Donegal Group Inc. (Nasdaq:DGICA) (Nasdaq:DGICB) today reported its
financial results for the first quarter of 2015. Highlights
included:
- Net income of $6.9 million, or 25 cents per diluted Class A
share, for the first quarter of 2015, a significant improvement
compared to a net loss of $634,414, or 2 cents per diluted Class A
share, for the first quarter of 2014
- Results reflect lower pre-tax effect of winter weather-related
losses of $8.8 million for the first quarter of 2015, compared to
$15.3 million for the first quarter of 2014
- Statutory combined ratio1 of 96.9% for the first quarter of
2015, compared to 103.2% for the prior-year first quarter
- 8.3% increase in net premiums written to $156.6 million,
primarily reflecting continuing growth in commercial lines
- Book value per share of $15.68 at March 31, 2015, compared to
$15.40 at year-end 2014
|
Three Months
Ended March 31, |
|
2015 |
2014 |
% Change |
|
(dollars in thousands, except
per share amounts) |
|
|
|
|
Income Statement Data |
|
|
|
Net premiums earned |
$ 146,530 |
$ 133,548 |
9.7% |
Investment income, net |
4,949 |
4,616 |
7.2 |
Realized gains (losses) |
1,046 |
(89) |
NM2 |
Total revenues |
154,772 |
140,339 |
10.3 |
Net income (loss) |
6,854 |
(634) |
NM |
Operating income (loss)1 |
6,174 |
(576) |
NM |
|
|
|
|
Per Share Data |
|
|
|
Net income (loss) – Class A
(diluted) |
$ 0.25 |
$ (0.02) |
NM |
Net income (loss) – Class B |
0.23 |
(0.02) |
NM |
Operating income (loss) – Class A
(diluted) |
0.23 |
(0.02) |
NM |
Operating income (loss) – Class B |
0.21 |
(0.02) |
NM |
Book value |
15.68 |
15.18 |
3.3 |
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, Acting Chief Executive Officer of Donegal Group
Inc., noted, "Donegal Group achieved solid underwriting results for
the first quarter of 2015 that contributed to net income of $6.9
million. We continue to execute on our long-term strategic business
plan and to reap rewards from various strategies we have employed
over the past few years. In executing our strategic business plan,
we strive to outperform the property and casualty insurance
industry in terms of service, profitability and book value growth
over the long term.
"We have placed a strategic emphasis on leveraging our position
as a well-capitalized regional insurance group serving the
independent agency market. In conjunction with providing excellent
insurance products, advanced technology tools and dedicated service
to our independent agents, we tailor our marketing, underwriting
and claims service to fit the specific characteristics and needs of
our regional markets," Mr. Burke added.
"Our strong agency relationships were a key factor in our
ability to achieve commercial renewal premium increases in the
mid-single-digit range during the first quarter of 2015. At the
same time, our ongoing focus on expanding the distribution of our
commercial products across our regions, appointing new commercially
focused agents and committing additional resources to support our
existing agency relationships continues to provide a steady flow of
new business opportunities."
Mr. Burke concluded, "We are also maintaining our focus on
personal lines profitability. The 98.4% statutory combined
ratio for the first quarter of 2015 for our personal lines segment
reflected the benefits of premium rate increases and other
underwriting initiatives we have employed. We believe our focus on
quality underwriting, our expanding use of predictive modeling and
implementation of rate increases, where appropriate, will help us
to achieve consistent profitability in this business segment."
Donald H. Nikolaus, Chairman and President, further remarked,
"One of the notable highlights for the first quarter of 2015 was
the continued benefit of premium growth from our 2010 acquisition
of Michigan Insurance Company ("MICO"). At the time we acquired
MICO, we reinsured 50% of MICO's premiums through a quota-share
reinsurance agreement with third-party reinsurers. As we integrated
MICO's operations into those of the Donegal Insurance Group, we
gradually reduced the percentage of premiums MICO reinsured with
third-party reinsurers. Effective January 1, 2015, we eliminated
MICO's external quota-share reinsurance. As a result, MICO
contributed an additional $5.5 million to our first-quarter net
premiums written. This incremental acquisition growth strategy
complemented our organic growth initiatives over the past four
years and contributed to our above-industry-average growth rate
over that period.
"On April 16, 2015, our board of directors expressed its
confidence in Donegal Group's future prospects by increasing our
quarterly cash dividend rates to 13.5 cents per share of our Class
A common stock, a 2.7% increase from the previous quarterly cash
dividend rate, and 11.75 cents per share of our Class B common
stock, a 1.3% increase from the previous quarterly cash dividend
rate. Our board of directors has approved an increase to our
quarterly cash dividend rate for 15 consecutive years," Mr.
Nikolaus concluded.
At March 31, 2015, the Company's book value per share was
$15.68, compared to $15.40 at December 31, 2014. The increase in
book value per share reflected the Company's positive earnings
contribution during the quarter.
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.
|
Three Months
Ended March 31, |
|
2015 |
2014 |
% Change |
|
(dollars in thousands) |
|
|
|
|
Net Premiums Written |
|
|
|
Personal lines: |
|
|
|
Automobile |
$ 52,337 |
$ 50,556 |
3.5% |
Homeowners |
24,410 |
22,915 |
6.5 |
Other |
4,196 |
3,770 |
11.3 |
Total personal lines |
80,943 |
77,241 |
4.8 |
Commercial lines: |
|
|
|
Automobile |
20,123 |
17,260 |
16.6 |
Workers' compensation |
28,730 |
26,578 |
8.1 |
Commercial multi-peril |
25,035 |
22,078 |
13.4 |
Other |
1,816 |
1,425 |
27.4 |
Total commercial lines |
75,704 |
67,341 |
12.4 |
Total net premiums written |
$ 156,647 |
$ 144,582 |
8.3% |
The Company's net premiums written increased 8.3% for the first
quarter of 2015 compared to the first quarter of 2014. This
increase represented the combination of 12.4% growth in commercial
lines net premiums written and 4.8% growth in personal lines net
premiums written. The $12.1 million growth in net premiums written
for the first quarter of 2015 compared to the first quarter of 2014
included:
- $5.5 million, or 3.8% of total net premiums written, related to
the termination of the MICO quota-share reinsurance agreement that
increased the amount of business MICO retained.
- $4.9 million in commercial lines premiums, in addition to the
MICO reinsurance change, that the Company attributed primarily to
premium rate increases and new commercial accounts the Company's
insurance subsidiaries have written throughout their operating
regions.
- $1.7 million in personal lines premiums, in addition to the
MICO reinsurance change, that the Company attributed primarily to
premium rate increases the Company has implemented over the past
four quarters and lower reinsurance reinstatement premiums.
|
Three Months
Ended |
|
March
31, |
|
2015 |
2014 |
|
|
|
Statutory Combined
Ratios |
|
|
Personal Lines: |
|
|
Automobile |
99.5% |
97.9% |
Homeowners |
98.7 |
109.8 |
Other |
88.7 |
121.5 |
Total personal lines |
98.4 |
102.7 |
Commercial Lines: |
|
|
Automobile |
101.5 |
100.0 |
Workers' compensation |
87.8 |
97.6 |
Commercial multi-peril |
102.4 |
119.3 |
Total commercial lines |
95.1 |
104.3 |
Total lines |
96.9% |
103.2% |
|
|
|
GAAP Combined Ratios (Total
Lines) |
|
|
Loss ratio (non-weather) |
59.5% |
61.7% |
Loss ratio (weather-related) |
6.0 |
11.4 |
Expense ratio |
32.7 |
31.3 |
Dividend ratio |
0.6 |
0.3 |
Combined ratio |
98.8% |
104.7% |
Jeffrey D. Miller, Executive Vice President and Chief Financial
Officer, commented, "The 96.9% statutory combined ratio for the
first quarter of 2015 reflected our continuing efforts to enhance
our core underwriting results. Both our commercial lines and
personal lines segments were profitable. We realized notably
favorable results in our workers' compensation line of business,
and we were pleased with the improved profitability of our personal
and commercial automobile lines of business compared to the fourth
quarter of 2014."
For the first quarter of 2015, the Company's statutory loss
ratio decreased to 65.8%, compared to 73.6% for the first quarter
of 2014. Weather-related losses of $8.8 million for the first
quarter of 2015, which equated to 6.0 percentage points of the
Company's loss ratio, decreased significantly from the $15.3
million, or 11.4 percentage points of the Company's loss ratio, for
the first quarter of 2014. Weather-related loss activity in the
first quarter of 2015 was in line with the Company's five-year
average for first-quarter weather losses of $8.4 million.
Sub-freezing temperatures in the Company's operating regions during
February 2015 accounted for a significant portion of the
weather-related claim activity for the first quarter of 2015.
Large fire losses of $10.8 million for the first quarter of
2015, or 7.4 percentage points of the Company's loss ratio, were
comparable to $10.1 million, or 7.6 percentage points of the
Company's loss ratio, for the first quarter of 2014. The increase
was primarily related to an increase in fire loss severity in our
commercial multi-peril line of business.
Development of reserves for losses incurred in prior accident
years was modestly favorable for the first quarters of 2015 and
2014.
Mr. Miller added, "While winter weather conditions in our
operating regions were not as severe as in some other parts of the
country, our policyholders did experience losses related to
sub-freezing temperatures in February. We also saw an elevated
level of large fire losses for the first quarter of 2015, which is
fairly typical for the first quarter of the year. We were pleased
to achieve a 98.7% statutory combined ratio for our homeowners
business line in spite of the fire and weather-related losses,
reflecting the ongoing benefits of the rate and underwriting
actions we have taken in recent years."
The Company's statutory expense ratio1 was 30.5% for the first
quarter of 2015, compared to 29.3% for the first quarter of
2014. The increase in the Company's statutory expense ratio
reflected increased underwriting-based incentive costs for the
first quarter of 2015.
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, the Company had invested 89.8% of its
consolidated investment portfolio in diversified, highly rated and
marketable fixed-maturity securities at March 31, 2015.
|
March 31,
2015 |
December 31,
2014 |
|
Amount |
% |
Amount |
% |
|
(dollars in thousands) |
Fixed maturities, at carrying value: |
|
|
|
|
U.S. Treasury securities and
obligations of U.S. government corporations and agencies |
$ 86,392 |
10.1% |
$ 74,878 |
9.0% |
Obligations of states and
political subdivisions |
385,181 |
45.2 |
377,241 |
45.3 |
Corporate securities |
101,238 |
11.9 |
106,171 |
12.7 |
Mortgage-backed securities |
192,817 |
22.6 |
184,252 |
22.1 |
Total fixed maturities |
765,628 |
89.8 |
742,542 |
89.1 |
Equity securities, at fair value |
31,441 |
3.7 |
30,822 |
3.7 |
Investments in affiliates |
39,434 |
4.6 |
39,284 |
4.7 |
Short-term investments, at cost |
15,873 |
1.9 |
20,293 |
2.5 |
Total investments |
$ 852,376 |
100.0% |
$ 832,941 |
100.0% |
|
|
|
|
|
Average investment yield |
2.3% |
|
2.3% |
|
Average tax-equivalent investment yield |
3.1% |
|
3.1% |
|
Average fixed-maturity duration (years) |
4.1 |
|
4.1 |
|
Net investment income of $4.9 million for the first quarter of
2015 increased 7.2% compared to $4.6 million in net investment
income for the first quarter of 2014. The increase in net
investment income reflected primarily a decreased allocation of
expenses to the investment function for the first quarter of 2015.
Net realized investment gains were $1.0 million for the first
quarter of 2015, compared to net realized investment losses of
$88,532 for the first quarter of 2014. The Company had no
impairments in its investment portfolio that it considered to be
other than temporary during the first quarters of 2015 or 2014.
Mr. Miller, in commenting on the Company's investment
operations, noted, "We continue to focus our investment strategy on
reinvesting the proceeds of called and maturing
securities. That strategy has allowed us to stabilize our
average portfolio investment yield, while maintaining flexibility
within the portfolio to enable us to respond to any change in
market conditions. We have also allocated a portion of our
portfolio to dividend-paying equity securities, which resulted in
an increased contribution of dividend income to our net investment
income for the first quarter of 2015 compared to the prior-year
first quarter."
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 $526,760 for the first
quarter of 2015, compared to $409,242 for the first quarter of
2014. 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 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 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 measure of other companies.
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 March 31, |
|
2015 |
2014 |
% Change |
|
(dollars in thousands, except
per share amounts) |
|
|
|
|
Reconciliation of Net Income to
Operating Income |
|
|
|
Net income (loss) |
$ 6,854 |
$ (634) |
NM |
Realized (gains) losses (after tax) |
(680) |
58 |
NM |
Operating income (loss) |
$ 6,174 |
$ (576) |
NM |
|
|
|
|
Per Share Reconciliation of Net
Income to Operating Income |
|
|
|
Net income (loss) – Class A (diluted) |
$ 0.25 |
$ (0.02) |
NM |
Realized (gains) losses (after tax) |
(0.02) |
-- |
NM |
Operating income (loss)– Class A |
$ 0.23 |
$ (0.02) |
NM |
|
|
|
|
Net income (loss) – Class B |
$ 0.23 |
$ (0.02) |
NM |
Realized (gains) losses (after tax) |
(0.02) |
-- |
NM |
Operating income (loss) – Class B |
$ 0.21 |
$ (0.02) |
NM |
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,
April 24, 2015, 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, 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 March
31, |
|
2015 |
2014 |
|
|
|
Net premiums earned |
$ 146,530 |
$ 133,548 |
Investment income, net of expenses |
4,949 |
4,616 |
Net realized investment gains (losses) |
1,046 |
(89) |
Lease income |
200 |
213 |
Installment payment fees |
1,520 |
1,642 |
Equity in earnings of DFSC |
527 |
409 |
Total revenues |
154,772 |
140,339 |
|
|
|
Net losses and loss expenses |
95,939 |
97,632 |
Amortization of deferred acquisition
costs |
24,010 |
21,319 |
Other underwriting expenses |
23,833 |
20,459 |
Policyholder dividends |
918 |
395 |
Interest |
331 |
365 |
Other expenses |
726 |
962 |
Total expenses |
145,757 |
141,132 |
|
|
|
Income (loss) before income tax expense
(benefit) |
9,015 |
(793) |
Income tax expense (benefit) |
2,161 |
(159) |
|
|
|
Net income (loss) |
$ 6,854 |
$ (634) |
|
|
|
Net income (loss) per common share: |
|
|
Class A - basic |
$ 0.26 |
$ (0.02) |
Class A - diluted |
$ 0.25 |
$ (0.02) |
Class B - basic and
diluted |
$ 0.23 |
$ (0.02) |
|
|
|
Supplementary Financial Analysts' Data |
|
|
|
|
|
Weighted-average number of shares
outstanding: |
|
|
Class A - basic |
21,533,443 |
20,873,043 |
Class A - diluted |
22,113,889 |
21,253,229 |
Class B - basic and
diluted |
5,576,775 |
5,576,775 |
|
|
|
Net premiums written |
$ 156,647 |
$ 144,582 |
|
|
|
Book value per common share at end of
period |
$ 15.68 |
$ 15.18 |
|
|
|
Annualized return on average equity |
6.5% |
-0.6% |
|
|
Donegal Group Inc. |
Consolidated Balance
Sheets |
(in thousands) |
|
|
|
|
March 31, |
December 31, |
|
2015 |
2014 |
|
(unaudited) |
|
|
|
|
ASSETS |
Investments: |
|
|
Fixed maturities: |
|
|
Held to maturity, at amortized
cost |
$ 305,006 |
$ 307,392 |
Available for sale, at fair
value |
460,622 |
435,150 |
Equity securities, at fair
value |
31,441 |
30,822 |
Investments in affiliates |
39,434 |
39,284 |
Short-term investments, at
cost |
15,873 |
20,293 |
Total investments |
852,376 |
832,941 |
Cash |
27,913 |
35,579 |
Premiums receivable |
143,668 |
133,307 |
Reinsurance receivable |
265,967 |
253,636 |
Deferred policy acquisition costs |
50,068 |
48,299 |
Prepaid reinsurance premiums |
116,699 |
115,872 |
Other assets |
38,578 |
39,021 |
Total assets |
$ 1,495,269 |
$ 1,458,655 |
|
|
|
LIABILITIES AND STOCKHOLDERS'
EQUITY |
Liabilities: |
|
|
Losses and loss expenses |
$ 557,001 |
$ 538,258 |
Unearned premiums |
419,591 |
408,646 |
Accrued expenses |
16,685 |
19,430 |
Borrowings under line of
credit |
55,000 |
53,500 |
Subordinated debentures |
5,000 |
5,000 |
Other liabilities |
16,462 |
17,686 |
Total liabilities |
1,069,739 |
1,042,520 |
Stockholders' equity: |
|
|
Class A common stock |
225 |
224 |
Class B common stock |
56 |
56 |
Additional paid-in capital |
202,972 |
200,349 |
Accumulated other comprehensive
income |
5,481 |
5,354 |
Retained earnings |
229,898 |
223,254 |
Treasury stock, at cost |
(13,102) |
(13,102) |
Total stockholders' equity |
425,530 |
416,135 |
Total liabilities and
stockholders' equity |
$ 1,495,269 |
$ 1,458,655 |
CONTACT: Jeffrey D. Miller, Executive Vice President
& Chief Financial Officer
Phone: (717) 426-1931
E-mail: investors@donegalgroup.com
Donegal (NASDAQ:DGICA)
Historical Stock Chart
From Mar 2024 to Apr 2024
Donegal (NASDAQ:DGICA)
Historical Stock Chart
From Apr 2023 to Apr 2024