20
24
A N N U A L R E P O R T
Donegal Group Inc. is an insurance holding company
whose insurance subsidiaries and affiliates offer
property and casualty lines of insurance in certain
Mid-Atlantic, Midwestern, Southern and Southwestern
states. Donegal Mutual Insurance Company and the
insurance subsidiaries of Donegal Group Inc. conduct
business together as the Donegal Insurance Group.
The Class A common stock and Class B common stock
of Donegal Group Inc. trade on the NASDAQ Global
Select Market under the symbols DGICA and DGICB,
respectively.
The Donegal Insurance Group has an A.M. Best
rating of A (Excellent).
Building Tomorrow
Together
Year Ended December 31,
2024
2023
2022
2021
2020
Income Statement Data
Premiums earned
$ 936,651,480
$ 882,071,386
$ 822,489,450
$ 776,015,201
$ 742,040,339
Investment income, net
44,918,162
40,853,215
34,016,112
31,125,631
29,504,466
Investment gains (losses)
4,981,072
3,172,807
(10,184,797)
6,477,286
2,777,919
Total revenues
989,605,050
927,337,984
848,220,546
816,465,791
777,819,910
Income (loss) before income tax expense (benefit)
62,338,932
5,063,476
(3,638,099)
30,338,508
63,272,503
Income tax expense (benefit)
11,476,680
637,972
(1,678,694)
5,084,334
10,457,251
Net income (loss)
50,862,252
4,425,504
(1,959,405)
25,254,174
52,815,252
Basic earnings (loss) per share - Class A
1.53
0.14
(0.06)
0.83
1.84
Diluted earnings (loss) per share - Class A
1.53
0.14
(0.06)
0.83
1.83
Cash dividends per share - Class A
0.69
0.68
0.66
0.64
0.60
Basic earnings (loss) per share - Class B
1.38
0.11
(0.07)
0.74
1.65
Diluted earnings (loss) per share - Class B
1.38
0.11
(0.07)
0.74
1.65
Cash dividends per share - Class B
0.62
0.61
0.59
0.57
0.53
Balance Sheet Data at Year End
Total investments
$ 1,384,972,332 $ 1,327,053,645 $ 1,304,657,242 $ 1,276,845,897 $ 1,221,201,784
Total assets
2,336,031,983
2,266,293,888
2,243,349,335 2,255,175,399
2,160,520,324
Debt obligations
35,000,000
35,000,000
35,000,000
35,000,000
90,000,000
Stockholders’ equity
545,776,131
479,745,354
483,593,012
531,036,087
517,774,120
Book value per share
15.36
14.39
14.79
16.95
17.13
1
Net Income (Loss)
[ in millions ]
$550
$525
$500
$475
$450
$50
$40
$30
$20
$10
Stockholders’ Equity
[ in millions ]
$950
$850
$750
$650
$550
Total Revenues
[ in millions ]
24
23
22
21
20
24
23
22
21
20
24
23
22
21
20
Financial Highlights
To Our Stockholders
2
The year 2024 was one of continuing strategic execution, and we were pleased to realize incremental
improvement in our financial performance. These “green shoots” resulted from all of the dedicated
collaborative efforts our team has expended over the past several years. We have been working relentlessly
to refine our strategies, modernize our infrastructure and product offerings and, most importantly, position
Donegal Group to thrive in the future. Truly, we are building tomorrow together.
Many of the actions we implemented in the past several years converged to positively impact our underwriting
results in 2024. While the work of building tomorrow is still in progress, we are pleased to share with you
some highlights of our accomplishments during the past year. We continued to diversify the geographic
footprint of our insured property risks to improve our mix of business and reduce the overall impact of losses
from severe weather events. We further operationalized analytical tools to enhance underwriting decision-
making when evaluating individual risks and classes of business. We successfully executed targeted expense
reduction and expense management actions to achieve meaningful cost reductions in 2024, with more to
come in 2025 and beyond. We continued to make great strides in our systems modernization project, and
those efforts are on schedule to allow us to sunset our legacy systems when the last remaining legacy
policies expire in 2027.
We made great progress during the year on a multi-year data modernization initiative to implement a
comprehensive cloud-based data infrastructure that will support critical future business processes and
strategies. This agile infrastructure will scale dynamically based on business demands and deliver real-time
insights. The platform will enable highly efficient data processing, ensuring accelerated and reliable future
data delivery. It will also facilitate seamless integration with analytics functions, artificial intelligence and
machine learning models, and enable innovative business use cases for technologies such as Generative
Artificial Intelligence (“Gen AI”). We believe these data-related investments will ensure easily accessible data
for management reporting, position us to further enhance our data analytics, enable the future addition of
new data sources and mitigate data integrity risk.
During 2024, we began exploring Gen AI capabilities by engaging with third-party experts to evaluate and
identify potential opportunities to adopt this transformative technology. We focused our initial activities on
fostering awareness of associated risks, developing expertise, establishing strategic partnerships and
preparing for future advancements. We expect to leverage capabilities that already exist within our new
data infrastructure platform and prioritize solutions that allow traceability, auditability and explainability of
outputs in selective use cases that enhance the efficiency of our internal processes.
A Year of Progress
3
Total revenues increased 6.7% for 2024 compared to 2023, reflecting a 6.2% increase in net premiums earned
and a 10.0% increase in net investment income. Net investment gains of $5.0 million for 2024, compared to
$3.2 million for 2023, were primarily related to an increase in the market value of equity securities we held at
December 31, 2024.
The combined ratio improved significantly to 98.6% for 2024, compared to 104.4% for 2023, primarily due
to the favorable impact of earned premium rate increases that reduced our core loss ratios for both our
commercial and personal lines segments.
Weather-related losses for 2024 were 7.1% lower than we experienced for 2023, representing 7.2 percentage
points of the loss ratio for 2024, compared to 8.3 percentage points of the loss ratio for 2023. We experienced
this improvement despite our insurance subsidiaries incurring $6 million in net losses from Hurricane Helene
in September 2024. We are continuing to work diligently to proactively diversify our geographic spread of risk
throughout our regions to mitigate the impact of severe weather activity.
Net favorable development for losses incurred in prior accident years totaled $15.0 million for 2024, reducing
the loss ratio by 1.6 percentage points, compared to $16.7 million for 2023, reducing the loss ratio by 1.9
percentage points.
The expense ratio was 33.7% for the full year of 2024, compared to 34.7% for the full year of 2023, reflecting
the benefits of various expense-reduction initiatives we implemented during 2024, offset partially by higher
underwriting-based incentive costs and increased technology expenses.
Net investment income of $44.9 million for 2024 grew by 10.0% over 2023 due to an increase in average
invested assets as well as a higher average investment yield from increased average reinvestment interest
rates in 2024. We are continuing to follow a conservative investment approach, applying disciplined risk
management and asset allocation strategies to maintain an investment portfolio that generates consistent
growth and stable returns to support our underwriting activities.
Our net income for 2024 surged to $50.9 million, or $1.53 per diluted Class A share, compared to $4.4 million,
or 14 cents per diluted Class A share, for 2023. We attribute the increase primarily to substantial improvement
in our underwriting results.
Our book value per share was $15.36 at December 31, 2024, compared to $14.39 at year-end 2023. After-tax
unrealized gains within our available-for-sale fixed-maturity portfolio due to a decline in market interest rates
increased our book value by 18 cents per share during 2024. Additional positive contributions to our book
value per share from net income and other increases were partially offset by the cash dividends we declared
during the year.
Financial Summary
Commercial lines net premiums written increased
3.7% compared to 2023, as new business writings
and solid renewal premium increases were partially
offset by planned attrition related to our exit from
the commercial markets in Georgia and Alabama
that ended in mid-2024 and targeted non-renewals
in selected classes in other states. Our commercial
lines segment generated a statutory combined ratio
of 98.2% for 2024, comparing favorably to 101.6% for
2023. Strong performance of our commercial multi-peril
line of business drove the improvement, with a 4.5
percentage point improvement in the core loss ratio,
lower weather-related and large fire loss impacts, as
well as 7.2 percentage points of more favorable net
development for losses incurred in prior accident years
for that line of business.
We expect that our longstanding middle-market focus
will continue to yield most of our commercial premium
growth, augmented by the rollout of new products
and capabilities targeted to this market segment
beginning in the second half of 2025, when we expect
to deploy our final major commercial lines systems
release. This release will include a new commercial
package policy and modernize the other commercial
products remaining on our legacy systems. During
2024, we conducted a thorough process review of our
commercial lines workflows and implemented a large
number of process changes to enhance the efficiency
of our underwriting operations and the experience of
our team members. We also continued to execute our
small business strategy to supplement our middle
market strengths. This strategy includes numerous
enterprise, agency distribution and operational initiatives
designed to accelerate the pace of growth in this
profitable market segment over the next few years.
We developed a comprehensive interactive commercial
underwriting appetite guide to ensure that we grow
market share intentionally and profitably in the years
ahead. This guide provides our independent agents,
as well as our sales, marketing and underwriting
personnel, with an enhanced level of clarity on the
classes of business and types of commercial accounts
we are seeking to write in each of our operating
regions. We expect to leverage this tool in our agency
interactions in 2025 to accelerate new business growth
in targeted regions and classes.
Commercial Lines
Segment
Similar to our stance in 2023, we continued to limit new
business and implement additional renewal rate
increases throughout 2024 to enhance further the
profitability of our personal lines segment. Personal
lines net premiums written increased 7.4% from 2023,
primarily reflecting rate increases that were partially
offset by planned attrition. The number of personal
lines policies-in-force at December 31, 2024 was down
11.6% compared to the prior year-end. This accelerated
rate of reduction was in part the result of our decision
to non-renew the legacy business of one of our
insurance subsidiaries in the state of Maryland,
which began in September.
Renewal rate increases averaged in double-digit
percentages for both personal automobile and
homeowners lines of business throughout 2024.
Our personal lines segment generated a statutory
combined ratio of 98.3% for 2024, a notable
improvement compared to 108.2% for 2023. The
decrease was attributable to a 5.7 percentage point
improvement in the core loss ratio, lower weather-
related losses and large fire losses as well as a 2.2
percentage point decrease in the personal lines
statutory expense ratio due to targeted expense
reductions, compared to 2023.
We project net premiums earned for 2025 will continue
to benefit from the rate increases we implemented over
the past two years, further enhancing our performance
in this segment. We expect to increase gradually the
amount of targeted new business writings across our
personal lines footprint beginning in the latter half of
2025, desiring to grow our personal lines segment in
a measured fashion while ensuring the achievement of
targeted returns.
Personal Lines
Segment
Working as a team with a proactive
approach and renewed energies
“
6
4
The noteworthy improvement in our 2024 results compared to those of the past several years has generated
increased confidence that the continued execution of our strategies will achieve our long-term objective of
sustained excellent financial performance.
Our key priorities for 2025 include the completion of development and testing efforts as we near the end of our
major systems transformation project, execution of ongoing profit-focused initiatives and the achievement of
measured, intentional growth. Our focus has gradually transitioned from defensively addressing legacy challenges
and areas of underperformance to an increasingly clear vision for the future – working as a team with a proactive
approach and renewed energies in building tomorrow together. We value the support and commitment of our
independent agents and look forward to continuing to build those relationships to gain market share and grow
our business.
We extend our sincere appreciation to our stockholders for your support, as we strive every day to increase the
long-term value of your investment.
Looking Ahead
Kevin G. Burke
PRESIDENT AND CHIEF EXECUTIVE OFFICER
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
þ
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
Commission file number 0-15341
DONEGAL GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware
23-2424711
(State or other jurisdiction of
(I.R.S. Employer
incorporation or organization)
Identification No.)
1195 River Road, Marietta, Pennsylvania
17547
(Address of principal executive offices)
(Zip code)
Registrant’s telephone number, including area code: (800) 877-0600
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbols
Name of Each Exchange on Which Registered
Class A Common Stock, $.01 par value
DGICA
The NASDAQ Global Select Market
Class B Common Stock, $.01 par value
DGICB
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None.
Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act: Yes o. No þ.
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes o. No þ.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes þ. No o.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes þ. No o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or
an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth
company” in Rule 12b-2 of the Act. (Check one):
Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that
prepared or issued its audit report. Yes þ. No o.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in
the filing reflect the correction of an error to previously issued financial statements. o.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation
received by any of the registrant’s executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). o.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o. No þ.
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the
common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter. $207,861,925.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 30,062,059 shares of
Class A common stock and 5,576,775 shares of Class B common stock outstanding on March 3, 2025.
Documents Incorporated by Reference
The registrant incorporates by reference portions of the registrant’s definitive proxy statement relating to registrant’s annual meeting of
stockholders to be held April 17, 2025 into Part III of this report.
DONEGAL GROUP INC.
INDEX TO FORM 10-K REPORT
Page
PART I
Item 1.
Business
1
Item 1A.
Risk Factors
24
Item 1B.
Unresolved Staff Comments
36
Item 1C.
Cybersecurity
36
Item 2.
Properties
37
Item 3.
Legal Proceedings
37
Item 4.
Mine Safety Disclosures
37
PART II
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
38
Item 6.
[Reserved]
39
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
40
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
53
Item 8.
Financial Statements and Supplementary Data
55
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
98
Item 9A.
Controls and Procedures
98
Item 9B.
Other Information
98
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
98
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
100
Item 11.
Executive Compensation
100
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
100
Item 13.
Certain Relationships and Related Transactions, and Director Independence
100
Item 14.
Principal Accounting Fees and Services
100
PART IV
Item 15.
Exhibits, Financial Statement Schedules
101
Item 16.
Form 10-K Summary
103
(i)
[This page intentionally left blank]
PART I
Item 1. Business.
Introduction
Donegal Group Inc., or DGI, is an insurance holding company whose insurance subsidiaries and affiliates offer property
and casualty insurance in 21 Mid-Atlantic, Midwestern, Southern and Southwestern states. DGI has no significant business
operations and is separate and distinct from its insurance subsidiaries. As used in this Form 10-K Report, the terms “we,” “us”
and “our” refer to Donegal Group Inc. and its insurance subsidiaries. Our Class A common stock and our Class B common
stock trade on the NASDAQ Global Select Market under the symbols “DGICA” and “DGICB,” respectively.
Donegal Mutual Insurance Company, or Donegal Mutual, organized us as an insurance holding company on August 26,
1986. At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and
approximately 84% of our outstanding Class B common stock. Donegal Mutual’s ownership provides Donegal Mutual with
approximately 70% of the combined voting power of our outstanding shares of Class A common stock and our outstanding
shares of Class B common stock. Our insurance subsidiaries and Donegal Mutual have interrelated operations due to an
intercompany pooling agreement and other intercompany agreements and transactions we describe in Note 3 of the Notes to
Consolidated Financial Statements. While maintaining the separate corporate existence of each company, our insurance
subsidiaries conduct business together with Donegal Mutual and its insurance subsidiaries as the Donegal Insurance Group. The
Donegal Insurance Group is not a legal entity, is not an insurance company and does not issue or administer insurance policies.
Rather, it is a trade name that refers to the group of insurance companies that are affiliated with Donegal Mutual.
At December 31, 2024, we had three segments: our investment function, our commercial lines of insurance and our
personal lines of insurance. We set forth financial information about these segments in Note 19 of the Notes to Consolidated
Financial Statements. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile,
commercial multi-peril and workers’ compensation policies. The personal lines products of our insurance subsidiaries consist
primarily of homeowners and private passenger automobile policies.
Our insurance subsidiaries and Donegal Mutual provide their policyholders with a selection of insurance products and
pursue profitability by adhering to a strict underwriting discipline. Our insurance subsidiaries derive a substantial portion of
their insurance business from smaller to mid-sized regional communities. We believe this focus provides our insurance
subsidiaries with competitive advantages in terms of local market knowledge, marketing, underwriting, claims servicing and
policyholder service. At the same time, we believe our insurance subsidiaries have cost advantages over many smaller regional
insurers that result from economies of scale our insurance subsidiaries realize through centralized accounting, administrative,
data processing, investment and other services.
We believe we have a substantial opportunity, as a well-capitalized regional insurance holding company with a solid
business strategy, to grow profitably and compete effectively with larger national property and casualty insurers. Our
downstream holding company structure, with Donegal Mutual holding approximately 70% of the combined voting power of our
common stock, has proven its effectiveness and success over the 38 years of our existence. Over that time period, we have
grown significantly in terms of revenue and financial strength, and the Donegal Insurance Group has developed an excellent
reputation as a regional group of property and casualty insurers.
Between 1998 and 2017, we and Donegal Mutual completed seven transactions involving acquisitions of property and
casualty insurance companies or participation in the business of property and casualty insurance companies through Donegal
Mutual’s entry into quota-share reinsurance agreements with them. We are currently placing less emphasis on pursuing
acquisitions because Donegal Mutual and we believe there are significant opportunities for profitable organic growth in our
desired markets and classes of business within our current geographical footprint.
Available Information
You may obtain our Annual Reports on Form 10-K, including this Form 10-K Report, our quarterly reports on Form 10-Q,
our current reports on Form 8-K, our proxy statement and our other filings pursuant to the Securities Exchange Act of 1934, or
the Exchange Act, without charge by viewing our website at www.donegalgroup.com. You may also view our Code of
Business Conduct and Ethics and the charters of the executive committee, the audit committee, the compensation committee
and the nominating committee of our board of directors on our website. Upon request to our corporate secretary, we will also
provide printed copies of any of these documents to you without charge. We have provided the address of our website solely for
-1-
the information of investors. We do not intend the reference to our website address to be an active link or to otherwise
incorporate the contents of our website into this Form 10-K Report. In addition to our website, the Securities and Exchange
Commission (the “SEC”) maintains an Internet site at www.sec.gov that contains our reports, proxy and information statements
and other information that we electronically file with, or furnish to, the SEC.
History and Organizational Structure
In the mid-1980’s, Donegal Mutual, as a mutual insurance company, recognized the desirability of developing additional
sources of capital and surplus so it could remain competitive, expand its business and ensure its long-term viability.
Accordingly, Donegal Mutual determined that the implementation of a downstream holding company structure was a viable
business strategy to accomplish that objective. Thus, in 1986, Donegal Mutual formed us as a downstream holding company,
and we incorporated in the state of Delaware as Donegal Group Inc. After Donegal Mutual formed us, we in turn formed
Atlantic States Insurance Company, or Atlantic States, as our wholly owned property and casualty insurance company
subsidiary.
In connection with the formation of Atlantic States and the establishment of our downstream insurance holding company
system, Donegal Mutual and Atlantic States entered into a proportional reinsurance agreement, or pooling agreement. Under the
pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss
expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled
business to Atlantic States. Thus, Donegal Mutual and Atlantic States share the underwriting results of the pooled business in
proportion to their respective participation in the underwriting pool.
The member companies of the Donegal Insurance Group, which include our insurance subsidiaries, share a combined
business plan to enhance market penetration and underwriting profitability objectives. We believe Donegal Mutual’s majority
interest in the combined voting power of our Class A common stock and of our Class B common stock fosters our ability to
implement our business philosophies, enjoy management continuity, maintain superior employee relations and provide a stable
environment within which we can grow our businesses.
The products the member companies of the Donegal Insurance Group offer are generally complementary, which permits
the Donegal Insurance Group to offer a broad range of products in a given market and to expand the Donegal Insurance
Group’s ability to service an entire personal lines or commercial lines account. Distinctions within the products the member
companies of the Donegal Insurance Group offer generally allow the member companies to manage certain risk segments
through variations in coverage, policy terms and pricing. As a result, the underwriting profitability of the business the
individual companies write directly will vary. However, the underwriting pool homogenizes the risk characteristics of all
business that Donegal Mutual and Atlantic States write directly and all business that Donegal Mutual assumes from its affiliates
and places into the underwriting pool. The business Atlantic States derives from the underwriting pool represents a significant
percentage of our total consolidated revenues.
As the capital of Atlantic States and our other insurance subsidiaries has increased, the underwriting capacity of our
insurance subsidiaries has increased proportionately. The size of the underwriting pool has also increased substantially.
Therefore, as we originally planned in the mid-1980s, Atlantic States has successfully raised the capital necessary to support the
growth of its direct business as well as to accept increases in its allocation of business from the underwriting pool. The portion
of the underwriting pool allocated to Atlantic States has increased from an initial allocation of 35% in 1986 to an 80%
allocation since March 1, 2008. We do not anticipate any further change in the pooling agreement between Atlantic States and
Donegal Mutual, including any change in the percentage participation of Atlantic States in the underwriting pool.
In addition to Atlantic States, our insurance subsidiaries are Michigan Insurance Company, or MICO, The Peninsula
Insurance Company and its wholly owned subsidiary, Peninsula Indemnity Company, or collectively, Peninsula, and Southern
Insurance Company of Virginia, or Southern. Donegal Mutual has a 100% quota-share reinsurance agreement with Southern
Mutual Insurance Company, or Southern Mutual, and Donegal Mutual places its assumed business from Southern Mutual into
the underwriting pool. Donegal Mutual wholly owns and has a 100% quota-share reinsurance agreement with Mountain States
Indemnity Company and Mountain States Commercial Insurance Company (collectively, the "Mountain States insurance
subsidiaries"), and Donegal Mutual places its assumed business from the Mountain States insurance subsidiaries into the
underwriting pool.
-2-
The following chart depicts our organizational structure, including all of our property and casualty insurance subsidiaries
and affiliates:
(1)
Because of the different relative voting power of our Class A common stock and our Class B common stock, our public
stockholders hold approximately 30% of the combined voting power of our Class A common stock and our Class B common stock and
Donegal Mutual holds approximately 70% of the combined voting power of our Class A common stock and our Class B common stock.
Relationship with Donegal Mutual
Donegal Mutual provides facilities, management and other services to us and our insurance subsidiaries. In addition,
Donegal Mutual purchases and maintains the information technology systems that support the business of Donegal Mutual and
our insurance subsidiaries. Donegal Mutual allocates certain related expenses to Atlantic States in accordance with the relative
participation of Donegal Mutual and Atlantic States in the pooling agreement. Our insurance subsidiaries other than Atlantic
States reimburse Donegal Mutual for allocated costs of services Donegal Mutual provides on their behalf based on their
proportion of the total direct premiums written of the Donegal Insurance Group and other metrics. Allocated expenses from
Donegal Mutual for services it provided to Atlantic States and our other insurance subsidiaries totaled $224.6 million,
$219.0 million and $199.2 million for 2024, 2023 and 2022, respectively.
Donegal Mutual is the employer of record for all personnel who provide services for our insurance subsidiaries. Donegal
Mutual strives to maintain a culture that is based on integrity and respect, with an environment designed to facilitate excellent
service to the agents and customers of the Donegal Insurance Group. At December 31, 2024, Donegal Mutual had 851
employees, of which 423 were based in its Marietta, Pennsylvania headquarters and 428 were based in regional offices or were
permanent remote employees. There were 833 full-time employees and 18 part-time employees. The majority of Donegal
Mutual's employees follow a hybrid schedule that includes working several days in their assigned office to allow for enhanced
collaboration and interaction with other employees. Donegal Mutual targets employee compensation that is competitive and
consistent with an employee's position, knowledge, experience and skill level. Donegal Mutual provides annual wage increases
that are based on merit. Donegal Mutual provides an annual cash incentive plan for all of its employees that provides an
opportunity for Donegal Mutual's employees to earn a bonus as a percentage of their annual wages that varies based on the level
of underwriting profit Donegal Insurance Group achieves for a calendar year. In addition, Donegal Mutual provides to its full-
time employees a comprehensive employee benefits program, including medical, dental and vision insurance, paid time off, and
a 401(k) retirement plan that includes company matching provisions. Donegal Mutual also provides substantial training,
development and wellness programs and resources to its employees.
Our insurance subsidiaries have a catastrophe reinsurance agreement with Donegal Mutual, pursuant to which Donegal
Mutual provides coverage for losses related to any catastrophic occurrence over a set retention of $3.0 million ($2.0 million for
2022) for each participating insurance subsidiary, with a combined retention of $6.0 million ($5.0 million for 2022) for a
catastrophe involving a combination of participating insurance subsidiaries, up to the amount Donegal Mutual and our
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insurance subsidiaries retain under catastrophe reinsurance agreements with unaffiliated reinsurers. The purpose of the
catastrophe reinsurance agreement is to lessen the effects of an accumulation of losses arising from one event to levels that are
appropriate given each subsidiary’s size, underwriting profile and surplus.
Donegal Mutual had a quota-share reinsurance agreement with MICO for policies effective through December 31, 2021.
The purpose of the quota-share reinsurance agreement with MICO was to transfer to Donegal Mutual 25% of the premiums and
losses related to MICO’s business. Donegal Mutual placed its assumed business from MICO into the underwriting pool.
Donegal Mutual and MICO terminated this reinsurance agreement on a run-off basis effective January 1, 2022. As a result,
MICO retains 100% of its net premiums and losses beginning with policies effective as of that date.
Donegal Mutual had a quota-share reinsurance agreement with Peninsula for policies effective through December 31, 2021.
The purpose of the quota-share reinsurance agreement with Peninsula was to transfer to Donegal Mutual 100% of the premiums
and losses related to the workers’ compensation product line of Peninsula in certain states. Donegal Mutual placed its assumed
business from Peninsula into the underwriting pool. Donegal Mutual and Peninsula terminated this reinsurance agreement on a
run-off basis effective January 1, 2022. As a result, Peninsula retains 100% of its net workers’ compensation premiums and
losses beginning with policies effective as of that date.
We and Donegal Mutual have maintained a coordinating committee since our formation in 1986. The coordinating
committee consists of two members of our board of directors, neither of whom is a member of Donegal Mutual’s board of
directors, and two members of Donegal Mutual’s board of directors, neither of whom is a member of our board of directors.
The purpose of the coordinating committee is to establish and maintain a process for an ongoing evaluation of the transactions
between Donegal Mutual, our insurance subsidiaries and us. The coordinating committee considers the fairness of each
intercompany transaction to Donegal Mutual and its policyholders and to us and our stockholders.
A new agreement or any change to a previously approved agreement must receive coordinating committee approval. The
approval process for a new agreement between Donegal Mutual and us or one of our insurance subsidiaries or a change in such
an agreement is as follows:
•
both of our members on the coordinating committee must determine that the new agreement or the change in an
existing agreement is fair and equitable to us and in the best interests of our stockholders;
•
both of Donegal Mutual’s members on the coordinating committee must determine that the new agreement or the
change in an existing agreement is fair and equitable to Donegal Mutual and in the best interests of its policyholders;
•
our board of directors must approve the new agreement or the change in an existing agreement; and
•
Donegal Mutual’s board of directors must approve the new agreement or the change in an existing agreement.
The coordinating committee also meets annually to review each existing agreement between Donegal Mutual and us or our
insurance subsidiaries, including all reinsurance agreements between Donegal Mutual and our insurance subsidiaries. The
purpose of this annual review is to examine the results of the agreements over the past year and, in the case of reinsurance
agreements, over several years and to determine if the results of the existing agreements remain fair and equitable to us and our
stockholders and fair and equitable to Donegal Mutual and its policyholders or if Donegal Mutual and we should mutually
agree to certain adjustments to the terms of the agreements. In the case of reinsurance agreements, the annual adjustments
typically relate to the reinsurance premiums and loss retention amounts. These agreements are ongoing in nature and will
continue in effect throughout 2025 in the ordinary course of our business.
Our members on the coordinating committee, as of the date of this Form 10-K Report, are Barry C. Huber and David C.
King. Mr. King replaced Richard D. Wampler, II, who did not stand for re-election as a director, in April 2024. Donegal
Mutual’s members on the coordinating committee as of such date are Michael W. Brubaker and Michael K. Callahan. We refer
to our proxy statement for our annual meeting of stockholders to be held on April 17, 2025 for further information about the
members of the coordinating committee.
We believe our relationships with Donegal Mutual offer us and our insurance subsidiaries a number of competitive
advantages, including the following:
•
enabling our stable management, the consistent underwriting discipline of our insurance subsidiaries, external growth,
long-term profitability and financial strength;
-4-
•
creating operational and expense synergies from the combination of resources and integrated operations of the Donegal
Insurance Group;
•
producing more stable and uniform underwriting results for our insurance subsidiaries over extended periods of time
than we could achieve without our relationship with Donegal Mutual;
•
providing opportunities for growth because of the ability of Donegal Mutual to affiliate and enter into reinsurance
agreements with, or otherwise acquire control of, mutual insurance companies and place the business it assumes into
the underwriting pool; and
•
providing Atlantic States with a significantly larger underwriting capacity because of the underwriting pool Donegal
Mutual and Atlantic States have maintained since 1986.
In the first quarter of 2025, our board of directors and the board of directors of Donegal Mutual each undertook a review of
the relationships between Donegal Mutual and DGI and determined that continuing the current relationships and the current
corporate structure of Donegal Mutual and DGI is in the best interests of DGI and its various constituencies.
Business Strategy
We and Donegal Mutual are focused on several primary strategies, including achieving sustained excellent financial
performance, strategically modernizing our operations and processes to transform our business, capitalizing on opportunities to
grow profitably and providing superior experiences to our agents, policyholders and employees. Our strategies are designed to
provide financial security to the policyholders of Donegal Mutual and our respective insurance subsidiaries and, ultimately, to
provide value to our stockholders. The annual net premiums earned of our insurance subsidiaries have increased from $301.5
million in 2006 to $936.7 million in 2024, a compound annual growth rate of 6.5%.
The combined ratio of our insurance subsidiaries and that of the United States property and casualty insurance industry as
computed using United States generally accepted accounting principles, or GAAP, and statutory accounting principles, or SAP,
for the years 2020 through 2024 are shown in the following table:
2024
2023
2022
2021
2020
Our GAAP combined ratio
98.6 %
104.4 %
103.3 %
101.0 %
96.0 %
Our SAP combined ratio
98.3
104.2
103.3
100.8
95.4
Industry SAP combined ratio (1)
98.9
101.9
103.1
100.0
98.8
(1) As reported (projected for 2024) by A.M. Best Company.
We and Donegal Mutual believe we can continue to expand our insurance operations over time primarily through organic
growth. Our insurance subsidiaries and Donegal Mutual seek to increase their premium base by making quality independent
agency appointments, enhancing their competitive position within each agency, providing a comprehensive suite of insurance
products and developing and maintaining automated systems to improve service, communications and efficiency.
A detailed review of our business strategies follows:
•
Achieving sustained excellent financial performance.
Our insurance subsidiaries seek to achieve excellent financial performance through a combination of consistent investment
income and underwriting profitability. Underwriting profitability is a fundamental component of our long-term financial
strength because it allows our insurance subsidiaries to generate profits without relying exclusively on their investment income
for profitability.
Our insurance subsidiaries seek to enhance their underwriting results by:
•
carefully selecting the product lines, classes of business and individual risks they underwrite;
•
executing localized strategies to achieve a mix of business they expect will generate targeted margins of
profitability;
-5-
•
monitoring premium rate adequacy and adjusting premium rates to achieve targeted growth, returns and retention
levels;
•
utilizing enhanced underwriting and technology tools to inform underwriting decisions and determine coverage
availability;
•
utilizing data analytics and predictive modeling tools to inform risk selection and pricing decisions;
•
utilizing economic capital modeling tools to carefully manage the geographic concentration of risks they
underwrite; and
•
evaluating their claims history on a regular basis to ensure the adequacy of their underwriting guidelines and
product pricing.
Our insurance subsidiaries maintain discipline in their pricing by effecting rate increases to sustain or improve their
underwriting results without unduly affecting their customer retention. In addition to appropriate pricing, our insurance
subsidiaries seek to ensure that their premium rates are adequate relative to the risk exposures they insure. Our insurance
subsidiaries review loss trends on a regular basis to identify changes in the frequency and severity of their claims and to assess
the adequacy of their rates and underwriting standards. Our insurance subsidiaries utilize integrated risk-specific catastrophe
model results, a tool to estimate probable maximum fire loss, embedded building valuation models and aerial imagery enhanced
by artificial intelligence to enhance their review and pricing of commercial property risks. Our insurance subsidiaries also
carefully monitor and audit the information they use to price their policies for the purpose of enabling them to receive an
adequate level of premiums for the risk they assume. For example, our insurance subsidiaries audit the payroll data of their
workers’ compensation customers to verify that the assumptions used to price a particular policy were accurate. By
implementing appropriate rate increases and understanding the risks our insurance subsidiaries agree to insure, our insurance
subsidiaries seek to achieve consistent underwriting profitability.
Our insurance subsidiaries monitor the performance of the product lines they underwrite and the geographies in which they
offer their insurance products. Our insurance subsidiaries take specific actions to remediate underperforming product lines or
geographies that include pricing increases, underwriting adjustments, reunderwriting initiatives as well as discontinuing a given
product or withdrawing from a geography when our insurance subsidiaries determine they cannot reasonably expect to generate
targeted profitability over time. For example, our insurance subsidiaries exited the commercial lines markets in the states of
Georgia and Alabama, including the non-renewal of all commercial lines accounts in those states, during 2023 and 2024. Our
insurance subsidiaries took this action after determining that they could not reasonably expect to generate targeted profitability
within a reasonable period of time for commercial lines of business in those states.
Our insurance subsidiaries have no material exposures to asbestos or environmental liabilities. Our insurance subsidiaries
seek to provide more than one policy to a given personal lines or commercial lines customer because this “account selling”
strategy diversifies their risk and has historically improved their underwriting results. Our insurance subsidiaries also use
reinsurance to manage their exposure and limit their maximum net loss from large single risks or risks in concentrated areas.
Our insurance subsidiaries maintain stringent expense controls under direct supervision of their senior management. We
centralize the processing and administrative activities of our insurance subsidiaries to realize operating synergies and better
expense control. Our insurance subsidiaries utilize technology to automate much of their underwriting, claims and billing
processes and to facilitate agency and policyholder communications on an efficient, timely and cost-effective basis. During
2024, Donegal Mutual and our insurance subsidiaries initiated a formal expense reduction initiative that included actions to
optimize staffing levels, take advantage of technology-driven efficiency gains, align agency compensation to desired outcomes
and reduce third-party vendor costs in several operational areas. This initiative will continue into 2025 to achieve targeted
expense reduction goals. Our insurance subsidiaries have increased their annual premium per employee, a measure of efficiency
that our insurance subsidiaries use to evaluate their operations, from approximately $470,000 in 1999 to approximately $1.4
million in 2024.
Return on invested assets is an important element of the financial results of our insurance subsidiaries. The investment
strategy of our insurance subsidiaries is to generate an appropriate amount of after-tax income on invested assets while limiting
the potential impact of equity market volatility and minimizing credit risk through investments in high-quality securities. As a
result, our insurance subsidiaries seek to invest a high percentage of their assets in diversified, highly rated and marketable
fixed-maturity instruments. The fixed-maturity portfolios of our insurance subsidiaries consist of both taxable and tax-exempt
securities. Our insurance subsidiaries maintain a portion of their portfolios in short-term securities to provide liquidity for the
-6-
payment of claims and operation of their respective businesses. Our insurance subsidiaries maintain a small percentage (2.6% at
December 31, 2024) of their portfolios in equity securities.
•
Strategically modernizing our operations and processes to transform our business.
We have an enterprise analytics department that is focused on integrating data and analytics into strategy and decision-
making at all levels of our organization. The enterprise analytics team is responsible for core functions of rate-making,
predictive analytics, data management and business intelligence. These responsibilities include the development and expansion
of risk-based pricing segmentation, analytical innovation, predictive modeling solutions, formal data strategies, performance
monitoring and enhanced reporting mechanisms. We developed and began executing a pricing and analytics roadmap that will
continue to deliver data-driven insights to our underwriters. This roadmap includes ongoing development and enhancement of
quality tools that allow us to operationalize pricing and underwriting predictive models, integrate internal and external data for
better-informed pricing and underwriting decisions and enhance the automation and precision of our rate indication
methodology. Our enterprise analytics team is continuing to develop new tools and solutions that are enhancing our product
portfolio management capabilities, competitive intelligence, pricing sophistication and utilization of data to monitor and
manage our operations. The team also generates reporting and analyses that enable us to draw business insights from data that
drive actions to improve performance.
We are focused on process excellence and have prepared a multi-year roadmap for addressing those opportunities. We are
also expanding our data management capabilities to continually ensure the data upon which we rely for our business decisions
and financial reporting is complete, accurate and secure. We have assigned an innovation task force the responsibility to
research emerging technologies and identify potential technology solutions that might assist us in achieving our business
strategies.
In 2018, Donegal Mutual initiated a multi-year systems modernization project to replace its remaining legacy systems,
streamline business processes and workflows and enhance data analytics and modeling capabilities. In February 2020, Donegal
Mutual implemented the first release of new systems related to the project, and our insurance subsidiaries began to issue
workers’ compensation policies from the new systems in the second quarter of 2020. In August 2021, Donegal Mutual
implemented the second release of new systems related to the project, including a new agency portal and the rating,
underwriting and policy issuance capabilities necessary to support the launch of new personal lines products, and our insurance
subsidiaries began to issue new personal lines products from the new systems in the fourth quarter of 2021. In 2023, Donegal
Mutual implemented two additional major releases of new systems, which included three commercial lines of business with
enhanced straight-through-processing capabilities as well as dwelling fire and conversion of legacy homeowners renewal
policies in two initial states. In 2024, Donegal Mutual implemented another major release that included dwelling fire and
conversion of legacy homeowners renewal policies in the remaining eight states. During 2025, Donegal Mutual expects to
implement new systems for the remaining lines of business the Donegal Insurance Group issues currently and for the
conversion of remaining legacy renewal policies of the Donegal Insurance Group. Donegal Mutual plans to perform the
conversion of legacy renewal policies on a state-by-state basis, currently projecting full completion in 2026.
In 2023, Donegal Mutual began a multi-year data modernization initiative to implement a comprehensive cloud-based data
infrastructure that will support critical future business processes and strategies. This agile infrastructure will scale dynamically
based on business demands and deliver real-time insights. The platform will enable highly efficient data processing through
modular, metadata-driven frameworks, ensuring accelerated and reliable future data delivery within a secure, governed and
compliant repository. It will also incorporate robust security features, such as multi-factor authentication and data encryption, as
well as other advanced data security and privacy measures. The platform will also facilitate seamless integration with analytics
functions, artificial intelligence and machine learning models, and enable innovative business use cases for technologies such as
Generative Artificial Intelligence (“Gen AI”). Donegal Mutual implemented concurrently a formal data management program
that aligns critical business processes and strategies with our technology. We expect these data-related investments will ensure
easily accessible data for management reporting, position us to further enhance our data analytics, enable the future addition of
new data sources and mitigate data integrity risk.
During 2024, we began exploring Gen AI capabilities by engaging with third-party experts to evaluate and identify
potential opportunities to adopt this transformative technology. We focused our initial activities on fostering awareness of
associated risks, developing expertise, establishing strategic partnerships and preparing for future advancements. We expect to
leverage capabilities that already exist within our new data infrastructure platform and prioritize solutions that allow
traceability, auditability and explainability of outputs. We expect to explore use cases that enhance the efficiency of our internal
processes and have no current plans to utilize GenAI in any automated underwriting, pricing or claim adjudication functions.
-7-
•
Capitalizing on opportunities to grow profitably.
Continued expansion of our insurance subsidiaries within their existing markets will be a key source of their continued
premium growth, and maintaining an effective network of independent agencies is integral to this expansion. Our insurance
subsidiaries seek to be among the top three insurers within each of the independent agencies for the lines of business our
insurance subsidiaries write by providing a consistent, competitive and stable market for their products. We believe that the
consistency of the product offerings of our insurance subsidiaries enables our insurance subsidiaries to compete effectively for
independent agents with other insurers whose product offerings may fluctuate based on industry conditions. Our insurance
subsidiaries offer a competitive compensation program to their independent agents that rewards them for producing profitable
growth and maintaining profitable books of business with our insurance subsidiaries.
Our insurance subsidiaries execute a combined annual business plan with Donegal Mutual and its insurance subsidiaries.
Within the past several years, we enhanced the annual planning process to ensure that we are directing efforts and resources
toward geographic regions, market segments, product lines and classes of business that will give us the best opportunities to
achieve sustained growth and profitability. As part of the planning process, we perform a detailed analysis of internal and
external data with respect to each state within our operating regions. We assess state-specific marketing dynamics and
opportunities, including an evaluation of the historical experience of our insurance subsidiaries. We then assign a strategic
posture for each state and develop action plans to execute state-specific strategies for growth or reduction of premiums, agency
distribution and enhanced profit generation over the next several years. As part of our property exposure management, we
implemented tools that have allowed us to assign a strategic posture at a county level within each state. Our insurance
subsidiaries utilize these tools to further manage and refine their concentrations of property risk exposure and to enhance their
geographic risk diversification. We expect this strategy will reduce over time the overall impact of losses from severe weather
events to the results of our insurance subsidiaries.
In recent years, the consolidation of independent agencies has accelerated, resulting in the acquisition of independent
agencies from which our insurance subsidiaries and Donegal Mutual currently receive business by national cluster groups and
aggregators. We have expanded our national accounts team that is responsible for the management and expansion of our
relationships with these national agency groups. The national accounts team serves as a centralized point of contact for these
groups and works directly with our regional sales and marketing teams to support and develop relationships with independent
agents affiliated with national agency groups. We believe our relationships with existing and emerging national agency groups
will continue to expand and that these groups represent a significant opportunity for profitable future growth.
•
Delivering a superior experience to our agents and policyholders.
Donegal Mutual and our insurance subsidiaries strive to maintain technology comparable to that of their larger competitors.
“Ease of doing business” is a critically important component of an insurer’s value to an independent agency. Our insurance
subsidiaries provide fully automated underwriting and policy issuance portals that substantially ease data entry and facilitate the
quoting and issuance of policies for the independent agents of our insurance subsidiaries. As a result, applications of the
independent agents for our insurance subsidiaries can result in policy issuance without further re-entry of information. These
systems also interface with the agency management systems of the independent agents of our insurance subsidiaries. In
addition, we utilize agency relationship management tools to enhance the abilities of our insurance subsidiaries to manage their
agency relationships and facilitate their agency communications and interactions.
Our insurance subsidiaries also provide their independent agents with ongoing support to enable them to better attract and
service customers, including:
•
training programs;
•
marketing support;
•
availability of a personal lines service center that provides comprehensive service for our personal lines
policyholders;
•
availability of a commercial lines small business unit to monitor straight-through processing results and enhance
turnaround time for responses to agents for less complicated commercial risks;
-8-
•
availability of a commercial lines service center, which is an optional service enhancement for agencies who
prefer that we interact directly with their customers for mid-term policy coverage changes and other service
requests; and
•
accessibility to and regular interactions with marketing and underwriting personnel and senior management of our
insurance subsidiaries.
Our insurance subsidiaries appoint independent agencies with a strong underwriting and growth track record. We
believe that our insurance subsidiaries will drive continued long-term growth by carefully selecting, motivating and supporting
their independent agencies.
We believe that excellent policyholder service is important in attracting new policyholders and retaining existing
policyholders. Our insurance subsidiaries work closely with their independent agents to provide a consistently responsive level
of claims service, underwriting and customer support. Our insurance subsidiaries seek to respond expeditiously and effectively
to address customer and independent agent inquiries in a number of ways, including:
•
availability of a customer call center, secure website and mobile application for claims reporting;
•
availability of a secure website and mobile application for access to policy information and documents, payment
processing and other features;
•
timely replies to information requests and policy submissions; and
•
prompt responses to, and processing of, claims.
•
Acquiring property and casualty insurance companies to augment the organic growth of our insurance
subsidiaries.
We have been an effective consolidator of smaller “main street” property and casualty insurance companies. We are
currently placing less emphasis on pursuing acquisitions because Donegal Mutual and we believe there are significant
opportunities for profitable organic growth in our desired markets and classes of business within our current geographic
footprint. Between 1998 and 2017, we and Donegal Mutual completed seven transactions involving acquisitions of property and
casualty insurance companies or participation in the business of property and casualty insurance companies through Donegal
Mutual’s entry into quota-share reinsurance agreements with them. While Donegal Mutual and we generally engage in
preliminary discussions with potential direct or indirect acquisition candidates from time to time, neither Donegal Mutual nor
we make any public disclosure regarding a proposed acquisition until Donegal Mutual or we have entered into a definitive
acquisition agreement.
-9-
The following table highlights our and Donegal Mutual’s history of insurance company acquisitions and affiliations since
1998:
Company Name
State of Domicile
Year Control
Acquired
Method of Acquisition/Affiliation
Southern Heritage Insurance
Company (1)
Georgia
1998
Purchase of stock by us in 1998.
Le Mars Mutual Insurance
Company of Iowa and then Le
Mars Insurance Company (1)
Iowa
2002
Surplus note investment by Donegal Mutual in 2002;
conversion to stock company in 2004; acquisition of
stock by us in 2004.
Peninsula Insurance Group
Maryland
2004
Purchase of stock by us in 2004.
Sheboygan Falls Mutual Insurance
Company and then Sheboygan
Falls Insurance Company (1)
Wisconsin
2007
Contribution note investment by Donegal Mutual in
2007; conversion to stock company in 2008;
acquisition of stock by us in 2008.
Southern Mutual Insurance
Company (2)
Georgia
2009
Surplus note investment by Donegal Mutual and
quota-share reinsurance in 2009.
Michigan Insurance Company
Michigan
2010
Purchase of stock by us in 2010.
Mountain States Mutual Casualty
Company(3)
New Mexico
2017
Merger with and into Donegal Mutual in 2017.
(1)
To reduce administrative and compliance costs and expenses, these subsidiaries subsequently merged into one of our existing
insurance subsidiaries.
(2)
Control acquired by Donegal Mutual.
(3)
Donegal Mutual completed the merger of Mountain States Mutual Casualty Company with and into Donegal Mutual effective May
25, 2017. Donegal Mutual was the surviving company in the merger, and Mountain States insurance subsidiaries became insurance
subsidiaries of Donegal Mutual upon completion of the merger. Donegal Mutual also entered into a 100% quota-share reinsurance
agreement with the Mountain States insurance subsidiaries on the merger date. Beginning with policies effective in 2021, Donegal
Mutual places the business of the Mountain States insurance subsidiaries into the underwriting pool.
Competition
The property and casualty insurance industry is highly competitive on the basis of both price and service. Numerous
companies compete for business in the geographic areas where our insurance subsidiaries operate. Many of these other
insurance companies are substantially larger and have greater financial resources than those of our insurance subsidiaries. In
addition, because our insurance subsidiaries and Donegal Mutual market their respective insurance products exclusively
through independent insurance agencies, most of which represent multiple insurance companies, our insurance subsidiaries face
competition within agencies, as well as competition to appoint and retain qualified independent agents. Insurance companies
that are substantially larger than our insurance subsidiaries benefit from access to larger pools of data upon which to base their
underwriting and pricing decisions as well as realize cost synergies their larger scale affords to them. Insurance companies that
market their products directly to end consumers generally incur lower relative acquisition costs compared to those of our
insurance subsidiaries.
Products and Underwriting
We report the results of our insurance operations in two segments: commercial lines of insurance and personal lines of
insurance. The commercial lines our insurance subsidiaries write consist primarily of commercial automobile, commercial
multi-peril and workers’ compensation insurance. The personal lines our insurance subsidiaries write consist primarily of
private passenger automobile and homeowners insurance. We describe these lines of insurance in greater detail below:
Commercial
•
Commercial automobile — policies that provide protection against liability for bodily injury and property damage
arising from automobile accidents and protection against loss from damage to automobiles owned by the insured.
•
Commercial multi-peril — policies that provide protection to businesses against many perils, usually combining
liability and physical damage coverages.
-10-
•
Workers’ compensation — policies employers purchase to provide benefits to employees for injuries sustained during
employment. The workers’ compensation laws of each state determine the extent of the coverage we provide.
Personal
•
Private passenger automobile — policies that provide protection against liability for bodily injury and property damage
arising from automobile accidents and protection against loss from damage to automobiles owned by the insured.
•
Homeowners — policies that provide coverage for damage to residences and their contents from a broad range of
perils, including fire, lightning, windstorm and theft. These policies also cover liability of the insured arising from
injury to other persons or their property while on the insured’s property and under other specified conditions.
In recent years, we have made intentional investments in systems, products and capabilities to enable us to grow our
business profitably. We are executing state-specific strategies that include accelerating commercial lines growth in states and
classes of business where we see opportunities for profitable growth and reducing exposures in states and classes of business
we have targeted for profit improvement. While we expect to place greater emphasis on commercial growth for the foreseeable
future, we desire to maintain a profitable book of personal business to provide enhanced stability across our product portfolio
and enhance our brand value to our independent agents. Donegal Mutual and our insurance subsidiaries offer personal lines
products in ten states through a modern, user-friendly online agency portal. These products feature comprehensive coverage
options, modernized rating methodology, enhanced pricing segmentation, application of predictive analytical models and
utilization of third-party data to augment pricing and risk selection. Due to ongoing inflationary pressures on loss costs, we
carefully managed personal lines exposure growth in 2024, intentionally slowing the writing of new personal lines opportunities
while implementing premium rate increases throughout the year. In 2025, we plan to continue writing reduced levels of new
personal lines accounts, while implementing premium rate increases to offset projected loss frequency and severity trends and
managing exposures to achieve targeted profitability within our personal lines segment.
The following table sets forth the net premiums written of our insurance subsidiaries by line of insurance for the periods
indicated:
Year Ended December 31,
2024
2023
2022
(dollars in thousands)
Amount
%
Amount
%
Amount
%
Commercial lines:
Automobile
$ 184,989
19.6 % $ 174,741
19.5 % $ 167,774
19.9 %
Workers’ compensation
103,533
11.0
107,598
12.0
111,892
13.3
Commercial multi-peril
213,959
22.7
195,632
21.8
200,045
23.7
Other
45,439
4.9
50,458
5.7
51,135
6.0
Total commercial lines
547,920
58.2
528,429
59.0
530,846
62.9
Personal lines:
Automobile
243,036
25.8
215,957
24.1
181,129
21.5
Homeowners
140,613
14.9
139,688
15.6
120,087
14.2
Other
10,712
1.1
11,623
1.3
11,468
1.4
Total personal lines
394,361
41.8
367,268
41.0
312,684
37.1
Total business
$ 942,281
100.0 % $ 895,697
100.0 % $ 843,530
100.0 %
The commercial lines and personal lines underwriting departments of our insurance subsidiaries evaluate and select those
risks that they believe will enable our insurance subsidiaries to achieve an underwriting profit. Within each of the underwriting
departments, our insurance subsidiaries have dedicated product development and management teams responsible for the
development of quality products at competitive prices to promote growth and profitability as well as the enhancement of our
current products to meet targeted customer needs.
In order to achieve underwriting profitability on a consistent basis, our insurance subsidiaries:
•
assess and select primarily standard and preferred risks;
•
adhere to disciplined underwriting guidelines;
-11-
•
seek to price risks appropriately based on exposure, risk characteristics, utilization of predictive models and
application of underwriting judgment; and
•
utilize various types of risk management and loss control services.
Our insurance subsidiaries also review their existing portfolio of insured accounts to determine whether certain risks or
classes of business continue to meet their underwriting guidelines and margin expectations. If a given account or class of
business no longer meets those underwriting guidelines or margin expectations, our insurance subsidiaries will take appropriate
action regarding that account or class of business, including raising premium rates or non-renewing policies to the extent
applicable laws and regulations permit.
Distribution
Our insurance subsidiaries market their products primarily in the Mid-Atlantic, Midwestern, Southern and Southwestern
regions through approximately 2,100 independent insurance agencies. At December 31, 2024, the Donegal Insurance Group
actively wrote business in 21 states (Arizona, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, Maryland, Michigan,
Nebraska, New Mexico, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia,
and Wisconsin). Donegal Mutual includes the business it writes directly and assumes from the Mountain States insurance
subsidiaries in five Southwestern states (Arizona, Colorado, New Mexico, Texas and Utah) in the pooling agreement between
Donegal Mutual and Atlantic States. We believe the relationships of our insurance subsidiaries with their independent agents
are valuable in identifying, obtaining and retaining profitable business. Our insurance subsidiaries maintain a stringent agency
selection procedure that emphasizes appointing agencies with proven marketing strategies for the development of profitable
business, and our insurance subsidiaries only appoint agencies with a strong underwriting history and potential growth
capabilities. Our insurance subsidiaries also regularly evaluate the independent agencies that represent them based on their
profitability and performance in relation to the objectives of our insurance subsidiaries. Our insurance subsidiaries seek to be
among the top three insurers within each of their agencies for the lines of business our insurance subsidiaries write.
The following table sets forth the percentage of direct premiums our insurance subsidiaries write, including 80% of the
direct premiums Donegal Mutual and Atlantic States include in the underwriting pool, in each of the states where they
conducted a significant portion of their business in 2024:
Pennsylvania
37.6 %
Michigan
15.9
Maryland
8.2
Delaware
6.6
Virginia
6.1
Ohio
4.0
Wisconsin
2.9
Indiana
2.7
Georgia
2.6
North Carolina
2.3
Texas
2.2
Other
8.9
Total
100.0 %
Our insurance subsidiaries employ a number of policies and procedures that we believe enable them to attract, retain and
motivate their independent agents. We believe that the consistency of the product offerings of our insurance subsidiaries
enables our insurance subsidiaries to compete effectively for independent agents with other insurers whose product offerings
may fluctuate based upon industry conditions. Our multi-year systems modernization project is further enhancing the ability of
our insurance subsidiaries to conduct business with their independent agents and to develop and implement new products. Our
insurance subsidiaries have a competitive compensation program for their independent agents that includes base commissions,
growth incentive plans and a profit-sharing plan, under which the independent agents may earn additional commissions based
upon the volume of premiums produced and the profitability of the business our insurance subsidiaries receive from that
agency. We have an agency stock purchase plan that allows our independent agents to purchase our Class A common stock at a
discount to market prices to further align the interests of our independent agents with the interests of our stockholders.
-12-
Our insurance subsidiaries encourage their independent agents to focus on “account selling,” or serving all of a particular
insured’s property and casualty insurance needs, which our insurance subsidiaries believe generally results in more favorable
loss experience than covering a single risk for an individual insured.
As part of the effort of our insurance subsidiaries to maintain acceptable underwriting results, they conduct annual reviews
of agencies that have failed to meet their underwriting profitability criteria. The review process includes an analysis of the
underwriting and re-underwriting practices of the agency, the completeness and accuracy of the applications the agency
submits, the adequacy of the training of the agency’s staff and the agency’s record of adherence to the underwriting guidelines
and service standards of our insurance subsidiaries. Based on the results of this review process, the marketing and underwriting
personnel of our insurance subsidiaries develop, together with the agency, a plan to improve its underwriting profitability. Our
insurance subsidiaries monitor the agency’s compliance with the plan and take other measures as required in the judgment of
our insurance subsidiaries, including the termination, to the extent applicable laws and regulations permit, of agencies that are
unable to achieve acceptable underwriting profitability.
Technology
Donegal Mutual owns and manages the technology that our insurance subsidiaries utilize on a daily basis. The technology
is comprised of highly integrated agency-facing and back-end processing systems that operate within an advanced, modernized
infrastructure that provides high service levels for performance, reliability, security and availability. Donegal Mutual maintains
disaster recovery and backup systems and tests these systems on a regular basis. Our insurance subsidiaries bear their
proportionate share of information services expenses based on their respective percentage of the total net premiums written of
the Donegal Insurance Group.
The business strategy and ultimate success of our insurance subsidiaries depends on the effectiveness of efficient and
integrated business systems and technology infrastructure. These systems enable our insurance subsidiaries to provide quality
service to agents and policyholders by processing business in a timely and dependable manner, communicate and share data
with agents and provide a variety of methods for the payment of premiums. These systems also allow for the accumulation and
analysis of data and information for the management of our insurance subsidiaries. Donegal Mutual is currently in the midst of
a multi-year effort to modernize certain of its key infrastructure and applications systems we describe in more detail under
“Business - Business Strategy - Strategically modernizing our operations and processes to transform our business.”
The modernized proficiency of these integrated technology systems facilitates high service levels for the agents and
policyholders of our insurance subsidiaries, increased efficiencies in processing the business of our insurance subsidiaries and
lower operating costs. Key components of these technology systems include agency interface systems, automated policy
management systems, a claims processing system and a billing administration system. The agency interface systems provide
our insurance subsidiaries with a comprehensive single source to facilitate data sharing both to and from agents’ systems. The
agency interface systems also integrate with our automated policy management systems to provide agents with an integrated
means of generating underwritten quotes and automatically issuing policies that meet the underwriting guidelines of our
insurance subsidiaries with limited or no intervention by their personnel. The claims processing system allows our insurance
subsidiaries to process claims efficiently and in an automated environment. The billing administration system allows our
insurance subsidiaries to process premium billing and collection efficiently and in an automated environment.
We believe Donegal Mutual's agency-facing technology systems compare well against those of many national property and
casualty insurance carriers in terms of feature capabilities and service levels.
Claims
The management of claims is a critical component of the philosophy of our insurance subsidiaries to achieve underwriting
profitability on a consistent basis and is fundamental to the successful operations of our insurance subsidiaries and their
dedication to excellent service. Our senior claims management oversees the claims processing units of each of our insurance
subsidiaries to assure consistency in the claims settlement process.
The claims departments of our insurance subsidiaries rigorously manage claims to assure that they settle legitimate claims
quickly and fairly and that they identify questionable claims for defense. They provide various means of claims reporting on a
24-hours a day, seven-days a week basis, including toll-free numbers and electronic reporting through our website and mobile
application. The claims departments strive to respond to notifications of claims promptly, generally within the day reported. By
responding promptly to claims, they provide quality customer service and we believe minimize the ultimate cost of the claims.
-13-
They engage independent adjusters as needed to handle claims in areas in which the typical volume of claims is not sufficient to
justify the hiring of field staff. They also employ private investigators, structural experts and outside legal counsel to
supplement their internal staff and to assist in the investigation of claims. Our insurance subsidiaries have a special investigative
unit primarily staffed by former law enforcement officers that attempts to identify and prevent fraud and abuse and to
investigate questionable claims.
The management of the claims departments of our insurance subsidiaries develops and implements policies and procedures
for the establishment of adequate claim reserves. Our insurance subsidiaries employ an actuarial staff that regularly reviews
their reserves for incurred but not reported claims. The management and staff of the claims departments resolve policy coverage
issues, manage and process reinsurance recoveries and handle salvage and subrogation matters. The litigation and personal
injury sections of our insurance subsidiaries manage all claims litigation. Claims above certain thresholds require management
review and settlement authorization. Our insurance subsidiaries provide their claims adjusters reserving and settlement authority
based upon their experience and demonstrated abilities. Larger or more complicated claims require consultation and approval of
senior claims department management.
Liabilities for Losses and Loss Expenses
Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with
respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. For example,
legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise
require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. At
the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or
be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on
assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during
the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently,
it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any
adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations
in the period in which our insurance subsidiaries make adjustments to their estimates.
Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported
and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of
settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for
reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances
surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance
subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical
information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of
costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and
recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance
subsidiaries do not discount their liabilities for losses and loss expenses.
Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance
subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations.
For example, our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim
settlement periods on bodily injury claims during the past several years. In addition, the COVID-19 pandemic and related
government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during
2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain
disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates.
These continuing trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to
the pattern of future loss settlements. Related uncertainties regarding future trends include social inflation, availability and cost
of replacement automobile parts and building materials, availability and cost of skilled labor, the rate of specialized plaintiff
attorney involvement in claims, plaintiff attorney utilization of litigation financing and the cost of medical technologies and
procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes
in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance
coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of
premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate
measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of
business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses,
among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have
changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes.
-14-
Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount
recorded at December 31, 2024. For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of
reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.0 million.
The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our
insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an
adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and
extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that
serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all
property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their
estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities
for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance
subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of
information received subsequent to the prior reporting period. Our insurance subsidiaries recognized a decrease in their liability
for losses and loss expenses of prior years of $15.0 million, $16.7 million and $44.8 million in 2024, 2023 and 2022,
respectively. Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management
personnel, and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss
expense reserves in those years. The 2024 development represented 2.2% of the December 31, 2023 net carried reserves and
resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and
homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and
commercial automobile lines of business, for accident years prior to 2024. The majority of the 2024 development related to
decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. The 2023 development
represented 2.5% of the December 31, 2022 net carried reserves and resulted primarily from lower-than-expected loss
emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023. The
majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic
States and MICO. The 2022 development represented 7.2% of the December 31, 2021 net carried reserves and resulted
primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for
accident years prior to 2022. The majority of the 2022 development related to decreases in the liability for losses and loss
expenses of prior years for Atlantic States and MICO.
Excluding the impact of severe weather events and the COVID-19 pandemic, our insurance subsidiaries have noted stable
amounts in the number of claims incurred and the number of claims outstanding at period ends relative to their premium base in
recent years across most of their lines of business. However, the amount of the average claim outstanding has increased
gradually over the past several years due to various factors such as increased property and automobile repair and replacement
costs, rising medical loss costs and increased litigation trends. We have also experienced a general slowing of settlement rates
in litigated claims and lengthening of repair completion times for property and automobile claims. Our insurance subsidiaries
could have to make further adjustments to their estimates in the future. However, on the basis of our insurance subsidiaries’
internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and
historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court
decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision
for their liability for losses and loss expenses.
Atlantic States’ participation in the underwriting pool with Donegal Mutual exposes Atlantic States to adverse loss
development on the business that Donegal Mutual contributes to the underwriting pool. However, pooled business represents
the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share
proportionately any adverse risk development relating to the pooled business. The business in the underwriting pool is
homogeneous, and each company has a pro-rata share of the entire underwriting pool. Since the predominant percentage of the
business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation
level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable
underwriting result from year to year for each company than either would experience individually and to spread the risk of loss
between the companies.
Differences between liabilities reported in our financial statements prepared on a GAAP basis and our insurance
subsidiaries’ financial statements prepared on a SAP basis result from anticipating salvage and subrogation recoveries for
GAAP but not for SAP. These differences amounted to $36.0 million, $32.4 million and $28.7 million at December 31, 2024,
2023 and 2022, respectively.
-15-
The following table sets forth a reconciliation of the beginning and ending GAAP net liability of our insurance subsidiaries
for unpaid losses and loss expenses for the periods indicated:
Year Ended December 31,
(in thousands)
2024
2023
2022
Gross liability for unpaid losses and loss expenses at beginning of year
$
1,126,157 $
1,121,046 $
1,077,620
Less reinsurance recoverable
437,014
451,184
451,261
Cumulative effect of adoption of updated accounting guidance for credit
losses at January 1
—
1,132
—
Net liability for unpaid losses and loss expenses at beginning of year
689,143
670,994
626,359
Provision for net losses and loss expenses for claims incurred in the
current year
619,090
625,831
608,900
Change in provision for estimated net losses and loss expenses for claims
incurred in prior years
(14,972)
(16,653)
(44,821)
Total incurred
604,118
609,178
564,079
Net losses and loss expense payments for claims incurred during:
The current year
319,196
330,290
302,272
Prior years
269,701
260,739
218,304
Total paid
588,897
591,029
520,576
Net liability for unpaid losses and loss expenses at end of year
704,364
689,143
669,862
Plus reinsurance recoverable
416,621
437,014
451,184
Gross liability for unpaid losses and loss expenses at end of year
$
1,120,985 $
1,126,157 $
1,121,046
The following table sets forth the development of the liability for net unpaid losses and loss expenses of our insurance
subsidiaries from 2014 to 2024. Loss data in the table includes business Atlantic States received from the underwriting pool.
“Net liability at end of year for unpaid losses and loss expenses” sets forth the estimated liability for net unpaid losses and
loss expenses recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of
net losses and loss expenses for claims arising in the current and all prior years that are unpaid at the balance sheet date,
including losses incurred but not reported.
The “Net liability re-estimated as of” portion of the table shows the re-estimated amount of the previously recorded liability
based on experience for each succeeding year. The estimate increases or decreases as payments are made and more information
becomes known about the severity of the remaining unpaid claims. For example, the 2014 liability has developed a deficiency
after ten years because we expect the re-estimated net losses and loss expenses to be $22.2 million more than the estimated
liability we initially established in 2014 of $292.3 million.
The “Cumulative deficiency (excess)” shows the cumulative deficiency or excess at December 31, 2024 of the liability
estimate shown on the top line of the corresponding column. A deficiency in liability means that the liability established in prior
years was less than the amount of actual payments and currently re-estimated remaining unpaid liability. An excess in liability
means that the liability established in prior years exceeded the amount of actual payments and currently re-estimated unpaid
liability remaining.
The “Cumulative amount of liability paid through” portion of the table shows the cumulative net losses and loss expense
payments made in succeeding years for net losses incurred prior to the balance sheet date. For example, the 2014 column
indicates that at December 31, 2024 payments equal to $306.0 million of the currently re-estimated ultimate liability for net
losses and loss expenses of $314.5 million had been made.
-16-
Year Ended December 31,
(in thousands)
2014
2015
2016
2017
2018
2019
2020
2021
2022
2023
2024
Net liability at end of
year for unpaid
losses and loss
expenses
$ 292,301
$ 322,054
$ 347,518
$ 383,401
$ 475,398
$ 506,906
$ 557,189
$ 626,359
$ 669,862
$ 689,143
$ 704,364
Net liability re-
estimated as of:
One year later
299,501
325,043
354,139
419,032
462,466
493,961
525,981
581,538
653,209
674,171
Two years later
299,919
329,115
375,741
413,535
450,862
479,927
498,724
564,326
638,428
Three years later
304,855
338,118
376,060
404,902
440,168
463,441
490,177
550,972
Four years later
307,840
339,228
372,230
398,560
432,027
459,835
480,865
Five years later
310,354
338,020
370,960
396,695
431,115
455,494
Six years later
310,380
338,200
372,346
396,748
429,865
Seven years later
311,594
339,625
371,859
396,167
Eight years later
313,354
340,191
372,477
Nine years later
313,539
340,800
Ten years later
314,490
Cumulative
deficiency
(excess)
22,189
18,746
24,959
12,766
(45,533) (51,412) (76,324) (75,387) (31,434) (14,972)
Cumulative amount
of liability paid
through:
One year later
$ 131,779
$ 149,746
$ 163,005
$ 175,883
$ 195,956
$ 172,497
$ 182,223
$ 218,304
$ 260,739
$ 269,701
Two years later
206,637
228,506
250,678
276,331
275,993
276,069
297,860
346,107
405,216
Three years later
251,654
274,235
306,338
317,447
335,310
343,912
374,043
426,648
Four years later
274,248
300,715
324,628
342,583
371,231
393,068
418,283
Five years later
287,178
309,630
337,946
362,061
394,251
414,690
Six years later
292,327
315,105
349,496
372,584
404,251
Seven years later
295,106
321,777
355,809
378,937
Eight years later
300,306
326,617
359,527
Nine years later
303,708
329,651
Ten years later
306,019
Year Ended December 31,
(in thousands)
2016
2017
2018
2019
2020
2021
2022
2023
2024
Gross liability at end
of year
$ 606,665
$ 676,672
$ 814,665
$ 869,674
$ 962,007
$ 1,077,620 $ 1,121,046
$ 1,126,157
$ 1,120,985
Reinsurance
recoverable
259,147
293,271
339,266
362,768
404,818
451,261
451,184
437,014
416,621
Net liability at end of
year
347,518
383,401
475,398
506,906
557,189
626,359
669,862
689,143
704,364
Gross re-estimated
liability
621,200
674,826
751,479
787,575
869,571
938,746
1,011,779
1,072,359
Re-estimated
recoverable
248,723
278,659
321,614
332,081
388,706
387,774
373,351
398,188
Net re-estimated
liability
372,477
396,167
429,865
455,494
480,865
550,972
638,428
674,171
Gross cumulative
deficiency
(excess)
14,535
(1,846) (63,186) (82,099) (92,436) (138,874) (109,267)
(53,798)
-17-
Third-Party Reinsurance
Our insurance subsidiaries and Donegal Mutual purchase certain third-party reinsurance on a combined basis. Our
insurance subsidiaries use several different reinsurers, all of which, consistent with the requirements of our insurance
subsidiaries and Donegal Mutual, have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers,
have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- (Excellent)
rating from A.M. Best.
The external reinsurance our insurance subsidiaries and Donegal Mutual purchased for 2024 included:
•
excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered losses over a set
retention of $4.0 million for all property losses and $3.0 million for all liability and workers' compensation losses for
2024 (set retention of $4.0 million for all property losses, $6.0 million for all liability losses except workers'
compensation losses and $3.0 million for all workers' compensation losses for 2025); and
•
catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered 100% of an
accumulation of many losses resulting from a single event, including natural disasters, over a set retention of $25.0
million up to aggregate losses of $175.0 million ($200.0 million for 2025) per occurrence.
For property insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of
$36.0 million per loss over a set retention of $4.0 million (no change for 2025). For liability insurance, our insurance
subsidiaries had excess of loss reinsurance that provided for coverage of $72.0 million per occurrence over a set retention of
$3.0 million ($69.0 million per occurrence over a set retention of $6.0 million for 2025). For workers’ compensation insurance,
our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $17.0 million on any one life over a set
retention of $3.0 million (no change for 2025).
Our insurance subsidiaries and Donegal Mutual also purchased facultative reinsurance to cover certain exposures,
including property exposures that exceeded the limits provided by their respective treaty reinsurance.
Investments
At December 31, 2024, 95.6% of all debt securities our insurance subsidiaries held had an investment-grade rating. The
investment portfolios of our insurance subsidiaries did not contain any mortgage loans or any non-performing assets at
December 31, 2024.
The following table shows the composition of the debt securities (at carrying value) in the investment portfolios of our
insurance subsidiaries, excluding short-term investments, by rating at December 31, 2024:
(dollars in thousands)
December 31, 2024
Rating(1)
Amount
Percent
U.S. Treasury and U.S. agency securities(2)
$
474,882
35.9 %
Aaa or AAA
25,112
1.9
Aa or AA
345,547
26.1
A
222,934
16.8
BBB
198,041
15.0
BB
58,478
4.4
Allowance for expected credit losses
(1,388)
(0.1)
Total
$
1,323,606
100.0 %
(1)
Ratings assigned by Moody’s Investors Services, Inc. or Standard & Poor’s Corporation.
(2)
Includes mortgage-backed securities of $304.5 million.
Our insurance subsidiaries invest in both taxable and tax-exempt securities as part of their strategy to maximize after-tax
income. Tax-exempt securities made up approximately 16.6%, 18.2% and 19.9% of the fixed-maturity securities in the
combined investment portfolios of our insurance subsidiaries at December 31, 2024, 2023 and 2022, respectively.
-18-
The following table shows the classification of our investments and the investments of our insurance subsidiaries at
December 31, 2024, 2023 and 2022 (at carrying value):
December 31,
2024
2023
2022
Percent of
Percent of
Percent of
(dollars in thousands)
Amount
Total
Amount
Total
Amount
Total
Fixed maturities(1):
Held to maturity:
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies
$
86,579
6.3 % $
91,517
6.9 % $ 103,362
7.9 %
Obligations of states and political subdivisions
371,896
26.9
376,898
28.4
382,097
29.3
Corporate securities
236,550
17.0
201,847
15.2
190,949
14.6
Mortgage-backed securities
10,689
0.8
9,235
0.7
12,031
1.0
Total held to maturity
705,714
51.0
679,497
51.2
688,439
52.8
Available for sale:
U.S. Treasury securities and obligations of
U.S. government corporations and
agencies
83,793
6.0
85,419
6.4
63,521
4.9
Obligations of states and political subdivisions
37,404
2.7
38,116
2.9
40,156
3.1
Corporate securities
202,932
14.7
196,793
14.8
202,838
15.5
Mortgage-backed securities
293,763
21.2
269,020
20.3
217,277
16.6
Total available for sale
617,892
44.6
589,348
44.4
523,792
40.1
Total fixed maturities
1,323,606
95.6
1,268,845
95.6
1,212,231
92.9
Equity securities(2)
36,808
2.6
25,903
2.0
35,105
2.7
Short-term investments(3)
24,558
1.8
32,306
2.4
57,321
4.4
Total investments
$ 1,384,972
100.0 % $ 1,327,054
100.0 % $ 1,304,657
100.0 %
(1)
We refer to Notes 1 and 4 to our Consolidated Financial Statements. We value those fixed maturities we classify as held to maturity
at amortized cost; we value those fixed maturities we classify as available for sale at fair value. The total fair value of fixed
maturities we classified as held to maturity was $631.6 million at December 31, 2024, $611.5 million at December 31, 2023 and
$598.0 million at December 31, 2022. The amortized cost of fixed maturities we classified as available for sale was $652.6 million
at December 31, 2024, $629.7 million at December 31, 2023 and $571.9 million at December 31, 2022.
(2)
We value equity securities at fair value. The total cost of equity securities was $24.7 million at December 31, 2024, $18.8 million at
December 31, 2023 and $30.8 million at December 31, 2022.
(3)
We value short-term investments at cost, which approximates fair value.
-19-
The following table sets forth the maturities (at carrying value) in the fixed maturity portfolio of our insurance subsidiaries
at December 31, 2024, 2023 and 2022:
December 31,
2024
2023
2022
Percent
of
Percent
of
Percent
of
(dollars in thousands)
Amount
Total
Amount
Total
Amount
Total
Due in(1):
One year or less
$
56,914
4.3 % $ 54,392
4.3 % $ 39,094
3.2 %
Over one year through three years
210,184
15.9
130,158
10.3
107,689
8.9
Over three years through five years
175,577
13.3
141,994
11.2
133,068
11.0
Over five years through ten years
318,912
24.1
347,035
27.3
357,114
29.5
Over ten years through fifteen years
208,445
15.7
201,585
15.9
191,118
15.8
Over fifteen years
50,503
3.8
116,747
9.2
154,840
12.7
Mortgage-backed securities
304,459
23.0
278,260
21.9
229,308
18.9
Allowance for expected credit losses
(1,388)
(0.1)
(1,326)
(0.1)
—
—
$ 1,323,606
100.0 % $ 1,268,845
100.0 % $ 1,212,231
100.0 %
(1)
Based on stated maturity dates with no prepayment assumptions. Actual maturities will differ because borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
As shown above, our insurance subsidiaries held investments in mortgage-backed securities having a carrying value of
$304.5 million at December 31, 2024. The mortgage-backed securities consist primarily of investments in governmental agency
balloon pools with stated maturities between one and 33 years. The stated maturities of these investments limit the exposure of
our insurance subsidiaries to extension risk in the event that interest rates rise and prepayments decline. Our insurance
subsidiaries perform an analysis of the underlying loans when evaluating a mortgage-backed security for purchase, and they
select those securities that they believe will provide a return that properly reflects the prepayment risk associated with the
underlying loans.
The following table sets forth the investment results of our insurance subsidiaries for the years ended December 31, 2024,
2023 and 2022:
Year Ended December 31,
(dollars in thousands)
2024
2023
2022
Invested assets(1)
$ 1,356,013
$ 1,315,855
$ 1,290,752
Investment income(2)
44,918
40,853
34,016
Average yield
3.3 %
3.1 %
2.6 %
Average tax-equivalent yield
3.4
3.2
2.7
(1)
Average of the aggregate invested amounts at the beginning and end of the period.
(2)
Investment income is net of investment expenses and does not include investment gains or losses or provision for income taxes.
A.M. Best Rating
Donegal Mutual and our insurance subsidiaries have an A.M. Best rating of A (Excellent), based upon the respective
current financial condition and historical statutory results of operations of Donegal Mutual and our insurance subsidiaries. We
believe that the A.M. Best rating of Donegal Mutual and our insurance subsidiaries is an important factor in their marketing of
their products to their agents and customers. A.M. Best’s ratings are industry ratings based on a comparative analysis of the
financial condition and operating performance of insurance companies. A.M. Best’s classifications are A++ and A+ (Superior),
A and A- (Excellent), B++ and B+ (Good), B and B- (Fair), C++ and C+ (Marginal), C and C- (Weak), D (Poor), E (Under
Regulatory Supervision), F (Liquidation) and S (Suspended). A.M. Best bases its ratings upon factors relevant to the payment
of claims of policyholders and are not directed toward the protection of investors in insurance companies. According to A.M.
Best, the “Excellent” rating that the Donegal Insurance Group maintains is assigned to those companies that, in A.M. Best’s
opinion, have an excellent ability to meet their ongoing insurance obligations.
-20-
Regulation
The supervision and regulation of insurance companies consists primarily of the laws and regulations of the various states
in which the insurance companies transact business, with the primary regulatory authority being the insurance regulatory
authorities in the state of domicile of the insurance company. Such supervision and regulation relate to numerous aspects of an
insurance company’s business and financial condition. The primary purpose of such supervision and regulation is the protection
of policyholders. The authority of the state insurance departments includes the establishment of standards of solvency that
insurers must meet and maintain, the licensing of insurers and insurance agents to do business, the nature of, and limitations on,
investments, premium rates for property and casualty insurance, the provisions that insurers must make for current losses and
future liabilities, the deposit of securities for the benefit of policyholders, the approval of policy forms, notice requirements for
the cancellation of policies and the approval of certain changes in control. State insurance departments also conduct periodic
examinations of the affairs of insurance companies and require the filing of annual and other reports relating to the financial
condition of insurance companies.
In addition to state-imposed insurance laws and regulations, the National Association of Insurance Commissioners, or the
NAIC, maintains a risk-based capital system, or RBC, for assessing the adequacy of the statutory capital and surplus of
insurance companies that augments the states’ current fixed dollar minimum capital requirements for insurance companies. At
December 31, 2024, our insurance subsidiaries and Donegal Mutual each exceeded the minimum levels of statutory capital the
RBC rules require by a substantial margin.
Generally, every state has guaranty fund laws under which insurers licensed to do business in that state can be assessed on
the basis of premiums written by the insurer in that state in order to fund policyholder liabilities of insolvent insurance
companies. Under these laws in general, an insurer is subject to assessment, depending upon its market share of a given line of
business, to assist in the payment of policyholder claims against insolvent insurers. Our insurance subsidiaries and Donegal
Mutual have made accruals for their portion of assessments related to such insolvencies based upon the most current
information furnished by the guaranty associations.
We are part of an insurance holding company system of which Donegal Mutual is the ultimate controlling person. All of
the states in which our insurance companies and Donegal Mutual maintain a domicile have legislation that regulates insurance
holding company systems. Each insurance company in the insurance holding company system must register with the insurance
supervisory agency of its state of domicile and furnish information concerning the operations of companies within the insurance
holding company system that may materially affect the operations, management or financial condition of the insurers within the
system. Pursuant to these laws, the respective insurance departments in which our subsidiaries and Donegal Mutual maintain a
domicile may examine our insurance subsidiaries or Donegal Mutual at any time, require disclosure of material transactions by
the holding company with another member of the insurance holding company system and require prior notice or prior approval
of certain transactions, such as “extraordinary dividends” from the insurance subsidiaries to the holding company. We have
insurance subsidiaries domiciled in Michigan, Pennsylvania and Virginia.
The Pennsylvania Insurance Holding Companies Act, which generally applies to Donegal Mutual, us and our insurance
subsidiaries, requires that all transactions within an insurance holding company system to which an insurer is a party must be
fair and reasonable and that any charges or fees for services performed must be reasonable. Any management agreement,
service agreement, cost sharing arrangement and material reinsurance agreement must be filed with the Pennsylvania Insurance
Department, or the Department, and is subject to the Department’s review. We have filed with the Department the pooling
agreement between Donegal Mutual and Atlantic States that established the underwriting pool and all material agreements
between Donegal Mutual and our insurance subsidiaries.
Approval of the applicable insurance commissioner is also required prior to consummation of transactions affecting the
control of an insurer. In virtually all states, including the states where our insurance subsidiaries are domiciled, the acquisition
of 10% or more of the outstanding capital stock of an insurer or its holding company or the intent to acquire such an interest
creates a rebuttable presumption of a change in control. Pursuant to an order issued in April 2003, the Department approved
Donegal Mutual’s ownership of up to 70% of our outstanding Class A common stock and Donegal Mutual’s ownership of up to
100% of our outstanding Class B common stock.
Our insurance subsidiaries have the legal obligation under state insurance laws to participate in involuntary insurance
programs for automobile insurance, as well as other property and casualty insurance lines, in the states in which they conduct
business. These programs include joint underwriting associations, assigned risk plans, fair access to insurance requirements
plans, reinsurance facilities, windstorm plans and tornado plans. Legislation establishing these programs requires all companies
that write lines covered by these programs to provide coverage, either directly or through reinsurance, for insureds who are
unable to obtain insurance in the voluntary market. The legislation creating these programs usually allocates a pro rata portion
-21-
of risks attributable to such insureds to each company on the basis of the direct premiums it has written in that state or the
number of automobiles it insures in that state. Generally, state law requires participation in these programs as a condition to
obtaining a certificate of authority. Our loss ratio on insurance we write under these involuntary programs has traditionally been
significantly greater than our loss ratio on insurance we voluntarily write in those states.
Regulatory requirements, including RBC requirements, may impact our insurance subsidiaries’ ability to pay dividends.
The amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements,
including RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at
December 31, 2024. Generally, the maximum amount that one of our insurance subsidiaries may pay to us as ordinary
dividends during any year after notice to, but without prior approval of, the insurance commissioner of its domiciliary state is
limited to a stated percentage of that subsidiary’s statutory capital and surplus at December 31 of the preceding fiscal year or
the net income of that subsidiary for its preceding fiscal year. Our insurance subsidiaries paid dividends to us of $15.0 million
and $13.0 million in 2024 and 2023, respectively. Our insurance subsidiaries did not pay any dividends to us in 2022. At
December 31, 2024, the amount of ordinary dividends our insurance subsidiaries could pay to us during 2025, without the prior
approval of their respective domiciliary insurance commissioners, is shown in the following table.
Name of Insurance Subsidiary
Ordinary
Dividend
Amount
Atlantic States
$ 40,741,454
MICO
7,822,780
Peninsula
4,734,260
Southern
—
Total
$ 53,298,494
Donegal Mutual Insurance Company
Donegal Mutual organized as a mutual fire insurance company in Pennsylvania in 1889. At December 31, 2024, Donegal
Mutual had admitted assets of $762.5 million and policyholders’ surplus of $397.6 million. At December 31, 2024, Donegal
Mutual had total liabilities of $364.9 million, including reserves for net losses and loss expenses of $160.2 million and unearned
premiums of $74.4 million. Donegal Mutual’s investment portfolio of $574.1 million at December 31, 2024 consisted primarily
of investment-grade bonds of $206.3 million and its investment in our Class A common stock and our Class B common stock.
At December 31, 2024, Donegal Mutual owned 13,152,372 shares, or approximately 44%, of our Class A common stock,
which Donegal Mutual carried on its books at $176.4 million, and 4,708,570 shares, or approximately 84%, of our Class B
common stock, which Donegal Mutual carried on its books at $63.1 million. We present Donegal Mutual’s financial
information in accordance with SAP as the NAIC Accounting Practices and Procedures Manual requires. Donegal Mutual does
not, nor is it required to, prepare financial statements in accordance with GAAP.
-22-
Information about Our Executive Officers
The following table sets forth information regarding the executive officers of Donegal Mutual and the Registrant as of the
date of this Form 10-K Report:
Name
Age
Position
Kevin G. Burke
59
President and Chief Executive Officer of us since 2015; President and Chief
Executive Officer of Donegal Mutual since 2018; Executive Vice President and
Chief Operating Officer of Donegal Mutual from 2014 to 2018; Senior Vice
President of Human Resources of Donegal Mutual and us from 2005 to 2014; other
positions from 2000 to 2005.
W. Daniel DeLamater
52
Executive Vice President and Chief Operating Officer of Donegal Mutual and us
since 2024; Senior Vice President of us from 2022 to 2024; Senior Vice President
and Head of Field Operations & National Accounts of Donegal Mutual from 2022
to 2024; Senior Vice President of National Accounts for Donegal Mutual from
2020 to 2022; President of Southern Mutual Insurance Company since 2016; other
positions at Southern Mutual Insurance Company from 2000 to 2016.
Jeffery T. Hay
50
Executive Vice President and Chief Underwriting Officer of Donegal Mutual and
us since 2025; Senior Vice President and Chief Underwriting Officer of Donegal
Mutual and Senior Vice President of us from 2021 to 2025; Senior Director of
Willis Towers Watson from 2018 to 2021; Head of Personal Lines Product
Management of The Hartford from 2015 to 2018; other positions at The Hartford
from 2005 to 2015.
Jeffrey D. Miller
60
Executive Vice President and Chief Financial Officer of Donegal Mutual and us
since 2014; Senior Vice President and Chief Financial Officer of Donegal Mutual
and us from 2005 to 2014; other positions from 1993 to 2005.
Sanjay Pandey
58
Executive Vice President and Chief Information Officer of Donegal Mutual and us
since 2025; Senior Vice President and Chief Information Officer of Donegal
Mutual and us from 2013 to 2025; other positions from 2000 to 2013.
Kristi S. Altshuler
44
Senior Vice President and Chief Analytics Officer of us since 2020; Senior Vice
President and Chief Analytics Officer of Donegal Mutual since 2019; Director of
Willis Towers Watson from 2018 to 2019; Director of Pricing Innovation of
USAA from 2014 to 2018; other positions at USAA from 2001 to 2014.
David B. Bawel
38
Senior Vice President and Chief Accounting Officer of Donegal Mutual and us
since 2024; Vice President of Financial Reporting and Analysis of Donegal Mutual
and Vice President of us from 2018 to 2024; Assistant Vice President of Internal
Audit of Donegal Mutual from 2012 to 2018.
Noland R. Deas, Jr.
57
Senior Vice President of Field Operations & National Accounts of Donegal Mutual
and Senior Vice President of us since 2024; Senior Regional Vice President of
Donegal Mutual from 2022 to 2024 and Regional Vice President of Donegal
Mutual from 2020 to 2022; other positions with Donegal Mutual from 2006 to
2020.
William A. Folmar
66
Senior Vice President of Claims of Donegal Mutual and Senior Vice President of
us since 2019; Vice President of Claims of Donegal Mutual from 2010 to 2019;
other positions from 1998 to 2010.
Rick J. Hecker
37
Senior Vice President and General Counsel of Donegal Mutual and us since 2025;
Senior Vice President and General Counsel of Conestoga Title Insurance Company
from 2022 to 2024; Vice President and General Counsel of Conestoga Title
Insurance Company from 2021 to 2022.
Christina M. Hoffman
50
Senior Vice President and Chief Risk Officer of Donegal Mutual and us since
2019; Senior Vice President of Internal Audit of Donegal Mutual and Senior Vice
President of us from 2013 to 2019; Vice President of Internal Audit of Donegal
Mutual and Vice President of us from 2009 to 2013.
David W. Sponic
60
Senior Vice President of Personal Lines of Donegal Mutual and Senior Vice
President of us since 2022; Vice President of Personal Lines of Donegal Mutual
from 2008 to 2022; other positions from 1990 to 2008.
V. Anthony Viozzi
51
Senior Vice President and Chief Investment Officer of Donegal Mutual and us
since 2012; Vice President of Investments of Donegal Mutual and us from 2007 to
2012.
Daniel J. Wagner
64
Senior Vice President and Treasurer of Donegal Mutual and us since 2005; other
positions from 1987 to 2005.
-23-
Cautionary Statement Regarding Forward-Looking Statements
This Form 10-K Report and the documents we incorporate by reference in this Form 10-K Report contain “forward-looking
statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements
include certain discussions relating to underwriting, premium and investment income volumes, business strategies, reserves,
profitability, our expense reduction initiatives, Donegal Mutual's ongoing information systems and data modernization
implementations, business relationships and our other business activities during 2024 and beyond. In some cases, you can
identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,”
“anticipate,” “believe,” “estimate,” “objective,” “project,” “predict,” “potential,” “goal” and similar expressions. These
forward-looking statements reflect our current views about future events and our current assumptions, and are subject to known
and unknown risks and uncertainties that may cause our results, performance or achievements to differ materially from those
we anticipate or imply by our forward-looking statements. We cannot control or predict many of the factors that could
determine our future financial condition or results of operations. Such factors may include those we describe under “Risk
Factors.” The forward-looking statements contained in this Form 10-K Report reflect our views and assumptions only as of the
date of this Form 10-K Report. Except as required by law, we do not intend to update, and we assume no responsibility for
updating, any forward-looking statements we have made. We qualify all of our forward-looking statements by these cautionary
statements.
Item 1A. Risk Factors.
Risk Factors
Risks Relating to the Property and Casualty Insurance Industry
Industry trends, such as increasing loss severity due to higher rates of litigation against the insurance industry and
individual insurers, the willingness of courts to expand covered causes of loss, rising jury awards, escalating medical,
automobile and property repair costs and other factors may contribute to increased costs and result in ultimate loss
settlements that exceed the reserves of our insurance subsidiaries.
Loss severity in the property and casualty insurance industry has increased in recent years, principally driven by factors
such as distracted driving, larger court judgments, higher jury awards and increasing medical and automobile and property
repair costs, including increases due to inflation and supply chain disruption. In addition, many classes of complainants have
brought legal actions and proceedings, some of which may be funded by third-party litigation financing, that tend to increase
the size of judgments. The propensity of policyholders and third-party claimants to utilize specialized plaintiff firms and litigate
and the willingness of courts to expand causes of loss and the size of awards, to eliminate exclusions and to increase coverage
limits may result in ultimate settlements of current and future losses that exceed the loss reserves of our insurance subsidiaries.
Our insurance subsidiaries are subject to catastrophe losses and losses from other severe weather events, which are
unpredictable and may adversely affect our results of operations, liquidity and financial condition.
The underwriting results of our insurance subsidiaries are subject to weather and other conditions that may adversely affect
our financial condition, liquidity or results of operations. Because the occurrence and severity of catastrophes are inherently
unpredictable and may vary significantly from year to year and region to region, our historical results of operations may not be
indicative of our future results of operations. Our property and casualty insurance operations expose us to claims arising from
catastrophic events affecting multiple policyholders. Such catastrophic events consist of various natural disasters, including, but
not limited to, hurricanes, tropical storms, tornadoes, windstorms, hailstorms, fires and wildfires, flooding, landslides,
earthquakes, severe winter weather events and man-made disasters such as terrorist attacks, explosions and infrastructure
failures. Historically, our insurance subsidiaries have experienced weather-related losses from hurricanes and tropical storms in
Mid-Atlantic and Southern states, tornadoes and hailstorms in Mid-Atlantic, Midwestern and Southern states and severe winter
weather events in Mid-Atlantic and Midwestern states.
Losses from catastrophic events are a function of both the extent of our insurance subsidiaries’ exposures, the frequency
and severity of the events themselves and the level of reinsurance coverage our insurance subsidiaries purchase. The increased
frequency and severity of weather-related catastrophes and other losses, such as from wildfires and flooding, incurred by the
industry in recent years may be indicative of changing weather patterns due to climate change. Should those patterns continue
to emerge, increased weather-related catastrophes in the states in which our insurance subsidiaries operate would lead to higher
overall losses that they may be unable to offset through pricing actions.
-24-
Our insurance subsidiaries seek to reduce their exposure to catastrophe losses through their underwriting strategies and
their purchase of catastrophe reinsurance. Advancements in economic capital modeling and catastrophe risk modeling assist our
insurance subsidiaries in measuring risk concentrations and inform their reinsurance purchase decisions. Nevertheless,
reinsurance may prove inadequate under certain circumstances. While the emerging science regarding climate change and its
connection to extreme weather events continues to be studied, climate change, to the extent it produces rising temperatures and
changes in weather patterns, could affect the frequency and severity of weather events and other losses and thus impact the
affordability and availability of catastrophe reinsurance coverage for our insurance subsidiaries. Our insurance subsidiaries'
ability to appropriately manage catastrophe risk depends partially on catastrophe models, which may be affected by inaccurate
or incomplete data, the uncertainty of the frequency and severity of future events and the uncertain impact of changing climate
conditions that tend to occur gradually over time.
Changing climate conditions could lead to new or revised regulations with which our insurance subsidiaries would have to
comply. Such regulations could impact the ability of our insurance subsidiaries to manage their exposures in areas impacted by
increased weather activity, require our insurance companies to alter the terms and conditions of their policies or impact the
ability of our insurance subsidiaries to obtain sufficient pricing increases to offset higher loss activity.
Our insurance subsidiaries must establish premium rates and loss and loss expense reserves from forecasts of the
ultimate costs they expect will arise from risks underwritten during the policy period, and the profitability of our insurance
subsidiaries could be adversely affected if their premium rates or reserves are insufficient to satisfy their ultimate costs.
One of the distinguishing features of the property and casualty insurance industry is that it prices its products before it
knows its costs, since insurers generally establish their premium rates before they know the amount of losses they will incur.
Accordingly, our insurance subsidiaries establish premium rates from forecasts of the ultimate costs they expect to arise from
risks they have underwritten during the policy period. Proposed increases in premium rates are subject to regulatory approval
on a state-by-state basis, and there is a lag between the time that our insurance subsidiaries file for such approval and the date
upon which our insurance subsidiaries can implement any such approved premium rate increase across their book of business
for a product in a particular state. The premium rates our insurance subsidiaries charge may not be sufficient to cover the
ultimate losses they incur. Further, our insurance subsidiaries must establish reserves for losses and loss expenses as balance
sheet liabilities based upon estimates involving actuarial and statistical projections at a given time of what our insurance
subsidiaries expect their ultimate liability to be. Significant periods of time often elapse between the occurrence of an insured
loss, the reporting of the loss and the settlement of that loss. It is possible that our insurance subsidiaries’ ultimate liability
could exceed these estimates because of the future development of known losses, the existence of losses that have occurred but
are currently unreported and larger than historical settlements of pending and unreported claims. The process of estimating
reserves is inherently judgmental and can be influenced by a number of factors, including the following:
•
trends in claim frequency and severity;
•
changes in operations;
•
emerging economic and social trends;
•
economic and social inflation; and
•
changes in the regulatory and litigation environments.
If our insurance subsidiaries determine that their reserves are insufficient to cover their ultimate liability, they will increase
their reserves. An increase in reserves results in an increase in losses and a reduction in net income for the period in which our
insurance subsidiaries recognize a deficiency in reserves. Accordingly, an increase in reserves may adversely impact the
business, liquidity, financial condition and results of operations of our insurance subsidiaries.
The financial results of our insurance subsidiaries depend primarily on their ability to underwrite risks effectively and
to charge adequate rates to policyholders.
The financial condition, cash flows and results of operations of our insurance subsidiaries depend on their ability to
underwrite and set rates accurately for a full spectrum of risks across a number of lines of insurance. Rate adequacy is necessary
to generate sufficient premium to pay losses, loss adjustment expenses and underwriting expenses and to realize a profit.
-25-
The ability to underwrite and set rates effectively is subject to a number of risks and uncertainties, including those related
to:
•
the availability of sufficient, reliable data;
•
the ability to conduct a complete and accurate analysis of available data;
•
the ability to recognize in a timely manner changes in trends and to project both the severity and frequency of losses
with reasonable accuracy;
•
uncertainties generally inherent in estimates and assumptions;
•
the ability to project changes in certain operating expense levels with reasonable certainty;
•
the development, selection and application of appropriate rating formulae or other pricing methodologies;
•
the effective development, governance and appropriate use of modeling tools to assist with correctly and consistently
achieving the intended results in underwriting and pricing;
•
the ability to innovate with new pricing strategies and the success of those innovations upon implementation;
•
the ability to secure regulatory approval of premium rates on an adequate and timely basis;
•
the ability to predict policyholder retention accurately;
•
unanticipated court decisions, legislation or regulatory action;
•
unanticipated changes in our claim settlement practices;
•
changes in driving patterns for auto exposures;
•
changes in weather patterns for property exposures;
•
changes in the medical sector of the economy that impact bodily injury loss costs;
•
changes in new and used car prices, auto repair costs and auto parts prices, including the increasing integration of
sophisticated technology-related components;
•
the impact of emerging technologies, including driver assistance technologies and autonomous vehicles, on pricing,
insurance coverages and loss costs;
•
the impact of inflation and other factors on the cost and availability of construction materials and labor;
•
the impact of medical advances on the cost and duration of bodily injury claims;
•
the ability to monitor property concentration in catastrophe-prone areas, such as hurricane, earthquake, wildfire and
wind/hail regions; and
•
the general state of the economy in the states in which our insurance subsidiaries operate.
Such risks may result in our insurance subsidiaries basing their premium rates on inadequate or inaccurate data or
inappropriate assumptions or methodologies and may cause our estimates of future changes in the frequency or severity of
claims to be incorrect. As a result, our insurance subsidiaries could underprice risks, which would negatively affect our
margins, or our insurance subsidiaries could overprice risks, which could reduce their premium volume and competitiveness. In
either event, underpricing or overpricing risks could adversely impact our operating results, financial condition and cash flows.
-26-
The pace of innovation within the insurance industry is rapidly increasing, and our insurance subsidiaries may be
unable to effectively implement new technologies and anticipate changes in customer preferences and insurance needs,
which could put our insurance subsidiaries at a competitive disadvantage and adversely affect their future profitability.
Innovation, recent technological developments, changing customer demographics and preferences, societal shifts and
emerging technologies such as artificial intelligence are greatly impacting the insurance industry. Our insurance subsidiaries
compete with much larger insurers that are focused on implementing technology and innovative solutions to select and price
risks, identify and target potential customers, enhance the experience of their customers and improve their operations. If our
insurance subsidiaries are unable to anticipate changes in customer expectations and keep pace with the technological changes
their competitors implement, our insurance subsidiaries may not be able to attract and maintain quality accounts, adequately
price risks or operate as efficiently as their competitors. In addition, emerging technologies such as electric and autonomous
vehicles, driver-assistance and accident avoidance features on vehicles, sensor technology and other forms of automation may
reduce the future need for, or decrease the future pricing of, the insurance products our insurance subsidiaries offer.
Loss or significant restriction of the use of specific rating attributes, analytical models or technologies in the pricing
and underwriting of insurance products by our insurance subsidiaries could adversely affect their future profitability.
Our insurance subsidiaries consider a variety of rating attributes in making risk selection and pricing decisions for personal
lines insurance products where allowed by state law. There is increasing regulatory debate as to whether use of certain rating
attributes is unfairly discriminatory. For example, consumer groups and regulators often call for the prohibition or restriction on
the use of credit scoring in underwriting and pricing. In addition, there is increasing regulatory attention on the governance over
and use of analytical models and technologies, including artificial intelligence systems, to ensure that such technologies comply
with laws that address unfair trade practices and unfair discrimination. Laws or regulations that significantly curtail the use of
specific rating attributes or other analytical models and technologies in the underwriting process could reduce the future
profitability of our insurance subsidiaries.
Changes in applicable insurance laws or regulations or changes in the way insurance regulators administer those laws
or regulations could adversely affect the operating environment of our insurance subsidiaries and increase their exposure to
loss or put them at a competitive disadvantage.
Property and casualty insurers are subject to extensive supervision in their domiciliary states and in the states in which they
do business. This regulatory oversight includes matters relating to:
•
licensing and examination;
•
approval of premium rates;
•
market conduct;
•
policy forms;
•
limitations on the nature and amount of certain investments;
•
claims practices;
•
mandated participation in involuntary markets and guaranty funds;
•
reserve adequacy;
•
insurer solvency;
•
transactions between affiliates;
•
the amount of dividends that insurers may pay; and
•
restrictions on underwriting standards.
Such regulation and supervision are primarily for the benefit and protection of policyholders rather than stockholders.
-27-
The NAIC and state insurance regulators re-examine existing laws and regulations from time to time, specifically focusing
on areas such as:
•
insurance company investments;
•
issues relating to the solvency of insurance companies;
•
risk-based capital guidelines;
•
restrictions on the terms and conditions included in insurance policies;
•
certain methods of accounting;
•
reserves for unearned premiums, losses and other purposes;
•
the values at which insurance companies may carry investment securities and the definition of other-than-temporary
impairment of investment securities; and
•
interpretations of existing laws and the development of new laws.
Changes in state laws and regulations, as well as changes in the way state regulators view related-party transactions in
particular, could change the operating environment of our insurance subsidiaries and have an adverse effect on their business.
Insurance companies are subject to assessments, based on their market share in a given line of business, to assist in the
payment of unpaid claims and related costs of insolvent insurance companies. Such assessments could adversely affect the
financial condition of our insurance subsidiaries.
Our insurance subsidiaries are subject to assessments pursuant to the guaranty fund laws of the various states in which they
conduct business. Generally, under these laws, our insurance subsidiaries can be assessed, depending upon the market share of
our insurance subsidiaries in a given line of insurance business, to assist in the payment of unpaid claims and related costs of
insolvent insurance companies in those states. We cannot predict the number and magnitude of future insurance company
failures in the states in which our insurance subsidiaries conduct business, but future assessments could adversely affect the
business, financial condition and results of operations of our insurance subsidiaries.
Risks Relating to Our Business
The COVID-19 pandemic affected the business operations of our insurance subsidiaries and Donegal Mutual, and
economic disruption related to a future pandemic may adversely affect our revenues, profitability, results of operations, cash
flows, liquidity and financial condition.
During 2020 and 2021, the COVID-19 pandemic resulted in significant disruptions in economic activity throughout our
operating regions. We cannot predict the ultimate impact that the economic and financial disruption related to a pandemic may
have on us. Risks related to a pandemic include, but are not limited to, the following:
•
the business operations or a specific operational function of our insurance subsidiaries and Donegal Mutual could be
disrupted by the illness of significant numbers of their employees and remedial efforts that would be required upon
discovery of exposure to a communicable illness within their facilities;
•
the business operations of our insurance subsidiaries and Donegal Mutual are dependent upon technology systems for
which regular physical access is required to maintain critical operational capabilities, and the business operations of
our insurance subsidiaries and Donegal Mutual would be adversely impacted by government mandates requiring
closure of facilities where those technology systems are located or restricting physical access to such facilities;
•
the revenues of our insurance subsidiaries and Donegal Mutual may decrease as a result of reduced demand for their
insurance products as economic disruption adversely impacts current and potential insurance customers;
•
our insurance subsidiaries and Donegal Mutual may incur an increase in their losses and loss expenses in certain lines
of business as a result of a pandemic and related economic disruption, and such losses and loss expenses may exceed
the reserves our insurance subsidiaries and Donegal Mutual have established or may establish in the future;
-28-
•
our insurance subsidiaries and Donegal Mutual may incur increased costs related to legal disputes over policy
coverages or exclusions and their defense against litigation related to a pandemic;
•
legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or
otherwise require our insurance subsidiaries and Donegal Mutual to pay losses for damages that their policies
explicitly excluded or did not intend to cover;
•
legislative, judicial and regulatory actions may require our insurance subsidiaries and Donegal Mutual to reduce or
refund premiums, suspend cancellation of policies for non-payment of premiums or otherwise grant extended grace
periods and time allowances for the payment of premium balances due to them;
•
our insurance subsidiaries and Donegal Mutual may not be able to collect premium balances due to them, resulting in
reduced operating cash flows and an increase in premium write-offs that would increase their operating expenses;
•
our insurance subsidiaries may suffer declines in the market values of their investments as a result of financial market
volatility related to pandemic concerns and related economic disruption; and
•
economic disruption related to a pandemic could result in significant declines in the credit quality of issuers, ratings
downgrades or changes in financial market conditions and regulatory changes that might adversely impact the value of
the fixed-maturity investments that our insurance subsidiaries own.
Our insurance subsidiaries and Donegal Mutual currently conduct business in a limited number of states, with a
concentration of business in Pennsylvania, Michigan, Maryland, Delaware and Virginia. Any single catastrophe occurrence
or other condition affecting losses in these states could adversely affect the results of operations of our insurance
subsidiaries.
Our insurance subsidiaries and Donegal Mutual conduct business in 21 states located primarily in the Mid-Atlantic,
Midwestern, Southern and Southwestern states. A substantial portion of their business consists of private passenger and
commercial automobile, homeowners, commercial multi-peril and workers’ compensation insurance in Pennsylvania,
Michigan, Maryland, Delaware and Virginia. While our insurance subsidiaries and Donegal Mutual actively manage their
respective exposure to catastrophes through their underwriting processes and the purchase of reinsurance, a single catastrophic
occurrence, destructive weather pattern, general economic trend, terrorist attack, regulatory development or other condition
affecting one or more of the states in which our insurance subsidiaries conduct substantial business could materially adversely
affect their business, financial condition and results of operations. Common catastrophic events include hurricanes, earthquakes,
tornadoes, wind and hailstorms, fires and wildfires, explosions and severe winter storms.
If the independent agents who market the products of our insurance subsidiaries and Donegal Mutual do not maintain
their current levels of premium writing with us and Donegal Mutual, fail to comply with established underwriting guidelines
of our insurance subsidiaries and Donegal Mutual or otherwise inappropriately market the products of our insurance
subsidiaries and Donegal Mutual, the business, financial condition and results of operations of our insurance subsidiaries
could be adversely affected.
Our insurance subsidiaries and Donegal Mutual market their insurance products solely through a network of approximately
2,100 independent insurance agencies. This agency distribution system is one of the most important components of the
competitive profile of our insurance subsidiaries and Donegal Mutual. As a result, our insurance subsidiaries and Donegal
Mutual depend to a material extent upon their independent agents, each of whom has the authority to bind one or more of our
insurance subsidiaries or Donegal Mutual to insurance coverage. To the extent that such independent agents’ marketing efforts
fail to result in the maintenance of their current levels of volume and quality or they bind our insurance subsidiaries or Donegal
Mutual to unacceptable insurance risks, fail to comply with the established underwriting guidelines of our insurance
subsidiaries and Donegal Mutual or otherwise inappropriately market the products of our insurance subsidiaries and Donegal
Mutual, the business, financial condition and results of operations of our insurance subsidiaries could suffer.
The business of our insurance subsidiaries and Donegal Mutual may not continue to grow and may be materially
adversely affected if our insurance subsidiaries and Donegal Mutual cannot retain existing, and attract new, independent
agents or if insurance consumers increase their use of insurance distribution channels other than independent agents.
The ability of our insurance subsidiaries and Donegal Mutual to retain existing, and to attract new, independent agents is
essential to the continued growth of the business of our insurance subsidiaries and Donegal Mutual. If independent agents find
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it easier to do business with the competitors of our insurance subsidiaries and Donegal Mutual, our insurance subsidiaries and
Donegal Mutual could find it difficult to retain their existing business or to attract new business. While our insurance
subsidiaries and Donegal Mutual believe they maintain good relationships with the independent agents they have appointed, our
insurance subsidiaries and Donegal Mutual cannot be certain that these independent agents will continue to sell the products of
our insurance subsidiaries and Donegal Mutual to the consumers these independent agents represent. Some of the factors that
could adversely affect the ability of our insurance subsidiaries and Donegal Mutual to retain existing, and attract new,
independent agents include:
•
the significant competition among insurance companies to attract independent agents;
•
the labor-intensive and time-consuming process of selecting new independent agents;
•
the insistence of our insurance subsidiaries and Donegal Mutual that independent agents adhere to certain standards;
•
the ability of our insurance subsidiaries and Donegal Mutual to pay competitive and attractive commissions, bonuses
and other incentives to independent agents; and
•
the ongoing consolidation of independent agencies, which may result in the acquisition of independent agencies from
which our insurance subsidiaries and Donegal Mutual currently receive business by larger entities with which our
insurance subsidiaries and Donegal Mutual do not have business relationships.
While our insurance subsidiaries and Donegal Mutual sell insurance to policyholders solely through their network of
independent agencies, many competitors of our insurance subsidiaries and Donegal Mutual sell insurance through a variety of
delivery methods, including independent agencies, captive agencies and direct sales. To the extent that current and potential
policyholders change their distribution channel preference, the business, financial condition and results of operations of our
insurance subsidiaries may be adversely affected.
Dividends from our insurance subsidiaries are a significant source of funds for the payment of our operating expenses
and dividends to our stockholders; however, there are regulatory restrictions and business considerations that may limit the
amount of dividends our insurance subsidiaries may pay to us.
As a holding company, we rely on dividends from our insurance subsidiaries as a significant source of funds to meet our
corporate obligations and to pay dividends to our stockholders. The amount of dividends our insurance subsidiaries can pay to
us is subject to regulatory restrictions and depends on the amount of surplus our insurance subsidiaries maintain. From time to
time, the NAIC and various state insurance regulators consider modifying the method of determining the amount of dividends
that an insurance company may pay without prior regulatory approval. The maximum amount of ordinary dividends that our
insurance subsidiaries can pay to us in 2025 without prior regulatory approval is approximately $53.3 million. Other business
and regulatory considerations, such as the impact of dividends on surplus that could affect the ratings of our insurance
subsidiaries, competitive conditions, RBC requirements, the investment results of our insurance subsidiaries and the amount of
premiums that our insurance subsidiaries write could also adversely impact the ability of our insurance subsidiaries to pay
dividends to us.
If A.M. Best downgrades the rating it has assigned to Donegal Mutual or any of our insurance subsidiaries, it would
adversely affect their competitive position.
Industry ratings are a factor in establishing and maintaining the competitive position of insurance companies. A.M. Best, an
industry-accepted source of insurance company financial strength ratings, rates Donegal Mutual and our insurance subsidiaries.
A.M. Best ratings provide an independent opinion of an insurance company’s financial health and its ability to meet its
obligations to its policyholders. We believe that the financial strength rating of A.M. Best is material to the operations of
Donegal Mutual and our insurance subsidiaries. For example, certain lenders require customers to purchase insurance from an
insurance carrier that has received an A.M. Best rating that exceeds a certain level. Currently, Donegal Mutual and our
insurance subsidiaries each have an A (Excellent) rating from A.M. Best. In May 2024, A.M. Best affirmed its A (Excellent)
ratings of Donegal Mutual and our insurance subsidiaries. However, if A.M. Best were to downgrade the rating of Donegal
Mutual or any of our insurance subsidiaries, it would adversely affect the competitive position of Donegal Mutual or that
insurance subsidiary and make it more difficult for it to market its products and retain its existing policyholders.
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The growth and profitability of our insurance subsidiaries depend, in part, on the effective maintenance and ongoing
development of Donegal Mutual’s information technology systems, and the allocation of related costs to our insurance
subsidiaries may adversely impact their profitability.
Our insurance subsidiaries utilize Donegal Mutual’s information technology systems to conduct their insurance business,
including policy quoting and issuance, claims processing, processing of incoming premium payments and other important
functions. As a result, the ability of our insurance subsidiaries to grow their business and conduct profitable operations depends
on Donegal Mutual’s ability to maintain its existing information technology systems and to develop new technology systems
that will support the business of Donegal Mutual and our insurance subsidiaries in a cost-efficient manner and provide
information technology capabilities equivalent to those of our competitors. The allocation among our insurance subsidiaries and
Donegal Mutual of the costs of developing and maintaining Donegal Mutual’s information technology systems may adversely
impact our insurance subsidiaries’ expense ratio and underwriting profitability, and such costs may exceed Donegal Mutual’s
and our expectations.
Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key infrastructure and
applications systems, and the allocation of related costs to our insurance subsidiaries has resulted in an increase to their expense
ratio. These new systems are intended to provide various benefits to the member companies of the Donegal Insurance Group,
including streamlined workflows and business processes, service enhancements for their agents and policyholders,
opportunities to implement new product models and innovative business solutions, greater utilization of data analytics and
operational efficiencies. Since 2020, we have implemented five major releases of new systems. In 2025, Donegal Mutual
expects to implement new systems for the remaining lines of business the Donegal Insurance Group issues currently and for the
conversion of remaining legacy renewal policies of the Donegal Insurance Group. The conversion process will continue into
2026 as legacy policies renew on a state-by-state rollout schedule. Even with Donegal Mutual's and our best planning and
efforts and the involvement of third-party experts, Donegal Mutual may not complete the implementation of these new systems
within its planned timeframes or budget. Further, Donegal Mutual’s information technology systems may not deliver the
benefits Donegal Mutual and we expect and may fail to keep pace with our competitors’ information technology systems. As a
result, Donegal Mutual and our insurance subsidiaries may not have the ability to grow their business and meet their
profitability objectives.
While we are currently placing less emphasis on pursuing acquisitions because Donegal Mutual and we believe there
are significant opportunities for profitable organic growth, our strategy to grow in part through acquisitions of other
insurance companies exposes us to risks that could adversely affect our results of operations and financial condition.
The affiliation with, and acquisition of, other insurance companies involves risks that could adversely affect our results of
operations and financial condition. The risks associated with these affiliations and acquisitions include:
•
the potential inadequacy of reserves for losses and loss expenses of the other insurer;
•
the need to supplement management of the other insurer with additional experienced personnel;
•
conditions imposed by regulatory agencies that make the realization of cost-savings through integration of the
operations of the other insurer with our operations more difficult;
•
our management's lack of familiarity with the geography, demographics and distribution systems in the markets the
other insurer serves that cause the other insurer to fail to meet the growth and profitability objectives we anticipated at
the time of the acquisition or affiliation;
•
potential difficulties with integration of information technology systems and other operations;
•
the need of the other insurer for additional capital that we did not anticipate at the time of the acquisition or affiliation;
and
•
the use of more of our management’s time in improving the operations of the other insurer than we originally
anticipated.
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If we cannot obtain sufficient capital to fund the organic growth of our insurance subsidiaries and to make acquisitions,
we may not be able to expand our business.
Our strategy is to expand our business through the organic growth of our insurance subsidiaries and through our strategic
acquisitions of regional insurance companies. Our insurance subsidiaries may require additional capital in the future to support
this strategy. If we cannot obtain sufficient capital on satisfactory terms and conditions, we may not be able to expand the
business of our insurance subsidiaries or to make future acquisitions. Our ability to obtain additional financing will depend on a
number of factors, many of which are beyond our control. For example, we may not be able to obtain additional debt or equity
financing because we or our insurance subsidiaries may already have substantial debt at the time, because we or our insurance
subsidiaries do not have sufficient cash flow to service or repay our existing or additional debt or because financial institutions
are not making financing available. In addition, any equity capital we obtain in the future could be dilutive to our existing
stockholders.
Competition within the property and casualty insurance industry may adversely impact the revenues and profit margins
of our insurance subsidiaries.
The property and casualty insurance industry is intensely competitive. Competition can be based on many factors,
including:
•
the perceived financial strength of the insurer;
•
premium rates;
•
policy terms and conditions;
•
policyholder service;
•
reputation; and
•
experience.
Our insurance subsidiaries and Donegal Mutual compete with many regional and national property and casualty insurance
companies, including direct sellers of insurance products, insurers having their own agency organizations and other insurers
represented by independent agents. Many of these insurers have greater capital than our insurance subsidiaries and Donegal
Mutual, have substantially greater financial, technical and operating resources, have substantially greater exposure and access to
potential customers and have equal or higher ratings from A.M. Best than our insurance subsidiaries and Donegal Mutual. In
addition, our competitors may become increasingly better capitalized in the future as the property and casualty insurance
industry continues to consolidate.
The greater capitalization of many of the competitors of our insurance subsidiaries and Donegal Mutual enables them to
operate with lower profit margins and, therefore, allows them to market their products more aggressively, to take advantage
more quickly of new marketing opportunities and to offer lower premium rates. In addition to established insurers, our
insurance subsidiaries and Donegal Mutual compete with a growing number of start-ups, some of which have received
substantial infusions of capital, that seek to disrupt traditional business platforms and distribution channels. Our insurance
subsidiaries and Donegal Mutual may not be able to maintain their current competitive position in the markets in which they
operate if their competitors offer prices for their products that are lower than the prices our insurance subsidiaries and Donegal
Mutual are prepared to offer. Moreover, if these competitors lower the price of their products and our insurance subsidiaries and
Donegal Mutual meet their pricing, the profit margins and revenues of our insurance subsidiaries and Donegal Mutual may
decrease and their ratios of claims and expenses to premiums may increase. All of these factors could materially adversely
affect the financial condition and results of operations of our insurance subsidiaries and their A.M. Best ratings.
The investment portfolios of our insurance subsidiaries consist primarily of fixed-income securities; therefore, the
investment income and the fair value of the investment portfolios of our insurance subsidiaries could decrease as a result of
a number of factors.
Our insurance subsidiaries invest the premiums they receive from their policyholders and maintain investment portfolios
that consist primarily of fixed-income securities. The effective management of these investment portfolios is an important
component of the profitability of our insurance subsidiaries. Our insurance subsidiaries derive a significant portion of their
operating income from the income they receive on their invested assets. A number of factors may affect the quality and/or yield
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of their investment portfolios, including the general economic and business environment, government monetary policy, changes
in the credit quality of the issuers of the fixed-income securities our insurance subsidiaries own, changes in market conditions
and regulatory changes. The fixed-income securities our insurance subsidiaries own consist primarily of securities issued by
domestic entities that are backed by either the credit or collateral of the underlying issuer. Factors such as an economic
downturn, disruption in the credit market or the availability of credit, a regulatory change pertaining to a particular issuer’s
industry, a significant deterioration in the cash flows of the issuer or a change in the issuer’s marketplace may adversely affect
the ability of our insurance subsidiaries to collect principal and interest from the issuer in which they invest.
The investments of our insurance subsidiaries are also subject to risk resulting from interest rate fluctuations. As we
experienced when market interest rates increased significantly in 2022, increasing interest rates or a widening in the spread
between interest rates available on U.S. Treasury securities and corporate debt or asset-backed securities will typically have an
adverse impact on the market values of fixed-rate securities. If interest rates decline, our insurance subsidiaries will generally
have a lower overall rate of return on investments of cash their operations generate. In addition, in the event of the call or
maturity of investments in a low interest rate environment, our insurance subsidiaries may not be able to reinvest the proceeds
in securities with comparable interest rates. Changes in interest rates may reduce both the profitability and the return on the
invested capital of our insurance subsidiaries.
We and our insurance subsidiaries depend on key personnel. The loss of any member of our executive management or
the senior management of our insurance subsidiaries could negatively affect the continuation of our business strategies and
achievement of our growth objectives.
The loss of, or failure to attract, key personnel could significantly impede our financial plans, growth, marketing and other
objectives and those of our insurance subsidiaries. The continued success of our insurance subsidiaries depends to a substantial
extent on the ability and experience of their senior management. Our insurance subsidiaries and we believe that our future
success is dependent on our ability to attract and retain additional skilled and qualified personnel and to expand, train and
manage our employees. We and Donegal Mutual have employment agreements with our senior officers, including all of our
named executive officers.
The reinsurance agreements on which our insurance subsidiaries rely do not relieve our insurance subsidiaries from
their primary liability to their policyholders, and our insurance subsidiaries face a risk of non-payment from their reinsurers
as well as the non-availability of reinsurance in the future.
Our insurance subsidiaries rely on reinsurance agreements to limit their maximum net loss from large single catastrophic
risks or excess of loss risks in areas where our insurance subsidiaries may have a concentration of policyholders. Reinsurance
also enables our insurance subsidiaries to increase their capacity to write insurance because it has the effect of leveraging the
surplus of our insurance subsidiaries. Although the reinsurance our insurance subsidiaries maintain provides that the reinsurer is
liable to them for any reinsured losses, the reinsurance agreements do not generally relieve our insurance subsidiaries from their
primary liability to their policyholders if the reinsurer fails to pay the reinsurance claims of our insurance subsidiaries. To the
extent that a reinsurer is unable to pay losses for which it is liable to our insurance subsidiaries, our insurance subsidiaries
remain liable for such losses. At December 31, 2024, our insurance subsidiaries had approximately $99.7 million of reinsurance
receivables from third-party reinsurers relating to paid and unpaid losses. Any insolvency or inability of these reinsurers to
make timely payments to our insurance subsidiaries under the terms of their reinsurance agreements would adversely affect the
results of operations of our insurance subsidiaries.
Michigan law requires MICO to provide certain medical benefits under the personal injury protection, or PIP, coverage of
the personal automobile and commercial automobile policies it writes in the state of Michigan. Michigan law also requires
MICO to be a member of the Michigan Catastrophic Claims Association, or MCCA, in order to write automobile insurance.
The MCCA receives funding through assessments that its members collect from policyholders in the state and provides
reinsurance for PIP claims that exceed a set retention. At December 31, 2024, MICO had approximately $46.3 million of
reinsurance receivables from MCCA relating to paid and unpaid losses. The MCCA has generated significant operating deficits
in past years. While the MCCA generated an increase in surplus in recent years, the MCCA board approved the return of a
significant portion of its accumulated surplus to policyholders in the form of cash refunds in early 2022. Although we currently
consider the risk to be remote, should the MCCA be unable to fulfill its payment obligations to MICO in the future, MICO’s
financial condition and results of operations could be adversely affected.
In addition, our insurance subsidiaries face a risk of the non-availability of reinsurance or an increase in reinsurance costs
that could adversely affect their ability to write business or their results of operations. Market conditions beyond the control of
our insurance subsidiaries, such as the amount of surplus in the reinsurance market and the frequency and severity of natural
and man-made catastrophes, affect both the availability and the cost of the reinsurance our insurance subsidiaries purchase. If
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our insurance subsidiaries cannot maintain their current level of reinsurance or purchase new reinsurance protection in amounts
that our insurance subsidiaries consider sufficient, our insurance subsidiaries would either have to accept an increase in their net
risk retention or reduce their insurance writings, either of which could adversely affect them. For example, due to increased
reinsurance pricing and reduced reinsurance market capacity, our insurance subsidiaries increased their net retentions under
several of their reinsurance programs for 2024 and 2025.
The disruption or failure of Donegal Mutual’s information technology systems or the compromise of the security of
those systems that results in the theft or misuse of confidential information could materially impact adversely the business of
Donegal Mutual and our insurance subsidiaries.
Our insurance subsidiaries’ business operations depend significantly upon the availability and successful operation of
Donegal Mutual’s information technology systems. In addition, in the normal course of their operations, Donegal Mutual and
our insurance subsidiaries collect, utilize and maintain confidential information regarding individuals and businesses. While
Donegal Mutual has established various security measures to protect its information technology systems and confidential data,
unanticipated computer viruses, malware, ransomware, power outages, unauthorized access or other cyberattacks could disrupt
those systems or result in the misappropriation or loss of confidential data. Donegal Mutual could experience technology
system failures or other outages that would impact the availability of its information technology systems. Donegal Mutual has
experienced brief disruptions of systems in the past, including those systems that allow underwriting and processing of new
policies. Disruption in the availability of Donegal Mutual’s information technology systems could affect the ability of Donegal
Mutual and our insurance subsidiaries to underwrite and process their policies timely, process and settle claims promptly and
provide expected levels of customer service to agents and policyholders.
While Donegal Mutual has identified threats to the security of its information technology systems, Donegal Mutual and we
are unaware of any significant breach of the security measures Donegal Mutual maintains. A significant breach of the security
of Donegal Mutual’s information technology systems that results in the misappropriation or misuse of confidential information
could damage the business reputation of Donegal Mutual and our insurance subsidiaries and could expose Donegal Mutual and
our insurance subsidiaries to litigation. The financial impact to Donegal Mutual, us and our insurance subsidiaries of a
significant breach could be material.
Risks Relating to Us and Our Common Stock
The price of our common stock may be adversely affected by its low trading volume.
Our Class A common stock and our Class B common stock have limited liquidity. Reported average daily trading volume
for our Class A common stock and our Class B common stock for the year ended December 31, 2024 was approximately
64,806 shares and approximately 1,190 shares, respectively. This limited liquidity could subject our shares of Class A common
stock and our shares of Class B common stock to greater price volatility.
Donegal Mutual is our controlling stockholder. Donegal Mutual and its directors and executive officers have potential
conflicts of interest between the best interests of our stockholders and the best interests of the policyholders of Donegal
Mutual.
Donegal Mutual controls the election of all of the members of our board of directors. Seven of the eleven members of our
board of directors are also directors of Donegal Mutual. Donegal Mutual and we share the same executive officers. These
common directors and executive officers have a fiduciary duty to our stockholders and also have a fiduciary duty to the
policyholders of Donegal Mutual. Among the potential conflicts of interest that could arise from these separate fiduciary duties
are the following:
•
we and Donegal Mutual periodically review the percentage participation of Atlantic States and Donegal Mutual in the
underwriting pool that Donegal Mutual and Atlantic States have maintained since 1986;
•
our insurance subsidiaries and Donegal Mutual annually review and then establish the terms of certain reinsurance
agreements between our insurance subsidiaries and Donegal Mutual;
•
we and Donegal Mutual allocate certain shared expenses among ourselves and our insurance subsidiaries in
accordance with various inter-company expense-sharing agreements; and
•
we and our insurance subsidiaries may enter into other transactions or contractual relationships with Donegal Mutual.
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Donegal Mutual has sufficient voting power to determine the outcome of substantially all matters submitted to our
stockholders for approval.
Each share of our Class A common stock has one-tenth of a vote per share and generally votes as a single class with our
Class B common stock. Each share of our Class B common stock has one vote per share and generally votes as a single class
with our Class A common stock. Donegal Mutual has the right to vote approximately 70% of the combined voting power of our
Class A common stock and our Class B common stock and has sufficient voting control to and has acted to:
•
elect all of the members of our board of directors, who determine our management and policies; and
•
control the outcome of any corporate transaction or other matter submitted to a vote of our stockholders for approval,
including mergers or other acquisition proposals and the sale of all or substantially all of our assets, in each case
regardless of how all of our stockholders other than Donegal Mutual vote their shares.
The interests of Donegal Mutual in maintaining this greater-than-majority voting control of us may have an adverse effect
on the price of our Class A common stock and the price of our Class B common stock because of the absence of any potential
“takeover” premium and may, therefore, be inconsistent with the interests of our stockholders other than Donegal Mutual.
Donegal Mutual’s majority voting control of us, certain provisions of our certificate of incorporation and by-laws and
certain provisions of Delaware law make it remote that anyone could acquire actual control of us unless Donegal Mutual
were in favor of another person’s acquisition of control of us.
Donegal Mutual’s majority voting control of us, certain anti-takeover provisions in our certificate of incorporation and by-
laws and certain provisions of the Delaware General Corporation Law, or the DGCL, could delay or prevent the removal of
members of our board of directors and could make a merger, tender offer or proxy contest involving us more expensive as well
as unlikely to succeed, even if such events were in the best interests of our stockholders other than Donegal Mutual. These
factors could also discourage a third party from attempting to acquire control of us. In particular, our certificate of incorporation
and by-laws include the following anti-takeover provisions:
•
our board of directors is classified into three classes, so that our stockholders elect only one-third of the members of
our board of directors each year;
•
our stockholders may remove our directors only for cause;
•
our stockholders may not take stockholder action except at an annual or special meeting of our stockholders;
•
the request of stockholders holding at least 20% of the combined voting power of our Class A common stock and our
Class B common stock is required for a stockholder to call a special meeting of our stockholders;
•
our by-laws require that stockholders provide advance notice to us to nominate candidates for election to our board of
directors or to propose any other item of stockholder business at a stockholders’ meeting;
•
we do not permit cumulative voting rights in the election of our directors;
•
our certificate of incorporation does not provide for preemptive rights in connection with any issuance of securities by
us; and
•
our board of directors may issue, without stockholder approval unless otherwise required by law, preferred stock with
such terms as our board of directors may determine.
We have authorized preferred stock that we could issue without stockholder approval to make it more difficult for a
third party to acquire us.
We have 2.0 million authorized shares of preferred stock that we could issue in one or more series without further
stockholder approval, unless the DGCL or the rules of the NASDAQ Global Select Market otherwise require, and upon such
terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine. Our potential
issuance of preferred stock may make it more difficult for a third party to acquire control of us.
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Because we are an insurance holding company, no person can acquire or seek to acquire a 10% or greater interest in us
without first obtaining approval of the insurance commissioners of the states of domicile of each of our insurance
subsidiaries.
We own insurance subsidiaries domiciled in the states of Michigan, Pennsylvania and Virginia, and Donegal Mutual is
domiciled in Pennsylvania and owns or controls insurance companies domiciled in Georgia and New Mexico. The insurance
laws of each of these states provide that no person can acquire or seek to acquire a 10% or greater interest in us without first
filing specified information with the insurance commissioners of those states and obtaining the prior approval of the proposed
acquisition of a 10% or greater interest in us by each of the state insurance commissioners based on statutory standards
designed to protect the safety and soundness of us and our insurance subsidiaries. These approval requirements may make it
more difficult for a third party to acquire control of us.
Item 1B. Unresolved Staff Comments.
We have no unresolved written comments from the Securities and Exchange Commission staff regarding our filings under
the Exchange Act.
Item 1C. Cybersecurity.
Our insurance subsidiaries utilize the information systems Donegal Mutual maintains. Donegal Mutual has a robust
information security program in place as a component of the enterprise-level risk management program of Donegal Mutual and
us. The integration of Donegal Mutual’s information security program into the enterprise-level risk management program is
intended to promote the inclusion of cybersecurity considerations in decision-making processes throughout Donegal Mutual.
Donegal Mutual has implemented multiple layers of cybersecurity systems and related defensive measures that are intended to
assist with assessing, identifying and managing material risks from cybersecurity threats to Donegal Mutual’s information
systems. Examples of these systems and measures include firewalls, data encryption, intrusion detection and prevention
systems, endpoint detection and response systems, data-loss prevention systems and multi-factor authentication requirements
for remote and privileged access. Donegal Mutual also regularly evaluates the effectiveness of its information security program
through enterprise risk assessments.
Donegal Mutual also requires annual cybersecurity awareness training for all employees who serve Donegal Mutual and
our insurance subsidiaries. Donegal Mutual expects all employees to assist in safeguarding its information systems and to assist
in the discovery and reporting of cybersecurity incidents. This enterprise-wide program is intended to identify and assess
internal and external cyber and information security risks that may threaten the security or integrity of the information stored on
Donegal Mutual’s information systems or those of third-party providers from unauthorized access, use or other malicious acts.
Donegal Mutual employs a third-party security operations center that provides after-hours alert services to help ensure
continuous monitoring for cybersecurity threats. On an annual basis, Donegal Mutual also engages third-party cybersecurity
consultants to perform cyberattack and penetration testing on its information systems and to conduct tabletop exercises to
enhance preparedness of its crisis management team. This crisis management team includes technical and senior-level
management personnel, and the exercises are intended to help maintain their readiness by reviewing the roles they will be
expected to perform and the procedures they will be expected to follow in the event of a cybersecurity incident. These
consultants advise Donegal Mutual on the effectiveness of its cybersecurity processes and assist Donegal Mutual in remediating
any identified vulnerabilities and implementing any recommended measures to improve its cybersecurity defenses and
readiness.
In addition to monitoring cybersecurity threats to Donegal Mutual’s information systems and information technology
infrastructure, Donegal Mutual and we also assess and monitor the information security posture of third-party service providers
whose services we deem critical to our operations. This process is designed to help Donegal Mutual’s information security
personnel identify and mitigate risks related to data breaches or other cybersecurity incidents originating from third-party
service providers in order to better protect Donegal Mutual’s information systems and information technology infrastructure.
Donegal Mutual and we are not aware of any cybersecurity incidents or risks from cybersecurity threats that have
materially affected, or are reasonably likely to affect, our business strategy, results of operations or financial condition. While
Donegal Mutual maintains cybersecurity insurance, the costs related to cybersecurity threats or disruptions may not be fully
insured. For more information regarding the risks Donegal Mutual and we face from cybersecurity threats, see “Risk Factors -
Risks Relating to Our Business- The disruption or failure of Donegal Mutual's information technology systems or the
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compromise of the security of those systems that results in the theft or misuse of confidential information could materially
impact adversely the business of Donegal Mutual and our insurance subsidiaries.”
Donegal Mutual employs an information security officer who has relevant experience and expertise in information security
and holds the management position that is primarily responsible for assessing and managing cybersecurity risks. In addition, the
chief risk officer of Donegal Mutual and us has extensive experience in the field of risk management, which is helpful for
developing and executing Donegal Mutual’s information security program in a manner that aligns with the overall enterprise-
level risk management program of Donegal Mutual and us.
In connection with carrying out their overall oversight responsibilities, the boards of directors of Donegal Mutual and us
have delegated certain cybersecurity oversight responsibilities to the joint audit committee of those boards. The joint audit
committee meets at least quarterly and is central to the boards’ oversight of cybersecurity risks. A member of the joint audit
committee has extensive information technology and cybersecurity experience in the insurance industry. The joint audit
committee actively monitors these risks in order to assist in coordinating prevention and mitigation efforts by, among other
things, participating in risk management committee meetings and receiving quarterly reports from the chief risk officer of
Donegal Mutual and us on cybersecurity risks and related matters. Donegal Mutual’s information security officer also provides
an annual cybersecurity report to the boards of directors of Donegal Mutual and us. The annual cybersecurity report
encompasses a broad range of topics, including types of threats and attempted infiltrations, applicable regulatory developments,
information security program activities and planned cybersecurity enhancements to address emerging threats.
Donegal Mutual and we also maintain a risk management committee that is comprised of our shared executive officers and
other key management personnel. This committee meets quarterly and is responsible for our enterprise risk strategy and
management, which includes identifying, assessing, addressing and monitoring cybersecurity risks. Donegal Mutual’s
information security officer provides quarterly updates to the risk management committee. Those updates include current
cybersecurity issues and trends and any relevant information related to the prevention, detection, mitigation and remediation of
cybersecurity incidents.
Item 2. Properties.
We and our insurance subsidiaries share administrative headquarters with Donegal Mutual in a building in Marietta,
Pennsylvania that Donegal Mutual owns. The Marietta headquarters has approximately 270,000 square feet of office space.
Southern owns a facility of approximately 10,000 square feet in Glen Allen, Virginia. In addition, Donegal Mutual leases office
space in Albuquerque, New Mexico, MICO leases office space in Grand Rapids, Michigan, and Southern Mutual owns a
building in Athens, Georgia. Donegal Mutual and our insurance subsidiaries share property-related expenses proportionately
under a services allocation agreement.
Item 3. Legal Proceedings.
Our insurance subsidiaries are parties to routine litigation that arises in the ordinary course of their insurance business. We
believe that the resolution of these lawsuits will not have a material adverse effect on the financial condition or results of
operations of our insurance subsidiaries. However, regardless of outcome, litigation and related matters could have an adverse
impact on us and our insurance subsidiaries due to defense and settlement costs, diversion of management resources, negative
publicity, reputational harm and other factors.
Item 4. Mine Safety Disclosures.
Not applicable.
-37-
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.
Our Class A common stock and Class B common stock trade on the NASDAQ Global Select Market under the symbols
“DGICA” and “DGICB,” respectively.
At the close of business on March 3, 2025, we had approximately 1,477 holders of record of our Class A common stock
and approximately 204 holders of record of our Class B common stock.
We declared dividends of $0.69 per share on our Class A common stock and $0.62 per share on our Class B common stock
in 2024, compared to $0.68 per share on our Class A common stock and $0.61 per share on our Class B common stock in 2023.
Unregistered Sales of Equity Securities and Use of Proceeds.
Between October 1, 2024 and December 31, 2024, Donegal Mutual purchased shares of our Class A common stock as set
forth in the table below:
Period
(a) Total Number of Shares
(or Units) Purchased
(b) Average Price Paid per
Share (or Unit)
(c) Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
(d) Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that
May Yet Be Purchased
Under the Plans or
Programs
Month #1
October 1-31, 2024
Class A – 150,432
Class B – None
Class A – $15.49
Class B – None
Class A – 150,432
Class B – None
(1)
Month #2
November 1-30, 2024
Class A – 235,884
Class B – None
Class A – $15.88
Class B – None
Class A – 235,884
Class B – None
(1)
Month #3
December 1-31, 2024
Class A – 414,122
Class B – None
Class A – $16.63
Class B – None
Class A – 414,122
Class B – None
(1)
Total
Class A – 800,438
Class B – None
Class A – $16.20
Class B – None
Class A – 800,438
Class B – None
__________
(1) Donegal Mutual purchased these shares pursuant to its disclosure on April 29, 2022 that it will, at its discretion,
purchase shares of our Class A common stock and Class B common stock at market prices prevailing from time to
time in the open market subject to the provisions of SEC Rule 10b-18 and in privately negotiated transactions. Such
disclosure did not stipulate a maximum number of shares that may be purchased under this program.
-38-
Stock Performance Chart.
The following graph provides an indicator of cumulative total stockholder returns on our Class A common stock and our
Class B common stock for the period beginning on December 31, 2019 and ending on December 31, 2024, compared to the
Russell 2000 Index and a peer group comprised of six property and casualty insurance companies over the same period. The
peer group consists of Cincinnati Financial Corp., Hanover Insurance Group Inc., Horace Mann Educators Corp., Kemper
Corp., Selective Insurance Group Inc. and United Fire Group Inc. The graph shows the change in value of an initial $100
investment on December 31, 2019, assuming reinvestment of all dividends.
2019
2020
2021
2022
2023
2024
Donegal Group Inc. Class A
$100.00
$98.98
$104.91
$109.16
$112.65
$130.65
Donegal Group Inc. Class B
100.00
96.57
114.54
144.15
134.32
136.44
Russell 2000
100.00
119.96
137.74
109.59
128.14
142.93
Peer Group
100.00
90.33
105.60
102.08
104.50
136.71
Research Data Group prepared the foregoing performance graph and data. The performance graph and accompanying data
shall not be deemed "filed" as part of this Form 10-K Report for purposes of Section 18 of the Exchange Act or otherwise
subject to the liabilities of that section and should not be deemed incorporated by reference into any other filing we make under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate the
performance graph and accompanying data by reference into such filing.
Item 6. [Reserved]
-39-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26,
1986. See “Business - History and Organizational Structure” for more information. Our insurance subsidiaries are Atlantic
States Insurance Company (“Atlantic States”), Michigan Insurance Company (“MICO”), The Peninsula Insurance Company
and its wholly owned subsidiary, Peninsula Indemnity Company (collectively, “Peninsula”), and Southern Insurance Company
of Virginia (“Southern”). Our insurance subsidiaries and their affiliates write commercial and personal lines of property and
casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwest, Southern
and Southwestern states. The commercial lines products of our insurance subsidiaries consist primarily of commercial
automobile, commercial multi-peril and workers’ compensation policies. The personal lines products of our insurance
subsidiaries consist primarily of homeowners and private passenger automobile policies.
At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and
approximately 84% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately
70% of the combined voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B
common stock.
Donegal Mutual and Atlantic States have participated in a proportional reinsurance agreement, or pooling agreement, since
1986. Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective
premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then
allocates 80% of the pooled business to Atlantic States. Thus, Donegal Mutual and Atlantic States share the underwriting results
of the pooled business in proportion to their respective participation in the underwriting pool. The operations of our insurance
subsidiaries and Donegal Mutual are interrelated due to the pooling agreement and other factors. While maintaining the separate
corporate existence of each company, our insurance subsidiaries conduct business together with Donegal Mutual and its
insurance subsidiaries as the Donegal Insurance Group. The Donegal Insurance Group is not a legal entity, is not an insurance
company and does not issue or administer insurance policies. Rather, it is a trade name that refers to the group of insurance
companies that are affiliated with Donegal Mutual. See “Business - Relationship with Donegal Mutual” for more information
regarding the pooling agreement and other transactions with our affiliates.
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 allow
the individual companies to manage certain risk segments through variations in coverage, terms and pricing. 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.
In July 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to
purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open
market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions. We did not purchase any
shares of our Class A common stock under this program during 2024 or 2023. We have purchased a total of 57,658 shares of
our Class A common stock under this program from its inception through December 31, 2024.
On April 29, 2022, Donegal Mutual disclosed that it will, at its discretion, purchase shares of our Class A common stock
and our Class B common stock at market prices prevailing from time to time in the open market subject to the provisions of
SEC Rule 10b-18 and in privately negotiated transactions. Such disclosure did not stipulate a maximum number of shares that
may be purchased under this program. Donegal Mutual purchased 1,057,282 and 516,620 shares of our Class A common stock
during 2024 and 2023, respectively. Donegal Mutual did not purchase any shares of our Class B common stock during 2024 or
2023.
-40-
Critical Accounting Policies and Estimates
We combine our financial statements with those of our insurance subsidiaries and present them on a consolidated basis in
accordance with GAAP.
Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures
we report in our financial statements. The most significant estimates relate to the reserves of our insurance subsidiaries for
property and casualty insurance unpaid losses and loss expenses. While we believe our estimates and the estimates of our
insurance subsidiaries are appropriate, the ultimate amounts may differ from the estimates we provided. We regularly review
our methods for making these estimates, and we reflect any adjustment we consider necessary in our results of operations for
the period in which we make an adjustment.
Liability for Losses and Loss Expenses
Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with
respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. For example,
legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise
require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. At
the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or
be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on
assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during
the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently,
it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any
adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations
in the period in which our insurance subsidiaries make adjustments to their estimates.
Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported
and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of
settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for
reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances
surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance
subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical
information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of
costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and
recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance
subsidiaries do not discount their liabilities for losses and loss expenses.
Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance
subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations.
For example, our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim
settlement periods on bodily injury claims during the past several years. In addition, the COVID-19 pandemic and related
government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during
2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain
disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates.
These trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern
of future loss settlements. Related uncertainties regarding future trends include social inflation, availability and cost of
replacement automobile parts and building materials, availability and cost of skilled labor, the rate of specialized plaintiff
attorney involvement in claims, plaintiff attorney utilization of litigation financing and the cost of medical technologies and
procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes
in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance
coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of
premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate
measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of
business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses,
among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have
changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes.
Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount
recorded at December 31, 2024. For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of
reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.0 million.
-41-
The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our
insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an
adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and
extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that
serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all
property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their
estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities
for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance
subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of
information received subsequent to the prior reporting period.
Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $15.0
million, $16.7 million and $44.8 million in 2024, 2023 and 2022, respectively. Our insurance subsidiaries made no significant
changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in
estimates that increased or decreased their loss and loss expense reserves in those years. The 2024 development represented
2.2% of the December 31, 2023 net carried reserves and resulted primarily from lower-than-expected loss emergence in the
commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss
emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024. The
majority of the 2024 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic
States and MICO. The 2023 development represented 2.5% of the December 31, 2022 net carried reserves and resulted
primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for
accident years prior to 2023. The majority of the 2023 development related to decreases in the liability for losses and loss
expenses of prior years for Atlantic States and MICO. The 2022 development represented 7.2% of the December 31, 2021 net
carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial
automobile lines of business for accident years prior to 2022. The majority of the 2022 development related to decreases in the
liability for losses and loss expenses of prior years for Atlantic States and MICO.
Excluding the impact of severe weather events and the COVID-19 pandemic, our insurance subsidiaries have noted stable
amounts in the number of claims incurred and the number of claims outstanding at period ends relative to their premium base in
recent years across most of their lines of business. However, the amount of the average claim outstanding has increased
gradually over the past several years due to various factors such as increased property and automobile repair and replacement
costs, rising medical loss costs and increased litigation trends and lengthening of repair completion times for property and
automobile claims. We have also experienced a general slowing of settlement rates in litigated claims. Our insurance
subsidiaries could have to make further adjustments to their estimates in the future. However, on the basis of our insurance
subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar
cases and historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well
as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate
provision for their liability for losses and loss expenses.
Atlantic States’ participation in the underwriting pool with Donegal Mutual exposes Atlantic States to adverse loss
development on the business that Donegal Mutual contributes to the underwriting pool. However, pooled business represents
the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share
proportionately any adverse risk development relating to the pooled business. The business in the underwriting pool is
homogeneous and each company has a pro-rata share of the entire underwriting pool. Since the predominant percentage of the
business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation
level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable
underwriting result from year to year for each company than either would experience individually and to spread the risk of loss
between the companies.
-42-
Our insurance subsidiaries’ liability for losses and loss expenses by major line of business at December 31, 2024 and 2023
consisted of the following:
2024
2023
(in thousands)
Commercial lines:
Automobile
$ 180,757
$ 168,749
Workers’ compensation
129,406
122,473
Commercial multi-peril
208,676
217,292
Other
39,336
27,167
Total commercial lines
558,175
535,681
Personal lines:
Automobile
116,693
112,509
Homeowners
26,591
28,001
Other
2,905
12,952
Total personal lines
146,189
153,462
Total commercial and personal lines
704,364
689,143
Plus reinsurance recoverable
416,621
437,014
Total liability for losses and loss expenses
$ 1,120,985
$ 1,126,157
We have evaluated the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in
the event of reasonably likely changes in the variables we consider in establishing loss and loss expense reserves. We
established the range of reasonably likely changes based on a review of changes in accident year development by line of
business and applied it to our insurance subsidiaries’ loss reserves as a whole. The selected range does not necessarily indicate
what could be the potential best or worst case or the most-likely scenario. The following table sets forth the effect on our
insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in
the variables considered in establishing loss and loss expense reserves:
Change in Loss and Loss
Expense Reserves Net of
Reinsurance
Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
December 31, 2024
Percentage Change in
Equity at
December 31, 2024(1)
Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
December 31, 2023
Percentage Change in
Equity at
December 31, 2023(1)
(dollars in thousands)
-10.0%
$633,928
10.2%
$620,229
11.3%
-7.5
651,537
7.6
637,457
8.5
-5.0
669,146
5.1
654,686
5.7
-2.5
686,755
2.5
671,914
2.8
Base
704,364
—
689,143
—
2.5
721,973
-2.5
706,372
-2.8
5.0
739,582
-5.1
723,600
-5.7
7.5
757,191
-7.6
740,829
-8.5
10.0
774,800
-10.2
758,057
-11.3
(1)
Net of income tax effect.
Our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense
development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred
events currently known to them plus incurred but not reported (“IBNR”) claims. Our insurance subsidiaries develop their
reserve estimates based on an assessment of known facts and circumstances, review of historical loss settlement patterns,
estimates of trends in claims severity, frequency, legal and regulatory changes and other assumptions. Our insurance
subsidiaries consistently apply actuarial loss reserving techniques and assumptions, which rely on historical information as
adjusted to reflect current conditions, including consideration of recent case reserve activity. Our insurance subsidiaries use the
-43-
point estimate their actuaries select. For the year ended December 31, 2024, the actuaries developed a range from a low of
$672.1 million to a high of $740.4 million and selected a point estimate of $704.4 million. The actuaries’ range of estimates for
commercial lines in 2024 was $533.0 million to $587.5 million, and the actuaries selected a point estimate of $558.2 million.
The actuaries’ range of estimates for personal lines in 2024 was $139.1 million to $153.0 million, and the actuaries selected a
point estimate of $146.2 million. For the year ended December 31, 2023, the actuaries developed a range from a low of
$651.1 million to a high of $728.7 million and selected a point estimate of $689.1 million. The actuaries’ range of estimates for
commercial lines in 2023 was $507.2 million to $565.4 million, and the actuaries selected a point estimate of $535.7 million.
The actuaries’ range of estimates for personal lines in 2023 was $144.0 million to $163.3 million, and the actuaries selected a
point estimate of $153.5 million.
Our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they
underwrite. For personal lines products, our insurance subsidiaries insure standard and preferred risks in private passenger
automobile and homeowners lines. For commercial lines products, the commercial risks that our insurance subsidiaries
primarily insure are business offices, wholesalers, service providers, contractors, artisans and light manufacturing operations.
Our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities. Through the consistent
application of this disciplined underwriting philosophy, our insurance subsidiaries have avoided many of the “long-tail” issues
other insurance companies have faced. We consider workers’ compensation to be a “long-tail” line of business, in that workers’
compensation claims tend to be settled over a longer time frame than those in the other lines of business of our insurance
subsidiaries.
The following table presents 2024 and 2023 claim count and payment amount information for workers’ compensation.
Workers’ compensation losses primarily consist of indemnity and medical costs for injured workers.
For the Year Ended December 31,
(dollars in thousands)
2024
2023
Number of claims pending, beginning of period
3,144
3,366
Number of claims reported
5,066
5,928
Number of claims settled or dismissed
5,378
6,150
Number of claims pending, end of period
2,832
3,144
Losses paid
$
54,597 $
54,336
Loss expenses paid
$
10,953 $
12,292
Management Evaluation of Operating Results
Despite challenging insurance market conditions and increasing property and casualty loss severity trends that affected our
results in recent years, we believe that our focused business strategy, including our insurance subsidiaries’ ongoing
implementation of premium rate increases and refinements to their underwriting practices, have positioned us well for 2025 and
beyond.
Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our
commercial lines and personal lines segments utilizing statutory accounting practices (“SAP”), which include financial
measures that reflect the growth trends and underwriting results of our insurance subsidiaries.
-44-
We use the following financial data to monitor and evaluate our operating results:
Year Ended December 31,
(in thousands)
2024
2023
2022
Net premiums written:
Commercial lines:
Automobile
$ 184,989
$ 174,741
$ 167,774
Workers’ compensation
103,533
107,598
111,892
Commercial multi-peril
213,959
195,632
200,045
Other
45,439
50,458
51,135
Total commercial lines
547,920
528,429
530,846
Personal lines:
Automobile
243,036
215,957
181,129
Homeowners
140,613
139,688
120,087
Other
10,712
11,623
11,468
Total personal lines
394,361
367,268
312,684
Total net premiums written
$ 942,281
$ 895,697
$ 843,530
Components of combined ratio:
Loss ratio
64.5 %
69.1 %
68.6 %
Expense ratio
33.7
34.7
34.1
Dividend ratio
0.4
0.6
0.6
Combined ratio
98.6 %
104.4 %
103.3 %
Revenues:
Net premiums earned:
Commercial lines
$ 539,683
$ 533,029
$ 521,227
Personal lines
396,968
349,042
301,263
Total net premiums earned
936,651
882,071
822,490
Net investment income
44,918
40,853
34,016
Investment gains (losses)
4,981
3,173
(10,185)
Other
3,055
1,241
1,900
Total revenues
$ 989,605
$ 927,338
$ 848,221
Year Ended December 31,
(in thousands)
2024
2023
2022
Components of net income (loss):
Underwriting income (loss):
Commercial lines
$
5,826 $
(6,998) $
(22,665)
Personal lines
5,739
(35,118)
(13,506)
SAP underwriting income (loss)
11,565
(42,116)
(36,171)
GAAP adjustments
1,331
3,735
8,667
GAAP underwriting income (loss)
12,896
(38,381)
(27,504)
Net investment income
44,918
40,853
34,016
Investment gains (losses)
4,981
3,173
(10,185)
Other
(456)
(582)
35
Income (loss) before income tax expense (benefit)
62,339
5,063
(3,638)
Income tax expense (benefit)
11,477
637
(1,679)
Net income (loss)
$
50,862 $
4,426 $
(1,959)
-45-
Non-GAAP Information
We prepare our consolidated financial statements on the basis of GAAP. Our insurance subsidiaries prepare financial
statements based on SAP. SAP financial measures are considered non-GAAP financial measures under applicable SEC rules
because the SAP financial measures include or exclude certain items that the most comparable GAAP financial measures do not
ordinarily include or exclude. Our calculation of non-GAAP financial measures may differ from similar measures other
companies use. As a result, investors should exercise caution when comparing our non-GAAP financial measures to the non-
GAAP financial measures other companies use. The SAP financial measures we utilize are net premiums written and statutory
combined ratio.
Net Premiums Written
We define net premiums written as the amount of full-term premiums our insurance subsidiaries record for policies
effective within a given period less premiums our insurance subsidiaries cede to reinsurers. Net premiums earned is the most
comparable GAAP financial measure to net premiums written. Net premiums earned represent the sum of the amount of net
premiums written and the change in net unearned premiums during a given period. Our insurance subsidiaries earn premiums
and recognize them as revenue over the terms of their policies, which are one year or less in duration. Therefore, increases or
decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding 12-month
period compared to the comparable period one year earlier.
The following table provides a reconciliation of our net premiums earned to our net premiums written for 2024:
(in thousands)
Commercial
Lines
Personal
Lines
Total
Net premiums earned
$
539,683 $
396,968 $
936,651
Change in net unearned premiums
8,237
(2,607)
5,630
Net premiums written
$
547,920 $
394,361 $
942,281
The following table provides a reconciliation of our net premiums earned to our net premiums written for 2023:
(in thousands)
Commercial
Lines
Personal
Lines
Total
Net premiums earned
$
533,029 $
349,042 $
882,071
Change in net unearned premiums
(4,600)
18,226
13,626
Net premiums written
$
528,429 $
367,268 $
895,697
The following table provides a reconciliation of our net premiums earned to our net premiums written for 2022:
(in thousands)
Commercial
Lines
Personal
Lines
Total
Net premiums earned
$
521,227 $
301,263 $
822,490
Change in net unearned premiums
9,619
11,421
21,040
Net premiums written
$
530,846 $
312,684 $
843,530
Statutory Combined Ratio
The combined ratio is a standard measurement of underwriting profitability for an insurance company. The combined
ratio does not reflect investment income, net investment gains or losses, federal income taxes or other non-operating income or
expense. A combined ratio of less than 100% generally indicates underwriting profitability.
The statutory combined ratio is a non-GAAP financial measure that is based upon amounts determined under SAP. We
calculate our statutory combined ratio as the sum of:
•
the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums
earned;
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•
the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and
underwriting expenses to net premiums written; and
•
the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net
premiums earned.
The calculation of our statutory combined ratio differs from the calculation of our GAAP combined ratio. In calculating
our GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and we base the expense ratio
on net premiums earned instead of net premiums written. Differences between our GAAP loss ratio and our statutory loss ratio
result from anticipating salvage and subrogation recoveries for our GAAP loss ratio but not for our statutory loss ratio.
The following table presents comparative details with respect to our GAAP and statutory combined ratios for the years
ended December 31, 2024, 2023 and 2022:
Year Ended December 31,
2024
2023
2022
GAAP Combined Ratios (Total Lines)
Loss ratio - core losses
54.0 %
57.5 %
59.8 %
Loss ratio - weather-related losses
7.2
8.3
7.7
Loss ratio - large fire losses
4.9
5.2
6.5
Loss ratio - net prior-year reserve development
-1.6
-1.9
-5.4
Loss ratio
64.5
69.1
68.6
Expense ratio
33.7
34.7
34.1
Dividend ratio
0.4
0.6
0.6
Combined ratio
98.6 %
104.4 %
103.3 %
Statutory Combined Ratios
Commercial lines:
Automobile
102.6 %
97.3 %
98.0 %
Workers’ compensation
104.4
96.6
97.3
Commercial multi-peril
95.0
112.3
116.9
Other
80.0
85.5
80.8
Total commercial lines
98.2
101.6
103.7
Personal lines:
Automobile
97.4
109.7
103.8
Homeowners
99.6
108.6
111.0
Other
99.5
75.8
52.1
Total personal lines
98.3
108.2
102.8
Total commercial and personal lines
98.3
104.2
103.3
Results of Operations
YEAR ENDED DECEMBER 31, 2024 COMPARED TO YEAR ENDED DECEMBER 31, 2023
Net Premiums Earned
Our insurance subsidiaries’ net premiums earned increased to $936.7 million for 2024, an increase of $54.6 million, or
6.2%, compared to 2023, primarily reflecting solid premium retention and renewal premium increases. Our insurance
subsidiaries earn premiums and recognize them as income over the terms of the policies they issue. Such terms are generally
one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in
net premiums written in the preceding twelve-month period compared to the same period one year earlier.
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Net Premiums Written
Our insurance subsidiaries’ 2024 net premiums written increased 5.2% to $942.3 million, compared to $895.7 million for
2023. Commercial lines net premiums written increased $19.5 million, or 3.7%, for 2024 compared to 2023. We attribute the
increase in commercial lines net premiums written primarily to strong premium retention and a continuation of renewal
premium increases in lines other than workers’ compensation, offset partially by planned attrition in states we exited or classes
of business we have targeted for profit improvement. Personal lines net premiums written increased $27.1 million, or 7.4%, for
2024 compared to 2023. We attribute the increase in personal lines net premiums written primarily to renewal premium rate
increases and solid policy retention, offset partially by planned attrition due to non-renewal actions and lower new business
writings.
Investment Income
For 2024, our net investment income increased 10.0% to $44.9 million, compared to $40.9 million for 2023, due primarily
to higher average reinvestment yields and higher average invested assets for 2024 compared to 2023.
Net Investment Gains
Our net investment gains for 2024 were $5.0 million, compared to $3.2 million for 2023. The net investment gains for 2024
and 2023 were primarily related to increases in the market value of the equity securities held at the end of the respective
periods. We did not recognize any impairment losses during 2024 or 2023.
Losses and Loss Expenses
Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was
64.5% for 2024, compared to 69.1% for 2023. Our insurance subsidiaries’ commercial lines loss ratio decreased to 62.0% for
2024, compared to 64.8% for 2023. This decrease resulted primarily from the commercial multi-peril loss ratio decreasing to
57.5% for 2024, compared to 73.1% for 2023, primarily due to a decrease in severity of non-weather claims, offset partially by
increases in the commercial automobile and workers’ compensation loss ratios due primarily to increases in loss emergence for
prior accident years. The commercial automobile loss ratio increased to 68.5% for 2024, compared to 63.0% for 2023. The
workers’ compensation loss ratio increased to 67.7% for 2024, compared to 59.0% for 2023. The personal lines loss ratio
decreased to 68.0% for 2024, compared to 75.6% for 2023, due primarily to increases in net premiums earned related to
premium rate increases. The personal automobile loss ratio decreased to 68.5% for 2024, compared to 78.5% for 2023. The
homeowners loss ratio decreased to 66.7% for 2024, compared to 73.6% for 2023. Our insurance subsidiaries experienced
favorable loss reserve development of approximately $15.0 million, or 1.6 percentage points of the loss ratio, during 2024 in
their reserves for prior accident years, compared to approximately $16.7 million, or 1.9 percentage points of the loss ratio,
during 2023. The favorable loss reserve development in 2024 resulted primarily from lower-than-expected loss emergence in
the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss
emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024.
Weather-related losses of $67.7 million, or 7.2 percentage points of the loss ratio, for 2024 increased from $72.9 million, or 8.3
percentage points of the loss ratio, for 2023, with the decrease primarily impacting the commercial multi-peril and homeowners
lines of business. Large fire losses, which we define as individual fire losses in excess of $50,000, were $45.8 million, or 4.9
percentage points of the loss ratio, for 2024, compared to $45.4 million, or 5.2 percentage points of the loss ratio, for 2023.
Underwriting Expenses
Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to
premiums earned, was 33.7% for 2024, compared to 34.7% for 2023. We attribute the decrease to the impacts of various
expense reduction initiatives, including agency incentive program revisions, commission schedule adjustments, targeted staffing
reductions, and hiring restrictions for open employment positions, among others. These impacts were offset partially by an
increase in underwriting-based incentive costs as well as higher technology systems-related expenses that were primarily due to
increased costs related to our ongoing systems modernization project, a portion of which Donegal Mutual Insurance Company
allocates to our insurance subsidiaries. We expect the impact from allocated costs from Donegal Mutual Insurance Company to
our insurance subsidiaries related to the ongoing systems modernization project peaked at approximately 1.3 percentage points
of the expense ratio for 2024 and will subside gradually in 2025 and subsequent years.
-48-
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