Donegal Group (DGICA) Tops Q2 EPS by 35c

Donegal Group (NASDAQ: DGICA) reported Q2 EPS of $0.61, $0.35 better than the analyst estimate of $0.26.

Significant items include:

• Net income of $22.7 million, or 79 cents per diluted Class A share, for the second quarter of 2020, compared to $4.8 million, or 17 cents per diluted Class A share, for the second quarter of 2019
• Net income of $26.4 million, or 92 cents per diluted Class A share, for the first six months of 2020, compared to $27.8 million, or 99 cents per diluted Class A share, for the first six months of 2019
• Net investment gains of $6.5 million for the second quarter of 2020, primarily related to unrealized gains in the fair value of equity securities held at June 30, 2020, compared to net investment gains of $1.6 million for the second quarter of 2019
• Net premiums earned of $184.4 million for the second quarter of 2020 decreased 2.3% compared to the second quarter of 2019
• Net premiums written1 of $193.7 million for the second quarter of 2020 decreased 2.1% compared to the second quarter of 2019
• Combined ratio of 92.3% for the second quarter of 2020, compared to 102.0% for the second quarter of 2019
• Book value per share of $16.77 at June 30, 2020, compared to $15.67 at year-end 2019

Management Commentary

Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc., noted, “I want to first thank all of the dedicated employees at Donegal who have shown amazing resilience and maintained an outstanding level of professionalism in serving our agents and policyholders as we continue to navigate through unprecedented challenges the COVID-19 pandemic has presented to all of us. Over 90 percent of our team members began working from home in late March, and I am pleased that we have been successful in maintaining our core operations and essential functions. Our relationships with our independent agents are the cornerstone of our business. We quickly adapted to ensure our ability to meet the needs of our agents and policyholders, and we look forward to the time when we can resume personal interactions to further enhance those relationships. While much uncertainty remains with respect to the ultimate impact of the pandemic on our business, our agents are providing a steady flow of new commercial business accounts and we do not currently anticipate significant insured losses directly related to COVID-19. We are proactively addressing challenges as they arise and believe that the positive momentum we gained in 2019 and the first half of 2020 will help carry us through the remainder of 2020 and beyond.”

Mr. Burke continued, “Net income for the second quarter of 2020 represented a continuation of the solid underwriting performance we reported in the first quarter, with the 92.3% combined ratio for the second quarter of 2020 comparing favorably to the 102.0% combined ratio for the prior-year quarter and 97.0% for the first quarter of 2020. Our commercial lines segment continued to operate at a profitable level, with a statutory combined ratio1 of 93.5% for the second quarter of 2020. Our personal lines segment generated a statutory combined ratio of 88.1% for the second quarter of 2020, which was a significant improvement from 108.5% for the prior-year quarter. More specifically, the statutory combined ratio for our personal automobile line of business improved from 107.2% in the prior-year quarter to 76.1% for the second quarter of 2020, primarily reflecting a marked reduction in personal auto claim frequency that resulted from lower driving activity in April and May of 2020. Personal automobile claim counts trended higher as driving activity returned to higher levels during the month of June, and we do not expect the favorable automobile loss experience to carry into the third quarter. In addition to the favorable underwriting performance, the market value of our equity securities improved during the second quarter of 2020, driving net investment gains of $6.5 million, compared to $1.6 million in the prior-year quarter.”

Jeffrey D. Miller, Executive Vice President and Chief Financial Officer of Donegal Group Inc., commented on the second quarter results, “Net premiums written continued to be characterized by an increase in commercial lines activity and a decline in personal lines activity. Overall net premiums written declined slightly as an 8.7% reduction in personal lines net premiums written offset 4.0% growth in commercial lines net premiums written. The loss ratio was 57.1% for the second quarter of 2020, compared to 69.7% for the prior-year quarter, with the decrease largely due to lower frequency of automobile claims. The expense ratio for the second quarter of 2020 increased to 34.3% from 31.3%, due primarily to our establishment during the second quarter of 2020 of $1.6 million in reserves for potential credit losses related to uncollectible premiums due to the effect of COVID-19 economic disruption. The expense ratio also reflected an increase in technology systems-related expenses, higher commercial growth-based incentive costs for our agents and increased underwriting-based incentive costs for our agents and employees.”

Mr. Burke concluded, “Our net income along with unrealized gains within our available-for-sale fixed-maturity portfolio related to a decline in market interest rates during the first half of 2020 contributed to an increase in our book value per share to $16.77 at June 30, 2020, which represented a 7.0% increase compared to our book value per share of $15.67 at December 31, 2019.”

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

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