AM Best Revises Outlooks to Stable for Members of Donegal Insurance Group and Donegal Group Inc.
AM Best has revised the outlooks of Donegal Insurance Group to stable from negative and affirmed the Financial Strength Rating (FSR) of A (Excellent) along with Long-Term Issuer Credit Ratings (ICR) for Donegal Group Inc. (NASDAQ: DGICA, DGICB). The stable outlook reflects improved operating performance driven by strategic initiatives, including better underwriting performance and enhanced loss reserving trends. Donegal Group’s strong capital assessment is supported by a robust liquidity position and conservative investment practices, despite increased underwriting leverage and constrained surplus growth.
- Revised outlook to stable from negative for Donegal Insurance Group and Donegal Group Inc.
- Affirmed Financial Strength Rating of A (Excellent) and Long-Term ICR of 'a'.
- Improved operating performance due to strategic initiatives and better underwriting practices.
- Strong capital assessment supported by Best’s Capital Adequacy Ratio (BCAR).
- Effective risk management through comprehensive reinsurance programs.
- Increasing underwriting leverage noted.
- Constrained surplus growth over the last five years due to stockholder dividend payments.
AM Best has revised the outlooks to stable from negative and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of members of Donegal Insurance Group (Donegal Group). Concurrently, AM Best has revised the outlook to stable from negative and affirmed the Long-Term ICR of “bbb” of the publicly traded holding company, Donegal Group Inc. (Delaware) [NASDAQ: DGICA and DGICB]. (See below for a detailed listing of the member companies.)
The Credit Ratings (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).
The revised outlooks to stable largely reflect Donegal Group’s improved operating performance in the most recent years (2019 and 2020), primarily driven by a number of initiatives implemented to help improve its underwriting performance, including significant rate actions, the transfer of unprofitable accounts and investing in new technology. Furthermore, the stable outlooks consider the improved loss reserving trends and the favorable impact on its risk-adjusted capitalization. Management attributes the favorable reserve development to reserve strengthening during 2019 and 2020 that far exceeded exposure growth.
Donegal Group’s capital assessment reflects its Best’s Capital Adequacy Ratio (BCAR), which AM Best categorizes as strongest, sound liquidity position, conservative investment portfolio, and a comprehensive reinsurance program, which are offset partially by increasing underwriting leverage, and constrained surplus growth over the most recent five-year period due to stockholder’s dividend payments.
Although the individual members within Donegal Group play a specific role in the organization’s overall business plan, and their operating performances may 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 neutral business profile includes 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.
Appropriate ERM is demonstrated through a formal risk management process, which provides assurances that the organization’s key compliance, financial, strategic 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. In 2019, Donegal Group made significant changes to its reinsurance program, which AM Best expects to benefit operating results going forward, dependent upon the incidence of large loss activity and the occurrence of catastrophe events.
The affirmation of the Long-Term ICR of Donegal Group Inc. recognizes the overall financial strength of its property/casualty insurance operation, its moderate 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” have been affirmed, with outlooks revised to stable from negative 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 media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.
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.
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FAQ
What is the revised outlook for Donegal Insurance Group as of 2021?
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