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DG

DONEGAL GROUP INC (DGICA)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered record earnings for the second straight quarter: diluted EPS (Class A) $0.71 and non-GAAP operating EPS $0.72; combined ratio improved to 91.6% from 102.4% YoY, driven by lower core loss ratio, weather, and large fire losses .
  • Versus consensus, EPS was a significant beat and revenue a modest miss: Primary EPS $0.72 vs $0.345 estimate; revenue $245.2M vs $249.4M estimate; estimate counts were thin (two estimates) [Values retrieved from S&P Global]*.
  • Sequentially, combined ratio improved (91.6% vs 92.9% in Q4), while total revenues decreased ($245.2M vs $250.0M in Q4); book value per share rose to $16.24 (+5.7% QoQ) .
  • Strategic actions continue: personal lines intentionally downsized (MD nonrenewals), commercial rates/discipline maintained; management flagged tariff/social inflation risks but expressed confidence in sustained profitability and tech modernization milestones in 2025 .
  • Potential stock catalysts: a dividend increase announced Apr 17 (Class A $0.1825, Class B $0.165, +5.8%/+6.5%) and AM Best’s affirmation of A (Excellent) ratings with stable outlook (May 13) .

What Went Well and What Went Wrong

What Went Well

  • Record quarterly earnings and improved underwriting: combined ratio 91.6% vs 102.4% YoY; core loss ratio down; weather and large fire losses lower; favorable prior-year reserve development ($10.5M) .
  • Commercial and personal lines core improvement: commercial core LR down 0.7 pts; personal core LR down 9.4 pts; overall rate increases averaged 9.6% (10.6% ex-WC) underpinning earned-premium strength .
  • Investment income grew 9.2% YoY to $12.0M; portfolio positioned defensively, with fixed maturities at ~95.6–95.7% and average tax-equivalent yield at 3.5% .

Management quotes:

  • “Record earnings for the second straight quarter… reflects deliberate actions and strong operational discipline” – Kevin Burke .
  • “Rate increases averaged 9.6%… combined ratio [was] an excellent 91.6%” – Jeff Miller .
  • “We believe significant improvement was… outcome of strategic initiatives… strengthen underwriting practices” – Jeff Hay .

What Went Wrong

  • Personal lines net premiums written decreased 9.9% YoY due to intentional limit on new business and MD nonrenewals; workers’ compensation exhibited unfavorable reserve development ($1.8M) and margin pressure .
  • Weather still meaningful in select lines: homeowners weather losses $4.8M (13.7% of homeowners LR) and commercial multi-peril weather added 5.4 pts; management is monitoring tariff-driven cost pressures and social inflation .
  • Revenue missed consensus and declined sequentially despite underwriting gains; equity portfolio incurred net losses (-$0.5M) in Q1 vs gains in prior-year quarter [Values retrieved from S&P Global]* .

Financial Results

Headline results vs prior quarters

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Millions)$251.7 $250.0 $245.2
Diluted EPS – Class A ($)$0.51 $0.70 $0.71
Non-GAAP Operating EPS – Class A ($)$0.46 $0.69 $0.72
Combined Ratio (GAAP, %)96.4% 92.9% 91.6%
Expense Ratio (%)34.5% 32.8% 34.6%
Loss Ratio (%)61.5% 59.8% 56.7%
Core Loss Ratio (%)50.1% 52.3% 54.2%
Weather Loss Ratio (pts)10.3 3.3 3.7
Large Fire Loss Ratio (pts)3.7 4.0 3.3
Prior-Year Reserve Development (pts)-2.6 -0.2 -4.5

Actuals vs Wall Street consensus

MetricQ3 2024Q4 2024Q1 2025
Primary EPS – Actual ($)0.46 0.69 0.72
Primary EPS – Consensus Mean ($)0.08*0.26*0.345*
Revenue – Actual ($USD Millions)251.7 250.0 245.2
Revenue – Consensus Mean ($USD Millions)249.6*250.6*249.4*
EPS # of Estimates2*2*2*
Revenue # of Estimates1*2*2*

Notes: *Values retrieved from S&P Global.

Segment breakdown (net premiums earned)

Segment ($USD Millions)Q3 2024Q4 2024Q1 2025
Commercial Lines$136.4 $136.7 $136.2
Personal Lines$101.6 $99.9 $96.5
Total$238.0 $236.6 $232.7

Net premiums written detail (Q1 2025)

Line ($USD Millions)Q1 2025
Commercial Auto$56.5
Workers’ Compensation$28.8
Commercial Multi-Peril$60.8
Other Commercial$14.5
Personal Auto$55.2
Homeowners$28.8
Other Personal$2.5
Total NPW$247.1

KPIs

KPIQ3 2024Q4 2024Q1 2025
Annualized ROAE (%)13.4 18.1 17.8
Book Value/Share ($)$15.22 $15.36 $16.24
Net Investment Income ($USD Millions)$10.8 $12.1 $12.0
Weather-related Losses ($USD Millions)$24.4 $7.7 $8.6
Large Fire Losses ($USD Millions)$8.8 $9.5 $7.7
Prior-Year Reserve Development ($USD Millions)$6.2 favorable ≈0 impact $10.5 favorable
Avg Rate Increase (Total/Ex-WC, %)n/an/a9.6 / 10.6
Personal Lines Retention (ex-MD nonrenewals, %)n/an/a86.7

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per Share – Class AQ2 2025 payable May 15$0.1725 (declared Dec 19, 2024) $0.1825 (declared Apr 17, 2025) Raised (+5.8%)
Dividend per Share – Class BQ2 2025 payable May 15$0.155 (declared Dec 19, 2024) $0.165 (declared Apr 17, 2025) Raised (+6.5%)
Systems Modernization – Expense Ratio ImpactFY 2024 → FY 2025~1.3 pts (peak in FY 2024) ~1.0 pt expected FY 2025 Lowered burden
Revenue/Margins/Tax/Segment Guidance2025Not providedNot providedMaintained (no formal guidance)

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Underwriting discipline & rate actionsEmphasis on rate increases; core LR improvement across lines despite higher weather in Q3; Q4 combined ratio improved materially Continued core LR improvement; rate increases averaged 9.6% (10.6% ex-WC) Improving
Personal lines strategyIntentional slowdown; nonrenewals; strong retention offsetting; Q4 PL combined ratio improvement PL NPW down 9.9% by design; retention 86.7%; homeowners core & weather trends improved Stabilizing/rightsizing
Commercial lines growth focusExit low-performing geographies; solid NPW growth; middle market emphasis Targeted class/geography focus; two divisions (Middle Market, Small Commercial); July release for commercial package Expanding capabilities
Systems modernizationCost impact peaked in 2024; ongoing rollouts Final major commercial release slated July 2025; personal lines conversions underway; single platform by mid-2027 Execution progressing
Tariffs/social inflationCited as industry risks Monitoring tariff impacts on auto/repair/construction; social inflation drivers (jury anchoring, TPLF) highlighted Risk vigilance
Investment strategy & yieldFixed-income heavy; yields rising; Q3/Q4 gains minimal to moderate Net investment income +9.2% YoY; defensive equity stance; reinvestment at >5.5% Yield tailwind
Reinsurance/cat retentionHurricane Helene losses manageable in Q3; no single-event above retention in Q4 No single event >$3M retention in Q1 Stable protection

Management Commentary

  • Kevin Burke (CEO): “Record earnings for the second straight quarter… reflects the deliberate actions and strong operational discipline of our team… sustained profitability while pursuing targeted premium growth” .
  • Jeff Miller (CFO): “Rate increases averaged 9.6%… combined ratio was an excellent 91.6%… lower impact of weather and large fires added to a 4.5 percentage point decrease in the core loss ratio” .
  • Jeff Hay (Commercial/Personal): “Significant improvement was… outcome of strategic initiatives… programmatically prune less profitable classes… standing firm on underwriting and pricing discipline” .
  • William DeLamater (COO): “Enhanced price sophistication and expense reduction… comprehensive budgeting and expense monitoring tool to further empower teams” .
  • Vincent Viozzi (Investments): “Prioritize high-quality spread products… investing new funds north of 5.50%… maintain defensive stance on equities until the market stabilizes” .

Q&A Highlights

  • Format: Pre-recorded webcast with prepared remarks; no live analyst Q&A was indicated in the release .
  • Key clarifications from remarks: rate achievement (total/ex-WC), segment core LR drivers, weather/fire dynamics, personal lines retention and MD nonrenewals, investment reinvestment yields and equity posture .
  • Guidance tone: no formal numeric guidance; reiterated confidence in sustained profitability and modernization milestones (commercial package release in July 2025) .

Estimates Context

  • EPS beat vs consensus in Q1 2025: Actual $0.72 vs $0.345 estimate; prior quarters also beat (Q4: $0.69 vs $0.26; Q3: $0.46 vs $0.08). Estimate coverage is limited (two EPS estimates each quarter) [Values retrieved from S&P Global]*.
  • Revenue modest miss in Q1 2025: Actual $245.2M vs $249.4M estimate; near in-line in Q4 ($250.0M vs $250.6M) and slight beat in Q3 ($251.7M vs $249.6M) [Values retrieved from S&P Global]*.
  • Implications: EPS estimate resets likely higher given underwriting outperformance; revenue expectations may recalibrate modestly alongside planned personal lines rightsizing.

Key Takeaways for Investors

  • Underwriting turnaround is durable: combined ratio improved for three consecutive quarters, supported by rate adequacy, pruning, and favorable reserve development .
  • Personal lines contraction is intentional and margin-Accretive: expect stabilization through 2025 while commercial lines drive growth; retention remains healthy .
  • Investment yield tailwinds and defensive equity stance support earnings quality; reinvestment rates >5.5% provide incremental NII momentum if rates hold .
  • Modernization nearing major milestone (July 2025 commercial release); medium-term efficiency gains should further reduce expense ratio burden (FY 2025 impact ~1.0 pt vs 1.3 pt in FY 2024) .
  • Dividend growth (+5.8%/+6.5%) and AM Best rating affirmations provide confidence and potential support for valuation multiples .
  • Watch risks: tariff-driven cost inflation (auto parts/repairs/construction), social inflation (TPLF, nuclear verdicts), competitive pressure in workers’ comp; management plans rate actions and underwriting discipline to offset .
  • Near-term trading lens: favor the EPS beat and improving underwriting narrative; monitor revenue trajectory given deliberate personal lines downsizing and seasonality/claims volatility.

Notes: Estimates marked with * retrieved from S&P Global.