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    DGICA
    Earnings call· Jun 2026(Q2 FY26)

    DONEGAL GROUP Q2 FY26 earnings call DGICA

    Jul 30, 2026 Source

    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

    5
    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

    2
    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%——

    Operational metrics

    12
    Core loss ratio
    51%vs 50.1% Q2 FY25
    Q2 FY26

    Remained fairly stable.

    Weather-related losses
    $11.9 millionvs $25.8 million Q2 FY25
    Q2 FY26

    Well below the previous 5-year average for Q2 of 9.4 percentage points.

    Net favorable prior year reserve development
    $7.8 millionvs $3 million Q2 FY25
    Q2 FY26

    Compared to 1.3 percentage point reduction in Q2 FY25. Specific lines: $2.6M personal auto, $2.4M workers' comp, $1.2M commercial auto, $1.1M homeowners, $0.7M commercial multi-peril.

    Expense ratio
    35.8%vs 32.2% Q2 FY25
    Q2 FY26

    Increase primarily reflected lower base of net premiums earned and increased underwriting-based incentive compensation.

    Average tax equivalent yield
    3.99%vs 3.64% Q2 FY25
    Q2 FY26

    Increased yield.

    Reinvested bonds yield
    5.45%
    Q2 FY26

    Yield boost projected to increase net investment income by upwards of $1 million annually.

    Net investment gains
    $3.3 millionvs $1.5 million Q2 FY25
    Q2 FY26

    Net of a $1.2 million one-time realized loss on a $30 million bond swap.

    Net retained umbrella liability limits reduction
    significant reductions
    Q2 FY26

    Ongoing initiative to reduce casualty exposures.

    Guidewire Cloud platform migration
    on track
    H1 2027

    Planned migration of claims and billing systems.

    Gen AI solutions utilization
    already benefiting
    current

    Utilized for coding tools; expected to expand for additional efficiencies and cost savings.

    WriteBiz Express system
    increased speed to submission
    H1 FY26

    For targeted classes of small commercial business.

    WriteBiz agency portal refresh
    significant enhancements
    July 2026

    To commercial lines quoting, submission, binding and payment workflows.

    Industry KPIs

    9
    MetricValueDetails
    Combined ratio95.6%%
    Capital returnsStockholders' dividends
    Catastrophe losses$11.9 millionUSD
    Book value per share$17.98USD
    Net investment income$14.5 millionUSD
    Retention persistency82.3%%
    Net premiums written earnedEarned: $222.6 millionUSD
    Renewal rate change pricing5.2%%
    Prior year reserve development$7.8 millionUSD

    Risks & headwinds

    4
    Competitive pressures and softening marketQ2 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 lossesQ2 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 ratioQ2 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 severityQ2 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

    5

    Guidewire Cloud migration & Gen AI implementation

    Next quarter (Q3 FY26) and H1 FY27
    CurrentOn track for H1 2027
    TargetContinued 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.

    2 min read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    Personal Lines Segment Review

    Personal Lines experienced excellent profitability, driven by strong personal auto results and favorable weather impact🌐s 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.

    AI-generated summary of the company’s earnings call. Not investment advice.