Donegal Group (DGICA) Misses Q1 EPS by 6c

Donegal Group (NASDAQ: DGICA) reported Q1 EPS of $0.29, $0.06 worse than the analyst estimate of $0.35. Revenue for the quarter came in at $197.97 million versus the consensus estimate of $196.07 million.

Management Commentary

Overview

Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc., noted, “Donegal Group achieved solid first quarter results despite elevated fire losses that primarily impacted the loss ratio for our commercial multi-peril line of business. We achieved significant increases in net income, earnings per share and annualized return on average equity, which included a mark-to-market shift from a substantial net investment loss for the prior-year quarter to a net investment gain on equity securities we held at March 31, 2021. We continued to execute our strategy of promoting our strong regional market presence, and we remain focused on bottom-line performance.”

Mr. Burke continued, “Donegal Group achieved net premiums written growth of 8.9% during the first quarter of 2021, with 18.7% growth in our commercial lines business segment, compared to the prior-year quarter. We began to include commercial premiums from four Southwestern states in our consolidated revenues for 2021. As we announced previously, Atlantic States Insurance Company, our insurance subsidiary, began to receive an 80% allocation of the underwriting results of the Mountain States Insurance Group, which became part of the Donegal Insurance Group through a Donegal Mutual Insurance Company acquisition in 2017. In addition, we benefitted from a combination of commercial market share gains as well as renewal premium increases due to a favorable rate environment. We have continued to emphasize profitability over growth in our personal lines segment, but we look forward to launching new personal lines products beginning in the second half of 2021 that we believe will provide us increased opportunities to obtain profitable new business in that segment.”

Jeffrey D. Miller, Executive Vice President and Chief Financial Officer of Donegal Group Inc., commented on the first quarter results, “Our insurance subsidiaries achieved a combined ratio of 98.5% for the first quarter of 2021, reflecting a 1.5 percentage point increase over the combined ratio for the prior-year quarter. While below-average weather-related losses were comparable to the prior period, higher-than-normal large fire losses adversely impacted our commercial multi-peril results. We attribute the increase in commercial fires primarily to additional stress placed on heating and electrical systems during cold weather conditions during the quarter. We were pleased that our insurance subsidiaries experienced favorable prior-year loss reserve development in all lines of business for the first quarter of 2021. The expense ratio was slightly elevated due primarily to commercial lines growth incentives and anticipated underwriting-based incentives for our agents. Our expense ratio also reflected the amortization of certain costs related to various technology enhancements, including the replacement of our remaining legacy systems, that will support additional growth opportunities and enhance our ability to make advancements in underwriting, data analytics and operational capabilities over the next few years.”

Mr. Burke concluded, “Donegal Group remains committed to expanding market share within our regional markets, adhering to sound underwriting discipline and working closely with our independent agents to deliver best-in-class customer service. We believe that this strategy will help us to enhance our profitability and grow our book value over time. Our net income, partially offset by unrealized losses within our available-for-sale fixed-maturity portfolio due to an increase in market interest rates during the first quarter of 2021, contributed to an increase in our book value to $17.29 at March 31, 2021, compared to $17.13 at December 31, 2020.”

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

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