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Donegal Group (DGICA) Q2 FY26 earnings call: guidance

Earnings call· Jun 2026 (Q2 FY26)· Financials· Jul 30, 2026

Source: earnings call transcript

Executive summary

Donegal Group Q2 FY26 — Strong Underwriting Profitability and Investment Income Growth

This prerecorded call highlighted Donegal Group's strong Q2 FY26 underwriting results and significant investment income growth, despite a decline in net premiums written and an elevated expense ratio. The company is actively managing its investment portfolio and leveraging technology, including Gen AI, to drive future efficiencies. Management remains focused on balancing growth with underwriting discipline in a softening market, while strengthening agent relationships.

Highlights

5

  • Excellent underwriting results with combined ratio of 95.6% for Q2 FY26, down from 97.7% in prior year.

  • Net investment income increased 16% to $14.5 million in Q2 FY26, driven by higher portfolio yield.

  • After-tax net income rose 32% to $22.3 million for Q2 FY26 compared to $16.9 million in Q2 FY25.

  • Personal Lines new business written increased 118% over Q2 FY25 to $2.6 million, reversing prior declines.

  • Book value per share improved 3.8% to $17.98 as of June 30, 2026, from December 31, 2025.

Concerns

5

  • Net premiums earned decreased 4% to $222.6 million, and net premiums written decreased 3.2% in Q2 FY26.

  • Expense ratio increased to 35.8% in Q2 FY26 from 32.2% in Q2 FY25, impacted by lower premium base and technology costs.

  • Large fire losses contributed 6.7 percentage points to the loss ratio in Q2 FY26, up from 5.2 percentage points in Q2 FY25.

  • Personal Lines net premiums written declined 9.7% in Q2 FY26, despite new business growth.

  • Commercial Lines rate and exposure increase, excluding workers' compensation, slowed to 7.8% in Q2 FY26.

Guidance & targets

CategoryTargetConfidence
Underwriting and pricing discipline
maintain underwriting and pricing discipline in order to achieve target profitability levels
high materiality
Medium
Gen AI solutions implementation
implement several Gen AI solutions that will provide greater insights to our claims personnel and increase efficiencies within our claims operations
medium materiality
High
Technology-related expenses moderation
will begin to moderate
medium materiality
Medium
Net investment income increase
upwards of $1 million annually
low materiality
High
Portfolio cash flow
$90 million
medium materiality
High

Segment performance

SegmentRevenueYoYQoQMargin
Commercial Lines
Achieved new business goals despite challenging market conditions. Retention impacted by farm line exit. Loss ratio improved due to lower weather and favorable prior year development, offsetting increased large fire severity.
New business volume growth: slightly up vs Q2 2025New business in targeted classes: 69%Real retention rate: 82.3%Real retention rate (ex-farm exit): 82.9%Rate and exposure increase (ex-WC): 7.8%Large fire impact on commercial multi-peril loss ratio: 7 percentage points increaseLarge fire severity increase: 45%Weather impact on loss ratio: 2.3 percentage points improvementWeather impact on commercial multi-peril loss ratio: 6 percentage points improvementPrior year reserve development impact on loss ratio: 2.7 percentage points decrease (favorable)Core loss ratio change: decreased slightly by 0.5 percentage points
—0.8%——
Personal Lines
Excellent profitability driven by personal auto and favorable weather. Significant new business growth reversing premium declines. Personal auto core loss ratio increased but remained below target.
New business written: $2.6 millionNew business written growth (QoQ): 63%New business written growth (YoY): 118%Real retention rate: 89%Rate and exposure increases: 3.6%Personal auto loss ratio increase: 2 percentage pointsPersonal auto core loss ratio deterioration: 4.5 percentage pointsHomeowners loss ratio improvement: 33.4 percentage pointsHomeowners weather loss impact reduction: 26.9 percentage pointsHomeowners large fire loss impact decline: 6 percentage points
—-9.7%——

Risks & headwinds

Competitive pressures and softening market Q2 FY26 and ongoing

Lower premium rate increases and retention levels

Mitigation:Maintaining underwriting and pricing discipline; increased engagement with independent agents; targeted geographic and class strategies.

Elevated commercial fire losses Q2 FY26

Contributed 6.7 percentage points to loss ratio in Q2 FY26 (vs 5.2% in Q2 FY25); 45% increase in severity for commercial multi-peril

Mitigation:No specific underwriting deficiencies identified; actively managing property concentrations as part of geographic spread of risk strategies.

Temporarily elevated expense ratio Q2 FY26

35.8% in Q2 FY26 vs 32.2% in Q2 FY25

Mitigation:Projected moderation of technology-related expenses over next few years; focusing on expense containment and increased operational efficiencies.

Upward pressure on liability severity Q2 FY26

Abated somewhat in Q2 FY26 for commercial auto and commercial multi-peril

Mitigation:Frequency and severity for both liability and property coverages returned to long-term trend lines outside of large fire activity.

What to watch in Q3 FY26

Guidewire Cloud migration & Gen AI implementation

Next quarter (Q3 FY26) and H1 FY27
Current On track for H1 2027
Target Continued progress towards H1 2027 implementation

Why it matters

Successful migration and Gen AI adoption are key to future claims insights, operational efficiencies, and cost savings.

We are making steady progress on the planned migration of our Guidewire claims and billing systems to the Guidewire Cloud platform in the first half of 2027. In conjunction with that migration, we expect to implement several Gen AI solutions that will provide greater insights to our claims personnel and increase efficiencies within our claims operations.

Find out whether DGICA delivers this. Inve re-checks your case every morning.

2 min read 6 chapters

Detailed narrative

Underwriting Performance Overview

Donegal Group reported excellent Q2 FY26 underwriting results with a combined ratio of 95.6%, an improvement from 97.7% in Q2 FY25. This was primarily driven by lower weather-related losses and favorable prior-year reserve development, despite elevated commercial fire losses. The core loss ratio remained stable at 51% compared to 50.1% in the prior year quarter, demonstrating solid underlying performance.

Investment Portfolio Strategy

The company actively managed its investment portfolio, resulting in a 16% increase in net investment income to $14.5 million in Q2 FY26. This was supported by an average tax equivalent yield of 3.99% and strategic reinvestment of $90 million in bonds at 5.45%, projected to increase net investment income by upwards of $1 million annually. The portfolio mix shifted towards mortgage-backed securities, non-agency structured notes, and tax-exempt bonds to improve yield and risk profile.

Operational Efficiency & Technology Initiatives

Donegal is progressing with its multi-year systems transformation, including the planned migration of Guidewire claims and billing systems to the Guidewire Cloud platform in H1 2027. This migration will incorporate Gen AI solutions to enhance claims insights and operational efficiencies. The company is already benefiting from Gen AI coding tools in IT, expecting further efficiencies and cost savings, and projects technology-related expenses to moderate over the next few years.

Agency Engagement and Growth

The company is emphasizing increased engagement with independent agents through forums and office visits to drive new business. Despite competitive pressures, Commercial Lines achieved new business premium growth goals for H1 2026, and Personal Lines new business volume increased significantly by 118% over Q2 FY25. System enhancements like WriteBiz Express and the refreshed WriteBiz agency portal aim to improve agent ease of doing business and strengthen relationships.

Commercial Lines Segment Review

Commercial Lines net premiums written increased modestly by 0.8%, with 69% of new business written in highly targeted classes. The real retention rate was 82.3%, or 82.9% excluding the farm line exit. Rate and exposure increases, excluding workers' compensation, slowed to 7.8%. The segment's loss ratio improved due to lower weather impact and favorable prior-year reserve development, despite a 45% increase in large fire severity, which added 7 percentage points to the commercial multi-peril loss ratio.

Personal Lines Segment Review

Personal Lines experienced excellent profitability, driven by strong personal auto results and favorable weather impacts in homeowners. New business written surged to $2.6 million, up 63% QoQ and 118% YoY. The real retention rate held steady at 89%, and rate and exposure increases were 3.6%. While the personal auto core loss ratio deteriorated by 4.5 percentage points, it remained well below target. Homeowners loss ratio improved significantly by 33.4 percentage points due to reduced weather and large fire impacts.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.