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Donegal Group A Inc (DGICA) reported its third-quarter 2025 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $0.52, compared to the forecasted $0.4408, marking a surprise of 17.97%. However, the company’s revenue fell short of expectations, coming in at $219.62 million against a forecast of $236.93 million, a 7.31% miss. In pre-market trading, Donegal’s stock rose by 1.88%, reflecting investor optimism despite the revenue shortfall. The insurer, with a market capitalization of $675.77 million, is currently trading at a P/E ratio of just 6.61, significantly below industry averages.
Key Takeaways
- Donegal Group’s EPS exceeded forecasts by nearly 18%.
- Revenue missed projections by over 7%.
- Pre-market stock price increased by 1.88%.
- Net income saw a 20% year-over-year increase.
- The company is prioritizing new business growth for 2026.
Company Performance
Donegal Group reported a strong performance in the third quarter of 2025, with net income rising to $20.1 million, a 20% increase from the same period in 2024. The year-to-date net income also surged by 131% compared to the previous year. The company’s combined ratio improved to 95.9%, indicating better operational efficiency. Despite a 3.4% decline in net premiums earned, Donegal maintained its focus on profitable underwriting and strategic market positioning. This disciplined approach has contributed to the company’s impressive Piotroski Score of 8, reflecting strong financial stability according to data from InvestingPro.
Financial Highlights
- Revenue: $219.62 million, down from projections of $236.93 million
- Earnings per share: $0.52, beating the forecast of $0.4408
- Net premiums earned: $229.8 million, a 3.4% decrease year-over-year
- Combined ratio: 95.9%, improved from 96.4% in the prior year
Earnings vs. Forecast
Donegal Group’s EPS of $0.52 surpassed the forecast of $0.4408 by 17.97%, showing a robust earnings performance. In contrast, revenue fell short of expectations by 7.31%, which may temper investor enthusiasm despite the EPS beat. Historically, Donegal has demonstrated consistent earnings growth, and this quarter’s results continue that trend, although the revenue miss is notable.
Market Reaction
In pre-market trading, Donegal’s stock price increased by 1.88%, reaching $18.94. This movement suggests that investors are focusing on the positive earnings surprise rather than the revenue miss. The stock remains within its 52-week range, with a high of $21.12 and a low of $14.17, indicating stable investor confidence. According to InvestingPro’s Fair Value assessment, the stock is currently fairly valued. Analyst targets suggest potential upside, with price targets ranging from $20 to $22.
Outlook & Guidance
Looking ahead, Donegal Group is prioritizing growth in its small and middle-market commercial segments for 2026. The company plans to continue its technology modernization initiatives and projects $115 million in portfolio cash flow over the next 12 months. Future EPS forecasts suggest moderate growth, with expectations of $0.59 for Q4 2025 and $0.62 for Q1 2026.
Executive Commentary
CEO Kevin Burke stated, "We are now operating from a position of strength," highlighting the company’s solid financial footing. COO Dan Dellamater emphasized, "Rate adequacy is clearly important, and we’re not interested in chasing underpriced new business," underscoring the company’s commitment to disciplined underwriting. Chief Underwriting Officer Jeff Hay noted, "We enjoyed historically favorable weather conditions during the quarter," which contributed to the improved combined ratio.
Risks and Challenges
- Potential revenue pressures if market conditions do not improve.
- Challenges in maintaining growth in personal lines, which saw a 15.9% decrease in net premiums written.
- The ongoing need for technology investments to stay competitive.
- Economic uncertainties that could impact small and mid-sized business segments.
- Risks associated with exiting the farm line of business, which accounted for $6 million in premiums.
Donegal Group’s Q3 2025 results reflect strong earnings performance despite revenue challenges, with strategic initiatives and disciplined underwriting supporting future growth.
Full transcript - Donegal Group A Inc (DGICA) Q3 2025:
Karen, Moderator/Operator, Donegal Group: Good morning, and thank you for joining us today. This morning Donegal Group issued its third quarter twenty twenty five earnings release outlining its results. The release and a supplemental investor presentation are available in the Investor Relations section of Donegal’s website at www.donegalgroup.com. Please be advised that today’s conference was prerecorded and all participants are in listen only mode. Speaking today will be President and Chief Executive Officer Kevin Burke, Chief Financial Officer Jeff Miller, Chief Underwriting Officer Jeff Hay, Chief Operating Officer Dan Dellamater, and Chief Investment Officer Tony Viasi.
Please be aware that statements made during this call that are not historical facts are forward looking statements and necessarily involve risks and uncertainties that could cause actual results to vary materially. These factors can be found in Donegal Group’s filings with the Securities and Exchange Commission including its annual report on Form 10 ks and quarterly reports on Form 10 Q. The company disclaims any obligation to update or publicly announce the results of any revisions that they may make to any forward looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. With that, it’s my pleasure to turn the call over to Mr. Kevin Burke.
Kevin?
Kevin Burke, President and Chief Executive Officer, Donegal Group: Thank you, Karen, and welcome, everyone, to our earnings webcast. We are pleased to provide an update today on our quarterly operating results and recent progress on our strategies and initiatives. We are pleased with our profitability for the third quarter and for the 2025, with a combined ratio of 95.9% for the third quarter and 95.1% for year to date, with solid underwriting and investment income contributing to net income of $20,100,000 for the third quarter and $62,200,000 for the 2025. We enjoyed relatively favorable weather in our operating regions for the third quarter, resulting in a weather loss ratio that was the lowest of any third quarter in the past twenty years. Our core loss ratio for the third quarter remained below our target level, with personal lines continuing to outperform as we’ve reached rate adequacy in that business segment.
As in prior webcast, Jeff Hay and Dan Delamater will provide further details about the ongoing factors that impacted our net premiums written growth as well as highlight initiatives that we have planned to improve premium growth. Our 2026 business plan will include numerous strategies and action plans to enhance agency engagement and optimize our staff’s utilization of systems and business intelligence enhancements that we expect will generate higher levels of new business. Our primary focus remains on delivering sustained excellent financial results while also achieving profitable control commercial lines growth by writing quality mid market and small business accounts. Following the successful deployment of our final major commercial line systems release I reported in the second quarter, I’m very pleased to report that this past weekend, we successfully deployed the final personal lines release to facilitate conversion of all legacy personal auto and umbrella policy renewals to the new Godwire platform. We continue to strive for stability in our personal lines segment, seeking to write enough new business to offset natural attrition in order to maintain a stable, profitable book of personal lines business.
Completion of the conversion of our legacy business to the new platform will allow our personal lines teams to focus their efforts on optimizing our personal lines portfolio. With this final release now in production, all development and testing efforts have been completed for this multiyear systems modernization project that we began eight years ago. I extend my sincere appreciation and congratulations to all the Donegal team members who have worked tirelessly to ensure the successful project completion. Although all of the software code has been deployed, we are continuing to follow a phased schedule for the conversion of all remaining legacy commercial and personal lines policies that will continue through mid two thousand twenty six. Our business teams will be closely monitoring that conversion activity over the next several months.
Our technology teams will be shifting their attention to several exciting initiatives made possible by the successful systems transformation and the completion of our comprehensive cloud based data repository and infrastructure. We are already working with industry leading vendor partners on several generative AI projects that we expect will help us improve operational efficiencies and more importantly provide enhanced data driven insights to our claims and underwriting staff. We are also preparing to migrate our primary on premises Guidewire applications to the cloud based versions over the next few years. We plan to migrate our billing and claims applications followed by our policy administration application after the completion of our legacy policy conversion activities. Migrating to the cloud version of the Guidewire applications will ensure that our future technology platform is scalable and remains current, and that we are able to take advantage of emerging innovations and product enhancements on a continuous basis.
We look forward to the many competitive and operational benefits our successful systems transformation and ongoing technology initiatives will yield in the years ahead. At this point, I’ll turn the call over to Jeff Miller for a review of our financial results for the quarter.
Jeff Miller, Chief Financial Officer, Donegal Group: Thanks, Kevin. For the 2025, net premiums earned of $229,800,000 decreased 3.4% compared to the 2024. Net premiums written decreased by 5.4 with similar drivers to those we experienced in the 2025 as lower new business volume and planned attrition were offset partially by premium rate increases and solid retention levels. A 15.9% decrease in personal lines net premiums written was offset partially by 3.4% growth in commercial lines. Rate increases achieved during the 2025 averaged 6.4% in total and 7.1% when excluding workers’ compensation.
The combined ratio was 95.9% for the 2025, reflecting modest improvement compared to 96.4% for the prior year quarter. We experienced a slight one percentage point increase in the core loss ratio compared to the prior year quarter. Core loss ratio excludes the impact of weather related losses, large fire losses and net development of reserves for losses incurred in prior accident years. Compared to the prior year quarter, we had a 5.5 percentage point increase in the commercial lines core loss ratio, offset partially by a 5.9 percentage point decrease in the personal lines core loss ratio. Weather related losses of $14,300,000 or 6.2 percentage points of the loss ratio for the 2025 decreased substantially from $24,400,000 or 10.3 percentage points for the prior year quarter.
Commercial property losses from severe weather totaled $3,600,000 and contributed 6.6 percentage points to the quarterly commercial multi peril loss ratio, down compared to 10 percentage points of the loss ratio for that line of business in the 2024. The weather impact to the homeowners’ line was $8,300,000 or 25.3 percentage points of the homeowners’ loss ratio, which was much lower than the 45.2 points of weather loss impact in the prior year quarter, which reflected significant impact from Hurricane Helene. In total, the quarterly weather claim impact was well below the previous five year average for the third quarter of 10 percentage points. Our insurance subsidiaries did not incur losses from any catastrophic weather events in the 2025 compared to $6,000,000 in net losses from Hurricane Helene in the prior year quarter. As we highlighted in the earnings release, the weather loss impact of 6.2 percentage points of the loss ratio for the quarter was the lowest of any third quarter in the past twenty years.
Large fire losses, which we define as over $50,000 in damages, contributed 4.4 percentage points to the loss ratio for the 2025 compared to 3.7 percentage points for the prior year quarter. A moderate increase in homeowners’ fire losses during the quarter was partially offset by a slight decrease in commercial fire losses. Our insurance subsidiaries experienced minimal net development of reserves for losses incurred in prior accident years for the 2025 compared to $6,200,000 of net favorable reserve development for the prior year quarter. Specific line of business detail for the 2025 primarily included unfavorable development of $2,000,000 for personal auto and $1,400,000 for other commercial, which is primarily umbrella liability, in accident years 2022 through 2024, offset partially by favorable development of $1,600,000 for commercial multi peril and $818,000 for workers’ compensation. The expense ratio of 33.5% for the 2025 decreased compared to 34.5% for the prior year quarter.
The modest decrease primarily related to ongoing impacts of expense reduction initiatives and lower underwriting based incentive costs for agents and employees. Incentive costs for the prior year quarter were somewhat elevated due to the improvement in underwriting results for that period compared to the 2024. Net investment income increased 28.8% to $13,900,000 for the 2025 compared to the prior year quarter due primarily to an increase in average investment yield. Tony will provide further details about our investment income later in the call. Combining the favorable impacts of underwriting and investment performance, we achieved net income of $20,100,000 for the 2025, an increase of approximately 20% compared to the 2024.
For the 2025, net income of $62,200,000 increased by approximately 131% compared to $26,900,000 for the 2024. As we generate capital through consistent profitability, we will continue to invest in our people and operations to steadily grow premiums and increase scale, which we believe will create sustainable value for our stockholders over time. We are also committed to our long standing practice of returning a portion of our profits to stockholders in the form of cash dividends. We recently declared quarterly cash dividends of $0.01 $8.02 $5 per share of our Class A common stock and $0.01 $65 per share of our Class B common stock payable on November 17 to stockholders of record as of November 3. With that, I will turn the call over to Jeff Hay to provide more details about our Commercial and Personal Lines segment results.
Jeff Hay, Chief Underwriting Officer, Donegal Group: Thank you, Jeff. Our favorable underwriting results drove bottom line improvement this quarter, and I’m confident that this was a direct outcome of the strategies and diligent action plans we’ve put into place in recent years to transform our systems, data analytics and operational processes. Within our commercial lines of business, net premiums written for the 2025 saw a modest increase of 3.4%. While the market selectively softens for new business, we continue to stand firm on underwriting and pricing discipline to execute on targeted geographic and class strategies. Of the commercial lines new business we wrote in the third quarter, 68.7% was within highly targeted classes where we achieved levels of profitability that exceeded our expectations.
Our overall commercial rate and exposure increase remained steady at 11% excluding workers’ compensation during the quarter. As we strive to retain quality accounts, we also continue to emphasize driving the most rate in areas where the intersections of class, line of business, and geography are the most challenged. Turning now to loss trends that we observed for commercial lines in the third quarter, we experienced similar frequency and severity trends as in the 2025. When compared to the prior year third quarter, the commercial multi peril line of business loss ratio impact from large fires decreased by nearly two percentage points, driven by lower severity of large fire losses offset partially by a modest increase in their frequency. We enjoyed historically favorable weather conditions during the quarter with below average storm activity across our operating regions that resulted in commercial weather related losses decreasing significantly, down 24% compared to the prior year quarter.
Commercial Lines prior year reserve development was modestly favorable overall contributing a 0.5 percentage point decrease in the loss ratio for the third quarter. We were pleased that our Commercial Lines core loss ratio, which excludes the impact of large fires, weather and prior year reserve development, remained lower than our target for the 2025. However, the core loss ratio increased by 5.5 percentage points over the prior year quarter, driven primarily by higher frequency of workers’ compensation losses. The market introduction of our new and greatly improved commercial package product was the culmination of the most significant investment in middle market capabilities in our company history. We’re confident that the enhanced product coverages, increased service capabilities and the future innovations these modernized systems will enable will set Donegal apart in the marketplace and fuel profitable growth in the years ahead.
Now turning to our Personal Lines segment. For the third quarter, Personal Lines net premiums written decreased 15.9% compared to the 2024. The shrinking of our personal lines book is a direct result of two deliberate actions: one, the significant slowing of new business and two, the targeted cancellation of certain segments of our portfolio for underwriting or operational reasons. Both actions were intentional and necessary to improve portfolio quality, reduce property concentrations and to stabilize loss ratios. As an example of the targeted cancellation of certain segments, we completed the exit of a legacy Maryland book of business at the end of the third quarter.
This action had a meaningful impact on the personal lines retention rate over the past year. However, excluding that impact, our real retention rate was a very healthy 88.7% for the third quarter. Intentional new business controls continued to limit new business to approximately $1,000,000 in the quarter, which was similar to the 2025 and remained well below historical levels. Having achieved rate adequacy in personal lines across our footprint, we have now strategically and intentionally released some of those new business controls in order to become more competitive for accounts that meet our underwriting criteria. Moving to personal lines loss trends.
Within the personal auto line of business, the loss ratio decreased by 4.5 percentage points for the 2025 compared to the 2024. This decrease was driven by a 9.3 improvement in the core loss ratio, partially offset by adverse prior year reserve development related to a handful of liability claim reserve increases in the quarter. The homeowners’ loss ratio saw an improvement of 11.6 percentage points for the 2025 compared to the 2024. Driving that improvement were 19.9 points of lower weather related loss impacts, which was attributable to a substantial 49% decrease in weather losses compared to the 2024 when Hurricane Helene inflicted substantial damage to homes we insured within the state of Georgia. That weather loss ratio improvement was partially offset by a 3.3 increase in the core loss ratio and six points from additional large fire losses.
Compared to the prior year quarter, we experienced a 33% increase in large fire losses in our homeowners line due primarily to an increase in the severity of large fires. In summary, we were pleased with the overall profitability of our commercial and personal lines segments for the first nine months of twenty twenty five, and we’re excited to be able to shift our strategic emphasis from profit improvement to capitalizing on opportunities to grow profitably. I will now turn the call over to Dan Delamater for an update on our operational strategies and developments. Dan?
Dan Dellamater, Chief Operating Officer, Donegal Group: Thank you, Jeff. I will start my commentary by providing an update on our efficiency initiatives and the expense reduction efforts we’ve discussed in previous calls. For the 2025, we operated an expense ratio of 33.5%, which continued to follow an excellent trajectory. By comparison, that represented a 100 basis point improvement from the comparable period last year. We’re pleased that we continue to realize significant improvement from our investments in automation and various ongoing expense management initiatives.
Together, these efforts have allowed us to operate at an expense ratio of 33.4% through the first September 2025. Despite the impact of higher projected incentive payments for agents and employees based on our strong underwriting performance this year, this compares favorably to our expense ratio of 34% through the first September 2024 and thirty four point nine percent through the first September 2023. We’re coming down off of the 2024 peak expense impact of our multiyear systems modernization project. And with the substantial expenditures related to software tapering off by the 2025, we expect to achieve gradual reductions in this project’s impact to our operating expense metrics as allocated depreciation costs subside over the next few years. Additionally, we’re pleased with the alignment and clarity of focus that was evident in our recently completed state strategy workshop.
This annual multi day planning summit brings together a cross departmental mix of several dozen Donegal professionals, including executive, departmental and regional leadership, along with important contributors from our business units. Together, this group refines our product mix, rate strategy, marketing strategy and growth objectives for every line of business and every state in which we write. This strategic session in August marked the fifth consecutive year for the event, and I believe it was our best to date. As we work to complete our 2026 business plan, increasing new business and total growth will be a top priority for next year. We’re proud to operate from a place of bottom line strength, but we also recognize the need to increase new business volume, particularly in small and middle market commercial.
Rate adequacy is clearly important, and we’re not interested in chasing underpriced new business. We continue to proactively engage our marketing teams, our independent agents and our analytics and underwriting teams to identify profitable new business opportunities in states and classes that match our objectives. We continue to respond to shifting dynamics within the independent agency system due to mergers and acquisitions that have been fueled in part by private equity investments. Many of our independent agents have found value in joining a network group for various reasons. On the other hand, there is significant segment of our agents who remain committed to operating independently.
We have a dedicated national accounts team that interacts with the leadership of national and regional agency groups and serves as a valuable resource for our regional marketing teams as they work with our agents at street level where business is transacted. Regardless of an agency’s ownership or group affiliation, we are committed to providing a distinctive business experience and creating unique value for each independent agency relationship. As we further refine our focus on our core lines and classes of business and our well established geographic footprint, we decided to exit the farm line of business and have recently entered a renewal rights agreement with a farm focused Pennsylvania based mutual insurance company to provide a continuation option for our existing policyholders. We determined that the cost required to modernize our legacy farm product and systems were higher than the projected return on investment for a non core line of business that we report in other commercial lines. We will nonrenew approximately $6,000,000 of premiums upon foreign policy expirations beginning in the 2026.
In closing, we’re very pleased to have achieved five consecutive quarters of underwriting profitability. Coupled with our organizational alignment, we are confident that this profitability sets a solid foundation for our performance in the remaining months of 2025 and into 2026. I’ll now turn it over to Tony Viazi for an investment update. Tony?
Tony Viasi, Chief Investment Officer, Donegal Group: Thanks, Dan. During the third quarter of twenty twenty five, we saw a significant rise in net investment income driven primarily by increased reinvestment cash flow and active bond swaps that allowed us to lock in higher yielding bonds at longer durations. Our net investment income for the third quarter rose to $13,900,000 an increase of 29% from $10,800,000 in the 2024. Year to date net investment income totaled $38,500,000 for the first nine months of twenty twenty five, up 17% from 32,900,000 for the 2024. The average tax equivalent yield for the quarter was 3.9% from 3.64% for the 2025 and three point two eight percent from the prior year quarter.
The improvement in yield during the 2025 was driven by the investment of $185,000,000 derived from portfolio cash flow and excess operating funds that was yielding 3.97% and is now earning 5.25. The 128 basis point improvement on those funds is projected to boost annual investment income by $2,400,000 Net investment gains for the 2025 totaled $1,300,000 compared to $1,900,000 for the prior year quarter. Equity gains of $2,600,000 on stocks held as of September 30 were offset partially by realized losses from strategic bond swaps during the quarter that will improve future investment income by approximately $1,600,000 annually. For the first nine months of twenty twenty five, our net investment gains were $2,300,000 compared to $4,700,000 for the first nine months of twenty twenty four. Our available for sale bond portfolio market value improved by $6,800,000 in the 2025 as a result of bond swaps, declining market rates, and the tightening of corporate bond spreads.
As of 09/30/2025, our book value increased to $17.14, a $1.78 improvement over $15.36 on 12/31/2024. This improvement was primarily driven by strong underwriting results and growing investment income as well as gains in the value of our equities and available for sale bond portfolio. In closing, we are projecting about $115,000,000 in portfolio cash flow over the next twelve months with an average yield of 3.95%. We will continue to focus on shifting into non agency structured notes, mortgage backed securities, and tax exempt bonds. With that, I will now turn it back over to Kevin for closing remarks.
Kevin Burke, President and Chief Executive Officer, Donegal Group: Thank you, Tony. As we conclude today’s call, I want to express my appreciation for the commitment and engagement I see throughout the Donegal organization. We recently held all employee meetings to reemphasize our key business strategies and to celebrate our accomplishments over the past few years that has led to our improved financial results. We highlighted our confidence as we are now operating from a position of strength and challenged our team to build upon the solid foundation by intentionally engaging with our independent agents to generate profitable growth and by leveraging technology innovations to further improve our workflows, service offerings, and operational efficiencies. I look forward to reporting on our progress in future calls.
Thank you.
Karen, Moderator/Operator, Donegal Group: Thank you, Kevin. While we requested and received questions in advance of today’s call, we have worked answers to these questions into our prepared remarks. If there are any additional questions, please feel free to reach out to us. This now concludes the Donegal Group third quarter twenty twenty five earnings webcast. You may now disconnect.
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