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Donegal Group Inc. Announces Third Quarter and First Nine Months of 2022 Results
Источник: Nasdaq GlobeNewswire / 27 окт 2022 06:30:00 America/New_York
MARIETTA, Pa., Oct. 27, 2022 (GLOBE NEWSWIRE) -- Donegal Group Inc. (NASDAQ:DGICA) and (NASDAQ:DGICB) today reported its financial results for the third quarter and first nine months of 2022.
Significant items for third quarter of 2022 (all comparisons to third quarter of 2021):
- Net loss of $10.4 million, or 33 cents per Class A share, compared to $6.7 million, or 22 cents per Class A share
- Net premiums earned increased 5.0% to $206.1 million
- Net premiums written1 increased 4.7% to $206.2 million
- Combined ratio of 109.6%, compared to 107.7%, largely due to elevated weather-related and fire loss activity
- Net loss included after-tax net investment losses of $1.9 million, or 6 cents per Class A share, compared to $1.2 million, or 4 cents per Class A share
- Book value per share of $14.85 at September 30, 2022, compared to $17.21
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands, except per share amounts) Income Statement Data Net premiums earned $ 206,122 $ 196,235 5.0 % $ 609,499 $ 575,975 5.8 % Investment income, net 8,569 7,764 10.4 24,631 22,926 7.4 Net investment (losses) gains (2,358 ) (1,570 ) 50.2 (10,811 ) 5,140 NM2 Total revenues 212,838 203,106 4.8 624,776 606,222 3.1 Net (loss) income (10,376 ) (6,712 ) 54.6 (5,439 ) 19,982 NM Non-GAAP operating (loss) income1 (8,513 ) (5,471 ) 55.6 3,102 15,922 -80.5 Annualized (loss) return on average equity -8.4 % -4.9 % -3.5 pts -1.4 % 5.0 % -6.4 pts Per Share Data Net (loss) income – Class A (diluted) $ (0.33 ) $ (0.22 ) 50.0 % $ (0.17 ) $ 0.66 NM Net (loss) income – Class B (0.30 ) (0.20 ) 50.0 (0.16 ) 0.59 NM Non-GAAP operating (loss) income – Class A (diluted) (0.27 ) (0.18 ) 50.0 0.10 0.52 -80.8 % Non-GAAP operating (loss) income – Class B (0.25 ) (0.16 ) 56.3 0.08 0.47 -83.0 Book value 14.85 17.21 -13.7 14.85 17.21 -13.7 1The “Definitions of Non-GAAP and Financial Measures” section of this release defines data that we prepare on an accounting basis other than U.S. generally accepted accounting principles (“GAAP”) and reconciles GAAP measures to such data.
2Not meaningful.
Management Commentary
Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc., noted, “We are strategically managing premium growth in the challenging current economic environment and continue to focus on strategies and tactics that we believe will yield long-term profit improvement. Weather-related loss activity for the third quarter of 2022 was in line with our historical run rate for the third quarter. Large fire losses had a significant adverse impact on our commercial segment quarterly results. While we did not identify any commonality among the locations or causes of the large fire losses, the increased average severity of these losses compared to the prior-year quarter reflects in part ongoing inflationary increases in the costs of labor and materials. We and other insurance carriers have experienced higher impact from fire losses in recent years compared to historical norms, and we are increasing our utilization of internal and third-party data to analytically identify underlying or emerging risk characteristics we should be considering in our new business and renewal underwriting decisions.”
Mr. Burke continued, “Overall, we remain encouraged by strong premium retention levels that were bolstered by substantial rate increases we have taken across the majority of our lines of business throughout 2022. In light of ongoing inflation impact on loss trends, we expect to continue implementing premium rate increases in the fourth quarter of 2022 and in 2023. The execution of individual state strategies during 2022 has led to higher-than-average premium growth in well-performing states and reduced exposures in underperforming states. We are refining further our state strategies for 2023 to focus on specific geographies and classes of business we have identified as most promising for profitable future growth. As earned premiums reflect higher premium rates and loss costs stabilize in future periods, we believe the ongoing execution of our strategic plan will lead to improved results. We are also making significant strides in our ongoing modernization initiatives, which we believe are positioning us well to excel in the years ahead.”
Insurance Operations
Donegal Group is an insurance holding company whose insurance subsidiaries and affiliates offer property and casualty lines of insurance in three Mid-Atlantic states (Delaware, Maryland and Pennsylvania), three New England states (Maine, New Hampshire and Vermont), six Southern states (Alabama, Georgia, North Carolina, South Carolina, Tennessee and Virginia), eight Midwestern states (Illinois, Indiana, Iowa, Michigan, Nebraska, Ohio, South Dakota and Wisconsin) and four Southwestern states (Colorado, New Mexico, Texas and Utah). Donegal Mutual Insurance Company and the insurance subsidiaries of Donegal Group conduct business together as the Donegal Insurance Group.
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Net Premiums Earned Commercial lines $ 127,497 $ 119,709 6.5 % $ 378,680 $ 344,234 10.0 % Personal lines 78,625 76,526 2.7 230,819 231,741 -0.4 Total net premiums earned $ 206,122 $ 196,235 5.0 % $ 609,499 $ 575,975 5.8 % Net Premiums Written Commercial lines: Automobile $ 37,330 $ 36,604 2.0 % $ 129,546 $ 126,417 2.5 % Workers' compensation 24,633 26,265 -6.2 86,873 89,773 -3.2 Commercial multi-peril 46,864 43,869 6.8 152,178 143,584 6.0 Other 9,357 9,157 2.2 30,964 29,578 4.7 Total commercial lines 118,184 115,895 2.0 399,561 389,352 2.6 Personal lines: Automobile 48,472 44,711 8.4 135,700 132,014 2.8 Homeowners 34,082 30,978 10.0 90,382 84,035 7.6 Other 5,491 5,431 1.1 17,474 17,081 2.3 Total personal lines 88,045 81,120 8.5 243,556 233,130 4.5 Total net premiums written $ 206,229 $ 197,015 4.7 % $ 643,117 $ 622,482 3.3 % Net Premiums Written
The 4.7% increase in net premiums written for the third quarter of 2022 compared to the third quarter of 2021, as shown in the table above, represents 2.0% growth in commercial lines net premiums written and 8.5% growth in personal lines net premiums written. The $9.2 million increase in net premiums written for the third quarter of 2022 compared to the third quarter of 2021 included:
- Commercial Lines: $2.3 million increase that we attribute primarily to modest new business writings, strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition in regions we have targeted for profit improvement.
- Personal Lines: $6.9 million increase that we attribute to premium rate increases our insurance subsidiaries have implemented over the past four quarters, strong policy retention and new business writings in certain states where we have introduced an updated suite of products.
Underwriting Performance
We evaluate the performance of our commercial lines and personal lines segments primarily based upon the underwriting results of our insurance subsidiaries as determined under statutory accounting practices. The following table presents comparative details with respect to the GAAP and statutory combined ratios1 for the three and nine months ended September 30, 2022 and 2021:
Three Months Ended Nine Months Ended September 30, September 30, 2022 2021 2022 2021 GAAP Combined Ratios (Total Lines) Loss ratio (non-weather) 66.2 % 66.3 % 60.4 % 59.8 % Loss ratio (weather-related) 9.4 9.2 7.7 6.4 Expense ratio 33.4 31.5 34.7 33.9 Dividend ratio 0.6 0.7 0.7 0.7 Combined ratio 109.6 % 107.7 % 103.5 % 100.8 % Statutory Combined Ratios Commercial lines: Automobile 107.0 % 111.9 % 98.7 % 106.7 % Workers' compensation 105.9 109.0 93.9 96.0 Commercial multi-peril 125.0 116.9 114.9 106.5 Other 85.9 64.0 81.9 67.2 Total commercial lines 112.1 109.4 102.4 101.1 Personal lines: Automobile 103.1 102.0 100.2 95.4 Homeowners 125.0 117.5 118.8 107.4 Other 54.6 65.4 49.9 72.2 Total personal lines 107.8 105.2 103.4 98.2 Total lines 110.1 % 107.7 % 102.8 % 100.0 % Loss Ratio
For the third quarter of 2022, the loss ratio increased to 75.6%, compared to 75.5% for the third quarter of 2021. Weather-related losses of approximately $19.4 million, or 9.4 percentage points of the loss ratio, for the third quarter of 2022, increased from $18.0 million, or 9.2 percentage points of the loss ratio, for the third quarter of 2021. The impact of weather-related loss activity to the loss ratio for the third quarter of 2022 was in line with our previous five-year average of 9.4 percentage points for third quarter weather-related losses. We expect a minimal loss impact from the inland remnants of Hurricane Ian in late September 2022.
Large fire losses, which we define as individual fire losses in excess of $50,000, for the third quarter of 2022 were $17.4 million, or 8.4 percentage points of the loss ratio. That amount represented a significant increase compared to the large fire losses of $12.7 million, or 6.5 percentage points of the loss ratio, for the third quarter of 2021. We experienced a $4.8 million increase in commercial property fire losses compared to the prior-year quarter.
Net favorable development of reserves for losses incurred in prior accident years of $6.2 million decreased the loss ratio for the third quarter of 2022 by 3.0 percentage points, compared to $4.3 million that decreased the loss ratio for the third quarter of 2021 by 2.2 percentage points. Our insurance subsidiaries experienced favorable development primarily relating to reserves for accident years 2021 and 2020 in the commercial multi-peril, commercial automobile and personal automobile lines of business.
Expense Ratio
The expense ratio was 33.4% for the third quarter of 2022, compared to 31.5% for the third quarter of 2021. The increase in the expense ratio primarily reflected higher technology costs related to our ongoing systems modernization initiatives.
Investment Operations
Donegal Group’s investment strategy is to generate an appropriate amount of after-tax income on its invested assets while minimizing credit risk through investment in high-quality securities. As a result, we had invested 93.5% of our consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at September 30, 2022.
September 30, 2022 December 31, 2021 Amount % Amount % (dollars in thousands) Fixed maturities, at carrying value: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 146,782 11.5 % $ 121,453 9.5 % Obligations of states and political subdivisions 433,740 33.9 428,814 33.6 Corporate securities 400,811 31.3 412,758 32.3 Mortgage-backed securities 215,955 16.8 237,709 18.6 Total fixed maturities 1,197,288 93.5 1,200,734 94.0 Equity securities, at fair value 46,776 3.6 63,420 5.0 Short-term investments, at cost 36,660 2.9 12,692 1.0 Total investments $ 1,280,724 100.0 % $ 1,276,846 100.0 % Average investment yield 2.6 % 2.5 % Average tax-equivalent investment yield 2.7 % 2.6 % Average fixed-maturity duration (years) 6.1 4.7 Total investments at September 30, 2022 increased by $3.9 million compared to December 31, 2021, as new funds invested were largely offset by $64.0 million of unrealized losses within our available-for-sale fixed-maturity portfolio due to a substantial increase in market interest rates during the first nine months of 2022.
Net investment income of $8.6 million for the third quarter of 2022 increased 10.4% compared to $7.8 million in net investment income for the third quarter of 2021. The increase in net investment income reflected an increase in average invested assets and an increase in the average investment yield relative to the prior-year third quarter.
Net investment losses were $2.4 million for the third quarter of 2022, compared to $1.6 million for the third quarter of 2021. Net investment losses for both quarterly periods were primarily related to the net change in unrealized gains or losses in the fair value of equity securities held at the end of the respective periods.
Our book value per share was $14.85 at September 30, 2022, compared to $16.95 at December 31, 2021, with the decrease primarily related to after-tax unrealized losses within our available-for-sale fixed-maturity portfolio during the first nine months of 2022 that reduced our book value by $1.55 per share.
Definitions of Non-GAAP Financial Measures
We prepare our consolidated financial statements on the basis of GAAP. Our insurance subsidiaries also prepare financial statements based on statutory accounting principles state insurance regulators prescribe or permit (“SAP”). In addition to using GAAP-based performance measurements, we also utilize certain non-GAAP financial measures that we believe provide value in managing our business and for comparison to the financial results of our peers. These non-GAAP measures are net premiums written, operating income or loss and statutory combined ratio.
Net premiums written and operating income or loss are non-GAAP financial measures investors in insurance companies commonly use. 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. We define operating income or loss as net income or loss excluding after-tax net investment gains or losses, after-tax restructuring charges and other significant non-recurring items. Because our calculation of operating income or loss may differ from similar measures other companies use, investors should exercise caution when comparing our measure of operating income or loss to the measure of other companies.
The following table provides a reconciliation of net premiums earned to net premiums written for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands) Reconciliation of Net Premiums Earned to Net Premiums Written Net premiums earned $ 206,122 $ 196,235 5.0 % $ 609,499 $ 575,975 5.8 % Change in net unearned premiums 107 780 -86.3 33,618 46,507 -27.7 Net premiums written $ 206,229 $ 197,015 4.7 % $ 643,117 $ 622,482 3.3 % The following table provides a reconciliation of net (loss) income to operating (loss) income for the periods indicated:
Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 % Change 2022 2021 % Change (dollars in thousands, except per share amounts) Reconciliation of Net (Loss) Income to Non-GAAP Operating (Loss) Income Net (loss) income $ (10,376 ) $ (6,712 ) 54.6 % $ (5,439 ) $ 19,982 NM Investment losses (gains) (after tax) 1,863 1,241 50.1 8,541 (4,060 ) NM Non-GAAP operating (loss) income $ (8,513 ) $ (5,471 ) 55.6 % $ 3,102 $ 15,922 -80.5% Per Share Reconciliation of Net (loss) Income to Non-GAAP Operating (Loss) Income Net (loss) income – Class A (diluted) $ (0.33 ) $ (0.22 ) 50.0 % $ (0.17 ) $ 0.66 NM Investment losses (gains) (after tax) 0.06 0.04 50.0 0.27 (0.14 ) NM Non-GAAP operating (loss) income – Class A $ (0.27 ) $ (0.18 ) 50.0 % $ 0.10 $ 0.52 -80.8% Net (loss) income – Class B $ (0.30 ) $ (0.20 ) 50.0 % $ (0.16 ) $ 0.59 NM Investment losses (gains) (after tax) 0.05 0.04 25.0 0.24 (0.12 ) NM Non-GAAP operating (loss) income – Class B $ (0.25 ) $ (0.16 ) 56.3 % $ 0.08 $ 0.47 -83.0% The statutory combined ratio is a non-GAAP standard measurement of underwriting profitability that is based upon amounts determined under SAP. The statutory combined ratio is the sum of:
- the statutory loss ratio, which is the ratio of calendar-year incurred losses and loss expenses, excluding anticipated salvage and subrogation recoveries, to premiums earned;
- the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to premiums written; and
- the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to premiums earned.
The statutory combined ratio does not reflect investment income, federal income taxes or other non-operating income or expense. A statutory combined ratio of less than 100% generally indicates underwriting profitability.
Dividend Information
On October 20, 2022, we declared a regular quarterly cash dividend of $0.165 per share for our Class A common stock and $0.1475 per share for our Class B common stock, which are payable on November 15, 2022 to stockholders of record as of the close of business on November 1, 2022.
Pre-Recorded Webcast
At approximately 8:30 am EDT on Thursday, October 27, 2022, we will make available in the Investors section of our website a pre-recorded audio webcast featuring management commentary and a question and answer session. You may listen to the pre-recorded webcast by accessing the link on our website at http://investors.donegalgroup.com. A supplemental investor presentation is also available via our website.
About the CompanyDonegal Group Inc. is an insurance holding company whose insurance subsidiaries and affiliates offer property and casualty lines of insurance in certain Mid-Atlantic, Midwestern, New England, 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 Donegal Insurance Group has an A.M. Best rating of A (Excellent).
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. We 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 delivering a superior experience to our agents and customers.
Safe Harbor
We base all statements contained in this release that are not historic facts on our current expectations. Such statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and necessarily involve risks and uncertainties. Forward-looking statements we make may be identified by our use of words such as “will,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “seek,” “estimate” and similar expressions. Our actual results could vary materially from our forward-looking statements. The factors that could cause our actual results to vary materially from the forward-looking statements we have previously made include, but are not limited to, prolonged economic challenges resulting from the COVID-19 pandemic, adverse litigation and other trends that could increase our loss costs (including labor shortages and escalating medical, automobile and property repair costs), adverse and catastrophic weather events, our ability to maintain profitable operations (including our ability to underwrite risks effectively and charge adequate premium rates), the adequacy of the loss and loss expense reserves of our insurance subsidiaries, the availability and successful operation of the information technology systems our insurance subsidiaries utilize, the successful development of new information technology systems to allow our insurance subsidiaries to compete effectively, business and economic conditions in the areas in which we and our insurance subsidiaries operate, interest rates, competition from various insurance and other financial businesses, terrorism, the availability and cost of reinsurance, legal and judicial developments including those related to COVID-19 business interruption coverage exclusions, changes in regulatory requirements, our ability to attract and retain independent insurance agents, changes in our A.M. Best rating and the other risks that we describe from time to time in our filings with the Securities and Exchange Commission. We disclaim any obligation to update such statements or to announce publicly the results of any revisions that we may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
Investor Relations Contacts
Karin Daly, Vice President, The Equity Group Inc.
Phone: (212) 836-9623
E-mail: kdaly@equityny.comJeffrey D. Miller, Executive Vice President & Chief Financial Officer
Phone: (717) 426-1931
E-mail: investors@donegalgroup.com
Financial SupplementDonegal Group Inc. Consolidated Statements of Loss (unaudited; in thousands, except share data) Quarter Ended September 30, 2022 2021 Net premiums earned $ 206,122 $ 196,235 Investment income, net of expenses 8,569 7,764 Net investment losses (2,358 ) (1,570 ) Lease income 92 108 Installment payment fees 414 569 Total revenues 212,839 203,106 Net losses and loss expenses 155,754 148,142 Amortization of deferred acquisition costs 35,513 31,778 Other underwriting expenses 33,412 30,102 Policyholder dividends 1,239 1,287 Interest 71 210 Other expenses, net 219 217 Total expenses 226,208 211,736 Loss before income tax benefit (13,369 ) (8,630 ) Income tax benefit (2,993 ) (1,918 ) Net loss $ (10,376 ) $ (6,712 ) Loss per common share: Class A - basic and diluted $ (0.33 ) $ (0.22 ) Class B - basic and diluted $ (0.30 ) $ (0.20 ) Supplementary Financial Analysts' Data Weighted-average number of shares outstanding: Class A - basic 26,781,374 25,676,313 Class A - diluted 26,974,506 25,831,343 Class B - basic and diluted 5,576,775 5,576,775 Net premiums written $ 206,229 $ 197,015 Book value per common share at end of period $ 14.85 $ 17.21 Donegal Group Inc. Consolidated Statements of (Loss) Income (unaudited; in thousands, except share data) Nine Months Ended September 30, 2022 2021 Net premiums earned $ 609,499 $ 575,975 Investment income, net of expenses 24,631 22,926 Net investment (losses) gains (10,811 ) 5,140 Lease income 295 324 Installment payment fees 1,162 1,857 Total revenues 624,776 606,222 Net losses and loss expenses 415,246 381,319 Amortization of deferred acquisition costs 104,867 95,060 Other underwriting expenses 106,753 100,113 Policyholder dividends 4,177 4,211 Interest 464 739 Other expenses, net 991 962 Total expenses 632,498 582,404 (Loss) income before income tax (benefit) expense (7,722 ) 23,818 Income tax (benefit) expense (2,283 ) 3,836 Net (loss) income $ (5,439 ) $ 19,982 Net (loss) income per common share: Class A - basic and diluted $ (0.17 ) $ 0.66 Class B - basic and diluted $ (0.16 ) $ 0.59 Supplementary Financial Analysts' Data Weighted-average number of shares outstanding: Class A - basic 26,216,215 25,265,448 Class A - diluted 26,362,723 25,443,911 Class B - basic and diluted 5,576,775 5,576,775 Net premiums written $ 643,117 $ 622,482 Book value per common share at end of period $ 14.85 $ 17.21 Donegal Group Inc. Consolidated Balance Sheets (in thousands) September 30, December 31, 2022 2021 (unaudited) ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost $ 696,392 $ 668,105 Available for sale, at fair value 500,896 532,629 Equity securities, at fair value 46,776 63,420 Short-term investments, at cost 36,660 12,692 Total investments 1,280,724 1,276,846 Cash 26,661 57,709 Premiums receivable 181,745 168,863 Reinsurance receivable 451,847 455,411 Deferred policy acquisition costs 74,384 68,028 Prepaid reinsurance premiums 165,713 176,936 Receivable from Michigan Catastrophic Claims Association - 18,113 Other assets 55,778 33,269 Total assets $ 2,236,852 $ 2,255,175 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Losses and loss expenses $ 1,108,126 $ 1,077,620 Unearned premiums 595,353 572,958 Accrued expenses 4,311 4,029 Borrowings under lines of credit 35,000 35,000 Cash refunds due to Michigan policyholders - 18,113 Other liabilities 12,859 16,419 Total liabilities 1,755,649 1,724,139 Stockholders' equity: Class A common stock 298 288 Class B common stock 56 56 Additional paid-in capital 321,364 304,889 Accumulated other comprehensive (loss) income (46,971 ) 3,284 Retained earnings 247,682 263,745 Treasury stock (41,226 ) (41,226 ) Total stockholders' equity 481,203 531,036 Total liabilities and stockholders' equity $ 2,236,852 $ 2,255,175