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

Rhea-AI Summary

AM Best has affirmed the Financial Strength Rating of A and the Long-Term Issuer Credit Ratings of Donegal Insurance Group members and Donegal Group Inc. The ratings reflect the strong balance sheet, adequate operating performance, neutral business profile, and appropriate enterprise risk management. Donegal Group's stable outlook is supported by factors like risk-adjusted capitalization, loss reserving trends, conservative investment portfolio, and reinsurance program. Management initiatives aim to improve underwriting performance. The group's geographic diversification and strategic acquisitions contribute to its neutral business profile. Donegal Group demonstrates appropriate enterprise risk management through a formal risk management process and reinsurance treaties. Despite volatile underwriting results, the group's performance aligns with industry averages.

Positive

• Strong balance sheet strength with risk-adjusted capitalization at the strongest level

• Stable outlook supported by loss reserving trends, conservative investment portfolio, and comprehensive reinsurance program

• Neutral business profile with geographic and product line diversification

• Appropriate enterprise risk management demonstrated through formal risk management process

Negative

• Volatile net underwriting results in recent years

• Elevated underwriting leverage and modest stockholders' dividend obligation

• Impact of severe weather-related losses, inflationary pressures, and supply chain disruptions

• Lags slightly behind industry average in five-year combined ratio

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), stabilized loss reserving trends, conservative investment portfolio, a comprehensive reinsurance program and sound liquidity position. These factors are offset partially by elevated underwriting leverage and a modest stockholders’ dividend obligation.

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 volatile net underwriting results in recent years, largely driven by severe weather-related losses, inflationary pressures and supply chain disruptions, namely in 2021, 2022 and to a smaller degree in 2023 with a widespread impact across the industry. Overall, the group’s five-year combined ratio average slightly lags the property/casualty insurance industry’s composite average but is in line with its 10-year combined ratio on an average basis. Management has instituted a series of profitability initiatives in recent years to improve the group’s underwriting performance, including significant rate actions, the transfer of unprofitable accounts and investing in new technology.

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 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 © 2024 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/20240502843563/en/

Adib Nassery

Senior Financial Analyst

+1 908 882 2198

adib.nassery@ambest.com

Brian O’Larte

Director

+1 908 882 2212

brian.o'larte@ambest.com

Christopher Sharkey

Associate Director, Public Relations

+1 908 882 2310

christopher.sharkey@ambest.com

Al Slavin

Senior Public Relations Specialist

+1 908 882 2318

al.slavin@ambest.com

Source: AM Best

FAQ

What are the Financial Strength Rating and Long-Term Issuer Credit Ratings of Donegal Group members?

AM Best has affirmed the Financial Strength Rating of A and the Long-Term Issuer Credit Ratings of Donegal Insurance Group members.

What factors support Donegal Group's stable outlook?

Factors like risk-adjusted capitalization, loss reserving trends, conservative investment portfolio, and reinsurance program support Donegal Group's stable outlook.

How does Donegal Group demonstrate appropriate enterprise risk management?

Donegal Group demonstrates appropriate enterprise risk management through a formal risk management process and reinsurance treaties.

What initiatives has management taken to improve underwriting performance?

Management has instituted profitability initiatives like significant rate actions, transferring unprofitable accounts, and investing in new technology to improve underwriting performance.

What impacts Donegal Group's neutral business profile?

Donegal Group's neutral business profile is impacted by geographic and product line diversification, independent agency distribution channel, and successful expansion through strategic acquisitions.