Donegal Group (DGICA) Reports Q4 Loss of $0.30, Revenues Miss

Donegal Group (NASDAQ: DGICA) reported Q4 EPS of ($0.30), versus $0.11 reported last year. Revenue for the quarter came in at $186.81 million versus the consensus estimate of $187.6 million.

• Net loss was $15.0 million, or 54 cents per Class A share, for the fourth quarter of 2018, compared to a net loss of $2.8 million, or 10 cents per Class A share, for the fourth quarter of 2017
• Net loss for the fourth quarter of 2018 included after-tax net investment losses of $6.9 million, or 25 cents per Class A share, primarily related to a decrease in the market value of the equity securities the Company held at December 31, 2018
• Net loss for the fourth quarter of 2018 included approximately $4.1 million of losses incurred from Hurricane Michael, with overall weather-related losses of $12.5 million exceeding the previous five-year average for fourth quarter weather-related losses of $5.2 million
• Net premiums earned of $186.2 million for the fourth quarter of 2018 increased 2.8% compared to the fourth quarter of 2017, including a 6.0% increase in commercial lines premiums earned
• Net premiums written1 of $168.3 million for the fourth quarter of 2018 decreased 1.8% compared to the fourth quarter of 2017 as a result of reductions in personal lines new business premiums and higher reinsurance reinstatement premiums, partially offset by commercial lines organic growth
• Combined ratio of 110.5% for the fourth quarter of 2018, compared to 104.8% for the prior-year fourth quarter
• Income tax expense for the fourth quarter of 2017 included $4.8 million, or 17 cents per Class A share, related to the Company’s revaluation of its net deferred tax assets pursuant to the provisions of the Tax Cuts and Jobs Act (the “TCJA”) that was enacted in December of 2017

Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc., stated, “During the second half of 2018, we focused on driving key initiatives, including gradually shifting our business mix to better-performing commercial lines, preparing to implement new technology throughout our organization and the continuation of actions designed to improve our overall underwriting performance in 2019 and beyond.”

Jeffrey D. Miller, Executive Vice President and Chief Financial Officer, commented, “The fourth quarter of 2018 net loss reflected weather-related losses that were considerably higher than our historical experience for the fourth quarter of the year, as well as net investment losses within our equity portfolio under mark-to-market accounting guidance that became effective in 2018. Our commercial multi-peril and workers’ compensation lines of business performed well during the fourth quarter of 2018, with both lines generating a statutory combined ratio1 in the 85-90% range. Our overall underwriting performance was impacted by weather-related losses that totaled approximately $12.5 million for the fourth quarter of 2018, including $4.1 million of losses from Hurricane Michael in October 2018. That impact primarily affected our homeowners lines of business and represented a substantial increase over the $5.4 million of weather-related losses for the fourth quarter of 2017. While Donegal Group has historically maintained a consistently small percentage of its overall investments in equity securities, we incurred $8.9 million of pre-tax net investment losses due to a general downturn in equity markets during the fourth quarter of 2018.”

Mr. Burke continued, “Over the past year, we continued our efforts to expand our commercial business, and those efforts are gaining traction as higher levels of new business premiums throughout many of our regions demonstrate. Proactive measures to address adverse trends impacting our commercial auto line of business will continue into 2019. In addition to rate increases and definitive underwriting and new business pricing actions in all of our operating regions, we have performed a comprehensive re-underwriting of policy renewals in several underperforming states, primarily based on predictive model scoring of each renewal policy. As account writers, we are committed to taking the necessary actions to improve our commercial automobile profitability over time as a critical component in maintaining the overall profitability of our commercial business segment.”

Mr. Burke concluded, “Our personal lines did not achieve our profitability targets, but we expect our personal lines performance will improve as we gradually shift our geographical exposures throughout 2019. We performed an in-depth evaluation of our personal lines book of business during 2018 and implemented significant rate increases and underwriting refinements throughout our regions. As we announced previously, we decided to enter into a book transfer agreement to facilitate an orderly exit from seven states that accounted for a disproportionate share of our personal lines underwriting losses in recent years and where we did not project acceptable improvement within a reasonable timeframe. The transfer began with policies effective in February 2019, and we expect this action will further accelerate the recovery of our personal lines business.”

For earnings history and earnings-related data on Donegal Group (DGICA) click here.

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