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DONEGAL GROUP INC

DONEGAL GROUP INCDGICAEarnings & Financial Report

Nasdaq · Financials · Fire, Marine & Casualty Insurance

Donegal Group Inc. is a regional US insurance holding company offering personal and commercial property and casualty insurance products. It serves Mid-Atlantic, Midwest, and Southern US customers, delivering tailored coverage for individuals, families, and small to medium businesses.

What changed in DONEGAL GROUP INC's 10-K — 2022 vs 2023

Top changes in DONEGAL GROUP INC's 2023 10-K

287 paragraphs added · 289 removed · 255 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

124 edited+10 added−11 removed162 unchanged
In addition to Atlantic States, our insurance subsidiaries are Southern Insurance Company of Virginia, or Southern, The Peninsula Insurance Company and its wholly owned subsidiary, Peninsula Indemnity Company, or collectively, Peninsula, and Michigan Insurance Company, or MICO.
In addition to Atlantic States, our insurance subsidiaries are Michigan Insurance Company, or MICO, The Peninsula Insurance Company and its wholly owned subsidiary, Peninsula Indemnity Company, or collectively, Peninsula, and Southern Insurance Company of Virginia, or Southern.
Our insurance subsidiaries have a catastrophe reinsurance agreement with Donegal Mutual, pursuant to which Donegal Mutual provides coverage for losses related to any catastrophic occurrence over a set retention of $3.0 million ($2.0 million for 2022, 2021 and 2020) for each participating insurance subsidiary, with a combined retention of $6.0 million ($5.0 million for 2022, 2021 and 2020) for a catastrophe involving a combination of participating insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retain under catastrophe reinsurance agreements with unaffiliated reinsurers.
Our insurance subsidiaries have a catastrophe reinsurance agreement with Donegal Mutual, pursuant to which Donegal Mutual provides coverage for losses related to any catastrophic occurrence over a set retention of $3.0 million ($2.0 million for 2022 and 2021) for each participating insurance subsidiary, with a combined retention of $6.0 million ($5.0 million for 2022 and 2021) for a catastrophe involving a combination of participating insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retain under catastrophe reinsurance agreements with unaffiliated reinsurers.
Our insurance subsidiaries and Donegal Mutual also seek to increase their premium base by making quality independent agency appointments, enhancing their competitive position within each agency, introducing new and enhanced insurance products and developing and maintaining automated systems to improve service, communications and efficiency. A detailed review of our business strategies follows: • Achieving sustained excellent financial performance.
Our insurance subsidiaries and Donegal Mutual seek to increase their premium base by making quality independent agency appointments, enhancing their competitive position within each agency, introducing new and enhanced insurance products and developing and maintaining automated systems to improve service, communications and efficiency. A detailed review of our business strategies follows: • Achieving sustained excellent financial performance.
Thus, in 1986, Donegal Mutual formed us as a downstream holding company, and we incorporated in the state of Delaware as Donegal Group Inc. After Donegal Mutual formed us, we in turn formed Atlantic States as our wholly owned property and casualty insurance company subsidiary.
Thus, in 1986, Donegal Mutual formed us as a downstream holding company, and we incorporated in the state of Delaware as Donegal Group Inc. After Donegal Mutual formed us, we in turn formed Atlantic States Insurance Company, or Atlantic States, as our wholly owned property and casualty insurance company subsidiary.
Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key infrastructure and applications systems we describe in more detail under “Business - Business Strategy - Strategically modernizing our operations and processes to transform our business.” -14- Index The modernized proficiency of these integrated technology systems facilitates high service levels for the agents and policyholders of our insurance subsidiaries, increased efficiencies in processing the business of our insurance subsidiaries and lower operating costs.
Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key infrastructure and applications systems we describe in more detail under “Business - Business Strategy - Strategically modernizing our operations and processes to transform our business.” The modernized proficiency of these integrated technology systems facilitates high service levels for the agents and policyholders of our insurance subsidiaries, increased efficiencies in processing the business of our insurance subsidiaries and lower operating costs.
We describe these lines of insurance in greater detail below: -11- Index Commercial • Commercial automobile — policies that provide protection against liability for bodily injury and property damage arising from automobile accidents and protection against loss from damage to automobiles owned by the insured. • Commercial multi-peril — policies that provide protection to businesses against many perils, usually combining liability and physical damage coverages. • Workers’ compensation — policies employers purchase to provide benefits to employees for injuries sustained during employment.
We describe these lines of insurance in greater detail below: Commercial • Commercial automobile — policies that provide protection against liability for bodily injury and property damage arising from automobile accidents and protection against loss from damage to automobiles owned by the insured. • Commercial multi-peril — policies that provide protection to businesses against many perils, usually combining liability and physical damage coverages. • Workers’ compensation — policies employers purchase to provide benefits to employees for injuries sustained during employment.
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 $6.7 million. -16- Index 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.
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 $6.9 million. -16- Index 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.
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 2021 and 2022 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.
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 2022 and 2023 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.
Donegal Mutual and Peninsula terminated this reinsurance agreement on a run-off basis effective January 1, 2022. As a result, Peninsula retains 100% of its net workers’ compensation premiums and losses beginning with policies effective as of that date. -4- Index We and Donegal Mutual have maintained a coordinating committee since our formation in 1986.
Donegal Mutual and Peninsula terminated this reinsurance agreement on a run-off basis effective January 1, 2022. As a result, Peninsula retains 100% of its net workers’ compensation premiums and losses beginning with policies effective as of that date. We and Donegal Mutual have maintained a coordinating committee since our formation in 1986.
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 December 31, 2022.
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 December 31, 2023.
Donegal Mutual does not, nor is it required to, prepare financial statements in accordance with GAAP. -24- Index Information about Our Executive Officers The following table sets forth information regarding the executive officers of Donegal Mutual and the Registrant as of the date of this Form 10-K Report: Name Age Position Kevin G.
Donegal Mutual does not, nor is it required to, prepare financial statements in accordance with GAAP. -25- Index Information about Our Executive Officers The following table sets forth information regarding the executive officers of Donegal Mutual and the Registrant as of the date of this Form 10-K Report: Name Age Position Kevin G.
In recent years, the consolidation of independent agencies has accelerated, resulting in the acquisition of independent agencies from which our insurance subsidiaries and Donegal Mutual currently receive business by national cluster groups and aggregators. We have a national accounts team that is responsible for the management and expansion of our relationships with these national agency groups.
In recent years, the consolidation of independent agencies has accelerated, resulting in the acquisition of independent agencies from which our insurance subsidiaries and Donegal Mutual currently receive business by national cluster groups and aggregators. We have expanded our national accounts team that is responsible for the management and expansion of our relationships with these national agency groups.
In the case of reinsurance agreements, the annual adjustments typically relate to the reinsurance premiums and loss retention amounts. These agreements are ongoing in nature and will continue in effect throughout 2023 in the ordinary course of our business. Our members on the coordinating committee, as of the date of this Form 10-K Report, are Barry C.
In the case of reinsurance agreements, the annual adjustments typically relate to the reinsurance premiums and loss retention amounts. These agreements are ongoing in nature and will continue in effect throughout 2024 in the ordinary course of our business. Our members on the coordinating committee, as of the date of this Form 10-K Report, are Barry C.
At December 31, 2022, we had three segments: our investment function, our commercial lines of insurance and our personal lines of insurance. We set forth financial information about these segments in Note 19 of the Notes to Consolidated Financial Statements. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.
At December 31, 2023, we had three segments: our investment function, our commercial lines of insurance and our personal lines of insurance. We set forth financial information about these segments in Note 19 of the Notes to Consolidated Financial Statements. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.
We have filed with the Department the pooling agreement between Donegal Mutual and Atlantic States that established the underwriting pool and all material agreements between Donegal Mutual and our insurance subsidiaries. -23- Index Approval of the applicable insurance commissioner is also required prior to consummation of transactions affecting the control of an insurer.
We have filed with the Department the pooling agreement between Donegal Mutual and Atlantic States that established the underwriting pool and all material agreements between Donegal Mutual and our insurance subsidiaries. -24- Index Approval of the applicable insurance commissioner is also required prior to consummation of transactions affecting the control of an insurer.
In addition to appropriate pricing, our insurance subsidiaries seek to ensure that their premium rates are adequate relative to the amount of risk they insure. Our insurance subsidiaries review loss trends on a regular basis to identify changes in the frequency and severity of their claims and to assess the adequacy of their rates and underwriting standards.
In addition to appropriate pricing, our insurance subsidiaries seek to ensure that their premium rates are adequate relative to the risk exposures they insure. Our insurance subsidiaries review loss trends on a regular basis to identify changes in the frequency and severity of their claims and to assess the adequacy of their rates and underwriting standards.
The “Cumulative deficiency (excess)” shows the cumulative deficiency or excess at December 31, 2022 of the liability estimate shown on the top line of the corresponding column. A deficiency in liability means that the liability established in prior years was less than the amount of actual payments and currently re-estimated remaining unpaid liability.
The “Cumulative deficiency (excess)” shows the cumulative deficiency or excess at December 31, 2023 of the liability estimate shown on the top line of the corresponding column. A deficiency in liability means that the liability established in prior years was less than the amount of actual payments and currently re-estimated remaining unpaid liability.
Item 1. Business. Introduction Donegal Group Inc., or DGI, is an insurance holding company whose insurance subsidiaries and affiliates offer property and casualty insurance in 24 Mid-Atlantic, Midwestern, New England, Southern and Southwestern states. DGI has no significant business operations and is separate and distinct from its insurance subsidiaries.
Item 1. Business. Introduction Donegal Group Inc., or DGI, is an insurance holding company whose insurance subsidiaries and affiliates offer property and casualty insurance in 23 Mid-Atlantic, Midwestern, New England, Southern and Southwestern states. DGI has no significant business operations and is separate and distinct from its insurance subsidiaries.
Best’s opinion, have an excellent ability to meet their ongoing insurance obligations. -22- Index Regulation The supervision and regulation of insurance companies consists primarily of the laws and regulations of the various states in which the insurance companies transact business, with the primary regulatory authority being the insurance regulatory authorities in the state of domicile of the insurance company.
Best’s opinion, have an excellent ability to meet their ongoing insurance obligations. -23- Index Regulation The supervision and regulation of insurance companies consists primarily of the laws and regulations of the various states in which the insurance companies transact business, with the primary regulatory authority being the insurance regulatory authorities in the state of domicile of the insurance company.
The management of our insurance subsidiaries meets on a regular basis with the personnel of the independent insurance agents our insurance subsidiaries appoint to seek service improvement recommendations, react to service issues and better understand local market conditions. -9- Index • Acquiring property and casualty insurance companies to augment the organic growth of our insurance subsidiaries.
The management of our insurance subsidiaries meets on a regular basis with the personnel of the independent insurance agents our insurance subsidiaries appoint to seek service improvement recommendations, react to service issues and better understand local market conditions. • Acquiring property and casualty insurance companies to augment the organic growth of our insurance subsidiaries.
The mortgage-backed securities consist primarily of investments in governmental agency balloon pools with stated maturities between one and 35 years. The stated maturities of these investments limit the exposure of our insurance subsidiaries to extension risk in the event that interest rates rise and prepayments decline.
The mortgage-backed securities consist primarily of investments in governmental agency balloon pools with stated maturities between one and 34 years. The stated maturities of these investments limit the exposure of our insurance subsidiaries to extension risk in the event that interest rates rise and prepayments decline.
Hay 48 Senior Vice President and Chief Underwriting Officer of Donegal Mutual and Senior Vice President of us since 2021; Senior Director of Willis Towers Watson from 2018 to 2021; Head of Personal Lines Product Management of The Hartford from 2015 to 2018; other positions at The Hartford from 2005 to 2015. Christina M.
Hay 49 Senior Vice President and Chief Underwriting Officer of Donegal Mutual and Senior Vice President of us since 2021; Senior Director of Willis Towers Watson from 2018 to 2021; Head of Personal Lines Product Management of The Hartford from 2015 to 2018; other positions at The Hartford from 2005 to 2015. Christina M.
The following table shows the composition of the debt securities (at carrying value) in the investment portfolios of our insurance subsidiaries, excluding short-term investments, by rating at December 31, 2022: (dollars in thousands) December 31, 2022 Rating (1) Amount Percent U.S.
The following table shows the composition of the debt securities (at carrying value) in the investment portfolios of our insurance subsidiaries, excluding short-term investments, by rating at December 31, 2023: (dollars in thousands) December 31, 2023 Rating (1) Amount Percent U.S.
The combined ratio of our insurance subsidiaries and that of the United States property and casualty insurance industry as computed using United States generally accepted accounting principles, or GAAP, and statutory accounting principles, or SAP, for the years 2018 through 2022 are shown in the following table: 2022 2021 2020 2019 2018 Our GAAP combined ratio 103.3 % 101.0 % 96.0 % 99.5 % 110.1 % Our SAP combined ratio 103.3 100.8 95.4 98.7 109.4 Industry SAP combined ratio (1) 104.0 99.6 98.4 98.9 99.2 (1) As reported (projected for 2022) by A.M.
The combined ratio of our insurance subsidiaries and that of the United States property and casualty insurance industry as computed using United States generally accepted accounting principles, or GAAP, and statutory accounting principles, or SAP, for the years 2019 through 2023 are shown in the following table: 2023 2022 2021 2020 2019 Our GAAP combined ratio 104.4 % 103.3 % 101.0 % 96.0 % 99.5 % Our SAP combined ratio 104.2 103.3 100.8 95.4 98.7 Industry SAP combined ratio (1) 103.7 103.1 99.6 98.4 98.9 (1) As reported (projected for 2023) by A.M.
At December 31, 2022, the amount of ordinary dividends our insurance subsidiaries could pay to us during 2023, without the prior approval of their respective domiciliary insurance commissioners, is shown in the following table.
At December 31, 2023, the amount of ordinary dividends our insurance subsidiaries could pay to us during 2024, without the prior approval of their respective domiciliary insurance commissioners, is shown in the following table.
Except as required by law, we do not intend to update, and we assume no responsibility for updating, any forward-looking statements we have made. We qualify all of our forward-looking statements by these cautionary statements. -26- Index
Except as required by law, we do not intend to update, and we assume no responsibility for updating, any forward-looking statements we have made. We qualify all of our forward-looking statements by these cautionary statements.
Hudnall 45 Senior Vice President of Commercial Lines of Donegal Mutual and Senior Vice President of us since 2022; Senior Vice President of Underwriting of Preferred Mutual from 2021 to 2022; Vice President of Small Commercial Underwriting of Hanover Insurance Group from 2016 to 2021; Vice President of Casualty Underwriting at Hanover Insurance Group from 2013 to 2016. Robert R.
Hudnall 46 Senior Vice President of Commercial Lines of Donegal Mutual and Senior Vice President of us since 2022; Senior Vice President of Underwriting of Preferred Mutual from 2021 to 2022; Vice President of Small Commercial Underwriting of Hanover Insurance Group from 2016 to 2021; Vice President of Casualty Underwriting at Hanover Insurance Group from 2013 to 2016. Robert R.
The amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements, including RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2022.
The amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements, including RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2023.
Our downstream holding company structure, with Donegal Mutual holding approximately 71% of the combined voting power of our common stock, has proven its effectiveness and success over the 36 years of our existence.
Our downstream holding company structure, with Donegal Mutual holding approximately 71% of the combined voting power of our common stock, has proven its effectiveness and success over the 37 years of our existence.
Our insurance subsidiaries have increased their annual premium per employee, a measure of efficiency that our insurance subsidiaries use to evaluate their operations, from approximately $470,000 in 1999 to approximately $1.1 million in 2022. Return on invested assets is an important element of the financial results of our insurance subsidiaries.
Our insurance subsidiaries have increased their annual premium per employee, a measure of efficiency that our insurance subsidiaries use to evaluate their operations, from approximately $470,000 in 1999 to approximately $1.2 million in 2023. Return on invested assets is an important element of the financial results of our insurance subsidiaries.
At December 31, 2022, our insurance subsidiaries and Donegal Mutual each exceeded the minimum levels of statutory capital the RBC rules require by a substantial margin.
At December 31, 2023, our insurance subsidiaries and Donegal Mutual each exceeded the minimum levels of statutory capital the RBC rules require by a substantial margin.
Wagner 62 Senior Vice President and Treasurer of Donegal Mutual and us since 2005; other positions from 1987 to 2005. -25- Index Cautionary Statement Regarding Forward-Looking Statements This Form 10-K Report and the documents we incorporate by reference in this Form 10-K Report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
Wagner 63 Senior Vice President and Treasurer of Donegal Mutual and us since 2005; other positions from 1987 to 2005. -26- Index Cautionary Statement Regarding Forward-Looking Statements This Form 10-K Report and the documents we incorporate by reference in this Form 10-K Report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.
“Ease of doing business” is an increasingly important component of an insurer’s value to an independent agency. Our insurance subsidiaries provide fully automated underwriting and policy issuance portals that substantially ease data entry and facilitate the quoting and issuance of policies for the independent agents of our insurance subsidiaries.
“Ease of doing business” is a critically important component of an insurer’s value to an independent agency. Our insurance subsidiaries provide fully automated underwriting and policy issuance portals that substantially ease data entry and facilitate the quoting and issuance of policies for the independent agents of our insurance subsidiaries.
Hoffman 48 Senior Vice President and Chief Risk Officer of Donegal Mutual and us since 2019; Senior Vice President of Internal Audit of Donegal Mutual and Senior Vice President of us from 2013 to 2019; Vice President of Internal Audit of Donegal Mutual and Vice President of us from 2009 to 2013. Matthew T.
Hoffman 49 Senior Vice President and Chief Risk Officer of Donegal Mutual and us since 2019; Senior Vice President of Internal Audit of Donegal Mutual and Senior Vice President of us from 2013 to 2019; Vice President of Internal Audit of Donegal Mutual and Vice President of us from 2009 to 2013. Matthew T.
Donegal Mutual was the surviving company in the merger, and Mountain States’ insurance subsidiaries, Mountain States Indemnity Company and Mountain States Commercial Insurance Company (collectively, the "Mountain States insurance subsidiaries"), became insurance subsidiaries of Donegal Mutual upon completion of the merger.
Donegal Mutual was the surviving company in the merger, and Mountain States’ insurance subsidiaries, Mountain States Indemnity Company and Mountain States Commercial Insurance Company (collectively, the “Mountain States insurance subsidiaries”), became insurance subsidiaries of Donegal Mutual upon completion of the merger.
Anthony Viozzi 49 Senior Vice President and Chief Investment Officer of Donegal Mutual and us since 2012; Vice President of Investments of Donegal Mutual and us from 2007 to 2012. Daniel J.
Anthony Viozzi 50 Senior Vice President and Chief Investment Officer of Donegal Mutual and us since 2012; Vice President of Investments of Donegal Mutual and us from 2007 to 2012. Daniel J.
Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. As shown above, our insurance subsidiaries held investments in mortgage-backed securities having a carrying value of $229.3 million at December 31, 2022.
Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. As shown above, our insurance subsidiaries held investments in mortgage-backed securities having a carrying value of $278.3 million at December 31, 2023.
The investment portfolios of our insurance subsidiaries did not contain any mortgage loans or any non-performing assets at December 31, 2022.
The investment portfolios of our insurance subsidiaries did not contain any mortgage loans or any non-performing assets at December 31, 2023.
Folmar 64 Senior Vice President of Claims of Donegal Mutual and Senior Vice President of us since 2019; Vice President of Claims of Donegal Mutual from 2010 to 2019; other positions from 1998 to 2010. Jeffery T.
Folmar 65 Senior Vice President of Claims of Donegal Mutual and Senior Vice President of us since 2019; Vice President of Claims of Donegal Mutual from 2010 to 2019; other positions from 1998 to 2010. Jeffery T.
Sponic 58 Senior Vice President of Personal Lines of Donegal Mutual and Senior Vice President of us since 2022; Vice President of Personal Lines of Donegal Mutual from 2008 to 2022; other positions from 1990 to 2008. V.
Sponic 59 Senior Vice President of Personal Lines of Donegal Mutual and Senior Vice President of us since 2022; Vice President of Personal Lines of Donegal Mutual from 2008 to 2022; other positions from 1990 to 2008. V.
Our insurance subsidiaries maintain a small percentage (2.7% at December 31, 2022) of their portfolios in equity securities that have a history of paying cash dividends or that our insurance subsidiaries expect will appreciate in value over time. • Strategically modernizing our operations and processes to transform our business.
Our insurance subsidiaries maintain a small percentage (2.0% at December 31, 2023) of their portfolios in equity securities that have a history of paying cash dividends or that our insurance subsidiaries expect will appreciate in value over time. • Strategically modernizing our operations and processes to transform our business.
The majority of the 2020 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.
The majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.
Tax-exempt securities made up approximately 19.9%, 21.1% and 22.9% of the fixed-maturity securities in the combined investment portfolios of our insurance subsidiaries at December 31, 2022, 2021 and 2020, respectively. -20- Index The following table shows the classification of our investments and the investments of our insurance subsidiaries at December 31, 2022, 2021 and 2020 (at carrying value): December 31, 2022 2021 2020 Percent of Percent of Percent of (dollars in thousands) Amount Total Amount Total Amount Total Fixed maturities (1) : Held to maturity: U.S.
Tax-exempt securities made up approximately 18.2%, 19.9% and 21.1% of the fixed-maturity securities in the combined investment portfolios of our insurance subsidiaries at December 31, 2023, 2022 and 2021, respectively. -21- Index The following table shows the classification of our investments and the investments of our insurance subsidiaries at December 31, 2023, 2022 and 2021 (at carrying value): December 31, 2023 2022 2021 (dollars in thousands) Amount Percent of Total Amount Percent of Total Amount Percent of Total Fixed maturities (1) : Held to maturity: U.S.
Long, Jr. 64 Senior Vice President and General Counsel of Donegal Mutual and us since 2018; Vice President and House Counsel of Donegal Mutual from 2012 to 2018; other positions from 2010 to 2012. Sanjay Pandey 56 Senior Vice President and Chief Information Officer of Donegal Mutual and us since 2013; other positions from 2000 to 2013. David W.
Long, Jr. 65 Senior Vice President and General Counsel of Donegal Mutual and us since 2018; Vice President and House Counsel of Donegal Mutual from 2012 to 2018; other positions from 2010 to 2012. Sanjay Pandey 57 Senior Vice President and Chief Information Officer of Donegal Mutual and us since 2013; other positions from 2000 to 2013. David W.
Donegal Mutual Insurance Company, or Donegal Mutual, organized us as an insurance holding company on August 26, 1986. At December 31, 2022, Donegal Mutual held approximately 43% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock.
Donegal Mutual Insurance Company, or Donegal Mutual, organized us as an insurance holding company on August 26, 1986. At December 31, 2023, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock.
Our strategies are designed to provide value to the policyholders of Donegal Mutual and our respective insurance subsidiaries and, ultimately, to provide value to our stockholders. The annual net premiums earned of our insurance subsidiaries have increased from $301.5 million in 2006 to $822.5 million in 2022, a compound annual growth rate of 6.5%.
Our strategies are designed to provide value to the policyholders of Donegal Mutual and our respective insurance subsidiaries and, ultimately, to provide value to our stockholders. The annual net premiums earned of our insurance subsidiaries have increased from $301.5 million in 2006 to $882.1 million in 2023, a compound annual growth rate of 6.5%.
Our insurance subsidiaries and Donegal Mutual also purchased facultative reinsurance to cover certain exposures, including property exposures that exceeded the limits provided by their respective treaty reinsurance. Investments At December 31, 2022, 100.0% of all debt securities our insurance subsidiaries held had an investment-grade rating.
Our insurance subsidiaries and Donegal Mutual also purchased facultative reinsurance to cover certain exposures, including property exposures that exceeded the limits provided by their respective treaty reinsurance. Investments At December 31, 2023, 95.2% of all debt securities our insurance subsidiaries held had an investment-grade rating.
Altshuler 42 Senior Vice President and Chief Analytics Officer of us since 2020; Senior Vice President and Chief Analytics Officer of Donegal Mutual since 2019; Director of Willis Towers Watson from 2018 to 2019; Director of Pricing Innovation of USAA from 2014 to 2018; other positions at USAA from 2001 to 2014. W.
Altshuler 43 Senior Vice President and Chief Analytics Officer of us since 2020; Senior Vice President and Chief Analytics Officer of Donegal Mutual since 2019; Director of Willis Towers Watson from 2018 to 2019; Director of Pricing Innovation of USAA from 2014 to 2018; other positions at USAA from 2001 to 2014. Noland R.
Miller 58 Executive Vice President and Chief Financial Officer of Donegal Mutual and us since 2014; Senior Vice President and Chief Financial Officer of Donegal Mutual and us from 2005 to 2014; other positions from 1993 to 2005. Kristi S.
Jeffrey D. Miller 59 Executive Vice President and Chief Financial Officer of Donegal Mutual and us since 2014; Senior Vice President and Chief Financial Officer of Donegal Mutual and us from 2005 to 2014; other positions from 1993 to 2005. Kristi S.
Our insurance subsidiaries take specific actions to remediate underperforming product lines or geographies that include pricing increases, underwriting adjustments, reunderwriting initiatives as well as discontinuing a given product or withdrawing from a geography when our insurance subsidiaries determine they cannot reasonably expect to generate targeted profitability over time. Our insurance subsidiaries have no material exposures to asbestos or environmental liabilities.
Our insurance subsidiaries take specific actions to remediate underperforming product lines or geographies that include pricing increases, underwriting adjustments, reunderwriting initiatives as well as discontinuing a given product or withdrawing from a geography when our insurance subsidiaries determine they cannot reasonably expect to generate targeted profitability over time.
At December 31, 2022, the Donegal Insurance Group actively wrote business in 24 states (Alabama, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, Maine, Maryland, Michigan, Nebraska, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, and Wisconsin).
At December 31, 2023, the Donegal Insurance Group actively wrote business in 23 states (Arizona, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, Maine, Maryland, Michigan, Nebraska, New Hampshire, New Mexico, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin).
The external reinsurance our insurance subsidiaries and Donegal Mutual purchased for 2022 included: • excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered losses over a set retention of $2.0 million ($3.0 million retention for all losses except for workers' compensation for 2023); and • catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention of $15.0 million up to aggregate losses of $185.0 million per occurrence (over a set retention of $25.0 million up to aggregate losses of $175.0 million per occurrence for 2023).
The external reinsurance our insurance subsidiaries and Donegal Mutual purchased for 2023 included: • excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered losses over a set retention of $3.0 million for all losses except workers’ compensation, for which the set retention was $2.0 million (set retention of $4.0 million for all property losses and $3.0 million retention for all casualty and workers’ compensation losses for 2024); and • catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention of $25.0 million up to aggregate losses of $175.0 million per occurrence (no change for 2024).
Our insurance subsidiaries did not pay any dividends to us in 2022. Our insurance subsidiaries paid dividends to us of $5.0 million and $14.0 million in 2021 and 2020, respectively.
Our insurance subsidiaries paid dividends to us of $13.0 million and $5.0 million in 2023 and 2021, respectively. Our insurance subsidiaries did not pay any dividends to us in 2022.
Burke 57 President and Chief Executive Officer of us since 2015; President and Chief Executive Officer of Donegal Mutual since 2018; Executive Vice President and Chief Operating Officer of Donegal Mutual from 2014 to 2018; Senior Vice President of Human Resources of Donegal Mutual and us from 2005 to 2014; other positions from 2000 to 2005. Jeffrey D.
Burke 58 President and Chief Executive Officer of us since 2015; President and Chief Executive Officer of Donegal Mutual since 2018; Executive Vice President and Chief Operating Officer of Donegal Mutual from 2014 to 2018; Senior Vice President of Human Resources of Donegal Mutual and us from 2005 to 2014; other positions from 2000 to 2005. W.
We have assigned an innovation task force the responsibility to research emerging technologies and identify potential technology solutions that might assist us in further modernizing our operations. • Capitalizing on opportunities to grow profitably.
We have assigned an innovation task force the responsibility to research emerging technologies and identify potential technology solutions that might assist us in achieving our business strategies. • Capitalizing on opportunities to grow profitably.
The amortized cost of fixed maturities we classified as available for sale was $571.9 million at December 31, 2022, $523.3 million at December 31, 2021 and $535.0 million at December 31, 2020. (2) We value equity securities at fair value.
The amortized cost of fixed maturities we classified as available for sale was $629.7 million at December 31, 2023, $571.9 million at December 31, 2022 and $523.3 million at December 31, 2021. (2) We value equity securities at fair value.
In addition, we are employing new agency relationship management solutions to expand the abilities of our insurance subsidiaries to manage their agency relationships and enhance their agency communications and interactions.
In addition, we continue to explore and implement new agency relationship management solutions to expand the abilities of our insurance subsidiaries to manage their agency relationships and enhance their agency communications and interactions.
The following table sets forth the investment results of our insurance subsidiaries for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, (dollars in thousands) 2022 2021 2020 Invested assets (1) $ 1,290,752 $ 1,249,024 $ 1,165,878 Investment income (2) 34,016 31,126 29,504 Average yield 2.6 % 2.5 % 2.5 % Average tax-equivalent yield 2.7 2.6 2.7 (1) Average of the aggregate invested amounts at the beginning and end of the period.
The following table sets forth the investment results of our insurance subsidiaries for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, (dollars in thousands) 2023 2022 2021 Invested assets (1) $ 1,315,855 $ 1,290,752 $ 1,249,024 Investment income (2) 40,853 34,016 31,126 Average yield 3.1 % 2.6 % 2.5 % Average tax-equivalent yield 3.2 2.7 2.6 (1) Average of the aggregate invested amounts at the beginning and end of the period.
For workers’ compensation insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $18.0 million on any one life over a set retention of $2.0 million (no change for 2023).
For workers’ compensation insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $18.0 million on any one life over a set retention of $2.0 million ($17.0 million on any one life over a set retention of $3.0 million for 2024).
Over that time period, we have grown significantly in terms of revenue and financial strength, and the Donegal Insurance Group has developed an excellent reputation as a regional group of property and casualty insurers. We have been an effective consolidator of smaller “main street” property and casualty insurance companies.
Over that time period, we have grown significantly in terms of revenue and financial strength, and the Donegal Insurance Group has developed an excellent reputation as a regional group of property and casualty insurers.
Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $44.8 million, $31.2 million and $12.9 million in 2022, 2021 and 2020, respectively.
Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $16.7 million, $44.8 million and $31.2 million in 2023, 2022 and 2021, respectively.
The total fair value of fixed maturities we classified as held to maturity was $598.0 million at December 31, 2022, $697.4 million at December 31, 2021 and $632.6 million at December 31, 2020.
The total fair value of fixed maturities we classified as held to maturity was $611.5 million at December 31, 2023, $598.0 million at December 31, 2022 and $697.4 million at December 31, 2021.
Our insurance subsidiaries seek to be among the top three insurers within each of their agencies for the lines of business our insurance subsidiaries write. -13- Index The following table sets forth the percentage of direct premiums our insurance subsidiaries write, including 80% of the direct premiums Donegal Mutual and Atlantic States include in the underwriting pool, in each of the states where they conducted a significant portion of their business in 2022: Pennsylvania 35.1 % Michigan 15.8 Maryland 8.6 Delaware 6.4 Virginia 5.9 Georgia 4.6 Wisconsin 3.5 Ohio 3.5 Indiana 2.6 North Carolina 2.3 Iowa 1.8 Tennessee 1.7 Other 8.2 Total 100.0 % Our insurance subsidiaries employ a number of policies and procedures that we believe enable them to attract, retain and motivate their independent agents.
The following table sets forth the percentage of direct premiums our insurance subsidiaries write, including 80% of the direct premiums Donegal Mutual and Atlantic States include in the underwriting pool, in each of the states where they conducted a significant portion of their business in 2023: Pennsylvania 36.7 % Michigan 15.9 Maryland 8.7 Delaware 6.6 Virginia 6.3 Ohio 3.9 Georgia 3.2 Wisconsin 3.2 Indiana 2.8 North Carolina 2.4 Tennessee 1.7 Other 8.6 Total 100.0 % Our insurance subsidiaries employ a number of policies and procedures that we believe enable them to attract, retain and motivate their independent agents.
For example, the 2012 liability has developed a deficiency after ten years because we expect the re-estimated net losses and loss expenses to be $24.7 million more than the estimated liability we initially established in 2012 of $250.9 million.
For example, the 2013 liability has developed a deficiency after ten years because we expect the re-estimated net losses and loss expenses to be $23.7 million more than the estimated liability we initially established in 2013 of $265.6 million.
For liability insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $73.0 million per occurrence over a set retention of $2.0 million ($72.0 million per occurrence over a set retention of $3.0 million for 2023).
For liability insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $72.0 million per occurrence over a set retention of $3.0 million (no change for 2024).
Our insurance subsidiaries seek to respond expeditiously and effectively to address customer and independent agent inquiries in a number of ways, including: • availability of a customer call center, secure website and mobile application for claims reporting; • availability of a secure website and mobile application for access to policy information and documents, payment processing and other features; • timely replies to information requests and policy submissions; and • prompt responses to, and processing of, claims.
Our insurance subsidiaries seek to respond expeditiously and effectively to address customer and independent agent inquiries in a number of ways, including: • availability of a customer call center, secure website and mobile application for claims reporting; • availability of a secure website and mobile application for access to policy information and documents, payment processing and other features; • timely replies to information requests and policy submissions; and • prompt responses to, and processing of, claims. -9- Index Our insurance subsidiaries periodically conduct policyholder surveys to evaluate the effectiveness of their service to policyholders.
For property insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $38.0 million per loss over a set retention of $2.0 million ($37.0 million per loss over a set retention of $3.0 million for 2023).
For property insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $37.0 million per loss over a set retention of $3.0 million ($36.0 million per loss over a set retention of $4.0 million for 2024).
While we expect to place greater emphasis on commercial growth for the foreseeable future, we desire to maintain a profitable book of personal business to provide enhanced stability across our product portfolio and increase our brand value to our independent agents. We commenced a phased rollout of new personal lines products in the fourth quarter of 2021.
While we expect to place greater emphasis on commercial growth for the foreseeable future, we desire to maintain a profitable book of personal business to provide enhanced stability across our product portfolio and increase our brand value to our independent agents.
We believe our relationships with Donegal Mutual offer us and our insurance subsidiaries a number of competitive advantages, including the following: • enabling our stable management, the consistent underwriting discipline of our insurance subsidiaries, external growth, long-term profitability and financial strength; • creating operational and expense synergies from the combination of resources and integrated operations of the Donegal Insurance Group; • producing more stable and uniform underwriting results for our insurance subsidiaries over extended periods of time than we could achieve without our relationship with Donegal Mutual; • providing opportunities for growth because of the ability of Donegal Mutual to affiliate and enter into reinsurance agreements with, or otherwise acquire control of, mutual insurance companies and place the business it assumes into the underwriting pool; and • providing Atlantic States with a significantly larger underwriting capacity because of the underwriting pool Donegal Mutual and Atlantic States have maintained since 1986. -5- Index In the first quarter of 2023, our board of directors and the board of directors of Donegal Mutual each undertook a review of the relationships between Donegal Mutual and DGI and determined that continuing the current relationships and the current corporate structure of Donegal Mutual and DGI is in the best interests of DGI and its various constituencies.
We believe our relationships with Donegal Mutual offer us and our insurance subsidiaries a number of competitive advantages, including the following: • enabling our stable management, the consistent underwriting discipline of our insurance subsidiaries, external growth, long-term profitability and financial strength; • creating operational and expense synergies from the combination of resources and integrated operations of the Donegal Insurance Group; • producing more stable and uniform underwriting results for our insurance subsidiaries over extended periods of time than we could achieve without our relationship with Donegal Mutual; • providing opportunities for growth because of the ability of Donegal Mutual to affiliate and enter into reinsurance agreements with, or otherwise acquire control of, mutual insurance companies and place the business it assumes into the underwriting pool; and • providing Atlantic States with a significantly larger underwriting capacity because of the underwriting pool Donegal Mutual and Atlantic States have maintained since 1986.
Our insurance subsidiaries encourage their independent agents to focus on “account selling,” or serving all of a particular insured’s property and casualty insurance needs, which our insurance subsidiaries believe generally results in more favorable loss experience than covering a single risk for an individual insured.
Our insurance subsidiaries encourage their independent agents to focus on “account selling,” or serving all of a particular insured’s property and casualty insurance needs, which our insurance subsidiaries believe generally results in more favorable loss experience than covering a single risk for an individual insured. -14- Index Technology Donegal Mutual owns and manages the technology that our insurance subsidiaries utilize on a daily basis.
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.
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. -17- Index 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.
Daniel DeLamater 50 Senior Vice President of us since 2022; Senior Vice President and Head of Field Operations & National Accounts of Donegal Mutual since 2022; Senior Vice President of National Accounts for Donegal Mutual from 2020 to 2022; President of Southern Mutual Insurance Company since 2016; other positions at Southern Mutual Insurance Company from 2000 to 2016. William A.
Daniel DeLamater 51 Executive Vice President and Chief Operating Officer of Donegal Mutual and us since 2024; Senior Vice President of us from 2022 to 2024; Senior Vice President and Head of Field Operations & National Accounts of Donegal Mutual from 2022 to 2024; Senior Vice President of National Accounts for Donegal Mutual from 2020 to 2022; President of Southern Mutual Insurance Company since 2016; other positions at Southern Mutual Insurance Company from 2000 to 2016.
Since 1998, we and Donegal Mutual have completed seven transactions involving acquisitions of property and casualty insurance companies or participation in the business of property and casualty insurance companies through Donegal Mutual’s entry into quota-share reinsurance agreements with them. -1- Index Donegal Mutual completed the merger of Mountain States Mutual Casualty Company, or Mountain States, with and into Donegal Mutual effective May 25, 2017.
Since 1998, we and Donegal Mutual have completed seven transactions involving acquisitions of property and casualty insurance companies or participation in the business of property and casualty insurance companies through Donegal Mutual’s entry into quota-share reinsurance agreements with them.
These forward-looking statements include certain discussions relating to underwriting, premium and investment income volumes, business strategies, reserves, profitability and business relationships and our other business activities during 2022 and beyond.
These forward-looking statements include certain discussions relating to underwriting, premium and investment income volumes, business strategies, reserves, profitability, Donegal Mutual’s ongoing information systems implementation, business relationships and our other business activities during 2023 and beyond.
The purpose of the coordinating committee is to establish and maintain a process for an ongoing evaluation of the transactions between Donegal Mutual, our insurance subsidiaries and us. The coordinating committee considers the fairness of each intercompany transaction to Donegal Mutual and its policyholders and to us and our stockholders.
The purpose of the coordinating committee is to establish and maintain a process for an ongoing evaluation of the transactions between Donegal Mutual, our insurance subsidiaries and us.
Donegal Mutual’s investment portfolio of $466.2 million at December 31, 2022 consisted primarily of investment-grade bonds of $224.9 million and its investment in our Class A common stock and our Class B common stock.
Donegal Mutual’s investment portfolio of $448.9 million at December 31, 2023 consisted primarily of investment-grade bonds of $212.1 million and its investment in our Class A common stock and our Class B common stock.
Our insurance subsidiaries invest in both taxable and tax-exempt securities as part of their strategy to maximize after-tax income.
(2) Includes mortgage-backed securities of $278.3 million. Our insurance subsidiaries invest in both taxable and tax-exempt securities as part of their strategy to maximize after-tax income.
Larger or more complicated claims require consultation and approval of senior claims department management. -15- Index 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.
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.
Donegal Mutual is the employer of record for all personnel who provide services for our insurance subsidiaries. Donegal Mutual strives to maintain a culture that is based on integrity and respect, with an environment designed to facilitate excellent service to the agents and customers of the Donegal Insurance Group.
Donegal Mutual strives to maintain a culture that is based on integrity and respect, with an environment designed to facilitate excellent service to the agents and customers of the Donegal Insurance Group.
We believe the relationships of our insurance subsidiaries with their independent agents are valuable in identifying, obtaining and retaining profitable business. Our insurance subsidiaries maintain a stringent agency selection procedure that emphasizes appointing agencies with proven marketing strategies for the development of profitable business, and our insurance subsidiaries only appoint agencies with a strong underwriting history and potential growth capabilities.
Our insurance subsidiaries maintain a stringent agency selection procedure that emphasizes appointing agencies with proven marketing strategies for the development of profitable business, and our insurance subsidiaries only appoint agencies with a strong underwriting history and potential growth capabilities.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

46 edited+7 added−7 removed96 unchanged
In addition, any equity capital we obtain in the future could be dilutive to our existing stockholders. -37- Index Competition within the property and casualty insurance industry may adversely impact the revenues and profit margins of our insurance subsidiaries. The property and casualty insurance industry is intensely competitive.
In addition, any equity capital we obtain in the future could be dilutive to our existing stockholders. Competition within the property and casualty insurance industry may adversely impact the revenues and profit margins of our insurance subsidiaries. -37- Index The property and casualty insurance industry is intensely competitive.
Risks related to COVID-19 or a future pandemic include, but are not limited to, the following: • the business operations or a specific operational function of our insurance subsidiaries and Donegal Mutual could be disrupted by the illness of significant numbers of their employees and remedial efforts that would be required upon discovery of exposure to a communicable illness within their facilities; • the business operations of our insurance subsidiaries and Donegal Mutual are dependent upon technology systems for which regular physical access is required to maintain critical operational capabilities, and the business operations of our insurance subsidiaries and Donegal Mutual would be adversely impacted by government mandates requiring closure of facilities where those technology systems are located or restricting physical access to such facilities; • the revenues of our insurance subsidiaries and Donegal Mutual may decrease as a result of reduced demand for their insurance products as economic disruption adversely impacts current and potential insurance customers; • our insurance subsidiaries and Donegal Mutual may incur an increase in their losses and loss expenses in certain lines of business as a result of a pandemic and related economic disruption, and such losses and loss expenses may exceed the reserves our insurance subsidiaries and Donegal Mutual have established or may establish in the future; • our insurance subsidiaries and Donegal Mutual may incur increased costs related to legal disputes over policy coverages or exclusions and their defense against litigation related to a pandemic; • legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries and Donegal Mutual to pay losses for damages that their policies explicitly excluded or did not intend to cover; • legislative, judicial and regulatory actions may require our insurance subsidiaries and Donegal Mutual to reduce or refund premiums, suspend cancellation of policies for non-payment of premiums or otherwise grant extended grace periods and time allowances for the payment of premium balances due to them; • our insurance subsidiaries and Donegal Mutual may not be able to collect premium balances due to them, resulting in reduced operating cash flows and an increase in premium write-offs that would increase their operating expenses; • our insurance subsidiaries may suffer declines in the market values of their investments as a result of financial market volatility related to pandemic concerns and related economic disruption; and • economic disruption related to a pandemic could result in significant declines in the credit quality of issuers, ratings downgrades or changes in financial market conditions and regulatory changes that might adversely impact the value of the fixed-maturity investments that our insurance subsidiaries own. -32- Index Donegal Mutual is our controlling stockholder.
Risks related to a pandemic include, but are not limited to, the following: • the business operations or a specific operational function of our insurance subsidiaries and Donegal Mutual could be disrupted by the illness of significant numbers of their employees and remedial efforts that would be required upon discovery of exposure to a communicable illness within their facilities; • the business operations of our insurance subsidiaries and Donegal Mutual are dependent upon technology systems for which regular physical access is required to maintain critical operational capabilities, and the business operations of our insurance subsidiaries and Donegal Mutual would be adversely impacted by government mandates requiring closure of facilities where those technology systems are located or restricting physical access to such facilities; • the revenues of our insurance subsidiaries and Donegal Mutual may decrease as a result of reduced demand for their insurance products as economic disruption adversely impacts current and potential insurance customers; • our insurance subsidiaries and Donegal Mutual may incur an increase in their losses and loss expenses in certain lines of business as a result of a pandemic and related economic disruption, and such losses and loss expenses may exceed the reserves our insurance subsidiaries and Donegal Mutual have established or may establish in the future; • our insurance subsidiaries and Donegal Mutual may incur increased costs related to legal disputes over policy coverages or exclusions and their defense against litigation related to a pandemic; • legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries and Donegal Mutual to pay losses for damages that their policies explicitly excluded or did not intend to cover; • legislative, judicial and regulatory actions may require our insurance subsidiaries and Donegal Mutual to reduce or refund premiums, suspend cancellation of policies for non-payment of premiums or otherwise grant extended grace periods and time allowances for the payment of premium balances due to them; • our insurance subsidiaries and Donegal Mutual may not be able to collect premium balances due to them, resulting in reduced operating cash flows and an increase in premium write-offs that would increase their operating expenses; • our insurance subsidiaries may suffer declines in the market values of their investments as a result of financial market volatility related to pandemic concerns and related economic disruption; and • economic disruption related to a pandemic could result in significant declines in the credit quality of issuers, ratings downgrades or changes in financial market conditions and regulatory changes that might adversely impact the value of the fixed-maturity investments that our insurance subsidiaries own. -32- Index Donegal Mutual is our controlling stockholder.
The ability to underwrite and set rates effectively is subject to a number of risks and uncertainties, including those related to: -28- Index • the availability of sufficient, reliable data; • the ability to conduct a complete and accurate analysis of available data; • the ability to recognize in a timely manner changes in trends and to project both the severity and frequency of losses with reasonable accuracy; • uncertainties generally inherent in estimates and assumptions; • the ability to project changes in certain operating expense levels with reasonable certainty; • the development, selection and application of appropriate rating formulae or other pricing methodologies; • the effective development, governance and appropriate use of modeling tools to assist with correctly and consistently achieving the intended results in underwriting and pricing; • the ability to innovate with new pricing strategies and the success of those innovations upon implementation; • the ability to secure regulatory approval of premium rates on an adequate and timely basis; • the ability to predict policyholder retention accurately; • unanticipated court decisions, legislation or regulatory action; • unanticipated changes in our claim settlement practices; • changes in driving patterns for auto exposures; • changes in weather patterns for property exposures; • changes in the medical sector of the economy that impact bodily injury loss costs; • changes in new and used car prices, auto repair costs and auto parts prices, including the increasing integration of sophisticated technology-related components; • the impact of emerging technologies, including driver assistance technologies and autonomous vehicles, on pricing, insurance coverages and loss costs; • the impact of inflation and other factors on the cost and availability of construction materials and labor; • the ability to monitor property concentration in catastrophe-prone areas, such as hurricane, earthquake and wind/hail regions; and • the general state of the economy in the states in which our insurance subsidiaries operate.
The ability to underwrite and set rates effectively is subject to a number of risks and uncertainties, including those related to: • the availability of sufficient, reliable data; • the ability to conduct a complete and accurate analysis of available data; • the ability to recognize in a timely manner changes in trends and to project both the severity and frequency of losses with reasonable accuracy; • uncertainties generally inherent in estimates and assumptions; • the ability to project changes in certain operating expense levels with reasonable certainty; • the development, selection and application of appropriate rating formulae or other pricing methodologies; • the effective development, governance and appropriate use of modeling tools to assist with correctly and consistently achieving the intended results in underwriting and pricing; • the ability to innovate with new pricing strategies and the success of those innovations upon implementation; • the ability to secure regulatory approval of premium rates on an adequate and timely basis; • the ability to predict policyholder retention accurately; • unanticipated court decisions, legislation or regulatory action; • unanticipated changes in our claim settlement practices; • changes in driving patterns for auto exposures; • changes in weather patterns for property exposures; • changes in the medical sector of the economy that impact bodily injury loss costs; • changes in new and used car prices, auto repair costs and auto parts prices, including the increasing integration of sophisticated technology-related components; -29- Index • the impact of emerging technologies, including driver assistance technologies and autonomous vehicles, on pricing, insurance coverages and loss costs; • the impact of inflation and other factors on the cost and availability of construction materials and labor; • the ability to monitor property concentration in catastrophe-prone areas, such as hurricane, earthquake and wind/hail regions; and • the general state of the economy in the states in which our insurance subsidiaries operate.
The NAIC and state insurance regulators re-examine existing laws and regulations from time to time, specifically focusing on areas such as: -30- Index • insurance company investments; • issues relating to the solvency of insurance companies; • risk-based capital guidelines; • restrictions on the terms and conditions included in insurance policies; • certain methods of accounting; • reserves for unearned premiums, losses and other purposes; • the values at which insurance companies may carry investment securities and the definition of other-than-temporary impairment of investment securities; and • interpretations of existing laws and the development of new laws.
The NAIC and state insurance regulators re-examine existing laws and regulations from time to time, specifically focusing on areas such as: • insurance company investments; • issues relating to the solvency of insurance companies; • risk-based capital guidelines; • restrictions on the terms and conditions included in insurance policies; • certain methods of accounting; • reserves for unearned premiums, losses and other purposes; • the values at which insurance companies may carry investment securities and the definition of other-than-temporary impairment of investment securities; and • interpretations of existing laws and the development of new laws.
We own insurance subsidiaries domiciled in the states of Michigan, Pennsylvania and Virginia, and Donegal Mutual owns or controls insurance companies domiciled in Georgia and New Mexico.
We own insurance subsidiaries domiciled in the states of Michigan, Pennsylvania and Virginia, and Donegal Mutual is domiciled in Pennsylvania and owns or controls insurance companies domiciled in Georgia and New Mexico.
For example, due to increased reinsurance pricing and reduced reinsurance market capacity, our insurance subsidiaries increased their net retentions under several of their reinsurance programs for 2023.
For example, due to increased reinsurance pricing and reduced reinsurance market capacity, our insurance subsidiaries increased their net retentions under several of their reinsurance programs for 2023 and 2024.
Our insurance subsidiaries and Donegal Mutual market their insurance products solely through a network of approximately 2,300 independent insurance agencies. This agency distribution system is one of the most important components of the competitive profile of our insurance subsidiaries and Donegal Mutual.
Our insurance subsidiaries and Donegal Mutual market their insurance products solely through a network of approximately 2,200 independent insurance agencies. This agency distribution system is one of the most important components of the competitive profile of our insurance subsidiaries and Donegal Mutual.
Such assessments could adversely affect the financial condition of our insurance subsidiaries. Our insurance subsidiaries are subject to assessments pursuant to the guaranty fund laws of the various states in which they conduct business.
Such assessments could adversely affect the financial condition of our insurance subsidiaries. -31- Index Our insurance subsidiaries are subject to assessments pursuant to the guaranty fund laws of the various states in which they conduct business.
Risks Relating to Us and Our Business The emergence of COVID-19 has affected the business operations of our insurance subsidiaries and Donegal Mutual, and economic disruption related to COVID-19 or a future pandemic may adversely affect our revenues, profitability, results of operations, cash flows, liquidity and financial condition.
Risks Relating to Us and Our Business The COVID-19 pandemic affected the business operations of our insurance subsidiaries and Donegal Mutual, and economic disruption related to a future pandemic may adversely affect our revenues, profitability, results of operations, cash flows, liquidity and financial condition.
Innovation, recent technological developments, changing customer demographics and preferences, societal shifts and emerging technologies are greatly impacting the insurance industry. Our insurance subsidiaries compete with much larger insurers that are focused on implementing technology and innovative solutions to select and price risks, enhance the experience of their customers and improve their operations.
Innovation, recent technological developments, changing customer demographics and preferences, societal shifts and emerging technologies such as artificial intelligence are greatly impacting the insurance industry. Our insurance subsidiaries compete with much larger insurers that are focused on implementing technology and innovative solutions to select and price risks, enhance the experience of their customers and improve their operations.
Our ability to issue preferred stock could make it difficult for a third party to acquire us. We have no current plans to issue any preferred stock. -41- Index
Our ability to issue preferred stock could make it difficult for a third party to acquire us. We have no current plans to issue any preferred stock.
All of these factors could materially adversely affect the financial condition and results of operations of our insurance subsidiaries and their A.M.
All of these factors could materially adversely affect the financial condition and results of operations of our insurance subsidiaries and their A.M. Best ratings.
For example, certain lenders require customers to purchase insurance from an insurance carrier that has received an A.M. Best rating that exceeds a certain level. Currently, Donegal Mutual and our insurance subsidiaries each have an A (Excellent) rating from A.M. Best. In March 2022, A.M. Best affirmed its A (Excellent) ratings of Donegal Mutual and our insurance subsidiaries.
For example, certain lenders require customers to purchase insurance from an insurance carrier that has received an A.M. Best rating that exceeds a certain level. Currently, Donegal Mutual and our insurance subsidiaries each have an A (Excellent) rating from A.M. Best. In April 2023, A.M. Best affirmed its A (Excellent) ratings of Donegal Mutual and our insurance subsidiaries.
The MCCA receives funding through assessments that its members collect from policyholders in the state and provides reinsurance for PIP claims that exceed a set retention. At December 31, 2022, MICO had approximately $60.7 million of reinsurance receivables from MCCA relating to paid and unpaid losses. The MCCA has generated significant operating deficits in past years.
The MCCA receives funding through assessments that its members collect from policyholders in the state and provides reinsurance for PIP claims that exceed a set retention. At December 31, 2023, MICO had approximately $54.8 million of reinsurance receivables from MCCA relating to paid and unpaid losses. The MCCA has generated significant operating deficits in past years.
From time to time, the NAIC and various state insurance regulators consider modifying the method of determining the amount of dividends that an insurance company may pay without prior regulatory approval. The maximum amount of ordinary dividends that our insurance subsidiaries can pay to us in 2023 without prior regulatory approval is approximately $46.4 million.
From time to time, the NAIC and various state insurance regulators consider modifying the method of determining the amount of dividends that an insurance company may pay without prior regulatory approval. The maximum amount of ordinary dividends that our insurance subsidiaries can pay to us in 2024 without prior regulatory approval is approximately $39.6 million.
To the extent that a reinsurer is unable to pay losses for which it is liable to our insurance subsidiaries, our insurance subsidiaries remain liable for such losses. At December 31, 2022, our insurance subsidiaries had approximately $148.3 million of reinsurance receivables from third-party reinsurers relating to paid and unpaid losses.
To the extent that a reinsurer is unable to pay losses for which it is liable to our insurance subsidiaries, our insurance subsidiaries remain liable for such losses. At December 31, 2023, our insurance subsidiaries had approximately $117.4 million of reinsurance receivables from third-party reinsurers relating to paid and unpaid losses.
Donegal Mutual’s majority voting control of us, certain anti-takeover provisions in our certificate of incorporation and by-laws and certain provisions of the Delaware General Corporation Law, or the DGCL, could delay or prevent the removal of members of our board of directors and could make a merger, tender offer or proxy contest involving us more expensive as well as unlikely to succeed, even if such events were in the best interests of our stockholders other than Donegal Mutual.
Donegal Mutual’s majority voting control of us, certain provisions of our certificate of incorporation and by-laws and certain provisions of Delaware law make it remote that anyone could acquire actual control of us unless Donegal Mutual were in favor of another person’s acquisition of control of us. -33- Index Donegal Mutual’s majority voting control of us, certain anti-takeover provisions in our certificate of incorporation and by-laws and certain provisions of the Delaware General Corporation Law, or the DGCL, could delay or prevent the removal of members of our board of directors and could make a merger, tender offer or proxy contest involving us more expensive as well as unlikely to succeed, even if such events were in the best interests of our stockholders other than Donegal Mutual.
Factors such as an economic downturn, disruption in the credit market or the availability of credit, a regulatory change pertaining to a particular issuer’s industry, a significant deterioration in the cash flows of the issuer or a change in the issuer’s marketplace may adversely affect the ability of our insurance subsidiaries to collect principal and interest from the issuer in which they invest.
Factors such as an economic downturn, disruption in the credit market or the availability of credit, a regulatory change pertaining to a particular issuer’s industry, a significant deterioration in the cash flows of the issuer or a change in the issuer’s marketplace may adversely affect the ability of our insurance subsidiaries to collect principal and interest from the issuer in which they invest. -38- Index The investments of our insurance subsidiaries are also subject to risk resulting from interest rate fluctuations.
Some of the factors that could adversely affect the ability of our insurance subsidiaries and Donegal Mutual to retain existing, and attract new, independent agents include: • the significant competition among insurance companies to attract independent agents; • the labor-intensive and time-consuming process of selecting new independent agents; • the insistence of our insurance subsidiaries and Donegal Mutual that independent agents adhere to certain standards; • the ability of our insurance subsidiaries and Donegal Mutual to pay competitive and attractive commissions, bonuses and other incentives to independent agents; and • the ongoing consolidation of independent agencies, which may result in the acquisition of independent agencies from which our insurance subsidiaries and Donegal Mutual currently receive business by larger entities with which our insurance subsidiaries and Donegal Mutual do not have business relationships. -35- Index While our insurance subsidiaries and Donegal Mutual sell insurance to policyholders solely through their network of independent agencies, many competitors of our insurance subsidiaries and Donegal Mutual sell insurance through a variety of delivery methods, including independent agencies, captive agencies and direct sales.
Some of the factors that could adversely affect the ability of our insurance subsidiaries and Donegal Mutual to retain existing, and attract new, independent agents include: • the significant competition among insurance companies to attract independent agents; • the labor-intensive and time-consuming process of selecting new independent agents; • the insistence of our insurance subsidiaries and Donegal Mutual that independent agents adhere to certain standards; • the ability of our insurance subsidiaries and Donegal Mutual to pay competitive and attractive commissions, bonuses and other incentives to independent agents; and • the ongoing consolidation of independent agencies, which may result in the acquisition of independent agencies from which our insurance subsidiaries and Donegal Mutual currently receive business by larger entities with which our insurance subsidiaries and Donegal Mutual do not have business relationships.
In addition, we have 2,000,000 authorized shares of preferred stock that we could issue in one or more series without stockholder approval, to the extent applicable law permits, and upon such terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine.
The classification of our board of directors could also have the effect of delaying or preventing a change in our control. -40- Index In addition, we have 2.0 million authorized shares of preferred stock that we could issue in one or more series without stockholder approval, to the extent applicable law permits, and upon such terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine.
The insurance laws of each of these states provide that no person can acquire or seek to acquire a 10% or greater interest in us without first filing specified information with the insurance commissioners of those states and obtaining the prior approval of the proposed acquisition of a 10% or greater interest in us by each of the state insurance commissioners based on statutory standards designed to protect the safety and soundness of us and our insurance subsidiaries. -34- Index Our insurance subsidiaries and Donegal Mutual currently conduct business in a limited number of states, with a concentration of business in Pennsylvania, Michigan, Maryland, Delaware, Virginia and Georgia.
The insurance laws of each of these states provide that no person can acquire or seek to acquire a 10% or greater interest in us without first filing specified information with the insurance commissioners of those states and obtaining the prior approval of the proposed acquisition of a 10% or greater interest in us by each of the state insurance commissioners based on statutory standards designed to protect the safety and soundness of us and our insurance subsidiaries.
During 2020 and 2021, the COVID-19 pandemic resulted in significant disruptions in economic activity throughout our operating regions. We cannot predict at this time the ultimate impact that the economic and financial disruption related to the ongoing COVID-19 pandemic or any other future pandemic will have on us.
During 2020 and 2021, the COVID-19 pandemic resulted in significant disruptions in economic activity throughout our operating regions. We cannot predict the ultimate impact that the economic and financial disruption related to a pandemic may have on us.
Our insurance subsidiaries invest the premiums they receive from their policyholders and maintain investment portfolios that consist primarily of fixed-income securities. The effective management of these investment portfolios is an important component of the profitability of our insurance subsidiaries. Our insurance subsidiaries derive a significant portion of their operating income from the income they receive on their invested assets.
The effective management of these investment portfolios is an important component of the profitability of our insurance subsidiaries. Our insurance subsidiaries derive a significant portion of their operating income from the income they receive on their invested assets.
In either event, underpricing or overpricing risks could adversely impact our operating results, financial condition and cash flows. -29- Index The pace of innovation within the insurance industry is rapidly increasing, and our insurance subsidiaries may be unable to effectively implement new technologies and anticipate changes in customer preferences and insurance needs, which could put our insurance subsidiaries at a competitive disadvantage and adversely affect their future profitability.
The pace of innovation within the insurance industry is rapidly increasing, and our insurance subsidiaries may be unable to effectively implement new technologies and anticipate changes in customer preferences and insurance needs, which could put our insurance subsidiaries at a competitive disadvantage and adversely affect their future profitability.
If the independent agents who market the products of our insurance subsidiaries and Donegal Mutual do not maintain their current levels of premium writing with us and Donegal Mutual, fail to comply with established underwriting guidelines of our insurance subsidiaries and Donegal Mutual or otherwise inappropriately market the products of our insurance subsidiaries and Donegal Mutual, the business, financial condition and results of operations of our insurance subsidiaries could be adversely affected.
Common catastrophic events include hurricanes, earthquakes, tornadoes, wind and hailstorms, fires and wildfires, explosions and severe winter storms. -34- Index If the independent agents who market the products of our insurance subsidiaries and Donegal Mutual do not maintain their current levels of premium writing with us and Donegal Mutual, fail to comply with established underwriting guidelines of our insurance subsidiaries and Donegal Mutual or otherwise inappropriately market the products of our insurance subsidiaries and Donegal Mutual, the business, financial condition and results of operations of our insurance subsidiaries could be adversely affected.
Changes in applicable insurance laws or regulations or changes in the way insurance regulators administer those laws or regulations could adversely affect the operating environment of our insurance subsidiaries and increase their exposure to loss or put them at a competitive disadvantage.
Changes in applicable insurance laws or regulations or changes in the way insurance regulators administer those laws or regulations could adversely affect the operating environment of our insurance subsidiaries and increase their exposure to loss or put them at a competitive disadvantage. -30- Index Property and casualty insurers are subject to extensive supervision in their domiciliary states and in the states in which they do business.
This limited liquidity could subject our shares of Class A common stock and our shares of Class B common stock to greater price volatility. -40- Index Donegal Mutual’s majority voting control of our stock, anti-takeover provisions of our certificate of incorporation and by-laws and certain state laws make it unlikely anyone could acquire control of us unless Donegal Mutual were in favor of the acquisition of control.
Donegal Mutual’s majority voting control of our stock, anti-takeover provisions of our certificate of incorporation and by-laws and certain state laws make it unlikely anyone could acquire control of us unless Donegal Mutual were in favor of the acquisition of control.
We and our insurance subsidiaries depend on key personnel. The loss of any member of our executive management or the senior management of our insurance subsidiaries could negatively affect the continuation of our business strategies and achievement of our growth objectives.
The loss of any member of our executive management or the senior management of our insurance subsidiaries could negatively affect the continuation of our business strategies and achievement of our growth objectives. The loss of, or failure to attract, key personnel could significantly impede our financial plans, growth, marketing and other objectives and those of our insurance subsidiaries.
The process of estimating reserves is inherently judgmental and can be influenced by a number of factors, including the following: • trends in claim frequency and severity; • changes in operations; • emerging economic and social trends; • economic and social inflation; and • changes in the regulatory and litigation environments.
The process of estimating reserves is inherently judgmental and can be influenced by a number of factors, including the following: • trends in claim frequency and severity; • changes in operations; • emerging economic and social trends; • economic and social inflation; and • changes in the regulatory and litigation environments. -28- Index If our insurance subsidiaries determine that their reserves are insufficient to cover their ultimate liability, they will increase their reserves.
Best ratings. -38- Index The investment portfolios of our insurance subsidiaries consist primarily of fixed-income securities; therefore, the investment income and the fair value of the investment portfolios of our insurance subsidiaries could decrease as a result of a number of factors.
The investment portfolios of our insurance subsidiaries consist primarily of fixed-income securities; therefore, the investment income and the fair value of the investment portfolios of our insurance subsidiaries could decrease as a result of a number of factors. Our insurance subsidiaries invest the premiums they receive from their policyholders and maintain investment portfolios that consist primarily of fixed-income securities.
As a result, our insurance subsidiaries could underprice risks, which would negatively affect our margins, or our insurance subsidiaries could overprice risks, which could reduce their premium volume and competitiveness.
As a result, our insurance subsidiaries could underprice risks, which would negatively affect our margins, or our insurance subsidiaries could overprice risks, which could reduce their premium volume and competitiveness. In either event, underpricing or overpricing risks could adversely impact our operating results, financial condition and cash flows.
Dividends from our insurance subsidiaries are the primary source of funds for the payment of our operating expenses and dividends to our stockholders; however, there are regulatory restrictions and business considerations that may limit the amount of dividends our insurance subsidiaries may pay to us.
To the extent that current and potential policyholders change their distribution channel preference, the business, financial condition and results of operations of our insurance subsidiaries may be adversely affected. -35- Index Dividends from our insurance subsidiaries are the primary source of funds for the payment of our operating expenses and dividends to our stockholders; however, there are regulatory restrictions and business considerations that may limit the amount of dividends our insurance subsidiaries may pay to us.
In addition, in the event of the call or maturity of investments in a low interest rate environment, our insurance subsidiaries may not be able to reinvest the proceeds in securities with comparable interest rates. Changes in interest rates may reduce both the profitability and the return on the invested capital of our insurance subsidiaries.
If interest rates decline, our insurance subsidiaries will generally have a lower overall rate of return on investments of cash their operations generate. In addition, in the event of the call or maturity of investments in a low interest rate environment, our insurance subsidiaries may not be able to reinvest the proceeds in securities with comparable interest rates.
Changes in state laws and regulations, as well as changes in the way state regulators view related-party transactions in particular, could change the operating environment of our insurance subsidiaries and have an adverse effect on their business. -31- Index Insurance companies are subject to assessments, based on their market share in a given line of business, to assist in the payment of unpaid claims and related costs of insolvent insurance companies.
Changes in state laws and regulations, as well as changes in the way state regulators view related-party transactions in particular, could change the operating environment of our insurance subsidiaries and have an adverse effect on their business.
The interests of Donegal Mutual in maintaining this greater-than-majority voting control of us may have an adverse effect on the price of our Class A common stock and the price of our Class B common stock because of the absence of any potential “takeover” premium and may, therefore, be inconsistent with the interests of our stockholders other than Donegal Mutual. -33- Index Donegal Mutual’s majority voting control of us, certain provisions of our certificate of incorporation and by-laws and certain provisions of Delaware law make it remote that anyone could acquire actual control of us unless Donegal Mutual were in favor of another person’s acquisition of control of us.
The interests of Donegal Mutual in maintaining this greater-than-majority voting control of us may have an adverse effect on the price of our Class A common stock and the price of our Class B common stock because of the absence of any potential “takeover” premium and may, therefore, be inconsistent with the interests of our stockholders other than Donegal Mutual.
The financial condition, cash flows and results of operations of our insurance subsidiaries depend on their ability to underwrite and set rates accurately for a full spectrum of risks across a number of lines of insurance. Rate adequacy is necessary to generate sufficient premium to pay losses, loss adjustment expenses and underwriting expenses and to realize a profit.
The financial results of our insurance subsidiaries depend primarily on their ability to underwrite risks effectively and to charge adequate rates to policyholders. The financial condition, cash flows and results of operations of our insurance subsidiaries depend on their ability to underwrite and set rates accurately for a full spectrum of risks across a number of lines of insurance.
Historically, our insurance subsidiaries have experienced weather-related losses from hurricanes and tropical storms in Mid-Atlantic and Southern states, tornadoes and hailstorms in Mid-Atlantic, Midwestern and Southern states and severe winter weather events in Mid-Atlantic, Midwestern and New England states.
Historically, our insurance subsidiaries have experienced weather-related losses from hurricanes and tropical storms in Mid-Atlantic and Southern states, tornadoes and hailstorms in Mid-Atlantic, Midwestern and Southern states and severe winter weather events in Mid-Atlantic, Midwestern and New England states. -27- Index Losses from catastrophic events are a function of both the extent of our insurance subsidiaries’ exposures, the frequency and severity of the events themselves and the level of reinsurance coverage our insurance subsidiaries purchase.
Such regulations could impact the ability of our insurance subsidiaries to manage their exposures in areas impacted by increased weather activity, require our insurance companies to alter the terms and conditions of their policies or impact the ability of our insurance subsidiaries to obtain sufficient pricing increases to offset higher loss activity. -27- Index Our insurance subsidiaries must establish premium rates and loss and loss expense reserves from forecasts of the ultimate costs they expect will arise from risks underwritten during the policy period, and the profitability of our insurance subsidiaries could be adversely affected if their premium rates or reserves are insufficient to satisfy their ultimate costs.
Our insurance subsidiaries must establish premium rates and loss and loss expense reserves from forecasts of the ultimate costs they expect will arise from risks underwritten during the policy period, and the profitability of our insurance subsidiaries could be adversely affected if their premium rates or reserves are insufficient to satisfy their ultimate costs.
A substantial portion of their business consists of private passenger and commercial automobile, homeowners, commercial multi-peril and workers’ compensation insurance in Pennsylvania, Michigan, Maryland, Delaware, Virginia and Georgia.
Our insurance subsidiaries and Donegal Mutual conduct business in 23 states located primarily in the Mid-Atlantic, Midwestern, New England, Southern and Southwestern states. A substantial portion of their business consists of private passenger and commercial automobile, homeowners, commercial multi-peril and workers’ compensation insurance in Pennsylvania, Michigan, Maryland, Delaware and Virginia.
Our insurance subsidiaries and we believe that our future success is dependent on our ability to attract and retain additional skilled and qualified personnel and to expand, train and manage our employees. We and Donegal Mutual have employment agreements with our senior officers, including all of our named executive officers.
The continued success of our insurance subsidiaries depends to a substantial extent on the ability and experience of their senior management. Our insurance subsidiaries and we believe that our future success is dependent on our ability to attract and retain additional skilled and qualified personnel and to expand, train and manage our employees.
Any single catastrophe occurrence or other condition affecting losses in these states could adversely affect the results of operations of our insurance subsidiaries. Our insurance subsidiaries and Donegal Mutual conduct business in 24 states located primarily in the Mid-Atlantic, Midwestern, New England, Southern and Southwestern states.
Our insurance subsidiaries and Donegal Mutual currently conduct business in a limited number of states, with a concentration of business in Pennsylvania, Michigan, Maryland, Delaware and Virginia. Any single catastrophe occurrence or other condition affecting losses in these states could adversely affect the results of operations of our insurance subsidiaries.
Reported average daily trading volume for our Class A common stock and our Class B common stock for the year ended December 31, 2022 was approximately 73,246 shares and approximately 1,289 shares, respectively.
Reported average daily trading volume for our Class A common stock and our Class B common stock for the year ended December 31, 2023 was approximately 36,167 shares and approximately 1,324 shares, respectively. This limited liquidity could subject our shares of Class A common stock and our shares of Class B common stock to greater price volatility.
These factors could also discourage a third party from attempting to acquire control of us. The classification of our board of directors could also have the effect of delaying or preventing a change in our control.
These factors could also discourage a third party from attempting to acquire control of us.
If our insurance subsidiaries determine that their reserves are insufficient to cover their ultimate liability, they will increase their reserves. An increase in reserves results in an increase in losses and a reduction in net income for the period in which our insurance subsidiaries recognize a deficiency in reserves.
An increase in reserves results in an increase in losses and a reduction in net income for the period in which our insurance subsidiaries recognize a deficiency in reserves. Accordingly, an increase in reserves may adversely impact the business, liquidity, financial condition and results of operations of our insurance subsidiaries.
The investments of our insurance subsidiaries are also subject to risk resulting from interest rate fluctuations. As we experienced when market interest rates increased significantly in 2022, increasing interest rates or a widening in the spread between interest rates available on U.S.
As we experienced when market interest rates increased significantly in 2022, increasing interest rates or a widening in the spread between interest rates available on U.S. Treasury securities and corporate debt or asset-backed securities will typically have an adverse impact on the market values of fixed-rate securities.
Over the next several years, Donegal Mutual expects to implement new systems for the remaining lines of business that the Donegal Insurance Group offers currently, including three commercial lines of business with enhanced straight-through-processing capabilities beginning in the first half of 2023.
Over the next two years, Donegal Mutual expects to implement new systems for the remaining lines of business the Donegal Insurance Group issues currently and for the conversion of remaining legacy renewal policies of the Donegal Insurance Group.
Removed
Losses from catastrophic events are a function of both the extent of our insurance subsidiaries’ exposures, the frequency and severity of the events themselves and the level of reinsurance coverage our insurance subsidiaries purchase.
Added
Such regulations could impact the ability of our insurance subsidiaries to manage their exposures in areas impacted by increased weather activity, require our insurance companies to alter the terms and conditions of their policies or impact the ability of our insurance subsidiaries to obtain sufficient pricing increases to offset higher loss activity.
Removed
Accordingly, an increase in reserves may adversely impact the business, liquidity, financial condition and results of operations of our insurance subsidiaries. The financial results of our insurance subsidiaries depend primarily on their ability to underwrite risks effectively and to charge adequate rates to policyholders.
Added
Rate adequacy is necessary to generate sufficient premium to pay losses, loss adjustment expenses and underwriting expenses and to realize a profit.
Removed
Property and casualty insurers are subject to extensive supervision in their domiciliary states and in the states in which they do business.
Added
Insurance companies are subject to assessments, based on their market share in a given line of business, to assist in the payment of unpaid claims and related costs of insolvent insurance companies.
Removed
Common catastrophic events include hurricanes, earthquakes, tornadoes, wind and hailstorms, fires and wildfires, explosions and severe winter storms.
Added
While our insurance subsidiaries and Donegal Mutual sell insurance to policyholders solely through their network of independent agencies, many competitors of our insurance subsidiaries and Donegal Mutual sell insurance through a variety of delivery methods, including independent agencies, captive agencies and direct sales.
Removed
To the extent that current and potential policyholders change their distribution channel preference, the business, financial condition and results of operations of our insurance subsidiaries may be adversely affected.
Added
In 2023, Donegal Mutual implemented two additional major releases of new systems, which included three commercial lines of business with enhanced straight-through-processing capabilities as well as dwelling fire and conversion of legacy homeowners renewal policies in two initial states.
Removed
Treasury securities and corporate debt or asset-backed securities will typically have an adverse impact on the market values of fixed-rate securities. If interest rates decline, our insurance subsidiaries will generally have a lower overall rate of return on investments of cash their operations generate.
Added
Changes in interest rates may reduce both the profitability and the return on the invested capital of our insurance subsidiaries. We and our insurance subsidiaries depend on key personnel.
Removed
The loss of, or failure to attract, key personnel could significantly impede our financial plans, growth, marketing and other objectives and those of our insurance subsidiaries. The continued success of our insurance subsidiaries depends to a substantial extent on the ability and experience of their senior management.
Added
We and Donegal Mutual have employment agreements with our senior officers, including all of our named executive officers.

Item 2. Properties

Properties — owned and leased real estate

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Item 2. Properties. We and our insurance subsidiaries share administrative headquarters with Donegal Mutual in a building in Marietta, Pennsylvania that Donegal Mutual owns. Donegal Mutual allocates to our insurance subsidiaries their proportionate share of building-related expenses under a services allocation agreement. The Marietta headquarters has approximately 270,000 square feet of office space.
Item 2. Properties. We and our insurance subsidiaries share administrative headquarters with Donegal Mutual in a building in Marietta, Pennsylvania that Donegal Mutual owns. The Marietta headquarters has approximately 270,000 square feet of office space. Southern owns a facility of approximately 10,000 square feet in Glen Allen, Virginia.
Removed
Southern owns a facility of approximately 10,000 square feet in Glen Allen, Virginia.
Added
In addition, Donegal Mutual leases office space in Albuquerque, New Mexico, MICO leases office space in Grand Rapids, Michigan, and Southern Mutual owns a building in Athens, Georgia. Donegal Mutual and our insurance subsidiaries share property-related expenses proportionately under a services allocation agreement.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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However, regardless of outcome, litigation and related matters could have an adverse impact on us and our insurance subsidiaries due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors. Item 4. Mine Safety Disclosures. Not applicable. -42- Index PART II
However, regardless of outcome, litigation and related matters could have an adverse impact on us and our insurance subsidiaries due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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The performance graph and accompanying data shall not be deemed "filed" as part of this Form 10-K Report for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section and should not be deemed incorporated by reference into any other filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate the performance graph and accompanying data by reference into such filing.
The performance graph and accompanying data shall not be deemed “filed” as part of this Form 10-K Report for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section and should not be deemed incorporated by reference into any other filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate the performance graph and accompanying data by reference into such filing.
The peer group consists of Cincinnati Financial Corp., Hanover Insurance Group Inc., Horace Mann Educators Corp., Kemper Corp., Selective Insurance Group Inc. and United Fire Group Inc. The graph shows the change in value of an initial $100 investment on December 31, 2017, assuming reinvestment of all dividends. 2017 2018 2019 2020 2021 2022 Donegal Group Inc.
The peer group consists of Cincinnati Financial Corp., Hanover Insurance Group Inc., Horace Mann Educators Corp., Kemper Corp., Selective Insurance Group Inc. and United Fire Group Inc. The graph shows the change in value of an initial $100 investment on December 31, 2018, assuming reinvestment of all dividends. 2018 2019 2020 2021 2022 2023 Donegal Group Inc.
The following graph provides an indicator of cumulative total stockholder returns on our Class A common stock and our Class B common stock for the period beginning on December 31, 2017 and ending on December 31, 2022, compared to the Russell 2000 Index and a peer group comprised of six property and casualty insurance companies over the same period.
The following graph provides an indicator of cumulative total stockholder returns on our Class A common stock and our Class B common stock for the period beginning on December 31, 2018 and ending on December 31, 2023, compared to the Russell 2000 Index and a peer group comprised of six property and casualty insurance companies over the same period.
Between October 1, 2022 and December 31, 2022, Donegal Mutual purchased shares of our Class A common stock as set forth in the table below: 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 October 1-31, 2022 Class A – None Class B – None Class A – None Class B – None Class A – None Class B – None Month #2 November 1-30, 2022 Class A – 157,148 Class B – None Class A – $15.24 Class B – None Class A – 157,148 Class B – None (1) Month #3 December 1-31, 2022 Class A – 102,360 Class B – None Class A – $14.97 Class B – None Class A – 102,360 Class B – None (1) Total Class A – 259,508 Class B – None Class A – $15.13 Class B –None Class A – 259,508 Class B – None (1) Donegal Mutual purchased these shares pursuant to its disclosure 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.
Between October 1, 2023 and December 31, 2023, Donegal Mutual purchased shares of our Class A common stock as set forth in the table below: 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 October 1-31, 2023 Class A – 13,545 Class B – None Class A – $14.24 Class B – None Class A – 13,545 Class B – None (1) Month #2 November 1-30, 2023 Class A – None Class B – None Class A – None Class B – None Class A – None Class B – None Month #3 December 1-31, 2023 Class A – None Class B – None Class A – None Class B – None Class A – None Class B – None Total Class A – 13,545 Class B – None Class A – $14.24 Class B – None Class A – 13,545 Class B – None (1) Donegal Mutual purchased these shares pursuant to its disclosure 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.
We declared dividends of $0.66 per share on our Class A common stock and $0.59 per share on our Class B common stock in 2022, compared to $0.64 per share on our Class A common stock and $0.57 per share on our Class B common stock in 2021. Unregistered Sales of Equity Securities and Use of Proceeds.
We declared dividends of $0.68 per share on our Class A common stock and $0.61 per share on our Class B common stock in 2023, compared to $0.66 per share on our Class A common stock and $0.59 per share on our Class B common stock in 2022. Unregistered Sales of Equity Securities and Use of Proceeds.
At the close of business on March 1, 2023, we had approximately 1,792 holders of record of our Class A common stock and approximately 225 holders of record of our Class B common stock.
At the close of business on March 1, 2024, we had approximately 1,748 holders of record of our Class A common stock and approximately 216 holders of record of our Class B common stock.
Removed
Class A $100.00 $81.96 $92.74 $91.80 $97.30 $101.23 Donegal Group Inc. Class B 100.00 80.44 90.43 87.32 103.58 130.35 Russell 2000 100.00 88.99 111.70 134.00 153.85 122.41 Peer Group 100.00 105.40 132.70 119.87 140.13 135.46 Research Data Group prepared the foregoing performance graph and data.
Added
Class A $100.00 $113.15 $108.55 $118.71 $123.52 $127.47 Donegal Group Inc. Class B 100.00 112.41 150.58 128.76 162.04 150.99 Russell 2000 100.00 125.52 113.73 172.90 137.56 160.85 Peer Group 100.00 125.90 132.70 132.95 128.52 131.56 Research Data Group prepared the foregoing performance graph and data.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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The increase in technology systems-related expenses for 2021 was primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of the second phase of our ongoing systems modernization project in August 2021.
The increase in technology systems-related expenses for 2022 was primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of the second phase of our ongoing systems modernization project in August 2021.
We attribute the increase in personal lines net premiums written primarily to renewal premium increases, strong policy retention and new business writings in certain states where we have introduced an updated suite of products. -54- Index Investment Income For 2022, our net investment income increased 9.3% to $34.0 million, compared to $31.1 million for 2021, due primarily to higher average reinvestment yields and higher average invested assets for 2022 compared to 2021.
We attribute the increase in personal lines net premiums written primarily to renewal premium increases, strong policy retention and new business writings in certain states where we have introduced an updated suite of products. -56- Index Investment Income For 2022, our net investment income increased 9.3% to $34.0 million, compared to $31.1 million for 2021, due primarily to higher average reinvestment yields and higher average invested assets for 2022 compared to 2021.
The majority of the 2020 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. -47- Index 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.
The majority of the 2021 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. -47- Index 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.
The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. In November 2019, the FASB issued guidance that delays the effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning after December 15, 2022 from December 15, 2019.
The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. In November 2019, the FASB issued guidance that delayed the effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning after December 15, 2022 from December 15, 2019.
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 2021 and 2022 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.
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 2022 and 2023 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.
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 December 31, 2022.
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 December 31, 2023.
Should those patterns continue to emerge, increased weather-related catastrophes in the states in which our insurance subsidiaries operate would lead to higher overall losses that they may be unable to offset through pricing actions. -61- Index Our insurance subsidiaries seek to reduce their exposure to catastrophe losses through their underwriting strategies and their purchase of catastrophe reinsurance.
Should those patterns continue to emerge, increased weather-related catastrophes in the states in which our insurance subsidiaries operate would lead to higher overall losses that they may be unable to offset through pricing actions. Our insurance subsidiaries seek to reduce their exposure to catastrophe losses through their underwriting strategies and their purchase of catastrophe reinsurance.
We consider workers’ compensation to be a “long-tail” line of business, in that workers’ compensation claims tend to be settled over a longer time frame than those in the other lines of business of our insurance subsidiaries. The following table presents 2022 and 2021 claim count and payment amount information for workers’ compensation.
We consider workers’ compensation to be a “long-tail” line of business, in that workers’ compensation claims tend to be settled over a longer time frame than those in the other lines of business of our insurance subsidiaries. The following table presents 2023 and 2022 claim count and payment amount information for workers’ compensation.
We discuss in Note 9 – 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.
We discuss in Note 9 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities. -59- Index 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.
Impact of New Accounting Standards In September 2016, the FASB issued guidance that amends previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred.
Impact of New Accounting Standards In September 2016, the FASB issued guidance that amended previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred.
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. -46- Index Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims.
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 account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Impact of Changing Climate Conditions Insured losses from severe weather events could significantly impact the underwriting results of our insurance subsidiaries.
Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. -60- Index Impact of Changing Climate Conditions Insured losses from severe weather events could significantly impact the underwriting results of our insurance subsidiaries.
At December 31, 2022, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 1.74% and is due in August 2024.
At December 31, 2023, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 1.74% and is due in August 2024.
We did not purchase any shares of our Class A common stock under this program during 2022 or 2021. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through December 31, 2022.
We did not purchase any shares of our Class A common stock under this program during 2023 or 2022. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through December 31, 2023.
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 $6.7 million.
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 $6.9 million.
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, 2022.
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, 2023.
The majority of the 2021 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.
The majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.
Investments At December 31, 2022 and 2021, our investment portfolio of primarily investment-grade bonds, common stock, short-term investments and cash totaled $1.3 billion, representing 58.2% and 59.2%, respectively, of our total assets. See “Business - Investments” for more information.
Investments At December 31, 2023 and 2022, our investment portfolio of primarily investment-grade bonds, common stock, short-term investments and cash totaled $1.3 billion, representing 58.6% and 58.2%, respectively, of our total assets. See “Business - Investments” for more information.
The favorable loss reserve development in 2021 resulted primarily from lower-than-expected loss emergence in the personal automobile, workers’ compensation and commercial automobile lines of business for accident years prior to 2021.
The favorable loss reserve development in 2023 resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023.
Off-Balance Sheet Arrangements As of December 31, 2022 and 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Off-Balance Sheet Arrangements As of December 31, 2023 and 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. -61- Index
Losses and Loss Expenses Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 68.6% for 2022, compared to 67.1% for 2021. Our insurance subsidiaries’ commercial lines loss ratio decreased to 67.1% for 2022, compared to 68.6% for 2021.
Losses and Loss Expenses Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 69.1% for 2023, compared to 68.6% for 2022. Our insurance subsidiaries’ commercial lines loss ratio decreased to 64.8% for 2023, compared to 67.1% for 2022.
We did not recognize any impairment losses during 2021 or 2020. -57- Index Losses and Loss Expenses Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 67.1% for 2021, compared to 62.0% for 2020.
We did not recognize any impairment losses during 2022 or 2021. -57- Index Losses and Loss Expenses Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 68.6% for 2022, compared to 67.1% for 2021.
Combined Ratio Our insurance subsidiaries’ combined ratio was 103.3% and 101.0% for 2022 and 2021, respectively. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of workers’ compensation policy dividends incurred to premiums earned.
Combined Ratio Our insurance subsidiaries’ combined ratio was 104.4% and 103.3% for 2023 and 2022, respectively. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of workers’ compensation policy dividends incurred to premiums earned.
For the Year Ended December 31, (dollars in thousands) 2022 2021 Number of claims pending, beginning of period 3,336 2,898 Number of claims reported 6,683 6,883 Number of claims settled or dismissed 6,653 6,445 Number of claims pending, end of period 3,366 3,336 Losses paid $ 55,809 $ 50,664 Loss expenses paid 12,062 10,067 Management Evaluation of Operating Results Despite challenging insurance market conditions and increasing property and casualty loss severity trends that affected our results in recent years, we believe that our focused business strategy, including our insurance subsidiaries’ ongoing implementation of premium rate increases and refinements to their disciplined underwriting practices, have positioned us well for 2023 and beyond.
For the Year Ended December 31, (dollars in thousands) 2023 2022 Number of claims pending, beginning of period 3,366 3,336 Number of claims reported 5,928 6,683 Number of claims settled or dismissed 6,150 6,653 Number of claims pending, end of period 3,144 3,366 Losses paid $ 54,336 $ 55,809 Loss expenses paid $ 12,292 12,062 Management Evaluation of Operating Results Despite challenging insurance market conditions and increasing property and casualty loss severity trends that affected our results in recent years, we believe that our focused business strategy, including our insurance subsidiaries’ ongoing implementation of premium rate increases and refinements to their underwriting practices, have positioned us well for 2024 and beyond.
Amounts available for distribution to us as dividends from our insurance subsidiaries without prior approval of insurance regulatory authorities in 2023 are approximately $26.4 million from Atlantic States, $6.5 million from Southern, $6.0 million from Peninsula and $7.5 million from MICO, or a total of approximately $46.4 million.
Amounts available for distribution to us as dividends from our insurance subsidiaries without prior approval of insurance regulatory authorities in 2024 are approximately $27.4 million from Atlantic States, $7.2 million from MICO and $5.0 million from Peninsula, or a total of approximately $39.6 million.
Our fixed maturity investments consisted of high-quality marketable bonds, of which 100.0% were rated at investment-grade levels at December 31, 2022 and 2021, respectively. At December 31, 2022, the net unrealized loss on our available-for-sale fixed maturity investments, net of deferred taxes, amounted to $38.0 million, compared to a net unrealized gain of $7.4 million at December 31, 2021.
Our fixed maturity investments consisted of high-quality marketable bonds, of which 95.2% were rated at investment-grade levels at December 31, 2023 and 2022, respectively. At December 31, 2023, the net unrealized loss on our available-for-sale fixed maturity investments, net of deferred taxes, amounted to $31.9 million, compared to a net unrealized loss of $38.0 million at December 31, 2022.
Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $44.8 million, $31.2 million and $12.9 million in 2022, 2021 and 2020, respectively.
Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $16.7 million, $44.8 million and $31.2 million in 2023, 2022 and 2021, respectively.
Such disclosure did not stipulate a maximum number of shares that may be purchased under this program. During 2022, Donegal Mutual purchased 1,035,778 shares of our Class A common stock and 54,231 shares of our Class B common stock.
Such disclosure did not stipulate a maximum number of shares that may be purchased under this program. Donegal Mutual purchased 516,620 and 1,035,778 shares of our Class A common stock during 2023 and 2022, respectively. Donegal Mutual did not purchase any shares of our Class B common stock during 2023.
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. -52- Index The following table presents comparative details with respect to our GAAP and statutory combined ratios for the years ended December 31, 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 GAAP Combined Ratios (Total Lines) Loss ratio (non-weather) 60.9 % 61.3 % 55.1 % Loss ratio (weather-related) 7.7 5.8 6.9 Expense ratio 34.1 33.3 33.0 Dividend ratio 0.6 0.6 1.0 Combined ratio 103.3 % 101.0 % 96.0 % Statutory Combined Ratios Commercial lines: Automobile 98.0 % 108.6 % 112.7 % Workers’ compensation 97.3 94.6 86.3 Commercial multi-peril 116.9 114.1 98.4 Other 80.8 77.5 74.0 Total commercial lines 103.7 104.9 97.8 Personal lines: Automobile 103.8 94.4 91.3 Homeowners 111.0 102.9 97.2 Other 52.1 49.3 74.9 Total personal lines 102.8 94.4 92.4 Total commercial and personal lines 103.3 100.8 95.4 -53- Index Results of Operations YEAR ENDED DECEMBER 31, 2022 COMPARED TO YEAR ENDED DECEMBER 31, 2021 Net Premiums Earned Our insurance subsidiaries’ net premiums earned increased to $822.5 million for 2022, an increase of $46.5 million, or 6.0%, compared to 2021, primarily reflecting solid premium retention and renewal premium increases.
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. -52- Index The following table presents comparative details with respect to our GAAP and statutory combined ratios for the years ended December 31, 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 GAAP Combined Ratios (Total Lines) Loss ratio - core losses 57.5 % 59.8 % 59.4 % Loss ratio - weather-related losses 8.3 7.7 5.8 Loss ratio - large fire losses 5.2 6.5 5.9 Loss ratio - net prior-year reserve development -1.9 -5.4 -4.0 Loss ratio 69.1 68.6 67.1 Expense ratio 34.7 34.1 33.3 Dividend ratio 0.6 0.6 0.6 Combined ratio 104.4 % 103.3 % 101.0 % Statutory Combined Ratios Commercial lines: Automobile 97.3 % 98.0 % 108.6 % Workers’ compensation 96.6 97.3 94.6 Commercial multi-peril 112.3 116.9 114.1 Other 85.5 80.8 77.5 Total commercial lines 101.6 103.7 104.9 Personal lines: Automobile 109.7 103.8 94.4 Homeowners 108.6 111.0 102.9 Other 75.8 52.1 49.3 Total personal lines 108.2 102.8 94.4 Total commercial and personal lines 104.2 103.3 100.8 -53- Index Results of Operations YEAR ENDED DECEMBER 31, 2023 COMPARED TO YEAR ENDED DECEMBER 31, 2022 Net Premiums Earned Our insurance subsidiaries’ net premiums earned increased to $882.1 million for 2023, an increase of $59.6 million, or 7.2%, compared to 2022, primarily reflecting solid premium retention and renewal premium increases.
Net Investment (Losses) Gains Our net investment losses for 2022 were $10.2 million. Our net investment gains for 2021 were $6.5 million. The net investment (losses) gains for 2022 and 2021 were primarily related to (decreases) increases in unrealized (losses) gains within our equity securities portfolio. We did not recognize any impairment losses during 2022 or 2021.
Net Investment (Losses) Gains Our net investment losses for 2022 were $10.2 million. Our net investment gains for 2021 were $6.5 million. The net investment (losses) gains for 2022 and 2021 were primarily related to (decreases) increases in unrealized (losses) gains within our equity securities portfolio.
Donegal Mutual and Atlantic States have participated in a proportional reinsurance agreement, or pooling agreement, since 1986. Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled business to Atlantic States.
Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled business to Atlantic States.
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.
Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques.
This decrease resulted primarily from the commercial automobile loss ratio decreasing to 64.2% for 2022, compared to 75.0% for 2021. The personal lines loss ratio increased to 71.0% for 2022, compared to 64.8% for 2021.
Our insurance subsidiaries’ commercial lines loss ratio decreased to 67.1% for 2022, compared to 68.6% for 2021. This decrease resulted primarily from the commercial automobile loss ratio decreasing to 64.2% for 2022, compared to 75.0% for 2021. The personal lines loss ratio increased to 71.0% for 2022, compared to 64.8% for 2021.
For the year ended December 31, 2022, the actuaries developed a range from a low of $621.6 million to a high of $721.6 million and selected a point estimate of $669.9 million. The actuaries’ range of estimates for commercial lines in 2022 was $486.4 million to $560.5 million, and the actuaries selected a point estimate of $522.0 million.
The actuaries’ range of estimates for personal lines in 2023 was $144.0 million to $163.3 million, and the actuaries selected a point estimate of $153.5 million. For the year ended December 31, 2022, the actuaries developed a range from a low of $621.6 million to a high of $721.6 million and selected a point estimate of $669.9 million.
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. -48- Index Our insurance subsidiaries’ liability for losses and loss expenses by major line of business at December 31, 2022 and 2021 consisted of the following: 2022 2021 (in thousands) Commercial lines: Automobile $ 174,833 $ 172,302 Workers’ compensation 120,539 122,398 Commercial multi-peril 203,567 168,445 Other 23,071 18,530 Total commercial lines 522,010 481,675 Personal lines: Automobile 108,715 109,915 Homeowners 28,481 26,169 Other 10,656 8,600 Total personal lines 147,852 144,684 Total commercial and personal lines 669,862 626,359 Plus reinsurance recoverable 451,184 451,261 Total liability for losses and loss expenses $ 1,121,046 $ 1,077,620 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 loss and loss expense reserves.
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. -48- Index Our insurance subsidiaries’ liability for losses and loss expenses by major line of business at December 31, 2023 and 2022 consisted of the following: 2023 2022 (in thousands) Commercial lines: Automobile $ 168,749 $ 174,833 Workers’ compensation 122,473 120,539 Commercial multi-peril 217,292 203,567 Other 27,167 23,071 Total commercial lines 535,681 522,010 Personal lines: Automobile 112,509 108,715 Homeowners 28,001 28,481 Other 12,952 10,656 Total personal lines 153,462 147,852 Total commercial and personal lines 689,143 669,862 Plus reinsurance recoverable 437,014 451,184 Total liability for losses and loss expenses $ 1,126,157 $ 1,121,046 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 loss and loss expense reserves.
However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as rising medical loss costs and increased litigation trends. 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, 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. We have also experienced a general slowing of settlement rates in litigated claims.
The following table sets forth 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 considered in establishing loss and loss expense reserves: Change in Loss and Loss Expense Reserves Net of Reinsurance Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2022 Percentage Change in Equity at December 31, 2022(1) Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2021 Percentage Change in Equity at December 31, 2021(1) (dollars in thousands) -10.0% $602,876 10.9% $563,723 9.3% -7.5 619,622 8.2 579,382 7.0 -5.0 636,369 5.5 595,041 4.7 -2.5 653,115 2.7 610,700 2.3 Base 669,862 — 626,359 — 2.5 686,609 -2.7 642,018 -2.3 5.0 703,355 -5.5 657,677 -4.7 7.5 720,102 -8.2 673,336 -7.0 10.0 736,848 -10.9 688,995 -9.3 (1) Net of income tax effect. -49- Index Our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported (“IBNR”) claims.
The following table sets forth 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 considered in establishing loss and loss expense reserves: Change in Loss and Loss Expense Reserves Net of Reinsurance Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2023 Percentage Change in Equity at December 31, 2023(1) Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2022 Percentage Change in Equity at December 31, 2022(1) (dollars in thousands) -10.0% $620,229 11.3% $602,876 10.9% -7.5 637,457 8.5 619,622 8.2 -5.0 654,686 5.7 636,369 5.5 -2.5 671,914 2.8 653,115 2.7 Base 689,143 — 669,862 — 2.5 706,372 -2.8 686,609 -2.7 5.0 723,600 -5.7 703,355 -5.5 7.5 740,829 -8.5 720,102 -8.2 10.0 758,057 -11.3 736,848 -10.9 (1) Net of income tax effect. -49- Index Our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported (“IBNR”) claims.
We attribute the modest increase to higher technology system-related expenses for 2021 compared to 2020, offset somewhat by lower commercial growth incentive costs for our agents and decreased underwriting-based incentive costs for our agents and employees for 2021 compared to 2020.
We attribute the modest increase to higher technology system-related expenses for 2023 compared to 2022, offset somewhat by decreased underwriting-based incentive costs for our employees for 2023 compared to 2022.
Our insurance subsidiaries experienced favorable loss reserve development of approximately $31.2 million, or 4.0 percentage points of the loss ratio, during 2021 in their reserves for prior accident years, compared to favorable loss reserve development of approximately $12.9 million, or 1.7 percentage points of the loss ratio, during 2020.
Our insurance subsidiaries experienced favorable loss reserve development of approximately $16.7 million, or 1.9 percentage points of the loss ratio, during 2023 in their reserves for prior accident years, compared to approximately $44.8 million, or 5.4 percentage points of the loss ratio, during 2022.
These trend changes 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 of skilled labor, the rate of plaintiff attorney involvement in claims and the cost of medical technologies and procedures.
Related uncertainties regarding future trends include social inflation, availability and cost of replacement automobile parts and building materials, availability of skilled labor, the rate of plaintiff attorney involvement in claims and the cost of medical technologies and procedures.
We attribute the decrease to lower average borrowings under our lines of credit during 2022 compared to 2021. -56- Index Income Taxes Our income tax benefit was $1.7 million for 2022, compared to income tax expense of $5.1 million for 2021. Our effective tax rate for 2021 was 16.8%.
Interest Expense Our interest expense for 2022 decreased to $620,558, compared to $895,605 for 2021. We attribute the decrease to lower average borrowings under our lines of credit during 2022 compared to 2021. -58- Index Income Taxes Our income tax benefit was $1.7 million for 2022, compared to income tax expense of $5.1 million for 2021.
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. -60- Index The cash dividends we declared to our stockholders totaled $20.9 million, $19.6 million and $17.3 million in 2022, 2021 and 2020, respectively.
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.
Large fire losses, which we define as individual fire losses in excess of $50,000, were $45.6 million, or 5.9 percentage points of the loss ratio, for 2021, compared to $22.8 million, or 3.1 percentage points of the loss ratio, for 2020.
Large fire losses, which we define as individual fire losses in excess of $50,000, were $45.4 million, or 5.2 percentage points of the loss ratio, for 2023, compared to $53.5 million, or 6.5 percentage points of the loss ratio, for 2022.
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.
Our insurance subsidiaries do not discount their liabilities for losses and loss expenses. -46- Index 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.
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.
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.
As a result, our consolidated financial results through December 31, 2020 excluded the results of the Mountain States Insurance Group operations in those Southwestern states. -45- Index In July 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions.
Beginning with policies effective in 2021, Donegal Mutual began to place the business of the Mountain States Insurance Group into the underwriting pool. -45- Index In July 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions.
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 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.
Our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue. Such terms are generally 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 twelve-month period compared to the same period one year earlier.
Our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue. Such terms are generally one year or less in duration.
December 31, 2022 2021 Percent of Percent of (dollars in thousands) Amount Total Amount Total Fixed maturities: Total held to maturity $ 688,439 52.8 % $ 668,105 52.3 % Total available for sale 523,792 40.1 532,629 41.7 Total fixed maturities 1,212,231 92.9 1,200,734 94.0 Equity securities 35,105 2.7 63,420 5.0 Short-term investments 57,321 4.4 12,692 1.0 Total investments $ 1,304,657 100.0 % $ 1,276,846 100.0 % The carrying value of our fixed maturity investments represented 92.9% and 94.0% of our total invested assets at December 31, 2022 and 2021, respectively.
December 31, 2023 2022 Percent of Percent of (dollars in thousands) Amount Total Amount Total Fixed maturities: Total held to maturity $ 679,497 51.2 % $ 688,439 52.8 % Total available for sale 589,348 44.4 523,792 40.1 Total fixed maturities 1,268,845 95.6 1,212,231 92.9 Equity securities 25,903 2.0 35,105 2.7 Short-term investments 32,306 2.4 57,321 4.4 Total investments $ 1,327,054 100.0 % $ 1,304,657 100.0 % The carrying value of our fixed maturity investments represented 95.6% and 92.9% of our total invested assets at December 31, 2023 and 2022, respectively.
The 2020 development represented 2.6% of the December 31, 2019 net carried reserves and resulted primarily from lower-than-expected severity in the workers’ compensation and personal automobile lines of business, partially offset by higher-than-expected severity in the commercial automobile and commercial multi-peril lines of business, for accident years prior to 2020.
The 2023 development represented 2.5% of the December 31, 2022 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023.
We are a smaller reporting company and our adoption of this guidance on January 1, 2023 will result in an after-tax adjustment to retained earnings estimated between $1.5 million and $2.5 million. We do not expect the adoption of this guidance to have a significant impact on our results of operations or cash flows.
We were a smaller reporting company at the time this guidance was issued, and our adoption of this guidance on January 1, 2023 resulted in an after-tax decrease in retained earnings of $1.9 million. The adoption of this guidance did not have a significant impact on our results of operations or cash flows.
Our insurance subsidiaries, Atlantic States Insurance Company (“Atlantic States”), Southern Insurance Company of Virginia (“Southern”), The Peninsula Insurance Company and Peninsula Indemnity Company (collectively, “Peninsula”), and Michigan Insurance Company (“MICO”) and their affiliates write commercial and personal lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwest, New England, Southern and Southwestern states.
Our insurance subsidiaries and their affiliates write commercial and personal lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwest, New England, Southern and Southwestern states. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.
The actuaries’ range of estimates for personal lines in 2022 was $135.2 million to $161.1 million, and the actuaries selected a point estimate of $147.9 million. For the year ended December 31, 2021, the actuaries developed a range from a low of $575.7 million to a high of $681.5 million and selected a point estimate of $626.4 million.
For the year ended December 31, 2023, the actuaries developed a range from a low of $651.1 million to a high of $728.7 million and selected a point estimate of $689.1 million. The actuaries’ range of estimates for commercial lines in 2023 was $507.2 million to $565.4 million, and the actuaries selected a point estimate of $535.7 million.
Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our commercial lines and personal lines segments utilizing statutory accounting practices (“SAP”), which include financial measures that reflect the growth trends and underwriting results of our insurance subsidiaries. -50- Index We use the following financial data to monitor and evaluate our operating results: Year Ended December 31, (in thousands) 2022 2021 2020 Net premiums written: Commercial lines: Automobile $ 167,774 $ 161,947 $ 135,294 Workers’ compensation 111,892 113,256 109,960 Commercial multi-peril 200,045 188,242 147,993 Other 40,086 38,340 32,739 Total commercial lines 519,797 501,785 425,986 Personal lines: Automobile 181,129 170,578 184,602 Homeowners 120,087 109,974 111,886 Other 22,517 21,930 19,666 Total personal lines 323,733 302,482 316,154 Total net premiums written $ 843,530 $ 804,267 $ 742,140 Components of combined ratio: Loss ratio 68.6 % 67.1 % 62.0 % Expense ratio 34.1 33.3 33.0 Dividend ratio 0.6 0.6 1.0 Combined ratio 103.3 % 101.0 % 96.0 % Revenues: Net premiums earned: Commercial lines $ 510,153 $ 468,433 $ 412,877 Personal lines 312,337 307,582 329,163 Total net premiums earned 822,490 776,015 742,040 Net investment income 34,016 31,126 29,504 Investment (losses) gains (10,185 ) 6,477 2,778 Other 1,900 2,848 3,497 Total revenues $ 848,221 $ 816,466 $ 777,819 Year Ended December 31, (in thousands) 2022 2021 2020 Components of net (loss) income: Underwriting (loss) income: Commercial lines $ (22,665 ) $ (35,174 ) $ (858 ) Personal lines (13,506 ) 17,235 31,764 SAP underwriting (loss) income (36,171 ) (17,939 ) 30,906 GAAP adjustments 8,667 9,945 (959 ) GAAP underwriting (loss) income (27,504 ) (7,994 ) 29,947 Net investment income 34,016 31,126 29,504 Investment (losses) gains (10,185 ) 6,477 2,778 Other 35 730 1,043 (Loss) income before income tax (benefit) expense (3,638 ) 30,339 63,272 Income tax (benefit) expense (1,679 ) 5,085 10,457 Net (loss) income $ (1,959 ) $ 25,254 $ 52,815 -51- Index Non-GAAP Information We prepare our consolidated financial statements on the basis of GAAP.
Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our commercial lines and personal lines segments utilizing statutory accounting practices (“SAP”), which include financial measures that reflect the growth trends and underwriting results of our insurance subsidiaries. -50- Index We use the following financial data to monitor and evaluate our operating results: Year Ended December 31, (in thousands) 2023 2022 2021 Net premiums written: Commercial lines: Automobile $ 174,741 $ 167,774 $ 161,947 Workers’ compensation 107,598 111,892 113,256 Commercial multi-peril 195,632 200,045 188,242 Other 50,458 51,135 49,229 Total commercial lines 528,429 530,846 512,674 Personal lines: Automobile 215,957 181,129 170,578 Homeowners 139,688 120,087 109,974 Other 11,623 11,468 11,041 Total personal lines 367,268 312,684 291,593 Total net premiums written $ 895,697 $ 843,530 $ 804,267 Components of combined ratio: Loss ratio 69.1 % 68.6 % 67.1 % Expense ratio 34.7 34.1 33.3 Dividend ratio 0.6 0.6 0.6 Combined ratio 104.4 % 103.3 % 101.0 % Revenues: Net premiums earned: Commercial lines $ 533,029 $ 521,227 $ 478,966 Personal lines 349,042 301,263 297,049 Total net premiums earned 882,071 822,490 776,015 Net investment income 40,853 34,016 31,126 Investment gains (losses) 3,173 (10,185 ) 6,477 Other 1,241 1,900 2,848 Total revenues $ 927,338 $ 848,221 $ 816,466 Year Ended December 31, (in thousands) 2023 2022 2021 Components of net income (loss): Underwriting (loss) income: Commercial lines $ (6,998 ) $ (22,665 ) $ (35,174 ) Personal lines (35,118 ) (13,506 ) 17,235 SAP underwriting loss (42,116 ) (36,171 ) (17,939 ) GAAP adjustments 3,735 8,667 9,945 GAAP underwriting loss (38,381 ) (27,504 ) (7,994 ) Net investment income 40,853 34,016 31,126 Investment gains (losses) 3,173 (10,185 ) 6,477 Other (582 ) 35 730 Income (loss) before income tax expense (benefit) 5,063 (3,638 ) 30,339 Income tax expense (benefit) 637 (1,679 ) 5,085 Net income (loss) $ 4,426 $ (1,959 ) $ 25,254 -51- Index Non-GAAP Information We prepare our consolidated financial statements on the basis of GAAP.
The significant increase was related to a higher incidence of both commercial property and home fires in 2021 compared to 2020. Underwriting Expenses Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to premiums earned, was 33.3% for 2021, compared to 33.0% for 2020.
The decrease was related to lower average claim severity of both commercial property and home fires in 2023 compared to 2022. Underwriting Expenses Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to premiums earned, was 34.7% for 2023, compared to 34.1% for 2022.
Combined Ratio Our insurance subsidiaries’ combined ratio was 101.0% and 96.0% for 2021 and 2020, respectively. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of workers’ compensation policy dividends incurred to premiums earned.
The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of workers’ compensation policy dividends incurred to premiums earned. We attribute the increase in our combined ratio primarily to the increase in the loss ratio.
Net cash flows provided by operating activities in 2022, 2021 and 2020 were $67.1 million, $76.7 million and $101.1 million, respectively. At December 31, 2022, 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 interest rates equal to the then-current LIBOR rate plus 2.00%.
At December 31, 2023, 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 interest rates equal to the then-current Term SOFR rate plus 2.11%.
YEAR ENDED DECEMBER 31, 2021 COMPARED TO YEAR ENDED DECEMBER 31, 2020 Net Premiums Earned Our insurance subsidiaries’ net premiums earned increased to $776.0 million for 2021, an increase of $34.0 million, or 4.6%, compared to 2020, primarily reflecting the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021, as well solid premium retention and renewal premium increases.
YEAR ENDED DECEMBER 31, 2022 COMPARED TO YEAR ENDED DECEMBER 31, 2021 Net Premiums Earned Our insurance subsidiaries’ net premiums earned increased to $822.5 million for 2022, an increase of $46.5 million, or 6.0%, compared to 2021, primarily reflecting solid premium retention and renewal premium increases.
There are no regulatory 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.
The cash dividends we declared to our stockholders totaled $22.2 million, $20.9 million and $19.6 million in 2023, 2022 and 2021, respectively. There are no regulatory 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.
Net Income and Earnings Per Share Our net income for 2021 was $25.3 million, or $0.83 per share of Class A common stock on a diluted basis and $0.74 per share of Class B common stock, compared to net income for 2020 of $52.8 million, or $1.83 per share of Class A common stock on a diluted basis and $1.65 per share of Class B common stock.
Net Income (Loss) and Earnings (Loss) Per Share Our net income for 2023 was $4.4 million, or $0.14 per share of Class A common stock on a diluted basis and $0.11 per share of Class B common stock, compared to a net loss for 2022 of $2.0 million, or $0.06 per share of Class A common stock and $0.07 per share of Class B common stock.
At December 31, 2022, Donegal Mutual held approximately 43% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately 71% of the combined voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock.
This ownership provides Donegal Mutual with approximately 71% of the combined voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock. Donegal Mutual and Atlantic States have participated in a proportional reinsurance agreement, or pooling agreement, since 1986.
The actuaries’ range of estimates for commercial lines in 2021 was $442.8 million to $524.0 million, and the actuaries selected a point estimate of $481.7 million. The actuaries’ range of estimates for personal lines in 2021 was $132.9 million to $157.5 million, and the actuaries selected a point estimate of $144.7 million.
The actuaries’ range of estimates for commercial lines in 2022 was $486.4 million to $560.5 million, and the actuaries selected a point estimate of $522.0 million. The actuaries’ range of estimates for personal lines in 2022 was $135.2 million to $161.1 million, and the actuaries selected a point estimate of $147.9 million.
Weather-related losses of $45.3 million, or 5.8 percentage points of the loss ratio, for 2021 decreased from $51.4 million, or 6.9 percentage points of the loss ratio, for 2020, with the decrease primarily impacting the commercial multi-peril line of business.
Weather-related losses of $72.9 million, or 8.3 percentage points of the loss ratio, for 2023 increased from $63.5 million, or 7.7 percentage points of the loss ratio, for 2022, with the increase primarily impacting the homeowners line of business.
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 GAAP. Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements.
Donegal Mutual purchased 54,231 shares of our Class B common stock during 2022. 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 GAAP.
The following table provides a reconciliation of our net premiums earned to our net premiums written for 2022, 2021 and 2020: Year Ended December 31, 2022 2021 2020 Net premiums earned $ 822,489,450 $ 776,015,201 $ 742,040,339 Change in net unearned premiums 21,039,149 28,251,308 99,554 Net premiums written $ 843,528,599 $ 804,266,509 $ 742,139,893 The increase in the change in net unearned premiums for 2021 compared to 2020 primarily reflects the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021.
The following table provides a reconciliation of our net premiums earned to our net premiums written for 2023, 2022 and 2021: Year Ended December 31, 2023 2022 2021 Net premiums earned $ 882,071,386 $ 822,489,450 $ 776,015,201 Change in net unearned premiums 13,625,254 21,039,149 28,251,308 Net premiums written $ 895,696,640 $ 843,528,599 $ 804,266,509 Statutory Combined Ratio The combined ratio is a standard measurement of underwriting profitability for an insurance company.
We had 25.8 million and 24.6 million Class A shares outstanding at December 31, 2021 and 2020, respectively. We had 5.6 million Class B shares outstanding for both periods.
We had 27.8 million and 27.1 million Class A shares outstanding at December 31, 2023 and 2022, respectively. We had 5.6 million Class B shares outstanding for both periods. There are no outstanding securities that dilute our shares of Class B common stock.
The increase in technology systems-related expenses for 2022 was primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of the second phase of our ongoing systems modernization project in August 2021. -55- Index Policyholder Dividends Our insurance subsidiaries pay policyholder dividends primarily on workers' compensation policies on a sliding scale based on the profitability of a given policy.
The increase in technology systems-related expenses for 2023 was primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of two additional major releases of new systems as part of our ongoing systems modernization project in 2023.
Investment Income For 2021, our net investment income increased to $31.1 million, compared to $29.5 million for 2020, due primarily to higher average invested assets for 2021 compared to 2020. Net Investment Gains Our net investment gains for 2021 and 2020 were $6.5 million and $2.8 million, respectively.
Investment Income For 2023, our net investment income increased 20.1% to $40.9 million, compared to $34.0 million for 2022, due primarily to higher average reinvestment yields and higher average invested assets for 2023 compared to 2022. Net Investment Gains (Losses) Our net investment gains for 2023 were $3.2 million. Our net investment losses for 2022 were $10.2 million.
The most significant estimates relate to the reserves of our insurance subsidiaries for property and casualty insurance unpaid 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.
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 reserves of our insurance subsidiaries for property and casualty insurance unpaid losses and loss expenses.
We attribute the increase in our combined ratio primarily to the increase in the loss ratio. Interest Expense Our interest expense for 2022 decreased to $620,558, compared to $895,605 for 2021.
We attribute the increase in our combined ratio primarily to the increases in the loss and expense ratios. Interest Expense Our interest expense for 2023 decreased slightly to $619,813, compared to $620,558 for 2022. Income Taxes Our income tax expense was $637,972 for 2023, compared to an income tax benefit of $1.7 million for 2022.
Policyholder Dividends Our insurance subsidiaries pay policyholder dividends primarily on workers' compensation policies on a sliding scale based on the profitability of a given policy. We attribute the decrease in dividends incurred for 2021 compared to 2020 to a modest decline in the profitability of the workers' compensation line of business over the respective periods to which the dividends applied.
Policyholder Dividends Our insurance subsidiaries pay policyholder dividends primarily on workers’ compensation policies on a sliding scale based on the profitability of a given policy. Combined Ratio Our insurance subsidiaries’ combined ratio was 103.3% and 101.0% for 2022 and 2021, respectively.
The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.
The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies. At December 31, 2023, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock.
We attribute the increase in commercial lines net premiums written primarily to the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021, as well as solid premium retention and renewal premium increases. Personal lines net premiums written decreased $13.7 million, or 4.3%, for 2021 compared to 2020.
Personal lines net premiums written increased $54.6 million, or 17.5%, for 2023 compared to 2022. We attribute the increase in personal lines net premiums written primarily to renewal premium increases and strong policy retention.
Net Premiums Written Our insurance subsidiaries’ 2021 net premiums written increased 8.4% to $804.3 million, compared to $742.1 million for 2020. Commercial lines net premiums written increased $75.8 million, or 17.8%, for 2021 compared to 2020.
Commercial lines net premiums written decreased $2.4 million, or 0.5%, for 2023 compared to 2022.
The net investment gains for 2021 and 2020 were primarily related to increases in unrealized gains within our equity securities portfolio.
The net investment gains (losses) for 2023 and 2022 were primarily related to increases (decreases) in the market value of the equity securities held at the end of the respective periods. We did not recognize any impairment losses during 2023 or 2022.
Removed
Beginning with policies effective in 2021, Donegal Mutual began to place the business of the Mountain States Insurance Group into the underwriting pool.
Added
Our insurance subsidiaries are Atlantic States Insurance Company (“Atlantic States”), Michigan Insurance Company (“MICO”), The Peninsula Insurance Company and its wholly owned subsidiary, Peninsula Indemnity Company (collectively, “Peninsula”), and Southern Insurance Company of Virginia (“Southern”).
Removed
In accordance with Section 12b-2 of the Exchange Act, we are no longer a “smaller reporting company” as of December 31, 2022. However, under Item 10(f)(2)(i) of Regulation S-K, we are permitted to avail ourselves of the scaled disclosure requirements available to smaller reporting companies in this Form 10-K Report.
Added
While these trend changes have begun to normalize, they caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern of future loss settlements.
Removed
Having ceased to be a smaller reporting company, we will no longer be able to avail ourselves of such scaled disclosure beginning with our quarterly report on Form 10-Q for the quarterly period ending March 31, 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+1 added−0 removed8 unchanged
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 Atlantic States cedes to Donegal Mutual. Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers. -63- Index
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 Atlantic States cedes to Donegal Mutual. Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers.
Generally, we do not hedge our exposure to interest rate risk because we have the capacity to, and do, hold fixed-maturity investments to maturity. -62- Index Principal cash flows and related weighted-average interest rates by stated maturity dates for the financial instruments we held at December 31, 2022 that are sensitive to interest rates are as follows: (in thousands) Principal Cash Flows Weighted-Average Interest Rate Fixed-maturity and short-term investments: 2023 $ 96,897 3.54 % 2024 46,799 3.98 2025 63,851 4.00 2026 70,116 4.00 2027 73,460 3.83 Thereafter 967,145 3.04 Total $ 1,318,268 Fair value $ 1,179,158 Debt: 2024 $ 35,000 1.74 % Total $ 35,000 Fair value $ 35,000 Actual cash flows from investments may differ from those depicted above as a result of calls and prepayments.
Generally, we do not hedge our exposure to interest rate risk because we have the capacity to, and do, hold fixed-maturity investments to maturity. -62- Index Principal cash flows and related weighted-average interest rates by stated maturity dates for the financial instruments we held at December 31, 2023 that are sensitive to interest rates are as follows: (in thousands) Principal Cash Flows Weighted-Average Interest Rate Fixed-maturity and short-term investments: 2024 $ 87,195 4.39 % 2025 62,973 4.25 2026 70,764 3.99 2027 72,905 3.81 2028 81,134 4.11 Thereafter 973,216 3.21 Total $ 1,348,187 Fair value $ 1,258,196 Debt: 2024 $ 35,000 1.74 % Total $ 35,000 Fair value $ 35,000 Actual cash flows from investments may differ from those depicted above as a result of calls and prepayments.
Added
To the extent that a reinsurer cannot pay losses for which it is liable under the terms of a reinsurance agreement with one or more of our insurance subsidiaries, our insurance subsidiaries retain continued liability for such losses. -63- Index

Other DGICA 10-K year-over-year comparisons