What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-05 compared with 2021-08-06 · 100 added, 97 removed, 195 unchanged (50% of the section changed)

20 unchanged sentences

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 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.

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In addition, the COVID-19

pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020.

pandemic and related government mandates and restrictions resulted in various changes from historical claims reporting and settlement trends during 2020 and 2021.

Related uncertainties regarding future trends include social inflation, supply chain disruption, the rate of plaintiff attorney involvement in claims and the cost of medical technologies and procedures.

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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 liabilities for losses and loss expenses will likely differ from the amount recorded at June 30, 2021.

Accordingly, our insurance subsidiaries’ ultimate liabilities for losses and loss expenses will likely differ from the amount recorded at September 30, 2021.

For every 1% change in our insurance subsidiaries’ loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax

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share of the entire pool.

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.

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.

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

The products our insurance subsidiaries and Donegal Mutual offer are generally complementary, thereby allowing Donegal Insurance Group to offer a broader range of products to a given market and to expand Donegal Insurance Group’s ability to service an entire personal lines or commercial lines account.

Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier products compared to standard tier products, but we do not allocate all of the standard risk gradients to one company.

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

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

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

Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at June 30, 2021 and December 31, 2020 consisted of the following:

Our insurance subsidiaries’ liabilities for losses and loss expenses by major line of business at September 30, 2021 and December 31, 2020 consisted of the following:

September 30,

(in thousands)

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Reinsurance at

June 30, 2021

September 30, 2021

Percentage Change

in Stockholders’ Equity at

June 30, 2021(1)

September 30, 2021(1)

Adjusted Loss and Loss

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period compared to the comparable period one year earlier.

The following table provides a reconciliation of our net premiums earned to our net premiums written for the three and six months ended June 30, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

The following table provides a reconciliation of our net premiums earned to our net premiums written for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

(in thousands)

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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 loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses, excluding anticipated salvage and subrogation recoveries, 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;

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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, 2021 and 2020:

Three Months Ended June 30,

Six Months Ended June 30,

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three and nine months ended September 30, 2021 and 2020:

Three Months Ended September 30,

Nine Months Ended September 30,

GAAP Combined Ratios (Total Lines)

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Total commercial and personal lines

Results of Operations - Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

Results of Operations - Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the second quarter of 2021 were $192.5 million, an increase of $8.1 million, or 4.4 %, compared to $184.4 million for the second quarter of 2020, primarily reflecting the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021, as well as new business growth and renewal premium increases.

Our insurance subsidiaries’ net premiums earned for the third quarter of 2021 were $196.2 million, an increase of $11.3 million, or

6.1 %, compared to $184.9 million for the third quarter of 2020, primarily reflecting the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021, as well as new business growth and renewal premium increases.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the three months ended

June 30, 2021 were $209.6 million, an increase of $15.9 million, or 8.2%, from the $193.7 million of net premiums written for the second quarter of 2020.

Commercial lines net premiums written increased $21.4 million, or 19.9%, for the second quarter of 2021 compared to the second quarter of 2020.

September 30, 2021 were $197.0 million, an increase of $16.2 million, or

9.0%, from the $180.8 million of net premiums written for the third quarter of 2020.

Commercial lines net premiums written increased $17.3 million, or 17.6%, for the third quarter of 2021 compared to the third quarter of 2020.

We attribute the increase in commercial lines net premiums written primarily to the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021, as well as new business growth and renewal premium increases.

Personal lines net premiums written decreased $1.1 million, or

6.4%, for the second quarter of 2021 compared to the second quarter of 2020.

1.3%, for the third quarter of 2021 compared to the third quarter of 2020.

We attribute the decrease in personal lines net premiums written primarily to net attrition as a result of measures our insurance subsidiaries have implemented to improve underwriting profitability, partially offset by the impact of premium rate increases our insurance subsidiaries have implemented.

Net premiums written for the third quarter of 2020 reflected premium reductions MICO’s policyholders requested following the July 1, 2020 effective date of no-fault

reform legislation in the state of Michigan.

Investment Income.

Our net investment income was $7.7 million for the second quarter of 2021, compared to $7.2 for the second quarter of 2020.

Our net investment income was $7.8 million for the third quarter of 2021, compared to $7.4 million for the third quarter of 2020.

We attribute the increase primarily to an increase in average invested assets.

Net Investment Gains.

Net investment gains for the second quarter of 2021 were $4.2 million, compared to $6.5 million for the second quarter of 2020.

The net investment gains for the second quarters of 2021 and 2020 resulted primarily from unrealized gains within our equity securities portfolio at June 30, 2021 and 2020, respectively.

We did not recognize any impairment losses in our investment portfolio during the second quarter of 2021 or 2020.

Net Investment (Losses) Gains.

Net investment losses for the third quarter of 2021 were $1.6 million, compared to net investment gains of $3.3 million for the third quarter of 2020.

The net investment losses and gains for the third quarters of 2021 and 2020, respectively, resulted primarily from the net change in unrealized gains and losses within our equity securities portfolio at September 30, 2021 and 2020, respectively.

We did not recognize any impairment losses in our investment portfolio during the third quarter of 2021 or 2020.

Losses and Loss Expenses.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 59.2% for the second quarter of 2021, an increase from our insurance subsidiaries’ loss ratio of 57.1% for the second quarter of 2020.

We attribute this increase primarily to increased frequency of personal automobile claims compared to the second quarter of 2020 when lower driving activity resulted from COVID-19

related shutdowns and elevated fire losses that primarily impacted the loss ratios for our homeowners and commercial multi-peril lines of business.

Weather-related losses of $11.7 million for the second quarter of 2021, or 6.1 percentage points of the loss ratio, decreased from $18.7 million for the second quarter of 2020, or 10.1 percentage points of the loss ratio.

Weather-related loss activity for the second quarter of 2021 was lower than our previous five-year average of $17.0 million for second quarter weather-related losses.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 56.4% for the second quarter of 2021, compared to 58.5% for the second quarter of 2020, primarily due to a decrease in the commercial multi-peril and workers’ compensation loss ratios.

The personal lines statutory loss ratio of our insurance subsidiaries increased to 63.9% for the second quarter of 2021, compared to 55.3% for the second quarter of 2020.

We attribute this increase primarily to an increase in the personal automobile loss ratio.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $13.4 million and $6.6 million during the second quarters of 2021 and 2020, respectively.

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 75.5% for the third quarter of 2021, an increase from our insurance subsidiaries’ loss ratio of 65.4% for the third quarter of 2020.

We attribute this increase primarily to increased frequency of personal automobile claims compared to the third quarter of 2020, when lower driving activity resulted from COVID-19

related shutdowns, higher severity of workers’ compensation losses and elevated fire losses, including $6.0 million from three individual losses that exceeded our per-risk

reinsurance retention amount, that primarily impacted the loss ratios for our homeowners and commercial multi-peril lines of business.

Weather-related losses of $18.0 million, or 9.2 percentage points of the loss ratio, for the third quarter of 2021, decreased from $16.9 million, or 9.1 percentage points of the loss ratio, for the third quarter of 2020.

Weather-related loss activity for the third quarter of 2021 was higher than our previous five-year average of $16.4 million for third quarter weather-related losses.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 76.3% for the third quarter of 2021, compared to 68.2% for the third quarter of 2020, primarily due to an increase in the commercial automobile, commercial multi-peril and workers’ compensation loss ratios.

The personal lines statutory loss ratio of our insurance subsidiaries increased to 75.0% for the third quarter of 2021, compared to 61.1% for the third quarter of 2020.

We attribute this increase primarily to an increase in the personal automobile and homeowners’ loss ratios.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $4.3 million during the third quarter of 2021.

Our insurance subsidiaries experienced unfavorable loss reserve development of approximately $542,000 during the third quarter of 2020.

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 36.0% for the second quarter of 2021, compared to 34.3% for the second quarter of 2020.

The increase in the expense ratio primarily reflected an increase in technology systems-related expenses and higher growth and underwriting-based incentive costs for our agents during the second quarter of 2021 compared to the second quarter of 2020.

The expense ratio increase also reflected a reallocation from loss expenses to underwriting expenses that resulted from the implementation of a new software system during the second quarter of 2021 that enhanced our expense allocation methodology.

The expense ratio of our insurance subsidiaries was 31.5% for the third quarter of 2021, compared to 31.9% for the third quarter of 2020.

The decrease in the expense ratio primarily reflected a decrease in our underwriting-based incentive costs for our agents and employees, offset partially by higher technology systems-related expenses during the third quarter of 2021 compared to the third quarter of 2020.

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 96.1% and

92.3% for the three months ended June 30, 2021 and 2020, respectively.

We attribute the increase in the combined ratio primarily to an increase in the loss ratio for the second quarter of 2021 compared to the second quarter of 2020.

Our insurance subsidiaries’ combined ratios were 107.7% and 98.3% for the three months ended September 30, 2021 and 2020, respectively.

We attribute the increase in the combined ratio primarily to an increase in the loss ratio for the third quarter of 2021 compared to the third quarter of 2020.

Interest Expense.

Our interest expense for the second quarter of 2021 was $217,290, compared to $428,092 for the second quarter of 2020.

We attribute the decrease to lower average borrowings under our lines of credit during the second quarter of 2021 compared to the second quarter of 2020.

Income Taxes.

We recorded income tax expense of $3.5 million for the second quarter of 2021, representing an effective tax rate of 17.9%.

We recorded income tax expense of $5.3 million for the second quarter of 2020, representing an effective tax rate of 19.0%.

The income tax expense and effective tax rates for the second quarters of 2021 and 2020 represented estimates based on our projected annual taxable income.

Net Income and Income Per Share.

Our net income for the second quarter of 2021 was $16.2 million, or $.53

per share of Class A common stock on a diluted basis and $.48 per share of Class B common stock, compared to $22.7 million, or $.79 per share of Class A common stock on a diluted basis and $.72 per share of Class B common stock, for the second quarter of 2020.

We had 25.6 million and 23.5 million Class A shares outstanding at June 30, 2021 and 2020, respectively.

Our interest expense for the third quarter of 2021 was $209,547, compared to $219,039 for the third quarter of 2020.

We attribute the decrease to lower average borrowings under our lines of credit during the third quarter of 2021 compared to the third quarter of 2020.

Income Tax (Benefit) Expense.

We recorded an income tax benefit of $1.9 million for the third quarter of 2021.

We recorded income tax expense of $2.5 million for the third quarter of 2020, representing an effective tax rate of 17.4%.

The income tax benefit and expense for the third quarters of 2021 and 2020 represented estimates based on our projected annual taxable income and effective tax rates.

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

Our net loss for the third quarter of 2021 was $6.7 million, or $.22 per share of Class A common stock and $.20 per share of Class B common stock, compared to net income of $11.8 million, or $.41 per share of Class A common stock on a diluted basis and $.37 per share of Class B common stock, for the third quarter of 2020.

We had 25.7 million and 24.1 million Class A shares outstanding at September 30, 2021 and 2020, respectively.

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

Results of Operations - Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Results of Operations - Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

Net Premiums Earned.

Our insurance subsidiaries’ net premiums earned for the first half of 2021 were $379.7 million, an increase of $8.1 million, or 2.2%, compared to $371.6 million for the first half of 2020, primarily reflecting the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021, as well as new business growth and renewal premium increases.

Our insurance subsidiaries’ net premiums earned for the first nine months of 2021 were $576.0 million, an increase of $19.4 million, or 3.5%, compared to $556.6 million for the first nine months of 2020, primarily reflecting the inclusion of the business of the Mountain States Insurance Group in the underwriting pool beginning with policies effective in 2021, as well as new business growth and renewal premium increases.

Net Premiums Written.

Our insurance subsidiaries’ net premiums written for the six months ended

June 30, 2021 were $425.5 million, an increase of $33.6 million, or 8.6%, from the $391.9 million of net premiums written for the first half of 2020.

Commercial lines net premiums written increased $44.2 million, or 19.3%, for the first half of 2021 compared to the first half of 2020.

Our insurance subsidiaries’ net premiums written for the nine months ended

September 30, 2021 were $622.5 million, an increase of $49.8 million, or 8.7%, from the $572.7 million of net premiums written for the first nine months of 2020.

Commercial lines net premiums written increased $61.5 million, or 18.7%, for the first nine months of 2021 compared to the first nine months of 2020.

Personal lines net premiums written decreased $10.6 million, or 6.5%, for the first half of 2021 compared to the first half of 2020.

Personal lines net premiums written decreased $11.7 million, or 4.8%, for the first nine months of 2021 compared to the first nine months of 2020.

Investment Income.

Our net investment income was $15.2 million for the first half of 2021, compared to $14.5 million for the first half of 2020.

Our net investment income was $22.9 million for the first nine months of 2021, compared to $22.0 million for the first nine months of 2020.

We attribute the increase primarily to an increase in average invested assets.

Net Investment Gains (Losses).

Net investment gains for the first half of 2021 were $6.7 million, compared to net investment losses of $4.2 million for the first half of 2020.

The net investment gains for the first half of 2021 resulted primarily from unrealized gains within our equity securities portfolio at June 30, 2021.

The net investment losses for the first half of 2020 resulted primarily from realized losses on sales of equity securities and unrealized losses within our equity securities portfolio due to a decline in equity markets at June 30, 2020.

We did not recognize any impairment losses in our investment portfolio during the first half of 2021 or 2020.

Net investment gains for the first nine months of 2021 were $5.1 million, compared to net investment losses of $940,488 for the first nine months of 2020.

The net investment gains for the first nine months of 2021 resulted primarily from unrealized gains within our equity securities portfolio at September 30, 2021.

The net investment losses for the first nine months of 2020 resulted primarily from realized losses on sales of equity securities, offset partially by unrealized gains in the fair value of equity securities held at September 30, 2020.

We did not recognize any impairment losses in our investment portfolio during the first nine months of 2021 or 2020.

Losses and Loss Expenses

Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 61.4% for the first half of 2021, an increase from our insurance subsidiaries’ loss ratio of 59.9% for the first half of 2020.

We attribute this increase primarily to elevated fire losses that primarily impacted the loss ratio for our commercial multi-peril line of business.

Weather-related losses of $18.6 million for the first half of 2021, or 4.9 percentage points of the loss ratio, decreased from $25.6 million for the first half of 2020, or 6.9 percentage points of the loss ratio.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 61.2% for the first half of 2021, compared to 60.6%

for the first half of 2020, primarily due to an increase in the commercial multi-peril loss ratio.

The personal lines statutory loss ratio of our insurance subsidiaries increased to 62.4% for the first half of 2021, compared to 59.3% for the first half of 2020.

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

66.2% for the first nine months of 2021, an increase from our insurance subsidiaries’ loss ratio of 61.7% for the first nine months of 2020.

We attribute this increase primarily to increased frequency of personal automobile claims compared to the first nine months of 2020, when lower driving activity resulted from COVID-19

related shutdowns, and elevated fire losses that primarily impacted the loss ratios for our homeowners and commercial multi-peril lines of business.

Weather-related losses of $36.6 million, or 6.4 percentage points of the loss ratio, for the first nine months of 2021, decreased from $42.5 million, or 7.6 percentage points of the loss ratio, for the first nine months of 2020.

On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 66.4% for the first nine months of 2021, compared to 63.1% for the first nine months of 2020, primarily due to an increase in the commercial multi-peril and workers’ compensation loss ratios.

The personal lines statutory loss ratio of our insurance subsidiaries increased to

66.5% for the first nine months of 2021, compared to 59.8% for the first nine months of 2020.

We attribute this increase primarily to an increase in the personal automobile and homeowners’ loss ratios.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $21.6 million and $10.9 million during the first half of 2021 and 2020, respectively.

Our insurance subsidiaries experienced favorable loss reserve development of approximately $25.9 million and $10.3 million during the first nine months of 2021 and 2020, respectively.

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 35.1% for the first half of 2021, compared to 33.8% for the first half of 2020.

The increase in the expense ratio primarily reflected an increase in technology systems-related expenses, higher agency growth incentive and underwriting-based incentive costs for our agents during the first half of 2021 compared to the first half of 2020.

The expense ratio of our insurance subsidiaries was 33.9% for the first nine months of 2021, compared to 33.2% for the first nine months of 2020.

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 97.3% and 94.7% for the first half of 2021 and 2020, respectively.

We attribute the increase in the combined ratio primarily to an increase in the loss ratio for the first half of 2021 compared to the first half of 2020.

Our insurance subsidiaries’ combined ratios were

100.8% and 95.9% for the first nine months of 2021 and 2020, respectively.

We attribute the increase in the combined ratio primarily to an increase in the loss ratio for the first nine months of 2021 compared to the first nine months of 2020.

Interest Expense.

Our interest expense for the first half of 2021 was $529,616, compared to $652,422 for the first half of 2020.

We attribute the decrease to lower average borrowings under our lines of credit during the first half of 2021 compared to the first half of 2020.

Our interest expense for the first nine months of 2021 was $739,163, compared to $871,461 for the first nine months of 2020.

We attribute the decrease to lower average borrowings under our lines of credit during the first nine months of 2021 compared to the first nine months of 2020.

Income Taxes.

We recorded income tax expense of $5.8 million for the first half of 2021, representing an effective tax rate of 17.7%.

We recorded income tax expense of $4.1 million for the first half of 2020, representing an effective tax rate of 13.4%.

The income tax expense and effective tax rate for the first half of 2021 represented an estimate based on our projected annual taxable income.

Income tax expense for the first half of 2020 included a $1.6 million income tax benefit related to the anticipated carryback of 2018 net operating losses to past tax years with higher statutory income tax rates than are currently in effect, as allowed under the Coronavirus Aid, Relief and Economic Security Act that was enacted in March 2020.

We recorded income tax expense of $3.8 million for the first nine months of 2021, representing an effective tax rate of 16.1%.

We recorded income tax expense of $6.6 million for the first nine months of 2020, representing an effective tax rate of 14.7%.

The income tax expense and effective tax rate for the first nine months of 2021 represented an estimate based on our projected annual taxable income.

Income tax expense for the first nine months of 2020 included a $1.6 million income tax benefit related to the anticipated carryback of 2018 net operating losses to past tax years with higher statutory income tax rates than are currently in effect, as allowed under the Coronavirus Aid, Relief and Economic Security Act that was enacted in March 2020.

Net Income and Income Per Share.

Our net income for the first half of 2021 was $26.7 million, or $.88

per share of Class A common stock on a diluted basis and $.80 per share of Class B common stock, compared to $26.4 million, or $.92 per share of Class A common stock on a diluted basis and $.84 per share of Class B common stock, for the first half of 2020.

We had 25.6 million and 23.5 million Class A shares outstanding at June 30, 2021 and 2020, respectively.

Our net income for the first nine months of 2021 was $20.0 million, or $.66

per share of Class A common stock on a diluted basis and $.59 per share of Class B common stock, compared to $38.2 million, or $1.33 per share of Class A common stock on a diluted basis and $1.21 per share of Class B common stock, for the first nine months of 2020.

We had 25.7 million and 24.1 million Class A shares outstanding at September 30, 2021 and 2020, respectively.

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

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

We structure our fixed-maturity investment portfolio following a “laddering” approach, so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective, thereby providing an additional measure of liquidity to meet our obligations

should an unexpected variation occur in the future.

Our operating activities provided net cash flows in the first six months of 2021 and 2020 of $59.2 million and $48.0 million, respectively.

At June 30, 2021, we had no outstanding borrowings under our line of credit with M&T and had the ability to borrow up to $20.0 million at interest rates equal to the then-current LIBOR rate plus 2.00%.

At June 30, 2021, Atlantic States had $35.0 million in outstanding advances with the FHLB of Pittsburgh that carry a fixed interest rate of 1.74%.

Our operating activities provided net cash flows in the first nine months of 2021 and 2020 of $58.5 million and $68.5 million, respectively.

At September 30, 2021, we had no outstanding borrowings under our line of credit with M&T and had the ability to borrow up to $20.0 million at interest rates equal to the then-current LIBOR rate plus 2.00%.

At September 30, 2021, Atlantic States had $35.0 million in outstanding advances with the FHLB of Pittsburgh that carry a fixed interest rate of 1.74%.

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

We estimate the timing of claim payments associated with the liabilities for losses and loss expenses of our insurance subsidiaries based on historical experience and expectations of future payment patterns.

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We 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 discuss in Note 7 – Borrowings our estimate of the timing of the amounts payable for the subordinated debentures based on their contractual maturity.

The subordinated debentures carry an interest rate of 5.00%, and any repayment of principal or payment of interest on the subordinated debentures requires prior approval of the Michigan Department of Insurance and Financial Services.

Our annual interest cost associated with the subordinated debentures is $250,000.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions.

We did not purchase any shares of our Class A common stock under this program during the six months ended June 30, 2021 or 2020.

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2021.

On July 15, 2021, our board of directors declared quarterly cash dividends of 16.0 cents per share of our Class A common stock and 14.25

cents per share of our Class B common stock, payable on August 16, 2021 to our stockholders of record as of the close of business on August 2, 2021.

We did not purchase any shares of our Class A common stock under this program during the nine months ended September 30, 2021 or 2020.

We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through September 30, 2021.

On October 21, 2021, our board of directors declared quarterly cash dividends of 16.0 cents per share of our Class A common stock and 14.25

cents per share of our Class B common stock, payable on November 15, 2021 to our stockholders of record as of the close of business on November 1, 2021.

We are not subject to any restrictions on our payment of dividends to our stockholders, although there are state law restrictions on the payment of dividends by our insurance subsidiaries to us.

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Our insurance subsidiaries’ statutory capital and surplus at December 31, 2020 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin.

Our insurance subsidiaries paid $5.0 million in dividends to us during the first six months of 2021.

Our insurance subsidiaries paid $5.0 million in dividends to us during the first nine months of 2021.

Amounts remaining available for distribution to us as dividends from our insurance subsidiaries without prior approval of their domiciliary insurance regulatory authorities in 2021 are $28.0 million from Atlantic States, $300,000 from Southern, $5.9 million from Peninsula and $12.2 million from MICO, or a total of approximately $46.4 million.

At June 30, 2021, we had no material commitments for capital expenditures.

At September 30, 2021, we had no material commitments for capital expenditures.

Equity Price Risk

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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