Donegal (DGICA) - 2025 Q2 - Quarterly Results

Executive Summary This section provides a high-level overview of Donegal Group Inc.'s financial performance and strategic initiatives for the second quarter and first half of 2025 Second Quarter and First Half 2025 Financial Highlights Donegal Group Inc. reported substantial improvements in net income and non-GAAP operating income for both the second quarter and first half of 2025, driven by strong underwriting performance and increased investment income. The annualized return on average equity also saw significant growth Financial Summary (Q2 and H1 2025 vs. 2024): | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | % Change (QoQ) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | % Change (YoY) | | :-------------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------- | :-------------------------------------------- | :-------------------------------------------- | :------------- | | Net premiums earned | $231,775 | $234,311 | -1.1% | $464,476 | $462,060 | 0.5% | | Investment income, net | $12,540 | $11,068 | 13.3% | $24,524 | $22,041 | 11.3% | | Net investment gains | $1,544 | $737 | 109.5% | $1,073 | $2,850 | -62.4% | | Total revenues | $247,148 | $246,773 | 0.2% | $491,953 | $487,913 | 0.8% | | Net income | $16,866 | $4,153 | 306.1% | $42,071 | $10,108 | 316.2% | | Non-GAAP operating income | $15,647 | $3,571 | 338.2% | $41,224 | $7,857 | 424.7% | | Annualized return on average equity | 11.3% | 3.4% | 7.9 pts | 14.6% | 4.2% | 10.4 pts | | Net income – Class A (diluted) | $0.46 | $0.13 | 253.8% | $1.17 | $0.31 | 277.4% | | Book value per share (at period end) | $16.62 | $14.48 | 14.8% | $16.62 | $14.48 | 14.8% | Management Commentary Management expressed satisfaction with the progress and results for Q2 and H1 2025, attributing success to strategic execution and underwriting discipline, evidenced by a meaningful improvement in the core loss ratio. The company intentionally slowed new business writings in personal lines to protect underwriting margins and successfully deployed a major commercial lines systems modernization project - Meaningful improvement in core loss ratio for both Q2 and H1 2025 underscores commitment to disciplined risk management and sustainable profitability[2] - Net premiums written declined due to lower new business writings and planned attrition, as the company proactively slowed new business in personal lines to protect underwriting margins[2][4] - Successfully deployed the final major commercial lines systems release, marking a significant milestone in a multi-year systems modernization project. Rollout to states will begin in H2 2025, aiming for a single modern technology platform by H1 2026[5] Insurance Operations Overview Donegal Group's insurance operations encompass property and casualty offerings across multiple states, demonstrating improved underwriting performance and strategic adjustments in premium writings Business Description Donegal Group Inc. is an insurance holding company whose subsidiaries offer property and casualty insurance across Mid-Atlantic, Southern, Midwestern, and Southwestern states, operating collectively as the Donegal Insurance Group, which holds an A.M. Best rating of A (Excellent) - Donegal Group operates as an insurance holding company, with subsidiaries offering property and casualty lines in 21 states across Mid-Atlantic, Southern, Midwestern, and Southwestern regions[6][28] - The Donegal Insurance Group has an A.M. Best rating of A (Excellent)[28] Net Premiums Earned and Written Net premiums earned saw a slight decrease of 1.1% in Q2 2025 but a modest increase of 0.5% for H1 2025. Net premiums written declined by 5.4% in Q2 and 3.6% in H1, primarily driven by a significant decrease in personal lines, partially offset by growth in commercial lines Net Premiums Earned (Q2 and H1 2025 vs. 2024): | Line | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | % Change (QoQ) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | % Change (YoY) | | :--------------- | :---------------------------------------------- | :---------------------------------------------- | :------------- | :-------------------------------------------- | :-------------------------------------------- | :------------- | | Commercial lines | $138,527 | $134,489 | 3.0% | $274,743 | $266,581 | 3.1% | | Personal lines | $93,248 | $99,822 | -6.6% | $189,733 | $195,479 | -2.9% | | Total | $231,775 | $234,311 | -1.1% | $464,476 | $462,060 | 0.5% | Net Premiums Written (Q2 and H1 2025 vs. 2024): | Line | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | % Change (QoQ) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | % Change (YoY) | | :--------------- | :---------------------------------------------- | :---------------------------------------------- | :------------- | :-------------------------------------------- | :-------------------------------------------- | :------------- | | Commercial lines | $144,914 | $142,248 | 1.9% | $305,532 | $297,742 | 2.6% | | Personal lines | $88,899 | $104,941 | -15.3% | $175,373 | $200,889 | -12.7% | | Total | $233,813 | $247,189 | -5.4% | $480,905 | $498,631 | -3.6% | - The $13.3 million decrease in net premiums written for Q2 2025 was primarily due to a $16.0 million decrease in personal lines, attributed to planned attrition from lower new business writings and non-renewal actions, partially offset by a $2.7 million increase in commercial lines[8][11] Underwriting Performance Underwriting performance significantly improved, with the GAAP combined ratio decreasing to 97.7% in Q2 2025 (from 103.0% in Q2 2024) and to 94.6% for H1 2025 (from 102.7% for H1 2024), primarily driven by a lower loss ratio across total lines Combined Ratios The company achieved significant improvements in both GAAP and statutory combined ratios for Q2 and H1 2025, reflecting enhanced underwriting profitability across all lines GAAP Combined Ratios (Total Lines - Q2 and H1 2025 vs. 2024): | Metric | June 30, 2025 (Q2) | June 30, 2024 (Q2) | June 30, 2025 (H1) | June 30, 2024 (H1) | | :-------------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Loss ratio - core losses | 50.1% | 55.0% | 52.1% | 56.8% | | Loss ratio - weather-related losses | 11.1% | 10.6% | 7.4% | 7.7% | | Loss ratio - large fire losses | 5.2% | 5.3% | 4.3% | 5.9% | | Loss ratio - net prior-year reserve development | -1.3% | -0.3% | -2.9% | -2.0% | | Loss ratio | 65.1% | 70.6% | 60.9% | 68.4% | | Expense ratio | 32.2% | 31.9% | 33.4% | 33.8% | | Dividend ratio | 0.4% | 0.5% | 0.3% | 0.5% | | Combined ratio | 97.7% | 103.0% | 94.6% | 102.7% | Statutory Combined Ratios (Q2 and H1 2025 vs. 2024): | Line | June 30, 2025 (Q2) | June 30, 2024 (Q2) | June 30, 2025 (H1) | June 30, 2024 (H1) | | :-------------------- | :----------------- | :----------------- | :----------------- | :----------------- | | Commercial lines | 101.0% | 104.9% | 97.8% | 103.3% | | Personal lines | 91.7% | 98.6% | 87.5% | 99.4% | | Total lines | 97.4% | 102.2% | 93.9% | 101.7% | Loss Ratio The GAAP loss ratio decreased significantly in Q2 2025, primarily due to improvements in personal lines core loss ratio, despite higher weather-related losses - The GAAP loss ratio decreased to 65.1% in Q2 2025 from 70.6% in Q2 2024, primarily due to a significant improvement in the personal lines core loss ratio (from 55.3% to 43.3%) driven by premium rate increases[10] - Weather-related losses were $25.8 million (11.1 percentage points of loss ratio) in Q2 2025, up from $24.7 million (10.6 percentage points) in Q2 2024, and higher than the five-year average[12] - Net favorable development of prior-year reserves reduced the loss ratio by 1.3 percentage points in Q2 2025, mainly from personal automobile and homeowners lines, partially offset by adverse development in other commercial lines[14] Expense Ratio The expense ratio saw a slight increase in Q2 2025, mainly due to higher incentive costs and allocated expenses from the systems modernization project - The expense ratio increased slightly to 32.2% in Q2 2025 from 31.9% in Q2 2024, mainly due to higher underwriting-based incentive costs for agents and employees[15] - Allocated costs related to the systems modernization project represented approximately 1.0 percentage point of the expense ratio for Q2 2025, and are expected to have a similar impact for the full year 2025, gradually subsiding over several years[15] Investment Operations Donegal Group's investment strategy focuses on generating after-tax income with minimal credit risk through a portfolio primarily composed of high-quality fixed-maturity securities, leading to increased net investment income Investment Strategy and Portfolio Donegal Group's investment strategy prioritizes generating appropriate after-tax income while minimizing credit risk through investments in high-quality, diversified, and marketable fixed-maturity securities, which comprised 95.4% of the consolidated investment portfolio at June 30, 2025 - Investment strategy focuses on generating after-tax income with minimal credit risk by investing in high-quality securities[16] Consolidated Investment Portfolio Composition (June 30, 2025 vs. December 31, 2024): | Investment Type | June 30, 2025 (Amount in thousands) | June 30, 2025 (%) | December 31, 2024 (Amount in thousands) | December 31, 2024 (%) | | :------------------------------------------------ | :---------------------------------- | :---------------- | :------------------------------------ | :-------------------- | | Fixed maturities, at carrying value | $1,363,463 | 95.4% | $1,323,606 | 95.6% | | Equity securities, at fair value | $41,007 | 2.9% | $36,808 | 2.6% | | Short-term investments, at cost | $24,764 | 1.7% | $24,558 | 1.8% | | Total investments | $1,429,234 | 100.0% | $1,384,972 | 100.0% | | Average investment yield | 3.5% | | 3.3% | | | Average tax-equivalent investment yield | 3.6% | | 3.4% | | Investment Income and Gains Net investment income increased by 13.3% in Q2 2025, primarily due to a higher average investment yield. Net investment gains for Q2 2025 were mainly from unrealized gains in equity securities, partially offset by realized losses on fixed-maturity sales - Net investment income for Q2 2025 increased by 13.3% to $12.5 million, primarily reflecting an increase in average investment yield[18] - Net investment gains of $1.5 million for Q2 2025 were mainly from unrealized gains in equity securities, partially offset by net realized investment losses on the sale of available-for-sale fixed-maturity securities[19] Financial Position and Shareholder Value Donegal Group's financial position strengthened with an increase in book value per share, supported by net income and unrealized investment gains, alongside consistent dividend declarations Book Value Per Share Book value per share increased to $16.62 at June 30, 2025, from $14.48 at June 30, 2024, and $15.36 at December 31, 2024. This increase was driven by net income and after-tax unrealized gains in the available-for-sale fixed-maturity portfolio - Book value per share was $16.62 at June 30, 2025, an increase from $14.48 at June 30, 2024, and $15.36 at December 31, 2024[1][3][20] - The increase in book value per share was related to net income and $10.7 million of after-tax unrealized gains within the available-for-sale fixed-maturity portfolio during 2025, which added $0.31 per share[20] Dividend Information Donegal Group Inc. declared regular quarterly cash dividends of $0.1825 per share for Class A common stock and $0.165 per share for Class B common stock, payable on August 15, 2025 - Declared a regular quarterly cash dividend of $0.1825 per share for Class A common stock and $0.165 per share for Class B common stock, payable on August 15, 2025[26] Non-GAAP Financial Measures Donegal Group provides non-GAAP financial measures, including net premiums written and operating income, with detailed reconciliations to GAAP for enhanced business analysis and peer comparison Definitions and Reconciliations Donegal Group utilizes non-GAAP financial measures such as net premiums written, operating income or loss, and statutory combined ratio to manage its business and for peer comparison. The company provides detailed reconciliations of these non-GAAP measures to their most directly comparable GAAP measures - Non-GAAP financial measures used include net premiums written, operating income or loss, and statutory combined ratio, which are defined and reconciled to GAAP[21][22] Reconciliation of Net Premiums Earned to Net Premiums Written (Q2 and H1 2025 vs. 2024): | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | % Change (QoQ) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | % Change (YoY) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------- | :-------------------------------------------- | :-------------------------------------------- | :------------- | | Net premiums earned | $231,775 | $234,311 | -1.1% | $464,476 | $462,060 | 0.5% | | Change in net unearned premiums | $2,038 | $12,878 | -84.2% | $16,429 | $36,571 | -55.1% | | Net premiums written | $233,813 | $247,189 | -5.4% | $480,905 | $498,631 | -3.6% | Reconciliation of Net Income to Non-GAAP Operating Income (Q2 and H1 2025 vs. 2024): | Metric | Three Months Ended June 30, 2025 (in thousands) | Three Months Ended June 30, 2024 (in thousands) | % Change (QoQ) | Six Months Ended June 30, 2025 (in thousands) | Six Months Ended June 30, 2024 (in thousands) | % Change (YoY) | | :-------------------------- | :---------------------------------------------- | :---------------------------------------------- | :------------- | :-------------------------------------------- | :-------------------------------------------- | :------------- | | Net income | $16,866 | $4,153 | 306.1% | $42,071 | $10,108 | 316.2% | | Investment gains (after tax) | ($1,219) | ($582) | 109.5% | ($847) | ($2,251) | -62.4% | | Non-GAAP operating income | $15,647 | $3,571 | 338.2% | $41,224 | $7,857 | 424.7% | Corporate Information Donegal Group Inc. is a NASDAQ-listed insurance holding company focused on financial performance, operational modernization, and stakeholder experience, with forward-looking statements subject to various risks About the Company Donegal Group Inc. is an insurance holding company operating as the Donegal Insurance Group, listed on NASDAQ under DGICA and DGICB. The company focuses on achieving excellent financial performance, modernizing operations, profitable growth, and providing superior experiences to its agents, policyholders, and employees - Donegal Group Inc. trades on the NASDAQ Global Select Market under symbols DGICA and DGICB[29] - Primary strategies include achieving sustained excellent financial performance, strategically modernizing operations, capitalizing on profitable growth opportunities, and providing superior experiences to stakeholders[29] Safe Harbor Statement The release contains forward-looking statements that involve risks and uncertainties, and actual results may differ materially from expectations. Factors influencing results include litigation, weather events, underwriting effectiveness, information technology systems, economic conditions, and regulatory changes. The company disclaims any obligation to update these statements - Statements in the release are forward-looking and involve risks and uncertainties, with actual results potentially varying materially[31] - Key risk factors include adverse litigation, catastrophic weather events, ability to maintain profitable operations, adequacy of loss reserves, availability and successful operation of IT systems, economic conditions, and regulatory changes[31] Investor Relations Contacts Contact information for investor relations is provided, including Karin Daly (The Equity Group Inc.) and Jeffrey D. Miller (EVP & CFO of Donegal Group Inc.), with their respective phone numbers and email addresses - Investor Relations contacts are Karin Daly (The Equity Group Inc.) at (212) 836-9623 / kdaly@theequitygroup.com and Jeffrey D. Miller (EVP & CFO) at (717) 426-1931 / investors@donegalgroup.com[32] Financial Statements The financial statements provide unaudited consolidated income statements and balance sheets for Donegal Group Inc., detailing financial performance and position for the specified periods Consolidated Statements of Income The consolidated statements of income present the unaudited financial results for the three and six months ended June 30, 2025, and 2024, detailing revenues, expenses, net income, and earnings per share for both Class A and Class B common stock Consolidated Statements of Income (Three Months Ended June 30, 2025 vs. 2024): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Net premiums earned | $231,775 | $234,311 | | Investment income, net of expenses | $12,540 | $11,068 | | Net investment gains | $1,544 | $737 | | Total revenues | $247,148 | $246,773 | | Net losses and loss expenses | $150,917 | $165,360 | | Total expenses | $226,724 | $241,760 | | Income before income tax expense | $20,424 | $5,013 | | Income tax expense | $3,558 | $860 | | Net income | $16,866 | $4,153 | | Net income per common share: Class A - diluted | $0.46 | $0.13 | | Net income per common share: Class B - basic and diluted | $0.43 | $0.11 | Consolidated Statements of Income (Six Months Ended June 30, 2025 vs. 2024): | Metric | 2025 (in thousands) | 2024 (in thousands) | | :-------------------------------- | :------------------ | :------------------ | | Net premiums earned | $464,476 | $462,060 | | Investment income, net of expenses | $24,524 | $22,041 | | Net investment gains | $1,073 | $2,850 | | Total revenues | $491,953 | $487,913 | | Net losses and loss expenses | $282,950 | $316,257 | | Total expenses | $440,368 | $475,652 | | Income before income tax expense | $51,585 | $12,261 | | Income tax expense | $9,514 | $2,153 | | Net income | $42,071 | $10,108 | | Net income per common share: Class A - diluted | $1.17 | $0.31 | | Net income per common share: Class B - basic and diluted | $1.08 | $0.28 | Consolidated Balance Sheets The consolidated balance sheets provide an unaudited snapshot of Donegal Group Inc.'s financial position as of June 30, 2025, compared to December 31, 2024, detailing assets, liabilities, and stockholders' equity Consolidated Balance Sheets (June 30, 2025 vs. December 31, 2024): | Item | June 30, 2025 (in thousands) | December 31, 2024 (in thousands) | | :-------------------------------- | :--------------------------- | :--------------------------- | | ASSETS: | | | | Total investments | $1,429,234 | $1,384,972 | | Premiums receivable | $57,437 | $52,926 | | Reinsurance receivable | $198,885 | $181,107 | | Deferred policy acquisition costs | $411,125 | $420,742 | | Prepaid reinsurance premiums | $76,620 | $73,347 | | Other assets | $182,795 | $176,162 | | Total assets | $2,407,835 | $2,336,032 | | LIABILITIES AND STOCKHOLDERS' EQUITY: | | | | Losses and loss expenses | $1,117,010 | $1,120,985 | | Unearned premiums | $635,538 | $612,476 | | Borrowings under lines of credit | $35,000 | $35,000 | | Other liabilities | $14,618 | $21,795 | | Total liabilities | $1,802,166 | $1,790,256 | | Total stockholders' equity | $605,669 | $545,776 | | Total liabilities and stockholders' equity | $2,407,835 | $2,336,032 |