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DGICB - Donegal Inc News Story

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Last Trade - 17/06/21

Sector
Financials
Size
Small Cap
Market Cap £331.0m
Enterprise Value £285.9m
Revenue £572.7m
Position in Universe 3745th / 6927

Donegal Group Inc. Announces First Quarter 2021 Results

Mon 26th April, 2021 9:05pm
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MARIETTA, Pa., April 26, 2021 (GLOBE NEWSWIRE) -- Donegal Group Inc. (NASDAQ:
DGICA) and (NASDAQ: DGICB) today reported its financial results for the first
quarter of 2021.

Highlights for First Quarter of 2021 (all comparisons to first quarter of
2020):
* Net income of $10.5 million, or 35 cents per diluted Class A share, compared
to $3.7 million, or 13 cents per diluted Class A share
* Net premiums earned of $187.3 million, virtually unchanged
* Net premiums written(1) increased 8.9% to $215.9 million
* Combined ratio of 98.5%, compared to 97.0%
* Net income included after-tax net investment gains of $2.0 million, or 6
cents per diluted Class A share, compared to net investment losses of $8.4
million, or 29 cents per diluted Class A share
* Annualized return on average equity of 8.0%, compared to 3.3%
* Book value per share of $17.29 at March 31, 2021, compared to $15.92
Summary of First Quarter Results

                                                                                                                            
                                                  Three Months Ended March 31,                                              
                                                  2021                          2020                          % Change      
                                                                                                                            
                                                  (dollars in thousands, except per share amounts)                          
                                                                                                                            
 Income Statement Data                                                                                                      
 Net premiums earned                              $      187,252                $      187,253                -0.0   %      
 Investment income, net                                  7,511                         7,376                  1.8           
 Net investment gains (losses)                           2,469                         (10,695  )             NM     (2)    
 Total revenues                                          197,970                       184,911                7.1           
 Net income                                              10,530                        3,731                  182.2         
 Non-GAAP operating income (1)                           8,579                         12,341                 -30.5         
 Annualized return on average equity                     8.0      %                    3.3      %             4.7    pts    
                                                                                                                            
 Per Share Data                                                                                                             
 Net income – Class A (diluted)                   $      0.35                   $      0.13                   169.2  %      
 Net income – Class B                                    0.32                          0.12                   166.7         
 Non-GAAP operating income – Class A (diluted)           0.29                          0.43                   -32.6         
 Non-GAAP operating income – Class B                     0.26                          0.40                   -35.0         
 Book value                                              17.29                         15.92                  8.6           
                                                                                                                            

(1)The “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.

(2)Not meaningful.

Management Commentary

Overview

Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc.,
noted, “Donegal Group achieved solid first quarter results despite elevated
fire losses that primarily impacted the loss ratio for our commercial
multi-peril line of business. We achieved significant increases in net income,
earnings per share and annualized return on average equity, which included a
mark-to-market shift from a substantial net investment loss for the prior-year
quarter to a net investment gain on equity securities we held at March 31,
2021. We continued to execute our strategy of promoting our strong regional
market presence, and we remain focused on bottom-line performance.”

Mr. Burke continued, “Donegal Group achieved net premiums written growth of
8.9% during the first quarter of 2021, with 18.7% growth in our commercial
lines business segment, compared to the prior-year quarter. We began to
include commercial premiums from four Southwestern states in our consolidated
revenues for 2021. As we announced previously, Atlantic States Insurance
Company, our insurance subsidiary, began to receive an 80% allocation of the
underwriting results of the Mountain States Insurance Group, which became part
of the Donegal Insurance Group through a Donegal Mutual Insurance Company
acquisition in 2017. In addition, we benefitted from a combination of
commercial market share gains as well as renewal premium increases due to a
favorable rate environment. We have continued to emphasize profitability over
growth in our personal lines segment, but we look forward to launching new
personal lines products beginning in the second half of 2021 that we believe
will provide us increased opportunities to obtain profitable new business in
that segment.”

Jeffrey D. Miller, Executive Vice President and Chief Financial Officer of
Donegal Group Inc., commented on the first quarter results, “Our insurance
subsidiaries achieved a combined ratio of 98.5% for the first quarter of 2021,
reflecting a 1.5 percentage point increase over the combined ratio for the
prior-year quarter. While below-average weather-related losses were comparable
to the prior period, higher-than-normal large fire losses adversely impacted
our commercial multi-peril results. We attribute the increase in commercial
fires primarily to additional stress placed on heating and electrical systems
during cold weather conditions during the quarter. We were pleased that our
insurance subsidiaries experienced favorable prior-year loss reserve
development in all lines of business for the first quarter of 2021. The
expense ratio was slightly elevated due primarily to commercial lines growth
incentives and anticipated underwriting-based incentives for our agents. Our
expense ratio also reflected the amortization of certain costs related to
various technology enhancements, including the replacement of our remaining
legacy systems, that will support additional growth opportunities and enhance
our ability to make advancements in underwriting, data analytics and
operational capabilities over the next few years.”

Mr. Burke concluded, “Donegal Group remains committed to expanding market
share within our regional markets, adhering to sound underwriting discipline
and working closely with our independent agents to deliver best-in-class
customer service. We believe that this strategy will help us to enhance our
profitability and grow our book value over time. Our net income, partially
offset by unrealized losses within our available-for-sale fixed-maturity
portfolio due to an increase in market interest rates during the first quarter
of 2021, contributed to an increase in our book value to $17.29 at March 31,
2021, compared to $17.13 at December 31, 2020.”

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 March 31,                            
                             2021                 2020                 % Change      
                                                                                     
                             (dollars in thousands)                                  
                                                                                     
 Net Premiums Earned                                                                 
 Commercial lines            $     109,226        $     101,775        7.3    %      
 Personal lines                    78,026               85,478         -8.7          
 Total net premiums earned   $     187,252        $     187,253        -0.0   %      
                                                                                     
 Net Premiums Written                                                                
 Commercial lines:                                                                   
 Automobile                  $     47,239         $     38,393         23.0   %      
 Workers' compensation             34,941               34,169         2.3           
 Commercial multi-peril            51,803               40,427         28.1          
 Other                             10,451               8,710          20.0          
 Total commercial lines            144,434              121,699        18.7          
 Personal lines:                                                                     
 Automobile                        43,007               47,768         -10.0         
 Homeowners                        22,688               23,777         -4.6          
 Other                             5,733                4,993          14.8          
 Total personal lines              71,428               76,538         -6.7          
 Total net premiums written  $     215,862        $     198,237        8.9    %      
                                                                                     

Net Premiums Written

The 8.9% increase in net premiums written for the first quarter of 2021
compared to the first quarter of 2020, as shown in the table above, represents
18.7% growth in commercial lines net premiums written, partially offset by a
6.7% decline in personal lines net premiums written. The $17.6 million
increase in net premiums written for the first quarter of 2021 compared to the
first quarter of 2020 included:
* Commercial Lines: $22.7 million increase that we attribute primarily to the
inclusion of $13.4 million of business Donegal Mutual and its subsidiaries
wrote in four Southwestern states in the pooling agreement with Atlantic
States Insurance Company (our largest insurance subsidiary) effective January
1, 2021, new commercial accounts our insurance subsidiaries wrote throughout
their operating regions and a continuation of renewal premium increases.
* Personal Lines: $5.1 million decline that we attribute to net attrition as a
result of underwriting measures our insurance subsidiaries implemented to slow
new policy growth and to increase pricing on renewal policies, partially
offset by premium rate increases our insurance subsidiaries have implemented
over the past four quarters.
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 ratios(1) for the three months ended March 31, 2021 and 2020:

                                                                     
                                     Three Months Ended              
                                     March 31,                       
                                     2021               2020         
                                                                     
 GAAP Combined Ratios (Total Lines)                                  
 Loss ratio (non-weather)            60.0   %           58.9   %     
 Loss ratio (weather-related)        3.7                3.7          
 Expense ratio                       34.1               33.4         
 Dividend ratio                      0.7                1.0          
 Combined ratio                      98.5   %           97.0   %     
                                                                     
 Statutory Combined Ratios                                           
 Commercial lines:                                                   
 Automobile                          102.3  %           117.4  %     
 Workers' compensation               95.4               90.1         
 Commercial multi-peril              107.7              89.1         
 Other                               60.1               64.2         
 Total commercial lines              99.3               96.0         
 Personal lines:                                                     
 Automobile                          93.4               100.0        
 Homeowners                          94.7               90.7         
 Other                               76.9               66.5         
 Total personal lines                92.6               94.7         
 Total lines                         96.5   %           95.4   %     
                                                                     

Loss Ratio

For the first quarter of 2021, the loss ratio increased to 63.7%, compared to
62.6% for the first quarter of 2020. Weather-related losses of $6.8 million
for the first quarter of 2021 were comparable to $6.9 million for the first
quarter of 2020, or 3.7 percentage points of the loss ratio for both quarterly
periods. Weather-related loss activity for the first quarter of 2021 was lower
than our previous five-year average of $10.3 million for first-quarter
weather-related losses.

Large fire losses, which we define as individual fire losses in excess of
$50,000, for the first quarter of 2021 were $10.3 million, or 5.5 percentage
points of the loss ratio. That amount was higher than the large fire losses of
$6.3 million, or 3.4 percentage points of the loss ratio, for the first
quarter of 2020. Commercial property fires accounted for the increase compared
to the prior-year quarter.

Net development of reserves for losses incurred in prior accident years of
$8.2 million decreased the loss ratio for the first quarter of 2021 by 4.4
percentage points, compared to $4.3 million that decreased the loss ratio for
the first quarter of 2020 by 2.3 percentage points. Our insurance subsidiaries
experienced modest favorable development in all lines of business in the first
quarter of 2021.

Expense Ratio

The expense ratio was 34.1% for the first quarter of 2021, compared to 33.4%
for the first quarter of 2020. The increase in the expense ratio reflected
higher agency growth incentive and underwriting-based incentive costs for the
first quarter of 2021 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 92.5% of
our consolidated investment portfolio in diversified, highly rated and
marketable fixed-maturity securities at March 31, 2021.

                                                                                                                                                             
                                                   March 31, 2021                                                    December 31, 2020                       
                                                   Amount                                            %               Amount                    %             
                                                                                                                                                             
                                                   (dollars in thousands)                                                                                    
 Fixed maturities, at carrying value:                                                                                                                        
 U.S. Treasury securities and obligations of U.S.                                                                                                            
 government corporations and agencies              $              98,168                             8.2    %        $    125,250              10.3   %      
 Obligations of states and political subdivisions                 401,493                            33.4                 381,284              31.2          
 Corporate securities                                             383,201                            31.9                 385,978              31.6          
 Mortgage-backed securities                                       228,278                            19.0                 249,233              20.4          
 Total fixed maturities                                           1,111,140                          92.5                 1,141,745            93.5          
 Equity securities, at fair value                                 68,640                             5.7                  58,556               4.8           
 Short-term investments, at cost                                  21,098                             1.8                  20,900               1.7           
 Total investments                                 $              1,200,878                          100.0  %        $    1,221,201            100.0  %      
                                                                                                                                                             
 Average investment yield                                         2.5            %                                        2.5        %                       
 Average tax-equivalent investment yield                          2.6            %                                        2.7        %                       
 Average fixed-maturity duration (years)                          4.8                                                     4.2                                
                                                                                                                                                             

Total fixed-maturity investments at March 31, 2021 decreased by $30.6 million
from the year-end 2020 balance, primarily reflecting the March 2021 repayment
of $50.0 million in contingent liquidity funding that Atlantic States
Insurance Company, our largest insurance subsidiary, had obtained from the
Federal Home Loan Bank of Pittsburgh in March 2020 for added security in light
of uncertainty surrounding the economic impact of the COVID-19 pandemic.

Net investment income of $7.5 million for the first quarter of 2021 increased
1.8% compared to $7.4 million for the first quarter of 2020. The increase in
net investment income reflected primarily an increase in average invested
assets relative to the prior-year first quarter.

Net investment gains of $2.5 million for the first quarter of 2021 were
primarily related to unrealized gains in the fair value of equity securities
held at March 31, 2021. Net investment losses of $10.7 million for the first
quarter of 2020 were primarily related to unrealized losses in the fair value
of equity securities held at March 31, 2020.

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 March 31,                            
                                  2021                 2020                 % Change      
                                                                                          
                                  (dollars in thousands)                                  
                                                                                          
 Reconciliation of Net Premiums                                                           
 Earned to Net Premiums Written                                                           
 Net premiums earned              $     187,252        $     187,253        -0.0   %      
 Change in net unearned premiums        28,610               10,984         160.5         
 Net premiums written             $     215,862        $     198,237        8.9    %      
                                                                                          
                                                                                          

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

                                                                                                                 
                                         Three Months Ended March 31,                                            
                                         2021                            2020                    % Change        
                                                                                                                 
                                         (dollars in thousands, except per share amounts)                        
                                                                                                                 
 Reconciliation of Net Income                                                                                    
 to Non-GAAP Operating Income                                                                                    
 Net income                              $       10,530                  $       3,731           182.2   %       
 Investment (gains) losses (after tax)           (1,951  )                       8,449           NM              
 Other, net                                      -                               161             -100.0          
 Non-GAAP operating income               $       8,579                   $       12,341          -30.5   %       
                                                                                                                 
 Per Share Reconciliation of Net Income                                                                          
 to Non-GAAP Operating Income                                                                                    
 Net income – Class A (diluted)          $       0.35                    $       0.13            169.2   %       
 Investment (gains) losses (after tax)           (0.06   )                       0.29            NM              
 Other, net                                      -                               0.01            -100.0          
 Non-GAAP operating income – Class A     $       0.29                    $       0.43            -32.6   %       
                                                                                                                 
 Net income – Class B                    $       0.32                    $       0.12            166.7   %       
 Investment (gains) losses (after tax)           (0.06   )                       0.27            NM              
 Other, net                                      -                               0.01            -100.0          
 Non-GAAP operating income – Class B     $       0.26                    $       0.40            -35.0   %       
                                                                                                                 

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 April 15, 2021, we declared a regular quarterly cash dividend of $0.16 per
share for our Class A common stock and $0.1425 per share for our Class B
common stock, which is payable on May 17, 2021 to stockholders of record as of
the close of business on May 3, 2021.

Conference Call and Webcast

We will hold a conference call and webcast on Tuesday, April 27, 2021,
beginning at 11:00 A.M. Eastern Time. You may listen to the webcast of this
conference call by accessing the webcast link on our website at
http://investors.donegalgroup.com. A supplemental investor presentation and a
replay of the conference call will also be available via our website.

About Donegal Group Inc.

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. These statements are forward-looking in nature
(as defined in the Private Securities Litigation Reform Act of 1995) and
involve a number of risks and uncertainties. Actual results could vary
materially. Factors that could cause actual results to vary materially
include: our ability to attract new business, retain existing business and
collect balances due to us as a result of the prolonged economic challenges
resulting from the COVID-19 pandemic, adverse and catastrophic weather events,
our ability to maintain profitable operations, the adequacy of the loss and
loss expense reserves of our insurance subsidiaries, business and economic
conditions in the areas in which our insurance subsidiaries operate, interest
rates, the availability and cost of labor and materials, 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 and exclusions, changes in
regulatory requirements and other risks we describe in the periodic reports we
file with the Securities and Exchange Commission. You should not place undue
reliance on any such forward-looking statements. 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.

For Further Information:

Jeffrey D. Miller, Executive Vice President & Chief Financial Officer 
Phone: (717) 426-1931
E-mail: investors@donegalgroup.com

Adam Prior, Senior Vice President, The Equity Group Inc.

Phone: (212) 836-9606
E-mail: aprior@equityny.com



 Donegal Group Inc.                                                                                 
 Consolidated Statements of Income                                                                  
 (unaudited; in thousands, except share data)                                                       
                                                                                                    
                                                    Quarter Ended March 31,                         
                                                    2021                    2020                    
                                                                                                    
 Net premiums earned                                $     187,252           $     187,253           
 Investment income, net of expenses                       7,511                   7,376             
 Net investment gains (losses)                            2,469                   (10,695     )     
 Lease income                                             107                     109               
 Installment payment fees                                 631                     868               
                  Total revenues                          197,970                 184,911           
                                                                                                    
 Net losses and loss expenses                             119,220                 117,247           
 Amortization of deferred acquisition costs               30,179                  29,937            
 Other underwriting expenses                              33,782                  32,598            
 Policyholder dividends                                   1,294                   1,842             
 Interest                                                 312                     224               
 Other expenses, net                                      432                     560               
                  Total expenses                          185,219                 182,408           
                                                                                                    
 Income before income tax expense (benefit)               12,751                  2,503             
 Income tax expense (benefit)                             2,221                   (1,228      )     
                                                                                                    
 Net income                                         $     10,530            $     3,731             
                                                                                                    
 Earnings per common share:                                                                         
                  Class A - basic and diluted       $     0.35              $     0.13              
                  Class B - basic and diluted       $     0.32              $     0.12              
                                                                                                    
 Supplementary Financial Analysts' Data                                                             
                                                                                                    
 Weighted-average number of shares                                                                  
                  outstanding:                                                                      
                  Class A - basic                         24,768,060              23,260,386        
                  Class A - diluted                       24,896,388              23,448,022        
                  Class B - basic and diluted             5,576,775               5,576,775         
                                                                                                    
 Net premiums written                               $     215,862           $     198,237           
                                                                                                    
 Book value per common share                                                                        
                  at end of period                  $     17.29             $     15.92             
                                                                                                    



 Donegal Group Inc.                                                                                                                
 Consolidated Balance Sheets                                                                                                       
 (in thousands)                                                                                                                    
                                                                                                                                   
                                                                                 March 31,                December 31,             
                                                                                 2021                     2020                     
                                                                                 (unaudited)                                       
                                                                                                                                   
 ASSETS                                                                                                                            
 Investments:                                                                                                                      
               Fixed maturities:                                                                                                   
                                     Held to maturity, at amortized cost         $     613,485            $      586,609           
                                     Available for sale, at fair value                 497,655                   555,136           
               Equity securities, at fair value                                        68,640                    58,556            
               Short-term investments, at cost                                         21,098                    20,900            
                                     Total investments                                 1,200,878                 1,221,201         
 Cash                                                                                  102,392                   103,094           
 Premiums receivable                                                                   181,608                   169,596           
 Reinsurance receivable                                                                426,340                   408,909           
 Deferred policy acquisition costs                                                     64,531                    59,157            
 Prepaid reinsurance premiums                                                          181,100                   169,418           
 Other assets                                                                          28,372                    29,145            
                                     Total assets                                $     2,185,221          $      2,160,520         
                                                                                                                                   
 LIABILITIES AND STOCKHOLDERS' EQUITY                                                                                              
 Liabilities:                                                                                                                      
               Losses and loss expenses                                          $     996,979            $      962,007           
               Unearned premiums                                                       577,481                   537,190           
               Accrued expenses                                                        23,563                    29,115            
               Borrowings under lines of credit                                        35,000                    85,000            
               Subordinated debentures                                                 5,000                     5,000             
               Other liabilities                                                       17,963                    24,434            
                                     Total liabilities                                 1,655,986                 1,642,746         
 Stockholders' equity:                                                                                                             
               Class A common stock                                                    280                       277               
               Class B common stock                                                    56                        56                
               Additional paid-in capital                                              294,398                   289,150           
               Accumulated other comprehensive income                                  6,923                     11,131            
               Retained earnings                                                       268,804                   258,386           
               Treasury stock                                                          (41,226    )              (41,226    )      
                                     Total stockholders' equity                        529,235                   517,774           
                                     Total liabilities and stockholders' equity  $     2,185,221          $      2,160,520         
                                                                                                                                   



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