accumulated other comprehensive loss (34,860)  (32,882)
    Retained earnings222,024  217,795 
    Treasury stock (41,226)  (41,226)
    Total stockholders' equity484,076  479,745 
    Total liabilities and stockholders' equity$  2,335,253  $2,266,294 
          

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