Donegal Group Inc. Announces 53.8 Percent Increase in Fourth Quarter Net Income and Improved Full Year 2013 Results

Donegal Group Inc. Announces 53.8 Percent Increase in Fourth Quarter Net
Income and Improved Full Year 2013 Results

MARIETTA, Pa., Feb. 21, 2014 (GLOBE NEWSWIRE) -- Donegal Group Inc.
(Nasdaq:DGICA) (Nasdaq:DGICB) today reported its financial results for the
fourth quarter and full year of 2013. Highlights included:

  *Net income of $9.6 million for the fourth quarter of 2013, with improved
    underwriting results generating a 53.8% increase over net income for the
    fourth quarter of 2012
  *Net income of $26.3 million for the full year of 2013, increasing 14.0%
    over the full year of 2012
  *9.2% increase in net premiums earned and 7.9% increase in net premiums
    written for the fourth quarter of 2013, reflecting continuing organic
    growth in commercial lines and the benefit of premium rate increases
  *95.4% statutory combined ratio^1 for the fourth quarter of 2013,
    representing the lowest combined ratio for any quarterly period in the
    past five years
  *Operating income^1 of $9.9 million for the fourth quarter of 2013,
    significantly outperforming operating income of $5.1 million for the
    fourth quarter of 2012


               Three Months Ended December 31, Year Ended December 31,
               2013        2012       % Change 2013       2012       % Change
               (dollars in thousands, except per share amounts)

Income                                                           
Statement Data
Net premiums    $132,982  $121,824 9.2%     $515,292 $475,002 8.5%
earned
Investment      4,685      5,445     -14.0   18,795    20,169    -6.8
income, net
Realized        (520)      1,709     -130.4  2,423     6,859     -64.7
(losses) gains
Total revenues  139,395    131,904   5.7     547,110   514,983   6.2
Net income     9,564      6,220     53.8    26,322    23,093    14.0
Operating       9,907      5,092     94.6    24,723    18,565    33.2
income
                                                                
Per Share Data                                                   
Net income–
Class A         $0.36     $0.25    44.0%    $1.02    $0.91    12.1%
(diluted)
Net income–    0.34       0.22      54.5    0.94      0.83      13.3
Class B
Operating
income– Class  0.37       0.20      85.0    0.96      0.73      31.5
A (diluted)
Operating
income– Class  0.35       0.18      94.4    0.88      0.67      31.3
B
Book value      15.02      15.63     -3.9    15.02     15.63     -3.9


^1The "Definitions of Non-GAAP and Operating Measures" section of this release
defines and reconciles data that the Company prepares on an accounting basis
other than U.S. generally accepted accounting principles ("GAAP").

Donald H. Nikolaus, President and Chief Executive Officer, noted, "Donegal
Group ended 2013 on a positive note, reflecting favorable market conditions
that were present in our operating regions throughout the past year as well as
our achievement of key milestones marking progress toward our long-term
performance objectives. Of note, for the second consecutive quarter, our GAAP
and statutory combined ratios for the fourth quarter of 2013 were the best we
have achieved for any quarter during the past five years.

"Our strategic business plan calls for us to outperform the property and
casualty insurance industry in terms of service, profitability and book value
growth over the long term," Mr. Nikolaus noted. "Our commercial lines business
performed well against that standard over the past year. We achieved solid new
commercial business growth during 2013 and continued to see renewal premium
increases in the 5-7% range throughout the fourth quarter. For the full year
of 2013, the statutory combined ratio for our commercial business segment was
95.7%. We believe our regional market presence and our proven commitment to
the small to mid-size commercial insurance market provide potential for
continuing progress in expanding this business segment in 2014 and beyond."

Mr. Nikolaus continued, "In our personal lines business, our strategic
underwriting initiatives contributed to improved profitability with a
full-year statutory combined ratio for this business segment of 98.8%. For the
year 2013, losses from weather events and large fire losses were below the
prior year level. Personal lines net written premium growth primarily
reflected rate increases we have implemented over the past year.

"As we look ahead to 2014, we are optimistic about the opportunities for
profitable growth within our regional markets as we continue to enhance our
relationships with existing independent agents and seek to appoint new
agencies in selected markets. Further, we continue to pursue appropriate
acquisition opportunities to help us achieve our long-term objectives," Mr.
Nikolaus added.

At December 31, 2013, the Company's book value per share was $15.02, compared
to $15.63 at December 31, 2012. The lower book value per share reflected a
reduction in net unrealized gains in the fair value of the Company's
available-for-sale fixed-maturity securities portfolio due to increased market
interest rates during the year. During 2013, the Company repurchased 24,240
Class A shares at an average cost of $15.53 per share.

Insurance Operations

Donegal Group is an insurance holding company whose insurance subsidiaries
offer personal and commercial property and casualty lines of insurance in four
Mid-Atlantic states (Delaware, Maryland, New York and Pennsylvania), three New
England states (Maine, New Hampshire and Vermont), seven Southeastern states
(Alabama, Georgia, North Carolina, South Carolina, Tennessee, Virginia and
West Virginia) and eight Midwestern states (Indiana, Iowa, Michigan, Nebraska,
Ohio, Oklahoma, South Dakota and Wisconsin). The insurance subsidiaries of
Donegal Group conduct business together with Donegal Mutual Insurance Company
as the Donegal Insurance Group.


               Three Months Ended December 31, Year Ended December 31,
               2013        2012       % Change 2013       2012       % Change
               (dollars in thousands)                              
                                                                
Net Premiums                                                     
Written
Personal lines:                                                  
Automobile      $46,661   $45,559  2.4%     $196,363 $195,131 0.6%
Homeowners      25,708     22,340    15.1   106,420   97,118    9.6
Other           4,044      4,027     0.4    15,915    16,072    (1.0)
Total personal  76,413     71,926    6.2    318,698   308,321   3.4
lines
Commercial                                                       
lines:
Automobile      12,947     11,966    8.2    58,165    51,260    13.5
Workers'        16,327     14,326    14.0   77,589    65,397    18.6
compensation
Commercial      16,821     14,719    14.3   74,516    64,477    15.6
multi-peril
Other           1,262      1,760     (28.3)  4,463     6,992     (36.2)
Total
commercial      47,357     42,771    10.7   214,733   188,126   14.1
lines
Total net
premiums        $123,770  $114,697 7.9%     $533,431 $496,447 7.4%
written


The Company's net premiums written increased 7.9% for the fourth quarter of
2013 compared to the fourth quarter of 2012. This increase represented the
combination of 10.7% growth in commercial lines writings and 6.2% growth in
personal lines writings. The $9.1 million growth in net premiums written for
the fourth quarter of 2013 compared to the fourth quarter of 2012 included:

  *$2.1 million, or 1.8% of total net premiums written, related to a change
    in the Michigan Insurance Company ("MICO") quota-share reinsurance
    agreement that continued to increase the amount of business MICO retained.
    The Company acquired MICO in December 2010.
  *$3.4 million in commercial lines premiums, excluding the MICO reinsurance
    change, that the Company attributed primarily to premium rate increases
    and new commercial accounts the Company's insurance subsidiaries have
    written throughout their operating regions.
  *$3.6 million in personal lines premiums, excluding the MICO reinsurance
    change. The increase reflected modest new business premium, premium rate
    increases the Company has implemented over the past four quarters and
    lower reinsurance reinstatement premiums.

The Company's net premiums written increased 7.4% for the full year of 2013.
The increase included $9.9 million related to the MICO reinsurance change.
Excluding the MICO reinsurance change, commercial lines premiums rose $21.0
million, or 11.2%, and personal lines premiums increased $6.1 million, or
2.0%, for the full year of 2013 compared to the full year of 2012.


                                  Three Months Ended Year Ended
                                  December 31,       December 31,
                                  2013      2012     2013   2012
                                                         
Statutory Combined Ratios                                 
Personal Lines:                                           
Automobile                         107.0%    120.4%   103.2% 108.1%
Homeowners                         88.9     89.3    93.0  100.9
Other                              74.2     83.9    80.5  89.4
Total personal lines               99.3     108.9   98.8  105.0
Commercial Lines:                                         
Automobile                         108.0    76.5    104.9 94.5
Workers' compensation              86.4     113.5   96.9  98.1
Commercial multi-peril             84.5     87.5    92.9  90.5
Other                              NM^2      NM       NM     15.0
Total commercial lines             89.4     88.5    95.7  91.2
Total lines                        95.4%     101.2%   97.4%  99.8%
                                                         
GAAP Combined Ratios (Total Lines)                        
Loss ratio (non-weather)           59.1%     68.2%    61.0%  63.2%
Loss ratio (weather-related)       3.5      3.9     5.6   6.9
Expense ratio                      31.9     29.3    31.8  31.2
Dividend ratio                     0.4      0.3     0.4   0.3
Combined ratio                     94.9%     101.7%   98.8%  101.6%

^2Not meaningful.                                         

For the fourth quarter of 2013, the Company's statutory loss ratio declined to
62.7%, compared to 72.3% for the fourth quarter of 2012. For the full year of
2013, the Company's statutory loss ratio declined to 66.8% from 70.3% for the
full year of 2012.

Weather-related losses of $4.6 million for the fourth quarter of 2013, or 3.5
percentage points of the Company's loss ratio, were in line with the $4.7
million, or 3.9 percentage points of the Company's loss ratio, for the fourth
quarter of 2012. Weather loss activity in the fourth quarter of 2013 was
slightly lower than the Company's five-year average for fourth-quarter weather
losses of $5.3 million.

Large fire losses totaling $6.3 million for the fourth quarter of 2013, or 4.8
percentage points of the Company's loss ratio, compared favorably to the $6.7
million, or 5.5 percentage points of the Company's loss ratio, for the fourth
quarter of 2012. Development of reserves for losses incurred in prior accident
years was negligible for the fourth quarter of 2013.

Mr. Nikolaus commented, "We are certainly pleased with the overall trend
improvement in our underwriting results. As we noted, the fourth-quarter
combined ratio was the best we have seen in five years.

"A closer look at the quarterly underwriting results for our various business
lines reveals a few atypical ratios," Mr. Nikolaus noted. "While the total
effect of weather-related losses for the fourth quarter was slightly below the
year-earlier level, our personal and commercial automobile lines of business
were both impacted by weather to a greater degree than usual. Winter weather
events in our operating regions contributed to an increase in collision claim
frequency. Those collision losses masked a modest decline in casualty loss
severity for personal auto in the fourth quarter, while additions to a handful
of prior-accident-year case reserves also affected the commercial automobile
line of business."

Mr. Nikolaus observed, "Higher premium rates now in place for many of our
lines of business, including personal auto and homeowners, continued to
strengthen our underlying performance during 2013. In most of our regions, we
are continuing to file personal lines rate increases to keep pace with
increasing loss costs. Our workers' compensation and commercial multi-peril
lines of business reported solid performance in the fourth quarter, again
reflecting the continued strength of the commercial insurance market within
our regions."

The Company's statutory expense ratio^1 was 32.2% for the fourth quarter of
2013, compared to 28.5% for the fourth quarter of 2012. The increase in the
Company's expense ratio reflected higher underwriting-based incentive costs
that resulted from significantly improved underwriting results for the fourth
quarter of 2013 compared to the fourth quarter of 2012. The Company's
statutory expense ratio was 30.2% for the full year of 2013, compared to 29.3%
for the full year of 2012.

Investment Operations

Donegal Group's investment strategy is to generate an appropriate amount of
after-tax income on its invested assets while minimizing credit risk through
investment in high-quality securities. As a result, the Company had invested
81.3% of its consolidated investment portfolio in diversified, highly rated
and marketable fixed-maturity securities at December 31, 2013.


                                          December 31, 2013 December 31, 2012
                                          Amount     %      Amount     %
                                          (dollars in thousands)
Fixed maturities, at carrying value:                                 
U.S. Treasury securities and obligations
of U.S. government corporations and        $62,279  7.9%   $72,311  9.0%
agencies
Obligations of states and political        385,982   48.7  457,896   56.8
subdivisions
Corporate securities                       55,547    7.0   77,356    9.6
Residential mortgage-backed securities     140,214   17.7  129,047   16.0
Total fixed maturities                     644,022   81.3  736,610   91.4
Equity securities, at fair value           12,423    1.6   8,757     1.1
Investments in affiliates                  35,685    4.5   37,236    4.6
Short-term investments, at cost            99,678    12.6  23,826    2.9
Total investments                          $791,808 100.0% $806,429 100.0%
                                                                    
Average investment yield                   2.4%             2.5%       
Average tax-equivalent investment yield    3.3%             3.5%       
Average fixed-maturity duration (years)    4.5             4.8       


The decrease in net investment income for the fourth quarter of 2013 compared
to the fourth quarter of 2012 primarily reflected the effect of a
non-recurring allocation adjustment to 2012's quarterly investment expenses as
well as the lower average investment yield on the Company's fixed-maturity
securities portfolio. Net investment income of $4.7 million for the fourth
quarter of 2013 exceeded the $4.6 million net investment income for the third
quarter of 2013. Netrealized investment losses were $520,000 for the fourth
quarter of 2013, compared to net realized investment gains of $1.7 million for
the fourth quarter of 2012. The Company had no impairments in its investment
portfolio that it considered to be other than temporary during the fourth
quarters of 2013 or 2012.

Jeffrey D. Miller, Senior Vice President and Chief Financial Officer, in
commenting on the Company's investment operations, noted, "During the fourth
quarter of 2013, we implemented a number of proactive measures to lower the
overall duration of our fixed-maturity securities portfolio and to position
the Company to take advantage of anticipated increases in market interest
rates.

"Those measures included the sale of approximately $34.0 million of longer
duration fixed-maturity securities, the transfer of $212.2 million of longer
duration available-for-sale fixed-maturity securities to the held-to-maturity
classification, a plan to allocate a portion of our fixed-maturity portfolio
to BBB-rated corporate securities and the engagement of an external investment
advisor to manage $50.0 million of our fixed-maturity portfolio," Mr. Miller
continued.

Mr. Miller concluded, "The actions taken in late 2013 reflect our intent to
bolster investment income while remaining focused on our long-term goal of
enhancing book value growth. Cash and short-term investments rose at year end
because of the sale of the longer duration fixed maturity securities. We plan
to invest those funds over time in shorter duration fixed-maturity securities
and, to a lesser extent, dividend-paying equity securities."

The Company owns 48.2% of the outstanding stock of Donegal Financial Services
Corporation ("DFSC"), which owns all of the outstanding capital stock of Union
Community Bank. The Company accounts for its investment in DFSC using the
equity method of accounting. The Company's equity in the earnings of DFSC was
$408,000 for the fourth quarter of 2013, compared to $912,000 for the fourth
quarter of 2012. Donegal Mutual Insurance Company owns the remaining 51.8% of
the outstanding stock of DFSC.

Definitions of Non-GAAP and Operating Measures

The Company prepares its consolidated financial statements on the basis of
GAAP. The Company's insurance subsidiaries also prepare financial statements
based on statutory accounting principles state insurance regulators prescribe
or permit ("SAP"). In addition to using GAAP-based performance measurements,
the Company also utilizes certain non-GAAP financial measures that it believes
provide value in managing its business and for comparison to the financial
results of its peers. These non-GAAP measures are operating income (loss) and
statutory combined ratio.

Operating income (loss) is a non-GAAP financial measure investors in insurance
companies commonly use. The Company defines operating income (loss) as net
income (loss) excluding after-tax net realized investment gains or losses.
Because the Company's calculation of operating income (loss) may differ from
similar measures other companies use, investors should exercise caution when
comparing the Company's measure of operating income (loss) to the measure of
other companies.

The following table provides a reconciliation of the Company's net income to
the Company's operating income for the periods indicated:


                 Three Months Ended December 31, Year Ended December 31,
                 2013       2012       % Change  2013      2012      % Change
                 (dollars in thousands, except per share amounts)

Reconciliation of Net Income to                                    
Operating Income
Net income        $9,564   $6,220   53.8%     $26,322 $23,093 14.0%
Realized losses
(gains) (after    343       (1,128)   NM        (1,599)  (4,528)  NM
tax)
Operating income  $9,907   $5,092   94.6%     $24,723 $18,565 33.2%
                                                                
Per Share Reconciliation of Net Income to                           
Operating Income
Net income –      $0.36    $0.25    44.0%     $1.02   $0.91   12.1%
Class A (diluted)
Realized losses
(gains) (after    0.01      (0.05)    NM        (0.06)   (0.18)   NM
tax)
Operating income  $0.37    $0.20    85.0%     $0.96   $0.73   31.5%
– Class A
                                                                
Net income –      $0.34    $0.22    54.5%     $0.94   $0.83   13.3%
Class B
Realized losses
(gains) (after    0.01      (0.04)    NM        (0.06)   (0.16)   NM
tax)
Operating         $0.35    $0.18    94.4%     $0.88   $0.67   31.3%
income– Class B


Statutory combined ratio is a non-GAAP standard measurement of underwriting
profitability that is based upon amounts determined under SAP. The statutory
combined ratio is the sum of:

  *the statutory loss ratio, which is the ratio of calendar-year incurred
    losses and loss expenses to premiums earned;
  *the statutory expense ratio, which is the ratio of expenses incurred for
    net commissions, premium taxes and underwriting expenses to premiums
    written; and
  *the statutory dividend ratio, which is the ratio of dividends to holders
    of workers' compensation policies to premiums earned.

The statutory combined ratio does not reflect investment income, federal
income taxes or other non-operating income or expense. A statutory combined
ratio of less than 100% generally indicates underwriting profitability.

Conference Call and Webcast

The Company will hold a conference call and webcast on Friday, February 21,
2014, beginning at 11:00 A.M. Eastern Time. You may listen via the Internet by
accessing the webcast link on the Company's web site at
http://investors.donegalgroup.com. A replay of the conference call will also
be available via the Company's web site.

About the Company

Donegal Group is an insurance holding company. The Company's Class A common
stock and Class B common stock trade on the NASDAQ Global Select Market under
the symbols DGICA and DGICB, respectively. As an effective acquirer of small
to medium-sized "main street" property and casualty insurers, Donegal Group
has grown profitably since its formation in 1986. The Company continues to
seek opportunities for growth while striving to achieve its longstanding goal
of outperforming the property and casualty insurance industry in terms of
service, profitability and growth in book value.

As Forbes reported, Donegal Group Inc. was named to a list of the 100 Most
Trustworthy Companies for 2013 and 2012, ranking the company among firms that
have consistently demonstrated transparent and conservative accounting
practices and solid corporate governance and management. A reprint of the
Forbes article is available as a "Featured Report" on the Company's web site.

Safe Harbor

We base all statements contained in this release that are not historic facts
on our current expectations. These statements are forward-looking in nature
(as defined in the Private Securities Litigation Reform Act of 1995) and
involve a number of risks and uncertainties. Actual results could vary
materially. Factors that could cause actual results to vary materially
include: our ability to maintain profitable operations, the adequacy of the
loss and loss expense reserves of our insurance subsidiaries, business and
economic conditions in the areas in which we operate, interest rates,
competition from various insurance and other financial businesses, terrorism,
the availability and cost of reinsurance, adverse and catastrophic weather
events, legal and judicial developments, changes in regulatory requirements,
our ability to integrate and manage successfully the companies we may acquire
from time to time and other risks we describe from time to time in the
periodic reports we file with the Securities and Exchange Commission. You
should not place undue reliance on any such forward-looking statements. We
disclaim any obligation to update such statements or to announce publicly the
results of any revisions that we may make to any forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or circumstances
after the date of such statements.

Donegal Group Inc.
Consolidated Statements of Income
(unaudited; in thousands, except share data)
                                                       
                                          Quarter Ended December 31,
                                          2013          2012
                                                       
Net premiums earned                        $132,982    $121,824
Investment income, net of expenses         4,685        5,445
Net realized investment (losses) gains     (520)        1,709
Lease income                               211          225
Installment payment fees                   1,629        1,789
Equity in earnings of DFSC                 408          912
Total revenues                             139,395      131,904
                                                       
Net losses and loss expenses               83,193       87,772
Amortization of deferred acquisition costs 21,517       19,334
Other underwriting expenses                20,861       16,297
Policyholder dividends                     637          542
Interest                                   382          574
Other expenses                             554          362
Total expenses                             127,144      124,881
                                                       
Income before income tax expense           12,251       7,023
Income tax expense                         2,687        803
                                                       
Net income                                $9,564      $6,220
                                                       
Net income per common share:                            
Class A - basic                           $0.37       $0.25
Class A - diluted                          $0.36       $0.25
Class B - basic and diluted                $0.34       $0.22
                                                       
Supplementary Financial Analysts' Data                  
                                                       
Weighted-average number of shares                       
outstanding:                                            
Class A - basic                            20,711,539   20,045,761
Class A - diluted                          21,391,352   20,217,567
Class B - basic and diluted                5,576,775    5,576,775
                                                       
Net written premiums                       $123,770    $114,697
                                                       
Book value per common share                             
at end of period                           $15.02      $15.63
                                                       
Annualized return on average equity        9.7%          6.2%



Donegal Group Inc.
Consolidated Statements of Income
(unaudited; in thousands, except share data)
                                                     
                                          Year Ended December 31,
                                          2013        2012
                                                     
Net premiums earned                        $515,292  $475,002
Investment income, net of expenses         18,795     20,169
Net realized investment gains              2,423      6,859
Lease income                               850        954
Installment payment fees                   6,842      7,466
Equity in earnings of DFSC                 2,908      4,533
Total revenues                             547,110    514,983
                                                     
Net losses and loss expenses               343,128    332,872
Amortization of deferred acquisition costs 81,753     74,314
Other underwriting expenses                82,197     73,915
Policyholder dividends                     1,910      1,342
Interest                                   1,635      2,359
Other expenses                             3,777      2,323
Total expenses                             514,400    487,125
                                                     
Income before income tax expense           32,710     27,858
Income tax expense                         6,388      4,765
                                                     
Net income                                $26,322   $23,093
                                                     
Net income per common share:                          
Class A - basic                           $1.04     $0.92
Class A - diluted                          $1.02     $0.91
Class B - basic and diluted                $0.94     $0.83
                                                     
Supplementary Financial Analysts' Data                
                                                     
Weighted-average number of shares                     
outstanding:                                          
Class A - basic                            20,363,677 20,031,455
Class A - diluted                          20,762,385 20,305,558
Class B - basic and diluted                5,576,775  5,576,775
                                                     
Net written premiums                       $533,431  $496,447
                                                     
Book value per common share                           
at end of period                           $15.02    $15.63
                                                     
Return on average equity                   6.6%        5.9%



Donegal Group Inc.
Consolidated Balance Sheets
(in thousands)
                                                      
                                          December 31, December 31,
                                          2013         2012
                                          (unaudited)  
                                                      
ASSETS
Investments:                                           
Fixed maturities:                                      
Held to maturity, at amortized cost        $240,370   $42,100
Available for sale, at fair value          403,652     694,510
Equity securities, at fair value           12,423      8,757
Investments in affiliates                  35,685      37,236
Short-term investments, at cost            99,678      23,826
Total investments                          791,808     806,429
Cash                                       27,636      19,801
Premiums receivable                        123,905     117,196
Reinsurance receivable                     244,239     215,893
Deferred policy acquisition costs          43,628      40,122
Prepaid reinsurance premiums               112,664     111,156
Other assets                               41,531      26,292
Total assets                               $1,385,411 $1,336,889
                                                      
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:                                           
Losses and loss expenses                   $495,619   $458,827
Unearned premiums                          382,735     363,088
Accrued expenses                           19,265      17,141
Borrowings under line of credit            58,000      52,000
Subordinated debentures                    5,000       20,465
Other liabilities                          27,915      25,334
Total liabilities                          988,534     936,855
Stockholders' equity:                                  
Class A common stock                       218         209
Class B common stock                       56          56
Additional paid-in capital                 189,116     176,417
Accumulated other comprehensive                         
(loss) income                              (2,313)     26,395
Retained earnings                          222,889     209,670
Treasury stock, at cost                    (13,089)    (12,713)
Total stockholders' equity                 396,877     400,034
Total liabilities and stockholders' equity $1,385,411 $1,336,889

CONTACT: Jeffrey D. Miller, Senior Vice President
         & Chief Financial Officer
         Phone: (717) 426-1931
         E-mail: investors@donegalgroup.com
 
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