Other                  59.4         76.2         78.4        82.7 
Total commercial 
 lines                    89.8         97.5         98.6       100.2 
                       -------  ---  ------      -------      ------ 
Personal lines: 
   Automobile             97.8        109.8         97.8       106.1 
   Homeowners            116.8        128.9        107.5       111.2 
   Other                 102.2         46.4         97.2        81.3 
Total personal lines     104.7        119.4        101.2       107.2 
                       -------  ---  ------      -------      ------ 
Total lines               96.0%       105.2%        99.7%      102.9% 
                       =======       ======      =======      ====== 
 
 
 

Loss Ratio

For the third quarter of 2024, the loss ratio decreased to 61.5%, compared to 69.8% for the third quarter of 2023. For the commercial lines segment, the core loss ratio of 48.5% for the third quarter of 2024 decreased from 53.7% for the third quarter of 2023, due largely to lower severity of large casualty losses. For the personal lines segment, the core loss ratio of 52.5% for the third quarter of 2024 decreased from 61.8% for the third quarter of 2023, due largely to the favorable impact of premium rate increases on net premiums earned for that segment. Core loss ratios in both segments improved compared to the respective ratios for the first half of 2024.

Weather-related losses were $24.4 million, or 10.3 percentage points of the loss ratio, for the third quarter of 2024, compared to $25.7 million, or 11.5 percentage points of the loss ratio, for the third quarter of 2023. Weather-related loss activity for the third quarter of 2024 was higher than our previous five-year average of $18.8 million, or 9.4 percentage points of the loss ratio, for third-quarter weather-related losses. Our insurance subsidiaries incurred $6.0 million in net losses from Hurricane Helene in September 2024.

Large fire losses, which we define as individual fire losses in excess of $50,000, for the third quarter of 2024 were $8.8 million, or 3.7 percentage points of the loss ratio. That amount was lower than large fire losses of $11.0 million, or 4.9 percentage points of the loss ratio, for the third quarter of 2023. We experienced a decrease in commercial property fire losses compared to the prior-year quarter.

Net favorable development of reserves for losses incurred in prior accident years of $6.2 million decreased the loss ratio for the third quarter of 2024 by 2.6 percentage points, compared to $7.3 million that decreased the loss ratio for the third quarter of 2023 by 3.3 percentage points. Our insurance subsidiaries experienced favorable development primarily in the commercial multi-peril and other commercial lines of business.

Expense Ratio

The expense ratio was 34.5% for the third quarter of 2024, compared to 34.1% for the third quarter of 2023. The modest increase in the expense ratio primarily reflected an increase in underwriting-based incentive costs as well as higher technology systems-related expenses that were primarily due to increased costs related to our ongoing systems modernization project, a portion of which Donegal Mutual Insurance Company allocates to our insurance subsidiaries. This increase was offset partially by impacts of various expense reduction initiatives, including agency incentive program revisions, commission schedule adjustments, targeted staffing reductions, and hiring restrictions for open employment positions, among others. We expect the impact from allocated costs from Donegal Mutual Insurance Company to our insurance subsidiaries related to the ongoing systems modernization project will peak at approximately 1.3 percentage points of the expense ratio for the full year of 2024 before beginning to subside gradually in subsequent years.

Investment Operations

Donegal Group's investment strategy is to generate an appropriate amount of after-tax income on its invested assets while minimizing credit risk through investment in high-quality securities. As a result, we had invested 96.2% of our consolidated investment portfolio in diversified, highly rated and marketable fixed-maturity securities at September 30, 2024.

 
                        September 30, 2024          December 31, 2023 
                     -------------------------  ------------------------- 
                         Amount          %          Amount          % 
                     --------------  ---------  --------------  --------- 
                                    (dollars in thousands) 
Fixed maturities, 
at carrying value: 
   U.S. Treasury 
    securities and 
    obligations of 
    U.S. government 
    corporations 
    and agencies     $  173,663       12.7%     $  176,991       13.3% 
   Obligations of 
    states and 
    political 
    subdivisions        413,040       30.1         415,280       31.3 
   Corporate 
    securities          427,372       31.2         399,640       30.1 
   Mortgage-backed 
    securities          304,911       22.3         278,260       21.0 
   Allowance for 
    expected credit 
    losses               (1,483)      -0.1          (1,326)      -0.1 
                      ---------                  ---------      ----- 
Total fixed 
 maturities           1,317,503       96.2       1,268,845       95.6 
Equity securities, 
 at fair value           35,957        2.6          25,903        2.0 
Short-term 
 investments, at 
 cost                    15,805        1.2          32,306        2.4 
                                     -----                      ----- 
Total investments    $1,369,265      100.0%     $1,327,054      100.0% 
                      =========      =====       =========      ===== 
 
Average investment 
 yield                      3.3%                       3.1% 
Average 
 tax-equivalent 
 investment yield           3.3%                       3.2% 
Average 
 fixed-maturity 
 duration (years)           5.1                        4.3 
 
 
 

Net investment income of $10.8 million for the third quarter of 2024 increased modestly compared to $10.5 million for the third quarter of 2023. The increase in net investment income primarily reflected an increase in average investment yield relative to the prior-year third quarter.

Net investment gains of $1.9 million for the third quarter of 2024 were primarily related to unrealized gains in the fair value of equity securities held at September 30, 2024. Net investment losses of $1.2 million for the third quarter of 2023 were primarily related to unrealized losses in the fair value of equity securities held at September 30, 2023.

Our book value per share was $15.22 at September 30, 2024, compared to $14.39 at December 31, 2023, with the increase related to net income as well as $11.9 million of after-tax unrealized gains within our available-for-sale fixed-maturity portfolio during 2024 that increased our book value by $0.37 per share, offset partially by cash dividends declared.

Definitions of Non-GAAP Financial Measures

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"). In addition to using GAAP-based performance measurements, we also utilize certain non-GAAP financial measures that we believe provide value in managing our business and for comparison to the financial results of our peers. These non-GAAP measures are net premiums written, operating income or loss and statutory combined ratio.

Net premiums written and operating income or loss are non-GAAP financial measures investors in insurance companies commonly use. We define net premiums written as the amount of full-term premiums our insurance subsidiaries record for policies effective within a given period less premiums our insurance subsidiaries cede to reinsurers. We define operating income or loss as net income or loss excluding after-tax net investment gains or losses, after-tax restructuring charges and other significant non-recurring items. Because our calculation of operating income or loss may differ from similar measures other companies use, investors should exercise caution when comparing our measure of operating income or loss to the measure of other companies.

The following table provides a reconciliation of net premiums earned to net premiums written for the periods indicated:

 
 
                                                    Nine Months Ended September 
                 Three Months Ended September 30,               30, 
                 --------------------------------  ------------------------------ 
                   2024       2023      % Change     2024      2023     % Change 
                  -------    -------   ----------   -------   -------  ---------- 
                                      (dollars in thousands) 
 
Reconciliation 
of Net 
Premiums 
Earned to Net 
Premiums 
Written 
Net premiums 
 earned          $237,957   $224,393      6.0%     $700,017  $655,886     6.7% 
Change in net 
 unearned 
 premiums          (5,749)    (5,207)    10.4        30,822    27,117    13.7 
                                       ------                          ------ 
Net premiums 
 written         $232,208   $219,186      5.9%     $730,839  $683,003     7.0% 
                  =======    =======   ======       =======   =======  ====== 
 
 
 

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