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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 
☑
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2024
 
OR
 
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________________ to _________________
 
Commission file number 0-15341
DONEGAL GROUP INC.
(Exact name of registrant as specified in its charter)
 
Delaware
  
23-2424711
(State or other jurisdiction of
incorporation or organization)
  
(I.R.S. Employer
Identification No.)
     

1195 River Road, Marietta, Pennsylvania
  
17547
(Address of principal executive offices)
  
(Zip code)

Registrant’s telephone number, including area code: (800) 877-0600
 
Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
  
Trading Symbols
  
Name of Each Exchange on Which Registered
         
Class A Common Stock, $.01 par value
  
DGICA
  
The NASDAQ Global Select Market
         
Class B Common Stock, $.01 par value
  
DGICB
  
The NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None.
 
Indicate by check mark whether the registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act: Yes ☐. No ☑.
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐. No ☑.
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes ☑. No ☐.
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☑. No ☐.
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Act. (Check one):
 
Large accelerated filer ☐
Accelerated filer ☑
Non-accelerated filer ☐
Smaller reporting company ☐
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. ☐.
 
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes ☑. No ☐.
 
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐.

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to Section 240.10D-1(b). ☐.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐. No ☑.
 
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $207,861,925.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 30,062,059 shares of Class A common stock and 5,576,775 shares of Class B common stock outstanding on March 3, 2025.
 
Documents Incorporated by Reference
 
The registrant incorporates by reference portions of the registrant’s definitive proxy statement relating to registrant’s annual meeting of stockholders to be held April 17, 2025 into Part III of this report.


DONEGAL GROUP INC.
INDEX TO FORM 10-K REPORT
 
   
Page
PART I
    
Item 1.
1
Item 1A.
26
Item 1B.
40
Item 1C.
40
Item 2.
 41
Item 3.
 41
Item 4.
41
     
PART II
    
Item 5.
41
Item 6.
43
Item 7.
44
Item 7A.
 60
Item 8.
62
Item 9.
107
Item 9A.
 107
Item 9B.
107
Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections. 107
     
PART III
    
Item 10.
109
Item 11.
 109
Item 12.
 109
Item 13.
 109
Item 14.
 109
     
PART IV
    
Item 15.
110
Item 16.
112

(i)
Index
PART I

Item 1.
Business.

Introduction

Donegal Group Inc., or DGI, is an insurance holding company whose insurance subsidiaries and affiliates offer property and casualty insurance in 21 Mid-Atlantic, Midwestern, Southern and Southwestern states. DGI has no significant business operations and is separate and distinct from its insurance subsidiaries. As used in this Form 10-K Report, the terms “we,” “us” and “our” refer to Donegal Group Inc. and its insurance subsidiaries. Our Class A common stock and our Class B common stock trade on the NASDAQ Global Select Market under the symbols “DGICA” and “DGICB,” respectively.

Donegal Mutual Insurance Company, or Donegal Mutual, organized us as an insurance holding company on August 26, 1986. At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock. Donegal Mutual’s ownership provides Donegal Mutual with approximately 70% of the combined voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock. Our insurance subsidiaries and Donegal Mutual have interrelated operations due to an intercompany pooling agreement and other intercompany agreements and transactions we describe in Note 3 of the Notes to Consolidated Financial Statements. While maintaining the separate corporate existence of each company, our insurance subsidiaries conduct business together with Donegal Mutual and its insurance subsidiaries as the Donegal Insurance Group. The Donegal Insurance Group is not a legal entity, is not an insurance company and does not issue or administer insurance policies. Rather, it is a trade name that refers to the group of insurance companies that are affiliated with Donegal Mutual.

At December 31, 2024, we had three segments: our investment function, our commercial lines of insurance and our personal lines of insurance. We set forth financial information about these segments in Note 19 of the Notes to Consolidated Financial Statements. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.

Our insurance subsidiaries and Donegal Mutual provide their policyholders with a selection of insurance products and pursue profitability by adhering to a strict underwriting discipline. Our insurance subsidiaries derive a substantial portion of their insurance business from smaller to mid-sized regional communities. We believe this focus provides our insurance subsidiaries with competitive advantages in terms of local market knowledge, marketing, underwriting, claims servicing and policyholder service. At the same time, we believe our insurance subsidiaries have cost advantages over many smaller regional insurers that result from economies of scale our insurance subsidiaries realize through centralized accounting, administrative, data processing, investment and other services.

We believe we have a substantial opportunity, as a well-capitalized regional insurance holding company with a solid business strategy, to grow profitably and compete effectively with larger national property and casualty insurers. Our downstream holding company structure, with Donegal Mutual holding approximately 70% of the combined voting power of our common stock, has proven its effectiveness and success over the 38 years of our existence. Over that time period, we have grown significantly in terms of revenue and financial strength, and the Donegal Insurance Group has developed an excellent reputation as a regional group of property and casualty insurers.

Between 1998 and 2017, we and Donegal Mutual completed seven transactions involving acquisitions of property and casualty insurance companies or participation in the business of property and casualty insurance companies through Donegal Mutual’s entry into quota-share reinsurance agreements with them. We are currently placing less emphasis on pursuing acquisitions because Donegal Mutual and we believe there are significant opportunities for profitable organic growth in our desired markets and classes of business within our current geographical footprint.

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Available Information

You may obtain our Annual Reports on Form 10-K, including this Form 10-K Report, our quarterly reports on Form 10-Q, our current reports on Form 8-K, our proxy statement and our other filings pursuant to the Securities Exchange Act of 1934, or the Exchange Act, without charge by viewing our website at www.donegalgroup.com. You may also view our Code of Business Conduct and Ethics and the charters of the executive committee, the audit committee, the compensation committee and the nominating committee of our board of directors on our website. Upon request to our corporate secretary, we will also provide printed copies of any of these documents to you without charge. We have provided the address of our website solely for the information of investors. We do not intend the reference to our website address to be an active link or to otherwise incorporate the contents of our website into this Form 10-K Report. In addition to our website, the Securities and Exchange Commission (the “SEC”) maintains an Internet site at www.sec.gov that contains our reports, proxy and information statements and other information that we electronically file with, or furnish to, the SEC.

History and Organizational Structure

In the mid-1980’s, Donegal Mutual, as a mutual insurance company, recognized the desirability of developing additional sources of capital and surplus so it could remain competitive, expand its business and ensure its long-term viability. Accordingly, Donegal Mutual determined that the implementation of a downstream holding company structure was a viable business strategy to accomplish that objective. Thus, in 1986, Donegal Mutual formed us as a downstream holding company, and we incorporated in the state of Delaware as Donegal Group Inc. After Donegal Mutual formed us, we in turn formed Atlantic States Insurance Company, or Atlantic States, as our wholly owned property and casualty insurance company subsidiary.

In connection with the formation of Atlantic States and the establishment of our downstream insurance holding company system, Donegal Mutual and Atlantic States entered into a proportional reinsurance agreement, or pooling agreement. Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled business to Atlantic States. Thus, Donegal Mutual and Atlantic States share the underwriting results of the pooled business in proportion to their respective participation in the underwriting pool.

The member companies of the Donegal Insurance Group, which include our insurance subsidiaries, share a combined business plan to enhance market penetration and underwriting profitability objectives. We believe Donegal Mutual’s majority interest in the combined voting power of our Class A common stock and of our Class B common stock fosters our ability to implement our business philosophies, enjoy management continuity, maintain superior employee relations and provide a stable environment within which we can grow our businesses.

The products the member companies of the Donegal Insurance Group offer are generally complementary, which permits the Donegal Insurance Group to offer a broad range of products in a given market and to expand the Donegal Insurance Group’s ability to service an entire personal lines or commercial lines account. Distinctions within the products the member companies of the Donegal Insurance Group offer generally allow the member companies to manage certain risk segments through variations in coverage, policy terms and pricing. As a result, the underwriting profitability of the business the individual companies write directly will vary. However, the underwriting pool homogenizes the risk characteristics of all business that Donegal Mutual and Atlantic States write directly and all business that Donegal Mutual assumes from its affiliates and places into the underwriting pool. The business Atlantic States derives from the underwriting pool represents a significant percentage of our total consolidated revenues.

As the capital of Atlantic States and our other insurance subsidiaries has increased, the underwriting capacity of our insurance subsidiaries has increased proportionately. The size of the underwriting pool has also increased substantially. Therefore, as we originally planned in the mid-1980s, Atlantic States has successfully raised the capital necessary to support the growth of its direct business as well as to accept increases in its allocation of business from the underwriting pool. The portion of the underwriting pool allocated to Atlantic States has increased from an initial allocation of 35% in 1986 to an 80% allocation since March 1, 2008. We do not anticipate any further change in the pooling agreement between Atlantic States and Donegal Mutual, including any change in the percentage participation of Atlantic States in the underwriting pool.

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In addition to Atlantic States, our insurance subsidiaries are Michigan Insurance Company, or MICO, The Peninsula Insurance Company and its wholly owned subsidiary, Peninsula Indemnity Company, or collectively, Peninsula, and Southern Insurance Company of Virginia, or Southern. Donegal Mutual has a 100% quota-share reinsurance agreement with Southern Mutual Insurance Company, or Southern Mutual, and Donegal Mutual places its assumed business from Southern Mutual into the underwriting pool. Donegal Mutual wholly owns and has a 100% quota-share reinsurance agreement with Mountain States Indemnity Company and Mountain States Commercial Insurance Company (collectively, the “Mountain States insurance subsidiaries”), and Donegal Mutual places its assumed business from the Mountain States insurance subsidiaries into the underwriting pool.

The following chart depicts our organizational structure, including all of our property and casualty insurance subsidiaries and affiliates:
 
graphic

   
(1)
Because of the different relative voting power of our Class A common stock and our Class B common stock, our public stockholders hold approximately 30% of the combined voting power of our Class A common stock and our Class B common stock and Donegal Mutual holds approximately 70% of the combined voting power of our Class A common stock and our Class B common stock.

Relationship with Donegal Mutual

Donegal Mutual provides facilities, management and other services to us and our insurance subsidiaries. In addition, Donegal Mutual purchases and maintains the information technology systems that support the business of Donegal Mutual and our insurance subsidiaries. Donegal Mutual allocates certain related expenses to Atlantic States in accordance with the relative participation of Donegal Mutual and Atlantic States in the pooling agreement. Our insurance subsidiaries other than Atlantic States reimburse Donegal Mutual for allocated costs of services Donegal Mutual provides on their behalf based on their proportion of the total direct premiums written of the Donegal Insurance Group and other metrics. Allocated expenses from Donegal Mutual for services it provided to Atlantic States and our other insurance subsidiaries totaled $224.6 million, $219.0 million and $199.2 million for 2024, 2023 and 2022, respectively.

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Donegal Mutual is the employer of record for all personnel who provide services for our insurance subsidiaries. Donegal Mutual strives to maintain a culture that is based on integrity and respect, with an environment designed to facilitate excellent service to the agents and customers of the Donegal Insurance Group. At December 31, 2024, Donegal Mutual had 851 employees, of which 423 were based in its Marietta, Pennsylvania headquarters and 428 were based in regional offices or were permanent remote employees. There were 833 full-time employees and 18 part-time employees. The majority of Donegal Mutual’s employees follow a hybrid schedule that includes working several days in their assigned office to allow for enhanced collaboration and interaction with other employees. Donegal Mutual targets employee compensation that is competitive and consistent with an employee’s position, knowledge, experience and skill level. Donegal Mutual provides annual wage increases that are based on merit. Donegal Mutual provides an annual cash incentive plan for all of its employees that provides an opportunity for Donegal Mutual’s employees to earn a bonus as a percentage of their annual wages that varies based on the level of underwriting profit Donegal Insurance Group achieves for a calendar year. In addition, Donegal Mutual provides to its full-time employees a comprehensive employee benefits program, including medical, dental and vision insurance, paid time off, and a 401(k) retirement plan that includes company matching provisions. Donegal Mutual also provides substantial training, development and wellness programs and resources to its employees.

Our insurance subsidiaries have a catastrophe reinsurance agreement with Donegal Mutual, pursuant to which Donegal Mutual provides coverage for losses related to any catastrophic occurrence over a set retention of $3.0 million ($2.0 million for 2022) for each participating insurance subsidiary, with a combined retention of $6.0 million ($5.0 million for 2022) for a catastrophe involving a combination of participating insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retain under catastrophe reinsurance agreements with unaffiliated reinsurers. The purpose of the catastrophe reinsurance agreement is to lessen the effects of an accumulation of losses arising from one event to levels that are appropriate given each subsidiary’s size, underwriting profile and surplus.

Donegal Mutual had a quota-share reinsurance agreement with MICO for policies effective through December 31, 2021. The purpose of the quota-share reinsurance agreement with MICO was to transfer to Donegal Mutual 25% of the premiums and losses related to MICO’s business. Donegal Mutual placed its assumed business from MICO into the underwriting pool. Donegal Mutual and MICO terminated this reinsurance agreement on a run-off basis effective January 1, 2022. As a result, MICO retains 100% of its net premiums and losses beginning with policies effective as of that date.

Donegal Mutual had a quota-share reinsurance agreement with Peninsula for policies effective through December 31, 2021. The purpose of the quota-share reinsurance agreement with Peninsula was to transfer to Donegal Mutual 100% of the premiums and losses related to the workers’ compensation product line of Peninsula in certain states. Donegal Mutual placed its assumed business from Peninsula into the underwriting pool. Donegal Mutual and Peninsula terminated this reinsurance agreement on a run-off basis effective January 1, 2022. As a result, Peninsula retains 100% of its net workers’ compensation premiums and losses beginning with policies effective as of that date.

We and Donegal Mutual have maintained a coordinating committee since our formation in 1986. The coordinating committee consists of two members of our board of directors, neither of whom is a member of Donegal Mutual’s board of directors, and two members of Donegal Mutual’s board of directors, neither of whom is a member of our board of directors. The purpose of the coordinating committee is to establish and maintain a process for an ongoing evaluation of the transactions between Donegal Mutual, our insurance subsidiaries and us. The coordinating committee considers the fairness of each intercompany transaction to Donegal Mutual and its policyholders and to us and our stockholders.

A new agreement or any change to a previously approved agreement must receive coordinating committee approval. The approval process for a new agreement between Donegal Mutual and us or one of our insurance subsidiaries or a change in such an agreement is as follows:


 •
both of our members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to us and in the best interests of our stockholders;


•
both of Donegal Mutual’s members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to Donegal Mutual and in the best interests of its policyholders;


•
our board of directors must approve the new agreement or the change in an existing agreement; and


•
Donegal Mutual’s board of directors must approve the new agreement or the change in an existing agreement.

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The coordinating committee also meets annually to review each existing agreement between Donegal Mutual and us or our insurance subsidiaries, including all reinsurance agreements between Donegal Mutual and our insurance subsidiaries. The purpose of this annual review is to examine the results of the agreements over the past year and, in the case of reinsurance agreements, over several years and to determine if the results of the existing agreements remain fair and equitable to us and our stockholders and fair and equitable to Donegal Mutual and its policyholders or if Donegal Mutual and we should mutually agree to certain adjustments to the terms of the agreements. In the case of reinsurance agreements, the annual adjustments typically relate to the reinsurance premiums and loss retention amounts. These agreements are ongoing in nature and will continue in effect throughout 2025 in the ordinary course of our business.

Our members on the coordinating committee, as of the date of this Form 10-K Report, are Barry C. Huber and David C. King. Mr. King replaced Richard D. Wampler, II, who did not stand for re-election as a director, in April 2024. Donegal Mutual’s members on the coordinating committee as of such date are Michael W. Brubaker and Michael K. Callahan. We refer to our proxy statement for our annual meeting of stockholders to be held on April 17, 2025 for further information about the members of the coordinating committee.

We believe our relationships with Donegal Mutual offer us and our insurance subsidiaries a number of competitive advantages, including the following:


 •
enabling our stable management, the consistent underwriting discipline of our insurance subsidiaries, external growth, long-term profitability and financial strength;


•
creating operational and expense synergies from the combination of resources and integrated operations of the Donegal Insurance Group;


•
producing more stable and uniform underwriting results for our insurance subsidiaries over extended periods of time than we could achieve without our relationship with Donegal Mutual;


•
providing opportunities for growth because of the ability of Donegal Mutual to affiliate and enter into reinsurance agreements with, or otherwise acquire control of, mutual insurance companies and place the business it assumes into the underwriting pool; and


•
providing Atlantic States with a significantly larger underwriting capacity because of the underwriting pool Donegal Mutual and Atlantic States have maintained since 1986.

In the first quarter of 2025, our board of directors and the board of directors of Donegal Mutual each undertook a review of the relationships between Donegal Mutual and DGI and determined that continuing the current relationships and the current corporate structure of Donegal Mutual and DGI is in the best interests of DGI and its various constituencies.

Business Strategy

We and Donegal Mutual are focused on several primary strategies, including achieving sustained excellent financial performance, strategically modernizing our operations and processes to transform our business, capitalizing on opportunities to grow profitably and providing superior experiences to our agents, policyholders and employees. Our strategies are designed to provide financial security to the policyholders of Donegal Mutual and our respective insurance subsidiaries and, ultimately, to provide value to our stockholders. The annual net premiums earned of our insurance subsidiaries have increased from $301.5 million in 2006 to $936.7 million in 2024, a compound annual growth rate of 6.5%.

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The combined ratio of our insurance subsidiaries and that of the United States property and casualty insurance industry as computed using United States generally accepted accounting principles, or GAAP, and statutory accounting principles, or SAP, for the years 2020 through 2024 are shown in the following table:
 

  
2024
    
2023
    
2022
    
2021
    
2020
  
Our GAAP combined ratio
    
98.6
%
    
104.4
%
    
103.3
%
    
101.0
%
    
96.0
%
Our SAP combined ratio
    
98.3
      
104.2
      
103.3
      
100.8
      
95.4
  
Industry SAP combined ratio (1)
    
98.9
      
101.9
      
103.1
      
100.0
      
98.8
  
   
(1)
As reported (projected for 2024) by A.M. Best Company.

We and Donegal Mutual believe we can continue to expand our insurance operations over time primarily through organic growth. Our insurance subsidiaries and Donegal Mutual seek to increase their premium base by making quality independent agency appointments, enhancing their competitive position within each agency, providing a comprehensive suite of insurance products and developing and maintaining automated systems to improve service, communications and efficiency.

A detailed review of our business strategies follows:


 •
Achieving sustained excellent financial performance.

Our insurance subsidiaries seek to achieve excellent financial performance through a combination of consistent investment income and underwriting profitability. Underwriting profitability is a fundamental component of our long-term financial strength because it allows our insurance subsidiaries to generate profits without relying exclusively on their investment income for profitability.

Our insurance subsidiaries seek to enhance their underwriting results by:


 •
carefully selecting the product lines, classes of business and individual risks they underwrite;


•
executing localized strategies to achieve a mix of business they expect will generate targeted margins of profitability;


•
monitoring premium rate adequacy and adjusting premium rates to achieve targeted growth, returns and retention levels;


•
utilizing enhanced underwriting and technology tools to inform underwriting decisions and determine coverage availability;


•
utilizing data analytics and predictive modeling tools to inform risk selection and pricing decisions;


•
utilizing economic capital modeling tools to carefully manage the geographic concentration of risks they underwrite; and


•
evaluating their claims history on a regular basis to ensure the adequacy of their underwriting guidelines and product pricing.

Our insurance subsidiaries maintain discipline in their pricing by effecting rate increases to sustain or improve their underwriting results without unduly affecting their customer retention. In addition to appropriate pricing, our insurance subsidiaries seek to ensure that their premium rates are adequate relative to the risk exposures they insure. Our insurance subsidiaries review loss trends on a regular basis to identify changes in the frequency and severity of their claims and to assess the adequacy of their rates and underwriting standards. Our insurance subsidiaries utilize integrated risk-specific catastrophe model results, a tool to estimate probable maximum fire loss, embedded building valuation models and aerial imagery enhanced by artificial intelligence to enhance their review and pricing of commercial property risks. Our insurance subsidiaries also carefully monitor and audit the information they use to price their policies for the purpose of enabling them to receive an adequate level of premiums for the risk they assume. For example, our insurance subsidiaries audit the payroll data of their workers’ compensation customers to verify that the assumptions used to price a particular policy were accurate. By implementing appropriate rate increases and understanding the risks our insurance subsidiaries agree to insure, our insurance subsidiaries seek to achieve consistent underwriting profitability.

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Our insurance subsidiaries monitor the performance of the product lines they underwrite and the geographies in which they offer their insurance products. Our insurance subsidiaries take specific actions to remediate underperforming product lines or geographies that include pricing increases, underwriting adjustments, reunderwriting initiatives as well as discontinuing a given product or withdrawing from a geography when our insurance subsidiaries determine they cannot reasonably expect to generate targeted profitability over time. For example, our insurance subsidiaries exited the commercial lines markets in the states of Georgia and Alabama, including the non-renewal of all commercial lines accounts in those states, during 2023 and 2024. Our insurance subsidiaries took this action after determining that they could not reasonably expect to generate targeted profitability within a reasonable period of time for commercial lines of business in those states.

Our insurance subsidiaries have no material exposures to asbestos or environmental liabilities. Our insurance subsidiaries seek to provide more than one policy to a given personal lines or commercial lines customer because this “account selling” strategy diversifies their risk and has historically improved their underwriting results. Our insurance subsidiaries also use reinsurance to manage their exposure and limit their maximum net loss from large single risks or risks in concentrated areas.

Our insurance subsidiaries maintain stringent expense controls under direct supervision of their senior management. We centralize the processing and administrative activities of our insurance subsidiaries to realize operating synergies and better expense control. Our insurance subsidiaries utilize technology to automate much of their underwriting, claims and billing processes and to facilitate agency and policyholder communications on an efficient, timely and cost-effective basis. During 2024, Donegal Mutual and our insurance subsidiaries initiated a formal expense reduction initiative that included actions to optimize staffing levels, take advantage of technology-driven efficiency gains, align agency compensation to desired outcomes and reduce third-party vendor costs in several operational areas. This initiative will continue into 2025 to achieve targeted expense reduction goals. Our insurance subsidiaries have increased their annual premium per employee, a measure of efficiency that our insurance subsidiaries use to evaluate their operations, from approximately $470,000 in 1999 to approximately $1.4 million in 2024.

Return on invested assets is an important element of the financial results of our insurance subsidiaries. The investment strategy of our insurance subsidiaries is to generate an appropriate amount of after-tax income on invested assets while limiting the potential impact of equity market volatility and minimizing credit risk through investments in high-quality securities. As a result, our insurance subsidiaries seek to invest a high percentage of their assets in diversified, highly rated and marketable fixed-maturity instruments. The fixed-maturity portfolios of our insurance subsidiaries consist of both taxable and tax-exempt securities. Our insurance subsidiaries maintain a portion of their portfolios in short-term securities to provide liquidity for the payment of claims and operation of their respective businesses. Our insurance subsidiaries maintain a small percentage (2.6% at December 31, 2024) of their portfolios in equity securities.


 •
Strategically modernizing our operations and processes to transform our business.

We have an enterprise analytics department that is focused on integrating data and analytics into strategy and decision-making at all levels of our organization. The enterprise analytics team is responsible for core functions of rate-making, predictive analytics, data management and business intelligence. These responsibilities include the development and expansion of risk-based pricing segmentation, analytical innovation, predictive modeling solutions, formal data strategies, performance monitoring and enhanced reporting mechanisms. We developed and began executing a pricing and analytics roadmap that will continue to deliver data-driven insights to our underwriters. This roadmap includes ongoing development and enhancement of quality tools that allow us to operationalize pricing and underwriting predictive models, integrate internal and external data for better-informed pricing and underwriting decisions and enhance the automation and precision of our rate indication methodology. Our enterprise analytics team is continuing to develop new tools and solutions that are enhancing our product portfolio management capabilities, competitive intelligence, pricing sophistication and utilization of data to monitor and manage our operations. The team also generates reporting and analyses that enable us to draw business insights from data that drive actions to improve performance.

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We are focused on process excellence and have prepared a multi-year roadmap for addressing those opportunities. We are also expanding our data management capabilities to continually ensure the data upon which we rely for our business decisions and financial reporting is complete, accurate and secure. We have assigned an innovation task force the responsibility to research emerging technologies and identify potential technology solutions that might assist us in achieving our business strategies.

In 2018, Donegal Mutual initiated a multi-year systems modernization project to replace its remaining legacy systems, streamline business processes and workflows and enhance data analytics and modeling capabilities. In February 2020, Donegal Mutual implemented the first release of new systems related to the project, and our insurance subsidiaries began to issue workers’ compensation policies from the new systems in the second quarter of 2020. In August 2021, Donegal Mutual implemented the second release of new systems related to the project, including a new agency portal and the rating, underwriting and policy issuance capabilities necessary to support the launch of new personal lines products, and our insurance subsidiaries began to issue new personal lines products from the new systems in the fourth quarter of 2021. In 2023, Donegal Mutual implemented two additional major releases of new systems, which included three commercial lines of business with enhanced straight-through-processing capabilities as well as dwelling fire and conversion of legacy homeowners renewal policies in two initial states. In 2024, Donegal Mutual implemented another major release that included dwelling fire and conversion of legacy homeowners renewal policies in the remaining eight states. During 2025, Donegal Mutual expects to implement new systems for the remaining lines of business the Donegal Insurance Group issues currently and for the conversion of remaining legacy renewal policies of the Donegal Insurance Group. Donegal Mutual plans to perform the conversion of legacy renewal policies on a state-by-state basis, currently projecting full completion in 2026.

In 2023, Donegal Mutual began a multi-year data modernization initiative to implement a comprehensive cloud-based data infrastructure that will support critical future business processes and strategies. This agile infrastructure will scale dynamically based on business demands and deliver real-time insights. The platform will enable highly efficient data processing through modular, metadata-driven frameworks, ensuring accelerated and reliable future data delivery within a secure, governed and compliant repository. It will also incorporate robust security features, such as multi-factor authentication and data encryption, as well as other advanced data security and privacy measures. The platform will also facilitate seamless integration with analytics functions, artificial intelligence and machine learning models, and enable innovative business use cases for technologies such as Generative Artificial Intelligence (“Gen AI”). Donegal Mutual implemented concurrently a formal data management program that aligns critical business processes and strategies with our technology. We expect these data-related investments will ensure easily accessible data for management reporting, position us to further enhance our data analytics, enable the future addition of new data sources and mitigate data integrity risk.

During 2024, we began exploring Gen AI capabilities by engaging with third-party experts to evaluate and identify potential opportunities to adopt this transformative technology. We focused our initial activities on fostering awareness of associated risks, developing expertise, establishing strategic partnerships and preparing for future advancements. We expect to leverage capabilities that already exist within our new data infrastructure platform and prioritize solutions that allow traceability, auditability and explainability of outputs. We expect to explore use cases that enhance the efficiency of our internal processes and have no current plans to utilize GenAI in any automated underwriting, pricing or claim adjudication functions.

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 •
Capitalizing on opportunities to grow profitably.

Continued expansion of our insurance subsidiaries within their existing markets will be a key source of their continued premium growth, and maintaining an effective network of independent agencies is integral to this expansion. Our insurance subsidiaries seek to be among the top three insurers within each of the independent agencies for the lines of business our insurance subsidiaries write by providing a consistent, competitive and stable market for their products. We believe that the consistency of the product offerings of our insurance subsidiaries enables our insurance subsidiaries to compete effectively for independent agents with other insurers whose product offerings may fluctuate based on industry conditions. Our insurance subsidiaries offer a competitive compensation program to their independent agents that rewards them for producing profitable growth and maintaining profitable books of business with our insurance subsidiaries.

Our insurance subsidiaries execute a combined annual business plan with Donegal Mutual and its insurance subsidiaries. Within the past several years, we enhanced the annual planning process to ensure that we are directing efforts and resources toward geographic regions, market segments, product lines and classes of business that will give us the best opportunities to achieve sustained growth and profitability. As part of the planning process, we perform a detailed analysis of internal and external data with respect to each state within our operating regions. We assess state-specific marketing dynamics and opportunities, including an evaluation of the historical experience of our insurance subsidiaries. We then assign a strategic posture for each state and develop action plans to execute state-specific strategies for growth or reduction of premiums, agency distribution and enhanced profit generation over the next several years. As part of our property exposure management, we implemented tools that have allowed us to assign a strategic posture at a county level within each state. Our insurance subsidiaries utilize these tools to further manage and refine their concentrations of property risk exposure and to enhance their geographic risk diversification. We expect this strategy will reduce over time the overall impact of losses from severe weather events to the results of our insurance subsidiaries.

In recent years, the consolidation of independent agencies has accelerated, resulting in the acquisition of independent agencies from which our insurance subsidiaries and Donegal Mutual currently receive business by national cluster groups and aggregators. We have expanded our national accounts team that is responsible for the management and expansion of our relationships with these national agency groups. The national accounts team serves as a centralized point of contact for these groups and works directly with our regional sales and marketing teams to support and develop relationships with independent agents affiliated with national agency groups. We believe our relationships with existing and emerging national agency groups will continue to expand and that these groups represent a significant opportunity for profitable future growth.


 •
Delivering a superior experience to our agents and policyholders.

Donegal Mutual and our insurance subsidiaries strive to maintain technology comparable to that of their larger competitors. “Ease of doing business” is a critically important component of an insurer’s value to an independent agency. Our insurance subsidiaries provide fully automated underwriting and policy issuance portals that substantially ease data entry and facilitate the quoting and issuance of policies for the independent agents of our insurance subsidiaries. As a result, applications of the independent agents for our insurance subsidiaries can result in policy issuance without further re-entry of information. These systems also interface with the agency management systems of the independent agents of our insurance subsidiaries. In addition, we utilize agency relationship management tools to enhance the abilities of our insurance subsidiaries to manage their agency relationships and facilitate their agency communications and interactions.

Our insurance subsidiaries also provide their independent agents with ongoing support to enable them to better attract and service customers, including:


 •
training programs;


•
marketing support;


•
availability of a personal lines service center that provides comprehensive service for our personal lines policyholders;

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 •
availability of a commercial lines small business unit to monitor straight-through processing results and enhance turnaround time for responses to agents for less complicated commercial risks;


•
availability of a commercial lines service center, which is an optional service enhancement for agencies who prefer that we interact directly with their customers for mid-term policy coverage changes and other service requests; and


•
accessibility to and regular interactions with marketing and underwriting personnel and senior management of our insurance subsidiaries.

Our insurance subsidiaries appoint independent agencies with a strong underwriting and growth track record. We believe that our insurance subsidiaries will drive continued long-term growth by carefully selecting, motivating and supporting their independent agencies.

We believe that excellent policyholder service is important in attracting new policyholders and retaining existing policyholders. Our insurance subsidiaries work closely with their independent agents to provide a consistently responsive level of claims service, underwriting and customer support. Our insurance subsidiaries seek to respond expeditiously and effectively to address customer and independent agent inquiries in a number of ways, including:


 •
availability of a customer call center, secure website and mobile application for claims reporting;


•
availability of a secure website and mobile application for access to policy information and documents, payment processing and other features;


•
timely replies to information requests and policy submissions; and


•
prompt responses to, and processing of, claims.


•
Acquiring property and casualty insurance companies to augment the organic growth of our insurance subsidiaries.

We have been an effective consolidator of smaller “main street” property and casualty insurance companies. We are currently placing less emphasis on pursuing acquisitions because Donegal Mutual and we believe there are significant opportunities for profitable organic growth in our desired markets and classes of business within our current geographic footprint. Between 1998 and 2017, we and Donegal Mutual completed seven transactions involving acquisitions of property and casualty insurance companies or participation in the business of property and casualty insurance companies through Donegal Mutual’s entry into quota-share reinsurance agreements with them. While Donegal Mutual and we generally engage in preliminary discussions with potential direct or indirect acquisition candidates from time to time, neither Donegal Mutual nor we make any public disclosure regarding a proposed acquisition until Donegal Mutual or we have entered into a definitive acquisition agreement.

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The following table highlights our and Donegal Mutual’s history of insurance company acquisitions and affiliations since 1998:
Company Name
  
State of Domicile
  
Year Control Acquired
  
Method of Acquisition/Affiliation
Southern Heritage Insurance
Company (1)
  
Georgia
  
1998
  
Purchase of stock by us in 1998.
             
Le Mars Mutual Insurance
Company of Iowa and then Le Mars Insurance Company (1)
  
Iowa
  
2002
  
Surplus note investment by Donegal Mutual in 2002; conversion to stock company in 2004; acquisition of stock by us in 2004.
             
Peninsula Insurance Group
  
Maryland
  
2004
  
Purchase of stock by us in 2004.
             
Sheboygan Falls Mutual Insurance Company and then Sheboygan Falls Insurance Company (1)
  
Wisconsin
  
2007
  
Contribution note investment by Donegal Mutual in 2007; conversion to stock company in 2008; acquisition of stock by us in 2008.
             
Southern Mutual Insurance
Company (2)
  
Georgia
  
2009
  
Surplus note investment by Donegal Mutual and quota-share reinsurance in 2009.
             
Michigan Insurance Company
  
Michigan
  
2010
  
Purchase of stock by us in 2010.
             
Mountain States Mutual Casualty Company(3)
  
New Mexico
  
2017
  
Merger with and into Donegal Mutual in 2017.
   

(1)
To reduce administrative and compliance costs and expenses, these subsidiaries subsequently merged into one of our existing insurance subsidiaries.

(2)
Control acquired by Donegal Mutual.

(3)
Donegal Mutual completed the merger of Mountain States Mutual Casualty Company with and into Donegal Mutual effective May 25, 2017. Donegal Mutual was the surviving company in the merger, and Mountain States insurance subsidiaries became insurance subsidiaries of Donegal Mutual upon completion of the merger. Donegal Mutual also entered into a 100% quota-share reinsurance agreement with the Mountain States insurance subsidiaries on the merger date. Beginning with policies effective in 2021, Donegal Mutual places the business of the Mountain States insurance subsidiaries into the underwriting pool.

Competition

The property and casualty insurance industry is highly competitive on the basis of both price and service. Numerous companies compete for business in the geographic areas where our insurance subsidiaries operate. Many of these other insurance companies are substantially larger and have greater financial resources than those of our insurance subsidiaries. In addition, because our insurance subsidiaries and Donegal Mutual market their respective insurance products exclusively through independent insurance agencies, most of which represent multiple insurance companies, our insurance subsidiaries face competition within agencies, as well as competition to appoint and retain qualified independent agents. Insurance companies that are substantially larger than our insurance subsidiaries benefit from access to larger pools of data upon which to base their underwriting and pricing decisions as well as realize cost synergies their larger scale affords to them. Insurance companies that market their products directly to end consumers generally incur lower relative acquisition costs compared to those of our insurance subsidiaries.

Products and Underwriting

We report the results of our insurance operations in two segments: commercial lines of insurance and personal lines of insurance. The commercial lines our insurance subsidiaries write consist primarily of commercial automobile, commercial multi-peril and workers’ compensation insurance. The personal lines our insurance subsidiaries write consist primarily of private passenger automobile and homeowners insurance. We describe these lines of insurance in greater detail below:

Commercial


 •
Commercial automobile — policies that provide protection against liability for bodily injury and property damage arising from automobile accidents and protection against loss from damage to automobiles owned by the insured.

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 •
Commercial multi-peril — policies that provide protection to businesses against many perils, usually combining liability and physical damage coverages.


•
Workers’ compensation — policies employers purchase to provide benefits to employees for injuries sustained during employment. The workers’ compensation laws of each state determine the extent of the coverage we provide.

Personal


 •
Private passenger automobile — policies that provide protection against liability for bodily injury and property damage arising from automobile accidents and protection against loss from damage to automobiles owned by the insured.


•
Homeowners — policies that provide coverage for damage to residences and their contents from a broad range of perils, including fire, lightning, windstorm and theft. These policies also cover liability of the insured arising from injury to other persons or their property while on the insured’s property and under other specified conditions.

In recent years, we have made intentional investments in systems, products and capabilities to enable us to grow our business profitably. We are executing state-specific strategies that include accelerating commercial lines growth in states and classes of business where we see opportunities for profitable growth and reducing exposures in states and classes of business we have targeted for profit improvement. While we expect to place greater emphasis on commercial growth for the foreseeable future, we desire to maintain a profitable book of personal business to provide enhanced stability across our product portfolio and enhance our brand value to our independent agents. Donegal Mutual and our insurance subsidiaries offer personal lines products in ten states through a modern, user-friendly online agency portal. These products feature comprehensive coverage options, modernized rating methodology, enhanced pricing segmentation, application of predictive analytical models and utilization of third-party data to augment pricing and risk selection. Due to ongoing inflationary pressures on loss costs, we carefully managed personal lines exposure growth in 2024, intentionally slowing the writing of new personal lines opportunities while implementing premium rate increases throughout the year. In 2025, we plan to continue writing reduced levels of new personal lines accounts, while implementing premium rate increases to offset projected loss frequency and severity trends and managing exposures to achieve targeted profitability within our personal lines segment.

The following table sets forth the net premiums written of our insurance subsidiaries by line of insurance for the periods indicated:
 
   
Year Ended December 31,
  
   
2024
    
2023
    
2022
  
(dollars in thousands)
  
Amount
    
%
    
Amount
    
%
    
Amount
    
%
  
Commercial lines:
                                    
Automobile
  
$
184,989
      
19.6
%
  
$
174,741
      
19.5
%
  
$
167,774
      
19.9
%
Workers’ compensation
    
103,533
      
11.0
      
107,598
      
12.0
      
111,892
      
13.3
  
Commercial multi-peril
    
213,959
      
22.7
      
195,632
      
21.8
      
200,045
      
23.7
  
Other
    
45,439
      
4.9
      
50,458
      
5.7
      
51,135
      
6.0
  
Total commercial lines
    
547,920
      
58.2
      
528,429
      
59.0
      
530,846
      
62.9
  
Personal lines:
                                                
Automobile
    
243,036
      
25.8
      
215,957
      
24.1
      
181,129
      
21.5
  
Homeowners
    
140,613
      
14.9
      
139,688
      
15.6
      
120,087
      
14.2
  
Other
    
10,712
      
1.1
      
11,623
      
1.3
      
11,468
      
1.4
  
Total personal lines
    
394,361
      
41.8
      
367,268
      
41.0
      
312,684
      
37.1
  
Total business
  
$
942,281
      
100.0
%
  
$
895,697
      
100.0
%
  
$
843,530
      
100.0
%

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The commercial lines and personal lines underwriting departments of our insurance subsidiaries evaluate and select those risks that they believe will enable our insurance subsidiaries to achieve an underwriting profit. Within each of the underwriting departments, our insurance subsidiaries have dedicated product development and management teams responsible for the development of quality products at competitive prices to promote growth and profitability as well as the enhancement of our current products to meet targeted customer needs.

In order to achieve underwriting profitability on a consistent basis, our insurance subsidiaries:


 •
assess and select primarily standard and preferred risks;


•
adhere to disciplined underwriting guidelines;


•
seek to price risks appropriately based on exposure, risk characteristics, utilization of predictive models and application of underwriting judgment; and


•
utilize various types of risk management and loss control services.

Our insurance subsidiaries also review their existing portfolio of insured accounts to determine whether certain risks or classes of business continue to meet their underwriting guidelines and margin expectations. If a given account or class of business no longer meets those underwriting guidelines or margin expectations, our insurance subsidiaries will take appropriate action regarding that account or class of business, including raising premium rates or non-renewing policies to the extent applicable laws and regulations permit.

Distribution

Our insurance subsidiaries market their products primarily in the Mid-Atlantic, Midwestern, Southern and Southwestern regions through approximately 2,100 independent insurance agencies. At December 31, 2024, the Donegal Insurance Group actively wrote business in 21 states (Arizona, Colorado, Delaware, Georgia, Illinois, Indiana, Iowa, Maryland, Michigan, Nebraska, New Mexico, North Carolina, Ohio, Pennsylvania, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wisconsin). Donegal Mutual includes the business it writes directly and assumes from the Mountain States insurance subsidiaries in five Southwestern states (Arizona, Colorado, New Mexico, Texas and Utah) in the pooling agreement between Donegal Mutual and Atlantic States. We believe the relationships of our insurance subsidiaries with their independent agents are valuable in identifying, obtaining and retaining profitable business. Our insurance subsidiaries maintain a stringent agency selection procedure that emphasizes appointing agencies with proven marketing strategies for the development of profitable business, and our insurance subsidiaries only appoint agencies with a strong underwriting history and potential growth capabilities. Our insurance subsidiaries also regularly evaluate the independent agencies that represent them based on their profitability and performance in relation to the objectives of our insurance subsidiaries. Our insurance subsidiaries seek to be among the top three insurers within each of their agencies for the lines of business our insurance subsidiaries write.

The following table sets forth the percentage of direct premiums our insurance subsidiaries write, including 80% of the direct premiums Donegal Mutual and Atlantic States include in the underwriting pool, in each of the states where they conducted a significant portion of their business in 2024:
 
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Pennsylvania
  
37.6
%
Michigan
  
15.9
  
Maryland
  
8.2
  
Delaware
  
6.6
  
Virginia
  
6.1
  
Ohio
  
4.0
  
Wisconsin
  
2.9
  
Indiana
  
2.7
  
Georgia
  
2.6
  
North Carolina
  
2.3
  
Texas
  
2.2
  
Other
  
8.9
  
Total
  
100.0
%

Our insurance subsidiaries employ a number of policies and procedures that we believe enable them to attract, retain and motivate their independent agents. We believe that the consistency of the product offerings of our insurance subsidiaries enables our insurance subsidiaries to compete effectively for independent agents with other insurers whose product offerings may fluctuate based upon industry conditions. Our multi-year systems modernization project is further enhancing the ability of our insurance subsidiaries to conduct business with their independent agents and to develop and implement new products. Our insurance subsidiaries have a competitive compensation program for their independent agents that includes base commissions, growth incentive plans and a profit-sharing plan, under which the independent agents may earn additional commissions based upon the volume of premiums produced and the profitability of the business our insurance subsidiaries receive from that agency. We have an agency stock purchase plan that allows our independent agents to purchase our Class A common stock at a discount to market prices to further align the interests of our independent agents with the interests of our stockholders.

Our insurance subsidiaries encourage their independent agents to focus on “account selling,” or serving all of a particular insured’s property and casualty insurance needs, which our insurance subsidiaries believe generally results in more favorable loss experience than covering a single risk for an individual insured.

As part of the effort of our insurance subsidiaries to maintain acceptable underwriting results, they conduct annual reviews of agencies that have failed to meet their underwriting profitability criteria. The review process includes an analysis of the underwriting and re-underwriting practices of the agency, the completeness and accuracy of the applications the agency submits, the adequacy of the training of the agency’s staff and the agency’s record of adherence to the underwriting guidelines and service standards of our insurance subsidiaries. Based on the results of this review process, the marketing and underwriting personnel of our insurance subsidiaries develop, together with the agency, a plan to improve its underwriting profitability. Our insurance subsidiaries monitor the agency’s compliance with the plan and take other measures as required in the judgment of our insurance subsidiaries, including the termination, to the extent applicable laws and regulations permit, of agencies that are unable to achieve acceptable underwriting profitability.

Technology

Donegal Mutual owns and manages the technology that our insurance subsidiaries utilize on a daily basis. The technology is comprised of highly integrated agency-facing and back-end processing systems that operate within an advanced, modernized infrastructure that provides high service levels for performance, reliability, security and availability. Donegal Mutual maintains disaster recovery and backup systems and tests these systems on a regular basis. Our insurance subsidiaries bear their proportionate share of information services expenses based on their respective percentage of the total net premiums written of the Donegal Insurance Group.

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The business strategy and ultimate success of our insurance subsidiaries depends on the effectiveness of efficient and integrated business systems and technology infrastructure. These systems enable our insurance subsidiaries to provide quality service to agents and policyholders by processing business in a timely and dependable manner, communicate and share data with agents and provide a variety of methods for the payment of premiums. These systems also allow for the accumulation and analysis of data and information for the management of our insurance subsidiaries. Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key infrastructure and applications systems we describe in more detail under “Business - Business Strategy - Strategically modernizing our operations and processes to transform our business.”

The modernized proficiency of these integrated technology systems facilitates high service levels for the agents and policyholders of our insurance subsidiaries, increased efficiencies in processing the business of our insurance subsidiaries and lower operating costs. Key components of these technology systems include agency interface systems, automated policy management systems, a claims processing system and a billing administration system. The agency interface systems provide our insurance subsidiaries with a comprehensive single source to facilitate data sharing both to and from agents’ systems. The agency interface systems also integrate with our automated policy management systems to provide agents with an integrated means of generating underwritten quotes and automatically issuing policies that meet the underwriting guidelines of our insurance subsidiaries with limited or no intervention by their personnel. The claims processing system allows our insurance subsidiaries to process claims efficiently and in an automated environment. The billing administration system allows our insurance subsidiaries to process premium billing and collection efficiently and in an automated environment.

We believe Donegal Mutual’s agency-facing technology systems compare well against those of many national property and casualty insurance carriers in terms of feature capabilities and service levels.

Claims

The management of claims is a critical component of the philosophy of our insurance subsidiaries to achieve underwriting profitability on a consistent basis and is fundamental to the successful operations of our insurance subsidiaries and their dedication to excellent service. Our senior claims management oversees the claims processing units of each of our insurance subsidiaries to assure consistency in the claims settlement process.

The claims departments of our insurance subsidiaries rigorously manage claims to assure that they settle legitimate claims quickly and fairly and that they identify questionable claims for defense. They provide various means of claims reporting on a 24-hours a day, seven-days a week basis, including toll-free numbers and electronic reporting through our website and mobile application. The claims departments strive to respond to notifications of claims promptly, generally within the day reported. By responding promptly to claims, they provide quality customer service and we believe minimize the ultimate cost of the claims. They engage independent adjusters as needed to handle claims in areas in which the typical volume of claims is not sufficient to justify the hiring of field staff. They also employ private investigators, structural experts and outside legal counsel to supplement their internal staff and to assist in the investigation of claims. Our insurance subsidiaries have a special investigative unit primarily staffed by former law enforcement officers that attempts to identify and prevent fraud and abuse and to investigate questionable claims.

The management of the claims departments of our insurance subsidiaries develops and implements policies and procedures for the establishment of adequate claim reserves. Our insurance subsidiaries employ an actuarial staff that regularly reviews their reserves for incurred but not reported claims. The management and staff of the claims departments resolve policy coverage issues, manage and process reinsurance recoveries and handle salvage and subrogation matters. The litigation and personal injury sections of our insurance subsidiaries manage all claims litigation. Claims above certain thresholds require management review and settlement authorization. Our insurance subsidiaries provide their claims adjusters reserving and settlement authority based upon their experience and demonstrated abilities. Larger or more complicated claims require consultation and approval of senior claims department management.

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Liabilities for Losses and Loss Expenses

Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.

Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance subsidiaries do not discount their liabilities for losses and loss expenses.

Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations. For example, our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim settlement periods on bodily injury claims during the past several years. In addition, the COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates. These continuing trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern of future loss settlements. Related uncertainties regarding future trends include social inflation, availability and cost of replacement automobile parts and building materials, availability and cost of skilled labor, the rate of specialized plaintiff attorney involvement in claims, plaintiff attorney utilization of litigation financing and the cost of medical technologies and procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses, among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes. Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at December 31, 2024. For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.0 million.

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The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period. Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $15.0 million, $16.7 million and $44.8 million in 2024, 2023 and 2022, respectively. Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those years. The 2024 development represented 2.2% of the December 31, 2023 net carried reserves and resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024. The majority of the 2024 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. The 2023 development represented 2.5% of the December 31, 2022 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023. The majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. The 2022 development represented 7.2% of the December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022. The majority of the 2022 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.

Excluding the impact of severe weather events and the COVID-19 pandemic, our insurance subsidiaries have noted stable amounts in the number of claims incurred and the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business. However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as increased property and automobile repair and replacement costs, rising medical loss costs and increased litigation trends. We have also experienced a general slowing of settlement rates in litigated claims and lengthening of repair completion times for property and automobile claims. Our insurance subsidiaries could have to make further adjustments to their estimates in the future. However, on the basis of our insurance subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses.

Atlantic States’ participation in the underwriting pool with Donegal Mutual exposes Atlantic States to adverse loss development on the business that Donegal Mutual contributes to the underwriting pool. However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk development relating to the pooled business. The business in the underwriting pool is homogeneous, and each company has a pro-rata share of the entire underwriting pool. Since the predominant percentage of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies.

Differences between liabilities reported in our financial statements prepared on a GAAP basis and our insurance subsidiaries’ financial statements prepared on a SAP basis result from anticipating salvage and subrogation recoveries for GAAP but not for SAP. These differences amounted to $36.0 million, $32.4 million and $28.7 million at December 31, 2024, 2023 and 2022, respectively.

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The following table sets forth a reconciliation of the beginning and ending GAAP net liability of our insurance subsidiaries for unpaid losses and loss expenses for the periods indicated:
 
   
Year Ended December 31,
  
(in thousands)
  
2024
    
2023
    
2022
  
Gross liability for unpaid losses and loss expenses at beginning of year
  
$
1,126,157
    
$
1,121,046
    
$
1,077,620
  
Less reinsurance recoverable
    
437,014
      
451,184
      
451,261
  
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1
    
—
      
1,132
      
—
  
Net liability for unpaid losses and loss expenses at beginning of year
    
689,143
      
670,994
      
626,359
  
Provision for net losses and loss expenses for claims incurred in the current year
    
619,090
      
625,831
      
608,900
  
Change in provision for estimated net losses and loss expenses for claims incurred in prior years
    
(14,972
)
    
(16,653
)
    
(44,821
)
Total incurred
    
604,118
      
609,178
      
564,079
  
Net losses and loss expense payments for claims incurred during:
                        
The current year
    
319,196
      
330,290
      
302,272
  
Prior years
    
269,701
      
260,739
      
218,304
  
Total paid
    
588,897
      
591,029
      
520,576
  
Net liability for unpaid losses and loss expenses at end of year
    
704,364
      
689,143
      
669,862
  
Plus reinsurance recoverable
    
416,621
      
437,014
      
451,184
  
Gross liability for unpaid losses and loss expenses at end of year
  
$
1,120,985
    
$
1,126,157
    
$
1,121,046
  

The following table sets forth the development of the liability for net unpaid losses and loss expenses of our insurance subsidiaries from 2014 to 2024. Loss data in the table includes business Atlantic States received from the underwriting pool.

“Net liability at end of year for unpaid losses and loss expenses” sets forth the estimated liability for net unpaid losses and loss expenses recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of net losses and loss expenses for claims arising in the current and all prior years that are unpaid at the balance sheet date, including losses incurred but not reported.

The “Net liability re-estimated as of” portion of the table shows the re-estimated amount of the previously recorded liability based on experience for each succeeding year. The estimate increases or decreases as payments are made and more information becomes known about the severity of the remaining unpaid claims. For example, the 2014 liability has developed a deficiency after ten years because we expect the re-estimated net losses and loss expenses to be $22.2 million more than the estimated liability we initially established in 2014 of $292.3 million.

The “Cumulative deficiency (excess)” shows the cumulative deficiency or excess at December 31, 2024 of the liability estimate shown on the top line of the corresponding column. A deficiency in liability means that the liability established in prior years was less than the amount of actual payments and currently re-estimated remaining unpaid liability. An excess in liability means that the liability established in prior years exceeded the amount of actual payments and currently re-estimated unpaid liability remaining.

The “Cumulative amount of liability paid through” portion of the table shows the cumulative net losses and loss expense payments made in succeeding years for net losses incurred prior to the balance sheet date. For example, the 2014 column indicates that at December 31, 2024 payments equal to $306.0 million of the currently re-estimated ultimate liability for net losses and loss expenses of $314.5 million had been made.

-18-
Index
   
Year Ended December 31,
  
(in thousands)
  
2014
    
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
  
Net liability at end of
year for unpaid
losses and loss
expenses
  
$
292,301
    
$
322,054
    
$
347,518
    
$
383,401
    
$
475,398
    
$
506,906
    
$
557,189
    
$
626,359
    
$
669,862
    
$
689,143
    
$
704,364
  
Net liability re-estimated as of:
                                                                                        
One year later
    
299,501
      
325,043
      
354,139
      
419,032
      
462,466
      
493,961
      
525,981
      
581,538
      
653,209
      
674,171
          
Two years later
    
299,919
      
329,115
      
375,741
      
413,535
      
450,862
      
479,927
      
498,724
      
564,326
      
638,428
                  
Three years later
    
304,855
      
338,118
      
376,060
      
404,902
      
440,168
      
463,441
      
490,177
      
550,972
                          
Four years later
    
307,840
      
339,228
      
372,230
      
398,560
      
432,027
      
459,835
      
480,865
                                  
Five years later
    
310,354
      
338,020
      
370,960
      
396,695
      
431,115
      
455,494
                                          
Six years later
    
310,380
      
338,200
      
372,346
      
396,748
      
429,865
                                                  
Seven years later
    
311,594
      
339,625
      
371,859
      
396,167
                                                          
Eight years later
    
313,354
      
340,191
      
372,477
                                                                  
Nine years later
    
313,539
      
340,800
                                                                          
Ten years later
    
314,490
                                                                                  
Cumulative
deficiency
(excess)
    
22,189
      
18,746
      
24,959
      
12,766
      
(45,533
)
    
(51,412
)
    
(76,324
)
    
(75,387
)
    
(31,434
)
    
(14,972
)
        
Cumulative amount of liability paid through:
                                                                                        
One year later
  
$
131,779
    
$
149,746
    
$
163,005
    
$
175,883
    
$
195,956
    
$
172,497
    
$
182,223
    
$
218,304
    
$
260,739
    
$
269,701
          
Two years later
    
206,637
      
228,506
      
250,678
      
276,331
      
275,993
      
276,069
      
297,860
      
346,107
      
405,216
                  
Three years later
    
251,654
      
274,235
      
306,338
      
317,447
      
335,310
      
343,912
      
374,043
      
426,648
                          
Four years later
    
274,248
      
300,715
      
324,628
      
342,583
      
371,231
      
393,068
      
418,283
                                  
Five years later
    
287,178
      
309,630
      
337,946
      
362,061
      
394,251
      
414,690
                                          
Six years later
    
292,327
      
315,105
      
349,496
      
372,584
      
404,251
                                                  
Seven years later
    
295,106
      
321,777
      
355,809
      
378,937
                                                          
Eight years later
    
300,306
      
326,617
      
359,527
                                                                  
Nine years later
    
303,708
      
329,651
                                                                          
Ten years later
    
306,019
                                                                                  

   
Year Ended December 31,
  
(in thousands)
  
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
  
Gross liability at end of year
  
$
606,665
    
$
676,672
    
$
814,665
    
$
869,674
    
$
962,007
    
$
1,077,620
    
$
1,121,046
    
$
1,126,157
    
$
1,120,985
  
Reinsurance recoverable
    
259,147
      
293,271
      
339,266
      
362,768
      
404,818
      
451,261
      
451,184
      
437,014
      
416,621
  
Net liability at end of
year
    
347,518
      
383,401
      
475,398
      
506,906
      
557,189
      
626,359
      
669,862
      
689,143
      
704,364
  
Gross re-estimated liability
    
621,200
      
674,826
      
751,479
      
787,575
      
869,571
      
938,746
      
1,011,779
      
1,072,359
          
Re-estimated recoverable
    
248,723
      
278,659
      
321,614
      
332,081
      
388,706
      
387,774
      
373,351
      
398,188
          
Net re-estimated liability
    
372,477
      
396,167
      
429,865
      
455,494
      
480,865
      
550,972
      
638,428
      
674,171
          
Gross cumulative deficiency (excess)
    
14,535
      
(1,846
)
    
(63,186
)
    
(82,099
)
    
(92,436
)
    
(138,874
)
    
(109,267
)
    
(53,798
)
        

-19-
Index
Third-Party Reinsurance

Our insurance subsidiaries and Donegal Mutual purchase certain third-party reinsurance on a combined basis. Our insurance subsidiaries use several different reinsurers, all of which, consistent with the requirements of our insurance subsidiaries and Donegal Mutual, have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- (Excellent) rating from A.M. Best.

The external reinsurance our insurance subsidiaries and Donegal Mutual purchased for 2024 included:


 •
excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered losses over a set retention of $4.0 million for all property losses and $3.0 million for all liability and workers’ compensation losses for 2024 (set retention of $4.0 million for all property losses, $6.0 million for all liability losses except workers’ compensation losses and $3.0 million for all workers’ compensation losses for 2025); and


•
catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention of $25.0 million up to aggregate losses of $175.0 million ($200.0 million for 2025) per occurrence.

For property insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $36.0 million per loss over a set retention of $4.0 million (no change for 2025). For liability insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $72.0 million per occurrence over a set retention of $3.0 million ($69.0 million per occurrence over a set retention of $6.0 million for 2025). For workers’ compensation insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $17.0 million on any one life over a set retention of $3.0 million (no change for 2025).

Our insurance subsidiaries and Donegal Mutual also purchased facultative reinsurance to cover certain exposures, including property exposures that exceeded the limits provided by their respective treaty reinsurance.

Investments

At December 31, 2024, 95.6% of all debt securities our insurance subsidiaries held had an investment-grade rating. The investment portfolios of our insurance subsidiaries did not contain any mortgage loans or any non-performing assets at December 31, 2024.

The following table shows the composition of the debt securities (at carrying value) in the investment portfolios of our insurance subsidiaries, excluding short-term investments, by rating at December 31, 2024:
 
(dollars in thousands)
  
December 31, 2024
  
Rating(1)
  
Amount
    
Percent
  
U.S. Treasury and U.S. agency securities(2)
  
$
474,882
      
35.9
%
Aaa or AAA
    
25,112
      
1.9
  
Aa or AA
    
345,547
      
26.1
  
A
    
222,934
      
16.8
  
BBB
    
198,041
      
15.0
  
BB
    
58,478
      
4.4
  
Allowance for expected credit losses
    
(1,388
)
    
(0.1
)
Total
  
$
1,323,606
      
100.0
%
   

(1)
Ratings assigned by Moody’s Investors Services, Inc. or Standard & Poor’s Corporation.

(2)
Includes mortgage-backed securities of $304.5 million.

Our insurance subsidiaries invest in both taxable and tax-exempt securities as part of their strategy to maximize after-tax income. Tax-exempt securities made up approximately 16.6%, 18.2% and 19.9% of the fixed-maturity securities in the combined investment portfolios of our insurance subsidiaries at December 31, 2024, 2023 and 2022, respectively.

-20-
Index
The following table shows the classification of our investments and the investments of our insurance subsidiaries at December 31, 2024, 2023 and 2022 (at carrying value):
 
   
December 31,
  
   
2024
    
2023
    
2022
  
         
Percent of
          
Percent of
          
Percent of
  
(dollars in thousands)
  
Amount
    
Total
    
Amount
    
Total
    
Amount
    
Total
  
Fixed maturities(1):
                                    
Held to maturity:
                                    
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  
$
86,579
      
6.3
%
  
$
91,517
      
6.9
%
  
$
103,362
      
7.9
%
Obligations of states and political subdivisions
    
371,896
      
26.9
      
376,898
      
28.4
      
382,097
      
29.3
  
Corporate securities
    
236,550
      
17.0
      
201,847
      
15.2
      
190,949
      
14.6
  
Mortgage-backed securities
    
10,689
      
0.8
      
9,235
      
0.7
      
12,031
      
1.0
  
Total held to maturity
    
705,714
      
51.0
      
679,497
      
51.2
      
688,439
      
52.8
  
Available for sale:
                                                
U.S. Treasury securities and obligations of U.S. government corporations and agencies
    
83,793
      
6.0
      
85,419
      
6.4
      
63,521
      
4.9
  
Obligations of states and political subdivisions
    
37,404
      
2.7
      
38,116
      
2.9
      
40,156
      
3.1
  
Corporate securities
    
202,932
      
14.7
      
196,793
      
14.8
      
202,838
      
15.5
  
Mortgage-backed securities
    
293,763
      
21.2
      
269,020
      
20.3
      
217,277
      
16.6
  
Total available for sale
    
617,892
      
44.6
      
589,348
      
44.4
      
523,792
      
40.1
  
Total fixed maturities
    
1,323,606
      
95.6
      
1,268,845
      
95.6
      
1,212,231
      
92.9
  
Equity securities(2)
    
36,808
      
2.6
      
25,903
      
2.0
      
35,105
      
2.7
  
Short-term investments(3)
    
24,558
      
1.8
      
32,306
      
2.4
      
57,321
      
4.4
  
Total investments
  
$
1,384,972
      
100.0
%
  
$
1,327,054
      
100.0
%
  
$
1,304,657
      
100.0
%
   

(1)
We refer to Notes 1 and 4 to our Consolidated Financial Statements. We value those fixed maturities we classify as held to maturity at amortized cost; we value those fixed maturities we classify as available for sale at fair value. The total fair value of fixed maturities we classified as held to maturity was $631.6 million at December 31, 2024, $611.5 million at December 31, 2023 and $598.0 million at December 31, 2022. The amortized cost of fixed maturities we classified as available for sale was $652.6 million at December 31, 2024, $629.7 million at December 31, 2023 and $571.9 million at December 31, 2022.

(2)
We value equity securities at fair value. The total cost of equity securities was $24.7 million at December 31, 2024, $18.8 million at December 31, 2023 and $30.8 million at December 31, 2022.

(3)
We value short-term investments at cost, which approximates fair value.

-21-
Index
The following table sets forth the maturities (at carrying value) in the fixed maturity portfolio of our insurance subsidiaries at December 31, 2024, 2023 and 2022:
 
   
December 31,
  
   
2024
    
2023
    
2022
  
         
Percent
of
          
Percent
of
          
Percent
of
  
(dollars in thousands)
  
Amount
    
Total
    
Amount
    
Total
    
Amount
    
Total
  
Due in(1):
                                    
One year or less
  
$
56,914
      
4.3
%
  
$
54,392
      
4.3
%
  
$
39,094
      
3.2
%
Over one year through three years
    
210,184
      
15.9
      
130,158
      
10.3
      
107,689
      
8.9
  
Over three years through five years
    
175,577
      
13.3
      
141,994
      
11.2
      
133,068
      
11.0
  
Over five years through ten years
    
318,912
      
24.1
      
347,035
      
27.3
      
357,114
      
29.5
  
Over ten years through fifteen years
    
208,445
      
15.7
      
201,585
      
15.9
      
191,118
      
15.8
  
Over fifteen years
    
50,503
      
3.8
      
116,747
      
9.2
      
154,840
      
12.7
  
Mortgage-backed securities
    
304,459
      
23.0
      
278,260
      
21.9
      
229,308
      
18.9
  
Allowance for expected credit losses
    
(1,388
)
    
(0.1
)
    
(1,326
)
    
(0.1
)
    
—
      
—
  
   
$
1,323,606
      
100.0
%
  
$
1,268,845
      
100.0
%
  
$
1,212,231
      
100.0
%
   

(1)
Based on stated maturity dates with no prepayment assumptions. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

As shown above, our insurance subsidiaries held investments in mortgage-backed securities having a carrying value of $304.5 million at December 31, 2024. The mortgage-backed securities consist primarily of investments in governmental agency balloon pools with stated maturities between one and 33 years. The stated maturities of these investments limit the exposure of our insurance subsidiaries to extension risk in the event that interest rates rise and prepayments decline. Our insurance subsidiaries perform an analysis of the underlying loans when evaluating a mortgage-backed security for purchase, and they select those securities that they believe will provide a return that properly reflects the prepayment risk associated with the underlying loans.

The following table sets forth the investment results of our insurance subsidiaries for the years ended December 31, 2024, 2023 and 2022:
 
   
Year Ended December 31,
  
(dollars in thousands)
  
2024
    
2023
    
2022
  
Invested assets(1)
  
$
1,356,013
    
$
1,315,855
    
$
1,290,752
  
Investment income(2)
    
44,918
      
40,853
      
34,016
  
Average yield
    
3.3
%
    
3.1
%
    
2.6
%
Average tax-equivalent yield
    
3.4
      
3.2
      
2.7
  
   

(1)
Average of the aggregate invested amounts at the beginning and end of the period.

(2)
Investment income is net of investment expenses and does not include investment gains or losses or provision for income taxes.

A.M. Best Rating

Donegal Mutual and our insurance subsidiaries have an A.M. Best rating of A (Excellent), based upon the respective current financial condition and historical statutory results of operations of Donegal Mutual and our insurance subsidiaries. We believe that the A.M. Best rating of Donegal Mutual and our insurance subsidiaries is an important factor in their marketing of their products to their agents and customers. A.M. Best’s ratings are industry ratings based on a comparative analysis of the financial condition and operating performance of insurance companies. A.M. Best’s classifications are A++ and A+ (Superior), A and A- (Excellent), B++ and B+ (Good), B and B- (Fair), C++ and C+ (Marginal), C and C- (Weak), D (Poor), E (Under Regulatory Supervision), F (Liquidation) and S (Suspended). A.M. Best bases its ratings upon factors relevant to the payment of claims of policyholders and are not directed toward the protection of investors in insurance companies. According to A.M. Best, the “Excellent” rating that the Donegal Insurance Group maintains is assigned to those companies that, in A.M. Best’s opinion, have an excellent ability to meet their ongoing insurance obligations.

-22-
Index
Regulation

The supervision and regulation of insurance companies consists primarily of the laws and regulations of the various states in which the insurance companies transact business, with the primary regulatory authority being the insurance regulatory authorities in the state of domicile of the insurance company. Such supervision and regulation relate to numerous aspects of an insurance company’s business and financial condition. The primary purpose of such supervision and regulation is the protection of policyholders. The authority of the state insurance departments includes the establishment of standards of solvency that insurers must meet and maintain, the licensing of insurers and insurance agents to do business, the nature of, and limitations on, investments, premium rates for property and casualty insurance, the provisions that insurers must make for current losses and future liabilities, the deposit of securities for the benefit of policyholders, the approval of policy forms, notice requirements for the cancellation of policies and the approval of certain changes in control. State insurance departments also conduct periodic examinations of the affairs of insurance companies and require the filing of annual and other reports relating to the financial condition of insurance companies.

In addition to state-imposed insurance laws and regulations, the National Association of Insurance Commissioners, or the NAIC, maintains a risk-based capital system, or RBC, for assessing the adequacy of the statutory capital and surplus of insurance companies that augments the states’ current fixed dollar minimum capital requirements for insurance companies. At December 31, 2024, our insurance subsidiaries and Donegal Mutual each exceeded the minimum levels of statutory capital the RBC rules require by a substantial margin.

Generally, every state has guaranty fund laws under which insurers licensed to do business in that state can be assessed on the basis of premiums written by the insurer in that state in order to fund policyholder liabilities of insolvent insurance companies. Under these laws in general, an insurer is subject to assessment, depending upon its market share of a given line of business, to assist in the payment of policyholder claims against insolvent insurers. Our insurance subsidiaries and Donegal Mutual have made accruals for their portion of assessments related to such insolvencies based upon the most current information furnished by the guaranty associations.

We are part of an insurance holding company system of which Donegal Mutual is the ultimate controlling person. All of the states in which our insurance companies and Donegal Mutual maintain a domicile have legislation that regulates insurance holding company systems. Each insurance company in the insurance holding company system must register with the insurance supervisory agency of its state of domicile and furnish information concerning the operations of companies within the insurance holding company system that may materially affect the operations, management or financial condition of the insurers within the system. Pursuant to these laws, the respective insurance departments in which our subsidiaries and Donegal Mutual maintain a domicile may examine our insurance subsidiaries or Donegal Mutual at any time, require disclosure of material transactions by the holding company with another member of the insurance holding company system and require prior notice or prior approval of certain transactions, such as “extraordinary dividends” from the insurance subsidiaries to the holding company. We have insurance subsidiaries domiciled in Michigan, Pennsylvania and Virginia.

The Pennsylvania Insurance Holding Companies Act, which generally applies to Donegal Mutual, us and our insurance subsidiaries, requires that all transactions within an insurance holding company system to which an insurer is a party must be fair and reasonable and that any charges or fees for services performed must be reasonable. Any management agreement, service agreement, cost sharing arrangement and material reinsurance agreement must be filed with the Pennsylvania Insurance Department, or the Department, and is subject to the Department’s review. We have filed with the Department the pooling agreement between Donegal Mutual and Atlantic States that established the underwriting pool and all material agreements between Donegal Mutual and our insurance subsidiaries.

-23-
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Approval of the applicable insurance commissioner is also required prior to consummation of transactions affecting the control of an insurer. In virtually all states, including the states where our insurance subsidiaries are domiciled, the acquisition of 10% or more of the outstanding capital stock of an insurer or its holding company or the intent to acquire such an interest creates a rebuttable presumption of a change in control. Pursuant to an order issued in April 2003, the Department approved Donegal Mutual’s ownership of up to 70% of our outstanding Class A common stock and Donegal Mutual’s ownership of up to 100% of our outstanding Class B common stock.

Our insurance subsidiaries have the legal obligation under state insurance laws to participate in involuntary insurance programs for automobile insurance, as well as other property and casualty insurance lines, in the states in which they conduct business. These programs include joint underwriting associations, assigned risk plans, fair access to insurance requirements plans, reinsurance facilities, windstorm plans and tornado plans. Legislation establishing these programs requires all companies that write lines covered by these programs to provide coverage, either directly or through reinsurance, for insureds who are unable to obtain insurance in the voluntary market. The legislation creating these programs usually allocates a pro rata portion of risks attributable to such insureds to each company on the basis of the direct premiums it has written in that state or the number of automobiles it insures in that state. Generally, state law requires participation in these programs as a condition to obtaining a certificate of authority. Our loss ratio on insurance we write under these involuntary programs has traditionally been significantly greater than our loss ratio on insurance we voluntarily write in those states.

Regulatory requirements, including RBC requirements, may impact our insurance subsidiaries’ ability to pay dividends. The amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements, including RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2024. Generally, the maximum amount that one of our insurance subsidiaries may pay to us as ordinary dividends during any year after notice to, but without prior approval of, the insurance commissioner of its domiciliary state is limited to a stated percentage of that subsidiary’s statutory capital and surplus at December 31 of the preceding fiscal year or the net income of that subsidiary for its preceding fiscal year. Our insurance subsidiaries paid dividends to us of $15.0 million and $13.0 million in 2024 and 2023, respectively. Our insurance subsidiaries did not pay any dividends to us in 2022. At December 31, 2024, the amount of ordinary dividends our insurance subsidiaries could pay to us during 2025, without the prior approval of their respective domiciliary insurance commissioners, is shown in the following table.
 
Name of Insurance Subsidiary
  
Ordinary Dividend Amount
  
       
Atlantic States
  
$
40,741,454
  
MICO
    
7,822,780
  
Peninsula
    
4,734,260
  
Southern
    
—
  
Total
  
$
53,298,494
  

Donegal Mutual Insurance Company

Donegal Mutual organized as a mutual fire insurance company in Pennsylvania in 1889. At December 31, 2024, Donegal Mutual had admitted assets of $762.5 million and policyholders’ surplus of $397.6 million. At December 31, 2024, Donegal Mutual had total liabilities of $364.9 million, including reserves for net losses and loss expenses of $160.2 million and unearned premiums of $74.4 million. Donegal Mutual’s investment portfolio of $574.1 million at December 31, 2024 consisted primarily of investment-grade bonds of $206.3 million and its investment in our Class A common stock and our Class B common stock. At December 31, 2024, Donegal Mutual owned 13,152,372 shares, or approximately 44%, of our Class A common stock, which Donegal Mutual carried on its books at $176.4 million, and 4,708,570 shares, or approximately 84%, of our Class B common stock, which Donegal Mutual carried on its books at $63.1 million. We present Donegal Mutual’s financial information in accordance with SAP as the NAIC Accounting Practices and Procedures Manual requires. Donegal Mutual does not, nor is it required to, prepare financial statements in accordance with GAAP.

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Information about Our Executive Officers
 
The following table sets forth information regarding the executive officers of Donegal Mutual and the Registrant as of the date of this Form 10-K Report:
 
Name
  
Age
  
Position
Kevin G. Burke
  
59
  
President and Chief Executive Officer of us since 2015; President and Chief Executive Officer of Donegal Mutual since 2018; Executive Vice President and Chief Operating Officer of Donegal Mutual from 2014 to 2018; Senior Vice President of Human Resources of Donegal Mutual and us from 2005 to 2014; other positions from 2000 to 2005.
W. Daniel DeLamater
  
52
  
Executive Vice President and Chief Operating Officer of Donegal Mutual and us since 2024; Senior Vice President of us from 2022 to 2024; Senior Vice President and Head of Field Operations & National Accounts of Donegal Mutual from 2022 to 2024; Senior Vice President of National Accounts for Donegal Mutual from 2020 to 2022; President of Southern Mutual Insurance Company since 2016; other positions at Southern Mutual Insurance Company from 2000 to 2016.
Jeffery T. Hay
  
50
  
Executive Vice President and Chief Underwriting Officer of Donegal Mutual and us since 2025; Senior Vice President and Chief Underwriting Officer of Donegal Mutual and Senior Vice President of us from 2021 to 2025; Senior Director of Willis Towers Watson from 2018 to 2021; Head of Personal Lines Product Management of The Hartford from 2015 to 2018; other positions at The Hartford from 2005 to 2015.
Jeffrey D. Miller
  
60
  
Executive Vice President and Chief Financial Officer of Donegal Mutual and us since 2014; Senior Vice President and Chief Financial Officer of Donegal Mutual and us from 2005 to 2014; other positions from 1993 to 2005.
Sanjay Pandey
  
58
  
Executive Vice President and Chief Information Officer of Donegal Mutual and us since 2025; Senior Vice President and Chief Information Officer of Donegal Mutual and us from 2013 to 2025; other positions from 2000 to 2013.
Kristi S. Altshuler
  
44
  
Senior Vice President and Chief Analytics Officer of us since 2020; Senior Vice President and Chief Analytics Officer of Donegal Mutual since 2019; Director of Willis Towers Watson from 2018 to 2019; Director of Pricing Innovation of USAA from 2014 to 2018; other positions at USAA from 2001 to 2014.
David B. Bawel
  
38
  
Senior Vice President and Chief Accounting Officer of Donegal Mutual and us since 2024; Vice President of Financial Reporting and Analysis of Donegal Mutual and Vice President of us from 2018 to 2024; Assistant Vice President of Internal Audit of Donegal Mutual from 2012 to 2018.
Noland R. Deas, Jr.
  
57
  
Senior Vice President of Field Operations & National Accounts of Donegal Mutual and Senior Vice President of us since 2024; Senior Regional Vice President of Donegal Mutual from 2022 to 2024 and Regional Vice President of Donegal Mutual from 2020 to 2022; other positions with Donegal Mutual from 2006 to 2020.
William A. Folmar
  
66
  
Senior Vice President of Claims of Donegal Mutual and Senior Vice President of us since 2019; Vice President of Claims of Donegal Mutual from 2010 to 2019; other positions from 1998 to 2010.
Rick J. Hecker
  
37
  
Senior Vice President and General Counsel of Donegal Mutual and us since 2025; Senior Vice President and General Counsel of Conestoga Title Insurance Company from 2022 to 2024; Vice President and General Counsel of Conestoga Title Insurance Company from 2021 to 2022.
Christina M. Hoffman
  
50
  
Senior Vice President and Chief Risk Officer of Donegal Mutual and us since 2019; Senior Vice President of Internal Audit of Donegal Mutual and Senior Vice President of us from 2013 to 2019; Vice President of Internal Audit of Donegal Mutual and Vice President of us from 2009 to 2013.
David W. Sponic
  
60
  
Senior Vice President of Personal Lines of Donegal Mutual and Senior Vice President of us since 2022; Vice President of Personal Lines of Donegal Mutual from 2008 to 2022; other positions from 1990 to 2008.
V. Anthony Viozzi
  
51
  
Senior Vice President and Chief Investment Officer of Donegal Mutual and us since 2012; Vice President of Investments of Donegal Mutual and us from 2007 to 2012.
Daniel J. Wagner
  
64
  
Senior Vice President and Treasurer of Donegal Mutual and us since 2005; other positions from 1987 to 2005.

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Cautionary Statement Regarding Forward-Looking Statements

This Form 10-K Report and the documents we incorporate by reference in this Form 10-K Report contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include certain discussions relating to underwriting, premium and investment income volumes, business strategies, reserves, profitability, our expense reduction initiatives, Donegal Mutual’s ongoing information systems and data modernization implementations, business relationships and our other business activities during 2024 and beyond. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “would,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “objective,” “project,” “predict,” “potential,” “goal” and similar expressions. These forward-looking statements reflect our current views about future events and our current assumptions, and are subject to known and unknown risks and uncertainties that may cause our results, performance or achievements to differ materially from those we anticipate or imply by our forward-looking statements. We cannot control or predict many of the factors that could determine our future financial condition or results of operations. Such factors may include those we describe under “Risk Factors.” The forward-looking statements contained in this Form 10-K Report reflect our views and assumptions only as of the date of this Form 10-K Report. Except as required by law, we do not intend to update, and we assume no responsibility for updating, any forward-looking statements we have made. We qualify all of our forward-looking statements by these cautionary statements.

Item 1A.
Risk Factors.

Risk Factors

Risks Relating to the Property and Casualty Insurance Industry

Industry trends, such as increasing loss severity due to higher rates of litigation against the insurance industry and individual insurers, the willingness of courts to expand covered causes of loss, rising jury awards, escalating medical, automobile and property repair costs and other factors may contribute to increased costs and result in ultimate loss settlements that exceed the reserves of our insurance subsidiaries.

Loss severity in the property and casualty insurance industry has increased in recent years, principally driven by factors such as distracted driving, larger court judgments, higher jury awards and increasing medical and automobile and property repair costs, including increases due to inflation and supply chain disruption. In addition, many classes of complainants have brought legal actions and proceedings, some of which may be funded by third-party litigation financing, that tend to increase the size of judgments. The propensity of policyholders and third-party claimants to utilize specialized plaintiff firms and litigate and the willingness of courts to expand causes of loss and the size of awards, to eliminate exclusions and to increase coverage limits may result in ultimate settlements of current and future losses that exceed the loss reserves of our insurance subsidiaries.

Our insurance subsidiaries are subject to catastrophe losses and losses from other severe weather events, which are unpredictable and may adversely affect our results of operations, liquidity and financial condition.
 
The underwriting results of our insurance subsidiaries are subject to weather and other conditions that may adversely affect our financial condition, liquidity or results of operations. Because the occurrence and severity of catastrophes are inherently unpredictable and may vary significantly from year to year and region to region, our historical results of operations may not be indicative of our future results of operations. Our property and casualty insurance operations expose us to claims arising from catastrophic events affecting multiple policyholders. Such catastrophic events consist of various natural disasters, including, but not limited to, hurricanes, tropical storms, tornadoes, windstorms, hailstorms, fires and wildfires, flooding, landslides, earthquakes, severe winter weather events and man-made disasters such as terrorist attacks, explosions and infrastructure failures. Historically, our insurance subsidiaries have experienced weather-related losses from hurricanes and tropical storms in Mid-Atlantic and Southern states, tornadoes and hailstorms in Mid-Atlantic, Midwestern and Southern states and severe winter weather events in Mid-Atlantic and Midwestern states.
 
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Losses from catastrophic events are a function of both the extent of our insurance subsidiaries’ exposures, the frequency and severity of the events themselves and the level of reinsurance coverage our insurance subsidiaries purchase. The increased frequency and severity of weather-related catastrophes and other losses, such as from wildfires and flooding, incurred by the industry in recent years may be indicative of changing weather patterns due to climate change. Should those patterns continue to emerge, increased weather-related catastrophes in the states in which our insurance subsidiaries operate would lead to higher overall losses that they may be unable to offset through pricing actions.

Our insurance subsidiaries seek to reduce their exposure to catastrophe losses through their underwriting strategies and their purchase of catastrophe reinsurance. Advancements in economic capital modeling and catastrophe risk modeling assist our insurance subsidiaries in measuring risk concentrations and inform their reinsurance purchase decisions. Nevertheless, reinsurance may prove inadequate under certain circumstances. While the emerging science regarding climate change and its connection to extreme weather events continues to be studied, climate change, to the extent it produces rising temperatures and changes in weather patterns, could affect the frequency and severity of weather events and other losses and thus impact the affordability and availability of catastrophe reinsurance coverage for our insurance subsidiaries. Our insurance subsidiaries’ ability to appropriately manage catastrophe risk depends partially on catastrophe models, which may be affected by inaccurate or incomplete data, the uncertainty of the frequency and severity of future events and the uncertain impact of changing climate conditions that tend to occur gradually over time.

Changing climate conditions could lead to new or revised regulations with which our insurance subsidiaries would have to comply. Such regulations could impact the ability of our insurance subsidiaries to manage their exposures in areas impacted by increased weather activity, require our insurance companies to alter the terms and conditions of their policies or impact the ability of our insurance subsidiaries to obtain sufficient pricing increases to offset higher loss activity.

Our insurance subsidiaries must establish premium rates and loss and loss expense reserves from forecasts of the ultimate costs they expect will arise from risks underwritten during the policy period, and the profitability of our insurance subsidiaries could be adversely affected if their premium rates or reserves are insufficient to satisfy their ultimate costs.

One of the distinguishing features of the property and casualty insurance industry is that it prices its products before it knows its costs, since insurers generally establish their premium rates before they know the amount of losses they will incur. Accordingly, our insurance subsidiaries establish premium rates from forecasts of the ultimate costs they expect to arise from risks they have underwritten during the policy period. Proposed increases in premium rates are subject to regulatory approval on a state-by-state basis, and there is a lag between the time that our insurance subsidiaries file for such approval and the date upon which our insurance subsidiaries can implement any such approved premium rate increase across their book of business for a product in a particular state. The premium rates our insurance subsidiaries charge may not be sufficient to cover the ultimate losses they incur. Further, our insurance subsidiaries must establish reserves for losses and loss expenses as balance sheet liabilities based upon estimates involving actuarial and statistical projections at a given time of what our insurance subsidiaries expect their ultimate liability to be. Significant periods of time often elapse between the occurrence of an insured loss, the reporting of the loss and the settlement of that loss. It is possible that our insurance subsidiaries’ ultimate liability could exceed these estimates because of the future development of known losses, the existence of losses that have occurred but are currently unreported and larger than historical settlements of pending and unreported claims. The process of estimating reserves is inherently judgmental and can be influenced by a number of factors, including the following:


 •
trends in claim frequency and severity;


•
changes in operations;


•
emerging economic and social trends;


•
economic and social inflation; and


•
changes in the regulatory and litigation environments.

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If our insurance subsidiaries determine that their reserves are insufficient to cover their ultimate liability, they will increase their reserves. An increase in reserves results in an increase in losses and a reduction in net income for the period in which our insurance subsidiaries recognize a deficiency in reserves. Accordingly, an increase in reserves may adversely impact the business, liquidity, financial condition and results of operations of our insurance subsidiaries.

The financial results of our insurance subsidiaries depend primarily on their ability to underwrite risks effectively and to charge adequate rates to policyholders.

The financial condition, cash flows and results of operations of our insurance subsidiaries depend on their ability to underwrite and set rates accurately for a full spectrum of risks across a number of lines of insurance. Rate adequacy is necessary to generate sufficient premium to pay losses, loss adjustment expenses and underwriting expenses and to realize a profit.

The ability to underwrite and set rates effectively is subject to a number of risks and uncertainties, including those related to:


 •
the availability of sufficient, reliable data;


•
the ability to conduct a complete and accurate analysis of available data;


•
the ability to recognize in a timely manner changes in trends and to project both the severity and frequency of losses with reasonable accuracy;


•
uncertainties generally inherent in estimates and assumptions;


•
the ability to project changes in certain operating expense levels with reasonable certainty;


•
the development, selection and application of appropriate rating formulae or other pricing methodologies;


•
the effective development, governance and appropriate use of modeling tools to assist with correctly and consistently achieving the intended results in underwriting and pricing;


•
the ability to innovate with new pricing strategies and the success of those innovations upon implementation;


•
the ability to secure regulatory approval of premium rates on an adequate and timely basis;


•
the ability to predict policyholder retention accurately;


•
unanticipated court decisions, legislation or regulatory action;


•
unanticipated changes in our claim settlement practices;


•
changes in driving patterns for auto exposures;


•
changes in weather patterns for property exposures;


•
changes in the medical sector of the economy that impact bodily injury loss costs;


•
changes in new and used car prices, auto repair costs and auto parts prices, including the increasing integration of sophisticated technology-related components;

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 •
the impact of emerging technologies, including driver assistance technologies and autonomous vehicles, on pricing, insurance coverages and loss costs;


•
the impact of inflation and other factors on the cost and availability of construction materials and labor;


•
the impact of medical advances on the cost and duration of bodily injury claims;


•
the ability to monitor property concentration in catastrophe-prone areas, such as hurricane, earthquake, wildfire and wind/hail regions; and


•
the general state of the economy in the states in which our insurance subsidiaries operate.

Such risks may result in our insurance subsidiaries basing their premium rates on inadequate or inaccurate data or inappropriate assumptions or methodologies and may cause our estimates of future changes in the frequency or severity of claims to be incorrect. As a result, our insurance subsidiaries could underprice risks, which would negatively affect our margins, or our insurance subsidiaries could overprice risks, which could reduce their premium volume and competitiveness. In either event, underpricing or overpricing risks could adversely impact our operating results, financial condition and cash flows.

The pace of innovation within the insurance industry is rapidly increasing, and our insurance subsidiaries may be unable to effectively implement new technologies and anticipate changes in customer preferences and insurance needs, which could put our insurance subsidiaries at a competitive disadvantage and adversely affect their future profitability.

Innovation, recent technological developments, changing customer demographics and preferences, societal shifts and emerging technologies such as artificial intelligence are greatly impacting the insurance industry. Our insurance subsidiaries compete with much larger insurers that are focused on implementing technology and innovative solutions to select and price risks, identify and target potential customers, enhance the experience of their customers and improve their operations. If our insurance subsidiaries are unable to anticipate changes in customer expectations and keep pace with the technological changes their competitors implement, our insurance subsidiaries may not be able to attract and maintain quality accounts, adequately price risks or operate as efficiently as their competitors. In addition, emerging technologies such as electric and autonomous vehicles, driver-assistance and accident avoidance features on vehicles, sensor technology and other forms of automation may reduce the future need for, or decrease the future pricing of, the insurance products our insurance subsidiaries offer.

Loss or significant restriction of the use of specific rating attributes, analytical models or technologies in the pricing and underwriting of insurance products by our insurance subsidiaries could adversely affect their future profitability.

Our insurance subsidiaries consider a variety of rating attributes in making risk selection and pricing decisions for personal lines insurance products where allowed by state law. There is increasing regulatory debate as to whether use of certain rating attributes is unfairly discriminatory. For example, consumer groups and regulators often call for the prohibition or restriction on the use of credit scoring in underwriting and pricing. In addition, there is increasing regulatory attention on the governance over and use of analytical models and technologies, including artificial intelligence systems, to ensure that such technologies comply with laws that address unfair trade practices and unfair discrimination. Laws or regulations that significantly curtail the use of specific rating attributes or other analytical models and technologies in the underwriting process could reduce the future profitability of our insurance subsidiaries.

Changes in applicable insurance laws or regulations or changes in the way insurance regulators administer those laws or regulations could adversely affect the operating environment of our insurance subsidiaries and increase their exposure to loss or put them at a competitive disadvantage.

Property and casualty insurers are subject to extensive supervision in their domiciliary states and in the states in which they do business. This regulatory oversight includes matters relating to:

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 •
licensing and examination;


•
approval of premium rates;


•
market conduct;


•
policy forms;


•
limitations on the nature and amount of certain investments;


•
claims practices;


•
mandated participation in involuntary markets and guaranty funds;


•
reserve adequacy;


•
insurer solvency;


•
transactions between affiliates;


•
the amount of dividends that insurers may pay; and


•
restrictions on underwriting standards.

Such regulation and supervision are primarily for the benefit and protection of policyholders rather than stockholders.

The NAIC and state insurance regulators re-examine existing laws and regulations from time to time, specifically focusing on areas such as:


 •
insurance company investments;


•
issues relating to the solvency of insurance companies;


•
risk-based capital guidelines;


•
restrictions on the terms and conditions included in insurance policies;


•
certain methods of accounting;


•
reserves for unearned premiums, losses and other purposes;


•
the values at which insurance companies may carry investment securities and the definition of other-than-temporary impairment of investment securities; and


•
interpretations of existing laws and the development of new laws.

Changes in state laws and regulations, as well as changes in the way state regulators view related-party transactions in particular, could change the operating environment of our insurance subsidiaries and have an adverse effect on their business.

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Insurance companies are subject to assessments, based on their market share in a given line of business, to assist in the payment of unpaid claims and related costs of insolvent insurance companies. Such assessments could adversely affect the financial condition of our insurance subsidiaries.

Our insurance subsidiaries are subject to assessments pursuant to the guaranty fund laws of the various states in which they conduct business. Generally, under these laws, our insurance subsidiaries can be assessed, depending upon the market share of our insurance subsidiaries in a given line of insurance business, to assist in the payment of unpaid claims and related costs of insolvent insurance companies in those states. We cannot predict the number and magnitude of future insurance company failures in the states in which our insurance subsidiaries conduct business, but future assessments could adversely affect the business, financial condition and results of operations of our insurance subsidiaries.

Risks Relating to Our Business

The COVID-19 pandemic affected the business operations of our insurance subsidiaries and Donegal Mutual, and economic disruption related to a future pandemic may adversely affect our revenues, profitability, results of operations, cash flows, liquidity and financial condition.

During 2020 and 2021, the COVID-19 pandemic resulted in significant disruptions in economic activity throughout our operating regions. We cannot predict the ultimate impact that the economic and financial disruption related to a pandemic may have on us. Risks related to a pandemic include, but are not limited to, the following:
 

 •
the business operations or a specific operational function of our insurance subsidiaries and Donegal Mutual could be disrupted by the illness of significant numbers of their employees and remedial efforts that would be required upon discovery of exposure to a communicable illness within their facilities;


•
the business operations of our insurance subsidiaries and Donegal Mutual are dependent upon technology systems for which regular physical access is required to maintain critical operational capabilities, and the business operations of our insurance subsidiaries and Donegal Mutual would be adversely impacted by government mandates requiring closure of facilities where those technology systems are located or restricting physical access to such facilities;


•
the revenues of our insurance subsidiaries and Donegal Mutual may decrease as a result of reduced demand for their insurance products as economic disruption adversely impacts current and potential insurance customers;


•
our insurance subsidiaries and Donegal Mutual may incur an increase in their losses and loss expenses in certain lines of business as a result of a pandemic and related economic disruption, and such losses and loss expenses may exceed the reserves our insurance subsidiaries and Donegal Mutual have established or may establish in the future;


•
our insurance subsidiaries and Donegal Mutual may incur increased costs related to legal disputes over policy coverages or exclusions and their defense against litigation related to a pandemic;


•
legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries and Donegal Mutual to pay losses for damages that their policies explicitly excluded or did not intend to cover;


•
legislative, judicial and regulatory actions may require our insurance subsidiaries and Donegal Mutual to reduce or refund premiums, suspend cancellation of policies for non-payment of premiums or otherwise grant extended grace periods and time allowances for the payment of premium balances due to them;


•
our insurance subsidiaries and Donegal Mutual may not be able to collect premium balances due to them, resulting in reduced operating cash flows and an increase in premium write-offs that would increase their operating expenses;

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 •
our insurance subsidiaries may suffer declines in the market values of their investments as a result of financial market volatility related to pandemic concerns and related economic disruption; and


•
economic disruption related to a pandemic could result in significant declines in the credit quality of issuers, ratings downgrades or changes in financial market conditions and regulatory changes that might adversely impact the value of the fixed-maturity investments that our insurance subsidiaries own.

Our insurance subsidiaries and Donegal Mutual currently conduct business in a limited number of states, with a concentration of business in Pennsylvania, Michigan, Maryland, Delaware and Virginia. Any single catastrophe occurrence or other condition affecting losses in these states could adversely affect the results of operations of our insurance subsidiaries.

Our insurance subsidiaries and Donegal Mutual conduct business in 21 states located primarily in the Mid-Atlantic, Midwestern, Southern and Southwestern states. A substantial portion of their business consists of private passenger and commercial automobile, homeowners, commercial multi-peril and workers’ compensation insurance in Pennsylvania, Michigan, Maryland, Delaware and Virginia. While our insurance subsidiaries and Donegal Mutual actively manage their respective exposure to catastrophes through their underwriting processes and the purchase of reinsurance, a single catastrophic occurrence, destructive weather pattern, general economic trend, terrorist attack, regulatory development or other condition affecting one or more of the states in which our insurance subsidiaries conduct substantial business could materially adversely affect their business, financial condition and results of operations. Common catastrophic events include hurricanes, earthquakes, tornadoes, wind and hailstorms, fires and wildfires, explosions and severe winter storms.

If the independent agents who market the products of our insurance subsidiaries and Donegal Mutual do not maintain their current levels of premium writing with us and Donegal Mutual, fail to comply with established underwriting guidelines of our insurance subsidiaries and Donegal Mutual or otherwise inappropriately market the products of our insurance subsidiaries and Donegal Mutual, the business, financial condition and results of operations of our insurance subsidiaries could be adversely affected.

Our insurance subsidiaries and Donegal Mutual market their insurance products solely through a network of approximately 2,100 independent insurance agencies. This agency distribution system is one of the most important components of the competitive profile of our insurance subsidiaries and Donegal Mutual. As a result, our insurance subsidiaries and Donegal Mutual depend to a material extent upon their independent agents, each of whom has the authority to bind one or more of our insurance subsidiaries or Donegal Mutual to insurance coverage. To the extent that such independent agents’ marketing efforts fail to result in the maintenance of their current levels of volume and quality or they bind our insurance subsidiaries or Donegal Mutual to unacceptable insurance risks, fail to comply with the established underwriting guidelines of our insurance subsidiaries and Donegal Mutual or otherwise inappropriately market the products of our insurance subsidiaries and Donegal Mutual, the business, financial condition and results of operations of our insurance subsidiaries could suffer.

The business of our insurance subsidiaries and Donegal Mutual may not continue to grow and may be materially adversely affected if our insurance subsidiaries and Donegal Mutual cannot retain existing, and attract new, independent agents or if insurance consumers increase their use of insurance distribution channels other than independent agents.

The ability of our insurance subsidiaries and Donegal Mutual to retain existing, and to attract new, independent agents is essential to the continued growth of the business of our insurance subsidiaries and Donegal Mutual. If independent agents find it easier to do business with the competitors of our insurance subsidiaries and Donegal Mutual, our insurance subsidiaries and Donegal Mutual could find it difficult to retain their existing business or to attract new business. While our insurance subsidiaries and Donegal Mutual believe they maintain good relationships with the independent agents they have appointed, our insurance subsidiaries and Donegal Mutual cannot be certain that these independent agents will continue to sell the products of our insurance subsidiaries and Donegal Mutual to the consumers these independent agents represent. Some of the factors that could adversely affect the ability of our insurance subsidiaries and Donegal Mutual to retain existing, and attract new, independent agents include:

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 •
the significant competition among insurance companies to attract independent agents;


•
the labor-intensive and time-consuming process of selecting new independent agents;


•
the insistence of our insurance subsidiaries and Donegal Mutual that independent agents adhere to certain standards;


•
the ability of our insurance subsidiaries and Donegal Mutual to pay competitive and attractive commissions, bonuses and other incentives to independent agents; and


•
the ongoing consolidation of independent agencies, which may result in the acquisition of independent agencies from which our insurance subsidiaries and Donegal Mutual currently receive business by larger entities with which our insurance subsidiaries and Donegal Mutual do not have business relationships.

While our insurance subsidiaries and Donegal Mutual sell insurance to policyholders solely through their network of independent agencies, many competitors of our insurance subsidiaries and Donegal Mutual sell insurance through a variety of delivery methods, including independent agencies, captive agencies and direct sales. To the extent that current and potential policyholders change their distribution channel preference, the business, financial condition and results of operations of our insurance subsidiaries may be adversely affected.

Dividends from our insurance subsidiaries are a significant source of funds for the payment of our operating expenses and dividends to our stockholders; however, there are regulatory restrictions and business considerations that may limit the amount of dividends our insurance subsidiaries may pay to us.

As a holding company, we rely on dividends from our insurance subsidiaries as a significant source of funds to meet our corporate obligations and to pay dividends to our stockholders. The amount of dividends our insurance subsidiaries can pay to us is subject to regulatory restrictions and depends on the amount of surplus our insurance subsidiaries maintain. From time to time, the NAIC and various state insurance regulators consider modifying the method of determining the amount of dividends that an insurance company may pay without prior regulatory approval. The maximum amount of ordinary dividends that our insurance subsidiaries can pay to us in 2025 without prior regulatory approval is approximately $53.3 million. Other business and regulatory considerations, such as the impact of dividends on surplus that could affect the ratings of our insurance subsidiaries, competitive conditions, RBC requirements, the investment results of our insurance subsidiaries and the amount of premiums that our insurance subsidiaries write could also adversely impact the ability of our insurance subsidiaries to pay dividends to us.

If A.M. Best downgrades the rating it has assigned to Donegal Mutual or any of our insurance subsidiaries, it would adversely affect their competitive position.

Industry ratings are a factor in establishing and maintaining the competitive position of insurance companies. A.M. Best, an industry-accepted source of insurance company financial strength ratings, rates Donegal Mutual and our insurance subsidiaries. A.M. Best ratings provide an independent opinion of an insurance company’s financial health and its ability to meet its obligations to its policyholders. We believe that the financial strength rating of A.M. Best is material to the operations of Donegal Mutual and our insurance subsidiaries. For example, certain lenders require customers to purchase insurance from an insurance carrier that has received an A.M. Best rating that exceeds a certain level. Currently, Donegal Mutual and our insurance subsidiaries each have an A (Excellent) rating from A.M. Best. In May 2024, A.M. Best affirmed its A (Excellent) ratings of Donegal Mutual and our insurance subsidiaries. However, if A.M. Best were to downgrade the rating of Donegal Mutual or any of our insurance subsidiaries, it would adversely affect the competitive position of Donegal Mutual or that insurance subsidiary and make it more difficult for it to market its products and retain its existing policyholders.

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The growth and profitability of our insurance subsidiaries depend, in part, on the effective maintenance and ongoing development of Donegal Mutual’s information technology systems, and the allocation of related costs to our insurance subsidiaries may adversely impact their profitability.

Our insurance subsidiaries utilize Donegal Mutual’s information technology systems to conduct their insurance business, including policy quoting and issuance, claims processing, processing of incoming premium payments and other important functions. As a result, the ability of our insurance subsidiaries to grow their business and conduct profitable operations depends on Donegal Mutual’s ability to maintain its existing information technology systems and to develop new technology systems that will support the business of Donegal Mutual and our insurance subsidiaries in a cost-efficient manner and provide information technology capabilities equivalent to those of our competitors. The allocation among our insurance subsidiaries and Donegal Mutual of the costs of developing and maintaining Donegal Mutual’s information technology systems may adversely impact our insurance subsidiaries’ expense ratio and underwriting profitability, and such costs may exceed Donegal Mutual’s and our expectations.

Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key infrastructure and applications systems, and the allocation of related costs to our insurance subsidiaries has resulted in an increase to their expense ratio. These new systems are intended to provide various benefits to the member companies of the Donegal Insurance Group, including streamlined workflows and business processes, service enhancements for their agents and policyholders, opportunities to implement new product models and innovative business solutions, greater utilization of data analytics and operational efficiencies. Since 2020, we have implemented five major releases of new systems. In 2025, Donegal Mutual expects to implement new systems for the remaining lines of business the Donegal Insurance Group issues currently and for the conversion of remaining legacy renewal policies of the Donegal Insurance Group. The conversion process will continue into 2026 as legacy policies renew on a state-by-state rollout schedule. Even with Donegal Mutual’s and our best planning and efforts and the involvement of third-party experts, Donegal Mutual may not complete the implementation of these new systems within its planned timeframes or budget. Further, Donegal Mutual’s information technology systems may not deliver the benefits Donegal Mutual and we expect and may fail to keep pace with our competitors’ information technology systems. As a result, Donegal Mutual and our insurance subsidiaries may not have the ability to grow their business and meet their profitability objectives.

While we are currently placing less emphasis on pursuing acquisitions because Donegal Mutual and we believe there are significant opportunities for profitable organic growth, our strategy to grow in part through acquisitions of other insurance companies exposes us to risks that could adversely affect our results of operations and financial condition.
 
The affiliation with, and acquisition of, other insurance companies involves risks that could adversely affect our results of operations and financial condition. The risks associated with these affiliations and acquisitions include:


 •
the potential inadequacy of reserves for losses and loss expenses of the other insurer;


•
the need to supplement management of the other insurer with additional experienced personnel;


•
conditions imposed by regulatory agencies that make the realization of cost-savings through integration of the operations of the other insurer with our operations more difficult;


•
our management’s lack of familiarity with the geography, demographics and distribution systems in the markets the other insurer serves that cause the other insurer to fail to meet the growth and profitability objectives we anticipated at the time of the acquisition or affiliation;


•
potential difficulties with integration of information technology systems and other operations;


•
the need of the other insurer for additional capital that we did not anticipate at the time of the acquisition or affiliation; and


•
the use of more of our management’s time in improving the operations of the other insurer than we originally anticipated.

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If we cannot obtain sufficient capital to fund the organic growth of our insurance subsidiaries and to make acquisitions, we may not be able to expand our business.

Our strategy is to expand our business through the organic growth of our insurance subsidiaries and through our strategic acquisitions of regional insurance companies. Our insurance subsidiaries may require additional capital in the future to support this strategy. If we cannot obtain sufficient capital on satisfactory terms and conditions, we may not be able to expand the business of our insurance subsidiaries or to make future acquisitions. Our ability to obtain additional financing will depend on a number of factors, many of which are beyond our control. For example, we may not be able to obtain additional debt or equity financing because we or our insurance subsidiaries may already have substantial debt at the time, because we or our insurance subsidiaries do not have sufficient cash flow to service or repay our existing or additional debt or because financial institutions are not making financing available. In addition, any equity capital we obtain in the future could be dilutive to our existing stockholders.

Competition within the property and casualty insurance industry may adversely impact the revenues and profit margins of our insurance subsidiaries.

The property and casualty insurance industry is intensely competitive. Competition can be based on many factors, including:


 •
the perceived financial strength of the insurer;


•
premium rates;


•
policy terms and conditions;


•
policyholder service;


•
reputation; and


•
experience.

Our insurance subsidiaries and Donegal Mutual compete with many regional and national property and casualty insurance companies, including direct sellers of insurance products, insurers having their own agency organizations and other insurers represented by independent agents. Many of these insurers have greater capital than our insurance subsidiaries and Donegal Mutual, have substantially greater financial, technical and operating resources, have substantially greater exposure and access to potential customers and have equal or higher ratings from A.M. Best than our insurance subsidiaries and Donegal Mutual. In addition, our competitors may become increasingly better capitalized in the future as the property and casualty insurance industry continues to consolidate.

The greater capitalization of many of the competitors of our insurance subsidiaries and Donegal Mutual enables them to operate with lower profit margins and, therefore, allows them to market their products more aggressively, to take advantage more quickly of new marketing opportunities and to offer lower premium rates. In addition to established insurers, our insurance subsidiaries and Donegal Mutual compete with a growing number of start-ups, some of which have received substantial infusions of capital, that seek to disrupt traditional business platforms and distribution channels. Our insurance subsidiaries and Donegal Mutual may not be able to maintain their current competitive position in the markets in which they operate if their competitors offer prices for their products that are lower than the prices our insurance subsidiaries and Donegal Mutual are prepared to offer. Moreover, if these competitors lower the price of their products and our insurance subsidiaries and Donegal Mutual meet their pricing, the profit margins and revenues of our insurance subsidiaries and Donegal Mutual may decrease and their ratios of claims and expenses to premiums may increase. All of these factors could materially adversely affect the financial condition and results of operations of our insurance subsidiaries and their A.M. Best ratings.

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The investment portfolios of our insurance subsidiaries consist primarily of fixed-income securities; therefore, the investment income and the fair value of the investment portfolios of our insurance subsidiaries could decrease as a result of a number of factors.

Our insurance subsidiaries invest the premiums they receive from their policyholders and maintain investment portfolios that consist primarily of fixed-income securities. The effective management of these investment portfolios is an important component of the profitability of our insurance subsidiaries. Our insurance subsidiaries derive a significant portion of their operating income from the income they receive on their invested assets. A number of factors may affect the quality and/or yield of their investment portfolios, including the general economic and business environment, government monetary policy, changes in the credit quality of the issuers of the fixed-income securities our insurance subsidiaries own, changes in market conditions and regulatory changes. The fixed-income securities our insurance subsidiaries own consist primarily of securities issued by domestic entities that are backed by either the credit or collateral of the underlying issuer. Factors such as an economic downturn, disruption in the credit market or the availability of credit, a regulatory change pertaining to a particular issuer’s industry, a significant deterioration in the cash flows of the issuer or a change in the issuer’s marketplace may adversely affect the ability of our insurance subsidiaries to collect principal and interest from the issuer in which they invest.

The investments of our insurance subsidiaries are also subject to risk resulting from interest rate fluctuations. As we experienced when market interest rates increased significantly in 2022, increasing interest rates or a widening in the spread between interest rates available on U.S. Treasury securities and corporate debt or asset-backed securities will typically have an adverse impact on the market values of fixed-rate securities. If interest rates decline, our insurance subsidiaries will generally have a lower overall rate of return on investments of cash their operations generate. In addition, in the event of the call or maturity of investments in a low interest rate environment, our insurance subsidiaries may not be able to reinvest the proceeds in securities with comparable interest rates. Changes in interest rates may reduce both the profitability and the return on the invested capital of our insurance subsidiaries.

We and our insurance subsidiaries depend on key personnel. The loss of any member of our executive management or the senior management of our insurance subsidiaries could negatively affect the continuation of our business strategies and achievement of our growth objectives.

The loss of, or failure to attract, key personnel could significantly impede our financial plans, growth, marketing and other objectives and those of our insurance subsidiaries. The continued success of our insurance subsidiaries depends to a substantial extent on the ability and experience of their senior management. Our insurance subsidiaries and we believe that our future success is dependent on our ability to attract and retain additional skilled and qualified personnel and to expand, train and manage our employees. We and Donegal Mutual have employment agreements with our senior officers, including all of our named executive officers.

The reinsurance agreements on which our insurance subsidiaries rely do not relieve our insurance subsidiaries from their primary liability to their policyholders, and our insurance subsidiaries face a risk of non-payment from their reinsurers as well as the non-availability of reinsurance in the future.

Our insurance subsidiaries rely on reinsurance agreements to limit their maximum net loss from large single catastrophic risks or excess of loss risks in areas where our insurance subsidiaries may have a concentration of policyholders. Reinsurance also enables our insurance subsidiaries to increase their capacity to write insurance because it has the effect of leveraging the surplus of our insurance subsidiaries. Although the reinsurance our insurance subsidiaries maintain provides that the reinsurer is liable to them for any reinsured losses, the reinsurance agreements do not generally relieve our insurance subsidiaries from their primary liability to their policyholders if the reinsurer fails to pay the reinsurance claims of our insurance subsidiaries. To the extent that a reinsurer is unable to pay losses for which it is liable to our insurance subsidiaries, our insurance subsidiaries remain liable for such losses. At December 31, 2024, our insurance subsidiaries had approximately $99.7 million of reinsurance receivables from third-party reinsurers relating to paid and unpaid losses. Any insolvency or inability of these reinsurers to make timely payments to our insurance subsidiaries under the terms of their reinsurance agreements would adversely affect the results of operations of our insurance subsidiaries.

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Michigan law requires MICO to provide certain medical benefits under the personal injury protection, or PIP, coverage of the personal automobile and commercial automobile policies it writes in the state of Michigan. Michigan law also requires MICO to be a member of the Michigan Catastrophic Claims Association, or MCCA, in order to write automobile insurance. The MCCA receives funding through assessments that its members collect from policyholders in the state and provides reinsurance for PIP claims that exceed a set retention. At December 31, 2024, MICO had approximately $46.3 million of reinsurance receivables from MCCA relating to paid and unpaid losses. The MCCA has generated significant operating deficits in past years. While the MCCA generated an increase in surplus in recent years, the MCCA board approved the return of a significant portion of its accumulated surplus to policyholders in the form of cash refunds in early 2022. Although we currently consider the risk to be remote, should the MCCA be unable to fulfill its payment obligations to MICO in the future, MICO’s financial condition and results of operations could be adversely affected.

In addition, our insurance subsidiaries face a risk of the non-availability of reinsurance or an increase in reinsurance costs that could adversely affect their ability to write business or their results of operations. Market conditions beyond the control of our insurance subsidiaries, such as the amount of surplus in the reinsurance market and the frequency and severity of natural and man-made catastrophes, affect both the availability and the cost of the reinsurance our insurance subsidiaries purchase. If our insurance subsidiaries cannot maintain their current level of reinsurance or purchase new reinsurance protection in amounts that our insurance subsidiaries consider sufficient, our insurance subsidiaries would either have to accept an increase in their net risk retention or reduce their insurance writings, either of which could adversely affect them. For example, due to increased reinsurance pricing and reduced reinsurance market capacity, our insurance subsidiaries increased their net retentions under several of their reinsurance programs for 2024 and 2025.

The disruption or failure of Donegal Mutual’s information technology systems or the compromise of the security of those systems that results in the theft or misuse of confidential information could materially impact adversely the business of Donegal Mutual and our insurance subsidiaries.
 
Our insurance subsidiaries’ business operations depend significantly upon the availability and successful operation of Donegal Mutual’s information technology systems. In addition, in the normal course of their operations, Donegal Mutual and our insurance subsidiaries collect, utilize and maintain confidential information regarding individuals and businesses. While Donegal Mutual has established various security measures to protect its information technology systems and confidential data, unanticipated computer viruses, malware, ransomware, power outages, unauthorized access or other cyberattacks could disrupt those systems or result in the misappropriation or loss of confidential data. Donegal Mutual could experience technology system failures or other outages that would impact the availability of its information technology systems. Donegal Mutual has experienced brief disruptions of systems in the past, including those systems that allow underwriting and processing of new policies. Disruption in the availability of Donegal Mutual’s information technology systems could affect the ability of Donegal Mutual and our insurance subsidiaries to underwrite and process their policies timely, process and settle claims promptly and provide expected levels of customer service to agents and policyholders.

While Donegal Mutual has identified threats to the security of its information technology systems, Donegal Mutual and we are unaware of any significant breach of the security measures Donegal Mutual maintains. A significant breach of the security of Donegal Mutual’s information technology systems that results in the misappropriation or misuse of confidential information could damage the business reputation of Donegal Mutual and our insurance subsidiaries and could expose Donegal Mutual and our insurance subsidiaries to litigation. The financial impact to Donegal Mutual, us and our insurance subsidiaries of a significant breach could be material.

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Risks Relating to Us and Our Common Stock

The price of our common stock may be adversely affected by its low trading volume.

Our Class A common stock and our Class B common stock have limited liquidity. Reported average daily trading volume for our Class A common stock and our Class B common stock for the year ended December 31, 2024 was approximately 64,806 shares and approximately 1,190 shares, respectively. This limited liquidity could subject our shares of Class A common stock and our shares of Class B common stock to greater price volatility.

Donegal Mutual is our controlling stockholder. Donegal Mutual and its directors and executive officers have potential conflicts of interest between the best interests of our stockholders and the best interests of the policyholders of Donegal Mutual.

Donegal Mutual controls the election of all of the members of our board of directors. Seven of the eleven members of our board of directors are also directors of Donegal Mutual. Donegal Mutual and we share the same executive officers. These common directors and executive officers have a fiduciary duty to our stockholders and also have a fiduciary duty to the policyholders of Donegal Mutual. Among the potential conflicts of interest that could arise from these separate fiduciary duties are the following:


 •
we and Donegal Mutual periodically review the percentage participation of Atlantic States and Donegal Mutual in the underwriting pool that Donegal Mutual and Atlantic States have maintained since 1986;


•
our insurance subsidiaries and Donegal Mutual annually review and then establish the terms of certain reinsurance agreements between our insurance subsidiaries and Donegal Mutual;


•
we and Donegal Mutual allocate certain shared expenses among ourselves and our insurance subsidiaries in accordance with various inter-company expense-sharing agreements; and


•
we and our insurance subsidiaries may enter into other transactions or contractual relationships with Donegal Mutual.

Donegal Mutual has sufficient voting power to determine the outcome of substantially all matters submitted to our stockholders for approval.

Each share of our Class A common stock has one-tenth of a vote per share and generally votes as a single class with our Class B common stock. Each share of our Class B common stock has one vote per share and generally votes as a single class with our Class A common stock. Donegal Mutual has the right to vote approximately 70% of the combined voting power of our Class A common stock and our Class B common stock and has sufficient voting control to and has acted to:


 •
elect all of the members of our board of directors, who determine our management and policies; and


•
control the outcome of any corporate transaction or other matter submitted to a vote of our stockholders for approval, including mergers or other acquisition proposals and the sale of all or substantially all of our assets, in each case regardless of how all of our stockholders other than Donegal Mutual vote their shares.

The interests of Donegal Mutual in maintaining this greater-than-majority voting control of us may have an adverse effect on the price of our Class A common stock and the price of our Class B common stock because of the absence of any potential “takeover” premium and may, therefore, be inconsistent with the interests of our stockholders other than Donegal Mutual.

 Donegal Mutual’s majority voting control of us, certain provisions of our certificate of incorporation and by-laws and certain provisions of Delaware law make it remote that anyone could acquire actual control of us unless Donegal Mutual were in favor of another person’s acquisition of control of us.

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Donegal Mutual’s majority voting control of us, certain anti-takeover provisions in our certificate of incorporation and by-laws and certain provisions of the Delaware General Corporation Law, or the DGCL, could delay or prevent the removal of members of our board of directors and could make a merger, tender offer or proxy contest involving us more expensive as well as unlikely to succeed, even if such events were in the best interests of our stockholders other than Donegal Mutual. These factors could also discourage a third party from attempting to acquire control of us. In particular, our certificate of incorporation and by-laws include the following anti-takeover provisions:


 •
our board of directors is classified into three classes, so that our stockholders elect only one-third of the members of our board of directors each year;


•
our stockholders may remove our directors only for cause;


•
our stockholders may not take stockholder action except at an annual or special meeting of our stockholders;


•
the request of stockholders holding at least 20% of the combined voting power of our Class A common stock and our Class B common stock is required for a stockholder to call a special meeting of our stockholders;


•
our by-laws require that stockholders provide advance notice to us to nominate candidates for election to our board of directors or to propose any other item of stockholder business at a stockholders’ meeting;


•
we do not permit cumulative voting rights in the election of our directors;


•
our certificate of incorporation does not provide for preemptive rights in connection with any issuance of securities by us; and


•
our board of directors may issue, without stockholder approval unless otherwise required by law, preferred stock with such terms as our board of directors may determine.

We have authorized preferred stock that we could issue without stockholder approval to make it more difficult for a third party to acquire us.

We have 2.0 million authorized shares of preferred stock that we could issue in one or more series without further stockholder approval, unless the DGCL or the rules of the NASDAQ Global Select Market otherwise require, and upon such terms and conditions, and having such rights, privileges and preferences, as our board of directors may determine. Our potential issuance of preferred stock may make it more difficult for a third party to acquire control of us.

Because we are an insurance holding company, no person can acquire or seek to acquire a 10% or greater interest in us without first obtaining approval of the insurance commissioners of the states of domicile of each of our insurance subsidiaries.

We own insurance subsidiaries domiciled in the states of Michigan, Pennsylvania and Virginia, and Donegal Mutual is domiciled in Pennsylvania and owns or controls insurance companies domiciled in Georgia and New Mexico. The insurance laws of each of these states provide that no person can acquire or seek to acquire a 10% or greater interest in us without first filing specified information with the insurance commissioners of those states and obtaining the prior approval of the proposed acquisition of a 10% or greater interest in us by each of the state insurance commissioners based on statutory standards designed to protect the safety and soundness of us and our insurance subsidiaries. These approval requirements may make it more difficult for a third party to acquire control of us.

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Item 1B.
Unresolved Staff Comments.

We have no unresolved written comments from the Securities and Exchange Commission staff regarding our filings under the Exchange Act.

Item 1C.
Cybersecurity.


Our insurance subsidiaries utilize the information systems Donegal Mutual maintains. Donegal Mutual has a robust information security program in place as a component of the enterprise-level risk management program of Donegal Mutual and us. The integration of Donegal Mutual’s information security program into the enterprise-level risk management program is intended to promote the inclusion of cybersecurity considerations in decision-making processes throughout Donegal Mutual. Donegal Mutual has implemented multiple layers of cybersecurity systems and related defensive measures that are intended to assist with assessing, identifying and managing material risks from cybersecurity threats to Donegal Mutual’s information systems. Examples of these systems and measures include firewalls, data encryption, intrusion detection and prevention systems, endpoint detection and response systems, data-loss prevention systems and multi-factor authentication requirements for remote and privileged access. Donegal Mutual also regularly evaluates the effectiveness of its information security program through enterprise risk assessments.



Donegal Mutual also requires annual cybersecurity awareness training for all employees who serve Donegal Mutual and our insurance subsidiaries. Donegal Mutual expects all employees to assist in safeguarding its information systems and to assist in the discovery and reporting of cybersecurity incidents. This enterprise-wide program is intended to identify and assess internal and external cyber and information security risks that may threaten the security or integrity of the information stored on Donegal Mutual’s information systems or those of third-party providers from unauthorized access, use or other malicious acts.



Donegal Mutual employs a third-party security operations center that provides after-hours alert services to help ensure continuous monitoring for cybersecurity threats. On an annual basis, Donegal Mutual also engages third-party cybersecurity consultants to perform cyberattack and penetration testing on its information systems and to conduct tabletop exercises to enhance preparedness of its crisis management team. This crisis management team includes technical and senior-level management personnel, and the exercises are intended to help maintain their readiness by reviewing the roles they will be expected to perform and the procedures they will be expected to follow in the event of a cybersecurity incident. These consultants advise Donegal Mutual on the effectiveness of its cybersecurity processes and assist Donegal Mutual in remediating any identified vulnerabilities and implementing any recommended measures to improve its cybersecurity defenses and readiness.



In addition to monitoring cybersecurity threats to Donegal Mutual’s information systems and information technology infrastructure, Donegal Mutual and we also assess and monitor the information security posture of third-party service providers whose services we deem critical to our operations. This process is designed to help Donegal Mutual’s information security personnel identify and mitigate risks related to data breaches or other cybersecurity incidents originating from third-party service providers in order to better protect Donegal Mutual’s information systems and information technology infrastructure.



Donegal Mutual and we are not aware of any cybersecurity incidents or risks from cybersecurity threats that have materially affected, or are reasonably likely to affect, our business strategy, results of operations or financial condition. While Donegal Mutual maintains cybersecurity insurance, the costs related to cybersecurity threats or disruptions may not be fully insured. For more information regarding the risks Donegal Mutual and we face from cybersecurity threats, see “Risk Factors - Risks Relating to Our Business- The disruption or failure of Donegal Mutual’s information technology systems or the compromise of the security of those systems that results in the theft or misuse of confidential information could materially impact adversely the business of Donegal Mutual and our insurance subsidiaries.”

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Donegal Mutual employs an information security officer who has relevant experience and expertise in information security and holds the management position that is primarily responsible for assessing and managing cybersecurity risks. In addition, the chief risk officer of Donegal Mutual and us has extensive experience in the field of risk management, which is helpful for developing and executing Donegal Mutual’s information security program in a manner that aligns with the overall enterprise-level risk management program of Donegal Mutual and us.


In connection with carrying out their overall oversight responsibilities, the boards of directors of Donegal Mutual and us have delegated certain cybersecurity oversight responsibilities to the joint audit committee of those boards. The joint audit committee meets at least quarterly and is central to the boards’ oversight of cybersecurity risks. A member of the joint audit committee has extensive information technology and cybersecurity experience in the insurance industry. The joint audit committee actively monitors these risks in order to assist in coordinating prevention and mitigation efforts by, among other things, participating in risk management committee meetings and receiving quarterly reports from the chief risk officer of Donegal Mutual and us on cybersecurity risks and related matters. Donegal Mutual’s information security officer also provides an annual cybersecurity report to the boards of directors of Donegal Mutual and us. The annual cybersecurity report encompasses a broad range of topics, including types of threats and attempted infiltrations, applicable regulatory developments, information security program activities and planned cybersecurity enhancements to address emerging threats.


Donegal Mutual and we also maintain a risk management committee that is comprised of our shared executive officers and other key management personnel. This committee meets quarterly and is responsible for our enterprise risk strategy and management, which includes identifying, assessing, addressing and monitoring cybersecurity risks. Donegal Mutual’s information security officer provides quarterly updates to the risk management committee. Those updates include current cybersecurity issues and trends and any relevant information related to the prevention, detection, mitigation and remediation of cybersecurity incidents.

Item 2.
Properties.

We and our insurance subsidiaries share administrative headquarters with Donegal Mutual in a building in Marietta, Pennsylvania that Donegal Mutual owns. The Marietta headquarters has approximately 270,000 square feet of office space. Southern owns a facility of approximately 10,000 square feet in Glen Allen, Virginia. In addition, Donegal Mutual leases office space in Albuquerque, New Mexico, MICO leases office space in Grand Rapids, Michigan, and Southern Mutual owns a building in Athens, Georgia. Donegal Mutual and our insurance subsidiaries share property-related expenses proportionately under a services allocation agreement.

Item 3.
Legal Proceedings.

Our insurance subsidiaries are parties to routine litigation that arises in the ordinary course of their insurance business. We believe that the resolution of these lawsuits will not have a material adverse effect on the financial condition or results of operations of our insurance subsidiaries. However, regardless of outcome, litigation and related matters could have an adverse impact on us and our insurance subsidiaries due to defense and settlement costs, diversion of management resources, negative publicity, reputational harm and other factors.

Item 4.
Mine Safety Disclosures.

Not applicable.

PART II

Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our Class A common stock and Class B common stock trade on the NASDAQ Global Select Market under the symbols “DGICA” and “DGICB,” respectively.

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At the close of business on March 3, 2025, we had approximately 1,477 holders of record of our Class A common stock and approximately 204 holders of record of our Class B common stock.

We declared dividends of $0.69 per share on our Class A common stock and $0.62 per share on our Class B common stock in 2024, compared to $0.68 per share on our Class A common stock and $0.61 per share on our Class B common stock in 2023.
 
Unregistered Sales of Equity Securities and Use of Proceeds.
 
Between October 1, 2024 and December 31, 2024, Donegal Mutual purchased shares of our Class A common stock as set forth in the table below:
 
Period
  
(a) Total Number of Shares
(or Units) Purchased
  
(b) Average Price Paid per
Share (or Unit)
  
(c) Total Number of Shares
(or Units) Purchased as
Part of Publicly
Announced Plans or
Programs
  
(d) Maximum Number (or
Approximate Dollar Value)
of Shares (or Units) that
May Yet Be Purchased
Under the Plans or
Programs
Month #1
October 1-31, 2024
  
Class A – 150,432
Class B – None
  
Class A – $15.49
Class B – None
  
Class A – 150,432
Class B – None
  
(1)
Month #2
November 1-30, 2024
  
Class A – 235,884
Class B – None
  
Class A – $15.88
Class B – None
  
Class A – 235,884
Class B – None
  
(1)
Month #3
December 1-31, 2024
  
Class A – 414,122
Class B – None
  
Class A – $16.63
Class B – None
  
Class A – 414,122
Class B – None
  
(1)
Total
  
Class A – 800,438
Class B – None
  
Class A – $16.20
Class B – None
  
Class A – 800,438
Class B – None
    



(1)
Donegal Mutual purchased these shares pursuant to its disclosure on April 29, 2022 that it will, at its discretion,         purchase shares of our Class A common stock and Class B common stock at market prices prevailing from time to time in the open market subject to the provisions of SEC Rule 10b-18 and in privately negotiated transactions. Such disclosure did not stipulate a maximum number of shares that may be purchased under this program.

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Stock Performance Chart.

The following graph provides an indicator of cumulative total stockholder returns on our Class A common stock and our Class B common stock for the period beginning on December 31, 2019 and ending on December 31, 2024, compared to the Russell 2000 Index and a peer group comprised of six property and casualty insurance companies over the same period. The peer group consists of Cincinnati Financial Corp., Hanover Insurance Group Inc., Horace Mann Educators Corp., Kemper Corp., Selective Insurance Group Inc. and United Fire Group Inc. The graph shows the change in value of an initial $100 investment on December 31, 2019, assuming reinvestment of all dividends.
graphic
   
2019
2020
2021
2022
2023
2024
 
Donegal Group Inc. Class A
$100.00
$98.98
$104.91
$109.16
$112.65
$130.65
 
Donegal Group Inc. Class B
100.00
96.57
114.54
144.15
134.32
136.44
 
Russell 2000
100.00
119.96
137.74
109.59
128.14
142.93
 
Peer Group
100.00
90.33
105.60
102.08
104.50
136.71

Research Data Group prepared the foregoing performance graph and data. The performance graph and accompanying data shall not be deemed “filed” as part of this Form 10-K Report for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section and should not be deemed incorporated by reference into any other filing we make under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent we specifically incorporate the performance graph and accompanying data by reference into such filing.

Item 6.
[Reserved]

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Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26, 1986. See “Business - History and Organizational Structure” for more information. Our insurance subsidiaries are Atlantic States Insurance Company (“Atlantic States”), Michigan Insurance Company (“MICO”), The Peninsula Insurance Company and its wholly owned subsidiary, Peninsula Indemnity Company (collectively, “Peninsula”), and Southern Insurance Company of Virginia (“Southern”). Our insurance subsidiaries and their affiliates write commercial and personal lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwest, Southern and Southwestern states. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.

At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately 70% of the combined voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock.

Donegal Mutual and Atlantic States have participated in a proportional reinsurance agreement, or pooling agreement, since 1986. Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled business to Atlantic States. Thus, Donegal Mutual and Atlantic States share the underwriting results of the pooled business in proportion to their respective participation in the underwriting pool. The operations of our insurance subsidiaries and Donegal Mutual are interrelated due to the pooling agreement and other factors. While maintaining the separate corporate existence of each company, our insurance subsidiaries conduct business together with Donegal Mutual and its insurance subsidiaries as the Donegal Insurance Group. The Donegal Insurance Group is not a legal entity, is not an insurance company and does not issue or administer insurance policies. Rather, it is a trade name that refers to the group of insurance companies that are affiliated with Donegal Mutual. See “Business - Relationship with Donegal Mutual” for more information regarding the pooling agreement and other transactions with our affiliates.

Donegal Mutual and our insurance subsidiaries operate together as the Donegal Insurance Group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual offer are generally complementary, thereby allowing Donegal Insurance Group to offer a broader range of products to a given market and to expand Donegal Insurance Group’s ability to service an entire personal lines or commercial lines account. Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally allow the individual companies to manage certain risk segments through variations in coverage, terms and pricing. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, because the pool homogenizes the risk characteristics of the predominant percentage of the business Donegal Mutual and Atlantic States write directly and each company shares the underwriting results according to each company’s participation percentage, each company realizes its percentage share of the underwriting results of the pool.

In July 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during 2024 or 2023. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through December 31, 2024.

On April 29, 2022, Donegal Mutual disclosed that it will, at its discretion, purchase shares of our Class A common stock and our Class B common stock at market prices prevailing from time to time in the open market subject to the provisions of SEC Rule 10b-18 and in privately negotiated transactions. Such disclosure did not stipulate a maximum number of shares that may be purchased under this program. Donegal Mutual purchased 1,057,282 and 516,620 shares of our Class A common stock during 2024 and 2023, respectively. Donegal Mutual did not purchase any shares of our Class B common stock during 2024 or 2023.

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Critical Accounting Policies and Estimates

We combine our financial statements with those of our insurance subsidiaries and present them on a consolidated basis in accordance with GAAP.

Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements. The most significant estimates relate to the reserves of our insurance subsidiaries for property and casualty insurance unpaid losses and loss expenses. While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts may differ from the estimates we provided. We regularly review our methods for making these estimates, and we reflect any adjustment we consider necessary in our results of operations for the period in which we make an adjustment.


Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.

Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance subsidiaries do not discount their liabilities for losses and loss expenses.

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Liability for Losses and Loss Expenses Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations. For example, our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim settlement periods on bodily injury claims during the past several years. In addition, the COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates. These trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern of future loss settlements. Related uncertainties regarding future trends include social inflation, availability and cost of replacement automobile parts and building materials, availability and cost of skilled labor, the rate of specialized plaintiff attorney involvement in claims, plaintiff attorney utilization of litigation financing and the cost of medical technologies and procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses, among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes. Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at December 31, 2024. For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.0 million.

The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $15.0 million, $16.7 million and $44.8 million in 2024, 2023 and 2022, respectively. Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those years. The 2024 development represented 2.2% of the December 31, 2023 net carried reserves and resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024. The majority of the 2024 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. The 2023 development represented 2.5% of the December 31, 2022 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023. The majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. The 2022 development represented 7.2% of the December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022. The majority of the 2022 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.

Excluding the impact of severe weather events and the COVID-19 pandemic, our insurance subsidiaries have noted stable amounts in the number of claims incurred and the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business. However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as increased property and automobile repair and replacement costs, rising medical loss costs and increased litigation trends and lengthening of repair completion times for property and automobile claims. We have also experienced a general slowing of settlement rates in litigated claims. Our insurance subsidiaries could have to make further adjustments to their estimates in the future. However, on the basis of our insurance subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses.

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Atlantic States’ participation in the underwriting pool with Donegal Mutual exposes Atlantic States to adverse loss development on the business that Donegal Mutual contributes to the underwriting pool. However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk development relating to the pooled business. The business in the underwriting pool is homogeneous and each company has a pro-rata share of the entire underwriting pool. Since the predominant percentage of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies.

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Our insurance subsidiaries’ liability for losses and loss expenses by major line of business at December 31, 2024 and 2023 consisted of the following:

   
2024
    
2023
  
   
(in thousands)
  
Commercial lines:
            
Automobile
  
$
180,757
    
$
168,749
  
Workers’ compensation
    
129,406
      
122,473
  
Commercial multi-peril
    
208,676
      
217,292
  
Other
    
39,336
      
27,167
  
Total commercial lines
    
558,175
      
535,681
  
                 
Personal lines:
                
Automobile
    
116,693
      
112,509
  
Homeowners
    
26,591
      
28,001
  
Other
    
2,905
      
12,952
  
Total personal lines
    
146,189
      
153,462
  
                 
Total commercial and personal lines
    
704,364
      
689,143
  
Plus reinsurance recoverable
    
416,621
      
437,014
  
Total liability for losses and loss expenses
  
$
1,120,985
    
$
1,126,157
  

We have evaluated the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we consider in establishing loss and loss expense reserves. We established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries’ loss reserves as a whole. The selected range does not necessarily indicate what could be the potential best or worst case or the most-likely scenario. The following table sets forth the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves:
 
Change in Loss and Loss
Expense Reserves Net of
Reinsurance
  
Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
  December 31, 2024
  
Percentage Change in
Equity at
December 31, 2024(1)
  
Adjusted Loss and Loss
Expense Reserves Net of
Reinsurance at
  December 31, 2023
  
Percentage Change in
Equity at
December 31, 2023(1)
(dollars in thousands)
-10.0%
  
$633,928
  
10.2%
  
$620,229
  
11.3%
-7.5
  
651,537
  
7.6
  
637,457
  
8.5
-5.0
  
669,146
  
5.1
  
654,686
  
5.7
-2.5
  
686,755
  
2.5
  
671,914
  
2.8
Base
  
704,364
  
—
  
689,143
  
—
2.5
  
721,973
  
-2.5
  
706,372
  
-2.8
5.0
  
739,582
  
-5.1
  
723,600
  
-5.7
7.5
  
757,191
  
-7.6
  
740,829
  
-8.5
10.0
  
774,800
  
-10.2
  
758,057
  
-11.3
   
 
(1)
Net of income tax effect.

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Our insurance subsidiaries base their reserves for unpaid losses and loss expenses on current trends in loss and loss expense development and reflect their best estimates for future amounts needed to pay losses and loss expenses with respect to incurred events currently known to them plus incurred but not reported (“IBNR”) claims. Our insurance subsidiaries develop their reserve estimates based on an assessment of known facts and circumstances, review of historical loss settlement patterns, estimates of trends in claims severity, frequency, legal and regulatory changes and other assumptions. Our insurance subsidiaries consistently apply actuarial loss reserving techniques and assumptions, which rely on historical information as adjusted to reflect current conditions, including consideration of recent case reserve activity. Our insurance subsidiaries use the point estimate their actuaries select. For the year ended December 31, 2024, the actuaries developed a range from a low of $672.1 million to a high of $740.4 million and selected a point estimate of $704.4 million. The actuaries’ range of estimates for commercial lines in 2024 was $533.0 million to $587.5 million, and the actuaries selected a point estimate of $558.2 million. The actuaries’ range of estimates for personal lines in 2024 was $139.1 million to $153.0 million, and the actuaries selected a point estimate of $146.2 million. For the year ended December 31, 2023, the actuaries developed a range from a low of $651.1 million to a high of $728.7 million and selected a point estimate of $689.1 million. The actuaries’ range of estimates for commercial lines in 2023 was $507.2 million to $565.4 million, and the actuaries selected a point estimate of $535.7 million. The actuaries’ range of estimates for personal lines in 2023 was $144.0 million to $163.3 million, and the actuaries selected a point estimate of $153.5 million.

Our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite. For personal lines products, our insurance subsidiaries insure standard and preferred risks in private passenger automobile and homeowners lines. For commercial lines products, the commercial risks that our insurance subsidiaries primarily insure are business offices, wholesalers, service providers, contractors, artisans and light manufacturing operations. Our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities. Through the consistent application of this disciplined underwriting philosophy, our insurance subsidiaries have avoided many of the “long-tail” issues other insurance companies have faced. We consider workers’ compensation to be a “long-tail” line of business, in that workers’ compensation claims tend to be settled over a longer time frame than those in the other lines of business of our insurance subsidiaries.

The following table presents 2024 and 2023 claim count and payment amount information for workers’ compensation. Workers’ compensation losses primarily consist of indemnity and medical costs for injured workers.
 
   
For the Year Ended December 31,
  
(dollars in thousands)
  
2024
    
2023
  
Number of claims pending, beginning of period
    
3,144
      
3,366
  
Number of claims reported
    
5,066
      
5,928
  
Number of claims settled or dismissed
    
5,378
      
6,150
  
Number of claims pending, end of period
    
2,832
      
3,144
  
                 
Losses paid
  
$
54,597
    
$
54,336
  
Loss expenses paid
  
$
10,953
    
$
12,292
  

Management Evaluation of Operating Results

Despite challenging insurance market conditions and increasing property and casualty loss severity trends that affected our results in recent years, we believe that our focused business strategy, including our insurance subsidiaries’ ongoing implementation of premium rate increases and refinements to their underwriting practices, have positioned us well for 2025 and beyond.

Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our commercial lines and personal lines segments utilizing statutory accounting practices (“SAP”), which include financial measures that reflect the growth trends and underwriting results of our insurance subsidiaries.

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We use the following financial data to monitor and evaluate our operating results:

   
Year Ended December 31,
  
(in thousands)
  
2024
    
2023
    
2022
  
                   
Net premiums written:
                  
Commercial lines:
                  
Automobile
  
$
184,989
    
$
174,741
    
$
167,774
  
Workers’ compensation
    
103,533
      
107,598
      
111,892
  
Commercial multi-peril
    
213,959
      
195,632
      
200,045
  
Other
    
45,439
      
50,458
      
51,135
  
Total commercial lines
    
547,920
      
528,429
      
530,846
  
Personal lines:
                        
Automobile
    
243,036
      
215,957
      
181,129
  
Homeowners
    
140,613
      
139,688
      
120,087
  
Other
    
10,712
      
11,623
      
11,468
  
Total personal lines
    
394,361
      
367,268
      
312,684
  
Total net premiums written
  
$
942,281
    
$
895,697
    
$
843,530
  
                         
Components of combined ratio:
                        
Loss ratio
    
64.5
%
    
69.1
%
    
68.6
%
Expense ratio
    
33.7
      
34.7
      
34.1
  
Dividend ratio
    
0.4
      
0.6
      
0.6
  
Combined ratio
    
98.6
%
    
104.4
%
    
103.3
%
                         
Revenues:
                        
Net premiums earned:
                        
Commercial lines
  
$
539,683
    
$
533,029
    
$
521,227
  
Personal lines
    
396,968
      
349,042
      
301,263
  
Total net premiums earned
    
936,651
      
882,071
      
822,490
  
Net investment income
    
44,918
      
40,853
      
34,016
  
Investment gains (losses)
    
4,981
      
3,173
      
(10,185
)
Other
    
3,055
      
1,241
      
1,900
  
Total revenues
  
$
989,605
    
$
927,338
    
$
848,221
  

   
Year Ended December 31,
  
(in thousands)
  
2024
    
2023
    
2022
  
                   
Components of net income (loss):
                  
Underwriting income (loss):
                  
Commercial lines
  
$
5,826
    
$
(6,998
)
  
$
(22,665
)
Personal lines
    
5,739
      
(35,118
)
    
(13,506
)
SAP underwriting income (loss)
    
11,565
      
(42,116
)
    
(36,171
)
GAAP adjustments
    
1,331
      
3,735
      
8,667
  
GAAP underwriting income (loss)
    
12,896
      
(38,381
)
    
(27,504
)
Net investment income
    
44,918
      
40,853
      
34,016
  
Investment gains (losses)
    
4,981
      
3,173
      
(10,185
)
Other
    
(456
)
    
(582
)
    
35
  
Income (loss) before income tax expense (benefit)
    
62,339
      
5,063
      
(3,638
)
Income tax expense (benefit)
    
11,477
      
637
      
(1,679
)
Net income (loss)
  
$
50,862
    
$
4,426
    
$
(1,959
)

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Non-GAAP Information

We prepare our consolidated financial statements on the basis of GAAP. Our insurance subsidiaries prepare financial statements based on SAP. SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because the SAP financial measures include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude. Our calculation of non-GAAP financial measures may differ from similar measures other companies use. As a result, investors should exercise caution when comparing our non-GAAP financial measures to the non-GAAP financial measures other companies use. The SAP financial measures we utilize are net premiums written and statutory combined ratio.

Net Premiums Written

We define net premiums written as the amount of full-term premiums our insurance subsidiaries record for policies effective within a given period less premiums our insurance subsidiaries cede to reinsurers. Net premiums earned is the most comparable GAAP financial measure to net premiums written. Net premiums earned represent the sum of the amount of net premiums written and the change in net unearned premiums during a given period. Our insurance subsidiaries earn premiums and recognize them as revenue over the terms of their policies, which are one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding 12-month period compared to the comparable period one year earlier.

The following table provides a reconciliation of our net premiums earned to our net premiums written for 2024:
 
(in thousands)
  
Commercial Lines
    
Personal
Lines
    
Total
  
Net premiums earned
  
$
539,683
    
$
396,968
    
$
936,651
  
Change in net unearned premiums
    
8,237
      
(2,607
)
    
5,630
  
Net premiums written
  
$
547,920
    
$
394,361
    
$
942,281
  

The following table provides a reconciliation of our net premiums earned to our net premiums written for 2023:
 
(in thousands)
  
Commercial Lines
    
Personal
Lines
    
Total
  
Net premiums earned
  
$
533,029
    
$
349,042
    
$
882,071
  
Change in net unearned premiums
    
(4,600
)
    
18,226
      
13,626
  
Net premiums written
  
$
528,429
    
$
367,268
    
$
895,697
  

The following table provides a reconciliation of our net premiums earned to our net premiums written for 2022:
 
(in thousands)
  
Commercial Lines
    
Personal
Lines
    
Total
  
Net premiums earned
  
$
521,227
    
$
301,263
    
$
822,490
  
Change in net unearned premiums
    
9,619
      
11,421
      
21,040
  
Net premiums written
  
$
530,846
    
$
312,684
    
$
843,530
  

Statutory Combined Ratio

The combined ratio is a standard measurement of underwriting profitability for an insurance company. The combined ratio does not reflect investment income, net investment gains or losses, federal income taxes or other non-operating income or expense. A combined ratio of less than 100% generally indicates underwriting profitability.

The statutory combined ratio is a non-GAAP financial measure that is based upon amounts determined under SAP. We calculate our statutory combined ratio as the sum of:

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 •
the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums earned;

•
the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written; and

•
the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.

The calculation of our statutory combined ratio differs from the calculation of our GAAP combined ratio. In calculating our GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and we base the expense ratio on net premiums earned instead of net premiums written. Differences between our GAAP loss ratio and our statutory loss ratio result from anticipating salvage and subrogation recoveries for our GAAP loss ratio but not for our statutory loss ratio.

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the years ended December 31, 2024, 2023 and 2022:
 
   
Year Ended December 31,
  
   
2024
    
2023
    
2022
  
GAAP Combined Ratios (Total Lines)
                  
Loss ratio - core losses
    
54.0
%
    
57.5
%
    
59.8
%
Loss ratio - weather-related losses
    
7.2
      
8.3
      
7.7
  
Loss ratio - large fire losses
    
4.9
      
5.2
      
6.5
  
Loss ratio - net prior-year reserve development
    
-1.6
      
-1.9
      
-5.4
  
Loss ratio
    
64.5
      
69.1
      
68.6
  
Expense ratio
    
33.7
      
34.7
      
34.1
  
Dividend ratio
    
0.4
      
0.6
      
0.6
  
Combined ratio
    
98.6
%
    
104.4
%
    
103.3
%
                         
Statutory Combined Ratios
                        
Commercial lines:
                        
Automobile
    
102.6
%
    
97.3
%
    
98.0
%
Workers’ compensation
    
104.4
      
96.6
      
97.3
  
Commercial multi-peril
    
95.0
      
112.3
      
116.9
  
Other
    
80.0
      
85.5
      
80.8
  
Total commercial lines
    
98.2
      
101.6
      
103.7
  
Personal lines:
                        
Automobile
    
97.4
      
109.7
      
103.8
  
Homeowners
    
99.6
      
108.6
      
111.0
  
Other
    
99.5
      
75.8
      
52.1
  
Total personal lines
    
98.3
      
108.2
      
102.8
  
Total commercial and personal lines
    
98.3
      
104.2
      
103.3
  

Results of Operations

YEAR ENDED DECEMBER 31, 2024 COMPARED TO YEAR ENDED DECEMBER 31, 2023

Net Premiums Earned

Our insurance subsidiaries’ net premiums earned increased to $936.7 million for 2024, an increase of $54.6 million, or 6.2%, compared to 2023, primarily reflecting solid premium retention and renewal premium increases. Our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue. Such terms are generally one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier.

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Net Premiums Written

Our insurance subsidiaries’ 2024 net premiums written increased 5.2% to $942.3 million, compared to $895.7 million for 2023. Commercial lines net premiums written increased $19.5 million, or 3.7%, for 2024 compared to 2023. We attribute the increase in commercial lines net premiums written primarily to strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition in states we exited or classes of business we have targeted for profit improvement. Personal lines net premiums written increased $27.1 million, or 7.4%, for 2024 compared to 2023. We attribute the increase in personal lines net premiums written primarily to renewal premium rate increases and solid policy retention, offset partially by planned attrition due to non-renewal actions and lower new business writings.

Investment Income

For 2024, our net investment income increased 10.0% to $44.9 million, compared to $40.9 million for 2023, due primarily to higher average reinvestment yields and higher average invested assets for 2024 compared to 2023.

Net Investment Gains

Our net investment gains for 2024 were $5.0 million, compared to $3.2 million for 2023. The net investment gains for 2024 and 2023 were primarily related to increases in the market value of the equity securities held at the end of the respective periods. We did not recognize any impairment losses during 2024 or 2023.

Losses and Loss Expenses

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 64.5% for 2024, compared to 69.1% for 2023. Our insurance subsidiaries’ commercial lines loss ratio decreased to 62.0% for 2024, compared to 64.8% for 2023. This decrease resulted primarily from the commercial multi-peril loss ratio decreasing to 57.5% for 2024, compared to 73.1% for 2023, primarily due to a decrease in severity of non-weather claims, offset partially by increases in the commercial automobile and workers’ compensation loss ratios due primarily to increases in loss emergence for prior accident years. The commercial automobile loss ratio increased to 68.5% for 2024, compared to 63.0% for 2023. The workers’ compensation loss ratio increased to 67.7% for 2024, compared to 59.0% for 2023. The personal lines loss ratio decreased to 68.0% for 2024, compared to 75.6% for 2023, due primarily to increases in net premiums earned related to premium rate increases. The personal automobile loss ratio decreased to 68.5% for 2024, compared to 78.5% for 2023. The homeowners loss ratio decreased to 66.7% for 2024, compared to 73.6% for 2023. Our insurance subsidiaries experienced favorable loss reserve development of approximately $15.0 million, or 1.6 percentage points of the loss ratio, during 2024 in their reserves for prior accident years, compared to approximately $16.7 million, or 1.9 percentage points of the loss ratio, during 2023. The favorable loss reserve development in 2024 resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024. Weather-related losses of $67.7 million, or 7.2 percentage points of the loss ratio, for 2024 increased from $72.9 million, or 8.3 percentage points of the loss ratio, for 2023, with the decrease primarily impacting the commercial multi-peril and homeowners lines of business. Large fire losses, which we define as individual fire losses in excess of $50,000, were $45.8 million, or 4.9 percentage points of the loss ratio, for 2024, compared to $45.4 million, or 5.2 percentage points of the loss ratio, for 2023.

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Underwriting Expenses

Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to premiums earned, was 33.7% for 2024, compared to 34.7% for 2023. We attribute the decrease to the impacts of various expense reduction initiatives, including agency incentive program revisions, commission schedule adjustments, targeted staffing reductions, and hiring restrictions for open employment positions, among others. These impacts were offset partially by an increase in underwriting-based incentive costs as well as higher technology systems-related expenses that were primarily due to increased costs related to our ongoing systems modernization project, a portion of which Donegal Mutual Insurance Company allocates to our insurance subsidiaries. We expect the impact from allocated costs from Donegal Mutual Insurance Company to our insurance subsidiaries related to the ongoing systems modernization project peaked at approximately 1.3 percentage points of the expense ratio for 2024 and will subside gradually in 2025 and subsequent years.

Policyholder Dividends

Our insurance subsidiaries pay policyholder dividends primarily on workers’ compensation policies on a sliding scale based on the profitability of a given policy.

Combined Ratio

Our insurance subsidiaries’ combined ratio was 98.6% and 104.4% for 2024 and 2023, respectively. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of workers’ compensation policy dividends incurred to premiums earned. We attribute the decrease in our combined ratio primarily to the decreases in the loss and expense ratios.

Interest Expense

Our interest expense for 2024 increased to $946,020, compared to $619,813 for 2023. We attribute the increase to higher interest rates on borrowings under our lines of credit during 2024 compared to 2023.

Income Taxes

Our income tax expense was $11.5 million for 2024, compared to $637,972 for 2023. Our effective tax rate for 2024 and 2023 was 18.4% and 12.6%, respectively.

Net Income and Earnings Per Share

Our net income for 2024 was $50.9 million, or $1.53 per share of Class A common stock on a diluted basis and $1.38 per share of Class B common stock, compared to $4.4 million, or $0.14 per share of Class A common stock on a diluted basis and $0.11 per share of Class B common stock, for 2023. We had 30.0 million and 27.8 million Class A shares outstanding at December 31, 2024 and 2023, respectively. We had 5.6 million Class B shares outstanding for both periods. There are no outstanding securities that dilute our shares of Class B common stock.

Book Value Per Share

Our stockholders’ equity increased by $66.0 million during 2024, primarily due to our net income, stock issuances under our stock compensation plans and other increases exceeding the cash dividends we declared during the year and resulting in an increase in our book value per share to $15.36 at December 31, 2024, compared to $14.39 a year earlier.

YEAR ENDED DECEMBER 31, 2023 COMPARED TO YEAR ENDED DECEMBER 31, 2022

Net Premiums Earned

Our insurance subsidiaries’ net premiums earned increased to $882.1 million for 2023, an increase of $59.6 million, or 7.2%, compared to 2022, primarily reflecting solid premium retention and renewal premium increases. Our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue. Such terms are generally one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier.

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Net Premiums Written

Our insurance subsidiaries’ 2023 net premiums written increased 6.2% to $895.7 million, compared to $843.5 million for 2022. Commercial lines net premiums written decreased $2.4 million, or 0.5%, for 2023 compared to 2022. We attribute the decrease in commercial lines net premiums written primarily to planned attrition in states we are exiting or have targeted for profit improvement, lower new business writings and reinsurance reinstatement premiums on our property excess of loss reinsurance program, offset partially by strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation. Personal lines net premiums written increased $54.6 million, or 17.5%, for 2023 compared to 2022. We attribute the increase in personal lines net premiums written primarily to renewal premium increases and strong policy retention.

Investment Income

For 2023, our net investment income increased 20.1% to $40.9 million, compared to $34.0 million for 2022, due primarily to higher average reinvestment yields and higher average invested assets for 2023 compared to 2022.

Net Investment Gains (Losses)

Our net investment gains for 2023 were $3.2 million. Our net investment losses for 2022 were $10.2 million. The net investment gains (losses) for 2023 and 2022 were primarily related to increases (decreases) in the market value of the equity securities held at the end of the respective periods. We did not recognize any impairment losses during 2023 or 2022.

Losses and Loss Expenses

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 69.1% for 2023, compared to 68.6% for 2022. Our insurance subsidiaries’ commercial lines loss ratio decreased to 64.8% for 2023, compared to 67.1% for 2022. This decrease resulted primarily from the commercial multi-peril loss ratio decreasing to 73.1% for 2023, compared to 79.2% for 2022, primarily due to a decrease in severity of non-weather claims. The personal lines loss ratio increased to 75.6% for 2023, compared to 71.0% for 2022. The personal automobile loss ratio increased to 78.5% for 2023, compared to 72.1% for 2022, primarily due to an increase in automobile claim severity due to the ongoing impact of supply chain disruption and labor shortages on the costs of repair and replacement vehicles. Our insurance subsidiaries experienced favorable loss reserve development of approximately $16.7 million, or 1.9 percentage points of the loss ratio, during 2023 in their reserves for prior accident years, compared to approximately $44.8 million, or 5.4 percentage points of the loss ratio, during 2022. The favorable loss reserve development in 2023 resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023. Weather-related losses of $72.9 million, or 8.3 percentage points of the loss ratio, for 2023 increased from $63.5 million, or 7.7 percentage points of the loss ratio, for 2022, with the increase primarily impacting the homeowners line of business. Large fire losses, which we define as individual fire losses in excess of $50,000, were $45.4 million, or 5.2 percentage points of the loss ratio, for 2023, compared to $53.5 million, or 6.5 percentage points of the loss ratio, for 2022. The decrease was related to lower average claim severity of both commercial property and home fires in 2023 compared to 2022.

Underwriting Expenses

Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to premiums earned, was 34.7% for 2023, compared to 34.1% for 2022. We attribute the modest increase to higher technology system-related expenses for 2023 compared to 2022, offset somewhat by decreased underwriting-based incentive costs for our employees for 2023 compared to 2022. The increase in technology systems-related expenses for 2023 was primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of two additional major releases of new systems as part of our ongoing systems modernization project in 2023. We expect the impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the ongoing systems modernization project will peak at approximately 1.25 percentage points of the expense ratio in 2024 before beginning to subside gradually in subsequent years.

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Policyholder Dividends

Our insurance subsidiaries pay policyholder dividends primarily on workers’ compensation policies on a sliding scale based on the profitability of a given policy.

Combined Ratio

Our insurance subsidiaries’ combined ratio was 104.4% and 103.3% for 2023 and 2022, respectively. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of workers’ compensation policy dividends incurred to premiums earned. We attribute the increase in our combined ratio primarily to the increases in the loss and expense ratios.

Interest Expense

Our interest expense for 2023 decreased slightly to $619,813, compared to $620,558 for 2022.

Income Taxes

Our income tax expense was $637,972 for 2023, compared to an income tax benefit of $1.7 million for 2022. Our effective tax rate for 2023 was 12.6%.

Net Income (Loss) and Earnings (Loss) Per Share

Our net income for 2023 was $4.4 million, or $0.14 per share of Class A common stock on a diluted basis and $0.11 per share of Class B common stock, compared to a net loss for 2022 of $2.0 million, or $0.06 per share of Class A common stock and $0.07 per share of Class B common stock. We had 27.8 million and 27.1 million Class A shares outstanding at December 31, 2023 and 2022, respectively. We had 5.6 million Class B shares outstanding for both periods. There are no outstanding securities that dilute our shares of Class B common stock.

Book Value Per Share

Our stockholders’ equity decreased by $3.8 million during 2023, primarily due to the cash dividends we declared exceeding our net income and other increases during the year, resulting in a decrease in our book value per share to $14.39 at December 31, 2023, compared to $14.79 a year earlier.

Financial Condition

Liquidity and Capital Resources

Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as they arise. Our major sources of funds from operations are the net cash flows generated from our insurance subsidiaries’ underwriting results, investment income and maturing investments.

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We have historically generated sufficient net positive cash flow from our operations to fund our commitments and build our investment portfolio, thereby increasing future investment returns. The pooling agreement with Donegal Mutual historically has been cash flow positive because of the profitability of the underwriting pool. Because we settle the pool monthly, our cash flows are substantially similar to the cash flows that would result from the underwriting of direct business. We maintain a high degree of liquidity in our investment portfolio in the form of marketable fixed maturities, equity securities and short-term investments. We structure our fixed-maturity investment portfolio following a “laddering” approach so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective. This laddering approach provides an additional measure of liquidity to meet our obligations and the obligations of our insurance subsidiaries should an unexpected variation occur in the future. Net cash flows provided by operating activities in 2024, 2023 and 2022 were $67.4 million, $28.6 million and $67.1 million, respectively.

At December 31, 2024, we had no outstanding borrowings under our line of credit with M&T and had the ability to borrow up to $20.0 million at interest rates equal to the then-current Term SOFR rate plus 2.11%. At December 31, 2024, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 3.806% and is due in September 2026. We discuss in Note 9 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities.

We estimate the timing of claim payments associated with the liabilities for losses and loss expenses of our insurance subsidiaries based on historical experience and expectations of future payment patterns. Amounts Atlantic States assumes pursuant to the pooling agreement with Donegal Mutual represent a substantial portion of our insurance subsidiaries’ gross liabilities for losses and loss expenses, and amounts Atlantic States cedes pursuant to the pooling agreement represent a substantial portion of our insurance subsidiaries’ reinsurance recoverable on unpaid losses and loss expenses. We include cash settlement of Atlantic States’ assumed liabilities from the pool in monthly settlements of pooled activity, as we net amounts ceded to and assumed from the pool. Although Donegal Mutual and we do not anticipate any changes in the pool participation levels in the foreseeable future, any such change would be prospective in nature and therefore would not impact the timing of expected payments by Atlantic States for its percentage share of pooled losses occurring in periods prior to the effective date of such change.

The cash dividends we declared to our stockholders totaled $23.2 million, $22.2 million and $20.9 million in 2024, 2023 and 2022, respectively. There are no regulatory restrictions on our payment of dividends to our stockholders, although there are restrictions under applicable state laws on the payment of dividends from our insurance subsidiaries to us, which is a significant source of cash for payment of stockholder dividends by us. Our insurance subsidiaries are required by law to maintain certain minimum surplus on a statutory basis and are subject to regulations under which their payment of dividends from statutory surplus is restricted and may require prior approval of their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements. The amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements, including the RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2024. Amounts available for distribution to us as dividends from our insurance subsidiaries without prior approval of insurance regulatory authorities in 2025 are approximately $40.7 million from Atlantic States, $7.8 million from MICO and $4.7 million from Peninsula, or a total of approximately $53.3 million.

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Investments

At December 31, 2024 and 2023, our investment portfolio of primarily investment-grade bonds, common stock, short-term investments and cash totaled $1.4 billion and $1.3 billion, respectively, representing 61.6% and 58.6%, respectively, of our total assets. See “Business - Investments” for more information.

   
December 31,
  
   
2024
    
2023
  
         
Percent of
          
Percent of
  
(dollars in thousands)
  
Amount
    
Total
    
Amount
    
Total
  
Fixed maturities:
                        
Total held to maturity
  
$
705,714
      
51.0
%
  
$
679,497
      
51.2
%
Total available for sale
    
617,892
      
44.6
      
589,348
      
44.4
  
Total fixed maturities
    
1,323,606
      
95.6
      
1,268,845
      
95.6
  
Equity securities
    
36,808
      
2.6
      
25,903
      
2.0
  
Short-term investments
    
24,558
      
1.8
      
32,306
      
2.4
  
Total investments
  
$
1,384,972
      
100.0
%
  
$
1,327,054
      
100.0
%

The carrying value of our fixed maturity investments represented 95.6% of our total invested assets at December 31, 2024 and 2023.

Our fixed maturity investments consisted of high-quality marketable bonds, of which 95.6% and 95.2% were rated at investment-grade levels at December 31, 2024 and 2023, respectively.

At December 31, 2024, the net unrealized loss on our available-for-sale fixed maturity investments, net of deferred taxes, amounted to $27.4 million, compared to $31.9 million at December 31, 2023.

Impact of Inflation

Our insurance subsidiaries establish their property and casualty insurance premium rates before they know the amount of losses and loss settlement expenses or the extent to which inflation may impact such expenses. Consequently, our insurance subsidiaries attempt, in establishing rates, to anticipate the potential future impact of inflation. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results.

Impact of Changing Climate Conditions

Insured losses from severe weather events could significantly impact the underwriting results of our insurance subsidiaries. Losses from catastrophic events are a function of both the extent of our insurance subsidiaries’ exposures, the frequency and severity of the events themselves and the level of reinsurance coverage our insurance subsidiaries purchase. The increased frequency and severity of weather-related catastrophes and other losses, such as from wildfires and flooding, incurred by the industry in recent years may be indicative of changing weather patterns due to climate change. Should those patterns continue to emerge, increased weather-related catastrophes in the states in which our insurance subsidiaries operate would lead to higher overall losses that they may be unable to offset through pricing actions.

Our insurance subsidiaries seek to reduce their exposure to catastrophe losses through their underwriting strategies and their purchase of catastrophe reinsurance. While the emerging science regarding climate change and its connection to extreme weather events continues to be studied, climate change, to the extent it produces rising temperatures and changes in weather patterns, could affect the frequency and severity of weather events and other losses and thus impact the affordability and availability of catastrophe reinsurance coverage for our insurance subsidiaries. Our insurance subsidiaries’ ability to appropriately manage catastrophe risk depends partially on catastrophe models, which rely on historical data that might not be representative of the frequency and severity of future events. Such models might also be unable to anticipate the uncertain impact of changing climate conditions that tend to occur gradually over time. Because the policies of our insurance subsidiaries renew not less frequently than annually, our insurance subsidiaries have the ability to respond to the impact of changing climate conditions through adjustments to their underwriting standards, pricing, and policy terms and conditions, subject to applicable regulatory approvals.

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Changing climate conditions could lead to new or revised regulations with which our insurance subsidiaries would have to comply. Such regulations could impact the ability of our insurance subsidiaries to manage their exposures in areas impacted by increased weather activity, require our insurance companies to alter the terms and conditions of their policies or impact the ability of our insurance subsidiaries to obtain sufficient pricing increases to offset higher loss activity.

Impact of New Accounting Standards

In September 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance that amended previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. In November 2019, the FASB issued guidance that delayed the effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning after December 15, 2022 from December 15, 2019. We were a smaller reporting company at the time this guidance was issued, and our adoption of this guidance on January 1, 2023 resulted in an after-tax decrease in retained earnings of $1.9 million. The adoption of this guidance did not have a significant impact on our results of operations or cash flows.

In November 2023, the FASB issued guidance that amended previous guidance on the disclosure of reportable segments. The guidance requires disclosure of incremental segment information including the title and position of the individual identified as the chief operating decision maker, a narrative explanation of how the chief operating decision maker uses each reported measure of a segment’s profit or loss in assessing performance and determining how to allocate resources, as well as quantification of significant segment expenses and other items. We refer to Note 19 - Segment Information for further information and disclosure of items required within the amended and enhanced guidance. The adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

In December 2023, the FASB issued guidance to enhance the transparency and usefulness of income tax disclosures. The guidance requires disclosure of specific categories in the rate reconciliation table and additional information for reconciling items that meet a quantitative threshold of equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate. The guidance also requires disaggregated disclosure of the amount of income taxes paid for federal, state and foreign taxes. The guidance is effective for annual periods beginning after December 15, 2024. The adoption of this guidance will not have an impact on our financial position, results of operations or cash flows.

In November 2024, the FASB issued guidance requiring disaggregated disclosure of income statement expenses in the notes to financial statements. The guidance requires disclosure of certain expenses, including employee compensation, depreciation and selling expenses. The guidance will not impact current income statement expense captions that industry-specific guidance requires. The guidance is effective for annual reporting periods beginning after December 15, 2026. The adoption of this guidance will not have an impact on our financial position, results of operations or cash flows.

Off-Balance Sheet Arrangements

As of December 31, 2024 and 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

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Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to the impact of interest rate changes, to changes in fair values of investments and to credit risk.

In the normal course of business, we employ established policies and procedures to manage our exposure to changes in interest rates, fluctuations in the fair market value of our debt and equity securities and credit risk. We seek to mitigate these risks by various actions we describe below.

Interest Rate Risk

Our exposure to market risk for a change in interest rates is concentrated in our investment portfolio. We monitor this exposure through periodic reviews of our asset and liability positions. We regularly monitor estimates of cash flows and the impact of interest rate fluctuations relating to our investment portfolio. Generally, we do not hedge our exposure to interest rate risk because we have the capacity to, and do, hold fixed-maturity investments to maturity.

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Principal cash flows and related weighted-average interest rates by stated maturity dates for the financial instruments we held at December 31, 2024 that are sensitive to interest rates are as follows:
 
(in thousands)
  
Principal
Cash Flows
    
Weighted-
Average
Interest Rate
  
Fixed-maturity and short-term investments:
            
2025
  
$
82,064
      
4.18
%
2026
    
65,538
      
3.93
  
2027
    
73,054
      
3.92
  
2028
    
84,203
      
4.27
  
2029
    
88,485
      
3.78
  
Thereafter
    
998,456
      
3.52
  
Total
  
$
1,391,800
          
Fair value
  
$
1,274,020
          
Debt:
                
2026
  
$
35,000
      
3.81
%
Total
  
$
35,000
          
Fair value
  
$
35,000
          
 
Actual cash flows from investments may differ from those depicted above as a result of calls and prepayments.

Equity Price Risk

Our portfolio of equity securities, which we carry on our consolidated balance sheets at estimated fair value, has exposure to price risk, which is the risk of potential loss in estimated fair value resulting from an adverse change in prices. Our objective is to mitigate this risk and to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid securities.

Credit Risk

Our objective is to earn competitive returns by investing in a diversified portfolio of securities. Our portfolio of fixed maturity securities and, to a lesser extent, short-term investments is subject to credit risk. We define this risk as the potential loss in fair value resulting from adverse changes in the borrower’s ability to repay the debt. We manage this risk by performing an analysis of prospective investments and through regular reviews of our portfolio by our investment personnel. We also limit the amount of our total investment portfolio that we invest in any one security.

Our insurance subsidiaries provide property and liability insurance coverages through independent insurance agencies located throughout their operating areas. Our insurance subsidiaries bill the majority of this business directly to the insured, although our insurance subsidiaries bill a portion of their commercial business through their agents, to whom they extend credit in the normal course of business.

Because the pooling agreement does not relieve Atlantic States of primary liability as the originating insurer, Atlantic States is subject to a concentration of credit risk arising from the business Atlantic States cedes to Donegal Mutual. Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers. To the extent that a reinsurer cannot pay losses for which it is liable under the terms of a reinsurance agreement with one or more of our insurance subsidiaries, our insurance subsidiaries retain continued liability for such losses.
 
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Item 8.
Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements and Schedule
  
   
63
   
64
 
65
   
66
   
67
 
  
105
 
  
Schedule:
  
   
113

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Donegal Group Inc.
Consolidated Balance Sheets
 
   
December 31,
  
   
2024
    
2023
  
     
     
 
Assets
                
Investments
                
Fixed maturities
                
Held to maturity, at amortized cost (fair value $631,568,929 and $611,526,338; net of allowance for expected credit losses of $1,388,240 and $1,325,847)
  
$
705,713,916
    
$
679,497,038
  
Available for sale, at fair value (amortized cost $652,564,965 and $629,727,513)
    
617,891,862
      
589,348,243
  
Equity securities, at fair value
    
36,807,810
      
25,902,956
  
Short-term investments, at cost, which approximates fair value
    
24,558,744
      
32,305,408
  
Total investments
    
1,384,972,332
      
1,327,053,645
  
Cash
    
52,925,931
      
23,792,273
  
Accrued investment income
    
10,361,959
      
9,945,714
  
Premiums receivable
    
181,106,519
      
179,591,821
  
Reinsurance receivable (net of allowance for expected credit losses of $391,432 and $1,394,074)
    
420,741,855
      
441,431,334
  
Deferred policy acquisition costs
    
73,346,967
      
75,043,404
  
Deferred tax asset, net
    
18,769,861
      
19,532,525
  
Prepaid reinsurance premiums
    
176,161,872
      
168,724,465
  
Property and equipment, net
    
2,479,183
      
2,633,405
  
Accounts receivable - securities
    
24,924
      
1,501,079
  
Federal income taxes recoverable
    
—
      
8,102,321
  
Due from affiliate
    
8,410,090
      
1,907,527
  
Goodwill
    
5,625,354
      
5,625,354
  
Other intangible assets
    
958,010
      
958,010
  
Other
    
147,126
      
451,011
  
Total assets
  
$
2,336,031,983
    
$
2,266,293,888
  
                 
Liabilities and Stockholders’ Equity
                
Liabilities
                
Losses and loss expenses
  
$
1,120,985,050
    
$
1,126,156,838
  
Unearned premiums
    
612,476,068
      
599,411,468
  
Accrued expenses
    
2,916,705
      
3,946,974
  
Reinsurance balances payable
    
4,345,426
      
8,758,976
  
Borrowings under lines of credit
    
35,000,000
      
35,000,000
  
Cash dividends declared to stockholders
    
6,031,078
      
5,569,992
  
Federal income taxes payable
     356,103       —  
Other
    
8,145,422
      
7,704,286
  
Total liabilities
    
1,790,255,852
      
1,786,548,534
  
Stockholders’ Equity
                
Preferred stock, $0.01 par value, authorized 2,000,000 shares; none issued
    
—
      
—
  
Class A common stock, $0.01 par value, authorized 50,000,000 shares, issued 32,954,347 and 30,764,555 shares and outstanding 29,951,759 and 27,761,967 shares
    
329,544
      
307,646
  
Class B common stock, $0.01 par value, authorized 10,000,000 shares, issued 5,649,240 shares and outstanding 5,576,775 shares
    
56,492
      
56,492
  
Additional paid-in capital
    
369,679,946
      
335,694,478
  
Accumulated other comprehensive loss
    
(28,200,481
)
    
(32,881,822
)
Retained earnings
    
245,136,987
      
217,794,917
  
Treasury stock, at cost
    
(41,226,357
)
    
(41,226,357
)
Total stockholders’ equity
    
545,776,131
      
479,745,354
  
Total liabilities and stockholders’ equity
  
$
2,336,031,983
    
$
2,266,293,888
  
 
See accompanying notes to consolidated financial statements.

-63-
Index
Donegal Group Inc.
Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)
 
   
Years Ended December 31,
  
   
2024
    
2023
    
2022
  
Statements of  Income (Loss)
    
     
     
 
Revenues
                        
Net premiums earned (includes affiliated reinsurance of $239,521,005,  $237,903,029 and $232,105,306 - see note 3)
  
$
936,651,480
    
$
882,071,386
    
$
822,489,450
  
Investment income, net of investment expenses
    
44,918,162
      
40,853,215
      
34,016,112
  
Installment payment fees
    
2,740,505
      
894,137
      
1,516,330
  
Lease income
    
313,831
      
346,439
      
383,451
  
Net investment gains (losses) (includes ($174,302), ($2,242,190) and  ($979,972) accumulated other comprehensive income reclassification)
    
4,981,072
      
3,172,807
      
(10,184,797
)
Total revenues
    
989,605,050
      
927,337,984
      
848,220,546
  
Expenses
                        
Net losses and loss expenses (includes affiliated reinsurance of $136,662,558, $150,198,479 and $177,849,040 - see note 3)
    
604,117,716
      
609,177,699
      
564,078,993
  
Amortization of deferred policy acquisition costs
    
160,311,000
      
154,214,000
      
142,430,000
  
Other underwriting expenses
    
155,253,685
      
151,747,579
      
137,923,739
  
Policyholder dividends
    
4,073,481
      
5,313,430
      
5,560,407
  
Interest
    
946,020
      
619,813
      
620,558
  
Other, net
    
2,564,216
      
1,201,987
      
1,244,948
  
Total expenses
    
927,266,118
      
922,274,508
      
851,858,645
  
Income (loss) before income tax expense (benefit)
    
62,338,932
      
5,063,476
      
(3,638,099
)
Income tax expense (benefit) (includes $36,603, $470,860 and $205,794 income tax benefit from reclassification items)
    
11,476,680
      
637,972
      
(1,678,694
)
Net income (loss)
  
$
50,862,252
    
$
4,425,504
    
$
(1,959,405
)
Basic earnings (loss) per common share:
                        
Class A common stock
  
$
1.53
    
$
0.14
    
$
(0.06
)
Class B common stock
  
$
1.38
    
$
0.11
    
$
(0.07
)
Diluted earnings (loss) per common share:
                        
Class A common stock
  
$
1.53
    
$
0.14
    
$
(0.06
)
Class B common stock
  
$
1.38
    
$
0.11
    
$
(0.07
)
Statements of Comprehensive Income (Loss)
                        
Net income (loss)
  
$
50,862,252
    
$
4,425,504
    
$
(1,959,405
)
Other comprehensive income (loss), net of tax
                        
Unrealized gain (loss) on securities:
                        
Unrealized holding gain (loss) arising during the period, net of income tax expense (benefit) of $1,207,804, $1,285,390 and ($12,164,443)
    
4,543,642
      
4,246,693
      
(45,761,476
)
Reclassification adjustment for losses included in net income (loss), net of income tax benefit of $36,603, $470,860 and $205,794
    
137,699
      
1,771,330
      
774,178
  
Other comprehensive income (loss)
   
4,681,341
      
6,018,023
      
(44,987,298
)
Comprehensive income (loss)
 
$
55,543,593
    
$
10,443,527
    
$
(46,946,703
)

See accompanying notes to consolidated financial statements.

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Index
Donegal Group Inc.
Consolidated Statements of Stockholders’ Equity

   
Common Stock
    
                         
   
Class A Shares
    
Class B Shares
    
Class A Amount
    
Class B Amount
    
Additional Paid-In Capital
    
Accumulated Other Comprehensive Income (Loss)
    
Retained Earnings
    
Treasury Stock
    
Total Stockholders’ Equity
  
Balance, January 1, 2022
     28,756,203      
5,649,240
    
$
287,562
    
$
56,492
    
$
304,889,481
    
$
3,283,551
    
$
263,745,358
    
$
(41,226,357
)
  
$
531,036,087
  
Issuance of common stock (stock compensation plans)
     161,254              
1,613
              
2,122,277
                              
2,123,890
  
Stock-based       compensation
     1,202,806              
12,028
              
18,252,148
                              
18,264,176
  
Net loss
                                                    
(1,959,405
)
            
(1,959,405
)
Cash dividends
                                                    
(20,884,438
)
            
(20,884,438
)
Grant of stock options
                                    
337,741
              
(337,741
)
            
—
  
Other comprehensive loss
                                            
(44,987,298
)
                    
(44,987,298
)
Balance, December 31, 2022
     30,120,263      
5,649,240
    
$
301,203
    
$
56,492
    
$
325,601,647
    
$
(41,703,747
)
  
$
240,563,774
    
$
(41,226,357
)
  
$
483,593,012
  
Issuance of common stock (stock compensation plans)
     150,426              
1,504
              
2,081,186
                              
2,082,690
  
Stock-based       compensation
     493,866              
4,939
              
7,683,782
                              
7,688,721
  
Net income
                                                    
4,425,504
              
4,425,504
  
Cash dividends
                                                    
(22,166,694
)
            
(22,166,694
)
Grant of stock options
                                    
327,863
              
(327,863
)
            
—
  
Cumulative effect of adoption of updated guidance for credit losses at January 1, 2023
                                                    (1,895,902 )             (1,895,902 )
Reclassification of held-to-maturity transfer
                                            2,803,902       (2,803,902 )             —  
Other comprehensive income
                                            
6,018,023
                      
6,018,023
  
Balance, December 31, 2023
     30,764,555      
5,649,240
    
$
307,646
    
$
56,492
    
$
335,694,478
    
$
(32,881,822
)
  
$
217,794,917
    
$
(41,226,357
)
  
$
479,745,354
  
Issuance of common stock (stock compensation plans)
     153,366              
1,534
              
2,006,136
                              
2,007,670
  
Stock-based       compensation
     2,036,426              
20,364
              
31,621,452
                              
31,641,816
  
Net income
                                                    
50,862,252
              
50,862,252
  
Cash dividends
                                                    
(23,162,302
)
            
(23,162,302
)
Grant of stock options
                                    
357,880
              
(357,880
)
            
—
  
Other comprehensive income
                                            
4,681,341
                      
4,681,341
  
Balance, December 31, 2024
     32,954,347      
5,649,240
    
$
329,544
    
$
56,492
    
$
369,679,946
    
$
(28,200,481
)
  
$
245,136,987
    
$
(41,226,357
)
  
$
545,776,131
  
 
See accompanying notes to consolidated financial statements.
 
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Index
Donegal Group Inc.
Consolidated Statements of Cash Flows
 
   
Years Ended December 31,
  
   
2024
    
2023
    
2022
  
Cash Flows from Operating Activities:
                  
Net income (loss)
  
$
50,862,252
    
$
4,425,504
    
$
(1,959,405
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
                        
Depreciation, amortization and other non-cash items
    
3,873,161
      
4,326,446
      
4,841,559
  
Net investment (gains) losses
    
(4,981,072
)
    
(3,172,807
)
    
10,184,797
  
Changes in Assets and Liabilities:
                        
Losses and loss expenses
    
(5,171,788
)
    
5,111,080
      
43,425,457
  
Unearned premiums
    
13,064,600
      
21,758,338
      
4,694,708
  
Accrued expenses
    
(1,030,269
)
    
(279,416
)
    
197,731
  
Premiums receivable
    
(1,514,698
)
    
(5,745,527
)
    
(4,983,714
)
Deferred policy acquisition costs
    
1,696,437
      
(1,873,174
)
    
(5,141,857
)
Deferred income taxes
    
(481,743
)
    
229,397
      
(2,958,735
)
Reinsurance receivable
    
20,689,479
      
13,959,053
      
(1,111,214
)
Accrued investment income
    
(416,245
)
    
(1,084,422
)
    
(646,321
)
Amounts due from affiliate
    
(6,502,563
)
    
(7,080,816
)
    
7,096,006
  
Reinsurance balances payable
    
(4,413,550
)
    
5,263,152
      
(450,281
)
Prepaid reinsurance premiums
    
(7,437,407
)
    
(8,133,066
)
    
16,344,443
  
Current income taxes
    
8,458,424
      
408,576
      
(3,219,959
)
Other, net
    
745,019
      
511,426
      
796,805
  
Net adjustments
    
16,577,785
      
24,198,240
      
69,069,425
  
Net cash provided by operating activities
    
67,440,037
      
28,623,744
      
67,110,020
  
Cash Flows from Investing Activities:
                        
Purchases of fixed maturities:
                        
Held to maturity
    
(56,707,019
)
    
(25,226,609
)
    
(74,902,605
)
Available for sale
    
(147,736,805
)
    
(150,423,864
)
    
(151,994,462
)
Purchases of equity securities
    
(8,697,500
)
    
(5,128,994
)
    
(15,862,888
)
Sales of fixed maturities:
                        
Available for sale
    
7,184,635
      
28,154,556
      
24,381,244
  
Maturity of fixed maturities:
                        
Held to maturity
    
30,548,257
      
32,923,991
      
53,747,886
  
Available for sale
    
116,612,046
      
58,277,402
      
75,759,806
  
Sales of equity securities
    
3,010,413
      
19,745,875
      
34,973,196
  
Net sales (purchases) of property and equipment
    
743
      
(44,701
)
    
28,290
  
Net sales (purchases) of short-term investments
    
7,746,664
      
25,015,703
      
(44,628,770
)
Net cash used in investing activities
    
(48,038,566
)
    
(16,706,641
)
    
(98,498,303
)
Cash Flows from Financing Activities:
                        
Issuance of common stock
    
32,433,403
      
8,645,530
      
19,304,956
  
Cash dividends paid
    
(22,701,216
)
    
(21,893,692
)
    
(20,502,716
)
Net cash provided by (used in) financing activities
    
9,732,187
      
(13,248,162
)
    
(1,197,760
)
Net increase (decrease) in cash
    
29,133,658
      
(1,331,059
)
    
(32,586,043
)
Cash at beginning of year
    
23,792,273
      
25,123,332
      
57,709,375
  
Cash at end of year
  
$
52,925,931
    
$
23,792,273
    
$
25,123,332
  

See accompanying notes to consolidated financial statements.

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Index
Donegal Group Inc.
Notes to Consolidated Financial Statements
 
1 - Summary of Significant Accounting Policies

Organization and Business


Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26, 1986. Our insurance subsidiaries are Atlantic States Insurance Company (“Atlantic States”), Michigan Insurance Company (“MICO”), the Peninsula Insurance Group (“Peninsula”), which consists of The Peninsula Insurance Company and its wholly owned subsidiary Peninsula Indemnity Company, and Southern Insurance Company of Virginia (“Southern”). Our insurance subsidiaries and their affiliates write commercial and personal lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwestern, Southern and Southwestern states.


At December 31, 2024, we had three segments: our investment function, our commercial lines of insurance and our personal lines of insurance. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.


At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately 70% of the total voting power of our common stock. Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions. While each company maintains its separate corporate existence, our insurance subsidiaries and Donegal Mutual conduct business together as the Donegal Insurance Group. As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the same types of insurance products.


Atlantic States, our largest subsidiary, participates in a proportional reinsurance agreement (the “pooling agreement”) with Donegal Mutual. Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled business to Atlantic States. Thus, Donegal Mutual and Atlantic States share the underwriting results of the pooled business in proportion to their respective participation in the underwriting pool.


In addition, Donegal Mutual has a 100% quota-share reinsurance agreement with Southern Mutual Insurance Company (“Southern Mutual”). Donegal Mutual places its assumed business from Southern Mutual into the underwriting pool. Donegal Mutual also has a 100% quota-share reinsurance agreement with Mountain States Indemnity Company and Mountain States Commercial Insurance Company (collectively, the “Mountain States insurance subsidiaries”). Donegal Mutual places its assumed business from the Mountain States insurance subsidiaries into the underwriting pool.


The same executive management and underwriting personnel administer products, classes of business underwritten, pricing practices and underwriting standards of Donegal Mutual and our insurance subsidiaries. In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual market are generally complementary, thereby allowing the Donegal Insurance Group to offer a broader range of products to a given market and to expand the Donegal Insurance Group’s ability to service an entire personal lines or commercial lines account. Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally allow the individual companies to manage certain risk segments through variations in coverage, terms and pricing. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, the underwriting pool homogenizes the risk characteristics of all business that Donegal Mutual and Atlantic States write directly.  The business Atlantic States derives from the underwriting pool represents a significant percentage of our total consolidated revenues. We refer to Note 3 - Transactions with Affiliates for more information regarding the pooling agreement.

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Index
Basis of Consolidation


Our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”), include our accounts and those of our wholly owned subsidiaries. We have eliminated all significant inter-company accounts and transactions in consolidation. The terms “we,” “us,” “our” or the “Company” as we use them in the notes to our consolidated financial statements refer to the consolidated entity.

Use of Estimates


In preparing our consolidated financial statements, our management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the balance sheet and revenues and expenses for the period then ended. Actual results could differ significantly from those estimates.


We make estimates and assumptions that could have a significant effect on amounts and disclosures we report in our consolidated financial statements. The most significant estimates relate to our insurance subsidiaries’ reserves for property and casualty insurance unpaid losses and loss expenses. While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts may differ from the estimates provided. We regularly review our methods for making these estimates as well as the continuing appropriateness of the estimated amounts, and we reflect any adjustment we consider necessary in our current results of operations.

Reclassification


We have made certain reclassifications in our prior period financial statements to conform to the current year presentation.

Investments


We classify our debt securities into the following categories:

Held to Maturity - Debt securities that we have the positive intent and ability to hold to maturity; reported at amortized cost.

Available for Sale - Debt securities not classified as held to maturity; reported at fair value, with unrealized gains and losses excluded from income and reported as a separate component of stockholders’ equity (net of tax effects).


Short-term investments are carried at amortized cost, which approximates fair value.


We make estimates concerning the valuation of our investments and, as applicable, the recognition of declines in the value of our investments.  For equity securities, we measure investments at fair value, and we recognize changes in fair value in our results of operations. With respect to an available-for-sale debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred with respect to that security. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we establish an allowance for credit loss. We then recognize the amount of the allowance in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. We regularly review the allowance for credit losses and recognize changes in the allowance in our results of operations. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, issuer or geographic events that have negatively impacted the value of a security and rating agency downgrades. For held-to-maturity debt securities, we make estimates concerning expected credit losses at an aggregated level rather than monitoring individual debt securities for credit losses. We establish an allowance for expected credit losses based on an ongoing review of securities held, historical loss data, changes in issuer credit standing and other relevant factors. We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of operations.

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Index

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute investment gains and losses using the specific identification method.


We amortize premiums and discounts for mortgage-backed debt securities using anticipated prepayments.

Fair Values of Financial Instruments


We use the following methods and assumptions in estimating our fair value disclosures:



Investments - We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount that we could realize if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values for our fixed maturity and equity investments. We generally obtain two prices per security. The pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to determine if the estimates we obtain are representative of fair values based upon the general knowledge of our investment personnel of the market, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel monitor the market and are familiar with current trading ranges for similar securities and the pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, coupon rates, security type and recent trading activity.  Our investment personnel review documentation with respect to the pricing services’ pricing methodology that they obtain periodically to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. We refer to Note 5 - Fair Value Measurements for more information regarding our methods and assumptions in estimating fair values.


Cash and Short-Term Investments - The carrying amounts we report in the balance sheet for these instruments approximate their fair values.


Premiums and Reinsurance Receivables and Payables - The carrying amounts we report in the balance sheet for these instruments related to premiums and paid losses and loss expenses approximate their fair values.


Revenue Recognition


Our insurance subsidiaries recognize insurance premiums as income over the terms of the policies they issue. Our insurance subsidiaries calculate unearned premiums on a daily pro-rata basis.

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Index
Policy Acquisition Costs


We defer our insurance subsidiaries’ policy acquisition costs, consisting primarily of commissions, premium taxes and certain other underwriting costs, reduced by ceding commissions, related directly to the successful acquisition of new or renewal insurance contracts. We amortize these deferred policy acquisition costs over the period in which our insurance subsidiaries earn the premiums. The method we follow in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss expenses and certain other costs we expect to incur as our insurance subsidiaries earn the premium. Estimates in the calculation of policy acquisition costs have not shown material variability because of uncertainties in applying accounting principles or as a result of sensitivities to changes in key assumptions.

Property and Equipment


We report property and equipment at depreciated cost that we compute using the straight-line method based upon estimated useful lives of the assets.

Losses and Loss Expenses


Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.


Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance subsidiaries do not discount their liabilities for losses and loss expenses.

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Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations. For example, our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim settlement periods on bodily injury claims during the past several years. In addition, the COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors, including supply chain disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates. These continuing trend changes caused significant disruption to historical loss patterns and give rise to greater uncertainty as to the pattern of future loss settlements. Related uncertainties regarding future trends include social inflation, availability and cost of replacement automobile parts and building materials, availability and cost of skilled labor, the rate of specialized plaintiff attorney involvement in claims, plaintiff attorney utilization of litigation financing and the cost of medical technologies and procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses, among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes. Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at December 31, 2024.



Our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite. Our insurance subsidiaries’ personal lines products primarily include standard and preferred risks in private passenger automobile and homeowners lines. Our insurance subsidiaries’ commercial lines products primarily include business offices, wholesalers, service providers, contractors, artisans and light manufacturing operations. Our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities.

Income Taxes


We currently file a consolidated federal income tax return that includes us and our insurance subsidiaries.


We account for income taxes using the asset and liability method. The objective of the asset and liability method is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at enacted tax rates we expect to be in effect when we realize or settle such amounts.

Credit Risk


Our objective is to earn competitive returns by investing in a diversified portfolio of securities. Our portfolio of fixed maturity securities and, to a lesser extent, short-term investments is subject to credit risk. We define this risk as the potential loss in fair value resulting from adverse changes in the borrower’s ability to repay its debt to us. We manage this risk by performing an analysis of prospective investments and through regular reviews of our portfolio by our investment personnel. We also limit the amount of our total investment portfolio that we invest in any one security.


Our insurance subsidiaries provide property and liability insurance coverages through independent insurance agencies located throughout their operating areas. Our insurance subsidiaries bill the majority of this business directly to their policyholders, although our insurance subsidiaries bill a portion of their commercial business through their agents, to whom they extend credit in the normal course of business.


Our insurance subsidiaries have reinsurance agreements with Donegal Mutual and with a number of major unaffiliated reinsurers.

Reinsurance Accounting and Reporting


Our insurance subsidiaries rely upon reinsurance agreements to limit their maximum net loss from large single risks or risks in concentrated areas and to increase their capacity to write insurance. Reinsurance does not relieve our insurance subsidiaries from liability to their respective policyholders. To the extent that a reinsurer cannot pay losses for which it is liable under the terms of a reinsurance agreement with one or more of our insurance subsidiaries, our insurance subsidiaries retain continued liability for such losses. However, in an effort to reduce the risk of non-payment, our insurance subsidiaries require all of their reinsurers to have an A.M. Best rating of A- or better or, with respect to foreign reinsurers, to have a financial condition that, in the opinion of our management, is equivalent to a company with an A.M. Best rating of A- or better. We refer to Note 10 - Reinsurance for more information regarding the reinsurance agreements of our insurance subsidiaries.

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We report reinsurance receivable net of an allowance for expected credit losses. We establish an allowance for expected credit losses based upon our ongoing review of amounts outstanding, historical loss data, changes in reinsurer credit standing and other relevant factors. We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of operations.

Stock-Based Compensation


We measure all share-based payments to our directors and the directors and employees of our subsidiaries and affiliates, including grants of stock options, using a fair-value-based method and record such expense in our results of operations. In determining the expense we record for stock options we grant to our directors and the directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, expected term, dividend yield and expected volatility.



In 2024, 2023 and 2022, we realized $370,644, $139,135 and $360,452, respectively, in tax benefits upon the exercise of stock options.

Earnings Per Share


We calculate basic earnings per share by dividing net income by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.



We have two classes of common stock, which we refer to as Class A common stock and Class B common stock. Our Class A common stock is entitled to the declaration and payment of cash dividends that are at least 10% higher than those we declare and pay on our Class B common stock. Accordingly, we use the two-class method for the computation of earnings per common share. The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends declared and an allocation of remaining undistributed earnings using a participation percentage that reflects the dividend rights of each class.

Goodwill and Other Intangible Assets


Goodwill represents the excess of the purchase price over the underlying fair value of acquired entities. When completing acquisitions, we seek also to identify separately identifiable intangible assets that we have acquired. We assess goodwill and intangible assets with an indefinite useful life for impairment annually. We also assess goodwill and other intangible assets for impairment upon the occurrence of certain events. In making our assessment, we consider a number of factors including operating results, business plans, economic projections, anticipated future cash flows and current market data. Inherent uncertainties exist with respect to these factors and to our judgment in applying them when we make our assessment. Impairment of goodwill and other intangible assets could result from changes in economic and operating conditions in future periods.

2 - Impact of New Accounting Standards

In September 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance that amended previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. In November 2019, the FASB issued guidance that delayed the effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning after December 15, 2022 from December 15, 2019. We were a smaller reporting company at the time this guidance was issued, and our adoption of this guidance on January 1, 2023 resulted in an after-tax decrease in retained earnings of $1.9 million. The adoption of this guidance did not have a significant impact on our results of operations or cash flows.

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In November 2023, the FASB issued guidance that amended previous guidance on the disclosure of reportable segments. The guidance requires disclosure of incremental segment information including the title and position of the individual identified as the chief operating decision maker, a narrative explanation of how the chief operating decision maker uses each reported measure of a segment’s profit or loss in assessing performance and determining how to allocate resources, as well as quantification of significant segment expenses and other items. We refer to Note 19 - Segment Information for further information and disclosure of items required within the amended and enhanced guidance. The adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

In December 2023, the FASB issued guidance to enhance the transparency and usefulness of income tax disclosures. The guidance requires disclosure of specific categories in the rate reconciliation table and additional information for reconciling items that meet a quantitative threshold of equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate. The guidance also requires disaggregated disclosure of the amount of income taxes paid for federal, state and foreign taxes. The guidance is effective for annual periods beginning after December 15, 2024. The adoption of this guidance will not have an impact on our financial position, results of operations or cash flows.

In November 2024, the FASB issued guidance requiring disaggregated disclosure of income statement expenses in the notes to financial statements. The guidance requires disclosure of certain expenses, including employee compensation, depreciation and selling expenses. The guidance will not impact current income statement expense captions that industry-specific guidance requires. The guidance is effective for annual reporting periods beginning after December 15, 2026. The adoption of this guidance will not have an impact on our financial position, results of operations or cash flows.

3 - Transactions with Affiliates


Our insurance subsidiaries conduct business and have various agreements with Donegal Mutual that we describe in the following subparagraphs:

a. Reinsurance Pooling and Other Reinsurance Arrangements


Atlantic States, our largest insurance subsidiary, and Donegal Mutual have a pooling agreement under which both companies contribute substantially all of their direct written business to the pool and receive an allocated percentage of the pooled underwriting results, excluding certain reinsurance Donegal Mutual assumes from our insurance subsidiaries. In addition, Donegal Mutual has 100% quota-share reinsurance agreements with Southern Mutual and the Mountain States insurance subsidiaries, and Donegal Mutual places the business of Southern Mutual and the Mountain States insurance subsidiaries into the underwriting pool. Atlantic States has an 80% share of the results of the pool, and Donegal Mutual has a 20% share of the results of the pool. The intent of the pooling agreement is to produce more uniform and stable underwriting results from year to year for each pool participant than they would experience individually and to spread the risk of loss between the participants based on each participant’s relative amount of surplus and relative access to capital. Each participant in the pool has at its disposal the capacity of the entire pool, rather than being limited to policy exposures of a size commensurate with its own capital and surplus.


The following amounts represent reinsurance Atlantic States ceded to the pool during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Premiums earned
  
$
358,062,827
    
$
332,272,662
    
$
314,321,443
  
Losses and loss expenses
    
201,030,943
      
238,055,099
      
202,228,589
  
Prepaid reinsurance premiums
    
169,621,545
      
161,991,511
      
154,472,615
  
Liability for losses and loss expenses
    
297,955,741
      
299,947,390
      
277,641,902
  

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The following amounts represent reinsurance Atlantic States assumed from the pool during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Premiums earned
  
$
611,864,614
    
$
583,559,746
    
$
578,216,706
  
Losses and loss expenses
    
354,052,955
      
409,051,306
      
395,794,813
  
Unearned premiums
    
297,493,977
      
286,147,727
      
280,031,908
  
Liability for losses and loss expenses
    
517,975,350
      
507,527,839
      
496,849,769
  


Donegal Mutual and MICO had a quota-share reinsurance agreement under which Donegal Mutual assumed 25% of the premiums and losses related to the business of MICO for policies effective through December 31, 2021. Donegal Mutual and MICO terminated this reinsurance agreement on a run-off basis effective January 1, 2022. Donegal Mutual and Peninsula had a quota-share reinsurance agreement under which Donegal Mutual assumed 100% of the premiums and losses related to the workers’ compensation product line of Peninsula in certain states for policies effective through December 31, 2021. Donegal Mutual and Peninsula terminated this reinsurance agreement on a run-off basis effective January 1, 2022. Donegal Mutual places its assumed business from MICO and Peninsula into the underwriting pool.


The following amounts represent reinsurance ceded to Donegal Mutual pursuant to these quota-share reinsurance agreements during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Premiums earned
  
$
19,517
    
$
168,243
    
$
17,989,939
  
Losses and loss expenses
    
(3,095,130
)
    
2,902,422
      
5,194,974
  
Liability for losses and loss expenses
    
10,450,447
      
17,852,153
      
22,642,908
  


In 2024 and 2023, each of our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual that provided coverage under any one catastrophic occurrence above a set retention of $3,000,000, with a combined retention of $6,000,000 for a catastrophe involving a combination of our insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retained under catastrophe reinsurance agreements with unaffiliated reinsurers. In 2022, each of our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual that provided coverage under any one catastrophic occurrence above a set retention of $2,000,000, with a combined retention of $5,000,000 for a catastrophe involving a combination of our insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retained under catastrophe reinsurance agreements with unaffiliated reinsurers.



The following amounts represent reinsurance that our insurance subsidiaries ceded to Donegal Mutual pursuant to these reinsurance agreements during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Premiums earned
  
$
14,261,265
    
$
13,215,814
    
$
13,800,018
  
Losses and loss expenses
    
19,454,584
      
17,895,306
      
10,517,709
  
Liability for losses and loss expenses
    
6,876,255
      
2,497,244
      
1,271,006
  


The following amounts represent the effect of affiliated reinsurance transactions on net premiums our insurance subsidiaries earned during 2024, 2023 and 2022:

   
2024
    
2023
    
2022
  
Assumed
  
$
611,864,614
    
$
583,559,746
    
$
578,216,706
  
Ceded
    
(372,343,609
)
    
(345,656,717
)
    
(346,111,400
)
Net
  
$
239,521,005
    
$
237,903,029
    
$
232,105,306
  

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The following amounts represent the effect of affiliated reinsurance transactions on net losses and loss expenses our insurance subsidiaries incurred during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Assumed
  
$
354,052,955
    
$
409,051,306
    
$
395,790,312
  
Ceded
    
(217,390,397
)
    
(258,852,827
)
    
(217,941,272
)
Net
  
$
136,662,558
    
$
150,198,479
    
$
177,849,040
  

b. Expense Sharing


Donegal Mutual provides facilities, management and other services to us and our insurance subsidiaries. In addition, Donegal Mutual purchases and maintains the information technology systems that support the business of Donegal Mutual and our insurance subsidiaries. Donegal Mutual allocates certain related expenses to Atlantic States in relation to the relative participation of Atlantic States and Donegal Mutual in the pooling agreement. Our insurance subsidiaries other than Atlantic States reimburse Donegal Mutual for allocated costs of services Donegal Mutual provides on their behalf based on their proportion of the total direct premiums written of the Donegal Insurance Group and other metrics. Donegal Mutual allocates costs related to its development and maintenance of information technology systems over the estimated useful life of those systems (generally five years) and charges a proportionate share of those costs to our insurance subsidiaries based on their percentage of the total net premiums written of the Donegal Insurance Group. Allocated expenses from Donegal Mutual for services it provided to our insurance subsidiaries totaled $224,565,390, $218,974,132 and $199,177,393 for 2024, 2023 and 2022, respectively.


Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key technology infrastructure and application systems. Donegal Mutual placed several releases of new systems into service beginning in 2020. Donegal Mutual allocated $12.3 million, $10.5 million and $7.6 million of related costs to our insurance subsidiaries in 2024, 2023 and 2022, respectively. Donegal Mutual will allocate to our insurance subsidiaries their proportionate share of the remaining $29.4 million of related costs over the next five years. Donegal Mutual incurred an additional $14.4 million of deferred costs related to releases under development that were not yet ready for their intended use at December 31, 2024.



Our management believes that the allocation methods Donegal Mutual utilizes are reasonable. In addition, Donegal Mutual and we maintain a coordinating committee that consists of two members of our board of directors, neither of whom is a member of Donegal Mutual’s board of directors, and two members of Donegal Mutual’s board of directors, neither of whom is a member of our board of directors. The purpose of the coordinating committee is to maintain a process for an ongoing evaluation of the fairness of the terms of all transactions between Donegal Mutual and our insurance subsidiaries.

c. Lease Agreement


We lease office equipment with terms ranging from 3 to 10 years to Donegal Mutual under a lease agreement effective January 1, 2020.

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4 - Investments


The amortized cost and estimated fair values of our fixed maturities at December 31, 2024 and 2023 are as follows:

 
2024
  

Carrying Value  
Allowance for Credit Losses
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Estimated Fair
Value
  
(in thousands)
  
Held to Maturity                        
U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 86,579,024     $ 51,632    
$
86,630,656
    
$
—
    
$
8,484,505
    
$
78,146,151
  
Obligations of states and political subdivisions
     371,895,483       259,896      
372,155,379
      
649,770
      
54,062,089
      
318,743,060
  
Corporate securities
     236,550,262       1,070,337      
237,620,599
      
272,817
      
13,607,632
      
224,285,784
  
Mortgage-backed securities
     10,689,147       6,375      
10,695,522
      
—
      
301,588
      
10,393,934
  
Totals
   $ 705,713,916     $ 1,388,240    
$
707,102,156
    
$
922,587
    
$
76,455,814
    
$
631,568,929
  

   
2024
  
Available for Sale
  
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Estimated Fair 
Value
  
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  
$
87,514,016
    
$
50,451
    
$
3,771,832
    
$
83,792,635
  
Obligations of states and political subdivisions
    
41,693,772
      
9,435
      
4,298,787
      
37,404,420
  
Corporate securities
    
211,059,119
      
141,685
      
8,269,108
      
202,931,696
  
Mortgage-backed securities
    
312,298,058
      
216,549
      
18,751,496
      
293,763,111
  
Totals
  
$
652,564,965
    
$
418,120
    
$
35,091,223
    
$
617,891,862
  

 
2023
  

Carrying Value  
Allowance for Credit Losses
  
Amortized
Cost
  
Gross
Unrealized
Gains
  
Gross
Unrealized
Losses
  
Estimated Fair
Value
  
(in thousands)
  
Held to Maturity                        
U.S. Treasury securities and obligations of U.S. government corporations and agencies
   $ 91,517,359
     $ 54,668
    
$
91,572,027
    
$
—
    
$
8,885,420
    
$
82,686,607
  
Obligations of states and political subdivisions
     376,897,952
       265,977
      
377,163,929
      
1,448,585
      
46,844,714
      
331,767,800
  
Corporate securities
     201,847,288
       999,685
      
202,846,973
      
207,628
      
14,804,569
      
188,250,032
  
Mortgage-backed securities
     9,234,439
       5,517
      
9,239,956
      
—
      
418,057
      
8,821,899
  
Totals
   $ 679,497,038
     $ 1,325,847
    
$
680,822,885
    
$
1,656,213
    
$
70,952,760
    
$
611,526,338
  

   
2023
  
Available for Sale
  
Amortized
Cost
    
Gross
Unrealized
Gains
    
Gross
Unrealized
Losses
    
Estimated Fair
Value
  
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  
$
89,367,383
    
$
199,299
    
$
4,146,999
    
$
85,419,683
  
Obligations of states and political subdivisions
    
41,957,742
      
11,665
      
3,853,623
      
38,115,784
  
Corporate securities
    
211,882,285
      
100,014
      
15,189,332
      
196,792,967
  
Mortgage-backed securities
    
286,520,103
      
594,023
      
18,094,317
      
269,019,809
  
Totals
  
$
629,727,513
    
$
905,001
    
$
41,284,271
    
$
589,348,243
  

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At December 31, 2024, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $233.1 million and an amortized cost of $272.5 million. Our holdings also included special revenue bonds with an aggregate fair value of $123.0 million and an amortized cost of $141.3 million. With respect to both categories of bonds, we held no securities of any issuer that comprised more than 10% of that category at December 31, 2024. Education bonds and water and sewer utility bonds represented 44% and 37%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2024. Many of the issuers of the special revenue bonds we held at December 31, 2024 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.


At December 31, 2023, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $245.1 million and an amortized cost of $278.3 million. Our holdings also included special revenue bonds with an aggregate fair value of $124.8 million and an amortized cost of $140.8 million. With respect to both categories of bonds, we held no securities of any issuer that comprised more than 10% of that category at December 31, 2023. Education bonds and water and sewer utility bonds represented 47% and 35%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2023. Many of the issuers of the special revenue bonds we held at December 31, 2023 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.


We have segregated within accumulated other comprehensive loss the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassification date for fixed maturities reclassified from available for sale to held to maturity.  We are amortizing this balance over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same fixed maturities. We recorded amortization of $219,583, $284,095 and $510,819 in other comprehensive income in 2024, 2023 and 2022, respectively. At December 31, 2024 and 2023, net unrealized losses of $1.0 million and $1.3 million, respectively, remained within accumulated other comprehensive loss.


We set forth below the amortized cost and estimated fair value of fixed maturities at December 31, 2024 by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
 
   
Amortized Cost
    
Estimated Fair
Value
  
Held to maturity
            
Due in one year or less
  
$
26,242,529
    
$
26,079,023
  
Due after one year through five years
    
188,104,030
      
176,623,906
  
Due after five years through ten years
    
234,909,164
      
215,122,262
  
Due after ten years
    
247,150,911
      
203,349,804
  
Mortgage-backed securities
    
10,695,522
      
10,393,934
  
Total held to maturity
  
$
707,102,156
    
$
631,568,929
  
                 
Available for sale
                
Due in one year or less
  
$
30,880,061
    
$
30,671,938
  
Due after one year through five years
    
205,273,058
      
197,656,304
  
Due after five years through ten years
    
90,287,938
      
84,003,172
  
Due after ten years
    
13,825,850
      
11,797,337
  
Mortgage-backed securities
    
312,298,058
      
293,763,111
  
Total available for sale
  
$
652,564,965
    
$
617,891,862
  


The cost and estimated fair values of our equity securities at December 31, 2024 were as follows:
 
   
Cost
    
Gross Gains
    
Gross Losses
    
Estimated Fair
Value
  
       
Equity securities
  
$
24,725,576
    
$
12,087,227
    
$
4,993
    
$
36,807,810
  

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The cost and estimated fair values of our equity securities at December 31, 2023 were as follows:


   
Cost
    
Gross Gains
    
Gross Losses
    
Estimated Fair
  Value
  
       
Equity securities
  
$
18,843,929
    
$
7,059,027
    
$
—
    
$
25,902,956
  


The amortized cost of fixed maturities on deposit with various regulatory authorities at December 31, 2024 and 2023 amounted to $10,323,629 and $10,499,430, respectively.


We derived net investment income, consisting primarily of interest and dividends, from the following sources:


   
2024
    
2023
    
2022
  
Fixed maturities
  
$
44,450,895
    
$
40,445,697
    
$
34,945,437
  
Equity securities
    
710,333
      
765,881
      
897,429
  
Short-term investments
    
3,621,766
      
2,471,998
      
817,428
  
Other
    
29,250
      
29,250
      
29,250
  
Investment income
    
48,812,244
      
43,712,826
      
36,689,544
  
Investment expenses
    
(3,894,082
)
    
(2,859,611
)
    
(2,673,432
)
Net investment income
  
$
44,918,162
    
$
40,853,215
    
$
34,016,112
  


We present below gross gains and losses from investments and the change in the difference between fair value and cost of investments:
 
   
2024
    
2023
    
2022
  
Gross realized gains:
                  
Fixed maturities
  
$
113,699
    
$
1,059,244
    
$
1,149,761
  
Equity securities
    
289,840
      
2,662,661
      
1,765,923
  
Real estate
    
—
      
—
      
477,287
  
     
403,539
      
3,721,905
      
3,392,971
  
Gross realized losses:
                        
Fixed maturities
    
288,008
      
3,300,351
      
2,129,736
  
Equity securities
    
95,290
      
732,940
      
4,113,526
  
     
383,298
      
4,033,291
      
6,243,262
  
Net realized gains (losses)
    
20,241
      
(311,386
)
    
(2,850,291
)
Gross unrealized gains on equity securities
    
5,028,206
      
3,651,125
      
258,532
  
Gross unrealized losses on equity securities
    
(4,982
)
    
(109,125
)
    
(7,593,038
)
Increase in allowance for credit losses
     (62,393 )     (57,807 )     —  
Net investment gains (losses)
  
$
4,981,072
    
$
3,172,807
    
$
(10,184,797
)
                         
Change in difference between fair value and cost of investments:
                        
Fixed maturities
  
$
(530,513
)
  
$
28,839,658
    
$
(177,147,840
)
Equity securities
    
5,023,207
      
2,724,820
      
15,823,189
  
Totals
  
$
4,492,694
    
$
31,564,478
    
$
(161,324,651
)

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We held fixed maturities with unrealized losses representing declines that we considered temporary at December 31, 2024 as follows:


   
Less than 12 months
    
12 months or longer
  
   
Fair Value
    
Unrealized Losses
    
Fair Value
    
Unrealized Losses
  
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  
$
37,528,341
    
$
349,573
    
$
112,322,114
    
$
11,906,764
  
Obligations of states and political subdivisions
    
37,674,513
      
824,487
      
292,851,970
      
57,536,389
  
Corporate securities
    
83,342,468
      
1,505,512
      
311,435,364
      
20,371,228
  
Mortgage-backed securities
    
112,950,244
      
1,261,878
      
153,960,179
      
17,791,206
  
Totals
  
$
271,495,566
    
$
3,941,450
    
$
870,569,627
    
$
107,605,587
  


We held fixed maturities with unrealized losses representing declines that we considered temporary at December 31, 2023 as follows:
 
   
Less than 12 months
    
12 months or longer
  
   
Fair Value
    
Unrealized Losses
    
Fair Value
    
Unrealized Losses
  
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  
$
32,223,934
    
$
217,164
    
$
116,537,998
    
$
12,815,255
  
Obligations of states and political subdivisions
    
13,097,410
      
67,913
      
307,429,319
      
50,630,424
  
Corporate securities
    
13,065,558
      
324,293
      
353,862,937
      
29,669,608
  
Mortgage-backed securities
    
46,964,057
      
220,436
      
178,112,881
      
18,291,938
  
Totals
  
$
105,350,959
    
$
829,806
    
$
955,943,135
    
$
111,407,225
  


We held 902 debt securities that were in an unrealized loss position at December 31, 2024. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.


We did not recognize any impairment losses on specific securities in 2024, 2023 or 2022. We had no sales or transfers from our held to maturity portfolio in 2024, 2023 or 2022. We had no derivative instruments or hedging activities during 2024, 2023 or 2022.

5 - Fair Value Measurements


We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:
Level 1 - quoted prices in active markets for identical assets and liabilities;


Level 2 - directly or indirectly observable inputs other than Level 1 quoted prices; and


Level 3 - unobservable inputs not corroborated by market data.


For investments that have quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy. We classify publicly traded equity securities as Level 1. When quoted market prices in active markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services. We classify our fixed maturity investments and non-publicly traded equity securities as Level 2. Our fixed maturity investments consist of U.S. Treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities.

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 At December 31, 2024, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at December 31, 2024, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.


We present our cash and short-term investments at estimated fair value. The carrying values in our balance sheet for premium receivables, reinsurance receivables related to paid losses and loss expenses and reinsurance balances payable approximate their fair values. The carrying amounts reported in the balance sheet for our borrowings under lines of credit approximate their fair values. We classify these items as Level 3.


We evaluate our assets and liabilities on a regular basis to determine the appropriate level at which to classify them for each reporting period. Based on our review of the methodology and summary of inputs the pricing services use, we have concluded that our Level 1 and Level 2 investments were classified properly at December 31, 2024 and 2023.


The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2024:

   
Fair Value Measurements Using
  
   
Fair Value
    
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
    
Significant
Other Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
  
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  
$
83,792,635
    
$
—
    
$
83,792,635
    
$
—
  
Obligations of states and political subdivisions
    
37,404,420
      
—
      
37,404,420
      
—
  
Corporate securities
    
202,931,696
      
—
      
202,931,696
      
—
  
Mortgage-backed securities
    
293,763,111
      
—
      
293,763,111
      
—
  
Equity securities
    
36,807,810
      
34,707,981
      
2,099,829
      
—
  
Total investments in the fair value hierarchy
  
$
654,699,672
    
$
34,707,981
    
$
619,991,691
    
$
—
  


The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2023:
 
   
Fair Value Measurements Using
  
   
Fair Value
    
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
    
Significant
Other Observable
Inputs (Level 2)
    
Significant
Unobservable
Inputs (Level 3)
  
U.S. Treasury securities and obligations of U.S. government corporations and agencies
  
$
85,419,683
    
$
—
    
$
85,419,683
    
$
—
  
Obligations of states and political subdivisions
    
38,115,784
      
—
      
38,115,784
      
—
  
Corporate securities
    
196,792,967
      
—
      
196,792,967
      
—
  
Mortgage-backed securities
    
269,019,809
      
—
      
269,019,809
      
—
  
Equity securities
    
25,902,956
      
23,910,968
      
1,991,988
      
—
  
Total investments in the fair value hierarchy
  
$
615,251,199
    
$
23,910,968
    
$
591,340,231
    
$
—
  

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6 - Deferred Policy Acquisition Costs


Changes in our insurance subsidiaries’ deferred policy acquisition costs are as follows:
 
   
2024
    
2023
    
2022
  
Balance, January 1
  
$
75,043,404
    
$
73,170,230
    
$
68,028,373
  
Acquisition costs deferred
    
158,614,563
      
156,087,174
      
147,571,857
  
Amortization charged to earnings
    
(160,311,000
)
    
(154,214,000
)
    
(142,430,000
)
Balance, December 31
  
$
73,346,967
    
$
75,043,404
    
$
73,170,230
  

7 - Property and Equipment


Property and equipment at December 31, 2024 and 2023 consisted of the following:
 
   
2024
    
2023
  
Estimated
Useful Life
  
Office equipment
  
$
8,288,988
    
$
8,289,730
  
3-15 years
  
Automobiles
    
42,794
      
42,794
  
5 years
  
Real estate
    
2,575,207
      
2,575,207
  
5-50 years
  
Software
    
1,386,936
      
1,386,936
  
5 years
  
     
12,293,925
      
12,294,667
      
Accumulated depreciation
    
(9,814,742
)
    
(9,661,262
)
    
   
$
2,479,183
    
$
2,633,405
      


Depreciation expense for 2024, 2023 and 2022 amounted to $153,480, $166,400 and $173,535, respectively.

8 - Liability for Losses and Loss Expenses


The establishment of an appropriate liability for losses and loss expenses is an inherently uncertain process, and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies explicitly excluded or did not intend to cover. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods, and, in other periods, their estimates have exceeded their actual liabilities. Changes in our insurance subsidiaries’ estimate of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received since the prior reporting date.


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We summarize activity in our insurance subsidiaries’ liability for losses and loss expenses as follows:
 
   
2024
    
2023
    
2022
  
Balance at January 1
  
$
1,126,156,838
    
$
1,121,045,758
    
$
1,077,620,301
  
Less reinsurance recoverable
    
(437,013,974
)
    
(451,184,222
)
    
(451,261,306
)
Cumulative effect of adoption of updated accounting guidance for credit losses at January 1
    —       1,131,836       —  
Net balance at January 1
    
689,142,864
      
670,993,372
      
626,358,995
  
Incurred related to:
                        
Current year
    
619,089,646
      
625,831,043
      
608,900,206
  
Prior years
    
(14,971,930
)
    
(16,653,344
)
    
(44,821,213
)
Total incurred
    
604,117,716
      
609,177,699
      
564,078,993
  
Paid related to:
                        
Current year
    
319,195,507
      
330,290,039
      
302,272,322
  
Prior years
    
269,701,400
      
260,738,168
      
218,304,130
  
Total paid
    
588,896,907
      
591,028,207
      
520,576,452
  
Net balance at December 31
    
704,363,673
      
689,142,864
      
669,861,536
  
Plus reinsurance recoverable
    
416,621,377
      
437,013,974
      
451,184,222
  
Balance at December 31
  
$
1,120,985,050
    
$
1,126,156,838
    
$
1,121,045,758
  


Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $15.0 million, $16.7 million and $44.8 million in 2024, 2023 and 2022, respectively. Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those years. The 2024 development represented 2.2% of the December 31, 2023 net carried reserves and resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024. The majority of the 2024 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. The 2023 development represented 2.5% of the December 31, 2022 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023. The majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO. The 2022 development represented 7.2% of the December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022. The majority of the 2022 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.


Short-duration contracts are contracts for which our insurance subsidiaries receive premiums that they recognize as revenue over the period of the contract in proportion to the amount of insurance protection our insurance subsidiaries provide. Our insurance subsidiaries consider the policies they issue to be short-duration contracts. We consider our insurance subsidiaries’ material lines of business to be personal automobile, homeowners, commercial automobile, commercial multi-peril and workers’ compensation.


Our insurance subsidiaries determine incurred but not reported (“IBNR”) reserves by subtracting the cumulative loss and loss expense amounts our insurance subsidiaries have paid and the case reserves our insurance subsidiaries have established at the balance sheet date from their actuaries’ estimate of the ultimate cost of losses and loss expenses. Accordingly, our insurance subsidiaries’ IBNR reserves include their actuaries’ projections of the cost of unreported claims as well as their actuaries’ projected development of case reserves on known claims and reopened claims. Our insurance subsidiaries’ methodology for estimating IBNR reserves has been in place for many years, and their actuaries made no significant changes to that methodology during 2024.

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The actuaries for our insurance subsidiaries generally prepare an initial estimate for ultimate losses and loss expenses for the current accident year by multiplying earned premium by an “a priori,” or expected, loss ratio for each line of business our insurance subsidiaries write. Expected loss ratios represent the actuaries’ expectation of losses at the time our insurance subsidiaries price and write their policies, before the emergence of any actual claims experience. The actuaries determine an expected loss ratio by analyzing historical experience and adjusting for loss cost trends, loss frequency and severity trends, premium rate level changes, reported and paid loss emergence patterns and other known or observed factors.


The actuaries use a variety of actuarial methods to estimate the ultimate cost of losses and loss expenses.  These methods include paid loss development, incurred loss development and the Bornhuetter-Ferguson method from which the actuaries select loss development factor assumptions. The actuaries base their selection of a point estimate on a judgmental weighting of estimates each of these methods produce.


The actuaries consider loss frequency and severity trends when they develop expected loss ratios and point estimates. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims.  Factors that affect loss frequency include changes in weather patterns or economic activity.  Factors that affect loss severity include changes in policy limits, reinsurance retentions, inflation rates and judicial interpretations.


Our insurance subsidiaries create a claim file when they receive notice of an actual demand for payment, an event that may lead to a demand for payment or when they otherwise determine that a demand for payment could potentially lead to a future demand for payment on another coverage under the same policy or another policy they have issued. In recent years, our insurance subsidiaries have noted an increase in the period of time between the occurrence of a casualty loss event and the date on which they receive notice of a liability claim.  Changes in the length of time between the loss occurrence date and the claim reporting date affect the actuaries’ ability to accurately predict loss frequency and the amount of IBNR reserves our insurance subsidiaries require.


Our insurance subsidiaries generally create a claim file for a policy at the claimant level by type of coverage and generally recognize one count for each claim event.  In certain lines of business where it is common for multiple parties to claim damages arising from a single claim event, our insurance subsidiaries recognize one count for each claimant involved in the event. Atlantic States recognizes one count for each claim event, or claimant involved in a multiple-party claim event, related to losses Atlantic States assumes through its participation in its pooling agreement with Donegal Mutual. Our insurance subsidiaries accumulate the claim counts and report them by line of business. For purposes of the claim development tables we present below, our insurance subsidiaries count claims on policies they issue even if they eventually close such claims without making a loss payment. Claims our insurance subsidiaries close without making a loss payment typically generate loss expenses. The methods our insurance subsidiaries have used to summarize claim counts have not changed significantly over the time periods we report in the tables below.



The following tables present information about incurred and paid claims development as of December 31, 2024, net of reinsurance, as well as cumulative claim frequency and the total of IBNR reserves plus expected development on reported claims that our insurance subsidiaries included within their net incurred claims amounts. The tables include unaudited information about incurred and paid claims development for the years ended December 31, 2015 through 2023, which we present as supplementary information.

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Index
Personal
Automobile
        
At December 31, 2024
  
   
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
              
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
    
Total IBNR
Plus
Expected
Development
on Reported
Claims
    
Cumulative
Number of
Reported
Claims
  
   
Unaudited
                    
(dollars and reported claims in thousands)
                                                        
2015
  
137,569
    
139,333
    
139,181
    
142,493
    
142,408
    
142,073
    
142,010
    
141,965
    
141,894
    
$
141,973
    
$
49
      
70
  
2016
            
150,216
      
153,937
      
157,516
      
157,943
      
156,935
      
156,436
      
156,227
      
155,834
      
155,822
      
114
      
73
  
2017
                    
166,690
      
176,728
      
175,939
      
174,784
      
173,730
      
173,032
      
172,712
      
172,376
      
220
      
79
  
2018
                            
186,580
      
183,358
      
181,558
      
180,787
      
179,732
      
178,990
      
178,799
      
345
      
81
  
2019
                                    
161,056
      
157,689
      
156,300
      
154,805
      
153,883
      
153,253
      
652
      
68
  
2020
                                            
111,483
      
103,585
      
100,339
      
99,253
      
98,506
      
772
      
43
  
2021
                                                    
119,364
      
118,752
      
114,707
      
114,874
      
1,352
      
47
  
2022
                                                            
126,203
      
134,834
      
136,073
      
3,173
      
50
  
2023
                                                                    
152,740
      
155,260
      
6,193
      
52
  
2024
                                                                            
153,403
      
29,466
      
45
  
                                                                   
Total
    
$
1,460,339
                  

Personal Automobile
                                                            
   
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
  
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
  
   
Unaudited
        
(in thousands)
                                                        
2015
  
93,611
    
116,303
    
128,395
    
135,027
    
139,121
    
140,028
    
140,892
    
141,172
    
141,298
    
$
141,392
  
2016
            
102,433
      
129,507
      
143,321
      
151,159
      
153,521
      
154,769
      
155,521
      
155,505
      
155,602
  
2017
                    
111,964
      
142,372
      
159,879
      
166,099
      
169,190
      
170,895
      
171,513
      
171,863
  
2018
                            
115,585
      
150,175
      
163,036
      
169,651
      
173,922
      
176,233
      
177,367
  
2019
                                    
103,101
      
127,187
      
141,004
      
146,667
      
150,017
      
150,842
  
2020
                                            
66,084
      
81,783
      
89,736
      
94,094
      
96,277
  
2021
                                                    
76,477
      
93,998
      
103,427
      
109,052
  
2022
                                                            
83,616
      
109,845
      
125,624
  
2023
                                                                    
99,574
      
127,752
  
2024
                                                                            
101,227
  
                                                                   
Total
      
1,356,998
  
                   
All outstanding liabilities before 2015, net of reinsurance
      
907
  
                   
Liabilities for claims and claims adjustment expenses, net of reinsurance
    
$
104,248
  

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Index
Homeowners
        
At December 31, 2024
  
   
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
              
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
    
Total IBNR Plus Expected Development on Reported Claims
    
Cumulative Number of Reported Claims
  
   
Unaudited
                    
(dollars and reported claims in thousands)
                                                        
2015
  
63,359
    
63,925
    
63,053
    
63,071
    
63,099
    
62,993
    
63,043
    
63,036
    
63,042
    
$
63,041
    
$
—
      
14
  
2016
            
62,443
      
64,064
      
63,735
      
63,355
      
63,279
      
63,409
      
63,472
      
63,478
      
63,462
      
—
      
12
  
2017
                    
79,283
      
79,911
      
79,305
      
79,247
      
79,065
      
78,815
      
78,819
      
78,687
      
—
      
17
  
2018
                            
81,965
      
83,385
      
82,905
      
82,566
      
82,058
      
81,977
      
81,930
      
36
      
19
  
2019
                                    
73,294
      
73,554
      
73,234
      
72,168
      
72,176
      
71,785
      
90
      
16
  
2020
                                            
61,633
      
62,718
      
61,595
      
61,495
      
61,285
      
94
      
14
  
2021
                                                    
67,677
      
66,996
      
65,451
      
64,425
      
269
      
11
  
2022
                                                            
82,433
      
82,045
      
81,838
      
1,066
      
10
  
2023
                                                                    
86,693
      
87,047
      
1,657
      
11
  
2024
                                                                            
85,975
      
8,875
      
10
  
                                                                   
Total
    
$
739,475
      
         

Homeowners
                                                            
   
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
  
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
  
   
Unaudited
        
(in thousands)
                                                        
2015
  
51,885
    
61,542
    
62,204
    
62,590
    
62,844
    
62,943
    
62,936
    
62,938
    
63,042
    
$
63,041
  
2016
            
50,125
      
61,145
      
62,760
      
63,144
      
63,162
      
63,217
      
63,266
      
63,296
      
63,302
  
2017
                    
67,077
      
77,663
      
78,006
      
78,127
      
78,454
      
78,528
      
78,556
      
78,662
  
2018
                            
70,385
      
79,892
      
80,905
      
81,464
      
81,568
      
81,826
      
81,833
  
2019
                                    
58,074
      
69,145
      
70,416
      
70,884
      
71,209
      
71,446
  
2020
                                            
51,226
      
60,348
      
60,809
      
61,189
      
61,181
  
2021
                                                    
52,161
      
63,920
      
64,124
      
64,258
  
2022
                                                            
63,107
      
79,187
      
80,132
  
2023
                                                                    
67,636
      
84,194
  
2024
                                                                            
67,702
  
                                                                   
Total
      
715,751
  
                   
All outstanding liabilities before 2015, net of reinsurance
      
98
  
                   
Liabilities for claims and claims adjustment expenses, net of reinsurance
    
$
23,822
  

-85-
Index
Commercial Automobile
        
At December 31, 2024
  
   
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
              
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
    
Total IBNR Plus Expected Development on Reported Claims
    
Cumulative Number of Reported Claims
  
   
Unaudited
                    
(dollars and reported claims in thousands)
                                                        
2015
  
46,526
    
48,323
    
51,412
    
54,259
    
54,517
    
54,619
    
53,793
    
53,477
    
53,431
    
$
53,339
    
$
6
      
12
  
2016
            
54,302
      
57,353
      
65,905
      
67,127
      
66,894
      
66,085
      
65,922
      
65,602
      
65,537
      
23
      
13
  
2017
                    
61,484
      
67,927
      
67,697
      
67,249
      
65,310
      
64,631
      
65,022
      
64,821
      
43
      
14
  
2018
                            
79,307
      
81,396
      
82,313
      
83,043
      
82,226
      
82,368
      
82,234
      
102
      
16
  
2019
                                    
88,864
      
91,245
      
90,290
      
86,140
      
84,566
      
83,709
      
129
      
16
  
2020
                                            
90,367
      
87,766
      
85,016
      
83,590
      
83,590
      
998
      
14
  
2021
                                                    
109,824
      
99,231
      
96,947
      
97,903
      
2,546
      
15
  
2022
                                                            
115,287
      
108,690
      
109,314
      
7,758
      
15
  
2023
                                                                    
112,135
      
110,821
      
16,917
      
14
  
2024
                                                                            
115,327
      
38,125
      
11
  
                                                                   
Total
    
$
866,595
                  

Commercial Automobile
                                                            
   
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
  
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
  
   
Unaudited
        
(in thousands)
                                                        
2015
  
23,875
    
35,342
    
41,678
    
48,261
    
51,605
    
51,992
    
52,728
    
53,052
    
53,047
    
$
53,333
  
2016
            
27,033
      
38,237
      
48,837
      
57,237
      
60,485
      
64,421
      
65,076
      
65,273
      
65,315
  
2017
                    
28,707
      
40,213
      
49,703
      
57,128
      
59,889
      
62,187
      
64,074
      
64,219
  
2018
                            
33,862
      
47,941
      
57,451
      
69,487
      
74,421
      
79,308
      
80,375
  
2019
                                    
36,948
      
53,026
      
63,575
      
72,139
      
80,617
      
81,647
  
2020
                                            
31,884
      
46,459
      
60,665
      
70,669
      
78,974
  
2021
                                                    
39,851
      
56,101
      
69,908
      
80,595
  
2022
                                                            
46,242
      
67,367
      
81,554
  
2023
                                                                    
45,387
      
65,131
  
2024
                                                                            
43,206
  
                                                                   
Total
      
694,349
  
                   
All outstanding liabilities before 2015, net of reinsurance
      
62
  
                   
Liabilities for claims and claims adjustment expenses, net of reinsurance
    
$
172,308
  

-86-
Index
Commercial Multi-Peril
        
At December 31, 2024
  
   
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
              
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
    
Total IBNR Plus Expected Development on Reported Claims
    
Cumulative Number of Reported Claims
  
   
Unaudited
                    
(dollars and reported claims in thousands)
                                                        
2015
  
42,070
    
43,874
    
44,728
    
45,104
    
45,873
    
45,366
    
45,420
    
45,595
    
46,181
    
$
45,941
    
$
—
      
6
  
2016
            
43,005
      
46,988
      
48,267
      
48,871
      
48,732
      
48,823
      
48,802
      
48,374
      
48,213
      
18
      
6
  
2017
                    
56,185
      
56,043
      
56,517
      
54,812
      
55,076
      
54,244
      
55,002
      
54,475
      
39
      
7
  
2018
                            
66,265
      
66,470
      
67,749
      
67,810
      
65,911
      
65,900
      
65,727
      
178
      
7
  
2019
                                    
71,865
      
73,836
      
76,326
      
75,821
      
76,015
      
74,995
      
559
      
7
  
2020
                                            
83,195
      
79,910
      
76,490
      
74,796
      
72,624
      
1,722
      
8
  
2021
                                                    
116,827
      
117,574
      
119,321
      
116,202
      
8,459
      
7
  
2022
                                                            
142,395
      
141,935
      
139,486
      
16,187
      
7
  
2023
                                                                    
129,069
      
125,596
      
23,997
      
6
  
2024
                                                                            
119,376
      
43,797
      
5
  
                                                                   
Total
    
$
862,635
                  

Commercial Multi-Peril
                                                            
   
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
  
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
  
   
Unaudited
        
(in thousands)
                                                        
2015
  
21,837
    
29,419
    
34,323
    
39,162
    
42,849
    
44,090
    
44,439
    
44,764
    
45,572
    
$
45,678
  
2016
            
19,660
      
29,402
      
34,612
      
41,193
      
43,435
      
44,944
      
47,432
      
48,048
      
48,169
  
2017
                    
27,399
      
36,926
      
42,691
      
46,361
      
49,488
      
51,494
      
52,422
      
53,886
  
2018
                            
30,597
      
42,296
      
48,050
      
54,913
      
59,118
      
62,253
      
63,040
  
2019
                                    
28,210
      
41,266
      
47,522
      
55,951
      
63,156
      
69,762
  
2020
                                            
34,729
      
46,193
      
52,646
      
58,754
      
66,669
  
2021
                                                    
46,768
      
69,735
      
82,580
      
94,484
  
2022
                                                            
57,641
      
86,664
      
100,931
  
2023
                                                                    
56,238
      
82,006
  
2024
                                                                            
45,663
  
                                                                   
Total
      
670,288
  
                   
All outstanding liabilities before 2015, net of reinsurance
      
814
  
                   
Liabilities for claims and claims adjustment expenses, net of reinsurance
    
$
193,161
  

-87-
Index
Workers’ Compensation
        
At December 31, 2024
  
   
Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
              
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
    
Total IBNR Plus Expected Development on Reported Claims
    
Cumulative Number of Reported Claims
  
   
Unaudited
                    
(dollars and reported claims in thousands)
                                                        
2015
  
53,332
    
49,615
    
45,991
    
44,986
    
43,006
    
42,597
    
42,225
    
42,043
    
41,875
    
$
41,705
    
$
92
      
6
  
2016
            
58,814
      
49,802
      
47,883
      
44,969
      
44,098
      
43,559
      
43,484
      
43,447
      
43,610
      
189
      
6
  
2017
                    
60,450
      
56,351
      
52,687
      
51,464
      
49,557
      
48,802
      
48,668
      
48,504
      
622
      
6
  
2018
                            
62,197
      
55,291
      
52,514
      
47,912
      
47,007
      
46,742
      
46,552
      
694
      
6
  
2019
                                    
60,998
      
59,624
      
57,728
      
56,480
      
55,893
      
56,121
      
631
      
7
  
2020
                                            
57,172
      
57,850
      
57,384
      
56,714
      
56,605
      
1,050
      
6
  
2021
                                                    
67,035
      
65,530
      
64,225
      
64,445
      
2,346
      
7
  
2022
                                                            
67,046
      
67,331
      
69,467
      
3,418
      
7
  
2023
                                                                    
62,401
      
65,137
      
7,311
      
6
  
2024
                                                                            
60,522
      
21,305
      
5
  
                                                                   
Total
    
$
552,668
                  

Workers’ Compensation
                                                            
   
Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
  
Accident
Year
  
2015
    
2016
    
2017
    
2018
    
2019
    
2020
    
2021
    
2022
    
2023
    
2024
  
   
Unaudited
        
(in thousands)
                                                        
2015
  
13,071
    
27,531
    
34,192
    
36,929
    
37,936
    
38,596
    
39,096
    
39,478
    
39,762
    
$
39,898
  
2016
            
14,709
      
30,344
      
37,178
      
40,570
      
41,208
      
41,543
      
41,809
      
42,195
      
42,486
  
2017
                    
15,581
      
31,990
      
39,684
      
42,954
      
44,242
      
45,174
      
45,935
      
46,339
  
2018
                            
17,644
      
31,928
      
37,072
      
41,611
      
43,279
      
44,359
      
44,624
  
2019
                                    
16,939
      
33,009
      
41,740
      
47,121
      
50,079
      
51,944
  
2020
                                            
14,591
      
32,817
      
44,089
      
48,259
      
50,928
  
2021
                                                    
20,931
      
42,633
      
51,781
      
56,162
  
2022
                                                            
18,643
      
41,225
      
51,916
  
2023
                                                                    
17,546
      
39,922
  
2024
                                                                            
15,800
  
                                                                   
Total
      
440,019
  
                   
All outstanding liabilities before 2015, net of reinsurance
      
6,493
  
                   
Liabilities for claims and claims adjustment expenses, net of reinsurance
    
$
119,142
  

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The following table presents a reconciliation of the net incurred and paid claims development tables to the liability for claims and claims adjustment expenses in our consolidated balance sheet:
 
   
At December 31,
  
(in thousands)
  
2024
  
Net outstanding liabilities:
      
Personal automobile
  
$
104,248
  
Homeowners
    
23,822
  
Commercial automobile
    
172,308
  
Commercial multi-peril
    
193,161
  
Workers’ compensation
    
119,142
  
Other
    
36,626
  
     
649,307
  
         
Reinsurance recoverable:
        
Personal automobile
  
$
89,839
  
Homeowners
    
15,647
  
Commercial automobile
    
98,041
  
Commercial multi-peril
    
100,308
  
Workers’ compensation
    
82,666
  
Other
    
12,058
  
     
398,559
  
Unallocated loss adjustment expenses
  
$
73,119
  
Gross liability for unpaid losses and loss expenses
  
$
1,120,985
  


The following table presents supplementary information about average historical claims duration as of December 31, 2024:

   
Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance
  
Years
    
1
      
2
      
3
      
4
      
5
      
6
      
7
      
8
      
9
      
10
  
Personal automobile
    
65.4
%
    
17.2
%
    
9.0
%
    
4.3
%
    
2.2
%
    
0.9
%
    
0.5
%
    
0.1
%
    
0.1
%
    
0.1
%
Homeowners
    
81.1
      
16.1
      
1.2
      
0.5
      
0.2
      
0.2
      
—
      
0.1
      
0.1
      
—
  
Commercial automobile
    
41.5
      
18.2
      
13.9
      
12.1
      
6.9
      
3.5
      
1.6
      
0.4
      
—
      
0.5
  
Commercial multi-peril
    
43.5
      
18.5
      
9.9
      
10.2
      
7.6
      
4.6
      
2.2
      
1.6
      
1.0
      
0.2
  
Workers’ compensation
    
30.3
      
32.9
      
15.5
      
7.8
      
3.4
      
2.0
      
1.0
      
0.9
      
0.7
      
0.3
  
 
9 - Borrowings

Lines of Credit


In August 2020, we entered into a credit agreement with Manufacturers and Traders Trust Company (“M&T”) that related to a $20.0 million unsecured demand line of credit. The line of credit has no expiration date, no annual fees and no covenants. At December 31, 2024, we had no outstanding borrowings from M&T and had the ability to borrow up to $20.0 million at interest rates equal to the then-current Term SOFR rate plus 2.11%.


Atlantic States is a member of the FHLB of Pittsburgh. Through its membership, Atlantic States has the ability to issue debt to the FHLB of Pittsburgh in exchange for cash advances. Atlantic States has a fixed-rate cash advance of $35.0 million that was outstanding at December 31, 2024. The cash advance carries a fixed interest rate of 3.806% and is due in September 2026.


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The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at December 31, 2024.

FHLB stock purchased and owned as part of the agreement
  
$
1,605,000
  
Collateral pledged, at par (carrying value $40,655,374)
    
44,054,754
  
Borrowing capacity currently available
    
3,322,670
  

10 - Reinsurance

Unaffiliated Reinsurers


Our insurance subsidiaries and Donegal Mutual participate in a consolidated third-party reinsurance program, for which the coverage and parameters are common to all of our insurance subsidiaries and Donegal Mutual. The program utilizes several different reinsurers, all of which have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- rating from A.M. Best. The following information describes the external reinsurance Donegal Mutual and our insurance subsidiaries had in place for 2024:


 •
excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered losses over a set retention of $3.0 million for all liability and workers’ compensation losses and a set retention of $4.0 million for property losses; and


•
catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention of $25.0 million up to aggregate losses of $175.0 million per occurrence.


For property insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $36.0 million per loss over a set retention of $4.0 million. For liability insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $72.0 million per occurrence over a set retention of $3.0 million. For workers’ compensation insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $17.0 million on any one life over a set retention of $3.0 million.



As many as 29 reinsurers provided coverage for 2024 on any one treaty with no reinsurer taking more than 20% of any one treaty. The amount of coverage provided under each of these types of reinsurance depended upon the amount, nature, size and location of the risks being reinsured.



In order to write automobile insurance in the State of Michigan, Atlantic States, MICO and Peninsula are required to be members of the Michigan Catastrophic Claims Association (“MCCA”).  The MCCA provides reinsurance to Atlantic States, MICO and Peninsula for personal automobile and commercial automobile personal injury claims in the state of Michigan over a set retention.


In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual, under which each of our insurance subsidiaries recovered 100% of an accumulation of multiple losses resulting from a single event, including natural disasters, over a set retention of $3.0 million up to aggregate losses of $22.0 million per occurrence. The agreement also provided additional coverage for an accumulation of losses from a single event including a combination of our insurance subsidiaries over a combined retention of $6.0 million.


Our insurance subsidiaries and Donegal Mutual also purchased facultative reinsurance to cover certain exposures, including property exposures in excess of the covered limits of their respective treaty reinsurance.


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The following amounts represent ceded reinsurance transactions with unaffiliated reinsurers during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Premiums written
  
$
38,495,838
    
$
43,030,879
    
$
37,002,702
  
Premiums earned
    
38,688,465
      
42,416,710
      
36,947,675
  
Losses and loss expenses
    
(2,537,221
)
    
16,318,760
      
31,096,016
  
Prepaid reinsurance premiums
    
6,540,327
      
6,732,955
      
6,118,784
  
Liability for losses and loss expenses
    
101,730,415
      
116,717,187
      
149,628,406
  

Total Reinsurance



The following amounts represent total ceded reinsurance transactions with both affiliated and unaffiliated reinsurers during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Premiums earned
  
$
411,032,074
    
$
388,073,427
    
$
383,059,075
  
Losses and loss expenses
    
214,853,176
      
275,171,587
      
249,037,288
  
Prepaid reinsurance premiums
    
176,161,872
      
168,724,466
      
160,591,399
  
Liability for losses and loss expenses
    
417,012,858
      
437,013,974
      
451,184,222
  


The following amounts represent the effect of reinsurance on premiums written for 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Direct
  
$
737,539,403
    
$
702,227,408
    
$
641,971,207
  
Assumed
    
623,210,848
      
589,675,724
      
568,272,026
  
Ceded
    
(418,469,480
)
    
(396,206,492
)
    
(366,714,634
)
Net premiums written
  
$
942,280,771
    
$
895,696,640
    
$
843,528,599
  


The following amounts represent the effect of reinsurance on premiums earned for 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Direct
  
$
735,818,955
    
$
686,584,907
    
$
627,331,528
  
Assumed
    
611,864,599
      
583,559,906
      
578,216,997
  
Ceded
    
(411,032,074
)
    
(388,073,427
)
    
(383,059,075
)
Net premiums earned
  
$
936,651,480
    
$
882,071,386
    
$
822,489,450
  
Percentage of assumed premiums earned to net premiums earned
    
65.3
%
    
66.2
%
    
70.3
%

11 - Income Taxes



Our provision for income tax expense (benefit) for 2024, 2023 and 2022 consisted of the following:
 
   
2024
    
2023
    
2022
  
Current federal income tax
  
$
11,958,424
    
$
408,575
    
$
1,280,041
  
Deferred federal income tax
    
(481,744
)
    
229,397
      
(2,958,735
)
Income tax expense (benefit)
  
$
11,476,680
    
$
637,972
    
$
(1,678,694
)

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Our effective tax rate is different from the amount computed at the statutory federal rate of 21%. The reasons for such difference and the related tax effects are as follows:
 
   
2024
    
2023
    
2022
  
Income (loss) before income tax expense (benefit)
  
$
62,338,932
    
$
5,063,476
    
$
(3,638,099
)
Tax at federal statutory rate
    
13,091,176
      
1,063,330
      
(764,001
)
Tax-exempt interest
    
(1,260,114
)
    
(1,328,312
)
    
(1,446,102
)
Proration
    
329,468
      
351,415
      
384,944
  
Dividends received deduction
    
(57,759
)
    
(77,348
)
    
(93,675
)
Stock options
    
101,600
      
595,602
      
216,893
  
Additional tax paid for prior year
     (5,157 )     159,261       (6,071 )
Fixed-maturity dispositions
     (585,845 )     —       —  
Other, net
    
(136,689
)
    
(125,976
)
    
29,318
  
Income tax expense (benefit)
  
$
11,476,680
    
$
637,972
    
$
(1,678,694
)


The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 are as follows:
 
   
2024
    
2023
  
Deferred tax assets:
            
Unearned premium
  
$
18,377,475
    
$
18,130,477
  
Loss reserves
    
10,579,697
      
10,067,846
  
Net unrealized losses
     7,498,822       8,743,238  
Net state operating loss carryforward - DGI Parent
    
7,581,066
      
8,072,420
  
Other
    
1,035,322
      
1,492,635
  
Total gross deferred tax assets
    
45,072,382
      
46,506,616
  
Less valuation allowance
    
(7,581,066
)
    
(8,072,420
)
Net deferred tax assets
    
37,491,316
      
38,434,196
  
Deferred tax liabilities:
                
Deferred policy acquisition costs
    
15,402,863
      
15,759,115
  
Loss reserve transition adjustment
    
271,738
      
564,002
  
Other
    
3,046,854
      
2,578,554
  
Total gross deferred tax liabilities
    
18,721,455
      
18,901,671
  
Net deferred tax asset
  
$
18,769,861
    
$
19,532,525
  


We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of a deferred tax asset. At December 31, 2024 and 2023, we established a valuation allowance of $7.6 million and $8.1 million, respectively, for our net state operating loss carryforward. We determined that we were not required to establish a valuation allowance for the other net deferred tax assets of $37.5 million and $38.4 million at December 31, 2024 and 2023, respectively, since it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and our implementation of tax-planning strategies.



We are no longer subject to income tax examinations for tax years prior to 2016. In 2019, the Internal Revenue Service (“IRS”) began a federal income tax audit of our consolidated tax returns for tax years 2016 to 2018. No material issues have been raised and no adjustments have been proposed as a result of this ongoing audit.

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12 - Stockholders’ Equity


Each share of our Class A common stock outstanding at the time of the declaration of any dividend or other distribution payable in cash upon the shares of our Class B common stock is entitled to a dividend or distribution payable at the same time and to stockholders of record on the same date in an amount at least 10% greater than any dividend declared upon each share of our Class B common stock. In the event of our merger or consolidation with or into another entity, the holders of our Class A common stock and the holders of our Class B common stock are entitled to receive the same per share consideration in such merger or consolidation. In the event of our liquidation, dissolution or winding-up, any assets available to common stockholders will be distributed pro-rata to the holders of our Class A common stock and our Class B common stock after payment of all of our obligations.


On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during 2024, 2023 or 2022. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through December 31, 2024.


 At December 31, 2024 and 2023, our treasury stock consisted of 3,002,588 and 72,465 shares of Class A common stock and Class B common stock, respectively.

13 - Stock Compensation Plans

Equity Incentive Plans


Since 1996, we have maintained an Equity Incentive Plan for Employees. During 2024, we adopted a plan that made a total of 4,500,000 shares of Class A common stock available for issuance to employees of our subsidiaries and affiliates. The plan provides for the granting of awards by our board of directors in the form of stock options, stock appreciation rights, restricted stock or any combination of the above. The plan provides that stock options may become exercisable up to ten years from their date of grant, with an option price not less than fair market value on the date preceding the date of grant. We have not granted any stock appreciation rights.


Since 1996, we have maintained an Equity Incentive Plan for Directors. During 2024, we adopted a new plan that made 500,000 shares of Class A common stock available for issuance to our directors and the directors of our subsidiaries and affiliates. We may make awards in the form of stock options. The plan also provides for the issuance of 500 shares of restricted stock on the first business day of January in each year to each of our directors and each director of Donegal Mutual who does not serve as one of our directors. We issued 8,500 shares of restricted stock on January 2, 2024 under our prior director plan. We issued 8,500 shares of restricted stock on January 3, 2023 under our prior director plan. We issued 8,500 shares of restricted stock on January 4, 2022 under our prior director plan.


No further shares are available for future option grants for plans in effect prior to 2024.


We measure all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and record such expense in our results of operations. In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, expected term, dividend yield and expected volatility. The risk-free interest rate is the implied yield currently available on U.S. Treasury zero coupon issues with a remaining term equal to the expected term used as the assumption in the model. We base the expected term of an option award on our historical experience for similar awards. We determine the dividend yield by dividing the per share dividend by the grant date stock price. We base the expected volatility on the volatility of our stock price over a historical period comparable to the expected term.


The weighted-average grant date fair value of options we granted during 2024 was $1.41. We calculated this fair value based upon a risk-free interest rate of 4.35%, an expected life of three years, an expected volatility of 16% and an expected dividend yield of 4.4%.

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The weighted-average grant date fair value of options we granted during 2023 was $1.51. We calculated this fair value based upon a risk-free interest rate of 4.12%, an expected life of three years, an expected volatility of 20% and an expected dividend yield of 5%.


The weighted-average grant date fair value of options we granted during 2022 was $1.48. We calculated this fair value based upon a risk-free interest rate of 3.91%, an expected life of three years, an expected volatility of 22% and an expected dividend yield of 5%.


We charged compensation expense for our stock compensation plans against income before income taxes of $980,911, $876,569 and $818,853 for the years ended December 31, 2024, 2023 and 2022, respectively, with a corresponding income tax benefit of $205,991, $184,079 and $171,959. At December 31, 2024 and 2023, our total unrecognized compensation cost related to non-vested share-based compensation granted under our stock compensation plans was $1.8 million and $1.9 million, respectively. We expect to recognize this cost over a weighted average period of 1.9 years.


During 2024, we received cash from option exercises under all stock compensation plans of $30.7 million. We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $370,644 for 2024. During 2023, we received cash from option exercises under all stock compensation plans of $6.8 million. We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $139,135 for 2023. During 2022, we received cash from option exercises under all stock compensation plans of $17.4 million. We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $360,452 for 2022.



Information regarding activity in our stock option plans follows:
 
   
Number of Options
    
Weighted-
Average
Exercise Price
Per Share
  
Outstanding at December 31, 2021
    
8,109,726
    

15.22
  
Granted - 2022
    
956,600
      
14.08
  
Exercised - 2022
    
(1,202,806
)
    
14.50
  
Forfeited - 2022
    
(545,618
)
    
15.35
  
Expired - 2022
     (935,723 )     16.81  
Outstanding at December 31, 2022
    
6,382,179
      
14.94
  
Granted - 2023
    
959,200
      
13.87
  
Exercised - 2023
    
(493,866
)
    
13.79
  
Forfeited - 2023
    
(379,288
)
    
15.29
  
Expired - 2023
     (1,415,897 )     15.81  
Outstanding at December 31, 2023
    
5,052,328
      
14.58
  
Granted - 2024
    
910,100
      
15.76
  
Exercised - 2024
    
(2,035,226
)
    
15.06
  
Forfeited - 2024
    
(211,400
)
    
14.19
  
Expired - 2024
    
(229,309
)
    
15.63
  
Outstanding at December 31, 2024
    
3,486,493
    
$
14.57
  
Exercisable at:
                
December 31, 2022
    
4,627,630
    
$
15.21
  
December 31, 2023
    
3,234,327
    
$
14.90
  
December 31, 2024
    
1,792,942
    
$
14.24
  


Shares available for future option grants at December 31, 2024 totaled 4,089,900 shares under all plans.

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The following table summarizes information about stock options outstanding at December 31, 2024:
 
Grant Date
  
Exercise Price
    
Number of Options Outstanding
  
Weighted-Average
Remaining
Contractual Life
  
Number of Options Exercisable
  
December 17, 2020
    
14.43
      
469,550
  
1.0 years
    
469,550
  
January 4, 2021
    
14.07
      
10,000
  
1.0 years
    
10,000
  
December 16, 2021
    
14.39
      
557,793
  
2.0 years
    
557,793
  
December 15, 2022
    
14.09
      
727,750
  
3.0 years
    
485,166
  
December 21, 2023
     13.87       811,300   4.0 years
     270,433  
December 19, 2024     15.76       910,100   5.0 years     —  
   
Total
      
3,486,493
        
1,792,942
  

Employee Stock Purchase Plan


Since 1996, we have maintained an Employee Stock Purchase Plan. During 2021, we adopted a plan that made 500,000 shares of our Class A common stock available for issuance and extends over a 10-year period. The plan provides for shares to be offered to all eligible employees at a purchase price equal to the lesser of 85% of the fair market value of our Class A common stock on the last day before the first day of each enrollment period (June 1 and December 1 of each year) under the plan or 85% of the fair market value of our Class A common stock on the last day of each subscription period (June 30 and December 31 of each year).



A summary of plan activity follows:
 
   
Shares Issued
  
   
Price
    
Shares
  
January 1, 2022
   $
12.15
      
24,907
  
July 1, 2022
    
11.56
      
23,454
  
January 1, 2023
    
12.07
      
26,545
  
July 1, 2023
    
12.27
      
28,912
  
January 1, 2024
    
11.89
      
29,787
  
July 1, 2024
    
10.95
      
33,899
  


On January 1, 2025, we issued 28,500 shares at a price of $11.25 per share under this plan.

Agency Stock Purchase Plan


Since 1996, we have maintained an Agency Stock Purchase Plan. During 2021, we adopted a plan that made 500,000 shares of our Class A common stock available for issuance to agents of our insurance subsidiaries and Donegal Mutual. During 2024, we adopted a new plan that made 500,000 shares of our Class A common stock available for issuance to agents of our insurance subsidiaries and Donegal Mutual. The plan permits an agent to invest up to $12,000 per subscription period (April 1 to September 30 and October 1 to March 31 of each year) under various methods. We issue stock at the end of each subscription period at a price equal to 90% of the average market price during the last ten trading days of each subscription period. During 2024, 2023 and 2022, we issued 81,180, 86,469 and 104,393 shares, respectively, under the 2021 plan. The expense we recognized under this plan was not material.

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14 - Statutory Net Income, Capital and Surplus and Dividend Restrictions


The following table presents selected information, as filed with state insurance regulatory authorities, for our insurance subsidiaries as determined in accordance with accounting practices prescribed or permitted by such insurance regulatory authorities:

   
2024
    
2023
    
2022
  
Atlantic States:
                  
Statutory capital and surplus
  
$
316,926,609
    
$
273,626,140
    
$
263,579,356
  
Statutory unassigned surplus
    
209,677,754
      
167,301,333
      
158,056,862
  
Statutory net income (loss)
    
40,741,454
      
7,193,716
      
(3,124,687
)
MICO:
                        
Statutory capital and surplus
    
74,616,370
      
71,608,571
      
75,441,871
  
Statutory unassigned surplus
    
52,590,070
      
49,582,271
      
53,422,483
  
Statutory net income (loss)
    
7,822,780
      
3,298,940
      
(233,391
)
Peninsula:
                        
Statutory capital and surplus
    
47,342,601
      
50,398,403
      
52,234,684
  
Statutory unassigned surplus
    
29,033,401
      
32,089,203
      
33,925,484
  
Statutory net income
    
2,140,162
      
4,121,754
      
4,192,697
  
Southern:
                        
Statutory capital and surplus
    
70,050,664
      
68,041,175
      
64,463,124
  
Statutory unassigned surplus
    
(16,898,113
)
    
(8,907,602
)
    
7,523,951
  
Statutory net loss
    
(7,147,676
)
    
(16,927,267
)
    
(410,561
)


We rely on dividends from our insurance subsidiaries as a significant source of cash for payment of dividends to our stockholders. State insurance laws require our insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis. Our insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval of their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements that may further impact their ability to pay dividends. Our insurance subsidiaries’ statutory capital and surplus at December 31, 2024 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin. Amounts available for distribution to us as dividends from our insurance subsidiaries without prior approval of insurance regulatory authorities in 2025 are approximately $40.7 million from Atlantic States, $7.8 million from MICO and $4.7 million from Peninsula, or a total of approximately $53.3 million.

15 - Reconciliation of Statutory Filings to Amounts Reported in the Consolidated Financial Statements


Our insurance subsidiaries must file financial statements with state insurance regulatory authorities using accounting principles and practices prescribed or permitted by those authorities. We refer to these accounting principles and practices as statutory accounting principles (“SAP”). Accounting principles used to prepare these SAP financial statements differ from those used to prepare financial statements on the basis of GAAP.

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Index

Reconciliations of statutory net income (loss) and capital and surplus, as determined using SAP, to the net income (loss) and stockholders’ equity amounts included in the accompanying consolidated financial statements are as follows:
 
   
Year Ended December 31,
  
   
2024
    
2023
    
2022
  
Statutory net income (loss) of insurance subsidiaries
  
$
43,556,720
    
$
(2,312,857
)
  
$
424,058
  
Increases (decreases):
                        
Deferred policy acquisition costs
    
(1,696,437
)
    
1,873,174
      
5,141,857
  
Deferred federal income taxes
    
481,744
      
(229,397
)
    
2,958,735
  
Salvage and subrogation recoverable
    
3,674,600
      
3,644,800
      
5,195,800
  
Consolidating eliminations and adjustments
    
(9,024,921
)
    
(10,574,579
)
    
(14,791,466
)
Parent-only net income (loss)
    
13,870,546
      
12,024,363
      
(888,389
)
Net income (loss)
  
$
50,862,252
    
$
4,425,504
    
$
(1,959,405
)


   
December 31,
  
   
2024
    
2023
    
2022
  
Statutory capital and surplus of insurance subsidiaries
  
$
508,936,244
    
$
463,674,289
    
$
455,719,035
  
Increases (decreases):
                        
Deferred policy acquisition costs
    
73,346,967
      
75,043,404
      
73,170,230
  
Deferred federal income taxes
    
(13,302,370
)
    
(13,072,768
)
    
(23,794,084
)
Salvage and subrogation recoverable
    
36,025,600
      
32,351,000
      
28,706,200
  
Non-admitted assets and other adjustments, net
    
1,722,807
      
1,328,142
      
712,623
  
Fixed maturities
    
(33,993,851
)
    
(41,036,366
)
    
(49,367,986
)
Parent-only equity and other adjustments
    
(26,959,266
)
    
(38,542,347
)
    
(1,553,006
)
Stockholders’ equity
  
$
545,776,131
    
$
479,745,354
    
$
483,593,012
  

16 - Supplementary Cash Flow Information


The following table reflects net income taxes and interest we paid during 2024, 2023 and 2022:
 
   
2024
    
2023
    
2022
  
Income taxes
  
$
3,500,000
    
$
—
    
$
4,500,000
Interest
    
969,089
      
618,519
      
623,947
  

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Index
17 - Earnings Per Share


We have two classes of common stock, which we refer to as Class A common stock and Class B common stock. Our Class A common stock is entitled to be paid cash dividends that are at least 10% higher than the cash dividends we pay on our Class B common stock. Accordingly, we use the two-class method for the computation of earnings per common share. The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends declared and an allocation of remaining undistributed earnings using a participation percentage reflecting the dividend rights of each class.


We present below a reconciliation of the numerators and denominators we used in the basic and diluted per share computations for our Class A common stock:
 
   
Year Ended December 31,
  
(in thousands)
  
2024
    
2023
    
2022
  
Basic earnings (loss) per share:
                  
Numerator:
                  
Allocation of net income (loss)
  
$
43,178
    
$
3,788
    
$
(1,571
)
Denominator:
                        
Weighted-average shares outstanding
    
28,155
      
27,469
      
26,409
  
Basic earnings (loss) per share
  
$
1.53
    
$
0.14
    
$
(0.06
)
Diluted earnings (loss) per share:
                        
Numerator:
                        
Allocation of net income (loss)
  
$
43,178
    
$
3,788
    
$
(1,571
)
Denominator:
                        
Number of shares used in basic computation
    
28,155
      
27,469
      
26,409
  
Weighted-average effect of dilutive securities
                        
Add: Director and employee stock options
    
91
      
94
      
—
  
Number of shares used in per share computations
    
28,246
      
27,563
      
26,409
  
Diluted earnings (loss) per share
  
$
1.53
    
$
0.14
    
$
(0.06
)


We used the following information in the basic and diluted per share computations for our Class B common stock:
 
 
Year Ended December 31,
  
(in thousands)
2024
  
2023
  
2022
  
Basic and diluted earnings (loss) per share:
            
Numerator:
            
Allocation of net income (loss)
  
$
7,684
    
$
638
    
$
(388
)
Denominator:
                        
Weighted-average shares outstanding
    
5,577
      
5,577
      
5,577
  
Basic and diluted earnings (loss) per share
  
$
1.38
    
$
0.11
    
$
(0.07
)


We did not include any effect of dilutive securities in the computation of diluted loss per share for 2022 because we sustained a net loss for the period.

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Index
18 - Condensed Financial Information of Parent Company

Condensed Balance Sheets
(in thousands)
 
December 31,
  
2024
    
2023
  
Assets
            
Investment in subsidiaries/affiliates (equity method)
  
$
559,452
    
$
506,855
  
Short-term investments
    
6,551
      
1,469
  
Cash
    
20,014
      
8,043
  
Property and equipment
    
385
      
504
  
Other
    
2,013
      
4,866
  
Total assets
  
$
588,415
    
$
521,737
  
                 
Liabilities and Stockholders’ Equity
                
Liabilities
                
Cash dividends declared to stockholders
  
$
6,031
    
$
5,570
  
Notes payable to subsidiary
    
35,000
      
35,000
  
Other
    
1,608
      
1,422
  
Total liabilities
    
42,639
      
41,992
  
Stockholders’ equity
    
545,776
      
479,745
  
Total liabilities and stockholders’ equity
  
$
588,415
    
$
521,737
  

Condensed Statements of Income (Loss) and Comprehensive Income (Loss)
(in thousands)
 
Year Ended December 31,
  
2024
    
2023
    
2022
  
Statements of Income (Loss)
                  
Revenues
                  
Dividends from subsidiaries
  
$
15,000
    
$
13,000
    
$
—
  
Other
    
669
      
638
      
526
  
Total revenues
    
15,669
      
13,638
      
526
  
Expenses
                        
Operating expenses
    
1,314
      
1,202
      
1,245
  
Interest
    
1,120
      
787
      
787
  
Total expenses
    
2,434
      
1,989
      
2,032
  
Income (loss) before income tax benefit and equity in undistributed net income (loss) of subsidiaries
    
13,235
      
11,649
      
(1,506
)
Income tax benefit
    
(635
)
    
(375
)
    
(618
)
Income (loss) before equity in undistributed net income (loss) of subsidiaries
    
13,870
      
12,024
      
(888
)
Equity in undistributed net income (loss) of subsidiaries
    
36,992
      
(7,598
)
    
(1,071
)
Net income (loss)
  
$
50,862
    
$
4,426
    
$
(1,959
)
Statements of Comprehensive Income (Loss)
                        
Net income (loss)
  
$
50,862
    
$
4,426
    
$
(1,959
)
Other comprehensive income (loss), net of tax
                        
Unrealized gain (loss) - subsidiaries
    
4,681
      
6,018
      
(44,988
)
Other comprehensive income (loss),  net of tax
    
4,681
      
6,018
      
(44,988
)
Comprehensive income (loss)
  
$
55,543
    
$
10,444
    
$
(46,947
)

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Index
Condensed Statements of Cash Flows
(in thousands)

Year Ended December 31,
  
2024
    
2023
    
2022
  
Cash flows from operating activities:
                  
Net income (loss)
  
$
50,862
    
$
4,426
    
$
(1,959
)
Adjustments:
                        
Equity in undistributed net (income) loss of subsidiaries
    
(36,992
)
    
7,598
      
1,071
  
Other
    
3,159
      
(168
)
    
(1,972
)
Net adjustments
    
(33,833
)
    
7,430
      
(901
)
Net cash provided (used)
    
17,029
      
11,856
      
(2,860
)
Cash flows from investing activities:
                        
Net (purchase) sale of short-term investments
    
(5,082
)
    
5,856
      
(7,316
)
Net purchase of property and equipment
    
—
      
(45
)
    
—
  
Investment in subsidiaries
    
(10,924
)
    
(819
)
    
(768
)
Other
     —       30       (28 )
Net cash (used) received
    
(16,006
)
    
5,022
      
(8,112
)
Cash flows from financing activities:
                        
Cash dividends paid
    
(22,701
)
    
(21,894
)
    
(20,503
)
Issuance of common stock
    
33,649
      
9,771
      
20,388
  
Net cash received (used)
    
10,948
      
(12,123
)
    
(115
)
Net change in cash
    
11,971
      
4,755
      
(11,087
)
Cash at beginning of year
    
8,043
      
3,288
      
14,375
  
Cash at end of year
  
$
20,014
    
$
8,043
    
$
3,288
  

19 - Segment Information


We have three reportable segments, which consist of our investment function, our commercial lines of insurance and our personal lines of insurance. Using independent agents, our insurance subsidiaries market commercial lines of insurance to small and medium-sized businesses and personal lines of insurance to individuals.


Our chief operating decision maker, which is our Chief Executive Officer, evaluates the performance of the commercial lines and personal lines primarily based upon our insurance subsidiaries’ underwriting results as determined under SAP. This segmentation is consistent with the segmentation we utilize to manage our business. We make resource allocation decisions based upon historical underwriting results as well as perceived opportunities for future profitable growth within each segment.


We operate only in the United States, and no single customer or agent provides 10 percent or more of our revenues.


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Financial data by segment is as follows:
 
   
2024
  
   
Investments
    
Commercial Lines
    
Personal
Lines
    
Total
  
   
(in thousands)
        
Revenues:
                        
Net premiums earned
  
$
—
    
$
539,683
    
$
396,968
    
$
936,651
  
Net investment income
    
44,918
      
—
      
—
      
44,918
  
Investment gains
    
4,981
      
—
      
—
      
4,981
  
    Total segment revenues
    
49,899
      
539,683
      
396,968
      
986,550
  
Other
                            
3,055
  
Total revenues
                          
$
989,605
  
Segment expenses:
                                
Net losses and loss expenses
    
—
      
336,353
      
271,918
      
608,271
  
Other underwriting expenses
    
—
      
193,431
      
119,311
      
312,742
  
Policyholder dividends
    
—
      
4,073
      
—
      
4,073
  
Total segment expenses
    
—
      
533,857
      
391,229
      
925,086
  
SAP underwriting income
    
—
      
5,826
      
5,739
      
11,565
  
GAAP adjustments
                            
1,331
  
GAAP underwriting income
                            
12,896
  
Net investment income
                            
44,918
  
Investment gains
                            
4,981
  
Other
                            
(456
)
Income before income tax expense
                          
$
62,339
  

 
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Index
   
2023
  
   
Investments
    
Commercial Lines
    
Personal
Lines
    
Total
  
   
(in thousands)
        
Revenues:
                        
Net premiums earned
  
$
—
    
$
533,029
    
$
349,042
    
$
882,071
  
Net investment income
    
40,853
      
—
      
—
      
40,853
  
Investment gains
    
3,173
      
—
      
—
      
3,173
  
    Total segment revenues
    
44,026
      
533,029
      
349,042
      
926,097
  
Other
                            
1,241
  
Total revenues
                          
$
927,338
  
Segment expenses:
                                
Net losses and loss expenses
    
—
      
346,177
      
265,894
      
612,071
  
Other underwriting expenses
    
—
      
188,537
      
118,266
      
306,803
  
Policyholder dividends
    
—
      
5,313
      
—
      
5,313
  
Total segment expenses
    
—
      
540,027
      
384,160
      
924,187
  
SAP underwriting loss
    
—
      
(6,998
)
    
(35,118
)
    
(42,116
)
GAAP adjustments
                            
3,735
  
GAAP underwriting loss
                            
(38,381
)
Net investment income
                            
40,853
  
Investment gains
                            
3,173
  
Other
                            
(582
)
Income before income tax expense
                          
$
5,063
  

 
   
2022
  
   
Investments
    
Commercial Lines
    
Personal
Lines
    
Total
  
   
(in thousands)
        
Revenues:
                        
Net premiums earned
  
$
—
    
$
521,227
    
$
301,263
    
$
822,490
  
Net investment income
    
34,016
      
—
      
—
      
34,016
  
Investment losses
    
(10,185
)
    
—
      
—
      
(10,185
)
    Total segment revenues
    
23,831
      
521,227
      
301,263
      
846,321
  
Other
                            
1,900
  
Total revenues
                          
$
848,221
  
Segment expenses:
                                
Net losses and loss expenses
    
—
      
350,719
      
217,581
      
568,300
  
Other underwriting expenses
    
—
      
187,613
      
97,188
      
284,801
  
Policyholder dividends
    
—
      
5,560
      
—
      
5,560
  
Total segment expenses
    
—
      
543,892
      
314,769
      
858,661
  
SAP underwriting loss
    
—
      
(22,665
)
    
(13,506
)
    
(36,171
)
GAAP adjustments
                            
8,667
  
GAAP underwriting loss
                            
(27,504
)
Net investment income
                            
34,016
  
Investment losses
                            
(10,185
)
Other
                            
35
  
Loss before income tax benefit
                          
$
(3,638
)

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Index
20 - Guaranty Fund and Other Insurance-Related Assessments


Our insurance subsidiaries’ liabilities for guaranty fund and other insurance-related assessments were $1.9 million at December 31, 2024 and 2023. These liabilities included $668,722 and $702,261 related to surcharges collected by our insurance subsidiaries on behalf of regulatory authorities for 2024 and 2023, respectively.

21 - Allowance for Expected Credit Losses


Pursuant to new accounting guidance we adopted on January 1, 2023, we make estimates with respect to the potential impairment of financial instruments and recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. We refer to Note 2 - Impact of New Accounting Standards for more information regarding the new accounting guidance. We have established allowances for expected credit losses with respect to held-to-maturity debt securities and reinsurance receivable.


Held-to-Maturity Debt Securities


For held-to-maturity debt securities, we make estimates concerning expected credit losses at an aggregated level rather that monitoring individual debt securities for credit losses. We establish an allowance for expected credit losses based on an ongoing review of securities held, historical loss data, changes in issuer credit standing and other relevant factors. We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of operations.



The following table presents the balances for fixed maturities classified as held-to-maturity, net of the allowance for expected credit losses, at December 31, 2024 and 2023, the cumulative effect of our adoption of the updated accounting guidance for credit losses on January 1, 2023 and changes in the allowance for expected credit losses for 2024 and 2023.

 
At and For the Year Ended
December 31, 2024
    
At and For the Year Ended
December 31, 2023
  
 
Held-to-
Maturity, Net
of Allowance
for Expected
Credit Losses
    
Allowance for
Expected Credit
Losses
    
Held-to-
Maturity, Net
of Allowance
for Expected
Credit Losses
    
Allowance for
Expected Credit
Losses
  
 
(in thousands)
  
Balance at beginning of period
   $ 679,497     $ 1,326     $ 688,439     $ —  
Cumulative effect of adoption of updated accounting guidance for credit losses
             —               1,268  
Current period change for expected credit losses
            
62
              
58
  
Balance at end of period
   $ 705,714     $ 1,388     $ 679,497     $ 1,326  

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Index

Reinsurance Receivable


For reinsurance receivable, we establish an allowance for expected credit losses based upon our ongoing review of amounts outstanding, historical loss data, changes in reinsurer credit standing and other relevant factors. We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of operations.


The following table presents the balances for reinsurance receivable, net of the allowance for expected credit losses, at December 31, 2024 and 2023, the cumulative effect of our adoption of the updated accounting guidance for credit losses on January 1, 2023 and the changes in the allowance for expected credit losses for 2024 and 2023.



 
At and For the Year Ended
December 31, 2024
    
At and For the Year Ended
December 31, 2023
  
 
 Reinsurance
Receivable, Net
of Allowance
 for Expected
Credit Losses
    
 Allowance for
Expected
Credit Losses
    
Reinsurance
Receivable, Net
of Allowance
 for Expected
Credit Losses
    
 Allowance for
Expected
Credit Losses
  
 
(in thousands)
  
Balance at beginning of period
   $ 441,431     $ 1,394     $ 456,522     $ —  
Cumulative effect of adoption of updated accounting guidance for credit losses
             —               1,132  
Current period change for expected credit losses
            
(1,003
)
            
262
  
Balance at end of period
   $ 420,742     $ 391     $ 441,431     $ 1,394  

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Index
Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Donegal Group Inc.:

Opinion on the Consolidated Financial Statements
 
We have audited the accompanying consolidated balance sheets of Donegal Group Inc. and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial statement schedule III (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2024, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 10, 2025 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion
 
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
 
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Estimate of Liabilities for Losses and Loss Expenses
 
As discussed in Notes 1 and 8 to the consolidated financial statements, the Company estimates the liabilities for losses and loss expenses (reserves) through an internal reserve analysis that relies upon generally accepted actuarial practices. The Company develops reserve estimates by line of business and, as experience emerges and other information develops, the reserve estimates are assessed in aggregate and adjusted as necessary. As of December 31, 2024, the Company recorded a liability of $1.121 billion for reserves.

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We identified the evaluation of the estimate of reserves as a critical audit matter. The evaluation of the Company’s estimate of reserves involved a high degree of auditor judgment due to the inherent uncertainties in the use of actuarial methods and assumptions, which considered internal and external factors. Assumptions included the selection of loss development factors, a priori ratios, and the weighting of actuarial methods when more than one was used. Evaluating the actuarial methods and assumptions required specialized skills and auditor judgment.

The following are the primary procedures we performed to address this critical audit matter. We evaluated, with the involvement of actuarial professionals, when appropriate, the design and tested the operating effectiveness of certain internal controls related to the Company’s reserving process. These included controls related to the Company’s actuarial analyses and determination of the Company’s estimate of recorded reserves. We involved actuarial professionals with specialized skills and knowledge, who assisted in:


 •
evaluating the Company’s actuarial methods by comparing them to generally accepted actuarial practices


•
developing an independent estimate of reserves for certain lines of business using methods consistent with generally accepted actuarial practices by independently forming assumptions of loss development factors, a priori ratios, and the weighting of actuarial methods when more than one was used, considering internal and external factors


•
assessing the Company’s internal actuarial analysis for certain lines of business by reviewing the assumptions and actuarial methods used, which included the selection of loss development factors, a priori ratios, and the weighting of actuarial methods when more than one was used, considering internal and external factors


•
developing a range of reserves and comparing to the Company’s recorded reserves and assessing movement of the Company’s recorded reserves within that range.

We have served as the Company’s auditor since 1986.

graphic

Philadelphia, Pennsylvania
March 10, 2025

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Index
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.
Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) at December 31, 2024 covered by this Form 10-K Report. Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at December 31, 2024, our disclosure controls and procedures are effective in recording, processing, summarizing and reporting, on a timely basis, information we are required to disclose in the reports that we file or submit under the Exchange Act and our disclosure controls and procedures are also effective to ensure that information we disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as that term is defined in Rule 13a-15(f) under the Exchange Act. Under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer, our management has conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework and criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Based on our evaluation under the COSO Framework, our management has concluded that our internal control over financial reporting was effective at December 31, 2024.

The effectiveness of our internal control over financial reporting at December 31, 2024 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in its report, which is included in this Form 10-K Report.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fourth quarter of 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.
Other Information.

Trading Arrangements of Directors and Executive Officers

During the three months ended December 31, 2024, no director or officer of the Company adopted or terminated a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in item 408(a) of Regulation S-K.

Item 9C. Disclosure Regarding Foreign Jurisdiction that Prevent Inspections.

Not applicable.

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Index
Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors
Donegal Group Inc.:

Opinion on Internal Control Over Financial Reporting
 
We have audited Donegal Group Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and December 31, 2023, the related consolidated statements of income (loss) and comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial statement schedules III (collectively, the consolidated financial statements), and our report dated March 10, 2025 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion
 
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
 
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

graphic

Philadelphia, Pennsylvania
March 10, 2025

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Index
PART III

Item 10.
Directors, Executive Officers and Corporate Governance.
 
Other than the information we provide below and the information regarding executive officers included in Part I of this Form 10-K Report, we incorporate the response to this Item 10 by reference to our proxy statement we will file with the SEC on or about March 17, 2025 relating to our annual meeting of stockholders that we will hold on April 17, 2025, or our Proxy Statement.

We incorporate the full text of our Code of Business Conduct and Ethics by reference to Exhibit 14 to this Form 10-K Report.
 
Item 11.
Executive Compensation.

We incorporate the response to this Item 11 by reference to our Proxy Statement. Neither the Report of our Compensation Committee nor the Report of our Audit Committee included in our Proxy Statement shall constitute or be deemed to constitute a filing with the SEC under the Securities Act or the Exchange Act or be deemed to have been incorporated by reference into any filing we make under the Securities Act or the Exchange Act, except to the extent we specifically incorporate the Report of Our Compensation Committee or the Report of Our Audit Committee by reference.

Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

We incorporate the response to this Item 12 by reference to our Proxy Statement.

Item 13.
Certain Relationships and Related Transactions, and Director Independence.

We incorporate the response to this Item 13 by reference to our Proxy Statement.

Item 14.
Principal Accounting Fees and Services.

We incorporate the response to this Item 14 by reference to our Proxy Statement.

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Index
PART IV

Item 15.
Exhibits, Financial Statement Schedules.


(a)
Financial statements, financial statement schedule and exhibits filed:


(i)
Consolidated Financial Statements
 
 
Page
105
   
Donegal Group Inc. and Subsidiaries:
  
   
63
   
64
   
65
   
66
   
67
   
 
   
(Filed as Exhibit 23.1)
  


(b)
Financial Statement Schedule
 
113
   
Filed herewith

We have omitted all other schedules since they are not required, not applicable or the information is included in the financial statements or notes to the financial statements.


 (c)
Exhibits
 
Exhibit No.
  
Description of Exhibits
 
Reference
 
  
 
 
 
3.1
  
Certificate of Incorporation of Donegal Group Inc., as amended.
 
(g)
 
  
 
 
 
3.2
  
Second Amended and Restated By-laws of Donegal Group Inc.
 
(n)
         
3.3
  
State of Delaware Certificate of Change of Registered Agent and/or Registered Office
  
(o)
 
  
 
 
 
4.1
  
Description of Donegal Group Inc’s Securities Registered pursuant to Section 12 of the Exchange Act.
  
(k)
         
Management Contracts and Compensatory Plans or Arrangements
    
 
  
 
 
 
10.1
  
Employment Agreement dated as of October 1, 2020 among Donegal Mutual Insurance Company, Donegal Group Inc. and Kevin G. Burke.
  
(j)
         
10.2
  
Employment Agreement dated as of October 1, 2020 among Donegal Mutual Insurance Company, Donegal Group Inc. and Jeffrey D. Miller.
  
(j)
         
10.3
  
Form of Employment Agreement dated as of October 1, 2020 among Donegal Mutual Insurance Company, Donegal Group Inc. and Our Executive Officers Other Than Kevin G. Burke and Jeffrey D. Miller.
  
(p)
         
10.4
  
Donegal Mutual Insurance Company 401(k) Plan.
 
(a)
   
 
 
 
10.5
  
Amendment No. 1 effective January 1, 2000 to Donegal Mutual Insurance Company 401(k) Plan.
 
(a)
   
 
 
 
10.6
  
Amendment No. 2 effective January 6, 2000 to Donegal Mutual Insurance Company 401(k) Plan.
 
(b)
   
 
 
 
10.7
  
Amendment No. 3 effective July 23, 2001 to Donegal Mutual Insurance Company 401(k) Plan.
 
(b)

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10.8
  
Amendment No. 4 effective January 1, 2002 to Donegal Mutual Insurance Company 401(k) Plan.
 
(b)
   
 
 
 
10.9
  
Amendment No. 5 effective December 31, 2001 to Donegal Mutual Insurance Company 401(k) Plan.
 
(b)
         
10.10
 
Amendment No. 6 effective July 1, 2002 to Donegal Mutual Insurance Company 401(k) Plan.
  
(c)
         
10.11
  
Donegal Group Inc. 2019 Equity Incentive Plan for Employees.
  
(h)
         
10.12
  
Donegal Group Inc. 2019 Equity Incentive Plan for Directors.
  
(h)
         
10.13
  
Donegal Group Inc. 2020 Long-Term Executive Incentive Plan.
  
(i)
         
10.14
  
Donegal Group Inc. 2021 Employee Stock Purchase Plan.
  
(m)
         
10.15
  
Donegal Group Inc. Cash Incentive Bonus Plan for 2022.
  
(l)
         
10.16
  
Donegal Group Inc. Cash Incentive Bonus Plan for 2023.
  
(p)
         
10.17
  
Donegal Group Inc. Cash Incentive Bonus Plan for 2024.
  
(r)
         
10.18
  
Donegal Group Inc. 2023 Long-Term Executive Incentive Plan.
  
(p)
         
10.19
  
Donegal Group Inc. 2024 Equity Incentive Plan for Employees.
  
(s)
         
10.20
  
Donegal Group Inc. 2024 Equity Incentive Plan for Directors.
  
(s)
         
10.21
    
Filed herewith
         
Other Material Contracts
    
 
 
 
  
 
10.22
  
Amended and Restated Proportional Reinsurance Agreement dated March 1, 2010 between Donegal Mutual Insurance Company and Atlantic States Insurance Company.
 
(e)
 
 
 
 
 
10.23
  
Amended and Restated Tax Sharing Agreement dated December 1, 2010 among Donegal Group Inc., Atlantic States Insurance Company, Southern Insurance Company of Virginia, Le Mars Insurance Company, The Peninsula Insurance Company, Peninsula Indemnity Company and Michigan Insurance Company.
 
(f)
         
10.24
  
Amended and Restated Services Allocation Agreement dated September 1, 2021 among Donegal Mutual Insurance Company, Donegal Group Inc., Atlantic States Insurance Company, Southern Insurance Company of Virginia, The Peninsula Insurance Company, Peninsula Indemnity Company and Michigan Insurance Company.
 
(l)
 
 
 
 
 
10.25
  
Quota-share Reinsurance Agreement dated December 1, 2010 between Donegal Mutual Insurance Company and Michigan Insurance Company.
 
(f)
 
 
 
 
 
10.26
  
Discretionary Loan Agreement between Donegal Group Inc. and M&T Bank dated August 1, 2020.
  
(k)
         
10.27
  
Amendment to Discretionary Loan Agreement between Donegal Group Inc. and M&T Bank dated September 24, 2021 - terms effective as of June 30, 2023 benchmark transition event.
  
(q)
         
10.28
  
Donegal Group Inc. 2024 Agency Stock Purchase Plan.
  
(t)
         
14
  
Code of Business Conduct and Ethics.
 
(d)
 
 
 
 
 
19
    
Filed herewith
         
21
  
 
Filed herewith
 
 
 
 
 
23.1
  
 
Filed herewith
 
 
 
 
 
31.1
  
 
Filed herewith
 
 
 
 
 
31.2
  
 
Filed herewith

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Index
32.1
  
 
Filed herewith
         
32.2
  
 
Filed herewith
         
97.1
  
Donegal Group Inc. Incentive Compensation Recoupment Policy.
  
(r)
         
Exhibit 101.INS
  
XBRL Instance Document
  
Filed herewith
         
Exhibit 101.SCH
  
XBRL Taxonomy Extension Schema Document
  
Filed herewith
         
Exhibit 101.PRE
  
XBRL Taxonomy Presentation Linkbase Document
  
Filed herewith
         
Exhibit 101.CAL
  
XBRL Taxonomy Calculation Linkbase Document
  
Filed herewith
         
Exhibit 101.LAB
  
XBRL Taxonomy Label Linkbase Document
  
Filed herewith
         
Exhibit 101.DEF
  
XBRL Taxonomy Extension Definition Linkbase Document
  
Filed herewith

 
(a)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 1999.
https://www.sec.gov/Archives/edgar/data/800457/000095011500000431/0000950115-00-000431.txt
 
(b)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2001.

 
(c)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2002.
 
(d)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2003.
https://www.sec.gov/Archives/edgar/data/800457/000089322004000561/w95544exv14.txt
 
(e)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2009.
https://www.sec.gov/Archives/edgar/data/800457/000095012310023520/w77589exv10wjj.htm
 
(f)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2010.
https://www.sec.gov/Archives/edgar/data/800457/000095012311025153/w81976exv10wnn.htm
 
(g)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-Q Report for the quarter ended June 30, 2019.
https://www.sec.gov/Archives/edgar/data/800457/000119312519216557/d718901dex31.htm
 
(h)
We incorporate such exhibit by reference to the copy of such plan in Registrant’s definitive proxy statement for its Annual Meeting of Stockholders held on April 18, 2019 filed on March 18, 2019.
https://www.sec.gov/Archives/edgar/data/800457/000119312519078249/d630272ddef14a.htm
 
(i)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2019.
https://www.sec.gov/Archives/edgar/data/800457/000119312520065229/d828895dex1024.htm
 
(j)
We incorporate such exhibit by reference to the like-described exhibit in Registrant's Form 8-K Report dated October 1, 2020.
https://www.sec.gov/Archives/edgar/data/800457/000119312520260880/d939405dex101.htm
https://www.sec.gov/Archives/edgar/data/800457/000119312520260880/d939405dex102.htm
 
(k)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2020.
https://www.sec.gov/Archives/edgar/data/800457/000119312521071327/d76653dex1031.htm
 
(l)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2021.
https://www.sec.gov/Archives/edgar/data/800457/000114036122008115/brhc10034696_ex10-26.htm
 
(m)
We incorporate such exhibit by reference to the copy of such plan in Registrant’s definitive proxy statement for its Annual Meeting of Stockholders held on April 15, 2021 filed on March 15, 2021.
https://www.sec.gov/Archives/edgar/data/800457/000119312521080891/d89671ddef14a.htm
 
(n)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 8-K Report dated July 22, 2022.
https://www.sec.gov/Archives/edgar/data/800457/000114036122026675/brhc10039889_ex3-2.htm
 
(o)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 8-K Report dated August 10, 2022.
https://www.sec.gov/Archives/edgar/data/800457/000114036122029014/brhc10040619_ex3-1.htm
 
(p)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2022.
https://www.sec.gov/Archives/edgar/data/800457/000114036123010291/brhc10049169_ex10-22.htm
https://www.sec.gov/Archives/edgar/data/800457/000114036123010291/brhc10049169_ex10-23.htm
 
(q)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-Q Report for the quarter ended June 30, 2023.
https://www.sec.gov/Archives/edgar/data/800457/000114036123038058/brhc20056480_ex10-1.htm
 
(r)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s Form 10-K Report for the year ended December 31, 2023.
https://www.sec.gov/Archives/edgar/data/800457/000114036124011762/ef20015339_ex10-22.htm
 
(s)
We incorporate such exhibit by reference to the copy of such plan in Registrant’s definitive proxy statement for its Annual Meeting of Stockholders held on April 18, 2024 filed on March 15, 2024.
https://www.sec.gov/ix?doc=/Archives/edgar/data/800457/000114036124013410/ny20016701x1_def14a.htm
 
(t)
We incorporate such exhibit by reference to the like-described exhibit in Registrant’s For S-3 Registration Statement filed on August 30, 2024.
https://www.sec.gov/Archives/edgar/data/800457/000114036124039644/ny20035108x1_s3.htm

Item 16.
Form 10-K Summary.

None.

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DONEGAL GROUP INC. AND SUBSIDIARIES
SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION

Years Ended December 31, 2024, 2023 and 2022
($ in thousands)

Segment
  
Net
Premiums
Earned
    
Net
Investment
Income
    
Net Losses
and Loss
Expenses
    
Amortization
of Deferred
Policy
Acquisition
Costs
    
Other
Underwriting
Expenses
    
Net
Premiums
Written
  
Year Ended December 31, 2024
                                    
Commercial lines
  
$
539,683
    
$
—
    
$
334,363
    
$
92,368
    
$
89,455
    
$
547,920
  
Personal lines
    
396,968
      
—
      
269,755
      
67,943
      
65,799
      
394,361
  
Investments
    
—
      
44,918
      
—
      
—
      
—
      
—
  
 
  
$
936,651
    
$
44,918
    
$
604,118
    
$
160,311
    
$
155,254
    
$
942,281
  
Year Ended December 31, 2023
                                                
Commercial lines
  
$
533,029
    
$
—
    
$
345,401
    
$
94,842
    
$
93,325
    
$
528,429
  
Personal lines
    
349,042
      
—
      
263,777
      
59,372
      
58,423
      
367,268
  
Investments
    
—
      
40,853
      
—
      
—
      
—
      
—
  
 
  
$
882,071
    
$
40,853
    
$
609,178
    
$
154,214
    
$
151,748
    
$
895,697
  
Year Ended December 31, 2022
                                                
Commercial lines
  
$
521,227
    
$
—
    
$
342,456
    
$
91,965
    
$
89,056
    
$
530,846
  
Personal lines
    
301,263
      
—
      
221,623
      
50,465
      
48,868
      
312,684
  
Investments
    
—
      
34,016
      
—
      
—
      
—
      
—
  
 
  
$
822,490
    
$
34,016
    
$
564,079
    
$
142,430
    
$
137,924
    
$
843,530
  

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Index
DONEGAL GROUP INC. AND SUBSIDIARIES
SCHEDULE III — SUPPLEMENTARY INSURANCE INFORMATION, CONTINUED
($ in thousands)
 
 
  
At December 31,
  
Segment
  
Deferred
Policy
Acquisition
Costs
    
Liability
For Losses
and Loss
Expenses
    
Unearned
Premiums
    
Other Policy
Claims and
Benefits
Payable
  
2024
                        
Commercial lines
  
$
44,160
    
$
887,820
    
$
368,756
    
$
—
  
Personal lines
    
29,187
      
233,165
      
243,720
      
—
  
Investments
    
—
      
—
      
—
      
—
  
 
  
$
73,347
    
$
1,120,985
    
$
612,476
    
$
—
  
2023
                                
Commercial lines
  
$
42,775
    
$
869,393
    
$
341,664
    
$
—
  
Personal lines
    
32,268
      
256,764
      
257,747
      
—
  
Investments
    
—
      
—
      
—
      
—
  
 
  
$
75,043
    
$
1,126,157
    
$
599,411
    
$
—
  

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SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
DONEGAL GROUP INC.

By:
/s/ Kevin G. Burke


Kevin G. Burke, President and Chief Executive Officer
Date: March 10, 2025    
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.
 
Signature
  
Title
  
Date
         
/s/ Kevin G. Burke
  
President, Chief Executive Officer and a Director
  
March 10, 2025
Kevin G. Burke
  
(principal executive officer)
    
         
/s/ Jeffrey D. Miller
  
Executive Vice President and Chief Financial Officer
  
March 10, 2025
Jeffrey D. Miller
  
(principal financial and accounting officer)
    
         
/s/ Scott A. Berlucchi
  
Director
  
March 10, 2025
Scott A. Berlucchi
        
         
/s/ Dennis J. Bixenman
  
Director
  
March 10, 2025
Dennis J. Bixenman
        
         
/s/ Jack L. Hess
  
Director
  
March 10, 2025
Jack L. Hess
        
         
/s/ Barry C. Huber
  
Director
  
March 10, 2025
Barry C. Huber
        
         
/s/ David C. King
  
Director
  
March 10, 2025
David C. King
        
         
/s/ Kevin M. Kraft, Sr.
  
Director
  
March 10, 2025
Kevin M. Kraft, Sr.
        
         
/s/ Jon M. Mahan
  
Director
  
March 10, 2025
Jon M. Mahan
        
         
/s/ S. Trezevant Moore, Jr.
  
Director
  
March 10, 2025
S. Trezevant Moore, Jr.
        
         
/s/ Britta H. Schatz
  
Director
  
March 10, 2025
Britta H. Schatz
        
         
/s/ Annette B. Szady
  
Director
  
March 10, 2025
Annette B. Szady
        
 

-115-
EX-10.21 2 ef20038953_ex10-21.htm EXHIBIT 10.21
Exhibit 10.21

DONEGAL MUTUAL INSURANCE COMPANY
DONEGAL GROUP INC.

2025 ANNUAL EXECUTIVE INCENTIVE PLAN

Purpose

The 2025 Annual Executive Incentive Plan (the “Plan”) provides for the payment of performance-based bonuses to Plan participants based upon the Donegal Insurance Group’s achievement of performance objectives for individual performance measures according to the weighting assigned to each performance measure.

The performance objectives correlate to incentive levels that represent percentages of a participant’s 2025 base salary (as defined in this Plan). The potential bonuses available for Plan participants with respect to the performance measures will be based on the incentive levels, performance objectives and weighting percentages as outlined in Appendix 1.

Scope

The performance measures and objectives, unless otherwise specified, relate to the statutory financial results of the Donegal Insurance Group, which includes the following legal entities for the purposes of this Plan:

Donegal Mutual Insurance Company
Atlantic States Insurance Company
Michigan Insurance Company
Mountain States Commercial Insurance Company
Mountain States Indemnity Company
Peninsula Indemnity Company
Peninsula Insurance Company
Southern Insurance Company of Virginia Commercial Lines Premium Growth – annual growth in commercial lines direct premiums written compared to the previous calendar year total.
Southern Mutual Insurance Company

Performance Measures

1

Adjusted Statutory Combined Ratio – reported statutory combined ratio excluding any catastrophe adjustment, all executive incentive plan bonus accruals and a stock option expense adjustment (see definitions below).

Operating Return on Equity – Donegal Group Inc.’s consolidated GAAP net income excluding net investment gains or losses divided by average GAAP stockholders’ equity excluding accumulated other comprehensive income or loss (average of current year-end and prior year-end values).

Bonus Formula

Each participant in this Plan shall be eligible to receive a bonus that represents the sum of the performance bonuses such participant earns for each respective performance measure. Each performance bonus shall be calculated by multiplying the participant’s 2025 base salary, as defined in this Plan, by the bonus percentage that correlates to the incentive level achieved and multiplying that result by the weighting percentage assigned to the respective performance measure. The calculation methodology is illustrated below:


 •
Base Salary x Incentive Level Bonus % x Weighting % = Performance Bonus

•
Sum of Performance Bonuses = Total Bonus Earned

Key Definitions

Base Salary – total wages as reported on a participant’s W-2 for 2025, excluding any taxable fringe benefits, short or long-term disability pay, gains from exercise of stock options and prior-year bonus.

Statutory Combined Ratio – sum of the net loss and loss expense ratio (net losses and loss expenses incurred divided by net premiums earned), the expense ratio (underwriting expenses less installment fee income divided by net premiums written) and the dividend ratio (policyholder dividends incurred divided by net premiums earned).

2
Catastrophe Adjustment – an adjustment will be provided to the statutory combined ratio for the purpose of this Plan to limit the net effect of the single largest catastrophe event occurring in 2025 to $15 million. For purposes of this provision, a catastrophe event is defined as an event to which the Property Claims Services unit of Verisk Analytics, Inc. assigns a catastrophe number and for which the net effect to the Donegal Insurance Group exceeds $15 million when aggregating losses incurred, LAE incurred and reinstatement premiums payable to reinsurers.

Stock Option Expense Adjustment – an adjustment will be provided to statutory combined ratio for the purpose of this Plan to remove the effect of stock option compensation expense included in the statutory financial statements.

Additional Provisions


 1.
Participants must be employed by Donegal Mutual Insurance Company on or before October 1, 2025 to be eligible to participate in this Plan. Participants must be employed by the Donegal Mutual Insurance Company on December 31, 2025 in order to receive a bonus payment under this Plan.


2.
No bonus is payable under this Plan unless the employees and managers of Donegal Mutual Insurance Company qualify for bonuses under their respective incentive plans.


3.
Any bonuses earned under this Plan shall be paid prior to March 15, 2026.


4.
Approved participants in this Plan are listed in Appendix 1. Any changes to the participants in this Plan and the incentive levels for such participants must be approved by the Joint Compensation Committee of the Boards of Directors of Donegal Mutual Insurance Company and Donegal Group Inc. (“the Joint Compensation Committee”).


5.
This Plan provides for a discretionary pool calculated in similar fashion to the bonuses for Plan participants using a “base salary” equivalent of $1,000,000.  The discretionary pool may be allocated among participants in this Plan or other officers, managers or employees in the sole discretion of the Joint Compensation Committee. The President shall provide a recommendation to the Joint Compensation Committee with respect to high performers who should be considered for allocations from the discretionary pool.


6.
Payment of bonuses under this Plan may be capped by the Joint Compensation Committee in their sole discretion.

3
Appendix 1

The participants and incentive levels for the 2025 Annual Executive Incentive Plan are as follows:

   
 
 Incentive Levels - Bonus % of Salary
Participants
 Threshold
 Level 1
 Level 2
 Target Level 3
 Level 4
 Maximum
 
              
Kevin G. Burke
 40
 50
 60
 70
 80
 90
 100
W. Daniel DeLamater
 40
 50
 60
 70
 80
 90
 100
Jeffrey D. Miller
 40
 50
 60
 70
 80
 90
 100
Kristi S. Altshuler
 40
 50
 60
 70
 80
 90
 100
David B. Bawel
 40
 50
 60
 70
 80
 90
 100
Noland R. Deas, Jr.
 40
 50
 60
 70
 80
 90
 100
William A. Folmar
 40
 50
 60
 70
 80
 90
 100
Jeffery T. Hay
 40
 50
 60
 70
 80
 90
 100
Christina M. Hoffman
 40
 50
 60
 70
 80
 90
 100
Sanjay Pandey
 40
 50
 60
 70
 80
 90
 100
V. Anthony Viozzi
 40 50 60 70 80 90 100
Daniel J. Wagner
 40
 50
 60
 70
 80
 90
 100
Discretionary Pool
 40
 50
 60
 70
 80
 90
 100
 
              

Note:  David W. Sponic and Regional Senior Officers are not included as participants in this Plan due to their participation in individual incentive plans that are tailored to performance objectives within their specific areas of responsibility.

4
Performance measures, performance objectives and weighting percentages for 2025 are as follows:

Performance
Measure
   Performance Objectives            
  Weighting
   Threshold   Level 1
   Level 2
   Target   Level 3
   Level 4
   Maximum
 
                                
Commercial Lines
Premium Growth
   15.0%   4.5%   5.0%   5.5%   6.0%   6.5%   7.0%   7.5%
 
                                
Adjusted Statutory
Combined Ratio
   65.0%   100.0%   99.0%   98.0%   97.0%   96.0%   95.0%   94.0%
 
                                
Operating Return
on Equity
   20.0%   7.0%   8.0%   9.0%   10.0%   11.0%  
12.0%
   13.0%
 
                                


5
EX-19 3 ef20038953_ex19.htm EXHIBIT 19
Exhibit 19
 
 DONEGAL GROUP INC.
DONEGAL MUTUAL INSURANCE COMPANY

Insider Trading Policy

I.
GENERAL RULE
 
No Director (as defined in paragraph A of Section II), Officer (as defined in paragraph B of Section II) or employee of Donegal Group Inc. ("DGI") or Donegal Mutual Insurance Company ("Donegal Mutual") shall engage in transactions in securities issued by DGI while in possession of material, non-public information concerning DGI or if the Director or Officer has not complied to the extent applicable with Rule 144 of the Securities and Exchange Commission (the "SEC"). See paragraphs D, F and G of Section II of this Insider Trading Policy (this "Policy") for definitions of "related interests," "material information" and "non-public information." This restriction also applies to the Related Interests (as defined in paragraph D of Section II) of a Director or Officer.
 
Similarly, a Director or Officer shall not trade in the securities of another corporation if the Director or Officer is aware of material non-public information about that other corporation or that would be expected to have an impact on that corporation whether or not the Director or Officer obtained possession of the material non-public information relating to or impacting that other corporation as part of the Director or Officer's employment or service with DGI or Donegal Mutual.  Examples of this type of information could relate to customers or suppliers of DGI or Donegal Mutual or those with whom DGI or Donegal Mutual may be negotiating a transaction, or competitors of such companies, DGI or Donegal Mutual.
 
A Director or Officer's possession of material non-public information concerning a corporation in connection with transactions by that person in the securities of that corporation or the communication by that person of that information to others who then engage in transaction in securities issued by that corporation violates the federal securities laws.  Such a communication constitutes "tipping" and is one form of illegal insider trading.  This Policy expressly prohibits both trading while in the possession of inside information and tipping.

Insider trading violations of the federal securities laws often result in harsh consequences for the person who engaged in insider trading, including:
 
  •
exposure to investigations by the SEC;
 
1

 •
criminal and civil prosecution;
 

 •
disgorgement of any profits realized or losses avoided through use of the information;
 

 •
monetary fines up to three times the gain obtained or loss avoided or imprisonment; and
 

 •
termination of employment.
 
Insider trading by a Director or Officer can also expose DGI and Donegal Mutual to civil liabilities and penalties.  DGI and Donegal Mutual have adopted this Policy to ensure that Directors or Officers who possess material non-public information concerning DGI or another corporation do not engage in securities transactions involving securities issued by DGI or that other corporation.
 
This Policy establishes pre-clearance procedures before a Director or Executive Officer (as defined in paragraph C of Section II) may engage in a transaction in securities issued by DGI which are addressed in Section IV of this Policy.  This Policy also describes limitations on the ability of a Director or Executive Officer to sell securities issued by DGI even if the Director or Executive Officer does not possess any material non-public information concerning DGI.  These limitations arise under SEC Rule 144.
Section VI of this Policy addresses SEC Rule 144.
 
This Policy also addresses certain other provisions of the federal securities laws that apply to Directors and Executive Officers of DGI, such as short sales or the penalties associated with buying or selling or selling and buying Class A or Class B common stock of DGI within a six-month period. See Section III of this Policy for more information.

All Directors, Officers and employees of DGI and Donegal Mutual and their respective subsidiaries and affiliates are always subject to this Policy, the Code of Business Conduct and Ethics of DGI and the federal securities laws, all of which prohibit transactions by a person in securities issued by DGI while that person is in the possession of material non-public information regarding DGI.
 
If you have any questions regarding this Policy or the pre-clearance requirements this Policy mandates or want to request any of the forms DGI has prepared to use in connection with the pre-clearance requirements, please call our Chief Financial Officer at 717-426-1931, ext. 7357.
 
II.
DEFINITIONS
 
2
A.           Director.  Any member of the board of directors of DGI, Donegal Mutual or their respective subsidiaries or affiliates.

B.           Officer.  Any person who holds a position as an officer of DGI, Donegal Mutual or their respective subsidiaries and affiliates that is subject to annual appointment by their respective boards of directors.
 
C.           Executive Officer.  Any Officer of DGI who the DGI board of directors designates annually as an “executive officer” as the SEC defines that term in Rule 3b-7 of the Securities Exchange Act of 1934, as amended (the "1934 Act").

D.           Related Interests. A person is considered the beneficial owner of all equity securities in which the person has a direct or indirect beneficial interest. This interest means the opportunity to profit from or share in any profit derived from a securities transaction.  The federal securities laws presume that a person has a beneficial interest in securities held by members of that person's immediate family who share the same residence.  The definition of immediate family is broad, and includes children (natural, step or adoptive), parents, grandparents, siblings, spouses and in-laws. The concept of beneficial ownership also includes securities issued by DGI held by other corporations, partnerships and trusts, including estate planning inter vivos trusts controlled by a Director or Officer or Related Interests of that Director or Officer. Collectively, all of these affiliated individuals and entities constitute Related Interests.
 
E.            Trading.  Any purchase or sale, donation or gift including charitable donations and gifts, pledge of stock for a loan or the exercise of a stock option or warrant on a cashless or net basis exercise in which securities issued by DGI are purchased or sold in a public marketplace.  This definition also includes transactions by an IRA, 401(k) or trust account of a Director, Officer or Related Interest.
 
F.            Material Information.  Information relating to DGI or any other corporation with publicly-traded securities, its business operations or securities that an independent investor would likely consider important in determining whether to buy or sell securities of DGI if the information were publicly available. Some types of information often found to be "material" are:

  •
earnings estimates;
 

 •
dividend increases or decreases;


•
acquisitions;


•
sales of substantial assets;

3

 •
change in debt ratings;


•
significant write-downs of assets or additions to loss reserves or contingent liabilities;
 

 •
liquidity problems;


•
extraordinary management developments;
 

 •
public offerings;
 

 •
major price or market changes;
 

 •
significant litigation; or
 

 •
investigations, enforcement actions or other material regulatory actions by governmental bodies.
 
G.           Non-Public Information.  A Director or Officer should consider information about DGI as "non-public" unless the Director or Officer knows the non- public information has been widely disseminated to the general public. A Director or Officer should not consider material non-public information to be publicly available until it is generally considered widely disseminated by the press and electronic media.  DGI considers information "publicly available" on the third business day after the information has been disclosed by DGI by one of the following methods:
 

 •
DGI's website;


•
an earnings conference call;
 

 •
the Dow Jones broad tape;


•
news wire services such as Associated Press or Reuters;


•
publication by newspapers or magazines with national circulation such as The Wall Street Journal or The New York Times; and


•
public documents filed with the SEC, such as periodic reports on Forms 8-K, 10-Q and 10-K, prospectuses or proxy statements.

III.
OTHER TRADING RESTRICTIONS ON DIRECTORS AND EXECUTIVE OFFICERS
 
4
A.           A Director or Executive Officer may only undertake trading of securities issued by DGI during a Window Period (as hereafter defined) or an Other Period (as hereafter defined).
 
B.           Section IV of this Policy sets forth DGI's requirements and procedures for the pre-clearance of transactions in securities issued by DGI by a Director or Executive Officer before the execution of the transaction.

C.           Section VI of this Policy sets forth DGI's requirements and procedures for filing SEC Forms 3, 4 and 5 with the SEC with respect to reporting changes in the beneficial ownership of securities issued by DGI by a Director or Executive Officer of DGI. These reports are required pursuant to Section 16(a) of the 1934 Act.
 
D.           Section 16(b) of the 1934 Act provides that a Director or Executive Officer of DGI must pay to DGI any profit realized by that Director or Executive Officer from the purchase and sale or sale and purchase of any securities issued by DGI within a period of six months.
 
E.           Section 16(c) of the 1934 Act prohibits a Director or Executive Officer of DGI from engaging in a short sale of securities issued by DGI.

IV.
REQUIREMENT FOR PRE-CLEARANCE OF TRANSACTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
 
A.           Pre-Clearance Required.  During a Window Period or an Other Period, no Director or Executive Officer may undertake trading of any kind in any securities issued by DGI unless such Director or Executive Officer has first satisfied the following conditions:
 

  •
The Director or Executive Officer obtains a written pre-clearance letter from DGI's President and Chief Executive Officer or Chief Financial Officer pre-clearing the proposed transaction before commencing the proposed transaction.  In requesting a pre- clearance letter, the Director or Executive Officer must provide the President and Chief Executive Officer or Chief Financial Officer of DGI a request letter in the form provided by DGI that shall include:
 
  •
a specific written description of all of the material details (e.g., dollar amounts and number of shares involved, type of transaction and whether pursuant to a plan) about the proposed transaction; and

5

 •
a written representation signed by the Director or Executive Officer that affirms that the Director or Executive Officer is not aware of, and does not have possession of, any material non-public information regarding DGI.  This representation may be made by means of a conformed signature in an e- mail.
 

 •
For stock option exercises, Computershare shall be responsible for the timely filing of any Form 144 notices required because the proposed transaction involves the sale by the Director or Executive Officer of more than 5,000 shares of Class A or Class B common stock of DGI or aggregate proceeds of more than $50,000 in any period of three consecutive months.  For all other transactions, the Chief Financial Officer of DGI shall be responsible for any such Form 144 notices required.
 

 •
The Director or Executive Officer shall notify the Chief Financial Officer of DGI of the execution of any transactions pursuant to a pre-clearance letter on the date of the execution of the transactions. The Chief Financial Officer of DGI or his designee shall file on behalf of such Director or Executive Officer the SEC Forms 3, 4 or 5s required to disclose such transaction.
 
B.           Trading Periods. To facilitate the administration of this Policy, transactions by Directors and Officers in securities issued by DGI shall be restricted as follows:
 

 •
Window Periods.  A Director or Officer may effect transactions in securities issued by DGI only during a Window Period or an Other Period, subject to the condition that any Director or Executive Officer complies with the pre-clearance procedures set forth in Section IV(A).  Window Periods begin on the third business day following the date of DGI's publication of its results of operations for a calendar quarter and expire on the earlier of the 21st calendar day following such date of publication or the close of business on the day immediately preceding the next meeting of DGI's Board of Directors.  In the event that DGI's President and Chief Executive Officer or Chief Financial Officer determines that a Window Period must be terminated and a Blackout Period imposed, DGI will so notify each Director and Officer.

6

 •
Blackout Periods.  Directors or Officers may not engage in transactions involving securities issued by DGI during a Blackout Period, subject to the limited exception set forth below.  Blackout Periods begin on the 15th day of the last month of each calendar quarter and continue until the commencement of the next Window Period.  In the event a Director or Officer has an unanticipated personal hardship, DGI may permit a transaction involving securities issued by DGI during a Blackout Period provided the proposed transaction receives the prior approval of three members of DGI's Board of Directors, the Director or Officer does not then possess material non-public information regarding DGI and the Director or Officer complies with the pre-clearance procedures as provided in Section IV(A) of this Policy.
 

 •
Other Periods:  Other Periods begin on the first calendar day following the expiration of a Window Period and continue until the first day of the next succeeding Blackout Period.  All proposed transactions by a Director or Officer in securities issued by DGI during an Other Period shall only be effected in compliance with the pre-clearance procedures as provided in Section IV(A) of this Policy.  In addition to that compliance, the issuance of a pre- clearance letter in compliance with Section IV(A)(2) shall require the written determination of the President and Chief Executive Officer of DGI or Chief Financial Officer of DGI that the proposed transaction is appropriate in light of facts and circumstances then prevailing.

V.
TRADING PLANS
 
A Director or Officer must apply for approval to adopt an SEC Rule 10b5-1 trading plan by written request to DGI's President and Chief Executive Officer or DGI's Chief Financial Officer.  To request approval of an SEC Rule 10b5-1 trading plan, the Director or Officer must comply with the procedures set forth in Sections III (B) and (C) of this Policy.  Approval of the adoption of SEC Rule 10b5-1 trading plans by DGI's President and Chief Executive Officer or Chief Financial Officer is discretionary.  The request for approval by the Director or Officer shall also acknowledge that:
 

 •
The Director or Officer is entering into the plan in good faith and not as a scheme to evade SEC Rule 10b5-1; and
 
7

 •
Upon adoption of an SEC Rule 10b5-1 trading plan, the Director or Officer shall comply with this Policy, the Code of Business Conduct and Ethics of DGI and applicable provisions of the federal securities laws.

As part of the establishment of an SEC Rule 10b5-1 trading plan, a Director or Officer shall enter into a binding contract, instruction or written plan for the routine periodic purchase or sale of securities issued by DGI under specified terms and conditions at a time when the Director or Officer does not possess material non-public information regarding DGI.
 
A.           The binding contract, instruction or written plan must:
 

 •
expressly specify the securities the Director or Officer proposes to purchase or sell, the prices at which and the dates on which the Director or Officer proposes to purchase or sell securities issued by DGI;
 

 •
include a written formula or algorithm, or computer program, for determining amounts, prices and dates; or


•
not permit the Director or Officer to exercise any subsequent influence over how, when or whether to effect purchases or sales, provided, in addition, that any other person who does exercise such influence pursuant to the binding contract, instruction or written plan, such as a broker, is not aware of any material non-public information relating to DGI when doing so.
 
B.           Upon the President and Chief Executive Officer's or Chief Financial Officer's approval of a Rule 10b5-1 trading plan, further transactions by that Director or Officer in securities issued by DGI pursuant to that plan do not require further action by DGI under this Policy.  However, a purchase or sale under Rule 10b5-1 is not protected from liability if the Director or Officer alters or deviates from the binding contract, instruction or written plan, whether by changing the amount, price or timing of the purchase or sale or enters into or alters a corresponding or hedging transaction or position with respect to those securities.

C.           A binding contract, instruction or written plan pursuant to Rule 10b5-1 shall also comply with all other applicable disclosure, reporting and other requirements under federal and state securities laws.  In addition, DGI may require that all approved binding contracts, instructions or plans include additional safeguards for the benefit of DGI, such as compliance with customary lockup commitments associated with underwritings of securities offered by DGI.  Further, a Director or Officer shall advise the President and Chief Executive Officer or the Chief Financial Officer in writing in advance of any proposed modification to, or termination of such a binding contract, instruction or written plan concerning trades to be conducted pursuant to Rule 10b5-1 and such modifications shall not become effective until the President and Chief Executive Officer or the Chief Financial Officer has approved the modification.
 
8
VI.
SEC REPORTING REQUIREMENTS

These reporting requirements apply only to Directors and Executive Officers of DGI.

  A.
Form 4:  Two-Day Filing Requirement
 

 •
The Form 4 two-day period begins to run on the date of execution of the transaction, e.g., a purchase or sale of a security issued by DGI on a Monday must be reported to the SEC before 10:00 p.m. eastern time on the ensuing Wednesday.
 

 •
Securities transactions subject to Section 16 of the 1934 Act include any transactions in which a Director or Executive Officer has a beneficial interest, including transactions by a Director or Executive Officer's Related Interests.
 

 •
The following Director or Executive Officer transactions involving securities issued by DGI are subject to the two-day Form 4 filing requirements:
 

 •
purchases or sales of securities issued by DGI in either brokered transactions or private transactions;
 

 •
stock option grants;
 

 •
restricted stock grants;
 

 •
stock option exercises, including cashless exercises;
 

 •
purchases or sales of securities issued by DGI on behalf of a trust for which the Director or Executive Officer serves as trustee or is a beneficiary; and


•
bonuses or other awards in the form of DGI stock.
 

 B.
Form 4:  Five-Day Filing Requirement
 
9

 •
The Form 4 filing requirement provides for an extension of the Form 4 filing deadline where the Director or Executive Officer may not control the exact date on which the transaction occurs. The five-day filing requirement applies to voluntary stock purchases under DGI's Dividend Reinvestment and Stock Purchase Plan (the "Reinvestment Plan").
 

 •
Transactions involving DGI stock in those plans require Form 4 filings on the earlier of:  (i) two days after the date the Director or Executive Officer is notified of the completion of the trade or (ii) the fifth business day following the transaction.  Because of the fifth day following the transaction may occur before the Director or Executive Officer receives notice, DGI has implemented procedures to track Director or Executive Officer transactions in the affected plans to ensure that timely SEC filings occur with respect to all reportable transactions.


C.
Transactions Exempt From SEC Reporting


•
The following transactions by Directors and Executive Officers of DGI remain exempt from SEC Section 16, and do not require any filing with the SEC:
 

 •
acquisitions of DGI Class A common stock through normal payroll contributions to DGI's 401(k) Plan, including matching contributions made by DGI;
 

 •
acquisitions of DGI Class A or Class B common stock through stock splits or stock dividends;


•
reinvestment of dividends to purchase DGI Class A common stock, but not voluntary purchases, under the Reinvestment Plan; and


•
purchases of DGI Class A common stock under DGI's employee stock purchase plan and agents stock purchase plan.
 

 •
Gifts of shares of common stock of DGI by Directors and Executive Officers must be reported annually on Form 5, unless the Director or Executive Officer has previously filed a Form 4 on a voluntary basis to report the gift.
 
10

 D.
Compliance Procedures
 

 •
Electronic Filing/Powers of Attorney: All Directors or Executive Officers shall, with the assistance of the Chief Financial Officer of DGI, obtain a code identification from the SEC, which code will permit the Chief Financial Officer of DGI or his designee to file electronically all Forms 3, 4 or 5 and Forms 144 on behalf of such Director or Executive Officer.
 

 •
Broker Requirements:  All Directors or Executive Officers are urged to register their shares with Computershare and not hold them in broker street name.  If such Director's or Executive Officer's shares are held in broker street name, then the Director or Executive Officer and any Related Interests are required to execute a Broker Instruction Form with their broker.  This Form imposes the following two restrictions on brokers who propose to execute purchases and sales of stock of DGI on behalf of such Director or Executive Officer:


•
not to enter any order without confirming with the Chief Financial Officer of DGI that the transaction has been pre- cleared and complies with the brokerage firm's compliance procedures (e.g. Rule 144); and
 

 •
to advise the Chief Financial Officer of DGI regarding the relevant details of all purchases or sales in DGI stock conducted by the broker simultaneously with the execution of the transaction.


•
Rule 144 Requirements.  A Director or Executive Officer of DGI must comply with the provisions of the Securities Act of 1933, as amended (the "1933 Act") prior to effecting sales of DGI's Class A or Class B common stock in a public market.  In order for any such person to sell shares of DGI Class A or Class B common stock, the sale of the shares must either be registered under the 1933 Act, which is unlikely to occur, or comply with an exemption from such registration.  This requirement for registration or exemption with respect to a sale of shares of DGI's Class A or Class B common stock applies to all shares held by a Director or Executive Officer, including, but not limited to, shares purchased on the open market or shares purchased privately.
 
11
Under Rule 144, all securities issued by DGI that Directors or Executive Officers hold are treated as restricted securities even if the shares held by the Director or Executive Officer were registered when the Director or Executive Officer acquired the shares or the Director or Executive Officer purchased the shares in a Nasdaq Global Select Market, Inc. ("NASDAQ") transaction. A Director or Executive Officer must comply with the following requirements of Rule 144 in connection with any sale of common stock of DGI, except as noted below:


 •
The Director or Executive Officer must file a Form 144 with the SEC concurrently with placing the sale order with a broker or upon execution of the trade with a market maker if the contemplated sale involves more than 5,000 shares of common stock of DGI or $50,000 in gross proceeds in any period of three consecutive months.
 

 •
DGI must be current in its reporting requirements under the 1934 Act at the time of sale;
 

 •
If the shares of DGI proposed to be sold were acquired in a private transaction (i.e., directly from DGI or an affiliate), the Director or Executive Officer must have held and beneficially owned the shares for a period of six months before a sale can be made under Rule 144.
 

 •
The amount of common stock of DGI that may be sold in any period of three consecutive months may not exceed the greater of 1% of the outstanding common stock of DGI (approximately 250,000 shares) or the average weekly trading volume on NASDAQ during the four calendar weeks preceding the sale; and


•
The common stock of DGI must be sold in unsolicited "brokers' transactions" or directly to "market makers" or in "riskless principal transactions" as those terms are defined in Rule 144.
 
12
VII.
INTERPRETATION

DGI shall interpret the requirements of this Policy in a manner that is consistent with the applicable requirements of the federal securities laws.

Approved by DGI and Donegal Mutual Boards of Directors on December 19, 2024


13
EX-21 4 ef20038953_ex21.htm EXHIBIT 21
EXHIBIT 21

SUBSIDIARIES OF REGISTRANT

Registrant owned 100% of the outstanding stock of the following companies as of December 31, 2024, except as noted:
 
Name
  
State of Incorporation
Atlantic States Insurance Company
  
Pennsylvania
Southern Insurance Company of Virginia
  
Virginia
The Peninsula Insurance Company
  
Pennsylvania
Peninsula Indemnity Company*
  
Pennsylvania
Michigan Insurance Company
  
Michigan

*    Wholly owned by The Peninsula Insurance Company.
EX-23.1 5 ef20038953_ex23-1.htm EXHIBIT 23.1
EXHIBIT 23.1

CONSENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the registration statements (Nos. 333-89644, 333-233167, 333-261715 and 333-278931) on Form S-8 and registration statements (Nos. 333-59828 and 333-281858) on Form S-3 of our reports dated March 10, 2025, with respect to the consolidated financial statements and financial statement schedule III of Donegal Group Inc. and the effectiveness of internal control over financial reporting.
 
/s/ KPMG LLP

Philadelphia, Pennsylvania
March 10, 2025
EX-31.1 6 ef20038953_ex31-1.htm EXHIBIT 31.1
EXHIBIT 31.1
CERTIFICATION
     I, Kevin G. Burke, certify that:

     1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2024 of Donegal Group Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
/s/ Kevin G. Burke
 
Kevin G. Burke, President and Chief Executive Officer
Date: March 10, 2025
  


EX-31.2 7 ef20038953_ex31-2.htm EXHIBIT 31.2
EXHIBIT 31.2
CERTIFICATION
     I, Jeffrey D. Miller, certify that:

     1. I have reviewed this annual report on Form 10-K for the year ended December 31, 2024 of Donegal Group Inc.;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

          (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

          (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

          (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

          (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

     5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

          (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

          (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

 
/s/ Jeffrey D. Miller
 
Jeffrey D. Miller, Executive Vice President
and Chief Financial Officer
Date: March 10, 2025
  


EX-32.1 8 ef20038953_ex32-1.htm EXHIBIT 32.1
EXHIBIT 32.1
CERTIFICATION OF
PRESIDENT AND CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
     
In connection with the Annual Report of Donegal Group Inc. (the “Company”), on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), Kevin G. Burke, the President and Chief Executive Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:

     1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Kevin G. Burke  
 
Kevin G. Burke, President and Chief Executive Officer
Date: March 10, 2025
  



EX-32.2 9 ef20038953_ex32-2.htm EXHIBIT 32.2
EXHIBIT 32.2
CERTIFICATION OF
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Donegal Group Inc. (the “Company”), on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission (the “Report”), Jeffrey D. Miller, the Executive Vice President and Chief Financial Officer of the Company, does hereby certify, pursuant to § 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350), that to his knowledge:

     1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
 
/s/ Jeffrey D. Miller
 
Jeffrey D. Miller, Executive Vice President
and Chief Financial Officer
Date: March 10, 2025