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Donegal Group Inc. Announces Second Quarter and First Half 2021 Results
来源: Nasdaq GlobeNewswire / 27 7月 2021 16:05:02 America/New_York
MARIETTA, Pa., July 27, 2021 (GLOBE NEWSWIRE) -- Donegal Group Inc. (NASDAQ: DGICA) and (NASDAQ:DGICB) today reported its financial results for the second quarter and first half of 2021.
Highlights for Second Quarter (all comparisons to second quarter of 2020):
- Net income of $16.2 million, or 53 cents per diluted Class A share, compared to $22.7 million, or 79 cents per diluted Class A share
- Net premiums earned increased 4.4% to $192.5 million
- Net premiums written1 increased 8.2% to $209.6 million
- Combined ratio of 96.1%, compared to 92.3%
- Net income included after-tax net investment gains of $3.4 million, or 11 cents per diluted Class A share, compared to $5.3 million, or 17 cents per diluted Class A share
- Annualized return on average equity of 12.0%, compared to 19.1%
- Book value per share of $17.64 at June 30, 2021, compared to $16.77 at June 30, 2020
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands, except per share amounts) Income Statement Data Net premiums earned $ 192,489 $ 184,374 4.4 % $ 379,740 $ 371,627 2.2 % Investment income, net 7,652 7,172 6.7 15,163 14,548 4.2 Net investment gains (losses) 4,241 6,486 -34.6 6,710 (4,209 ) NM2 Total revenues 205,146 198,900 3.1 403,116 383,811 5.0 Net income 16,164 22,679 -28.7 26,694 26,410 1.1 Non-GAAP operating income1 12,814 17,555 -27.0 21,393 29,896 -28.4 Annualized return on average equity 12.0 % 19.1 % -7.1 pts 10.0 % 11.3 % -1.3 pts Per Share Data Net income – Class A (diluted) $ 0.53 $ 0.79 -32.9 % $ 0.88 $ 0.92 -4.3 % Net income – Class B 0.48 0.72 -33.3 0.80 0.84 -4.8 Non-GAAP operating income – Class A (diluted) 0.42 0.61 -31.1 0.71 1.04 -31.7 Non-GAAP operating income – Class B 0.38 0.55 -30.9 0.64 0.95 -32.6 Book value 17.64 16.77 5.2 17.64 16.77 5.2 1The “Definitions of Non-GAAP and Operating Measures” section of this release defines and reconciles data that we prepare on an accounting basis other than U.S. generally accepted accounting principles (“GAAP”).
2Not meaningful.
Management CommentaryOverview
Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc., noted, “We achieved solid top line growth, favorable reserve development, and an annualized return on equity of 12.0% for the second quarter of 2021. We remain in an excellent position to take advantage of the ongoing economic recovery in our regional markets.”
Growth Strategy
Mr. Burke continued, “Donegal Group achieved net premiums written growth of 8.2% during the second quarter of 2021, with 19.9% growth in our commercial lines business segment, compared to the prior-year quarter. In addition to new business growth and renewal premium increases, as we announced previously, we began to include commercial premiums from four Southwestern states in our consolidated revenues for 2021. We achieved growth of 26.7% in our commercial multi-peril line of business, where our agents continue to provide us opportunities to write new accounts and we believe market conditions will continue to support reasonable renewal premium increases. While net premiums written for our personal lines segment declined as expected during the second quarter of 2021, the segment generated profitable results, bolstered by strong policy retention. We continue to prepare for the launch of new personal lines products starting in the third quarter of 2021. We expect we will begin to see measurable premium writings from these new products in 2022 as we gradually introduce them in the eleven states in which we offer personal lines.”
Underwriting Results
Jeffrey D. Miller, Executive Vice President and Chief Financial Officer of Donegal Group Inc., commented on the second quarter results, “Our insurance subsidiaries achieved a combined ratio of 96.1%, indicating solid underwriting results, for the second quarter of 2021. While less favorable than the prior-year quarterly underwriting results that reflected lower claim frequency due to government-mandated shutdowns in response to the pandemic, our underwriting performance for the second quarter of 2021 improved greatly compared to the second quarters of 2019 and 2018, when our insurance subsidiaries incurred underwriting losses. We benefited from below-average weather-related losses and favorable prior-year reserve development for the second quarter of 2021, although those benefits were partially offset by higher-than-normal large fire losses. Our expense ratio was slightly elevated due to higher agency incentive compensation as well as the ongoing allocation of costs related to technology enhancements that will provide a solid platform to enable further advancements in underwriting, data analytics and operational capabilities over the next few years.”
Book Value Appreciation
Mr. Burke concluded, “Our book value per share increased 3.0% to $17.64 at June 30, 2021, compared to $17.13 at December 31, 2020, largely due to profitable underwriting results that were offset partially by lower unrealized gains within our available-for-sale fixed-maturity portfolio related to an increase in market interest rates during the first half of 2021. We are focused on achieving consistent underwriting profitability and expect to excel as a high-performing regional insurance group by continuing to develop appropriate product diversification, strengthen quality relationships with our agency distribution partners, and focus on prudent capital allocation to enhance shareholder value over time.”
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 June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Net Premiums Earned Commercial lines $ 115,300 $ 101,870 13.2 % $ 224,525 $ 203,645 10.3 % Personal lines 77,189 82,504 -6.4 155,215 167,982 -7.6 Total net premiums earned $ 192,489 $ 184,374 4.4 % $ 379,740 $ 371,627 2.2 % Net Premiums Written Commercial lines: Automobile $ 42,574 $ 34,518 23.3 % $ 89,813 $ 72,911 23.2 % Workers' compensation 28,567 26,693 7.0 63,508 60,862 4.3 Commercial multi-peril 47,912 37,814 26.7 99,715 78,241 27.4 Other 9,970 8,583 16.2 20,421 17,293 18.1 Total commercial lines 129,023 107,608 19.9 273,457 229,307 19.3 Personal lines: Automobile 44,296 49,048 -9.7 87,303 96,816 -9.8 Homeowners 30,369 31,482 -3.5 53,057 55,259 -4.0 Other 5,917 5,565 6.3 11,650 10,558 10.3 Total personal lines 80,582 86,095 -6.4 152,010 162,633 -6.5 Total net premiums written $ 209,605 $ 193,703 8.2 % $ 425,467 $ 391,940 8.6 % Net Premiums Written
The 8.2% increase in net premiums written for the second quarter of 2021 compared to the second quarter of 2020, as shown in the table above, represents 19.9% growth in commercial lines net premiums written, partially offset by a 6.4% decline in personal lines net premiums written. The $15.9 million increase in net premiums written for the second quarter of 2021 compared to the second quarter of 2020 included:
- Commercial Lines: $21.4 million increase that we attribute primarily to the allocation from the Donegal Mutual underwriting pool of $10.7 million of business Donegal Mutual and its subsidiaries wrote in four Southwestern states, new commercial accounts our insurance subsidiaries wrote throughout their operating regions and a continuation of renewal premium increases.
- Personal Lines: $5.5 million decline that we attribute to net attrition as a result of underwriting measures our insurance subsidiaries implemented to slow new policy growth and to increase pricing on renewal policies, partially offset by premium rate increases our insurance subsidiaries have implemented over the past four quarters.
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 six months ended June 30, 2021 and 2020:
Three Months Ended Six Months Ended June 30, June 30, 2021 2020 2021 2020 GAAP Combined Ratios (Total Lines) Loss ratio (non-weather) 53.1 % 47.0 % 56.5 % 53.0 % Loss ratio (weather-related) 6.1 10.1 4.9 6.9 Expense ratio 36.0 34.3 35.1 33.8 Dividend ratio 0.9 0.9 0.8 1.0 Combined ratio 96.1 % 92.3 % 97.3 % 94.7 % Statutory Combined Ratios Commercial lines: Automobile 105.5 % 104.4 % 103.9 % 110.8 % Workers' compensation 84.0 80.9 89.3 85.5 Commercial multi-peril 94.5 95.8 100.8 92.4 Other 77.2 80.6 68.8 72.4 Total commercial lines 94.3 93.5 96.6 94.7 Personal lines: Automobile 91.1 76.1 92.2 88.4 Homeowners 110.1 109.5 102.4 100.1 Other 74.5 78.6 75.7 72.6 Total personal lines 96.9 88.1 94.7 91.5 Total lines 95.4 % 91.0 % 95.9 % 93.3 % Loss Ratio
For the second quarter of 2021, the loss ratio increased to 59.2%, compared to 57.1% for the second quarter of 2020. The increase in the loss ratio was largely attributable to increased frequency of personal automobile claims compared to the second quarter of 2020 when lower driving activity resulted from COVID-related shutdowns. Weather-related losses of $11.7 million for the second quarter of 2021, or 6.1 percentage points of the loss ratio, decreased from $18.7 million for the second quarter of 2020, or 10.1 percentage points of the loss ratio. Weather-related loss activity for the second quarter of 2021 was lower than our previous five-year average of $17.0 million for second-quarter weather-related losses.
Large fire losses, which we define as individual fire losses in excess of $50,000, for the second quarter of 2021 were $11.7 million, or 6.1 percentage points of the loss ratio. That amount was higher than the large fire losses of $7.4 million, or 4.0 percentage points of the loss ratio, for the second quarter of 2020, with the increase reflecting higher impacts of both commercial property and homeowner fires.
Net favorable development of reserves for losses incurred in prior accident years of $13.4 million decreased the loss ratio for the second quarter of 2021 by 6.9 percentage points, compared to $6.6 million that decreased the loss ratio for the second quarter of 2020 by 3.6 percentage points. Our insurance subsidiaries experienced the majority of the favorable development for the second quarter of 2021 in their workers’ compensation, personal automobile and commercial automobile lines of business.
Expense Ratio
The expense ratio was 36.0% for the second quarter of 2021, compared to 34.3% for the second quarter of 2020. Relative to the prior-year quarter, the increase in the expense ratio reflected an increase in technology systems-related expenses, higher commercial growth incentive costs for our agents and increased underwriting-based agency incentive costs related primarily to the growth and profitability of specific agencies. The expense ratio for the second quarter of 2020 reflected $1.6 million in reserves we established for potential credit losses related to uncollectible premiums due to the effect of COVID-19 economic disruption. The expense ratio increase also reflected a modest reallocation from loss expenses to underwriting expenses that resulted from the implementation of a new software system during the second quarter of 2021 that enhanced our expense allocation methodology.
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 92.4% of our consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at June 30, 2021.
June 30, 2021 December 31, 2020 Amount % Amount % (dollars in thousands) Fixed maturities, at carrying value: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 112,042 8.9 % $ 125,250 10.3 % Obligations of states and political subdivisions 408,230 32.3 381,284 31.2 Corporate securities 399,238 31.6 385,978 31.6 Mortgage-backed securities 246,918 19.6 249,233 20.4 Total fixed maturities 1,166,428 92.4 1,141,745 93.5 Equity securities, at fair value 72,757 5.8 58,556 4.8 Short-term investments, at cost 22,767 1.8 20,900 1.7 Total investments $ 1,261,952 100.0 % $ 1,221,201 100.0 % Average investment yield 2.6 % 2.5 % Average tax-equivalent investment yield 2.6 % 2.7 % Average fixed-maturity duration (years) 4.8 4.2 Net investment income of $7.7 million for the second quarter of 2021 increased 6.7% compared to $7.2 million in net investment income for the second quarter of 2020. The increase in net investment income reflected primarily an increase in average invested assets relative to the prior-year second quarter.
Net investment gains were $4.2 million for the second quarter of 2021, compared to $6.5 million for the second quarter of 2020. Net investment gains for both quarterly periods were primarily related to unrealized gains in the fair value of equity securities held at the end of the respective periods.
Definitions of Non-GAAP and Operating 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 June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands) Reconciliation of Net Premiums Earned to Net Premiums Written Net premiums earned $ 192,489 $ 184,374 4.4 % $ 379,740 $ 371,627 2.2 % Change in net unearned premiums 17,116 9,329 83.5 45,727 20,313 125.1 Net premiums written $ 209,605 $ 193,703 8.2 % $ 425,467 $ 391,940 8.6 % The following table provides a reconciliation of net income to operating income for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30, 2021 2020 % Change 2021 2020 % Change (dollars in thousands, except per share amounts) Reconciliation of Net Income to Non-GAAP Operating Income Net income $ 16,164 $ 22,679 -28.7 % $ 26,694 $ 26,410 1.1 % Investment (gains) losses (after tax) (3,350 ) (5,124 ) -34.6 (5,301 ) 3,325 NM Other, net - - - - 161 -100.0 Non-GAAP operating income $ 12,814 $ 17,555 -27.0 % $ 21,393 $ 29,896 -28.4 % Per Share Reconciliation of Net Income to Non-GAAP Operating Income Net income – Class A (diluted) $ 0.53 $ 0.79 -32.9 % $ 0.88 $ 0.92 -4.3 % Investment (gains) losses (after tax) (0.11 ) (0.18 ) -38.9 (0.17 ) 0.11 NM Other, net - - - - 0.01 -100.0 Non-GAAP operating income – Class A $ 0.42 $ 0.61 -31.1 % $ 0.71 $ 1.04 -31.7 % Net income – Class B $ 0.48 $ 0.72 -33.3 % $ 0.80 $ 0.84 -4.8 % Investment (gains) losses (after tax) (0.10 ) (0.17 ) -41.2 (0.16 ) 0.10 NM Other, net - - - - 0.01 -100.0 Non-GAAP operating income – Class B $ 0.38 $ 0.55 -30.9 % $ 0.64 $ 0.95 -32.6 % 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 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 July 15, 2021, we declared a regular quarterly cash dividend of $0.16 per share for our Class A common stock and $0.1425 per share for our Class B common stock, which is payable on August 16, 2021 to stockholders of record as of the close of business on August 2, 2021.
Conference Call and Webcast
We will hold a conference call and webcast on Wednesday, July 28, 2021, beginning at 11:00 A.M. Eastern Time. You may listen via the Internet by accessing the webcast link on our website at http://investors.donegalgroup.com. A replay of the conference call will also be available via our website.
About Donegal Group Inc.
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, 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. These statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and involve a number of risks and uncertainties. Actual results could vary materially. Factors that could cause actual results to vary materially include: our ability to attract new business, retain existing business and collect balances due to us as a result of the prolonged economic challenges resulting from the COVID-19 pandemic, adverse and catastrophic weather events, our ability to maintain profitable operations, the adequacy of the loss and loss expense reserves of our insurance subsidiaries, business and economic conditions in the areas in which our insurance subsidiaries operate, interest rates, the availability and cost of labor and materials, 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 and exclusions, changes in regulatory requirements and other risks we describe in the periodic reports we file with the Securities and Exchange Commission. You should not place undue reliance on any such forward-looking statements. We disclaim any obligation to update such statements or to announce publicly the results of any revisions that we may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
For Further Information:
Jeffrey D. Miller, Executive Vice President & Chief Financial Officer
Phone: (717) 426-1931
E-mail: investors@donegalgroup.comAdam Prior, Senior Vice President, The Equity Group Inc.
Phone: (212) 836-9606
E-mail: aprior@equityny.comDonegal Group Inc. Consolidated Statements of Income (unaudited; in thousands, except share data) Quarter Ended June 30, 2021 2020 Net premiums earned $ 192,489 $ 184,374 Investment income, net of expenses 7,652 7,172 Net investment gains 4,241 6,486 Lease income 108 109 Installment payment fees 656 759 Total revenues 205,146 198,900 Net losses and loss expenses 113,957 105,349 Amortization of deferred acquisition costs 33,103 29,634 Other underwriting expenses 36,230 33,567 Policyholder dividends 1,629 1,684 Interest 217 428 Other expenses, net 313 250 Total expenses 185,449 170,912 Income before income tax expense 19,697 27,988 Income tax expense 3,533 5,309 Net income $ 16,164 $ 22,679 Earnings per common share: Class A - basic $ 0.53 $ 0.80 Class A - diluted $ 0.53 $ 0.79 Class B - basic and diluted $ 0.48 $ 0.72 Supplementary Financial Analysts' Data Weighted-average number of shares outstanding: Class A - basic 25,341,989 23,450,856 Class A - diluted 25,594,024 23,649,768 Class B - basic and diluted 5,576,775 5,576,775 Net premiums written $ 209,605 $ 193,703 Book value per common share at end of period $ 17.64 $ 16.77 Donegal Group Inc. Consolidated Statements of Income (unaudited; in thousands, except share data) Six Months Ended June 30, 2021 2020 Net premiums earned $ 379,740 $ 371,627 Investment income, net of expenses 15,163 14,548 Net investment gains (losses) 6,710 (4,209 ) Lease income 216 218 Installment payment fees 1,287 1,627 Total revenues 403,116 383,811 Net losses and loss expenses 233,176 222,596 Amortization of deferred acquisition costs 63,282 59,571 Other underwriting expenses 70,012 66,165 Policyholder dividends 2,924 3,526 Interest 530 652 Other expenses, net 744 810 Total expenses 370,668 353,320 Income before income tax expense 32,448 30,491 Income tax expense 5,754 4,081 Net income $ 26,694 $ 26,410 Net income per common share: Class A - basic $ 0.89 $ 0.93 Class A - diluted $ 0.88 $ 0.92 Class B - basic and diluted $ 0.80 $ 0.84 Supplementary Financial Analysts' Data Weighted-average number of shares outstanding: Class A - basic 25,056,610 23,355,621 Class A - diluted 25,246,791 23,548,806 Class B - basic and diluted 5,576,775 5,576,775 Net premiums written $ 425,467 $ 391,940 Book value per common share at end of period $ 17.64 $ 16.77 Donegal Group Inc. Consolidated Balance Sheets (in thousands) June 30, December 31, 2021 2020 (unaudited) ASSETS Investments: Fixed maturities: Held to maturity, at amortized cost $ 643,848 $ 586,609 Available for sale, at fair value 522,580 555,136 Equity securities, at fair value 72,757 58,556 Short-term investments, at cost 22,767 20,900 Total investments 1,261,952 1,221,201 Cash 88,005 103,094 Premiums receivable 189,384 169,596 Reinsurance receivable 422,198 408,909 Deferred policy acquisition costs 69,688 59,157 Prepaid reinsurance premiums 186,452 169,418 Other assets 28,722 29,145 Total assets $ 2,246,401 $ 2,160,520 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Losses and loss expenses $ 998,658 $ 962,007 Unearned premiums 599,950 537,190 Accrued expenses 11,466 29,115 Borrowings under lines of credit 35,000 85,000 Subordinated debentures 5,000 5,000 Other liabilities 46,170 24,434 Total liabilities 1,696,244 1,642,746 Stockholders' equity: Class A common stock 286 277 Class B common stock 56 56 Additional paid-in capital 302,511 289,150 Accumulated other comprehensive income 8,474 11,131 Retained earnings 280,056 258,386 Treasury stock (41,226 ) (41,226 ) Total stockholders' equity 550,157 517,774 Total liabilities and stockholders' equity $ 2,246,401 $ 2,160,520