Donegal Group Inc. (NASDAQ:DGICA) (NASDAQ:DGICB) today reported its
financial results for the third quarter and first nine months of
2017. Significant items included:
- Net income of $7.1 million, or 26 cents per diluted Class A
share, for the third quarter of 2017, compared to $4.8 million, or
18 cents per diluted Class A share, for the third quarter of
2016
- Net premiums earned of $177.3 million for the third quarter of
2017 increased 6.3% compared to the third quarter of 2016
- Net premiums written1 of $182.5 million for the third quarter
of 2017 increased 6.1% compared to the third quarter of 2016 as a
result of organic growth in both personal and commercial lines
- Combined ratio of 99.6% for the third quarter of 2017, compared
to 100.8% for the prior-year third quarter
- Combined ratio of 102.4% for the first nine months of 2017,
compared to 97.3% for the first nine months of 2016
- Book value per share of $16.39 at September 30, 2017, compared
to $16.21 at year-end 2016
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
|
2017 |
|
|
|
2016 |
|
|
% Change |
|
|
2017 |
|
|
|
2016 |
|
|
% Change |
|
|
|
|
|
|
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|
|
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(dollars in thousands, except per share
amounts) |
|
Income Statement Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
$ |
177,284 |
|
|
$ |
166,810 |
|
|
6.3 |
% |
|
$ |
521,455 |
|
|
$ |
487,228 |
|
|
7.0 |
% |
|
Investment income, net |
|
|
5,980 |
|
|
|
5,581 |
|
|
7.1 |
|
|
|
17,385 |
|
|
|
16,472 |
|
|
5.5 |
|
|
Net realized investment gains |
|
|
561 |
|
|
|
1,018 |
|
|
-44.9 |
|
|
|
4,208 |
|
|
|
2,204 |
|
|
90.9 |
|
|
Total revenues |
|
|
185,716 |
|
|
|
175,311 |
|
|
5.9 |
|
|
|
548,268 |
|
|
|
511,227 |
|
|
7.2 |
|
|
Net income |
|
|
7,109 |
|
|
|
4,813 |
|
|
47.7 |
|
|
|
9,895 |
|
|
|
25,247 |
|
|
-60.8 |
|
|
Operating income1 |
|
|
6,744 |
|
|
|
4,151 |
|
|
62.5 |
|
|
|
7,160 |
|
|
|
23,814 |
|
|
-69.9 |
|
|
Annualized return on average equity |
|
|
6.4 |
% |
|
|
4.4 |
% |
|
2.0 |
pts |
|
|
3.0 |
% |
|
|
7.9 |
% |
|
-4.9 |
pts |
|
|
|
|
|
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|
|
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|
|
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Per Share Data |
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|
|
|
|
|
|
|
|
|
|
|
|
Net income – Class A (diluted) |
|
$ |
0.26 |
|
|
$ |
0.18 |
|
|
44.4 |
% |
|
$ |
0.36 |
|
|
$ |
0.95 |
|
|
-62.1 |
% |
|
Net income – Class B |
|
|
0.24 |
|
|
|
0.16 |
|
|
50.0 |
|
|
|
0.33 |
|
|
|
0.88 |
|
|
-62.5 |
|
|
Operating income – Class A (diluted) |
|
|
0.25 |
|
|
|
0.15 |
|
|
66.7 |
|
|
|
0.26 |
|
|
|
0.90 |
|
|
-71.1 |
|
|
Operating income – Class B |
|
|
0.23 |
|
|
|
0.14 |
|
|
64.3 |
|
|
|
0.24 |
|
|
|
0.83 |
|
|
-71.1 |
|
|
Book value |
|
|
16.39 |
|
|
|
16.59 |
|
|
-1.2 |
|
|
|
16.39 |
|
|
|
16.59 |
|
|
-1.2 |
|
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1 See
the “Definitions of Non-GAAP and Operating Measures” section of
this release, which 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. |
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|
Management Commentary
Kevin G. Burke, President and Chief Executive
Officer of Donegal Group Inc., stated, “We are pleased with our
third quarter results, highlighted by increases in net income and
return on average equity compared to the prior-year third quarter.
We attribute this performance improvement to favorable loss trends
in a number of lines of business and a stable premium growth rate
that has remained in line with our expectations. Our focus on
efficient claims handling and timely claims settlement helped drive
improvements in our loss ratio for the third quarter of 2017 and
contributed to improvements in our combined ratio compared to the
prior-year third quarter.”
Mr. Burke continued, “Donegal Group achieved net
premiums written growth of 6.1% for the third quarter of 2017,
reflecting the benefits we derived from various growth initiatives
and expanding relationships with our independent agents throughout
our operating regions. We were pleased with the exceptional
results in our workers’ compensation line, highlighted by a 67.6%
statutory combined ratio1 for the third quarter of 2017 in that
line of business. We primarily write workers’ compensation
policies as part of small to medium-sized commercial accounts,
which we expect will continue to be a source of profitable growth
in future quarters. The recent implementations of new policy
rating and billing systems have helped us enhance our service to
our customers and agents. We continue to focus on technology
enhancements that will support future growth opportunities.
We remain committed to our regional focus, adhering to sound
underwriting discipline and delivering best-in-class customer
service.”
Mr. Burke concluded, “We continue to seek to
outperform the property and casualty insurance industry in terms of
service, profitability and book value growth over the long
term. We were pleased with the increase in our book value
during the first nine months of 2017 in light of the unusual
weather events we experienced during that period. At
September 30, 2017, our book value per share increased to $16.39,
compared to $16.21 at December 31, 2016.”
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 Southern
states (Alabama, Georgia, North Carolina, South Carolina,
Tennessee, Virginia and West Virginia) and eight Midwestern states
(Illinois, Indiana, Iowa, Michigan, Nebraska, Ohio, South Dakota
and Wisconsin). Donegal Mutual Insurance Company and the insurance
subsidiaries of Donegal Group conduct business together as the
Donegal Insurance Group.
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
|
|
|
|
|
|
|
|
|
|
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(dollars in thousands) |
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Net Premiums Earned |
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal lines |
|
$ |
96,560 |
|
$ |
91,239 |
|
5.8 |
% |
|
$ |
285,018 |
|
$ |
268,823 |
|
6.0 |
% |
|
Commercial lines |
|
|
80,724 |
|
|
75,571 |
|
6.8 |
|
|
|
236,437 |
|
|
218,405 |
|
8.3 |
|
|
Total net premiums earned |
|
$ |
177,284 |
|
$ |
166,810 |
|
6.3 |
% |
|
$ |
521,455 |
|
$ |
487,228 |
|
7.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Premiums Written |
|
|
|
|
|
|
|
|
|
|
|
|
|
Personal lines: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
$ |
66,871 |
|
$ |
59,817 |
|
11.8 |
% |
|
$ |
193,862 |
|
$ |
173,914 |
|
11.5 |
% |
|
Homeowners |
|
|
34,248 |
|
|
34,153 |
|
0.3 |
|
|
|
95,150 |
|
|
93,389 |
|
1.9 |
|
|
Other |
|
|
4,801 |
|
|
4,755 |
|
1.0 |
|
|
|
14,907 |
|
|
14,367 |
|
3.8 |
|
|
Total personal lines |
|
|
105,920 |
|
|
98,725 |
|
7.3 |
|
|
|
303,919 |
|
|
281,670 |
|
7.9 |
|
|
Commercial lines: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Automobile |
|
|
23,179 |
|
|
21,195 |
|
9.4 |
|
|
|
75,903 |
|
|
67,224 |
|
12.9 |
|
|
Workers' compensation |
|
|
24,760 |
|
|
24,268 |
|
2.0 |
|
|
|
85,993 |
|
|
83,501 |
|
3.0 |
|
|
Commercial multi-peril |
|
|
26,355 |
|
|
25,432 |
|
3.6 |
|
|
|
84,352 |
|
|
80,503 |
|
4.8 |
|
|
Other |
|
|
2,264 |
|
|
2,328 |
|
(2.7 |
) |
|
|
7,584 |
|
|
7,360 |
|
3.0 |
|
|
Total commercial lines |
|
|
76,558 |
|
|
73,223 |
|
4.6 |
|
|
|
253,832 |
|
|
238,588 |
|
6.4 |
|
|
Total net premiums written |
|
$ |
182,478 |
|
$ |
171,948 |
|
6.1 |
% |
|
$ |
557,751 |
|
$ |
520,258 |
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
The 6.1% increase in the Company’s net premiums
written for the third quarter of 2017 compared to the third quarter
of 2016, as shown in the table above, represents the combination of
4.6% growth in commercial lines net premiums written and 7.3%
growth in personal lines net premiums written. The $10.5 million
growth in net premiums written for the third quarter of 2017
compared to the third quarter of 2016 included:
- $3.3 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.
- $7.2 million in personal lines premiums that the Company
attributes to a combination of new policy growth and premium rate
increases the Company has implemented over the past four quarters,
offset partially by a $1.6 million increase in reinsurance
reinstatement premiums related to catastrophic weather events
during 2017.
For the first nine months of 2017, the Company's
net premiums written increased 7.2% compared to the comparable
prior-year period.
The Company evaluates the performance of its
commercial lines and personal lines segments primarily based upon
the underwriting results of its insurance subsidiaries as
determined under statutory accounting practices. The
following table presents comparative details with respect to the
Company’s GAAP and statutory combined ratios for the three and nine
months ended September 30, 2017 and 2016:
|
|
|
Three Months Ended |
|
Nine Months Ended |
|
|
|
|
September 30, |
|
September 30, |
|
|
|
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP Combined Ratios (Total Lines) |
|
|
|
|
|
|
|
|
|
|
Loss ratio (non-weather) |
|
54.2 |
% |
|
59.6 |
% |
|
58.2 |
% |
|
57.5 |
% |
|
|
Loss ratio (weather-related) |
|
10.3 |
|
|
7.0 |
|
|
10.2 |
|
|
6.1 |
|
|
|
Expense ratio |
|
34.3 |
|
|
33.5 |
|
|
33.3 |
|
|
33.2 |
|
|
|
Dividend ratio |
|
0.8 |
|
|
0.7 |
|
|
0.7 |
|
|
0.5 |
|
|
|
Combined ratio |
|
99.6 |
% |
|
100.8 |
% |
|
102.4 |
% |
|
97.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Statutory Combined Ratios |
|
|
|
|
|
|
|
|
|
|
Personal lines: |
|
|
|
|
|
|
|
|
|
|
Automobile |
|
103.8 |
% |
|
105.9 |
% |
|
105.8 |
% |
|
102.6 |
% |
|
|
Homeowners |
|
117.0 |
|
|
101.5 |
|
|
115.2 |
|
|
97.1 |
|
|
|
Other |
|
94.2 |
|
|
90.2 |
|
|
94.7 |
|
|
87.1 |
|
|
|
Total personal lines |
|
107.5 |
|
|
103.6 |
|
|
108.2 |
|
|
99.9 |
|
|
|
Commercial lines: |
|
|
|
|
|
|
|
|
|
|
Automobile |
|
116.6 |
|
|
110.8 |
|
|
110.5 |
|
|
106.5 |
|
|
|
Workers' compensation |
|
67.6 |
|
|
86.8 |
|
|
78.5 |
|
|
85.3 |
|
|
|
Commercial multi-peril |
|
86.7 |
|
|
94.7 |
|
|
96.6 |
|
|
88.5 |
|
|
|
Total commercial lines |
|
86.9 |
|
|
94.3 |
|
|
91.8 |
|
|
90.3 |
|
|
|
Total lines |
|
98.2 |
% |
|
99.5 |
% |
|
100.8 |
% |
|
95.6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jeffrey D. Miller, Executive Vice President and
Chief Financial Officer, commented, “Donegal Group’s combined ratio
was 99.6% for the third quarter of 2017, compared to 100.8% for the
third quarter of 2016. Weather-related losses totaled
approximately $18.2 million, representing a substantial increase
over the $11.7 million of weather-related losses for the third
quarter of 2016 and the previous five-year average for third
quarter weather-related losses of $11.6 million. The increase
resulted from a continuation of wind and hail events in the
Company’s operating regions during July and August, as well as $2.0
million of losses from a September hail event in Pennsylvania and
$2.4 million of losses from the inland effects of Hurricane
Irma.”
Mr. Miller continued, “Our workers’ compensation
line of business continued to perform well during the period, which
we attribute to $6.2 million of favorable loss reserve development
that resulted primarily from favorable settlements of claims
incurred in prior years. In addition, our workers’
compensation results benefitted from a $3.1 million reduction in
large losses, which we define as individual losses in excess of
$50,000, compared to the third quarter of 2016. Our favorable
workers’ compensation and commercial multi-peril results helped
offset the impact of higher claim severity in our commercial
automobile line of business. Our commercial automobile
statutory combined ratio for the third quarter of 2017 also
included 6.2 percentage points related to approximately $1.5
million of unfavorable loss reserve development for losses incurred
in prior years. We continue to strive for improved profitability in
our commercial automobile line of business and, to that end, we
have expanded our utilization of predictive analytical tools and
implemented rate increases for that line in all of the states in
which we conduct business.”
For the third quarter of 2017, the Company’s
loss ratio decreased to 64.5%, compared to 66.6% for the third
quarter of 2016. Weather-related losses contributed 10.3
percentage points to the Company’s loss ratio for the third quarter
of 2017, compared to 7.0 percentage points of the Company’s loss
ratio for the third quarter of 2016.
Large fire losses, which the Company defines as
individual fire losses in excess of $50,000, were $7.9 million for
the third quarter of 2017, compared to $6.7 million for the third
quarter of 2016, with the primary increase in the Company’s
homeowners line of business. Large fire losses represented
4.4 percentage points of the Company’s loss ratio for the third
quarter of 2017, compared to 4.0 percentage points of the Company’s
loss ratio for the third quarter of 2016.
Favorable net development of reserves for losses
incurred in prior accident years reduced the Company’s loss ratio
for the third quarter of 2017 by 1.9 percentage points, compared to
1.0 percentage point for the third quarter of 2016. Favorable
development of workers’ compensation loss reserves was partially
offset by unfavorable development of personal automobile and
commercial automobile loss reserves. 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, 2017 or September 30, 2016.
The Company’s expense ratio was 34.3% for the
third quarter of 2017, compared to 33.5% for the third quarter of
2016. The increase in the Company's expense ratio reflected
higher underwriting-based incentive costs for the third quarter of
2017 compared to the third quarter of 2016.
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
90.0% of its consolidated investment portfolio in diversified,
highly rated and marketable fixed-maturity securities at September
30, 2017.
|
|
|
September 30, 2017 |
|
December 31, 2016 |
|
|
|
|
Amount |
|
% |
|
Amount |
|
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
Fixed maturities, at carrying value: |
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities and obligations of U.S. government
corporations and agencies |
|
$ |
116,926 |
|
|
11.7 |
% |
|
$ |
99,970 |
|
|
10.6 |
% |
|
|
Obligations of states and political subdivisions |
|
|
276,806 |
|
|
27.7 |
|
|
|
308,876 |
|
|
32.7 |
|
|
|
Corporate securities |
|
|
207,498 |
|
|
20.8 |
|
|
|
179,011 |
|
|
18.9 |
|
|
|
Mortgage-backed securities |
|
|
297,508 |
|
|
29.8 |
|
|
|
263,319 |
|
|
27.8 |
|
|
|
Total fixed maturities |
|
|
898,738 |
|
|
90.0 |
|
|
|
851,176 |
|
|
90.0 |
|
|
|
Equity securities, at fair value |
|
|
50,029 |
|
|
5.0 |
|
|
|
47,088 |
|
|
5.0 |
|
|
|
Investments in affiliates |
|
|
39,340 |
|
|
3.9 |
|
|
|
37,885 |
|
|
4.0 |
|
|
|
Short-term investments, at cost |
|
|
10,731 |
|
|
1.1 |
|
|
|
9,371 |
|
|
1.0 |
|
|
|
Total investments |
|
$ |
998,838 |
|
|
100.0 |
% |
|
$ |
945,520 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Average investment yield |
|
|
2.4 |
% |
|
|
|
|
2.5 |
% |
|
|
|
|
Average tax-equivalent investment yield |
|
|
2.9 |
% |
|
|
|
|
3.0 |
% |
|
|
|
|
Average fixed-maturity duration (years) |
|
|
4.3 |
|
|
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income of $6.0 million for the
third quarter of 2017 increased 7.1% compared to $5.6 million in
net investment income for the third quarter of 2016. The increase
in net investment income reflected primarily an increase in average
invested assets relative to the prior-year third
quarter.
Net realized investment gains were $561,429
for the third quarter of 2017, compared to $1.0 million for the
third quarter of 2016.
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 net premiums written, operating income and
statutory combined ratio.
Net premiums written and operating income are
non-GAAP financial measures investors in insurance companies
commonly use. The Company defines net premiums written as the
amount of full-term premiums the Company records for policies
effective within a given period less premiums the Company cedes to
reinsurers. The Company defines operating income as net income
excluding after-tax net realized investment gains or losses.
Because the Company’s calculation of operating income may differ
from similar measures other companies use, investors should
exercise caution when comparing the Company’s measure of operating
income to the measure of other companies.
The following table provides a reconciliation of
the Company's net premiums earned to the Company's net premiums
written for the periods indicated:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
|
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Premiums Earned to Net Premiums
Written |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
$ |
177,284 |
|
$ |
166,810 |
|
6.3 |
% |
|
$ |
521,455 |
|
$ |
487,228 |
|
7.0 |
% |
|
Change in net unearned premiums |
|
|
5,194 |
|
|
5,138 |
|
1.1 |
% |
|
|
36,296 |
|
|
33,030 |
|
9.9 |
% |
|
Net premiums written |
|
$ |
182,478 |
|
$ |
171,948 |
|
6.1 |
% |
|
$ |
557,751 |
|
$ |
520,258 |
|
7.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, |
|
|
|
2017 |
|
2016 |
|
% Change |
|
2017 |
|
2016 |
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(dollars in thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Net Income to Operating
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,109 |
|
|
$ |
4,813 |
|
|
47.7 |
% |
|
$ |
9,895 |
|
|
$ |
25,247 |
|
|
-60.8 |
% |
|
Realized gains (after tax) |
|
|
(365 |
) |
|
|
(662 |
) |
|
-44.9 |
% |
|
|
(2,735 |
) |
|
|
(1,433 |
) |
|
90.9 |
% |
|
Operating income |
|
$ |
6,744 |
|
|
$ |
4,151 |
|
|
62.5 |
% |
|
$ |
7,160 |
|
|
$ |
23,814 |
|
|
-69.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Reconciliation of
Net Income to Operating
Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income – Class A (diluted) |
|
$ |
0.26 |
|
|
$ |
0.18 |
|
|
44.4 |
% |
|
$ |
0.36 |
|
|
$ |
0.95 |
|
|
-62.1 |
% |
|
Realized gains (after tax) |
|
|
(0.01 |
) |
|
|
(0.03 |
) |
|
-66.7 |
% |
|
|
(0.10 |
) |
|
|
(0.05 |
) |
|
100.0 |
% |
|
Operating income – Class A |
|
$ |
0.25 |
|
|
$ |
0.15 |
|
|
66.7 |
% |
|
$ |
0.26 |
|
|
$ |
0.90 |
|
|
-71.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income – Class B |
|
$ |
0.24 |
|
|
$ |
0.16 |
|
|
50.0 |
% |
|
$ |
0.33 |
|
|
$ |
0.88 |
|
|
-62.5 |
% |
|
Realized gains (after tax) |
|
|
(0.01 |
) |
|
|
(0.02 |
) |
|
-50.0 |
% |
|
|
(0.09 |
) |
|
|
(0.05 |
) |
|
80.0 |
% |
|
Operating income – Class B |
|
$ |
0.23 |
|
|
$ |
0.14 |
|
|
64.3 |
% |
|
$ |
0.24 |
|
|
$ |
0.83 |
|
|
-71.1 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 Monday, October 30, 2017, beginning at 11:00 A.M.
Eastern Time. You may listen via the Internet by accessing the
webcast link on the Company’s website at
http://investors.donegalgroup.com. A replay of the conference call
will also be available via the Company’s website.
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 over the last three decades. 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
book value growth.
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 (“UCB”). The
Company accounts for its investment in DFSC using the equity method
of accounting. Donegal Mutual Insurance Company owns the remaining
51.8% of the outstanding stock of DFSC.
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:
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, competition from various insurance and
other financial businesses, terrorism, the availability and cost of
reinsurance, 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 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, |
|
|
|
|
|
2017 |
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
earned |
|
$ |
177,284 |
|
|
$ |
166,810 |
|
|
|
Investment income, net
of expenses |
|
|
5,980 |
|
|
|
5,581 |
|
|
|
Net realized investment
gains |
|
|
561 |
|
|
|
1,018 |
|
|
|
Lease income |
|
|
113 |
|
|
|
164 |
|
|
|
Installment payment
fees |
|
|
1,374 |
|
|
|
1,380 |
|
|
|
Equity in earnings of
DFSC |
|
|
404 |
|
|
|
358 |
|
|
|
Total
revenues |
|
|
185,716 |
|
|
|
175,311 |
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss
expenses |
|
|
114,386 |
|
|
|
111,175 |
|
|
|
Amortization of
deferred acquisition costs |
|
|
29,008 |
|
|
|
27,524 |
|
|
|
Other underwriting
expenses |
|
|
31,790 |
|
|
|
28,340 |
|
|
|
Policyholder
dividends |
|
|
1,376 |
|
|
|
1,143 |
|
|
|
Interest |
|
|
466 |
|
|
|
474 |
|
|
|
Other expenses |
|
|
178 |
|
|
|
226 |
|
|
|
Total
expenses |
|
|
177,204 |
|
|
|
168,882 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense |
|
|
8,512 |
|
|
|
6,429 |
|
|
|
Income tax expense |
|
|
1,403 |
|
|
|
1,616 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,109 |
|
|
$ |
4,813 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share: |
|
|
|
|
|
Class A -
basic |
|
$ |
0.27 |
|
|
$ |
0.19 |
|
|
|
Class A -
diluted |
|
$ |
0.26 |
|
|
$ |
0.18 |
|
|
|
Class B -
basic and diluted |
|
$ |
0.24 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Financial
Analysts' Data |
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number
of shares outstanding: |
|
|
|
|
|
Class A -
basic |
|
|
21,755,862 |
|
|
|
21,077,885 |
|
|
|
Class A -
diluted |
|
|
22,217,011 |
|
|
|
21,908,606 |
|
|
|
Class B -
basic and diluted |
|
|
5,576,775 |
|
|
|
5,576,775 |
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
written |
|
$ |
182,478 |
|
|
$ |
171,948 |
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common
share at end of period |
|
$ |
16.39 |
|
|
$ |
16.59 |
|
|
|
|
|
|
|
|
|
|
|
|
Annualized return on
average equity |
|
|
6.4 |
% |
|
|
4.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Donegal Group Inc. |
|
Consolidated Statements of Income |
|
(unaudited; in thousands, except share
data) |
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
Net premiums
earned |
|
$ |
521,455 |
|
|
$ |
487,228 |
|
|
|
Investment income, net
of expenses |
|
|
17,385 |
|
|
|
16,472 |
|
|
|
Net realized investment
gains |
|
|
4,208 |
|
|
|
2,204 |
|
|
|
Lease income |
|
|
383 |
|
|
|
515 |
|
|
|
Installment payment
fees |
|
|
3,814 |
|
|
|
4,109 |
|
|
|
Equity in earnings of
DFSC |
|
|
1,023 |
|
|
|
699 |
|
|
|
Total
revenues |
|
|
548,268 |
|
|
|
511,227 |
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss
expenses |
|
|
356,826 |
|
|
|
309,947 |
|
|
|
Amortization of
deferred acquisition costs |
|
|
85,391 |
|
|
|
80,034 |
|
|
|
Other underwriting
expenses |
|
|
88,539 |
|
|
|
81,557 |
|
|
|
Policyholder
dividends |
|
|
3,423 |
|
|
|
2,730 |
|
|
|
Interest |
|
|
1,213 |
|
|
|
1,286 |
|
|
|
Other expenses |
|
|
1,035 |
|
|
|
1,180 |
|
|
|
Total
expenses |
|
|
536,427 |
|
|
|
476,734 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income
tax expense |
|
|
11,841 |
|
|
|
34,493 |
|
|
|
Income tax expense |
|
|
1,946 |
|
|
|
9,246 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
9,895 |
|
|
$ |
25,247 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common
share: |
|
|
|
|
|
|
|
|
Class A -
basic |
|
$ |
0.37 |
|
|
$ |
0.98 |
|
|
|
Class A -
diluted |
|
$ |
0.36 |
|
|
$ |
0.95 |
|
|
|
Class B -
basic and diluted |
|
$ |
0.33 |
|
|
$ |
0.88 |
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary Financial
Analysts' Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average number
of shares outstanding: |
|
|
|
|
|
|
|
|
Class A -
basic |
|
|
21,669,259 |
|
|
|
20,790,658 |
|
|
|
Class A -
diluted |
|
|
22,447,134 |
|
|
|
21,350,778 |
|
|
|
Class B -
basic and diluted |
|
|
5,576,775 |
|
|
|
5,576,775 |
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums
written |
|
$ |
557,751 |
|
|
$ |
520,258 |
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common
share at end of period |
|
$ |
16.39 |
|
|
$ |
16.59 |
|
|
|
|
|
|
|
|
|
|
|
|
Annualized return on
average equity |
|
|
3.0 |
% |
|
|
7.9 |
% |
|
|
|
|
|
|
|
|
|
|
|
Donegal Group Inc. |
|
|
Consolidated Balance Sheets |
|
|
(in thousands) |
|
|
|
|
|
|
|
|
|
|
|
September 30, |
|
December 31, |
|
|
|
|
2017 |
|
2016 |
|
|
|
|
(unaudited) |
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
Investments: |
|
|
|
|
|
|
|
|
|
|
Fixed
maturities: |
|
|
|
|
|
|
Held to
maturity, at amortized cost |
|
$ |
365,277 |
|
|
$ |
336,101 |
|
|
|
Available
for sale, at fair value |
|
|
533,461 |
|
|
|
515,075 |
|
|
|
Equity
securities, at fair value |
|
|
50,029 |
|
|
|
47,088 |
|
|
|
Investments in affiliates |
|
|
39,340 |
|
|
|
37,885 |
|
|
|
Short-term investments, at cost |
|
|
10,731 |
|
|
|
9,371 |
|
|
|
Total
investments |
|
|
998,838 |
|
|
|
945,520 |
|
|
|
Cash |
|
|
31,541 |
|
|
|
24,587 |
|
|
|
Premiums
receivable |
|
|
163,425 |
|
|
|
159,390 |
|
|
|
Reinsurance
receivable |
|
|
283,580 |
|
|
|
263,028 |
|
|
|
Deferred policy
acquisition costs |
|
|
61,878 |
|
|
|
56,309 |
|
|
|
Prepaid reinsurance
premiums |
|
|
137,810 |
|
|
|
124,256 |
|
|
|
Other assets |
|
|
42,415 |
|
|
|
50,041 |
|
|
|
Total
assets |
|
$ |
1,719,487 |
|
|
$ |
1,623,131 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
Liabilities: |
|
|
|
|
|
|
Losses
and loss expenses |
|
$ |
644,350 |
|
|
$ |
606,665 |
|
|
|
Unearned
premiums |
|
|
515,906 |
|
|
|
466,055 |
|
|
|
Accrued
expenses |
|
|
23,228 |
|
|
|
28,247 |
|
|
|
Borrowings under lines of credit |
|
|
69,000 |
|
|
|
69,000 |
|
|
|
Subordinated debentures |
|
|
5,000 |
|
|
|
5,000 |
|
|
|
Other
liabilities |
|
|
13,277 |
|
|
|
9,549 |
|
|
|
Total
liabilities |
|
|
1,270,761 |
|
|
|
1,184,516 |
|
|
|
Stockholders'
equity: |
|
|
|
|
|
|
Class A
common stock |
|
|
248 |
|
|
|
245 |
|
|
|
Class B
common stock |
|
56 |
|
|
56 |
|
|
Additional paid-in capital |
|
243,629 |
|
|
236,852 |
|
|
Accumulated other comprehensive loss |
|
|
(874 |
) |
|
|
(2,254 |
) |
|
|
Retained
earnings |
|
|
246,893 |
|
|
|
244,942 |
|
|
|
Treasury
stock |
|
|
(41,226 |
) |
|
|
(41,226 |
) |
|
|
Total
stockholders' equity |
|
|
448,726 |
|
|
|
438,615 |
|
|
|
Total
liabilities and stockholders' equity |
|
$ |
1,719,487 |
|
|
$ |
1,623,131 |
|
|
|
|
|
|
|
|
|
For Further Information:Jeffrey D. Miller, Executive Vice
President & Chief Financial OfficerPhone: (717)
426-1931 E-mail: investors@donegalgroup.com
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