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DG

DONEGAL GROUP INC (DGICA)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered record quarterly earnings: net income $24.0M ($0.70 Class A diluted EPS), total revenues $0.250B, and a combined ratio of 92.9%, driven by a 9.5pt improvement in core loss ratio and a lower expense ratio .
  • Loss ratio fell to 59.8% (from 72.1% YoY) with weather-related losses at $7.7M (3.3pts) below the five-year average, and large fire losses eased to $9.5M (4.0pts) .
  • Management expects modernization project expense impact peaked in 2024 (≈1.3pts of the expense ratio) and will subside in 2025; business plan targets high single-digit commercial growth and a modest personal-lines decline in 2025 .
  • No formal numeric guidance; dividends maintained ($0.1725 Class A, $0.155 Class B), paid Feb 18, 2025 .
  • Wall Street consensus (S&P Global) was unavailable at time of analysis; beats/misses versus estimates cannot be assessed (see Estimates Context).

What Went Well and What Went Wrong

What Went Well

  • Highest quarterly earnings in company history; “our fourth quarter 2024 net income of $24 million represents the highest quarterly earnings in our history” .
  • Material underwriting improvement: core loss ratio down 9.5pts; combined ratio improved to 92.9% from 106.8% YoY; personal-lines core loss ratio down 16.7pts .
  • Expense ratio progress: Q4 32.8% (vs 34.1% YoY); leadership hit 2024 target to reduce expense ratio by 1pt and aims for 2pts by end of 2025; modernization expense impact peaked at ~1.3pts in 2024 .

What Went Wrong

  • Adverse prior-year development in auto lines: Q4 unfavorable development of $5.1M in commercial auto and $1.6M in personal auto due to higher bodily injury severity amid social inflation .
  • Personal-lines contraction in Q4: net premiums written down 5% driven by planned attrition, paused new business, and targeted exposure reductions (policy count down 11.6% YoY) .
  • 2025 reinsurance program increases external casualty retention to $6M (from $3M), raising gross retention on certain losses (mitigated by intercompany cover to maintain $3M at subsidiaries) .

Financial Results

Quarterly Progression (Sequential)

MetricQ2 2024Q3 2024Q4 2024
Total Revenues ($USD Millions)$246.773 $251.738 $249.954
Net Premiums Earned ($USD Millions)$234.311 $237.957 $236.635
Combined Ratio (%)103.0% 96.4% 92.9%
Net Income ($USD Millions)$4.153 $16.752 $24.003
Class A Diluted EPS ($)$0.13 $0.51 $0.70
Non-GAAP Operating EPS (Class A Diluted) ($)$0.11 $0.46 $0.69

YoY Comparison (Q4 2024 vs Q4 2023)

MetricQ4 2023Q4 2024
Total Revenues ($USD Millions)$239.468 $249.954
Net Premiums Earned ($USD Millions)$226.185 $236.635
Combined Ratio (%)106.8% 92.9%
Net Income ($USD Millions)$(1.970) $24.003
Class A Diluted EPS ($)$(0.06) $0.70
Non-GAAP Operating EPS (Class A Diluted) ($)$(0.11) $0.69

Margins Breakdown (Q4)

ComponentQ4 2023Q4 2024
Loss Ratio – Core Losses (%)61.8% 52.3%
Loss Ratio – Weather-Related (%)5.9% 3.3%
Loss Ratio – Large Fire (%)4.8% 4.0%
Loss Ratio – Net PY Reserve Dev. (%)-0.4% -0.2%
Expense Ratio (%)34.1% 32.8%
Dividend Ratio (%)0.6% 0.3%
Combined Ratio (%)106.8% 92.9%

Segment Breakdown (Q4)

MetricQ4 2023Q4 2024
Net Premiums Earned – Commercial ($USD Millions)$133.602 $136.701
Net Premiums Earned – Personal ($USD Millions)$92.583 $99.934
Statutory Combined Ratio – Commercial (%)105.8% 97.3%
Statutory Combined Ratio – Personal (%)111.1% 89.5%
Total Lines – Statutory Combined Ratio (%)107.8% 94.0%

KPIs (Q4 2024)

KPIQ4 2024
Weather-Related Losses ($USD Millions)$7.7
Large Fire Losses ($USD Millions)$9.5
Net Investment Income ($USD Millions)$12.050
Average Investment Yield (%)3.3%
Book Value per Share ($)$15.36
Net Premiums Written ($USD Millions)$211.442

Actual vs Estimates (Q4 2024)

MetricActualConsensus Estimate
Class A Diluted EPS ($)$0.70 N/A (S&P Global consensus unavailable)
Total Revenues ($USD Millions)$249.954 N/A (S&P Global consensus unavailable)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Commercial Lines Premium GrowthFY 2025Not disclosedHigh single-digit % growth targeted; focus on profitable small/mid-market accounts Introduced directional growth target
Personal Lines PremiumsFY 2025Not disclosedExpect modest decline; gradual new business increase in H2 2025 Introduced directional decline then stabilization
Expense Ratio Impact (Modernization)FY 2024 → FY 2025+Peak impact expected in 2024Peaked ~1.3pts in 2024; to subside in 2025+ Lowering headwind
Expense Ratio Reduction ObjectiveFY 2024–20252024 target -1pt vs planAchieved -1pt in 2024; targeting -2pts by end of 2025 vs original plan Raised/maintained improvement goal
Reinsurance – Catastrophe ProgramCY 2025Prior top-end limitAdded $25M to top-end property cat limit; retention unchanged Strengthened protection
Reinsurance – Casualty Excess of LossCY 2025External retention $3MExternal retention $6M; intercompany cover maintains $3M at subsidiaries; ceded costs ~unchanged Higher gross retention, mitigated internally
DividendsQ4 2024Regular quarterly dividends$0.1725 (Class A), $0.155 (Class B); paid Feb 18, 2025 Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 2024)Previous Mentions (Q3 2024)Current Period (Q4 2024)Trend
Systems modernization / technologyPeak expense impact expected; expense ratio decline YoY; portfolio analytics maturing Ongoing modernization costs; expense ratio up slightly QoQ; fixed-maturity duration ~5.1 years Modernization expense impact peaked ~1.3pts in 2024; further efficiencies expected; cloud-based data infrastructure underway Improving operational efficiency
Underwriting actions / rate adequacyCore loss ratio flat YoY but sequentially improved; strong renewal rate increases Core loss ratio improved across lines; combined ratio to 96.4% despite Hurricane Helene Core loss ratio improved by 9.5pts; combined ratio 92.9%; double-digit rate achievement excluding workers’ comp Improving profitability
Geographic/portfolio reshapingExit GA/AL underway; manage cat concentrations Exit GA/AL completed; deliberate mix shifts Begin nonrenewals in ME/NH (<$2M premium); property concentration management and removal of >$1B TIV Ongoing pruning
Personal lines strategyControlled new business; rate achievement driving earned premium Personal-lines net premiums written +5.4% YoY; homeowners weather elevated Intentional contraction in Q4 (NPW -5%); expect modest decline 2025, gradual targeted growth in H2 Stabilizing after reset
Social inflation / legal environmentConcern on escalating costs Liability severity pressure in commercial; monitoring litigation trends Unfavorable PY development in auto due to BI severity; continued vigilance on social inflation Persistent headwind
Reinsurance & risk transferStandard program; cat activity elevated in Q2 Hurricane Helene losses; cat exposure addressed 2025 program: +$25M cat limit; casualty retention up externally; intercompany mitigation; ceded costs ~flat Balanced, prudent

Management Commentary

  • “Our fourth quarter 2024 net income of $24 million represents the highest quarterly earnings in our history.” — Kevin Burke, CEO .
  • “Rate increases… averaging 11% in total and 12% when excluding workers’ comp… The combined ratio for the fourth quarter of 2024 was an excellent 92.9%… We attribute the improvement to a 9.5 percentage point decrease in the core loss ratio.” — Jeffrey Miller, CFO .
  • “We realized the peak expense impact of our multiyear systems modernization project in 2024, representing 1.3 percentage points of our expense ratio… significant improvement in 2024 and we will continue such efforts into 2025 and beyond.” — William (Dan) DeLamater .
  • “We added $25 million to the top end limit of our property catastrophe reinsurance coverage… For our casualty excess of loss reinsurance program, we increased our external retention amount from $3 million to $6 million… we expect our ceded reinsurance premium costs for 2025 will be virtually unchanged from 2024.” — Jeffrey Miller, CFO .

Q&A Highlights

  • The company provided a pre-recorded webcast of prepared remarks; no live Q&A session was indicated for Q4 2024 .
  • Notable management clarifications within remarks: details on reinsurance program changes and expected ceded premium costs (virtually unchanged), modernization expense impact peaking in 2024, and 2025 portfolio growth posture .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q4 2024 were unavailable due to access limits at the time of retrieval; therefore, we cannot assess beats/misses versus consensus. Values that would normally be compared to S&P Global consensus are marked as unavailable in the table above.

Key Takeaways for Investors

  • Underwriting turnaround gaining traction: core loss ratio improvements across commercial and personal lines plus a lower expense ratio produced a 92.9% combined ratio in Q4, a compelling inflection from 106.8% YoY .
  • Personal-lines reset likely complete: intentional contraction and exposure management drove near-term NPW declines; management expects modest decline in 2025 with targeted growth resuming in H2 2025 .
  • Expense tailwind emerging: modernization program headwind peaked in 2024 (~1.3pts), with ongoing organizational efficiency and a stated 2025 objective to further reduce expense ratio versus plan .
  • Reinsurance posture prudent: added $25M cat limit and adjusted casualty retention externally to $6M while maintaining $3M at subsidiaries via intercompany cover; ceded premium costs expected ~unchanged in 2025 .
  • Investment income support: net investment income up 12.5% YoY in Q4 and 10% for FY 2024; higher reinvestment yields and modest equity gains bolstered book value to $15.36 .
  • Portfolio construction: ongoing pruning (state exits, TIV reductions) and rate adequacy reinforce sustained profitability prospects; watch social inflation impacts on auto/liability severity .
  • Near-term trading lens: positive narrative on underwriting quality and expense trajectory; absence of formal guidance and unavailable consensus limits beat/miss framing, but operational momentum is evident in sequential and YoY metrics .