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Item 2. Management’s Discussion and Analysis

2023-11-03 compared with 2023-08-04 · 166 added, 155 removed, 209 unchanged (61% of the section changed)

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We recommend that you read the following information in conjunction with the historical financial information and the footnotes to that financial information we include in this Quarterly Report on Form 10-Q.

also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022.

recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022.

Critical Accounting Policies and Estimates

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Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements.

The most significant estimates relate to the

liabilities of our insurance subsidiaries for property and casualty insurance losses and loss expenses.

While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts of these liabilities may

differ from the estimates we provided.

The most significant estimates relate to the liabilities

of our insurance subsidiaries for property and casualty insurance losses and loss expenses.

While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts of these liabilities may differ from

the estimates we provided.

We regularly review our methods for making these estimates and we reflect any adjustment we consider necessary in our current consolidated results of operations.

Liabilities for Losses and Loss Expenses

Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer

knows at that point in time.

at that point in time.

For example, legislative, judicial and regulatory actions may expand coverage definitions, retroactively mandate coverage or otherwise require our insurance subsidiaries to pay losses for damages that their policies

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Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims.

Our insurance subsidiaries establish these liabilities for the

purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs.

Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of

risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred.

Our insurance subsidiaries determine the amount of their liability for unreported

claims and loss expenses on the basis of historical information by line of insurance.

Our insurance subsidiaries establish these liabilities for the purpose

of covering the ultimate costs of settling all losses, including investigation and litigation costs.

Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk

involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred.

Our insurance subsidiaries determine the amount of their liability for unreported claims

and loss expenses on the basis of historical information by line of insurance.

Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results.

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subsidiaries make adjustments in their reserves that they consider appropriate for such changes.

Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at June

For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $6.8 million.

The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss

and loss expense reserves and have an adverse effect on our results of operations and financial condition.

Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at

September 30, 2023.

At September 30, 2023, for every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $6.8 million.

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,

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pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies.

Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at June 30, 2023 and December 31, 2022 consisted of the following:

Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at September 30, 2023 and December 31, 2022 consisted of the following:

September 30,

(in thousands)

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Total liabilities for losses and loss expenses

We have evaluated the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we consider

in establishing the loss and loss expense reserves of our insurance subsidiaries.

We have evaluated the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we consider in

establishing the loss and loss expense reserves of our insurance subsidiaries.

We established the range of reasonably likely changes based on a review of changes in accident-year development by line of business and applied those changes to our

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Reinsurance at

June 30, 2023

September 30, 2023

Percentage Change

in Stockholders’ Equity at

June 30, 2023(1)

September 30, 2023(1)

Adjusted Loss and Loss

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written in the preceding 12-month period compared to the comparable period one year earlier.

The following table provides a reconciliation of our net premiums earned to our net premiums written for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

The following table provides a reconciliation of our net premiums earned to our net premiums written for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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The combined ratio is a standard measurement of underwriting profitability for an insurance company.

The combined ratio does not reflect investment income, net investment gains or losses,

federal income taxes or other non-operating income or expense.

The combined ratio does not reflect investment income, net investment gains or losses, federal

income taxes or other non-operating income or expense.

A combined ratio of less than 100% generally indicates underwriting profitability.

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Combined Ratios

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three and six months ended June 30, 2023 and 2022:

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three and nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

GAAP Combined Ratios (Total Lines)

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Total commercial and personal lines

Results of Operations - Three Months Ended June 30, 2023 Compared to Three Months Ended June 30, 2022

Results of Operations - Three Months Ended September 30, 2023 Compared to Three Months Ended September 30, 2022

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the second quarter of 2023 were $216.3 million, an increase of $12.2 million, or 5.9%, compared to

$204.1 million for the second quarter of 2022, primarily reflecting solid premium retention and renewal premium increases.

Our insurance subsidiaries’ net premiums earned for the third quarter of 2023 were $224.4 million, an increase of $18.3 million, or 8.9%, compared to

$206.1 million for the third quarter of 2022, primarily reflecting solid premium retention and renewal premium increases.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the second quarter of 2023 were $226.5 million, an increase of $8.1 million, or 3.7%, from the

$218.4 million of net premiums written for the second quarter of 2022.

Commercial lines net premiums written decreased $4.3 million, or 3.2%, for the second quarter of 2023 compared to the second quarter of 2022.

Personal lines net premiums

written increased $12.4 million, or 14.8%, for the second quarter of 2023 compared to the second quarter of 2022.

We attribute the decrease in commercial lines net premiums written primarily to planned attrition in states we are exiting or have

targeted for profit improvement, lower new business writings and reinsurance reinstatement premiums on our property excess of loss reinsurance program, offset partially by strong premium retention and a continuation of renewal premium increases

in lines other than workers’ compensation.

We attribute the increase in personal lines net premiums written primarily to renewal premium increases and strong premium retention.

Our insurance subsidiaries’ net premiums written for the third quarter of 2023 were $219.2 million, an increase of $13.0 million, or 6.3%, from the

$206.2 million of net premiums written for the third quarter of 2022.

Commercial lines net premiums written decreased $2.1 million, or 1.8%, for the third quarter of 2023 compared to the third quarter of 2022.

Personal lines net premiums written

increased $15.1 million, or 17.7%, for the third quarter of 2023 compared to the third quarter of 2022.

We attribute the decrease in commercial lines net premiums written primarily to planned attrition in states we are exiting or have targeted

for profit improvement and lower new business writings, offset partially by strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation.

We attribute the increase in personal lines net

premiums written primarily to renewal premium increases and strong policy retention.

Investment Income.

Our net investment income was $10.2 million for the second quarter of 2023, an increase of $2.0 million, or 23.8%, compared to $8.2 million for the

second quarter of 2022.

We attribute the increase primarily to an increase in the average investment yield relative to the second quarter of 2022.

Net Investment Gains (Losses).

Net investment gains for the second quarter of 2023 were $2.5 million, compared to net investment losses of $8.4 million for the second

Our net investment income was $10.5 million for the third quarter of 2023, an increase of $1.9 million, or 23.0%, compared to $8.6 million for the third

quarter of 2022.

The net investment gains and losses for the second quarter of 2023 and 2022, respectively, resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at June 30, 2023 and 2022,

respectively.

We did not recognize any impairment losses for individual securities in our investment portfolio during the second quarter of 2023 or 2022.

We attribute the increase primarily to an increase in the average investment yield relative to the third quarter of 2022.

Net Investment Losses.

Net investment losses for the third quarters of 2023 and 2022 were $1.2 million and $2.4 million, respectively.

The net investment losses for the third

quarters of 2023 and 2022, respectively, resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at September 30, 2023 and 2022, respectively.

We did not recognize any impairment losses for

individual securities in our investment portfolio during the third quarter of 2023 or 2022.

Losses and Loss Expenses.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 69.9% for the second

quarter of 2023, an increase from our insurance subsidiaries’ loss ratio of 69.4% for the second quarter of 2022.

We attribute this increase primarily to a decreased benefit of net favorable development of reserves for losses incurred in prior

accident years.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 69.8% for the third quarter

of 2023, a decrease from our insurance subsidiaries’ loss ratio of 75.6% for the third quarter of 2022.

We attribute this decrease primarily to decreased core losses and large fire losses, which we define as individual fire losses in excess of

$50,000, offset partially by increased weather-related losses.

Loss ratios for both periods for the automobile and property lines of business reflected the impact of higher costs of labor, parts and materials.

Weather-related losses were $19.7 million, or 9.1 percentage points of the loss

ratio, for the second quarter of 2023, compared to $19.6 million, or 9.6 percentage points of the loss ratio, for the second quarter of 2022.

The impact of weather-related loss activity to the loss ratio for the second quarter of 2023 was higher

than our previous five-year average of 8.9 percentage points for second quarter weather-related losses.

Large fire losses for the second quarter of 2023 were $12.7 million, or 5.9 percentage points of the loss ratio, compared to $13.4 million, or

6.6 percentage points of the loss ratio, for the second quarter of 2022.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 67.9% for the second quarter of 2023, compared to 66.2% for the second quarter of 2022,

primarily due to an increase in the workers’ compensation loss ratio.

The personal lines statutory loss ratio of our insurance subsidiaries decreased to 73.4% for the second quarter of 2023, compared to 75.2% for the second quarter of 2022.

attribute this decrease primarily to a decrease in the homeowners loss ratio.

Our insurance subsidiaries experienced negligible favorable loss reserve development for the second quarter of 2023, compared to $7.9 million that decreased the loss

ratio for the second quarter of 2022 by 3.9 percentage points.

Weather-related losses were $25.7

million, or 11.5 percentage points of the loss ratio, for the third quarter of 2023, compared to $19.4 million, or 9.4 percentage points of the loss ratio, for the third quarter of 2022.

The impact of weather-related loss activity to the loss

ratio for the third quarter of 2023 was higher than our previous five-year average of 9.3 percentage points for third quarter weather-related losses and the highest quarterly impact we have experienced over the past five years.

Large fire losses

for the third quarter of 2023 were $11.0 million, or 4.9 percentage points of the loss ratio, compared to $17.4 million, or 8.4 percentage points of the loss ratio, for the third quarter of 2022.

On a statutory basis, our insurance subsidiaries’

commercial lines loss ratio was 60.9% for the third quarter of 2023, compared to 74.9% for the third quarter of 2022, primarily due to decreases in the commercial automobile, workers’ compensation and commercial multi-peril loss ratios.

personal lines statutory loss ratio of our insurance subsidiaries increased to 86.8% for the third quarter of 2023, compared to 78.7% for the third quarter of 2022.

We attribute this increase primarily to an increase in the personal automobile

and homeowners loss ratios.

Our insurance subsidiaries experienced favorable loss reserve development for the third quarter of 2023 of approximately $7.3 million that decreased the loss ratio by 3.3 percentage points, compared to $6.2 million

that decreased the loss ratio for the third quarter of 2022 by 3.0 percentage points.

Our insurance subsidiaries experienced favorable development primarily in the commercial automobile, personal automobile and other commercial lines of business

for the third quarter of 2023, with the majority of the impact relating to reserves for accident years 2019 through 2022.

Underwriting Expenses.

The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned.

ratio of our insurance subsidiaries was 34.2% for the second quarter of 2023, compared to 35.0% for the second quarter of 2022.

The decrease in the expense ratio primarily reflected lower underwriting-based incentive costs for our agents and

employees for the second quarter of 2023 compared to the prior-year quarter.

ratio of our insurance subsidiaries was 34.1% for the third quarter of 2023, compared to 33.4% for the third quarter of 2022.

The increase in the expense ratio primarily reflected higher technology costs related to our ongoing systems

modernization initiatives for the third quarter of 2023 compared to the prior-year quarter.

Combined Ratio.

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premiums earned.

Our insurance subsidiaries’ combined ratios were 104.7% and 105.0% for the second quarter of 2023 and 2022, respectively.

We attribute the decrease in the combined ratio primarily to a decrease in the expense ratio for the second

quarter of 2023 compared to the second quarter of 2022.

Income Tax Expense (Benefit).

We recorded income tax expense of $256,055 for the second quarter of 2023, representing an effective tax rate of 11.4%.

We recorded an income

tax benefit of $2.4 million for the second quarter of 2022.

The income tax expense (benefit) for the second quarter of 2023 and 2022 represented estimates based on our projected annual taxable income and effective tax rates.

Net Income (Loss) and Net Income (Loss) Per Share.

Our net income for the second quarter of 2023 was $2.0 million, or $.06 per share of Class A common stock on a diluted

basis and $.05 per share of Class B common stock, compared to a net loss of $8.2 million, or $.26 per share of Class A common stock and $.24 per share of Class B common stock, for the second quarter of 2022.

We had 27.5 million and 26.6 million

Class A shares outstanding at June 30, 2023 and 2022, respectively.

Our insurance subsidiaries’ combined ratios were 104.5% and 109.6% for the third quarter of 2023 and 2022, respectively.

We attribute the decrease in the combined ratio primarily to a decrease in the loss ratio for the third

quarter of 2023 compared to the third quarter of 2022.

Income Tax Benefit.

We recorded an income tax benefit of $199,613 and $3.0 million for the third quarter of 2023 and 2022, respectively.

The income tax benefit for the third

quarter of 2023 and 2022 represented estimates based on our projected annual taxable income and effective tax rates.

Net Loss and Net Loss Per Share.

Our net loss for the third quarter of 2023 was $805,301, or $.02 per share of Class A common stock and $.02 per share of Class B common stock,

compared to a net loss of $10.4 million, or $.33 per share of Class A common stock and $.30 per share of Class B common stock, for the third quarter of 2022.

We had 27.6 million and 26.8 million Class A shares outstanding at September 30, 2023

and 2022, respectively.

We had 5.6 million Class B shares outstanding at the end of both periods.

Results of Operations - Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022

Results of Operations - Nine Months Ended September 30, 2023 Compared to Nine Months Ended September 30, 2022

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the first half of 2023 were $431.5 million, an increase of

$28.1 million, or 7.0%, compared to $403.4 million for the first half of 2022, primarily reflecting solid premium retention and renewal premium increases.

Our insurance subsidiaries’ net premiums earned for the first nine months of 2023 were $655.9 million, an increase

of $46.4 million, or 7.6%, compared to $609.5 million for the first nine months of 2022, primarily reflecting solid premium retention and renewal premium increases.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the first half of 2023 were $463.8 million, an increase of $26.9 million, or 6.2%, from the

$436.9 million of net premiums written for the first half of 2022.

Commercial lines net premiums written increased $1.8 million, or 0.6%, for the first half of 2023 compared to the first half of 2022.

Personal lines net premiums written increased

$25.1 million, or 16.1%, for the first half of 2023 compared to the first half of 2022.

We attribute the increase in commercial lines net premiums written primarily to strong premium retention and a continuation of renewal premium increases in

lines other than workers’ compensation, offset partially by planned attrition in states we are exiting or have targeted for profit improvement, lower new business writings and reinsurance reinstatement premiums on our property excess of loss

reinsurance program.

We attribute the increase in personal lines net premiums written primarily to renewal premium increases and strong premium retention.

Our insurance subsidiaries’ net premiums written for the first nine months of 2023 were $683.0 million, an increase of $39.9 million, or 6.2%, from the

$643.1 million of net premiums written for the first nine months of 2022.

Commercial lines net premiums written decreased $0.6 million, or 0.2%, for the first nine months of 2023 compared to the first nine months of 2022.

Personal lines net

premiums written increased $40.5 million, or 17.2%, for the first nine months of 2023 compared to the first nine months of 2022.

We attribute the decrease in commercial lines net premiums written primarily to planned attrition in states we are

exiting or have targeted for profit improvement, lower new business writings and reinsurance reinstatement premiums on our property excess of loss reinsurance program, offset partially by strong premium retention and a continuation of renewal

premium increases in lines other than workers’ compensation.

We attribute the increase in personal lines net premiums written primarily to renewal premium increases and strong policy retention.

Investment Income.

Our net investment income was $19.6 million for the first half of 2023, an increase of $3.5 million, or 22.1%, compared to $16.1 million for the first

half of 2022.

We attribute the increase primarily to an increase in the average investment yield relative to the first half of 2022.

Our net investment income was $30.1 million for the first nine months of 2023, an increase of $5.5 million, or 22.4%, compared to $24.6 million for the

first nine months of 2022.

We attribute the increase primarily to an increase in the average investment yield relative to the first nine months of 2022.

Net Investment Gains (Losses).

Net investment gains for the first half of 2023 were $2.2 million, compared to net investment losses of $8.5 million for the first half of

The net investment gains and losses for the first half of 2023 and 2022, respectively, resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at June 30, 2023 and 2022, respectively.

did not recognize any impairment losses for individual securities in our investment portfolio during the first half of 2023 or 2022.

Net investment gains for the first nine months of 2023 were $930,302, compared to net investment losses of $10.8 million for the first nine

months of 2022.

The net investment gains and losses for the first nine months of 2023 and 2022, respectively, resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at September 30, 2023 and

2022, respectively.

We did not recognize any impairment losses for individual securities in our investment portfolio during the first nine months of 2023 or 2022.

Losses and Loss Expenses.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 67.1% for the first half

of 2023, an increase from our insurance subsidiaries’ loss ratio of 64.3% for the first half of 2022.

We attribute this increase primarily to increased weather-related losses and a decreased benefit of net favorable development of reserves for

losses incurred in prior accident years.

Loss ratios for both periods for the automobile and property lines of business reflected the impact of higher costs of labor, parts and materials.

Weather-related losses of $33.8 million, or 7.8 percentage

points of the loss ratio, for the first half of 2023, increased from $27.5 million, or 6.8 percentage points of the loss ratio, for the first half of 2022.

The impact of weather-related loss activity to the loss ratio for the first half of 2023

was higher than our previous five-year average of 6.8 percentage points for first half weather-related losses.

Large fire losses for the first half of 2023 were $23.6 million, or 5.5 percentage points of the loss ratio, compared to $23.0 million,

or 5.7 percentage points of the loss ratio, for the first half of 2022.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 65.5% for the first half of 2023, compared to 61.6% for the first half of 2022, primarily

due to increases in the commercial automobile, workers’ compensation and commercial multi-peril loss ratios.

The personal lines statutory loss ratio of our insurance subsidiaries increased to 70.0% for the first half of 2023, compared to 69.2%

for the first half of 2022.

We attribute this increase primarily to an increase in the personal automobile loss ratio.

Our insurance subsidiaries experienced favorable loss reserve development for the first half of 2023 of approximately $8.5

million that decreased the loss ratio by 2.0 percentage points, compared to $24.4 million that decreased the loss ratio for the first half of 2022 by 6.1 percentage points.

Our insurance subsidiaries experienced favorable development primarily in

the commercial automobile, workers’ compensation and homeowners lines of business for the first half of 2023, with the majority of the impact relating to reserves for accident years 2021 and 2020.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 68.0% for the first nine

months of 2023, a modest decrease from our insurance subsidiaries’ loss ratio of 68.1% for the first nine months of 2022.

We attribute this decrease primarily to decreased core losses and large fire losses, virtually offset by increased

weather-related losses and a decreased benefit of net favorable development of reserves for losses incurred in prior accident years.

Loss ratios for both periods for the automobile and property lines of business reflected the impact of higher

costs of labor, parts and materials.

Weather-related losses of $59.5 million, or 9.1 percentage points of the loss ratio, for the first nine months of 2023, increased from $47.0 million, or 7.7 percentage points of the loss ratio, for the first

nine months of 2022.

The impact of weather-related loss activity to the loss ratio for the first nine months of 2023 was higher than our previous five-year average of 7.7 percentage points for weather-related losses incurred in the first nine

Large fire losses for the first nine months of 2023 were $34.7 million, or 5.3 percentage points of the loss ratio, compared to $40.4 million, or 6.6 percentage points of the loss ratio, for the first nine months of 2022.

On a statutory

basis, our insurance subsidiaries’ commercial lines loss ratio was 63.9% for the first nine months of 2023, compared to 66.1% for the first nine months of 2022, primarily due to decreases in the commercial automobile, workers’ compensation and

commercial multi-peril loss ratios.

The personal lines statutory loss ratio of our insurance subsidiaries increased to 75.2% for the first nine months of 2023, compared to 72.5% for the first nine months of 2022.

We attribute this increase

primarily to an increase in the personal automobile loss ratio.

Our insurance subsidiaries experienced favorable loss reserve development for the first nine months of 2023 of approximately $15.8 million that decreased the loss ratio by 2.4

percentage points, compared to $30.6 million that decreased the loss ratio for the first nine months of 2022 by 5.0 percentage points.

Our insurance subsidiaries experienced favorable development primarily in the commercial automobile, personal

automobile and homeowners lines of business for the first nine months of 2023, with the majority of the impact relating to reserves for accident years 2019 through 2022.

Underwriting Expenses.

The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned.

ratio of our insurance subsidiaries was 35.3% for the first half of 2023, compared to 35.4% for the first half of 2022.

The modest decrease in the expense ratio primarily reflected lower underwriting-based incentive costs for our agents and

employees for the first half of 2023 compared to the first half of 2022.

ratio of our insurance subsidiaries was 34.9% for the first nine months of 2023, compared to 34.7% for the first nine months of 2022.

The modest increase in the expense ratio primarily reflected higher technology costs related to our ongoing

systems modernization initiatives for the first nine months of 2023 compared to the first nine months of 2022.

Combined Ratio.

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premiums earned.

Our insurance subsidiaries’ combined ratios were 103.0% and 100.4% for the first half of 2023 and 2022, respectively.

We attribute the increase in the combined ratio primarily to an increase in the loss ratio for the first half

of 2023 compared to the first half of 2022.

Income Tax Expense.

We recorded income tax expense of $1.3 million and $709,888 for the first half of 2023 and 2022, respectively,

representing effective tax rates of 15.8% and 12.5%, respectively.

The income tax expense for the first half of 2023 and 2022 represented estimates based on our projected annual taxable income and effective tax rates.

Net Income and Net Income Per Share.

Our net income for the first half of 2023 was $7.2 million, or $.22 per share of Class A common stock on a diluted basis and $.20 per

share of Class B common stock, compared to $4.9 million, or $.16 per share of Class A common stock on a diluted basis and $.14 per share of Class B common stock, for the first half of 2022.

We had 27.5 million and 26.6 million Class A shares

outstanding at June 30, 2023 and 2022, respectively.

Our insurance subsidiaries’ combined ratios were 103.5% for the first nine months of 2023 and 2022.

The unchanged combined ratio reflected modest decreases in the loss ratio and dividend ratio, offset by a modest increase in the

expense ratio for the first nine months of 2023 compared to the first nine months of 2022.

Income Tax Expense (Benefit).

We recorded income tax expense of $1.1 million for the first nine months of 2023, representing an

effective tax rates of 15.2%.

We recorded an income tax benefit of $2.3 million for the first nine months of 2022.

The income tax expense and benefit for the first nine months of 2023 and 2022,

respectively, represented estimates based on our projected annual taxable income and effective tax rates.

Net Income (Loss) and Net Income (Loss) Per Share.

Our net income for the first nine months of 2023 was $6.4 million, or $.20 per share of Class A common stock on a diluted

basis and $.17 per share of Class B common stock, compared to a net loss of $5.4 million, or $.17 per share of Class A common stock and $.16 per share of Class B common stock, for the first nine months of 2022.

We had 27.6 million and 26.8

million Class A shares outstanding at September 30, 2023 and 2022, respectively.

We had 5.6 million Class B shares outstanding at the end of both periods.

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Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as such obligations and needs arise.

Our major sources of funds from operations are the

net cash flows we generate from our insurance subsidiaries’ underwriting results, investment income and investment maturities.

Our major sources of funds from operations are the net

cash flows we generate from our insurance subsidiaries’ underwriting results, investment income and investment maturities.

Our operations have historically generated sufficient net positive cash flow to fund our commitments and add to our investment portfolio, thereby increasing future investment returns and enhancing our liquidity.

The impact of the pooling agreement between Donegal Mutual and Atlantic States has historically been cash-flow positive because of the consistent underwriting profitability of the pool.

impact of the pooling agreement between Donegal Mutual and Atlantic States has historically been cash-flow positive because of the consistent underwriting profitability of the pool.

Donegal Mutual and Atlantic States settle their respective

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an additional measure of liquidity to meet our obligations should an unexpected variation occur in the future.

Our operating activities provided net cash flows in the first half of 2023 and 2022 of $13.1 million and $35.0 million, respectively.

At June 30, 2023, we had no outstanding borrowings under our line of credit with M&T and had the ability to borrow up to $20.0 million at an interest rate equal to the then-current Term SOFR rate plus 2.11%.

At June 30, 2023, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 1.74%.

Our operating activities provided net cash flows in the first nine months of 2023 and 2022 of $26.0 million and $49.9 million,

respectively.

At September 30, 2023, we had no outstanding borrowings under our line of credit with M&T and had the ability to borrow up to $20.0 million at an interest rate equal to the then-current Term SOFR rate plus 2.11%.

At September 30, 2023, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 1.74%.

We estimate the timing of claim payments associated with the liabilities for losses and loss expenses of our insurance subsidiaries based on historical experience and expectations of future payment patterns.

show these liabilities net of reinsurance recoverable on unpaid losses and loss expenses to reflect expected future cash flows related to such liabilities.

Amounts Atlantic States assumes pursuant to the pooling agreement with Donegal Mutual

represent a substantial portion of our insurance subsidiaries’ gross liabilities for losses and loss expenses, and amounts Atlantic States cedes pursuant to the pooling agreement represent a substantial portion of our insurance subsidiaries’

reinsurance recoverable on unpaid losses and loss expenses.

these liabilities net of reinsurance recoverable on unpaid losses and loss expenses to reflect expected future cash flows related to such liabilities.

Amounts Atlantic States assumes pursuant to the pooling agreement with Donegal Mutual represent

a substantial portion of our insurance subsidiaries’ gross liabilities for losses and loss expenses, and amounts Atlantic States cedes pursuant to the pooling agreement represent a substantial portion of our insurance subsidiaries’ reinsurance

recoverable on unpaid losses and loss expenses.

We include cash settlement of Atlantic States’ assumed liabilities from the pool in monthly settlements of pooled activity, as we net amounts ceded to and assumed from the pool.

Donegal Mutual and we do not anticipate any changes in the pool participation levels in the foreseeable future, any such change would be prospective in nature and therefore would not impact the timing of expected payments by Atlantic States for

its percentage share of pooled losses occurring in periods prior to the effective date of such change.

Although Donegal

Mutual and we do not anticipate any changes in the pool participation levels in the foreseeable future, any such change would be prospective in nature and therefore would not impact the timing of expected payments by Atlantic States for its

percentage share of pooled losses occurring in periods prior to the effective date of such change.

We discuss in Note 7 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities.

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time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions.

We did not purchase any shares of our Class A common stock under this program during the six months ended June 30, 2023 or

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2023.

On July 20, 2023, our board of directors declared quarterly cash dividends of $.17 per share of our Class A common stock and $.1525 per share of our Class B common stock,

payable on August 15, 2023 to our stockholders of record as of the close of business on August 1, 2023.

We did not purchase any shares of our Class A common stock under this program during the nine months ended September 30,

2023 or 2022.

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through September 30, 2023.

On October 19, 2023, our board of directors declared quarterly cash dividends of $.17 per share of our Class A common stock and $.1525 per share of our Class B common stock,

payable on November 15, 2023 to our stockholders of record as of the close of business on November 1, 2023.

We are not subject to any restrictions on our payment of dividends to our stockholders, although there are state law restrictions on the

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significant margin.

Our insurance subsidiaries did not pay any dividends to us during the first six months of 2023.

Amounts remaining available for distribution to us as dividends from our insurance subsidiaries without prior approval of their

domiciliary insurance regulatory authorities in 2023 are $26.4 million from Atlantic States, $6.5 million from Southern, $6.0 million from Peninsula and $7.5 million from MICO, or a total of approximately $46.4 million.

At June 30, 2023, we had no material commitments for capital expenditures.

Our insurance subsidiaries paid dividends to us of $6.0 million during the first nine months of 2023.

Amounts remaining available for distribution to us as dividends from our insurance subsidiaries without prior approval of

their domiciliary insurance regulatory authorities in 2023 are $26.4 million from Atlantic States, $6.5 million from Southern, $0 from Peninsula and $7.5 million from MICO, or a total of approximately $40.4 million.

At September 30, 2023, we had no material commitments for capital expenditures.

Equity Price Risk

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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 2. Management’s Discussion and Analysis