☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
March 31, 2024
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware 23-2424711 Delaware23-2424711
Large accelerated filer ☐ | Accelerated filer ☑ | |||||||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||
Emerging growth company ☐ |
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 |
May 1, 2024.
Page | |||||||
PART I | FINANCIAL INFORMATION | ||||||
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Item 1. | 1 | ||||||
Item 2. | 20 | ||||||
Item 3. | 29 | ||||||
Item 4. | 29 | ||||||
OTHER INFORMATION | |||||||
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Item 1. | 30 | ||||||
Item 1A. | 30 | ||||||
Item 2. | 30 | ||||||
Item 3. | 30 | ||||||
Item 4. | 30 | ||||||
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Item 5. | 30 | ||||||
Item 6. | 31 | ||||||
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32 |
Item 1. | Financial Statements |
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 | ||||||
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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 | ||||||
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Total assets | $ | 1,719,486,685 | $ | 1,623,131,037 | ||||
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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 | ||||||
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Total liabilities | 1,270,760,474 | 1,184,515,717 | ||||||
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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 | ) | ||||
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Total stockholders’ equity | 448,726,211 | 438,615,320 | ||||||
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Total liabilities and stockholders’ equity | $ | 1,719,486,685 | $ | 1,623,131,037 | ||||
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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 | ||||||
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Total revenues | 185,716,027 | 175,311,263 | ||||||
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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 | ||||||
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Total expenses | 177,203,977 | 168,882,224 | ||||||
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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 | ||||||
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Net income | $ | 7,108,574 | $ | 4,813,404 | ||||
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Earnings per common share: | ||||||||
Class A common stock—basic | $ | 0.27 | $ | 0.19 | ||||
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Class A common stock—diluted | $ | 0.26 | $ | 0.18 | ||||
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Class B common stock—basic and diluted | $ | 0.24 | $ | 0.16 | ||||
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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 |
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 | ) | ||||
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Other comprehensive income (loss) | 677,388 | (1,768,315 | ) | |||||
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Comprehensive income | $ | 7,785,962 | $ | 3,045,089 | ||||
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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 |
Stockholders’ Equity
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 | ||||||
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Total revenues | 548,267,706 | 511,226,906 | ||||||
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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 | ||||||
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Total expenses | 536,427,296 | 476,733,636 | ||||||
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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 | ||||||
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Net income | $ | 9,894,744 | $ | 25,246,971 | ||||
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Earnings per common share: | ||||||||
Class A common stock—basic | $ | 0.37 | $ | 0.98 | ||||
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Class A common stock—diluted | $ | 0.36 | $ | 0.95 | ||||
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Class B common stock—basic and diluted | $ | 0.33 | $ | 0.88 | ||||
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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 | ) | ||||
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Other comprehensive income | 1,380,177 | 5,566,548 | ||||||
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Comprehensive income | $ | 11,274,921 | $ | 30,813,519 | ||||
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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 |
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 |
Cash Flows
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 | |||||||||||||||||||||||||||
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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 | ||||||||||||||||||
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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 | $ | — | $ | — |
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 | ||||
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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 | ) | ||||
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Net adjustments | 52,774,051 | 21,049,371 | ||||||
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Net cash provided by operating activities | 62,668,795 | 46,296,342 | ||||||
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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 | |||||
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Net cash used in investing activities | (48,998,547 | ) | (34,296,801 | ) | ||||
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| |||||
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 | ) | |||||
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| |||||
Net cash used in financing activities | (6,716,323 | ) | (8,008,151 | ) | ||||
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|
|
| |||||
Net increase in cash | 6,953,925 | 3,991,390 | ||||||
Cash at beginning of period | 24,587,214 | 28,139,144 | ||||||
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| |||||
Cash at end of period | $ | 31,541,139 | $ | 32,130,534 | ||||
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|
| |||||
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.
Organization |
We have four
The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.
Donegal Mutual completed the merger of100% quota-share reinsurance agreements with Mountain States Mutual CasualtyCommercial 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 CommercialSouthern Mutual Insurance Company, became insurance subsidiaries ofCompany. Donegal Mutual upon completion ofplaces 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.
On July 18, 2013, our board of directors authorizedrepresents a share repurchase program pursuant to which we have the authority to purchase up to 500,000 sharessignificant 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.
2 - | Basis of Presentation |
2024.
3—Earnings Per Share
2023 that we filed with the Securities and Exchange Commission (“SEC”) on March 6, 2024.
3 - | Net Income Per Share |
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 | ||||||||
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| |||||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding | 21,756 | 5,577 | 21,078 | 5,577 | ||||||||||||
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| |||||||||
Basic net income per share | $ | 0.27 | $ | 0.24 | $ | 0.19 | $ | 0.16 | ||||||||
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| |||||||||
Diluted net income per share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of net income | $ | 5,787 | $ | 1,322 | $ | 3,901 | $ | 912 | ||||||||
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| |||||||||
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 | — | ||||||||||||
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| |||||||||
Number of shares used in diluted computation | 22,217 | 5,577 | 21,909 | 5,577 | ||||||||||||
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|
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|
|
| |||||||||
Diluted net income per share | $ | 0.26 | $ | 0.24 | $ | 0.18 | $ | 0.16 | ||||||||
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|
Basic net income per share: Numerator: Allocation of net income Denominator: Weighted-average shares outstanding Basic net income per share Diluted net income per share: Numerator: Allocation of net income Denominator: Number of shares used in basic computation Weighted-average shares effect of dilutive securities Director and employee stock options Number of shares used in diluted computation Diluted net income per share Nine Months Ended September 30, 2017 2016 Class A Class B Class A Class B (in thousands, except per share data) $ 8,066 $ 1,829 $ 20,329 $ 4,918 21,669 5,577 20,791 5,577 $ 0.37 $ 0.33 $ 0.98 $ 0.88 $ 8,066 $ 1,829 $ 20,329 $ 4,918 21,669 5,577 20,791 5,577 778 — 560 — 22,447 5,577 21,351 5,577 $ 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 |
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 | — | ||||||||||||
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|
|
|
|
|
Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Number of options to purchase Class A shares excluded | 1,693,904 | 2,307,435 |
Reinsurance |
• | 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 |
Our
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.
We have made no significant changesMutual, 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 orinsurance subsidiaries over a combined retention of $6.0 million. The purpose of the reinsurance agreements between ouragreement 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.
Investments |
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 | ||||||||
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|
|
|
|
|
|
| |||||||||
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 | ||||||||
|
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|
|
|
|
|
|
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 |
The amortized cost and estimated fair values of our fixed maturities and equity securities at DecemberMarch 31, 2016 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 | $ | 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 | ||||||||
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|
|
|
|
|
|
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 | ||||||||||||
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|
|
|
|
|
| |||||||||
Fixed maturities | 511,629 | 8,036 | 4,590 | 515,075 | ||||||||||||
Equity securities | 42,432 | 4,788 | 132 | 47,088 | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Totals | $ | 554,061 | $ | 12,824 | $ | 4,722 | $ | 562,163 | ||||||||
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|
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
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 |
Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Total held to maturity Available for sale Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years Mortgage-backed securities Total available for sale Amortized Cost Estimated
Fair Value Held to maturity (in thousands) $ 6,681 $ 6,689 52,418 53,656 139,103 143,566 115,165 122,867 51,910 52,651 $ 365,277 $ 379,429 $ 54,276 $ 55,289 94,106 95,647 110,187 111,712 24,245 25,215 246,925 245,598 $ 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 |
Cost | Gross Gains | Gross Losses | Estimated Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Equity securities | $ | 19,631 | $ | 9,315 | $ | 63 | $ | 28,883 |
Cost | Gross Gains | Gross Losses | Estimated Fair Value | |||||||||||||
(in thousands) | ||||||||||||||||
Equity securities | $ | 18,844 | $ | 7,059 | $ | — | $ | 25,903 |
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 | ||||||||||||
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| |||||||||
600 | 1,459 | 4,280 | 3,355 | |||||||||||||
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| |||||||||
Gross realized losses: | ||||||||||||||||
Fixed maturities | 39 | 22 | 69 | 280 | ||||||||||||
Equity securities | — | 419 | 3 | 870 | ||||||||||||
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| |||||||||
39 | 441 | 72 | 1,150 | |||||||||||||
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|
|
|
|
| |||||||||
Net realized gains | $ | 561 | $ | 1,018 | $ | 4,208 | $ | 2,205 | ||||||||
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|
|
|
|
|
|
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 | ) |
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 |
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 | — | — | ||||||||||||
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|
|
|
|
|
|
| |||||||||
Totals | $ | 332,843 | $ | 7,069 | $ | 5,834 | $ | 484 | ||||||||
|
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|
|
|
|
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 |
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 | ||||
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|
| |||||
Total liabilities | $ | 478,455 | $ | 457,101 | ||||
Stockholders’ equity | 81,506 | 78,489 | ||||||
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|
| |||||
Total liabilities and stockholders’ equity | $ | 559,961 | $ | 535,590 | ||||
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|
|
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 | ||||||||
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|
6—Segment Information
6 - | Segment Information |
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 | ||||||
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|
| |||||
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 | ||||
|
|
|
|
Revenues: Premiums earned: Commercial lines Personal lines Premiums earned Net investment income Realized investment gains Equity in earnings of DFSC Other Total revenues Income before income taxes: Underwriting income (loss): Commercial lines Personal lines SAP underwriting (loss) income GAAP adjustments GAAP underwriting (loss) income Net investment income Realized investment gains Equity in earnings of DFSC Other Income before income taxes Nine Months Ended September 30, 2017 2016 (in thousands) $ 236,437 $ 218,405 285,018 268,823 521,455 487,228 17,385 16,472 4,208 2,205 1,023 699 4,197 4,623 $ 548,268 $ 511,227 $ 12,670 $ 14,118 (31,816 ) (6,953 ) (19,146 ) 7,165 6,423 5,795 (12,723 ) 12,960 17,385 16,472 4,208 2,205 1,023 699 1,947 2,157 $ 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 |
Borrowings |
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 |
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 |
8 - | Share–Based Compensation |
9—Fair Value Measurements
9 - | Fair Value Measurements |
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 | $ | — |
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 |
11—Liability for Losses and Loss Expenses
11 - | Liabilities for Losses and Loss Expenses |
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 |
MICO.
March 31, 2024.
12—Impact
12 - | Allowance for Expected Credit Losses |
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.
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 |
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 |
13 - | Impact of New Accounting Standards |
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 amendsamended 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. TheIn 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 expectwere 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.
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. |
2023.
United States generally accepted accounting principles (“GAAP”).
Liability
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.
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 |
Percentage Change in Loss and Loss Expense Reserves Net of Reinsurance | Adjusted Loss and Loss | Percentage Change | Adjusted Loss and Loss December 31, 2016 | Percentage Change | ||||
(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) |
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. |
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 | ||||||||
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|
|
|
|
|
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 |
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 |
March 31, 2023
renewal premium increases.
strong policy retention.
investment yield relative to the first quarter of 2023.
Equity in Earnings of DFSC. Our equity in the earnings of DFSC was $403,647 for the thirdfirst 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.
2020 through 2023.
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 decreasefull 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.
Interest2023.
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 to17.8%. We recorded income tax expense of $9.2$1.1 million for the first nine monthsquarter of 2016,2023, representing an effective tax rate of 26.8% 17.4%. The effectiveincome tax rate in both periodstax expense for the first quarter of 2024 and 2023 represented an estimateestimates based on our projected annual taxable income. The decrease in ourincome 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.
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 | — | — | |||||||||||||||
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Total contractual obligations | $ | 442,908 | $ | 206,591 | $ | 203,326 | $ | 13,835 | $ | 19,156 | ||||||||||
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of 1.74%.
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.
March 31, 2024.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
Item 4. Controls and Procedures.
Item 4. | Controls and Procedures. |
Item 1. Legal Proceedings. Item 1. Legal Proceedings.
None.
Item 1A. | Risk Factors. |
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities. Item 3. Defaults upon Senior Securities.
None.
Item 4. Mine Safety Disclosure. Item 4. Removed and Reserved.
Item 5. Other Information. Item 5. Other Information.
None.
Item 6. | Exhibits. |
Exhibit No. | Description | |||
Reference | ||||
Management Contracts and Compensatory Plans or Arrangements | ||||
Donegal Group Inc. 2024 Equity Incentive Plan for Employees. | (a) | |||
Donegal Group Inc. 2024 Equity Incentive Plan for Directors. | (a) | |||
Other Exhibits | ||||
Certification of Chief Executive | ||||
Filed herewith | ||||
Certification of Chief Financial | ||||
Filed herewith | ||||
Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States | ||||
Filed herewith | ||||
Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States | 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 |
/s/ Kevin G. Burke /s/ Jeffrey D. Miller(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. DONEGAL GROUP INC. November 7, 2017 May 3, 2024 By: Kevin G. Burke, President and Chief Executive Officer November 7, 2017 May 3, 2024 By: Jeffrey D. Miller, Executive Vice President and Chief Financial Officer
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