Donegal Group Inc: Form 10-Q for the period ended Jun 30, 2025
Filed with the SEC on Aug 5, 2025 and accepted by EDGAR at Aug 5, 2025, 13:27 ET.
Management's discussion and analysis
As filed, 41,261 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
We recommend that you read the following information in conjunction with the historical financial information and the footnotes to that financial information we include in this Quarterly Report on Form 10-Q. We also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024.
Critical Accounting Policies and Estimates
We combine our financial statements with those of our insurance subsidiaries and present them on a consolidated basis in accordance with United States generally accepted accounting principles (“GAAP”).
Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements. The most significant estimates relate to the liabilities of our insurance subsidiaries for property and casualty insurance losses and loss expenses. While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts may differ from the estimates we provided. We regularly review our methods for making these estimates and we reflect any adjustment we consider necessary in our results of operations for the period in which we make an adjustment.
Liabilities for Losses and Loss Expenses
Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.
Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance subsidiaries do not discount their liabilities for losses and loss expenses.
Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations. For example, our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim settlement periods on bodily injury claims during the past several years. In addition, the COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates. These trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern of future loss settlements. Related uncertainties regarding future trends include social inflation, availability and cost of replacement automobile parts and building materials, availability and cost of skilled labor, the rate of specialized plaintiff attorney involvement in claims, increasing plaintiff attorney utilization of litigation financing and its impact on litigation strategies and the cost of medical technologies and procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses, among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes. Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at June 30, 2025. At June 30, 2025, for every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.1 million.
The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.
Excluding the impact of severe weather events and the COVID-19 pandemic, our insurance subsidiaries have noted stable amounts in the number of claims incurred and the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business. However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as increased property and automobile repair and replacement costs, rising medical loss costs and increased litigation trends and lengthening of repair completion times for property and automobile claims. We have also experienced a general slowing of settlement rates in litigated claims. Our insurance subsidiaries could have to make further adjustments to their estimates in the future. However, on the basis of our insurance subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses.
Atlantic States’ participation in the underwriting pool with Donegal Mutual exposes Atlantic States to adverse loss development on the business that Donegal Mutual contributes to the underwriting pool. However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse loss development relating to the pooled business. The business in the underwriting pool is homogeneous and each company has a pro-rata share of the entire underwriting pool. Since the predominant percentage of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies.
Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at June 30, 2025 and December 31, 2024 consisted of the following:
(in thousands)
| Commercial lines: | June 30, 2025 | December 31, 2024 |
|---|---|---|
| Automobile | $176,212 | $180,757 |
| Workers’ compensation | 132,936 | 129,406 |
| Commercial multi-peril | 217,265 | 208,676 |
| Other | 47,176 | 39,336 |
| Total commercial lines | 573,589 | 558,175 |
| Personal lines: | ||
| Automobile | 106,583 | 116,693 |
| Homeowners | 26,539 | 26,591 |
| Other | 2,750 | 2,905 |
| Total personal lines | 135,872 | 146,189 |
| Total commercial and personal lines | 709,461 | 704,364 |
| Plus reinsurance recoverable | 407,549 | 416,621 |
| Total liabilities for losses and loss expenses | $1,117,010 | $1,120,985 |
We have evaluated the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we consider in establishing the loss and loss expense reserves of our insurance subsidiaries. We established the range of reasonably likely changes based on a review of changes in accident-year development by line of business and applied those changes to our insurance subsidiaries’ loss and loss expense reserves as a whole. The range we selected does not necessarily indicate what could be the potential best or worst case or the most likely scenario. The following table sets forth the estimated effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we considered in establishing the loss and loss expense reserves of our insurance subsidiaries:
Index
(dollars in thousands)
| Percentage Change in Loss and Loss Expense Reserves Net of Reinsurance | Adjusted Loss and Loss Expense Reserves Net of Reinsurance at June 30, 2025 | Percentage Change in Stockholders’ Equity at June 30, 2025(1) | Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2024 | Percentage Change in Stockholders’ Equity at December 31, 2024(1) |
|---|---|---|---|---|
| (10.0)% | $638,515 | 9.3% | $633,928 | 10.2% |
| (7.5) | 656,251 | 6.9 | 651,537 | 7.6 |
| (5.0) | 673,988 | 4.6 | 669,146 | 5.1 |
| (2.5) | 691,724 | 2.3 | 686,755 | 2.5 |
| Base | 709,461 | — | 704,364 | — |
| 2.5 | 727,198 | (2.3) | 721,973 | (2.5) |
| 5.0 | 744,934 | (4.6) | 739,582 | (5.1) |
| 7.5 | 762,671 | (6.9) | 757,191 | (7.6) |
| 10.0 | 780,407 | (9.3) | 774,800 | (10.2) |
(1) Net of income tax effect.
Non-GAAP Information
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”). SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because the SAP financial measures include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude. Our calculation of non-GAAP financial measures may differ from similar measures other companies use, so investors should exercise caution when comparing our non-GAAP financial measures to the non-GAAP financial measures other companies use.
Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our personal lines and commercial lines segments utilizing SAP financial measures that reflect the growth trends and underwriting results of our insurance subsidiaries. The SAP financial measures we utilize are net premiums written and statutory combined ratio.
Net Premiums Written
We define net premiums written as the amount of full-term premiums our insurance subsidiaries record for policies effective within a given period less premiums our insurance subsidiaries cede to reinsurers. Net premiums earned is the most comparable GAAP financial measure to net premiums written. Net premiums earned represent the sum of the amount of net premiums written and the change in net unearned premiums during a given period. Our insurance subsidiaries earn premiums and recognize them as revenue over the terms of their policies, which are one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding 12-month period compared to the comparable period one year earlier.
The following tables provide reconciliations of our net premiums earned to our net premiums written for the three and six months ended June 30, 2025 and 2024:
(in thousands)
| Three Months Ended June 30, 2025 Commercial Lines | Personal Lines | Total | |
|---|---|---|---|
| Net premiums earned | $138,527 | $93,248 | $231,775 |
| Change in net unearned premiums | 6,387 | (4,349) | 2,038 |
| Net premiums written | $144,914 | $88,899 | $233,813 |
(in thousands)
| Three Months Ended June 30, 2024 Commercial Lines | Personal Lines | Total | |
|---|---|---|---|
| Net premiums earned | $134,489 | $99,822 | $234,311 |
| Change in net unearned premiums | 7,759 | 5,119 | 12,878 |
| Net premiums written | $142,248 | $104,941 | $247,189 |
(in thousands)
| Six Months Ended June 30, 2025 Commercial Lines | Personal Lines | Total | |
|---|---|---|---|
| Net premiums earned | $274,743 | $189,733 | $464,476 |
| Change in net unearned premiums | 30,789 | (14,360) | 16,429 |
| Net premiums written | $305,532 | $175,373 | $480,905 |
(in thousands)
| Six Months Ended June 30, 2024 Commercial Lines | Personal Lines | Total | |
|---|---|---|---|
| Net premiums earned | $266,581 | $195,479 | $462,060 |
| Change in net unearned premiums | 31,161 | 5,410 | 36,571 |
| Net premiums written | $297,742 | $200,889 | $498,631 |
Statutory Combined Ratio
The combined ratio is a standard measurement of underwriting profitability for an insurance company. The combined ratio does not reflect investment income, net investment gains or losses, federal income taxes or other non-operating income or expense. A combined ratio of less than 100% generally indicates underwriting profitability.
The statutory combined ratio is a non-GAAP financial measure that is based upon amounts determined under SAP. We calculate our statutory combined ratio as the sum of:
- the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums earned;
- the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written; and
- the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.
The calculation of our statutory combined ratio differs from the calculation of our GAAP combined ratio. In calculating our GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and we base the expense ratio on net premiums earned instead of net premiums written. Differences between our GAAP loss ratio and our statutory loss ratio result from anticipating salvage and subrogation recoveries for our GAAP loss ratio but not for our statutory loss ratio.
Combined Ratios
The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three and six months ended June 30, 2025 and 2024:
| GAAP Combined Ratios (Total Lines) | Three Months Ended June 30, 2025 | 2024 | Six Months Ended June 30, 2025 | 2024 |
|---|---|---|---|---|
| Loss ratio - core losses | 50.1% | 55.0% | 52.1% | 56.8% |
| Loss ratio - weather-related losses | 11.1 | 10.6 | 7.4 | 7.7 |
| Loss ratio - large fire losses | 5.2 | 5.3 | 4.3 | 5.9 |
| Loss ratio - net prior-year reserve development | (1.3) | (0.3) | (2.9) | (2.0) |
| Loss ratio | 65.1 | 70.6 | 60.9 | 68.4 |
| Expense ratio | 32.2 | 31.9 | 33.4 | 33.8 |
| Dividend ratio | 0.4 | 0.5 | 0.3 | 0.5 |
| Combined ratio | 97.7% | 103.0% | 94.6% | 102.7% |
| Statutory Combined Ratios | ||||
| Commercial lines: | ||||
| Automobile | 97.7% | 93.5% | 94.6% | 96.6% |
| Workers’ compensation | 104.9 | 117.0 | 111.3 | 114.2 |
| Commercial multi-peril | 97.5 | 110.6 | 93.9 | 106.7 |
| Other | 119.8 | 94.3 | 110.6 | 88.3 |
| Total commercial lines | 101.0 | 104.9 | 97.8 | 103.3 |
| Personal lines: | ||||
| Automobile | 79.3 | 95.6 | 82.2 | 97.7 |
| Homeowners | 115.1 | 103.1 | 99.0 | 102.7 |
| Other | 55.2 | 104.7 | 55.9 | 94.8 |
| Total personal lines | 91.7 | 98.6 | 87.5 | 99.4 |
| Total commercial and personal lines | 97.4% | 102.2% | 93.9% | 101.7% |
31
Results of Operations - Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024
Net Premiums Earned. Our insurance subsidiaries’ net premiums earned for the second quarter of 2025 were $231.8 million, a decrease of $2.5 million, or 1.1%, compared to $234.3 million for the second quarter of 2024, primarily reflecting planned attrition and lower new business writings, offset partially by solid premium retention and renewal premium increases.
Net Premiums Written. Our insurance subsidiaries’ net premiums written for the second quarter of 2025 were $233.8 million, a decrease of $13.4 million, or 5.4%, from the $247.2 million of net premiums written for the second quarter of 2024. Commercial lines net premiums written increased $2.7 million, or 1.9%, for the second quarter of 2025 compared to the second quarter of 2024. Personal lines net premiums written decreased $16.0 million, or 15.3%, for the second quarter of 2025 compared to the second quarter of 2024. We attribute the increase in commercial lines net premiums written primarily to a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by lower new business writings. We attribute the decrease in personal lines net premiums written primarily to lower new business writings and non-renewal actions, offset partially by a continuation of renewal premium rate increases and solid retention.
Investment Income. Our net investment income was $12.5 million for the second quarter of 2025, an increase of $1.4 million, or 13.3%, compared to $11.1 million for the second quarter of 2024. We attribute the increase primarily to an increase in the average investment yield relative to the second quarter of 2024.
Net Investment Gains. Net investment gains for the second quarter of 2025 were $1.5 million, compared to $736,669 for the second quarter of 2024. The net investment gains for the second quarter of 2025 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2025 and realized gains on the sale of equity securities, offset partially by net realized investment losses on the sale of available-for-sale fixed-maturity securities. Net investment gains for the second quarter of 2024 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2024. We did not recognize any impairment losses for individual securities in our investment portfolio during the second quarter of 2025 or 2024.
Losses and Loss Expenses. Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 65.1% for the second quarter of 2025, a decrease from our insurance subsidiaries’ loss ratio of 70.6% for the second quarter of 2024. The core loss ratio, which excludes weather-related losses, large fire losses and net development of reserves for losses incurred in prior accident years, was 50.1% for the second quarter of 2025, a decrease from the core loss ratio of 55.0% for the second quarter of 2024. For the commercial lines segment, the core loss ratio of 54.5% for the second quarter of 2025 decreased modestly from 54.8% for the second quarter of 2024. For the personal lines segment, the core loss ratio of 43.3% for the second quarter of 2025 decreased from 55.3% for the second quarter of 2024. We attribute this decrease primarily to the favorable impact of premium rate increases on net premiums earned for the personal lines segment. Weather-related losses were $25.8 million, or 11.1 percentage points of the loss ratio, for the second quarter of 2025, compared to $24.7 million, or 10.6 percentage points of the loss ratio, for the second quarter of 2024. The impact of weather-related loss activity to the loss ratio for the second quarter of 2025 was higher than our previous five-year average of 9.2 percentage points 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 2025 were $12.1 million, or 5.2 percentage points of the loss ratio, compared to $12.5 million, or 5.3 percentage points of the loss ratio, for the second quarter of 2024. Our insurance subsidiaries’ commercial lines loss ratio was 65.8% for the second quarter of 2025, compared to 70.4% for the second quarter of 2024, primarily due to decreases in the commercial multi-peril loss and workers’ compensation loss ratios. The personal lines loss ratio of our insurance subsidiaries decreased to 64.1% for the second quarter of 2025, compared to 70.8% for the second quarter of 2024. We attribute this decrease primarily to a decrease in the personal automobile loss ratio. Our insurance subsidiaries experienced favorable loss reserve development for the second quarter of 2025 of $3.0 million that decreased the loss ratio by 1.3 percentage points, compared to $757,866 of favorable loss reserve development that decreased the loss ratio for the second quarter of 2024 by 0.3 percentage points. Our insurance subsidiaries experienced favorable development primarily in the personal automobile and homeowners lines of business for the second quarter of 2025, offset partially by unfavorable development in other commercial lines of business that we primarily attribute to higher-than-anticipated case reserve development.
Underwriting Expenses. The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was 32.2% for the second quarter of 2025, compared to 31.9% for the second quarter of 2024. The increase in the expense ratio primarily reflected higher underwriting-based incentive costs for agents and employees, partially offset by the favorable impact of ongoing expense management initiatives. The impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the ongoing systems modernization project peaked at approximately 1.3 percentage points of the expense ratio for the full year of 2024, and we expect that impact to subside gradually over the next several years. Allocated costs related to that project represented approximately 1.0 percentage point of the expense ratio for the second quarter of 2025, and we expect the full year 2025 expense ratio impact will also be approximately 1.0 percentage point.
Combined Ratio. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratios were 97.7% and 103.0% for the second quarter of 2025 and 2024, respectively. We attribute the decrease in the combined ratio primarily to a decrease in the loss ratio for the second quarter of 2025 compared to the second quarter of 2024.
Income Tax Expense. We recorded income tax expense of $3.6 million for the second quarter of 2025, representing an effective tax rate of 17.4%. We recorded income tax expense of $859,665 for the second quarter of 2024, representing an effective tax rate of 17.2%. The income tax expense for the second quarter of 2025 and 2024 represented estimates based on our projected annual taxable income and effective tax rates.
Net Income and Net Income Per Share. Our net income for the second quarter of 2025 was $16.9 million, or $.46 per share of Class A common stock on a diluted basis and $.43 per share of Class B common stock, compared to $4.2 million, or $.13 per share of Class A common stock on a diluted basis and $.11 per share of Class B common stock, for the second quarter of 2024. We had 30.9 million and 27.9 million Class A shares outstanding at June 30, 2025 and 2024, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.
Results of Operations - Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024
Net Premiums Earned. Our insurance subsidiaries’ net premiums earned for the first half of 2025 were $464.5 million, an increase of $2.4 million, or 0.5%, compared to $462.1 million for the first half of 2024, primarily reflecting solid premium retention and renewal premium increases, offset partially by lower new business writings.
Net Premiums Written. Our insurance subsidiaries’ net premiums written for the first half of 2025 were $480.9 million, a decrease of $17.7 million, or 3.6%, from the $498.6 million of net premiums written for the first half of 2024. Commercial lines net premiums written increased $7.8 million, or 2.6%, for the first half of 2025 compared to the first half of 2024. Personal lines net premiums written decreased $25.5 million, or 12.7%, for the first half of 2025 compared to the first half of 2024. We attribute the increase in commercial lines net premiums written primarily to solid retention and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by lower new business writings. We attribute the decrease in personal lines net premiums written primarily to lower new business writings and non-renewal actions, offset partially by a continuation of renewal premium rate increases and solid retention.
Investment Income. Our net investment income was $24.5 million for the first half of 2025, an increase of $2.5 million, or 11.3%, compared to $22.0 million for the first half of 2024. We attribute the increase primarily to an increase in the average investment yield relative to the first half of 2024.
Net Investment Gains. Net investment gains for the first half of 2025 were $1.1 million, compared to $2.9 million for the first half of 2024. The net investment gains for the first half of 2025 primarily related to unrealized gains in the fair value of equity securities held at June 30, 2025 and realized gains on the sale of equity securities, offset partially by net realized investment losses on the sale of available-for-sale fixed-maturity securities. The net investment gains for the first half of 2024 primarily related to unrealized gains in the fair value of our equity securities portfolio at June 30, 2024. We did not recognize any impairment losses for individual securities in our investment portfolio during the first half of 2025 or 2024.
Losses and Loss Expenses. Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 60.9% for the first half of 2025, a decrease from our insurance subsidiaries’ loss ratio of 68.4% for the first half of 2024. The core loss ratio, which excludes weather-related losses, large fire losses and net development of reserves for losses incurred in prior accident years, was 52.1% for the first half of 2025, compared to 56.8% for the first half of 2024. For the commercial lines segment, the core loss ratio of 56.4% for the first half of 2025 decreased modestly from 56.9% for the first half of 2024. For the personal lines segment, the core loss ratio of 46.0% for the first half of 2025 decreased from 56.6% for the first half of 2024. Weather-related losses were $34.4 million, or 7.4 percentage points of the loss ratio, for the first half of 2025, compared to $35.5 million, or 7.7 percentage points of the loss ratio, for the first half of 2024. Large fire losses for the first half of 2025 were $19.8 million, or 4.3 percentage points of the loss ratio, compared to $27.4 million, or 5.9 percentage points of the loss ratio, for the first half of 2024. Our insurance subsidiaries’ commercial lines loss ratio was 62.9% for the first half of 2025, compared to 67.9% for the first half of 2024, primarily due to decreases in the commercial multi-peril and workers’ compensation loss ratios. The personal lines loss ratio of our insurance subsidiaries decreased to 58.2% for the first half of 2025, compared to 69.1% for the first half of 2024. We attribute this decrease primarily to a decrease in the personal automobile loss ratio. Our insurance subsidiaries experienced favorable loss reserve development for the first half of 2025 of approximately $13.5 million that decreased the loss ratio by 2.9 percentage points, compared to $9.2 million that decreased the loss ratio for the first half of 2024 by 2.0 percentage points. Our insurance subsidiaries experienced favorable development primarily in the commercial automobile, commercial multi-peril and personal automobile lines of business for the first half of 2025, offset partially by unfavorable development in other commercial lines of business that we attribute to higher-than-anticipated case reserve development.
Underwriting Expenses. The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was 33.4% for the first half of 2025, compared to 33.8% for the first half of 2024. The decrease in the expense ratio primarily reflected impacts of expense management initiatives, offset partially by higher underwriting-based incentive costs for agents and employees. The impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the ongoing systems modernization project peaked at approximately 1.3 percentage points of the expense ratio for the full year of 2024 and we expect the full year 2025 expense ratio impact will be approximately 1.0 percentage point.
Combined Ratio. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratios were 94.6% and 102.7% for the first half of 2025 and 2024, respectively. We attribute the decrease in the combined ratio primarily to a decrease in the loss ratio for the first half of 2025 compared to the first half of 2024.
Income Tax Expense. We recorded income tax expense of $9.5 million for the first half of 2025, representing an effective tax rate of 18.4%. We recorded income tax expense of $2.2 million for the first half of 2024, representing an effective tax rate of 17.6%. The income tax expense for the first half of 2025 and 2024 represented estimates based on our projected annual taxable income and effective tax rates.
Net Income and Net Income Per Share. Our net income for the first half of 2025 was $42.1 million, or $1.17 per share of Class A common stock on a diluted basis and $1.08 per share of Class B common stock, compared to $10.1 million, or $.31 per share of Class A common stock on a diluted basis and $.28 per share of Class B common stock, for the first half of 2024. We had 30.9 million and 27.9 million Class A shares outstanding at June 30, 2025 and 2024, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.
Liquidity and Capital Resources
Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as such obligations and needs arise. Our major sources of funds from operations are the net cash flows we generate from our insurance subsidiaries’ underwriting results, investment income and maturing investments.
We have historically generated sufficient net positive cash flow to fund our commitments and add to our investment portfolio, thereby increasing future investment returns. The impact of the pooling agreement between Donegal Mutual and Atlantic States has historically been cash-flow positive because of the consistent underwriting profitability of the underwriting pool. Because we settle the pool monthly, our cash flows are substantially similar to the cash flows that would result from the underwriting of direct business. We maintain a high degree of liquidity in our investment portfolio in the form of marketable fixed maturities, equity securities and short-term investments. We structure our fixed-maturity investment portfolio following a “laddering” approach, so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective. This laddering approach provides an additional measure of liquidity to meet our obligations and the obligations of our insurance subsidiaries should an unexpected variation occur in the future. Net cash flows provided by operating activities in the first six months of 2025 and 2024 were $37.9 million and $26.5 million, respectively.
At June 30, 2025, we had no outstanding borrowings under our line of credit with M&T and had the ability to borrow up to $20.0 million at an interest rate equal to the then-current Term SOFR rate plus 2.11%. At June 30, 2025, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 3.806% and is due in September 2026. We discuss in Note 7 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities.
We estimate the timing of claim payments associated with the liabilities for losses and loss expenses of our insurance subsidiaries based on historical experience and expectations of future payment patterns. Amounts Atlantic States assumes pursuant to the pooling agreement with Donegal Mutual represent a substantial portion of our insurance subsidiaries’ gross liabilities for losses and loss expenses, and amounts Atlantic States cedes pursuant to the pooling agreement represent a substantial portion of our insurance subsidiaries’ reinsurance recoverable on unpaid losses and loss expenses. We include cash settlement of Atlantic States’ assumed liabilities from the pool in monthly settlements of pooled activity, as we net amounts ceded to and assumed from the pool. Although Donegal Mutual and we do not anticipate any changes in the pool participation levels in the foreseeable future, any such change would be prospective in nature and therefore would not impact the timing of expected payments by Atlantic States for its percentage share of pooled losses occurring in periods prior to the effective date of such change.
On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC Rule 10b-18 and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the six months ended June 30, 2025 or 2024. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2025.
On July 17, 2025, our board of directors declared quarterly cash dividends of $.1825 per share of our Class A common stock and $.165 per share of our Class B common stock, payable on August 15, 2025 to our stockholders of record as of the close of business on August 1, 2025. There are no restrictions on our payment of dividends to our stockholders, although there are restrictions under applicable state laws on the payment of dividends from our insurance subsidiaries to us, which is a significant source of cash for payment of stockholder dividends by us. Our insurance subsidiaries are required by law to maintain minimum surplus on a statutory basis and are subject to regulations under which their payment of dividends from statutory surplus is restricted and may require prior approval of their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk based capital (“RBC”) requirements. The amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements, including the RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2024. Our insurance subsidiaries did not pay any dividends to us during the first six months of 2025. Amounts remaining available for distribution to us as dividends from our insurance subsidiaries without prior approval of their domiciliary insurance regulatory authorities in 2025 are $40.7 million from Atlantic States, $7.8 million from MICO and $4.7 million from Peninsula, or a total of approximately $53.3 million.
At June 30, 2025, we had no material commitments for capital expenditures.
Equity Price Risk
Our portfolio of marketable equity securities, which we carry on our consolidated balance sheets at estimated fair value, has exposure to the risk of loss resulting from an adverse change in prices. We manage this risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of equity securities.
Credit Risk
Our portfolio of fixed-maturity securities and, to a lesser extent, our portfolio of short-term investments is subject to credit risk, which we define as the potential loss in market value resulting from adverse changes in the borrower’s ability to repay its debt. We manage this risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of fixed-maturity securities. We also limit the percentage and amount of our total investment portfolio that we invest in the securities of any one issuer.
Our insurance subsidiaries provide property and casualty insurance coverages through independent insurance agencies. We bill the majority of this business directly to the insured, although we bill a portion of our commercial business through licensed insurance agents to whom our insurance subsidiaries extend credit in the normal course of business.
Because the pooling agreement does not relieve Atlantic States of primary liability as the originating insurer, Atlantic States is subject to a concentration of credit risk arising from the business it cedes to Donegal Mutual. Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers.
Market risk
As filed, 676 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Our market risk generally represents the risk of gain or loss that may result from the potential change in the fair value of the securities we hold in our investment portfolio as a result of fluctuations in prices and interest rates and, to a lesser extent, our debt obligations. We manage our interest rate risk by maintaining an appropriate relationship between the average duration of our investment portfolio and the approximate duration of our liabilities, i.e., policy claims of our insurance subsidiaries and our debt obligations.
There have been no material changes to our quantitative or qualitative market risk exposure from December 31, 2024 through June 30, 2025.
Controls and procedures
As filed, 3,789 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at June 30, 2025, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information we are required to disclose in the reports that we file or submit under the Exchange Act, and our disclosure controls and procedures were also effective to ensure that information we disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
There has been no change in our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to affect materially, our internal control over financial reporting.
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
We base all statements contained in this Quarterly Report on Form 10-Q 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, adverse litigation and other trends that could increase our loss costs (including labor shortages, escalating medical, automobile and property repair costs, including due to tariffs and increasing plaintiff attorney utilization of litigation financing), adverse and catastrophic weather events (including from changing climate conditions), 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.
Risk factors
As filed, 463 characters, with its headings, lists and tables. Extracted from the main document; charts and exhibits are in the original on sec.gov.
Our business, results of operations and financial condition, and, therefore, the value of our Class A common stock and our Class B common stock, are subject to a number of risks. For a description of certain risks, we refer to “Risk Factors” in our 2024 Annual Report on Form 10-K that we filed with the SEC on March 10, 2025. There have been no material changes in the risk factors we disclosed in that Form 10-K Report during the six months ended June 30, 2025.
Figures reported in this filing
Standardized line items from the XBRL in this filing, for the period ended 2025-06-30. Comparative periods it repeats are left out.
| Line item | Period | Value | XBRL concept |
|---|---|---|---|
| Revenue | 3 months2025-04-01 to 2025-06-30 | $247.1m | us-gaap:Revenues |
| Revenue | 6 months2025-01-01 to 2025-06-30 | $492.0m | us-gaap:Revenues |
| Interest expense | 3 months2025-04-01 to 2025-06-30 | $336.7k | us-gaap:InterestExpense |
| Interest expense | 6 months2025-01-01 to 2025-06-30 | $669.8k | us-gaap:InterestExpense |
| Income tax | 3 months2025-04-01 to 2025-06-30 | $3.6m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months2025-01-01 to 2025-06-30 | $9.5m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months2025-04-01 to 2025-06-30 | $16.9m | us-gaap:NetIncomeLoss |
| Net income | 6 months2025-01-01 to 2025-06-30 | $42.1m | us-gaap:NetIncomeLoss |
| Operating cash flow | 6 months2025-01-01 to 2025-06-30 | $37.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 6 months2025-01-01 to 2025-06-30 | $12.5m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | At period end2025-06-30 | $57.4m | us-gaap:Cash |
| Total assets | At period end2025-06-30 | $2.41bn | us-gaap:Assets |
| Total liabilities | At period end2025-06-30 | $1.80bn | us-gaap:Liabilities |
| Shareholders' equity | At period end2025-06-30 | $605.7m | us-gaap:StockholdersEquity |
Source: SEC EDGAR, the filing index for accession 0001140361-25-028779. Last ingested by Listed: Oct 29, 2026, 06:31 ET. Listed shows no prices and gives no investment advice.