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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 — 2023 vs 2024

Top changes in DONEGAL GROUP INC's 2024 10-K

325 paragraphs added · 318 removed · 271 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

137 edited+23 added−18 removed141 unchanged
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 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) for each participating insurance subsidiary, with a combined retention of $6.0 million ($5.0 million for 2022) 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.
Donegal Mutual also entered into a 100% quota-share reinsurance agreement with the Mountain States insurance subsidiaries on the merger date. Beginning with policies effective in 2021, Donegal Mutual places the business of the Mountain States Insurance Group into the underwriting pool. Competition The property and casualty insurance industry is highly competitive on the basis of both price and service.
Donegal Mutual also entered into a 100% quota-share reinsurance agreement with the Mountain States insurance subsidiaries on the merger date. Beginning with policies effective in 2021, Donegal Mutual places the business of the Mountain States insurance subsidiaries into the underwriting pool. Competition The property and casualty insurance industry is highly competitive on the basis of both price and service.
Our insurance subsidiaries also provide their independent agents with ongoing support to enable them to better attract and service customers, including: • training programs; • marketing support; • availability of a personal lines service center that provides comprehensive service for our personal lines policyholders; • availability of a commercial lines small business unit to monitor straight-through processing results and enhance turnaround time for responses to agents for less complicated commercial risks; • availability of a commercial lines service center, which is an optional service enhancement for agencies who prefer that we interact directly with their customers for mid-term policy coverage changes and other service requests; and • accessibility to and regular interactions with marketing and underwriting personnel and senior management of our insurance subsidiaries.
Our insurance subsidiaries also provide their independent agents with ongoing support to enable them to better attract and service customers, including: • training programs; • marketing support; • availability of a personal lines service center that provides comprehensive service for our personal lines policyholders; -9- Index • availability of a commercial lines small business unit to monitor straight-through processing results and enhance turnaround time for responses to agents for less complicated commercial risks; • availability of a commercial lines service center, which is an optional service enhancement for agencies who prefer that we interact directly with their customers for mid-term policy coverage changes and other service requests; and • accessibility to and regular interactions with marketing and underwriting personnel and senior management of our insurance subsidiaries.
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.
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. -11- Index • 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.
(3) Donegal Mutual completed the merger of Mountain States with and into Donegal Mutual effective May 25, 2017. Donegal Mutual was the surviving company in the merger, and Mountain States insurance subsidiaries became insurance subsidiaries of Donegal Mutual upon completion of the merger.
(3) Donegal Mutual completed the merger of Mountain States Mutual Casualty Company with and into Donegal Mutual effective May 25, 2017. Donegal Mutual was the surviving company in the merger, and Mountain States insurance subsidiaries became insurance subsidiaries of Donegal Mutual upon completion of the merger.
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.
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, 2024.
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.
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.
We believe our relationships with existing and emerging national agency groups will continue to expand and that these groups represent a significant opportunity for profitable future growth. -8- Index • Delivering a superior experience to our agents and policyholders. Donegal Mutual and our insurance subsidiaries strive to maintain technology comparable to that of their larger competitors.
We believe our relationships with existing and emerging national agency groups will continue to expand and that these groups represent a significant opportunity for profitable future growth. • Delivering a superior experience to our agents and policyholders. Donegal Mutual and our insurance subsidiaries strive to maintain technology comparable to that of their larger competitors.
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.
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 2025 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, 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.
At December 31, 2024, 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. -24- 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. -23- Index Approval of the applicable insurance commissioner is also required prior to consummation of transactions affecting the control of an insurer.
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.
The “Cumulative deficiency (excess)” shows the cumulative deficiency or excess at December 31, 2024 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.
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.
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.
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.
The mortgage-backed securities consist primarily of investments in governmental agency balloon pools with stated maturities between one and 33 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.
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.
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 enhance our brand value to our independent agents.
Our insurance subsidiaries bear their proportionate share of information services expenses based on their respective percentage of the total net premiums written of the Donegal Insurance Group. The business strategy and ultimate success of our insurance subsidiaries depends on the effectiveness of efficient and integrated business systems and technology infrastructure.
Our insurance subsidiaries bear their proportionate share of information services expenses based on their respective percentage of the total net premiums written of the Donegal Insurance Group. -14- Index The business strategy and ultimate success of our insurance subsidiaries depends on the effectiveness of efficient and integrated business systems and technology infrastructure.
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.
Daniel DeLamater 52 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.
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 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, 2024: (dollars in thousands) December 31, 2024 Rating (1) Amount Percent U.S.
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.
Donegal Mutual Insurance Company, or Donegal Mutual, organized us as an insurance holding company on August 26, 1986. At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock.
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.
At December 31, 2024, the amount of ordinary dividends our insurance subsidiaries could pay to us during 2025, without the prior approval of their respective domiciliary insurance commissioners, is shown in the following table.
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.
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, 2024.
Deas, Jr. 56 Senior Vice President of Field Operations & National Accounts of Donegal Mutual and Senior Vice President of us since 2024; Senior Regional Vice President of Donegal Mutual from 2022 to 2024 and Regional Vice President of Donegal Mutual from 2020 to 2022; other positions with Donegal Mutual from 2006 to 2020. William A.
Deas, Jr. 57 Senior Vice President of Field Operations & National Accounts of Donegal Mutual and Senior Vice President of us since 2024; Senior Regional Vice President of Donegal Mutual from 2022 to 2024 and Regional Vice President of Donegal Mutual from 2020 to 2022; other positions with Donegal Mutual from 2006 to 2020. William A.
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.
For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.0 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.
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.
Burke 59 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.
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.
At December 31, 2024, our insurance subsidiaries and Donegal Mutual each exceeded the minimum levels of statutory capital the RBC rules require by a substantial margin.
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.
In addition, the COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates.
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.
Wagner 64 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.
Donegal Mutual’s 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’s ownership provides Donegal Mutual with approximately 70% of the combined voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock.
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.
Anthony Viozzi 51 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.
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.
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, 2024, 95.6% of all debt securities our insurance subsidiaries held had an investment-grade rating.
The investment portfolios of our insurance subsidiaries did not contain any mortgage loans or any non-performing assets 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, 2024.
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.
Sponic 60 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 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.
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 $1.4 million in 2024. Return on invested assets is an important element of the financial results of our insurance subsidiaries.
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 2024 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.
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.
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 21 Mid-Atlantic, Midwestern, Southern and Southwestern states. DGI has no significant business operations and is separate and distinct from its insurance subsidiaries.
Donegal Mutual provides annual wage increases that are based on merit. Donegal Mutual provides an annual cash incentive plan for all of its employees that provides an opportunity for Donegal Mutual’s employees to earn a bonus as a percentage of their annual wages that varies based on the level of underwriting profit Donegal Insurance Group achieves for a calendar year.
Donegal Mutual provides an annual cash incentive plan for all of its employees that provides an opportunity for Donegal Mutual’s employees to earn a bonus as a percentage of their annual wages that varies based on the level of underwriting profit Donegal Insurance Group achieves for a calendar year.
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.
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 2024: -13- Index Pennsylvania 37.6 % Michigan 15.9 Maryland 8.2 Delaware 6.6 Virginia 6.1 Ohio 4.0 Wisconsin 2.9 Indiana 2.7 Georgia 2.6 North Carolina 2.3 Texas 2.2 Other 8.9 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.
Our insurance subsidiaries provide various means of claims reporting on a 24-hours a day, seven-days a week basis, including toll-free numbers and electronic reporting through our website and mobile application. Our insurance subsidiaries strive to respond to notifications of claims promptly, generally within the day reported.
They provide various means of claims reporting on a 24-hours a day, seven-days a week basis, including toll-free numbers and electronic reporting through our website and mobile application. The claims departments strive to respond to notifications of claims promptly, generally within the day reported.
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.
Tax-exempt securities made up approximately 16.6%, 18.2% and 19.9% of the fixed-maturity securities in the combined investment portfolios of our insurance subsidiaries at December 31, 2024, 2023 and 2022, respectively. -20- Index The following table shows the classification of our investments and the investments of our insurance subsidiaries at December 31, 2024, 2023 and 2022 (at carrying value): December 31, 2024 2023 2022 Percent of Percent of Percent of (dollars in thousands) Amount Total Amount Total Amount Total Fixed maturities (1) : Held to maturity: U.S.
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.
Between 1998 and 2017, we and Donegal Mutual 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.
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.
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, providing a comprehensive suite of 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.
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 and cost of skilled labor, the rate of specialized plaintiff attorney involvement in claims, plaintiff attorney utilization of litigation financing and the cost of medical technologies and procedures.
Our insurance subsidiaries have a competitive compensation program for their independent agents that includes base commissions, growth incentive plans and a profit-sharing plan, consistent with applicable state laws and regulations, under which the independent agents may earn additional commissions based upon the volume of premiums produced and the profitability of the business our insurance subsidiaries receive from that agency.
Our insurance subsidiaries have a competitive compensation program for their independent agents that includes base commissions, growth incentive plans and a profit-sharing plan, under which the independent agents may earn additional commissions based upon the volume of premiums produced and the profitability of the business our insurance subsidiaries receive from that agency.
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.
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 $304.5 million at December 31, 2024.
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 downstream holding company structure, with Donegal Mutual holding approximately 70% of the combined voting power of our common stock, has proven its effectiveness and success over the 38 years of our existence.
(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.
(2) Includes mortgage-backed securities of $304.5 million. Our insurance subsidiaries invest in both taxable and tax-exempt securities as part of their strategy to maximize after-tax income.
Our insurance subsidiaries seek to achieve consistent underwriting profitability. Underwriting profitability is a fundamental component of our long-term financial strength because it allows our insurance subsidiaries to generate profits without relying exclusively on their investment income for profitability.
Our insurance subsidiaries seek to achieve excellent financial performance through a combination of consistent investment income and underwriting profitability. Underwriting profitability is a fundamental component of our long-term financial strength because it allows our insurance subsidiaries to generate profits without relying exclusively on their investment income for profitability.
Allocated expenses from Donegal Mutual for services it provided to Atlantic States and our other insurance subsidiaries totaled $219.0 million, $199.2 million and $186.6 million for 2023, 2022 and 2021, respectively. Donegal Mutual is the employer of record for all personnel who provide services for our insurance subsidiaries.
Allocated expenses from Donegal Mutual for services it provided to Atlantic States and our other insurance subsidiaries totaled $224.6 million, $219.0 million and $199.2 million for 2024, 2023 and 2022, respectively. -3- Index Donegal Mutual is the employer of record for all personnel who provide services for our insurance subsidiaries.
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).
At December 31, 2024, the Donegal Insurance Group actively wrote business in 21 states (Arizona, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, Maryland, Michigan, Nebraska, New Mexico, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin).
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.
Jeffrey D. Miller 60 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.
We refer to our proxy statement for our annual meeting of stockholders to be held on April 18, 2024 for further information about the members of the coordinating committee.
We refer to our proxy statement for our annual meeting of stockholders to be held on April 17, 2025 for further information about the members of the coordinating committee.
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.
Hay 50 Executive Vice President and Chief Underwriting Officer of Donegal Mutual and us since 2025; Senior Vice President and Chief Underwriting Officer of Donegal Mutual and Senior Vice President of us from 2021 to 2025; 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.
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).
The external reinsurance our insurance subsidiaries and Donegal Mutual purchased for 2024 included: • excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered losses over a set retention of $4.0 million for all property losses and $3.0 million for all liability and workers’ compensation losses for 2024 (set retention of $4.0 million for all property losses, $6.0 million for all liability losses except workers’ compensation losses and $3.0 million for all workers’ compensation losses for 2025); 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 ($200.0 million for 2025) per occurrence.
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.
Our insurance subsidiaries paid dividends to us of $15.0 million and $13.0 million in 2024 and 2023, respectively. Our insurance subsidiaries did not pay any dividends to us in 2022.
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.
Altshuler 44 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. David B.
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.
The amortized cost of fixed maturities we classified as available for sale was $652.6 million at December 31, 2024, $629.7 million at December 31, 2023 and $571.9 million at December 31, 2022. (2) We value equity securities at fair value.
Donegal Mutual has a 100% quota-share reinsurance agreement with Southern Mutual Insurance Company, or Southern Mutual, and Donegal Mutual places its assumed business from Southern Mutual into the underwriting pool. Donegal Mutual wholly owns and has a 100% quota-share reinsurance agreement with the Mountain States insurance subsidiaries.
Donegal Mutual has a 100% quota-share reinsurance agreement with Southern Mutual Insurance Company, or Southern Mutual, and Donegal Mutual places its assumed business from Southern Mutual into the underwriting pool.
We are executing state-specific strategies that include accelerating growth in states where we see opportunities for profitable growth and reducing exposures in states we have targeted for profit improvement.
We are executing state-specific strategies that include accelerating commercial lines growth in states and classes of business where we see opportunities for profitable growth and reducing exposures in states and classes of business we have targeted for profit improvement.
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.
The following table sets forth the investment results of our insurance subsidiaries for the years ended December 31, 2024, 2023 and 2022: Year Ended December 31, (dollars in thousands) 2024 2023 2022 Invested assets (1) $ 1,356,013 $ 1,315,855 $ 1,290,752 Investment income (2) 44,918 40,853 34,016 Average yield 3.3 % 3.1 % 2.6 % Average tax-equivalent yield 3.4 3.2 2.7 (1) Average of the aggregate invested amounts at the beginning and end of the period.
Key components of these technology systems include agency interface systems, automated policy management systems, a claims processing system and a billing administration system. The agency interface systems provide our insurance subsidiaries with a comprehensive single source to facilitate data sharing both to and from agents’ systems and also provides agents with an integrated means of processing new business.
Key components of these technology systems include agency interface systems, automated policy management systems, a claims processing system and a billing administration system. The agency interface systems provide our insurance subsidiaries with a comprehensive single source to facilitate data sharing both to and from agents’ systems.
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).
For workers’ compensation insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $17.0 million on any one life over a set retention of $3.0 million (no change for 2025).
In addition, because our insurance subsidiaries and Donegal Mutual market their respective insurance products exclusively through independent insurance agencies, most of which represent more than one insurance company, our insurance subsidiaries face competition within agencies, as well as competition to retain qualified independent agents.
In addition, because our insurance subsidiaries and Donegal Mutual market their respective insurance products exclusively through independent insurance agencies, most of which represent multiple insurance companies, our insurance subsidiaries face competition within agencies, as well as competition to appoint and retain qualified independent agents.
The approval process for a new agreement between Donegal Mutual and us or one of our insurance subsidiaries or a change in such an agreement is as follows: • both of our members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to us and in the best interests of our stockholders; • both of Donegal Mutual’s members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to Donegal Mutual and in the best interests of its policyholders; • our board of directors must approve the new agreement or the change in an existing agreement; and • Donegal Mutual’s board of directors must approve the new agreement or the change in an existing agreement.
The approval process for a new agreement between Donegal Mutual and us or one of our insurance subsidiaries or a change in such an agreement is as follows: • both of our members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to us and in the best interests of our stockholders; • both of Donegal Mutual’s members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to Donegal Mutual and in the best interests of its policyholders; • our board of directors must approve the new agreement or the change in an existing agreement; and • Donegal Mutual’s board of directors must approve the new agreement or the change in an existing agreement. -4- Index The coordinating committee also meets annually to review each existing agreement between Donegal Mutual and us or our insurance subsidiaries, including all reinsurance agreements between Donegal Mutual and our insurance subsidiaries.
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.
Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $15.0 million, $16.7 million and $44.8 million in 2024, 2023 and 2022, respectively.
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.
The total fair value of fixed maturities we classified as held to maturity was $631.6 million at December 31, 2024, $611.5 million at December 31, 2023 and $598.0 million at December 31, 2022.
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).
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 ($69.0 million per occurrence over a set retention of $6.0 million for 2025).
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).
For property insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $36.0 million per loss over a set retention of $4.0 million (no change for 2025).
Our insurance subsidiaries believe that, by responding promptly to claims, they provide quality customer service and minimize the ultimate cost of the claims. Our insurance subsidiaries engage independent adjusters as needed to handle claims in areas in which the volume of claims is not sufficient to justify the hiring of internal claims adjusters by our insurance subsidiaries.
By responding promptly to claims, they provide quality customer service and we believe minimize the ultimate cost of the claims. They engage independent adjusters as needed to handle claims in areas in which the typical volume of claims is not sufficient to justify the hiring of field staff.
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.
These continuing trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern of future loss settlements.
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.
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.
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.
Hoffman 50 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. David W.
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.
These forward-looking statements include certain discussions relating to underwriting, premium and investment income volumes, business strategies, reserves, profitability, our expense reduction initiatives, Donegal Mutual’s ongoing information systems and data modernization implementations, business relationships and our other business activities during 2024 and beyond.
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.
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.
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.
The annual net premiums earned of our insurance subsidiaries have increased from $301.5 million in 2006 to $936.7 million in 2024, a compound annual growth rate of 6.5%. -5- Index 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 2020 through 2024 are shown in the following table: 2024 2023 2022 2021 2020 Our GAAP combined ratio 98.6 % 104.4 % 103.3 % 101.0 % 96.0 % Our SAP combined ratio 98.3 104.2 103.3 100.8 95.4 Industry SAP combined ratio (1) 98.9 101.9 103.1 100.0 98.8 (1) As reported (projected for 2024) by A.M.
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 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.
Due to ongoing inflationary pressures on loss costs, we carefully managed personal lines exposure growth in 2023, while implementing premium rate increases throughout the year.
Due to ongoing inflationary pressures on loss costs, we carefully managed personal lines exposure growth in 2024, intentionally slowing the writing of new personal lines opportunities while implementing premium rate increases throughout the year.
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 example, the 2014 liability has developed a deficiency after ten years because we expect the re-estimated net losses and loss expenses to be $22.2 million more than the estimated liability we initially established in 2014 of $292.3 million.
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.
Folmar 66 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. Rick J.
These differences amounted to $32.4 million, $28.7 million and $23.5 million at December 31, 2023, 2022 and 2021, respectively. -18- Index The following table sets forth a reconciliation of the beginning and ending GAAP net liability of our insurance subsidiaries for unpaid losses and loss expenses for the periods indicated: Year Ended December 31, (in thousands) 2023 2022 2021 Gross liability for unpaid losses and loss expenses at beginning of year $ 1,121,046 $ 1,077,620 $ 962,007 Less reinsurance recoverable 451,184 451,261 404,818 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1 1,132 — — Net liability for unpaid losses and loss expenses at beginning of year 670,994 626,359 557,189 Provision for net losses and loss expenses for claims incurred in the current year 625,831 608,900 551,918 Change in provision for estimated net losses and loss expenses for claims incurred in prior years (16,653 ) (44,821 ) (31,208 ) Total incurred 609,178 564,079 520,710 Net losses and loss expense payments for claims incurred during: The current year 330,290 302,272 269,317 Prior years 260,739 218,304 182,223 Total paid 591,029 520,576 451,540 Net liability for unpaid losses and loss expenses at end of year 689,143 669,862 626,359 Plus reinsurance recoverable 437,014 451,184 451,261 Gross liability for unpaid losses and loss expenses at end of year $ 1,126,157 $ 1,121,046 $ 1,077,620 The following table sets forth the development of the liability for net unpaid losses and loss expenses of our insurance subsidiaries from 2013 to 2023.
These differences amounted to $36.0 million, $32.4 million and $28.7 million at December 31, 2024, 2023 and 2022, respectively. -17- Index The following table sets forth a reconciliation of the beginning and ending GAAP net liability of our insurance subsidiaries for unpaid losses and loss expenses for the periods indicated: Year Ended December 31, (in thousands) 2024 2023 2022 Gross liability for unpaid losses and loss expenses at beginning of year $ 1,126,157 $ 1,121,046 $ 1,077,620 Less reinsurance recoverable 437,014 451,184 451,261 Cumulative effect of adoption of updated accounting guidance for credit losses at January 1 — 1,132 — Net liability for unpaid losses and loss expenses at beginning of year 689,143 670,994 626,359 Provision for net losses and loss expenses for claims incurred in the current year 619,090 625,831 608,900 Change in provision for estimated net losses and loss expenses for claims incurred in prior years (14,972 ) (16,653 ) (44,821 ) Total incurred 604,118 609,178 564,079 Net losses and loss expense payments for claims incurred during: The current year 319,196 330,290 302,272 Prior years 269,701 260,739 218,304 Total paid 588,897 591,029 520,576 Net liability for unpaid losses and loss expenses at end of year 704,364 689,143 669,862 Plus reinsurance recoverable 416,621 437,014 451,184 Gross liability for unpaid losses and loss expenses at end of year $ 1,120,985 $ 1,126,157 $ 1,121,046 The following table sets forth the development of the liability for net unpaid losses and loss expenses of our insurance subsidiaries from 2014 to 2024.
Treasury securities and obligations of U.S. government corporations and agencies $ 91,517 6.9 % $ 103,362 7.9 % $ 89,268 7.0 % Obligations of states and political subdivisions 376,898 28.4 382,097 29.3 371,436 29.1 Corporate securities 201,847 15.2 190,949 14.6 191,147 15.0 Mortgage-backed securities 9,235 0.7 12,031 1.0 16,254 1.2 Total held to maturity 679,497 51.2 688,439 52.8 668,105 52.3 Available for sale: U.S.
Treasury securities and obligations of U.S. government corporations and agencies $ 86,579 6.3 % $ 91,517 6.9 % $ 103,362 7.9 % Obligations of states and political subdivisions 371,896 26.9 376,898 28.4 382,097 29.3 Corporate securities 236,550 17.0 201,847 15.2 190,949 14.6 Mortgage-backed securities 10,689 0.8 9,235 0.7 12,031 1.0 Total held to maturity 705,714 51.0 679,497 51.2 688,439 52.8 Available for sale: U.S.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

55 edited+10 added−11 removed83 unchanged
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.
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; -31- Index • 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.
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.
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. -38- 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.
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.
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: -32- Index • 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.
Donegal Mutual has the right to vote approximately 71% of the combined voting power of our Class A common stock and our Class B common stock and has sufficient voting control to and has acted to: • elect all of the members of our board of directors, who determine our management and policies; and • control the outcome of any corporate transaction or other matter submitted to a vote of our stockholders for approval, including mergers or other acquisition proposals and the sale of all or substantially all of our assets, in each case regardless of how all of our stockholders other than Donegal Mutual vote their shares.
Donegal Mutual has the right to vote approximately 70% of the combined voting power of our Class A common stock and our Class B common stock and has sufficient voting control to and has acted to: • elect all of the members of our board of directors, who determine our management and policies; and • control the outcome of any corporate transaction or other matter submitted to a vote of our stockholders for approval, including mergers or other acquisition proposals and the sale of all or substantially all of our assets, in each case regardless of how all of our stockholders other than Donegal Mutual vote their shares.
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 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; -28- 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 impact of medical advances on the cost and duration of bodily injury claims; • the ability to monitor property concentration in catastrophe-prone areas, such as hurricane, earthquake, wildfire and wind/hail regions; and • the general state of the economy in the states in which our insurance subsidiaries operate.
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.
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. -27- Index If our insurance subsidiaries determine that their reserves are insufficient to cover their ultimate liability, they will increase their reserves.
This regulatory oversight includes matters relating to: • licensing and examination; • approval of premium rates; • market conduct; • policy forms; • limitations on the nature and amount of certain investments; • claims practices; • mandated participation in involuntary markets and guaranty funds; • reserve adequacy; • insurer solvency; • transactions between affiliates; • the amount of dividends that insurers may pay; and • restrictions on underwriting standards.
This regulatory oversight includes matters relating to: -29- Index • licensing and examination; • approval of premium rates; • market conduct; • policy forms; • limitations on the nature and amount of certain investments; • claims practices; • mandated participation in involuntary markets and guaranty funds; • reserve adequacy; • insurer solvency; • transactions between affiliates; • the amount of dividends that insurers may pay; and • restrictions on underwriting standards.
The financial impact to Donegal Mutual, us and our insurance subsidiaries of a significant breach could be material. Risks Relating to Our Common Stock The price of our common stock may be adversely affected by its low trading volume. Our Class A common stock and our Class B common stock have limited liquidity.
The financial impact to Donegal Mutual, us and our insurance subsidiaries of a significant breach could be material. -37- Index Risks Relating to Us and Our Common Stock The price of our common stock may be adversely affected by its low trading volume. Our Class A common stock and our Class B common stock have limited liquidity.
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.
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. The property and casualty insurance industry is intensely competitive.
As a holding company, we rely primarily on dividends from our insurance subsidiaries as a source of funds to meet our corporate obligations and to pay dividends to our stockholders. The amount of dividends our insurance subsidiaries can pay to us is subject to regulatory restrictions and depends on the amount of surplus our insurance subsidiaries maintain.
As a holding company, we rely on dividends from our insurance subsidiaries as a significant source of funds to meet our corporate obligations and to pay dividends to our stockholders. The amount of dividends our insurance subsidiaries can pay to us is subject to regulatory restrictions and depends on the amount of surplus our insurance subsidiaries maintain.
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.
Our insurance subsidiaries and Donegal Mutual market their insurance products solely through a network of approximately 2,100 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. -31- Index 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. Our insurance subsidiaries are subject to assessments pursuant to the guaranty fund laws of the various states in which they conduct business.
Six of the eleven members of our board of directors are also directors of Donegal Mutual. Donegal Mutual and we share the same executive officers. These common directors and executive officers have a fiduciary duty to our stockholders and also have a fiduciary duty to the policyholders of Donegal Mutual.
Seven of the eleven members of our board of directors are also directors of Donegal Mutual. Donegal Mutual and we share the same executive officers. These common directors and executive officers have a fiduciary duty to our stockholders and also have a fiduciary duty to the policyholders of Donegal Mutual.
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.
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 2024 and 2025.
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.
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 and Midwestern states. -26- 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.
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.
All of these factors could materially adversely affect the financial condition and results of operations of our insurance subsidiaries and their A.M.
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 Donegal Mutual conduct business in 21 states located primarily in the Mid-Atlantic, Midwestern, 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.
The propensity of policyholders and third-party claimants to litigate and the willingness of courts to expand causes of loss and the size of awards, to eliminate exclusions and to increase coverage limits may result in ultimate settlements of current and future losses that exceed the loss reserves of our insurance subsidiaries.
The propensity of policyholders and third-party claimants to utilize specialized plaintiff firms and litigate and the willingness of courts to expand causes of loss and the size of awards, to eliminate exclusions and to increase coverage limits may result in ultimate settlements of current and future losses that exceed the loss reserves of 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.
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 May 2024, A.M. Best affirmed its A (Excellent) ratings of Donegal Mutual and our insurance subsidiaries.
Donegal Mutual and its directors and executive officers have potential conflicts of interest between the best interests of our stockholders and the best interests of the policyholders of Donegal Mutual. Donegal Mutual controls the election of all of the members of our board of directors.
Donegal Mutual is our controlling stockholder. Donegal Mutual and its directors and executive officers have potential conflicts of interest between the best interests of our stockholders and the best interests of the policyholders of Donegal Mutual. Donegal Mutual controls the election of all of the members of our board of directors.
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.
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 2025 without prior regulatory approval is approximately $53.3 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, 2023, our insurance subsidiaries had approximately $117.4 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, 2024, our insurance subsidiaries had approximately $99.7 million of reinsurance receivables from third-party reinsurers relating to paid and unpaid losses.
These new systems are intended to provide various benefits to the member companies of the Donegal Insurance Group, including streamlined workflows and business processes, service enhancements for their agents and policyholders, opportunities to implement new product models and innovative business solutions, greater utilization of data analytics and operational efficiencies.
These new systems are intended to provide various benefits to the member companies of the Donegal Insurance Group, including streamlined workflows and business processes, service enhancements for their agents and policyholders, opportunities to implement new product models and innovative business solutions, greater utilization of data analytics and operational efficiencies. Since 2020, we have implemented five major releases of new systems.
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.
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.
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.
Reported average daily trading volume for our Class A common stock and our Class B common stock for the year ended December 31, 2024 was approximately 64,806 shares and approximately 1,190 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.
The risks associated with these affiliations and acquisitions include: • the potential inadequacy of reserves for losses and loss expenses of the other insurer; • the need to supplement management of the other insurer with additional experienced personnel; • conditions imposed by regulatory agencies that make the realization of cost-savings through integration of the operations of the other insurer with our operations more difficult; • our management’s lack of familiarity with the geography, demographics and distribution systems in the markets the other insurer serves that cause the other insurer to fail to meet the growth and profitability objectives we anticipated at the time of the acquisition or affiliation; • the need of the other insurer for additional capital that we did not anticipate at the time of the acquisition or affiliation; and • the use of more of our management’s time in improving the operations of the other insurer than we originally anticipated.
The risks associated with these affiliations and acquisitions include: • the potential inadequacy of reserves for losses and loss expenses of the other insurer; • the need to supplement management of the other insurer with additional experienced personnel; • conditions imposed by regulatory agencies that make the realization of cost-savings through integration of the operations of the other insurer with our operations more difficult; • our management’s lack of familiarity with the geography, demographics and distribution systems in the markets the other insurer serves that cause the other insurer to fail to meet the growth and profitability objectives we anticipated at the time of the acquisition or affiliation; • potential difficulties with integration of information technology systems and other operations; • the need of the other insurer for additional capital that we did not anticipate at the time of the acquisition or affiliation; and • the use of more of our management’s time in improving the operations of the other insurer than we originally anticipated. -34- Index If we cannot obtain sufficient capital to fund the organic growth of our insurance subsidiaries and to make acquisitions, we may not be able to expand our business.
Loss or significant restriction of the use of credit scoring in the pricing and underwriting of the personal lines insurance products by our insurance subsidiaries could adversely affect their future profitability. Our insurance subsidiaries use credit scoring as a factor in making risk selection and pricing decisions for personal lines insurance products where allowed by state law.
Loss or significant restriction of the use of specific rating attributes, analytical models or technologies in the pricing and underwriting of insurance products by our insurance subsidiaries could adversely affect their future profitability. Our insurance subsidiaries consider a variety of rating attributes in making risk selection and pricing decisions for personal lines insurance products where allowed by state law.
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.
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.
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.
Risks Relating to 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. During 2020 and 2021, the COVID-19 pandemic resulted in significant disruptions in economic activity throughout our operating regions.
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.
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.
Our strategy to grow in part through acquisitions of other insurance companies exposes us to risks that could adversely affect our results of operations and financial condition. The affiliation with, and acquisition of, other insurance companies involves risks that could adversely affect our results of operations and financial condition.
The affiliation with, and acquisition of, other insurance companies involves risks that could adversely affect our results of operations and financial condition.
There is increasing regulatory debate as to whether use of credit scoring unfairly discriminates against people with low incomes, minority groups and the elderly. Consumer groups and regulators often call for the prohibition or restriction on the use of credit scoring in underwriting and pricing.
There is increasing regulatory debate as to whether use of certain rating attributes is unfairly discriminatory. For example, consumer groups and regulators often call for the prohibition or restriction on the use of credit scoring in underwriting and pricing.
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.
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.
The allocation among our insurance subsidiaries and Donegal Mutual of the costs of developing and maintaining Donegal Mutual’s information technology systems may adversely impact our insurance subsidiaries’ expense ratio and underwriting profitability, and such costs may exceed Donegal Mutual’s and our expectations. -36- Index Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key infrastructure and applications systems, and the allocation of related costs to our insurance subsidiaries has resulted in an increase to their expense ratio.
Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key infrastructure and applications systems, and the allocation of related costs to our insurance subsidiaries has resulted in an increase to their expense ratio.
In addition, many classes of complainants have brought legal actions and proceedings that tend to increase the size of judgments.
In addition, many classes of complainants have brought legal actions and proceedings, some of which may be funded by third-party litigation financing, that tend to increase the size of judgments.
Laws or regulations that significantly curtail the use of credit scoring in the underwriting process could reduce the future profitability of our insurance subsidiaries.
Laws or regulations that significantly curtail the use of specific rating attributes or other analytical models and technologies in the underwriting process could reduce the future profitability of our insurance subsidiaries.
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.
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 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.
Best ratings. -35- 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.
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.
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.
Our insurance subsidiaries may require additional capital in the future to support this strategy. If we cannot obtain sufficient capital on satisfactory terms and conditions, we may not be able to expand the business of our insurance subsidiaries or to make future acquisitions.
If we cannot obtain sufficient capital on satisfactory terms and conditions, we may not be able to expand the business of our insurance subsidiaries or to make future acquisitions. Our ability to obtain additional financing will depend on a number of factors, many of which are beyond our control.
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.
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. -30- 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.
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.
Dividends from our insurance subsidiaries are a significant 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.
Although we currently consider the risk to be remote, should the MCCA be unable to fulfill its payment obligations to MICO in the future, MICO’s financial condition and results of operations could be adversely affected. -39- Index In addition, our insurance subsidiaries face a risk of the non-availability of reinsurance or an increase in reinsurance costs that could adversely affect their ability to write business or their results of operations.
Although we currently consider the risk to be remote, should the MCCA be unable to fulfill its payment obligations to MICO in the future, MICO’s financial condition and results of operations could be adversely affected.
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.
We cannot predict the ultimate impact that the economic and financial disruption related to a pandemic may have on us.
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 insurance subsidiaries compete with much larger insurers that are focused on implementing technology and innovative solutions to select and price risks, identify and target potential customers, enhance the experience of their customers and improve their operations.
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.
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.
However, if A.M. Best were to downgrade the rating of Donegal Mutual or any of our insurance subsidiaries, it would adversely affect the competitive position of Donegal Mutual or that insurance subsidiary and make it more difficult for it to market its products and retain its existing policyholders.
Best were to downgrade the rating of Donegal Mutual or any of our insurance subsidiaries, it would adversely affect the competitive position of Donegal Mutual or that insurance subsidiary and make it more difficult for it to market its products and retain its existing policyholders. -33- Index The growth and profitability of our insurance subsidiaries depend, in part, on the effective maintenance and ongoing development of Donegal Mutual’s information technology systems, and the allocation of related costs to our insurance subsidiaries may adversely impact their profitability.
If we cannot obtain sufficient capital to fund the organic growth of our insurance subsidiaries and to make acquisitions, we may not be able to expand our business. Our strategy is to expand our business through the organic growth of our insurance subsidiaries and through our strategic acquisitions of regional insurance companies.
Our strategy is to expand our business through the organic growth of our insurance subsidiaries and through our strategic acquisitions of regional insurance companies. Our insurance subsidiaries may require additional capital in the future to support this strategy.
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.
In 2025, 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. The conversion process will continue into 2026 as legacy policies renew on a state-by-state rollout schedule.
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.
At December 31, 2024, MICO had approximately $46.3 million of reinsurance receivables from MCCA relating to paid and unpaid losses. The MCCA has generated significant operating deficits in past years.
Any insolvency or inability of these reinsurers to make timely payments to our insurance subsidiaries under the terms of their reinsurance agreements would adversely affect the results of operations of our insurance subsidiaries.
Any insolvency or inability of these reinsurers to make timely payments to our insurance subsidiaries under the terms of their reinsurance agreements would adversely affect the results of operations of our insurance subsidiaries. -36- Index Michigan law requires MICO to provide certain medical benefits under the personal injury protection, or PIP, coverage of the personal automobile and commercial automobile policies it writes in the state of Michigan.
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.
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.
Michigan law requires MICO to provide certain medical benefits under the personal injury protection, or PIP, coverage of the personal automobile and commercial automobile policies it writes in the state of Michigan. Michigan law also requires MICO to be a member of the Michigan Catastrophic Claims Association, or MCCA, in order to write automobile insurance.
Michigan law also requires MICO to be a member of the Michigan Catastrophic Claims Association, or MCCA, in order to write automobile insurance. 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.
The growth and profitability of our insurance subsidiaries depend, in part, on the effective maintenance and ongoing development of Donegal Mutual’s information technology systems, and the allocation of related costs to our insurance subsidiaries may adversely impact their profitability.
The allocation among our insurance subsidiaries and Donegal Mutual of the costs of developing and maintaining Donegal Mutual’s information technology systems may adversely impact our insurance subsidiaries’ expense ratio and underwriting profitability, and such costs may exceed Donegal Mutual’s and our expectations.
These factors could also discourage a third party from attempting to acquire control of us.
These approval requirements may make it more difficult for a third party to acquire control of us. -39- Index
Removed
Nevertheless, reinsurance may prove inadequate under certain circumstances.
Added
Advancements in economic capital modeling and catastrophe risk modeling assist our insurance subsidiaries in measuring risk concentrations and inform their reinsurance purchase decisions. Nevertheless, reinsurance may prove inadequate under certain circumstances.
Removed
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.
Added
Innovation, recent technological developments, changing customer demographics and preferences, societal shifts and emerging technologies such as artificial intelligence are greatly impacting the insurance industry.
Removed
Our insurance subsidiaries began to issue workers’ compensation policies from the new systems in the second quarter of 2020 and began to issue personal lines policies from the new systems, including a new personal lines agency portal, in the fourth quarter of 2021.
Added
In addition, there is increasing regulatory attention on the governance over and use of analytical models and technologies, including artificial intelligence systems, to ensure that such technologies comply with laws that address unfair trade practices and unfair discrimination.
Removed
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.
Added
Property and casualty insurers are subject to extensive supervision in their domiciliary states and in the states in which they do business.
Removed
Our ability to obtain additional financing will depend on a number of factors, many of which are beyond our control.
Added
Common catastrophic events include hurricanes, earthquakes, tornadoes, wind and hailstorms, fires and wildfires, explosions and severe winter storms.
Removed
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.
Added
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.
Removed
We and Donegal Mutual have employment agreements with our senior officers, including all of our named executive officers.
Added
While we are currently placing less emphasis on pursuing acquisitions because Donegal Mutual and we believe there are significant opportunities for profitable organic growth, our strategy to grow in part through acquisitions of other insurance companies exposes us to risks that could adversely affect our results of operations and financial condition.
Removed
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.
Added
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.
Removed
Donegal Mutual’s ownership of our Class A common stock and Class B common stock, certain anti-takeover provisions of our certificate of incorporation and by-laws, certain provisions of Delaware law and the insurance laws and regulations of Georgia, Michigan, New Mexico, Pennsylvania and Virginia could delay or prevent the removal of members of our board of directors and could make it more difficult for a merger, tender offer or proxy contest involving us to succeed, even if our stockholders other than Donegal Mutual believed any of such events would be beneficial to them.
Added
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.
Removed
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.
Added
In addition, our insurance subsidiaries face a risk of the non-availability of reinsurance or an increase in reinsurance costs that could adversely affect their ability to write business or their results of operations.
Removed
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.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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This enterprise-wide program is intended to identify and assess internal and external cyber and information security risks that may threaten the security or integrity of the information stored on the Donegal Mutual’s information systems or those of third-party providers from unauthorized access, use or other malicious acts.
This enterprise-wide program is intended to identify and assess internal and external cyber and information security risks that may threaten the security or integrity of the information stored on Donegal Mutual’s information systems or those of third-party providers from unauthorized access, use or other malicious acts.
Donegal Mutual’s information security officer also provides an annual cybersecurity report to the boards of directors of Donegal Mutual and us. The annual cybersecurity reports encompass a broad range of topics, including types of threats and attempted infiltrations, applicable regulatory developments, information security program activities and planned cybersecurity enhancements to address emerging threats.
Donegal Mutual’s information security officer also provides an annual cybersecurity report to the boards of directors of Donegal Mutual and us. The annual cybersecurity report encompasses a broad range of topics, including types of threats and attempted infiltrations, applicable regulatory developments, information security program activities and planned cybersecurity enhancements to address emerging threats.
For more information regarding the risks Donegal Mutual and we face from cybersecurity threats, see “Risk Factors - Risks Relating to Us and Our Business.” -41- Index Donegal Mutual employs an information security officer who has relevant experience and expertise in information security and holds the management position that is primarily responsible for assessing and managing cybersecurity risks.
For more information regarding the risks Donegal Mutual and we face from cybersecurity threats, see “Risk Factors - Risks Relating to Our Business- The disruption or failure of Donegal Mutual’s information technology systems or the compromise of the security of those systems that results in the theft or misuse of confidential information could materially impact adversely the business of Donegal Mutual and our insurance subsidiaries.” -40- Index Donegal Mutual employs an information security officer who has relevant experience and expertise in information security and holds the management position that is primarily responsible for assessing and managing cybersecurity risks.
Added
A member of the joint audit committee has extensive information technology and cybersecurity experience in the insurance industry.

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.
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. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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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 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, 2019, assuming reinvestment of all dividends. 2019 2020 2021 2022 2023 2024 Donegal Group Inc.
Such disclosure did not stipulate a maximum number of shares that may be purchased under this program. -43- Index Stock Performance Chart.
Such disclosure did not stipulate a maximum number of shares that may be purchased under this program. -42- Index Stock Performance Chart.
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.
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, 2019 and ending on December 31, 2024, compared to the Russell 2000 Index and a peer group comprised of six property and casualty insurance companies over the same period.
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.
We declared dividends of $0.69 per share on our Class A common stock and $0.62 per share on our Class B common stock in 2024, compared to $0.68 per share on our Class A common stock and $0.61 per share on our Class B common stock in 2023. Unregistered Sales of Equity Securities and Use of Proceeds.
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.
Between October 1, 2024 and December 31, 2024, 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, 2024 Class A – 150,432 Class B – None Class A – $15.49 Class B – None Class A – 150,432 Class B – None (1) Month #2 November 1-30, 2024 Class A – 235,884 Class B – None Class A – $15.88 Class B – None Class A – 235,884 Class B – None (1) Month #3 December 1-31, 2024 Class A – 414,122 Class B – None Class A – $16.63 Class B – None Class A – 414,122 Class B – None (1) Total Class A – 800,438 Class B – None Class A – $16.20 Class B – None Class A – 800,438 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.
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.
Our Class A common stock and Class B common stock trade on the NASDAQ Global Select Market under the symbols “DGICA” and “DGICB,” respectively. -41- Index At the close of business on March 3, 2025, we had approximately 1,477 holders of record of our Class A common stock and approximately 204 holders of record of our Class B common stock.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Our Class A common stock and Class B common stock trade on the NASDAQ Global Select Market under the symbols “DGICA” and “DGICB,” respectively.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Removed
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.
Added
Class A $100.00 $98.98 $104.91 $109.16 $112.65 $130.65 Donegal Group Inc. Class B 100.00 96.57 114.54 144.15 134.32 136.44 Russell 2000 100.00 119.96 137.74 109.59 128.14 142.93 Peer Group 100.00 90.33 105.60 102.08 104.50 136.71 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

66 edited+19 added−17 removed84 unchanged
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.
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, 2024.
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 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 2024 and 2023 claim count and payment amount information for workers’ compensation.
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.
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, Southern and Southwestern states. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.
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.
Our insurance subsidiaries do not discount their liabilities for losses and loss expenses. -45- 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 calculate our statutory combined ratio as the sum of: • the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums earned; • the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written; and • the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.
We calculate our statutory combined ratio as the sum of: -51- Index • the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums earned; • the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written; and • the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.
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%.
At December 31, 2024, 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%.
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.
This ownership provides Donegal Mutual with approximately 70% 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.
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.
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.
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.
The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies. At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock.
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.
We did not purchase any shares of our Class A common stock under this program during 2024 or 2023. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through December 31, 2024.
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 amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements, including the RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2024.
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.
Impact of New Accounting Standards In September 2016, the Financial Accounting Standards Board (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.
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.
In addition, the COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates.
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 and cost of skilled labor, the rate of specialized plaintiff attorney involvement in claims, plaintiff attorney utilization of litigation financing and the cost of medical technologies and procedures.
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.
For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.0 million.
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
Off-Balance Sheet Arrangements As of December 31, 2024 and 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K. -59- Index
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.
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 decrease in our combined ratio primarily to the decreases in the loss and expense ratios.
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.
For the Year Ended December 31, (dollars in thousands) 2024 2023 Number of claims pending, beginning of period 3,144 3,366 Number of claims reported 5,066 5,928 Number of claims settled or dismissed 5,378 6,150 Number of claims pending, end of period 2,832 3,144 Losses paid $ 54,597 $ 54,336 Loss expenses paid $ 10,953 $ 12,292 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 2025 and beyond.
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 fixed maturity investments consisted of high-quality marketable bonds, of which 95.6% and 95.2% were rated at investment-grade levels at December 31, 2024 and 2023, respectively. At December 31, 2024, the net unrealized loss on our available-for-sale fixed maturity investments, net of deferred taxes, amounted to $27.4 million, compared to $31.9 million at December 31, 2023.
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.
These trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern of future loss settlements.
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.
Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $15.0 million, $16.7 million and $44.8 million in 2024, 2023 and 2022, respectively.
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.
The following table presents comparative details with respect to our GAAP and statutory combined ratios for the years ended December 31, 2024, 2023 and 2022: Year Ended December 31, 2024 2023 2022 GAAP Combined Ratios (Total Lines) Loss ratio - core losses 54.0 % 57.5 % 59.8 % Loss ratio - weather-related losses 7.2 8.3 7.7 Loss ratio - large fire losses 4.9 5.2 6.5 Loss ratio - net prior-year reserve development -1.6 -1.9 -5.4 Loss ratio 64.5 69.1 68.6 Expense ratio 33.7 34.7 34.1 Dividend ratio 0.4 0.6 0.6 Combined ratio 98.6 % 104.4 % 103.3 % Statutory Combined Ratios Commercial lines: Automobile 102.6 % 97.3 % 98.0 % Workers’ compensation 104.4 96.6 97.3 Commercial multi-peril 95.0 112.3 116.9 Other 80.0 85.5 80.8 Total commercial lines 98.2 101.6 103.7 Personal lines: Automobile 97.4 109.7 103.8 Homeowners 99.6 108.6 111.0 Other 99.5 75.8 52.1 Total personal lines 98.3 108.2 102.8 Total commercial and personal lines 98.3 104.2 103.3 Results of Operations YEAR ENDED DECEMBER 31, 2024 COMPARED TO YEAR ENDED DECEMBER 31, 2023 Net Premiums Earned Our insurance subsidiaries’ net premiums earned increased to $936.7 million for 2024, an increase of $54.6 million, or 6.2%, compared to 2023, primarily reflecting solid premium retention and renewal premium increases.
We had 27.1 million and 25.8 million Class A shares outstanding at December 31, 2022 and 2021, 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.
We had 30.0 million and 27.8 million Class A shares outstanding at December 31, 2024 and 2023, 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.
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.
Such disclosure did not stipulate a maximum number of shares that may be purchased under this program. Donegal Mutual purchased 1,057,282 and 516,620 shares of our Class A common stock during 2024 and 2023, respectively.
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. -46- 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.
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.
The actuaries’ range of estimates for personal lines in 2024 was $139.1 million to $153.0 million, and the actuaries selected a point estimate of $146.2 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.
Because the policies of our insurance subsidiaries renew not less frequently than annually, our insurance subsidiaries have the ability to respond to the impact of changing climate conditions through adjustments to their underwriting standards, pricing, and policy terms and conditions, subject to applicable regulatory approvals.
Because the policies of our insurance subsidiaries renew not less frequently than annually, our insurance subsidiaries have the ability to respond to the impact of changing climate conditions through adjustments to their underwriting standards, pricing, and policy terms and conditions, subject to applicable regulatory approvals. -58- Index Changing climate conditions could lead to new or revised regulations with which our insurance subsidiaries would have to comply.
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.
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.
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.
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, 2024 Percentage Change in Equity at December 31, 2024(1) Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2023 Percentage Change in Equity at December 31, 2023(1) (dollars in thousands) -10.0% $633,928 10.2% $620,229 11.3% -7.5 651,537 7.6 637,457 8.5 -5.0 669,146 5.1 654,686 5.7 -2.5 686,755 2.5 671,914 2.8 Base 704,364 — 689,143 — 2.5 721,973 -2.5 706,372 -2.8 5.0 739,582 -5.1 723,600 -5.7 7.5 757,191 -7.6 740,829 -8.5 10.0 774,800 -10.2 758,057 -11.3 (1) Net of income tax effect. -48- 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.
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.
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. -47- Index Our insurance subsidiaries’ liability for losses and loss expenses by major line of business at December 31, 2024 and 2023 consisted of the following: 2024 2023 (in thousands) Commercial lines: Automobile $ 180,757 $ 168,749 Workers’ compensation 129,406 122,473 Commercial multi-peril 208,676 217,292 Other 39,336 27,167 Total commercial lines 558,175 535,681 Personal lines: Automobile 116,693 112,509 Homeowners 26,591 28,001 Other 2,905 12,952 Total personal lines 146,189 153,462 Total commercial and personal lines 704,364 689,143 Plus reinsurance recoverable 416,621 437,014 Total liability for losses and loss expenses $ 1,120,985 $ 1,126,157 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.
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.
Donegal Mutual did not purchase any shares of our Class B common stock during 2024 or 2023. -44- Index 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.
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.
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.
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.
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.
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.
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. -49- Index We use the following financial data to monitor and evaluate our operating results: Year Ended December 31, (in thousands) 2024 2023 2022 Net premiums written: Commercial lines: Automobile $ 184,989 $ 174,741 $ 167,774 Workers’ compensation 103,533 107,598 111,892 Commercial multi-peril 213,959 195,632 200,045 Other 45,439 50,458 51,135 Total commercial lines 547,920 528,429 530,846 Personal lines: Automobile 243,036 215,957 181,129 Homeowners 140,613 139,688 120,087 Other 10,712 11,623 11,468 Total personal lines 394,361 367,268 312,684 Total net premiums written $ 942,281 $ 895,697 $ 843,530 Components of combined ratio: Loss ratio 64.5 % 69.1 % 68.6 % Expense ratio 33.7 34.7 34.1 Dividend ratio 0.4 0.6 0.6 Combined ratio 98.6 % 104.4 % 103.3 % Revenues: Net premiums earned: Commercial lines $ 539,683 $ 533,029 $ 521,227 Personal lines 396,968 349,042 301,263 Total net premiums earned 936,651 882,071 822,490 Net investment income 44,918 40,853 34,016 Investment gains (losses) 4,981 3,173 (10,185 ) Other 3,055 1,241 1,900 Total revenues $ 989,605 $ 927,338 $ 848,221 Year Ended December 31, (in thousands) 2024 2023 2022 Components of net income (loss): Underwriting income (loss): Commercial lines $ 5,826 $ (6,998 ) $ (22,665 ) Personal lines 5,739 (35,118 ) (13,506 ) SAP underwriting income (loss) 11,565 (42,116 ) (36,171 ) GAAP adjustments 1,331 3,735 8,667 GAAP underwriting income (loss) 12,896 (38,381 ) (27,504 ) Net investment income 44,918 40,853 34,016 Investment gains (losses) 4,981 3,173 (10,185 ) Other (456 ) (582 ) 35 Income (loss) before income tax expense (benefit) 62,339 5,063 (3,638 ) Income tax expense (benefit) 11,477 637 (1,679 ) Net income (loss) $ 50,862 $ 4,426 $ (1,959 ) -50- Index Non-GAAP Information We prepare our consolidated financial statements on the basis of GAAP.
The favorable loss reserve development in 2022 resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022.
The favorable loss reserve development in 2024 resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024.
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.
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 98.6% and 104.4% for 2024 and 2023, respectively.
The 2021 development represented 5.6% of the December 31, 2020 net carried reserves and 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 2024 development represented 2.2% of the December 31, 2023 net carried reserves and resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024.
We attribute the increase in commercial lines net premiums written primarily to modest new business writings, strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition in regions we have targeted for profit improvement. Personal lines net premiums written increased $21.3 million, or 7.0%, for 2022 compared to 2021.
We attribute the increase in commercial lines net premiums written primarily to strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition in states we exited or classes of business we have targeted for profit improvement.
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.
However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as increased property and automobile repair and replacement costs, rising medical loss costs and increased litigation trends and lengthening of repair completion times for property and automobile claims.
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.
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.
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.
Our insurance subsidiaries experienced favorable loss reserve development of approximately $44.8 million, or 5.4 percentage points of the loss ratio, during 2022 in their reserves for prior accident years, compared to approximately $31.2 million, or 4.0 percentage points of the loss ratio, during 2021.
Our insurance subsidiaries experienced favorable loss reserve development of approximately $15.0 million, or 1.6 percentage points of the loss ratio, during 2024 in their reserves for prior accident years, compared to approximately $16.7 million, or 1.9 percentage points of the loss ratio, during 2023.
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.
December 31, 2024 2023 Percent of Percent of (dollars in thousands) Amount Total Amount Total Fixed maturities: Total held to maturity $ 705,714 51.0 % $ 679,497 51.2 % Total available for sale 617,892 44.6 589,348 44.4 Total fixed maturities 1,323,606 95.6 1,268,845 95.6 Equity securities 36,808 2.6 25,903 2.0 Short-term investments 24,558 1.8 32,306 2.4 Total investments $ 1,384,972 100.0 % $ 1,327,054 100.0 % The carrying value of our fixed maturity investments represented 95.6% of our total invested assets at December 31, 2024 and 2023.
Atlantic States’ participation in the pool with Donegal Mutual exposes Atlantic States to adverse loss development on the business of Donegal Mutual that the pool includes. However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk development relating to the pooled business.
However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk development relating to the pooled business. The business in the underwriting pool is homogeneous and each company has a pro-rata share of the entire underwriting pool.
Weather-related losses of $63.5 million, or 7.7 percentage points of the loss ratio, for 2022 increased from $45.3 million, or 5.8 percentage points of the loss ratio, for 2021, with the increase primarily impacting the commercial multi-peril line of business.
Weather-related losses of $67.7 million, or 7.2 percentage points of the loss ratio, for 2024 increased from $72.9 million, or 8.3 percentage points of the loss ratio, for 2023, with the decrease primarily impacting the commercial multi-peril and homeowners lines of business.
Financial Condition Liquidity and Capital Resources Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as they arise. Our major sources of funds from operations are the net cash flows generated from our insurance subsidiaries’ underwriting results, investment income and maturing investments.
Financial Condition Liquidity and Capital Resources Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as they arise.
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.
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. 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.
Our insurance subsidiaries could have to make further adjustments to their estimates in the future.
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.
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.
For the year ended December 31, 2024, the actuaries developed a range from a low of $672.1 million to a high of $740.4 million and selected a point estimate of $704.4 million. The actuaries’ range of estimates for commercial lines in 2024 was $533.0 million to $587.5 million, and the actuaries selected a point estimate of $558.2 million.
We structure our fixed-maturity investment portfolio following a “laddering” approach so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective. This laddering approach provides an additional measure of liquidity to meet our obligations and the obligations of our insurance subsidiaries should an unexpected variation occur in the future.
We maintain a high degree of liquidity in our investment portfolio in the form of marketable fixed maturities, equity securities and short-term investments. We structure our fixed-maturity investment portfolio following a “laddering” approach so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective.
Net (Loss) Income and (Loss) Earnings Per Share Our net loss for 2022 was $2.0 million, or $.06 per share of Class A common stock and $.07 per share of Class B common stock, compared to net income for 2021 of $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.
Net Income and Earnings Per Share Our net income for 2024 was $50.9 million, or $1.53 per share of Class A common stock on a diluted basis and $1.38 per share of Class B common stock, compared to $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, for 2023.
We have historically generated sufficient net positive cash flow from our operations to fund our commitments and build our investment portfolio, thereby increasing future investment returns. The pooling agreement with Donegal Mutual historically has been cash flow positive because of the profitability of the underwriting pool.
Our major sources of funds from operations are the net cash flows generated from our insurance subsidiaries’ underwriting results, investment income and maturing investments. -56- Index We have historically generated sufficient net positive cash flow from our operations to fund our commitments and build our investment portfolio, thereby increasing future investment returns.
Large fire losses, which we define as individual fire losses in excess of $50,000, were $53.5 million, or 6.5 percentage points of the loss ratio, for 2022, compared to $45.6 million, or 5.9 percentage points of the loss ratio, for 2021.
Large fire losses, which we define as individual fire losses in excess of $50,000, were $45.8 million, or 4.9 percentage points of the loss ratio, for 2024, compared to $45.4 million, or 5.2 percentage points of the loss ratio, for 2023. -53- Index Underwriting Expenses Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to premiums earned, was 33.7% for 2024, compared to 34.7% for 2023.
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.
At December 31, 2024, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 3.806% and is due in September 2026. We discuss in Note 9 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities.
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.
Amounts available for distribution to us as dividends from our insurance subsidiaries without prior approval of insurance regulatory authorities in 2025 are approximately $40.7 million from Atlantic States, $7.8 million from MICO and $4.7 million from Peninsula, or a total of approximately $53.3 million. -57- Index Investments At December 31, 2024 and 2023, our investment portfolio of primarily investment-grade bonds, common stock, short-term investments and cash totaled $1.4 billion and $1.3 billion, respectively, representing 61.6% and 58.6%, respectively, of our total assets.
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.
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, which is a significant source of cash for payment of stockholder dividends by us.
Net Premiums Written Our insurance subsidiaries’ 2022 net premiums written increased 4.9% to $843.5 million, compared to $804.3 million for 2021. Commercial lines net premiums written increased $18.0 million, or 3.6%, for 2022 compared to 2021.
Commercial lines net premiums written increased $19.5 million, or 3.7%, for 2024 compared to 2023.
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.
Losses and Loss Expenses Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 64.5% for 2024, compared to 69.1% for 2023. Our insurance subsidiaries’ commercial lines loss ratio decreased to 62.0% for 2024, compared to 64.8% for 2023.
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.
Interest Expense Our interest expense for 2024 increased to $946,020, compared to $619,813 for 2023. We attribute the increase to higher interest rates on borrowings under our lines of credit during 2024 compared to 2023. Income Taxes Our income tax expense was $11.5 million for 2024, compared to $637,972 for 2023.
Because we settle the pool monthly, our cash flows are substantially similar to the cash flows that would result from the underwriting of direct business. We maintain a high degree of liquidity in our investment portfolio in the form of marketable fixed maturities, equity securities and short-term investments.
The pooling agreement with Donegal Mutual historically has been cash flow positive because of the profitability of the underwriting pool. Because we settle the pool monthly, our cash flows are substantially similar to the cash flows that would result from the underwriting of direct business.
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.
These impacts were offset partially by an increase in underwriting-based incentive costs as well as higher technology systems-related expenses that were primarily due to increased costs related to our ongoing systems modernization project, a portion of which Donegal Mutual Insurance Company allocates to our insurance subsidiaries.
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.
Personal lines net premiums written increased $27.1 million, or 7.4%, for 2024 compared to 2023. We attribute the increase in personal lines net premiums written primarily to renewal premium rate increases and solid policy retention, offset partially by planned attrition due to non-renewal actions and lower new business writings.
Net cash flows provided by operating activities in 2023, 2022 and 2021 were $28.6 million, $67.1 million and $76.7 million, respectively. The decrease in net cash flows provided by operating activities for 2023 was primarily related to higher cash outflows for claim payments compared to 2022 and 2021.
This laddering approach provides an additional measure of liquidity to meet our obligations and the obligations of our insurance subsidiaries should an unexpected variation occur in the future. Net cash flows provided by operating activities in 2024, 2023 and 2022 were $67.4 million, $28.6 million and $67.1 million, respectively.
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.
The commercial automobile loss ratio increased to 68.5% for 2024, compared to 63.0% for 2023. The workers’ compensation loss ratio increased to 67.7% for 2024, compared to 59.0% for 2023. The personal lines loss ratio decreased to 68.0% for 2024, compared to 75.6% for 2023, due primarily to increases in net premiums earned related to premium rate increases.
Therefore, the underwriting profitability of the business the individual companies write directly will vary.
Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally allow the individual companies to manage certain risk segments through variations in coverage, terms and pricing. Therefore, the underwriting profitability of the business the individual companies write directly will vary.
Our effective tax rate for 2021 was 16.8%.
Our effective tax rate for 2024 and 2023 was 18.4% and 12.6%, respectively.
Removed
Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier products compared to standard tier products, but we do not allocate all of the standard risk gradients to one company.
Added
The majority of the 2024 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.
Removed
Donegal Mutual completed the merger of Mountain States Mutual Casualty Company, or Mountain States, with and into Donegal Mutual effective May 25, 2017.
Added
The following table provides a reconciliation of our net premiums earned to our net premiums written for 2024: (in thousands) Commercial Lines Personal Lines Total Net premiums earned $ 539,683 $ 396,968 $ 936,651 Change in net unearned premiums 8,237 (2,607 ) 5,630 Net premiums written $ 547,920 $ 394,361 $ 942,281 The following table provides a reconciliation of our net premiums earned to our net premiums written for 2023: (in thousands) Commercial Lines Personal Lines Total Net premiums earned $ 533,029 $ 349,042 $ 882,071 Change in net unearned premiums (4,600 ) 18,226 13,626 Net premiums written $ 528,429 $ 367,268 $ 895,697 The following table provides a reconciliation of our net premiums earned to our net premiums written for 2022: (in thousands) Commercial Lines Personal Lines Total Net premiums earned $ 521,227 $ 301,263 $ 822,490 Change in net unearned premiums 9,619 11,421 21,040 Net premiums written $ 530,846 $ 312,684 $ 843,530 Statutory Combined Ratio The combined ratio is a standard measurement of underwriting profitability for an insurance company.
Removed
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.
Added
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.
Removed
Upon completion of the merger, Donegal Mutual assumed all of the policy obligations of Mountain States and began to market its products together with the Mountain States insurance subsidiaries as the Mountain States Insurance Group in four Southwestern states. Donegal Mutual also entered into a 100% quota-share reinsurance agreement with the Mountain States insurance subsidiaries on the merger date.
Added
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. -52- Index Net Premiums Written Our insurance subsidiaries’ 2024 net premiums written increased 5.2% to $942.3 million, compared to $895.7 million for 2023.
Removed
The business in the pool is homogeneous and each company has a pro-rata share of the entire pool.
Added
Investment Income For 2024, our net investment income increased 10.0% to $44.9 million, compared to $40.9 million for 2023, due primarily to higher average reinvestment yields and higher average invested assets for 2024 compared to 2023. Net Investment Gains Our net investment gains for 2024 were $5.0 million, compared to $3.2 million for 2023.
Removed
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.
Added
The net investment gains for 2024 and 2023 were primarily related to increases in the market value of the equity securities held at the end of the respective periods. We did not recognize any impairment losses during 2024 or 2023.
Removed
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.
Added
This decrease resulted primarily from the commercial multi-peril loss ratio decreasing to 57.5% for 2024, compared to 73.1% for 2023, primarily due to a decrease in severity of non-weather claims, offset partially by increases in the commercial automobile and workers’ compensation loss ratios due primarily to increases in loss emergence for prior accident years.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+0 added−0 removed9 unchanged
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
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. -61- Index
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.
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. -60- Index Principal cash flows and related weighted-average interest rates by stated maturity dates for the financial instruments we held at December 31, 2024 that are sensitive to interest rates are as follows: (in thousands) Principal Cash Flows Weighted- Average Interest Rate Fixed-maturity and short-term investments: 2025 $ 82,064 4.18 % 2026 65,538 3.93 2027 73,054 3.92 2028 84,203 4.27 2029 88,485 3.78 Thereafter 998,456 3.52 Total $ 1,391,800 Fair value $ 1,274,020 Debt: 2026 $ 35,000 3.81 % 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.

Other DGICA 10-K year-over-year comparisons