Donegal Group Inc. (NASDAQ:DGICA), a leading property and casualty insurance provider, has reported its second quarter 2024 financial results, showcasing solid top-line growth and continued progress on its expense reduction initiatives.

Financials

For the second quarter of 2024, Donegal Group reported net premiums earned of $234.3 million, an 8.3% increase compared to the prior-year quarter. This top-line growth was driven by strong premium rate increases, which averaged 11% across Donegal Group's commercial and personal lines segments, excluding workers' compensation. Donegal Group's commercial lines segment saw a 7.1% increase in net premiums written during the quarter, while the personal lines segment reported a 12.1% increase.

Donegal Group's focus on profitability improvement is also starting to bear fruit. Donegal Group's combined ratio for the second quarter was 103%, a notable improvement from 104.7% in the prior-year quarter. This was primarily driven by a decline in the expense ratio, which decreased to 31.9% from 34.2% in the second quarter of 2023. Donegal Group's ongoing expense reduction initiatives, including the consolidation of its regional footprint and various operational efficiency measures, have contributed to this favorable trend.

Risks and Challenges

However, the quarter was not without its challenges. Donegal Group's core loss ratio remained flat year-over-year, as the impact of severe weather events, including tornadoes and hail storms, offset improvements in other areas. Weather-related losses accounted for 10.6 percentage points of Donegal Group's loss ratio, up from 9.1 percentage points in the prior-year quarter.

Business Overview

Looking at Donegal Group's business segments in more detail:

Commercial Lines

: Donegal Group's commercial lines segment continued to execute on its strategic initiatives, with net premiums written increasing 7.1% during the quarter. Donegal Group has now largely completed its exit from commercial lines business in Georgia and Alabama, which had been a drag on profitability. Excluding these two states, commercial lines net premiums written grew by 10.4%. Donegal Group's focus on targeted geographic and class of business strategies, as well as various profit improvement initiatives, such as the introduction of Probable Maximum Loss underwriting tools and mandatory wind/hail deductibles, have contributed to this positive momentum.

Personal Lines

: The personal lines segment reported a 12.1% increase in net premiums written, driven by continued aggressive premium rate increases, which averaged 13.4% for personal auto and 16.3% for homeowners. Donegal Group's strategy of actively controlling new business volume has led to a 3.7% decline in policies in force compared to the prior-year quarter, but has also resulted in margin expansion, with the personal lines statutory combined ratio improving to 103.1%.

Investments and Capital Position

: Donegal Group's investment portfolio continues to provide a steady stream of income, with net investment income increasing 9% year-over-year to $11.1 million in the second quarter. Donegal Group has also been selectively increasing its equity allocation, with a 25% increase in its equity position year-to-date. As of June 30, 2024, Donegal Group's book value per share stood at $14.48, up from $14.39 at the end of 2023.

Outlook

Looking ahead, Donegal Group remains focused on executing its strategic initiatives to drive improved profitability. Donegal Group expects its expense reduction efforts to continue to bear fruit, with a target of reducing its expense ratio by one full point in 2024 and two points by the end of 2025. Additionally, Donegal Group is making progress on its systems modernization project, which is expected to enhance its operational efficiency and competitiveness in the long run.

Conclusion

Overall, Donegal Group's second quarter results demonstrate Donegal Group's commitment to improving its financial performance through a combination of top-line growth, expense management, and strategic initiatives. With a strong balance sheet and a focus on disciplined underwriting, Donegal Group appears well-positioned to navigate the challenges of the current market environment and deliver value to its shareholders.