UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

Donegal Group Inc.

(Exact name of registrant as specified in its charter)

Delaware		0-15341		23-2424711
(State or other jurisdiction of incorporation)		(Commission file number )		(IRS employer identification no.)

1195 River Road, Marietta, Pennsylvania		17547
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number, including area code: (717)426-1931

N/A

(Former name or former address, if changed since last report)

     Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2 below):

o Written communication pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

Item 2.02 Results of Operations and Financial Condition.

     On October 21, 2005, Donegal Group Inc. (the “Company”) issued a press release regarding the Company’s financial results for its third quarter ended September 30, 2005. The press release is attached as Exhibit 99.1 to this Form 8-K and is incorporated by reference into this Form 8-K. The information in this report shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934 or incorporated by reference in any filing under the Securities Act of 1933.

Item 9.01. Financial Statements and Exhibits

Exhibit No.		Description
99.1		Press release issued by the Company dated October 21, 2005

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

		DONEGAL GROUP INC.
Date: October 21, 2005		By:		/s/ Jeffrey D. Miller
		Jeffrey D. Miller, Senior Vice President and Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number		Description
99.1		Press release dated October 21, 2005 issued by the Company.

DONEGAL GROUP INC. ANNOUNCES THIRD QUARTER EARNINGS

Jeffrey D. Miller
Senior Vice President & Chief Financial Officer
Phone (717) 426-1931
Fax     (717) 426-7009

For Immediate Release

     MARIETTA, Pennsylvania, October 21, 2005 — Donegal Group Inc. (Nasdaq: DGICA and DGICB) today reported that its net income for the third quarter ended September 30, 2005 increased 66.1% to $9,777,157, or $.52 per share on a diluted basis, compared to $5,886,886, or $.32 per share on a diluted basis, for the third quarter of 2004.

     The Company’s third quarter earnings continued to reflect solid revenue growth and excellent underwriting results. As previously announced, the Company incurred relatively few claims totaling approximately $250,000 as a result of Hurricanes Katrina and Rita. Revenues for the third quarter of 2005 were $80,566,455, an increase of 9.4% over a year earlier, while premiums earned expanded to $74,584,045, a 9.7% increase over the third quarter of 2004. Investment income rose 13.2% to $4,548,837 for the third quarter of 2005, compared to $4,017,915 for the third quarter of 2004.

     The Company’s combined ratio improved to a record quarterly low 88.5% for the third quarter of 2005, compared to 95.0% for the third quarter of 2004. The Company’s loss ratio for the third quarter of 2005 was 55.1%, which compared favorably to the loss ratio of 62.2% posted for the third quarter of 2004. Net losses incurred in the third quarter of 2004 included approximately $3.2 million in property claims from a series of severe weather events that added 4.6 percentage points to the loss ratio in that quarter. The Company’s expense ratio increased slightly to 32.6% for the third quarter of 2005, compared to 32.2% for the third quarter of 2004, and continued to reflect higher levels of incentive compensation resulting from the excellent underwriting results.

     Net income for the nine months ended September 30, 2005 increased 43.0% to $27,097,520, or $1.46 per share on a diluted basis, compared to $18,943,709, or $1.04 per share on a diluted basis, before extraordinary item for the nine months ended September 30, 2004. Net income in the first nine months of 2004 was $24,389,379, or $1.34 per share on a diluted basis, which included an extraordinary gain of $5,445,670, or $.30 per share on a diluted basis, recorded in the first quarter of 2004 related to an acquisition.

     “The continuation of our strong underwriting results is directly related to the combination of our disciplined underwriting philosophy and the ongoing implementation

of our organic and acquisition growth strategies. We are pleased that our management of our hurricane catastrophe exposures helped us to avoid significant claims from the unprecedented storms in recent months,” stated Donald H. Nikolaus, President and Chief Executive Officer of Donegal Group Inc.

     The Company’s combined ratio for the first nine months of 2005 was 89.5%, compared to a combined ratio of 93.2% for the comparable period in 2004. The Company’s loss ratio for the first nine months of 2005 improved to 55.7%, compared to 62.5% for the first nine months of 2004.

     The excellent operating results through the first nine months of 2005 contributed to an increase in the Company’s book value to $14.72 per common share as of September 30, 2005, compared to $13.53 per common share at December 31, 2004.

     All 2004 per share information has been restated to reflect a 4-for-3 stock split in the form of a 33 1/3% stock dividend effected on March 28, 2005.

     The Company also announced that yesterday its Board of Directors declared a regular quarterly cash dividend payable on November 15, 2005 of $.10 per share of Class A Common Stock and $.085 per share of Class B Common Stock to stockholders of record as of the close of business on November 1, 2005.

     The Company previously announced that certain members of the Donegal Insurance Group have entered into an Acquisition Rights Agreement (the “Agreement”) with The Shelby Insurance Company and Shelby Casualty Insurance Company (together “Shelby”), part of Vesta Insurance Group, Inc. The Agreement grants those members the right, at their discretion and subject to their traditional underwriting and agency appointment standards, to offer renewal or replacement policies to the holders of Shelby’s personal lines policies in Pennsylvania, Tennessee and Alabama, pursuant to Shelby’s plans of withdrawal from those three states. As part of the Agreement, the Donegal Insurance Group will pay specified amounts to Shelby based on the direct gross premiums written by the Donegal Insurance Group on the renewal and replacement policies it issues. Renewal and replacement policies will be offered for policies issued on or after January 1, 2006. Thus, the Agreement will have no impact on the Company’s 2005 operating results.

     The Company will hold a conference call on Friday, October 21, 2005, beginning at 11:00 A. M. Eastern Time. You may participate in the conference call by calling 1-800-510-0178 (Passcode 92709965). An instant replay of the conference call will be available until October 28, 2005, by calling 1-888-286-8010 (Passcode 59103119).

     Donegal Group Inc. is an insurance holding company whose insurance subsidiaries offer personal and commercial property and casualty lines of insurance in six Mid-Atlantic states (Connecticut, Delaware, Maryland, New Hampshire, New York and Pennsylvania), eight Southeastern states (Alabama, Georgia, Louisiana, North Carolina,

South Carolina, Tennessee, Virginia and West Virginia) and five Midwestern states (Iowa, Nebraska, Ohio, Oklahoma and South Dakota).

     All statements contained in this press release that are not historic facts are based on current expectations. Such statements are forward-looking (as defined in the Private Securities Litigation Reform Act of 1995) in nature and necessarily involve a number of risks and uncertainties. Actual results could vary materially. The factors that could cause actual results to vary materially include, but are not limited to, the ability of the Company to maintain profitable operations, the adequacy of the Company’s reserves for losses and loss adjustment expenses, business and economic conditions in the areas in which the Company operates, severe weather events, competition from various insurance and non-insurance businesses, terrorism, legal and judicial developments, changes in regulatory requirements and other risks that are described from time to time in the Company’s filings with the Securities and Exchange Commission. The Company disclaims any obligation to update such statements or to announce publicly the results of any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

(Tables Follow)

		Three Months Ended September 30
		2005				2004*
Net premiums earned		$	74,584,045			$	67,958,382
Investment income, net of investment expenses			4,548,837				4,017,915
Net realized investment gains			124,896				448,367
Total revenues			80,566,455				73,613,653
Net income		$	9,777,157			$	5,886,886
Net income per common share:
Basic		$	0.54			$	0.33
Diluted		$	0.52			$	0.32

		Nine Months Ended September 30
		2005				2004*
Net premiums earned		$	219,784,658			$	196,156,262
Investment income, net of investment expenses			13,312,933				11,640,506
Net realized investment gains			1,235,248				1,092,365
Total revenues			238,137,593				212,307,736
Net income before extraordinary item		$	27,097,520			$	18,943,709
Net income after extraordinary item		$	27,097,520			$	24,389,379
Net income per common share before extraordinary item:
Basic		$	1.51			$	1.09
Diluted		$	1.46			$	1.04
Net income per common share after extraordinary item:
Basic		$	1.51			$	1.40
Diluted		$	1.46			$	1.34

Consolidated Statements of Income
(unaudited; in thousands, except share data)

		Quarter Ended September 30
		2005				2004*
Net premiums earned		$	74,584			$	67,959
Investment income, net of investment expenses			4,549				4,018
Net realized investment gains			125				448
Lease income			242				224
Installment payment fees			1,066				965
Total revenues			80,566				73,614
Net losses and loss expenses			41,072				42,286
Amortization of deferred policy acquisition costs			12,069				9,961
Other underwriting expenses			12,270				11,941
Other expenses			290				382
Policyholder dividends			572				404
Interest			588				417
Total expenses			66,861				65,391
Income before income tax expense			13,705				8,223
Income tax expense			3,928				2,336
Net income		$	9,777			$	5,887
Net income per common share:
Basic		$	0.54			$	0.33
Diluted		$	0.52			$	0.32
Supplementary Financial Analysts’ Data
Weighted average number of shares outstanding:
Basic			17,993,174				17,640,012
Diluted			18,672,331				18,206,375
Net written premiums		$	77,565			$	71,079
Book value per common share		$	14.72			$	13.34

Consolidated Statements of Income
(unaudited; in thousands, except share data)

		Nine Months Ended September 30
		2005				2004*
Net premiums earned		$	219,785			$	196,156
Investment income, net of investment expenses			13,313				11,641
Net realized investment gains			1,235				1,092
Lease income			708				663
Installment payment fees			3,097				2,756
Total revenues			238,138				212,308
Net losses and loss expenses			122,417				122,618
Amortization of deferred policy acquisition costs			35,291				28,248
Other underwriting expenses			37,915				31,098
Other expenses			1,179				1,463
Policyholder dividends			1,181				866
Interest			1,630				1,114
Total expenses			199,613				185,407
Income before income tax expense			38,525				26,901
Income tax expense			11,427				7,957
Net income before extraordinary item			27,098				18,944
Extraordinary item			—				5,445
Net income		$	27,098			$	24,389
Net income per common share before extraordinary item:
Basic		$	1.51			$	1.09
Diluted		$	1.46			$	1.04
Net income per common share after extraordinary item:
Basic		$	1.51			$	1.40
Diluted		$	1.46			$	1.34

Supplementary Financial Analysts’ Data

		Nine Months Ended September 30
		2005				2004*
Weighted average number of shares outstanding:
Basic			17,971,806				17,448,265
Diluted			18,560,997				18,127,131
Net written premiums		$	232,372			$	213,270
Book value per common share		$	14.72			$	13.34

Consolidated Balance Sheets
(unaudited; in thousands)

		September 30,				December 31,
		2005				2004
ASSETS:
Investments:
Fixed maturities:
Held to maturity, at amortized cost		$	182,017			$	182,574
Available for sale, at fair value			287,890				226,757
Equity securities, at fair value			36,960				33,505
Investments in affiliates			8,565				8,865
Short-term investments, at cost, which approximates fair value			15,629				47,368
Total investments			531,061				499,069
Cash			3,023				7,350
Premiums receivable			48,761				44,267
Reinsurance receivable			94,667				98,479
Accrued investment income			5,052				4,961
Deferred policy acquisition costs			24,258				22,258
Prepaid reinsurance premiums			42,239				35,907
Property and equipment, net			5,443				5,509
Deferred tax asset, net			12,736				10,922
Due from affiliate			1,928				—
Other assets			3,737				6,693
Total assets		$	772,905			$	735,415

Consolidated Balance Sheets (continued)
(unaudited; in thousands)

		September 30,				December 31,
		2005				2004
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Losses and loss expenses		$	263,277			$	267,190
Unearned premiums			193,378				174,458
Accrued expenses			13,896				13,414
Subordinated debentures			30,929				30,929
Due to affiliate			—				241
Other liabilities			6,369				6,479
Total liabilities			507,849				492,711
Stockholders’ equity:
Preferred stock			—				—
Class A common stock			139				139
Class B common stock			42				42
Additional paid-in capital			135,432				131,980
Accumulated other comprehensive income			2,447				4,750
Retained earnings			127,888				106,685
Treasury stock, at cost			(892	)			(892	)
Total stockholders’ equity			265,056				242,704
Total liabilities and stockholders’ equity		$	772,905			$	735,415