UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017~~

March 31, 2024

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period fromto .

Commission file number 0-15341

Donegal Group Inc.

(Exact name of registrant as specified in its charter)

Delaware		23-2424711
~~Delaware~~		~~23-2424711~~
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

1195 River Road, P.O. Box 302, Marietta, PA 17547

(Address of principal executive offices) (Zip code)

(717) 426-1931

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its Web site, if any,~~ every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):


Large accelerated filer ☐	☐	Accelerated filer ☑	☒

Non-accelerated filer	☐ ~~(Do not check if a smaller reporting company)~~	Smaller reporting company	☐

		Emerging growth company ☐		☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbols	Name of Each Exchange on Which Registered

Class A Common Stock, $.01 par value	DGICA	The NASDAQ Global Select Market

Class B Common Stock, $.01 par value	DGICB	The NASDAQ Global Select Market

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: ~~21,854,075~~27,816,654 shares of Class A Common Stock, par value $0.01 per share, and 5,576,775 shares of Class B Common Stock, par value $0.01 per share, outstanding on ~~October 31, 2017.~~

May 1, 2024.

DONEGAL GROUP INC.

INDEX~~INDEX~~ TO FORM 10-Q REPORT


				Page
PART I		FINANCIAL INFORMATION

~~Item 1.~~		~~Financial Statements~~			3
Item 1.	Financial Statements	1
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			23	20

Item 3.		Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29

33PART II	OTHER INFORMATION

~~Item 4.~~		~~Controls and Procedures~~			34

~~PART II~~		~~OTHER INFORMATION~~

Item 1.		Legal Proceedings			35	30

Item 1A.		Risk Factors			35	30

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			35	30

Item 3.		Defaults upon Senior Securities			35	30
Item 4.	Mine Safety Disclosure	30
~~Item 4.~~		~~Removed and Reserved~~			35

Item 5.		Other Information			35	30
Item 6.	Exhibits	31
~~Item 6.~~			~~Exhibits~~			36

Signatures					37	32

Index

PART I. FINANCIAL INFORMATION

~~Item 1. Financial Statements.~~

Item 1. Financial Statements

Donegal Group Inc. and Subsidiaries

Consolidated Balance Sheets

   September 30,
2017 December 31,
2016
   (Unaudited)
Assets

Investments

Fixed maturities

Held to maturity, at amortized cost
   $ 365,277,271 $ 336,100,948
Available for sale, at fair value
   533,461,436 515,074,940
Equity securities, available for sale, at fair value
   50,028,460 47,087,842
Investment in affiliate
   39,339,820 37,884,918
Short-term investments, at cost, which approximates fair value
   10,731,366 9,371,007


Total investments
   998,838,353 945,519,655
Cash
   31,541,139 24,587,214
Accrued investment income
   6,951,728 6,295,513
Premiums receivable
   163,425,210 159,389,667
Reinsurance receivable
   283,579,561 263,028,008
Deferred policy acquisition costs
   61,877,626 56,309,196
Deferred tax asset, net
   18,413,751 19,043,413
Prepaid reinsurance premiums
   137,810,229 124,255,495
Property and equipment, net
   7,040,213 6,668,489
Accounts receivable—securities
   61,446 —
Federal income taxes receivable
   2,103,557 1,108,250
Due from affiliate
   —   9,204,910
Goodwill
   5,625,354 5,625,354
Other intangible assets
   958,010 958,010
Other
   1,260,508 1,137,863


Total assets
   $ 1,719,486,685 $ 1,623,131,037


Liabilities and Stockholders’ Equity

Liabilities

Unpaid losses and loss expenses
   $ 644,350,129 $ 606,664,590
Unearned premiums
   515,905,915 466,055,228
Accrued expenses
   23,228,360 28,246,691
Reinsurance balances payable
   5,682,000 4,369,528
Borrowings under lines of credit
   69,000,000 69,000,000
Cash dividends declared to stockholders
   —   3,622,821
Subordinated debentures
   5,000,000 5,000,000
Accounts payable—securities
   260,592 —
Due to affiliate
   5,755,652 —
Other
   1,577,826 1,556,859


Total liabilities
   1,270,760,474 1,184,515,717


Stockholders’ Equity

Preferred stock, $.01 par value, authorized 2,000,000 shares; none issued
   —   —
Class A common stock, $.01 par value, authorized 40,000,000 shares, issued 24,803,267 and 24,483,377 shares and outstanding 21,800,679 and 21,480,789 shares
   248,033 244,834
Class B common stock, $.01 par value, authorized 10,000,000 shares, issued 5,649,240 shares and outstanding 5,576,775 shares
   56,492 56,492
Additional paid-in capital
   243,628,904 236,851,709
Accumulated other comprehensive loss
   (874,094 ) (2,254,271 )
Retained earnings
   246,893,233 244,942,913
Treasury stock, at cost
   (41,226,357 ) (41,226,357 )


Total stockholders’ equity
   448,726,211 438,615,320


Total liabilities and stockholders’ equity
   $ 1,719,486,685 $ 1,623,131,037

	March 31, 2024			December 31, 2023
	(Unaudited)
Assets
Investments
Fixed maturities
Held to maturity, at amortized cost (net of allowance for expected credit losses of $1,329,099 and $1,325,847)	$	683,398,852		$	679,497,038
Available for sale, at fair value		600,761,425			589,348,243
Equity securities, at fair value		28,883,318			25,902,956
Short-term investments, at cost, which approximates fair value		18,860,030			32,305,408
Total investments		1,331,903,625			1,327,053,645
Cash		19,805,040			23,792,273
Accrued investment income		10,497,341			9,945,714
Premiums receivable		193,160,160			179,591,821
Reinsurance receivable (net of allowance for expected credit losses of $1,026,016 and $1,394,074)		435,505,126			441,431,334
Deferred policy acquisition costs		78,857,108			75,043,404
Deferred tax asset, net		19,483,755			19,532,525
Prepaid reinsurance premiums		179,757,762			168,724,465
Property and equipment, net		2,594,056			2,633,405
Accounts receivable - securities		32,162			1,501,079
Federal income taxes recoverable		7,271,415			8,102,321
Due from affiliate		8,841,178			1,907,527
Goodwill		5,625,354			5,625,354
Other intangible assets		958,010			958,010
Other		15,961			451,011
Total assets	$	2,294,308,053		$	2,266,293,888
Liabilities and Stockholders’ Equity
Liabilities
Losses and loss expenses	$	1,124,452,191		$	1,126,156,838
Unearned premiums		634,136,621			599,411,468
Accrued expenses		3,685,534			3,946,974
Reinsurance balances payable		4,016,080			8,758,976
Borrowings under lines of credit		35,000,000			35,000,000
Cash dividends declared to stockholders		—			5,569,992
Other		7,931,153			7,704,286
Total liabilities		1,809,221,579			1,786,548,534
Stockholders’ Equity
Preferred stock, $0.01 par value, authorized 2,000,000 shares; none issued		—			—
Class A common stock, $0.01 par value, authorized 50,000,000 shares, issued 30,819,242 and 30,764,555 shares and outstanding 27,816,654 and 27,761,967 shares		308,193			307,646
Class B common stock, $0.01 par value, authorized 10,000,000 shares, issued 5,649,240 shares and outstanding 5,576,775 shares		56,492			56,492
Additional paid-in capital		336,817,945			335,694,478
Accumulated other comprehensive loss		(34,483,112	)		(32,881,822	)
Retained earnings		223,613,313			217,794,917
Treasury stock, at cost		(41,226,357	)		(41,226,357	)
Total stockholders’ equity		485,086,474			479,745,354
Total liabilities and stockholders’ equity	$	2,294,308,053		$	2,266,293,888

See accompanying notes to consolidated financial statements.

Index

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

   Three Months Ended September 30,
   2017    2016
Revenues:

Net premiums earned
   $ 177,283,816    $ 166,809,851
Investment income, net of investment expenses
   5,979,834    5,581,238
Net realized investment gains (includes $561,429 and $1,018,415 accumulated other comprehensive income reclassifications)
   561,429    1,018,415
Lease income
   113,409    163,779
Installment payment fees
   1,373,892    1,380,024
Equity in earnings of Donegal Financial Services Corporation
   403,647    357,956




Total revenues
   185,716,027    175,311,263




Expenses:

Net losses and loss expenses
   114,386,379    111,174,963
Amortization of deferred policy acquisition costs
   29,008,000    27,524,000
Other underwriting expenses
   31,790,251    28,340,135
Policyholder dividends
   1,376,115    1,143,026
Interest
   466,262    473,917
Other expenses
   176,970    226,183




Total expenses
   177,203,977    168,882,224




Income before income tax expense
   8,512,050    6,429,039
Income tax expense (includes $196,500 and $356,446 income tax expense from reclassification items)
   1,403,476    1,615,635




Net income
   $ 7,108,574    $ 4,813,404




Earnings per common share:

Class A common stock—basic
   $ 0.27    $ 0.19




Class A common stock—diluted
   $ 0.26    $ 0.18




Class B common stock—basic and diluted
   $ 0.24    $ 0.16

	Three Months Ended March 31,
	2024		2023
Revenues:
Net premiums earned	$	227,748,679	$	215,233,160
Investment income, net of investment expenses		10,972,327		9,449,078
Net investment gains (losses) (includes ($77,051) and ($2,199,673) accumulated other comprehensive income reclassifications)		2,113,378		(331,189	)
Lease income		81,823		89,347
Installment payment fees		224,662		305,375
Total revenues		241,140,869		224,745,771
Expenses:
Net losses and loss expenses		150,896,415		138,105,889
Amortization of deferred policy acquisition costs		39,602,000		37,798,000
Other underwriting expenses		41,739,868		40,611,437
Policyholder dividends		1,054,659		1,343,340
Interest		154,597		152,957
Other expenses, net		444,934		437,715
Total expenses		233,892,473		218,449,338
Income before income tax expense		7,248,396		6,296,433
Income tax expense (includes $16,181 and $461,931 income tax benefit from reclassification items)		1,292,845		1,092,837
Net income	$	5,955,551	$	5,203,596
Net income per share:
Class A common stock - basic and diluted	$	0.18	$	0.16
Class B common stock - basic and diluted	$	0.16	$	0.15

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

   Three Months Ended September 30,
   2017 2016
Net income
   $ 7,108,574 $ 4,813,404
Other comprehensive income (loss), net of tax

Unrealized gain (loss) on securities:

Unrealized holding gain (loss) during the period, net of income tax expense (benefit) of $561,247 and ($595,724)
   1,042,317 (1,106,346 )
Reclassification adjustment for gains included in net income, net of income tax expense of $196,500 and $356,446
   (364,929 ) (661,969 )


Other comprehensive income (loss)
   677,388 (1,768,315 )


Comprehensive income
   $ 7,785,962 $ 3,045,089

	Three Months Ended March 31,
	2024			2023
Net income	$	5,955,551		$	5,203,596
Other comprehensive (loss) income, net of tax
Unrealized (loss) income on securities:
Unrealized holding (loss) income during the period, net of income tax (benefit) expense of ($441,850) and $603,390		(1,662,160	)		2,269,896
Reclassification adjustment for losses included in net income, net of income tax benefit of $16,181 and $461,931		60,870			1,737,742
Other comprehensive (loss) income		(1,601,290	)		4,007,638
Comprehensive income	$	4,354,261		$	9,211,234

See accompanying notes to consolidated financial statements.

Index

Donegal Group Inc. and Subsidiaries

Consolidated ~~Statements~~Statement of ~~Income~~

Stockholders’ Equity

(Unaudited)

   Nine Months Ended September 30,
   2017    2016
Revenues:

Net premiums earned
   $ 521,454,835    $ 487,227,767
Investment income, net of investment expenses
   17,385,103    16,471,630
Net realized investment gains (includes $4,207,710 and $2,204,533 accumulated other comprehensive income reclassifications)
   4,207,710    2,204,533
Lease income
   383,183    514,768
Installment payment fees
   3,813,663    4,109,550
Equity in earnings of Donegal Financial Services Corporation
   1,023,212    698,658




Total revenues
   548,267,706    511,226,906




Expenses:

Net losses and loss expenses
   356,825,751    309,946,943
Amortization of deferred policy acquisition costs
   85,391,000    80,034,000
Other underwriting expenses
   88,538,755    81,557,159
Policyholder dividends
   3,422,672    2,729,595
Interest
   1,212,895    1,286,279
Other expenses
   1,036,223    1,179,660




Total expenses
   536,427,296    476,733,636




Income before income tax expense
   11,840,410    34,493,270
Income tax expense (includes $1,472,698 and $771,587 income tax expense from reclassification items)
   1,945,666    9,246,299




Net income
   $ 9,894,744    $ 25,246,971




Earnings per common share:

Class A common stock—basic
   $ 0.37    $ 0.98




Class A common stock—diluted
   $ 0.36    $ 0.95




Class B common stock—basic and diluted
   $ 0.33    $ 0.88

~~Donegal Group Inc. and Subsidiaries~~

~~Consolidated Statements of Comprehensive Income~~

~~(Unaudited)~~

   Nine Months Ended September 30,
   2017 2016
Net income
   $ 9,894,744 $ 25,246,971
Other comprehensive income, net of tax

Unrealized gain on securities:

Unrealized holding gain during the period, net of income tax expense of $2,215,869 and $3,768,959
   4,115,189 6,999,494
Reclassification adjustment for gains included in net income, net of income tax expense of $1,472,698 and $771,587
   (2,735,012 ) (1,432,946 )


Other comprehensive income
   1,380,177 5,566,548


Comprehensive income
   $ 11,274,921 $ 30,813,519

Three Months Ended March 31, 2024

	Class A Shares		Class B Shares		Class A Amount		Class B Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2023		30,764,555		5,649,240	$	307,646	$	56,492	$	335,694,478	$	(32,881,822	)	$	217,794,917		$	(41,226,357	)	$	479,745,354
Issuance of common stock (stock compensation plans)		38,287		—		383		—		472,740		—			—			—			473,123
Share-based compensation		16,400		—		164		—		522,460		—			—			—			522,624
Net income		—		—		—		—		—		—			5,955,551			—			5,955,551
Cash dividends declared		—		—		—		—		—		—			(8,888	)		—			(8,888	)
Grant of stock options		—		—		—		—		128,267		—			(128,267	)		—			—
Other comprehensive loss		—		—		—		—		—		(1,601,290	)		—			—			(1,601,290	)
Balance, March 31, 2024		30,819,242		5,649,240	$	308,193	$	56,492	$	336,817,945	$	(34,483,112	)	$	223,613,313		$	(41,226,357	)	$	485,086,474

Three Months Ended March 31, 2023

	Class A Shares		Class B Shares		Class A Amount		Class B Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2022		30,120,263		5,649,240	$	301,203	$	56,492	$	325,601,647	$	(41,703,747	)	$	240,563,774		$	(41,226,357	)	$	483,593,012
Issuance of common stock (stock compensation plans)		35,045		—		350		—		440,746		—			—			—			441,096
Share-based compensation		143,004		—		1,431		—		2,218,355		—			—			—			2,219,786
Net income		—		—		—		—		—		—			5,203,596			—			5,203,596
Cash dividends declared		—		—		—		—		—		—			(7,057	)		—			(7,057	)
Grant of stock options		—		—		—		—		114,724		—			(114,724	)		—			—
Cumulative effect of adoption of updated guidance for credit losses at January 1, 2023		—		—		—		—		—		—			(1,895,902	)		—			(1,895,902	)
Other comprehensive income		—		—		—		—		—		4,007,638			—			—			4,007,638
Balance, March 31, 2023		30,298,312		5,649,240	$	302,984	$	56,492	$	328,375,472	$	(37,696,109	)	$	243,749,687		$	(41,226,357	)	$	493,562,169

See accompanying notes to consolidated financial statements.

Index

Donegal Group Inc. and Subsidiaries

Consolidated ~~Statement~~Statements of ~~Stockholders’ Equity~~

Cash Flows

(Unaudited)

~~Nine Months Ended September 30, 2017~~

   Class A
Shares    Class B
Shares    Class A
Amount    Class B
Amount    Additional Paid-
In Capital    Accumulated
Other
Comprehensive
Loss Retained
Earnings Treasury Stock Total
Stockholders’
Equity
Balance, December 31, 2016
   24,483,377    5,649,240    $ 244,834    $ 56,492    $ 236,851,709    $ (2,254,271 ) $ 244,942,913 $ (41,226,357 ) $ 438,615,320
Issuance of common stock
   107,223    —      1,073    —      1,693,208    —   —   —   1,694,281
Share-based compensation
   212,667    —      2,126    —      4,596,068    —   —   —   4,598,194
Net income
   —      —      —      —      —      —   9,894,744 —   9,894,744
Cash dividends declared
   —      —      —      —      —      —   (7,456,505 ) —   (7,456,505 )
Grant of stock options
   —      —      —      —      487,919    —   (487,919 ) —   —
Other comprehensive income
   —      —      —      —      —      1,380,177 —   —   1,380,177












Balance, September 30, 2017
   24,803,267    5,649,240    $ 248,033    $ 56,492    $ 243,628,904    $ (874,094 ) $ 246,893,233 $ (41,226,357 ) $ 448,726,211

	Three Months Ended March 31,
	2024			2023
Cash Flows from Operating Activities:
Net income	$	5,955,551		$	5,203,596
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization and other non-cash items		966,911			1,122,609
Net investment (gains) losses		(2,113,378	)		331,189
Changes in assets and liabilities:
Losses and loss expenses		(1,704,647	)		2,488,926
Unearned premiums		34,725,153			32,031,102
Premiums receivable		(13,568,339	)		(15,699,109	)
Deferred acquisition costs		(3,813,704	)		(4,019,366	)
Deferred income taxes		474,439			355,524
Reinsurance receivable		5,926,208			(5,291,035	)
Prepaid reinsurance premiums		(11,033,297	)		(9,960,021	)
Accrued investment income		(551,627	)		(1,322,590	)
Due from affiliate		(6,933,651	)		(7,651,293	)
Reinsurance balances payable		(4,742,896	)		(220,377	)
Current income taxes		830,906			749,813
Accrued expenses		(261,440	)		465,988
Other, net		661,955			734,310
Net adjustments		(1,137,407	)		(5,884,330	)
Net cash provided by (used in) operating activities		4,818,144			(680,734	)
Cash Flows from Investing Activities:
Purchases of fixed maturities, held to maturity		(11,911,672	)		(12,092,863	)
Purchases of fixed maturities, available for sale		(46,490,362	)		(34,354,601	)
Purchases of equity securities, available for sale		(786,680	)		(3,590,015	)
Maturity of fixed maturities:
Held to maturity		8,008,034			6,127,883
Available for sale		30,922,241			12,365,403
Sales of fixed maturities:
Available for sale		2,995,648			748,250
Sales of equity securities, available for sale		—			3,066,129
Net purchases of property and equipment		—			(44,700	)
Net sales of short-term investments		13,445,378			29,183,513
Net cash (used in) provided by investing activities		(3,817,413	)		1,408,999
Cash Flows from Financing Activities:
Cash dividends paid		(5,578,880	)		(5,304,047	)
Issuance of common stock		590,916			2,288,494
Net cash used in financing activities		(4,987,964	)		(3,015,553	)
Net decrease in cash		(3,987,233	)		(2,287,288	)
Cash at beginning of period		23,792,273			25,123,332
Cash at end of period	$	19,805,040		$	22,836,044

Cash paid during period - Interest	$	156,292		$	156,346
Net cash paid during period - Taxes	$	—		$	—

See accompanying notes to consolidated financial statements.

~~Donegal Group Inc. and Subsidiaries~~

~~Consolidated Statements of Cash Flows~~

~~(Unaudited)~~

   Nine Months Ended September 30,
   2017 2016
Cash Flows from Operating Activities:

Net income
   $ 9,894,744 $ 25,246,971


Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation, amortization and other non-cash items
   4,791,010 5,365,877
Net realized investment gains
   (4,207,710 ) (2,204,533 )
Equity in earnings of Donegal Financial Services Corporation
   (1,023,212 ) (698,658 )
Changes in assets and liabilities:

Losses and loss expenses
   37,685,539 16,062,834
Unearned premiums
   49,850,687 46,939,580
Premiums receivable
   (4,035,543 ) (24,494,489 )
Deferred acquisition costs
   (5,568,430 ) (5,295,901 )
Deferred income taxes
   (113,508 ) 1,725,335
Reinsurance receivable
   (20,551,553 ) 299,487
Prepaid reinsurance premiums
   (13,554,734 ) (13,908,998 )
Accrued investment income
   (656,215 ) (826,563 )
Due to affiliate
   14,960,562 421,781
Reinsurance balances payable
   1,312,472 (422,181 )
Current income taxes
   (995,307 ) (335,617 )
Accrued expenses
   (5,018,331 ) (1,393,305 )
Other, net
   (101,676 ) (185,278 )


Net adjustments
   52,774,051 21,049,371


Net cash provided by operating activities
   62,668,795 46,296,342


Cash Flows from Investing Activities:

Purchases of fixed maturities, held to maturity
   (43,710,213 ) (35,461,529 )
Purchases of fixed maturities, available for sale
   (105,011,666 ) (127,113,153 )
Purchases of equity securities, available for sale
   (9,030,858 ) (10,753,187 )
Maturity of fixed maturities:

Held to maturity
   14,580,714 13,603,700
Available for sale
   75,856,616 64,406,512
Sales of fixed maturities, available for sale
   9,634,968 52,032,208
Sales of equity securities, available for sale
   10,782,859 5,068,287
Net purchases of property and equipment
   (740,608 ) (260,968 )
Net (purchases) sales of short-term investments
   (1,360,359 ) 4,181,329


Net cash used in investing activities
   (48,998,547 ) (34,296,801 )


Cash Flows from Financing Activities:

Cash dividends paid
   (11,079,326 ) (10,497,404 )
Issuance of common stock
   4,363,003 9,489,253
Payment on lines of credit
   —   (7,000,000 )


Net cash used in financing activities
   (6,716,323 ) (8,008,151 )


Net increase in cash
   6,953,925 3,991,390
Cash at beginning of period
   24,587,214 28,139,144


Cash at end of period
   $ 31,541,139 $ 32,130,534


Cash paid during period—Interest
   $ 1,016,678 $ 1,001,870
Net cash paid during period—Taxes
   $ 3,050,000 $ 8,255,000

~~See accompanying notes to consolidated financial statements.~~

Index

DONEGAL GROUP INC. AND SUBSIDIARIES

(Unaudited)

Notes to Consolidated Financial Statements

~~1—Organization~~1 -

Organization

Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26, 1986. Our insurance subsidiaries are Atlantic States Insurance Company (“Atlantic States”), ~~Southern~~Michigan Insurance Company ~~of Virginia~~ (“~~Southern”~~MICO”), ~~Le Mars Insurance Company (“Le Mars”),~~ the Peninsula Insurance Group (“Peninsula”), which consists of The Peninsula Insurance Company and its wholly owned subsidiary Peninsula Indemnity Company, and ~~The Peninsula~~Southern Insurance Company ~~Sheboygan Falls Insurance Company~~of Virginia (“~~Sheboygan”~~Southern”). Our insurance subsidiaries and ~~Michigan Insurance Company (“MICO”),~~their affiliates write ~~personal~~commercial and ~~commercial~~personal lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwestern, New England, Southern and ~~Southern~~Southwestern states. We also own 48.2% of the outstanding stock of Donegal Financial Services Corporation (“DFSC”), a grandfathered unitary savings and loan holding company that owns Union Community Bank (“UCB”), a state savings bank. Donegal Mutual owns the remaining 51.8% of the outstanding stock of DFSC.

~~We have four~~

At March 31, 2024, we had three segments: our investment function, ~~our personal lines of insurance,~~ our commercial lines of insurance and our ~~investment in DFSC. The~~ personal lines ~~products~~ of ~~our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.~~insurance. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.

The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.

At ~~September 30, 2017,~~March 31, 2024, Donegal Mutual held approximately ~~45%~~44% of our outstanding Class A common stock and approximately ~~83%~~84% of our outstanding Class B common stock. ~~That~~This ownership provides Donegal Mutual with approximately ~~73%~~71% of the ~~combined~~total voting power of our ~~outstanding shares of Class A common stock and our outstanding shares of Class B~~ common stock. ~~We believe Donegal Mutual’s voting control of us benefits us for the reasons we describe in our Annual Reports on Form 10-K and in our proxy statements.~~ Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions. While each company maintains its separate corporate existence, ~~Donegal Mutual and~~ our insurance subsidiaries and Donegal Mutual conduct business together as the Donegal Insurance Group. As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the same types of insurance products.

Atlantic States, our largest subsidiary, participates in a proportional reinsurance agreement (the “pooling agreement”) with Donegal Mutual. Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss expenses to the underwriting pool, ~~their insurance business~~ and ~~each company receives an allocated percentage~~the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled ~~business.~~business to Atlantic States. Thus, Donegal Mutual and Atlantic States ~~has an 80%~~ share of the underwriting results of the pooled business ~~and~~in proportion to their respective participation in the underwriting pool.

In addition, Donegal Mutual has ~~a 20% share of the results of the pooled business. Pooled business represents the predominant percentage of the net underwriting activity of both Donegal Mutual and Atlantic States.~~

~~Donegal Mutual completed the merger of~~100% quota-share reinsurance agreements with Mountain States ~~Mutual Casualty~~Commercial Insurance Company, ~~(“Mountain States”) with and into Donegal Mutual effective May 25, 2017. Donegal Mutual was the surviving company in the merger, and Mountain States’ insurance subsidiaries,~~ Mountain States Indemnity Company and ~~Mountain States Commercial~~Southern Mutual Insurance ~~Company, became insurance subsidiaries of~~Company. Donegal Mutual ~~upon completion of~~places its assumed business from these companies into the merger. Upon completion of the merger, Donegal Mutual assumed all of the policy obligations of Mountain States and began to market its products together with its insurance subsidiaries as the Mountain States Insurance Group in four Southwestern states. For an indefinite period of time, Donegal Mutual will exclude the business of the Mountain States Insurance Group from the pooling agreement with Atlantic States. As a result, our consolidated financial results will exclude the results of Donegal Mutual’s operations in those Southwestern states.

underwriting pool.

The same executive management and underwriting personnel administer products, classes of business underwritten, pricing practices and underwriting standards of Donegal Mutual and our insurance subsidiaries. In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual market are generally complementary, thereby allowing the Donegal Insurance Group to offer a broader range of products to a given market and to expand the Donegal Insurance Group’s ability to service an entire personal lines or commercial lines ~~accounts.~~account. Distinctions within the products of Donegal Mutual and our insurance subsidiaries ~~offer~~generally relate ~~generally~~ to specific risk profiles targeted within similar classes of business, such as preferred tier ~~products~~ versus standard tier products, but we do not allocate all of the standard risk gradients to ~~any specific company within the Donegal Insurance Group.~~one company. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, ~~because~~the underwriting pool homogenizes the risk characteristics of all business that Donegal Mutual and Atlantic States write ~~directly are homogenized within~~directly. The business Atlantic States derives from the underwriting pool ~~Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the underwriting pool.~~

~~On July 18, 2013, our board of directors authorized~~represents a ~~share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares~~significant percentage of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the nine months ended September 30, 2017 or 2016. We have purchased a total ~~of 57,658 shares of our Class A common stock under this program from its inception through September 30, 2017.~~

~~2—Basis of Presentation~~

consolidated revenues.

Index

2 -	Basis of Presentation

Our financial information for the interim periods included in this Form 10-Q Report is unaudited; however, our financial information we include in this Form 10-Q Report reflects all adjustments, consisting only of normal recurring adjustments that, in the opinion of our management, are necessary for a fair presentation of our financial position, results of operations and cash flows for those interim periods. Our results of operations for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 are not necessarily indicative of the results of operations we expect for the year ending December 31, ~~2017.~~

2024.

We recommend you read the interim financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~3—Earnings Per Share~~

2023 that we filed with the Securities and Exchange Commission (“SEC”) on March 6, 2024.

3 -	Net Income Per Share

We have two classes of common stock, which we refer to as our Class A common stock and our Class B common stock. Our certificate of incorporation provides that whenever our board of directors declares a dividend on our Class B common stock, our board of directors shall simultaneously declare a dividend on our Class A common stock that is payable to the holders of our Class A common stock at the same time and as of the same record date at a rate that is at least 10% greater than the rate at which our board of directors declared a dividend on our Class B common stock. Accordingly, we use the two-class method to compute our ~~earnings~~net income per ~~common~~ share. The two-class method is an earnings allocation formula that determines ~~earnings~~net income per share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed ~~earnings~~net income using a participation percentage that reflects the dividend rights of each class. The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for our Class A common stock and our Class B common stock:

   Three Months Ended September 30,
   2017    2016
   Class A    Class B    Class A    Class B
   (in thousands, except per share data)
Basic net income per share:

Numerator:

Allocation of net income
   $ 5,787    $ 1,322    $ 3,901    $ 912








Denominator:

Weighted-average shares outstanding
   21,756    5,577    21,078    5,577








Basic net income per share
   $ 0.27    $ 0.24    $ 0.19    $ 0.16








Diluted net income per share:

Numerator:

Allocation of net income
   $ 5,787    $ 1,322    $ 3,901    $ 912








Denominator:

Number of shares used in basic computation
   21,756    5,577    21,078    5,577
Weighted-average shares effect of dilutive securities

Director and employee stock options
   461    —      831    —








Number of shares used in diluted computation
   22,217    5,577    21,909    5,577








Diluted net income per share
   $ 0.26    $ 0.24    $ 0.18    $ 0.16

   Nine Months Ended September 30,
   2017    2016
   Class A    Class B    Class A    Class B
   (in thousands, except per share data)
Basic net income per share:

Numerator:

Allocation of net income
   $ 8,066    $ 1,829    $ 20,329    $ 4,918








Denominator:

Weighted-average shares outstanding
   21,669    5,577    20,791    5,577








Basic net income per share
   $ 0.37    $ 0.33    $ 0.98    $ 0.88








Diluted net income per share:

Numerator:

Allocation of net income
   $ 8,066    $ 1,829    $ 20,329    $ 4,918








Denominator:

Number of shares used in basic computation
   21,669    5,577    20,791    5,577
Weighted-average shares effect of dilutive securities

Director and employee stock options
   778    —      560    —








Number of shares used in diluted computation
   22,447    5,577    21,351    5,577








Diluted net income per share
   $ 0.36    $ 0.33    $ 0.95    $ 0.88

	Three Months Ended March 31,
	2024				2023
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic net income per share:
Numerator:
Allocation of net income	$	5,039	$	917	$	4,387	$	817
Denominator:
Weighted-average shares outstanding		27,811		5,577		27,193		5,577
Basic net income per share	$	0.18	$	0.16	$	0.16	$	0.15

Diluted net income per share:
Numerator:
Allocation of net income	$	5,039	$	917	$	4,387	$	817
Denominator:
Number of shares used in basic computation		27,811		5,577		27,193		5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		35		—		173		—
Number of shares used in diluted computation		27,846		5,577		27,366		5,577
Diluted net income per share	$	0.18	$	0.16	$	0.16	$	0.15

We did not include outstanding options to purchase the following number of shares of ~~our~~ Class A common stock in our computation of diluted ~~earnings~~net income per share because the exercise price of the options exceeded the average market price of our Class A common stock during the applicable ~~periods:~~

   Three Months Ended September 30,    Nine Months Ended September 30,
   2017    2016    2017    2016
Number of options to purchase Class A shares excluded
   5,178,629    —      1,382,400    —

periods.

Index

	Three Months Ended March 31,
	2024		2023

Number of options to purchase Class A shares excluded		1,693,904		2,307,435

~~4—Reinsurance~~4 -

Reinsurance

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which they pool substantially all of their ~~direct~~respective premiums, ~~written,~~losses and loss expenses, and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement. Atlantic States has an 80% share of the results of the pool, and Donegal Mutual has a 20% share of the results of the pool.

Our insurance subsidiaries and Donegal Mutual ~~purchase certain~~participate in a consolidated third-party reinsurance ~~on a combined basis. Le Mars, MICO, Peninsula~~program. The coverage and Sheboygan also separately purchase third-party reinsurance that provides that insurance subsidiary with reinsurance coverage that we believe is commensurate with its respective size and risk exposures. Ourparameters of the program are common to all of our insurance subsidiaries ~~use~~and Donegal Mutual. The program utilizes several different reinsurers. They require their reinsurers ~~all of which have~~to maintain an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- rating from A.M. Best. The following information describes the external reinsurance Donegal Mutual and our insurance subsidiaries have in place for ~~2017:~~

2024:

~~excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recover, through a series of reinsurance agreements, losses over a set retention (generally $1.0 million), and~~

•

excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recover losses over a set retention of $3.0 million for all losses other than property and a set retention of $4.0 million for property losses; and

catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recover ~~through a series of reinsurance agreements,~~ 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention ~~(generally $5.0 million) and after exceeding an annual aggregate deductible (generally $1.0 million)~~of $25.0 million up to aggregate losses of ~~$170.0~~$175.0 million per occurrence.

~~Our~~

For property insurance, our insurance subsidiaries ~~and Donegal Mutual also purchase facultative reinsurance to cover exposures in~~have excess of ~~the covered limits~~loss reinsurance that provides coverage of ~~their third-party~~$36.0 million per loss over a set retention of $4.0 million. For liability insurance, our insurance subsidiaries have excess of loss reinsurance ~~agreements.~~

that provides coverage of $72.0 million per occurrence over a set retention of $3.0 million. For workers’ compensation insurance, our insurance subsidiaries have excess of loss reinsurance that provides coverage of $17.0 million on any one life over a set retention of $3.0 million.

In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries have ~~various~~a catastrophe reinsurance ~~agreements~~agreement with Donegal ~~Mutual.~~

~~We have made no significant changes~~Mutual, under which each of our insurance subsidiaries recovers 100% of an accumulation of multiple losses resulting from a single event, including natural disasters, over a set retention of $3.0 million up to aggregate losses of $22.0 million per occurrence. The agreement also provides additional coverage for an accumulation of losses from a single event including a combination of our ~~third-party reinsurance or~~insurance subsidiaries over a combined retention of $6.0 million. The purpose of the ~~reinsurance agreements between our~~agreement is to lessen the effects of an accumulation of losses arising from one event to levels that are appropriate given each subsidiary’s size, underwriting profile and surplus.

Our insurance subsidiaries and Donegal Mutual ~~during~~also purchase facultative reinsurance to cover certain exposures, including property exposures that exceeded the ~~nine months ended September 30, 2017.~~

limits provided by their respective treaty reinsurance.

In order to write automobile insurance in the state of Michigan, Atlantic States, MICO and Peninsula are required to be members of the Michigan Catastrophic Claims Association (“MCCA”). The MCCA provides reinsurance to Atlantic States, MICO and Peninsula for personal automobile and commercial automobile personal injury claims in the state of Michigan over a set retention.

Index

We report reinsurance receivable net of an allowance for expected credit losses. We base the allowance upon our ongoing review of amounts outstanding, historical loss data, changes in reinsurer credit standing and other relevant factors. We use a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses.

~~5—Investments~~5 -

Investments

The amortized cost and estimated fair values of our fixed maturities ~~and equity securities~~ at ~~September 30, 2017~~March 31, 2024 were as follows:

   Amortized Cost    Gross Unrealized
Gains    Gross Unrealized
Losses    Estimated Fair
Value
   (in thousands)
Held to Maturity

U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 70,145    $ 1,357    $ 444    $ 71,058
Obligations of states and political subdivisions
   136,835    10,941    152    147,624
Corporate securities
   106,387    2,786    1,077    108,096
Mortgage-backed securities
   51,910    818    77    52,651








Totals
   $ 365,277    $ 15,902    $ 1,750    $ 379,429








   Amortized Cost    Gross Unrealized
Gains    Gross Unrealized
Losses    Estimated Fair
Value
   (in thousands)
Available for Sale

U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 47,217    $ 63    $ 499    $ 46,781
Obligations of states and political subdivisions
   135,367    4,874    270    139,971
Corporate securities
   100,230    1,228    347    101,111
Mortgage-backed securities
   246,925    794    2,121    245,598








Fixed maturities
   529,739    6,959    3,237    533,461
Equity securities
   44,819    5,855    646    50,028








Totals
   $ 574,558    $ 12,814    $ 3,883    $ 583,489

	Carrying Value			Allowance for Credit Losses			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	91,551		$	55		$	91,606		$	—		$	9,550		$	82,056
Obligations of states and political subdivisions			376,569			266			376,835			1,057			50,664			327,228
Corporate securities			202,093			1,001			203,094			246			15,565			187,775
Mortgage-backed securities			13,186			7			13,193			9			447			12,755
Totals		$	683,399		$	1,329		$	684,728		$	1,312		$	76,226		$	609,814

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	91,561	$	79	$	4,585	$	87,055
Obligations of states and political subdivisions		41,893		10		4,164		37,739
Corporate securities		208,888		74		13,792		195,170
Mortgage-backed securities		300,874		377		20,454		280,797
Totals	$	643,216	$	540	$	42,995	$	600,761

At ~~September 30, 2017,~~March 31, 2024, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of ~~$197.1~~$241.5 million and an amortized cost of ~~$187.3~~$277.9 million. Our holdings at ~~September 30, 2017~~March 31, 2024 also included special revenue bonds with an aggregate fair value of ~~$90.5~~$123.5 million and an amortized cost of ~~$84.9~~$140.8 million. With respect to both categories of those bonds at ~~September 30, 2017,~~March 31, 2024, we held no securities of any issuer that comprised more than 10% of our holdings of either bond category. Education bonds and water and sewer utility bonds represented ~~54%~~47% and ~~24%~~36%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at ~~September 30, 2017.~~March 31, 2024. Many of the issuers of the special revenue bonds we held at ~~September 30, 2017 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at September 30, 2017 were similar to general obligation bonds.~~

~~The amortized cost and estimated fair values of our fixed maturities and equity securities at December~~March 31, ~~2016 were as follows:~~

   Amortized Cost    Gross Unrealized
Gains    Gross Unrealized
Losses    Estimated Fair
Value
   (in thousands)
Available for Sale

U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 39,094    $ 100    $ 606    $ 38,588
Obligations of states and political subdivisions
   179,889    6,637    443    186,083
Corporate securities
   87,715    662    921    87,456
Mortgage-backed securities
   204,931    637    2,620    202,948








Fixed maturities
   511,629    8,036    4,590    515,075
Equity securities
   42,432    4,788    132    47,088








Totals
   $ 554,061    $ 12,824    $ 4,722    $ 562,163

At December 31, 2016, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $220.1 million and an amortized cost of $211.0 million. Our holdings at December 31, 2016 also included special revenue bonds with an aggregate fair value of $96.8 million and an amortized cost of $91.7 million. With respect to both categories of those bonds at December 31, 2016, we held no securities of any issuer that comprised more than 10% of that category. Education bonds and water and sewer utility bonds represented 62% and 23%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2016. Many of the issuers of the special revenue bonds we held at December 31, 20162024 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

~~We made reclassifications from available for sale to held to maturity~~

Index

The amortized cost and estimated fair values of ~~certain~~our fixed maturities at December 31, 2023 were as follows:

	Carrying Value			Allowance for Credit Losses			Amortized Cost			Gross Unrealized Gains			Gross Unrealized Losses			Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies		$	91,518		$	54		$	91,572		$	—		$	8,885		$	82,687
Obligations of states and political subdivisions			376,898			266			377,164			1,449			46,845			331,768
Corporate securities			201,847			1,000			202,847			207			14,805			188,249
Mortgage-backed securities			9,234			6			9,240			—			418			8,822
Totals		$	679,497		$	1,326		$	680,823		$	1,656		$	70,953		$	611,526

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	89,367	$	199	$	4,147	$	85,419
Obligations of states and political subdivisions		41,958		12		3,854		38,116
Corporate securities		211,882		100		15,189		196,793
Mortgage-backed securities		286,520		594		18,094		269,020
Totals	$	629,727	$	905	$	41,284	$	589,348

At December 31, 2023, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $245.1 million and an amortized cost of $278.3 million. Our holdings also included special revenue bonds with an aggregate fair value of $124.8 million and an amortized cost of $140.8 million. With respect to both categories of bonds, we held no securities of any issuer that comprised more than 10% of that category at December 31, 2023. Education bonds and water and sewer utility bonds represented 47% and 35%, respectively, of our total investments in special revenue bonds based on ~~November 30, 2013.~~ their carrying values at December 31, 2023. Many of the issuers of the special revenue bonds we held at December 31, 2023 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

We have segregated within accumulated other comprehensive loss the net unrealized losses of $15.1 million arising prior to the November 30, 2013 ~~reclassifications.~~reclassification date for fixed maturities reclassified from available for sale to held to maturity. We are amortizing this balance over the remaining life of the related securities as an adjustment toof yield in a manner consistent with the accretion of discount on the same fixed maturities. We recorded amortization of ~~$909,044~~48,577 and ~~$1.0 million~~$77,032 in other comprehensive (loss) income during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively. At ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, net unrealized losses of ~~$10.1~~$1.2 million and ~~$11.0~~$1.3 million, respectively, remained within accumulated other comprehensive loss.

Index

We show below the amortized cost and estimated fair value of our fixed maturities at ~~September 30, 2017~~March 31, 2024 by contractual maturity. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

   Amortized Cost    Estimated
Fair Value
Held to maturity    (in thousands)
Due in one year or less
   $ 6,681    $ 6,689
Due after one year through five years
   52,418    53,656
Due after five years through ten years
   139,103    143,566
Due after ten years
   115,165    122,867
Mortgage-backed securities
   51,910    52,651




Total held to maturity
   $ 365,277    $ 379,429




Available for sale

Due in one year or less
   $ 54,276    $ 55,289
Due after one year through five years
   94,106    95,647
Due after five years through ten years
   110,187    111,712
Due after ten years
   24,245    25,215
Mortgage-backed securities
   246,925    245,598




Total available for sale
   $ 529,739    $ 533,461

~~Gross realized~~

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	42,228	$	41,549
Due after one year through five years		130,205		121,873
Due after five years through ten years		237,241		216,118
Due after ten years		261,861		217,519
Mortgage-backed securities		13,193		12,755
Total held to maturity	$	684,728	$	609,814

Available for sale
Due in one year or less	$	62,925	$	61,761
Due after one year through five years		170,058		160,071
Due after five years through ten years		86,138		77,937
Due after ten years		23,221		20,195
Mortgage-backed securities		300,874		280,797
Total available for sale	$	643,216	$	600,761

The cost and estimated fair values of our equity securities at March 31, 2024 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	19,631	$	9,315	$	63	$	28,883

The cost and estimated fair values of our equity securities at December 31, 2023 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	18,844	$	7,059	$	—	$	25,903

Index

We present below gross gains and losses from investments ~~before applicable income taxes for~~and the ~~three~~change in the difference between fair value and ~~nine months ended September 30, 2017 and 2016 were as follows:~~

   Three Months Ended September 30,    Nine Months Ended September 30,
   2017    2016    2017    2016
   (in thousands)    (in thousands)
Gross realized gains:

Fixed maturities
   $ 87    $ 289    $ 138    $ 2,129
Equity securities
   513    1,170    4,142    1,226








   600    1,459    4,280    3,355








Gross realized losses:

Fixed maturities
   39    22    69    280
Equity securities
   —      419    3    870








   39    441    72    1,150








Net realized gains
   $ 561    $ 1,018    $ 4,208    $ 2,205

cost of investments:

	Three Months Ended March 31,
	2024			2023
	(in thousands)
Gross realized gains:
Fixed maturities	$	4		$	22
Equity securities		—			285
		4			307
Gross realized losses:
Fixed maturities		81			2,222
Equity securities		—			46
		81			2,268
Net realized losses		(77	)		(1,961	)
Gross unrealized gains on equity securities		2,256			2,202
Gross unrealized losses on equity securities		(63	)		(485	)
Fixed maturities - credit impairment charges		(3	)		(87	)
Net investment gains (losses)	$	2,113		$	(331	)

We held fixed maturities ~~and equity securities~~ with unrealized losses representing declines that we considered temporary at ~~September 30, 2017~~March 31, 2024 as follows:

   Less Than 12 Months    More Than 12 Months
   Fair Value    Unrealized Losses    Fair Value    Unrealized Losses
   (in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 50,877    $ 865    $ 1,919    $ 78
Obligations of states and political subdivisions
   19,651    366    4,601    56
Corporate securities
   39,754    735    16,426    689
Mortgage-backed securities
   176,141    1,677    16,653    521
Equity securities
   4,678    475    766    171








Totals
   $ 291,101    $ 4,118    $ 40,365    $ 1,515

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	37,188	$	299	$	125,533	$	13,836
Obligations of states and political subdivisions		29,747		251		304,139		54,577
Corporate securities		18,034		431		343,673		28,926
Mortgage-backed securities		58,891		656		187,697		20,245
Totals	$	143,860	$	1,637	$	961,042	$	117,584

We held fixed maturities ~~and equity securities~~ with unrealized losses representing declines that we considered temporary at December 31, ~~2016~~2023 as follows:

   Less Than 12 Months    More Than 12 Months
   Fair Value    Unrealized Losses    Fair Value    Unrealized Losses
   (in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 37,730    $ 1,280    $ —      $ —
Obligations of states and political subdivisions
   40,739    802    710    9
Corporate securities
   80,181    2,127    4,707    472
Mortgage-backed securities
   168,772    2,728    417    3
Equity securities
   5,421    132    —      —








Totals
   $ 332,843    $ 7,069    $ 5,834    $ 484

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	32,224	$	217	$	116,538	$	12,815
Obligations of states and political subdivisions		13,097		68		307,429		50,631
Corporate securities		13,066		324		353,863		29,670
Mortgage-backed securities		46,964		221		178,113		18,291
Totals	$	105,351	$	830	$	955,943	$	111,407

Index

We make estimates concerning the valuation of our investments and, as applicable, the recognition of ~~other-than-temporary~~ declines in the value of our investments. For equity securities, we ~~write down the investment to its~~measure investments at fair value, and we ~~reflect the amount of the write-down as a realized loss~~recognize changes in fair value in our results of operations when we consider the decline in value of an individual equity security investment to be other than temporary. We monitor all investments individually for other-than-temporary declines in value. Generally, we assume there has been an other-than-temporary decline in value if an individual equity security has depreciated in value by more than 20% of our original cost and has been in such an unrealized loss position for more than six months. We held seven equity securities that were in an unrealized loss position at September 30, 2017. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we considered these declines in value to be temporary.operations. With respect to aan available-for-sale debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred with respect to that security. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we ~~consider the impairment to be other than temporary.~~establish an allowance for credit loss. We then recognize the amount of the ~~impairment loss related to the credit loss~~allowance in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. We regularly review the allowance for credit losses and recognize changes in the allowance in our results of operations. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, issuer or geographic events that have negatively impacted the value of a security and rating agency downgrades. For held-to-maturity debt securities, we make estimates concerning expected credit losses at an aggregated level rather that monitoring individual debt securities for credit losses. We establish an allowance for expected credit losses based on an ongoing review of securities held, historical loss data, changes in issuer credit standing and other relevant factors. We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of operations. We held ~~232~~893 debt securities that were in an unrealized loss position at ~~September 30, 2017.~~March 31, 2024. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments.

Our investment in affiliate represents our 48.2% ownership interest in DFSC. We account for our investment in affiliate using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of DFSC’s earnings and losses as well as changes in the equity of DFSC due to unrealized gains and losses. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at September 30, 2017 and December 31, 2016 and for the three and nine months ended September 30, 2017 and 2016, respectively, from the financial statements of DFSC. The financial information of DFSC at September 30, 2017 and 2016 and for the three and nine months then ended is unaudited.

Balance sheets:    September 30,
2017    December 31,
2016
   (in thousands)
Total assets
   $ 559,961    $ 535,590




Total liabilities
   $ 478,455    $ 457,101
Stockholders’ equity
   81,506    78,489




Total liabilities and stockholders’ equity
   $ 559,961    $ 535,590

   Three Months Ended September 30,    Nine Months Ended September 30,
Income statements:    2017    2016    2017    2016
   (in thousands)    (in thousands)
Net income
   $ 837    $ 742    $ 2,122    $ 1,449

~~6—Segment Information~~

6 -	Segment Information

We evaluate the performance of our personal lines and commercial lines segments based upon the underwriting results of our insurance subsidiaries using statutory accounting principles (“SAP”) that various state insurance departments prescribe or permit. Our management uses SAP to measure the performance of our insurance subsidiaries instead of United States generally accepted accounting principles (“GAAP”). SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because they include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude. For more information about non-GAAP financial measures, we refer you to “Non-GAAP Information” under Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Quarterly Report on Form 10-Q.

Index

Financial data by segment for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 is as follows:

   Three Months Ended September 30,
   2017    2016
   (in thousands)
Revenues:

Premiums earned:

Commercial lines
   $ 80,724    $ 75,571
Personal lines
   96,560    91,239




Premiums earned
   177,284    166,810
Net investment income
   5,980    5,581
Realized investment gains
   561    1,018
Equity in earnings of DFSC
   404    358
Other
   1,487    1,544




Total revenues
   $ 185,716    $ 175,311




Income before income taxes:

Underwriting income (loss):

Commercial lines
   $ 8,998    $ 3,701
Personal lines
   (8,919 )    (5,861 )




SAP underwriting income (loss)
   79    (2,160 )
GAAP adjustments
   644    788




GAAP underwriting income (loss)
   723    (1,372 )
Net investment income
   5,980    5,581
Realized investment gains
   561    1,018
Equity in earnings of DFSC
   404    358
Other
   844    844




Income before income taxes
   $ 8,512    $ 6,429

   Nine Months Ended September 30,
   2017    2016
   (in thousands)
Revenues:

Premiums earned:

Commercial lines
   $ 236,437    $ 218,405
Personal lines
   285,018    268,823




Premiums earned
   521,455    487,228
Net investment income
   17,385    16,472
Realized investment gains
   4,208    2,205
Equity in earnings of DFSC
   1,023    699
Other
   4,197    4,623




Total revenues
   $ 548,268    $ 511,227




Income before income taxes:

Underwriting income (loss):

Commercial lines
   $ 12,670    $ 14,118
Personal lines
   (31,816 )    (6,953 )




SAP underwriting (loss) income
   (19,146 )    7,165
GAAP adjustments
   6,423    5,795




GAAP underwriting (loss) income
   (12,723 )    12,960
Net investment income
   17,385    16,472
Realized investment gains
   4,208    2,205
Equity in earnings of DFSC
   1,023    699
Other
   1,947    2,157




Income before income taxes
   $ 11,840    $ 34,493

	Three Months Ended March 31,
	2024			2023
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	132,092		$	133,187
Personal lines		95,657			82,046
GAAP premiums earned		227,749			215,233
Net investment income		10,972			9,449
Investment gains (losses)		2,113			(331	)
Other		307			395
Total revenues	$	241,141		$	224,746
Income before income tax expense:
Underwriting (loss) gain:
Commercial lines	$	(10,371	)	$	(7,912	)
Personal lines		(532	)		879
SAP underwriting loss		(10,903	)		(7,033	)
GAAP adjustments		5,359			4,407
GAAP underwriting loss		(5,544	)		(2,626	)
Net investment income		10,972			9,449
Investment gains (losses)		2,113			(331	)
Other		(293	)		(196	)
Income before income tax expense	$	7,248		$	6,296

~~7—Borrowings~~7 -

Borrowings

Lines of Credit

In ~~July 2017,~~August 2020, we ~~renewed our existing~~entered into a credit agreement with Manufacturers and Traders Trust Company (“M&T”) ~~relating~~that related to a ~~$60.0~~$20.0 million unsecured ~~revolving~~demand line of credit. The line of credit ~~expires in July 2020. We have the right to request a one-year extension of the credit agreement as of each anniversary~~has no expiration date, ~~of the credit agreement.~~no annual fees and no covenants. At ~~September 30, 2017,~~March 31, 2024, we had ~~$34.0 million in~~no outstanding borrowings from M&T and had the ability to borrow ~~an additional $26.0~~up to $20.0 million at an interest ~~rates~~rate equal to ~~M&T’s current prime rate or~~ the ~~then current LIBOR~~then-current Term SOFR rate plus ~~2.25%~~2.11%. The interest rate on our outstanding borrowings from M&T is adjustable quarterly, and, at September 30, 2017, that interest rate was 3.49%. We pay a fee of 0.25% per annum on the loan commitment amount regardless of usage. The credit agreement requires our compliance with certain covenants. These covenants include minimum levels of our net worth, leverage ratio, statutory surplus and the A.M. Best ratings of our insurance subsidiaries. We were in compliance with all requirements of the credit agreement during the nine months ended September 30, 2017.

MICO is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis. Through its membership, MICO has the ability to issue debt to the FHLB of Indianapolis in exchange for cash advances. MICO had no outstanding borrowings with the FHLB of Indianapolis at September 30, 2017. The table below presents the amount of FHLB of Indianapolis stock MICO purchased, collateral pledged and assets related to MICO’s membership in the FHLB of Indianapolis at September 30, 2017.

FHLB of Indianapolis stock purchased and owned
   $ 267,700
Collateral pledged, at par (carrying value $2,753,427)
   2,850,000
Borrowing capacity currently available
   2,623,990

Atlantic States is a member of the FHLB of Pittsburgh. Through its membership, Atlantic States has the ability to issue debt to the FHLB of Pittsburgh in exchange for cash advances. Atlantic States ~~had~~has a fixed-rate cash advance of $35.0 million inthat was outstanding ~~advances~~ at ~~September 30, 2017.~~March 31, 2024. The cash advance carries a fixed interest rate ~~on the advances was 1.25% at September 30, 2017.~~ of 1.74% and is due in August 2024. The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at ~~September 30, 2017.~~

FHLB of Pittsburgh stock purchased and owned
   $ 1,599,700
Collateral pledged, at par (carrying value $37,989,459)
   38,391,248
Borrowing capacity currently available
   1,903,348

~~Subordinated Debentures~~

Donegal Mutual holds a $5.0 million surplus note that MICO issued to increase MICO’s statutory surplus. The surplus note carries an interest rate of 5.00%, and any repayment of principal or payment of interest on the surplus note requires prior approval of the Michigan Department of Insurance and Financial Services.

~~8—Share–Based Compensation~~

March 31, 2024.

FHLB of Pittsburgh stock purchased and owned	$	1,591,800
Collateral pledged, at par (carrying value $41,087,980)		44,459,589
Borrowing capacity currently available		3,579,560

Index

8 -	Share–Based Compensation

We measure all share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of related compensation expense in our ~~consolidated statements~~results of ~~income.~~operations. In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

We ~~charged~~recorded compensation expense related to our stock compensation plans ~~against income before income taxes~~ of ~~$411,450~~$286,001 and ~~$414,696~~$251,773 for the three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively, with a corresponding income tax benefit of ~~$144,008~~$60,060 and $145,143, respectively. We charged compensation expense related to our stock compensation plans against income before income taxes of $1.6 million and $2.0 million for the nine months ended September 30, 2017 and 2016, respectively, with a corresponding income tax benefit of $564,075 and $710,584,$52,872, respectively. At ~~September 30, 2017,~~March 31, 2024, we had ~~$2.0~~$1.6 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans that we expect to recognize over a weighted average period of approximately ~~1.5~~1.8 years.

We received cash from option exercises under all stock compensation plans during the three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016~~2023 of ~~$765,127~~$ 236,624 and ~~$3.7 million, respectively. We received cash from option exercises under all stock compensation plans during the nine months ended September 30, 2017 and 2016 of $2.9 million and $7.8~~$2.0 million, respectively. We realized actual tax benefits for the tax deductions related to those option exercises of ~~$42,411~~$ 1,719 and ~~$243,656~~$46,188 for the three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively. ~~We realized actual tax benefits for the tax deductions related to option exercises of $220,767 and $521,852 for the nine months ended September 30, 2017 and 2016, respectively.~~

~~9—Fair Value Measurements~~

9 -	Fair Value Measurements

We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:

Level 1 – quoted prices in active markets for identical assets and liabilities;

Level 2 – directly or indirectly observable inputs other than Level 1 quoted prices; and

Level 3 – unobservable inputs not corroborated by market data.

For investments that have quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy. We classify publicly-traded equity securities as Level 1. When quoted market prices in active markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services and include these investments in Level 2 of the fair value hierarchy. We classify our fixed maturity investments and non-publicly traded equity securities as Level 2. Our fixed maturity investments consist of U.S. Treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount that could be realized if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed maturity and equity investments. We generally obtain two prices per security. These pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to ~~determine if~~verify that the estimates we obtain from the pricing services are representative of fair values based upon our investment personnel’s general knowledge of the market, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel ~~regularly~~ monitor the market and are familiar with current trading ranges for similar securities and the pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, ~~interest~~coupon rates, security types and recent trading activity. Our investment personnel periodically review documentation with respect to the pricing services’ pricing methodology that they obtain to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At ~~September 30, 2017,~~March 31, 2024, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at ~~September 30, 2017,~~March 31, 2024, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

Index

We present our cash and short-term investments at estimated fair value. We classify these items as Level 1.

The carrying values we report in our balance sheet for premium receivables, ~~and~~ reinsurance receivables ~~and payables for premiums and~~related to paid losses and loss expenses and reinsurance balances payable approximate their fair values. The carrying amounts we report in our balance sheets for our ~~subordinated debentures and~~ borrowings under lines of credit approximate their fair values. We classify these items as Level 3.

We evaluate our assets and liabilities to determine the appropriate level at which to classify them for each reporting period.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at ~~September 30, 2017:~~

   Fair Value Measurements Using
   Fair Value    Quoted Prices in
Active Markets
for Identical
Assets (Level 1)    Significant
Other
Observable
Inputs (Level 2)    Significant
Unobservable
Inputs (Level 3)
   (in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 46,781    $ —      $ 46,781    $ —
Obligations of states and political subdivisions
   139,971    —      139,971    —
Corporate securities
   101,111    —      101,111    —
Mortgage-backed securities
   245,598    —      245,598    —
Equity securities
   37,041    37,041    —      —








Total investments in the fair value hierarchy
   570,502    37,041    533,461    —








Investment measured at net asset value
   12,987    —      —      —








Totals
   $ 583,489    $ 37,041    $ 533,461    $ —

~~We did not transfer any investments between Levels 1 and 2 during the nine months ended September 30, 2017.~~

March 31, 2024:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	87,055	$	—	$	87,055	$	—
Obligations of states and political subdivisions		37,739		—		37,739		—
Corporate securities		195,170		—		195,170		—
Mortgage-backed securities		280,797		—		280,797		—
Equity securities		28,883		26,891		1,992		—
Total investments in the fair value hierarchy	$	629,644	$	26,891	$	602,753	$	—

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, ~~2016:~~

   Fair Value Measurements Using
   Fair Value    Quoted Prices in
Active Markets
for Identical
Assets (Level 1)    Significant
Other
Observable
Inputs (Level 2)    Significant
Unobservable
Inputs
(Level 3)
   (in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 38,588    $ —      $ 38,588    $ —
Obligations of states and political subdivisions
   186,083    —      186,083    —
Corporate securities
   87,456    —      87,456    —
Mortgage-backed securities
   202,948    —      202,948    —
Equity securities
   35,922    35,922    —      —








Total investments in the fair value hierarchy
   550,997    35,922    515,075    —








Investment measured at net asset value
   11,166    —      —      —








Totals
   $ 562,163    $ 35,922    $ 515,075    $ —

~~10—Income Taxes~~

2023:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	85,419	$	—	$	85,419	$	—
Obligations of states and political subdivisions		38,116		—		38,116		—
Corporate securities		196,793		—		196,793		—
Mortgage-backed securities		269,020		—		269,020		—
Equity securities		25,903		23,911		1,992		—
Totals	$	615,251	$	23,911	$	591,340	$	—

10 -	Income Taxes

At ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively, we had no material unrecognized tax benefits or accrued interest and penalties. ~~Tax~~In 2019, the Internal Revenue Service (“IRS”) began a federal income tax audit of our consolidated tax returns for tax years ~~2014 through 2017 remained open for examination at September 30, 2017.~~2016 to 2018. No material issues have been raised and no adjustments have been proposed as a result of this ongoing audit. We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of our tax assets. We established a valuation allowance of ~~$440,778 related to a portion of the~~$8.1 million for our net state operating loss carryforward, ~~of Le Mars at January 1, 2004.~~which will expire between 2024 and 2043. We have determined that we are not required to establish a valuation allowance for our other deferred tax assets of ~~$45.7~~$39.4 million and ~~$43.1~~$38.4 million at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016,~~2023, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning strategies. Our deferred tax assets include a net operating loss carryforward of $2.0 million related to Le Mars, which will begin to expire in 2020 if not previously utilized. This carryforward is subject to an annual limitation in the amount that we can use in any one year of approximately $376,000. Our deferred tax assets also include an alternative minimum tax credit carryforward of $7.4 million with an indefinite life.

~~11—Liability for Losses and Loss Expenses~~

Index

11 -	Liabilities for Losses and Loss Expenses

The establishment of an appropriate ~~liability~~liabilities for losses and loss expenses is an inherently uncertain process, and we can provide no assurance that our insurance subsidiaries’ ultimate ~~liability~~liabilities for losses and loss expenses will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods, and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimate of their ~~liability~~liabilities for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

We summarize activity in our insurance subsidiaries’ ~~liability~~liabilities for losses and loss expenses as follows:

   Nine Months Ended September 30,
   2017    2016
   (in thousands)
Balance at January 1
   $ 606,665    $ 578,205
Less reinsurance recoverable
   (259,147 )    (256,151 )




Net balance at January 1
   347,518    322,054




Incurred related to:

Current year
   351,812    307,826
Prior years
   5,014    2,121




Total incurred
   356,826    309,947




Paid related to:

Current year
   201,849    169,798
Prior years
   133,587    122,162




Total paid
   335,436    291,960




Net balance at end of period
   368,908    340,041
Plus reinsurance recoverable
   275,442    254,227




Balance at end of period
   $ 644,350    $ 594,268

	Three Months Ended March 31,
	2024			2023
	(in thousands)
Balance at January 1	$	1,126,157		$	1,121,046
Less reinsurance recoverable		(437,014	)		(451,184	)
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1		—			1,132
Net balance at January 1		689,143			670,994
Incurred related to:
Current year		159,289			146,413
Prior years		(8,393	)		(8,307	)
Total incurred		150,896			138,106
Paid related to:
Current year		47,886			41,205
Prior years		98,197			98,820
Total paid		146,083			140,025
Net balance at end of period		693,956			669,075
Plus reinsurance recoverable		430,496			454,460
Balance at end of period	$	1,124,452		$	1,123,535

Our insurance subsidiaries recognized ~~an increase~~a decrease in their ~~liability~~liabilities for losses and loss expenses of prior years of ~~$5.0~~$8.4 million and ~~$2.1~~$8.3 million for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively. Our insurance subsidiaries made no significant changes in their reserving philosophy ~~key reserving assumptions~~ or claims management personnel, and ~~our insurance subsidiaries~~they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those ~~periods.~~years. The ~~2017~~2024 development represented ~~1.4%~~1.2% of the December 31, ~~2016~~2023 net carried reserves and resulted ~~primarily~~ from ~~higher-than-expected~~lower-than-expected loss emergence or severity primarily in the commercial multi-peril, ~~and~~ commercial automobile ~~liability~~and homeowners lines of ~~business, offset by lower-than-expected severity in the workers’ compensation line of business, in accident years prior to 2017.~~business. The majority of the ~~2017~~2024 development related to ~~increases~~decreases in the ~~liability~~liabilities for losses and loss expenses of prior years for Atlantic States and ~~Peninsula.~~MICO. The ~~2016~~2023 development represented ~~0.7%~~1.2% of the December 31, ~~2015~~2022 net carried reserves and resulted primarily from ~~higher-than-expected~~lower-than-expected loss emergence or severity primarily in the commercial ~~multi-peril~~automobile, workers’ compensation and commercial ~~automobile liability~~multi-peril lines of ~~business, offset by lower-than-expected severity in the workers’ compensation line of business, in accident years prior to 2016.~~business. The majority of the ~~2016~~2023 development related to ~~increases~~decreases in the ~~liability~~liabilities for losses and loss expenses of prior years for Atlantic States and ~~Peninsula.~~

MICO.

Index

Short-duration contracts are contracts for which our insurance subsidiaries receive premiums that they recognize as revenue over the period of the contract in proportion to the amount of insurance protection our insurance subsidiaries provide. Our insurance subsidiaries consider the policies they issue to be short-duration contracts. We consider ~~our insurance subsidiaries’~~the material lines of business of our insurance subsidiaries to be personal automobile, homeowners, commercial automobile, commercial multi-peril and workers’ compensation.

Our insurance subsidiaries determine incurred but not reported (“IBNR”) reserves by subtracting the cumulative loss and loss expense amounts our insurance subsidiaries have paid and the case reserves our insurance subsidiaries have established at the balance sheet date from their actuaries’ estimate of the ultimate cost of losses and loss expenses. Accordingly, the IBNR reserves of our insurance subsidiaries include their actuaries’ projections of the cost of unreported claims as well as their actuaries’ projected development of case reserves on known claims and reopened claims. Our insurance subsidiaries’ methodology for estimating IBNR reserves has been in place for many years, and their actuaries made no significant changes to that methodology during the ~~nine~~three months ended ~~September 30, 2017.~~

March 31, 2024.

The actuaries for our insurance subsidiaries generally prepare an initial estimate for ultimate losses and loss expenses for the current accident year by multiplying earned premium by an “a priori,” or expected, loss ratio for each line of business our insurance subsidiaries write. Expected loss ratios represent the actuaries’ expectation of losses at the time our insurance subsidiaries price and write their policies and before the emergence of any actual claims experience. The actuaries determine an expected loss ratio by analyzing historical experience and adjusting for loss cost trends, loss frequency and severity trends, premium rate level changes, reported and paid loss emergence patterns and other known or observed factors.

The actuaries use a variety of actuarial methods to estimate the ultimate cost of losses and loss expenses. These methods include paid loss development, incurred loss development and the Bornhuetter-Ferguson ~~method.~~method from which the actuaries select loss development factor assumptions. The actuaries base their selection of a point estimate on a judgmental weighting of the estimates each of these methods produce.

The actuaries consider loss frequency and severity trends when they develop expected loss ratios and point estimates. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors that affect loss frequency include changes in weather patterns and economic activity. Factors that affect loss severity include changes in policy limits, reinsurance retentions, inflation rates and judicial interpretations.

Our insurance subsidiaries create a claim file when they receive notice of an actual demand for payment, an event that may lead to a demand for payment or when they otherwise determine that a demand for payment could potentially lead to a future demand for payment on another coverage under the same policy or another policy they have issued. In recent years, our insurance subsidiaries have noted an increase in the period of time between the occurrence of a casualty loss event and the date at which they receive notice of a liability claim. Changes in the length of time between the loss occurrence date and the claim reporting date affect the actuaries’ ability to predict loss frequency accurately and the amount of IBNR reserves our insurance subsidiaries require.

Our insurance subsidiaries generally create a claim file for a policy at the claimant level by type of coverage and generally recognize one count for each claim event. In certain lines of business where it is common for multiple parties to claim damages arising from a single claim event, our insurance subsidiaries recognize one count for each claimant involved in the event. Atlantic States recognizes one count for each claim event, or claimant involved in a multiple-party claim event, related to losses Atlantic States assumes through its participation in its pooling agreement with Donegal Mutual. Our insurance subsidiaries accumulate the claim counts and report them by line of business.

~~12—Impact~~

Index

12 -	Allowance for Expected Credit Losses

We make estimates with respect to the potential impairment of ~~New Accounting Standards~~

~~In May 2014,~~financial instruments and recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. We have established allowances for expected credit losses with respect to held-to-maturity debt securities and reinsurance recoverable.

Held-to-Maturity Fixed-Maturity Securities

For held-to-maturity debt securities, we make estimates concerning expected credit losses at an aggregated level rather that monitoring individual debt securities for credit losses. We establish an allowance for expected credit losses based on an ongoing review of securities held, historical loss data, changes in issuer credit standing and other relevant factors. We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the ~~Financial Accounting Standards Board (the “FASB”) issued guidance that requires an entity~~allowance for expected credit losses and recognize changes to ~~recognize~~ the ~~amount~~allowance in our results of ~~revenue to which it expects to be entitled~~operations.

The following table presents the balances for fixed maturities classified as held-to-maturity, net of the allowance for expected credit losses, at March 31, 2024 and 2023 and changes in the allowance for expected credit losses for the ~~transfer~~three months ended March 31, 2024 and 2023.

	At and For the Three Months Ended March 31, 2024				At and For the Three Months Ended March 31, 2023
	Held-to- Maturity, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses		Held-to- Maturity, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
	(in thousands)
Balance at beginning of period	$	679,497	$	1,326	$	668,439	$	—
Cumulative effect of adoption of updated accounting guidance for credit losses				—				1,268
Current period change for expected credit losses				3				87
Balance at end of period	$	683,399	$	1,329	$	693,779	$	1,355

Reinsurance Receivable

For reinsurance receivable, we establish an allowance for expected credit losses based upon our ongoing review of ~~promised goods or services~~amounts outstanding, historical loss data, changes in reinsurer credit standing and other relevant factors. We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to ~~customers. While this guidance will replace most existing GAAP revenue recognition guidance,~~estimate the ~~scope~~allowance for expected credit losses and recognize changes to the allowance in our results of operations.

The following table presents the balances for reinsurance receivable, net of the ~~guidance excludes insurance contracts. The new standard is effective on January 1, 2018. The standard permits~~allowance for expected credit losses, at March 31, 2024 and 2023, and the ~~use of either~~changes in the ~~retrospective or~~allowance for expected credit losses for the cumulative effect transition method. Because the accounting for insurance contracts is outside of the scope of the standard, we do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

three months ended March 31, 2024 and 2023.

	At and For the Three Months Ended March 31, 2024					At and For the Three Months Ended March 31, 2023
	Reinsurance Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses			Reinsurance Receivable, Net of Allowance for Expected Credit Losses		Allowance for Expected Credit Losses
	(in thousands)
Balance at beginning of period	$	441,431	$	1,394		$	456,522	$	—
Cumulative effect of adoption of updated accounting guidance for credit losses				—					1,132
Current period change for expected credit losses				(368	)				335
Balance at end of period	$	435,505	$	1,026		$	460,681	$	1,467

Index

13 -	Impact of New Accounting Standards

In ~~January~~September 2016, the FASB issued guidance that generally requires entities to measure equity investments at fair value and recognize changes in fair value in their results of operations. This guidance also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring entities to perform a qualitative assessment to identify impairment. The FASB issued other disclosure and presentation improvements related to financial instruments within the guidance. The guidance is effective for annual and interim reporting periods beginning after December 15, 2017. As a result of this guidance, we will reflect changes in the fair value of our equity investments in our results of operations beginning January 1, 2018.

In February 2016, the FASB issued guidance that requires lessees to recognize leases, including operating leases, on the lessee’s balance sheet, unless a lease is considered a short-term lease. This guidance also requires entities to make new judgments to identify leases. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and permits early adoption. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

In March 2016, the FASB issued guidance that simplifies and improves several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance is effective for annual and interim reporting periods beginning after December 15, 2016. The adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.

~~In June 2016, the FASB issued guidance that amends~~amended previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. ~~The~~In November 2019, the FASB issued guidance isthat delayed the effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning after December 15, 2023 from December 15, 2019. We ~~do not expect~~were a smaller reporting company at the time this guidance was issued, and our adoption of this guidance ~~to have a significant impact~~ on ~~our financial position, results of operations or cash flows.~~

In March 2017, the FASB issued guidance that amends previous guidance on the amortization period for certain purchased callable debt securities held at a premium. This new guidance shortens the amortization period to the earliest call date. The intent of the new guidance is to align interest income recognition with the expectations incorporated in the market pricing on the underlying securities. The new standard is effective for annual and interim reporting periods beginning after December 15, 2018, with early adoption permitted. We adopted this guidance effective January 1, ~~2017.~~2023 resulted in an after-tax decrease in retained earnings of $1.9 million. The adoption of this guidance did not have a significant impact on our ~~financial position,~~ results of operations or cash flows.

Index

~~Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.~~

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We recommend that you read the following information in conjunction with the historical financial information and the footnotes to that financial information we include in this Quarterly Report on Form 10-Q. We also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2023.

Critical Accounting Policies and Estimates

We combine our financial statements with those of our insurance subsidiaries and present our financial statements on a consolidated basis in accordance with ~~GAAP.~~

United States generally accepted accounting principles (“GAAP”).

Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements. The most significant estimates relate to the ~~reserves~~liabilities of our insurance subsidiaries for property and casualty insurance ~~unpaid~~ losses and loss ~~expenses, the valuation of investments and the determination of other-than-temporary investment impairments and the policy acquisition costs of our insurance subsidiaries.~~expenses. While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts of these liabilities may differ from the estimates we provided. We regularly review our methods for making these estimates and we reflect any adjustment we consider necessary in our current consolidated results of operations.

~~Liability~~

Liabilities for ~~Unpaid~~ Losses and Loss Expenses

Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.

Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance subsidiaries do not discount their liabilities for losses and loss expenses.

Index

Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations. For example, our insurance subsidiaries have experienced ~~a decrease~~an increase in claims ~~frequency~~severity and a lengthening of the claim settlement periods on ~~workers’ compensation~~bodily injury claims during the past several years. In addition, the COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years ~~while~~due to a number of factors, including supply chain disruption, higher used automobile values, lengthening of repair completion times, increases in the ~~severity~~cost of ~~these claims has gradually increased.~~replacement automobile parts and rising labor rates. These trend changes give rise to greater uncertainty as to the pattern of future loss ~~settlements on workers’ compensation claims.~~settlements. Related uncertainties regarding future trends include social inflation, availability and cost of building materials, availability of skilled labor, the rate of plaintiff attorney involvement in claims and the cost of medical technologies and ~~procedures and changes in the utilization of medical~~ procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses, among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes. Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at ~~September 30, 2017. For~~March 31, 2024. At March 31, 2024, for every 1% change in our insurance subsidiaries’ ~~estimate for~~ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately ~~$3.7~~ $6.9million.

The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

Excluding the impact of severe weather events and the COVID-19 pandemic, our insurance subsidiaries have noted stable amounts in the number of claims incurred and ~~a slight downward trend in~~ the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business. However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as rising ~~medical loss costs~~inflation and increased litigation trends. We have also experienced a general slowing of settlement rates in litigated claims and lengthening of repair completion times for property and automobile claims. Our insurance subsidiaries could have to make further adjustments to their estimates in the future. However, on the basis of our insurance subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses.

Atlantic States’ participation in the pool with Donegal Mutual exposes Atlantic States to adverse loss development on the business of Donegal Mutual that the pool includes. However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk development relating to the pooled business. The business in the pool is homogeneous and each company has a pro-rata share of the entire pool. Since the predominant percentage of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies.

Donegal Mutual and our insurance subsidiaries operate together as the Donegal Insurance Group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual offer are generally complementary, thereby allowing Donegal Insurance Group to offer a broader range of products to a given market and to expand Donegal Insurance Group’s ability to service an entire personal lines or commercial lines account. Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier products compared to standard tier products, but we do not allocate all of the standard risk gradients to one company. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, because the pool homogenizes the risk characteristics of the predominant percentage of the business Donegal Mutual and Atlantic States write directly and each company shares the underwriting results according to each company’s participation percentage, each company realizes its percentage share of the underwriting results of the pool.

Index

Our insurance subsidiaries’ ~~unpaid liability~~liabilities for losses and loss expenses by major line of business at ~~September 30, 2017~~March 31, 2024 and December 31, ~~2016~~2023 consisted of the following:

   September 30,
2017    December 31,
2016
   (in thousands)
Commercial lines:

Automobile
   $ 68,515    $ 58,615
Workers’ compensation
   104,605    104,446
Commercial multi-peril
   67,084    60,887
Other
   3,640    3,868




Total commercial lines
   243,844    227,816




Personal lines:

Automobile
   103,109    100,498
Homeowners
   19,848    17,286
Other
   2,107    1,918




Total personal lines
   125,064    119,702




Total commercial and personal lines
   368,908    347,518
Plus reinsurance recoverable
   275,442    259,147




Total liability for unpaid losses and loss expenses
   $ 644,350    $ 606,665

	March 31, 2024		December 31, 2023
	(in thousands)
Commercial lines:
Automobile	$	172,290	$	168,749
Workers’ compensation		124,432		122,473
Commercial multi-peril		218,756		217,292
Other		27,845		27,167
Total commercial lines		543,323		535,681
Personal lines:
Automobile		110,287		112,509
Homeowners		28,075		28,001
Other		12,271		12,952
Total personal lines		150,633		153,462
Total commercial and personal lines		693,956		689,143
Plus reinsurance recoverable		430,496		437,014
Total liabilities for losses and loss expenses	$	1,124,452	$	1,126,157

We have evaluated the effect on our insurance subsidiaries’ ~~unpaid~~ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we consider in establishing the loss and loss expense reserves of our insurance subsidiaries. We established the range of reasonably likely changes based on a review of changes in accident-year development by line of business and applied those changes to our insurance subsidiaries’ loss and loss expense reserves as a whole. The range we selected does not necessarily indicate what could be the potential best or worst case or the most likely scenario. The following table sets forth the estimated effect on our insurance subsidiaries’ ~~unpaid~~ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we considered in establishing the loss and loss expense reserves of our insurance subsidiaries:

Percentage Change in Loss
and Loss Expense
Reserves Net of
Reinsurance

Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
September 30, 2017

Percentage Change
in Stockholders’ Equity at
September 30, 2017(1)

Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
December 31, 2016

Percentage Change
in Stockholders’ Equity at
December 31, 2016(1)
(dollars in thousands)
(10.0)%
$332,017 5.3% $312,766 5.1%
(7.5)
341,240 4.0 321,454 3.9
(5.0)
350,463 2.7 330,142 2.6
(2.5)
359,685 1.3 338,830 1.3
Base
368,908 — 347,518 —
2.5
378,131 (1.3) 356,206 (1.3)
5.0
387,353 (2.7) 364,894 (2.6)
7.5
396,576 (4.0) 373,582 (3.9)
10.0
405,799 (5.3) 382,270 (5.1)

Index

Percentage Change in Loss and Loss Expense Reserves Net of Reinsurance		Adjusted Loss and Loss Expense Reserves Net of Reinsurance at March 31, 2024		Percentage Change in Stockholders’ Equity at March 31, 2024(1)		Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2023		Percentage Change in Stockholders’ Equity at December 31, 2023(1)
(dollars in thousands)
	(10.0)%	$	624,560		11.3%	$	620,229		11.3%
	(7.5)		641,909		8.5		637,457		8.5
	(5.0)		659,258		5.7		654,686		5.7
	(2.5)		676,607		2.8		671,914		2.8
Base			693,956		—		689,143		—
	2.5		711,305		(2.8)		706,372		(2.8)
	5.0		728,654		(5.7)		723,600		(5.7)
	7.5		746,003		(8.5)		740,829		(8.5)
	10.0		763,352		(11.3)		758,057		(11.3)

(1)	Net of income tax effect.

Non-GAAP Information

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”). SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because the SAP financial measures include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude. Our calculation of non-GAAP financial measures may differ from similar measures other companies use, so investors should exercise caution when comparing our non-GAAP financial measures to the non-GAAP financial measures other companies use.

Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our personal lines and commercial lines segments utilizing SAP financial measures that reflect the growth trends and underwriting results of our insurance subsidiaries. The SAP financial measures we utilize are net premiums written and statutory combined ratio.

Net Premiums Written

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. Net premiums earned is the most comparable GAAP financial measure to net premiums written. Net premiums earned represent the sum of the amount of net premiums written and the change in net unearned premiums during a given period. Our insurance subsidiaries earn premiums and recognize them as revenue over the terms of their policies, which are one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding 12-month period compared to the comparable period one year earlier.

Index

The following table provides a reconciliation of our net premiums earned to our net premiums written for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2024 and ~~2016:~~

   Three Months Ended September 30,    Nine Months Ended September 30,
   2017    2016    2017    2016
Net premiums earned
   $ 177,284    $ 166,810    $ 521,455    $ 487,228
Change in net unearned premiums
   5,194    5,138    36,296    33,030








Net premiums written
   $ 182,478    $ 171,948    $ 557,751    $ 520,258

2023:

Three Months Ended March 31,
2024 2023
(in thousands)
Net premiums earned $ 227,749 $ 215,233
Change in net unearned premiums 23,693 22,071
Net premiums written $ 251,442 $ 237,304

Statutory Combined Ratio

The combined ratio is a standard measurement of underwriting profitability for an insurance company. The combined ratio does not reflect investment income, net ~~realized~~ investment gains or losses, federal income taxes or other non-operating income or expense. A combined ratio of less than 100% generally indicates underwriting profitability.

The statutory combined ratio is a non-GAAP financial measure that is based upon amounts determined under SAP. We calculate our statutory combined ratio as the sum of:

the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums earned;

the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written; and

the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.

The calculation of our statutory combined ratio differs from the calculation of our GAAP combined ratio. In calculating our GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and we base the expense ratio on net premiums earned instead of net premiums written. Differences between our GAAP loss ratio and our statutory loss ratio result from anticipating salvage and subrogation recoveries for our GAAP loss ratio but not for our statutory loss ratio.

Index

Combined Ratios

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2024 and ~~2016:~~

   Three Months Ended September 30, Nine Months Ended 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

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
Personal lines:

Automobile
   103.8 105.9 105.8 102.6
Homeowners
   117.0 101.5 115.2 97.1
Total personal lines
   107.5 103.6 108.2 99.9
Total commercial and personal lines
   98.2 99.5 100.8 95.6

~~Investments~~

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we write down an individual investment to its fair value and we reflect the amount of the write-down as a realized loss in our results of operations when we consider the decline in value of the individual investment to be other than temporary. We monitor all investments individually for other-than-temporary declines in value. Generally, we assume there has been an other-than-temporary decline in value if an individual equity security has depreciated in value by more than 20% of our original cost and has been in such an unrealized loss position for more than six months. We held seven equity securities that were in an unrealized loss position at September 30, 2017. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we considered these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect on the debt security. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, company or geographic events that have negatively impacted the value of a security or rating agency downgrades. We held 232 debt securities that were in an unrealized loss position at September 30, 2017. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary. We did not recognize any impairment losses in our results of operations for the nine months ended September 30, 2017 or 2016.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount we could realize if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed maturity and equity investments. The pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to determine if the estimates we obtain from the pricing services are representative of fair values based upon the general market knowledge of our investment personnel, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel monitor the market and are familiar with current trading ranges for similar securities and pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, coupon rates, security types and recent trading activity. Our investment personnel review documentation with respect to the pricing services’ pricing methodology that they obtain periodically to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At September 30, 2017, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at September 30, 2017, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

~~Policy Acquisition Costs~~

Our insurance subsidiaries defer their policy acquisition costs, consisting primarily of commissions, premium taxes and certain other underwriting costs that relate directly to the successful acquisition of insurance policies. We amortize these costs over the period in which our insurance subsidiaries earn the related premiums. The method we follow in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value. This method gives effect to the premiums to be earned, related investment income, losses and loss expenses and certain other costs we expect to incur as our insurance subsidiaries earn the premiums.

2023:

	Three Months Ended March 31,
	2024			2023
GAAP Combined Ratios (Total Lines)
Loss ratio - core losses		58.7	%		56.5	%
Loss ratio - weather-related losses		4.7			6.5
Loss ratio - large fire losses		6.6			5.1
Loss ratio - net prior-year reserve development		(3.7	)		(3.9	)
Loss ratio		66.3			64.2
Expense ratio		35.7			36.4
Dividend ratio		0.4			0.6
Combined ratio		102.4	%		101.2	%

Statutory Combined Ratios
Commercial lines:
Automobile		99.6	%		96.2	%
Workers’ compensation		111.2			86.2
Commercial multi-peril		102.7			114.8
Other		82.2			79.7
Total commercial lines		101.6			99.8
Personal lines:
Automobile		99.8			103.9
Homeowners		102.9			100.6
Other		85.2			49.3
Total personal lines		100.3			98.9
Total commercial and personal lines		101.2			99.6

Index

Results of ~~Operations—~~Operations - Three Months Ended ~~September 30, 2017~~March 31, 2024 Compared to Three Months Ended ~~September 30, 2016~~

March 31, 2023

Net Premiums Earned. Our insurance subsidiaries’ net premiums earned for the ~~third~~first quarter of ~~2017~~2024 were ~~$177.3~~$227.7 million, an increase of ~~$10.5~~$12.5 million, or ~~6.3%~~5.8%, compared to ~~$166.8~~$215.2 million for the ~~third~~first quarter of ~~2016,~~2023, primarily reflecting ~~increases in net premiums written during 2017~~solid premium retention and ~~2016.~~

renewal premium increases.

Net Premiums Written. Our insurance subsidiaries’ net premiums written for the ~~three months ended September 30, 2017~~first quarter of 2024 were ~~$182.5~~$251.4 million, an increase of ~~$10.5~~$14.1 million, or ~~6.1%~~6.0%, from the ~~$171.9~~$237.3 million of net premiums written for the ~~third~~first quarter of ~~2016. We attribute~~2023. Commercial lines net premiums written decreased $0.9 million, or 0.5%, for the ~~increase primarily~~first quarter of 2024 compared to the ~~impact~~first quarter of ~~premium rate increases and an increase in the writing of new accounts in both personal and commercial lines of business.~~2023. Personal lines net premiums written increased ~~$7.2~~$15.0 million, or ~~7.3%~~18.5%, for the ~~third~~first quarter of ~~2017~~2024 compared to the ~~third~~first quarter of ~~2016.~~2023. We attribute the decrease in commercial lines net premiums written primarily to planned attrition in states we are exiting or have targeted for profit improvement, offset partially by higher new business writings and a continuation of renewal premium increases in lines other than workers’ compensation. We attribute the increase in personal lines ~~primarily to an increase in new business and premium rate increases our insurance subsidiaries implemented throughout 2016 and 2017. Commercial lines~~ net premiums written ~~increased $3.3 million, or 4.6%, for the third quarter of 2017 compared to the third quarter of 2016. We attribute the increase in commercial lines~~ primarily to renewal premium ~~rate~~ increases and ~~increased writings of new commercial accounts.~~

strong policy retention.

Investment Income. Our net investment income ~~increased to $6.0~~was $11.0 million for the ~~third~~first quarter of ~~2017,~~2024, an increase of $1.6 million, or 16.1%, compared to ~~$5.6~~$9.4 million for the ~~third~~first quarter of ~~2016.~~2023. We attribute the increase primarily to an increase in the average ~~invested assets.~~

investment yield relative to the first quarter of 2023.

Net ~~Realized~~ Investment ~~Gains.~~Gains (Losses). Net ~~realized~~ investment gains for the ~~third~~first quarter of ~~2017~~2024 were ~~$561,429,~~$2.1 million, compared to ~~$1.0 million~~net investment losses of $331,189 for the ~~third~~first quarter of ~~2016.~~2023. The net ~~realized~~ investment gains for the ~~third~~first quarter of ~~2017~~2024 resulted primarily from ~~strategic sales of~~the net change in unrealized gains and losses within our equity securities ~~within our investment~~ portfolio and unrealized gains within a limited partnership that invests in equity securities. The net realized investment gains for the third quarter of 2016 resulted primarily from calls and strategic sales of fixed maturities and equity securities within our investment portfolio.at March 31, 2024. We did not recognize any impairment losses for individual securities in our investment portfolio during the ~~third quarters of 2017 or 2016.~~

~~Equity in Earnings of DFSC.~~ ~~Our equity in the earnings of DFSC was $403,647 for the third~~first quarter of 2017, compared to $357,956 for the third quarter of 2016. We attribute the increase in DFSC’s earnings primarily to higher net interest income related to loan portfolio growth that DFSC achieved during 2017.

2024 or 2023.

Losses and Loss Expenses. Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 66.3% for the ~~third~~first quarter of ~~2017 was 64.5%, a decrease~~2024, an increase from our insurance subsidiaries’ loss ratio of ~~66.6%~~64.2% for the ~~third~~first quarter of ~~2016.~~2023. We attribute this increase primarily to increased core losses and large fire losses, which we define as individual fire losses in excess of $50,000, offset partially by decreased weather-related losses. The core loss ratio, which excludes weather-related losses, large fire losses and net favorable development of reserves for losses incurred in prior accident years, was 58.7% for the first quarter of 2024, compared to 56.5% for the first quarter of 2023. For the commercial lines segment, the core loss ratio of 59.0% for the first quarter of 2024 increased modestly from 58.2% for the first quarter of 2023. For the personal lines segment, the core loss ratio of 58.1% for the first quarter of 2024 increased from 53.7% for the first quarter of 2023, due largely to ongoing inflationary impacts on loss costs for that segment. Weather-related losses were $10.8 million, or 4.7 percentage points of the loss ratio, for the first quarter of 2024, compared to $14.1 million, or 6.5 percentage points of the loss ratio, for the first quarter of 2023. The impact of weather-related loss activity to the loss ratio for the first quarter of 2024 was in line with our previous five-year average of 4.7 percentage points for first quarter weather-related losses. Large fire losses for the first quarter of 2024 were $15.0 million, or 6.6 percentage points of the loss ratio, compared to $10.9 million, or 5.1 percentage points of the loss ratio, for the first quarter of 2023. On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was ~~54.0%~~66.0% for the ~~third~~first quarter of ~~2017,~~2024, compared to ~~62.5%~~63.2% for the ~~third~~first quarter of ~~2016,~~2023, primarily due to ~~decreases~~increases in the ~~commercial multi-peril and~~ workers’ compensation and commercial automobile loss ratios. The personal lines statutory loss ratio of our insurance subsidiaries increased to ~~73.7%~~68.5% for the ~~third~~first quarter of ~~2017,~~2024, compared to ~~70.4%~~66.4% for the ~~third~~first quarter of ~~2016.~~2023. We attribute this increase primarily to an increase in the homeowners loss ratio. Our insurance subsidiaries experienced favorable loss reserve development ~~in their reserves~~ for ~~prior accident years~~the first quarter of 2024 of approximately ~~$3.4~~$8.4 million ~~during~~that decreased the ~~third~~loss ratio by 3.7 percentage points, compared to $8.3 million that decreased the loss ratio for the first quarter of ~~2017, compared to~~2023 by 3.9 percentage points. Our insurance subsidiaries experienced favorable ~~loss reserve~~ development ~~of approximately $1.6 million during the third quarter of 2016. The development occurred~~ primarily ~~from lower-than-expected severity in the workers’ compensation line of business, offset by higher-than-expected severity~~ in the commercial multi-peril, ~~and~~ commercial automobile ~~liability~~and homeowners lines of business infor the first quarter of 2024, with the majority of the impact relating to reserves for accident years ~~prior to 2017.~~

2020 through 2023.

Underwriting Expenses. The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was ~~34.3%~~35.7% for the ~~third~~first quarter of ~~2017,~~2024, compared to ~~33.5%~~36.4% for the ~~third~~first quarter of ~~2016. We attribute~~2023. The decrease in the ~~increase~~expense ratio primarily reflected early impacts of expense reduction initiatives, offset partially by higher technology costs related to ~~higher underwriting-based incentives~~our ongoing systems modernization initiatives for the ~~third~~first quarter of ~~2017~~2024 compared to the ~~third quarter~~prior-year quarter. We expect the impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the ongoing systems modernization project will peak at approximately 1.3 percentage points of ~~2016.~~

~~Combined Ratio.~~ ~~The combined ratio represents the sum of the loss ratio,~~ the expense ratio ~~and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratios were 99.6% and 100.8%~~ for the ~~three months ended September 30, 2017 and 2016, respectively. We attribute the decrease~~full year of 2024 before beginning to subside gradually in ~~the combined ratio to a decrease in the loss ratio for the third quarter of 2017 compared to the third quarter of 2016.~~

~~Interest Expense.~~ Our interest expense for the third quarter of 2017 was $466,262, compared to $473,917 for the third quarter of 2016. We attribute the decrease to lower average borrowings during the third quarter of 2017 compared to the third quarter of 2016.

~~Income Taxes.~~ Income tax expense was $1.4 million for the third quarter of 2017, representing an effective tax rate of 16.5%. Income tax expense was $1.6 million for the third quarter of 2016, representing an effective tax rate of 25.1% . The effective tax rate in both periods represented an estimate based on our projected annual taxable income. The decrease in our effective tax rate was primarily due to tax-exempt interest income representing a larger proportion of income before income tax expense during the third quarter of 2017 compared to the third quarter of 2016.

~~Net Income and Earnings Per Share.~~ Our net income for the third quarter of 2017 was $7.1 million, or $.26 per share of Class A common stock on a diluted basis, and $.24 per share of Class B common stock, compared to net income of $4.8 million, or $.18 per share of Class A common stock on a diluted basis, and $.16 per share of Class B common stock, for the third quarter of 2016. We had 21.8 million and 21.2 million Class A shares outstanding at September 30, 2017 and 2016, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.

~~Results of Operations—Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016~~

~~Net Premiums Earned.~~ Our insurance subsidiaries’ net premiums earned for the first nine months of 2017 were $521.5 million, an increase of $34.3 million, or 7.0%, compared to $487.2 million for the first nine months of 2016, reflecting increases in net premiums written during 2017 and 2016.

~~Net Premiums Written.~~ Our insurance subsidiaries’ net premiums written for the nine months ended September 30, 2017 were $557.8 million, an increase of $37.5 million, or 7.2%, from the $520.3 million of net premiums written for the first nine months of 2016. We attribute the increase primarily to the impact of premium rate increases and an increase in the writing of new accounts in both personal and commercial lines of business. Personal lines net premiums written increased $22.3 million, or 7.9%, for the first nine months of 2017 compared to the first nine months of 2016. We attribute the increase primarily to an increase in new business and premium rate increases our insurance subsidiaries implemented throughout 2016 and 2017. Commercial lines net premiums written increased $15.2 million, or 6.4%, for the first nine months of 2017 compared to the first nine months of 2016. We attribute the increase primarily to premium rate increases and increased writings of new commercial accounts.

~~Investment Income.~~ Our net investment income increased to $17.4 million for the first nine months of 2017, compared to $16.5 million for the first nine months of 2016. We attribute the increase primarily to an increase in average invested assets.

~~Net Realized Investment Gains.~~ Net realized investment gains for the first nine months of 2017 were $4.2 million, compared to $2.2 million for the first nine months of 2016. The net realized investment gains for the first nine months of 2017 resulted primarily from strategic sales of equity securities within our investment portfolio and unrealized gains within a limited partnership that invests in equity securities. The net realized investment gains for the first nine months of 2016 resulted primarily from calls and strategic sales of fixed maturities and equity securities within our investment portfolio. We did not recognize any impairment losses in our investment portfolio during the first nine months of 2017 or 2016.

~~Equity in Earnings of DFSC.~~ Our equity in the earnings of DFSC was $1.0 million for the first nine months of 2017, compared to $698,658 for the first nine months of 2016. We attribute the increase in DFSC’s earnings primarily to higher net interest income related to loan portfolio growth that DFSC achieved during 2017.

~~Losses and Loss Expenses.~~ Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, for the first nine months of 2017 was 68.4%, an increase from our insurance subsidiaries’ loss ratio of 63.6% for the first nine months of 2016. We attribute this increase primarily to an increase in weather-related losses for the first nine months of 2017 to $53.0 million, compared to $29.8 million for the first nine months of 2016. On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 60.4% for the first nine months of 2017, compared to 59.4% for the first nine months of 2016, primarily due to an increase in the commercial multi-peril and commercial automobile loss ratios. The personal lines statutory loss ratio of our insurance subsidiaries increased to 75.4% for the first nine months of 2017, compared to 67.2% for the first nine months of 2016, primarily due to an increase in the homeowners and personal automobile loss ratios. Our insurance subsidiaries experienced unfavorable loss reserve development in their reserves for prior accident years of approximately $5.0 million during the first nine months of 2017, compared to approximately $2.1 million during the first nine months of 2016. The development occurred primarily from higher-than-expected severity in the commercial multi-peril and commercial automobile liability lines of business, offset by lower-than-expected severity in the workers’ compensation line of business, in accident years prior to 2017.

~~Underwriting Expenses.~~ The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was 33.3% for the first nine months of 2017, compared to 33.2% for the first nine months of 2016.

subsequent years.

Index

Combined Ratio.The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratios were 102.4% and ~~97.3%~~101.2% for the ~~nine months ended September 30, 2017~~first quarter of 2024 and ~~2016,~~2023, respectively. We attribute the increase in the combined ratio primarily to an increase in the loss ratio for the first ~~nine months~~quarter of ~~2017~~2024 compared to the first ~~nine months~~quarter of ~~2016.~~

~~Interest~~2023.

Income Tax Expense. ~~Our interest~~ We recorded income tax expense ~~for the first nine months~~ of ~~2017 was $1.2 million, compared to~~ $1.3 million for the first ~~nine months~~quarter of ~~2016. We attribute the decrease to lower average borrowings during the first nine months of 2017 compared to the first nine months of 2016.~~

~~Income Taxes.~~ ~~Income tax expense was $1.9 million for the first nine months of 2017,~~2024, representing an effective tax rate of ~~16.4%, compared to~~17.8%. We recorded income tax expense of ~~$9.2~~$1.1 million for the first ~~nine months~~quarter of ~~2016,~~2023, representing an effective tax rate of ~~26.8%~~ 17.4%. The ~~effective~~income tax ~~rate in both periods~~tax expense for the first quarter of 2024 and 2023 represented ~~an estimate~~estimates based on our projected annual taxable ~~income. The decrease in our~~income and effective tax ~~rate was primarily due to tax-exempt interest income representing a larger proportion of income before income tax expense for the first nine months of 2017 compared to the first nine months of 2016.~~

rates.

Net Income and ~~Earnings~~Net Income Per Share. Our net income for the first ~~nine months~~quarter of ~~2017~~2024 was ~~$9.9~~$6.0 million, or ~~$.36~~$.18 per share of Class A common stock on a diluted basis and ~~$.33~~$.16 per share of Class B common stock, compared to ~~net income of $25.2~~$5.2 million, or ~~$.95~~$.16 per share of Class A common stock on a diluted basis and ~~$.88~~$.15 per share of Class B common stock, for the first ~~nine months~~quarter of ~~2016.~~2023. We had ~~21.8~~27.8 million and ~~21.2~~27.3 million Class A shares outstanding at ~~September 30, 2017~~March 31, 2024 and ~~2016,~~2023, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.

Liquidity and Capital Resources

Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as such obligations and needs arise. Our major sources of funds from operations are the net cash flows we generate from our insurance subsidiaries’ underwriting results, investment income and investment maturities.

Our operations have historically generated sufficient net positive cash flow to fund our commitments and add to our investment portfolio, thereby increasing future investment returns and enhancing our liquidity. The impact of the pooling agreement between Donegal Mutual and Atlantic States has historically been cash-flow positive because of the consistent underwriting profitability of the pool. Donegal Mutual and Atlantic States settle their respective obligations to each other under the pool monthly, thereby resulting in cash flows substantially similar to the cash flows that would result from each company writing the business directly. We have not experienced any unusual variations in the timing of claim payments associated with the loss reserves of our insurance subsidiaries. We maintain significant liquidity in our investment portfolio in the form of readily marketable fixed maturities, equity securities and short-term investments. We structure our fixed-maturity investment portfolio following a “laddering” approach, so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective, thereby providing an additional measure of liquidity to meet our obligations should an unexpected variation occur in the future. Our operating activities provided (used) net cash flows in the first ~~nine~~three months of ~~2017~~2024 and ~~2016~~2023 of ~~$62.7~~$4.8 million and ~~$46.3 million,~~($680,734), respectively.

At ~~September 30, 2017,~~March 31, 2024, we had ~~$34.0 million in~~no outstanding borrowings under our line of credit with M&T and had the ability to borrow ~~an additional $26.0~~up to $20.0 million at an interest ~~rates~~rate equal to ~~M&T’s current prime rate or~~ the ~~then current LIBOR~~then-current Term SOFR rate plus ~~2.25%~~2.11%. ~~The interest rate on these borrowings was 3.49% at September 30, 2017.~~ At ~~September 30, 2017,~~March 31, 2024, Atlantic States had a $35.0 million in outstanding ~~advances~~advance with the FHLB of ~~Pittsburgh. The~~Pittsburgh that carries a fixed interest rate ~~on these advances was 1.25% at September 30, 2017.~~

~~The following table shows our expected payments for significant contractual obligations at September 30, 2017:~~

   Total    Less than 1 year    1-3 years    4-5 years    After 5 years
   (in thousands)
Net liability for unpaid losses and loss expenses of our insurance subsidiaries
   $ 368,908    $ 171,591    $ 169,326    $ 13,835    $ 14,156
Subordinated debentures
   5,000    —      —      —      5,000
Borrowings under lines of credit
   69,000    35,000    34,000    —      —










Total contractual obligations
   $ 442,908    $ 206,591    $ 203,326    $ 13,835    $ 19,156

of 1.74%.

We estimate the ~~date~~timing of ~~payment~~claim payments associated with the liabilities for ~~the net liability for unpaid~~ losses and loss expenses of our insurance subsidiaries based on historical experience and expectations of future payment patterns. We show ~~the liability~~these liabilities net of reinsurance recoverable on unpaid losses and loss expenses to reflect expected future cash flows related to such ~~liability.~~liabilities. Amounts Atlantic States assumes pursuant to the pooling agreement with Donegal Mutual represent a substantial portion of our insurance subsidiaries’ gross ~~liability~~liabilities for ~~unpaid~~ losses and loss expenses, and amounts Atlantic States cedes pursuant to the pooling agreement represent a substantial portion of our insurance subsidiaries’ reinsurance recoverable on unpaid losses and loss expenses. We include cash settlement of Atlantic States’ assumed ~~liability~~liabilities from the pool in monthly settlements of pooled activity, as we net amounts ceded to and assumed from the pool. Although Donegal Mutual and we do not anticipate any changes in the pool participation levels in the foreseeable future, any such change would be prospective in nature and therefore would not impact the timing of expected payments by Atlantic States for its percentage share of pooled losses occurring in periods prior to the effective date of such change.

Index

We discuss in Note 7 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities. The borrowings under our lines of credit carry interest rates that vary as we discuss in Note 7 – Borrowings. Based upon the interest rates in effect at September 30, 2017, our annual interest cost associated with the borrowings under our lines of credit is approximately $1.8 million. For every 1% change in the interest rate associated with the borrowings under our lines of credit, the effect on our annual interest cost would be approximately $690,000.

We discuss in Note 7 – Borrowings our estimate of the timing of the amounts payable for the subordinated debentures based on their contractual maturity. The subordinated debentures carry an interest rate of 5%, and any repayment of principal or payment of interest on the subordinated debentures requires prior approval of the Michigan Department of Insurance and Financial Services. Our annual interest cost associated with the subordinated debentures is $250,000.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the ~~nine~~three months ended ~~September 30, 2017 and 2016 .~~March 31, 2024 or 2023. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through ~~September 30, 2017.~~

March 31, 2024.

On ~~October 19, 2017,~~April 18, 2024, our board of directors declared quarterly cash dividends of ~~14 cents~~$.1725 per share of our Class A common stock and ~~12.25 cents~~$.155 per share of our Class B common stock, payable on ~~November 15, 2017~~May 22, 2024 to our stockholders of record as of the close of business on ~~November 1, 2017.~~May 8, 2024. We are not subject to any restrictions on our payment of dividends to our stockholders, although there are state law restrictions on the payment of dividends by our insurance subsidiaries to us. Dividends from our insurance subsidiaries are our principal source of cash for payment of dividends to our stockholders. Our insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval of their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk based capital (“RBC”) requirements that limit their ability to pay dividends to us. Our insurance subsidiaries’ statutory capital and surplus at December 31, ~~2016~~2023 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin. Our insurance subsidiaries ~~paid $9.0 million in~~did not pay any dividends to us during the first ~~nine~~three months of ~~2017.~~2024. Amounts remaining available for distribution to us as dividends from our insurance subsidiaries without prior approval of their domiciliary insurance regulatory authorities in ~~2017~~2024 are ~~$20.3~~$27.4 million from Atlantic States, ~~$1.8~~$7.2 million from ~~Southern, $2.6~~MICO and $5.0 million from ~~Le Mars, $1.6 million from~~ Peninsula, ~~$643,035 from Sheboygan and $3.0 million from MICO,~~ or a total of approximately ~~$29.9~~$39.6 million.

At ~~September 30, 2017,~~March 31, 2024, we had no material commitments for capital expenditures.

Equity Price Risk

Our portfolio of marketable equity securities, which we carry on our consolidated balance sheets at estimated fair value, has exposure to the risk of loss resulting from an adverse change in prices. We manage this risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of equity securities.

Credit Risk

Our portfolio of fixed-maturity securities and, to a lesser extent, our portfolio of short-term investments is subject to credit risk, which we define as the potential loss in market value resulting from adverse changes in the borrower’s ability to repay its debt. We manage this risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of fixed-maturity securities. We also limit the percentage and amount of our total investment portfolio that we invest in the securities of any one issuer.

Our insurance subsidiaries provide property and casualty insurance coverages through independent insurance agencies. We bill the majority of this business directly to the insured, although we bill a portion of our commercial business through licensed insurance agents to whom our insurance subsidiaries extend credit in the normal course of business.

Because the pooling agreement does not relieve Atlantic States of primary liability as the originating insurer, Atlantic States is subject to a concentration of credit risk arising from the business it cedes to Donegal Mutual. Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers.

~~Impact of Inflation~~

We establish property and casualty insurance premium rates before we know the amount of unpaid losses and loss expenses or the extent to which inflation may impact such losses and expenses. Consequently, our insurance subsidiaries attempt, in establishing rates, to anticipate the potential impact of inflation.

Index

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk.~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our market risk generally represents the risk of gain or loss that may result from the potential change in the fair value of the securities we hold in our investment portfolio as a result of fluctuations in prices and interest rates and, to a lesser extent, our debt obligations. We manage our interest rate risk by maintaining an appropriate relationship between the average duration of our investment portfolio and the approximate duration of our liabilities, i.e., policy claims of our insurance subsidiaries and our debt obligations.

There have been no material changes to our quantitative or qualitative market risk exposure from December 31, ~~2016~~2023 through ~~September 30, 2017.~~

March 31, 2024.

~~Item 4. Controls and Procedures.~~

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at ~~September 30, 2017,~~March 31, 2024, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information we are required to disclose in the reports that we file or submit under the Exchange Act, and our disclosure controls and procedures were also effective to ensure that information we disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to affect materially, ~~our~~over internal control over financial reporting.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

We base all statements contained in this Quarterly Report on Form 10-Q that are not historic facts on our current expectations. Such statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and necessarily involve risks and uncertainties. Forward-looking statements we make may be identified by our use of words such as “will,” ~~“expects,~~“expect,” ~~“intends,~~“intend,” ~~“plans,~~“plan,” ~~“anticipates,~~“anticipate,” ~~“believes,~~“believe,” ~~“seeks,~~“seek,” ~~“estimates”~~“estimate” and similar expressions. Our actual results could vary materially from our forward-looking statements. The factors that could cause our actual results to vary materially from the forward-looking statements we have previously made include, but are not limited to, adverse litigation and other trends that could increase our loss costs (including labor shortages and escalating medical, automobile and property repair costs), adverse and catastrophic weather events (including from changing climate conditions), our ability to maintain profitable operations (including our ability to underwrite risks effectively and charge adequate premium rates), the adequacy of the loss and loss expense reserves of our insurance subsidiaries, the availability and successful operation of the information technology systems our insurance subsidiaries utilize, the successful development of new information technology systems to allow our insurance subsidiaries to compete effectively, business and economic conditions in the areas in which we and 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 (including those related to COVID-19 business interruption coverage exclusions), changes in regulatory requirements, our ability to ~~integrate~~attract and ~~manage successfully the companies we may acquire from time to time~~retain independent insurance agents, changes in our A.M. Best rating and the other risks that we describe from time to time in our filings with the ~~SEC.~~Securities and Exchange Commission. 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.

Index

Part II. Other Information

Item 1. Legal Proceedings.

None.

~~Item 1. Legal Proceedings.~~

~~None.~~

~~Item 1A. Risk Factors.~~

Item 1A. Risk Factors.

Our business, results of operations and financial condition, and, therefore, the value of our Class A common stock and our Class B common stock, are subject to a number of risks. For a description of certain risks, we refer to “Risk Factors” in our ~~2016~~2023 Annual Report on Form 10-K that we filed with the SEC on March ~~10, 2017.~~6, 2024. There have been no material changes in the risk factors we disclosed in that Form 10-K Report during the ~~nine~~three months ended ~~September 30, 2017.~~

March 31, 2024.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.~~

~~None.~~

Item 3. Defaults upon Senior Securities.

None.

~~Item 3. Defaults upon Senior Securities.~~

~~None.~~

Item 4. Mine Safety Disclosure.

Not Applicable.

~~Item 4. Removed and Reserved.~~

Item 5. Other Information.

None.

Index

~~Item 5. Other Information.~~

~~None.~~

~~Item 6. Exhibits.~~

Item 6.

Exhibits.

Exhibit No.	Description

~~Exhibit 31.1~~	Reference

Management Contracts and Compensatory Plans or Arrangements

10.1	Donegal Group Inc. 2024 Equity Incentive Plan for Employees.	(a)

10.2	Donegal Group Inc. 2024 Equity Incentive Plan for Directors.	(a)

Other Exhibits

31.1	Certification of Chief Executive ~~Officer~~

~~Exhibit 31.2~~Officer.	Filed herewith

31.2	Certification of Chief Financial ~~Officer~~

~~Exhibit 32.1~~Officer.	Filed herewith

32.1	Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States ~~Code~~

~~Exhibit 32.2~~Code.	Filed herewith

32.2	Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States ~~Code~~Code.	Filed herewith

Exhibit 101.INS	XBRL Instance Document	Filed herewith

Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document	Filed herewith

Exhibit 101.PRE	XBRL Taxonomy Presentation Linkbase Document	Filed herewith

Exhibit 101.CAL	XBRL Taxonomy Calculation Linkbase Document	Filed herewith

Exhibit 101.LAB	XBRL Taxonomy Label Linkbase Document	Filed herewith

Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document	Filed herewith

Exhibit 104	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)	Filed herewith

(a)

We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form S-8 Registration Statement filed on April 25, 2024.

Index

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


			DONEGAL GROUP INC.

~~November 7, 2017~~
May 3, 2024	By:	/s/ Kevin G. Burke
				Kevin G. Burke, President and Chief Executive Officer

~~November 7, 2017~~
May 3, 2024	By:	/s/ Jeffrey D. Miller
				Jeffrey D. Miller, Executive Vice President
				and Chief Financial Officer


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	61,382	$	1,255	$	674	$	61,963
Obligations of states and political subdivisions		122,793		8,404		369		130,828
Corporate securities		91,555		1,172		1,678		91,049
Mortgage-backed securities		60,371		546		110		60,807

Totals	$	336,101	$	11,377	$	2,831	$	344,647


	September 30, 2017			December 31, 2016
	(Unaudited)
Assets
Investments
Fixed maturities
Held to maturity, at amortized cost	$	365,277,271		$	336,100,948
Available for sale, at fair value		533,461,436			515,074,940
Equity securities, available for sale, at fair value		50,028,460			47,087,842
Investment in affiliate		39,339,820			37,884,918
Short-term investments, at cost, which approximates fair value		10,731,366			9,371,007

Total investments		998,838,353			945,519,655
Cash		31,541,139			24,587,214
Accrued investment income		6,951,728			6,295,513
Premiums receivable		163,425,210			159,389,667
Reinsurance receivable		283,579,561			263,028,008
Deferred policy acquisition costs		61,877,626			56,309,196
Deferred tax asset, net		18,413,751			19,043,413
Prepaid reinsurance premiums		137,810,229			124,255,495
Property and equipment, net		7,040,213			6,668,489
Accounts receivable—securities		61,446			—
Federal income taxes receivable		2,103,557			1,108,250
Due from affiliate		—			9,204,910
Goodwill		5,625,354			5,625,354
Other intangible assets		958,010			958,010
Other		1,260,508			1,137,863

Total assets	$	1,719,486,685		$	1,623,131,037

Liabilities and Stockholders’ Equity
Liabilities
Unpaid losses and loss expenses	$	644,350,129		$	606,664,590
Unearned premiums		515,905,915			466,055,228
Accrued expenses		23,228,360			28,246,691
Reinsurance balances payable		5,682,000			4,369,528
Borrowings under lines of credit		69,000,000			69,000,000
Cash dividends declared to stockholders		—			3,622,821
Subordinated debentures		5,000,000			5,000,000
Accounts payable—securities		260,592			—
Due to affiliate		5,755,652			—
Other		1,577,826			1,556,859

Total liabilities		1,270,760,474			1,184,515,717

Stockholders’ Equity
Preferred stock, $.01 par value, authorized 2,000,000 shares; none issued		—			—
Class A common stock, $.01 par value, authorized 40,000,000 shares, issued 24,803,267 and 24,483,377 shares and outstanding 21,800,679 and 21,480,789 shares		248,033			244,834
Class B common stock, $.01 par value, authorized 10,000,000 shares, issued 5,649,240 shares and outstanding 5,576,775 shares		56,492			56,492
Additional paid-in capital		243,628,904			236,851,709
Accumulated other comprehensive loss		(874,094	)		(2,254,271	)
Retained earnings		246,893,233			244,942,913
Treasury stock, at cost		(41,226,357	)		(41,226,357	)

Total stockholders’ equity		448,726,211			438,615,320

Total liabilities and stockholders’ equity	$	1,719,486,685		$	1,623,131,037


	Three Months Ended September 30,
	2017		2016
Revenues:
Net premiums earned	$	177,283,816	$	166,809,851
Investment income, net of investment expenses		5,979,834		5,581,238
Net realized investment gains (includes $561,429 and $1,018,415 accumulated other comprehensive income reclassifications)		561,429		1,018,415
Lease income		113,409		163,779
Installment payment fees		1,373,892		1,380,024
Equity in earnings of Donegal Financial Services Corporation		403,647		357,956

Total revenues		185,716,027		175,311,263

Expenses:
Net losses and loss expenses		114,386,379		111,174,963
Amortization of deferred policy acquisition costs		29,008,000		27,524,000
Other underwriting expenses		31,790,251		28,340,135
Policyholder dividends		1,376,115		1,143,026
Interest		466,262		473,917
Other expenses		176,970		226,183

Total expenses		177,203,977		168,882,224

Income before income tax expense		8,512,050		6,429,039
Income tax expense (includes $196,500 and $356,446 income tax expense from reclassification items)		1,403,476		1,615,635

Net income	$	7,108,574	$	4,813,404

Earnings per common share:
Class A common stock—basic	$	0.27	$	0.19

Class A common stock—diluted	$	0.26	$	0.18

Class B common stock—basic and diluted	$	0.24	$	0.16


	Nine Months Ended September 30,
	2017		2016
Revenues:
Net premiums earned	$	521,454,835	$	487,227,767
Investment income, net of investment expenses		17,385,103		16,471,630
Net realized investment gains (includes $4,207,710 and $2,204,533 accumulated other comprehensive income reclassifications)		4,207,710		2,204,533
Lease income		383,183		514,768
Installment payment fees		3,813,663		4,109,550
Equity in earnings of Donegal Financial Services Corporation		1,023,212		698,658

Total revenues		548,267,706		511,226,906

Expenses:
Net losses and loss expenses		356,825,751		309,946,943
Amortization of deferred policy acquisition costs		85,391,000		80,034,000
Other underwriting expenses		88,538,755		81,557,159
Policyholder dividends		3,422,672		2,729,595
Interest		1,212,895		1,286,279
Other expenses		1,036,223		1,179,660

Total expenses		536,427,296		476,733,636

Income before income tax expense		11,840,410		34,493,270
Income tax expense (includes $1,472,698 and $771,587 income tax expense from reclassification items)		1,945,666		9,246,299

Net income	$	9,894,744	$	25,246,971

Earnings per common share:
Class A common stock—basic	$	0.37	$	0.98

Class A common stock—diluted	$	0.36	$	0.95

Class B common stock—basic and diluted	$	0.33	$	0.88


	Amortized Cost		Estimated Fair Value
Held to maturity	(in thousands)
Due in one year or less	$	6,681	$	6,689
Due after one year through five years		52,418		53,656
Due after five years through ten years		139,103		143,566
Due after ten years		115,165		122,867
Mortgage-backed securities		51,910		52,651

Total held to maturity	$	365,277	$	379,429

Available for sale
Due in one year or less	$	54,276	$	55,289
Due after one year through five years		94,106		95,647
Due after five years through ten years		110,187		111,712
Due after ten years		24,245		25,215
Mortgage-backed securities		246,925		245,598

Total available for sale	$	529,739	$	533,461


Balance sheets:	September 30, 2017		December 31, 2016
	(in thousands)
Total assets	$	559,961	$	535,590

Total liabilities	$	478,455	$	457,101
Stockholders’ equity		81,506		78,489

Total liabilities and stockholders’ equity	$	559,961	$	535,590


	Three Months Ended September 30,				Nine Months Ended September 30,
Income statements:	2017		2016		2017		2016
	(in thousands)				(in thousands)
Net income	$	837	$	742	$	2,122	$	1,449


FHLB of Indianapolis stock purchased and owned	$	267,700
Collateral pledged, at par (carrying value $2,753,427)		2,850,000
Borrowing capacity currently available		2,623,990


FHLB of Pittsburgh stock purchased and owned	$	1,599,700
Collateral pledged, at par (carrying value $37,989,459)		38,391,248
Borrowing capacity currently available		1,903,348


	September 30, 2017		December 31, 2016
	(in thousands)
Commercial lines:
Automobile	$	68,515	$	58,615
Workers’ compensation		104,605		104,446
Commercial multi-peril		67,084		60,887
Other		3,640		3,868

Total commercial lines		243,844		227,816

Personal lines:
Automobile		103,109		100,498
Homeowners		19,848		17,286
Other		2,107		1,918

Total personal lines		125,064		119,702

Total commercial and personal lines		368,908		347,518
Plus reinsurance recoverable		275,442		259,147

Total liability for unpaid losses and loss expenses	$	644,350	$	606,665


Percentage Change in Loss and Loss Expense Reserves Net of Reinsurance	Adjusted Loss and Loss Expense Reserves Net of Reinsurance at September 30, 2017	Percentage Change in Stockholders’ Equity at September 30, 2017(1)	Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2016	Percentage Change in Stockholders’ Equity at December 31, 2016(1)
(dollars in thousands)
(10.0)%	$332,017	5.3%	$312,766	5.1%
(7.5)	341,240	4.0	321,454	3.9
(5.0)	350,463	2.7	330,142	2.6
(2.5)	359,685	1.3	338,830	1.3
Base	368,908	—	347,518	—
2.5	378,131	(1.3)	356,206	(1.3)
5.0	387,353	(2.7)	364,894	(2.6)
7.5	396,576	(4.0)	373,582	(3.9)
10.0	405,799	(5.3)	382,270	(5.1)


	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
	(in thousands)
Net liability for unpaid losses and loss expenses of our insurance subsidiaries	$	368,908	$	171,591	$	169,326	$	13,835	$	14,156
Subordinated debentures		5,000		—		—		—		5,000
Borrowings under lines of credit		69,000		35,000		34,000		—		—

Total contractual obligations	$	442,908	$	206,591	$	203,326	$	13,835	$	19,156