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Section 1: 8-K (FORM 8-K)


Washington, D.C. 20549

Form 8-K


Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event Reported): April 23, 2018  

Donegal Group Inc.
(Exact Name of Registrant as Specified in Charter)

DELAWARE 0-1534123-2424711
(State or Other Jurisdiction of Incorporation)(Commission File Number)(I.R.S. Employer Identification Number)


(Address of Principal Executive Offices) (Zip Code)

(Registrant's telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 [ ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 [ ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 [ ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 [ ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))


Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2). Emerging growth company [   ]


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]


Item 2.02. Results of Operations and Financial Condition.

On April 23, 2018, the Registrant issued a press release, a copy of which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.

Item 9.01. Financial Statements and Exhibits.

Exhibit 99.1. Press release dated April 23, 2018


Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 Donegal Group Inc.
Date: April 23, 2018By: /s/ Jeffrey D. Miller        
  Jeffrey D. Miller
  Executive Vice President & Chief Financial Officer



Exhibit Number Description
99.1 Press Release dated April 23, 2018

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Section 2: EX-99.1 (PRESS RELEASE)



Donegal Group Inc. Announces First Quarter 2018 Results

MARIETTA, Pa., April 23, 2018 (GLOBE NEWSWIRE) -- Donegal Group Inc. (NASDAQ:DGICA) and (NASDAQ:DGICB) today reported its financial results for the first quarter of 2018.  The Company will hold a live conference call on Tuesday, April 24, 2018 at 11:00AM Eastern Time to discuss these results.  You may listen to the webcast of this conference call by accessing the event link at 

Significant items included:

 Three Months Ended March 31,
  2018   2017  % Change
 (dollars in thousands, except per share amounts)
Income Statement Data     
Net premiums earned$  181,765  $  169,156   7.5%
Investment income, net   6,378     5,755   10.8 
Net realized investment (losses) gains    (918)    2,549  NM2
Total revenues   189,328     178,971   5.8 
Net (loss) income   (18,178)    5,105  NM
Non-GAAP operating (loss) income1   (17,453)    3,448  NM
Per Share Data     
Net (loss) income – Class A (diluted)$  (0.66) $  0.18  NM
Net (loss) income – Class B   (0.60)    0.17  NM
Non-GAAP operating (loss) income – Class A (diluted)   (0.63)    0.12  NM
Non-GAAP operating (loss) income – Class B   (0.57)    0.12  NM
Book value   15.08     16.43   -8.2 

1The “Definitions of Non-GAAP and Operating Measures” section of this release defines and reconciles data that the Company prepares on an accounting basis other than U.S. generally accepted accounting principles (“GAAP”).

2Not meaningful.

Kevin G. Burke, President and Chief Executive Officer of Donegal Group Inc., noted, “The 2018 first quarter was a unique period in which weather-related and large fire losses were significantly higher than our historical experience.  We also encountered continuing challenges within our personal and commercial automobile business lines that led to significant reserve strengthening actions during the period.  This unusual confluence of factors adversely impacted our quarterly financial results, and we are taking immediate steps to address the underlying causes.”  

Mr. Burke continued, “During the latter part of the first quarter of 2018, we received new information on previously-reported commercial automobile and personal automobile claims that led us to conclude that our prior actuarial assumptions did not fully anticipate recent changes in severity and reporting trends. We have encountered increasing difficulties in projecting the ultimate severity of automobile losses over recent accident years, which we attribute to worsening litigation trends and an increased delay in the reporting to us of information with respect to the severity of claims.  While we have noted these trends across several of our operating regions, a large percentage of the reserve adjustment related to commercial auto claims that occurred in the state of Georgia, a state in which we have experienced substantial growth in recent years.  The effect of the delay in the reporting to us of sufficient information upon which to establish adequate case reserves was difficult to discern in our prior analyses of loss data.  However, we concluded that the volume and timing of new information we received in the first quarter of 2018 reflected loss trends our prior actuarial assumptions did not fully anticipate.  As a result, our actuaries increased their projections of the ultimate cost of our prior-year commercial automobile and personal automobile losses. As a result, in the first quarter of 2018, we added $7.4 million to our reserves for personal automobile claims and $18.8 million to our reserves for commercial automobile claims, which are subject to higher liability limits.” 

Mr. Burke further noted, “In response to our recognition of these loss trends, we will continue to increase premium rates in every state in which we conduct business, making substantial adjustments to mitigate adverse loss experience.  We will continue to expand our utilization of predictive modeling and analytics to assess our risk exposures and drive appropriate underwriting actions, including the re-underwriting of commercial automobile risks in underperforming states.  During the second quarter of 2018, our commercial automobile predictive model will be fully implemented for the scoring of renewal risks.  We believe the implementation of this powerful tool will significantly improve our ability to adequately price commercial automobile risks that we write as a component of commercial accounts.  We believe the measures we have implemented, and will continue to implement, to improve our commercial and personal automobile results will serve us well in future periods.”

Mr. Burke concluded, “At March 31, 2017, our book value per share was $15.08, compared to $15.95 at December 31, 2017. Our net loss during the first quarter of 2018, as well as unrealized losses within our available-for-sale fixed-maturity portfolio during the first quarter, contributed to the decrease in our book value at March 31, 2018.  While the first quarter of 2018 financial results adversely impacted our book value, we continue to evaluate ways to improve our underwriting profitability and operating efficiency.  As we announced previously, we plan to consolidate certain operations.  We expect this consolidation will generate nearly $3.7 million in annualized expense savings beginning in the third quarter of 2018.”

Insurance Operations
Donegal Group is an insurance holding company whose insurance subsidiaries offer personal and commercial property and casualty lines of insurance in four Mid-Atlantic states (Delaware, Maryland, New York and Pennsylvania), three New England states (Maine, New Hampshire and Vermont), seven Southern states (Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and West Virginia) and eight Midwestern states (Illinois, Indiana, Iowa, Michigan, Nebraska, Ohio, South Dakota and Wisconsin). Donegal Mutual Insurance Company and the insurance subsidiaries of Donegal Group conduct business together as the Donegal Insurance Group.

 Three Months Ended March 31,
  2018   2017  % Change
 (dollars in thousands)
Net Premiums Earned     
Personal lines$  99,539  $  92,537   7.6%
Commercial lines   82,226     76,619   7.3 
Total net premiums earned$  181,765  $  169,156   7.5%
Net Premiums Written     
Personal lines:     
Automobile$  64,906  $  61,292   5.9%
Homeowners   26,557     25,591   3.8 
Other   4,802     4,728     1.6 
Total personal lines   96,265     91,611     5.1 
Commercial lines:     
Automobile   30,246     26,835     12.7 
Workers' compensation   33,130     33,484     (1.1)
Commercial multi-peril   32,185     30,030     7.2 
Other   3,430     2,541     35.0 
Total commercial lines   98,991     92,890     6.6 
Total net premiums written$  195,256  $  184,501   5.8%

The 5.8% increase in the Company’s net premiums written for the first quarter of 2018 compared to the first quarter of 2017, as shown in the table above, represents the combination of 6.6% growth in commercial lines net premiums written and 5.1% growth in personal lines net premiums written. The $10.8 million growth in net premiums written for the first quarter of 2018 compared to the first quarter of 2017 included:

The Company renewed the majority of its reinsurance programs effective January 1, 2018 with minimal changes to its reinsurance premium rates or coverage levels for 2018 compared to 2017.

The Company evaluates the performance of its commercial lines and personal lines segments primarily based upon the underwriting results of its insurance subsidiaries as determined under statutory accounting practices.  The following table presents comparative details with respect to the Company’s GAAP and statutory combined ratios1 for the three months ended March 31, 2018 and 2017:

 Three Months Ended
 March 31,
 2018  2017 
GAAP Combined Ratios (Total Lines)   
Loss ratio (non-weather)78.6% 59.3%
Loss ratio (weather-related)7.5  8.4 
Expense ratio32.5  33.2 
Dividend ratio0.7  0.5 
Combined ratio119.3% 101.4%
Statutory Combined Ratios   
Personal lines:   
Automobile118.0% 104.7%
Homeowners111.9  106.1 
Other121.1  89.6 
Total personal lines116.1  104.0 
Commercial lines:   
Automobile171.6  107.0 
Workers' compensation83.4  80.8 
Commercial multi-peril117.0  105.9 
Total commercial lines119.8  94.4 
Total lines117.6% 99.6%

Jeffrey D. Miller, Executive Vice President and Chief Financial Officer of Donegal Group Inc., commented, “Weather-related losses adversely impacted our underwriting results for our homeowners and commercial multi-peril lines of business during the first quarter of 2018, primarily attributable to numerous winter weather events in our Mid-Atlantic and Southern regions. While slightly lower than the prior-year quarter, the impact in the first quarter of 2018 was far greater than our historical first-quarter average for weather-related losses.  Catastrophe reinsurance capped the financial impact of losses from several of the events and resulted in reinsurance reinstatement premiums of $2.1 million during the first quarter of 2018.”

For the first quarter of 2018, the Company’s loss ratio increased to 86.1%, compared to 67.7% for the first quarter of 2017.  Weather-related losses of $13.7 million for the first quarter of 2018, or 7.5 percentage points of the Company’s loss ratio, decreased slightly from $14.3 million for the first quarter of 2017, or 8.4 percentage points of the Company’s loss ratio. Weather-related loss activity for the first quarter of 2018 exceeded the Company's five-year average of $10.2 million for first-quarter weather-related losses by a significant margin. 

Large fire losses, which the Company defines as individual fire losses in excess of $50,000, for the first quarter of 2018 were $9.7 million, or 5.3 percentage points of the Company’s loss ratio.  That amount exceeded the large fire losses of $5.9 million, or 3.5 percentage points of the Company’s loss ratio, for the first quarter of 2017.  A $1.6 million increase in homeowners fires and a $2.2 million increase in commercial property fires accounted for the increase from the prior-year quarter.

Net development of reserves for losses incurred in prior accident years increased the Company’s loss ratio for the first quarter of 2018 by 14.7 percentage points, compared to 1.5 percentage points for the first quarter of 2017.

The Company’s expense ratio was 32.5% for the first quarter of 2018, compared to 33.2% for the first quarter of 2017.  The decrease in the Company's statutory expense ratio reflected lower underwriting-based incentive costs for the first quarter of 2018.

Investment Operations
Donegal Group’s investment strategy is to generate an appropriate amount of after-tax income on its invested assets while minimizing credit risk through investment in high-quality securities. As a result, the Company had invested 90.1% of its consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at March 31, 2018. 

 March 31, 2018 December 31, 2017
 Amount % Amount %
 (dollars in thousands)
Fixed maturities, at carrying value:       
U.S. Treasury securities and obligations of U.S.       
government corporations and agencies$  115,412   11.5% $  115,786   11.5%
Obligations of states and political subdivisions   263,603   26.3     269,698   26.8 
  Corporate securities   222,356   22.2     213,764   21.2 
  Mortgage-backed securities   301,543   30.1     306,353   30.5 
Total fixed maturities   902,914   90.1     905,601   90.0 
Equity securities, at fair value   51,030   5.1     50,445   5.0 
Investments in affiliates   38,769   3.9     38,774   3.9 
Short-term investments, at cost   9,452   0.9     11,050   1.1 
Total investments$  1,002,165   100.0% $  1,005,870   100.0%
Average investment yield 2.5%    2.4%  
Average tax-equivalent investment yield 2.7%    2.9%  
Average fixed-maturity duration (years)   5.2       5.2   

Net investment income of $6.4 million for the first quarter of 2018 increased 10.8% compared to $5.8 million in net investment income for the first quarter of 2017. The increase in net investment income reflected primarily an increase in average invested assets relative to the prior-year first quarter.  

The Company adopted accounting guidance effective January 1, 2018 that requires entities to measure equity investments at fair value and recognize changes in fair value in their results of operations.  Net realized investment losses, primarily from unrealized losses in the Company’s equity securities portfolio, were $918,339 for the first quarter of 2018, compared to net realized investment gains of $2.5 million for the first quarter of 2017. 

Definitions of Non-GAAP and Operating Measures
The Company prepares its consolidated financial statements on the basis of GAAP. The Company’s insurance subsidiaries also prepare financial statements based on statutory accounting principles state insurance regulators prescribe or permit (“SAP”). In addition to using GAAP-based performance measurements, the Company also utilizes certain non-GAAP financial measures that it believes provide value in managing its business and for comparison to the financial results of its peers. These non-GAAP measures are net premiums written, operating income or loss and statutory combined ratio.

Net premiums written and operating income or loss are non-GAAP financial measures investors in insurance companies commonly use. The Company defines net premiums written as the amount of full-term premiums the Company records for policies effective within a given period less premiums the Company cedes to reinsurers. The Company defines operating income or loss as net income or loss excluding after-tax net realized investment gains or losses. Because the Company’s calculation of operating income or loss may differ from similar measures other companies use, investors should exercise caution when comparing the Company’s measure of operating income or loss to the measure of other companies.

The following table provides a reconciliation of the Company's net premiums earned to the Company's net premiums written for the periods indicated: 

 Three Months Ended March 31,
  2018   2017  % Change
 (dollars in thousands)
Reconciliation of Net Premiums     
Earned to Net Premiums Written     
Net premiums earned$  181,765  $  169,156   7.5%
Change in net unearned premiums   13,491     15,345   -12.1%
Net premiums written$  195,256  $  184,501   5.8%

 The following table provides a reconciliation of the Company's net (loss) income to the Company's operating (loss) income for the periods indicated: 

 Three Months Ended March 31,
  2018   2017  % Change
 (dollars in thousands, except per share amounts)
Reconciliation of Net (Loss) Income     
to Non-GAAP Operating (Loss) Income     
Net (loss) income $  (18,178) $  5,105  NM
Realized losses (gains) (after tax)   725     (1,657) NM
Non-GAAP operating (loss) income$  (17,453) $  3,448  NM
Per Share Reconciliation of Net     
(Loss) Income to Non-GAAP Operating (Loss) Income     
Net (loss) income – Class A (diluted)$  (0.66) $  0.18  NM
Realized losses (gains) (after tax)   0.03     (0.06) NM
Non-GAAP operating (loss) income – Class A$  (0.63) $  0.12  NM
Net (loss) income – Class B$  (0.60) $  0.17  NM
Realized losses (gains) (after tax)   0.03     (0.05) NM
Non-GAAP operating (loss) income – Class B$  (0.57) $  0.12  NM

The statutory combined ratio is a non-GAAP standard measurement of underwriting profitability that is based upon amounts determined under SAP. The statutory combined ratio is the sum of:

The statutory combined ratio does not reflect investment income, federal income taxes or other non-operating income or expense. A statutory combined ratio of less than 100% generally indicates underwriting profitability.

Conference Call and Webcast

The Company will hold a conference call and webcast on Tuesday, April 24, 2018, beginning at 11:00 A.M. Eastern Time. You may listen via the Internet by accessing the webcast link on the Company’s website at A replay of the conference call will also be available via the Company’s website.

About the Company

Donegal Group is an insurance holding company. The insurance subsidiaries of Donegal Group and Donegal Mutual Insurance Company conduct business together as the Donegal Insurance Group. 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. As an effective acquirer of small to medium-sized “main street” property and casualty insurers, Donegal Group has grown profitably over the last three decades. 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.

The Company owns 48.2% of the outstanding stock of Donegal Financial Services Corporation (“DFSC”). DFSC owns all of the outstanding stock of Union Community Bank (“UCB”). The Company accounts for its investment in DFSC using the equity method of accounting. Donegal Mutual Insurance Company owns the remaining 51.8% of the outstanding stock of DFSC.

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: 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, adverse and catastrophic weather events, 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 from time to time 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.

Donegal Group Inc.
Consolidated Statements of Income
(unaudited; in thousands, except share data)
   Quarter Ended March 31,
    2018   2017 
Net premiums earned$  181,765  $  169,156 
Investment income, net of expenses   6,378     5,755 
Net realized investment (losses) gains   (918)    2,549 
Lease income   123     142 
Installment payment fees   1,348     1,136 
Equity in earnings of DFSC   632     233 
 Total revenues   189,328     178,971 
Net losses and loss expenses   156,583     114,433 
Amortization of deferred acquisition costs   29,665     27,683 
Other underwriting expenses   29,323     28,489 
Policyholder dividends   1,302     834 
Interest    464     364 
Other expenses   526     443 
 Total expenses   217,863     172,246 
(Loss) income before income tax (benefit) expense   (28,535)    6,725 
Income tax (benefit) expense   (10,357)    1,620 
Net (loss) income$  (18,178) $  5,105 
Net (loss) income per common share:   
 Class A - basic $  (0.66) $  0.19 
 Class A - diluted$  (0.66) $  0.18 
 Class B - basic and diluted$  (0.60) $  0.17 
Supplementary Financial Analysts' Data   
Weighted-average number of shares   
 Class A - basic   22,615,445     21,544,864 
 Class A - diluted   23,391,593     22,625,578 
 Class B - basic and diluted   5,576,775     5,576,775 
Net premiums written$  195,256  $  184,501 
Book value per common share   
 at end of period$  15.08  $  16.43 


Donegal Group Inc.
Consolidated Balance Sheets
(in thousands)
   March 31, December 31,
    2018   2017 
 Fixed maturities:   
  Held to maturity, at amortized cost$  377,497  $  366,655 
  Available for sale, at fair value   525,417     538,946 
 Equity securities, at fair value   51,030     50,445 
 Investments in affiliates   38,769     38,774 
 Short-term investments, at cost   9,452     11,050 
    Total investments   1,002,165     1,005,870 
Cash    40,796     37,833 
Premiums receivable   163,219     160,406 
Reinsurance receivable   313,542     298,343 
Deferred policy acquisition costs   62,379     60,290 
Prepaid reinsurance premiums   142,106     135,033 
Other assets   49,832     40,145 
  Total assets$  1,774,039  $  1,737,920 
 Losses and loss expenses$  727,563  $  676,672 
 Unearned premiums   524,021     503,457 
 Accrued expenses   21,131     28,034 
 Borrowings under lines of credit   59,000     59,000 
 Subordinated debentures   5,000     5,000 
 Other liabilities   11,970     17,061 
  Total liabilities   1,348,685     1,289,224 
Stockholders' equity:   
 Class A common stock   256     256 
 Class B common stock   56     56 
 Additional paid-in capital   257,036     255,401 
 Accumulated other comprehensive loss   (15,513)    (2,684)
 Retained earnings   224,745     236,893 
 Treasury stock   (41,226)    (41,226)
  Total stockholders' equity   425,354     448,696 
  Total liabilities and stockholders' equity$  1,774,039  $  1,737,920 


For Further Information:
Jeffrey D. Miller, Executive Vice President & Chief Financial Officer
Phone: (717) 426-1931

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