What changed in this filing

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Item 1. Financial Statements

2026-08-04 compared with 2026-05-07 · 626 added, 113 removed, 564 unchanged (57% of the section changed)

1 unchanged sentence

Donegal Group Inc.

and Subsidiaries

Consolidated Balance Sheets

Fixed maturities

Held to maturity, at amortized cost (net of allowance for expected credit losses of $ 1,274,490 and $ 1,312,903 )

Available for sale, at fair value

Held to maturity, at amortized cost (fair value $ 754,765,403 and $ 731,659,323 ;

net of allowance for expected credit losses of $ 1,306,225 and $ 1,312,903 )

Available for sale, at fair value (amortized cost $ 650,458,942 and $ 650,370,011 )

Equity securities, at fair value

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

Short-term investments, available for sale

Total investments

20 unchanged sentences

Reinsurance balances payable

Borrowings under lines of credit

Cash dividends declared to stockholders

Accounts payable - securities

Total liabilities

15 unchanged sentences

Donegal Group Inc.

and Subsidiaries

Consolidated Statements of Income

Three Months Ended March 31,

Three Months Ended June 30,

Net premiums earned

Investment income, net of investment expenses

Net investment losses (includes $ 70,854 and $ 57,103 accumulated other comprehensive income reclassifications)

Net investment gains (includes ($ 1,351,958 ) and ($ 1,372,352 ) accumulated other comprehensive income reclassifications)

Installment payment fees

Other income, net

Total revenues

6 unchanged sentences

Income before income tax expense

Income tax expense (includes $ 14,879 and $ 11,992 income tax expense from reclassification items)

Income tax expense (includes $ 283,911 and $ 288,194 income tax benefit from reclassification items)

Net income per share:

3 unchanged sentences

Donegal Group Inc.

and Subsidiaries

Consolidated Statements of Comprehensive Income

Three Months Ended March 31,

Three Months Ended June 30,

Other comprehensive income, net of tax

Unrealized (loss) income on securities:

Unrealized holding (loss) income during the period, net of income tax (benefit) expense of ($ 73,719 ) and $ 773,077

Reclassification adjustment for losses included in net income, net of income tax benefit of $ 283,911 and $ 288,194

Other comprehensive income

Comprehensive income

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

Consolidated Statements of Income

Six Months Ended June 30,

Net premiums earned

Investment income, net of investment expenses

Net investment gains (includes ($ 1,281,104 ) and ($ 1,315,249 ) accumulated other comprehensive income reclassifications)

Installment payment fees

Total revenues

Net losses and loss expenses

Amortization of deferred policy acquisition costs

Other underwriting expenses

Policyholder dividends

Other expenses, net

Total expenses

Income before income tax expense

Income tax expense (includes $ 269,032 and $ 276,202 income tax benefit from reclassification items)

Net income per share:

Class A common stock - basic

Class A common stock - diluted

Class B common stock - basic and diluted

Donegal Group Inc.

Consolidated Statements of Comprehensive Income

Six Months Ended June 30,

Other comprehensive (loss) income, net of tax

1 unchanged sentence

Unrealized holding (loss) income during the period, net of income tax (benefit) expense of ($ 1,151,813 ) and $ 2,573,587

Reclassification adjustment for gains included in net income, net of income tax expense of $ 14,879 and $ 11,992

Reclassification adjustment for losses included in net income, net of income tax benefit of $ 269,032 and $ 276,202

Other comprehensive (loss) income

2 unchanged sentences

Donegal Group Inc.

and Subsidiaries

Consolidated Statement of Stockholders’ Equity

Three Months Ended March 31, 2026

Six Months Ended June 30, 2026

Paid-In Capital

9 unchanged sentences

Balance, March 31, 2026

Issuance of common stock (stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive income

Balance, June 30, 2026

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

and Subsidiaries

Consolidated Statement of Stockholders’ Equity

Three Months Ended March 31, 2025

Six Months Ended June 30, 2025

Paid-In Capital

Comprehensive

Treasury Stock

Stockholders’

6 unchanged sentences

Balance, March 31, 2025

Issuance of common stock (stock compensation plans)

Share-based compensation

Cash dividends declared

Grant of stock options

Other comprehensive income

Balance, June 30, 2025

See accompanying notes to consolidated financial statements.

Donegal Group Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Cash Flows from Operating Activities:

1 unchanged sentence

Depreciation, amortization and other non-cash items

Net investment losses

Net investment gains

Changes in assets and liabilities:

16 unchanged sentences

Purchases of fixed maturities, available for sale

Purchases of equity securities, available for sale

( 110,149,362

Purchases of equity securities

Maturity of fixed maturities:

1 unchanged sentence

Available for sale

Sales of fixed maturities:

Available for sale

Sales of equity securities

Net sales (purchases) of property and equipment

Net sales of short-term investments

Net sales (purchases) of short-term investments, available for sale

Net cash used in investing activities

3 unchanged sentences

Net cash (used in) provided by financing activities

Net increase in cash

Net (decrease) increase in cash

Cash at beginning of period

1 unchanged sentence

Cash paid during period - Interest

Net cash paid (received) during period - Taxes

Net cash paid during period - Taxes

See accompanying notes to consolidated financial statements.

DONEGAL GROUP INC.

AND SUBSIDIARIES

Notes to Consolidated Financial Statements

2 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 March 31, 2026, we had three segments:

At June 30, 2026, 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 March 31, 2026, Donegal Mutual held approximately 44 % of our outstanding Class A common stock and approximately 85 % of our outstanding Class B common stock.

At June 30, 2026, Donegal Mutual held approximately 45 % of our outstanding Class A common stock and approximately 85 % of our outstanding Class B common stock.

This ownership provides Donegal Mutual with approximately 71 % of the total voting power of our common stock.

18 unchanged sentences

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

In September 2025, Donegal Mutual and Southern entered into a renewal rights agreement with an affiliate of a farm-focused Pennsylvania-based mutual insurance group to provide a continuation option for their farm policyholders when they begin to non-renew all farm policies as they expire beginning in the second quarter of 2026.

Donegal Mutual and Southern determined that the costs required to modernize their 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.

In September 2025, Donegal Mutual and Southern entered into a renewal rights agreement with an affiliate of a farm-focused Pennsylvania-based mutual insurance group to provide a continuation option for their farm policyholders when they began to non-renew all farm policies as they started to expire beginning in the second quarter of 2026.

None of our other insurance subsidiaries offered farm policies.

2 unchanged sentences

Our financial information for the interim periods included in this Form 10-Q Report is unaudited;

however, our financial information we include in this Form 10-Q Report reflects all adjustments,

consisting only of 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

three months ended March 31, 2026 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2026.

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, 2025 that we filed with the Securities and Exchange Commission (“SEC”) on March 6, 2026.

however, our financial information we include in this Form 10-Q Report reflects all adjustments, consisting only of

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

Our results of operations for the interim period

presented are not necessarily indicative of the results of operations we expect for the fiscal year.

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, 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 March 31,

Three Months Ended June 30,

(in thousands, except per share data)

11 unchanged sentences

Diluted net income per share

We did not exclude any outstanding options to purchase shares of Class A common stock in our computation of diluted net income per share because the exercise price of the options did not exceed the average market price

of our Class A common stock during the applicable periods.

Six Months Ended June 30,

(in thousands, except per share data)

Basic net income per share:

Allocation of net income

Weighted-average shares outstanding

Basic net income per share

Diluted net income per share:

Allocation of net income

Number of shares used in basic computation

Weighted-average shares effect of dilutive securities:

Director and employee stock options

Unvested restricted stock units

Number of shares used in diluted computation

Diluted net income per share

We did not exclude any outstanding options to purchase shares of Class A common stock in our computation of diluted net income per share because the exercise price of the options did not exceed the

average market price of our Class A common stock during the applicable periods.

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which they pool substantially all of their respective premiums, losses and loss expenses, and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement.

22 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 March 31, 2026 were as follows:

The amortized cost and estimated fair values of our fixed maturities and short-term investments at June 30, 2026 were as follows:

Carrying Value

20 unchanged sentences

Mortgage-backed securities

At March 31, 2026, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $ 294.5 million and an amortized cost of $ 325.0 million.

Our holdings at March 31, 2026 also included special revenue bonds with an aggregate fair value of $ 161.8 million and an amortized cost of $ 175.5 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 March 31, 2026.

Education bonds and water and sewer utility bonds represented 41 % and 35 %, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at March 31, 2026.

Many of the issuers of the special revenue bonds we held at March 31, 2026 have the authority to impose ad valorem taxes.

Short-term investments

At June 30, 2026, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $ 308.7 million and an amortized cost of $ 334.5 million.

Our holdings at June 30, 2026 also included special revenue bonds with an aggregate fair value of $ 167.8 million and an amortized cost of $ 179.6 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, 2026.

Education bonds and water and sewer utility bonds represented 41 % and 34 %, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2026.

Many of the issuers of the special revenue bonds we held at June 30, 2026 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.

The amortized cost and estimated fair values of our fixed maturities at December 31, 2025 were as follows:

The amortized cost and estimated fair values of our fixed maturities and short-term investments at December 31, 2025 were as follows:

Carrying Value

20 unchanged sentences

Mortgage-backed securities

Short-term investments

At December 31, 2025, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $ 291.7 million and an amortized cost of $ 317.5 million.

6 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 $ 44,511 and $ 45,199 in other comprehensive (loss) income during the three months ended March 31, 2026 and 2025, respectively.

At March 31, 2026 and December 31, 2025, net unrealized losses of $ 809,195 and $ 853,706 , respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at March 31, 2026 by contractual maturity.

We recorded amortization of $ 88,725 and $ 91,108 in other comprehensive (loss) income during the six months ended June 30, 2026 and 2025, respectively.

At June 30, 2026 and December 31, 2025, net unrealized losses of $ 764,981 and $ 853,706 , respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2026 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 March 31, 2026 were as follows:

The cost and estimated fair values of our equity securities at June 30, 2026 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 March 31,

Three Months Ended June 30,

Six Months Ended June 30,

(in thousands)

Gross realized gains:

4 unchanged sentences

Equity securities

Net realized gains

Net realized losses

Gross unrealized gains on equity securities

1 unchanged sentence

Fixed maturities - credit impairment charges

Net investment losses

We held fixed maturities with unrealized losses representing declines that we considered temporary at March 31, 2026 as follows:

Net investment gains

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2026 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 715 debt securities that were in an unrealized loss position at March 31, 2026.

We held 673 debt securities that were in an unrealized loss position at June 30, 2026.

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

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

We compute realized investment gains and losses using the specific

identification method.

We compute realized investment gains and losses

using the specific identification method.

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

We exclude accrued interest receivable from the estimated fair value and the amortized cost basis of our investment securities, and report such amounts separately on the Consolidated Balance Sheets as accrued investment income.

Segment Information

1 unchanged sentence

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, who 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, who is our Chief Executive Officer, evaluates the performance of the commercial lines and personal lines primarily based upon our insurance subsidiaries' underwriting income or loss 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.

Our chief operating decision maker does not receive asset and liability information for 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 March 31, 2026

Three Months Ended June 30, 2026

(in thousands)

1 unchanged sentence

Net investment income

Investment losses

Investment gains

Total segment revenues

9 unchanged sentences

Net investment income

Investment losses

Investment gains

Income before income tax expense

Three Months Ended March 31, 2025

Three Months Ended June 30, 2025

(in thousands)

1 unchanged sentence

Net investment income

Investment losses

Investment gains

Total segment revenues

9 unchanged sentences

Net investment income

Investment losses

Investment gains

Income before income tax expense

Six Months Ended June 30, 2026

(in thousands)

Net premiums earned

Net investment income

Investment gains

Total segment revenues

Total revenues

Segment expenses:

Net losses and loss expenses

Other underwriting expenses

Policyholder dividends

Total segment expenses

SAP underwriting (loss) income

GAAP adjustments

GAAP underwriting income

Net investment income

Investment gains

Income before income tax expense

Six Months Ended June 30, 2025

(in thousands)

Net premiums earned

Net investment income

Investment gains

Total segment revenues

Total revenues

Segment expenses:

Net losses and loss expenses

Other underwriting expenses

Policyholder dividends

Total segment expenses

SAP underwriting (loss) income

GAAP adjustments

GAAP underwriting income

Net investment income

Investment gains

Income before income tax expense

Lines of Credit

1 unchanged sentence

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

At March 31, 2026, 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 June 30, 2026, 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 March 31, 2026.

Atlantic States has a fixed-rate cash advance of $ 35.0 million that was outstanding at June 30, 2026.

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 March 31, 2026.

The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, which is presented within equity securities on the Consolidated Balance Sheets, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at June 30, 2026.

FHLB of Pittsburgh stock purchased and owned

Collateral pledged, at par (carrying value $ 41,276,943 )

Fixed maturity securities pledged, at par (carrying value $ 39,262,876 )

Borrowing capacity currently available

Share–Based Compensation

We measure all share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of related compensation expense in our results of

In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing

We measure all share-based compensation to employees, including grants of stock options and restricted stock units, and use a fair-value-based method for the recording of related compensation

expense in our results of operations.

Black-Scholes option pricing model.

The significant 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.

4 unchanged sentences

This practice will allow vesting under each grant to occur on the same date and for the value of the shares our officers and the officers of Donegal Mutual receive upon vesting of multiple grants to be calculated consistently using the closing price of Class A common stock on the last trading day of the preceding year.

We recorded compensation expense related to our stock compensation plans of $ 326,859 and $ 296,936 for the three months ended March 31, 2026 and 2025, respectively, with a corresponding income tax benefit of $ 68,640 and $ 62,357 , respectively.

At March 31, 2026, we had $ 2.1 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 2.3 years.

We received cash from option exercises under our stock compensation plans during the three months ended March 31, 2026 and 2025 of $ 232,330 and $ 6.3 million, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 13,100 and $ 300,981 for the three months ended March 31, 2026 and 2025, respectively.

We recorded compensation expense related to our stock compensation plans of $ 323,267 and $ 300,056 for the three months ended June 30, 2026 and 2025, respectively, with a corresponding income tax benefit of $ 67,887 and $ 63,011 , respectively.

We recorded compensation expense related to our stock compensation plans of $ 650,126 and $ 596,992 for the six months ended June 30, 2026 and 2025, respectively, with a corresponding income tax benefit of $ 136,526 and $ 125,368 , respectively.

At June 30, 2026, we had $ 1.7 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 2.2 years.

We received cash from option exercises under our stock compensation plans during the three months ended June 30, 2026 and 2025 of $ 79,597 and $ 5.8 million, respectively.

We received cash from option exercises under our stock compensation plans during the six months ended June 30, 2026 and 2025 of $ 311,927 and $ 12.1 million, respectively.We realized actual tax benefits for the tax deductions related to those option exercises of $ 3,910 and $ 476,276 for the three months ended June 30, 2026 and 2025, respectively.

We realized actual tax benefits for the tax deductions related to those option exercises of $ 17,010 and $ 777,257 for the six months ended June 30, 2026 and 2025, respectively.

Fair Value Measurements

32 unchanged sentences

security types are reasonable.

At March 31, 2026, 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 June 30, 2026, 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 March 31, 2026, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

services provided at June 30, 2026, 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 March 31, 2026 and December 31, 2025.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at March 31, 2026:

pricing services use, we have concluded that our Level 1 and Level 2 investments were classified properly at June 30, 2026 and December 31, 2025.

The following table presents the recurring fair value measurements for our investments in available-for-sale fixed maturity and equity securities at June 30, 2026:

Fair Value Measurements Using

14 unchanged sentences

Total investments in the fair value hierarchy

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2025:

The following table presents the recurring fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2025:

Fair Value Measurements Using

14 unchanged sentences

Total investments in the fair value hierarchy

At March 31, 2026 and December 31, 2025, respectively, we had no material unrecognized tax benefits or accrued interest and penalties.

At June 30, 2026 and December 31, 2025, 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.

1 unchanged sentence

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

We established a valuation allowance of $ 7.5 million for our net state operating loss carryforward at March 31, 2026 and December 31, 2025, which will expire between 2026 and 2045.

We have determined that we are not required to establish a valuation allowance for our other deferred tax assets of $ 33.8 million and $ 31.8 million at March 31, 2026 and December 31, 2025, 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 established a valuation allowance of $ 7.5 million for our net state operating loss carryforward at June 30, 2026 and December 31, 2025, which will expire between 2026 and 2045.

We have determined that we are not required to establish a valuation allowance for our other deferred tax assets of $ 33.9 million and $ 31.8 million at June 30, 2026 and December 31, 2025, 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.

2 unchanged sentences

Liabilities for Losses and Loss Expenses

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

losses and loss expenses will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition.

expenses will not differ from their loss and loss expense reserves or have an adverse effect on our results of operations and financial condition.

For example, legislative, judicial and regulatory actions may expand coverage definitions,

2 unchanged sentences

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’ estimate of their liabilities for losses and loss expenses generally reflect actual payments

and their evaluation of information received subsequent to the prior reporting period.

Changes in our insurance

subsidiaries’ estimate of their liabilities for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

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

Three Months Ended March 31,

Six Months Ended June 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 $5.7 million and $10.5 million for the three months ended March 31, 2026 and 2025, respectively.

Our insurance subsidiaries recognized a decrease in their liabilities for losses and loss expenses of prior years of $ 13.6 million and $ 13.5 million for the six months ended June 30, 2026 and 2025, 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 2026 development represented 0.8 % of the December 31, 2025 net carried reserves and resulted from lower-than-expected loss emergence or severity primarily in the commercial automobile and personal automobile lines of business, offset partially by unfavorable development in the commercial multi-peril and other commercial lines of business that we attribute to higher-than-anticipated case reserve development.

The majority of the 2026 development related to decreases in the liabilities for losses and loss expenses of prior years for MICO and Atlantic States.

The 2025 development represented 1.5 % 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.

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

The 2026 development represented 1.9 % of the December 31, 2025 net carried reserves and resulted from lower-than-expected loss emergence or severity primarily in the personal automobile, commercial automobile, workers’ compensation and homeowners lines of business, offset partially by unfavorable development in the commercial multi-peril and other commercial lines of business that we attribute to higher-than-anticipated case reserve development.

The majority of the 2026 development related to decreases in the liabilities for losses and loss expenses of prior years for MICO, Southern, and Atlantic States.

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 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.

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

8 unchanged sentences

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 three months ended March 31, 2026.

actuaries made no significant changes to that methodology during the six months ended June 30, 2026.

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.

34 unchanged sentences

forecasted economic conditions, to estimate the allowance for expected credit losses and recognize changes to the allowance in our results of operations.

The following table presents the balances for fixed maturities classified as held-to-maturity, net of the allowance for expected credit losses, at March 31, 2026 and 2025 and changes in the allowance for expected credit losses for the three months ended March 31, 2026 and 2025.

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, 2026 and 2025 and changes in the allowance for expected credit losses for the three and six months ended June 30, 2026 and 2025.

At and For the Three Months

Ended March 31, 2026

Ended June 30, 2026

At and For the Three Months

Ended March 31, 2025

Ended June 30, 2025

Held-to-Maturity,

9 unchanged sentences

Balance at end of period

At and For the Six Months Ended

June 30, 2026

At and For the Six Months Ended

June 30, 2025

Held-to-Maturity,

Net of Allowance

Credit Losses

Held-to-Maturity,

Net of Allowance

Credit Losses

(in thousands)

Balance at beginning of period

Current period change for expected credit losses

Balance at end of period

Reinsurance Receivable

2 unchanged sentences

The following table presents the balances for reinsurance receivable, net of the allowance for expected credit losses, at March 31, 2026 and 2025 and changes in the allowance for expected credit losses for the three months ended March 31, 2026 and 2025.

The following table presents the balances for reinsurance receivable, net of the allowance for expected credit losses, at June 30, 2026 and 2025 and changes in the allowance for expected credit losses for the three and six months ended June 30, 2026 and 2025.

At and For the Three Months Ended

March 31, 2026

June 30, 2026

At and For the Three Months Ended

March 31, 2025

June 30, 2025

Reinsurance Receivable,

10 unchanged sentences

Balance at end of period

At and For the Six Months Ended

June 30, 2026

At and For the Six Months Ended

June 30, 2025

Reinsurance Receivable,

Net of Allowance for

Expected Credit Losses

Credit Losses

Reinsurance Receivable,

Net of Allowance for

Expected Credit Losses

Credit Losses

(in thousands)

Balance at beginning of period

Current period change for expected credit losses

Balance at end of period

Impact of New Accounting Standards

In December 2023, the Financial Accounting Standards Board (“FASB”) issued guidance to enhance the transparency and usefulness of income tax disclosures.

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

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

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

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

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

The guidance requires disclosure of certain expenses,

including employee compensation, depreciation and selling expenses.

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

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

The guidance is effective for annual and interim reporting periods

beginning after December 15, 2026.

The guidance is effective for annual and interim reporting periods beginning after December 15, 2026.

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

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

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

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.

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

Our insurance subsidiaries do not discount their

liabilities for losses and loss expenses.

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

insurance subsidiaries’ internal operations.

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

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 (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.

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, 2026.

At June 30, 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.

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

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 June 30, 2026 and December 31, 2025 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, 2026

Percentage Change

in Stockholders’ Equity at

June 30, 2026(1)

Adjusted Loss and Loss

Expense Reserves Net of Reinsurance at

December 31, 2025

Percentage Change

in Stockholders’ Equity at

December 31, 2025(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

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.

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, 2026 and 2025:

Three Months Ended June 30, 2026

(in thousands)

Net premiums earned

Change in net unearned premiums

Net premiums written

Three Months Ended June 30, 2025

(in thousands)

Net premiums earned

Change in net unearned premiums

Net premiums written

Six Months Ended June 30, 2026

(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

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, 2026 and 2025:

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, 2026 Compared to Three Months Ended June 30, 2025

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the second quarter of 2026 were $222.6 million,

a decrease of $9.2 million, or 4.0%, compared to $231.8 million for the second quarter of 2025, primarily reflecting lower retention and renewal premium increases, offset partially by modestly higher new business writings in the preceding

twelve-month period.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the second quarter of 2026 were $226.4 million, a decrease of $7.4 million, or 3.2%, from the $233.8

million of net premiums written for the second quarter of 2025.

Commercial lines net premiums written increased $1.2 million, or 0.8%, for the second quarter of 2026 compared to the second quarter of 2025.

Personal lines net premiums written

decreased $8.6 million, or 9.7%, for the second quarter of 2026 compared to the second quarter of 2025.

We attribute the increase in commercial lines net premiums written primarily to new business writings, offset partially by a lower level of

renewal premium increases and retention.

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

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

Investment Income.

Our net investment income was $14.5 million for the second quarter of 2026, an increase of $2.0

million, or 15.6%, compared to $12.5 million for the second quarter of 2025.

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

Net Investment Gains.

Net investment gains for the second quarter of 2026 and 2025 were $3.3 million and $1.5 million,

respectively.

The net investment gains for the second quarter of 2026 and 2025 were primarily related to unrealized gains in the fair value of equity securities held at June 30, 2026 and 2025, offset partially by net realized investment losses on

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

We did not recognize any impairment losses for individual securities in our investment portfolio during the second 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 59.5% for the second quarter

of 2026, a decrease from our insurance subsidiaries’ loss ratio of 65.1% for the second 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 51.0% for the second quarter of 2026, an increase from the core loss ratio of 50.1% for the second quarter of 2025.

For the commercial lines segment, the core loss ratio of 54.0% for the second quarter of 2026 remained relatively

consistent with 54.5% for the second quarter of 2025.

For the personal lines segment, the core loss ratio of 45.8% for the second quarter of 2026 increased modestly from 43.3% for the second quarter of 2025.

We attribute the decrease in the

commercial lines core loss ratio primarily to ongoing premium rate increases in all lines except workers' compensation.

We attribute the increase in the personal lines core loss ratio primarily to lower premium rate increases, as rate adequacy has

largely been achieved for the personal lines segment.

Weather-related losses were $11.9 million, or 5.3 percentage points of the loss ratio, for the second quarter of 2026, compared to $25.8 million, or 11.1 percentage points of the loss ratio, for

the second quarter of 2025.

The impact of weather-related loss activity to the loss ratio for the second quarter of 2026 was much lower than our previous five-year average of $20.3 million, or 9.4 percentage points of the loss ratio, 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 2026 were $15.0 million, or 6.7 percentage points of the loss ratio, compared to $12.1 million, or 5.2

percentage points of the loss ratio, for the second quarter of 2025.

We attribute the increase to higher commercial property fire losses that were partially offset by a decrease in homeowners fire losses compared to the prior-year quarter.

insurance subsidiaries’ commercial lines loss ratio was 63.2% for the second quarter of 2026, compared to 65.8% for the second quarter of 2025, primarily due to decreases in the commercial automobile, workers' compensation and other commercial lines

of business loss ratios, offset partially by an increase in the commercial multi-peril line of business loss ratio.

The personal lines loss ratio of our insurance subsidiaries decreased to 53.2% for the second quarter of 2026, compared to 64.1% for

the second quarter of 2025.

We attribute this decrease primarily to the decrease in the homeowners line of business loss ratio.

Our insurance subsidiaries experienced net favorable loss reserve development of $7.8 million for the second quarter of

2026 that decreased the loss ratio by 3.5 percentage points, compared to $3.0 million of net favorable loss reserve development that decreased the loss ratio for the second quarter of 2025 by 1.3 percentage points.

Our insurance subsidiaries

experienced favorable development primarily in the personal automobile, workers' compensation, commercial automobile and homeowners lines of business for the second 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.

The expense ratio of our insurance subsidiaries was 35.8% for the second quarter of 2026, compared to 32.2% for the second quarter of 2025.

The increase in the expense ratio primarily reflected the impacts

of higher underwriting-based incentive costs for agents and employees as well as higher technology-related expenses and a lower base of net premiums earned compared to the prior-year quarter.

Combined Ratio.

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

which is the ratio of policyholder dividends incurred to premiums earned.

Our insurance subsidiaries’ combined ratios were 95.6% and 97.7% for the second quarter of 2026 and 2025, respectively.

We attribute the decrease in the combined ratio

primarily to a decrease in the loss ratio, partially offset by an increase in the expense ratio for the second quarter of 2026 compared to the second quarter of 2025.

Income Tax Expense.

We recorded income tax expense of $5.2 million for the second quarter of 2026, representing an

effective tax rate of 19.0%.

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

The income tax expense for the second 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 second quarter of 2026 was $22.3 million, or $.60 per share

of Class A common stock on a diluted basis and $.55 per share of Class B common stock, compared to $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, for the second quarter of

We had 31.5 million and 30.9 million Class A shares outstanding at June 30, 2026 and 2025, respectively.

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

Results of Operations - Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the first half of 2026 were $443.9 million, a

decrease of $20.5 million, or 4.4%, compared to $464.5 million for the first half of 2025, primarily reflecting lower retention and renewal premium increases, offset partially by modestly higher new business writings in the preceding twelve-month

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the first half of 2026 were $465.7 million, a decrease of $15.2 million, or 3.2%, from the $480.9

million of net premiums written for the first half of 2025.

Commercial lines net premiums written increased $4.7 million, or 1.5%, for the first half of 2026 compared to the first half of 2025.

Personal lines net premiums written decreased $19.9

million, or 11.3%, for the first half of 2026 compared to the first half of 2025.

We attribute the increase in commercial lines net premiums written primarily to new business writings, offset partially by a lower level of renewal premium increases

and retention.

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

Investment Income.

Our net investment income was $28.8 million for the first half of 2026, an increase of $4.3 million,

or 17.3%, compared to $24.5 million for the first half of 2025.

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

Net Investment Gains.

Net investment gains for the first half of 2026 were $2.8 million, compared to $1.1 million for

the first half of 2025.

The net investment gains for the first half of 2026 and 2025 primarily related to unrealized gains in the fair value of equity securities, offset partially by net realized investment losses on the sale of available-for-sale

fixed-maturity securities.

We did not recognize any impairment losses for individual securities in our investment portfolio during the first half 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 61.8% for the first half of

2026, an increase from our insurance subsidiaries’ loss ratio of 60.9% for the first half 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 52.3% for the first half of 2026, compared to 52.1% for the first half of 2025.

For the commercial lines segment, the core loss ratio of 55.8% for the first half of 2026 remained relatively consistent with 56.4% for the first half of 2025.

For the personal lines segment, the core loss ratio of 46.2% for the first half of 2026 remained relatively consistent with 46.0% for the first half of 2025.

Weather-related losses were $29.1 million, or 6.5 percentage points of the loss ratio, for

the first half of 2026, compared to $34.4 million, or 7.4 percentage points of the loss ratio, for the first half of 2025.

Large fire losses for the first half of 2026 were $27.2 million, or 6.1 percentage points of the loss ratio, compared to $19.8

million, or 4.3 percentage points of the loss ratio, for the first half of 2025.

Our insurance subsidiaries’ commercial lines loss ratio was 65.9% for the first half of 2026, compared to 62.9% for the first half of 2025, primarily due to increases in

the commercial multi-peril loss ratio, offset partially by a decrease in the commercial automobile and workers’ compensation loss ratios.

The personal lines loss ratio of our insurance subsidiaries decreased to 54.8% for the first half of 2026,

compared to 58.2% for the first half of 2025.

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

Our insurance subsidiaries experienced favorable loss reserve development for the first half of

2026 of approximately $13.6 million that decreased the loss ratio by 3.1 percentage points, compared to $13.5 million that decreased the loss ratio for the first half of 2025 by 2.9 percentage points.

Our insurance subsidiaries experienced favorable

development primarily in the personal automobile, commercial automobile, workers' compensation and homeowners lines of business for the first half of 2026, offset partially by unfavorable development in the commercial multi-peril and 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.

The expense ratio

of our insurance subsidiaries was 35.6% for the first half of 2026, compared to 33.4% for the first half of 2025.

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

as well as higher technology-related expenses and a lower base of net premiums earned compared to the first half 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 97.7% and 94.6% for the first half 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

half of 2026 compared to the first half of 2025.

Income Tax Expense.

We recorded income tax expense of $7.9 million for the first half of 2026, representing an effective

tax rate of 18.8%.

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

The income tax expense for the first half 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 half of 2026 was $33.8 million, or $0.91 per share of

Class A common stock on a diluted basis and $0.84 per share of Class B common stock, compared to $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, for the first half of 2025.

We had 31.5 million and 30.9 million Class A shares outstanding at June 30, 2026 and 2025, 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.

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 2026 and 2025

were $26.1 million and $37.9 million, respectively.

At June 30, 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 June 30, 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 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 Securities and Exchange Commission 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, 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 June 30, 2026.

On July 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 August 14, 2026 to our stockholders of record as of the close of business on July 31, 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, 2025.

Our insurance subsidiaries did not pay any dividends to us during the first six 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

At June 30, 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

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.

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