Donegal Group Inc. Announces First Quarter 2014 Results

Donegal Group Inc. Announces First Quarter 2014 Results

MARIETTA, Pa., April 25, 2014 (GLOBE NEWSWIRE) -- Donegal Group Inc.
(Nasdaq:DGICA) (Nasdaq:DGICB) today reported its financial results for the
first quarter of 2014.

  *Net loss of $634,414, or 2 cents per diluted Class A share, for the first
    quarter of 2014, compared to net income of $6.5 million, or 25 cents per
    diluted Class A share, for the first quarter of 2013
  *First quarter pre-tax results affected adversely by record winter
    weather-related losses of $15.3 million
  *Statutory combined ratio^1 of 103.2% for first quarter as total
    weather-related loss ratio rose 6.9 percentage points over prior-year
    first quarter
  *9.1% increase in net premiums written to $144.6 million, reflecting strong
    organic growth in commercial lines and the continued impact of premium
    rate increases
  *Book value per share of $15.18 at March 31, 2014, compared to $15.02 at
    year-end 2013

                         Three Months Ended March 31,
                         2014               2013              % Change
                         (dollars in thousands, except per share amounts)
Income Statement Data                                        
Net premiums earned       $133,548         $124,702        7.1%
Investment income, net    4,616             4,815            -4.1
Realized (losses) gains   (89)              1,341            NM^2
Total revenues            140,339           133,873          4.8
Net (loss) income        (634)             6,475            NM
Operating (loss) income^1 (576)             5,591            NM
Per Share Data                                               
Net (loss) income– Class $(0.02)          $0.25           NM
A (diluted)
Net (loss) income– Class (0.02)            0.23             NM
Operating (loss) income– (0.02)            0.22             NM
Class A (diluted)
Operating (loss) income– (0.02)            0.20             NM
Class B
Book value                15.18             15.72            -3.4
^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").
^2Not meaningful.                                             

Donald H. Nikolaus, President and Chief Executive Officer, noted, "The losses
many of our policyholders experienced as a result of the severe winter weather
events of early 2014 across our operating regions masked our overall strategic
progress. Donegal Group made significant progress toward its long-term
strategic objectives in 2013. That momentum has carried into 2014, as our
underlying results for the first quarter reflected the ongoing benefits of the
rate and underwriting actions we have taken in recent years.

"The Donegal Insurance Group claims personnel worked diligently with our
independent agents and outside adjusters to deliver the quality claims service
that our policyholders expect and deserve. A large percentage of those claims
have already been settled, and we extend our appreciation for the extra
efforts of many individuals who helped to service the substantial volume of
claims," Mr. Nikolaus added.

Mr. Nikolaus continued, "Market conditions within our operating regions
continue to be favorable, as commercial lines renewal premium increases that
remain in the 5 to 7 percent range demonstrate. We are also seeing solid new
business growth in both commercial and personal lines of business, reflecting
both the improving economic climate as well as the strength of our
relationships with our independent agencies."

"In this environment, we continue to implement our strategic plan and expect
2014 to show additional and measurable progress toward our established
long-term corporate goals of increasing profits, building our financial
strength and enhancing the value of our stockholders' investment," Mr.
Nikolaus concluded.

At March 31, 2014, the Company's book value per share was $15.18, compared to
$15.02 at December 31, 2013. The higher book value per share at March 31, 2014
reflected net unrealized gains in the fair value of the Company's
available-for-sale fixed-maturity securities portfolio due to decreased market
interest rates during the quarter. During the first quarter of 2014, the
Company repurchased 846 Class A shares at an average cost of $14.22 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 and Donegal Mutual Insurance Company conduct business together
as the Donegal Insurance Group.

                          Three Months Ended March 31,
                          2014       2013       % Change
                          (dollars in thousands)
Net Premiums Written                           
Personal lines:                                
Automobile                 $50,556  $48,622  4.0%
Homeowners                 22,915    21,855    4.9
Other                      3,770     3,370     11.9
Total personal lines       77,241    73,847    4.6
Commercial lines:                              
Automobile                 17,260    15,463    11.6
Workers' compensation      26,578    23,211    14.5
Commercial multi-peril     22,078    19,694    12.1
Other                      1,425     251       NM
Total commercial lines     67,341    58,619    14.9
Total net premiums written $144,582 $132,466 9.1%

The Company's net premiums written increased 9.1% for the first quarter of
2014 compared to the first quarter of 2013. This increase represented the
combination of 14.9% growth in commercial lines writings and 4.6% growth in
personal lines writings. The $12.1 million growth in net premiums written for
the first quarter of 2014 compared to the first quarter of 2013 included:

  *$2.7 million, or 2.1% 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.
  *$7.1 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.
  *$2.3 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, offset
    by higher reinsurance reinstatement premiums.

                                  Three Months Ended
                                  March 31,
                                  2014      2013
Statutory Combined Ratios                   
Personal Lines:                             
Automobile                         97.9%     104.2%
Homeowners                         109.8    89.1
Other                              121.5    82.5
Total personal lines               102.7    98.1
Commercial Lines:                           
Automobile                         100.0    102.7
Workers' compensation              97.6     101.6
Commercial multi-peril             119.3    98.5
Other                              NM        NM
Total commercial lines             104.3    98.4
Total lines                        103.2%    98.0%
GAAP Combined Ratios (Total Lines)          
Loss ratio (non-weather)           61.7%     64.1%
Loss ratio (weather-related)       11.4     4.5
Expense ratio                      31.3     30.7
Dividend ratio                     0.3      0.4
Combined ratio                     104.7%    99.7%

For the first quarter of 2014, the Company's statutory loss ratio increased to
73.6%, compared to 68.9% for the first quarter of 2013. Weather-related losses
of $15.3 million for the first quarter of 2014, which equated to 11.4
percentage points of the Company's loss ratio, far exceeded the $5.6 million,
or 4.5 percentage points of the Company's loss ratio, for the first quarter of
2013. Weather-related loss activity in the first quarter of 2014 was more than
double the Company's five-year average for first-quarter weather losses of
$6.9 million. Severe winter weather, including extended periods of
sub-freezing temperatures across a large portion of the country and
accumulations of snow and ice from multiple weather systems, accounted for the
increase in claim activity.

Large fire losses of $10.1 million for the first quarter of 2014, or 7.6
percentage points of the Company's loss ratio, exceeded the $8.1 million, or
6.5 percentage points of the Company's loss ratio, the Company incurred for
the first quarter of 2013. The Company attributes the increase in large fire
losses to the extreme winter temperatures in early 2014. Development of
reserves for losses incurred in prior accident years was negligible for the
first quarters of 2014 and 2013.

Kevin G. Burke, Executive Vice President and Chief Operating Officer,
commented, "The weather conditions and events in the first quarter of 2014
contributed to a significant number of homeowners and commercial property
claims, affecting the comparability of our year-over-year performance. Had we
experienced an average level of weather-related and large fire losses, our
underwriting results in our property lines of business would have fallen well
within our expectations. We were pleased that our casualty lines of business
were profitable despite an increased frequency of weather-related automobile
accidents during the quarter."

The Company's statutory expense ratio^1 was 29.3% for the first quarter of
2014, in line with 28.7% for the first quarter of 2013.

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
90.5% of its consolidated investment portfolio in diversified, highly rated
and marketable fixed-maturity securities at March 31, 2014.

                                          March 31, 2014    December 31, 2013
                                          Amount     %      Amount     %
                                          (dollars in thousands)
Fixed maturities, at carrying value:                                 
U.S. Treasury securities and obligations
of U.S. government corporations and        $61,366  7.6%   $62,279  7.9%
Obligations of states and political        375,185   46.7  385,982   48.7
Corporate securities                       114,187   14.2  55,547    7.0
Mortgage-backed securities                 177,150   22.0  140,214   17.7
Total fixed maturities                     727,888   90.5  644,022   81.3
Equity securities, at fair value           22,298    2.8   12,423    1.6
Investments in affiliates                  37,117    4.6   35,685    4.5
Short-term investments, at cost            16,367    2.1   99,678    12.6
Total investments                          $803,670 100.0% $791,808 100.0%
Average investment yield                   2.3%             2.4%       
Average tax-equivalent investment yield    3.2%             3.3%       
Average fixed-maturity duration (years)    4.9             4.5       

Net investment income of $4.6 million for the first quarter of 2014 decreased
4.1% compared to $4.8 million in net investment income for the first quarter
of 2013. The decrease in net investment income reflected a lower average
investment yield within the Company's fixed-maturity securities compared to
the first quarter of 2013. Net realized investment losses were $88,532 for the
first quarter of 2014, compared to net realized investment gains of $1.3
million for the first quarter of 2013. The Company had no impairments in its
investment portfolio that it considered to be other than temporary during the
first quarters of 2014 or 2013.

Jeffrey D. Miller, Executive Vice President and Chief Financial Officer, in
commenting on the Company's investment operations, noted, "Reinvestment of
funds we held in short-term investments at year-end 2013 resulted in a modest
increase in the duration of our overall investment portfolio during the first
quarter. We expect those investments in corporate fixed-maturity securities
and, to a lesser extent, dividend-paying equity securities, to enhance our
future investment income."

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
$409,000 for the first quarter of 2014, compared to $1.1 million for the first
quarter of 2013. 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 March 31,
                             2014                  2013          % Change
                             (dollars in thousands, except per share amounts)

Reconciliation of Net (loss) Income to Operating                 
(loss) Income
Net (loss) income             $(634)              $6,475      NM
Realized losses (gains)       58                   (884)        NM
(after tax)
Operating (loss) income       $(576)              $5,591      NM
Per Share Reconciliation of Net Income to Operating              
Net (loss) income – Class A   $(0.02)             $0.25       NM
Realized losses (gains)       --                  (0.03)       NM
(after tax)
Operating (loss) income –     $(0.02)             $0.22       NM
Class A
Net (loss) income – Class B   $(0.02)             $0.23       NM
Realized losses (gains)       --                  (0.03)       NM
(after tax)
Operating (loss) income–     $(0.02)             $0.20       NM
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, April 25, 2014,
beginning at 10:00 A.M. Eastern Time. You may listen via the Internet by
accessing the webcast link on the Company's web site at 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 Most
Trustworthy Financial Companies for 2014, 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 March 31,
                                                 2014        2013
Net premiums earned                               $133,548  $124,702
Investment income, net of expenses                4,616      4,815
Net realized investment (losses) gains            (89)       1,341
Lease income                                      213        216
Installment payment fees                          1,642      1,710
Equity in earnings of DFSC                        409        1,089
Total revenues                                    140,339    133,873
Net losses and loss expenses                      97,632     85,533
Amortization of deferred acquisition costs        21,319     19,560
Other underwriting expenses                       20,459     18,752
Policyholder dividends                            395        475
Interest                                          365        487
Other expenses                                    962        983
Total expenses                                    141,132    125,790
(Loss) income before income tax (benefit) expense (793)      8,083
Income tax (benefit) expense                      (159)      1,608
Net (loss) income                                $(634)    $6,475
Net (loss) income per common share:                          
Class A - basic                                  $(0.02)   $0.26
Class A - diluted                                 $(0.02)   $0.25
Class B - basic and diluted                       $(0.02)   $0.23
Supplementary Financial Analysts' Data                       
Weighted-average number of shares outstanding:               
Class A - basic                                   20,873,043 20,066,755
Class A - diluted                                 21,253,229 20,358,232
Class B - basic and diluted                       5,576,775  5,576,775
Net written premiums                              $144,582  $132,466
Book value per common share at end of period      $15.18    $15.72
Annualized return on average equity               -0.6%       6.4%

Donegal Group Inc.
Consolidated Balance Sheets
(in thousands)
                                             March 31,    December 31,
                                             2014         2013
Fixed maturities:                                         
Held to maturity, at amortized cost           $296,360   $240,370
Available for sale, at fair value             431,528     403,652
Equity securities, at fair value              22,298      12,423
Investments in affiliates                     37,117      35,685
Short-term investments, at cost               16,367      99,678
Total investments                            803,670     791,808
Cash                                          17,153      27,636
Premiums receivable                           133,343     123,905
Reinsurance receivable                        252,080     244,239
Deferred policy acquisition costs             45,407      43,628
Prepaid reinsurance premiums                  116,693     112,664
Other assets                                  39,979      41,531
Total assets                                  $ 1,408,325 $1,385,411
Losses and loss expenses                      $510,122   $495,619
Unearned premiums                             397,798     382,735
Accrued expenses                              14,622      19,265
Borrowings under line of credit               61,000      58,000
Subordinated debentures                       5,000       5,000
Other liabilities                             18,198      27,915
Total liabilities                             1,006,740   988,534
Stockholders' equity:                                     
Class A common stock                          218         218
Class B common stock                          56          56
Additional paid-in capital                    190,343     189,116
Accumulated other comprehensive income (loss) 1,937       (2,313)
Retained earnings                             222,133     222,889
Treasury stock, at cost                       (13,102)    (13,089)
Total stockholders' equity                    401,585     396,877
Total liabilities and stockholders' equity    $ 1,408,325 $1,385,411

CONTACT: For Further Information:
         Jeffrey D. Miller, Executive Vice President &
         Chief Financial Officer
         Phone: (717) 426-1931
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