What changed in this filing

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Item 1. Financial Statements

2025-11-04 compared with 2025-08-05 · 133 added, 511 removed, 697 unchanged (48% of the section changed)

3 unchanged sentences

Consolidated Balance Sheets

September 30,

Fixed maturities

29 unchanged sentences

Federal income taxes payable

Accounts payable - securities

Total liabilities

17 unchanged sentences

Consolidated Statements of Income

Three Months Ended June 30,

Three Months Ended September 30,

Net premiums earned

2 unchanged sentences

Installment payment fees

Other income, net

Total revenues

6 unchanged sentences

Income before income tax expense

Income tax expense (includes ($ 288,194 ) and $ 17,096 income tax (benefit) expense from reclassification items)

Income tax expense (includes $ 309,122 and $ 14,590 income tax benefit from reclassification items)

Net income per share:

5 unchanged sentences

Consolidated Statements of Comprehensive Income

Three Months Ended June 30,

Other comprehensive income (loss), net of tax

Unrealized income (loss) on securities:

Unrealized holding income (loss) during the period, net of income tax expense (benefit) of $ 773,077 and ($ 82,974 )

Reclassification adjustment for losses (gains) included in net income, net of income tax (benefit) expense of ($ 288,194 ) and $ 17,096

Other comprehensive income (loss)

Three Months Ended September 30,

Other comprehensive income, net of tax

Unrealized income on securities:

Unrealized holding income during the period, net of income tax expense of $ 1,125,235 and $ 3,682,547

Reclassification adjustment for losses included in net income, net of income tax benefit of $ 309,122 and $ 14,590

Other comprehensive income

Comprehensive income

3 unchanged sentences

Consolidated Statements of Income

Six Months Ended June 30,

Nine Months Ended September 30,

Net premiums earned

10 unchanged sentences

Income before income tax expense

Income tax expense (includes ($ 276,202 ) and $ 915 income tax (benefit) expense from reclassification items)

Income tax expense (includes $ 585,324 and $ 13,675 income tax benefit from reclassification items)

Net income per share:

5 unchanged sentences

Consolidated Statements of Comprehensive Income

Six Months Ended June 30,

Other comprehensive income (loss), net of tax

Unrealized income (loss) on securities:

Unrealized holding income (loss) during the period, net of income tax expense (benefit) of $ 2,573,587 and ($ 524,825 )

Reclassification adjustment for losses (gains) included in net income, net of income tax (benefit) expense of ($ 276,202 ) and $ 915

Other comprehensive income (loss)

Nine Months Ended September 30,

Other comprehensive income, net of tax

Unrealized income on securities:

Unrealized holding income during the period, net of income tax expense of $ 3,698,822 and $ 3,157,722

Reclassification adjustment for losses included in net income, net of income tax benefit of $ 585,324 and $ 13,675

Other comprehensive income

Comprehensive income

3 unchanged sentences

Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2025

Nine Months Ended September 30, 2025

Paid-In Capital

15 unchanged sentences

Balance, June 30, 2025

Issuance of common stock (stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive income

Balance, September 30, 2025

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Statement of Stockholders’ Equity

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Paid-In Capital

15 unchanged sentences

Balance, June 30, 2024

Issuance of common stock (stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive income

Balance, September 30, 2024

See accompanying notes to consolidated financial statements.

2 unchanged sentences

Consolidated Statements of Cash Flows

Six Months Ended June 30,

Nine Months Ended September 30,

Cash Flows from Operating Activities:

20 unchanged sentences

Purchases of fixed maturities, available for sale

( 211,471,122

( 103,059,218

Purchases of equity securities, available for sale

11 unchanged sentences

Issuance of common stock

Net cash provided by (used in) financing activities

Net increase in cash

Net cash used in financing activities

Net (decrease) increase in cash

Cash at beginning of period

9 unchanged sentences

Our insurance subsidiaries and their affiliates write property and casualty insurance exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwestern, Southern and Southwestern states.

At June 30, 2025, we had three segments:

At September 30, 2025, we had three segments:

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

1 unchanged sentence

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

At June 30, 2025, Donegal Mutual held approximately 44 % of our outstanding Class A common stock and approximately 84 % of our outstanding Class B common stock.

At September 30, 2025, 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.

13 unchanged sentences

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.

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.

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

The business Atlantic

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

In September 2025, we entered into a renewal rights agreement with a farm-focused Pennsylvania-based mutual insurance company to provide a continuation option for our farm policyholders when we begin to non-renew all farm policies as they expire beginning in the second quarter of 2026.

We determined that the costs required to modernize our legacy farm product and systems were higher than the projected return on investment for this non-core line of business that represents approximately $ 6 million in premiums.

We currently include farm policies within other commercial lines in our line of business reporting.

Basis of Presentation

2 unchanged sentences

normal recurring adjustments that, in the opinion of our management, are necessary for a fair presentation of our financial position, results of operations and cash flows for those interim periods.

Our results of operations for the six months

ended June 30, 2025 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2025.

We recommend you read the interim financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on

Form 10-K for the year ended December 31, 2024 that we filed with the Securities and Exchange Commission (“SEC”) on March 10, 2025.

Our results of operations for the nine months

ended September 30, 2025 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2025.

10-K for the year ended December 31, 2024 that we filed with the Securities and Exchange Commission (“SEC”) on March 10, 2025.

Net Income Per Share

4 unchanged sentences

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

Three Months Ended June 30,

Three Months Ended September 30,

(in thousands, except per share data)

10 unchanged sentences

Diluted net income per share

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands, except per share data)

11 unchanged sentences

We did not include outstanding options to purchase the following number of shares of Class A common stock in our computation of diluted net income per share because the exercise price of the options exceeded the average market price of our Class A common stock during the applicable periods.

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

20 unchanged sentences

In order to write automobile insurance in the state of Michigan, Atlantic States, MICO and The Peninsula Insurance Company are required to be members of the Michigan Catastrophic Claims Association (“MCCA”).

MCCA provides reinsurance to Atlantic States, MICO and The Peninsula Insurance Company for personal automobile and commercial automobile personal injury claims in the state of Michigan over a set retention.

provides reinsurance to Atlantic States, MICO and The Peninsula Insurance Company for personal automobile and commercial automobile personal injury claims in the state of Michigan over a set retention.

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

2 unchanged sentences

We use a probability-of-default methodology, which reflects current and forecasted economic conditions, to estimate the allowance for expected credit losses.

The amortized cost and estimated fair values of our fixed maturities at June 30, 2025 were as follows:

The amortized cost and estimated fair values of our fixed maturities at September 30, 2025 were as follows:

Carrying Value

20 unchanged sentences

Mortgage-backed securities

At June 30, 2025, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $ 241.0 million and an amortized cost of $ 278.9 million.

Our holdings at June 30, 2025 also included special revenue bonds with an aggregate fair value of $ 131.9 million and an amortized cost of $ 148.4 million.

With respect to both categories of those bonds, we held no securities of any issuer that comprised more than 10 % of our holdings of either bond category at June 30, 2025.

Education bonds and water and sewer utility bonds represented 44 % and 32 %, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2025.

Many of the issuers of the special revenue bonds we held at June 30, 2025 have the authority to impose ad valorem taxes.

At September 30, 2025, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $ 274.4 million and an amortized cost of $ 304.7 million.

Our holdings at September 30, 2025 also included special revenue bonds with an aggregate fair value of $ 145.4 million and an amortized cost of $ 158.4 million.

With respect to both categories of those bonds, we held no securities of any issuer that comprised more than 10 % of our holdings of either bond category at September 30, 2025.

Education bonds and water and sewer utility bonds represented 45 % and 32 %, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at September 30, 2025.

Many of the issuers of the special revenue bonds we held at September 30, 2025 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.

30 unchanged sentences

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 $ 91,108 and $ 97,684 in other comprehensive income (loss) during the six months ended June 30, 2025 and 2024, respectively.

At June 30, 2025 and December 31, 2024, net unrealized losses of $ 944,467 and $ 1.0 million, respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2025 by contractual maturity.

We recorded amortization of $ 136,807 and $ 149,274 in other comprehensive income during the nine months ended September 30, 2025 and 2024, respectively.

At September 30, 2025 and December 31, 2024, net unrealized losses of $ 898,768 and $ 1.0 million, respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at September 30, 2025 by contractual maturity.

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

16 unchanged sentences

Total available for sale

The cost and estimated fair values of our equity securities at June 30, 2025 were as follows:

The cost and estimated fair values of our equity securities at September 30, 2025 were as follows:

Estimated Fair

6 unchanged sentences

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

Three Months Ended June 30,

Six Months Ended June 30,

Three Months Ended

September 30,

Nine Months Ended

September 30,

(in thousands)

6 unchanged sentences

Equity securities

Net realized (losses) gains

Net realized losses

Gross unrealized gains on equity securities

2 unchanged sentences

Net investment gains

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2025 as follows:

We held fixed maturities with unrealized losses representing declines that we considered temporary at September 30, 2025 as follows:

Less Than 12 Months

35 unchanged sentences

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.

We held 794 debt securities that were in an unrealized loss position at June 30, 2025.

We held 692 debt securities that were in an unrealized loss position at September 30, 2025.

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

6 unchanged sentences

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 statutory accounting principles (“SAP”).

Our chief operating decision maker is our Chief Executive Officer.

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 statutory accounting principles (“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 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:

Three Months Ended June 30, 2025

Three Months Ended September 30, 2025

(in thousands)

9 unchanged sentences

Total segment expenses

SAP underwriting (loss) income

SAP underwriting income

GAAP adjustments

3 unchanged sentences

Income before income tax expense

Three Months Ended June 30, 2024

Three Months Ended September 30, 2024

(in thousands)

9 unchanged sentences

Total segment expenses

SAP underwriting loss

SAP underwriting income (loss)

GAAP adjustments

GAAP underwriting loss

GAAP underwriting income

Net investment income

1 unchanged sentence

Income before income tax expense

Six Months Ended June 30, 2025

Nine Months Ended September 30, 2025

(in thousands)

9 unchanged sentences

Total segment expenses

SAP underwriting (loss) income

SAP underwriting income

GAAP adjustments

3 unchanged sentences

Income before income tax expense

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

(in thousands)

18 unchanged sentences

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

At June 30, 2025, we had no outstanding borrowings from M&T and had the ability to borrow up to $ 20.0 million at an interest rate equal to the then-current Term SOFR rate plus 2.11 %.

At September 30, 2025, we had no outstanding borrowings from M&T and had the ability to borrow up to $ 20.0 million at an interest rate equal to the then-current Term SOFR rate plus 2.11 %.

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 June 30, 2025.

Atlantic States has a fixed-rate cash advance of $ 35.0 million that was outstanding at September 30, 2025.

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 June 30, 2025.

FHLB of Pittsburgh stock purchased and owned

7 unchanged sentences

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

We recorded compensation expense related to our stock compensation plans of $ 300,056 and $ 278,337 for the three months ended June 30, 2025 and 2024, respectively, with a corresponding income tax benefit of $ 63,011 and $ 58,451 , respectively.

We recorded compensation expense related to our stock compensation plans of $ 596,992 and $ 564,338 for the six months ended June 30, 2025 and 2024, respectively, with a corresponding income tax benefit of $ 125,368 and $ 118,511 , respectively.

At June 30, 2025, we had $ 1.2 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans that we expect to recognize over a weighted average period of approximately 1.7 years.

We received cash from option exercises under our stock compensation plans during the three months ended June 30, 2025 of $ 5.8 million.

We did not receive any cash from option exercises under our stock compensation plans during the three months ended June 30, 2024.

We received cash from option exercises under our stock compensation plans during the six months ended June 30, 2025 and 2024 of $ 12.1 million and $ 236,624 , respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 476,276 and $ 0 for the three months ended June 30, 2025 and 2024, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 777,257 and $ 1,719 for the six months ended June 30, 2025 and 2024, respectively.

We recorded compensation expense related to our stock compensation plans of $ 296,162 and $ 209,496 for the three months ended September 30, 2025 and 2024, respectively, with a corresponding income tax benefit of $ 62,194 and $ 43,994 , respectively.

We recorded compensation expense related to our stock compensation plans of $ 893,154 and $ 773,834 for the nine months ended September 30, 2025 and 2024, respectively, with a corresponding income tax benefit of $ 187,562 and $ 162,505 , respectively.

At September 30, 2025, we had $ 1.0 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans that we expect to recognize over a weighted average period of approximately 1.4 years.

We received cash from option exercises under our stock compensation plans during the three months ended September 30, 2025 and 2024 of $ 2.1 million and $ 3.7 million, respectively.

We received cash from option exercises under our stock compensation plans during the nine months ended September 30, 2025 and 2024 of $ 14.2 million and $ 4.0 million, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 132,692 and $ 35,339 for the three months ended September 30, 2025 and 2024, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 909,949 and $ 37,058 for the nine months ended September 30, 2025 and 2024, respectively.

Fair Value Measurements

33 unchanged sentences

for various security types are reasonable.

At June 30, 2025, 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.

At September 30, 2025, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices.

In our review of the

estimates the pricing services provided at June 30, 2025, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

estimates the pricing services provided at September 30, 2025, 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.

5 unchanged sentences

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 June 30, 2025 and December 31, 2024.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at June 30, 2025:

we have concluded that our Level 1 and Level 2 investments were classified properly at September 30, 2025 and December 31, 2024.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at September 30, 2025:

Fair Value Measurements Using

30 unchanged sentences

Equity securities

At June 30, 2025 and December 31, 2024, respectively, we had no material unrecognized tax benefits or accrued interest and penalties.

At September 30, 2025 and December 31, 2024, respectively, we had no material unrecognized tax benefits or accrued interest and penalties.

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

2 unchanged sentences

We established a valuation allowance of $ 7.6 million for our net state operating loss carryforward, which will expire between 2025 and 2044.

We have determined that we are not required to establish a valuation allowance for our other deferred tax assets of $ 35.2 million and $ 37.5 million at June 30, 2025 and December 31, 2024, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning strategies.

We have reviewed the provisions of the One Big Beautiful Bill Act (the “OBBBA”), signed into law on July 4, 2025.

The tax provisions included within the OBBBA will not have a material impact on our financial

We have determined that we are not required to establish a valuation allowance for our other deferred tax assets of $ 33.5 million and $ 37.5 million at September 30, 2025 and December 31, 2024, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning strategies.

On July 4, 2025, a budget reconciliation package referred to as the One Big Beautiful Bill Act of 2025 (the “OBBBA”) was enacted.

We do not expect the tax provisions included within the OBBBA to have a material impact on our financial

position, results of operations or cash flows.

12 unchanged sentences

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in thousands)

8 unchanged sentences

Balance at end of period

Our insurance subsidiaries recognized a decrease in their liabilities for losses and loss expenses of prior years of $ 13.5 million and $ 9.2 million for the six months ended June 30, 2025 and 2024, respectively.

Our insurance subsidiaries recognized a decrease in their liabilities for losses and loss expenses of prior years of $ 12.5 million and $ 15.4 million for the nine months ended September 30, 2025 and 2024, 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 2025 development represented 1.9 % of the December 31, 2024 net carried reserves and resulted from lower-than-expected loss emergence or severity primarily in the commercial automobile, commercial multi-peril and personal automobile lines of business, offset partially by unfavorable development in other commercial lines of business that we attribute to higher-than-anticipated case reserve development.

The 2025 development represented 1.8 % of the December 31, 2024 net carried reserves and resulted from lower-than-expected loss emergence or severity primarily in the commercial multi-peril, commercial automobile, personal automobile, and homeowners lines of business, offset partially by unfavorable development in other commercial lines of business that we attribute to higher-than-anticipated case reserve development.

The majority of the 2025 development related to decreases in the liabilities for losses and loss expenses of prior years for Atlantic States and The Peninsula Insurance Company.

The 2024 development represented 1.3 % of the December 31, 2023 net carried reserves and resulted from lower-than-expected loss emergence or severity primarily in the commercial automobile, commercial multi-peril and personal automobile lines of business.

The majority of the 2024 development related to decreases in the liabilities for losses and loss expenses of prior years for Atlantic States and MICO.

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

The majority of the 2024 development related to decreases in the liabilities for losses and loss expenses of prior years for Atlantic States.

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

1 unchanged sentence

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

We consider the material lines of business of our insurance subsidiaries to be personal automobile, homeowners, commercial

automobile, commercial multi-peril and workers’ compensation.

We consider the material lines of business of our insurance subsidiaries to be personal automobile, homeowners,

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

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

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

Accordingly, the IBNR reserves of our insurance subsidiaries include their actuaries’ projections of the cost

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

Accordingly, the IBNR reserves of our insurance subsidiaries include their actuaries’ projections of the

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

Our insurance subsidiaries’ methodology for estimating IBNR reserves has been in place for many years, and their

actuaries made no significant changes to that methodology during the six months ended June 30, 2025.

actuaries made no significant changes to that methodology during the nine months ended September 30, 2025.

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.

4 unchanged sentences

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.

These methods include paid loss development, incurred loss development and the Bornhuetter-Ferguson method

from which the actuaries select loss development factor assumptions.

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

7 unchanged sentences

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 at 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 predict loss frequency accurately

and the amount of IBNR reserves our insurance subsidiaries require.

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 at 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 predict loss frequency

accurately and the amount of IBNR reserves our insurance subsidiaries require.

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

14 unchanged sentences

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 fixed maturities classified as held-to-maturity, net of the allowance for expected credit losses, at June 30, 2025 and 2024 and changes in the allowance for expected credit losses for the three and six months ended June 30, 2025 and 2024.

The following table presents the balances for fixed maturities classified as held-to-maturity, net of the allowance for expected credit losses, at September 30, 2025 and 2024 and changes in the allowance for expected credit losses for the three and nine months ended September 30, 2025 and 2024.

At and For the Three Months

Ended June 30, 2025

Ended September 30, 2025

At and For the Three Months

Ended June 30, 2024

Ended September 30, 2024

Held-to-Maturity,

9 unchanged sentences

Balance at end of period

At and For the Six Months

Ended June 30, 2025

At and For the Six Months

Ended June 30, 2024

At and For the Nine Months Ended

September 30, 2025

At and For the Nine Months

Ended September 30, 2024

Held-to-Maturity,

12 unchanged sentences

The following table presents the balances for reinsurance receivable, net of the allowance for expected credit losses, at June 30, 2025 and 2024, and the changes in the allowance for expected credit losses for the three and six months ended June 30, 2025 and 2024.

The following table presents the balances for reinsurance receivable, net of the allowance for expected credit losses, at September 30, 2025 and 2024, and the changes in the allowance for expected credit losses for the three and nine months ended September 30, 2025 and 2024.

At and For the Three Months Ended

June 30, 2025

September 30, 2025

At and For the Three Months Ended

June 30, 2024

September 30, 2024

Reinsurance Receivable,

10 unchanged sentences

Balance at end of period

At and For the Six Months Ended

June 30, 2025

At and For the Six Months Ended

June 30, 2024

At and For the Nine Months Ended

September 30, 2025

At and For the Nine Months Ended

September 30, 2024

Reinsurance Receivable,

23 unchanged sentences

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2024.

Critical Accounting Policies and Estimates

We combine our financial statements with those of our insurance subsidiaries and present them on a consolidated basis in accordance with United States generally accepted accounting principles (“GAAP”).

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

The most significant estimates relate to the

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

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

Liabilities for Losses and Loss Expenses

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

knows at that point in time.

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

explicitly excluded or did not intend to cover.

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 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.

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 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, increasing plaintiff attorney utilization of litigation financing and its impact on litigation strategies and the cost of medical

technologies and procedures.

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

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

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

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

and collectability of reinsured losses, among other items.

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

they consider appropriate for such changes.

Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at June 30, 2025.

At June 30, 2025, for every 1% change in our

insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $7.1 million.

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

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

Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities,

because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change.

As is the case for substantially all property and casualty insurance companies, our insurance

subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded

their actual liabilities for losses and loss expenses.

Changes in our insurance subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to

the prior reporting period.

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 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 loss 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’ liabilities for losses and loss expenses by major line of business at June 30, 2025 and December 31, 2024 consisted of the following:

(in thousands)

Commercial lines:

Workers’ compensation

Commercial multi-peril

Total commercial lines

Personal lines:

Total personal lines

Total commercial and personal lines

Plus reinsurance recoverable

Total liabilities for losses and loss expenses

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

loss and loss expense reserves of our insurance subsidiaries.

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

subsidiaries’ loss and loss expense reserves as a whole.

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

The following table sets forth the estimated effect on our

insurance subsidiaries’ loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we considered in establishing the loss and loss expense reserves of our insurance subsidiaries:

Percentage Change in Loss

and Loss Expense Reserves

Net of Reinsurance

Adjusted Loss and Loss

Expense Reserves Net of

Reinsurance at

June 30, 2025

Percentage Change

in Stockholders’ Equity at

June 30, 2025(1)

Adjusted Loss and Loss

Expense Reserves Net of

Reinsurance at

December 31, 2024

Percentage Change

in Stockholders’ Equity at

December 31, 2024(1)

(dollars in thousands)

Net of income tax effect.

Non-GAAP Information

We prepare our consolidated financial statements on the basis of GAAP.

Our insurance subsidiaries also prepare financial statements based on statutory accounting principles state insurance regulators prescribe or

permit (“SAP”).

SAP financial measures are considered non-GAAP financial measures under 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, so investors should exercise caution when comparing our non-GAAP financial measures to the non-GAAP financial measures other

companies use.

Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our personal lines and commercial lines segments utilizing SAP financial measures that reflect the growth

trends and underwriting results of our insurance subsidiaries.

The SAP financial measures we utilize are net premiums written and statutory combined ratio.

Net Premiums Written

We define net premiums written as the amount of full-term premiums our insurance subsidiaries record for policies effective within a given period less premiums our insurance subsidiaries cede to reinsurers.

premiums earned is the most comparable GAAP financial measure to net premiums written.

Net premiums earned represent the sum of the amount of net premiums written and the change in net unearned premiums during a given period.

Our insurance

subsidiaries earn premiums and recognize them as revenue over the terms of their policies, which are 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 12-month period compared to the comparable period one year earlier.

The following tables provide reconciliations of our net premiums earned to our net premiums written for the three and six months ended June 30, 2025 and 2024:

Three Months Ended June 30, 2025

(in thousands)

Net premiums earned

Change in net unearned premiums

Net premiums written

Three Months Ended June 30, 2024

(in thousands)

Net premiums earned

Change in net unearned premiums

Net premiums written

Six Months Ended June 30, 2025

(in thousands)

Net premiums earned

Change in net unearned premiums

Net premiums written

Six Months Ended June 30, 2024

(in thousands)

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.

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

The statutory combined ratio is a non-GAAP financial measure that is based upon amounts determined under SAP.

We calculate our statutory combined ratio as the sum of:

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

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

the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.

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

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

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

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

our statutory loss ratio.

Combined Ratios

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three and six months ended June 30, 2025 and 2024:

Three Months Ended June 30,

Six Months Ended June 30,

GAAP Combined Ratios (Total Lines)

Loss ratio - core losses

Loss ratio - weather-related losses

Loss ratio - large fire losses

Loss ratio - net prior-year reserve development

Expense ratio

Dividend ratio

Combined ratio

Statutory Combined Ratios

Commercial lines:

Workers’ compensation

Commercial multi-peril

Total commercial lines

Personal lines:

Total personal lines

Total commercial and personal lines

Results of Operations - Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the second quarter of 2025 were $231.8 million, a decrease of $2.5 million, or 1.1%, compared to

$234.3 million for the second quarter of 2024, primarily reflecting planned attrition and lower new business writings, offset partially by solid premium retention and renewal premium increases.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the second quarter of 2025 were $233.8 million, a decrease of $13.4 million, or 5.4%, from the

$247.2 million of net premiums written for the second quarter of 2024.

Commercial lines net premiums written increased $2.7 million, or 1.9%, for the second quarter of 2025 compared to the second quarter of 2024.

Personal lines net premiums

written decreased $16.0 million, or 15.3%, for the second quarter of 2025 compared to the second quarter of 2024.

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

other than workers’ compensation, offset partially by lower new business writings.

We attribute the decrease in personal lines net premiums written primarily to lower new business writings and non-renewal actions, offset partially by a

continuation of renewal premium rate increases and solid retention.

Investment Income.

Our net investment income was $12.5 million for the second quarter of 2025, an increase of $1.4 million, or 13.3%, compared to $11.1 million for the

second quarter of 2024.

We attribute the increase primarily to an increase in the average investment yield relative to the second quarter of 2024.

Net Investment Gains.

Net investment gains for the second quarter of 2025 were $1.5 million, compared to $736,669 for the second quarter of 2024.

The net investment gains

for the second quarter of 2025 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2025 and realized gains on the sale of equity securities, offset partially by net realized investment losses on the

sale of available-for-sale fixed-maturity securities.

Net investment gains for the second quarter of 2024 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2024.

We did not recognize any

impairment losses for individual securities in our investment portfolio during the second quarter of 2025 or 2024.

Losses and Loss Expenses.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 65.1% for the second

quarter of 2025, a decrease from our insurance subsidiaries’ loss ratio of 70.6% for the second quarter of 2024.

The core loss ratio, which excludes weather-related losses, large fire losses and net development of reserves for losses incurred in

prior accident years, was 50.1% for the second quarter of 2025, a decrease from the core loss ratio of 55.0% for the second quarter of 2024.

For the commercial lines segment, the core loss ratio of 54.5% for the second quarter of 2025 decreased

modestly from 54.8% for the second quarter of 2024.

For the personal lines segment, the core loss ratio of 43.3% for the second quarter of 2025 decreased from 55.3% for the second quarter of 2024.

We attribute this decrease primarily to the

favorable impact of premium rate increases on net premiums earned for the personal lines segment.

Weather-related losses were $25.8 million, or 11.1 percentage points of the loss ratio, for the second quarter of 2025, compared to $24.7 million,

or 10.6 percentage points of the loss ratio, for the second quarter of 2024.

The impact of weather-related loss activity to the loss ratio for the second quarter of 2025 was higher than our previous five-year average of 9.2 percentage points for

second quarter weather-related losses.

Large fire losses, which we define as individual fire losses in excess of $50,000, for the second quarter of 2025 were $12.1 million, or 5.2 percentage points of the loss ratio, compared to $12.5 million, or

5.3 percentage points of the loss ratio, for the second quarter of 2024.

Our insurance subsidiaries’ commercial lines loss ratio was 65.8% for the second quarter of 2025, compared to 70.4% for the second quarter of 2024, primarily due to

decreases in the commercial multi-peril loss and workers’ compensation loss ratios.

The personal lines loss ratio of our insurance subsidiaries decreased to 64.1% for the second quarter of 2025, compared to 70.8% for the second quarter of 2024.

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

Our insurance subsidiaries experienced favorable loss reserve development for the second quarter of 2025 of $3.0 million that decreased the loss ratio by

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

Our insurance subsidiaries experienced favorable development primarily in the

personal automobile and homeowners lines of business for the second quarter of 2025, offset partially by unfavorable development in other commercial lines of business that we primarily attribute to higher-than-anticipated case reserve

Underwriting Expenses.

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

ratio of our insurance subsidiaries was 32.2% for the second quarter of 2025, compared to 31.9% for the second quarter of 2024.

The increase in the expense ratio primarily reflected higher underwriting-based incentive costs for agents and

employees, partially offset by the favorable impact of ongoing expense management initiatives.

The impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the ongoing systems modernization project peaked at

approximately 1.3 percentage points of the expense ratio for the full year of 2024, and we expect that impact to subside gradually over the next several years.

Allocated costs related to that project represented approximately 1.0 percentage point

of the expense ratio for the second quarter of 2025, and we expect the full year 2025 expense ratio impact will also be approximately 1.0 percentage point.

Combined Ratio.

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

premiums earned.

Our insurance subsidiaries’ combined ratios were 97.7% and 103.0% for the second quarter of 2025 and 2024, respectively.

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

quarter of 2025 compared to the second quarter of 2024.

Income Tax Expense.

We recorded income tax expense of $3.6 million for the second quarter of 2025, representing an effective tax rate of 17.4%.

We recorded income tax

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

The income tax expense for the second quarter of 2025 and 2024 represented estimates based on our projected annual taxable income and effective tax

Net Income and Net Income Per Share.

Our net income for the second quarter of 2025 was $16.9 million, or $.46 per share of Class A common stock on a diluted basis and $.43

per share of Class B common stock, compared to $4.2 million, or $.13 per share of Class A common stock on a diluted basis and $.11 per share of Class B common stock, for the second quarter of 2024.

We had 30.9 million and 27.9 million Class A

shares outstanding at June 30, 2025 and 2024, respectively.

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

Results of Operations - Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the first half of 2025 were $464.5 million, an increase of $2.4 million, or 0.5%, compared to

$462.1 million for the first half of 2024, primarily reflecting solid premium retention and renewal premium increases, offset partially by lower new business writings.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the first half of 2025 were $480.9 million, a decrease of $17.7 million, or 3.6%, from the $498.6

million of net premiums written for the first half of 2024.

Commercial lines net premiums written increased $7.8 million, or 2.6%, for the first half of 2025 compared to the first half of 2024.

Personal lines net premiums written decreased $25.5

million, or 12.7%, for the first half of 2025 compared to the first half of 2024.

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

workers’ compensation, offset partially by lower new business writings.

We attribute the decrease in personal lines net premiums written primarily to lower new business writings and non-renewal actions, offset partially by a continuation of

renewal premium rate increases and solid retention.

Investment Income.

Our net investment income was $24.5 million for the first half of 2025, an increase of $2.5 million, or 11.3%, compared to $22.0 million for the first

half of 2024.

We attribute the increase primarily to an increase in the average investment yield relative to the first half of 2024.

Net Investment Gains.

Net investment gains for the first half of 2025 were $1.1 million, compared to $2.9 million for the first half of 2024.

The net investment gains for

the first half of 2025 primarily related to unrealized gains in the fair value of equity securities held at June 30, 2025 and realized gains on the sale of equity securities, offset partially by net realized investment losses on the sale of

available-for-sale fixed-maturity securities.

The net investment gains for the first half of 2024 primarily related to unrealized gains in the fair value of our equity securities portfolio at June 30, 2024.

We did not recognize any impairment

losses for individual securities in our investment portfolio during the first half of 2025 or 2024.

Losses and Loss Expenses.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 60.9% for the first half

of 2025, a decrease from our insurance subsidiaries’ loss ratio of 68.4% for the first half of 2024.

The core loss ratio, which excludes weather-related losses, large fire losses and net development of reserves for losses incurred in prior

accident years, was 52.1% for the first half of 2025, compared to 56.8% for the first half of 2024.

For the commercial lines segment, the core loss ratio of 56.4% for the first half of 2025 decreased modestly from 56.9% for the first half of

For the personal lines segment, the core loss ratio of 46.0% for the first half of 2025 decreased from 56.6% for the first half of 2024.

Weather-related losses were $34.4 million, or 7.4 percentage points of the loss ratio, for the first

half of 2025, compared to $35.5 million, or 7.7 percentage points of the loss ratio, for the first half of 2024.

Large fire losses for the first half of 2025 were $19.8 million, or 4.3 percentage points of the loss ratio, compared to $27.4

million, or 5.9 percentage points of the loss ratio, for the first half of 2024.

Our insurance subsidiaries’ commercial lines loss ratio was 62.9% for the first half of 2025, compared to 67.9% for the first half of 2024, primarily due to

decreases in the commercial multi-peril and workers’ compensation loss ratios.

The personal lines loss ratio of our insurance subsidiaries decreased to 58.2% for the first half of 2025, compared to 69.1% for the first half of 2024.

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

Our insurance subsidiaries experienced favorable loss reserve development for the first half of 2025 of approximately $13.5 million that decreased the loss ratio by 2.9

percentage points, compared to $9.2 million that decreased the loss ratio for the first half of 2024 by 2.0 percentage points.

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

multi-peril and personal automobile lines of business for the first half of 2025, offset partially by unfavorable development in other commercial lines of business that we attribute to higher-than-anticipated case reserve development.

Underwriting Expenses.

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

ratio of our insurance subsidiaries was 33.4% for the first half of 2025, compared to 33.8% for the first half of 2024.

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

underwriting-based incentive costs for agents and employees.

The impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the ongoing systems modernization project peaked at approximately 1.3 percentage points of

the expense ratio for the full year of 2024 and we expect the full year 2025 expense ratio impact will be approximately 1.0 percentage point.

Combined Ratio.

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

premiums earned.

Our insurance subsidiaries’ combined ratios were 94.6% and 102.7% for the first half of 2025 and 2024, respectively.

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

2025 compared to the first half of 2024.

Income Tax Expense.

We recorded income tax expense of $9.5 million for the first half of 2025, representing an effective tax rate of 18.4%.

We recorded income tax expense

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

The income tax expense for the first half of 2025 and 2024 represented estimates based on our projected annual taxable income and effective tax rates.

Net Income and Net Income Per Share.

Our net income for the first half of 2025 was $42.1 million, or $1.17 per share of Class A common stock on a diluted basis and $1.08

per share of Class B common stock, compared to $10.1 million, or $.31 per share of Class A common stock on a diluted basis and $.28 per share of Class B common stock, for the first half of 2024.

We had 30.9 million and 27.9 million Class A shares

outstanding at June 30, 2025 and 2024, respectively.

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

Liquidity and Capital Resources

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

Our major sources of funds from operations are the

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

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

The impact of the pooling agreement

between Donegal Mutual and Atlantic States has historically been cash-flow positive because of the consistent underwriting profitability of the 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 the first six months of 2025 and 2024 were $37.9

million and $26.5 million, respectively.

At June 30, 2025, we had no outstanding borrowings under our line of credit with M&T and had the ability to borrow up to $20.0 million at an interest rate equal to the then-current Term SOFR rate plus 2.11%.

At June 30, 2025, 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 7 – 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.

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.

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

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

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

30, 2025 or 2024.

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2025.

On July 17, 2025, our board of directors declared quarterly cash dividends of $.1825 per share of our Class A common stock and $.165 per share of our Class B common stock,

payable on August 15, 2025 to our stockholders of record as of the close of business on August 1, 2025.

There are no 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 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.

Our insurance subsidiaries did not pay any dividends to us during the first six months of 2025.

Amounts remaining available for distribution to us as dividends from our insurance subsidiaries

without prior approval of their domiciliary insurance regulatory authorities in 2025 are $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 June 30, 2025, we had no material commitments for capital expenditures.

Equity Price Risk

Our portfolio of marketable equity securities, which we carry on our consolidated balance sheets at estimated fair value, has exposure to the risk of loss resulting from an adverse change in prices.

We manage this

risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of equity securities.

Our portfolio of fixed-maturity securities and, to a lesser extent, our portfolio of short-term investments is subject to credit risk, which we define as the potential loss in market value resulting from adverse

changes in the borrower’s ability to repay its debt.

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

We also limit the

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

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

We bill the majority of this business directly to the insured, although we bill a portion of our

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

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

Donegal Mutual.

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

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

What changed 10-Q

Item 1. Financial Statements