Donegal Group Inc. Q4 FY2025 earnings call

• 2025 ended with a solid fourth quarter where the combined ratio was 96.3%, and full year 2025 net income was $79,300,000, the highest ever. - Completed the multiyear systems transformation project started in 2018, with remaining legacy policies to be fully converted by mid-2027. - Planning to migrate Guidewire claims, billing, policy administration applications from on-premises to cloud-based versions in early 2027. - 2026 business plan includes strategies to engage independent agents and pursue quality mid-market and small business accounts in commercial lines. - In 2025, expense ratio was 34.9% for the fourth quarter (up from 32.8% in 2024) due to higher agency incentive costs and lower premium volume, and 33.8% for the full year (nearly unchanged from 33.7% in 2024). - Net investment income increased 17.5% in the 2025 quarter to $14,200,000, and full year 2025 net investment income was up 17.2% to $52,600,000.

For the fourth quarter of 2025, personal lines net premiums written decreased by 12.7%, while commercial lines net premiums written increased by 3.2%. For the full year of 2025, the personal lines core loss ratio remained below the target level. The commercial lines core loss ratio in 2025 was in line with that of 2024. Weather-related losses for the full year of 2025 were $56,900,000 or 6.2 percentage points of the loss ratio, which was better than the $67,700,000 or 7.2 percentage points in 2024. Large fire losses in 2025 were in line with those in 2024. Net favorable development of reserves for losses incurred in prior accident years reduced the 2025 loss ratio by 1.1 percentage points, slightly lower than the 1.6 percentage point reduction in 2024.

• Renewal of reinsurance program for 2026 had no changes to coverage limits or retention levels, and projects a $3,000,000 decrease in reinsurance cost compared to 2025. - 2026 will be selectively aggressive in pursuit of profitable growth, focusing on strategic plan and priorities, and working with independent agents on new business and policy retention plans.

• Uncertainty regarding weather-related losses. - Potential impact of changes in reinsurance arrangements. - Disruption that might occur during the migration of Guidewire applications to the cloud. - Risk of not achieving expected premium growth, which could hinder economies of scale. - Uncertainty in loss reserve development.