Donegal Group’s Q2 Profit Declines 26% to $1.9M

By Young Ha | July 22, 2014

Donegal Group Inc. in Marietta, Pennsylvania, today reported $1.94 million net income for its 2014 second quarter, a decline of 26 percent from $2.63 million net income posted during the 2013 second quarter.

The insurer said its second quarter earnings were hurt by several severe wind and hail storms in the Mid-Atlantic and Midwest regions that resulted in large volumes of claims.

Donegal Group’s President and CEO Donald H. Nikolaus said the unusually severe May hail storm in eastern Pennsylvania and surrounding areas resulted in the largest financial impact, prior to reinsurance, of any weather event in Donegal’s 125-year history.

Severe weather-related losses had also impacted Donegal Group’s 2014 first quarter, when the insurer recorded $634,000 net loss following severe winter weather events of early 2014.

Donegal Group’s net income for the first six months of 2014 came in at $1.30 million, an 86 percent drop from $9.10 million net income a year ago.

Total net premiums written for the second quarter were $151.44 million, up 7.7 percent from $140.57 million a year ago. (Personal lines net premiums written rose 5.0 percent to $87.75 million, while commercial lines net premiums written rose 11.8 percent to $63.69 million.) The GAAP combined ratio for the second quarter was 104.0 percent, compared to 103.1 percent a year ago.

For the first six months of 2014, the total net premiums came in at $296.02 million, up 8.4 percent from $273.03 million a year ago. (Personal lines net premiums written rose 4.8 percent to $164.99 million, and commercial lines net premiums written rose 13.4 percent to $131.03 million.) The GAAP combined ratio for first six months of 2014 was 104.3 percent, compared to 101.4 percent a year ago.

The net investment income for the second quarter was $4.61 million, down 1.2 percent compared to a year ago. For the first six months of 2014, the net investment income was $9.23 million, down 2.7 percent from last year.

Donegal Group’s President and CEO Donald H. Nikolaus stated that his company made progress on its long-term initiatives, particularly with regard to executing its plans to grow the company’s commercial lines business segment.

“We have continued to expand our product offerings, leverage existing agency relationships and appoint additional commercially focused agents,” Nikolaus said. “Nonetheless, we must acknowledge that the first half of the year also presented challenges from unusually severe weather and other claim activity.”

Commenting further on weather-related losses, Nikolaus said that during the second quarter of 2014, the company “experienced several severe wind and hail storms in the Mid-Atlantic and Midwest regions that resulted in large volumes of claims from our customers.”

“In fact,” Nikolaus added, “an unusually severe May hail storm in eastern Pennsylvania and surrounding areas resulted in the largest financial impact, prior to reinsurance, for the Donegal Insurance Group of any weather event in our 125-year history.”

“We express our sincere appreciation to our agents and claim professionals who expended substantial efforts to provide timely claims service to the many individuals and businesses that the severe weather affected,” he said.

“The limited impact of these events on the net quarterly financial results of Donegal Group clearly demonstrates the benefits our reinsurance arrangements with Donegal Mutual Insurance Company and third-party reinsurers provide,” Nikolaus added. “These reinsurance agreements reduce the effects of a single large loss, or an accumulation of smaller losses arising from one event, to levels that are appropriate for the size, underwriting profile and surplus position of Donegal Group’s insurance subsidiaries.”

After accounting for reinsurance recoveries, the insurer incurred approximately $3.9 million in net losses incurred and approximately $2.4 million in reinsurance reinstatement premiums with respect to four PCS-designated catastrophe events during the second quarter of 2014, Nikolaus said.

“Our organizational structure provides significant stability and allows us to continue to maintain a long-term perspective,” Nikolaus said. “As such, we can continue to focus our efforts on serving the needs of our independent agents and our policyholders. Our marketing efforts in 2014 are again yielding positive results, evidenced by healthy premium growth and further expansion of our independent agency force.”

“So far in 2014, we have appointed 93 new independent agencies,” he said. “In our personal lines business segment, Donegal Group continues to benefit from our disciplined underwriting approach and premium rate increases we have implemented over the past several years.”

 

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