What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-06 compared with 2024-08-07 · 208 added, 208 removed, 172 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.

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.

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.

knows at that point in time.

explicitly 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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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 June 30, 2024.

At June 30, 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 $7.1 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.

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, 2024.

September 30, 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 $7.1 million.

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.

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.

for 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 June 30, 2024 and December 31, 2023 consisted of the following:

Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at September 30, 2024 and December 31, 2023 consisted of the following:

September 30,

(in thousands)

Commercial lines:

Co mmercial lines:

Workers’ compensation

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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 insurance subsidiaries’ loss

and loss expense reserves as a whole.

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 insurance subsidiaries’

loss and loss expense reserves as a whole.

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:

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

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Reinsurance at

June 30, 2024

September 30, 2024

Percentage Change

in Stockholders’ Equity at

June 30, 2024(1)

September 30, 2024(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, 2024 and 2023:

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, 2024 and 2023:

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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The calculation of our statutory combined ratio differs from the calculation of our GAAP combined ratio.

In calculating our GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and we

base the expense ratio on net premiums earned instead of net premiums written.

Differences between our GAAP loss ratio and our statutory loss ratio result from anticipating salvage and subrogation recoveries for our GAAP loss ratio but not for our

statutory loss ratio.

In calculating our GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and

we base the expense ratio on net premiums earned instead of net premiums written.

Differences between our GAAP loss ratio and our statutory loss ratio result from anticipating salvage and subrogation recoveries for our GAAP loss ratio but not for

our statutory loss ratio.

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, 2024 and 2023:

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, 2024 and 2023:

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, 2024 Compared to Three Months Ended June 30, 2023

Results of Operations - Three Months Ended September 30, 2024 Compared to Three Months Ended September 30, 2023

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the second quarter of 2024 were $234.3 million, an increase of $18.0 million, or 8.3%, compared to

$216.3 million for the second quarter of 2023, primarily reflecting solid premium retention and renewal premium increases.

Our insurance subsidiaries’ net premiums earned for the third quarter of 2024 were $238.0 million, an increase of $13.6 million, or 6.0%, compared to

$224.4 million for the third quarter of 2023, primarily reflecting solid premium retention and renewal premium increases.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the second quarter of 2024 were $247.2 million, an increase of $20.7 million, or 9.1%, from the

$226.5 million of net premiums written for the second quarter of 2023.

Commercial lines net premiums written increased $9.4 million, or 7.1%, for the second quarter of 2024 compared to the second quarter of 2023.

Our insurance subsidiaries’ net premiums written for the third quarter of 2024 were $232.2 million, an increase of $13.0 million, or 5.9%, from the

$219.2 million of net premiums written for the third quarter of 2023.

Commercial lines net premiums written increased $7.6 million, or 6.4%, for the third quarter of 2024 compared to the third quarter of 2023.

Personal lines net premiums written

increased $11.3 million, or 12.1%, for the second quarter of 2024 compared to the second quarter of 2023.

We attribute the increase in commercial lines net premiums written primarily to higher new business writings 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.

We attribute the increase in personal lines net premiums written primarily to renewal

premium increases and strong policy retention.

increased $5.4 million, or 5.4%, for the third quarter of 2024 compared to the third quarter of 2023.

We attribute the increase in commercial lines net premiums written primarily to new business writings, strong premium retention and a continuation

of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition in states in which we are executing ongoing profit improvement initiatives as part of our state-specific strategies.

We attribute the

increase in personal lines net premiums written primarily to renewal premium increases and strong policy retention, offset partially by planned attrition due to non-renewal actions.

Investment Income.

Our net investment income was $11.1 million for the second quarter of 2024, an increase of $911,040, or 9.0%, compared to $10.2 million for the second

Our net investment income was $10.8 million for the third quarter of 2024, an increase of $290,503, or 2.8%, compared to $10.5 million for the third

quarter of 2023.

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

Net Investment Gains.

Net investment gains for the second quarter of 2024 were $736,669, compared to $2.5 million for the second quarter of 2023.

The net investment gains for

the second quarter of 2024 and 2023 resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at June 30, 2024 and 2023, respectively.

We did not recognize any impairment losses for individual

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

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

Net Investment Gains (Losses).

Net investment gains for the third quarter of 2024 were $1.9 million, compared to net investment losses of $1.2 million for the third quarter

The net investment gains (losses) for the third quarter of 2024 and 2023 resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at September 30, 2024 and 2023, respectively.

recognize any impairment losses for individual securities in our investment portfolio during the third 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 70.6% for the second quarter

of 2024, an increase from our insurance subsidiaries’ loss ratio of 69.9% for the second quarter of 2023.

We attribute this increase primarily to increased weather-related losses, offset partially by decreased large fire losses, which we define as

individual fire losses in excess of $50,000.

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 55.0% for the second quarter of 2024

For the commercial lines segment, the core loss ratio of 54.8% for the second quarter of 2024 increased modestly from 54.0% for the second quarter of 2023.

For the personal lines segment, the core loss ratio of 55.3% for the second quarter

of 2024 decreased from 56.5% for the second quarter of 2023.

Weather-related losses were $24.7 million, or 10.6 percentage points of the loss ratio, for the second quarter of 2024, compared to $19.7 million, or 9.1 percentage points of the loss

ratio, for the second quarter of 2023.

The impact of weather-related loss activity to the loss ratio for the second quarter of 2024 was higher than our previous five-year average of 8.8 percentage points for second quarter weather-related losses.

Large fire losses for the second quarter of 2024 were $12.5 million, or 5.3 percentage points of the loss ratio, compared to $12.7 million, or 5.9 percentage points of the loss ratio, for the second quarter of 2023.

On a statutory basis, our

insurance subsidiaries’ commercial lines loss ratio was 70.9% for the second quarter of 2024, compared to 67.9% for the second quarter of 2023, primarily due to an increase in the workers’ compensation loss ratio.

The personal lines statutory loss

ratio of our insurance subsidiaries decreased to 71.3% for the second quarter of 2024, compared to 73.4% for the second quarter of 2023.

We attribute this decrease primarily to a decrease in the personal automobile loss ratio.

Our insurance

subsidiaries experienced favorable loss reserve development for the second quarter of 2024 of $757,866 that decreased the loss ratio by 0.3 percentage points, compared to negligible favorable loss reserve development for the second quarter of 2023.

Our insurance subsidiaries experienced favorable development primarily in the commercial automobile and personal automobile lines of business for the second quarter of 2024, offset partially by unfavorable development in the workers’ compensation

line of business that we attribute to higher-than-expected severity for a relatively small number of previously reported claims.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 61.5% for the third quarter

of 2024, a decrease from our insurance subsidiaries’ loss ratio of 69.8% for the third quarter of 2023.

We attribute this decrease primarily to decreased core losses, offset partially by decreased favorable loss reserve development.

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 50.1% for the third quarter of 2024, compared to 56.7% for the third quarter of 2023.

commercial lines segment, the core loss ratio of 48.5% for the third quarter of 2024 decreased from 53.7% for the third quarter of 2023.

For the personal lines segment, the core loss ratio of 52.5% for the third quarter of 2024 decreased from 61.8%

for the third quarter of 2023.

Weather-related losses were $24.4 million, or 10.3 percentage points of the loss ratio, for the third quarter of 2024, compared to $25.7 million, or 11.5 percentage points of the loss ratio, for the third quarter of

The impact of weather-related loss activity to the loss ratio for the third quarter of 2024 was higher than our previous five-year average of 9.4 percentage points for third quarter weather-related losses.

Large fire losses, which we define

as individual fire losses in excess of $50,000, for the third quarter of 2024 were $8.8 million, or 3.7 percentage points of the loss ratio, compared to $11.0 million, or 4.9 percentage points of the loss ratio, for the third quarter of 2023.

statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 52.5% for the third quarter of 2024, compared to 60.9% for the third quarter of 2023, primarily due to a decrease in the commercial multi-peril loss ratio.

lines statutory loss ratio of our insurance subsidiaries decreased to 74.5% for the third quarter of 2024, compared to 86.8% for the third quarter of 2023.

We attribute this decrease primarily to a decrease in the personal automobile and homeowners

Our insurance subsidiaries experienced favorable loss reserve development for the third quarter of 2024 of $6.2 million that decreased the loss ratio by 2.6 percentage points, compared to 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.

Our insurance subsidiaries experienced favorable development primarily in the commercial multi-peril and other commercial lines of business

for the third quarter of 2024.

Underwriting Expenses.

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

The expense ratio

of our insurance subsidiaries was 31.9% for the second quarter of 2024, compared to 34.2% for the second quarter of 2023.

The decrease in the expense ratio primarily reflected impacts of expense reduction initiatives, including agency incentive

program revisions, commission schedule adjustments, targeted staffing reductions, and deferred replacement of open employment positions, among others, offset partially by higher technology costs related to our ongoing systems modernization

initiatives for the second 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.

ratio of our insurance subsidiaries was 34.5% for the third quarter of 2024, compared to 34.1% for the third quarter of 2023.

We attribute the modest increase to higher technology costs related to our ongoing systems modernization initiatives and

an increase in underwriting-based incentive costs for the third quarter of 2024 compared to the prior-year quarter.

These increases were offset partially by impacts of various expense reduction initiatives, including agency incentive program

revisions, commission schedule adjustments, targeted staffing reductions, and deferred replacement of open employment positions, among others.

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 103.0% and 104.7% for the second quarter of 2024 and 2023, respectively.

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

quarter of 2024 compared to the second quarter of 2023.

Income Tax Expense.

We recorded income tax expense of $859,665 for the second quarter of 2024, representing an effective tax rate of 17.2%.

We recorded income tax expense of

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

The income tax expense for the second 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 second quarter of 2024 was $4.2 million, or $.13 per share of Class A common stock on a diluted basis and $.11 per

share of Class B common stock, compared to $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, for the second quarter of 2023.

We had 27.9 million and 27.5 million Class A shares

outstanding at June 30, 2024 and 2023, respectively.

Our insurance subsidiaries’ combined ratios were 96.4% and 104.5% for the third quarter of 2024 and 2023, respectively.

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

of 2024 compared to the third quarter of 2023.

Income Tax Expense (Benefit).

We recorded income tax expense of $3.7 million for the third quarter of 2024, representing an effective tax rate of 17.9%.

We recorded an income

tax benefit of $199,613 for the third quarter of 2023.

The income tax expense (benefit) for the third quarter of 2024 and 2023 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 third quarter of 2024 was $16.8 million, or $.51 per share of Class A common stock on a diluted

basis and $.46 per share of Class B common stock, compared to a net loss of $805,301, or $.02 per share of Class A common stock and $.02 per share of Class B common stock, for the third quarter of 2023.

We had 28.2 million and 27.6 million Class A

shares outstanding at September 30, 2024 and 2023, respectively.

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

Results of Operations - Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023

Results of Operations - Nine Months Ended September 30, 2024 Compared to Nine Months Ended September 30, 2023

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the first half of 2024 were $462.1 million, an increase of $30.6 million, or 7.1%, compared to $431.5

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

Our insurance subsidiaries’ net premiums earned for the first nine months of 2024 were $700.0 million, an increase of $44.1 million, or 6.7%, compared to

$655.9 million for the first nine months of 2023, primarily reflecting solid premium retention and renewal premium increases.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the first half of 2024 were $498.6 million, an increase of $34.8 million, or 7.5%, from the $463.8

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

Commercial lines net premiums written increased $8.5 million, or 3.0%, for the first half of 2024 compared to the first half of 2023.

Personal lines net premiums written increased $26.3

million, or 15.1%, for the first half of 2024 compared to the first half of 2023.

We attribute the increase in commercial lines net premiums written primarily to higher new business writings 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.

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 nine months of 2024 were $730.8 million, an increase of $47.8 million, or 7.0%, from the

$683.0 million of net premiums written for the first nine months of 2023.

Commercial lines net premiums written increased $16.1 million, or 4.0%, for the first nine months of 2024 compared to the first nine months of 2023.

Personal lines net

premiums written increased $31.7 million, or 11.5%, for the first nine months of 2024 compared to the first nine months of 2023.

We attribute the increase in commercial lines net premiums written primarily to new business writings, strong premium

retention and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition in states we exited or have targeted for profit improvement.

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 $22.0 million for the first half of 2024, an increase of $2.4 million, or 12.4%, compared to $19.6 million for the first half

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

Our net investment income was $32.9 million for the first nine months of 2024, an increase of $2.7 million, or 9.0%, compared to $30.1 million for the

first nine months of 2023.

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

Net Investment Gains.

Net investment gains for the first half of 2024 were $2.9 million, compared to $2.2 million for the first half of 2023.

The net investment gains for the

first half of 2024 and 2023 resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at June 30, 2024 and 2023, respectively.

We did not recognize any impairment losses for individual securities in

our investment portfolio during the first half of 2024 or 2023.

Net investment gains for the first nine months of 2024 were $4.7 million, compared to $930,302 for the first nine months of 2023.

The net investment

gains for the first nine months of 2024 and 2023 resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at September 30, 2024 and 2023, respectively.

We did not recognize any impairment losses

for individual securities in our investment portfolio during the first nine months 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 68.4% for the first half of

2024, an increase from our insurance subsidiaries’ loss ratio of 67.1% for the first half 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.

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 56.8% for the first half of 2024, compared to 55.8% for the first half of 2023.

For the commercial lines segment, the core loss ratio of 56.9% for the first half of 2024 increased modestly from 56.1% for the first half of 2023.

For the personal lines segment, the core loss ratio of 56.6% for the first half of 2024 increased from

55.1% for the first half of 2023.

Weather-related losses were $35.5 million, or 7.7 percentage points of the loss ratio, for the first half of 2024, compared to $33.8 million, or 7.8 percentage points of the loss ratio, for the first half of 2023.

The impact of weather-related loss activity to the loss ratio for the first half of 2024 was higher than our previous five-year average of 6.7 percentage points for first half weather-related losses.

Large fire losses for the first half of 2024 were

$27.4 million, or 5.9 percentage points of the loss ratio, compared to $23.6 million, or 5.5 percentage points of the loss ratio, for the first half of 2023.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 68.5% for

the first half of 2024, compared to 65.5% for the first half of 2023, primarily due to an increase in the workers’ compensation loss ratio.

The personal lines statutory loss ratio of our insurance subsidiaries decreased slightly to 69.9% for the

first half of 2024, compared to 70.0% for the first half of 2023.

We attribute this decrease primarily to a decrease in the personal automobile loss ratio, offset partially by an increase in the homeowners loss ratio.

Our insurance subsidiaries

experienced favorable loss reserve development for the first half of 2024 of approximately $9.2 million that decreased the loss ratio by 2.0 percentage points, compared to $8.5 million that decreased the loss ratio for the first half of 2023 by 2.0

percentage points.

Our insurance subsidiaries experienced favorable development primarily in the commercial automobile, commercial multi-peril and personal automobile lines of business for the first half of 2024, offset partially by unfavorable

development in the workers’ compensation line of business that we attribute to higher-than-expected severity for a relatively small number of previously reported claims.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 66.1% for the first nine

months of 2024, a decrease from our insurance subsidiaries’ loss ratio of 68.0% for the first nine months of 2023.

We attribute this decrease primarily to lower core and 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 54.5% for the first nine months of 2024, compared to 56.0% for the first nine months of 2023.

For the commercial lines segment, the

core loss ratio of 54.1% for the first nine months of 2024 decreased from 55.2% for the first nine months of 2023.

For the personal lines segment, the core loss ratio of 55.2% for the first nine months of 2024 decreased from 57.3% for the first

nine months of 2023.

Weather-related losses were $60.0 million, or 8.6 percentage points of the loss ratio, for the first nine months of 2024, compared to $59.5 million, or 9.1 percentage points of the loss ratio, for the first nine months of 2023.

The impact of weather-related loss activity to the loss ratio for the first nine months of 2024 was modestly higher than our previous five-year average of 7.6 percentage points for first nine months weather-related losses.

Large fire losses, which

we define as individual fire losses in excess of $50,000, for the first nine months of 2024 were $36.2 million, or 5.2 percentage points of the loss ratio, compared to $34.7 million, or 5.3 percentage points of the loss ratio, for the first nine

months of 2023.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 63.0% for the first nine months of 2024, compared to 63.9% for the first nine months of 2023, primarily due to a decrease in the commercial

multi-peril loss ratio.

The personal lines statutory loss ratio of our insurance subsidiaries decreased to 71.5% for the first nine months of 2024, compared to 75.2% for the first nine months of 2023.

We attribute this decrease primarily to a

decrease in the personal automobile loss ratio.

Our insurance subsidiaries experienced favorable loss reserve development for the first nine months of 2024 of approximately $15.4 million that decreased the loss ratio by 2.2 percentage points,

compared to $15.8 million that decreased the loss ratio for the first nine months of 2023 by 2.4 percentage points.

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

personal automobile and other lines of business for the first nine months of 2024, offset partially by unfavorable development in the workers’ compensation line of business that we attribute to higher-than-expected severity for a relatively small

number of previously reported claims.

Underwriting Expenses.

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

The expense ratio

of our insurance subsidiaries was 33.8% for the first half of 2024, compared to 35.3% for the first half of 2023.

The decrease in the expense ratio primarily reflected impacts of expense reduction initiatives, including agency incentive program

revisions, commission schedule adjustments, targeted staffing reductions, and deferred replacement of open employment positions, among others, offset partially by higher technology costs related to our ongoing systems modernization initiatives for

the first half 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.

ratio of our insurance subsidiaries was 34.0% for the first nine months of 2024, compared to 34.9% for the first nine months of 2023.

The decrease in the expense ratio primarily reflected impacts of expense reduction initiatives, including agency

incentive program revisions, commission schedule adjustments, targeted staffing reductions, and deferred replacement of open employment positions, among others, offset partially by higher technology costs related to our ongoing systems

modernization initiatives for the first nine months of 2024 compared to the first nine months of 2023.

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 102.7% and 103.0% for the first half of 2024 and 2023, respectively.

We attribute the decrease in the combined ratio primarily to a decrease in the expense ratio for the first half of

2024 compared to the first half of 2023.

Our insurance subsidiaries’ combined ratios were 100.6% and 103.5% for the first nine months of 2024 and 2023, respectively.

We attribute the decrease in the combined ratio primarily to a decrease in the loss and expense ratios for

the first nine months of 2024 compared to the first nine months of 2023.

Income Tax Expense.

We recorded income tax expense of $2.2 million for the first half of 2024, representing an effective tax rate of 17.6%.

We recorded income tax expense of

$1.3 million for the first half of 2023, representing an effective tax rate of 15.8%.

The income tax expense for the first half of 2024 and 2023 represented estimates based on our projected annual taxable income and effective tax rates.

We recorded income tax expense of $5.8 million for the first nine months of 2024, representing an effective tax rate of 17.8%.

We recorded income tax

expense of $1.1 million for the first nine months of 2023, representing an effective tax rate of 15.2%.

The income tax expense for the first nine months 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 half of 2024 was $10.1 million, or $.31 per share of Class A common stock on a diluted basis and $.28 per

share of Class B common stock, compared to $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, for the first half of 2023.

We had 27.9 million and 27.5 million Class A shares

outstanding at June 30, 2024 and 2023, respectively.

Our net income for the first nine months of 2024 was $26.9 million, or $.81 per share of Class A common stock on a diluted basis and $.74

per share of Class B common stock, compared to $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, for the first nine months of 2023.

We had 28.2 million and 27.6 million Class A

shares outstanding at September 30, 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 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 net cash flows in the first six months of 2024 and 2023 of $26.5 million and $13.1 million, respectively.

At June 30, 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%.

June 30, 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 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 2024 and 2023 of $39.2 million and $26.0 million, respectively.

At September 30, 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

At September 30, 2024, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 3.81%.

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.

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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 six months ended June 30, 2024 or 2023.

have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2024.

On July 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 August 15, 2024 to our stockholders of record as of the close of business on August 1, 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.

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, 2024

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through September 30, 2024.

On October 17, 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 November 15, 2024 to our stockholders of record as of the close of business on November 1, 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 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, 2023 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant

Our insurance subsidiaries paid $5.0 million in dividends to us during the first six 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 $22.4 million from Atlantic States, $7.2 million from MICO and $5.0 million from Peninsula, or a total of approximately $34.6 million.

At June 30, 2024, we had no material commitments for capital expenditures.

Our insurance subsidiaries paid $10.0 million in dividends to us during the first nine 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 $22.4 million from Atlantic States and $7.2 million from MICO, or a total of approximately $29.6 million.

At September 30, 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.

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commercial business through licensed insurance agents to whom our insurance subsidiaries extend credit in the normal course of business.

Because the pooling agreement does not relieve Atlantic States of primary liability as the originating insurer, Atlantic States is subject to a concentration of credit risk arising from the business it cedes to

Donegal Mutual.

Because the pooling agreement does not relieve Atlantic States of primary liability as the originating insurer, Atlantic States is subject to a concentration of credit risk arising from the business

it cedes to Donegal Mutual.

Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers.

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