What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-05-03 compared with 2023-11-03 · 148 added, 223 removed, 152 unchanged (71% of the section changed)

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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.

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.

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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

explicitly excluded or did not intend to cover.

excluded or did not intend to cover.

At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates.

Our insurance subsidiaries base

their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors.

However, during the loss adjustment period, our insurance

subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities.

We reflect any adjustments to the

liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.

Our insurance subsidiaries base their estimates

of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors.

However, during the loss adjustment period, our insurance subsidiaries may learn

additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities.

We reflect any adjustments to the liabilities for losses and loss

expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.

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

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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 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.

insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques.

Our insurance subsidiaries do not discount their liabilities for losses and

loss expenses.

Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance

subsidiaries’ internal operations.

Our insurance

subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques.

Our insurance subsidiaries do not discount their liabilities for losses and loss

internal operations.

For example, our insurance subsidiaries have experienced an increase in claims severity and a lengthening of the claim settlement periods on bodily injury claims during the past several years.

In addition, the

COVID-19 pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a

number of factors, including supply chain disruption, higher used automobile values, lengthening of repair completion times, increases in the cost of replacement automobile parts and rising labor rates.

These trend changes give rise to greater

uncertainty as to the pattern of future loss settlements.

Related uncertainties regarding future trends include social inflation, availability and cost of building materials, availability of skilled labor, the rate of plaintiff attorney

involvement in claims and the cost of medical technologies and procedures.

Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase

liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation.

Internal assumptions include consistency in the recording of premium and loss statistics, consistency in

the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of

business and consistency in reinsurance coverage and collectability of reinsured losses, among other items.

To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance

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

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.

In addition, the COVID-19 pandemic

and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and resulted in significant increases in loss costs in subsequent years due to a number of factors,

including supply chain disruption, higher used automobile values, lengthening of repair completion times, increases in the cost of replacement automobile parts and rising labor rates.

These trend changes give rise to greater uncertainty as to the

pattern of future loss settlements.

Related uncertainties regarding future trends include social inflation, availability and cost of building materials, availability of skilled labor, the rate of plaintiff attorney involvement in claims and the cost

of medical technologies and procedures.

Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial

interpretations of insurance coverage and policy provisions and the rate of loss cost inflation.

Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case

reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and

collectability of reinsured losses, among other items.

To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance 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 March 31, 2024.

At March 31, 2024, 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 $6.9 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.

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.

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’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to

the prior reporting period.

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.

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’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior

reporting period.

Excluding the impact of severe weather events and the COVID-19 pandemic, our insurance subsidiaries have noted stable amounts in the number of claims incurred and the number of claims outstanding at period ends

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However, on the basis of our insurance subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and historical trends such as

reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision for their liability

for losses and loss expenses.

losses and loss expenses.

Atlantic States’ participation in the pool with Donegal Mutual exposes Atlantic States to adverse loss development on the business of Donegal Mutual that the pool includes.

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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 September 30, 2023 and December 31, 2022 consisted of the following:

September 30,

Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at March 31, 2024 and December 31, 2023 consisted of the following:

(in thousands)

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The range we selected does not necessarily indicate what could be the potential best or worst case or the most likely scenario.

The following table sets forth the estimated 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 considered in establishing the loss and loss expense reserves of our insurance subsidiaries:

Percentage Change in Loss

and Loss Expense Reserves

The following table sets forth the estimated 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 considered in establishing the loss and loss expense reserves of our insurance subsidiaries:

Percentage Change in Loss and Loss Expense Reserves

Net of Reinsurance

Adjusted Loss and Loss

Expense Reserves Net of

Reinsurance at

September 30, 2023

Percentage Change

in Stockholders’ Equity at

September 30, 2023(1)

Adjusted Loss and Loss

Expense Reserves Net of

Reinsurance at

Adjusted Loss and Loss Expense Reserves Net of Reinsurance at

March 31, 2024

Percentage Change in Stockholders’ Equity at

March 31, 2024(1)

Adjusted Loss and Loss Expense Reserves Net of Reinsurance at

December 31, 2023

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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 nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table provides a reconciliation of our net premiums earned to our net premiums written for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

(in thousands)

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We calculate our statutory combined ratio as the sum of:

the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses, excluding anticipated salvage and subrogation recoveries, to net premiums earned;

the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums earned;

the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written;

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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 nine months ended September 30, 2023 and 2022:

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31,

GAAP Combined Ratios (Total Lines)

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Total commercial and personal lines

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

Results of Operations - Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023

Net Premiums Earned.

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.

Our insurance subsidiaries’ net premiums earned for the first quarter of 2024 were $227.7 million, an increase of $12.5 million, or 5.8%, compared to

$215.2 million for the first quarter of 2023, primarily reflecting solid premium retention and renewal premium increases.

Net Premiums Written.

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.

Our insurance subsidiaries’ net premiums written for the first quarter of 2024 were $251.4 million, an increase of $14.1 million, or 6.0%, from the $237.3

million of net premiums written for the first quarter of 2023.

Commercial lines net premiums written decreased $0.9 million, or 0.5%, for the first quarter of 2024 compared to the first quarter of 2023.

Personal lines net premiums written increased

$15.0 million, or 18.5%, for the first quarter of 2024 compared to the first quarter of 2023.

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, offset partially by higher new business writings 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 $10.5 million for the third quarter of 2023, an increase of $1.9 million, or 23.0%, compared to $8.6 million for the third

Our net investment income was $11.0 million for the first quarter of 2024, an increase of $1.6 million, or 16.1%, compared to $9.4 million for the first

quarter of 2023.

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 69.8% 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 $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 34.1% 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.

The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to

premiums earned.

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 - 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 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 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 $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.

We attribute the increase primarily to an increase in the average investment yield relative to the first quarter of 2023.

Net Investment Gains (Losses).

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.

Net investment gains for the first quarter of 2024 were $2.1 million, compared to net investment losses of $331,189 for the first quarter of

The net investment gains for the first quarter of 2024 resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at March 31, 2024.

We did not recognize any impairment losses for individual

securities in our investment portfolio during the first quarter of 2024 or 2023.

Losses and Loss Expenses.

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.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 66.3% for the first quarter of

2024, an increase from our insurance subsidiaries’ loss ratio of 64.2% for the first quarter of 2023.

We attribute this increase primarily to increased core losses and large fire losses, which we define as individual fire losses in excess of $50,000,

offset partially by decreased weather-related losses.

The core loss ratio, which excludes weather-related losses, large fire losses and net favorable development of reserves for losses incurred in prior accident years, was 58.7% for the first quarter

of 2024, compared to 56.5% for the first quarter of 2023.

For the commercial lines segment, the core loss ratio of 59.0% for the first quarter of 2024 increased modestly from 58.2% for the first quarter of 2023.

For the personal lines segment, the

core loss ratio of 58.1% for the first quarter of 2024 increased from 53.7% for the first quarter of 2023, due largely to ongoing inflationary impacts on loss costs for that segment.

Weather-related losses were $10.8 million, or 4.7 percentage points

of the loss ratio, for the first quarter of 2024, compared to $14.1 million, or 6.5 percentage points of the loss ratio, for the first quarter of 2023.

The impact of weather-related loss activity to the loss ratio for the first quarter of 2024 was in

line with our previous five-year average of 4.7 percentage points for first quarter weather-related losses.

Large fire losses for the first quarter of 2024 were $15.0 million, or 6.6 percentage points of the loss ratio, compared to $10.9 million, or

5.1 percentage points of the loss ratio, for the first quarter of 2023.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 66.0% for the first quarter of 2024, compared to 63.2% for the first quarter of 2023, primarily

due to increases in the workers’ compensation and commercial automobile loss ratios.

The personal lines statutory loss ratio of our insurance subsidiaries increased to 68.5% for the first quarter of 2024, compared to 66.4% for the first quarter of

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

Our insurance subsidiaries experienced favorable loss reserve development for the first quarter of 2024 of approximately $8.4 million that decreased the loss

ratio by 3.7 percentage points, compared to $8.3 million that decreased the loss ratio for the first quarter of 2023 by 3.9 percentage points.

Our insurance subsidiaries experienced favorable development primarily in the commercial multi-peril,

commercial automobile and homeowners lines of business for the first quarter of 2024, with the majority of the impact relating to reserves for accident years 2020 through 2023.

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 34.9% 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.

The expense ratio

of our insurance subsidiaries was 35.7% for the first quarter of 2024, compared to 36.4% for the first quarter of 2023.

The decrease in the expense ratio primarily reflected early impacts of expense reduction initiatives, offset partially by higher

technology costs related to our ongoing systems modernization initiatives for the first quarter of 2024 compared to the prior-year quarter.

We expect the impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the

ongoing systems modernization project will peak at approximately 1.3 percentage points of the expense ratio for the full year of 2024 before beginning to subside gradually in subsequent years.

Combined Ratio.

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premiums earned.

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.

Our insurance subsidiaries’ combined ratios were 102.4% and 101.2% for the first quarter of 2024 and 2023, respectively.

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

of 2024 compared to the first quarter of 2023.

Income Tax Expense.

We recorded income tax expense of $1.3 million for the first quarter of 2024, representing an effective tax rate of 17.8%.

We recorded income tax expense of

$1.1 million for the first quarter of 2023, representing an effective tax rate of 17.4%.

The income tax tax expense for the first quarter of 2024 and 2023 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 quarter of 2024 was $6.0 million, or $.18 per share of Class A common stock on a diluted basis and $.16 per

share of Class B common stock, compared to $5.2 million, or $.16 per share of Class A common stock on a diluted basis and $.15 per share of Class B common stock, for the first quarter of 2023.

We had 27.8 million and 27.3 million Class A shares

outstanding at March 31, 2024 and 2023, respectively.

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

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obligations to each other under the pool monthly, thereby resulting in cash flows substantially similar to the cash flows that would result from each company writing the business directly.

We have not experienced any unusual variations in the

timing of claim payments associated with the loss reserves of our insurance subsidiaries.

We maintain significant liquidity in our investment portfolio in the form of readily marketable fixed maturities, equity securities and short-term

We structure our fixed-maturity investment portfolio following a “laddering” approach, so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective, thereby providing

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 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 have not experienced any unusual variations in the timing

of claim payments associated with the loss reserves of our insurance subsidiaries.

We maintain significant liquidity in our investment portfolio in the form of readily marketable fixed maturities, equity securities and short-term investments.

structure our fixed-maturity investment portfolio following a “laddering” approach, so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective, thereby providing an additional measure

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

Our operating activities provided (used) net cash flows in the first three months of 2024 and 2023 of $4.8 million and ($680,734), respectively.

At March 31, 2024, 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%.

March 31, 2024, 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.

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

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.

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.

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.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares of our Class A common stock at prices prevailing from time to

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 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

payment of dividends by our insurance subsidiaries to us.

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 three months ended March 31, 2024 or 2023.

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through March 31, 2024.

On April 18, 2024, our board of directors declared quarterly cash dividends of $.1725 per share of our Class A common stock and $.155 per share of our Class B common stock,

payable on May 22, 2024 to our stockholders of record as of the close of business on May 8, 2024.

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

dividends by our insurance subsidiaries to us.

Dividends from our insurance subsidiaries are our principal source of cash for payment of dividends to our stockholders.

Our insurance subsidiaries are subject to regulations that

restrict the payment of dividends from statutory surplus and may require prior approval of their domiciliary insurance regulatory authorities.

Our insurance subsidiaries are also subject to risk based capital (“RBC”) requirements that limit their

ability to pay dividends to us.

Our insurance subsidiaries’ statutory capital and surplus at December 31, 2022 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a

significant margin.

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.

Our insurance subsidiaries are subject to regulations that restrict the payment

of dividends from statutory surplus and may require prior approval of their domiciliary insurance regulatory authorities.

Our insurance subsidiaries are also subject to risk based capital (“RBC”) requirements that limit their ability to pay dividends

Our insurance subsidiaries’ statutory capital and surplus at December 31, 2023 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.

insurance subsidiaries did not pay any dividends to us during the first three months of 2024.

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

regulatory authorities in 2024 are $27.4 million from Atlantic States, $7.2 million from MICO and $5.0 million from Peninsula, or a total of approximately $39.6 million.

At March 31, 2024, we had no material commitments for capital expenditures.

Equity Price Risk

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We manage this risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of fixed-maturity securities.

We also limit the

percentage and amount of our total investment portfolio that we invest in the securities of any one issuer.

We also limit the percentage

and amount of our total investment portfolio that we invest in the securities of any one issuer.

Our insurance subsidiaries provide property and casualty insurance coverages through independent insurance agencies.

5 unchanged sentences

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What changed 10-Q

Item 2. Management’s Discussion and Analysis