AM Best Affirms Credit Ratings for Members of Donegal Insurance Group and Donegal Group Inc.

Rhea-AI Summary

AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and Long-Term Issuer Credit Ratings (ICR) of 'a' (Excellent) for Donegal Insurance Group members. The Long-Term ICR for Donegal Group Inc. is also affirmed at 'bbb' (Good), with a stable outlook. Key factors include a strong balance sheet, solid liquidity, and improved operating performance from 2019-2021. The group maintains an adequate operating performance but lags industry averages in the five-year combined ratio. AM Best recognizes Donegal's effective risk management and strategic growth through acquisitions.

Positive

• Affirmation of FSR of A and ICR of 'a' indicates strong financial stability.
• Improved operating performance from 2019-2021 due to effective management initiatives.
• Strong balance sheet with sound liquidity and conservative investment portfolio.
• Demonstrated effective enterprise risk management processes.

Negative

• Five-year combined ratio slightly lags property/casualty industry average.
• Elevated underwriting leverage noted, which could pose risks.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) of the members of Donegal Insurance Group (Donegal Group). Concurrently, AM Best has affirmed the Long-Term ICR of “bbb” (Good) of the publicly traded holding company, Donegal Group Inc. (Delaware) [NASDAQ: DGICA and DGICB]. The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the member companies.)

The ratings reflect Donegal Group’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

Donegal Group’s balance sheet strength assessment reflects its risk-adjusted capitalization at the strongest level, as measured by Best’s Capital Adequacy Ratio (BCAR), and its sound liquidity position, conservative investment portfolio, a comprehensive reinsurance program and stabilized loss reserving trends, which are partially offset by elevated underwriting leverage and modest stockholders’ dividend payments.

Although the individual members within Donegal Group play a specific role in the organization’s overall business plan, and their operating performances vary, each contributes favorably to the group’s risk-adjusted capitalization. In addition, each member supports the corporate business strategy and benefits from shared senior management, intercompany reinsurance and the added financial flexibility of Donegal Group Inc. to raise capital through debt or equity offerings during favorable investment markets.

Donegal Group’s adequate operating performance assessment reflects improved operating performance in recent years (2019-2021), primarily driven by a number of initiatives implemented by management to help improve its underwriting performance, including significant rate actions, the transfer of unprofitable accounts and investing in new technology. However, the group’s five-year combined ratio average slightly lags the property/casualty insurance industry’s composite average.

Donegal Group’s neutral business profile assessment reflects its geographic and product line diversification, effective use of technology in the independent agency distribution channel, and a history of successful expansion through strategic acquisitions and affiliations.

Donegal Group’s appropriate ERM is demonstrated through a formal risk management process, which provides assurances that the organization’s key compliance, financial and operational risks are addressed in meeting organizational objectives. Additionally, Donegal Group purchases various excess of loss and per risk reinsurance treaties from high quality reinsurers to protect surplus, reduce volatility and increase capacity.

The affirmation of the Long-Term ICR of Donegal Group Inc. recognizes the overall financial strength of its property/casualty insurance operations, its modest amount of financial leverage and the subordination of its creditors to the insurance companies’ policyholders.

The FSR of A (Excellent) and the Long Term ICRs of “a” (Excellent) have been affirmed, with stable outlooks for the following members of Donegal Insurance Group:

• Atlantic States Insurance Company
• Donegal Mutual 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
• Southern Mutual Insurance Company

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2022 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220331005678/en/

Adib Nassery

Senior Financial Analyst

+1 908 439 2200, ext. 5205

adib.nassery@ambest.com

Christopher Sharkey

Manager, Public Relations

+1 908 439 2200, ext. 5159

christopher.sharkey@ambest.com

Brian O’Larte

Director

+1 908 439 2200, ext. 5138

brian.o'larte@ambest.com

Jim Peavy

Director, Communications

+1 908 439 2200, ext. 5644

james.peavy@ambest.com

Source: AM Best

FAQ

What is the recent rating status of Donegal Group?

AM Best affirmed Donegal Group's Financial Strength Rating as A (Excellent) and Long-Term ICRs of 'a' (Excellent).

What is the significance of the stable outlook for Donegal Group?

The stable outlook indicates that Donegal Group's financial performance and risk management are expected to remain consistent.

How has Donegal Group's operating performance changed recently?

Donegal Group has improved its operating performance from 2019 to 2021 due to management initiatives.

What are the risks associated with Donegal Group according to AM Best?

Risks include elevated underwriting leverage and a combined ratio that slightly lags the industry average.