10-Q 1 ef20026290_10q.htm 10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549



FORM 10-Q
 


(Mark One)


QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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, P.O. Box 302, Marietta, PA 17547
(Address of principal executive offices) (Zip code)

(717) 426-1931
(Registrant’s telephone number, including area code)

Not applicable
(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether 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 and posted 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 and post 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 Exchange 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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  No  ☒

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 27,816,654 shares of Class A Common Stock, par value $0.01 per share, and 5,576,775 shares of Class B Common Stock, par value $0.01 per share, outstanding on May 1, 2024.



DONEGAL GROUP INC.
INDEX TO FORM 10-Q REPORT

   
Page
PART I
FINANCIAL INFORMATION
 
Item 1.
1
Item 2.
20
Item 3.
29
Item 4.
29
     
PART II
OTHER INFORMATION
 
Item 1.
30
Item 1A.
30
Item 2.
30
Item 3.
30
Item 4.
30
Item 5.
30
Item 6.
31
32

PART I. FINANCIAL INFORMATION
Item 1.
Financial Statements

Donegal Group Inc. and Subsidiaries
Consolidated Balance Sheets


 
March 31,
2024
   
December 31,
2023
 
   
(Unaudited)
       
Assets
           
Investments
           
Fixed maturities
           
Held to maturity, at amortized cost (net of allowance for expected credit losses of $1,329,099 and $1,325,847)
 
$
683,398,852
   
$
679,497,038
 
Available for sale, at fair value
   
600,761,425
     
589,348,243
 
Equity securities, at fair value
   
28,883,318
     
25,902,956
 
Short-term investments, at cost, which approximates fair value
   
18,860,030
     
32,305,408
 
Total investments
   
1,331,903,625
     
1,327,053,645
 
Cash
   
19,805,040
     
23,792,273
 
Accrued investment income
   
10,497,341
     
9,945,714
 
Premiums receivable
   
193,160,160
     
179,591,821
 
Reinsurance receivable (net of allowance for expected credit losses of $1,026,016 and $1,394,074)
   
435,505,126
     
441,431,334
 
Deferred policy acquisition costs
   
78,857,108
     
75,043,404
 
Deferred tax asset, net
   
19,483,755
     
19,532,525
 
Prepaid reinsurance premiums
   
179,757,762
     
168,724,465
 
Property and equipment, net
   
2,594,056
     
2,633,405
 
Accounts receivable - securities
   
32,162
     
1,501,079
 
Federal income taxes recoverable
   
7,271,415
     
8,102,321
 
Due from affiliate
     8,841,178
       1,907,527
 
Goodwill
   
5,625,354
     
5,625,354
 
Other intangible assets
   
958,010
     
958,010
 
Other
   
15,961
     
451,011
 
Total assets
 
$
2,294,308,053
   
$
2,266,293,888
 
Liabilities and Stockholders’ Equity
               
Liabilities
               
Losses and loss expenses
 
$
1,124,452,191
   
$
1,126,156,838
 
Unearned premiums
   
634,136,621
     
599,411,468
 
Accrued expenses
   
3,685,534
     
3,946,974
 
Reinsurance balances payable
   
4,016,080
     
8,758,976
 
Borrowings under lines of credit
   
35,000,000
     
35,000,000
 
Cash dividends declared to stockholders
   

     
5,569,992
 
Other
   
7,931,153
     
7,704,286
 
Total liabilities
   
1,809,221,579
     
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 30,819,242 and 30,764,555 shares and outstanding 27,816,654 and 27,761,967 shares
   
308,193
     
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
   
336,817,945
     
335,694,478
 
Accumulated other comprehensive loss
   
(34,483,112
)
   
(32,881,822
)
Retained earnings
   
223,613,313
     
217,794,917
 
Treasury stock, at cost
   
(41,226,357
)
   
(41,226,357
)
Total stockholders’ equity
   
485,086,474
     
479,745,354
 
Total liabilities and stockholders’ equity
 
$
2,294,308,053
   
$
2,266,293,888
 

See accompanying notes to consolidated financial statements.

1

Donegal Group Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)

   
Three Months Ended March 31,
 
   
2024
   
2023
 
Revenues:
           
Net premiums earned
 
$
227,748,679
   
$
215,233,160
 
Investment income, net of investment expenses
   
10,972,327
     
9,449,078
 
Net investment gains (losses) (includes ($77,051) and ($2,199,673) accumulated other comprehensive income reclassifications)
   
2,113,378
   
(331,189
)
Lease income
   
81,823
     
89,347
 
Installment payment fees
   
224,662
     
305,375
 
Total revenues
   
241,140,869
     
224,745,771
 
Expenses:
               
Net losses and loss expenses
   
150,896,415
     
138,105,889
 
Amortization of deferred policy acquisition costs
   
39,602,000
     
37,798,000
 
Other underwriting expenses
   
41,739,868
     
40,611,437
 
Policyholder dividends
   
1,054,659
     
1,343,340
 
Interest
   
154,597
     
152,957
 
Other expenses, net
   
444,934
     
437,715
 
Total expenses
   
233,892,473
     
218,449,338
 
Income before income tax expense
   
7,248,396
     
6,296,433
 
Income tax expense (includes $16,181 and $461,931 income tax benefit from reclassification items)
   
1,292,845
     
1,092,837
 
Net income
 
$
5,955,551
   
$
5,203,596
 
Net income per share:
               
Class A common stock - basic and diluted
 
$
0.18
   
$
0.16
 
Class B common stock - basic and diluted
 
$
0.16
   
$
0.15
 

Donegal Group Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(Unaudited)

   
Three Months Ended March 31,
 
   
2024
   
2023
 
Net income
 
$
5,955,551
 
$
5,203,596
Other comprehensive (loss) income, net of tax
               
Unrealized (loss) income on securities:
               
Unrealized holding (loss) income during the period, net of income tax (benefit) expense of ($441,850) and $603,390
   
(1,662,160
)
   
2,269,896
Reclassification adjustment for losses included in net income, net of income
tax benefit of $16,181 and $461,931
   
60,870
     
1,737,742
Other comprehensive (loss) income
   
(1,601,290
)
   
4,007,638
Comprehensive income
 
$
4,354,261
 
$
9,211,234

See accompanying notes to consolidated financial statements.

2

Donegal Group Inc. and Subsidiaries
Consolidated Statement of Stockholders’ Equity
(Unaudited)
Three Months Ended March 31, 2024
 
   
Class A
Shares
   
Class B
Shares
   
Class A
Amount
   
Class B
Amount
   
Additional
Paid-In Capital
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
   
Treasury Stock
   
Total
Stockholders’
Equity
 
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)
   
38,287
     
     
383
     
     
472,740
     
     
     
     
473,123
 
Share-based compensation
   
16,400
     
     
164
     
     
522,460
     
     
     
     
522,624
 
Net income
   
     
     
     
     
     
     
5,955,551
     
     
5,955,551
 
Cash dividends declared
   
     
     
     
     
     
     
(8,888
)
   
     
(8,888
)
Grant of stock options
   
     
     
     
     
128,267
     
     
(128,267
)
   
     
 
Other comprehensive loss
   
     
     
     
     
     
(1,601,290
)
   
     
     
(1,601,290
)
Balance, March 31, 2024
   
30,819,242
     
5,649,240
   
$
308,193
   
$
56,492
   
$
336,817,945
   
$
(34,483,112
)
 
$
223,613,313
   
$
(41,226,357
)
 
$
485,086,474
 

Three Months Ended March 31, 2023
 
   
Class A
Shares
   
Class B
Shares
   
Class A
Amount
   
Class B
Amount
   
Additional
Paid-In Capital
   
Accumulated
Other
Comprehensive
Loss
   
Retained
Earnings
   
Treasury Stock
   
Total
Stockholders’
Equity
 
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)
   
35,045
     
     
350
     
     
440,746
     
     
     
     
441,096
 
Share-based compensation
   
143,004
     
     
1,431
     
     
2,218,355
     
     
     
     
2,219,786
 
Net income
   
     
     
     
     
     
     
5,203,596
     
     
5,203,596
 
Cash dividends declared
   
     
     
     
     
     
     
(7,057
)
   
     
(7,057
)
Grant of stock options
   
     
     
     
     
114,724
     
     
(114,724
)
   
     
 
Cumulative effect of adoption of updated guidance for credit losses at January 1, 2023
   
     
     
     
     
     
      (1,895,902 )    
      (1,895,902 )
Other comprehensive income
   
     
     
     
     
     
4,007,638
     
     
     
4,007,638
 
Balance, March 31, 2023
   
30,298,312
     
5,649,240
   
$
302,984
   
$
56,492
   
$
328,375,472
   
$
(37,696,109
)
 
$
243,749,687
   
$
(41,226,357
)
 
$
493,562,169
 

See accompanying notes to consolidated financial statements.

3

Donegal Group Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)

   
Three Months Ended March 31,
 
   
2024
   
2023
 
Cash Flows from Operating Activities:
           
Net income
 
$
5,955,551
   
$
5,203,596
 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation, amortization and other non-cash items
   
966,911
     
1,122,609
 
Net investment (gains) losses
   
(2,113,378
)
   
331,189
 
Changes in assets and liabilities:
               
Losses and loss expenses
   
(1,704,647
)
   
2,488,926
 
Unearned premiums
   
34,725,153
     
32,031,102
 
Premiums receivable
   
(13,568,339
)
   
(15,699,109
)
Deferred acquisition costs
   
(3,813,704
)
   
(4,019,366
)
Deferred income taxes
   
474,439
     
355,524
 
Reinsurance receivable
   
5,926,208
     
(5,291,035
)
Prepaid reinsurance premiums
   
(11,033,297
)
   
(9,960,021
)
Accrued investment income
   
(551,627
)
   
(1,322,590
)
Due from affiliate
   
(6,933,651
)
   
(7,651,293
)
Reinsurance balances payable
   
(4,742,896
)
   
(220,377
)
Current income taxes
   
830,906
     
749,813
 
Accrued expenses
   
(261,440
)
   
465,988
 
Other, net
   
661,955
     
734,310
 
Net adjustments
   
(1,137,407
)
   
(5,884,330
)
Net cash provided by (used in) operating activities
   
4,818,144
     
(680,734
)
Cash Flows from Investing Activities:
               
Purchases of fixed maturities, held to maturity
   
(11,911,672
)
   
(12,092,863
)
Purchases of fixed maturities, available for sale
   
(46,490,362
)
   
(34,354,601
)
Purchases of equity securities, available for sale
   
(786,680
)
   
(3,590,015
)
Maturity of fixed maturities:
               
Held to maturity
   
8,008,034
     
6,127,883
 
Available for sale
   
30,922,241
     
12,365,403
 
Sales of fixed maturities:
               
Available for sale
    2,995,648       748,250  
Sales of equity securities, available for sale
   
     
3,066,129
 
Net purchases of property and equipment
   
     
(44,700
)
Net sales of short-term investments
   
13,445,378
     
29,183,513
 
Net cash (used in)  provided by investing activities
   
(3,817,413
)
   
1,408,999
 
Cash Flows from Financing Activities:
               
Cash dividends paid
   
(5,578,880
)
   
(5,304,047
)
Issuance of common stock
   
590,916
     
2,288,494
 
Net cash used in financing activities
   
(4,987,964
)
   
(3,015,553
)
Net decrease in cash
   
(3,987,233
)
   
(2,287,288
)
Cash at beginning of period
   
23,792,273
     
25,123,332
 
Cash at end of period
 
$
19,805,040
   
$
22,836,044
 
                 
Cash paid during period - Interest
 
$
156,292
   
$
156,346
 
Net cash paid during period - Taxes
 
$
   
$
 

See accompanying notes to consolidated financial statements.

4

DONEGAL GROUP INC. AND SUBSIDIARIES
(Unaudited)
Notes to Consolidated Financial Statements

1 -
Organization



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, New England, Southern and Southwestern states.



At March 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 March 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 71% 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 100% quota-share reinsurance agreements with Mountain States Commercial Insurance Company, Mountain States Indemnity Company and Southern Mutual Insurance Company. Donegal Mutual places its assumed business from these companies 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 relate to specific risk profiles targeted within similar classes of business, such as preferred tier versus standard tier products, but we do not allocate all of the standard risk gradients to one company. 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.

5

2 -
Basis of Presentation



Our financial information for the interim periods included in this Form 10-Q Report is unaudited; however, our financial information we include in this Form 10-Q Report reflects all adjustments, consisting only of normal recurring adjustments that, in the opinion of our management, are necessary for a fair presentation of our financial position, results of operations and cash flows for those interim periods. Our results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2024.



We recommend you read the interim financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2023 that we filed with the Securities and Exchange Commission (“SEC”) on March 6, 2024.

3 -
Net Income Per Share



We have two classes of common stock, which we refer to as our Class A common stock and our Class B common stock. Our certificate of incorporation provides that whenever our board of directors declares a dividend on our Class B common stock, our board of directors shall simultaneously declare a dividend on our Class A common stock that is payable to the holders of our Class A common stock at the same time and as of the same record date at a rate that is at least 10% greater than the rate at which our board of directors declared a dividend on our Class B common stock. Accordingly, we use the two-class method to compute our net income per share. The two-class method is an earnings allocation formula that determines net income per share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed net income using a participation percentage that reflects the dividend rights of each class. The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for our Class A common stock and our Class B common stock:


   
Three Months Ended March 31,
 
   
2024
   
2023
 
   
Class A
   
Class B
   
Class A
   
Class B
 
   
(in thousands, except per share data)
 
Basic net income per share:
                       
Numerator:
                       
Allocation of net income
 
$
5,039
 
$
917
 
$
4,387
 
$
817
Denominator:
                               
Weighted-average shares outstanding
   
27,811
     
5,577
     
27,193
     
5,577
 
Basic net income per share
 
$
0.18
 
$
0.16
 
$
0.16
 
$
0.15
                                 
Diluted net income per share:
                               
Numerator:
                               
Allocation of net income
 
$
5,039
 
$
917
 
$
4,387
 
$
817
Denominator:
                               
Number of shares used in basic computation
   
27,811
     
5,577
     
27,193
     
5,577
 
Weighted-average shares effect of dilutive securities:
                               
Director and employee stock options
   
35
     
     
173
     
 
Number of shares used in diluted  computation
   
27,846
     
5,577
     
27,366
     
5,577
 
Diluted net income per share
 
$
0.18
 
$
0.16
 
$
0.16
 
$
0.15
 

We did not include outstanding options to purchase the following number of shares of Class A common stock in our computation of diluted net income per share because the exercise price of the options exceeded the average market price of our Class A common stock during the applicable periods.

6

   
Three Months Ended March 31,
 
   
2024
   
2023
 
                 
Number of options to purchase Class A shares excluded
   
1,693,904
     
2,307,435
 

4 -
Reinsurance



Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which they pool substantially all of their respective premiums, losses and loss expenses, and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement. 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.



Our insurance subsidiaries and Donegal Mutual participate in a consolidated third-party reinsurance program. The coverage and parameters of the program are common to all of our insurance subsidiaries and Donegal Mutual. The program utilizes several different reinsurers. They require their reinsurers to maintain 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 have in place for 2024:


excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recover losses over a set retention of $3.0 million for all losses other than property and a set retention of $4.0 million for property losses; and

 
catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recover 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 have excess of loss reinsurance that provides coverage of $36.0 million per loss over a set retention of $4.0 million. For liability insurance, our insurance subsidiaries have excess of loss reinsurance that provides coverage of $72.0 million per occurrence over a set retention of $3.0 million. For workers’ compensation insurance, our insurance subsidiaries have excess of loss reinsurance that provides coverage of $17.0 million on any one life over a set retention of $3.0 million.


In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries have a catastrophe reinsurance agreement with Donegal Mutual, under which each of our insurance subsidiaries recovers 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 provides 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. The purpose of the 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.



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



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.

7


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

5 -
Investments



The amortized cost and estimated fair values of our fixed maturities at March 31, 2024 were as follows:
 
 
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
  $ 91,551     $ 55    
$
91,606
   
$
   
$
9,550
   
$
82,056
 
Obligations of states and political subdivisions
    376,569       266      
376,835
     
1,057
     
50,664
     
327,228
 
Corporate securities
    202,093       1,001      
203,094
     
246
     
15,565
     
187,775
 
Mortgage-backed securities
    13,186       7      
13,193
     
9
     
447
     
12,755
 
Totals
  $ 683,399     $ 1,329    
$
684,728
   
$
1,312
   
$
76,226
   
$
609,814
 
 
   
Amortized Cost
   
Gross Unrealized
Gains
   
Gross Unrealized
Losses
   
Estimated Fair
Value
 
   
(in thousands)
 
Available for Sale
                       
U.S. Treasury securities and obligations of U.S. government corporations and agencies
 
$
91,561
   
$
79
   
$
4,585
   
$
87,055
 
Obligations of states and political subdivisions
   
41,893
     
10
     
4,164
     
37,739
 
Corporate securities
   
208,888
     
74
     
13,792
     
195,170
 
Mortgage-backed securities
   
300,874
     
377
     
20,454
     
280,797
 
Totals
 
$
643,216
   
$
540
   
$
42,995
   
$
600,761
 



At March 31, 2024, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $241.5 million and an amortized cost of $277.9 million. Our holdings at March 31, 2024 also included special revenue bonds with an aggregate fair value of $123.5 million and an amortized cost of $140.8 million. With respect to both categories of those bonds at March 31, 2024, we held no securities of any issuer that comprised more than 10% of our holdings of either bond category. Education bonds and water and sewer utility bonds represented 47% and 36%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at March 31, 2024. Many of the issuers of the special revenue bonds we held at March 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.


8



The amortized cost and estimated fair values of our fixed maturities at December 31, 2023 were as follows:
 
 
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
  $ 91,518     $ 54    
$
91,572
   
$
   
$
8,885
   
$
82,687
 
Obligations of states and political subdivisions
    376,898       266      
377,164
     
1,449
     
46,845
     
331,768
 
Corporate securities
    201,847       1,000      
202,847
     
207
     
14,805
     
188,249
 
Mortgage-backed securities
    9,234       6      
9,240
     
     
418
     
8,822
 
Totals
  $ 679,497     $ 1,326    
$
680,823
   
$
1,656
   
$
70,953
   
$
611,526
 

   
Amortized Cost
   
Gross Unrealized
Gains
   
Gross Unrealized
Losses
   
Estimated Fair
Value
 
   
(in thousands)
 
Available for Sale
                       
U.S. Treasury securities and obligations of U.S. government corporations and agencies
 
$
89,367
   
$
199
   
$
4,147
   
$
85,419
 
Obligations of states and political subdivisions
   
41,958
     
12
     
3,854
     
38,116
 
Corporate securities
   
211,882
     
100
     
15,189
     
196,793
 
Mortgage-backed securities
   
286,520
     
594
     
18,094
     
269,020
 
Totals
 
$
629,727
   
$
905
   
$
41,284
   
$
589,348
 



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 48,577 and $77,032 in other comprehensive (loss) income during the three months ended March 31, 2024 and 2023, respectively. At March 31, 2024 and December 31, 2023, net unrealized losses of $1.2 million and $1.3 million, respectively, remained within accumulated other comprehensive loss.

9


We show below the amortized cost and estimated fair value of our fixed maturities at March 31, 2024 by contractual maturity. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.


   
Amortized Cost
   
Estimated Fair
Value
 
   
(in thousands)
 
Held to maturity
           
Due in one year or less
 
$
42,228
   
$
41,549
 
Due after one year through five years
   
130,205
     
121,873
 
Due after five years through ten years
   
237,241
     
216,118
 
Due after ten years
   
261,861
     
217,519
 
Mortgage-backed securities
   
13,193
     
12,755
 
Total held to maturity
 
$
684,728
   
$
609,814
 
                 
Available for sale
               
Due in one year or less
 
$
62,925
   
$
61,761
 
Due after one year through five years
   
170,058
     
160,071
 
Due after five years through ten years
   
86,138
     
77,937
 
Due after ten years
   
23,221
     
20,195
 
Mortgage-backed securities
   
300,874
     
280,797
 
Total available for sale
 
$
643,216
   
$
600,761
 


The cost and estimated fair values of our equity securities at March 31, 2024 were as follows:
 
   
Cost
   
Gross Gains
   
Gross Losses
   
Estimated Fair
Value
 
   
(in thousands)
 
Equity securities
 
$
19,631
   
$
9,315
   
$
63
   
$
28,883
 



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
 
   
(in thousands)
 
Equity securities
 
$
18,844
   
$
7,059
   
$
   
$
25,903
 
 
10


We present below gross gains and losses from investments and the change in the difference between fair value and cost of investments:
 
   
Three Months Ended March 31,
 
   
2024
   
2023
 
   
(in thousands)
 
Gross realized gains:
           
Fixed maturities
 
$
4
   
$
22
 
Equity securities
   
     
285
 
 
   
4
     
307
 
Gross realized losses:
               
Fixed maturities
   
81
     
2,222
 
Equity securities
   
     
46
 
     
81
     
2,268
 
Net realized losses
   
(77
)
   
(1,961
)
Gross unrealized gains on equity securities     2,256       2,202  
Gross unrealized losses on equity securities     (63 )     (485 )
Fixed maturities - credit impairment charges     (3 )     (87 )
Net investment gains (losses)   $ 2,113     $ (331 )



We held fixed maturities with unrealized losses representing declines that we considered temporary at March 31, 2024 as follows:
 
   
Less Than 12 Months
   
More Than 12 Months
 
   
Fair Value
   
Unrealized Losses
   
Fair Value
   
Unrealized Losses
 
   
(in thousands)
 
U.S. Treasury securities and obligations of U.S. government corporations and agencies
 
$
37,188
   
$
299
   
$
125,533
   
$
13,836
 
Obligations of states and political subdivisions
   
29,747
     
251
     
304,139
     
54,577
 
Corporate securities
   
18,034
     
431
     
343,673
     
28,926
 
Mortgage-backed securities
   
58,891
     
656
     
187,697
     
20,245
 
Totals
 
$
143,860
   
$
1,637
   
$
961,042
   
$
117,584
 



We held fixed maturities with unrealized losses representing declines that we considered temporary at December 31, 2023 as follows:
 
   
Less Than 12 Months
   
More Than 12 Months
 
   
Fair Value
   
Unrealized Losses
   
Fair Value
   
Unrealized Losses
 
   
(in thousands)
 
U.S. Treasury securities and obligations of U.S. government corporations and agencies
 
$
32,224
   
$
217
   
$
116,538
   
$
12,815
 
Obligations of states and political subdivisions
   
13,097
     
68
     
307,429
     
50,631
 
Corporate securities
   
13,066
     
324
     
353,863
     
29,670
 
Mortgage-backed securities
   
46,964
     
221
     
178,113
     
18,291
 
Totals
 
$
105,351
   
$
830
   
$
955,943
   
$
111,407
 

11


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 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. We held 893 debt securities that were in an unrealized loss position at March 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 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 realized investment gains and losses using the specific identification method.


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

6 -
Segment Information



We evaluate the performance of our personal lines and commercial lines segments based upon the underwriting results of our insurance subsidiaries using statutory accounting principles (“SAP”) that various state insurance departments prescribe or permit. Our management uses SAP to measure the performance of our insurance subsidiaries instead of United States generally accepted accounting principles (“GAAP”). SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because they include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude.


12


Financial data by segment for the three months ended March 31, 2024 and 2023 is as follows:


   
Three Months Ended March 31,
 
   
2024
   
2023
 
   
(in thousands)
 
Revenues:
           
Premiums earned:
           
Commercial lines
 
$
132,092
   
$
133,187
 
Personal lines
   
95,657
     
82,046
 
GAAP premiums earned
   
227,749
     
215,233
 
Net investment income
   
10,972
     
9,449
 
Investment gains (losses)
   
2,113
     
(331
)
Other
   
307
     
395
 
Total revenues
 
$
241,141
   
$
224,746
 
Income before income tax expense:
               
Underwriting (loss) gain:
               
Commercial lines
 
$
(