Donegal Group Inc. (NASDAQ:DGICA) (NASDAQ:DGICB) today reported its
financial results for the third quarter and first nine months of
2016. Significant developments include:
- Net income was $4.8 million, or 18 cents per diluted Class A
share, for the third quarter of 2016 compared to net income of $5.7
million, or 21 cents per diluted Class A share, for the third
quarter of 2015
- Net income and operating income1 for the first nine months of
2016 increased 32.8% and 28.3%, respectively, from comparable
metrics for the first nine months of 2015, due to improved results
during the first half of 2016
- Net premiums written increased 8.2% to $171.9 million for the
third quarter of 2016, reflecting continuing organic growth in both
personal and commercial lines
- Statutory combined ratio1 of 99.5% for the third quarter of
2016, compared to 97.4% for the prior-year period; statutory
combined ratio of 95.6% for the first nine months of 2016, compared
to 96.9% for the prior-year period
- Annualized return on average equity of 7.9% for the first nine
months of 2016, compared to 5.9% for the prior-year period
- Book value per share of $16.59 at September 30, 2016, compared
to $15.66 at year-end 2015
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Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2016 |
|
|
|
2015 |
|
|
% Change |
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|
2016 |
|
|
|
2015 |
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|
% Change |
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(dollars in thousands, except per share amounts) |
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Income Statement Data |
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Net premiums earned |
$ |
166,810 |
|
|
$ |
153,096 |
|
|
|
9.0 |
% |
|
$ |
487,228 |
|
|
$ |
450,084 |
|
|
|
8.3 |
% |
Investment income, net |
|
5,581 |
|
|
|
5,399 |
|
|
|
3.4 |
|
|
|
16,472 |
|
|
|
15,505 |
|
|
|
6.2 |
|
Realized gains (losses) |
|
1,018 |
|
|
|
(754 |
) |
|
|
NM2 |
|
|
|
2,204 |
|
|
|
683 |
|
|
|
222.7 |
|
Total revenues |
|
175,311 |
|
|
|
159,802 |
|
|
|
9.7 |
|
|
|
511,227 |
|
|
|
472,591 |
|
|
|
8.2 |
|
Net income |
|
4,813 |
|
|
|
5,687 |
|
|
|
-15.4 |
|
|
|
25,247 |
|
|
|
19,006 |
|
|
|
32.8 |
|
Operating income |
|
4,151 |
|
|
|
6,177 |
|
|
|
-32.8 |
|
|
|
23,814 |
|
|
|
18,562 |
|
|
|
28.3 |
|
Annualized return on average equity |
|
4.4 |
% |
|
|
5.2 |
% |
|
-0.8 pts |
|
|
7.9 |
% |
|
|
5.9 |
% |
|
2.0 pts |
|
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Per Share Data |
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Net income – Class A (diluted) |
$ |
0.18 |
|
|
$ |
0.21 |
|
|
|
-14.3 |
% |
|
$ |
0.95 |
|
|
$ |
0.69 |
|
|
|
37.7 |
% |
Net income – Class B |
|
0.16 |
|
|
|
0.18 |
|
|
|
-11.1 |
|
|
|
0.88 |
|
|
|
0.63 |
|
|
|
39.7 |
|
Operating income – Class A (diluted) |
|
0.15 |
|
|
|
0.22 |
|
|
|
-31.8 |
|
|
|
0.90 |
|
|
|
0.68 |
|
|
|
32.4 |
|
Operating income – Class B |
|
0.14 |
|
|
|
0.20 |
|
|
|
-30.0 |
|
|
|
0.83 |
|
|
|
0.61 |
|
|
|
36.1 |
|
Book value |
|
16.59 |
|
|
|
15.76 |
|
|
|
5.3 |
|
|
|
16.59 |
|
|
|
15.76 |
|
|
|
5.3 |
|
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1The “Definitions of Non-GAAP and Operating Measures” section of
this release defines and reconciles data that the Company prepares
on an accounting basis other than U.S. generally accepted
accounting principles (“GAAP”).2Not meaningful.
Kevin G. Burke, President and Chief Executive Officer of Donegal
Group Inc., noted, “Donegal Group had solid third quarter results
that reflected continued growth in all of our lines of business,
driven by a mix of rate increases and enhanced market penetration
throughout our operating regions. Net premiums written increased by
over 8%, with double-digit growth in our commercial lines
continuing a trend we have achieved throughout the first nine
months of 2016. We believe that our strong agent relationships,
regional focus and excellent customer service will continue to
support the status of the Donegal Insurance Group as a premier
regional provider in the markets we serve. In addition to our
positive underwriting results, our net investment income and net
realized investment gains increased during the third quarter of
2016. Steady growth in investment income contributed to our strong
2016 year-to-date results, which have positioned us to succeed in
executing our long-term business strategy.”
Mr. Burke continued, “Our commercial lines of
business performed well during the third quarter of 2016. Lower
year-over-year weather-related and large fire losses during the
third quarter of 2016 also led to improved underwriting results in
our homeowners line of business. However, we incurred a
higher-than-expected loss ratio in our personal automobile line of
business, which we attribute in part to higher physical damage
losses compared to the prior-year quarter. That increase was driven
by higher average collision severity and a modestly higher
frequency of comprehensive losses. We do not believe that this
uptick is indicative of any notable trend, and we view it as a
normal quarterly fluctuation in reported claim activity.”
Donald H. Nikolaus, Chairman, further remarked,
“Donegal’s long-term strategy of offering diverse insurance
products and making conservative financial investments has led to
solid results for the first nine months of 2016. Those results
represented an increase in our annualized return on average equity
compared to the prior-year period and, along with an increase in
unrealized gains within our available-for-sale fixed-maturity and
equity investment portfolios, contributed to an increase in our
book value per share to $16.59 at September 30, 2016, compared to
$15.66 at December 31, 2015.”
Insurance Operations Donegal Group is an
insurance holding company whose insurance subsidiaries offer
personal and commercial property and casualty lines of insurance in
four Mid-Atlantic states (Delaware, Maryland, New York and
Pennsylvania), three New England states (Maine, New Hampshire and
Vermont), seven Southeastern states (Alabama, Georgia, North
Carolina, South Carolina, Tennessee, Virginia and West Virginia)
and seven Midwestern states (Indiana, Iowa, Michigan, Nebraska,
Ohio, South Dakota and Wisconsin). The insurance subsidiaries of
Donegal Group and Donegal Mutual Insurance Company conduct business
together as the Donegal Insurance Group.
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Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2016 |
|
|
|
2015 |
|
|
% Change |
|
|
2016 |
|
|
|
2015 |
|
|
% Change |
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(dollars in thousands) |
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Net Premiums Written |
|
|
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|
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Personal lines: |
|
|
|
|
|
|
|
|
|
|
|
Automobile |
$ |
59,817 |
|
|
$ |
55,590 |
|
|
|
7.6 |
% |
|
$ |
173,914 |
|
|
$ |
163,562 |
|
|
|
6.3 |
% |
Homeowners |
|
34,153 |
|
|
|
33,214 |
|
|
|
2.8 |
|
|
|
93,389 |
|
|
|
91,019 |
|
|
|
2.6 |
|
Other |
|
4,755 |
|
|
|
4,715 |
|
|
|
0.8 |
|
|
|
14,367 |
|
|
|
13,763 |
|
|
|
4.4 |
|
Total personal lines |
|
98,725 |
|
|
|
93,519 |
|
|
|
5.6 |
|
|
|
281,670 |
|
|
|
268,344 |
|
|
|
5.0 |
|
Commercial lines: |
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
21,195 |
|
|
|
18,569 |
|
|
|
14.1 |
|
|
|
67,224 |
|
|
|
58,697 |
|
|
|
14.5 |
|
Workers'
compensation |
|
24,268 |
|
|
|
22,248 |
|
|
|
9.1 |
|
|
|
83,501 |
|
|
|
76,237 |
|
|
|
9.5 |
|
Commercial
multi-peril |
|
25,432 |
|
|
|
22,790 |
|
|
|
11.6 |
|
|
|
80,503 |
|
|
|
72,167 |
|
|
|
11.6 |
|
Other |
|
2,328 |
|
|
|
1,795 |
|
|
|
29.7 |
|
|
|
7,360 |
|
|
|
5,679 |
|
|
|
29.6 |
|
Total commercial lines |
|
73,223 |
|
|
|
65,402 |
|
|
|
12.0 |
|
|
|
238,588 |
|
|
|
212,780 |
|
|
|
12.1 |
|
Total net premiums written |
$ |
171,948 |
|
|
$ |
158,921 |
|
|
|
8.2 |
% |
|
$ |
520,258 |
|
|
$ |
481,124 |
|
|
|
8.1 |
% |
|
|
|
|
|
|
|
|
|
|
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The 8.2% increase in the Company’s net premiums written for the
third quarter of 2016 compared to the third quarter of 2015
represents the combination of 12.0% growth in commercial lines net
premiums written and 5.6% growth in personal lines net premiums
written. The $13.0 million growth in net premiums written for the
third quarter of 2016 compared to the third quarter of 2015
included:
- $7.8 million in commercial lines premiums that the Company
attributes primarily to new commercial accounts the Company’s
insurance subsidiaries have written throughout their operating
regions and a continuation of modest renewal premium
increases.
- $5.2 million in personal lines premiums that the Company
attributes primarily to a combination of new policy growth and
premium rate increases the Company has implemented over the past
four quarters.
For the first nine months of 2016, the Company's net premiums
written increased 8.1% compared to the comparable prior-year
period.
The following table presents comparative details with respect to
our statutory and GAAP combined ratios for the three and nine
months ended September 30, 2016 and 2015:
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
|
September 30, |
|
September 30, |
|
|
|
|
|
2016 |
|
2015 |
|
2016 |
|
2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Combined Ratios |
|
|
|
|
|
|
|
|
|
|
|
Personal Lines: |
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
105.9 |
% |
|
|
98.8 |
% |
|
|
102.6 |
% |
|
|
100.0 |
% |
|
|
|
|
Homeowners |
|
101.5 |
|
|
|
108.0 |
|
|
|
97.1 |
|
|
|
101.7 |
|
|
|
|
|
Other |
|
90.2 |
|
|
|
88.2 |
|
|
|
87.1 |
|
|
|
85.0 |
|
|
|
|
|
Total personal lines |
|
103.6 |
|
|
|
101.4 |
|
|
|
99.9 |
|
|
|
99.8 |
|
|
|
|
|
Commercial Lines: |
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
110.8 |
|
|
|
118.0 |
|
|
|
106.5 |
|
|
|
106.1 |
|
|
|
|
|
Workers'
compensation |
|
86.8 |
|
|
|
79.1 |
|
|
|
85.3 |
|
|
|
89.0 |
|
|
|
|
|
Commercial
multi-peril |
|
94.7 |
|
|
|
92.2 |
|
|
|
88.5 |
|
|
|
93.2 |
|
|
|
|
|
Total commercial lines |
|
94.3 |
|
|
|
92.0 |
|
|
|
90.3 |
|
|
|
93.2 |
|
|
|
|
|
Total lines |
|
99.5 |
% |
|
|
97.4 |
% |
|
|
95.6 |
% |
|
|
96.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Combined Ratios (Total Lines) |
|
|
|
|
|
|
|
|
|
|
|
Loss
ratio (non-weather) |
|
59.6 |
% |
|
|
57.2 |
% |
|
|
57.5 |
% |
|
|
58.6 |
% |
|
|
|
|
Loss
ratio (weather-related) |
|
7.0 |
|
|
|
9.6 |
|
|
|
6.1 |
|
|
|
7.2 |
|
|
|
|
|
Expense ratio |
|
33.5 |
|
|
|
32.1 |
|
|
|
33.2 |
|
|
|
32.7 |
|
|
|
|
|
Dividend ratio |
|
0.7 |
|
|
|
0.6 |
|
|
|
0.5 |
|
|
|
0.5 |
|
|
|
|
|
Combined ratio |
|
100.8 |
% |
|
|
99.5 |
% |
|
|
97.3 |
% |
|
|
99.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey D. Miller, Executive Vice President and Chief Financial
Officer, commented, “Our combined ratio of 100.8% during the third
quarter of 2016 reflected increases in the loss ratios for several
lines of business, particularly for our personal automobile line of
business, compared to the prior-year third quarter. While we do not
believe the increase in personal automobile losses represents a
longer-term trend, we noted modest increases in claims frequency
and severity in certain coverage lines as well as a few reserve
increases on claims that occurred in the first half of 2016. Our
workers’ compensation loss ratio also increased compared to the
prior-year quarter due to a higher volume of large claims, which we
define as over $50,000. In spite of the uptick in large claims, we
continued to achieve excellent workers’ compensation results, as
the 86.8% combined ratio indicates. We were pleased with a
considerable decline in weather-related losses compared to the
prior-year quarter that contributed to an improved homeowners
combined ratio and partially offset increased loss activity in our
casualty lines.”
Weather-related losses of $11.7 million for the third quarter of
2016 contributed 7.0 percentage points to the Company’s loss ratio,
compared to the $14.6 million of weather-related losses, or 9.6
percentage points of the Company’s loss ratio, for the third
quarter of 2015. Weather-related loss activity in the third quarter
of 2016 was in line with the Company's five-year average for
third-quarter weather-related losses of $11.8 million. For the
first nine months of 2016, weather-related losses were $29.8
million, which represented an improvement from the $32.4 million of
weather-related losses the Company incurred for the first nine
months of 2015.
Large fire losses, which the Company defines as individual fire
losses in excess of $50,000, for the third quarter of 2016 were
$6.7 million, or 4.0 percentage points of the Company’s loss ratio,
in line with the $6.8 million, or 4.4 percentage points of the
Company’s loss ratio, for the third quarter of 2015. The Company
incurred large fire losses of $16.2 million for the first nine
months of 2016, comparing favorably to the $23.5 million of large
fire losses for the first nine months of 2015.
Favorable net development of reserves for losses incurred in
prior accident years for all lines of business reduced the
Company’s loss ratio for the third quarter of 2016 by 1.0
percentage point, compared to unfavorable development that added
1.0 percentage point to the Company’s loss ratio for the third
quarter of 2015. Net development of reserves for losses incurred in
prior accident years did not have a material impact on the
Company's loss ratio for the nine months ended September 30, 2016
or September 30, 2015.
The Company’s statutory expense ratio1 was 32.0% for the third
quarter of 2016, compared to 30.2% for the third quarter of 2015.
The increase in the Company's statutory expense ratio reflected
higher underwriting-based incentive costs for the third quarter of
2016 based on higher premium production and favorable underwriting
results for the first nine months of 2016.
Mr. Miller concluded, “Apart from seasonal increases in casualty
loss activity, we were generally pleased with our underwriting
results during the third quarter of 2016. We benefitted from modest
favorable reserve development upon settlement of losses incurred in
prior accident years, continuing a trend of improving reserve
development patterns we have experienced over the past two years.
We attributed the slight elevation in our expense ratio during the
period primarily to anticipated increases in incentive compensation
for our regional agents in recognition for their increased
production of quality business for the Donegal Insurance
Group.”
Investment OperationsDonegal Group’s investment
strategy is to generate an appropriate amount of after-tax income
from its invested assets while minimizing credit risk through
investment in high-quality securities. As a result, the Company had
89.8% of its consolidated investment portfolio invested in
diversified, highly rated and marketable fixed-maturity securities
at September 30, 2016.
|
September 30, 2016 |
|
December 31, 2015 |
|
|
|
|
|
Amount |
|
% |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
Fixed maturities, at carrying value: |
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury
securities and obligations of U.S. |
|
|
|
|
|
|
|
|
|
|
|
government
corporations and agencies |
$ |
95,629 |
|
|
|
10.1 |
% |
|
$ |
88,383 |
|
|
|
9.8 |
% |
|
|
|
|
Obligations
of states and political subdivisions |
|
316,480 |
|
|
|
33.5 |
|
|
|
355,671 |
|
|
|
39.5 |
|
|
|
|
|
Corporate
securities |
|
177,423 |
|
|
|
18.8 |
|
|
|
138,119 |
|
|
|
15.3 |
|
|
|
|
|
Mortgage-backed securities |
|
258,562 |
|
|
|
27.4 |
|
|
|
229,479 |
|
|
|
25.5 |
|
|
|
|
|
Total fixed maturities |
|
848,094 |
|
|
|
89.8 |
|
|
|
811,652 |
|
|
|
90.1 |
|
|
|
|
|
Equity securities, at fair value |
|
46,312 |
|
|
|
4.9 |
|
|
|
37,261 |
|
|
|
4.1 |
|
|
|
|
|
Investments in affiliates |
|
40,145 |
|
|
|
4.3 |
|
|
|
38,477 |
|
|
|
4.3 |
|
|
|
|
|
Short-term investments, at cost |
|
9,251 |
|
|
|
1.0 |
|
|
|
13,432 |
|
|
|
1.5 |
|
|
|
|
|
Total investments |
$ |
943,802 |
|
|
|
100.0 |
% |
|
$ |
900,822 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average investment yield |
|
2.4 |
% |
|
|
|
|
2.4 |
% |
|
|
|
|
|
|
Average tax-equivalent investment yield |
|
3.0 |
% |
|
|
|
|
3.1 |
% |
|
|
|
|
|
|
Average fixed-maturity duration (years) |
|
4.1 |
|
|
|
|
|
4.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income of $5.6 million for the third quarter of
2016 increased 3.4% compared to $5.4 million in net investment
income for the third quarter of 2015. The increase in net
investment income reflected primarily a $62.9 million, or 7.2%,
increase in average invested assets for the third quarter of 2016
compared to the prior-year period. Net realized investment
gains were $1.0 million for the third quarter of 2016, compared to
net realized investment losses of $754,050 for the third quarter of
2015. The Company did not consider any declines in the market
values of individual securities within its investment portfolio
during the first nine months of 2016 or 2015 to be
other-than-temporary impairments.
The Company owns 48.2% of the outstanding stock of Donegal
Financial Services Corporation (“DFSC”). DFSC owns all of the
outstanding stock of Union Community Bank. The Company accounts for
its investment in DFSC using the equity method of accounting. The
Company’s equity in the earnings of DFSC was $357,956 for the third
quarter of 2016, compared to $408,405 for the third quarter of
2015. Donegal Mutual Insurance Company owns the remaining 51.8% of
the outstanding stock of DFSC.
Definitions of Non-GAAP and Operating
Measures
The Company prepares its consolidated financial statements on
the basis of GAAP. The Company’s insurance subsidiaries also
prepare financial statements based on the statutory accounting
principles state insurance regulators prescribe or permit (“SAP”).
In addition to using GAAP-based performance measurements, the
Company also utilizes certain non-GAAP financial measures that it
believes provide value in managing its business and for comparison
to the financial results of the insurance companies the Company
regards as its peers. These non-GAAP measures are operating income
(loss) and statutory combined ratio.
Operating income (loss) is a non-GAAP financial measure
investors in insurance companies commonly use. The Company defines
operating income (loss) as net income (loss) excluding after-tax
net realized investment gains or losses. Because the Company’s
calculation of operating income (loss) may differ from similar
measures other companies use, investors should exercise caution
when comparing the Company’s measure of operating income (loss) to
the measures other companies report.
The following table provides a reconciliation of the Company's
net income to the Company's operating income for the periods
indicated:
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
2016 |
|
|
|
2015 |
|
|
% Change |
|
|
2016 |
|
|
|
2015 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income |
|
|
|
|
|
|
|
|
|
|
|
to Operating Income |
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
4,813 |
|
|
$ |
5,687 |
|
|
|
-15.4 |
% |
|
$ |
25,247 |
|
|
$ |
19,006 |
|
|
|
32.8 |
% |
Realized (gains) losses (after tax) |
|
(662 |
) |
|
|
490 |
|
|
|
NM2 |
|
|
|
(1,433 |
) |
|
|
(444 |
) |
|
|
NM |
|
Operating income |
$ |
4,151 |
|
|
$ |
6,177 |
|
|
|
-32.8 |
% |
|
$ |
23,814 |
|
|
$ |
18,562 |
|
|
|
28.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Reconciliation of Net |
|
|
|
|
|
|
|
|
|
|
|
Income to Operating Income |
|
|
|
|
|
|
|
|
|
|
|
Net income – Class A (diluted) |
$ |
0.18 |
|
|
$ |
0.21 |
|
|
|
-14.3 |
% |
|
$ |
0.95 |
|
|
$ |
0.69 |
|
|
|
37.7 |
% |
Realized (gains) losses (after tax) |
|
(0.03 |
) |
|
|
0.01 |
|
|
|
NM |
|
|
|
(0.05 |
) |
|
|
(0.01 |
) |
|
NM |
Operating income – Class A |
$ |
0.15 |
|
|
$ |
0.22 |
|
|
|
-31.8 |
% |
|
$ |
0.90 |
|
|
$ |
0.68 |
|
|
|
32.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net income – Class B |
$ |
0.16 |
|
|
$ |
0.18 |
|
|
|
-11.1 |
% |
|
$ |
0.88 |
|
|
$ |
0.63 |
|
|
|
39.7 |
% |
Realized (gains) losses (after tax) |
|
(0.02 |
) |
|
|
0.02 |
|
|
|
NM |
|
|
|
(0.05 |
) |
|
|
(0.02 |
) |
|
|
NM |
|
Operating income – Class B |
$ |
0.14 |
|
|
$ |
0.20 |
|
|
|
-30.0 |
% |
|
$ |
0.83 |
|
|
$ |
0.61 |
|
|
|
36.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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.
Conference Call and Webcast
The Company will hold a conference call and webcast on Friday,
October 28, 2016, beginning at 11:00 A.M. Eastern Time. You may
listen via the Internet by accessing the webcast link on the
Company’s web site at http://investors.donegalgroup.com. A replay
of the conference call will also be available via the Company’s web
site.
About the Company
Donegal Group is an insurance holding company. The Company’s
Class A common stock and Class B common stock trade on the NASDAQ
Global Select Market under the symbols DGICA and DGICB,
respectively. As an effective acquirer of small to medium-sized
“main street” property and casualty insurers, Donegal Group has
grown profitably since its formation in 1986. The Company continues
to seek opportunities for growth while striving to achieve its
longstanding goal of outperforming the property and casualty
insurance industry in terms of service, profitability and growth in
book value.
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 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, competition from various
insurance and other financial businesses, acts of terrorism, the
availability and cost of reinsurance, adverse and catastrophic
weather events, legal and judicial developments, changes in
regulatory requirements, our ability to integrate and manage
successfully the insurance companies we may acquire from time to
time and other risks we describe from time to time 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.
Donegal Group Inc. |
Consolidated Statements of Income |
(unaudited; in thousands, except share data) |
|
|
|
|
|
|
|
|
|
Quarter Ended September 30, |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
Net
premiums earned |
$ |
166,810 |
|
|
$ |
153,096 |
|
Investment
income, net of expenses |
|
5,581 |
|
|
|
5,399 |
|
Net
realized investment gains (losses) |
|
1,018 |
|
|
|
(754 |
) |
Lease
income |
|
164 |
|
|
|
179 |
|
Installment
payment fees |
|
1,380 |
|
|
|
1,473 |
|
Equity in
earnings of DFSC |
|
358 |
|
|
|
409 |
|
|
Total
revenues |
|
175,311 |
|
|
|
159,802 |
|
|
|
|
|
|
|
Net losses
and loss expenses |
|
111,175 |
|
|
|
102,234 |
|
Amortization of deferred acquisition costs |
|
27,524 |
|
|
|
25,036 |
|
Other
underwriting expenses |
|
28,340 |
|
|
|
24,156 |
|
Policyholder dividends |
|
1,143 |
|
|
|
886 |
|
Interest |
|
|
474 |
|
|
|
188 |
|
Other
expenses |
|
226 |
|
|
|
301 |
|
|
Total
expenses |
|
168,882 |
|
|
|
152,801 |
|
|
|
|
|
|
|
Income
before income tax expense |
|
6,429 |
|
|
|
7,001 |
|
Income tax
expense |
|
1,616 |
|
|
|
1,314 |
|
|
|
|
|
|
|
Net
income |
$ |
4,813 |
|
|
$ |
5,687 |
|
|
|
|
|
|
|
Net income
per common share: |
|
|
|
|
Class A -
basic |
$ |
0.19 |
|
|
$ |
0.21 |
|
|
Class A -
diluted |
$ |
0.18 |
|
|
$ |
0.21 |
|
|
Class B -
basic and diluted |
$ |
0.16 |
|
|
$ |
0.18 |
|
|
|
|
|
|
|
Supplementary Financial Analysts' Data |
|
|
|
|
|
|
|
|
|
Weighted-average number of shares |
|
|
|
|
outstanding: |
|
|
|
|
Class A -
basic |
|
21,077,885 |
|
|
|
22,442,240 |
|
|
Class A -
diluted |
|
21,908,606 |
|
|
|
22,684,480 |
|
|
Class B -
basic and diluted |
|
5,576,775 |
|
|
|
5,576,775 |
|
|
|
|
|
|
|
Net
premiums written |
$ |
171,948 |
|
|
$ |
158,921 |
|
|
|
|
|
|
|
Book value
per common share |
|
|
|
|
at end of
period |
$ |
16.59 |
|
|
$ |
15.76 |
|
|
|
|
|
|
|
Annualized
return on average equity |
|
4.4 |
% |
|
|
5.2 |
% |
|
|
|
|
|
|
Donegal Group Inc. |
Consolidated Statements of Income |
(unaudited; in thousands, except share data) |
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
|
|
|
Net
premiums earned |
$ |
487,228 |
|
|
$ |
450,084 |
|
Investment
income, net of expenses |
|
16,472 |
|
|
|
15,505 |
|
Net
realized investment gains |
|
2,204 |
|
|
|
683 |
|
Lease
income |
|
515 |
|
|
|
569 |
|
Installment
payment fees |
|
4,109 |
|
|
|
4,473 |
|
Equity in
earnings of DFSC |
|
699 |
|
|
|
1,277 |
|
|
Total
revenues |
|
511,227 |
|
|
|
472,591 |
|
|
|
|
|
|
|
Net losses
and loss expenses |
|
309,947 |
|
|
|
296,012 |
|
Amortization of deferred acquisition costs |
|
80,034 |
|
|
|
73,872 |
|
Other
underwriting expenses |
|
81,557 |
|
|
|
73,192 |
|
Policyholder dividends |
|
2,730 |
|
|
|
2,492 |
|
Interest |
|
|
1,286 |
|
|
|
909 |
|
Other
expenses |
|
1,180 |
|
|
|
1,705 |
|
|
Total
expenses |
|
476,734 |
|
|
|
448,182 |
|
|
|
|
|
|
|
Income
before income tax expense |
|
34,493 |
|
|
|
24,409 |
|
Income tax
expense |
|
9,246 |
|
|
|
5,403 |
|
|
|
|
|
|
|
Net
income |
$ |
25,247 |
|
|
$ |
19,006 |
|
|
|
|
|
|
|
Net income
per common share: |
|
|
|
|
Class A -
basic |
$ |
0.98 |
|
|
$ |
0.71 |
|
|
Class A -
diluted |
$ |
0.95 |
|
|
$ |
0.69 |
|
|
Class B -
basic and diluted |
$ |
0.88 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
Supplementary Financial Analysts' Data |
|
|
|
|
|
|
|
|
|
Weighted-average number of shares |
|
|
|
|
outstanding: |
|
|
|
|
Class A -
basic |
|
20,790,658 |
|
|
|
21,995,952 |
|
|
Class A -
diluted |
|
21,350,778 |
|
|
|
22,395,609 |
|
|
Class B -
basic and diluted |
|
5,576,775 |
|
|
|
5,576,775 |
|
|
|
|
|
|
|
Net
premiums written |
$ |
520,258 |
|
|
$ |
481,124 |
|
|
|
|
|
|
|
Book value
per common share |
|
|
|
|
at end of
period |
$ |
16.59 |
|
|
$ |
15.76 |
|
|
|
|
|
|
|
Annualized
return on average equity |
|
7.9 |
% |
|
|
5.9 |
% |
|
|
|
|
|
|
Donegal Group Inc. |
Consolidated Balance Sheets |
(in thousands) |
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
2016 |
|
|
|
2015 |
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
ASSETS |
Investments: |
|
|
|
|
Fixed
maturities: |
|
|
|
|
|
Held to maturity, at
amortized cost |
$ |
332,273 |
|
|
$ |
310,259 |
|
|
|
Available for sale, at
fair value |
|
515,821 |
|
|
|
501,393 |
|
|
Equity
securities, at fair value |
|
46,312 |
|
|
|
37,261 |
|
|
Investments
in affiliates |
|
40,145 |
|
|
|
38,477 |
|
|
Short-term
investments, at cost |
|
9,251 |
|
|
|
13,432 |
|
|
|
Total
investments |
|
943,802 |
|
|
|
900,822 |
|
Cash |
|
|
32,131 |
|
|
|
28,139 |
|
Premiums
receivable |
|
165,762 |
|
|
|
141,267 |
|
Reinsurance receivable |
|
259,429 |
|
|
|
259,728 |
|
Deferred
policy acquisition costs |
|
57,404 |
|
|
|
52,108 |
|
Prepaid
reinsurance premiums |
|
127,432 |
|
|
|
113,523 |
|
Other
assets |
|
38,104 |
|
|
|
42,247 |
|
|
|
Total assets |
$ |
1,624,064 |
|
|
$ |
1,537,834 |
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
Liabilities: |
|
|
|
|
|
Losses and
loss expenses |
$ |
594,268 |
|
|
$ |
578,205 |
|
|
Unearned
premiums |
|
476,433 |
|
|
|
429,493 |
|
|
Accrued
expenses |
|
21,067 |
|
|
|
22,460 |
|
|
Borrowings
under lines of credit |
|
74,000 |
|
|
|
81,000 |
|
|
Subordinated debentures |
|
5,000 |
|
|
|
5,000 |
|
|
Other
liabilities |
|
9,287 |
|
|
|
13,288 |
|
|
|
Total liabilities |
|
1,180,055 |
|
|
|
1,129,446 |
|
Stockholders' equity: |
|
|
|
|
Class A
common stock |
|
242 |
|
|
|
235 |
|
|
Class B
common stock |
|
56 |
|
|
|
56 |
|
|
Additional
paid-in capital |
|
231,886 |
|
|
|
219,525 |
|
|
Accumulated
other comprehensive income |
|
6,340 |
|
|
|
774 |
|
|
Retained
earnings |
|
246,711 |
|
|
|
229,024 |
|
|
Treasury
stock |
|
(41,226 |
) |
|
|
(41,226 |
) |
|
|
Total stockholders'
equity |
|
444,009 |
|
|
|
408,388 |
|
|
|
Total liabilities and
stockholders' equity |
$ |
1,624,064 |
|
|
$ |
1,537,834 |
|
|
|
|
|
|
|
For Further Information:
Jeffrey D. Miller, Executive Vice President & Chief Financial Officer
Phone: (717) 426-1931
E-mail: investors@donegalgroup.com
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