QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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Large accelerated filer ☐
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Non-accelerated filer ☐
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Smaller reporting company |
Emerging growth company
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Title of Each Class
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Trading Symbols
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Name of Each Exchange on Which Registered
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Page
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PART I
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FINANCIAL INFORMATION
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Item 1.
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1 | |
Item 2.
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23 | |
Item 3.
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33 | |
Item 4.
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33 | |
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PART II
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OTHER INFORMATION
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Item 1.
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34 | |
Item 1A.
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34 | |
Item 2.
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35 | |
Item 3.
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35 | |
Item 4.
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35 | |
Item 5.
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35 | |
Item 6.
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36 | |
37 |
Item 1. |
Financial Statements
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June 30,
2023
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December 31,
2022
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|||||||
(Unaudited)
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||||||||
Assets
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||||||||
Investments
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||||||||
Fixed maturities
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||||||||
Held to maturity, at amortized cost (net of allowance for expected credit losses of $
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$
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$
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||||
Available for sale, at fair value
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||||||
Equity securities, at fair value
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||||||
Short-term investments, at cost, which approximates fair value
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||||||
Total investments
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||||||
Cash
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||||||
Accrued investment income
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|
||||||
Premiums receivable
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||||||
Reinsurance receivable (net of allowance for expected credit losses of $
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|
||||||
Deferred policy acquisition costs
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||||||
Deferred tax asset, net
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||||||
Prepaid reinsurance premiums
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||||||
Property and equipment, net
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||||||
Accounts receivable - securities
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||||||
Federal income taxes recoverable
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||||||
Due from
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||||||||
Goodwill
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|
||||||
Other intangible assets
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||||||
Other
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||||||
Total assets
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$
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|
$
|
|
||||
Liabilities and Stockholders’ Equity
|
||||||||
Liabilities
|
||||||||
Losses and loss expenses
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$
|
|
$
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|
||||
Unearned premiums
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|
|
||||||
Accrued expenses
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|
|
||||||
Reinsurance balances payable
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|
||||||
Borrowings under lines of credit
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||||||
Cash dividends declared to stockholders
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|
||||||
Due to
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||||||||
Other
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||||||
Total liabilities
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|
||||||
Stockholders’ Equity
|
||||||||
Preferred stock, $
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|
||||||
Class A common stock, $
and
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|
|
||||||
Class B common stock, $
shares and outstanding
|
|
|
||||||
Additional paid-in capital
|
|
|
||||||
Accumulated other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
Retained earnings
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|
|
||||||
Treasury stock, at cost
|
(
|
)
|
(
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)
|
||||
Total stockholders’ equity
|
|
|
||||||
Total liabilities and stockholders’ equity
|
$
|
|
$
|
|
Three Months Ended June 30,
|
||||||||
2023
|
2022
|
|||||||
Revenues:
|
||||||||
Net premiums earned
|
$
|
|
$
|
|
||||
Investment income, net of investment expenses
|
|
|
||||||
Net investment gains (losses) (includes $
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|
(
|
)
|
|||||
Lease income
|
|
|
||||||
Installment payment fees
|
|
|
||||||
Total revenues
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|
||||||
Expenses:
|
||||||||
Net losses and loss expenses
|
|
|
||||||
Amortization of deferred policy acquisition costs
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|
||||||
Other underwriting expenses
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|
||||||
Policyholder dividends
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|
||||||
Interest
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|
||||||
Other expenses, net
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|
||||||
Total expenses
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|
||||||
Income (loss) before income tax expense (benefit)
|
|
(
|
)
|
|||||
Income tax expense (benefit) (includes $
|
|
(
|
)
|
|||||
Net income (loss)
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$
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$
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(
|
)
|
|||
Net income (loss) per share:
|
||||||||
Class A common stock - basic and diluted
|
$
|
|
$
|
(
|
)
|
|||
Class B common stock - basic and diluted
|
$
|
|
$
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(
|
)
|
Three Months Ended June 30,
|
||||||||
2023
|
2022
|
|||||||
Net income (loss)
|
$
|
|
$
|
(
|
)
|
|||
Other comprehensive loss, net of tax
|
||||||||
Unrealized loss on securities:
|
||||||||
Unrealized holding loss during the period, net of income tax benefit of $
|
(
|
)
|
(
|
)
|
||||
Reclassification adjustment for gains included in net income (loss), net of income tax expense of $
|
(
|
)
|
(
|
)
|
||||
Other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
Comprehensive loss
|
$
|
(
|
)
|
$
|
(
|
)
|
Six Months Ended June 30,
|
||||||||
2023 |
2022
|
|||||||
Revenues:
|
||||||||
Net premiums earned
|
$
|
|
$
|
|
||||
Investment income, net of investment expenses
|
|
|
||||||
Net investment gains (losses) (includes ($
|
|
(
|
)
|
|||||
Lease income
|
|
|
||||||
Installment payment fees
|
|
|
||||||
Total revenues
|
|
|
||||||
Expenses:
|
||||||||
Net losses and loss expenses
|
|
|
||||||
Amortization of deferred policy acquisition costs
|
|
|
||||||
Other underwriting expenses
|
|
|
||||||
Policyholder dividends
|
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|
||||||
Interest
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|
||||||
Other expenses, net
|
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|
||||||
Total expenses
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|
||||||
Income before income tax expense
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|
||||||
Income tax expense (includes ($
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|
|
||||||
Net income
|
$
|
|
$
|
|
||||
Net income per share:
|
||||||||
Class A common stock - basic and diluted | $ | $ | ||||||
Class B common stock - basic and diluted
|
$
|
|
$
|
|
Six Months Ended June 30,
|
||||||||
2023
|
2022
|
|||||||
Net income
|
$
|
|
$
|
|
||||
Other comprehensive loss, net of tax
|
||||||||
Unrealized loss on securities:
|
||||||||
Unrealized holding loss during the period, net of income tax benefit of $
|
(
|
)
|
(
|
)
|
||||
Reclassification adjustment for losses (gains) included in net income, net of income tax (benefit) expense of ($
|
|
(
|
)
|
|||||
Other comprehensive loss
|
(
|
)
|
(
|
)
|
||||
Comprehensive income (loss)
|
$
|
|
$
|
(
|
)
|
Class A
Shares
|
Class B
Shares
|
Class A
Amount
|
Class B
Amount
|
Additional
Paid-In Capital
|
Accumulated
Other
Comprehensive
Loss
|
Retained
Earnings
|
Treasury Stock
|
Total
Stockholders’
Equity
|
||||||||||||||||||||||||||||
Balance, December 31, 2022
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||||||
Issuance of common stock
(stock compensation plans)
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Net income
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Cash dividends declared
|
—
|
—
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||||||
Grant of stock options
|
—
|
—
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||||||||
Cumulative effect of adoption of updated guidance for credit losses at January 1, 2023
|
( |
) | ( |
) | ||||||||||||||||||||||||||||||||
Other comprehensive income
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Balance, March 31, 2023
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||||||
Issuance of common stock
(stock compensation plans)
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Net income
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Cash dividends declared
|
—
|
—
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||||||
Grant of stock options
|
—
|
—
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||||||||
Other comprehensive loss
|
—
|
—
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||||||||
Balance, June 30, 2023
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
Class A
Shares
|
Class B
Shares
|
Class A
Amount
|
Class B
Amount
|
Additional
Paid-In Capital
|
Accumulated
Other
Comprehensive
Income (Loss)
|
Retained
Earnings
|
Treasury Stock
|
Total
Stockholders’
Equity
|
||||||||||||||||||||||||||||
Balance, December 31, 2021
|
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
|||||||||||||||||||
Issuance of common stock
(stock compensation plans)
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Net income
|
—
|
—
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Cash dividends declared
|
—
|
—
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||||||
Grant of stock options
|
—
|
—
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||||||||
Other comprehensive loss
|
—
|
—
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||||||||
Balance, March 31, 2022
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
||||||||||||||||||
Issuance of common stock
(stock compensation plans)
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Share-based compensation
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
Net loss
|
—
|
—
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||||||
Cash dividends declared
|
—
|
—
|
|
|
|
|
(
|
)
|
|
(
|
)
|
|||||||||||||||||||||||||
Grant of stock options
|
—
|
—
|
|
|
|
|
(
|
)
|
|
|
||||||||||||||||||||||||||
Other comprehensive loss
|
—
|
—
|
|
|
|
(
|
)
|
|
|
(
|
)
|
|||||||||||||||||||||||||
Balance, June 30, 2022
|
|
|
$
|
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
|
$
|
(
|
)
|
$
|
|
Six Months Ended June 30,
|
||||||||
2023
|
2022
|
|||||||
Cash Flows from Operating Activities:
|
||||||||
Net income
|
$
|
|
$
|
|
||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||
Depreciation, amortization and other non-cash items
|
|
|
||||||
Net investment (gains) losses
|
(
|
)
|
|
|||||
Changes in assets and liabilities:
|
||||||||
Losses and loss expenses
|
|
|
||||||
Unearned premiums
|
|
|
||||||
Premiums receivable
|
(
|
)
|
(
|
)
|
||||
Deferred acquisition costs
|
(
|
)
|
(
|
)
|
||||
Deferred income taxes
|
|
(
|
)
|
|||||
Reinsurance receivable
|
|
|
||||||
Prepaid reinsurance premiums
|
(
|
)
|
|
|||||
Accrued investment income
|
(
|
)
|
(
|
)
|
||||
Due from affiliate
|
(
|
)
|
(
|
)
|
||||
Reinsurance balances payable
|
|
|
||||||
Current income taxes
|
|
(
|
)
|
|||||
Accrued expenses
|
|
|
||||||
Other, net
|
|
|
||||||
Net adjustments
|
|
|
||||||
Net cash provided by operating activities
|
|
|
||||||
Cash Flows from Investing Activities:
|
||||||||
Purchases of fixed maturities, held to maturity
|
(
|
)
|
(
|
)
|
||||
Purchases of fixed maturities, available for sale
|
(
|
)
|
(
|
)
|
||||
Purchases of equity securities, available for sale
|
(
|
)
|
(
|
)
|
||||
Maturity of fixed maturities:
|
||||||||
Held to maturity
|
|
|
||||||
Available for sale
|
|
|
||||||
Sales of fixed maturities:
|
||||||||
Available for sale
|
||||||||
Sales of equity securities, available for sale
|
|
|
||||||
Net (purchases) sales of property and equipment
|
(
|
)
|
|
|||||
Net sales (purchases) of short-term investments
|
|
(
|
)
|
|||||
Net cash used in investing activities
|
(
|
)
|
(
|
)
|
||||
Cash Flows from Financing Activities:
|
||||||||
Cash dividends paid
|
(
|
)
|
(
|
)
|
||||
Issuance of common stock
|
|
|
||||||
Net cash (used in) provided by financing activities
|
(
|
)
|
|
|||||
Net increase (decrease) in cash
|
(
|
)
|
(
|
)
|
||||
Cash at beginning of period
|
|
|
||||||
Cash at end of period
|
$
|
|
$
|
|
||||
Cash paid during period - Interest
|
$
|
|
$
|
|
||||
Net cash paid during period - Taxes
|
$
|
|
$
|
|
1 - |
Organization
|
2 - |
Basis of Presentation
|
3 - |
Net Income (Loss) Per Share
|
Three Months Ended June 30,
|
||||||||||||||||
2023
|
2022
|
|||||||||||||||
Class A
|
Class B
|
Class A
|
Class B
|
|||||||||||||
(in thousands, except per share data)
|
||||||||||||||||
Basic net income (loss) per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of net income (loss)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
Denominator:
|
||||||||||||||||
Weighted-average shares outstanding
|
|
|
|
|
||||||||||||
Basic net income (loss) per share
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
Diluted net income (loss) per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of net income (loss)
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
||||||
Denominator:
|
||||||||||||||||
Number of shares used in basic computation
|
|
|
|
|
||||||||||||
Weighted-average shares effect of dilutive securities:
|
||||||||||||||||
Director and employee stock options
|
|
|
|
|
||||||||||||
Number of shares used in diluted computation
|
|
|
|
|
||||||||||||
Diluted net income (loss) per share
|
$
|
|
$
|
|
$
|
(
|
)
|
$
|
(
|
)
|
Six Months Ended June 30,
|
||||||||||||||||
2023
|
2022
|
|||||||||||||||
Class A
|
Class B
|
Class A
|
Class B
|
|||||||||||||
(in thousands, except per share data)
|
||||||||||||||||
Basic net income per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Denominator:
|
||||||||||||||||
Weighted-average shares outstanding
|
|
|
|
|
||||||||||||
Basic net income per share
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Diluted net income per share:
|
||||||||||||||||
Numerator:
|
||||||||||||||||
Allocation of net income
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Denominator:
|
||||||||||||||||
Number of shares used in basic computation
|
|
|
|
|
||||||||||||
Weighted-average shares effect of dilutive securities:
|
||||||||||||||||
Director and employee stock options
|
|
|
|
|
||||||||||||
Number of shares used in diluted computation
|
|
|
|
|
||||||||||||
Diluted net income per share
|
$
|
|
$
|
|
$
|
|
$
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
Number of options to purchase Class A shares excluded
|
|
|
|
|
4 - |
Reinsurance
|
• |
excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recover losses over a set retention of $
|
•
|
catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recover
|
5 - |
Investments
|
Carrying Value |
Allowance for
Credit Losses
|
Amortized
Cost
|
Gross
Unrealized
Gains
|
Gross
Unrealized
Losses
|
Estimated Fair
Value
|
|||||||||||||||||||
(in thousands)
|
||||||||||||||||||||||||
Held to Maturity
|
||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$ |
$ |
$
|
|
$
|
|
$
|
|
$
|
|
||||||||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||||||||||
Totals
|
$ |
$ |
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Available for Sale
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Held to Maturity
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Gross Unrealized
Gains
|
Gross Unrealized
Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Available for Sale
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Amortized Cost
|
Estimated Fair
Value
|
|||||||
(in thousands)
|
||||||||
Held to maturity
|
||||||||
Due in one year or less
|
$
|
|
$
|
|
||||
Due after one year through five years
|
|
|
||||||
Due after five years through ten years
|
|
|
||||||
Due after ten years
|
|
|
||||||
Mortgage-backed securities
|
|
|
||||||
Total held to maturity
|
$
|
|
$
|
|
||||
Available for sale
|
||||||||
Due in one year or less
|
$
|
|
$
|
|
||||
Due after one year through five years
|
|
|
||||||
Due after five years through ten years
|
|
|
||||||
Due after ten years
|
|
|
||||||
Mortgage-backed securities
|
|
|
||||||
Total available for sale
|
$
|
|
$
|
|
Cost
|
Gross Gains
|
Gross Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Equity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
Cost
|
Gross Gains
|
Gross Losses
|
Estimated Fair
Value
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Equity securities
|
$
|
|
$
|
|
$
|
|
$
|
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
(in thousands)
|
(in thousands) | |||||||||||||||
Gross realized gains:
|
||||||||||||||||
Fixed maturities
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Equity securities
|
|
|
|
|
||||||||||||
Real estate |
||||||||||||||||
|
|
|
|
|
||||||||||||
Gross realized losses:
|
||||||||||||||||
Fixed maturities
|
|
|
|
|
||||||||||||
Equity securities
|
|
|
|
|
||||||||||||
|
|
|
|
|||||||||||||
Net realized gains (losses)
|
|
|
(
|
)
|
|
|||||||||||
Gross unrealized gains on equity securities |
||||||||||||||||
Gross unrealized losses on equity securities |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
Fixed maturities - credit impairment charges | ( |
) | ||||||||||||||
Net investment gains (losses) |
$ | $ | ( |
) | $ | $ | ( |
) |
Less Than 12 Months
|
More Than 12 Months
|
|||||||||||||||
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
Less Than 12 Months
|
More Than 12 Months
|
|||||||||||||||
Fair Value
|
Unrealized Losses
|
Fair Value
|
Unrealized Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
6 -
|
Segment Information
|
Three Months Ended June 30,
|
||||||||
2023
|
2022
|
|||||||
(in thousands)
|
||||||||
Revenues:
|
||||||||
Premiums earned:
|
||||||||
Commercial lines
|
$
|
|
$
|
|
||||
Personal lines
|
|
|
||||||
GAAP premiums earned
|
|
|
||||||
Net investment income
|
|
|
||||||
Investment gains (losses)
|
|
(
|
)
|
|||||
Other
|
|
|
||||||
Total revenues
|
$
|
|
$
|
|
||||
Income (loss) before income tax expense (benefit):
|
||||||||
Underwriting loss:
|
||||||||
Commercial lines
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Personal lines
|
(
|
)
|
(
|
)
|
||||
SAP underwriting loss
|
(
|
)
|
(
|
)
|
||||
GAAP adjustments
|
|
|
||||||
GAAP underwriting loss
|
(
|
)
|
(
|
)
|
||||
Net investment income
|
|
|
||||||
Investment gains (losses)
|
|
(
|
)
|
|||||
Other
|
(
|
)
|
(
|
)
|
||||
Income (loss) before income tax expense (benefit)
|
$
|
|
$
|
(
|
)
|
Six Months Ended June 30,
|
||||||||
2023
|
2022
|
|||||||
(in thousands)
|
||||||||
Revenues:
|
||||||||
Premiums earned:
|
||||||||
Commercial lines
|
$
|
|
$
|
|
||||
Personal lines
|
|
|
||||||
GAAP premiums earned
|
|
|
||||||
Net investment income
|
|
|
||||||
Investment gains (losses)
|
|
(
|
)
|
|||||
Other
|
|
|
||||||
Total revenues
|
$
|
|
$
|
|
||||
Income before income tax expense:
|
||||||||
Underwriting loss:
|
||||||||
Commercial lines
|
$
|
(
|
)
|
$
|
(
|
)
|
||
Personal lines
|
(
|
)
|
(
|
)
|
||||
SAP underwriting loss
|
(
|
)
|
(
|
)
|
||||
GAAP adjustments
|
|
|
||||||
GAAP underwriting loss
|
(
|
)
|
(
|
)
|
||||
Net investment income
|
|
|
||||||
Investment gains (losses)
|
|
(
|
)
|
|||||
Other
|
(
|
)
|
(
|
)
|
||||
Income before income tax expense
|
$
|
|
$
|
|
7 -
|
Borrowings
|
FHLB of Pittsburgh stock purchased and owned
|
$
|
|
||
Collateral pledged, at par (carrying value $
|
|
|||
Borrowing capacity currently available
|
|
8 -
|
Share–Based Compensation
|
9 - |
Fair Value Measurements
|
Fair Value Measurements Using
|
||||||||||||||||
Fair Value
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
|||||||||||||
(in thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Equity securities
|
|
|
|
|
||||||||||||
Total investments in the fair value hierarchy
|
$
|
|
$
|
|
$
|
|
$
|
|
Fair Value Measurements Using
|
||||||||||||||||
Fair Value
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
Significant
Other
Observable
Inputs (Level 2)
|
Significant
Unobservable
Inputs (Level 3)
|
|||||||||||||
(in thousands)
|
||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Obligations of states and political subdivisions
|
|
|
|
|
||||||||||||
Corporate securities
|
|
|
|
|
||||||||||||
Mortgage-backed securities
|
|
|
|
|
||||||||||||
Equity securities
|
|
|
|
|
||||||||||||
Totals
|
$
|
|
$
|
|
$
|
|
$
|
|
10 - |
Income Taxes
|
11 -
|
Liabilities for Losses and Loss Expenses
|
Six Months Ended June 30,
|
||||||||
2023
|
2022
|
|||||||
(in thousands)
|
||||||||
Balance at January 1
|
$
|
|
$
|
|
||||
Less reinsurance recoverable
|
(
|
)
|
(
|
)
|
||||
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1 | ||||||||
Net balance at January 1
|
|
|
||||||
Incurred related to:
|
||||||||
Current year
|
|
|
||||||
Prior years
|
(
|
)
|
(
|
)
|
||||
Total incurred
|
|
|
||||||
Paid related to:
|
||||||||
Current year
|
|
|
||||||
Prior years
|
|
|
||||||
Total paid
|
|
|
||||||
Net balance at end of period
|
|
|
||||||
Plus reinsurance recoverable
|
|
|
||||||
Balance at end of period
|
$
|
|
$
|
|
12 - |
Allowance for Expected Credit Losses
|
At and For the Three Months
Ended June 30, 2023
|
At and For the Three Months
Ended June 30, 2022
|
|||||||||||||||
Held-to-
Maturity, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
Held-to-
Maturity, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Balance at beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Current period change for expected credit losses
|
(
|
)
|
|
|||||||||||||
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
At and For the Six Months
Ended June 30, 2023
|
At and For the Six Months
Ended June 30, 2022
|
|||||||||||||||
Held-to-
Maturity, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
Held-to-
Maturity, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Balance at beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
|
|
|
||||||||||||||
Current period change for expected credit losses
|
|
|
||||||||||||||
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
At and For the Three Months
Ended June 30, 2023
|
At and For the Three Months
Ended June 30, 2022
|
|||||||||||||||
Reinsurance
Receivable, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
Reinsurance
Receivable, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Balance at beginning of period
|
$
|
|
$
|
|
$
|
|
$
|
|
||||||||
Current period change for expected credit losses
|
|
|
||||||||||||||
Balance at end of period
|
$
|
|
$
|
|
$
|
|
$
|
|
At and For the Six Months
Ended June 30, 2023
|
At and For the Six Months
Ended June 30, 2022
|
|||||||||||||||
Reinsurance
Receivable, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
Reinsurance
Receivable, Net
of Allowance
for Expected
Credit Losses
|
Allowance
for Expected
Credit
Losses
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Balance at beginning of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current period change for expected credit losses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
13 - |
Impact of New Accounting Standards
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
June 30,
2023
|
December 31,
2022
|
|||||||
(in thousands)
|
||||||||
Commercial lines:
|
||||||||
Automobile
|
$
|
176,673
|
$
|
174,833
|
||||
Workers’ compensation
|
122,137
|
120,539
|
||||||
Commercial multi-peril
|
208,133
|
203,567
|
||||||
Other
|
27,657
|
23,071
|
||||||
Total commercial lines
|
534,600
|
522,010
|
||||||
Personal lines:
|
||||||||
Automobile
|
107,362
|
108,715
|
||||||
Homeowners
|
23,151
|
28,481
|
||||||
Other
|
12,333
|
10,656
|
||||||
Total personal lines
|
142,846
|
147,852
|
||||||
Total commercial and personal lines
|
677,446
|
669,862
|
||||||
Plus reinsurance recoverable
|
445,237
|
451,184
|
||||||
Total liabilities for losses and loss expenses
|
$
|
1,122,683
|
$
|
1,121,046
|
Percentage Change in Loss
and Loss Expense Reserves
Net of Reinsurance
|
Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
June 30, 2023
|
Percentage Change
in Stockholders’ Equity at
June 30, 2023(1)
|
Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
December 31, 2022
|
Percentage Change
in Stockholders’ Equity at
December 31, 2022(1)
|
|||||||||
(dollars in thousands) | |||||||||||||
(10.0)%
|
|
$609,701
|
11.0%
|
|
$602,876
|
10.9%
|
|||||||
(7.5)
|
626,638
|
8.3
|
619,622
|
8.2
|
|||||||||
(5.0)
|
643,574
|
5.5
|
636,369
|
5.5
|
|||||||||
(2.5)
|
660,510
|
2.8
|
653,115
|
2.7
|
|||||||||
Base
|
677,446
|
—
|
669,862
|
—
|
|||||||||
2.5
|
694,382
|
(2.8)
|
|
686,609
|
(2.7)
|
||||||||
5.0
|
711,318
|
(5.5)
|
|
703,355
|
(5.5)
|
||||||||
7.5
|
728,254
|
(8.3)
|
|
720,102
|
(8.2)
|
||||||||
10.0
|
745,191
|
(11.0)
|
|
736,848
|
(10.9)
|
(1) |
Net of income tax effect.
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
(in thousands)
|
||||||||||||||||
Net premiums earned
|
$
|
216,260
|
$
|
204,128
|
$
|
431,493
|
$
|
403,377
|
||||||||
Change in net unearned premiums
|
10,252
|
14,318
|
32,323
|
33,511
|
||||||||||||
Net premiums written
|
$
|
226,512
|
$
|
218,446
|
$
|
463,816
|
$
|
436,888
|
• |
the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses, excluding anticipated salvage and subrogation recoveries, to net premiums earned;
|
• |
the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written; and
|
• |
the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.
|
Three Months Ended June 30,
|
Six Months Ended June 30,
|
|||||||||||||||
2023
|
2022
|
2023
|
2022
|
|||||||||||||
GAAP Combined Ratios (Total Lines)
|
||||||||||||||||
Loss ratio - core losses
|
55.0
|
%
|
57.1
|
%
|
55.8
|
%
|
57.9
|
%
|
||||||||
Loss ratio - weather-related losses
|
9.1
|
9.6
|
7.8
|
6.8
|
||||||||||||
Loss ratio - large fire losses
|
5.9
|
6.6
|
5.5
|
5.7
|
||||||||||||
Loss ratio - net prior-year reserve development
|
(0.1
|
)
|
(3.9
|
)
|
(2.0
|
)
|
(6.1
|
)
|
||||||||
Loss ratio
|
69.9
|
69.4
|
67.1
|
64.3
|
||||||||||||
Expense ratio
|
34.2
|
35.0
|
35.3
|
35.4
|
||||||||||||
Dividend ratio
|
0.6
|
0.6
|
0.6
|
0.7
|
||||||||||||
Combined ratio
|
104.7
|
%
|
105.0
|
%
|
103.0
|
%
|
100.4
|
%
|
||||||||
Statutory Combined Ratios
|
||||||||||||||||
Commercial lines:
|
||||||||||||||||
Automobile
|
101.9
|
%
|
100.1
|
%
|
99.1
|
%
|
94.7
|
%
|
||||||||
Workers’ compensation
|
95.7
|
78.7
|
91.0
|
87.8
|
||||||||||||
Commercial multi-peril
|
111.8
|
119.5
|
113.3
|
109.8
|
||||||||||||
Other
|
95.7
|
87.1
|
88.2
|
79.9
|
||||||||||||
Total commercial lines
|
103.6
|
101.6
|
101.8
|
97.6
|
||||||||||||
Personal lines:
|
||||||||||||||||
Automobile
|
104.4
|
104.0
|
104.1
|
98.9
|
||||||||||||
Homeowners
|
103.4
|
123.5
|
101.8
|
115.9
|
||||||||||||
Other
|
105.9
|
51.3
|
77.4
|
47.6
|
||||||||||||
Total personal lines
|
104.3
|
107.5
|
101.6
|
101.2
|
||||||||||||
Total commercial and personal lines
|
103.8
|
103.8
|
101.7
|
99.0
|
Item 3. |
Quantitative and Qualitative Disclosures About Market Risk.
|
Item 4. |
Controls and Procedures.
|
Item 1. |
Legal Proceedings.
|
Item 1A. |
Risk Factors.
|
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds.
|
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
April 1-30, 2023
|
Class A – None
Class B – None
|
Class A – None
Class B – None
|
Class A – None
Class B – None
|
|||||
Month #2
May 1-31, 2023
|
Class A – 46,000
Class B – None
|
Class A – $14.70
Class B – None
|
Class A – 46,000
Class B – None
|
(1)
|
||||
Month #3
June 1-30, 2023
|
Class A – 177,058
Class B – None
|
Class A – $15.51
Class B – None
|
Class A – 177,058
Class B – None
|
(1)
|
||||
Total
|
Class A – 223,058
Class B – None
|
Class A – $15.34
Class B – None
|
Class A – 223,058
Class B – None
|
(1) |
Donegal Mutual purchased these shares pursuant to its announcement 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 announcement did not stipulate a maximum number of shares that may be purchased under this program.
|
Item 3. |
Defaults upon Senior Securities.
|
Item 4. |
Mine Safety Disclosure.
|
Item 5. |
Other Information.
|
Item 6. |
Exhibits.
|
Exhibit No.
|
Description
|
||
Amendment to Discretionary Loan Agreement between Donegal Group Inc. and M&T Bank dated September 24, 2021 – terms effective as of June 30, 2023 benchmark transition
event.
|
Filed herewith
|
||
Certification of Chief Executive Officer
|
Filed herewith
|
||
Certification of Chief Financial Officer
|
Filed herewith
|
||
Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code
|
Filed herewith
|
||
Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code
|
Filed herewith
|
||
Exhibit 101.INS
|
XBRL Instance Document
|
Filed herewith
|
|
Exhibit 101.SCH
|
XBRL Taxonomy Extension Schema Document
|
Filed herewith
|
|
Exhibit 101.PRE
|
XBRL Taxonomy Presentation Linkbase Document
|
Filed herewith
|
|
Exhibit 101.CAL
|
XBRL Taxonomy Calculation Linkbase Document
|
Filed herewith
|
|
Exhibit 101.LAB
|
XBRL Taxonomy Label Linkbase Document
|
Filed herewith
|
|
Exhibit 101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
Filed herewith
|
|
Exhibit 104
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
Filed herewith
|
DONEGAL GROUP INC.
|
||
August 4, 2023
|
By:
|
/s/ Kevin G. Burke
|
Kevin G. Burke, President and Chief Executive Officer
|
August 4, 2023
|
By:
|
/s/ Jeffrey D. Miller
|
Jeffrey D. Miller, Executive Vice President
|
||
and Chief Financial Officer
|
BORROWER(S):
|
DONEGAL GROUP INC
|
Referred to herein, individually and collectively as “Borrower”
|
|
BANK:
|
M&T BANK (a/k/a Manufacturers and Traders Trust Company), a New York banking corporation with an address of One M&T Plaza (Attn: Office of General
Counsel), Buffalo, New York 14203 Referred to herein as “Bank”
|
LOAN:
|
Loan Facility – $20,000,000.00
|
Account Number: 99657171670000000208 dated on or about 2020-08-01
|
1. |
LOAN DESCRIPTION, PURPOSE STATEMENT AND DEFINED TERMS
|
2. |
AMENDMENTS
|
(f) |
Certain Defined Terms. As used in this Section:
|
(a) |
the sum of: (i) Term SOFR and (ii) the related Benchmark Replacement Adjustment;
|
(b) |
the sum of: (i) Daily Simple SOFR and (ii) the related Benchmark Replacement Adjustment;
|
(c) |
the sum of: (i) the alternate benchmark rate that has been selected by the Bank as the replacement For the then-current Benchmark for the applicable Corresponding Tenor giving due consideration to (x) any selection or recommendation of
a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (y) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement for the then-current
Benchmark for U.S. dollar-denominated syndicated or bilateral credit facilities at such time, and (ii) the related Benchmark Replacement Adjustment;
|
(a) |
for purposes of clauses (a) and (b) of the definition of “Benchmark Replacement,” the first alternative set forth in the order below that can be determined by the Bank:
|
(b) |
for purposes of clause (c) of the definition of “Benchmark Replacement,” the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected
by the Bank for the applicable Corresponding Tenor giving due consideration to (i) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such
Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body on the applicable Benchmark Replacement Date or (ii) any evolving or then-prevailing market convention for determining a spread adjustment,
or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for U.S. dollar-denominated syndicated or bilateral credit facilities;
|
(a) |
in the case of clause (a) of the definition of “Benchmark Transition Event,” the later of (x) the date of the public statement or publication of information referenced therein and (y) the date on which the administrator of such
Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide all Available Tenors of such Benchmark (or such component thereof);
|
(b) |
in the case of clause (b) of the definition of “Benchmark Transition Event,” the date of the public statement or publication of information referenced therein;or
|
(c) |
in the case of an Early Opt-in Election, the sixth (6th) Business Day after the date notice of such Early Opt-in Election is provided to the Borrower, so long as the Bank has not received, by 5:00 p.m. (ET) on the fifth (5th) Business
Day after the date notice of such Early Opt-in Election is provided to the Borrower, written notice of objection to such Early Opt-in Election from the Borrower.
|
Donegal Group Inc
|
|
/s/ Jeffrey D Miller
|
|
Jeffrey D Miller
|
|
Executive Vice President/CFO
|
|
jeffmiller@donegalgroup.com
|
|
717-471-5105
|
/s/ Daniel J May
|
|
Daniel J May
|
|
Vice President | |
M&T Bank (a/k/a Manufacturers and Traders Trust Company), a New York banking corporation dmay@mtb.com
|
|
717-577-7868
|
Date:August 4, 2023
|
/s/ Kevin G. Burke
|
Kevin G. Burke,
President and Chief Executive Officer
|
Date: August 4, 2023
|
/s/ Jeffrey D. Miller
|
Jeffrey D. Miller, Executive Vice President
and Chief Financial Officer
|
Date: August 4, 2023
|
/s/ Kevin G. Burke
|
Kevin G. Burke, President and Chief Executive Officer
|
Date: August 4, 2023
|
/s/ Jeffrey D. Miller
|
Jeffrey D. Miller, Executive Vice President
and Chief Financial Officer
|