Donegal Group Posts Q4 Loss, Decline in Full Year Income

February 26, 2002

Donegal Group Inc. of Marietta Pa. reported an operating loss for the fourth quarter of 2001 of $572,172, or $.06 per share on a diluted basis, and operating income of $6,399,099, or $.70 per share on a diluted basis, for the year ended December 31, 2001.

“Operating results in the fourth quarter were impacted by the previously announced reserve strengthening of approximately $4.2 million, or $.30 per diluted share, and the charges related to guaranty fund assessments of approximately $543,000 before the income taxes, or $.04 per diluted share after taxes, resulting from the insolvency of Reliance Insurance Company,” said Donegal’s announcement.

The results were sharply down from 2000, when the company posted net operating income of $2,784,194, and $8,724,018, or $1.00 per share on a diluted basis for the full year.

Donegal’s net figures suffered from the same series of catastrophic events as most others in the industry, but overall the company achieved significant growth last year. The report noted that “Revenues excluding realized gains and losses for the year ended December 31, 2001 were $186,043,877 compared to $170,041,735 for 2000. Revenues excluding realized gains and losses were $47,940,434 for the fourth quarter of 2001, an increase of 6.7% compared to the fourth quarter of 2000. Net premiums earned increased $3,516,898, or 8.8% to $43,478,259 in the fourth quarter of 2001 compared to the fourth quarter of 2000. Net premiums written of the insurance subsidiaries increased 17.2% in the fourth quarter of 2001 compared to the fourth quarter of 2000.”

As premiums continue to increase, Donegal indicated that personal lines had gone up on average 5 to 8 percent, and certain commercial lines had risen by almost 20 percent. President and CEO Donald H. Nikolaus commented that, “The Company’s primary goal is to return to underwriting profitability in 2002 and premium and rate increases are an essential component of that effort. We believe that the hardening of rates in the current market place, as well as the potential consolidation taking place in the industry, offer tremendous opportunity for strong regional companies like Donegal.”

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