Donegal Group Unveils Q3 Numbers; Relatively Few Claims from Hurricanes

Pennsylvania-based Donegal Group Inc. reported that its net income for the third quarter ended Sept. 30, 2005 increased 66.1% to $9,777,157, or $.52 per share on a diluted basis, compared to $5,886,886, or $.32 per share on a diluted basis, for the third quarter of 2004.

The company’s third quarter earnings continued to reflect solid revenue growth and excellent underwriting results. As previously announced, the company incurred relatively few claims totaling approximately $250,000 as a result of Hurricanes Katrina and Rita.

Revenues for the third quarter of 2005 were $80,566,455, an increase of 9.4% over a year earlier, while premiums earned expanded to $74,584,045, a 9.7% increase over the third quarter of 2004. Investment income rose 13.2% to $4,548,837 for the third quarter of 2005, compared to $4,017,915 for the third quarter of 2004.

The company’s combined ratio improved to a record quarterly low 88.5% for the third quarter of 2005, compared to 95.0% for the third quarter of 2004. The company’s loss ratio for the third quarter of 2005 was 55.1%, which compared favorably to the loss ratio of 62.2% posted for the third quarter of 2004. Net losses incurred in the third quarter of 2004 included approximately $3.2 million in property claims from a series of severe weather events that added 4.6 percentage points to the loss ratio in that quarter.

The company’s expense ratio increased slightly to 32.6% for the third quarter of 2005, compared to 32.2% for the third quarter of 2004, and continued to reflect higher levels of incentive compensation resulting from the excellent underwriting results.

Net income for the nine months ended Sept. 30, 2005 increased 43.0% to $27,097,520, or $1.46 per share on a diluted basis, compared to $18,943,709, or $1.04 per share on a diluted basis, before extraordinary item for the nine months ended Sept. 30, 2004. Net income in the first nine months of 2004 was $24,389,379, or $1.34 per share on a diluted basis, which included an extraordinary gain of $5,445,670, or $.30 per share on a diluted basis, recorded in the first quarter of 2004 related to an acquisition.

The company’s combined ratio for the first nine months of 2005 was 89.5%, compared to a combined ratio of 93.2% for the comparable period in 2004. The company’s loss ratio for the first nine months of 2005 improved to 55.7%, compared to 62.5% for the first nine months of 2004.

The Company previously announced that certain members of the Donegal Insurance Group have entered into an Acquisition Rights Agreement (the “Agreement”) with The Shelby Insurance Company and Shelby Casualty Insurance Company (together “Shelby”), part of Vesta Insurance Group Inc. The Agreement grants those members the right, at their discretion and subject to their traditional underwriting and agency appointment standards, to offer renewal or replacement policies to the holders of Shelby’s personal lines policies in Pennsylvania, Tennessee and Alabama, pursuant to Shelby’s plans of withdrawal from those three states.

As part of the Agreement, the Donegal Insurance Group will pay specified amounts to Shelby based on the direct gross premiums written by the Donegal Insurance Group on the renewal and replacement policies it issues. Renewal and replacement policies will be offered for policies issued on or after Jan. 1, 2006. Thus, the Agreement will have no impact on the company’s 2005 operating results.