What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-05 compared with 2022-05-05 · 249 added, 145 removed, 533 unchanged (43% of the section changed)

2 unchanged sentences

and Subsidiaries

Consolidated Balance Sheets

Balance Sheets

Fixed maturities

51 unchanged sentences

and Subsidiaries

Consolidated Statements of Income

Three Months Ended March 31,

Statements of (Loss) Income

Three Months Ended June 30,

Net premiums earned

9 unchanged sentences

Total expenses

(Loss) income before income tax (benefit) expense

Income tax (benefit) expense (includes $ 60,451 and $ 100,634 income tax expense from reclassification items)

Net (loss) income

(Loss) earnings per common share:

Class A common stock - basic and diluted

Class B common stock - basic and diluted

Donegal Group Inc.

and Subsidiaries

Consolidated Statements of Comprehensive (Loss) Income

Three Months Ended June 30,

Net (loss) income

Other comprehensive (loss) income, net of tax

Unrealized (loss) gain on securities:

Unrealized holding (loss) gain during the period, net of income tax (benefit) expense of ($ 3,174,636 ) and $ 511,306

Reclassification adjustment for gains included in net (loss) income, net of income tax expense of $ 60,451 and $ 100,634

Other comprehensive (loss) income

Comprehensive (loss) income

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

and Subsidiaries

Consolidated Statements of Income

Six Months Ended June 30,

Net premiums earned

Investment income, net of investment expenses

Net investment (losses) gains (includes $ 453,215

and $ 450,025 accumulated other comprehensive income reclassifications)

Installment payment fees

Total revenues

Net losses and loss expenses

Amortization of deferred policy acquisition costs

Other underwriting expenses

Policyholder dividends

Other expenses, net

Total expenses

Income before income tax expense

Income tax expense (includes $ 34,724 and ($ 6,129 ) income tax expense (benefit) from reclassification items)

Income tax expense (includes $ 95,175 and $ 94,505 income tax expense from reclassification items)

Earnings per common share:

Class A common stock - basic and diluted

Class A common stock - basic

Class A common stock - diluted

Class B common stock - basic and diluted

2 unchanged sentences

Consolidated Statements of Comprehensive (Loss) Income

Three Months Ended March 31,

Six Months Ended June 30,

Other comprehensive loss, net of tax

2 unchanged sentences

and ($ 614,319 )

Reclassification adjustment for (gains) losses included in net income, net of income tax expense (benefit) of $ 34,724 and ($ 6,129 )

Reclassification adjustment for gains included in net income, net of income tax expense of $ 95,175 and $ 94,505

Other comprehensive loss

4 unchanged sentences

Consolidated Statement of Stockholders’ Equity

Three Months Ended

March 31, 2022

Six Months Ended

June 30, 2022

Paid-In Capital

11 unchanged sentences

Balance, March 31, 2022

Three Months Ended

March 31, 2021

Issuance of common stock

(stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive loss

Balance, June 30, 2022

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

and Subsidiaries

Consolidated Statement of Stockholders’ Equity

Six Months Ended

June 30, 2021

Paid-In Capital

10 unchanged sentences

Balance, March 31, 2021

Issuance of common stock

(stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive income

Balance, June 30, 2021

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities:

26 unchanged sentences

Net sales of property and equipment

Net sales (purchases) of short-term investments

Net cash (used in) provided by investing activities

Net purchases of short-term investments

Net cash used in investing activities

Cash Flows from Financing Activities:

2 unchanged sentences

Payments on lines of credit

Net cash used in financing activities

Net cash provided by (used in) financing activities

Net decrease in cash

12 unchanged sentences

England, Southern and Southwestern states.

At March 31, 2022, we had three

At June 30, 2022, we had three

our investment function, our commercial lines of insurance and our personal lines of insurance.

2 unchanged sentences

The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies.

At March 31, 2022, Donegal Mutual held approximately 41 % of our outstanding Class A common stock and approximately 84 % of our outstanding Class B

At June 30, 2022, Donegal Mutual held approximately 41 % of our outstanding Class A common stock and approximately 84 % of our

outstanding Class B common stock.

This ownership provides Donegal Mutual with approximately 70 % of the total voting power of our

common stock.

This ownership provides Donegal Mutual with approximately 70 % of the total voting power of our common stock.

insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions.

While each company maintains its separate corporate existence, our insurance subsidiaries and

Donegal Mutual conduct business together as the Donegal Insurance Group.

As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the

same types of insurance products.

Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions.

While each company maintains its separate corporate existence, our insurance

subsidiaries and Donegal Mutual conduct business together as the Donegal Insurance Group.

As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities

and offer the same types of insurance products.

Atlantic States, our largest subsidiary, participates in a proportional reinsurance agreement, or pooling agreement, with Donegal Mutual.

32 unchanged sentences

flows for those interim periods.

Our results of operations for the three months ended March 31, 2022 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2022.

Our results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2022.

We recommend you read the interim financial statements we include in this Form 10-Q Report in conjunction with the financial statements and

the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2021.

Earnings Per Share

(Loss) Earnings Per Share

We have two classes of common stock, which we refer to as our Class A common stock and our Class B common stock.

Our certificate of

incorporation provides that whenever our board of directors declares a dividend on our Class B common stock, our board of directors shall simultaneously declare a dividend on our Class A common stock that is payable to the holders of our

Class A common stock at the same time and as of the same record date at a rate that is at least 10 % greater than the rate at which

our board of directors declared a dividend on our Class B common stock.

Accordingly, we use the two-class method to compute our earnings per common share.

The two-class method is an earnings allocation formula that determines earnings per

share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed earnings using a participation percentage that reflects the dividend rights of each class.

The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for our Class A common stock and our Class B

common stock:

Three Months Ended March 31,

A common stock at the same time and as of the same record date at a rate that is at least 10 % greater than the rate at which our

board of directors declared a dividend on our Class B common stock.

Accordingly, we use the two-class method to compute our (loss) earnings per common share.

The two-class method is an earnings allocation formula that determines (loss) earnings

per share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed (loss) earnings using a participation percentage that reflects the dividend rights of each class.

The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net (loss) income per share for our Class A common stock and our

Class B common stock:

Three Months Ended June 30,

(in thousands, except per share data)

Basic (loss) earnings per share:

Allocation of net (loss) income

Weighted-average shares outstanding

Basic (loss) earnings per share

Diluted (loss) earnings per share:

Allocation of net (loss) income

Number of shares used in basic computation

Weighted-average shares effect of dilutive securities:

Director and employee stock options

Number of shares used in diluted computation

Diluted (loss) earnings per share

Six Months Ended June 30,

(in thousands, except per share data)

Basic earnings per share:

11 unchanged sentences

earnings per share because the exercise price of the options exceeded the average market price of our Class A common stock during the applicable periods.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Number of options to purchase Class A shares excluded

We did not include any effect of dilutive securities in the computation of diluted (loss) earnings per share for the three months ended June

30, 2022 because we sustained a net loss for the period.

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which they pool their direct premiums written,

and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement.

Atlantic States has an 80 % share of the results of the pool, and Donegal Mutual has a 20 % share of the results of the

Atlantic States has an 80 % share of the results of the pool, and Donegal Mutual has a 20 % share

of the results of the pool.

Donegal Mutual began placing the business of the Mountain States Insurance Group into the pool beginning with policies effective in 2021.

33 unchanged sentences

In March 2022, we received such payment from the MCCA and subsequently paid the refunds due to our Michigan policyholders.

The amortized cost and estimated fair values of our fixed maturities at March 31, 2022 were as follows:

The amortized cost and estimated fair values of our fixed maturities at June 30, 2022 were as follows:

Amortized Cost

20 unchanged sentences

Mortgage-backed securities

At March 31, 2022, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair

At June 30, 2022, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair

value of $ 262.0 million and an amortized cost of $ 295.1 million.

Our holdings at March 31, 2022 also included special revenue bonds with an aggregate fair value of $ 152.9

Our holdings at June 30, 2022 also included special revenue bonds with an aggregate fair value of $ 142.2

million and an amortized cost of $ 157.5 million.

With respect to both categories of those bonds at March 31, 2022, we held no

With respect to both categories of those bonds at June 30, 2022, we held no

securities of any issuer that comprised more than 10 % of our holdings of either bond category.

1 unchanged sentence

utility bonds represented 46 % and 37 %,

respectively, of our total investments in special revenue bonds based on the carrying values of these investments at March 31, 2022.

Many of the issuers of the special revenue bonds we held at March 31, 2022 have the authority to impose ad

respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2022.

Many of the issuers of the special revenue bonds we held at June 30, 2022 have the authority to impose ad

valorem taxes.

In that respect, many of the special revenue bonds we held at March 31, 2022 are similar to general obligation bonds.

In that respect, many of the special revenue bonds we held at June 30, 2022 are similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities at December 31, 2021 were as follows:

23 unchanged sentences

fair value of $ 284.9 million and an amortized cost of $ 272.7 million.

Our holdings also included special revenue bonds with an aggregate fair value of $ 160.8 million and an amortized cost of $ 154.2 million.

respect to both categories of bonds, we held no securities of any issuer that comprised more than 10 % of that category at December

Education bonds and water and sewer utility bonds represented 48 % and 35 %, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2021.

Many of the issuers of the special revenue bonds

we held at December 31, 2021 have the authority to impose ad valorem taxes.

In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

Our holdings also included special revenue bonds with an aggregate fair value of $ 160.8

million and an amortized cost of $ 154.2 million.

With respect to both categories of bonds, we held no securities of any issuer that

comprised more than 10 % of that category at December 31, 2021.

Education bonds and water and sewer utility bonds represented 48 % and 35 %, respectively, of our

total investments in special revenue bonds based on their carrying values at December 31, 2021.

Many of the issuers of the special revenue bonds we held at December 31, 2021 have the authority to impose ad valorem taxes.

In that respect, many

of the special revenue bonds we held at December 31,2021 are similar to general obligation bonds.

We have segregated within accumulated other comprehensive (loss) income the net unrealized losses of $ 15.1 million arising prior to the November 30, 2013 reclassification date for fixed maturities reclassified from available for sale to held to maturity.

1 unchanged sentence

this balance over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on the same fixed maturities.

We recorded amortization of $ 149,475 and $ 371,265 in other

comprehensive loss during the three months ended March 31, 2022 and 2021, respectively.

At March 31, 2022 and December 31, 2021, net unrealized losses of $ 5.0 million and $ 5.2 million, respectively, remained within accumulated other comprehensive

(loss) income.

We show below the amortized cost and estimated fair value of our fixed maturities at March 31, 2022 by contractual maturity.

We recorded amortization of $ 298,291 and $ 556,553 in other comprehensive loss during the

six months ended June 30, 2022 and 2021, respectively.

At June 30, 2022 and December 31, 2021, net unrealized losses of $ 4.9

million and $ 5.2 million, respectively, remained within accumulated other comprehensive (loss) income.

We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2022 by contractual maturity.

maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

16 unchanged sentences

Total available for sale

The cost and estimated fair values of our equity securities at March 31, 2022 were as follows:

The cost and estimated fair values of our equity securities at June 30, 2022 were as follows:

Estimated Fair

6 unchanged sentences

We present below gross gains and losses from investments and the change in the difference between fair value and cost of investments:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

9 unchanged sentences

Net investment (losses) gains

We held fixed maturities with unrealized losses representing declines that we considered temporary at March 31, 2022 as follows:

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2022 as follows:

Less Than 12 Months

19 unchanged sentences

Mortgage-backed securities

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments.

securities, we measure investments at fair value, and we recognize changes in fair value in our results of operations.

With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our

For equity securities, we measure investments at fair value, and we recognize changes in fair value in our results of operations.

With respect to a debt security that is in an unrealized loss position, we first assess if we intend

to sell the debt security.

If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations.

If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be

required to sell the debt security prior to recovery.

If we do not intend to sell the debt security, we determine whether it is more likely than not that

we will be required to sell the debt security prior to recovery.

If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations.

determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred with respect to that security.

We determine whether a credit loss has occurred

by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect.

we determine it is more likely than

not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred with respect to that security.

determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect.

If we expect a cash flow shortfall, we consider that a credit loss has occurred.

determine that a credit loss has occurred, we consider the impairment to be other than temporary.

we determine that a credit loss has occurred, we consider the impairment to be other than temporary.

We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining

3 unchanged sentences

agency downgrades.

We held 593 debt securities that were in an unrealized loss position at March 31, 2022.

Based upon our analysis

of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We held 827 debt securities that were in an unrealized loss position at June 30, 2022.

Based upon our analysis of

general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest

8 unchanged sentences

ordinarily include or exclude.

Financial data by segment for the three months ended March 31, 2022 and 2021 is as follows:

Three Months Ended March 31,

Financial data by segment for the three and six months ended June 30, 2022 and 2021 is as follows:

Three Months Ended June 30,

(in thousands)

6 unchanged sentences

Total revenues

(Loss) income before income tax (benefit) expense:

Underwriting (loss) income:

Commercial lines

Personal lines

SAP underwriting (loss) income

GAAP adjustments

GAAP underwriting (loss) income

Net investment income

Investment (losses) gains

(Loss) income before income tax (benefit) expense

Six Months Ended June 30,

(in thousands)

Premiums earned:

Commercial lines

Personal lines

GAAP premiums earned

Net investment income

Investment (losses) gains

Total revenues

Income before income tax expense:

Underwriting income (loss):

Underwriting (loss) income:

Commercial lines

Personal lines

SAP underwriting income (loss)

SAP underwriting loss

GAAP adjustments

GAAP underwriting income

GAAP underwriting (loss) income

Net investment income

4 unchanged sentences

The line of credit has no expiration date, no annual fees and no covenants.

At March 31, 2022, we had

no outstanding borrowings from M&T and had the ability to borrow up to $ 20.0 million at interest rates equal to the then-current LIBOR rate plus 2.00 %.

At June 30, 2022, we had no outstanding borrowings from M&T and had the ability to borrow up to $ 20.0 million at interest rates equal to the then-current LIBOR rate plus 2.00 %.

Atlantic States is a member of the FHLB of Pittsburgh.

1 unchanged sentence

Pittsburgh in exchange for cash advances.

Atlantic States has a fixed-rate cash advance of $ 35.0 million that was outstanding at

March 31, 2022.

Atlantic States has a fixed-rate cash advance of $ 35.0 million that was outstanding at June

The cash advance carries a fixed interest rate of 1.74 % and is due in August 2024 .

4 unchanged sentences

The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’

membership in the FHLB of Pittsburgh at March 31, 2022.

membership in the FHLB of Pittsburgh at June 30, 2022.

FHLB of Pittsburgh stock purchased and owned

2 unchanged sentences

Share–Based Compensation

We measure all share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of

related compensation expense in our results of operations.

In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date

of grant using the Black-Scholes option pricing model.

The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

We recorded compensation expense related to our stock compensation plans of $ 244,140 and $ 292,795 for the three months ended March 31,

2022 and 2021, respectively, with a corresponding income tax benefit of $ 51,269 and $ 61,487 , respectively.

At March 31, 2022, we had $ 1.2 million

of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans that we expect to recognize over a weighted average period of approximately 1.8 years.

We received cash from option exercises under all stock compensation plans during the three months ended March 31, 2022 and 2021 of $ 12,321 and $ 4.4 million,

We measure all

share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of related compensation expense in our results of operations.

In determining the expense we record for stock options

granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model.

The significant assumptions we utilize in applying the

Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

compensation expense related to our stock compensation plans of $ 241,645 and $ 304,373 for the three months ended June 30, 2022 and 2021, respectively, with a corresponding income tax benefit of $ 50,745 and $ 63,918 , respectively.

We recorded compensation

expense related to our stock compensation plans of $ 485,785 and $ 597,168 for the six months ended June 30, 2022 and 2021, respectively, with a corresponding income tax benefit of $ 102,015 and $ 125,405 , respectively.

At June 30, 2022, we

had $ 959,909 of unrecognized compensation expense related to nonvested share-based compensation granted under our stock

compensation plans that we expect to recognize over a weighted average period of approximately 1.7 years.

We received cash from option exercises under all stock compensation plans during the three months ended June 30, 2022 and 2021 of $ 11.2 million and $ 7.0 million,

respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 153 and $ 149,156 for the three months ended March 31, 2022 and 2021, respectively.

We received cash from option exercises under all stock compensation plans during the six months ended June 30, 2022 and 2021 of $ 11.3

million and $ 11.4 million, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises

of $ 264,659 and $ 271,979

for the three months ended June 30, 2022 and 2021, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 264,812 and $ 421,135 for the six months ended June 30, 2022 and 2021, respectively.

Fair Value Measurements

35 unchanged sentences

obtain to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable.

At March 31, 2022, we received two estimates per security from the pricing services, and we priced

substantially all of our Level 1 and Level 2 investments using those prices.

In our review of the estimates the pricing services provided at March 31, 2022, we did not identify any material discrepancies, and we did not make any adjustments

to the estimates the pricing services provided.

At June 30, 2022, we received two estimates per security from the pricing services, and we priced substantially

all of our Level 1 and Level 2 investments using those prices.

In our review of the estimates the pricing services provided at June 30, 2022, we did not identify any material discrepancies, and we did not make any adjustments to the estimates

the pricing services provided.

We present our cash and short-term investments at estimated fair value.

6 unchanged sentences

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at

March 31, 2022:

June 30, 2022:

Fair Value Measurements Using

5 unchanged sentences

Inputs (Level 2)

Inputs (Level 3)

(in thousands)

15 unchanged sentences

Inputs (Level 2)

Inputs (Level 3)

(in thousands)

5 unchanged sentences

Equity securities

At March 31, 2022 and December 31, 2021, respectively, we had no material unrecognized tax benefits or accrued interest and penalties.

At June 30, 2022 and December 31, 2021, respectively, we had no material unrecognized tax benefits or accrued interest and penalties.

years 2016 through 2021

remained open for examination at March 31, 2022.

remained open for examination at June 30, 2022.

We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of our tax assets.

1 unchanged sentence

We have determined that we are not required to establish a valuation allowance for our

other deferred tax assets of $ 32.5 million and $ 28.1 million at March 31, 2022 and December 31, 2021, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences,

future taxable income and the implementation of tax planning strategies.

other deferred tax assets of $ 36.5 million and $ 28.1 million at June 30, 2022 and December 31, 2021, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future

taxable income and the implementation of tax planning strategies.

Liabilities for Losses and Loss Expenses

The establishment of appropriate liabilities for losses and loss expenses is an inherently uncertain process, and we can provide no

assurance that our insurance subsidiaries’ ultimate liabilities for losses and loss expenses will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition.

we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of

ultimate claim costs may change.

As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and

loss expenses in certain periods, and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses.

Changes in our insurance subsidiaries’ estimate of

their liabilities for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

The establishment of appropriate liabilities for losses and loss expenses is an inherently uncertain process, and we can provide no assurance

that our insurance subsidiaries’ ultimate liabilities for losses and loss expenses will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition.

Furthermore, we cannot

predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate

claim costs may change.

in certain periods, and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses.

Changes in our insurance subsidiaries’ estimate of their

liabilities for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

We summarize activity in our insurance subsidiaries’ liabilities for losses and loss expenses as follows:

Three Months Ended March 31,

Six Months Ended June 30,

(in thousands)

9 unchanged sentences

Our insurance subsidiaries recognized a decrease in their liabilities for losses and loss expenses of prior years of $ 24.4 million and $ 21.6 million for

the three months ended March 31, 2022 and 2021, respectively.

Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in

estimates that increased or decreased their loss and loss expense reserves in those years.

The 2022 development represented 2.6 %

of the December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence or severity in nearly all lines of business.

The majority of the 2022 development related to decreases in the liabilities for

losses and loss expenses of prior years for Atlantic States and MICO.

The 2021 development represented 1.5 % of the December 31,

2020 net carried reserves and resulted primarily from lower-than-expected loss emergence or severity in nearly all lines of business.

The majority of the 2021 development related to decreases in the liabilities for losses and loss expenses

of prior years for Atlantic States and MICO.

Short-duration contracts are contracts for which our insurance subsidiaries receive premiums that they recognize as revenue over the

period of the contract in proportion to the amount of insurance protection our insurance subsidiaries provide.

the six months ended June 30, 2022 and 2021, respectively.

Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in estimates

that increased or decreased their loss and loss expense reserves in those years.

The 2022 development represented 3.9 % of the

December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence or severity in nearly all lines of business.

The majority of the 2022 development related to decreases in the liabilities for losses and

loss expenses of prior years for Atlantic States and MICO.

The 2021 development represented 3.9 % of the December 31, 2020 net

carried reserves and resulted primarily from lower-than-expected loss emergence or severity in nearly all lines of business.

The majority of the 2021 development related to decreases in the liabilities for losses and loss expenses of prior

years for Atlantic States and MICO.

Short-duration contracts are contracts for which our insurance subsidiaries receive premiums that they recognize as revenue over the period

of the contract in proportion to the amount of insurance protection our insurance subsidiaries provide.

Our insurance subsidiaries consider the policies they issue to be short-duration contracts.

We consider the material lines of

business of our insurance subsidiaries to be personal automobile, homeowners, commercial automobile, commercial multi-peril and workers’ compensation.

Our insurance subsidiaries determine incurred but not reported (“IBNR”) reserves by subtracting the cumulative loss and loss expense

amounts our insurance subsidiaries have paid and the case reserves our insurance subsidiaries have established at the balance sheet date from their actuaries’ estimate of the ultimate cost of losses and loss expenses.

Accordingly, the IBNR

reserves of our insurance subsidiaries include their actuaries’ projections of the cost of unreported claims as well as their actuaries’ projected development of case reserves on known claims and reopened claims.

We consider the material lines of business of

our insurance subsidiaries to be personal automobile, homeowners, commercial automobile, commercial multi-peril and workers’ compensation.

Our insurance subsidiaries determine incurred but not reported (“IBNR”) reserves by subtracting the cumulative loss and loss expense amounts

our insurance subsidiaries have paid and the case reserves our insurance subsidiaries have established at the balance sheet date from their actuaries’ estimate of the ultimate cost of losses and loss expenses.

Accordingly, the IBNR reserves

of our insurance subsidiaries include their actuaries’ projections of the cost of unreported claims as well as their actuaries’ projected development of case reserves on known claims and reopened claims.

Our insurance subsidiaries’

methodology for estimating IBNR reserves has been in place for many years, and their actuaries made no significant changes to that methodology during the three months ended March 31, 2022.

methodology for estimating IBNR reserves has been in place for many years, and their actuaries made no significant changes to that methodology during the six months ended June 30, 2022.

The actuaries for our insurance subsidiaries generally prepare an initial estimate for ultimate losses and loss expenses for the current

accident year by multiplying earned premium by an “ a priori ,” or expected,

loss ratio for each line of business our insurance subsidiaries write.

Expected loss ratios represent the actuaries’ expectation of losses at the time our insurance subsidiaries price and write their policies and before the emergence of any

actual claims experience.

The actuaries determine an expected loss ratio by analyzing historical experience and adjusting for loss cost trends, loss frequency and severity trends, premium rate level changes, reported and paid loss emergence

patterns and other known or observed factors.

accident year by multiplying earned premium by an ‘‘a priori,’’ or expected, loss ratio for each line of business our insurance subsidiaries write.

Expected loss ratios represent the actuaries’ expectation of losses at the time our insurance

subsidiaries price and write their policies and before the emergence of any actual claims experience.

The actuaries determine an expected loss ratio by analyzing historical experience and adjusting for loss cost trends, loss frequency and

severity trends, premium rate level changes, reported and paid loss emergence patterns and other known or observed factors.

The actuaries use a variety of actuarial methods to estimate the ultimate cost of losses and loss expenses.

These methods include paid

loss development, incurred loss development and the Bornhuetter-Ferguson method from which the actuaries select loss development factor assumptions.

The actuaries base their selection of a point estimate on a judgmental weighting of the

estimates each of these methods produce.

These methods include paid loss

development, incurred loss development and the Bornhuetter-Ferguson method from which the actuaries select loss development factor assumptions.

The actuaries base their selection of a point estimate on a judgmental weighting of the estimates

each of these methods produce.

The actuaries consider loss frequency and severity trends when they develop expected loss ratios and point estimates.

2 unchanged sentences

Factors that affect loss frequency include changes in weather patterns and economic activity.

Factors that affect

loss severity include changes in policy limits, reinsurance retentions, inflation rates and judicial interpretations.

Our insurance subsidiaries create a claim file when they receive notice of an actual demand for payment, an event that may lead to a

demand for payment or when they otherwise determine that a demand for payment could potentially lead to a future demand for payment on another coverage under the same policy or another policy they have issued.

Factors that affect loss

severity include changes in policy limits, reinsurance retentions, inflation rates and judicial interpretations.

Our insurance subsidiaries create a claim file when they receive notice of an actual demand for payment, an event that may lead to a demand

for payment or when they otherwise determine that a demand for payment could potentially lead to a future demand for payment on another coverage under the same policy or another policy they have issued.

In recent years, our insurance

2 unchanged sentences

claim reporting date affect the actuaries’ ability to predict loss frequency accurately and the amount of IBNR reserves our insurance subsidiaries require.

Our insurance subsidiaries generally create a claim file for a policy at the claimant level by type of coverage and generally recognize

one count for each claim event.

Our insurance subsidiaries generally create a claim file for a policy at the claimant level by type of coverage and generally recognize one

count for each claim event.

In certain lines of business where it is common for multiple parties to claim damages arising from a single claim event, our insurance subsidiaries recognize one count for each claimant involved in the event.

9 unchanged sentences

2022 from December 15, 2019.

We are a smaller reporting company and are in the process of evaluating the impact of the adoption of this guidance on our financial position, results of operations and cash flows.

We are a smaller reporting company and are in the process of evaluating our investment portfolio, reinsurance receivable and premiums receivable for the impact of the adoption of this guidance on our financial

position, results of operations and cash flows.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements