Donegal Group (DGICA) Tops Q4 EPS by 17c, Revenues Beat

Donegal Group (NASDAQ: DGICA) reported Q4 EPS of $0.42, $0.17 better than the analyst estimate of $0.25. Revenue for the quarter came in at $200.94 million versus the consensus estimate of $197 million.

Fourth Quarter of 2019:

• Net income was $14.2 million, or 50 cents per diluted Class A share, for the fourth quarter of 2019, compared to a net loss of $15.0 million, or 54 cents per Class A share, for the fourth quarter of 2018
• Combined ratio of 96.1% for the fourth quarter of 2019, compared to 110.5% for the prior-year fourth quarter
• Net premiums earned of $189.4 million for the fourth quarter of 2019 increased 1.8% compared to the fourth quarter of 2018, including a 16.1% increase in commercial lines net premiums earned
• Net premiums written1 of $171.0 million for the fourth quarter of 2019 increased 1.6% compared to the fourth quarter of 2018 primarily as a result of commercial lines organic growth and lower reinsurance premiums, partially offset by reductions in personal lines net premiums written
• Net income for the fourth quarter of 2019 included after-tax net investment gains of $2.1 million, or 8 cents per diluted Class A share, compared to after-tax net investment losses of $6.9 million, or 25 cents per Class A share, primarily related to the quarterly change in the fair value of the equity securities held at December 31, 2019 and 2018, respectively

Management Commentary

Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc., stated, “We finished 2019 with favorable results, as Donegal Group generated net income of $0.50 per diluted Class A share for the fourth quarter of 2019, a significant improvement compared to the net loss for the comparable period in 2018. For the full year of 2019, Donegal Group generated net income of $1.67 per diluted Class A share, which indicates the solid progress we have made toward optimizing our mix of business, addressing the root causes of profitability challenges we experienced in recent years and laying a strong foundation for future growth.”

Mr. Burke continued, “Net premiums written for our commercial lines business segment grew 14.3% in the fourth quarter of 2019 and 13.4% for the full year of 2019 compared to the respective prior-year periods, which we attribute primarily to a combination of new business writings, renewal pricing increases and lower reinsurance premiums. We continue to emphasize our value commitment to our independent agents, and we greatly appreciate the commitment of our agents to growing with us. The pricing environment in our commercial segment has been stable, with premium increases in commercial multi-peril and commercial automobile partially offset by premium rate decreases in workers’ compensation for the fourth quarter and full year of 2019.

“We continue to manage our personal lines business with an emphasis on restoring profitability. Our personal lines net premiums written decreased 10.3% during the fourth quarter of 2019 and 10.1% for the full year of 2019 compared to the respective prior-year periods as a result of slower new policy growth and higher-than-planned attrition throughout 2019. Our personal lines results began to show clear signs of improvement as a result of increased earned premium from rate increases and lower reinsurance premiums throughout 2019. We will be working to stabilize this segment in 2020, as we endeavor to increase new business and policy retention rates over 2019 levels. We expect to implement modest rate increases in 2020 to maintain the level of rate adequacy we worked diligently to restore over the past eighteen months. Overall, we are pleased with the shift in our business mix toward a greater percentage of commercial lines premium writings in 2019, and we continue to strive for a profitable balance of commercial and personal lines business.”

Jeffrey D. Miller, Executive Vice President and Chief Financial Officer, commented, “Our commercial lines insurance segment generated a statutory combined ratio1 of 92.7% for the fourth quarter of 2019, primarily due to a favorable 59.8% loss ratio that reflected relatively mild weather conditions, net favorable prior-year reserve development and lower frequency and severity of casualty losses. Similarly, the commercial lines statutory combined ratio of 95.0% for the full year of 2019 benefited from a lower level of weather-related losses that was closer to our historical average, favorable workers’ compensation loss trends and net favorable prior-year reserve development. Our personal lines statutory combined ratio improved to 100.3% for the fourth quarter of 2019, compared to 118.9% for the prior-year quarter, reflecting lower weather-related loss impact and an improved personal auto loss ratio. Likewise, our personal lines statutory combined ratio improved to 102.6% for the full year of 2019, compared to 114.4% for 2018. We remain focused on strategic and tactical initiatives to deliver solid profitability over time.”

Mr. Burke concluded, “Our net income for 2019, which included a gain on the March 2019 sale of Donegal Financial Services Corporation, and unrealized gains within our available-for-sale fixed-maturity portfolio during the year contributed to an increase in our book value to $15.67 at December 31, 2019, compared to $14.05 at December 31, 2018. We remain committed to our goal of generating consistent favorable results to fund dividends to our stockholders and increase our book value over time.”

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

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