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AM Best Revises Outlooks to Negative for Members of Donegal Insurance Group and Donegal Group Inc.


AM Best has revised the outlooks to negative from stable and affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of members of the Donegal Insurance Group (Donegal Group). Concurrently, AM Best has revised the outlook to negative from stable and affirmed the Long-Term ICR of “bbb” of the publicly traded holding company, Donegal Group Inc. (Delaware) [NASDAQ: DGICA and DGICB]. (See below for a detailed listing of the member companies.)

The Credit Ratings (ratings) reflect Donegal Group’s balance sheet strength, which AM Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

The revised outlooks to negative largely reflect the decline in Donegal Group’s operating performance in the most recent years (2017 and 2018), which has placed pressure on AM Best’s current assessment of adequate. While the operating performance has been impacted by above-average weather-related losses, the negative outlooks also consider the moderate adverse loss reserving trends and the slight decline in risk-adjusted capitalization. Donegal Group has implemented a number of initiatives to help improve underwriting performance, including significant rate actions, the transfer of unprofitable accounts and investing in new technology.

Donegal Group’s capital assessment reflects its Best’s Capital Adequacy Ratio (BCAR), which AM Best categorizes as strongest, sound liquidity position, and conservative investment portfolio, which are offset partially by increasing underwriting leverage, moderately adverse loss reserve development, and constrained surplus growth over the most recent five-year period. Management attributes the reserve development to increased frequency of severity of losses in the auto segment, as well as the changing trends in the reporting of casualty loss data and a deceleration in claim closure rates. Although the individual members within Donegal Group play a specific role in the organization’s overall business plan, and their operating performances may vary, each contributes favorably to the group’s risk-adjusted capitalization. In addition, each member supports the corporate business strategy and benefits from shared senior management, intercompany reinsurance and the added financial flexibility of Donegal Group Inc. to raise capital through debt or equity offerings during favorable investment markets.

Donegal Group’s neutral business profile includes geographic and product line diversification, effective use of technology in the independent agency distribution channel, and a history of successful expansion through strategic acquisitions and affiliations.

Appropriate ERM is demonstrated through a formal risk management process, which provides assurances that the organization’s key compliance, financial, strategic and operational risks are addressed in meeting organizational objectives. Additionally, Donegal Group purchases various excess of loss and per risk reinsurance treaties from high quality reinsurers to protect surplus, reduce volatility and increase capacity. In 2019, Donegal Group made significant changes to its reinsurance program, which AM Best expects to benefit operating results going forward, dependent upon the incidence of large loss activity and the occurrence of catastrophe events.

The affirmation of the Long-Term ICR of Donegal Group Inc. recognizes the overall financial strength of its property/casualty insurance operation, its moderate amount of financial leverage and the subordination of its creditors to the insurance companies’ policyholders.

The FSR of A (Excellent) and the Long Term ICRs of “a” have been affirmed, with outlooks revised to negative from stable for the following members of Donegal Insurance Group:

  • Atlantic States Insurance Company
  • Donegal Mutual Insurance Company
  • Le Mars Insurance Company
  • Michigan Insurance Company
  • Mountain States Commercial Insurance Company
  • Mountain States Indemnity Company
  • Peninsula Indemnity Company
  • Peninsula Insurance Company
  • Sheboygan Falls Insurance Company
  • Southern Insurance Company of Virginia
  • Southern Mutual Insurance Company

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and AM Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and AM Best Rating Action Press Releases.

AM Best is a global rating agency and information provider with a unique focus on the insurance industry. Visit www.ambest.com for more information.

Copyright © 2019 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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