What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-10 compared with 2024-03-06 · 1838 added, 288 removed, 259 unchanged (89% of the section changed)

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Our insurance subsidiaries and their affiliates write commercial and personal lines of property and casualty coverages exclusively through a network of independent insurance agents in certain

Mid-Atlantic, Midwest, New England, Southern and Southwestern states.

Mid-Atlantic, Midwest, Southern and Southwestern states.

The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.

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

The personal lines

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

At December 31, 2024, Donegal Mutual held approximately 44% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock.

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Donegal Mutual and Atlantic States have participated in a proportional reinsurance agreement, or pooling agreement, since 1986.

Under the pooling agreement, Donegal Mutual and Atlantic States contribute substantially

all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled business to Atlantic States.

Thus, Donegal Mutual and Atlantic States

share the underwriting results of the pooled business in proportion to their respective participation in the underwriting pool.

The operations of our insurance subsidiaries and Donegal Mutual are interrelated due to the pooling agreement and other

Under the pooling agreement, Donegal Mutual and Atlantic States contribute

substantially all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80% of the pooled business to Atlantic States.

Thus, Donegal Mutual and

Atlantic States share the underwriting results of the pooled business in proportion to their respective participation in the underwriting pool.

The operations of our insurance subsidiaries and Donegal Mutual are interrelated due to the pooling

agreement and other factors.

While maintaining the separate corporate existence of each company, our insurance subsidiaries conduct business together with Donegal Mutual and its insurance subsidiaries as the Donegal Insurance Group.

The Donegal Insurance Group is not

a legal entity, is not an insurance company and does not issue or administer insurance policies.

Insurance Group is not a legal entity, is not an insurance company and does not issue or administer insurance policies.

Rather, it is a trade name that refers to the group of insurance companies that are affiliated with Donegal Mutual.

See “Business - Relationship with

Donegal Mutual” for more information regarding the pooling agreement and other transactions with our affiliates.

“Business - Relationship with Donegal Mutual” for more information regarding the pooling agreement and other transactions with our affiliates.

Donegal Mutual and our insurance subsidiaries operate together as the Donegal Insurance Group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives.

products our insurance subsidiaries and Donegal Mutual offer are generally complementary, thereby allowing Donegal Insurance Group to offer a broader range of products to a given market and to expand Donegal Insurance Group’s ability to service an

entire personal lines or commercial lines account.

Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier

products compared to standard tier products, but we do not allocate all of the standard risk gradients to one company.

an entire personal lines or commercial lines account.

Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally allow the individual companies to manage certain risk segments through variations in coverage,

terms and pricing.

Therefore, the underwriting profitability of the business the individual companies write directly will vary.

However, because the

pool homogenizes the risk characteristics of the predominant percentage of the business Donegal Mutual and Atlantic States write directly and each company shares the underwriting results according to each company’s participation percentage, each

company realizes its percentage share of the underwriting results of the pool.

Donegal Mutual completed the merger of Mountain States Mutual Casualty Company, or Mountain States, with and into Donegal Mutual effective May 25, 2017.

Donegal Mutual was the surviving company in the merger, and

Mountain States’ insurance subsidiaries, Mountain States Indemnity Company and Mountain States Commercial Insurance Company (collectively, the “Mountain States insurance subsidiaries”), became insurance subsidiaries of Donegal Mutual upon

completion of the merger.

Upon completion of the merger, Donegal Mutual assumed all of the policy obligations of Mountain States and began to market its products together with the Mountain States insurance subsidiaries as the Mountain States

Insurance Group in four Southwestern states.

Donegal Mutual also entered into a 100% quota-share reinsurance agreement with the Mountain States insurance subsidiaries on the merger date.

Beginning with policies effective in 2021, Donegal Mutual

began to place the business of the Mountain States Insurance Group into the underwriting pool.

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

to time in the open market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions.

However, because the pool homogenizes the risk characteristics of the predominant percentage of the business Donegal

Mutual and Atlantic States write directly and each company shares the underwriting results according to each company’s participation percentage, each company realizes its percentage share of the underwriting results of the pool.

time to time in the open market subject to the provisions of the SEC Rule 10b-18 and in privately negotiated transactions.

We did not purchase any shares of our Class A common stock under this program during 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 December 31, 2023.

We have purchased a

total of 57,658 shares of our Class A common stock under this program from its inception through December 31, 2024.

On April 29, 2022, Donegal Mutual disclosed that it will, at its discretion, purchase shares of our Class A common stock and our Class B common stock at market prices prevailing from time to time in the open market

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Such disclosure did not stipulate a maximum number of shares that may be purchased under this program.

Donegal Mutual purchased 516,620 and 1,035,778 shares of

our Class A common stock during 2023 and 2022, respectively.

Donegal Mutual did not purchase any shares of our Class B common stock during 2023.

Donegal Mutual purchased 54,231 shares of our Class B common stock during 2022.

Donegal Mutual purchased 1,057,282 and 516,620 shares

of our Class A common stock during 2024 and 2023, respectively.

Donegal Mutual did not purchase any shares of our Class B common stock during 2024 or 2023.

Critical Accounting Policies and Estimates

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

The most significant estimates relate to the reserves of

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

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

The most significant estimates relate to the reserves

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

While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts 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 results of operations for the period in which we make an adjustment.

Liability 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.

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

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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.

Our insurance subsidiaries establish these liabilities for the purpose of

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

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

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

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

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

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

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

Our insurance subsidiaries establish these liabilities for the

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

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

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

Our insurance subsidiaries determine the amount of their liability for

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

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

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 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

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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 2022 and 2023 due to a number

of factors, including supply chain disruption, higher new and used automobile values, increases in the cost of replacement automobile parts and rising labor rates.

While these trend changes have begun to normalize, they caused significant

disruption to historical loss patterns and 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 replacement automobile parts

and 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 December 31, 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 $6.9 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.

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

These trend changes caused significant disruption to historical loss

patterns and 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 replacement automobile parts and building materials,

availability and cost of skilled labor, the rate of specialized plaintiff attorney involvement in claims, plaintiff attorney utilization of litigation financing 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 December 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 $7.0 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.

Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $15.0 million, $16.7 million and $44.8 million in 2024, 2023 and 2022, respectively.

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subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those

The 2023 development represented 2.5% of the December 31, 2022 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years

prior to 2023.

The majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.

The 2022 development represented 7.2% of the December 31, 2021 net carried reserves

and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022.

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

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

The 2021 development represented 5.6% of the December 31, 2020 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile,

workers’ compensation and commercial automobile lines of business for accident years prior to 2021.

The 2024 development represented 2.2% of the December 31, 2023 net carried reserves and resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset

partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024.

The majority of the 2024 development related to decreases in the liability for losses

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

The 2023 development represented 2.5% of the December 31, 2022 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and

commercial automobile lines of business for accident years prior to 2023.

The majority of the 2023 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.

The 2022 development

represented 7.2% of the December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022.

of the 2022 development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.

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

relative to their premium base in recent years across most of their lines of business.

However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as increased property and

automobile repair and replacement costs, rising medical loss costs and increased litigation trends.

We have also experienced a general slowing of settlement rates in litigated claims.

Our insurance subsidiaries could have to make further

adjustments to their estimates in the future.

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.

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.

However, pooled business represents the

predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk development relating to the pooled business.

The business in the pool is homogeneous and each

company has a pro-rata share of the entire pool.

Since the predominant percentage of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation level under the terms of the

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.

However, the amount of the average claim outstanding has increased gradually over the past several years due to various factors such as increased property

and automobile repair and replacement costs, rising medical loss costs and increased litigation trends and lengthening of repair completion times for property and automobile claims.

We have also experienced a general slowing of settlement rates

in litigated claims.

Our insurance subsidiaries could have to make further adjustments to their estimates in the future.

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.

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

pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk development relating to the pooled business.

The business in

the underwriting pool is homogeneous and each company has a pro-rata share of the entire underwriting pool.

Since the predominant percentage of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company

according to its participation level under the terms of the 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’ liability for losses and loss expenses by major line of business at December 31, 2024 and 2023 consisted of the following:

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Total liability for losses and loss expenses

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

loss expense reserves.

and loss expense reserves.

We established the range of reasonably likely changes based on a review of changes in accident year development by line of business and applied it to our insurance subsidiaries’ loss reserves as a whole.

The selected range

does not necessarily indicate what could be the potential best or worst case or the most-likely scenario.

The following table sets forth the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the

event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves:

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

The following table sets forth the effect on our insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity

in the event of reasonably likely changes in the variables considered in establishing loss and loss expense reserves:

Change in Loss and Loss

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Percentage Change in

Equity at December 31,

December 31, 2024(1)

Adjusted Loss and Loss

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The actuaries’ range of estimates for personal lines in 2024 was $139.1 million to $153.0 million, and the actuaries selected a point estimate of

For the year ended December 31, 2022, the actuaries developed a range from a low of $621.6 million to a high of $721.6 million and selected a point estimate of $669.9 million.

The actuaries’ range of estimates for commercial lines in 2022

was $486.4 million to $560.5 million, and the actuaries selected a point estimate of $522.0 million.

The actuaries’ range of estimates for personal lines in 2022 was $135.2 million to $161.1 million, and the actuaries selected a point estimate of

$146.2 million.

For the year ended December 31, 2023, the actuaries developed a range from a low of $651.1 million to a high of $728.7 million and selected a point estimate of $689.1 million.

The actuaries’ range of estimates for commercial

lines in 2023 was $507.2 million to $565.4 million, and the actuaries selected a point estimate of $535.7 million.

The actuaries’ range of estimates for personal lines in 2023 was $144.0 million to $163.3 million, and the actuaries selected a

point estimate of $153.5 million.

Our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite.

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risks in private passenger automobile and homeowners lines.

For commercial lines products, the commercial risks that our insurance subsidiaries primarily insure are business offices, wholesalers, service providers, contractors, artisans and light

manufacturing operations.

For commercial lines products, the commercial risks that our insurance subsidiaries primarily insure are business offices, wholesalers, service providers, contractors, artisans and

light manufacturing operations.

Our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities.

Through the consistent application of this disciplined underwriting philosophy, our insurance subsidiaries have avoided many

of the “long-tail” issues other insurance companies have faced.

We consider workers’ compensation to be a “long-tail” line of business, in that workers’ compensation claims tend to be settled over a longer time frame than those in the other lines

of business of our insurance subsidiaries.

Through the consistent application of this disciplined underwriting philosophy, our insurance subsidiaries have

avoided many of the “long-tail” issues other insurance companies have faced.

We consider workers’ compensation to be a “long-tail” line of business, in that workers’ compensation claims tend to be settled over a longer time frame than those in

the other lines of business of our insurance subsidiaries.

The following table presents 2024 and 2023 claim count and payment amount information for workers’ compensation.

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Components of net income (loss):

Underwriting (loss) income:

Underwriting income (loss):

Commercial lines

Personal lines

SAP underwriting loss

SAP underwriting income (loss)

GAAP adjustments

GAAP underwriting loss

GAAP underwriting income (loss)

Net investment income

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applicable SEC rules because the SAP financial measures include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude.

Our calculation of non-GAAP financial measures may differ from similar

measures other companies use.

Our calculation of non-GAAP financial measures may differ from

similar measures other companies use.

As a result, investors should exercise caution when comparing our non-GAAP financial measures to the non-GAAP financial measures other companies use.

The SAP financial measures we utilize are net premiums written and

statutory combined ratio.

The SAP financial measures we utilize are net premiums

written and statutory combined ratio.

Net Premiums Written

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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 2023, 2022 and 2021:

Year Ended December 31,

The following table provides a reconciliation of our net premiums earned to our net premiums written for 2024:

(in thousands)

Commercial Lines

Net premiums earned

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Net premiums written

The following table provides a reconciliation of our net premiums earned to our net premiums written for 2023:

(in thousands)

Commercial Lines

Net premiums earned

Change in net unearned premiums

Net premiums written

The following table provides a reconciliation of our net premiums earned to our net premiums written for 2022:

(in thousands)

Commercial Lines

Net premiums earned

Change in net unearned premiums

Net premiums written

Statutory Combined Ratio

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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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.

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.

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the years ended December 31, 2024, 2023 and 2022:

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Net Premiums Earned

Our insurance subsidiaries’ net premiums earned increased to $882.1 million for 2023, an increase of $59.6 million, or 7.2%, compared to 2022, primarily reflecting solid premium

retention and renewal premium increases.

Our insurance subsidiaries’ net premiums earned increased to $936.7 million for 2024, an increase of $54.6 million, or 6.2%, compared to 2023, primarily reflecting solid

premium retention and renewal premium increases.

Our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue.

Such terms are generally one year or less in duration.

Therefore, increases or decreases in

net premiums earned generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier.

Therefore, increases or

decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier.

Net Premiums Written

Our insurance subsidiaries’ 2024 net premiums written increased 5.2% to $942.3 million, compared to $895.7 million for 2023.

Commercial lines net premiums written decreased $2.4 million, or 0.5%, for 2023 compared to

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.

Personal lines net premiums written increased $54.6 million, or

17.5%, for 2023 compared to 2022.

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

Commercial lines net premiums written increased $19.5 million, or 3.7%, for 2024 compared

We attribute the increase in commercial lines net premiums written primarily to strong premium retention and a continuation of renewal premium increases in lines other than workers’ compensation, offset partially by planned attrition

in states we exited or classes of business we have targeted for profit improvement.

Personal lines net premiums written increased $27.1 million, or 7.4%, for 2024 compared to 2023.

We attribute the increase in personal lines net premiums

written primarily to renewal premium rate increases and solid policy retention, offset partially by planned attrition due to non-renewal actions and lower new business writings.

Investment Income

For 2024, our net investment income increased 10.0% to $44.9 million, compared to $40.9 million for 2023, due primarily to higher average reinvestment yields and higher average invested assets for 2024 compared to

Net Investment Gains (Losses)

Our net investment gains for 2023 were $3.2 million.

Our net investment losses for 2022 were $10.2 million.

The net investment gains (losses) for 2023 and 2022 were primarily related to increases (decreases) in the

market value of the equity securities held at the end of the respective periods.

Net Investment Gains

Our net investment gains for 2024 were $5.0 million, compared to $3.2 million for 2023.

The net investment gains for 2024 and 2023 were primarily related to increases in the market value of the equity securities

held at the end of the respective periods.

We did not recognize any impairment losses during 2024 or 2023.

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This decrease resulted primarily from the commercial multi-peril loss ratio decreasing to 57.5% for 2024, compared to 73.1% for 2023, primarily due to a decrease in severity of

non-weather claims.

The personal lines loss ratio increased to 75.6% for 2023, compared to 71.0% for 2022.

The personal automobile loss ratio increased to 78.5% for 2023, compared to 72.1% for 2022, primarily due to an increase in automobile claim

severity due to the ongoing impact of supply chain disruption and labor shortages on the costs of repair and replacement vehicles.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $16.7 million, or 1.9 percentage points of the loss ratio, during 2023 in their reserves for prior accident years, compared to approximately $44.8 million, or 5.4 percentage points of the loss ratio, during 2022.

The favorable loss

reserve development in 2023 resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023.

Weather-related losses of $72.9 million, or 8.3

percentage points of the loss ratio, for 2023 increased from $63.5 million, or 7.7 percentage points of the loss ratio, for 2022, with the increase primarily impacting the homeowners line of business.

Large fire losses, which we define as

individual fire losses in excess of $50,000, were $45.4 million, or 5.2 percentage points of the loss ratio, for 2023, compared to $53.5 million, or 6.5 percentage points of the loss ratio, for 2022.

The decrease was related to lower average claim

severity of both commercial property and home fires in 2023 compared to 2022.

non-weather claims, offset partially by increases in the commercial automobile and workers’ compensation loss ratios due primarily to increases in loss emergence for prior accident years.

The commercial automobile loss ratio increased to 68.5%

for 2024, compared to 63.0% for 2023.

The workers’ compensation loss ratio increased to 67.7% for 2024, compared to 59.0% for 2023.

The personal lines loss ratio decreased to 68.0% for 2024, compared to 75.6% for 2023, due primarily to

increases in net premiums earned related to premium rate increases.

The personal automobile loss ratio decreased to 68.5% for 2024, compared to 78.5% for 2023.

The homeowners loss ratio decreased to 66.7% for 2024, compared to 73.6% for 2023.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $15.0 million, or 1.6 percentage points of the loss ratio, during 2024 in their reserves for prior accident

years, compared to approximately $16.7 million, or 1.9 percentage points of the loss ratio, during 2023.

The favorable loss reserve development in 2024 resulted primarily from lower-than-expected loss emergence in the commercial multi-peril,

personal automobile and homeowner lines of business, offset partially by higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024.

Weather-related losses of

$67.7 million, or 7.2 percentage points of the loss ratio, for 2024 increased from $72.9 million, or 8.3 percentage points of the loss ratio, for 2023, with the decrease primarily impacting the commercial multi-peril and homeowners lines of

Large fire losses, which we define as individual fire losses in excess of $50,000, were $45.8 million, or 4.9 percentage points of the loss ratio, for 2024, compared to $45.4 million, or 5.2 percentage points of the loss ratio, for

Underwriting Expenses

Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to premiums earned, was 33.7% for 2024, compared to 34.7% for 2023.

We attribute the modest increase

to higher technology system-related expenses for 2023 compared to 2022, offset somewhat by decreased underwriting-based incentive costs for our employees for 2023 compared to 2022.

The increase in technology systems-related expenses for 2023 was

primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of two additional major releases of new systems as part of our ongoing systems modernization project in

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 1.25 percentage points of the expense ratio in 2024 before beginning

to subside gradually in subsequent years.

We attribute the decrease to

the impacts of various expense reduction initiatives, including agency incentive program revisions, commission schedule adjustments, targeted staffing reductions, and hiring restrictions for open employment positions, among others.

impacts were offset partially by an increase in underwriting-based incentive costs as well as higher technology systems-related expenses that were primarily due to increased costs related to our ongoing systems modernization project, a portion

of which Donegal Mutual Insurance Company allocates to our insurance subsidiaries.

We expect the impact from allocated costs from Donegal Mutual Insurance Company to our insurance subsidiaries related to the ongoing systems modernization

project peaked at approximately 1.3 percentage points of the expense ratio for 2024 and will subside gradually in 2025 and subsequent years.

Policyholder Dividends

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Our insurance subsidiaries’ combined ratio was 98.6% and 104.4% for 2024 and 2023, respectively.

The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of

workers’ compensation policy dividends incurred to premiums earned.

We attribute the increase in our combined ratio primarily to the increases in the loss and expense ratios.

The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio

of workers’ compensation policy dividends incurred to premiums earned.

We attribute the decrease in our combined ratio primarily to the decreases in the loss and expense ratios.

Interest Expense

Our interest expense for 2023 decreased slightly to $619,813, compared to $620,558 for 2022.

Our income tax expense was $637,972 for 2023, compared to an income tax benefit of $1.7 million for 2022.

Our effective tax rate for 2023 was 12.6%.

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

Our net income for 2023 was $4.4 million, or $0.14 per share of Class A common stock on a diluted basis and $0.11 per share of Class B common stock, compared to a net loss for 2022 of $2.0 million, or $0.06 per share

of Class A common stock and $0.07 per share of Class B common stock.

Our interest expense for 2024 increased to $946,020, compared to $619,813 for 2023.

We attribute the increase to higher interest rates on borrowings under our lines of credit during 2024 compared to 2023.

Our income tax expense was $11.5 million for 2024, compared to $637,972 for 2023.

Our effective tax rate for 2024 and 2023 was 18.4% and 12.6%, respectively.

Net Income and Earnings Per Share

Our net income for 2024 was $50.9 million, or $1.53 per share of Class A common stock on a diluted basis and $1.38 per share of Class B common stock, compared to $4.4 million, or $0.14 per share of Class A common

stock on a diluted basis and $0.11 per share of Class B common stock, for 2023.

We had 30.0 million and 27.8 million Class A shares outstanding at December 31, 2024 and 2023, respectively.

We had 5.6 million Class B shares outstanding for both periods.

are no outstanding securities that dilute our shares of Class B common stock.

We had 5.6 million Class B shares outstanding for both

There are no outstanding securities that dilute our shares of Class B common stock.

Book Value Per Share

Our stockholders’ equity decreased by $3.8 million during 2023, primarily due to the cash dividends we declared exceeding our net income and other increases during the year, resulting in a decrease in our book value

per share to $14.39 at December 31, 2023, compared to $14.79 a year earlier.

Our stockholders’ equity increased by $66.0 million during 2024, primarily due to our net income, stock issuances under our stock compensation plans and other increases exceeding the cash dividends we declared

during the year and resulting in an increase in our book value per share to $15.36 at December 31, 2024, compared to $14.39 a year earlier.

YEAR ENDED DECEMBER 31, 2023 COMPARED TO YEAR ENDED DECEMBER 31, 2022

Net Premiums Earned

Our insurance subsidiaries’ net premiums earned increased to $822.5 million for 2022, an increase of $46.5 million, or 6.0%, compared to 2021, primarily reflecting solid premium

retention and renewal premium increases.

Our insurance subsidiaries’ net premiums earned increased to $882.1 million for 2023, an increase of $59.6 million, or 7.2%, compared to 2022, primarily reflecting solid

premium retention and renewal premium increases.

Our insurance subsidiaries earn premiums and recognize them as income over the terms of the policies they issue.

Such terms are generally one year or less in duration.

Therefore, increases or decreases in

net premiums earned generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier.

Therefore, increases or

decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding twelve-month period compared to the same period one year earlier.

Net Premiums Written

Our insurance subsidiaries’ 2023 net premiums written increased 6.2% to $895.7 million, compared to $843.5 million for 2022.

Commercial lines net premiums written increased $18.0 million, or 3.6%, for 2022 compared to

We attribute the increase in commercial lines net premiums written primarily to modest 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 regions we have targeted for profit improvement.

Personal lines net premiums written increased $21.3 million, or 7.0%, for 2022 compared to 2021.

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

renewal premium increases, strong policy retention and new business writings in certain states where we have introduced an updated suite of products.

Commercial lines net premiums written decreased $2.4 million, or 0.5%, for 2023 compared

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.

Personal lines net premiums written increased $54.6

million, or 17.5%, for 2023 compared to 2022.

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

Investment Income

For 2023, our net investment income increased 20.1% to $40.9 million, compared to $34.0 million for 2022, due primarily to higher average reinvestment yields and higher average invested assets for 2023 compared to

Net Investment (Losses) Gains

Our net investment losses for 2022 were $10.2 million.

Net Investment Gains (Losses)

Our net investment gains for 2023 were $3.2 million.

The net investment (losses) gains for 2022 and 2021 were primarily related to (decreases) increases in

unrealized (losses) gains within our equity securities portfolio.

Our net investment losses for 2022 were $10.2 million.

The net investment gains (losses) for 2023 and 2022 were primarily related to increases (decreases) in the

market value of the equity securities held at the end of the respective periods.

We did not recognize any impairment losses during 2023 or 2022.

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ratio decreased to 64.8% for 2023, compared to 67.1% for 2022.

This decrease resulted primarily from the commercial automobile loss ratio decreasing to 64.2% for 2022, compared to 75.0% for 2021.

The personal lines loss ratio increased to 71.0% for

2022, compared to 64.8% for 2021.

The personal automobile loss ratio increased to 72.1% for 2022, compared to 65.6% for 2021, primarily due to an increase in automobile claim severity due to the ongoing impact of supply chain disruption and labor

shortages on the costs of repair and replacement vehicles.

The homeowners loss ratio increased to 76.1% for 2022, compared to 69.6% for 2021, primarily due to increased average claim severity due to the ongoing impact of supply chain disruption and

labor shortages on repair and replacement costs for homes.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $44.8 million, or 5.4 percentage points of the loss ratio,

during 2022 in their reserves for prior accident years, compared to approximately $31.2 million, or 4.0 percentage points of the loss ratio, during 2021.

The favorable loss reserve development in 2022 resulted primarily from lower-than-expected

loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022.

Weather-related losses of $63.5 million, or 7.7 percentage points of the loss ratio, for 2022 increased from $45.3 million, or

5.8 percentage points of the loss ratio, for 2021, with the increase primarily impacting the commercial multi-peril line of business.

Large fire losses, which we define as individual fire losses in excess of $50,000, were $53.5 million, or 6.5

percentage points of the loss ratio, for 2022, compared to $45.6 million, or 5.9 percentage points of the loss ratio, for 2021.

The increase was related to increased average claim severity of both commercial property and home fires in 2022 compared

to 2021, which we attribute in part to inflationary repair cost increases.

This decrease resulted primarily from the commercial multi-peril loss ratio decreasing to 73.1% for 2023, compared to 79.2% for 2022, primarily due to a decrease in severity of

non-weather claims.

The personal lines loss ratio increased to 75.6% for 2023, compared to 71.0% for 2022.

The personal automobile loss ratio increased to 78.5% for 2023, compared to 72.1% for 2022, primarily due to an increase in automobile

claim severity due to the ongoing impact of supply chain disruption and labor shortages on the costs of repair and replacement vehicles.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $16.7 million,

or 1.9 percentage points of the loss ratio, during 2023 in their reserves for prior accident years, compared to approximately $44.8 million, or 5.4 percentage points of the loss ratio, during 2022.

favorable loss reserve development in 2023 resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023.

Weather-related losses of $72.9

million, or 8.3 percentage points of the loss ratio, for 2023 increased from $63.5 million, or 7.7 percentage points of the loss ratio, for 2022, with the increase primarily impacting the homeowners line of business.

Large fire losses, which we

define as individual fire losses in excess of $50,000, were $45.4 million, or 5.2 percentage points of the loss ratio, for 2023, compared to $53.5 million, or 6.5 percentage points of the loss ratio, for 2022.

The decrease was related to lower

average claim severity of both commercial property and home fires in 2023 compared to 2022.

Underwriting Expenses

Our insurance subsidiaries’ expense ratio, which is the ratio of policy acquisition and other underwriting expenses to premiums earned, was 34.7% for 2023, compared to 34.1% for 2022.

We attribute the modest increase

to higher technology system-related expenses for 2022 compared to 2021, offset somewhat by lower commercial growth incentive costs for our agents and decreased underwriting-based incentive costs for our employees for 2022 compared to 2021.

increase in technology systems-related expenses for 2022 was primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of the second phase of our ongoing systems

modernization project in August 2021.

We attribute the modest

increase to higher technology system-related expenses for 2023 compared to 2022, offset somewhat by decreased underwriting-based incentive costs for our employees for 2023 compared to 2022.

The increase in technology systems-related expenses

for 2023 was primarily due to an increased allocation of costs from Donegal Mutual to our insurance subsidiaries following the successful implementation of two additional major releases of new systems as part of our ongoing systems

modernization project in 2023.

ratio in 2024 before beginning to subside gradually in subsequent years.

Policyholder Dividends

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Our insurance subsidiaries’ combined ratio was 104.4% and 103.3% for 2023 and 2022, respectively.

The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of

workers’ compensation policy dividends incurred to premiums earned.

We attribute the increase in our combined ratio primarily to the increase in the loss ratio.

The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the

ratio of workers’ compensation policy dividends incurred to premiums earned.

We attribute the increase in our combined ratio primarily to the increases in the loss and expense ratios.

Interest Expense

Our interest expense for 2022 decreased to $620,558, compared to $895,605 for 2021.

We attribute the decrease to lower average borrowings under our lines of credit during 2022 compared to 2021.

Our income tax benefit was $1.7 million for 2022, compared to income tax expense of $5.1 million for 2021.

Our interest expense for 2023 decreased slightly to $619,813, compared to $620,558 for 2022.

Our income tax expense was $637,972 for 2023, compared to an income tax benefit of $1.7 million for 2022.

Our effective tax rate for 2023 was 12.6%.

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

Our net loss for 2022 was $2.0 million, or $.06 per share of Class A common stock and $.07 per share of Class B common stock, compared to net income for 2021 of $25.3 million, or $0.83 per share of Class A common stock

on a diluted basis and $0.74 per share of Class B common stock.

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

share of Class A common stock and $0.07 per share of Class B common stock.

We had 27.8 million and 27.1 million Class A shares outstanding at December 31, 2023 and 2022, respectively.

We had 5.6 million Class B shares outstanding for both periods.

no outstanding securities that dilute our shares of Class B common stock.

We had 5.6 million Class B shares outstanding for both

There are no outstanding securities that dilute our shares of Class B common stock.

Book Value Per Share

Our stockholders’ equity decreased by $47.4 million during 2022, primarily due to $45.4 million of after-tax unrealized losses within our available-for-sale fixed-maturity portfolio, resulting in a decrease in our book

value per share to $14.39 at December 31, 2023, compared to $14.79 a year earlier.

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We have historically generated sufficient net positive cash flow from our operations to fund our commitments and build our investment portfolio, thereby increasing future investment returns.

The pooling agreement with

Donegal Mutual historically has been cash flow positive because of the profitability of the underwriting pool.

Because we settle the pool monthly, our cash flows are substantially similar to the cash flows that would result from the underwriting of

direct business.

The pooling agreement

with Donegal Mutual historically has been cash flow positive because of the profitability of the underwriting pool.

Because we settle the pool monthly, our cash flows are substantially similar to the cash flows that would result from the

underwriting of direct business.

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

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.

This laddering approach provides an additional measure of liquidity to meet our obligations and the

obligations of our insurance subsidiaries should an unexpected variation occur in the future.

Net cash flows provided by operating activities in 2023, 2022 and 2021 were $28.6 million, $67.1 million and $76.7 million, respectively.

The decrease in

net cash flows provided by operating activities for 2023 was primarily related to higher cash outflows for claim payments compared to 2022 and 2021.

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.

This laddering approach provides an additional measure of liquidity to meet our

obligations and the obligations of our insurance subsidiaries should an unexpected variation occur in the future.

Net cash flows provided by operating activities in 2024, 2023 and 2022 were $67.4 million, $28.6 million and $67.1 million,

respectively.

At December 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 interest rates equal to the then-current Term SOFR rate plus 2.11%.

December 31, 2023, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 1.74% and is due in August 2024.

In March 2020, Atlantic States issued $50.0 million of debt to the FHLB of

Pittsburgh in exchange for a cash advance in the same amount for contingent liquidity funding in light of uncertainty surrounding the economic impact of the COVID-19 pandemic.

Atlantic States repaid this advance when it became due in March 2021.

September 2021, upon receipt of approval from the Michigan Department of Insurance and Financial Services, MICO repaid in full the $5.0 million surplus note held previously by Donegal Mutual, along with accrued interest of $178,082.

We discuss in

Note 9 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities.

At December 31, 2024, Atlantic States had a $35.0 million outstanding advance with the FHLB of Pittsburgh that carries a fixed interest rate of 3.806% and is due in September 2026.

We discuss in Note 9 – Borrowings our estimate of the timing of

the amounts payable for the borrowings under our lines of credit based on their contractual maturities.

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.

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.

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.

The cash dividends we declared to our stockholders totaled $23.2 million, $22.2 million and $20.9 million in 2024, 2023 and 2022, respectively.

There are no regulatory

restrictions on our payment of dividends to our stockholders, although there are restrictions under applicable state laws on the payment of dividends from our insurance subsidiaries to us.

Our insurance subsidiaries are required by law to maintain

certain minimum surplus on a statutory basis and are subject to regulations under which their payment of dividends from statutory surplus is restricted and may require prior approval of their domiciliary insurance regulatory authorities.

insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements.

The amount of statutory capital and surplus necessary for our insurance subsidiaries to satisfy regulatory requirements, including the RBC requirements, was not

significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2023.

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

authorities in 2024 are approximately $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 December 31, 2023 and 2022, our investment portfolio of primarily investment-grade bonds, common stock, short-term investments and cash totaled $1.3 billion, representing 58.6% and 58.2%, respectively, of our total

restrictions on our payment of dividends to our stockholders, although there are restrictions under applicable state laws on the payment of dividends from our insurance subsidiaries to us, which is a significant source of cash for payment of

stockholder dividends by us.

Our insurance subsidiaries are required by law to maintain certain minimum surplus on a statutory basis and are subject to regulations under which their payment of dividends from statutory surplus is restricted and

may require prior approval of their domiciliary insurance regulatory authorities.

Our insurance subsidiaries are also subject to risk-based capital (“RBC”) requirements.

The amount of statutory capital and surplus necessary for our insurance

subsidiaries to satisfy regulatory requirements, including the RBC requirements, was not significant in relation to our insurance subsidiaries’ statutory capital and surplus at December 31, 2024.

Amounts available for distribution to us as

dividends from our insurance subsidiaries without prior approval of insurance regulatory authorities in 2025 are approximately $40.7 million from Atlantic States, $7.8 million from MICO and $4.7 million from Peninsula, or a total of

approximately $53.3 million.

At December 31, 2024 and 2023, our investment portfolio of primarily investment-grade bonds, common stock, short-term investments and cash totaled $1.4 billion and $1.3 billion, respectively, representing 61.6% and

58.6%, respectively, of our total assets.

See “Business - Investments” for more information.

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Total investments

The carrying value of our fixed maturity investments represented 95.6% and 92.9% of our total invested assets at December 31, 2023 and 2022, respectively.

Our fixed maturity investments consisted of high-quality marketable bonds, of which 95.2% were rated at investment-grade levels at December 31, 2023 and 2022, respectively.

At December 31, 2023, the net unrealized loss on our available-for-sale fixed maturity investments, net of deferred taxes, amounted to $31.9 million, compared to a net unrealized loss of $38.0 million at December 31,

The carrying value of our fixed maturity investments represented 95.6% of our total invested assets at December 31, 2024 and 2023.

Our fixed maturity investments consisted of high-quality marketable bonds, of which 95.6% and 95.2% were rated at investment-grade levels at December 31, 2024 and 2023, respectively.

At December 31, 2024, the net unrealized loss on our available-for-sale fixed maturity investments, net of deferred taxes, amounted to $27.4 million, compared to $31.9 million at December 31, 2023.

Impact of Inflation

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subsidiaries’ exposures, the frequency and severity of the events themselves and the level of reinsurance coverage our insurance subsidiaries purchase.

The increased frequency and severity of weather-related catastrophes and other losses, such as

from wildfires and flooding, incurred by the industry in recent years may be indicative of changing weather patterns due to climate change.

Should those patterns continue to emerge, increased weather-related catastrophes in the states in which our

insurance subsidiaries operate would lead to higher overall losses that they may be unable to offset through pricing actions.

The increased frequency and severity of weather-related catastrophes and other losses, such

as from wildfires and flooding, incurred by the industry in recent years may be indicative of changing weather patterns due to climate change.

Should those patterns continue to emerge, increased weather-related catastrophes in the states in

which our insurance subsidiaries operate would lead to higher overall losses that they may be unable to offset through pricing actions.

Our insurance subsidiaries seek to reduce their exposure to catastrophe losses through their underwriting strategies and their purchase of catastrophe reinsurance.

While the emerging science regarding climate change

and its connection to extreme weather events continues to be studied, climate change, to the extent it produces rising temperatures and changes in weather patterns, could affect the frequency and severity of weather events and other losses and thus

impact the affordability and availability of catastrophe reinsurance coverage for our insurance subsidiaries.

Our insurance subsidiaries’ ability to appropriately manage catastrophe risk depends partially on catastrophe models, which rely on

historical data that might not be representative of the frequency and severity of future events.

Such models might also be unable to anticipate the uncertain impact of changing climate conditions that tend to occur gradually over time.

policies of our insurance subsidiaries renew not less frequently than annually, our insurance subsidiaries have the ability to respond to the impact of changing climate conditions through adjustments to their underwriting standards, pricing, and

policy terms and conditions, subject to applicable regulatory approvals.

While the emerging science regarding climate

change and its connection to extreme weather events continues to be studied, climate change, to the extent it produces rising temperatures and changes in weather patterns, could affect the frequency and severity of weather events and other

losses and thus impact the affordability and availability of catastrophe reinsurance coverage for our insurance subsidiaries.

Our insurance subsidiaries’ ability to appropriately manage catastrophe risk depends partially on catastrophe models,

which rely on historical data that might not be representative of the frequency and severity of future events.

Such models might also be unable to anticipate the uncertain impact of changing climate conditions that tend to occur gradually over

Because the policies of our insurance subsidiaries renew not less frequently than annually, our insurance subsidiaries have the ability to respond to the impact of changing climate conditions through adjustments to their underwriting

standards, pricing, and policy terms and conditions, subject to applicable regulatory approvals.

Changing climate conditions could lead to new or revised regulations with which our insurance subsidiaries would have to comply.

Such regulations could impact the ability of our insurance subsidiaries to manage their

exposures in areas impacted by increased weather activity, require our insurance companies to alter the terms and conditions of their policies or impact the ability of our insurance subsidiaries to obtain sufficient pricing increases to offset

higher loss activity.

Such regulations could impact the ability of our insurance subsidiaries to manage

their exposures in areas impacted by increased weather activity, require our insurance companies to alter the terms and conditions of their policies or impact the ability of our insurance subsidiaries to obtain sufficient pricing increases to

offset higher loss activity.

Impact of New Accounting Standards

In September 2016, the FASB issued guidance that amended previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an

allowance rather than impairments as credit losses are incurred.

In September 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance that amended previous guidance on the impairment of financial instruments by adding an impairment model that requires an

entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred.

The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses.

In November 2019, the FASB issued guidance that delayed the

effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning after December 15, 2022 from December 15, 2019.

We were a smaller reporting company at the time this

guidance was issued, and our adoption of this guidance on January 1, 2023 resulted in an after-tax decrease in retained earnings of $1.9 million.

The adoption of this guidance did not have a significant impact on our results of operations or cash

2019, the FASB issued guidance that delayed the effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning after December 15, 2022 from December 15, 2019.

We were a smaller reporting company at the time this guidance was issued, and our adoption of this guidance on January 1, 2023 resulted in an after-tax decrease in retained earnings of $1.9 million.

The adoption of this guidance did not have a

significant impact on our results of operations or cash flows.

In November 2023, the FASB issued guidance that amended previous guidance on the disclosure of reportable segments.

The guidance requires disclosure of incremental segment information including the title and

position of the individual identified as the chief operating decision maker, a narrative explanation of how the chief operating decision maker uses each reported measure of a segment’s profit or loss in assessing performance and determining how

to allocate resources, as well as quantification of significant segment expenses and other items.

We refer to Note 19 - Segment Information for further information and disclosure of items required within the amended and enhanced guidance.

adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

In December 2023, the FASB issued guidance to enhance the transparency and usefulness of income tax disclosures.

The guidance requires disclosure of specific categories in the rate reconciliation table and

additional information for reconciling items that meet a quantitative threshold of equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable statutory income tax rate.

The guidance also

requires disaggregated disclosure of the amount of income taxes paid for federal, state and foreign taxes.

The guidance is effective for annual periods beginning after December 15, 2024.

The adoption of this guidance will not have an impact on

our financial position, results of operations or cash flows.

In November 2024, the FASB issued guidance requiring disaggregated disclosure of income statement expenses in the notes to financial statements.

The guidance requires disclosure of certain expenses, including

employee compensation, depreciation and selling expenses.

The guidance will not impact current income statement expense captions that industry-specific guidance requires.

The guidance is effective for annual reporting periods beginning after

December 15, 2026.

The adoption of this guidance will not have an impact on our financial position, results of operations or cash flows.

Off-Balance Sheet Arrangements

As of December 31, 2024 and 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Quantitative and Qualitative Disclosures About Market Risk.

We are exposed to the impact of interest rate changes, to changes in fair values of investments and to credit risk.

In the normal course of business, we employ established policies and procedures to manage our exposure to changes in interest rates, fluctuations in the fair market value of our debt and equity securities and

We seek to mitigate these risks by various actions we describe below.

Interest Rate Risk

Our exposure to market risk for a change in interest rates is concentrated in our investment portfolio.

We monitor this exposure through periodic reviews of our asset and liability positions.

We regularly monitor

estimates of cash flows and the impact of interest rate fluctuations relating to our investment portfolio.

Generally, we do not hedge our exposure to interest rate risk because we have the capacity to, and do, hold fixed-maturity investments to

Principal cash flows and related weighted-average interest rates by stated maturity dates for the financial instruments we held at December 31, 2024 that are sensitive to interest rates are as follows:

(in thousands)

Interest Rate

Fixed-maturity and short-term investments:

Actual cash flows from investments may differ from those depicted above as a result of calls and prepayments.

Equity Price Risk

Our portfolio of equity securities, which we carry on our consolidated balance sheets at estimated fair value, has exposure to price risk, which is the risk of potential loss in estimated fair value resulting from

an adverse change in prices.

Our objective is to mitigate this risk and to earn competitive relative returns by investing in a diverse portfolio of high-quality, liquid securities.

Our objective is to earn competitive returns by investing in a diversified portfolio of securities.

Our portfolio of fixed maturity securities and, to a lesser extent, short-term investments is subject to credit

We define this risk as the potential loss in fair value resulting from adverse changes in the borrower’s ability to repay the debt.

We manage this risk by performing an analysis of prospective investments and through regular reviews of

our portfolio by our investment personnel.

We also limit the amount of our total investment portfolio that we invest in any one security.

Our insurance subsidiaries provide property and liability insurance coverages through independent insurance agencies located throughout their operating areas.

Our insurance subsidiaries bill the majority of this

business directly to the insured, although our insurance subsidiaries bill a portion of their commercial business through their agents, to whom they 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 Atlantic States

cedes to Donegal Mutual.

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

To the extent that a reinsurer cannot pay losses for which it is liable

under the terms of a reinsurance agreement with one or more of our insurance subsidiaries, our insurance subsidiaries retain continued liability for such losses.

Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements and Schedule

Consolidated Balance Sheets

Consolidated Statements of Income (Loss) and Comprehensive Income (Loss)

Consolidated Statements of Stockholders’ Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm ( KPMG LLP , PCAOB ID 185 )

Schedule III — Supplementary Insurance Information

Donegal Group Inc.

Consolidated Balance Sheets

Fixed maturities

Held to maturity, at amortized cost (fair value $ 631,568,929

and $ 611,526,338 ;

net of allowance for expected credit losses of $ 1,388,240 and $ 1,325,847 )

Available for sale, at fair value (amortized cost $ 652,564,965

and $ 629,727,513 )

Equity securities, at fair value

Short-term investments, at cost, which approximates fair value

Total investments

1,384,972,332

1,327,053,645

Accrued investment income

Premiums receivable

Reinsurance receivable (net of allowance for expected credit losses of $ 391,432

and $ 1,394,074 )

Deferred policy acquisition costs

Deferred tax asset, net

Prepaid reinsurance premiums

Property and equipment, net

Accounts receivable - securities

Federal income taxes recoverable

Due from affiliate

Other intangible assets

2,336,031,983

2,266,293,888

Liabilities and Stockholders’ Equity

Losses and loss expenses

1,120,985,050

1,126,156,838

Unearned premiums

Accrued expenses

Reinsurance balances payable

Borrowings under lines of credit

Cash dividends declared to stockholders

Federal income taxes payable

Total liabilities

1,790,255,852

1,786,548,534

Stockholders’ Equity

Preferred stock, $ 0.01 par value, authorized 2,000,000 shares;

Class A common stock, $ 0.01 par value, authorized 50,000,000 shares, issued 32,954,347

and 30,764,555 shares and outstanding 29,951,759 and 27,761,967 shares

Class B common stock, $ 0.01 par value, authorized 10,000,000 shares, issued 5,649,240

shares and outstanding 5,576,775 shares

Additional paid-in capital

Accumulated other comprehensive loss

Retained earnings

Treasury stock, at cost

Total stockholders’ equity

Total liabilities and stockholders’ equity

2,336,031,983

2,266,293,888

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

Consolidated Statements of Income (Loss) and

Comprehensive Income (Loss)

Years Ended December 31,

Statements of Income (Loss)

Net premiums earned (includes affiliated reinsurance of $ 239,521,005 ,

$ 237,903,029 and $ 232,105,306

- see note 3)

Investment income, net of investment expenses

Installment payment fees

Net investment gains (losses) (includes ($ 174,302 ), ($ 2,242,190 ) and ($ 979,972 )

accumulated other comprehensive income reclassification)

Total revenues

Net losses and loss expenses (includes affiliated reinsurance of $ 136,662,558 ,

$ 150,198,479 and $ 177,849,040

- see note 3)

Amortization of deferred policy acquisition costs

Other underwriting expenses

Policyholder dividends

Total expenses

Income (loss) before income tax expense (benefit)

Income tax expense (benefit) (includes $ 36,603 , $ 470,860 and $ 205,794 income tax

benefit from reclassification items)

Net income (loss)

Basic earnings (loss) per common share:

Class A common stock

Class B common stock

Diluted earnings (loss) per common share:

Class A common stock

Class B common stock

Statements of Comprehensive Income (Loss)

Net income (loss)

Other comprehensive income (loss), net of tax

Unrealized gain (loss) on securities:

Unrealized holding gain (loss) arising during the period, net of income tax expense (benefit) of $ 1,207,804 , $ 1,285,390 and ($ 12,164,443 )

Reclassification adjustment for losses included in net income (loss), net of income tax benefit of $ 36,603 , $ 470,860 and $ 205,794

Other comprehensive income (loss)

Comprehensive income (loss)

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

Consolidated Statements of

Stockholders’ Equity

Class A Shares

Class B Shares

Class A Amount

Class B Amount

Additional Paid-In Capital

Accumulated Other Comprehensive Income (Loss)

Retained Earnings

Treasury Stock

Total Stockholders’ Equity

Balance, January 1, 2022

Issuance of common stock (stock compensation plans)

Stock-based compensation

Cash dividends

Grant of stock options

Other comprehensive loss

Balance, December 31, 2022

Issuance of common stock (stock compensation plans)

Stock-based compensation

Cash dividends

Grant of stock options

Cumulative effect of adoption of updated guidance for credit losses at January 1, 2023

Reclassification of held-to-maturity transfer

Other comprehensive income

Balance, December 31, 2023

Issuance of common stock (stock compensation plans)

Stock-based compensation

Cash dividends

Grant of stock options

Other comprehensive income

Balance, December 31, 2024

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

Consolidated Statements of Cash Flows

Years Ended December 31,

Cash Flows from Operating Activities:

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation, amortization and other non-cash items

Net investment (gains) losses

Changes in Assets and Liabilities:

Losses and loss expenses

Unearned premiums

Accrued expenses

Premiums receivable

Deferred policy acquisition costs

Deferred income taxes

Reinsurance receivable

Accrued investment income

Amounts due from affiliate

Reinsurance balances payable

Prepaid reinsurance premiums

Current income taxes

Net adjustments

Net cash provided by operating activities

Cash Flows from Investing Activities:

Purchases of fixed maturities:

Held to maturity

Available for sale

( 147,736,805

( 150,423,864

( 151,994,462

Purchases of equity securities

Sales of fixed maturities:

Available for sale

Maturity of fixed maturities:

Held to maturity

Available for sale

Sales of equity securities

Net sales (purchases) of property and equipment

Net sales (purchases) of short-term investments

Net cash used in investing activities

Cash Flows from Financing Activities:

Issuance of common stock

Cash dividends paid

Net cash provided by (used in) financing activities

Net increase (decrease) in cash

Cash at beginning of year

Cash at end of year

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

Notes to Consolidated Financial Statements

1 - Summary of Significant Accounting Policies

Organization and Business

Donegal Mutual Insurance Company (“Donegal

Mutual”) organized us as an insurance holding company on August 26, 1986.

Our insurance subsidiaries are Atlantic States Insurance Company (“Atlantic States”), Michigan Insurance Company (“MICO”), the Peninsula Insurance Group (“Peninsula”), which consists of The Peninsula Insurance Company and its wholly owned subsidiary Peninsula Indemnity Company, and Southern Insurance Company of Virginia (“Southern”).

Our insurance subsidiaries and their

affiliates write commercial and personal lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwestern, Southern and Southwestern states.

At December 31, 2024, we had three

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

The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’

compensation policies.

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

At December 31, 2024, Donegal Mutual held approximately 44 %

of our outstanding Class A common stock and approximately 84 % of our outstanding Class B common stock.

This ownership provides Donegal

Mutual with approximately 70 % of the total voting power of our common stock.

Our insurance subsidiaries and Donegal Mutual have

interrelated operations due to a pooling agreement and other intercompany agreements and transactions.

While each company maintains its separate corporate existence, our insurance subsidiaries and Donegal Mutual conduct business together as the

Donegal Insurance Group.

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

Atlantic States, our largest subsidiary, participates in a proportional reinsurance agreement (the “pooling agreement”) with Donegal Mutual.

Under the pooling agreement,

Donegal Mutual and Atlantic States contribute substantially all of their respective premiums, losses and loss expenses to the underwriting pool, and the underwriting pool, acting through Donegal Mutual, then allocates 80 % of the pooled business to Atlantic States.

Thus, Donegal Mutual and Atlantic States share the underwriting results of the pooled business in

proportion to their respective participation in the underwriting pool.

In addition, Donegal Mutual has a 100 % quota-share

reinsurance agreement with Southern Mutual Insurance Company (“Southern Mutual”).

Donegal Mutual places its assumed business from Southern Mutual into the underwriting pool.

Donegal Mutual also has a 100 % quota-share reinsurance agreement with Mountain States Indemnity Company and Mountain States Commercial Insurance Company (collectively, the “Mountain States insurance

subsidiaries”).

Donegal Mutual places its assumed business from the Mountain States insurance subsidiaries into the underwriting pool.

The same executive management and underwriting personnel administer products, classes of business underwritten, pricing practices and underwriting

standards of Donegal Mutual and our insurance subsidiaries.

In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to achieve market penetration and underwriting profitability

The products our insurance subsidiaries and Donegal Mutual market are generally complementary, thereby allowing the Donegal Insurance Group to offer a broader range of products to a given market and to expand the Donegal Insurance

Group’s ability to service an entire personal lines or commercial lines account.

Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally allow the individual companies to manage certain risk segments through

variations in coverage, terms and pricing.

Therefore, the underwriting profitability of the business the individual companies write directly will vary.

However, the underwriting pool homogenizes the risk characteristics of all business that

Donegal Mutual and Atlantic States write directly.

The business Atlantic States derives from the underwriting pool represents a significant percentage of our total consolidated revenues.

We refer to Note 3 - Transactions with Affiliates for more

information regarding the pooling agreement.

Basis of Consolidation

Our consolidated financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”),

include our accounts and those of our wholly owned subsidiaries.

We have eliminated all significant inter-company accounts and transactions in consolidation.

The terms “we,” “us,” “our” or the “Company” as we use them in the notes to our

consolidated financial statements refer to the consolidated entity.

Use of Estimates

In preparing our consolidated financial statements, our management makes estimates and assumptions that affect the reported amounts of assets and liabilities at the date

of the balance sheet and revenues and expenses for the period then ended.

Actual results could differ significantly from those estimates.

We make estimates and assumptions that could have a significant effect on amounts and disclosures we report in our consolidated financial statements.

significant estimates relate to our insurance subsidiaries’ reserves for property and casualty insurance unpaid losses and loss expenses.

While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate

amounts may differ from the estimates provided.

We regularly review our methods for making these estimates as well as the continuing appropriateness of the estimated amounts, and we reflect any adjustment we consider necessary in our current

results of operations.

Reclassification

We have made certain reclassifications in our prior period financial statements to conform to the current year presentation.

We classify our debt securities into the following categories:

Held to Maturity - Debt securities that we have the positive intent and ability to hold to maturity;

reported at amortized cost.

Available for Sale - Debt securities not classified as held to maturity;

reported at fair value, with unrealized gains and losses excluded from income and reported as a

separate component of stockholders’ equity (net of tax effects).

Short-term investments are carried at amortized cost, which approximates fair value.

We make estimates concerning

the valuation of our investments and, as applicable, the recognition of declines in the value of our investments.

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

With respect to an available-for-sale debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security.

If we determine we intend to sell the debt security, we recognize the impairment loss in our

results of operations.

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

If we determine it is more likely than not that we will be

required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations.

If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then

evaluate whether a credit loss has occurred with respect to that security.

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

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

If we determine that a credit loss has occurred, we establish an allowance for credit loss.

We then recognize the amount of the allowance in our results of operations, and

we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes.

We regularly review the allowance for credit losses and recognize changes in the allowance in our results of operations.

addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has

deteriorated, the occurrence of industry, issuer or geographic events that have negatively impacted the value of a security and rating agency downgrades.

For held-to-maturity debt securities, we make estimates concerning expected credit losses at

an aggregated level rather than monitoring individual debt securities for credit losses.

We establish an allowance for expected credit losses based on an ongoing review of securities held, historical loss data, changes in issuer credit standing

and other relevant factors.

We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of

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

We compute investment

gains and losses using the specific identification method.

We amortize premiums and discounts for mortgage-backed debt securities using anticipated prepayments.

Fair Values of Financial Instruments

We use the following methods and assumptions in estimating our fair value disclosures:

Investments - We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value.

The estimated fair value of a security may

differ from the amount that we could realize if we sold the security in a forced transaction.

In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair

value does not reflect the price at which an actual transaction would occur.

We utilize nationally recognized independent pricing services to estimate fair values for our fixed maturity and equity investments.

We generally obtain two prices per

The pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets.

For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare

estimates of fair value measurements based predominantly on observable market inputs.

The pricing services do not use broker quotes in determining the fair values of our investments.

Our investment personnel review the estimates of fair value the

pricing services provide to determine if the estimates we obtain are representative of fair values based upon the general knowledge of our investment personnel of the market, their research findings related to unusual fluctuations in value and

their comparison of such values to execution prices for similar securities.

Our investment personnel monitor the market and are familiar with current trading ranges for similar securities and the pricing of specific investments.

Our investment

personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, coupon rates, security type and recent trading activity.

investment personnel review documentation with respect to the pricing services’ pricing methodology that they obtain periodically to determine if the primary pricing sources, market inputs and pricing frequency for various security types are

We refer to Note 5 - Fair Value Measurements for more information regarding our methods and assumptions in estimating fair values.

Cash and Short-Term Investments - The carrying amounts we report in the balance sheet for these instruments approximate their fair values.

Premiums and Reinsurance Receivables and Payables - The carrying amounts we report in the balance sheet for these instruments related to premiums and paid losses and

loss expenses approximate their fair values.

Revenue Recognition

Our insurance subsidiaries recognize insurance premiums as income over the terms of the policies they issue.

Our insurance subsidiaries calculate unearned premiums on a

daily pro-rata basis.

Policy Acquisition Costs

We defer our insurance subsidiaries’ policy acquisition costs, consisting primarily of commissions, premium taxes and certain other underwriting costs, reduced by ceding

commissions, related directly to the successful acquisition of new or renewal insurance contracts.

We amortize these deferred policy acquisition costs over the period in which our insurance subsidiaries earn the premiums.

The method we follow in

computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value, which gives effect to the premium to be earned, related investment income, losses and loss expenses and certain other costs we

expect to incur as our insurance subsidiaries earn the premium.

Estimates in the calculation of policy acquisition costs have not shown material variability because of uncertainties in applying accounting principles or as a result of sensitivities

to changes in key assumptions.

Property and Equipment

We report property and equipment at depreciated cost that we compute using the straight-line method based upon estimated useful lives of the assets.

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.

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

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.

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.

O ur insurance subsidiaries

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

Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses,

including investigation and litigation costs.

Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each

claim and the insurance policy provisions relating to the type of loss the policyholder incurred.

Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by

line of insurance.

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

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 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.

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 new and used automobile values, increases

in the cost of replacement automobile parts and rising labor rates.

These continuing trend changes caused significant disruption to historical loss patterns and 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 replacement automobile parts and building materials, availability and cost of skilled labor, the rate of specialized plaintiff attorney involvement

in claims, plaintiff attorney utilization of litigation financing 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 December 31, 2024.

Our insurance subsidiaries seek to enhance their underwriting results by carefully selecting the product lines they underwrite.

Our insurance subsidiaries’ personal

lines products primarily include standard and preferred risks in private passenger automobile and homeowners lines.

Our insurance subsidiaries’ commercial lines products primarily include business offices, wholesalers, service providers,

contractors, artisans and light manufacturing operations.

Our insurance subsidiaries have limited exposure to asbestos and other environmental liabilities.

We currently file a consolidated federal income tax return that includes us and our insurance subsidiaries.

We account for income taxes using the asset and liability method.

The objective of the asset and liability method is to establish deferred tax assets and liabilities for

the temporary differences between the financial reporting basis and the tax basis of our assets and liabilities at enacted tax rates we expect to be in effect when we realize or settle such amounts.

Our objective is to earn competitive returns by investing in a diversified portfolio of securities.

Our portfolio of fixed maturity securities and, to a lesser extent,

short-term investments is subject to credit risk.

We define this risk as the potential loss in fair value resulting from adverse changes in the borrower’s ability to repay its debt to us.

We manage this risk by performing an analysis of prospective

investments and through regular reviews of our portfolio by our investment personnel.

We also limit the amount of our total investment portfolio that we invest in any one security.

Our insurance subsidiaries provide property and liability insurance coverages through independent insurance agencies located throughout their operating areas.

insurance subsidiaries bill the majority of this business directly to their policyholders, although our insurance subsidiaries bill a portion of their commercial business through their agents, to whom they extend credit in the normal course of

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

Reinsurance Accounting and Reporting

Our insurance subsidiaries rely upon reinsurance agreements to limit their maximum net loss from large single risks or risks in concentrated areas and to increase their

capacity to write insurance.

Reinsurance does not relieve our insurance subsidiaries from liability to their respective policyholders.

To the extent that a reinsurer cannot pay losses for which it is liable under the terms of a reinsurance

agreement with one or more of our insurance subsidiaries, our insurance subsidiaries retain continued liability for such losses.

However, in an effort to reduce the risk of non-payment, our insurance subsidiaries require all of their reinsurers to

Best rating of A- or better or, with respect to foreign reinsurers, to have a financial condition that, in the opinion of our management, is equivalent to a company with an A.M.

Best rating of A- or better.

We refer to Note 10 -

Reinsurance for more information regarding the reinsurance agreements of our insurance subsidiaries.

We report reinsurance receivable net of an allowance for expected credit losses.

We establish an allowance for expected credit losses based upon our ongoing review of amounts outstanding, historical loss data, changes in reinsurer

credit standing and other relevant factors.

our results of operations.

Stock-Based Compensation

We measure all share-based payments to our directors and the directors and employees of our subsidiaries and affiliates, including grants of stock options, using a

fair-value-based method and record such expense in our results of operations.

In determining the expense we record for stock options we grant to our directors and the directors and employees of our subsidiaries and affiliates, we estimate the fair

value of each option award on the date of grant using the Black-Scholes option pricing model.

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

and expected volatility.

In 2024, 2023 and 2022, we realized $ 370,644 , $ 139,135 and $ 360,452 , respectively, in

tax benefits upon the exercise of stock options.

Earnings Per Share

We calculate basic earnings per share by dividing net income by the weighted-average number of common shares outstanding for the period.

Diluted earnings per share

reflects the dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock.

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

Our Class A common stock is entitled to the declaration and

payment of cash dividends that are at least 10 % higher than those we declare and pay on our Class B common stock.

Accordingly, we use

the two-class method for the computation of earnings per common share.

The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends declared and an allocation

of remaining undistributed earnings using a participation percentage that reflects the dividend rights of each class.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the underlying fair value of acquired entities.

When completing acquisitions, we seek also to identify

separately identifiable intangible assets that we have acquired.

We assess goodwill and intangible assets with an indefinite useful life for impairment annually.

We also assess goodwill and other intangible assets for impairment upon the occurrence

of certain events.

In making our assessment, we consider a number of factors including operating results, business plans, economic projections, anticipated future cash flows and current market data.

Inherent uncertainties exist with respect to

these factors and to our judgment in applying them when we make our assessment.

Impairment of goodwill and other intangible assets could result from changes in economic and operating conditions in future periods.

2 - Impact of New Accounting Standards

In September 2016, the Financial Accounting Standards Board (the “FASB”) issued guidance that amended previous guidance on the impairment of financial instruments by

adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred.

The intent of this guidance is to reduce complexity and result in a more timely

recognition of expected credit losses.

In November 2019, the FASB issued guidance that delayed the effective date for “smaller reporting companies,” as defined in Item 10(f)(1) of Regulation S-K, to annual and interim reporting periods beginning

after December 15, 2022 from December 15, 2019.

We were a smaller reporting company at the time this guidance was issued, and our adoption of this guidance on January 1, 2023 resulted in an after-tax decrease in retained earnings of $ 1.9 million.

The adoption of this guidance did not have a significant impact on our results of operations or cash flows.

In November 2023, the FASB issued guidance that amended previous guidance on the disclosure of reportable segments.

The guidance requires disclosure of incremental

segment information including the title and position of the individual identified as the chief operating decision maker, a narrative explanation of how the chief operating decision maker uses each reported measure of a segment’s profit or loss in

assessing performance and determining how to allocate resources, as well as quantification of significant segment expenses and other items.

We refer to Note 19 - Segment Information for further information and disclosure of items required within

the amended and enhanced guidance.

The adoption of this guidance did not have an impact on our financial position, results of operations or cash flows.

In December 2023, the FASB issued guidance to enhance the transparency and usefulness of income tax disclosures.

The guidance requires disclosure of specific

categories in the rate reconciliation table and additional information for reconciling items that meet a quantitative threshold of equal to or greater than 5 percent of the amount computed by multiplying pretax income or loss by the applicable

statutory income tax rate.

The guidance also requires disaggregated disclosure of the amount of income taxes paid for federal, state and foreign taxes.

The guidance is effective for annual periods beginning after December 15, 2024.

of this guidance will not have an impact on our financial position, results of operations or cash flows.

In November 2024, the FASB issued guidance requiring disaggregated disclosure of income statement expenses in the notes to financial statements.

requires disclosure of certain expenses, including employee compensation, depreciation and selling expenses.

The guidance will not impact current income statement expense captions that industry-specific guidance requires.

The guidance is

effective for annual reporting periods beginning after December 15, 2026.

The adoption of this guidance will not have an impact on our financial position, results of operations or cash flows.

3 - Transactions with Affiliates

Our insurance subsidiaries conduct business and have various agreements with Donegal Mutual that we describe in the following subparagraphs:

Reinsurance Pooling and Other Reinsurance Arrangements

Atlantic States, our largest insurance subsidiary, and Donegal Mutual have a pooling agreement under which both companies contribute substantially all of their direct

written business to the pool and receive an allocated percentage of the pooled underwriting results, excluding certain reinsurance Donegal Mutual assumes from our insurance subsidiaries.

In addition, Donegal Mutual has 100 % quota-share reinsurance agreements with Southern Mutual and the Mountain States insurance subsidiaries, and Donegal Mutual places the business of

Southern Mutual and the Mountain States insurance subsidiaries into the underwriting pool.

Atlantic States has an 80 % share of the

results of the pool, and Donegal Mutual has a 20 % share of the results of the pool.

The intent of the pooling agreement is to produce

more uniform and stable underwriting results from year to year for each pool participant than they would experience individually and to spread the risk of loss between the participants based on each participant’s relative amount of surplus and

relative access to capital.

Each participant in the pool has at its disposal the capacity of the entire pool, rather than being limited to policy exposures of a size commensurate with its own capital and surplus.

The following amounts represent reinsurance Atlantic States ceded to the pool during 2024, 2023 and 2022:

Premiums earned

Losses and loss expenses

Prepaid reinsurance premiums

Liability for losses and loss expenses

The following amounts represent reinsurance Atlantic States assumed from the pool during 2024, 2023 and 2022:

Premiums earned

Losses and loss expenses

Unearned premiums

Liability for losses and loss expenses

Donegal Mutual and MICO

had a quota-share reinsurance agreement under which Donegal Mutual assumed 25 % of the premiums and losses related to the business of

MICO for policies effective through December 31, 2021.

Donegal Mutual and MICO terminated this reinsurance agreement on a run-off basis effective January 1, 2022.

Donegal Mutual and Peninsula had a quota-share reinsurance agreement under which

Donegal Mutual assumed 100 % of the premiums and losses related to the workers’ compensation product line of Peninsula in certain states

for policies effective through December 31, 2021.

Donegal Mutual and Peninsula terminated this reinsurance agreement on a run-off basis effective January 1, 2022.

Donegal Mutual places its assumed business from MICO and Peninsula into the

underwriting pool.

The following amounts represent reinsurance ceded to Donegal Mutual pursuant to these quota-share reinsurance agreements during 2024, 2023 and 2022:

Premiums earned

Losses and loss expenses

Liability for losses and loss expenses

2024 and 2023, each of our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual that provided coverage under any one catastrophic occurrence above a set retention of $ 3,000,000 ,

with a combined retention of $ 6,000,000 for a catastrophe involving a combination of our insurance subsidiaries, up to the amount Donegal Mutual and our insurance

subsidiaries retained under catastrophe reinsurance agreements with unaffiliated reinsurers.

In 2022, each of our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual that provided coverage under any one catastrophic

occurrence above a set retention of $ 2,000,000 , with a combined retention of $ 5,000,000 for a catastrophe involving a combination

of our insurance subsidiaries, up to the amount Donegal Mutual and our insurance subsidiaries retained under catastrophe reinsurance agreements with unaffiliated reinsurers.

The following amounts represent reinsurance that our insurance subsidiaries ceded to Donegal Mutual pursuant to these reinsurance agreements during 2024, 2023 and 2022:

Premiums earned

Losses and loss expenses

Liability for losses and loss expenses

The following amounts represent the effect of affiliated reinsurance transactions on net premiums our insurance subsidiaries earned during 2024, 2023 and 2022:

( 372,343,609

( 345,656,717

( 346,111,400

The following amounts represent the effect of affiliated reinsurance transactions on net losses and loss expenses our insurance subsidiaries incurred during 2024, 2023

( 217,390,397

( 258,852,827

( 217,941,272

Expense Sharing

Donegal Mutual provides

facilities, management and other services to us and our insurance subsidiaries.

In addition, Donegal Mutual purchases and maintains the information technology systems that support the business of Donegal Mutual and our insurance subsidiaries.

Donegal Mutual allocates certain related expenses to Atlantic States in relation to the relative participation of Atlantic States and Donegal Mutual in the pooling agreement.

Our insurance subsidiaries other than Atlantic States reimburse Donegal

Mutual for allocated costs of services Donegal Mutual provides on their behalf based on their proportion of the total direct premiums written of the Donegal Insurance Group and other metrics.

Donegal Mutual allocates costs related to its

development and maintenance of information technology systems over the estimated useful life of those systems (generally five years) and charges a proportionate share of those costs to our insurance subsidiaries based on their percentage of the

total net premiums written of the Donegal Insurance Group.

Allocated expenses from Donegal Mutual for services it provided to our insurance subsidiaries totaled $ 224,565,390 , $ 218,974,132 and $ 199,177,393 for 2024, 2023 and 2022, respectively.

Donegal Mutual is currently in the midst of a multi-year effort to modernize certain of its key technology infrastructure and application systems.

Donegal Mutual placed

several releases of new systems into service beginning in 2020.

Donegal Mutual allocated $ 12.3 million, $ 10.5 million and $ 7.6 million of related

costs to our insurance subsidiaries in 2024, 2023 and 2022, respectively.

Donegal Mutual will allocate to our insurance subsidiaries their proportionate share of the remaining $ 29.4 million of related costs over the next five years.

Donegal Mutual incurred an additional $ 14.4

million of deferred costs related to releases under development that were not yet ready for their intended use at December 31, 2024.

Our management believes that the allocation methods Donegal Mutual utilizes are reasonable.

In addition, Donegal Mutual and we maintain a coordinating committee that

consists of two members of our board of directors, neither of whom is a member of Donegal Mutual’s board of directors, and two members of Donegal Mutual’s board of directors, neither of whom is a member of our board of directors.

The purpose of the

coordinating committee is to maintain a process for an ongoing evaluation of the fairness of the terms of all transactions between Donegal Mutual and our insurance subsidiaries.

Lease Agreement

We lease office equipment with terms ranging from 3 to 10 years to Donegal Mutual under a lease agreement effective January 1, 2020.

4 - Investments

The amortized cost and estimated fair values of our fixed maturities at December 31, 2024 and 2023 are as follows:

Carrying Value

Allowance for Credit Losses

Estimated Fair

(in thousands)

Held to Maturity

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

Available for Sale

Estimated Fair

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

Carrying Value

Allowance for Credit Losses

Estimated Fair

(in thousands)

Held to Maturity

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

Available for Sale

Estimated Fair

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

At December 31, 2024, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $ 233.1 million and an amortized cost of $ 272.5 million.

Our holdings also included special revenue bonds with an aggregate fair value of $ 123.0 million and an amortized cost of $ 141.3 million.

With respect to both

categories of bonds, we held no securities of any issuer that comprised more than 10 % of that category at December 31, 2024.

bonds and water and sewer utility bonds represented 44 % and 37 %, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2024.

Many of the issuers of the special revenue bonds we held at December

31, 2024 have the authority to impose ad valorem taxes.

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

At December 31, 2023, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $ 245.1 million and an amortized cost of $ 278.3 million.

Our holdings also included special revenue bonds with an aggregate fair value of $ 124.8 million and an amortized cost of $ 140.8 million.

With respect to both

categories of bonds, we held no securities of any issuer that comprised more than 10 % of that category at December 31, 2023.

bonds and water and sewer utility bonds represented 47 % and 35 %, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2023.

Many of the issuers of the special revenue bonds we held at December

31, 2023 have the authority to impose ad valorem taxes.

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

We have segregated within

accumulated other comprehensive loss the net unrealized losses of $ 15.1 million arising prior to the November 30, 2013 reclassification

date for fixed maturities reclassified from available for sale to held to maturity.

We are amortizing this balance over the remaining life of the related securities as an adjustment of yield in a manner consistent with the accretion of discount on

the same fixed maturities.

We recorded amortization of $ 219,583 , $ 284,095 and $ 510,819 in other comprehensive income in 2024, 2023 and 2022,

respectively.

At December 31, 2024 and 2023, net unrealized losses of $ 1.0 million and $ 1.3 million, respectively, remained within accumulated other comprehensive loss.

We set forth below the amortized cost and estimated fair value of fixed maturities at December 31, 2024 by contractual maturity.

Expected maturities may differ from

contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Amortized Cost

Estimated Fair

Held to maturity

Due in one year or less

Due after one year through five years

Due after five years through ten years

Due after ten years

Mortgage-backed securities

Total held to maturity

Available for sale

Due in one year or less

Due after one year through five years

Due after five years through ten years

Due after ten years

Mortgage-backed securities

Total available for sale

The cost and estimated fair values of our equity securities at December 31, 2024 were as follows:

Estimated Fair

Equity securities

The cost and estimated fair values of our equity securities at December 31, 2023 were as follows:

Estimated Fair

Equity securities

The amortized cost of fixed maturities on deposit with various regulatory authorities at December 31, 2024 and 2023 amounted to $ 10,323,629 and $ 10,499,430 ,

respectively.

We derived net investment income, consisting primarily of interest and dividends, from the following sources:

Fixed maturities

Equity securities

Short-term investments

Investment income

Investment expenses

Net investment income

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

Gross realized gains:

Fixed maturities

Equity securities

Gross realized losses:

Fixed maturities

Equity securities

Net realized gains (losses)

Gross unrealized gains on equity securities

Gross unrealized losses on equity securities

Increase in allowance for credit

Net investment gains (losses)

Change in difference between fair value and cost of investments:

Fixed maturities

( 177,147,840

Equity securities

( 161,324,651

We held fixed maturities with unrealized losses representing declines that we considered temporary at December 31, 2024 as follows:

Less than 12 months

12 months or longer

Unrealized Losses

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

We held fixed maturities with unrealized losses representing declines that we considered temporary at December 31, 2023 as follows:

Less than 12 months

12 months or longer

Unrealized Losses

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

We held 902 debt securities that were in an unrealized loss position at December 31, 2024.

Based upon our analysis of general market conditions and underlying

factors impacting these debt securities, we considered these declines in value to be temporary.

We did no t recognize any impairment losses on

specific securities in 2024, 2023 or 2022.

We had no sales or transfers from our held to maturity portfolio in 2024, 2023 or 2022.

We had no derivative instruments or hedging activities during 2024, 2023 or 2022.

5 - Fair Value Measurements

We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of inputs, or assumptions, used in the

determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:

Level 1 - quoted prices in active markets for identical assets and liabilities;

Level 2 - directly or indirectly observable inputs other than Level 1 quoted prices;

Level 3 - unobservable inputs not corroborated by market data.

For investments that have

quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy.

We classify publicly traded equity securities as Level 1.

When quoted market prices in active

markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services.

We classify our fixed maturity investments and non-publicly traded equity securities as

Our fixed maturity investments consist of U.S.

Treasury securities and obligations of U.S.

government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities.

At December 31, 2024, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using

those prices.

In our review of the estimates the pricing services provided at December 31, 2024, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

We present our cash and

short-term investments at estimated fair value.

The carrying values in our balance sheet for premium receivables, reinsurance receivables related to paid losses and loss expenses and reinsurance balances payable approximate their fair values.

carrying amounts reported in the balance sheet for our borrowings under lines of credit approximate their fair values.

We classify these items as Level 3.

We evaluate our assets and liabilities on a regular basis to determine the appropriate level at which to classify them for each reporting period.

Based on our review of

the methodology and summary of inputs the pricing services use, we have concluded that our Level 1 and Level 2 investments were classified properly at December 31, 2024 and 2023.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2024:

Fair Value Measurements Using

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Other Observable

Inputs (Level 2)

Inputs (Level 3)

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

Equity securities

Total investments in the fair value hierarchy

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2023:

Fair Value Measurements Using

Quoted Prices in

Active Markets

for Identical

Assets (Level 1)

Other Observable

Inputs (Level 2)

Inputs (Level 3)

Treasury securities and obligations of U.S.

government corporations and agencies

Obligations of states and political subdivisions

Corporate securities

Mortgage-backed securities

Equity securities

Total investments in the fair value hierarchy

6 - Deferred Policy Acquisition Costs

Changes in our insurance subsidiaries’ deferred policy acquisition costs are as follows:

Balance, January 1

Acquisition costs deferred

Amortization charged to earnings

( 160,311,000

( 154,214,000

( 142,430,000

Balance, December 31

7 - Property and Equipment

Property and equipment

at December 31, 2024 and 2023 consisted of the following:

Office equipment

Accumulated depreciation

Depreciation expense for

2024, 2023 and 2022 amounted to $ 153,480 , $ 166,400

and $ 173,535 , respectively.

8 - Liability for Losses and Loss Expenses

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

subsidiaries’ ultimate liability will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition.

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.

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

estimates have exceeded their actual liabilities.

Changes in our insurance subsidiaries’ estimate of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received since the prior

reporting date.

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

Balance at January 1

1,126,156,838

1,121,045,758

1,077,620,301

Less reinsurance recoverable

( 437,013,974

( 451,184,222

( 451,261,306

Cumulative effect of adoption of updated accounting guidance for credit losses at January 1

Net balance at January 1

Incurred related to:

Total incurred

Paid related to:

Net balance at December 31

Plus reinsurance recoverable

Balance at December 31

1,120,985,050

1,126,156,838

1,121,045,758

Our insurance subsidiaries recognized a decrease in their liability for losses and loss expenses of prior years of $ 15.0 million, $ 16.7 million and $ 44.8 million in 2024, 2023 and 2022, respectively.

Our insurance subsidiaries made no significant changes in their reserving philosophy or claims

management personnel, and they have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those years.

The 2024 development represented 2.2 % of the December 31, 2023 net carried reserves and resulted primarily from lower-than-expected loss emergence in the commercial multi-peril, personal automobile and homeowner lines of business, offset partially by

higher-than-expected loss emergence in the workers’ compensation and commercial automobile lines of business, for accident years prior to 2024.

The majority of the 2024 development related to decreases in the liability for

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

The 2023 development represented 2.5 % of the December 31, 2022

net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2023.

The majority of the 2023 development related to decreases

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

The 2022 development represented 7.2 % of

the December 31, 2021 net carried reserves and resulted primarily from lower-than-expected loss emergence in the personal automobile and commercial automobile lines of business for accident years prior to 2022.

The majority of the 2022

development related to decreases in the liability for losses and loss expenses of prior years for Atlantic States and MICO.

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

to the amount of insurance protection our insurance subsidiaries provide.

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

We consider our insurance subsidiaries’ material lines of business to be personal

automobile, homeowners, commercial automobile, commercial multi-peril and workers’ compensation.

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

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

Accordingly, our insurance subsidiaries’ IBNR reserves include

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

Our insurance subsidiaries’ methodology for estimating IBNR reserves has been in

place for many years, and their actuaries made no significant changes to that methodology during 2024.

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

earned premium by an “ a priori ,” or expected, loss ratio for each line of business our insurance subsidiaries write.

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

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

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

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

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

These methods include paid loss development, incurred loss

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

The actuaries base their selection of a point estimate on a judgmental weighting of estimates each of these methods produce.

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

Loss frequency is a measure of the number of claims

per unit of insured exposure, and loss severity is a measure of the average size of claims.

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

Factors that affect loss severity include changes in policy

limits, reinsurance retentions, inflation rates and judicial interpretations.

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

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

In recent years, our insurance subsidiaries have noted an increase in

the period of time between the occurrence of a casualty loss event and the date on which they receive notice of a liability claim.

Changes in the length of time between the loss occurrence date and the claim reporting date affect the actuaries’

ability to accurately predict loss frequency and the amount of IBNR reserves our insurance subsidiaries require.

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

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

Atlantic States recognizes one count

for each claim event, or claimant involved in a multiple-party claim event, related to losses Atlantic States assumes through its participation in its pooling agreement with Donegal Mutual.

Our insurance subsidiaries accumulate the claim counts and

report them by line of business.

For purposes of the claim development tables we present below, our insurance subsidiaries count claims on policies they issue even if they eventually close such claims without making a loss payment.

insurance subsidiaries close without making a loss payment typically generate loss expenses.

The methods our insurance subsidiaries have used to summarize claim counts have not changed significantly over the time periods we report in the tables

The following tables present information about incurred and paid claims development as of December 31, 2024, net of reinsurance, as well as cumulative claim frequency

and the total of IBNR reserves plus expected development on reported claims that our insurance subsidiaries included within their net incurred claims amounts.

The tables include unaudited information about incurred and paid claims development for

the years ended December 31, 2015 through 2023, which we present as supplementary information.

At December 31, 2024

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

(dollars and reported claims in thousands)

Personal Automobile

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

(in thousands)

All outstanding liabilities before 2015, net of reinsurance

Liabilities for claims and claims adjustment expenses, net of reinsurance

At December 31, 2024

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(dollars and reported claims in thousands)

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

(in thousands)

All outstanding liabilities before 2015, net of reinsurance

Liabilities for claims and claims adjustment expenses, net of reinsurance

Commercial Automobile

At December 31, 2024

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(dollars and reported claims in thousands)

Commercial Automobile

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

(in thousands)

All outstanding liabilities before 2015, net of reinsurance

Liabilities for claims and claims adjustment expenses, net of reinsurance

Commercial Multi-Peril

At December 31, 2024

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(dollars and reported claims in thousands)

Commercial Multi-Peril

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

(in thousands)

All outstanding liabilities before 2015, net of reinsurance

Liabilities for claims and claims adjustment expenses, net of reinsurance

Workers’ Compensation

At December 31, 2024

Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

Total IBNR Plus Expected Development on Reported Claims

Cumulative Number of Reported Claims

(dollars and reported claims in thousands)

Workers’ Compensation

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance

For the Year Ended December 31,

(in thousands)

All outstanding liabilities before 2015, net of reinsurance

Liabilities for claims and claims adjustment expenses, net of reinsurance

The following table presents a reconciliation of the net incurred and paid claims development tables to the liability for claims and claims adjustment expenses in our

consolidated balance sheet:

At December 31,

(in thousands)

Net outstanding liabilities:

Personal automobile

Commercial automobile

Commercial multi-peril

Workers ’ compensation

Reinsurance recoverable:

Personal automobile

Commercial automobile

Commercial multi-peril

Workers ’ compensation

Unallocated loss adjustment expenses

Gross liability for unpaid losses and loss expenses

The following table presents supplementary information about average historical claims duration as of December 31, 2024:

Average Annual Percentage Payout of Incurred Claims by Age, Net of Reinsurance

Personal automobile

Commercial automobile

Commercial multi-peril

Workers’ compensation

9 - Borrowings

Lines of Credit

In August 2020, we entered into a credit agreement with Manufacturers and Traders Trust Company (“M&T”) that related to a $ 20.0 million unsecured demand line of credit.

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

At December 31, 2024, we had no outstanding borrowings from M&T and had the ability to borrow up to $ 20.0 million at interest rates equal to the then-current Term SOFR

rate plus 2.11 %.

Atlantic States is a member of the FHLB of Pittsburgh.

Through its membership, Atlantic States has the ability to issue debt to the FHLB of Pittsburgh in exchange for

cash advances.

Atlantic States has a fixed-rate cash advance of $ 35.0 million that was outstanding at December 31, 2024.

The cash advance

carries a fixed interest rate of 3.806 % and is due in September 2026 .

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

FHLB of Pittsburgh at December 31, 2024.

FHLB stock purchased and owned as part of the agreement

Collateral pledged, at par (carrying value $ 40,655,374 )

Borrowing capacity currently available

10 - Reinsurance

Unaffiliated Reinsurers

Our insurance subsidiaries and Donegal Mutual participate in a consolidated third-party reinsurance program, for which the coverage and parameters are common to all of

our insurance subsidiaries and Donegal Mutual.

The program utilizes several different reinsurers, all of which have an A.M.

Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the

opinion of our management, is equivalent to a company with at least an A- rating from A.M.

The following information describes the external reinsurance Donegal Mutual and our insurance subsidiaries had in place for 2024:

excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered losses over a set retention of $ 3.0

million for all liability and workers’ compensation losses and a set retention of $ 4.0 million for property losses;

catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recovered 100 % of an accumulation of many

losses resulting from a single event, including natural disasters, over a set retention of $ 25.0 million up to aggregate losses

of $ 175.0 million per occurrence.

For property insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $ 36.0 million per loss over a set retention of $ 4.0 million.

liability insurance, our insurance subsidiaries had excess of loss reinsurance that provided for coverage of $ 72.0 million per occurrence

over a set retention of $ 3.0 million.

For workers’ compensation insurance, our insurance subsidiaries had excess of loss reinsurance that

provided for coverage of $ 17.0 million on any one life over a set retention of $ 3.0 million.

As many as 29 reinsurers provided coverage for 2024 on

any one treaty with no reinsurer taking more than 20 % of any one treaty.

The amount of coverage

provided under each of these types of reinsurance depended upon the amount, nature, size and location of the risks being reinsured.

In order to write

automobile insurance in the State of Michigan, Atlantic States, MICO and Peninsula are required to be members of the Michigan Catastrophic Claims Association (“MCCA”).

The MCCA provides reinsurance to Atlantic States, MICO and Peninsula for

personal automobile and commercial automobile personal injury claims in the state of Michigan over a set retention.

In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries had a catastrophe reinsurance agreement with Donegal Mutual, under which

each of our insurance subsidiaries recovered 100 % of an accumulation of multiple losses resulting from a single event, including natural

disasters, over a set retention of $ 3.0 million up to aggregate losses of $ 22.0 million per occurrence.

The agreement also provided additional coverage for an accumulation of losses from a single event including a combination of our insurance subsidiaries over a

combined retention of $ 6.0 million.

Our insurance subsidiaries and Donegal Mutual also purchased facultative reinsurance to cover certain exposures, including property exposures in excess of the covered

limits of their respective treaty reinsurance.

The following amounts represent ceded reinsurance transactions with unaffiliated reinsurers during 2024, 2023 and 2022:

Premiums written

Premiums earned

Losses and loss expenses

Prepaid reinsurance premiums

Liability for losses and loss expenses

Total Reinsurance

The following amounts represent total ceded reinsurance transactions with both affiliated and unaffiliated reinsurers during 2024, 2023 and 2022:

Premiums earned

Losses and loss expenses

Prepaid reinsurance premiums

Liability for losses and loss expenses

The following amounts represent the effect of reinsurance on premiums written for 2024, 2023 and 2022:

( 418,469,480

( 396,206,492

( 366,714,634

Net premiums written

The following amounts represent the effect of reinsurance on premiums earned for 2024, 2023 and 2022:

( 411,032,074

( 388,073,427

( 383,059,075

Net premiums earned

Percentage of assumed premiums earned to net premiums earned

11 - Income Taxes

Our provision for income tax expense (benefit) for 2024, 2023 and 2022 consisted of the following:

Current federal income tax

Deferred federal income tax

Income tax expense (benefit)

Our effective tax rate is different from the amount computed at the statutory federal rate of 21 %.

The reasons for such difference and the related tax effects are as follows:

Income (loss) before income tax expense (benefit)

Tax at federal statutory rate

Tax-exempt interest

Dividends received deduction

Stock options

Additional tax paid for

Fixed-maturity dispositions

Income tax expense (benefit)

The tax effects of temporary differences that give rise to significant portions of our deferred tax assets and deferred tax liabilities at December 31, 2024 and 2023 are

Deferred tax assets:

Unearned premium

Loss reserves

Net unrealized losses

Net state operating loss carryforward - DGI Parent

Total gross deferred tax assets

Less valuation allowance

Net deferred tax assets

Deferred tax liabilities:

Deferred policy acquisition costs

Loss reserve transition adjustment

Total gross deferred tax liabilities

Net deferred tax asset

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

At December 31, 2024 and 2023,

we established a valuation allowance of $ 7.6 million and $ 8.1 million, respectively, for our net state operating loss carryforward.

We determined that we were not required to establish a valuation allowance for the other net deferred tax assets of

$ 37.5 million and $ 38.4

million at December 31, 2024 and 2023, respectively, since it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and our implementation of tax-planning

We are no longer subject to income tax examinations for tax years prior to 2016.

In 2019, the Internal Revenue Service (“IRS”) began a federal income tax audit of our consolidated tax returns for tax years 2016 to 2018.

No material issues

have been raised and no adjustments have been proposed as a result of this ongoing audit.

12 - Stockholders’ Equity

Each share of our Class A common stock outstanding at the time of the declaration of any dividend or other distribution payable in cash upon the shares of our Class B

common stock is entitled to a dividend or distribution payable at the same time and to stockholders of record on the same date in an amount at least 10 %

greater than any dividend declared upon each share of our Class B common stock.

In the event of our merger or consolidation with or into another entity, the holders of our Class A common stock and the holders of our Class B common stock are

entitled to receive the same per share consideration in such merger or consolidation.

In the event of our liquidation, dissolution or winding-up, any assets available to common stockholders will be distributed pro-rata to the holders of our Class A

common stock and our Class B common stock after payment of all of our obligations.

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 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of the SEC

Rule 10b-18 and in privately negotiated transactions.

We did no t purchase any shares of our Class A common stock under this program

during 2024, 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 December 31, 2024.

At December 31, 2024 and 2023, our treasury stock consisted of 3,002,588

and 72,465 shares of Class A common stock and Class B common stock, respectively.

13 - Stock Compensation Plans

Equity Incentive Plans

Since 1996, we have maintained an Equity Incentive Plan for Employees.

During 2024, we adopted a plan that made a total of 4,500,000 shares of Class A common stock available for issuance to employees of our subsidiaries and affiliates.

The plan provides for the granting of awards by our board of

directors in the form of stock options, stock appreciation rights, restricted stock or any combination of the above.

The plan provides that stock options may become exercisable up to ten years from their date of grant, with an option price not less than fair market value on the date preceding the date of grant.

We have not granted any stock appreciation rights.

Since 1996, we have maintained an Equity Incentive Plan for Directors.

During 2024, we adopted a new plan that made 500,000 shares of Class A common stock available for issuance to our directors and the directors of our subsidiaries and affiliates.

We may make awards in the form of stock

The plan also provides for the issuance of 500 shares of restricted stock on the first business day of January in each year to

each of our directors and each director of Donegal Mutual who does not serve as one of our directors.

We issued 8,500 shares of

restricted stock on January 2, 2024 under our prior director plan.

We issued 8,500 shares of restricted stock on January 3, 2023 under

our prior director plan.

We issued 8,500 shares of restricted stock on January 4, 2022 under our prior director plan.

No further shares are available for future option grants for plans in effect prior to 2024.

We measure all share-based payments to employees, including grants of employee stock options, using a fair-value-based method and record such expense in our results of

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

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

The risk-free interest rate is the implied yield currently

available on U.S.

Treasury zero coupon issues with a remaining term equal to the expected term used as the assumption in the model.

We base the expected term of an option award on our historical experience for similar awards.

We determine the

dividend yield by dividing the per share dividend by the grant date stock price.

We base the expected volatility on the volatility of our stock price over a historical period comparable to the expected term.

The weighted-average grant date fair value of options we granted during 2024 was $ 1.41 .

We calculated this fair value based upon a risk-free interest rate of 4.35 %,

an expected life of three years , an expected volatility of 16 % and an expected dividend yield of 4.4 %.

The weighted-average grant date fair value of options we granted during 2023 was $ 1.51 .

We calculated this fair value based upon a risk-free interest rate of 4.12 %,

an expected life of three years , an expected volatility of 20 % and an expected dividend yield of 5 %.

The weighted-average grant date fair value of options we granted during 2022 was $ 1.48 .

We calculated this fair value based upon a risk-free interest rate of 3.91 %,

an expected life of three years , an expected volatility of 22 % and an expected dividend yield of 5 %.

We charged compensation expense for our stock compensation plans against income before income taxes of $ 980,911 , $ 876,569 and $ 818,853 for the years ended December 31, 2024, 2023 and 2022, respectively, with a corresponding income tax benefit of $ 205,991 , $ 184,079 and $ 171,959 .

At December 31, 2024 and 2023, our total unrecognized compensation cost related to non-vested share-based compensation granted under our stock compensation plans was $ 1.8 million and $ 1.9 million,

respectively.

We expect to recognize this cost over a weighted average period of 1.9 years.

During 2024, we received cash from option exercises under all stock compensation plans of $ 30.7 million.

We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $ 370,644 for 2024.

During 2023, we received cash from option exercises under all stock compensation plans of $ 6.8 million.

We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $ 139,135 for 2023.

During 2022, we received cash from option exercises under all stock compensation plans of $ 17.4 million.

We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $ 360,452 for 2022.

Information regarding activity in our stock option plans follows:

Number of Options

Exercise Price

Outstanding at December 31, 2021

Granted - 2022

Exercised - 2022

Forfeited - 2022

Expired - 2022

Outstanding at December 31, 2022

Granted - 2023

Exercised - 2023

Forfeited - 2023

Expired - 2023

Outstanding at December 31, 2023

Granted - 2024

Exercised - 2024

Forfeited - 2024

Expired - 2024

Outstanding at December 31, 2024

Exercisable at:

December 31, 2022

December 31, 2023

December 31, 2024

Shares available for future option grants at December 31, 2024 totaled 4,089,900

shares under all plans.

The following table summarizes information about stock options outstanding at December 31, 2024:

Exercise Price

Number of Options Outstanding

Weighted-Average

Contractual Life

Number of Options Exercisable

December 17, 2020

January 4, 2021

December 16, 2021

December 15, 2022

December 21, 2023

December 19, 2024

Employee Stock Purchase Plan

Since 1996, we have maintained an Employee Stock Purchase Plan.

During 2021, we adopted a plan that

made 500,000 shares

of our Class A common stock available for issuance and extends over a 10 -year period.

The plan provides for shares to be offered to all eligible employees at a purchase price equal to the lesser of 85 % of the fair market

value of our Class A common stock on the last day before the first day of each enrollment period (June 1 and December 1 of each year) under the plan or 85 % of the fair market value of our Class A

common stock on the last day of each subscription period (June 30 and December 31 of each year).

A summary of plan activity follows:

Shares Issued

January 1, 2022

January 1, 2023

January 1, 2024

On January 1, 2025, we issued 28,500 shares at a price of

$ 11.25 per share under this plan.

Agency Stock Purchase Plan

Since 1996, we have

maintained an Agency Stock Purchase Plan.

During 2021, we adopted a plan that made 500,000 shares of our Class A common stock available

for issuance to agents of our insurance subsidiaries and Donegal Mutual.

During 2024, we adopted a new plan that made 500,000 shares of

our Class A common stock available for issuance to agents of our insurance subsidiaries and Donegal Mutual.

The plan permits an agent to invest up to $ 12,000

per subscription period (April 1 to September 30 and October 1 to March 31 of each year) under various methods.

We issue stock at the end of each subscription period at a price equal to 90 % of the average market price during the last ten trading days of each

subscription period.

During 2024, 2023 and 2022, we issued 81,180 , 86,469 and 104,393 shares, respectively, under the 2021 plan.

The expense we

recognized under this plan was not material.

14 - Statutory Net Income, Capital and Surplus and Dividend Restrictions

The following table presents selected information, as filed with state insurance regulatory authorities, for our insurance subsidiaries as determined in accordance with

accounting practices prescribed or permitted by such insurance regulatory authorities:

Atlantic States:

Statutory capital and surplus

Statutory unassigned surplus

Statutory net income (loss)

Statutory capital and surplus

Statutory unassigned surplus

Statutory net income (loss)

Statutory capital and surplus

Statutory unassigned surplus

Statutory net income

Statutory capital and surplus

Statutory unassigned surplus

Statutory net loss

We rely on dividends from our insurance subsidiaries as a significant source of cash for payment of dividends to our stockholders.

State insurance laws require our

insurance subsidiaries to maintain certain minimum capital and surplus amounts on a statutory basis.

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 may further impact their ability to pay dividends.

Our insurance subsidiaries’ statutory capital and

surplus at December 31, 2024 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.

Amounts available for distribution to us as dividends from our

insurance subsidiaries without prior approval of insurance regulatory authorities in 2025 are approximately $ 40.7 million from Atlantic

States, $ 7.8 million from MICO and $ 4.7

million from Peninsula, or a total of approximately $ 53.3 million.

15 - Reconciliation of Statutory Filings to Amounts Reported in the Consolidated Financial Statements

Our insurance subsidiaries must file financial statements with state insurance regulatory authorities using accounting principles and practices prescribed or permitted

by those authorities.

We refer to these accounting principles and practices as statutory accounting principles (“SAP”).

Accounting principles used to prepare these SAP financial statements differ from those used to prepare financial statements on

the basis of GAAP.

Reconciliations of statutory net income (loss) and capital and surplus, as determined using SAP, to the net income (loss) and stockholders’ equity amounts included in

the accompanying consolidated financial statements are as follows:

Year Ended December 31,

Statutory net income (loss) of insurance subsidiaries

Increases (decreases):

Deferred policy acquisition costs

Deferred federal income taxes

Salvage and subrogation recoverable

Consolidating eliminations and adjustments

Parent-only net income (loss)

Net income (loss)

Statutory capital and surplus of insurance subsidiaries

Increases (decreases):

Deferred policy acquisition costs

Deferred federal income taxes

Salvage and subrogation recoverable

Non-admitted assets and other adjustments, net

Fixed maturities

Parent-only equity and other adjustments

Stockholders’ equity

16 - Supplementary Cash Flow Information

The following table reflects net income taxes and interest we paid during 2024, 2023 and 2022:

17 - Earnings Per Share

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

Our Class A common stock is entitled to be paid cash dividends

that are at least 10 % higher than the cash dividends we pay on our Class B common stock.

Accordingly, we use the two-class method for

the computation of earnings per common share.

The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends declared and an allocation of remaining

undistributed earnings using a participation percentage reflecting the dividend rights of each class.

We present below a reconciliation of the numerators and denominators we used in the basic and diluted per share computations for our Class A common stock:

Year Ended December 31,

(in thousands)

Basic earnings (loss) per share:

Allocation of net income (loss)

Weighted-average shares outstanding

Basic earnings (loss) per share

Diluted earnings (loss) per share:

Allocation of net income (loss)

Number of shares used in basic computation

Weighted-average effect of dilutive securities

Director and employee stock options

Number of shares used in per share computations

Diluted earnings (loss) per share

We used the following information in the basic and diluted per share computations for our Class B common stock:

Year Ended December 31,

(in thousands)

Basic and diluted earnings (loss) per share:

Allocation of net income (loss)

Weighted-average shares outstanding

Basic and diluted earnings (loss) per share

We did not include any effect of dilutive securities in the computation of diluted loss per share for 2022 because we sustained a net loss for the period.

18 - Condensed Financial Information of Parent Company

Condensed Balance Sheets

(in thousands)

Investment in subsidiaries/affiliates (equity method)

Short-term investments

Property and equipment

Liabilities and Stockholders’ Equity

Cash dividends declared to stockholders

Notes payable to subsidiary

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Condensed Statements of Income (Loss) and Comprehensive Income (Loss)

(in thousands)

Year Ended December 31,

Statements of Income (Loss)

Dividends from subsidiaries

Total revenues

Operating expenses

Total expenses

Income (loss) before income tax benefit and equity in undistributed net income (loss) of subsidiaries

Income tax benefit

Income (loss) before equity in undistributed net income (loss) of subsidiaries

Equity in undistributed net income (loss) of subsidiaries

Net income (loss)

Statements of Comprehensive Income (Loss)

Net income (loss)

Other comprehensive income (loss), net of tax

Unrealized gain (loss) - subsidiaries

Other comprehensive income (loss), net of tax

Comprehensive income (loss)

Condensed Statements of Cash Flows

(in thousands)

Year Ended December 31,

Cash flows from operating activities:

Net income (loss)

Equity in undistributed net (income) loss of subsidiaries

Net adjustments

Net cash provided (used)

Cash flows from investing activities:

Net (purchase) sale of short-term investments

Net purchase of property and equipment

Investment in subsidiaries

Net cash (used) received

Cash flows from financing activities:

Cash dividends paid

Issuance of common stock

Net cash received (used)

Net change in cash

Cash at beginning of year

Cash at end of year

19 - Segment Information

We have three reportable segments, which consist of our

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

Using independent agents, our insurance subsidiaries market commercial lines of insurance to small and medium-sized businesses and personal lines of

insurance to individuals.

Our chief operating decision maker, which is our Chief Executive Officer, evaluates the performance of the commercial lines and personal lines primarily based upon our insurance subsidiaries’ underwriting results as

determined under SAP.

This segmentation is consistent with the segmentation we utilize to manage our business.

We make resource allocation decisions based upon historical underwriting results as well as perceived opportunities for future

profitable growth within each segment.

We operate only in the United States, and no single customer or agent provides 10 percent or more of our revenues.

Financial data by segment is as follows:

Commercial Lines

(in thousands)

Net premiums earned

Net investment income

Investment gains

Total segment revenues

Total revenues

Segment expenses:

Net losses and loss expenses

Other underwriting expenses

Policyholder dividends

Total segment expenses

SAP underwriting income

GAAP adjustments

GAAP underwriting income

Net investment income

Investment gains

Income before income tax expense

Commercial Lines

(in thousands)

Net premiums earned

Net investment income

Investment gains

Total segment revenues

Total revenues

Segment expenses:

Net losses and loss expenses

Other underwriting expenses

Policyholder dividends

Total segment expenses

SAP underwriting loss

GAAP adjustments

GAAP underwriting loss

Net investment income

Investment gains

Income before income tax expense

Commercial Lines

(in thousands)

Net premiums earned

Net investment income

Investment losses

Total segment revenues

Total revenues

Segment expenses:

Net losses and loss expenses

Other underwriting expenses

Policyholder dividends

Total segment expenses

SAP underwriting loss

GAAP adjustments

GAAP underwriting loss

Net investment income

Investment losses

Loss before income tax benefit

20 - Guaranty Fund and Other Insurance-Related Assessments

Our insurance subsidiaries’ liabilities for guaranty fund and other insurance-related assessments were $ 1.9 million at December 31, 2024 and 2023.

These liabilities included $ 668,722

and $ 702,261 related to surcharges collected by our insurance subsidiaries on behalf of regulatory authorities for 2024 and 2023,

respectively.

21 - Allowance for Expected Credit Losses

Pursuant to new accounting guidance we adopted on January 1, 2023, we make estimates

with respect to the potential impairment of financial instruments and recognize expected credit losses as an allowance rather than impairments as credit losses are incurred.

We refer to Note 2 - Impact of New Accounting Standards for more

information regarding the new accounting guidance.

We have established allowances for expected credit losses with respect to held-to-maturity debt securities and reinsurance receivable.

Held-to-Maturity

Debt Securities

For held-to-maturity debt securities, we make estimates concerning expected credit

losses at an aggregated level rather that monitoring individual debt securities for credit losses.

We establish an allowance for expected credit losses based on an ongoing review of securities held, historical loss data, changes in issuer credit

standing and other relevant factors.

results of operations.

The following table presents the balances for fixed maturities classified as

held-to-maturity, net of the allowance for expected credit losses, at December 31, 2024 and 2023, the cumulative effect of our adoption of the updated accounting guidance for credit losses on January 1, 2023 and changes in the allowance for

expected credit losses for 2024 and 2023.

At and For the Year Ended

December 31, 2024

At and For the Year Ended

December 31, 2023

Maturity, Net

Credit Losses

Allowance for

Expected Credit

Maturity, Net

Credit Losses

Allowance for

Expected Credit

(in thousands)

Balance at beginning of period

Cumulative effect of adoption of updated accounting guidance for credit losses

Current period change for expected credit losses

Balance at end of period

For reinsurance receivable, we establish an allowance for expected credit losses

based upon our ongoing review of amounts outstanding, historical loss data, changes in reinsurer credit standing and other relevant factors.

We utilize a probability-of-default methodology, which reflects current and forecasted economic conditions,

to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of operations.

The following table presents the balances for reinsurance receivable, net of the

allowance for expected credit losses, at December 31, 2024 and 2023, the cumulative effect of our adoption of the updated accounting guidance for credit losses on January 1, 2023 and the changes in the allowance for expected credit losses for 2024

At and For the Year Ended

December 31, 2024

At and For the Year Ended

December 31, 2023

Receivable, Net

Credit Losses

Allowance for

Credit Losses

Receivable, Net

Credit Losses

Allowance for

Credit Losses

(in thousands)

Balance at beginning of period

Cumulative effect of adoption of updated accounting guidance for credit losses

Current period change for expected credit losses

Balance at end of period

of Independent Registered Public Accounting Firm

To the Stockholders and

Board of Directors of Donegal Group Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Donegal Group Inc.

and subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income (loss) and

comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2024, and the related notes and financial statement schedule III (collectively, the consolidated financial

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of

the years in the three-year period ended December 31, 2024, in conformity with U.S.

generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2024, based

on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 10, 2025 expressed an

unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We are a public

accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and

We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are

free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing

procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.

Our audits also included evaluating the accounting principles

used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and

(1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of a critical audit matter does not alter in

any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which

Estimate of Liabilities for Losses and Loss Expenses

As discussed in Notes 1 and 8 to the consolidated financial statements, the Company estimates the liabilities for losses and loss expenses (reserves) through an internal reserve analysis that

relies upon generally accepted actuarial practices.

The Company develops reserve estimates by line of business and, as experience emerges and other information develops, the reserve estimates are assessed in aggregate and adjusted as necessary.

As of December 31, 2024, the Company recorded a liability of $1.121 billion for reserves.

We identified the evaluation of the estimate of reserves as a critical audit matter.

The evaluation of the Company’s estimate of reserves involved a high degree of auditor judgment due to the

inherent uncertainties in the use of actuarial methods and assumptions, which considered internal and external factors.

Assumptions included the selection of loss development factors, a priori ratios, and

the weighting of actuarial methods when more than one was used.

Evaluating the actuarial methods and assumptions required specialized skills and auditor judgment.

The following are the primary procedures we performed to address this critical audit matter.

We evaluated, with the involvement of actuarial professionals, when appropriate, the design and tested

the operating effectiveness of certain internal controls related to the Company’s reserving process.

These included controls related to the Company’s actuarial analyses and determination of the Company’s estimate of recorded reserves.

actuarial professionals with specialized skills and knowledge, who assisted in:

evaluating the Company’s actuarial methods by comparing them to generally accepted actuarial practices

developing an independent estimate of reserves for certain lines of business using methods consistent with generally accepted actuarial practices by independently forming assumptions of loss development factors, a priori ratios, and

the weighting of actuarial methods when more than one was used, considering internal and external factors

assessing the Company’s internal actuarial analysis for certain lines of business by reviewing the assumptions and actuarial methods used, which included the selection of loss development factors, a

priori ratios, and the weighting of actuarial methods when more than one was used, considering internal and external factors

developing a range of reserves and comparing to the Company’s recorded reserves and assessing movement of the Company’s recorded reserves within that range.

We have served as the Company’s auditor since 1986.

Philadelphia, Pennsylvania

March 10, 2025

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

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-K

Item 7. Management’s Discussion and Analysis