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Item 2. Management’s Discussion and Analysis

2026-05-07 compared with 2025-11-04 · 202 added, 291 removed, 115 unchanged (81% of the section changed)

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.

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

We 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, 2025.

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”).

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

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.

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

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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.

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.

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

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

Our insurance subsidiaries establish these liabilities for the

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

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

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

Our insurance subsidiaries determine the amount of their liability for

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

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

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.

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

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

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 (including due to

tariffs), availability and cost of skilled labor, the rate of litigation (including 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.

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

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

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

coverage and collectability of reinsured losses, among other items.

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

reserves that they consider appropriate for such changes.

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

At September 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 $7.2 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.

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

that they consider appropriate for such changes.

Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at March 31, 2026.

At March 31, 2026, 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 $7.2 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.

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

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

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 loss development relating to the pooled business.

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 September 30, 2025 and December 31, 2024 consisted of the following:

September 30,

Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at March 31, 2026 and December 31, 2025 consisted of the following:

(in thousands)

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Total liabilities for losses and loss expenses

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

loss and loss expense reserves of our insurance subsidiaries.

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

subsidiaries’ loss and loss expense reserves as a whole.

We 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:

The following table sets forth the estimated effect on

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

Percentage Change in Loss

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Reinsurance at

September 30, 2025

March 31, 2026

Percentage Change

in Stockholders’ Equity at

September 30, 2025(1)

March 31, 2026(1)

Adjusted Loss and Loss

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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.

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

regulators prescribe or permit (“SAP”).

do not ordinarily include or exclude.

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.

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

Net 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 nine months ended September 30, 2025 and 2024:

Three Months Ended September 30, 2025

(in thousands)

Net premiums earned

Change in net unearned premiums

Net premiums written

Three Months Ended September 30, 2024

(in thousands)

Net premiums earned

Change in net unearned premiums

Net premiums written

Nine Months Ended September 30, 2025

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 months ended March 31, 2026 and 2025:

Three Months Ended March 31, 2026

(in thousands)

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Net premiums written

Nine Months Ended September 30, 2024

Three Months Ended March 31, 2025

(in thousands)

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

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

other non-operating income or expense.

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

income taxes or other non-operating income or expense.

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

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

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

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

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

for our statutory loss ratio.

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

incurred expenses, and we base the expense ratio on net premiums earned instead of net premiums written.

Differences between our GAAP loss ratio and our statutory loss ratio result from anticipating salvage and subrogation recoveries for our GAAP

loss ratio but not for our statutory loss ratio.

Combined Ratios

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

Three Months Ended September 30,

Nine Months Ended September 30,

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three months ended March 31, 2026 and 2025:

Three Months Ended March 31,

GAAP Combined Ratios (Total Lines)

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Total commercial and personal lines

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

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the third quarter of 2025 were $229.8 million, a decrease of $8.2 million, or 3.4%, compared to

$238.0 million for the third 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 third quarter of 2025 were $219.6 million, a decrease of $12.6 million, or 5.4%, from the

$232.2 million of net premiums written for the third quarter of 2024.

Commercial lines net premiums written increased $4.3 million, or 3.4%, for the third quarter of 2025 compared to the third quarter of 2024.

Personal lines net premiums

written decreased $16.9 million, or 15.9%, for the third quarter of 2025 compared to the third quarter 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 renewal premium rate increases and solid retention.

Investment Income.

Our net investment income was $13.9 million for the third quarter of 2025, an increase of $3.1 million, or 28.8%, compared to $10.8 million for the third

quarter of 2024.

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

Net Investment Gains.

Net investment gains for the third quarter of 2025 were $1.3 million, compared to $1.9 million for the third quarter of 2024.

The net investment gains

for the third quarter of 2025 were primarily related to unrealized gains in the fair value of equity securities held at September 30, 2025, offset partially by net realized investment losses on the strategic sales of available-for-sale

fixed-maturity securities.

The net investment gains for the third quarter of 2024 were primarily related to unrealized gains in the fair value of equity securities held at September 30, 2024.

We did not recognize any impairment losses for

individual securities in our investment portfolio during the third 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 62.1% for the third quarter

of 2025, a slight increase from our insurance subsidiaries’ loss ratio of 61.5% for the third 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 51.1% for the third quarter of 2025, an increase from the core loss ratio of 50.1% for the third quarter of 2024.

For the commercial lines segment, the core loss ratio of 54.0% for the third quarter of 2025 increased

from 48.5% for the third quarter of 2024.

For the personal lines segment, the core loss ratio of 46.6% for the third quarter of 2025 decreased from 52.5% for the third quarter of 2024.

We attribute the increase in the commercial lines core loss

ratio primarily to an increase in the severity of casualty losses.

We attribute the decrease in the personal lines core loss ratio primarily to the favorable impact of premium rate increases on net premiums earned for the personal lines

Weather-related losses were $14.3 million, or 6.2 percentage points of the loss ratio, for the third quarter of 2025, compared to $24.4 million, or 10.3 percentage points of the loss ratio, for the third quarter of 2024.

The impact of

weather-related loss activity to the loss ratio for the third quarter of 2025 was lower than our previous five-year average of third quarter weather-related losses and represented the lowest of any third quarter in the past 20 years.

losses, which we define as individual fire losses in excess of $50,000, for the third quarter of 2025 were $10.0 million, or 4.4 percentage points of the loss ratio, compared to $8.8 million, or 3.7 percentage points of the loss ratio, for the

third quarter of 2024.

Our insurance subsidiaries’ commercial lines loss ratio was 59.6% for the third quarter of 2025, compared to 52.1% for the third quarter of 2024, primarily due to increases in the workers’ compensation and commercial

multi-peril loss ratios.

The personal lines loss ratio of our insurance subsidiaries decreased to 66.0% for the third quarter of 2025, compared to 74.2% for the third quarter of 2024.

We attribute this decrease primarily to a decrease in the

homeowners and personal automobile loss ratios.

Our insurance subsidiaries experienced net unfavorable loss reserve development for the third quarter of 2025 of $1.0 million that increased the loss ratio by 0.4 percentage points, compared to

$6.2 million of net favorable loss reserve development that decreased the loss ratio for the third quarter of 2024 by 2.6 percentage points.

Our insurance subsidiaries experienced unfavorable development primarily in the personal automobile and

other commercial lines of business for the third quarter of 2025 that we primarily attribute to higher-than-anticipated case reserve development, offset partially by favorable development in the commercial multi-peril and workers’ compensation

lines of business.

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 33.5% for the third quarter of 2025, compared to 34.5% for the third quarter of 2024.

The decrease in the expense ratio primarily reflected the favorable impact of ongoing expense management initiatives

and lower underwriting-based incentive costs for agents and employees.

The impact of underwriting-based incentive costs for the third quarter of 2024 was somewhat elevated due to the substantial improvement in underwriting results for that

period compared to the first half of 2024.

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 1.2 percentage points of the expense ratio for the third quarter of 2025.

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 95.9% and 96.4% for the third quarter of 2025 and 2024, respectively.

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

quarter of 2025 compared to the third quarter of 2024.

Income Tax Expense.

We recorded income tax expense of $5.0 million for the third quarter of 2025, representing an effective tax rate of 19.8%.

We recorded income tax expense

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

The income tax expense for the third 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 third quarter of 2025 was $20.1 million, or $.55 per share of Class A common stock on a diluted basis and $.51

per share of Class B common stock, compared to $16.8 million, or $.51 per share of Class A common stock on a diluted basis and $.46 per share of Class B common stock, for the third quarter of 2024.

We had 31.0 million and 28.2 million Class A

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

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

Results of Operations - Nine Months Ended September 30, 2025 Compared to Nine Months Ended September 30, 2024

Results of Operations - Three Months Ended March 31, 2026 Compared to Three Months Ended March 31, 2025

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the first nine months of 2025 were $694.3 million, a decrease of $5.7 million, or 0.8%, compared to

$700.0 million for the first nine months of 2024, primarily reflecting lower new business writings and non-renewal actions, offset partially by solid premium retention and renewal premium increases.

Our insurance subsidiaries’ net premiums earned for the first quarter of 2026 were $221.4 million, a decrease of $11.3 million, or

4.9%, compared to $232.7 million for the first quarter of 2025, primarily reflecting lower new business writings, offset partially by solid premium retention and renewal premium increases in the preceding twelve-month period.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the first nine months of 2025 were $700.5 million, a decrease of $30.3 million, or 4.1%, from the

$730.8 million of net premiums written for the first nine months of 2024.

Commercial lines net premiums written increased $12.1 million, or 2.8%, for the first nine months of 2025 compared to the first nine months of 2024.

Our insurance subsidiaries’ net premiums written for the first quarter of 2026 were $239.3 million, a decrease of $7.8 million, or

3.2%, from the $247.1 million of net premiums written for the first quarter of 2025.

Commercial lines net premiums written increased $3.5 million, or 2.2%, for the first quarter of 2026 compared to the first quarter of 2025.

Personal lines net

premiums written decreased $42.4 million, or 13.8%, for the first nine months of 2025 compared to the first nine months 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 renewal premium rate increases and solid retention.

premiums written decreased $11.3 million, or 13.1%, for the first quarter of 2026 compared to the first quarter of 2025.

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

continuation of renewal premium increases in lines other than workers’ compensation.

We attribute the decrease in personal lines net premiums written primarily to lower new business writings, offset partially by renewal premium rate increases and

solid retention.

We believe that the decrease in personal lines net premiums written will gradually taper over the course of 2026 as actions we have taken to slow the decline take effect.

Investment Income.

Our net investment income was $38.5 million for the first nine months of 2025, an increase of $5.6 million, or 17.0%, compared to $32.9 million for the

first nine months of 2024.

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

Net Investment Gains.

Net investment gains for the first nine months of 2025 were $2.3 million, compared to $4.7 million for the first nine months of 2024.

investment gains for the first nine months of 2025 primarily related to unrealized gains in the fair value of equity securities held at September 30, 2025, offset partially by net realized investment losses on the sale of available-for-sale

fixed-maturity securities.

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

We did not recognize any impairment losses

for individual securities in our investment portfolio during the first nine months of 2025 or 2024.

Our net investment income was $14.3 million for the first quarter of 2026, an increase of $2.3 million, or 19.2%, compared to $12.0

million for the first quarter of 2025.

We attribute the increase primarily to an increase in the average investment yield and higher average invested assets relative to the first quarter of 2025.

Net Investment Losses.

Net investment losses for the first quarter of 2026 and 2025 were $479,224 and $470,861, respectively.

The net investment losses for

the first quarter of 2026 and 2025 were primarily related to decreases in the market value of the equity securities we held at the end of the respective periods.

We did not recognize any impairment losses for individual securities in our investment

portfolio during the first quarter of 2026 or 2025.

Losses and Loss Expenses.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 61.3% for the first nine

months of 2025, a decrease from our insurance subsidiaries’ loss ratio of 66.1% for the first nine months 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 51.8% for the first nine months of 2025, compared to 54.5% for the first nine months of 2024.

For the commercial lines segment, the core loss ratio of 55.6% for the first nine months of 2025 increased modestly from

54.1% for the first nine months of 2024.

For the personal lines segment, the core loss ratio of 46.2% for the first nine months of 2025 decreased from 55.2% for the first nine months of 2024.

We attribute the decrease in the personal lines core

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

Weather-related losses were $48.7 million, or 7.0 percentage points of the loss ratio, for the first nine months of

2025, compared to $60.0 million, or 8.6 percentage points of the loss ratio, for the first nine months of 2024.

Large fire losses for the first nine months of 2025 were $29.8 million, or 4.3 percentage points of the loss ratio, compared to

$36.2 million, or 5.2 percentage points of the loss ratio, for the first nine months of 2024.

Our insurance subsidiaries’ commercial lines loss ratio was 61.7% for the first nine months of 2025, compared to 62.6% for the first nine months of

2024, primarily due to a decrease in the commercial multi-peril loss ratio.

The personal lines loss ratio of our insurance subsidiaries decreased to 60.7% for the first nine months of 2025, compared to 70.8% for the first nine months of 2024.

We attribute this decrease primarily to decreases in the personal automobile and homeowners loss ratios.

Our insurance subsidiaries experienced net favorable loss reserve development for the first nine months of 2025 of approximately $12.5

million that decreased the loss ratio by 1.8 percentage points, compared to $15.4 million that decreased the loss ratio for the first nine months of 2024 by 2.2 percentage points.

Our insurance subsidiaries experienced favorable development

primarily in the commercial multi-peril, commercial automobile, personal automobile, and homeowners lines of business for the first nine months of 2025, offset partially by unfavorable development in other commercial lines of business that we

attribute to higher-than-anticipated case reserve development.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 64.1% for

the first quarter of 2026, an increase from our insurance subsidiaries’ loss ratio of 56.7% for the first quarter of 2025.

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 53.4% for the first quarter of 2026, a decrease from the core loss ratio of 54.2% for the first quarter of 2025.

For the commercial lines segment, the core loss ratio of 57.6% for the first quarter of 2026

decreased from 58.3% for the first quarter of 2025.

For the personal lines segment, the core loss ratio of 46.5% for the first quarter of 2026 decreased from 48.7% for the first quarter of 2025.

We attribute the decrease in the commercial lines core

loss ratio primarily as a result of ongoing premium rate increases in all lines except workers’ compensation.

We attribute the decrease in the personal lines core loss ratio primarily to the favorable impact of premium rate increases on net premiums

earned for the personal lines segment.

Weather-related losses were $17.2 million, or 7.8 percentage points of the loss ratio, for the first quarter of 2026, compared to $8.6 million, or 3.7 percentage points of the loss ratio, for the first quarter

The impact of weather-related loss activity to the loss ratio for the first quarter of 2026 was higher than our previous five-year average of first quarter weather-related losses.

Large fire losses, which we define as individual fire losses

in excess of $50,000, for the first quarter of 2026 were $12.2 million, or 5.5 percentage points of the loss ratio, compared to $7.7 million, or 3.3 percentage points of the loss ratio, for the first quarter of 2025.

We attribute the increase to

higher loss frequency and severity compared to the prior-year quarter.

Our insurance subsidiaries’ commercial lines loss ratio was 68.8% for the first quarter of 2026, compared to 59.7% for the first quarter of 2025, primarily due to increases in the

commercial multi-peril and other commercial lines of business loss ratios, offset partially by a decrease in the workers’ compensation line of business loss ratio.

The personal lines loss ratio of our insurance subsidiaries increased to 56.4% for the

first quarter of 2026, compared to 52.5% for the first quarter of 2025.

We attribute this increase primarily to an increase in the homeowners and other personal lines of business loss ratios, offset partially by a decrease in the personal automobile

line of business loss ratio.

Our insurance subsidiaries experienced net favorable loss reserve development for the first quarter of 2026 of $5.7 million that decreased the loss ratio by 2.6 percentage points, compared to $10.5 million of net

favorable loss reserve development that decreased the loss ratio for the first quarter of 2025 by 4.5 percentage points.

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

of business, offset partially by unfavorable development in the commercial multi-peril and commercial other liability lines of business for the first quarter of 2026.

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 nine months of 2025, compared to 34.0% for the first nine months 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 1.2 percentage points.

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

The expense ratio of our insurance subsidiaries was 35.4% for the first quarter of 2026, compared to 34.6% for the first quarter of 2025.

The increase in the expense ratio primarily reflected the impact of lower net premiums earned upon which

the ratio is based.

The impact from allocated costs from Donegal Mutual to our insurance subsidiaries related to the ongoing systems modernization project represented approximately 1.6 percentage points of the expense ratio for the first quarter of

We expect that the expense ratio impact of allocated costs related to the project will be 1.4 percentage points for the full year of 2026, subsiding gradually over the next several years.

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 95.1% and 100.6% for the first nine months of 2025 and 2024, respectively.

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

nine months of 2025 compared to the first nine months of 2024.

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 99.8% and 91.6% for the first quarter of 2026 and 2025, respectively.

We attribute the increase in the combined ratio primarily to increases in the loss and

expense ratios for the first quarter of 2026 compared to the first quarter of 2025.

Income Tax Expense.

We recorded income tax expense of $14.5 million for the first nine months of 2025, representing an effective tax rate of 18.9%.

We recorded income tax

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

The income tax expense for the first nine months of 2025 and 2024 represented estimates based on our projected annual taxable income and

We recorded income tax expense of $2.6 million for the first quarter of 2026, representing an effective tax rate of 18.5%.

income tax expense of $6.0 million for the first quarter of 2025, representing an effective tax rate of 19.1%.

The income tax expense for the first quarter of 2026 and 2025 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 nine months of 2025 was $62.2 million, or $1.72 per share of Class A common stock on a diluted basis and

$1.58 per share of Class B common stock, compared to $26.9 million, or $.81 per share of Class A common stock on a diluted basis and $.74 per share of Class B common stock, for the first nine months of 2024.

Our net income for the first quarter of 2026 was $11.5 million, or $.31 per share of Class A common stock on a diluted

basis and $.29 per share of Class B common stock, compared to $25.2 million, or $.71 per share of Class A common stock on a diluted basis and $.65 per share of Class B common stock, for the first quarter of 2025.

We had 31.4 million and 30.4 million

Class A shares outstanding at September 30, 2025 and 2024, respectively.

Class A shares outstanding at March 31, 2026 and 2025, respectively.

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

1 unchanged sentence

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.

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.

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.

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.

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 nine months of 2025 and

Net cash flows provided by operating activities in the first three months of 2026 and 2025

were $20.2 million and $25.7 million, respectively.

At September 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

At September 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.

At March 31, 2026, 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 March 31, 2026, 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 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.

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 nine months ended

September 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 September 30, 2025.

On October 16, 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 November 17, 2025 to our stockholders of record as of the close of business on November 3, 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.

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

three months ended March 31, 2026 or 2025.

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through March 31, 2026.

On April 16, 2026, our board of directors declared quarterly cash dividends of $0.1925 per share of our Class A common stock and $0.175 per share of our

Class B common stock, payable on May 15, 2026 to our stockholders of record as of the close of business on May 1, 2026.

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 paid $10.0 million in dividends to us during the first nine 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 $30.7 million from Atlantic States, $7.8 million from MICO and $4.7 million from Peninsula, or a total of approximately $43.3

At September 30, 2025, we had no material commitments for capital expenditures.

Our insurance subsidiaries are also subject to risk based

capital (“RBC”) requirements.

statutory capital and surplus at December 31, 2025.

Our insurance subsidiaries did not pay any dividends to us during the first three months of 2026.

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

without prior approval of their domiciliary insurance regulatory authorities in 2026 are approximately $50.8 million from Atlantic States, $10.2 million from MICO and $5.4 million from Peninsula, or a total of approximately $66.4 million.

At March 31, 2026, 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.

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

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.

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.

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 2. Management’s Discussion and Analysis