
PART I: FINANCIAL INFORMATION Financial Statements Donegal Group Inc. reported a significant decline in H1 2022 financial performance, with net income dropping to $4.9 million and a comprehensive loss of $27.8 million, driven by investment losses Consolidated Balance Sheet Highlights (June 30, 2022 vs. Dec 31, 2021) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Investments | $1,299,326,949 | $1,276,845,897 | | Total Assets | $2,249,848,336 | $2,255,175,399 | | Total Liabilities | $1,738,825,854 | $1,724,139,312 | | Total Stockholders' Equity | $511,022,482 | $531,036,087 | Consolidated Income Statement Highlights | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Premiums Earned | $204,128,489 | $192,488,665 | $403,377,113 | $379,740,265 | | Total Revenues | $204,311,149 | $205,145,943 | $411,937,866 | $403,115,841 | | Net (Loss) Income | $(8,207,757) | $16,164,036 | $4,937,272 | $26,693,884 | | Diluted EPS (Class A) | $(0.26) | $0.53 | $0.16 | $0.88 | Consolidated Cash Flow Highlights (Six Months Ended June 30) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,989,404 | $59,175,971 | | Net cash used in investing activities | $(73,101,376) | $(27,364,280) | | Net cash provided by (used in) financing activities | $2,213,314 | $(46,901,189) | | Net decrease in cash | $(35,898,658) | $(15,089,498) | Notes to Consolidated Financial Statements Notes detail the company's structure, accounting policies, pooling agreement, reinsurance, and significant unrealized investment losses - The company operates in three segments: investment, commercial lines, and personal lines. Donegal Mutual holds approximately 70% of the total voting power3334 - Atlantic States participates in a pooling agreement, assuming 80% of the pooled business from Donegal Mutual, which homogenizes underwriting risk3538 - The company's reinsurance program includes excess of loss coverage over a $2.0 million retention and catastrophe reinsurance for losses between $15.0 million and $185.0 million per occurrence48 Activity in Liabilities for Losses and Loss Expenses (Six Months Ended June 30, in thousands) | Description | 2022 | 2021 | | :--- | :--- | :--- | | Net Balance at January 1 | $626,359 | $557,189 | | Incurred related to Current year | $283,906 | $254,740 | | Incurred related to Prior years (Favorable Development) | $(24,415) | $(21,564) | | Total Incurred | $259,491 | $233,176 | | Total Paid | $242,694 | $210,266 | | Net Balance at end of period | $643,156 | $580,099 | - Fixed maturities with a fair value of $855.8 million had temporary unrealized losses totaling $78.9 million for durations less than 12 months, and securities with a fair value of $136.8 million had unrealized losses of $22.6 million for durations over 12 months as of June 30, 202263 Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q2 2022 net loss of $8.2 million to a higher loss ratio and significant net investment losses, increasing the combined ratio to 105.0% Results of Operations Q2 2022 saw a net loss of $8.2 million, driven by a higher loss ratio (69.4%) due to increased weather losses and net investment losses Q2 Performance Comparison (2022 vs 2021) | Metric | Q2 2022 | Q2 2021 | | :--- | :--- | :--- | | Net Premiums Written | $218.4M (+4.2%) | $209.6M | | Net (Loss) Income | $(8.2)M | $16.2M | | Loss Ratio | 69.4% | 59.2% | | Expense Ratio | 35.0% | 36.0% | | Combined Ratio | 105.0% | 96.1% | | Net Investment (Losses) Gains | $(8.4)M | $4.2M | Six-Month Performance Comparison (2022 vs 2021) | Metric | H1 2022 | H1 2021 | | :--- | :--- | :--- | | Net Premiums Written | $436.9M (+2.7%) | $425.5M | | Net Income | $4.9M | $26.7M | | Loss Ratio | 64.3% | 61.4% | | Expense Ratio | 35.4% | 35.1% | | Combined Ratio | 100.4% | 97.3% | | Net Investment (Losses) Gains | $(8.5)M | $6.7M | - The increase in the Q2 loss ratio was driven by higher weather-related losses ($19.6 million vs. $11.7 million) and lower favorable prior-year loss reserve development ($7.9 million vs. $13.4 million)125 Liquidity and Capital Resources The company maintains strong liquidity with $35.0 million in H1 2022 operating cash flow and access to credit facilities - Operating activities provided net cash flows of $35.0 million in the first six months of 2022, down from $59.2 million in the same period of 2021142 - As of June 30, 2022, the company had access to a $20.0 million line of credit with M&T and an outstanding $35.0 million advance with the FHLB of Pittsburgh143 - On July 21, 2022, the board declared quarterly cash dividends of 16.5 cents per Class A share and 14.75 cents per Class B share147 Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks relate to investment portfolio fair value fluctuations from equity prices and interest rates, with no material changes reported - The company's market risk is primarily related to fluctuations in prices and interest rates affecting its investment portfolio154 - There have been no material changes to quantitative or qualitative market risk exposure from December 31, 2021, through June 30, 2022155 Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2022, following a new application system implementation that enhanced internal controls - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective157 - A new application system was implemented for expense allocation, reinsurance premiums, and commissions, resulting in changes to internal controls over financial reporting to enhance automation and efficiency158160 PART II: OTHER INFORMATION Legal Proceedings The company reported no legal proceedings for the period - None164 Risk Factors No material changes in risk factors were reported for the six months ended June 30, 2022 - No material changes in risk factors were reported for the six months ended June 30, 2022165 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, Donegal Mutual purchased 367,077 Class A and 54,231 Class B common shares in open market or privately negotiated transactions Share Purchases by Donegal Mutual (Q2 2022) | Stock Class | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | Class A | 367,077 | $15.68 | | Class B | 54,231 | $14.25 | Other Information The company reported no other information for the period - None173 Exhibits The report includes several exhibits filed, such as an amendment to the 2021 Employee Stock Purchase Plan, CEO/CFO certifications, and XBRL data files - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32.1, 32.2), an amendment to the employee stock purchase plan (10.1), and XBRL interactive data files (101 series)176