Donegal Group Inc. Announces Preliminary Results for 2018 Fourth Quarter and Highlights Changes to 2019 Reinsurance Program
February 08 2019 - 8:00AM
Donegal Group Inc. (NASDAQ:DGICA) and (NASDAQ:DGICB) today
announced preliminary results of operations for the fourth quarter
of 2018, which reflected net investment losses on equity securities
and the impact of weather-related losses that exceeded its previous
five-year average for fourth quarter weather-related losses.
The Company also announced changes to its
reinsurance program for 2019, which includes agreements that the
Company’s insurance subsidiaries and Donegal Mutual Insurance
Company (“Donegal Mutual”) implemented on a combined basis with
third-party reinsurers and an underlying property catastrophe
excess of loss agreement whereby Donegal Mutual provides additional
coverage to each of the Company’s insurance subsidiaries.
Fourth Quarter of 2018 Preliminary Results
During the fourth quarter of 2018, the Company
incurred weather-related losses of approximately $12.5 million,
including approximately $4.1 million of losses from Hurricane
Michael. This total was considerably higher than the Company’s
previous five-year average for fourth quarter weather-related
losses of $5.2 million.
In addition to the weather-related losses, the
Company experienced a continuation of higher loss severity trends
in its personal and commercial automobile lines of business. In
light of these trends and a continuing deceleration of claims
closure rates across its casualty lines of business, the Company
increased its expectations of the ultimate losses it will incur for
the 2018 accident year. As a refinement to its reserve
strengthening actions during the first nine months of 2018, the
Company also added approximately $6.5 million to its loss and loss
expense reserves for personal and commercial automobile losses in
accident years prior to 2018. As a result of the increased claim
activity, the Company currently expects to report a combined ratio
between 110.0% and 111.0% for the fourth quarter of 2018.
The Company expects to report after-tax net
investment losses for the fourth quarter of 2018 of approximately
$6.9 million, or 25 cents per Class A share, primarily related to a
mark-to-market adjustment for the decrease in the market value of
the equity securities the Company held at December 31, 2018.
As a result of this claim activity and the net
investment losses, the Company expects to report a fourth quarter
net loss between 53 cents and 55 cents per Class A share when it
releases its results for the quarter and full year ended December
31, 2018 after the closing of regular trading on the NASDAQ Stock
Market on February 19, 2019.
The Company will provide further details with respect to the
quarterly claims activity and results of operations in its earnings
conference call and webcast scheduled for February 20, 2019 at
11:00 AM Eastern Time.
Reinsurance Program Changes for 2019
The Company also announced that Donegal Mutual
and the Company’s insurance subsidiaries implemented a combined
third-party reinsurance program effective January 1, 2019. The
coverage and parameters of the fully consolidated program are
common to all insurance companies within the Donegal Insurance
Group.
Based on modeling procedures and back-testing
against historical results, Donegal Mutual and the Company expect
the new program to outperform expiring reinsurance programs in
terms of managing volatility and preserving capital.
Significant components of the program
include:
- Excess of loss reinsurance contracts, which provide coverage
for losses over a retention of $1.0 million for property losses and
a retention of $2.0 million for casualty losses (including workers’
compensation losses).
- Property catastrophe excess of loss reinsurance contracts,
which provide coverage for an accumulation of losses resulting from
a single event over a retention of $10.0 million.
In addition to the abovementioned third-party
reinsurance, Donegal Mutual and each of the Company’s insurance
subsidiaries entered into a property catastrophe excess of loss
reinsurance agreement, whereby Donegal Mutual provides to each of
the Company’s insurance subsidiaries coverage of up to $8.0 million
for an accumulation of losses resulting from a single event over a
retention of $2.0 million. This agreement also provides
additional coverage for an accumulation of losses from a single
event involving a combination of the Company’s insurance
subsidiaries over a combined retention of $5.0 million. Donegal
Mutual and the Company’s participating insurance subsidiaries made
no changes to the pooling agreement or quota-share reinsurance
agreements previously in place between those companies.
While the Company projects an overall decrease
of more than $25.0 million in total reinsurance premiums for 2019
compared to 2018, the ultimate net benefit or cost of the
restructured program is dependent upon the incidence of large loss
activity and the occurrence of catastrophe events that may impact
the Company’s insurance subsidiaries during 2019.
About the Company
Donegal Group is an insurance holding company.
The Company’s Class A common stock and Class B common stock trade
on the NASDAQ Global Select Market under the symbols DGICA and
DGICB, respectively. The Company continues to seek opportunities
for growth while striving to achieve its longstanding goal of
outperforming the property and casualty insurance industry in terms
of service, profitability and book value growth.
Safe Harbor
We base all statements contained in this release
that are not historic facts on our current expectations. These
statements are forward-looking in nature (as defined in the Private
Securities Litigation Reform Act of 1995) and involve a number of
risks and uncertainties. Actual results could vary materially.
Factors that could cause actual results to vary materially include:
adverse and catastrophic weather events, large loss activity, our
ability to maintain profitable operations, the adequacy of the loss
and loss expense reserves of our insurance subsidiaries, business
and economic conditions in the areas in which our insurance
subsidiaries operate, interest rates, competition from various
insurance and other financial businesses, terrorism, the
availability and cost of reinsurance, legal and judicial
developments, changes in regulatory requirements, our ability to
integrate and manage successfully the insurance companies we may
acquire from time to time and other risks we describe in the
periodic reports we file with the Securities and Exchange
Commission. You should not place undue reliance on any such
forward-looking statements. We disclaim any obligation to update
such statements or to announce publicly the results of any
revisions that we may make to any forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
For Further Information: Jeffrey D. Miller,
Executive Vice President and Chief Financial OfficerPhone: (717)
426-1931E-mail: investors@donegalgroup.com
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