Donegal (DGICA) - 2025 Q1 - Quarterly Results

Financial & Operational Highlights Donegal Group Inc. announced strong first quarter 2025 results, driven by significant improvements in underwriting and investment performance Q1 2025 Financial Performance Summary Donegal Group reported record Q1 2025 earnings with net income surging 323.2% to $25.2 million and a combined ratio improving to 91.6% Q1 2025 Financial Performance | Financial Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Net Premiums Earned | $232.7M | $227.7M | 2.2% | | Total Revenues | $245.2M | $241.1M | 1.7% | | Net Income | $25.2M | $6.0M | 323.2% | | Non-GAAP Operating Income | $25.6M | $4.3M | 496.8% | | Net Income per Class A Share (diluted) | $0.71 | $0.18 | 294.4% | | Book Value per Share | $16.24 | $14.53 | 11.8% | - The combined ratio significantly improved to 91.6% in Q1 2025, compared to 102.4% in Q1 2024, indicating enhanced underwriting profitability[3] - The annualized return on average equity rose sharply to 17.8% from 4.9% in the prior-year quarter[3] Management Commentary Management attributed record earnings to strategic initiatives and operational discipline, focusing on sustained profitability and commercial growth - The company achieved record earnings for the second consecutive quarter, reflecting deliberate actions to prioritize sustained profitability[2] - The strategic focus in commercial lines is on growing the middle market segment, while personal lines strategy involves limiting new business and non-renewing a legacy Maryland book to maintain profitability[5] - Management expressed confidence in navigating the evolving insurance landscape and capitalizing on future growth opportunities to enhance shareholder value[5] Insurance Operations Analysis The company's insurance operations demonstrated improved underwriting profitability driven by a lower combined ratio and strategic premium adjustments Premiums Analysis Net premiums earned increased by 2.2% to $232.7 million, while net premiums written decreased by 1.7% due to strategic shifts in personal lines Premiums (Q1 2025 vs Q1 2024) | Premiums (Q1 2025 vs Q1 2024) | Commercial Lines | Personal Lines | Total | | :--- | :--- | :--- | :--- | | Net Premiums Earned | $136.2M (+3.1%) | $96.5M (+0.9%) | $232.7M (+2.2%) | | Net Premiums Written | $160.6M (+3.3%) | $86.5M (-9.9%) | $247.1M (-1.7%) | - The decline in net premiums written was primarily due to a $9.5 million decrease in personal lines, attributed to planned attrition and lower new business writings[9] - Commercial lines net premiums written grew by $5.1 million, mainly from solid retention and renewal premium increases, partially offset by lower new business[9] Underwriting Performance Underwriting profitability dramatically improved with the GAAP combined ratio falling to 91.6%, driven by lower loss ratios and favorable reserve development GAAP Combined Ratio Components | GAAP Combined Ratio Components | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Core Loss Ratio | 54.4% | 58.7% | | Weather-related Loss Ratio | 3.7% | 4.7% | | Large Fire Loss Ratio | 3.1% | 6.6% | | Net Prior-Year Reserve Development | -4.5% | -3.7% | | Total Loss Ratio | 56.7% | 66.3% | | Expense Ratio | 34.6% | 35.7% | | Combined Ratio | 91.6% | 102.4% | - Large fire losses decreased significantly to $7.7 million from $15.0 million in the prior-year quarter, primarily due to lower loss frequency and severity[12] - Net favorable development of prior-year reserves reduced the loss ratio by 4.5 percentage points, an increase from the 3.7 percentage point reduction in Q1 2024[13] - The expense ratio decreased to 34.6% from 35.7%, reflecting successful expense management initiatives[14] Investment Operations The company's investment operations generated increased net investment income from a high-quality fixed-maturity portfolio, despite minor equity losses Investment Portfolio and Strategy The investment strategy focuses on generating after-tax income from a $1.41 billion portfolio primarily composed of high-quality fixed-maturity securities - The investment strategy focuses on generating income from a high-quality securities portfolio, minimizing credit risk[15] Investment Portfolio Composition | Investment Type | % of Portfolio (Mar 31, 2025) | | :--- | :--- | | Corporate securities | 31.4% | | Obligations of states and political subdivisions | 29.3% | | Mortgage-backed securities | 22.5% | | U.S. Treasury and government agencies | 12.5% | | Equity securities | 2.9% | | Short-term investments | 1.5% | Investment Results Net investment income increased 9.2% to $12.0 million, though the company recorded net investment losses due to equity market value declines - Net investment income grew 9.2% to $12.0 million, driven by an increase in average investment yield and higher average invested assets[17] - The company recorded net investment losses of $0.5 million, compared to net investment gains of $2.1 million in Q1 2024, due to market value declines in equity holdings[18] Shareholder Information Book value per share increased to $16.24, driven by strong net income and unrealized gains, alongside declared quarterly cash dividends Book Value and Dividends Book value per share increased to $16.24 due to strong net income and unrealized gains, with regular quarterly cash dividends declared - Book value per share rose to $16.24 at March 31, 2025, from $15.36 at December 31, 2024, an increase of $0.88 per share[19] - On April 17, 2025, the company declared quarterly cash dividends of $0.1825 per Class A share and $0.165 per Class B share[25] Non-GAAP Financial Measures This section defines and reconciles key non-GAAP measures, including operating income and net premiums written, providing additional performance insights - The company utilizes non-GAAP measures such as net premiums written, operating income or loss, and statutory combined ratio, which are common in the insurance industry, to provide additional perspective on performance[20][21] Reconciliation of Net Income to Operating Income (in thousands) | Reconciliation (in thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Income to Operating Income | | | | Net income | $25,205 | $5,956 | | Investment (losses) gains (after tax) | $372 | $(1,670) | | Non-GAAP operating income | $25,577 | $4,286 | Reconciliation of Net Premiums Earned to Written (in thousands) | Reconciliation (in thousands) | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | Net Premiums Earned to Written | | | | Net premiums earned | $232,702 | $227,749 | | Change in net unearned premiums | $14,390 | $23,693 | | Net premiums written | $247,092 | $251,442 | Financial Statements This section presents the unaudited Consolidated Statements of Income and Balance Sheets, detailing the company's financial performance and position - The Consolidated Statements of Income detail the components of revenue and expenses for the quarters ended March 31, 2025 and 2024[32][33][34] - The Consolidated Balance Sheets present the company's financial position as of March 31, 2025, compared to December 31, 2024[35][36]