EXHIBIT 99.1
MARIETTA, Pa., Oct. 26, 2012 (GLOBE NEWSWIRE) -- Donegal Group Inc. (Nasdaq:DGICA) (Nasdaq:DGICB) today reported its financial results for the third quarter of 2012. Highlights include:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||
| (dollars in thousands, except per share amounts) | ||||||||||||
| Income Statement Data | ||||||||||||
| Net premiums earned | $ 120,917 | $ 108,507 | 11.4% | $ 353,178 | $ 317,293 | 11.3% | ||||||
| Investment income, net | 4,715 | 5,042 | -6.5 | 14,724 | 15,693 | -6.2 | ||||||
| Realized gains | 1,312 | 2,459 | -46.6 | 5,150 | 7,148 | -28.0 | ||||||
| Total revenues | 130,432 | 119,165 | 9.5 | 383,079 | 347,802 | 10.1 | ||||||
| Net income | 6,839 | 820 | 734.0 | 16,873 | 1,332 | 1,166.7 | ||||||
| Operating income (loss) | 5,986 | (803) | NM2 | 13,525 | (3,386) | NM | ||||||
| Per Share Data | ||||||||||||
| Net income – Class A (diluted) | $ 0.27 | $ 0.03 | 800.0% | $ 0.66 | $ 0.05 | 1,220.0% | ||||||
| Net income – Class B | 0.25 | 0.03 | 733.3 | 0.61 | 0.05 | 1,120.0 | ||||||
| Operating income (loss) – Class A (diluted) | 0.24 | (0.03) | NM | 0.53 | (0.13) | NM | ||||||
| Operating income (loss) – Class B | 0.22 | (0.03) | NM | 0.49 | (0.13) | NM | ||||||
| Book value | 15.74 | 15.19 | 3.6 | 15.74 | 15.19 | 3.6 | ||||||
1The "Definitions of Non-GAAP and Operating Measures" section of this release defines and reconciles data that the Company has not prepared in accordance with U.S. generally accepted accounting principles ("GAAP").
2Not meaningful.
Donald H. Nikolaus, President and Chief Executive Officer of Donegal Group Inc., noted, "For the third consecutive quarter, we have reported substantially improved results from the year-earlier quarter. This trend reinforces our belief that the implementation of our business strategies will allow us to attain our long-term objective of outperforming the property and casualty insurance industry in terms of service, profitability and growth in book value."
Mr. Nikolaus added, "Our top-line growth represents a healthy combination of premiums from strong organic growth in our commercial lines of insurance, the benefits of the personal lines premium rate increases we have implemented over the past several years and our Michigan Insurance Company ("MICO") acquisition. We continue to achieve solid growth by writing new commercial lines accounts across our operating regions as we promote our ability to serve our agents as a strong regional alternative for their commercial customers. Our growth also reflects the gradual firming of commercial lines premiums as market conditions continue to stabilize."
Mr. Nikolaus continued, "As for the bottom line, we are pleased to be able to report positive net and operating income for the third quarter. On both a GAAP and statutory basis, we reported an underwriting profit. We clearly benefited from increased premium revenue, less severe weather conditions and lower claims frequency in several of our casualty lines of business in the third quarter of 2012 compared to the year-earlier period.
"Donegal Group has the financial strength and resources to implement our long-term strategy of pursuing consolidation and acquisition opportunities, complementing those transactions with prudent organic growth and diversification and translating those initiatives into increasing profits and higher book value over time," Mr. Nikolaus concluded.
At September 30, 2012, Donegal Group had a book value per share of $15.74, compared to $15.01 at December 31, 2011 and $15.19 at September 30, 2011. The Company attributes the increase in its book value per share to its positive operating results and unrealized gains in its available-for-sale bond portfolio. The Company repurchased 46,600 shares of its Class A common stock during the third quarter of 2012 at an average price of $14.32 per share.
In September 2012, the A. M. Best Company affirmed its A (Excellent) financial strength rating and "a" issuer credit ratings of the members of the Donegal Insurance Group. A. M. Best Company noted the Donegal Insurance Group's consolidated financial strength, which is reflected by the group's adequate risk-adjusted capitalization, sound balance sheet liquidity, continued positive earnings and good geographic and product line diversification.
Insurance Operations
Donegal Group is an insurance holding company whose insurance subsidiaries offer personal and commercial property and casualty lines of insurance in four Mid-Atlantic states (Delaware, Maryland, New York and Pennsylvania), three New England states (Maine, New Hampshire and Vermont), seven Southeastern states (Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia) and eight Midwestern states (Indiana, Iowa, Michigan, Nebraska, Ohio, Oklahoma, South Dakota and Wisconsin). The insurance subsidiaries of Donegal Group conduct business together with Donegal Mutual Insurance Company as the Donegal Insurance Group.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||
| (dollars in thousands) | ||||||||||||
| Net Premiums Written | ||||||||||||
| Personal lines: | ||||||||||||
| Automobile | $ 51,351 | $ 49,438 | 3.9% | $ 149,572 | $ 143,448 | 4.3% | ||||||
| Homeowners | 27,550 | 24,430 | 12.8 | 74,778 | 67,306 | 11.1 | ||||||
| Other | 4,219 | 3,912 | 7.8 | 12,045 | 11,181 | 7.7 | ||||||
| Total personal lines | 83,120 | 77,780 | 6.9 | 236,395 | 221,935 | 6.5 | ||||||
| Commercial lines: | ||||||||||||
| Automobile | 12,484 | 10,909 | 14.4 | 39,294 | 34,013 | 15.5 | ||||||
| Workers' compensation | 16,088 | 12,362 | 30.1 | 51,071 | 40,913 | 24.8 | ||||||
| Commercial multi-peril | 15,883 | 13,616 | 16.6 | 49,758 | 44,543 | 11.7 | ||||||
| Other | 1,721 | 1,545 | 11.4 | 5,232 | 4,944 | 5.8 | ||||||
| Total commercial lines | 46,176 | 38,432 | 20.1 | 145,355 | 124,413 | 16.8 | ||||||
| Total net premiums written | $ 129,296 | $ 116,212 | 11.3% | $ 381,750 | $ 346,348 | 10.2% | ||||||
The Company's net premiums written increased 11.3% for the third quarter of 2012 compared to the third quarter of 2011. This increase reflected 20.1% growth in commercial lines writings and 6.9% growth in personal lines writings. The $13.1 million growth in net premiums written for the third quarter of 2012 compared to the third quarter of 2011 included:
The Company's net premiums written increased 10.2% in the first nine months of 2012. The increase included $7.7 million related to a reduction in the percentage premiums MICO ceded under its quota-share reinsurance agreement in the first nine months of 2012 compared to the first nine months of 2011. Excluding the quota-share reinsurance change, commercial lines premiums rose $16.8 million and personal lines premiums rose $10.9 million for the first nine months of 2012 compared to the first nine months of 2011.
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2012 | 2011 | 2012 | 2011 | |||||
| Statutory Combined Ratios | ||||||||
| Personal Lines: | ||||||||
| Automobile | 100.0% | 109.1% | 104.2% | 104.7% | ||||
| Homeowners | 102.6 | 129.6 | 104.8 | 126.8 | ||||
| Other | 106.5 | 111.2 | 91.3 | 102.8 | ||||
| Total personal lines | 101.3 | 115.4 | 103.7 | 111.2 | ||||
| Commercial Lines: | ||||||||
| Automobile | 99.0 | 114.1 | 100.2 | 100.8 | ||||
| Workers' compensation | 93.4 | 94.1 | 92.2 | 90.1 | ||||
| Commercial multi-peril | 90.8 | 108.8 | 91.5 | 106.3 | ||||
| Other | 25.9 | 6.8 | 32.3 | 34.5 | ||||
| Total commercial lines | 91.4 | 101.4 | 91.7 | 96.6 | ||||
| Total lines | 97.6% | 110.6% | 99.3% | 106.2% | ||||
| GAAP Combined Ratios (Total Lines) | ||||||||
| Loss ratio (non-weather) | 58.6% | 70.8% | 61.5% | 65.0% | ||||
| Loss ratio (weather-related) | 9.3 | 11.6 | 7.9 | 12.8 | ||||
| Expense ratio | 31.4 | 30.0 | 31.9 | 31.8 | ||||
| Dividend ratio | 0.3 | 0.2 | 0.2 | 0.1 | ||||
| Combined ratio | 99.6% | 112.6% | 101.5% | 109.7% | ||||
Mr. Nikolaus commented, "Growth in premium revenue was a significant factor that contributed to improved results and an underwriting profit on both a GAAP and statutory basis in the third quarter. We believe our continuing efforts to ensure rate adequacy and maintain conservative underwriting standards will allow us to achieve even better underwriting profitability over the long term."
Mr. Nikolaus added, "Several factors contributed to the improvement in our statutory loss ratio1 to 68.2% for the third quarter of 2012 from 82.4% a year earlier. The most significant factor was improvement in the underlying profitability of our casualty lines of business due to a marked decrease in the number of reported claims. In addition, a decrease in weather-related losses and large fire losses resulted in a combined 4.3 percentage point decrease in our third quarter of 2012 statutory loss ratio."
Weather-related losses of $11.3 million, or 9.3 percentage points of the Company's loss ratio, for the third quarter of 2012 compared favorably to the $12.6 million, or 11.6 percentage points of the Company's loss ratio, in weather-related losses for the third quarter of 2011. Only one designated catastrophe event impacted the Company's operating areas during the third quarter of 2012, resulting in a relatively modest $2.0 million in net incurred losses. The lower impact of catastrophe weather events compared to prior-year period was partially offset by the increased frequency of smaller storm systems. As a result, the weather-related loss impact for the third quarter of 2012 exceeded the Company's previous five-year average for the third quarter.
Large fire losses also declined significantly to $6.6 million, or 5.5 percentage points of the Company's loss ratio, for the third quarter of 2012, compared to $8.1 million, or 7.5 percentage points of the Company's loss ratio, for the third quarter of 2011. In addition, the Company incurred a modest $2.9 million in loss reserve development for the third quarter of 2012 for losses occurring in prior accident years. The loss reserve development added 2.4 percentage points to the Company's loss ratio for the third quarter of 2012, compared to 0.5 points for the third quarter of 2011."
The Company's statutory expense ratio1 increased modestly to 29.1% for the third quarter of 2012, compared to 28.0% for the third quarter of 2011. The increase reflected higher underwriting-based incentive compensation costs in the third quarter of 2012 as a result of the improved underwriting results in 2012.
Investment Operations
Donegal Group's investment strategy is to generate an appropriate amount of after-tax income on its invested assets while minimizing credit risk through investment in high-quality securities. As a result, the Company had invested 91.0% of its consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at September 30, 2012.
| September 30, 2012 | December 31, 2011 | |||||||
| Amount | % | Amount | % | |||||
| (dollars in thousands) | ||||||||
| Fixed maturities, at carrying value: | ||||||||
| U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ 77,972 | 9.7% | $ 61,978 | 7.9% | ||||
| Obligations of states and political subdivisions | 455,008 | 56.6 | 455,843 | 58.0 | ||||
| Corporate securities | 74,503 | 9.3 | 64,363 | 8.2 | ||||
| Residential mortgage-backed securities | 123,884 | 15.4 | 122,904 | 15.7 | ||||
| Total fixed maturities | 731,367 | 91.0 | 705,088 | 89.8 | ||||
| Equity securities, at fair value | 2,583 | 0.3 | 7,438 | 0.9 | ||||
| Investments in affiliates | 36,673 | 4.6 | 32,322 | 4.1 | ||||
| Short-term investments, at cost | 32,785 | 4.1 | 40,461 | 5.2 | ||||
| Total investments | $ 803,408 | 100.0% | $ 785,309 | 100.0% | ||||
| Average investment yield | 2.5% | 2.8% | ||||||
| Average tax-equivalent investment yield | 3.4% | 3.8% | ||||||
| Average fixed-maturity duration (years) | 4.7 | 4.5 | ||||||
Net investment income decreased by 6.5% for the third quarter of 2012, reflecting lower average investment yields on the Company's invested assets. Net realized investment gains were $1.3 million for the third quarter of 2012, compared to $2.5 million for the third quarter of 2011. The Company had no impairments in its investment portfolio that it considered to be other than temporary in the first nine months of 2012 or 2011.
Mr. Nikolaus, in commenting on the Company's investment operations, noted, "We believe prevailing interest rates will likely remain near the current record-low levels for some time. In this environment, we remain comfortable emphasizing investment quality for the long term rather than seeking additional yield in higher risk asset classes."
The Company owns 48.2% of the outstanding stock of Donegal Financial Services Corporation ("DFSC"), which owns Union Community Bank FSB. The Company accounts for its investment in DFSC using the equity method of accounting. The Company's equity in the earnings of DFSC was $1.3 million and $3.6 million for the third quarter and first nine months of 2012, respectively. Donegal Mutual Insurance Company owns the remaining 51.8% of the outstanding stock of DFSC.
Definitions of Non-GAAP and Operating Measures
The Company prepares its consolidated financial statements on the basis of GAAP. The Company's insurance subsidiaries also prepare financial statements based on statutory accounting principles state insurance regulators prescribe or permit ("SAP"). In addition to using GAAP-based performance measurements, the Company also utilizes certain non-GAAP financial measures that it believes are valuable in managing its business and for comparison to the financial results of its peers. These non-GAAP measures are operating income (loss) and statutory combined ratio.
Operating income (loss) is a non-GAAP financial measure investors in insurance companies commonly use. The Company defines operating income (loss) as net income (loss) excluding after-tax net realized investment gains or losses. Because the Company's calculation may differ from similar measures other companies use, investors should exercise caution when comparing the Company's measure of operating income (loss) to that of other companies.
The following table provides a reconciliation of net income to operating income (loss):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||
| 2012 | 2011 | % Change | 2012 | 2011 | % Change | |||||||
| (dollars in thousands, except per share amounts) | ||||||||||||
| Reconciliation of Net Income to Operating Income (Loss) | ||||||||||||
| Net income | $ 6,839 | $ 820 | 734.0% | $ 16,873 | $ 1,332 | 1,166.7% | ||||||
| Realized gains (after tax) | (853) | (1,623) | NM | (3,348) | (4,718) | NM | ||||||
| Operating income (loss) | $ 5,986 | $ (803) | NM | $ 13,525 | $ (3,386) | NM | ||||||
| Per Share Reconciliation of Net Income to Operating Income (Loss) | ||||||||||||
| Net income – Class A (diluted) | $ 0.27 | $ 0.03 | 800.0% | $ 0.66 | $ 0.05 | 1,220.0% | ||||||
| Realized gains (after tax) | (0.03) | (0.06) | NM | (0.13) | (0.18) | NM | ||||||
| Operating income (loss) – Class A | $ 0.24 | $ (0.03) | NM | $ 0.53 | $ (0.13) | NM | ||||||
| Net income – Class B | $ 0.25 | $ 0.03 | 733.3% | $ 0.61 | $ 0.05 | 1,120.0% | ||||||
| Realized gains (after tax) | (0.03) | (0.06) | NM | (0.12) | (0.18) | NM | ||||||
| Operating income (loss) – Class B | $ 0.22 | $ (0.03) | NM | $ 0.49 | $ (0.13) | NM | ||||||
Statutory combined ratio is a non-GAAP standard measurement of underwriting profitability that is based upon amounts determined under SAP. The statutory combined ratio is the sum of:
The statutory combined ratio does not reflect investment income, federal income taxes or other non-operating income or expense. A statutory combined ratio of less than 100% generally indicates underwriting profitability.
Conference Call
The Company will hold a conference call and webcast on Friday, October 26, 2012, beginning at 10:00 A.M. Eastern Time. You may listen via the Internet by accessing the webcast link in the Investors area of the Company's web site at www.donegalgroup.com. A replay of the conference call will also be available via the Company's web site.
About the Company
Donegal Group is an insurance holding company. The Company's Class A common stock and Class B common stock trade on NASDAQ under the symbols DGICA and DGICB, respectively. As an effective acquirer of small to medium-sized "main street" property and casualty insurers, Donegal Group has grown profitably over the past 25 years. The Company continues to seek opportunities for growth while striving to achieve its longstanding goal of outperforming the industry in terms of service, profitability and growth in book value.
Safe Harbor
We base all statements contained in this release that are not historic facts on our current expectations. These statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and involve a number of risks and uncertainties. Actual results could vary materially. Factors that could cause actual results to vary materially include: our ability to maintain profitable operations, the adequacy of the loss and loss expense reserves of our insurance subsidiaries, business and economic conditions in the areas in which we operate, interest rates, competition from various insurance and other financial businesses, terrorism, the availability and cost of reinsurance, adverse and catastrophic weather events, legal and judicial developments, changes in regulatory requirements, our ability to integrate and manage successfully the companies we may acquire from time to time and other risks we describe from time to time in the periodic reports we file with the Securities and Exchange Commission. You should not place undue reliance on any such forward-looking statements. We disclaim any obligation to update such statements or to announce publicly the results of any revisions that we may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
| Donegal Group Inc. | ||
| Consolidated Statements of Income | ||
| (unaudited; in thousands, except share data) | ||
| Quarter Ended September 30, | ||
| 2012 | 2011 | |
| Net premiums earned | $ 120,917 | $ 108,507 |
| Investment income, net of expenses | 4,715 | 5,042 |
| Net realized investment gains | 1,312 | 2,459 |
| Lease income | 236 | 241 |
| Installment payment fees | 1,915 | 1,889 |
| Equity income | 1,337 | 1,027 |
| Total revenues | 130,432 | 119,165 |
| Net losses and loss expenses | 82,105 | 89,412 |
| Amortization of deferred acquisition costs | 18,864 | 17,282 |
| Other underwriting expenses | 19,131 | 15,287 |
| Policyholder dividends | 402 | 223 |
| Interest | 584 | 529 |
| Other expenses | 473 | 490 |
| Total expenses | 121,559 | 123,223 |
| Income (loss) before income tax expense (benefit) | 8,873 | (4,058) |
| Income tax expense (benefit) | 2,034 | (4,878) |
| Net income | $ 6,839 | $ 820 |
| Net income per common share: | ||
| Class A - basic and diluted | $ 0.27 | $ 0.03 |
| Class B - basic and diluted | $ 0.25 | $ 0.03 |
| Supplementary Financial Analysts' Data | ||
| Weighted-average number of shares outstanding: | ||
| Class A - basic | 20,041,620 | 19,976,954 |
| Class A - diluted | 20,310,096 | 19,976,954 |
| Class B - basic and diluted | 5,576,775 | 5,576,775 |
| Net written premiums | $ 129,296 | $ 116,212 |
| Book value per common share at end of period | $ 15.74 | $ 15.19 |
| Donegal Group Inc. | ||
| Consolidated Statements of Income | ||
| (unaudited; in thousands, except share data) | ||
| Nine Months Ended September 30, | ||
| 2012 | 2011 | |
| Net premiums earned | $ 353,178 | $ 317,293 |
| Investment income, net of expenses | 14,724 | 15,693 |
| Net realized investment gains | 5,150 | 7,148 |
| Lease income | 728 | 707 |
| Installment payment fees | 5,677 | 5,596 |
| Equity income | 3,622 | 1,365 |
| Total revenues | 383,079 | 347,802 |
| Net losses and loss expenses | 245,100 | 246,687 |
| Amortization of deferred acquisition costs | 54,980 | 50,902 |
| Other underwriting expenses | 57,617 | 49,826 |
| Policyholder dividends | 800 | 530 |
| Interest | 1,785 | 1,531 |
| Other expenses | 1,961 | 1,860 |
| Total expenses | 362,243 | 351,336 |
| Income (loss) before income tax (benefit) | 20,836 | (3,534) |
| Income tax expense (benefit) | 3,963 | (4,866) |
| Net income | $ 16,873 | $ 1,332 |
| Net income per common share: | ||
| Class A - basic | $ 0.67 | $ 0.05 |
| Class A - diluted | $ 0.66 | $ 0.05 |
| Class B - basic and diluted | $ 0.61 | $ 0.05 |
| Supplementary Financial Analysts' Data | ||
| Weighted-average number of shares outstanding: | ||
| Class A - basic | 20,026,652 | 20,005,149 |
| Class A - diluted | 20,336,769 | 20,005,149 |
| Class B - basic and diluted | 5,576,775 | 5,576,775 |
| Net written premiums | $ 381,750 | $ 346,348 |
| Book value per common share at end of period | $ 15.74 | $ 15.19 |
| Donegal Group Inc. | ||
| Consolidated Balance Sheets | ||
| (in thousands) | ||
| September 30, 2012 | December 31, 2011 | |
| (unaudited) | ||
| ASSETS | ||
| Investments: | ||
| Fixed maturities: | ||
| Held to maturity, at amortized cost | $ 43,888 | $ 58,490 |
| Available for sale, at fair value | 687,479 | 646,598 |
| Equity securities, at fair value | 2,583 | 7,438 |
| Investments in affiliates | 36,673 | 32,322 |
| Short-term investments, at cost | 32,786 | 40,461 |
| Total investments | 803,409 | 785,309 |
| Cash | 20,042 | 13,245 |
| Premiums receivable | 121,336 | 104,715 |
| Reinsurance receivable | 208,912 | 209,824 |
| Deferred policy acquisition costs | 40,969 | 36,425 |
| Prepaid reinsurance premiums | 114,686 | 106,450 |
| Other assets | 27,361 | 34,825 |
| Total assets | $ 1,336,715 | $ 1,290,793 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| Liabilities: | ||
| Losses and loss expenses | $ 446,654 | $ 442,408 |
| Unearned premiums | 373,751 | 336,937 |
| Accrued expenses | 17,253 | 20,957 |
| Borrowings under line of credit | 49,691 | 54,500 |
| Subordinated debentures | 20,465 | 20,465 |
| Other liabilities | 26,013 | 32,075 |
| Total liabilities | 933,827 | 907,342 |
| Stockholders' equity: | ||
| Class A common stock | 209 | 208 |
| Class B common stock | 56 | 56 |
| Additional paid-in capital | 173,234 | 170,837 |
| Accumulated other comprehensive income | 29,447 | 23,533 |
| Retained earnings | 212,079 | 199,605 |
| Treasury stock, at cost | (12,137) | (10,788) |
| Total stockholders' equity | 402,888 | 383,451 |
| Total liabilities and stockholders' equity | $ 1,336,715 | $ 1,290,793 |
CONTACT: For Further Information:
Jeffrey D. Miller, Senior Vice President
& Chief Financial Officer
Phone: (717) 426-1931
E-mail: jeffmiller@donegalgroup.com