10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 0-15341

Donegal Group Inc.

(Exact name of registrant as specified in its charter)

Delaware	23-2424711
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1195 River Road, P.O. Box 302, Marietta, PA 17547

(Address of principal executive offices) (Zip code)

(717) 426-1931

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐  (Do not check if a smaller reporting company)	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 22,715,297 shares of Class A Common Stock, par value $0.01 per share, and 5,576,775 shares of Class B Common Stock, par value $0.01 per share, outstanding on July 31, 2018.

DONEGAL GROUP INC.

INDEX TO FORM 10-Q REPORT

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		31
Item 4.	Controls and Procedures		31
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		32
Item 1A.	Risk Factors		32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		32
Item 3.	Defaults upon Senior Securities		32
Item 4.	Removed and Reserved		32
Item 5.	Other Information		32
Item 6.	Exhibits		33
Signatures			34

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Donegal Group Inc. and Subsidiaries

Consolidated Balance Sheets

	June 30, 2018			December 31, 2017
	(Unaudited)
Assets
Investments
Fixed maturities
Held to maturity, at amortized cost	$	385,822,214		$	366,655,077
Available for sale, at fair value		519,978,816			538,946,050
Equity securities, at fair value		53,602,292			50,445,243
Investment in affiliate		39,451,155			38,773,420
Short-term investments, at cost, which approximates fair value		11,786,690			11,049,915
Total investments		1,010,641,167			1,005,869,705
Cash		53,652,098			37,833,435
Accrued investment income		6,786,068			6,553,121
Premiums receivable		169,220,824			160,406,432
Reinsurance receivable		311,644,891			298,342,563
Deferred policy acquisition costs		64,609,371			60,289,860
Deferred tax asset, net		9,511,006			7,128,843
Prepaid reinsurance premiums		143,726,591			135,032,641
Property and equipment, net		7,124,373			7,280,415
Accounts receivable - securities		1,009,002			180,525
Federal income taxes receivable		19,621,927			10,935,105
Goodwill		5,625,354			5,625,354
Other intangible assets		958,010			958,010
Other		1,208,290			1,483,769
Total assets	$	1,805,338,972		$	1,737,919,778
Liabilities and Stockholders’ Equity
Liabilities
Unpaid losses and loss expenses	$	747,630,145		$	676,671,727
Unearned premiums		535,877,264			503,456,541
Accrued expenses		24,120,390			28,033,776
Reinsurance balances payable		6,389,945			4,116,159
Borrowings under lines of credit		60,000,000			59,000,000
Cash dividends declared to stockholders		—			3,841,820
Subordinated debentures		5,000,000			5,000,000
Accounts payable - securities		1,514,083			—
Due to affiliate		3,488,051			7,314,368
Other		1,649,055			1,789,283
Total liabilities		1,385,668,933			1,289,223,674
Stockholders’ Equity
Preferred stock, $.01 par value, authorized 2,000,000 shares; none issued		—			—
Class A common stock, $.01 par value, authorized 40,000,000 shares, issued 25,689,249 and 25,564,481 shares and outstanding 22,686,661 and 22,561,893 shares		256,893			255,645
Class B common stock, $.01 par value, authorized 10,000,000 shares, issued 5,649,240 shares and outstanding 5,576,775 shares		56,492			56,492
Additional paid-in capital		258,665,915			255,401,558
Accumulated other comprehensive loss		(16,666,961	)		(2,684,275	)
Retained earnings		218,584,057			236,893,041
Treasury stock, at cost		(41,226,357	)		(41,226,357	)
Total stockholders’ equity		419,670,039			448,696,104
Total liabilities and stockholders’ equity	$	1,805,338,972		$	1,737,919,778

See accompanying notes to consolidated financial statements.

1

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended June 30,
	2018			2017
Revenues:
Net premiums earned	$	185,714,110		$	175,014,872
Investment income, net of investment expenses		6,342,152			5,649,870
Net realized investment gains (includes $12,247 and $1,097,306 accumulated other comprehensive income reclassifications)		1,517,310			1,097,306
Lease income		122,403			127,924
Installment payment fees		1,306,197			1,304,129
Equity in earnings of Donegal Financial Services Corporation		787,856			386,615
Total revenues		195,790,028			183,580,716
Expenses:
Net losses and loss expenses		135,753,645			128,005,914
Amortization of deferred policy acquisition costs		30,579,000			28,700,000
Other underwriting expenses		28,492,434			28,259,223
Policyholder dividends		1,213,588			1,212,292
Interest		566,284			382,958
Other expenses		518,123			416,798
Total expenses		197,123,074			186,977,185
Loss before income tax benefit		(1,333,046	)		(3,396,469	)
Income tax benefit (includes $2,572 and $384,057 income tax expense from reclassification items)		(543,191	)		(1,077,821	)
Net loss	$	(789,855	)	$	(2,318,648	)
Loss per common share:
Class A common stock - basic	$	(0.03	)	$	(0.09	)
Class A common stock - diluted	$	(0.03	)	$	(0.08	)
Class B common stock - basic and diluted	$	(0.03	)	$	(0.08	)

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended June 30,
	2018			2017
Net loss	$	(789,855	)	$	(2,318,648	)
Other comprehensive (loss) income, net of tax
Unrealized (loss) gain on securities:
Unrealized holding (loss) gain during the period, net of income tax (benefit) expense of ($651,633) and $575,754		(2,451,371	)		1,069,259
Reclassification adjustment for gains included in net loss, net of income tax expense of $2,572 and $384,057		(9,675	)		(713,249	)
Other comprehensive (loss) income		(2,461,046	)		356,010
Comprehensive loss	$	(3,250,901	)	$	(1,962,638	)

2

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Six Months Ended June 30,
	2018			2017
Revenues:
Net premiums earned	$	367,478,690		$	344,171,019
Investment income, net of investment expenses		12,720,521			11,405,269
Net realized investment gains (includes ($32,316) and $3,646,281 accumulated other comprehensive income reclassifications)		598,971			3,646,281
Lease income		245,996			269,774
Installment payment fees		2,654,158			2,439,771
Equity in earnings of Donegal Financial Services Corporation		1,419,970			619,565
Total revenues		385,118,306			362,551,679
Expenses:
Net losses and loss expenses		292,336,913			242,439,372
Amortization of deferred policy acquisition costs		60,244,000			56,383,000
Other underwriting expenses		57,815,072			56,748,504
Policyholder dividends		2,515,771			2,046,557
Interest		1,030,432			746,633
Other expenses		1,044,335			859,253
Total expenses		414,986,523			359,223,319
(Loss) income before income tax (benefit) expense		(29,868,217	)		3,328,360
Income tax (benefit) expense (includes ($6,786) and $1,276,198 income tax (benefit) expense from reclassification items)		(10,900,284	)		542,190
Net (loss) income	$	(18,967,933	)	$	2,786,170
(Loss) earnings per common share:
Class A common stock - basic	$	(0.68	)	$	0.11
Class A common stock - diluted	$	(0.68	)	$	0.10
Class B common stock - basic and diluted	$	(0.63	)	$	0.09

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Six Months Ended June 30,
	2018			2017
Net (loss) income	$	(18,967,933	)	$	2,786,170
Other comprehensive (loss) income, net of tax
Unrealized (loss) gain on securities:
Unrealized holding (loss) gain during the period, net of income tax (benefit) expense of ($2,416,212) and $1,654,622		(9,089,561	)		3,072,872
Reclassification adjustment for losses (gains) included in net (loss) income, net of income tax (benefit) expense of ($6,786) and $1,276,198		25,530			(2,370,083	)
Other comprehensive (loss) income		(9,064,031	)		702,789
Comprehensive (loss) income	$	(28,031,964	)	$	3,488,959

See accompanying notes to consolidated financial statements.

3

Donegal Group Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity

(Unaudited)

Six Months Ended June 30, 2018

	Class A Shares		Class B Shares		Class A Amount		Class B Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Loss			Retained Earnings			Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2017		25,564,481		5,649,240	$	255,645	$	56,492	$	255,401,558	$	(2,684,275	)	$	236,893,041		$	(41,226,357	)	$	448,696,104
Issuance of common stock		92,592		—		926		—		1,382,457		—			—			—			1,383,383
Share-based compensation		32,176		—		322		—		1,560,800		—			—			—			1,561,122
Net loss		—		—		—		—		—		—			(18,967,933	)		—			(18,967,933	)
Cash dividends declared		—		—		—		—		—		—			(3,938,606	)		—			(3,938,606	)
Grant of stock options		—		—		—		—		321,100		—			(321,100	)		—			—
Reclassification of equity unrealized gains		—		—		—		—				(4,918,655	)		4,918,655			—			—
Other comprehensive loss		—		—		—		—		—		(9,064,031	)		—			—			(9,064,031	)
Balance, June 30, 2018		25,689,249		5,649,240	$	256,893	$	56,492	$	258,665,915	$	(16,666,961	)	$	218,584,057		$	(41,226,357	)	$	419,670,039

See accompanying notes to consolidated financial statements.

4

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
	2018			2017
Cash Flows from Operating Activities:
Net (loss) income	$	(18,967,933	)	$	2,786,170
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, amortization and other non-cash items		3,093,372			3,399,601
Net realized investment gains		(598,971	)		(3,646,281	)
Equity in earnings of Donegal Financial Services Corporation		(1,419,970	)		(619,565	)
Changes in assets and liabilities:
Losses and loss expenses		70,958,418			36,581,540
Unearned premiums		32,420,723			43,782,809
Premiums receivable		(8,814,392	)		(11,588,811	)
Deferred acquisition costs		(4,319,511	)		(4,769,882	)
Deferred income taxes		27,263			(481,330	)
Reinsurance receivable		(13,302,328	)		(14,146,449	)
Prepaid reinsurance premiums		(8,693,950	)		(12,681,228	)
Accrued investment income		(232,947	)		81,101
Due to affiliate		(3,826,317	)		11,781,859
Reinsurance balances payable		2,273,786			1,917,069
Current income taxes		(8,686,822	)		(2,038,231	)
Accrued expenses		(3,913,386	)		(5,810,390	)
Other, net		135,249			(141,602	)
Net adjustments		55,100,217			41,620,210
Net cash provided by operating activities		36,132,284			44,406,380
Cash Flows from Investing Activities:
Purchases of fixed maturities, held to maturity		(26,231,784	)		(30,889,730	)
Purchases of fixed maturities, available for sale		(49,700,116	)		(42,607,193	)
Purchases of equity securities, available for sale		(4,344,974	)		(6,888,091	)
Maturity of fixed maturities:
Held to maturity		7,143,696			10,695,775
Available for sale		56,797,178			42,557,614
Sales of fixed maturities, available for sale		208,817			3,373,785
Sales of equity securities, available for sale		1,819,212			10,782,859
Net purchases of property and equipment		(107,440	)		(302,622	)
Net purchases of short-term investments		(736,775	)		(22,781,308	)
Net cash used in investing activities		(15,152,186	)		(36,058,911	)
Cash Flows from Financing Activities:
Cash dividends paid		(7,780,426	)		(7,351,660	)
Issuance of common stock		1,618,991			3,257,905
Borrowings under line of credit		1,000,000			—
Net cash used in financing activities		(5,161,435	)		(4,093,755	)
Net increase in cash		15,818,663			4,253,714
Cash at beginning of period		37,833,435			24,587,214
Cash at end of period	$	53,652,098		$	28,840,928
Cash paid during period - Interest	$	557,521		$	616,562
Net cash paid during period - Taxes	$	—		$	3,050,000

See accompanying notes to consolidated financial statements.

5

DONEGAL GROUP INC. AND SUBSIDIARIES

(Unaudited)

Notes to Consolidated Financial Statements

1 - Organization

Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26, 1986. Our insurance subsidiaries, Atlantic States Insurance Company (“Atlantic States”), Southern Insurance Company of Virginia (“Southern”), Le Mars Insurance Company (“Le Mars”), the Peninsula Insurance Group (“Peninsula”), which consists of Peninsula Indemnity Company and The Peninsula Insurance Company, Sheboygan Falls Insurance Company (“Sheboygan”) and Michigan Insurance Company (“MICO”), write personal and commercial lines of property and casualty coverages exclusively through independent insurance agents in certain Mid-Atlantic, Midwestern, New England and Southern states. We also own 48.2% of the outstanding stock of Donegal Financial Services Corporation (“DFSC”), a grandfathered unitary savings and loan holding company that owns Union Community Bank (“UCB”), a state savings bank. Donegal Mutual owns the remaining 51.8% of the outstanding stock of DFSC.

We have four segments: our investment function, our personal lines of insurance, our commercial lines of insurance and our investment in DFSC. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.

At June 30, 2018, Donegal Mutual held approximately 43% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately 72% of the total voting power of our common stock. Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions. While each company maintains its separate corporate existence, Donegal Mutual and our insurance subsidiaries conduct business together as the Donegal Insurance Group. As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the same types of insurance products.

Atlantic States, our largest subsidiary, participates in a pooling agreement with Donegal Mutual. Under the pooling agreement, the two companies pool their insurance business and each company receives an allocated percentage of the pooled business. Atlantic States has an 80% share of the results of the pooled business, and Donegal Mutual has a 20% share of the results of the pooled business.

The same executive management and underwriting personnel administer products, classes of business underwritten, pricing practices and underwriting standards of Donegal Mutual and our insurance subsidiaries. In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual market are generally complementary, thereby allowing the Donegal Insurance Group to offer a broader range of products to a given market and to expand the Donegal Insurance Group’s ability to service entire personal lines or commercial lines accounts. Distinctions within the products Donegal Mutual and our insurance subsidiaries offer relate generally to specific risk profiles targeted within similar classes of business, such as preferred tier products versus standard tier products, but we do not allocate all of the standard risk gradients to any specific company within the Donegal Insurance Group. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, because the risk characteristics of all business Donegal Mutual and Atlantic States write directly are homogenized within the underwriting pool, Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the underwriting pool.

Donegal Mutual completed the merger of Mountain States Mutual Casualty Company (“Mountain States”) with and into Donegal Mutual effective May 25, 2017. Donegal Mutual was the surviving company in the merger, and Mountain States’ insurance subsidiaries, Mountain States Indemnity Company and Mountain States Commercial Insurance Company, became insurance subsidiaries of Donegal Mutual upon completion of the merger. Upon completion of the merger, Donegal Mutual assumed all of the policy obligations of Mountain States and began to market its products together with those of its insurance subsidiaries as the Mountain States Insurance Group in four Southwestern states. For an indefinite period of time, Donegal Mutual will exclude the business of the Mountain States Insurance Group from the pooling agreement with Atlantic States. As a result, our consolidated financial results exclude the results of Donegal Mutual’s operations in those Southwestern states.

On April 3, 2018, we announced plans to consolidate the branch office operations of Peninsula into our home office operations effective July 2, 2018 to achieve economies of scale and enhance service levels for policyholders of Peninsula. We recorded a restructuring charge for employee termination costs associated with the Peninsula consolidation of approximately $1.9 million.

6

On June 11, 2018, we and Donegal Mutual entered into an agreement to sell DFSC and UCB to Northwest Bancshares, Inc. (“Northwest”) for approximately $85.0 million in a combination of cash and Northwest common stock. Immediately prior to the closing of the merger, DFSC will pay a dividend of approximately $30.0 million to us and Donegal Mutual. As the owner of 48.2% of DFSC’s common stock, we will receive a dividend payment from DFSC of approximately $14.5 million and consideration from Northwest that will range in value from $38.9 million to $43.0 million. Subject to receipt of various regulatory approvals and satisfaction of other customary closing conditions, we anticipate that the merger will close during the first quarter of 2019.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the Securities and Exchange Commission (“SEC”) and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the six months ended June 30, 2018 or 2017. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2018.

2 - Basis of Presentation

Our financial information for the interim periods included in this Form 10-Q Report is unaudited; however, our financial information we include in this Form 10-Q Report reflects all adjustments, consisting only of normal recurring adjustments that, in the opinion of our management, are necessary for a fair presentation of our financial position, results of operations and cash flows for those interim periods. Our results of operations for the six months ended June 30, 2018 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2018.

We recommend you read the interim financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017.

7

3 - Earnings Per Share

We have two classes of common stock, which we refer to as our Class A common stock and our Class B common stock. Our certificate of incorporation provides that whenever our board of directors declares a dividend on our Class B common stock, our board of directors shall simultaneously declare a dividend on our Class A common stock that is payable to the holders of our Class A common stock at the same time and as of the same record date at a rate that is at least 10% greater than the rate at which our board of directors declared a dividend on our Class B common stock. Accordingly, we use the two-class method to compute our earnings per common share. The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed earnings using a participation percentage that reflects the dividend rights of each class. The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for our Class A common stock and our Class B common stock:

	Three Months Ended June 30,
	2018						2017
	Class A			Class B			Class A			Class B
	(in thousands, except per share data)
Basic loss per share:
Numerator:
Allocation of net loss	$	(625	)	$	(165	)	$	(1,858	)	$	(461	)
Denominator:
Weighted-average shares outstanding		22,686			5,577			21,705			5,577
Basic loss per share	$	(0.03	)	$	(0.03	)	$	(0.09	)	$	(0.08	)
Diluted loss per share:
Numerator:
Allocation of net loss	$	(625	)	$	(165	)	$	(1,858	)	$	(461	)
Denominator:
Number of shares used in basic computation		22,686			5,577			21,705			5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		—			—			792			—
Number of shares used in diluted computation		22,686			5,577			22,497			5,577
Diluted loss per share	$	(0.03	)	$	(0.03	)	$	(0.08	)	$	(0.08	)

	Six Months Ended June 30,
	2018						2017
	Class A			Class B			Class A		Class B
	(in thousands, except per share data)
Basic (loss) earnings per share:
Numerator:
Allocation of net (loss) income	$	(15,476	)	$	(3,492	)	$	2,282	$	504
Denominator:
Weighted-average shares outstanding		22,651			5,577			21,625		5,577
Basic (loss) earnings per share	$	(0.68	)	$	(0.63	)	$	0.11	$	0.09
Diluted (loss) earnings per share:
Numerator:
Allocation of net (loss) income	$	(15,476	)	$	(3,492	)	$	2,282	$	504
Denominator:
Number of shares used in basic computation		22,651			5,577			21,625		5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		—			—			937		—
Number of shares used in diluted computation		22,651			5,577			22,562		5,577
Diluted (loss) earnings per share	$	(0.68	)	$	(0.63	)	$	0.10	$	0.09

8

We did not include any effect of dilutive securities in the computation of diluted earnings per share for the three and six months ended June 30, 2018 because we sustained net losses for these periods.

We did not include outstanding options to purchase 1,388,400 shares of Class A common stock in our computation of diluted earnings per share for the three and six months ended June 30, 2017 because the exercise price of the options exceeded the average market price of our Class A common stock during the applicable periods.

4 - Reinsurance

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which they pool substantially all of their direct premiums written, and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement. Atlantic States has an 80% share of the results of the pool, and Donegal Mutual has a 20% share of the results of the pool.

Our insurance subsidiaries and Donegal Mutual purchase certain third-party reinsurance on a combined basis. Le Mars, MICO, Peninsula and Sheboygan also separately purchase third-party reinsurance that provides that insurance subsidiary with reinsurance coverage that we believe is commensurate with its respective size and risk exposures. Our insurance subsidiaries use several different reinsurers, all of which have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- rating from A.M. Best. The following information describes the external reinsurance our insurance subsidiaries have in place for 2018:

• excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recover, through a series of reinsurance agreements, losses over a set retention (generally $1.0 million), and

• catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recover, through a series of reinsurance agreements, 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention (generally $5.0 million) and after exceeding an annual aggregate deductible (generally $5.0 million) up to aggregate losses of $170.0 million per occurrence.

Our insurance subsidiaries and Donegal Mutual also purchase facultative reinsurance to cover exposures in excess of the covered limits of their third-party reinsurance agreements.

In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries have various reinsurance agreements with Donegal Mutual.

Effective March 1, 2018, Donegal Mutual and certain of our insurance subsidiaries modified their third-party reinsurance coverage related to umbrella liability policies to increase the maximum loss retention of Donegal Mutual and our insurance subsidiaries from $250,000 to $1.0 million. Donegal Mutual and certain of our insurance subsidiaries also made various adjustments to the terms of their intercompany catastrophe reinsurance agreements effective January 1, 2018. We have made no other significant changes to our third-party reinsurance or the reinsurance agreements between our insurance subsidiaries and Donegal Mutual during the six months ended June 30, 2018.

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5 - Investments

The amortized cost and estimated fair values of our fixed maturities at June 30, 2018 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	72,936	$	40	$	1,529	$	71,447
Obligations of states and political subdivisions		149,759		8,092		795		157,056
Corporate securities		118,611		360		3,746		115,225
Mortgage-backed securities		44,516		51		762		43,805
Totals	$	385,822	$	8,543	$	6,832	$	387,533

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,748	$	6	$	1,394	$	43,360
Obligations of states and political subdivisions		96,256		2,274		596		97,934
Corporate securities		121,776		165		2,916		119,025
Mortgage-backed securities		267,944		82		8,366		259,660
Totals	$	530,724	$	2,527	$	13,272	$	519,979

At June 30, 2018, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $172.2 million and an amortized cost of $166.5 million. Our holdings at June 30, 2018 also included special revenue bonds with an aggregate fair value of $82.8 million and an amortized cost of $79.5 million. With respect to both categories of those bonds at June 30, 2018, we held no securities of any issuer that comprised more than 10% of our holdings of either bond category. Education bonds and water and sewer utility bonds represented 53% and 27%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2018. Many of the issuers of the special revenue bonds we held at June 30, 2018 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at June 30, 2018 are similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities at December 31, 2017 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	71,736	$	804	$	547	$	71,993
Obligations of states and political subdivisions		137,581		11,162		112		148,631
Corporate securities		108,025		2,860		731		110,154
Mortgage-backed securities		49,313		516		157		49,672
Totals	$	366,655	$	15,342	$	1,547	$	380,450

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	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,759	$	20	$	730	$	44,049
Obligations of states and political subdivisions		128,478		3,942		303		132,117
Corporate securities		105,254		1,011		526		105,739
Mortgage-backed securities		259,923		445		3,327		257,041
Totals	$	538,414	$	5,418	$	4,886	$	538,946

At December 31, 2017, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $190.7 million and an amortized cost of $181.4 million. Our holdings at December 31, 2017 also included special revenue bonds with an aggregate fair value of $90.0 million and an amortized cost of $84.7 million. With respect to both categories of those bonds at December 31, 2017, we held no securities of any issuer that comprised more than 10% of that category. Education bonds and water and sewer utility bonds represented 53% and 26%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2017. Many of the issuers of the special revenue bonds we held at December 31, 2017 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

We made reclassifications from available for sale to held to maturity of certain fixed maturities at fair value on November 30, 2013. We segregated within accumulated other comprehensive loss the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassifications. We are amortizing this balance over the remaining life of the related securities as an adjustment to yield in a manner consistent with the accretion of discount on the same fixed maturities. We recorded amortization of $575,107 and $604,812 in other comprehensive (loss) income during the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, net unrealized losses of $9.3 million and $9.8 million, respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2018 by contractual maturity. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	8,764	$	8,755
Due after one year through five years		70,693		70,905
Due after five years through ten years		129,890		129,018
Due after ten years		131,959		135,050
Mortgage-backed securities		44,516		43,805
Total held to maturity	$	385,822	$	387,533
Available for sale
Due in one year or less	$	52,789	$	53,178
Due after one year through five years		86,597		85,532
Due after five years through ten years		105,649		103,585
Due after ten years		17,745		18,024
Mortgage-backed securities		267,944		259,660
Total available for sale	$	530,724	$	519,979

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The cost and estimated fair values of our equity securities at June 30, 2018 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	48,013	$	7,107	$	1,518	$	53,602

The cost and estimated fair values of our equity securities at December 31, 2017 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	44,219	$	6,505	$	279	$	50,445

Gross realized gains and losses from investments before applicable income taxes for the three and six months ended June 30, 2018 and 2017 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	12	$	45	$	12	$	50
Equity securities		2,125		1,085		3,270		3,629
		2,137		1,130		3,282		3,679
Gross realized losses:
Fixed maturities		1		30		45		30
Equity securities		619		3		2,638		3
		620		33		2,683		33
Net realized gains	$	1,517	$	1,097	$	599	$	3,646

We recognized $2.1 million of gains and $2.6 million of losses on equity securities held at June 30, 2018 in net realized investment gains for the six months ended June 30, 2018.

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2018 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	65,937	$	1,040	$	37,132	$	1,883
Obligations of states and political subdivisions		39,855		739		15,042		652
Corporate securities		166,767		4,644		31,547		2,018
Mortgage-backed securities		157,372		3,607		130,521		5,521
Totals	$	429,931	$	10,030	$	214,242	$	10,074

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We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2017 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	24,024	$	287	$	33,987	$	990
Obligations of states and political subdivisions		10,223		120		14,127		295
Corporate securities		35,204		253		31,561		1,004
Mortgage-backed securities		100,534		817		124,062		2,667
Equity securities		4,292		279		—		—
Totals	$	174,277	$	1,756	$	203,737	$	4,956

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we measure investments at fair value and, beginning January 1, 2018, we recognize changes in fair value in our results of operations. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred with respect to that security. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, issuer or geographic events that have negatively impacted the value of a security and rating agency downgrades. We held 523 debt securities that were in an unrealized loss position at June 30, 2018. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments.

Our investment in affiliate represents our 48.2% ownership interest in DFSC. We account for our investment in DFSC using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of DFSC’s earnings and losses as well as changes in the equity of DFSC due to unrealized gains and losses. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017, respectively, from the financial statements of DFSC. The financial information of DFSC at June 30, 2018 and 2017 and for the three and six months then ended is unaudited.

	June 30, 2018		December 31, 2017
	(in thousands)
Balance sheets:
Total assets	$	560,519	$	567,935
Total liabilities	$	478,652	$	487,604
Stockholders’ equity		81,867		80,331
Total liabilities and stockholders’ equity	$	560,519	$	567,935

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	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Income statements:
Net income	$	1,634	$	802	$	2,945	$	1,285

6 - Segment Information

We evaluate the performance of our personal lines and commercial lines segments based upon the underwriting results of our insurance subsidiaries using statutory accounting principles (“SAP”) that various state insurance departments prescribe or permit. Our management uses SAP to measure the performance of our insurance subsidiaries instead of United States generally accepted accounting principles (“GAAP”). SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because they include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude.

Financial data by segment for the three and six months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended June 30,
	2018			2017
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	84,552		$	79,094
Personal lines		101,162			95,921
Premiums earned		185,714			175,015
Net investment income		6,342			5,650
Realized investment gains		1,517			1,097
Equity in earnings of DFSC		788			387
Other		1,429			1,432
Total revenues	$	195,790		$	183,581
Loss before income tax benefit:
Underwriting income (loss):
Commercial lines	$	150		$	3,340
Personal lines		(12,881	)		(17,407	)
SAP underwriting loss		(12,731	)		(14,067	)
GAAP adjustments		2,406			2,904
GAAP underwriting loss		(10,325	)		(11,163	)
Net investment income		6,342			5,650
Realized investment gains		1,517			1,097
Equity in earnings of DFSC		788			387
Other		345			633
Loss before income tax benefit	$	(1,333	)	$	(3,396	)

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	Six Months Ended June 30,
	2018			2017
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	166,778		$	155,713
Personal lines		200,701			188,458
Premiums earned		367,479			344,171
Net investment income		12,721			11,405
Realized investment gains		599			3,646
Equity in earnings of DFSC		1,420			620
Other		2,899			2,710
Total revenues	$	385,118		$	362,552
(Loss) income before income tax (benefit) expense:
Underwriting (loss) income:
Commercial lines	$	(20,060	)	$	3,672
Personal lines		(30,148	)		(22,897	)
SAP underwriting loss		(50,208	)		(19,225	)
GAAP adjustments		4,775			5,779
GAAP underwriting loss		(45,433	)		(13,446	)
Net investment income		12,721			11,405
Realized investment gains		599			3,646
Equity in earnings of DFSC		1,420			620
Other		825			1,103
(Loss) income before income tax (benefit) expense	$	(29,868	)	$	3,328

7 - Borrowings

Lines of Credit

In July 2018, we renewed our existing credit agreement with Manufacturers and Traders Trust Company (“M&T”) relating to a $60.0 million unsecured revolving line of credit. The line of credit expires in July 2021. We have the right to request a one-year extension of the credit agreement as of each anniversary date of the credit agreement. At June 30, 2018, we had $25.0 million in outstanding borrowings from M&T and had the ability to borrow an additional $35.0 million at interest rates equal to M&T’s current prime rate or the then current LIBOR rate plus 2.25%. The interest rate on our outstanding borrowings from M&T is adjustable quarterly, and, at June 30, 2018, that interest rate was 4.34%. We pay a fee of 0.25% per annum on the loan commitment amount regardless of usage. The credit agreement requires our compliance with certain covenants. These covenants include minimum levels of our net worth, leverage ratio, statutory surplus and the A.M. Best ratings of our insurance subsidiaries. With the exception of a requirement that we maintain a minimum interest coverage ratio, we complied with all requirements of the credit agreement during the six months ended June 30, 2018. M&T waived the minimum interest coverage ratio requirement at June 30, 2018.

Atlantic States is a member of the FHLB of Pittsburgh. Through its membership, Atlantic States has the ability to issue debt to the FHLB of Pittsburgh in exchange for cash advances. Atlantic States had $35.0 million in outstanding advances at June 30, 2018. The interest rate on the advances was 2.32% at June 30, 2018. The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at June 30, 2018.

FHLB of Pittsburgh stock purchased and owned	$	1,631,800
Collateral pledged, at par (carrying value $42,213,270)		43,026,818
Borrowing capacity currently available		5,201,388

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MICO is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis. During the second quarter of 2018, MICO terminated its line of credit with the FHLB of Indianapolis.

Subordinated Debentures

Donegal Mutual holds a $5.0 million surplus note that MICO issued to increase MICO’s statutory surplus. The surplus note carries an interest rate of 5.00%, and any repayment of principal or payment of interest on the surplus note requires prior approval of the Michigan Department of Insurance and Financial Services.

8 - Share–Based Compensation

We measure all share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of related compensation expense in our results of operations. In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

We charged compensation expense related to our stock compensation plans against income before income taxes of $521,689 and $602,380 for the three months ended June 30, 2018 and 2017, respectively, with a corresponding income tax benefit of $109,555 and $210,833, respectively. We charged compensation expense related to our stock compensation plans against income before income taxes of $1.0 million and $1.2 million for the six months ended June 30, 2018 and 2017, respectively, with a corresponding income tax benefit of $218,897 and $420,068, respectively. At June 30, 2018, we had $1.8 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans that we expect to recognize over a weighted average period of approximately 1.6 years.

We did not receive any cash from option exercises under all stock compensation plans during the three months ended June 30, 2018. We received cash from option exercises under all stock compensation plans during the three months ended June 30, 2017 of $652,027. We received cash from option exercises under all stock compensation plans during the six months ended June 30, 2018 and 2017 of $478,650 and $2.2 million, respectively. We realized actual tax benefits for the tax deductions related to those option exercises of $0 and $70,822 for the three months ended June 30, 2018 and 2017, respectively. We realized actual tax benefits for the tax deductions related to those option exercises of $18,803 and $178,356 for the six months ended June 30, 2018 and 2017, respectively.

9 - Fair Value Measurements

We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:

Level 1 – quoted prices in active markets for identical assets and liabilities;

Level 2 – directly or indirectly observable inputs other than Level 1 quoted prices; and

Level 3 – unobservable inputs not corroborated by market data.

For investments that have quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy. We classify publicly-traded equity securities as Level 1. When quoted market prices in active markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services and include these investments in Level 2 of the fair value hierarchy. We classify our fixed maturity investments as Level 2. Our fixed maturity investments consist of U.S. Treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount that could be realized if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed

16

maturity and equity investments. These pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to verify that the estimates we obtain from the pricing services are representative of fair values based upon our investment personnel’s general knowledge of the market, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel regularly monitor the market, current trading ranges for similar securities and the pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, interest rates, security types and recent trading activity. Our investment personnel periodically review documentation with respect to the pricing services’ pricing methodology that they obtain to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At June 30, 2018, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at June 30, 2018, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

We present our cash and short-term investments at estimated fair value. We classify these items as Level 1.

The carrying values we report in our balance sheet for premium receivables and reinsurance receivables and payables for premiums and paid losses and loss expenses approximate their fair values. The carrying amounts we report in our balance sheets for our subordinated debentures and borrowings under lines of credit approximate their fair values. We classify these items as Level 3.

We evaluate our assets and liabilities to determine the appropriate level at which to classify them for each reporting period.

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The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at June 30, 2018:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	43,360	$	—	$	43,360	$	—
Obligations of states and political subdivisions		97,934		—		97,934		—
Corporate securities		119,025		—		119,025		—
Mortgage-backed securities		259,660		—		259,660		—
Equity securities		38,753		38,753		—		—
Total investments in the fair value hierarchy		558,732		38,753		519,979		—
Investment measured at net asset value		14,849		—		—		—
Totals	$	573,581	$	38,753	$	519,979	$	—

We did not transfer any investments between Levels 1 and 2 during the six months ended June 30, 2018.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2017:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,049	$	—	$	44,049	$	—
Obligations of states and political subdivisions		132,117		—		132,117		—
Corporate securities		105,739		—		105,739		—
Mortgage-backed securities		257,041		—		257,041		—
Equity securities		36,736		36,736		—		—
Total investments in the fair value hierarchy		575,682		36,736		538,946		—
Investment measured at net asset value		13,709		—		—		—
Totals	$	589,391	$	36,736	$	538,946	$	—

10 - Income Taxes

At June 30, 2018 and December 31, 2017, respectively, we had no material unrecognized tax benefits or accrued interest and penalties. Tax years 2014 through 2017 remained open for examination at June 30, 2018. We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of our tax assets. We established a valuation allowance of $264,467 related to a portion of the net operating loss carryforward of Le Mars at January 1, 2004 and a valuation allowance of $77.1 million for the net state operating loss carryforward of DGI. We have determined that we are not required to establish a valuation allowance for our other deferred tax assets of $28.4 million and $23.1 million at June 30, 2018 and December 31, 2017, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning strategies.

Our deferred tax assets include a net operating loss carryforward of $1.6 million related to Le Mars, which will begin to expire in 2020 if not previously utilized. This carryforward is subject to an annual limitation of approximately $376,000.

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11 - Liability for Losses and Loss Expenses

The establishment of an appropriate liability for losses and loss expenses is an inherently uncertain process, and we can provide no assurance that our insurance subsidiaries’ ultimate liability for losses and loss expenses will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods, and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimate of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

We summarize activity in our insurance subsidiaries’ liability for losses and loss expenses as follows:

	Six Months Ended June 30,
	2018			2017
	(in thousands)
Balance at January 1	$	676,672		$	606,665
Less reinsurance recoverable		(293,271	)		(259,147	)
Net balance at January 1		383,401			347,518
Incurred related to:
Current year		266,093			234,045
Prior years		26,244			8,394
Total incurred		292,337			242,439
Paid related to:
Current year		127,392			120,392
Prior years		108,521			99,224
Total paid		235,913			219,616
Net balance at end of period		439,825			370,341
Plus reinsurance recoverable		307,805			272,905
Balance at end of period	$	747,630		$	643,246

Our insurance subsidiaries recognized an increase in their liability for losses and loss expenses of prior years of $26.2 million and $8.4 million for the six months ended June 30, 2018 and 2017, respectively. Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and our insurance subsidiaries have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those periods. During the first quarter of 2018, our insurance subsidiaries received new information on previously-reported commercial automobile and personal automobile claims that led our insurance subsidiaries to conclude that their prior actuarial assumptions did not fully anticipate recent changes in severity and reporting trends. Our insurance subsidiaries have encountered increasing difficulties in projecting the ultimate severity of automobile losses over recent accident years, which our insurance subsidiaries attribute to worsening litigation trends and an increased delay in the reporting to our insurance subsidiaries of information with respect to the severity of claims. As a result, our insurance subsidiaries’ actuaries increased their projections of the ultimate cost of our insurance subsidiaries’ prior-year commercial automobile and personal automobile losses, and our insurance subsidiaries added $7.4 million to their reserves for personal automobile and $18.8 million to their reserves for commercial automobile for accident years prior to 2018. Modest adverse development related to higher-than-expected severity in the homeowners and commercial multi-peril lines of business was offset by lower-than-expected severity in the workers’ compensation line of business in accident years prior to 2018. The 2018 development represented 6.8% of the December 31, 2017 net carried reserves. The majority of the 2018 development related to increases in the liability for losses and loss expenses of prior years for Atlantic States and Southern. The 2017 development represented 2.4% of the December 31, 2016 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multi-peril and commercial automobile liability lines of business, offset by lower-than-expected severity in the workers’ compensation line of business, in accident years prior to 2017. The majority of the 2017 development related to increases in the liability for losses and loss expenses of prior years for Atlantic States and Peninsula.

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Short-duration contracts are contracts for which our insurance subsidiaries receive premiums that they recognize as revenue over the period of the contract in proportion to the amount of insurance protection our insurance subsidiaries provide. Our insurance subsidiaries consider the policies they issue to be short-duration contracts. We consider the material lines of business of our insurance subsidiaries to be personal automobile, homeowners, commercial automobile, commercial multi-peril and workers’ compensation.

Our insurance subsidiaries determine incurred but not reported (“IBNR”) reserves by subtracting the cumulative loss and loss expense amounts our insurance subsidiaries have paid and the case reserves our insurance subsidiaries have established at the balance sheet date from their actuaries’ estimate of the ultimate cost of losses and loss expenses. Accordingly, the IBNR reserves of our insurance subsidiaries include their actuaries’ projections of the cost of unreported claims as well as their actuaries’ projected development of case reserves on known claims and reopened claims. Our insurance subsidiaries’ methodology for estimating IBNR reserves has been in place for many years, and, other than the reserve strengthening actions we describe above, their actuaries made no significant changes to that methodology during the six months ended June 30, 2018.

The actuaries for our insurance subsidiaries generally prepare an initial estimate for ultimate losses and loss expenses for the current accident year by multiplying earned premium by an expected loss ratio for each line of business our insurance subsidiaries write. Expected loss ratios represent the actuaries’ expectation of losses at the time our insurance subsidiaries price and write their policies and before the emergence of any actual claims experience. The actuaries determine an expected loss ratio by analyzing historical experience and adjusting for loss cost trends, loss frequency and severity trends, premium rate level changes, reported and paid loss emergence patterns and other known or observed factors.

The actuaries use a variety of actuarial methods to estimate the ultimate cost of losses and loss expenses. These methods include paid loss development, incurred loss development and the Bornhuetter-Ferguson method. The actuaries base their selection of a point estimate on a judgmental weighting of the estimates each of these methods produce.

The actuaries consider loss frequency and severity trends when they develop expected loss ratios and point estimates. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors that affect loss frequency include changes in weather patterns and economic activity. Factors that affect loss severity include changes in policy limits, reinsurance retentions, inflation rates and judicial interpretations.

Our insurance subsidiaries create a claim file when they receive notice of an actual demand for payment, an event that may lead to a demand for payment or when they otherwise determine that a demand for payment could potentially lead to a future demand for payment on another coverage under the same policy or another policy they have issued. In recent years, our insurance subsidiaries have noted an increase in the period of time between the occurrence of a casualty loss event and the date at which they receive notice of a liability claim. Changes in the length of time between the loss occurrence date and the claim reporting date affect the actuaries’ ability to predict loss frequency accurately and the amount of IBNR reserves our insurance subsidiaries require.

Our insurance subsidiaries generally create a claim file for a policy at the claimant level by type of coverage and generally recognize one count for each claim event. In certain lines of business where it is common for multiple parties to claim damages arising from a single claim event, our insurance subsidiaries recognize one count for each claimant involved in the event. Atlantic States recognizes one count for each claim event, or claimant involved in a multiple-party claim event, related to losses Atlantic States assumes through its participation in its pooling agreement with Donegal Mutual. Our insurance subsidiaries accumulate the claim counts and report them by line of business.

12 - Impact of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. While this guidance replaced most existing GAAP revenue recognition guidance, the scope of the guidance excludes insurance contracts. The new standard was effective on January 1, 2018. The standard permits the use of either the retrospective or the cumulative effect transition method. Because the accounting for insurance contracts is outside of the scope of this standard, the adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.

In January 2016, the FASB issued guidance that generally requires entities to measure equity investments at fair value and recognize changes in fair value in their results of operations. This guidance also simplifies the impairment assessment of equity

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investments without readily determinable fair values by requiring entities to perform a qualitative assessment to identify impairment. The FASB issued other disclosure and presentation improvements related to financial instruments within the guidance. The guidance was effective for annual and interim reporting periods beginning after December 15, 2017. As a result of the adoption of this guidance on January 1, 2018, we transferred $6.2 million of net unrealized gains from accumulated other comprehensive income (“AOCI”) to retained earnings. We recognized $2.1 million of gains and $2.6 million of losses on equity securities held at June 30, 2018 in net realized investment gains for the six months ended June 30, 2018.

In February 2016, the FASB issued guidance that requires lessees to recognize leases, including operating leases, on the lessee’s balance sheet, unless a lease is considered a short-term lease. This guidance also requires entities to make new judgments to identify leases. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and permits early adoption. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

In June 2016, the FASB issued guidance that amends previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

In February 2018, the FASB issued updated guidance that allows entities to reclassify the stranded tax effects in AOCI resulting from the Tax Cuts and Jobs Act of 2017 (the “TCJA”) from AOCI to retained earnings. Current guidance requires entities to report the effect of a change in tax laws or tax rates on deferred tax balances in income from continuing operations in the accounting period that includes the period of enactment, even if the entities originally charged or credited related income tax effects directly to AOCI. If an entity elects to reclassify the stranded tax effects, the guidance requires the reclassification to include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, related to items in AOCI at the date of the enactment of TCJA. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and permits early adoption. We adopted this guidance effective on the December 22, 2017 date of the enactment of the TCJA. The adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We recommend that you read the following information in conjunction with the historical financial information and the footnotes to that financial information we include in this Quarterly Report on Form 10-Q. We also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2017.

Critical Accounting Policies and Estimates

We combine our financial statements with those of our insurance subsidiaries and present our financial statements on a consolidated basis in accordance with GAAP.

Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements. The most significant estimates relate to the reserves of our insurance subsidiaries for property and casualty insurance unpaid losses and loss expenses, the valuation of investments and the determination of other-than-temporary investment impairments and the policy acquisition costs of our insurance subsidiaries. While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts of these liabilities may differ from the estimates we provided. We regularly review our methods for making these estimates and we reflect any adjustment we consider necessary in our current results of operations.

Liability for Unpaid Losses and Loss Expenses

Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer knows at that point in time. At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during

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the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any adjustments to the liabilities for losses and loss expenses of our insurance subsidiaries in our consolidated results of operations in the period in which our insurance subsidiaries make adjustments to their estimates.

Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance subsidiaries do not discount their liabilities for losses and loss expenses.

Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations. For example, our insurance subsidiaries have encountered difficulties in projecting the ultimate severity of automobile losses over recent accident years, which we attribute to worsening litigation trends and an increased delay in the reporting of information with respect to the severity of claims to our insurance subsidiaries. These trend changes give rise to greater uncertainty as to the pattern of future loss settlements on automobile claims. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses, among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance subsidiaries make adjustments in their reserves that they consider appropriate for such changes. Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from the amount recorded at June 30, 2018. For every 1% change in our insurance subsidiaries’ estimate for loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $4.4 million.

The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimates of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

Excluding the impact of severe weather events, our insurance subsidiaries have noted stable amounts in the number of claims incurred and a slight downward trend in the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business. However, the amount of the average claim outstanding has increased over the past several years due to various factors such as rising medical loss costs and increased litigation trends. We have also experienced a general slowing of settlement rates in litigated claims. Our insurance subsidiaries could have to make further adjustments to their estimates in the future. However, on the basis of our insurance subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses.

Atlantic States’ participation in the pool with Donegal Mutual exposes Atlantic States to adverse loss development on the business of Donegal Mutual that the pool includes. However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States share proportionately any adverse risk

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development relating to the pooled business. The business in the pool is homogeneous and each company has a pro-rata share of the entire pool. Since the predominant percentage of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies.

Donegal Mutual and our insurance subsidiaries operate together as the Donegal Insurance Group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual offer are generally complementary, thereby allowing Donegal Insurance Group to offer a broader range of products to a given market and to expand Donegal Insurance Group’s ability to service an entire personal lines or commercial lines account. Distinctions within the products of Donegal Mutual and our insurance subsidiaries generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier products compared to standard tier products, but we do not allocate all of the standard risk gradients to one company. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, because the pool homogenizes the risk characteristics of the predominant percentage of the business Donegal Mutual and Atlantic States write directly and each company shares the underwriting results according to each company’s participation percentage, each company realizes its percentage share of the underwriting results of the pool.

Our insurance subsidiaries’ unpaid liability for losses and loss expenses by major line of business at June 30, 2018 and December 31, 2017 consisted of the following:

	June 30, 2018		December 31, 2017
	(in thousands)
Commercial lines:
Automobile	$	96,313	$	74,299
Workers’ compensation		108,859		103,318
Commercial multi-peril		83,515		71,011
Other		4,021		4,119
Total commercial lines		292,708		252,747
Personal lines:
Automobile		125,662		110,512
Homeowners		19,015		18,508
Other		2,440		1,634
Total personal lines		147,117		130,654
Total commercial and personal lines		439,825		383,401
Plus reinsurance recoverable		307,805		293,271
Total liability for unpaid losses and loss expenses	$	747,630	$	676,672

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We have evaluated the effect on our insurance subsidiaries’ unpaid loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we consider in establishing the loss and loss expense reserves of our insurance subsidiaries. We established the range of reasonably likely changes based on a review of changes in accident-year development by line of business and applied those changes to our insurance subsidiaries’ loss reserves as a whole. The range we selected does not necessarily indicate what could be the potential best or worst case or the most likely scenario. The following table sets forth the estimated effect on our insurance subsidiaries’ unpaid loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we considered in establishing the loss and loss expense reserves of our insurance subsidiaries:

Percentage Change in Loss and Loss Expense Reserves Net of Reinsurance	Adjusted Loss and Loss Expense Reserves Net of Reinsurance at June 30, 2018	Percentage Change in Stockholders’ Equity at June 30, 2018(1)	Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2017	Percentage Change in Stockholders’ Equity at December 31, 2017(1)
(dollars in thousands)
(10.0)%	$395,843	8.3%	$345,061	6.8%
(7.5)	406,838	6.2	354,646	5.1
(5.0)	417,834	4.1	364,231	3.4
(2.5)	428,829	2.1	373,816	1.7
Base	439,825	—	383,401	—
2.5	450,821	(2.1)	392,986	(1.7)
5.0	461,816	(4.1)	402,571	(3.4)
7.5	472,812	(6.2)	412,156	(5.1)
10.0	483,808	(8.3)	421,741	(6.8)

(1) Net of income tax effect.

Non-GAAP Information

We prepare our consolidated financial statements on the basis of GAAP. Our insurance subsidiaries also prepare financial statements based on statutory accounting principles state insurance regulators prescribe or permit (“SAP”). SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because the SAP financial measures include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude. Our calculation of non-GAAP financial measures may differ from similar measures other companies use, so investors should exercise caution when comparing our non-GAAP financial measures to the non-GAAP financial measures other companies use.

Because our insurance subsidiaries do not prepare GAAP financial statements, we evaluate the performance of our personal lines and commercial lines segments utilizing SAP financial measures that reflect the growth trends and underwriting results of our insurance subsidiaries. The SAP financial measures we utilize are net premiums written and statutory combined ratio.

Net Premiums Written

We define net premiums written as the amount of full-term premiums our insurance subsidiaries record for policies effective within a given period less premiums our insurance subsidiaries cede to reinsurers. Net premiums earned is the most comparable GAAP financial measure to net premiums written. Net premiums earned represent the sum of the amount of net premiums written and the change in net unearned premiums during a given period. Our insurance subsidiaries earn premiums and recognize them as revenue over the terms of their policies, which are one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding 12-month period compared to the comparable period one year earlier.

The following table provides a reconciliation of our net premiums earned to our net premiums written for the three and six months ended June 30, 2018 and 2017:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Net premiums earned	$	185,714	$	175,015	$	367,479	$	344,171
Change in net unearned premiums		10,235		15,757		23,726		31,102
Net premiums written	$	195,949	$	190,772	$	391,205	$	375,273

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Statutory Combined Ratio

The combined ratio is a standard measurement of underwriting profitability for an insurance company. The combined ratio does not reflect investment income, net realized investment gains or losses, federal income taxes or other non-operating income or expense. A combined ratio of less than 100% generally indicates underwriting profitability.

The statutory combined ratio is a non-GAAP financial measure that is based upon amounts determined under SAP. We calculate our statutory combined ratio as the sum of:

• the statutory loss ratio, which is the ratio of calendar-year net incurred losses and loss expenses to net premiums earned;

• the statutory expense ratio, which is the ratio of expenses incurred for net commissions, premium taxes and underwriting expenses to net premiums written; and

• the statutory dividend ratio, which is the ratio of dividends to holders of workers’ compensation policies to net premiums earned.

The calculation of our statutory combined ratio differs from the calculation of our GAAP combined ratio. In calculating our GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and we base the expense ratio on net premiums earned instead of net premiums written. Differences between our GAAP loss ratio and our statutory loss ratio result from anticipating salvage and subrogation recoveries for our GAAP loss ratio but not for our statutory loss ratio.

Combined Ratios

The following table presents comparative details with respect to our GAAP and statutory combined ratios for the three and six months ended June 30, 2018 and 2017:

	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
GAAP Combined Ratios (Total Lines)
Loss ratio (non-weather)		63.6	%		61.6	%		71.1	%		60.4	%
Loss ratio (weather-related)		9.5			11.5			8.5			10.0
Expense ratio		31.8			32.6			32.1			32.9
Dividend ratio		0.7			0.7			0.7			0.6
Combined ratio		105.6	%		106.4	%		112.4	%		103.9	%
Statutory Combined Ratios
Commercial lines:
Automobile		116.0	%		107.6	%		143.5	%		107.3	%
Workers’ compensation		92.9			87.4			88.1			84.1
Commercial multi-peril		91.2			93.4			103.8			99.5
Total commercial lines		97.5			92.8			108.5			93.6
Personal lines:
Automobile		109.7			108.9			113.8			106.8
Homeowners		113.9			122.3			112.8			114.3
Total personal lines		110.3			114.1			113.2			109.2
Total commercial and personal lines		104.5			104.5			111.0			102.1

Investments

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we measure investments at fair value and, beginning January 1, 2018, we recognize changes in fair value in our results of operations. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations. If

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we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect on the debt security. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, company or geographic events that have negatively impacted the value of a security or rating agency downgrades. We held 523 debt securities that were in an unrealized loss position at June 30, 2018. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary. We did not recognize any impairment losses in our results of operations for the six months ended June 30, 2018 or 2017.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount we could realize if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed maturity and equity investments. The pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide verify that the estimates we obtain from the pricing services are representative of fair values based upon the general market knowledge of our investment personnel, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel monitor the market and are familiar with current trading ranges for similar securities and pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, coupon rates, security types and recent trading activity. Our investment personnel review documentation with respect to the pricing services’ pricing methodology that they obtain periodically to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At June 30, 2018, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at June 30, 2018, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

Policy Acquisition Costs

Our insurance subsidiaries defer their policy acquisition costs, consisting primarily of commissions, premium taxes and certain other underwriting costs that relate directly to the successful acquisition of insurance policies. We amortize these costs over the period in which our insurance subsidiaries earn the related premiums. The method we follow in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value. This method gives effect to the premiums to be earned, related investment income, losses and loss expenses and certain other costs we expect to incur as our insurance subsidiaries earn the premiums.

Results of Operations - Three Months Ended June 30, 2018 Compared to Three Months Ended June 30, 2017

Net Premiums Earned. Our insurance subsidiaries’ net premiums earned for the second quarter of 2018 were $185.7 million, an increase of $10.7 million, or 6.1%, compared to $175.0 million for the second quarter of 2017, reflecting increases in net premiums written during 2018 and 2017.

Net Premiums Written. Our insurance subsidiaries’ net premiums written for the three months ended June 30, 2018 were $195.9 million, an increase of $5.1 million, or 2.7%, from the $190.8 million of net premiums written for the second quarter of 2017. We attribute the increase primarily to the impact of premium rate increases and an increase in the writing of new accounts in commercial lines of business. Personal lines net premiums written increased $272,000, or 0.3%, for the second quarter of 2018 compared to the second quarter of 2017. We attribute the increase in personal lines primarily to premium rate increases our insurance subsidiaries implemented throughout 2017 and 2018, partially offset by net attrition as a result of underwriting measures our insurance subsidiaries implemented to slow new policy growth and to increase pricing on renewal policies. Commercial lines net premiums written increased $4.9 million, or 5.8%, for the second quarter of 2018 compared to the second quarter of 2017. We attribute the increase in commercial lines primarily to premium rate increases throughout 2017 and 2018 and increased writings of new commercial accounts.

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Investment Income. Our net investment income increased to $6.3 million for the second quarter of 2018, compared to $5.6 million for the second quarter of 2017. We attribute the increase primarily to an increase in average invested assets.

Net Realized Investment Gains. Net realized investment gains for the second quarter of 2018 were $1.5 million, compared to $1.1 million for the second quarter of 2017. The net realized investment gains for the second quarters of 2018 and 2017 resulted primarily from unrealized gains within our equity securities portfolio and a limited partnership that invests in equity securities. New accounting guidance we adopted on January 1, 2018 requires us to measure equity investments at fair value and recognize changes in fair value in our results of operations. We did not recognize any impairment losses in our investment portfolio during the second quarters of 2018 or 2017.

Equity in Earnings of DFSC. Our equity in the earnings of DFSC was $787,856 for the second quarter of 2018, compared to $386,615 for the second quarter of 2017. We attribute the increase in DFSC’s earnings primarily to higher net interest income related to loan portfolio growth that DFSC achieved during 2017.

Losses and Loss Expenses. Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, was 73.1% for both the second quarters of 2018 and 2017. On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 66.1% for the second quarter of 2018, compared to 62.1% for the second quarter of 2017, primarily due to increases in the commercial automobile and workers’ compensation loss ratios. The personal lines statutory loss ratio of our insurance subsidiaries decreased to 79.2% for the second quarter of 2018, compared to 81.8% for the second quarter of 2017. We attribute this decrease primarily to a decrease in the homeowners loss ratio. Our insurance subsidiaries experienced favorable loss reserve development of approximately $500,000 during the second quarter of 2018. Our insurance subsidiaries experienced unfavorable loss reserve development of approximately $5.8 million during the second quarter of 2017.

Underwriting Expenses. The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was 31.8% for the second quarter of 2018, compared to 32.6% for the second quarter of 2017. We attribute the decrease to lower underwriting-based incentives for the second quarter of 2018 compared to the second quarter of 2017, partially offset by a $1.9 million restructuring charge in the second quarter of 2018 for employee termination costs associated with the consolidation of certain operations and closing of the branch office of Peninsula. We expect to achieve annualized expense savings of approximately $3.7 million as a result of implementing the Peninsula consolidation.

Combined Ratio. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratios were 105.6% and 106.4% for the three months ended June 30, 2018 and 2017, respectively. We attribute the decrease in the combined ratio to a decrease in the expense ratio for the second quarter of 2018 compared to the second quarter of 2017.

Interest Expense. Our interest expense for the second quarter of 2018 was $566,284, compared to $382,958 for the second quarter of 2017. We attribute the increase to higher interest rates in effect during the second quarter of 2018 compared to the second quarter of 2017.

Income Taxes. We recorded an income tax benefit of $543,191 for the second quarter of 2018 based upon an estimated carryback of our taxable loss in 2018 to prior tax years. We recorded an income tax benefit of $1.1 million for the second quarter of 2017, which represented an estimate based on our projected annual taxable income.

Net Loss and Loss Per Share. Our net loss for the second quarter of 2018 was $789,855, or $.03 per share of Class A common stock and $.03 per share of Class B common stock, compared to a net loss of $2.3 million, or $.08 per share of Class A common stock and $.08 per share of Class B common stock, for the second quarter of 2017. We had 22.7 million and 21.7 million Class A shares outstanding at June 30, 2018 and 2017, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.

Results of Operations - Six Months Ended June 30, 2018 Compared to Six Months Ended June 30, 2017

Net Premiums Earned. Our insurance subsidiaries’ net premiums earned for the first half of 2018 were $367.5 million, an increase of $23.3 million, or 6.8%, compared to $344.2 million for the first quarter of 2017, reflecting increases in net premiums written during 2018 and 2017.

27

Net Premiums Written. Our insurance subsidiaries’ net premiums written for the six months ended June 30, 2018 were $391.2 million, an increase of $15.9 million, or 4.2%, from the $375.3 million of net premiums written for the first half of 2017. We attribute the increase primarily to the impact of premium rate increases and an increase in the writing of new accounts in commercial lines of business. Personal lines net premiums written increased $4.9 million, or 2.5%, for the first half of 2018 compared to the first half of 2017. We attribute the increase in personal lines primarily to premium rate increases our insurance subsidiaries implemented throughout 2017 and 2018, partially offset by net attrition as a result of underwriting measures our insurance subsidiaries implemented to slow new policy growth and to increase pricing on renewal policies. Commercial lines net premiums written increased $11.0 million, or 6.2%, for the first half of 2018 compared to the first half of 2017. We attribute the increase in commercial lines primarily to premium rate increases throughout 2017 and 2018 and increased writings of new commercial accounts.

Investment Income. Our net investment income increased to $12.7 million for the first half of 2018, compared to $11.4 million for the first half of 2017. We attribute the increase primarily to an increase in average invested assets.

Net Realized Investment Gains. Net realized investment gains for the first half of 2018 were $598,971, compared to $3.6 million for the first half of 2017. The net realized investment gains for the first half of 2018 resulted primarily from net unrealized gains within our equity securities portfolio and a limited partnership that invests in equity securities. New accounting guidance we adopted on January 1, 2018 requires us to measure equity investments at fair value and recognize changes in fair value in our results of operations. The net realized investment gains for the first half of 2017 resulted primarily from strategic sales of equity securities within our investment portfolio and unrealized gains within a limited partnership that invests in equity securities. We did not recognize any impairment losses in our investment portfolio during the first half of 2018 or 2017.

Equity in Earnings of DFSC. Our equity in the earnings of DFSC was $1.4 million for the first half of 2018, compared to $619,565 for the first half of 2017. We attribute the increase in DFSC’s earnings primarily to higher net interest income related to loan portfolio growth that DFSC achieved during 2017.

Losses and Loss Expenses. Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, for the first half of 2018 was 79.6%, an increase from our insurance subsidiaries’ loss ratio of 70.4% for the first half of 2017. On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 77.5% for the first half of 2018, compared to 62.7% for the first half of 2017, primarily due to increases in the commercial automobile loss ratio. The personal lines statutory loss ratio of our insurance subsidiaries increased to 81.8% for the first half of 2018, compared to 76.8% for the first half of 2017. We attribute this increase primarily to an increase in the personal automobile loss ratio. In the first half of 2018, our insurance subsidiaries added $7.4 million to their loss reserves for personal automobile and $18.8 million to their loss reserves for commercial automobile for accident years prior to 2018 based on new information they received during the first half of 2018. Our insurance subsidiaries experienced unfavorable loss reserve development of approximately $8.4 million during the first half of 2017.

Underwriting Expenses. The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was 32.1% for the first half of 2018, compared to 32.9% for the first half of 2017. We attribute the decrease to lower underwriting-based incentives for the first half of 2018 compared to the first half of 2017, partially offset by a $1.9 million restructuring charge in the second quarter of 2018 for employee termination costs associated with the consolidation of certain operations and closing of the branch office of Peninsula. We expect to achieve annualized expense savings of approximately $3.7 million as a result of implementing the Peninsula consolidation.

Combined Ratio. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratios were 112.4% and 103.9% for the six months ended June 30, 2018 and 2017, respectively. We attribute the increase in the combined ratio to an increase in the loss ratio for the first half of 2018 compared to the first half of 2017.

Interest Expense. Our interest expense for the first half of 2018 was $1.0 million, compared to $746,633 for the first half of 2017. We attribute the increase to higher interest rates in effect during the first half of 2018 compared to the first half of 2017.

Income Taxes. We recorded an income tax benefit of $10.9 million for the first half of 2018 based upon an estimated carryback of our taxable loss in 2018 to prior tax years. We recorded income tax expense of $542,190 for the first half of 2017, representing an effective tax rate of 16.3% . The income tax expense and effective tax rate for the first half of 2017 represented an estimate based on our projected annual taxable income.

28

Net (Loss) Income and (Loss) Earnings Per Share. Our net loss for the first half of 2018 was $19.0 million, or $.68 per share of Class A common stock and $.63 per share of Class B common stock, compared to net income of $2.8 million, or $.10 per share of Class A common stock on a diluted basis and $.09 per share of Class B common stock, for the first half of 2017. We had 22.7 million and 21.7 million Class A shares outstanding at June 30, 2018 and 2017, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.

Liquidity and Capital Resources

Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as such obligations and needs arise. Our major sources of funds from operations are the net cash flows we generate from our insurance subsidiaries’ underwriting results, investment income and investment maturities.

Our operations have historically generated sufficient net positive cash flow to fund our commitments and add to our investment portfolio, thereby increasing future investment returns and enhancing our liquidity. The impact of the pooling agreement between Donegal Mutual and Atlantic States has historically been cash-flow positive because of the consistent underwriting profitability of the pool. Donegal Mutual and Atlantic States settle their respective obligations to each other under the pool monthly, thereby resulting in cash flows substantially similar to the cash flows that would result from each company writing the business directly. We have not experienced any unusual variations in the timing of claim payments associated with the loss reserves of our insurance subsidiaries. We maintain significant liquidity in our investment portfolio in the form of readily marketable fixed maturities, equity securities and short-term investments. We structure our fixed-maturity investment portfolio following a “laddering” approach, so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective, thereby providing an additional measure of liquidity to meet our obligations should an unexpected variation occur in the future. Our operating activities provided net cash flows in the first six months of 2018 and 2017 of $36.1 million and $44.4 million, respectively.

At June 30, 2018, we had $25.0 million in outstanding borrowings under our line of credit with M&T and had the ability to borrow an additional $35.0 million at interest rates equal to M&T’s current prime rate or the then current LIBOR rate plus 2.25%. The interest rate on these borrowings was 4.34% at June 30, 2018. At June 30, 2018, Atlantic States had $35.0 million in outstanding advances with the FHLB of Pittsburgh. The interest rate on these advances was 2.32% at June 30, 2018.

The following table shows our expected payments for significant contractual obligations at June 30, 2018:

	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
	(in thousands)
Net liability for unpaid losses and loss expenses of our insurance subsidiaries	$	439,825	$	204,073	$	205,273	$	15,317	$	15,162
Subordinated debentures		5,000		—		—		—		5,000
Borrowings under lines of credit		60,000		35,000		25,000		—		—
Total contractual obligations	$	504,825	$	239,073	$	230,273	$	15,317	$	20,162

We estimate the date of payment for the net liability for unpaid losses and loss expenses of our insurance subsidiaries based on historical experience and expectations of future payment patterns. We show the liability net of reinsurance recoverable on unpaid losses and loss expenses to reflect expected future cash flows related to such liability. Amounts Atlantic States assumes pursuant to the pooling agreement with Donegal Mutual represent a substantial portion of our insurance subsidiaries’ gross liability for unpaid losses and loss expenses, and amounts Atlantic States cedes pursuant to the pooling agreement represent a substantial portion of our insurance subsidiaries’ reinsurance recoverable on unpaid losses and loss expenses. We include cash settlement of Atlantic States’ assumed liability from the pool in monthly settlements of pooled activity, as we net amounts ceded to and assumed from the pool. Although Donegal Mutual and we do not anticipate any changes in the pool participation levels in the foreseeable future, any such change would be prospective in nature and therefore would not impact the timing of expected payments by Atlantic States for its percentage share of pooled losses occurring in periods prior to the effective date of such change.

29

We discuss in Note 7 – Borrowings our estimate of the timing of the amounts payable for the borrowings under our lines of credit based on their contractual maturities. The borrowings under our lines of credit carry interest rates that vary as we discuss in Note 7 – Borrowings. With the exception of a requirement that we maintain a minimum interest coverage ratio, we complied with all requirements of the credit agreement during the six months ended June 30, 2018. M&T waived the minimum interest coverage ratio requirement at June 30, 2018. Based upon the interest rates in effect at June 30, 2018, our annual interest cost associated with the borrowings under our lines of credit is approximately $2.0 million. For every 1% change in the interest rate associated with the borrowings under our lines of credit, the effect on our annual interest cost would be approximately $600,000.

We discuss in Note 7 – Borrowings our estimate of the timing of the amounts payable for the subordinated debentures based on their contractual maturity. The subordinated debentures carry an interest rate of 5%, and any repayment of principal or payment of interest on the subordinated debentures requires prior approval of the Michigan Department of Insurance and Financial Services. Our annual interest cost associated with the subordinated debentures is $250,000.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the six months ended June 30, 2018 or 2017. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2018.

On July 19, 2018, our board of directors declared quarterly cash dividends of 14.25 cents per share of our Class A common stock and 12.50 cents per share of our Class B common stock, payable on August 15, 2018 to our stockholders of record as of the close of business on August 1, 2018. We are not subject to any restrictions on our payment of dividends to our stockholders, although there are state law restrictions on the payment of dividends by our insurance subsidiaries to us. Dividends from our insurance subsidiaries are our principal source of cash for payment of dividends to our stockholders. Our insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval of their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk based capital (“RBC”) requirements that limit their ability to pay dividends to us. Our insurance subsidiaries’ statutory capital and surplus at December 31, 2017 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin. Our insurance subsidiaries paid $2.0 million in dividends to us during the first six months of 2018. Amounts remaining available for distribution to us as dividends from our insurance subsidiaries without prior approval of their domiciliary insurance regulatory authorities in 2018 are $20.3 million from Atlantic States, $5.5 million from Southern, $2.3 million from Le Mars, $1.6 million from Peninsula, $0 from Sheboygan and $5.3 million from MICO, or a total of approximately $35.0 million.

At June 30, 2018, we had no material commitments for capital expenditures.

Equity Price Risk

Our portfolio of marketable equity securities, which we carry on our consolidated balance sheets at estimated fair value, has exposure to the risk of loss resulting from an adverse change in prices. We manage this risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of equity securities.

Credit Risk

Our portfolio of fixed-maturity securities and, to a lesser extent, our portfolio of short-term investments is subject to credit risk, which we define as the potential loss in market value resulting from adverse changes in the borrower’s ability to repay its debt. We manage this risk by having our investment personnel perform an analysis of prospective investments and regular reviews of our portfolio of fixed-maturity securities. We also limit the percentage and amount of our total investment portfolio that we invest in the securities of any one issuer.

Our insurance subsidiaries provide property and casualty insurance coverages through independent insurance agencies. We bill the majority of this business directly to the insured, although we bill a portion of our commercial business through licensed insurance agents to whom our insurance subsidiaries extend credit in the normal course of business.

Because the pooling agreement does not relieve Atlantic States of primary liability as the originating insurer, Atlantic States is subject to a concentration of credit risk arising from the business it cedes to Donegal Mutual. Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers.

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Impact of Inflation

We establish property and casualty insurance premium rates before we know the amount of unpaid losses and loss expenses or the extent to which inflation may impact such losses and expenses. Consequently, our insurance subsidiaries attempt, in establishing rates, to anticipate the potential impact of inflation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our market risk generally represents the risk of gain or loss that may result from the potential change in the fair value of the securities we hold in our investment portfolio as a result of fluctuations in prices and interest rates and, to a lesser extent, our debt obligations. We manage our interest rate risk by maintaining an appropriate relationship between the average duration of our investment portfolio and the approximate duration of our liabilities, i.e., policy claims of our insurance subsidiaries and our debt obligations.

There have been no material changes to our quantitative or qualitative market risk exposure from December 31, 2017 through June 30, 2018.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on such evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, at June 30, 2018, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information we are required to disclose in the reports that we file or submit under the Exchange Act, and our disclosure controls and procedures were also effective to ensure that information we disclose in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to affect materially, our internal control over financial reporting.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

We base all statements contained in this Quarterly Report on Form 10-Q that are not historic facts on our current expectations. Such statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and necessarily involve risks and uncertainties. Forward-looking statements we make may be identified by our use of words such as “will,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “seeks,” “estimates” and similar expressions. Our actual results could vary materially from our forward-looking statements. The factors that could cause our actual results to vary materially from the forward-looking statements we have previously made include, but are not limited to, adverse and catastrophic weather events, our ability to maintain profitable operations, the adequacy of the loss and loss expense reserves of our insurance subsidiaries, business and economic conditions in the areas in which we and our insurance subsidiaries operate, interest rates, competition from various insurance and other financial businesses, terrorism, the availability and cost of reinsurance, legal and judicial developments, changes in regulatory requirements, our ability to integrate and manage successfully the companies we may acquire from time to time and the other risks that we describe from time to time in our filings with the SEC. We disclaim any obligation to update such statements or to announce publicly the results of any revisions that we may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

31

Part II. Other Information

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Our business, results of operations and financial condition, and, therefore, the value of our Class A common stock and our Class B common stock, are subject to a number of risks. For a description of certain risks, we refer to “Risk Factors” in our 2017 Annual Report on Form 10-K that we filed with the SEC on March 9, 2018. There have been no material changes in the risk factors we disclosed in that Form 10-K Report during the six months ended June 30, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Removed and Reserved.

Item 5. Other Information.

None.

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Item 6. Exhibits.

Exhibit No.	Description
Exhibit 31.1	Certification of Chief Executive Officer
Exhibit 31.2	Certification of Chief Financial Officer
Exhibit 32.1	Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code
Exhibit 32.2	Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
Exhibit 101.PRE	XBRL Taxonomy Presentation Linkbase Document
Exhibit 101.CAL	XBRL Taxonomy Calculation Linkbase Document
Exhibit 101.LAB	XBRL Taxonomy Label Linkbase Document
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

33

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DONEGAL GROUP INC.
August 8, 2018	By:	/s/ Kevin G. Burke
		Kevin G. Burke, President and Chief Executive Officer
August 8, 2018	By:	/s/ Jeffrey D. Miller
		Jeffrey D. Miller, Executive Vice President and Chief Financial Officer

34

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Kevin G. Burke, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2018 of Donegal Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2018	/s/ Kevin G. Burke
	Kevin G. Burke, President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, Jeffrey D. Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended June 30, 2018 of Donegal Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 8, 2018	/s/ Jeffrey D. Miller
	Jeffrey D. Miller, Executive Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1

Statement of President

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code, I, Kevin G. Burke, the President and Chief Executive Officer of Donegal Group Inc. (the “Company”), hereby certify that, to the best of my knowledge:

1. The Company’s Form 10-Q Quarterly Report for the period ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2018	/s/ Kevin G. Burke
	Kevin G. Burke, President and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

Statement of Chief Financial Officer

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code, I, Jeffrey D. Miller, the Executive Vice President and Chief Financial Officer of Donegal Group Inc. (the “Company”), hereby certify that, to the best of my knowledge:

1. The Company’s Form 10-Q Quarterly Report for the period ended June 30, 2018 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2018	/s/ Jeffrey D. Miller
	Jeffrey D. Miller, Executive Vice President and Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Jul. 31, 2018
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Trading Symbol	DGICA
Entity Registrant Name	DONEGAL GROUP INC
Entity Central Index Key	0000800457
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Class A Common Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		22,715,297
Class B Common Stock [Member]
Document Information [Line Items]
Entity Common Stock, Shares Outstanding		5,576,775

XML

Consolidated Balance Sheets - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Fixed maturities
Held to maturity, at amortized cost	$ 385,822,214	$ 366,655,077
Available for sale, at fair value	519,978,816	538,946,050
Equity securities, at fair value	53,602,292	50,445,243
Investment in affiliate	39,451,155	38,773,420
Short-term investments, at cost, which approximates fair value	11,786,690	11,049,915
Total investments	1,010,641,167	1,005,869,705
Cash	53,652,098	37,833,435
Accrued investment income	6,786,068	6,553,121
Premiums receivable	169,220,824	160,406,432
Reinsurance receivable	311,644,891	298,342,563
Deferred policy acquisition costs	64,609,371	60,289,860
Deferred tax asset, net	9,511,006	7,128,843
Prepaid reinsurance premiums	143,726,591	135,032,641
Property and equipment, net	7,124,373	7,280,415
Accounts receivable - securities	1,009,002	180,525
Federal income taxes receivable	19,621,927	10,935,105
Goodwill	5,625,354	5,625,354
Other intangible assets	958,010	958,010
Other	1,208,290	1,483,769
Total assets	1,805,338,972	1,737,919,778
Liabilities
Unpaid losses and loss expenses	747,630,145	676,671,727
Unearned premiums	535,877,264	503,456,541
Accrued expenses	24,120,390	28,033,776
Reinsurance balances payable	6,389,945	4,116,159
Borrowings under lines of credit	60,000,000	59,000,000
Cash dividends declared to stockholders		3,841,820
Subordinated debentures	5,000,000	5,000,000
Accounts payable - securities	1,514,083
Due to affiliate	3,488,051	7,314,368
Other	1,649,055	1,789,283
Total liabilities	1,385,668,933	1,289,223,674
Stockholders' Equity
Preferred stock, $.01 par value, authorized 2,000,000 shares; none issued
Additional paid-in capital	258,665,915	255,401,558
Accumulated other comprehensive loss	(16,666,961)	(2,684,275)
Retained earnings	218,584,057	236,893,041
Treasury stock, at cost	(41,226,357)	(41,226,357)
Total stockholders' equity	419,670,039	448,696,104
Total liabilities and stockholders' equity	1,805,338,972	1,737,919,778
Class A Common Stock [Member]
Stockholders' Equity
Common stock value	256,893	255,645
Total stockholders' equity	256,893	255,645
Class B Common Stock [Member]
Stockholders' Equity
Common stock value	56,492	56,492
Total stockholders' equity	$ 56,492	$ 56,492

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Consolidated Balance Sheets (Parenthetical) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Class A Common Stock [Member]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	25,689,249	25,564,481
Common stock, shares outstanding	22,686,661	22,561,893
Class B Common Stock [Member]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	5,649,240	5,649,240
Common stock, shares outstanding	5,576,775	5,576,775

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Consolidated Statements of Income - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenues:
Net premiums earned	$ 185,714,110	$ 175,014,872	$ 367,478,690	$ 344,171,019
Investment income, net of investment expenses	6,342,152	5,649,870	12,720,521	11,405,269
Net realized investment gains	1,517,310	1,097,306	598,971	3,646,281
Lease income	122,403	127,924	245,996	269,774
Installment payment fees	1,306,197	1,304,129	2,654,158	2,439,771
Equity in earnings of Donegal Financial Services Corporation	787,856	386,615	1,419,970	619,565
Total revenues	195,790,028	183,580,716	385,118,306	362,551,679
Expenses:
Net losses and loss expenses	135,753,645	128,005,914	292,336,913	242,439,372
Amortization of deferred policy acquisition costs	30,579,000	28,700,000	60,244,000	56,383,000
Other underwriting expenses	28,492,434	28,259,223	57,815,072	56,748,504
Policyholder dividends	1,213,588	1,212,292	2,515,771	2,046,557
Interest	566,284	382,958	1,030,432	746,633
Other expenses	518,123	416,798	1,044,335	859,253
Total expenses	197,123,074	186,977,185	414,986,523	359,223,319
(Loss) income before income tax (benefit) expense	(1,333,046)	(3,396,469)	(29,868,217)	3,328,360
Income tax (benefit) expense	(543,191)	(1,077,821)	(10,900,284)	542,190
Net (loss) income	$ (789,855)	$ (2,318,648)	$ (18,967,933)	$ 2,786,170
Class A Common Stock [Member]
(Loss) earnings per common share:
Common stock - basic	$ (0.03)	$ (0.09)	$ (0.68)	$ 0.11
Common stock - diluted	(0.03)	(0.08)	(0.68)	0.10
Class B Common Stock [Member]
(Loss) earnings per common share:
Common stock - basic	(0.03)	(0.08)	(0.63)	0.09
Common stock - diluted	(0.03)	(0.08)	(0.63)	0.09
Common stock - basic and diluted	$ (0.03)	$ (0.08)	$ (0.63)	$ 0.09

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Consolidated Statements of Income (Parenthetical) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Net realized investment gains	$ 1,517,310	$ 1,097,306	$ 598,971	$ 3,646,281
Income tax (benefit) expense	(543,191)	(1,077,821)	(10,900,284)	542,190
Reclassification out of Accumulated Other Comprehensive Income [Member]
Net realized investment gains	12,247	1,097,306	(32,316)	3,646,281
Income tax (benefit) expense	$ 2,572	$ 384,057	$ (6,786)	$ 1,276,198

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Consolidated Statements of Comprehensive Income - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
Net (loss) income	$ (789,855)	$ (2,318,648)	$ (18,967,933)	$ 2,786,170
Unrealized (loss) gain on securities:
Unrealized holding (loss) gain during the period, net of income tax (benefit) expense	(2,451,371)	1,069,259	(9,089,561)	3,072,872
Reclassification adjustment for losses (gains) included in net (loss) income, net of income tax (benefit) expense	(9,675)	(713,249)	25,530	(2,370,083)
Other comprehensive (loss) income	(2,461,046)	356,010	(9,064,031)	702,789
Comprehensive (loss) income	$ (3,250,901)	$ (1,962,638)	$ (28,031,964)	$ 3,488,959

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Consolidated Statements of Comprehensive Income (Parenthetical) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
Income tax (benefit) expense on unrealized holding (loss) gain during the period	$ (651,633)	$ 575,754	$ (2,416,212)	$ 1,654,622
Income tax (benefit) expense on reclassification adjustment for losses (gains)	$ 2,572	$ 384,057	$ (6,786)	$ 1,276,198

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Consolidated Statement of Stockholders' Equity - 6 months ended Jun. 30, 2018 - USD ($)	Total	Additional Paid-In Capital [Member]	Accumulated Other Comprehensive Loss [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Class A Common Stock [Member]	Class B Common Stock [Member]
Beginning balance at Dec. 31, 2017	$ 448,696,104	$ 255,401,558	$ (2,684,275)	$ 236,893,041	$ (41,226,357)	$ 255,645	$ 56,492
Beginning balance, shares at Dec. 31, 2017						25,564,481	5,649,240
Issuance of common stock	1,383,383	1,382,457				$ 926
Issuance of common stock, shares						92,592
Share-based compensation	1,561,122	1,560,800				$ 322
Share-based compensation, shares						32,176
Net (loss) income	(18,967,933)			(18,967,933)
Cash dividends declared	(3,938,606)			(3,938,606)
Grant of stock options		321,100		(321,100)
Reclassification of equity unrealized gains			(4,918,655)	4,918,655
Other comprehensive (loss) income	(9,064,031)		(9,064,031)
Ending balance at Jun. 30, 2018	$ 419,670,039	$ 258,665,915	$ (16,666,961)	$ 218,584,057	$ (41,226,357)	$ 256,893	$ 56,492
Ending balance, shares at Jun. 30, 2018						25,689,249	5,649,240

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Consolidated Statements of Cash Flows - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Cash Flows from Operating Activities:
Net (loss) income	$ (18,967,933)	$ 2,786,170
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation, amortization and other non-cash items	3,093,372	3,399,601
Net realized investment gains	(598,971)	(3,646,281)
Equity in earnings of Donegal Financial Services Corporation	(1,419,970)	(619,565)
Changes in assets and liabilities:
Losses and loss expenses	70,958,418	36,581,540
Unearned premiums	32,420,723	43,782,809
Premiums receivable	(8,814,392)	(11,588,811)
Deferred acquisition costs	(4,319,511)	(4,769,882)
Deferred income taxes	27,263	(481,330)
Reinsurance receivable	(13,302,328)	(14,146,449)
Prepaid reinsurance premiums	(8,693,950)	(12,681,228)
Accrued investment income	(232,947)	81,101
Due to affiliate	(3,826,317)	11,781,859
Reinsurance balances payable	2,273,786	1,917,069
Current income taxes	(8,686,822)	(2,038,231)
Accrued expenses	(3,913,386)	(5,810,390)
Other, net	135,249	(141,602)
Net adjustments	55,100,217	41,620,210
Net cash provided by operating activities	36,132,284	44,406,380
Cash Flows from Investing Activities:
Purchases of fixed maturities, held to maturity	(26,231,784)	(30,889,730)
Purchases of fixed maturities, available for sale	(49,700,116)	(42,607,193)
Purchases of equity securities, available for sale	(4,344,974)	(6,888,091)
Maturity of fixed maturities:
Held to maturity	7,143,696	10,695,775
Available for sale	56,797,178	42,557,614
Sales of fixed maturities, available for sale	208,817	3,373,785
Sales of equity securities, available for sale	1,819,212	10,782,859
Net purchases of property and equipment	(107,440)	(302,622)
Net purchases of short-term investments	(736,775)	(22,781,308)
Net cash used in investing activities	(15,152,186)	(36,058,911)
Cash Flows from Financing Activities:
Cash dividends paid	(7,780,426)	(7,351,660)
Issuance of common stock	1,618,991	3,257,905
Borrowings under line of credit	1,000,000
Net cash used in financing activities	(5,161,435)	(4,093,755)
Net increase in cash	15,818,663	4,253,714
Cash at beginning of period	37,833,435	24,587,214
Cash at end of period	53,652,098	28,840,928
Cash paid during period - Interest	$ 557,521	616,562
Net cash paid during period - Taxes		$ 3,050,000

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Organization

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization

1 - Organization

Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26, 1986. Our insurance subsidiaries, Atlantic States Insurance Company (“Atlantic States”), Southern Insurance Company of Virginia (“Southern”), Le Mars Insurance Company (“Le Mars”), the Peninsula Insurance Group (“Peninsula”), which consists of Peninsula Indemnity Company and The Peninsula Insurance Company, Sheboygan Falls Insurance Company (“Sheboygan”) and Michigan Insurance Company (“MICO”), write personal and commercial lines of property and casualty coverages exclusively through independent insurance agents in certain Mid-Atlantic, Midwestern, New England and Southern states. We also own 48.2% of the outstanding stock of Donegal Financial Services Corporation (“DFSC”), a grandfathered unitary savings and loan holding company that owns Union Community Bank (“UCB”), a state savings bank. Donegal Mutual owns the remaining 51.8% of the outstanding stock of DFSC.

We have four segments: our investment function, our personal lines of insurance, our commercial lines of insurance and our investment in DFSC. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.

At June 30, 2018, Donegal Mutual held approximately 43% of our outstanding Class A common stock and approximately 84% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately 72% of the total voting power of our common stock. Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions. While each company maintains its separate corporate existence, Donegal Mutual and our insurance subsidiaries conduct business together as the Donegal Insurance Group. As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the same types of insurance products.

Atlantic States, our largest subsidiary, participates in a pooling agreement with Donegal Mutual. Under the pooling agreement, the two companies pool their insurance business and each company receives an allocated percentage of the pooled business. Atlantic States has an 80% share of the results of the pooled business, and Donegal Mutual has a 20% share of the results of the pooled business.

The same executive management and underwriting personnel administer products, classes of business underwritten, pricing practices and underwriting standards of Donegal Mutual and our insurance subsidiaries. In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual market are generally complementary, thereby allowing the Donegal Insurance Group to offer a broader range of products to a given market and to expand the Donegal Insurance Group’s ability to service entire personal lines or commercial lines accounts. Distinctions within the products Donegal Mutual and our insurance subsidiaries offer relate generally to specific risk profiles targeted within similar classes of business, such as preferred tier products versus standard tier products, but we do not allocate all of the standard risk gradients to any specific company within the Donegal Insurance Group. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, because the risk characteristics of all business Donegal Mutual and Atlantic States write directly are homogenized within the underwriting pool, Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the underwriting pool.

Donegal Mutual completed the merger of Mountain States Mutual Casualty Company (“Mountain States”) with and into Donegal Mutual effective May 25, 2017. Donegal Mutual was the surviving company in the merger, and Mountain States’ insurance subsidiaries, Mountain States Indemnity Company and Mountain States Commercial Insurance Company, became insurance subsidiaries of Donegal Mutual upon completion of the merger. Upon completion of the merger, Donegal Mutual assumed all of the policy obligations of Mountain States and began to market its products together with those of its insurance subsidiaries as the Mountain States Insurance Group in four Southwestern states. For an indefinite period of time, Donegal Mutual will exclude the business of the Mountain States Insurance Group from the pooling agreement with Atlantic States. As a result, our consolidated financial results exclude the results of Donegal Mutual’s operations in those Southwestern states.

On April 3, 2018, we announced plans to consolidate the branch office operations of Peninsula into our home office operations effective July 2, 2018 to achieve economies of scale and enhance service levels for policyholders of Peninsula. We recorded a restructuring charge for employee termination costs associated with the Peninsula consolidation of approximately $1.9 million.

On June 11, 2018, we and Donegal Mutual entered into an agreement to sell DFSC and UCB to Northwest Bancshares, Inc. (“Northwest”) for approximately $85.0 million in a combination of cash and Northwest common stock. Immediately prior to the closing of the merger, DFSC will pay a dividend of approximately $30.0 million to us and Donegal Mutual. As the owner of 48.2% of DFSC’s common stock, we will receive a dividend payment from DFSC of approximately $14.5 million and consideration from Northwest that will range in value from $38.9 million to $43.0 million. Subject to receipt of various regulatory approvals and satisfaction of other customary closing conditions, we anticipate that the merger will close during the first quarter of 2019.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the Securities and Exchange Commission (“SEC”) and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the six months ended June 30, 2018 or 2017. We have purchased a total of 57,658 shares of our Class A common stock under this program from its inception through June 30, 2018.

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Basis of Presentation

6 Months Ended

Jun. 30, 2018

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

2 - Basis of Presentation

Our financial information for the interim periods included in this Form 10-Q Report is unaudited; however, our financial information we include in this Form 10-Q Report reflects all adjustments, consisting only of normal recurring adjustments that, in the opinion of our management, are necessary for a fair presentation of our financial position, results of operations and cash flows for those interim periods. Our results of operations for the six months ended June 30, 2018 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2018.

We recommend you read the interim financial statements we include in this Form 10-Q Report in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2017.

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Earnings Per Share

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Earnings Per Share

3 - Earnings Per Share

We have two classes of common stock, which we refer to as our Class A common stock and our Class B common stock. Our certificate of incorporation provides that whenever our board of directors declares a dividend on our Class B common stock, our board of directors shall simultaneously declare a dividend on our Class A common stock that is payable to the holders of our Class A common stock at the same time and as of the same record date at a rate that is at least 10% greater than the rate at which our board of directors declared a dividend on our Class B common stock. Accordingly, we use the two-class method to compute our earnings per common share. The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed earnings using a participation percentage that reflects the dividend rights of each class. The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for our Class A common stock and our Class B common stock:

	Three Months Ended June 30,
	2018						2017
	Class A			Class B			Class A			Class B
	(in thousands, except per share data)
Basic loss per share:
Numerator:
Allocation of net loss	$	(625	)	$	(165	)	$	(1,858	)	$	(461	)
Denominator:
Weighted-average shares outstanding		22,686			5,577			21,705			5,577
Basic loss per share	$	(0.03	)	$	(0.03	)	$	(0.09	)	$	(0.08	)
Diluted loss per share:
Numerator:
Allocation of net loss	$	(625	)	$	(165	)	$	(1,858	)	$	(461	)
Denominator:
Number of shares used in basic computation		22,686			5,577			21,705			5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		—			—			792			—
Number of shares used in diluted computation		22,686			5,577			22,497			5,577
Diluted loss per share	$	(0.03	)	$	(0.03	)	$	(0.08	)	$	(0.08	)

	Six Months Ended June 30,
	2018						2017
	Class A			Class B			Class A		Class B
	(in thousands, except per share data)
Basic (loss) earnings per share:
Numerator:
Allocation of net (loss) income	$	(15,476	)	$	(3,492	)	$	2,282	$	504
Denominator:
Weighted-average shares outstanding		22,651			5,577			21,625		5,577
Basic (loss) earnings per share	$	(0.68	)	$	(0.63	)	$	0.11	$	0.09
Diluted (loss) earnings per share:
Numerator:
Allocation of net (loss) income	$	(15,476	)	$	(3,492	)	$	2,282	$	504
Denominator:
Number of shares used in basic computation		22,651			5,577			21,625		5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		—			—			937		—
Number of shares used in diluted computation		22,651			5,577			22,562		5,577
Diluted (loss) earnings per share	$	(0.68	)	$	(0.63	)	$	0.10	$	0.09

We did not include any effect of dilutive securities in the computation of diluted earnings per share for the three and six months ended June 30, 2018 because we sustained net losses for these periods.

We did not include outstanding options to purchase 1,388,400 shares of Class A common stock in our computation of diluted earnings per share for the three and six months ended June 30, 2017 because the exercise price of the options exceeded the average market price of our Class A common stock during the applicable periods.

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Reinsurance

6 Months Ended

Jun. 30, 2018

Insurance [Abstract]

Reinsurance

4 - Reinsurance

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which they pool substantially all of their direct premiums written, and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement. Atlantic States has an 80% share of the results of the pool, and Donegal Mutual has a 20% share of the results of the pool.

Our insurance subsidiaries and Donegal Mutual purchase certain third-party reinsurance on a combined basis. Le Mars, MICO, Peninsula and Sheboygan also separately purchase third-party reinsurance that provides that insurance subsidiary with reinsurance coverage that we believe is commensurate with its respective size and risk exposures. Our insurance subsidiaries use several different reinsurers, all of which have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- rating from A.M. Best. The following information describes the external reinsurance our insurance subsidiaries have in place for 2018:

• excess of loss reinsurance, under which Donegal Mutual and our insurance subsidiaries recover, through a series of reinsurance agreements, losses over a set retention (generally $1.0 million), and

• catastrophe reinsurance, under which Donegal Mutual and our insurance subsidiaries recover, through a series of reinsurance agreements, 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention (generally $5.0 million) and after exceeding an annual aggregate deductible (generally $5.0 million) up to aggregate losses of $170.0 million per occurrence.

Our insurance subsidiaries and Donegal Mutual also purchase facultative reinsurance to cover exposures in excess of the covered limits of their third-party reinsurance agreements.

In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries have various reinsurance agreements with Donegal Mutual.

Effective March 1, 2018, Donegal Mutual and certain of our insurance subsidiaries modified their third-party reinsurance coverage related to umbrella liability policies to increase the maximum loss retention of Donegal Mutual and our insurance subsidiaries from $250,000 to $1.0 million. Donegal Mutual and certain of our insurance subsidiaries also made various adjustments to the terms of their intercompany catastrophe reinsurance agreements effective January 1, 2018. We have made no other significant changes to our third-party reinsurance or the reinsurance agreements between our insurance subsidiaries and Donegal Mutual during the six months ended June 30, 2018.

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Investments

6 Months Ended

Jun. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Investments

5 - Investments

The amortized cost and estimated fair values of our fixed maturities at June 30, 2018 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	72,936	$	40	$	1,529	$	71,447
Obligations of states and political subdivisions		149,759		8,092		795		157,056
Corporate securities		118,611		360		3,746		115,225
Mortgage-backed securities		44,516		51		762		43,805
Totals	$	385,822	$	8,543	$	6,832	$	387,533

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,748	$	6	$	1,394	$	43,360
Obligations of states and political subdivisions		96,256		2,274		596		97,934
Corporate securities		121,776		165		2,916		119,025
Mortgage-backed securities		267,944		82		8,366		259,660
Totals	$	530,724	$	2,527	$	13,272	$	519,979

At June 30, 2018, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $172.2 million and an amortized cost of $166.5 million. Our holdings at June 30, 2018 also included special revenue bonds with an aggregate fair value of $82.8 million and an amortized cost of $79.5 million. With respect to both categories of those bonds at June 30, 2018, we held no securities of any issuer that comprised more than 10% of our holdings of either bond category. Education bonds and water and sewer utility bonds represented 53% and 27%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at June 30, 2018. Many of the issuers of the special revenue bonds we held at June 30, 2018 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held at June 30, 2018 are similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities at December 31, 2017 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	71,736	$	804	$	547	$	71,993
Obligations of states and political subdivisions		137,581		11,162		112		148,631
Corporate securities		108,025		2,860		731		110,154
Mortgage-backed securities		49,313		516		157		49,672
Totals	$	366,655	$	15,342	$	1,547	$	380,450

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,759	$	20	$	730	$	44,049
Obligations of states and political subdivisions		128,478		3,942		303		132,117
Corporate securities		105,254		1,011		526		105,739
Mortgage-backed securities		259,923		445		3,327		257,041
Totals	$	538,414	$	5,418	$	4,886	$	538,946

At December 31, 2017, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $190.7 million and an amortized cost of $181.4 million. Our holdings at December 31, 2017 also included special revenue bonds with an aggregate fair value of $90.0 million and an amortized cost of $84.7 million. With respect to both categories of those bonds at December 31, 2017, we held no securities of any issuer that comprised more than 10% of that category. Education bonds and water and sewer utility bonds represented 53% and 26%, respectively, of our total investments in special revenue bonds based on their carrying values at December 31, 2017. Many of the issuers of the special revenue bonds we held at December 31, 2017 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

We made reclassifications from available for sale to held to maturity of certain fixed maturities at fair value on November 30, 2013. We segregated within accumulated other comprehensive loss the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassifications. We are amortizing this balance over the remaining life of the related securities as an adjustment to yield in a manner consistent with the accretion of discount on the same fixed maturities. We recorded amortization of $575,107 and $604,812 in other comprehensive (loss) income during the six months ended June 30, 2018 and 2017, respectively. At June 30, 2018 and December 31, 2017, net unrealized losses of $9.3 million and $9.8 million, respectively, remained within accumulated other comprehensive loss.

We show below the amortized cost and estimated fair value of our fixed maturities at June 30, 2018 by contractual maturity. Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	8,764	$	8,755
Due after one year through five years		70,693		70,905
Due after five years through ten years		129,890		129,018
Due after ten years		131,959		135,050
Mortgage-backed securities		44,516		43,805
Total held to maturity	$	385,822	$	387,533
Available for sale
Due in one year or less	$	52,789	$	53,178
Due after one year through five years		86,597		85,532
Due after five years through ten years		105,649		103,585
Due after ten years		17,745		18,024
Mortgage-backed securities		267,944		259,660
Total available for sale	$	530,724	$	519,979

The cost and estimated fair values of our equity securities at June 30, 2018 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	48,013	$	7,107	$	1,518	$	53,602

The cost and estimated fair values of our equity securities at December 31, 2017 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	44,219	$	6,505	$	279	$	50,445

Gross realized gains and losses from investments before applicable income taxes for the three and six months ended June 30, 2018 and 2017 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	12	$	45	$	12	$	50
Equity securities		2,125		1,085		3,270		3,629
		2,137		1,130		3,282		3,679
Gross realized losses:
Fixed maturities		1		30		45		30
Equity securities		619		3		2,638		3
		620		33		2,683		33
Net realized gains	$	1,517	$	1,097	$	599	$	3,646

We recognized $2.1 million of gains and $2.6 million of losses on equity securities held at June 30, 2018 in net realized investment gains for the six months ended June 30, 2018.

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2018 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	65,937	$	1,040	$	37,132	$	1,883
Obligations of states and political subdivisions		39,855		739		15,042		652
Corporate securities		166,767		4,644		31,547		2,018
Mortgage-backed securities		157,372		3,607		130,521		5,521
Totals	$	429,931	$	10,030	$	214,242	$	10,074

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2017 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	24,024	$	287	$	33,987	$	990
Obligations of states and political subdivisions		10,223		120		14,127		295
Corporate securities		35,204		253		31,561		1,004
Mortgage-backed securities		100,534		817		124,062		2,667
Equity securities		4,292		279		—		—
Totals	$	174,277	$	1,756	$	203,737	$	4,956

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we measure investments at fair value and, beginning January 1, 2018, we recognize changes in fair value in our results of operations. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize the impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred with respect to that security. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, issuer or geographic events that have negatively impacted the value of a security and rating agency downgrades. We held 523 debt securities that were in an unrealized loss position at June 30, 2018. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments.

Our investment in affiliate represents our 48.2% ownership interest in DFSC. We account for our investment in DFSC using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of DFSC’s earnings and losses as well as changes in the equity of DFSC due to unrealized gains and losses. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017, respectively, from the financial statements of DFSC. The financial information of DFSC at June 30, 2018 and 2017 and for the three and six months then ended is unaudited.

	June 30, 2018		December 31, 2017
	(in thousands)
Balance sheets:
Total assets	$	560,519	$	567,935
Total liabilities	$	478,652	$	487,604
Stockholders’ equity		81,867		80,331
Total liabilities and stockholders’ equity	$	560,519	$	567,935

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Income statements:
Net income	$	1,634	$	802	$	2,945	$	1,285

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Segment Information

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Segment Information

6 - Segment Information

We evaluate the performance of our personal lines and commercial lines segments based upon the underwriting results of our insurance subsidiaries using statutory accounting principles (“SAP”) that various state insurance departments prescribe or permit. Our management uses SAP to measure the performance of our insurance subsidiaries instead of United States generally accepted accounting principles (“GAAP”). SAP financial measures are considered non-GAAP financial measures under applicable SEC rules because they include or exclude certain items that the most comparable GAAP financial measures do not ordinarily include or exclude.

Financial data by segment for the three and six months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended June 30,
	2018			2017
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	84,552		$	79,094
Personal lines		101,162			95,921
Premiums earned		185,714			175,015
Net investment income		6,342			5,650
Realized investment gains		1,517			1,097
Equity in earnings of DFSC		788			387
Other		1,429			1,432
Total revenues	$	195,790		$	183,581
Loss before income tax benefit:
Underwriting income (loss):
Commercial lines	$	150		$	3,340
Personal lines		(12,881	)		(17,407	)
SAP underwriting loss		(12,731	)		(14,067	)
GAAP adjustments		2,406			2,904
GAAP underwriting loss		(10,325	)		(11,163	)
Net investment income		6,342			5,650
Realized investment gains		1,517			1,097
Equity in earnings of DFSC		788			387
Other		345			633
Loss before income tax benefit	$	(1,333	)	$	(3,396	)

	Six Months Ended June 30,
	2018			2017
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	166,778		$	155,713
Personal lines		200,701			188,458
Premiums earned		367,479			344,171
Net investment income		12,721			11,405
Realized investment gains		599			3,646
Equity in earnings of DFSC		1,420			620
Other		2,899			2,710
Total revenues	$	385,118		$	362,552
(Loss) income before income tax (benefit) expense:
Underwriting (loss) income:
Commercial lines	$	(20,060	)	$	3,672
Personal lines		(30,148	)		(22,897	)
SAP underwriting loss		(50,208	)		(19,225	)
GAAP adjustments		4,775			5,779
GAAP underwriting loss		(45,433	)		(13,446	)
Net investment income		12,721			11,405
Realized investment gains		599			3,646
Equity in earnings of DFSC		1,420			620
Other		825			1,103
(Loss) income before income tax (benefit) expense	$	(29,868	)	$	3,328

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Borrowings

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Borrowings

7 - Borrowings

Lines of Credit

In July 2018, we renewed our existing credit agreement with Manufacturers and Traders Trust Company (“M&T”) relating to a $60.0 million unsecured revolving line of credit. The line of credit expires in July 2021. We have the right to request a one-year extension of the credit agreement as of each anniversary date of the credit agreement. At June 30, 2018, we had $25.0 million in outstanding borrowings from M&T and had the ability to borrow an additional $35.0 million at interest rates equal to M&T’s current prime rate or the then current LIBOR rate plus 2.25%. The interest rate on our outstanding borrowings from M&T is adjustable quarterly, and, at June 30, 2018, that interest rate was 4.34%. We pay a fee of 0.25% per annum on the loan commitment amount regardless of usage. The credit agreement requires our compliance with certain covenants. These covenants include minimum levels of our net worth, leverage ratio, statutory surplus and the A.M. Best ratings of our insurance subsidiaries. With the exception of a requirement that we maintain a minimum interest coverage ratio, we complied with all requirements of the credit agreement during the six months ended June 30, 2018. M&T waived the minimum interest coverage ratio requirement at June 30, 2018.

Atlantic States is a member of the FHLB of Pittsburgh. Through its membership, Atlantic States has the ability to issue debt to the FHLB of Pittsburgh in exchange for cash advances. Atlantic States had $35.0 million in outstanding advances at June 30, 2018. The interest rate on the advances was 2.32% at June 30, 2018. The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at June 30, 2018.

FHLB of Pittsburgh stock purchased and owned	$	1,631,800
Collateral pledged, at par (carrying value $42,213,270)		43,026,818
Borrowing capacity currently available		5,201,388

MICO is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis. During the second quarter of 2018, MICO terminated its line of credit with the FHLB of Indianapolis.

Subordinated Debentures

Donegal Mutual holds a $5.0 million surplus note that MICO issued to increase MICO’s statutory surplus. The surplus note carries an interest rate of 5.00%, and any repayment of principal or payment of interest on the surplus note requires prior approval of the Michigan Department of Insurance and Financial Services.

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Share-Based Compensation

6 Months Ended

Jun. 30, 2018

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

8 - Share–Based Compensation

We measure all share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of related compensation expense in our results of operations. In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

We charged compensation expense related to our stock compensation plans against income before income taxes of $521,689 and $602,380 for the three months ended June 30, 2018 and 2017, respectively, with a corresponding income tax benefit of $109,555 and $210,833, respectively. We charged compensation expense related to our stock compensation plans against income before income taxes of $1.0 million and $1.2 million for the six months ended June 30, 2018 and 2017, respectively, with a corresponding income tax benefit of $218,897 and $420,068, respectively. At June 30, 2018, we had $1.8 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans that we expect to recognize over a weighted average period of approximately 1.6 years.

We did not receive any cash from option exercises under all stock compensation plans during the three months ended June 30, 2018. We received cash from option exercises under all stock compensation plans during the three months ended June 30, 2017 of $652,027. We received cash from option exercises under all stock compensation plans during the six months ended June 30, 2018 and 2017 of $478,650 and $2.2 million, respectively. We realized actual tax benefits for the tax deductions related to those option exercises of $0 and $70,822 for the three months ended June 30, 2018 and 2017, respectively. We realized actual tax benefits for the tax deductions related to those option exercises of $18,803 and $178,356 for the six months ended June 30, 2018 and 2017, respectively.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements

9 - Fair Value Measurements

We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:

Level 1 – quoted prices in active markets for identical assets and liabilities;

Level 2 – directly or indirectly observable inputs other than Level 1 quoted prices; and

Level 3 – unobservable inputs not corroborated by market data.

For investments that have quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy. We classify publicly-traded equity securities as Level 1. When quoted market prices in active markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services and include these investments in Level 2 of the fair value hierarchy. We classify our fixed maturity investments as Level 2. Our fixed maturity investments consist of U.S. Treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount that could be realized if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed

maturity and equity investments. These pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to verify that the estimates we obtain from the pricing services are representative of fair values based upon our investment personnel’s general knowledge of the market, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel regularly monitor the market, current trading ranges for similar securities and the pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, interest rates, security types and recent trading activity. Our investment personnel periodically review documentation with respect to the pricing services’ pricing methodology that they obtain to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At June 30, 2018, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at June 30, 2018, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

We present our cash and short-term investments at estimated fair value. We classify these items as Level 1.

The carrying values we report in our balance sheet for premium receivables and reinsurance receivables and payables for premiums and paid losses and loss expenses approximate their fair values. The carrying amounts we report in our balance sheets for our subordinated debentures and borrowings under lines of credit approximate their fair values. We classify these items as Level 3.

We evaluate our assets and liabilities to determine the appropriate level at which to classify them for each reporting period.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at June 30, 2018:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	43,360	$	—	$	43,360	$	—
Obligations of states and political subdivisions		97,934		—		97,934		—
Corporate securities		119,025		—		119,025		—
Mortgage-backed securities		259,660		—		259,660		—
Equity securities		38,753		38,753		—		—
Total investments in the fair value hierarchy		558,732		38,753		519,979		—
Investment measured at net asset value		14,849		—		—		—
Totals	$	573,581	$	38,753	$	519,979	$	—

We did not transfer any investments between Levels 1 and 2 during the six months ended June 30, 2018.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2017:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,049	$	—	$	44,049	$	—
Obligations of states and political subdivisions		132,117		—		132,117		—
Corporate securities		105,739		—		105,739		—
Mortgage-backed securities		257,041		—		257,041		—
Equity securities		36,736		36,736		—		—
Total investments in the fair value hierarchy		575,682		36,736		538,946		—
Investment measured at net asset value		13,709		—		—		—
Totals	$	589,391	$	36,736	$	538,946	$	—

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Income Taxes

6 Months Ended

Jun. 30, 2018

Income Tax Disclosure [Abstract]

Income Taxes

10 - Income Taxes

At June 30, 2018 and December 31, 2017, respectively, we had no material unrecognized tax benefits or accrued interest and penalties. Tax years 2014 through 2017 remained open for examination at June 30, 2018. We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of our tax assets. We established a valuation allowance of $264,467 related to a portion of the net operating loss carryforward of Le Mars at January 1, 2004 and a valuation allowance of $77.1 million for the net state operating loss carryforward of DGI. We have determined that we are not required to establish a valuation allowance for our other deferred tax assets of $28.4 million and $23.1 million at June 30, 2018 and December 31, 2017, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning strategies.

Our deferred tax assets include a net operating loss carryforward of $1.6 million related to Le Mars, which will begin to expire in 2020 if not previously utilized. This carryforward is subject to an annual limitation of approximately $376,000.

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Liability for Losses and Loss Expenses

6 Months Ended

Jun. 30, 2018

Text Block [Abstract]

Liability for Losses and Loss Expenses

11 - Liability for Losses and Loss Expenses

The establishment of an appropriate liability for losses and loss expenses is an inherently uncertain process, and we can provide no assurance that our insurance subsidiaries’ ultimate liability for losses and loss expenses will not exceed their loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, because the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods, and, in other periods, their estimated future liabilities for losses and loss expenses have exceeded their actual liabilities for losses and loss expenses. Changes in our insurance subsidiaries’ estimate of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received subsequent to the prior reporting period.

We summarize activity in our insurance subsidiaries’ liability for losses and loss expenses as follows:

	Six Months Ended June 30,
	2018			2017
	(in thousands)
Balance at January 1	$	676,672		$	606,665
Less reinsurance recoverable		(293,271	)		(259,147	)
Net balance at January 1		383,401			347,518
Incurred related to:
Current year		266,093			234,045
Prior years		26,244			8,394
Total incurred		292,337			242,439
Paid related to:
Current year		127,392			120,392
Prior years		108,521			99,224
Total paid		235,913			219,616
Net balance at end of period		439,825			370,341
Plus reinsurance recoverable		307,805			272,905
Balance at end of period	$	747,630		$	643,246

Our insurance subsidiaries recognized an increase in their liability for losses and loss expenses of prior years of $26.2 million and $8.4 million for the six months ended June 30, 2018 and 2017, respectively. Our insurance subsidiaries made no significant changes in their reserving philosophy or claims management personnel, and our insurance subsidiaries have made no significant offsetting changes in estimates that increased or decreased their loss and loss expense reserves in those periods. During the first quarter of 2018, our insurance subsidiaries received new information on previously-reported commercial automobile and personal automobile claims that led our insurance subsidiaries to conclude that their prior actuarial assumptions did not fully anticipate recent changes in severity and reporting trends. Our insurance subsidiaries have encountered increasing difficulties in projecting the ultimate severity of automobile losses over recent accident years, which our insurance subsidiaries attribute to worsening litigation trends and an increased delay in the reporting to our insurance subsidiaries of information with respect to the severity of claims. As a result, our insurance subsidiaries’ actuaries increased their projections of the ultimate cost of our insurance subsidiaries’ prior-year commercial automobile and personal automobile losses, and our insurance subsidiaries added $7.4 million to their reserves for personal automobile and $18.8 million to their reserves for commercial automobile for accident years prior to 2018. Modest adverse development related to higher-than-expected severity in the homeowners and commercial multi-peril lines of business was offset by lower-than-expected severity in the workers’ compensation line of business in accident years prior to 2018. The 2018 development represented 6.8% of the December 31, 2017 net carried reserves. The majority of the 2018 development related to increases in the liability for losses and loss expenses of prior years for Atlantic States and Southern. The 2017 development represented 2.4% of the December 31, 2016 net carried reserves and resulted primarily from higher-than-expected severity in the commercial multi-peril and commercial automobile liabilitylines of business, offset by lower-than-expected severity in the workers’ compensation line of business, in accident years prior to 2017. The majority of the 2017 development related to increases in the liability for losses and loss expenses of prior years for Atlantic States and Peninsula.

Short-duration contracts are contracts for which our insurance subsidiaries receive premiums that they recognize as revenue over the period of the contract in proportion to the amount of insurance protection our insurance subsidiaries provide. Our insurance subsidiaries consider the policies they issue to be short-duration contracts. We consider the material lines of business of our insurance subsidiaries to be personal automobile, homeowners, commercial automobile, commercial multi-peril and workers’ compensation.

Our insurance subsidiaries determine incurred but not reported (“IBNR”) reserves by subtracting the cumulative loss and loss expense amounts our insurance subsidiaries have paid and the case reserves our insurance subsidiaries have established at the balance sheet date from their actuaries’ estimate of the ultimate cost of losses and loss expenses. Accordingly, the IBNR reserves of our insurance subsidiaries include their actuaries’ projections of the cost of unreported claims as well as their actuaries’ projected development of case reserves on known claims and reopened claims. Our insurance subsidiaries’ methodology for estimating IBNR reserves has been in place for many years, and, other than the reserve strengthening actions we describe above, their actuaries made no significant changes to that methodology during the six months ended June 30, 2018.

The actuaries for our insurance subsidiaries generally prepare an initial estimate for ultimate losses and loss expenses for the current accident year by multiplying earned premium by an expected loss ratio for each line of business our insurance subsidiaries write. Expected loss ratios represent the actuaries’ expectation of losses at the time our insurance subsidiaries price and write their policies and before the emergence of any actual claims experience. The actuaries determine an expected loss ratio by analyzing historical experience and adjusting for loss cost trends, loss frequency and severity trends, premium rate level changes, reported and paid loss emergence patterns and other known or observed factors.

The actuaries use a variety of actuarial methods to estimate the ultimate cost of losses and loss expenses. These methods include paid loss development, incurred loss development and the Bornhuetter-Ferguson method. The actuaries base their selection of a point estimate on a judgmental weighting of the estimates each of these methods produce.

The actuaries consider loss frequency and severity trends when they develop expected loss ratios and point estimates. Loss frequency is a measure of the number of claims per unit of insured exposure, and loss severity is a measure of the average size of claims. Factors that affect loss frequency include changes in weather patterns and economic activity. Factors that affect loss severity include changes in policy limits, reinsurance retentions, inflation rates and judicial interpretations.

Our insurance subsidiaries create a claim file when they receive notice of an actual demand for payment, an event that may lead to a demand for payment or when they otherwise determine that a demand for payment could potentially lead to a future demand for payment on another coverage under the same policy or another policy they have issued. In recent years, our insurance subsidiaries have noted an increase in the period of time between the occurrence of a casualty loss event and the date at which they receive notice of a liability claim. Changes in the length of time between the loss occurrence date and the claim reporting date affect the actuaries’ ability to predict loss frequency accurately and the amount of IBNR reserves our insurance subsidiaries require.

Our insurance subsidiaries generally create a claim file for a policy at the claimant level by type of coverage and generally recognize one count for each claim event. In certain lines of business where it is common for multiple parties to claim damages arising from a single claim event, our insurance subsidiaries recognize one count for each claimant involved in the event. Atlantic States recognizes one count for each claim event, or claimant involved in a multiple-party claim event, related to losses Atlantic States assumes through its participation in its pooling agreement with Donegal Mutual. Our insurance subsidiaries accumulate the claim counts and report them by line of business.

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Impact of New Accounting Standards

6 Months Ended

Jun. 30, 2018

Accounting Changes and Error Corrections [Abstract]

Impact of New Accounting Standards

12 - Impact of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. While this guidance replaced most existing GAAP revenue recognition guidance, the scope of the guidance excludes insurance contracts. The new standard was effective on January 1, 2018. The standard permits the use of either the retrospective or the cumulative effect transition method. Because the accounting for insurance contracts is outside of the scope of this standard, the adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.

In January 2016, the FASB issued guidance that generally requires entities to measure equity investments at fair value and recognize changes in fair value in their results of operations. This guidance also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring entities to perform a qualitative assessment to identify impairment. The FASB issued other disclosure and presentation improvements related to financial instruments within the guidance. The guidance was effective for annual and interim reporting periods beginning after December 15, 2017. As a result of the adoption of this guidance on January 1, 2018, we transferred $6.2 million of net unrealized gains from accumulated other comprehensive income (“AOCI”) to retained earnings. We recognized $2.1 million of gains and $2.6 million of losses on equity securities held at June 30, 2018 in net realized investment gains for the six months ended June 30, 2018.

In February 2016, the FASB issued guidance that requires lessees to recognize leases, including operating leases, on the lessee’s balance sheet, unless a lease is considered a short-term lease. This guidance also requires entities to make new judgments to identify leases. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and permits early adoption. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

In June 2016, the FASB issued guidance that amends previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

In February 2018, the FASB issued updated guidance that allows entities to reclassify the stranded tax effects in AOCI resulting from the Tax Cuts and Jobs Act of 2017 (the “TCJA”) from AOCI to retained earnings. Current guidance requires entities to report the effect of a change in tax laws or tax rates on deferred tax balances in income from continuing operations in the accounting period that includes the period of enactment, even if the entities originally charged or credited related income tax effects directly to AOCI. If an entity elects to reclassify the stranded tax effects, the guidance requires the reclassification to include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, related to items in AOCI at the date of the enactment of TCJA. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and permits early adoption. We adopted this guidance effective on the December 22, 2017 date of the enactment of the TCJA. The adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.

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Impact of New Accounting Standards (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Changes and Error Corrections [Abstract]

Impact of New Accounting Standards

In May 2014, the Financial Accounting Standards Board (the “FASB”) issued guidance that requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. While this guidance replaced most existing GAAP revenue recognition guidance, the scope of the guidance excludes insurance contracts. The new standard was effective on January 1, 2018. The standard permits the use of either the retrospective or the cumulative effect transition method. Because the accounting for insurance contracts is outside of the scope of this standard, the adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.

In January 2016, the FASB issued guidance that generally requires entities to measure equity investments at fair value and recognize changes in fair value in their results of operations. This guidance also simplifies the impairment assessment of equity investments without readily determinable fair values by requiring entities to perform a qualitative assessment to identify impairment. The FASB issued other disclosure and presentation improvements related to financial instruments within the guidance. The guidance was effective for annual and interim reporting periods beginning after December 15, 2017. As a result of the adoption of this guidance on January 1, 2018, we transferred $6.2 million of net unrealized gains from accumulated other comprehensive income (“AOCI”) to retained earnings. We recognized $2.1 million of gains and $2.6 million of losses on equity securities held at June 30, 2018 in net realized investment gains for the six months ended June 30, 2018.

In February 2016, the FASB issued guidance that requires lessees to recognize leases, including operating leases, on the lessee’s balance sheet, unless a lease is considered a short-term lease. This guidance also requires entities to make new judgments to identify leases. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and permits early adoption. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

In June 2016, the FASB issued guidance that amends previous guidance on the impairment of financial instruments by adding an impairment model that requires an entity to recognize expected credit losses as an allowance rather than impairments as credit losses are incurred. The intent of this guidance is to reduce complexity and result in a more timely recognition of expected credit losses. The guidance is effective for annual and interim reporting periods beginning after December 15, 2019. We do not expect the adoption of this guidance to have a significant impact on our financial position, results of operations or cash flows.

In February 2018, the FASB issued updated guidance that allows entities to reclassify the stranded tax effects in AOCI resulting from the Tax Cuts and Jobs Act of 2017 (the “TCJA”) from AOCI to retained earnings. Current guidance requires entities to report the effect of a change in tax laws or tax rates on deferred tax balances in income from continuing operations in the accounting period that includes the period of enactment, even if the entities originally charged or credited related income tax effects directly to AOCI. If an entity elects to reclassify the stranded tax effects, the guidance requires the reclassification to include the effect of the change in the U.S. federal corporate income tax rate on the gross deferred tax amounts and related valuation allowances, if any, related to items in AOCI at the date of the enactment of TCJA. The guidance is effective for annual and interim reporting periods beginning after December 15, 2018 and permits early adoption. We adopted this guidance effective on the December 22, 2017 date of the enactment of the TCJA. The adoption of this guidance did not have a significant impact on our financial position, results of operations or cash flows.

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Summary of Reconciliation of Numerators and Denominators Used in Basic and Diluted Per Share Computations

The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for our Class A common stock and our Class B common stock:

	Three Months Ended June 30,
	2018						2017
	Class A			Class B			Class A			Class B
	(in thousands, except per share data)
Basic loss per share:
Numerator:
Allocation of net loss	$	(625	)	$	(165	)	$	(1,858	)	$	(461	)
Denominator:
Weighted-average shares outstanding		22,686			5,577			21,705			5,577
Basic loss per share	$	(0.03	)	$	(0.03	)	$	(0.09	)	$	(0.08	)
Diluted loss per share:
Numerator:
Allocation of net loss	$	(625	)	$	(165	)	$	(1,858	)	$	(461	)
Denominator:
Number of shares used in basic computation		22,686			5,577			21,705			5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		—			—			792			—
Number of shares used in diluted computation		22,686			5,577			22,497			5,577
Diluted loss per share	$	(0.03	)	$	(0.03	)	$	(0.08	)	$	(0.08	)

	Six Months Ended June 30,
	2018						2017
	Class A			Class B			Class A		Class B
	(in thousands, except per share data)
Basic (loss) earnings per share:
Numerator:
Allocation of net (loss) income	$	(15,476	)	$	(3,492	)	$	2,282	$	504
Denominator:
Weighted-average shares outstanding		22,651			5,577			21,625		5,577
Basic (loss) earnings per share	$	(0.68	)	$	(0.63	)	$	0.11	$	0.09
Diluted (loss) earnings per share:
Numerator:
Allocation of net (loss) income	$	(15,476	)	$	(3,492	)	$	2,282	$	504
Denominator:
Number of shares used in basic computation		22,651			5,577			21,625		5,577
Weighted-average shares effect of dilutive securities:
Director and employee stock options		—			—			937		—
Number of shares used in diluted computation		22,651			5,577			22,562		5,577
Diluted (loss) earnings per share	$	(0.68	)	$	(0.63	)	$	0.10	$	0.09

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Investments (Tables)

6 Months Ended

Jun. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Summary of Amortized Cost and Estimated Fair Values of Fixed Maturities

The amortized cost and estimated fair values of our fixed maturities at June 30, 2018 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	72,936	$	40	$	1,529	$	71,447
Obligations of states and political subdivisions		149,759		8,092		795		157,056
Corporate securities		118,611		360		3,746		115,225
Mortgage-backed securities		44,516		51		762		43,805
Totals	$	385,822	$	8,543	$	6,832	$	387,533

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,748	$	6	$	1,394	$	43,360
Obligations of states and political subdivisions		96,256		2,274		596		97,934
Corporate securities		121,776		165		2,916		119,025
Mortgage-backed securities		267,944		82		8,366		259,660
Totals	$	530,724	$	2,527	$	13,272	$	519,979

The amortized cost and estimated fair values of our fixed maturities at December 31, 2017 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	71,736	$	804	$	547	$	71,993
Obligations of states and political subdivisions		137,581		11,162		112		148,631
Corporate securities		108,025		2,860		731		110,154
Mortgage-backed securities		49,313		516		157		49,672
Totals	$	366,655	$	15,342	$	1,547	$	380,450

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,759	$	20	$	730	$	44,049
Obligations of states and political subdivisions		128,478		3,942		303		132,117
Corporate securities		105,254		1,011		526		105,739
Mortgage-backed securities		259,923		445		3,327		257,041
Totals	$	538,414	$	5,418	$	4,886	$	538,946

Summary of Amortized Cost and Estimated Fair Value of Fixed Maturities by Contractual Maturity

Expected maturities may differ from contractual maturities because issuers of the securities may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	8,764	$	8,755
Due after one year through five years		70,693		70,905
Due after five years through ten years		129,890		129,018
Due after ten years		131,959		135,050
Mortgage-backed securities		44,516		43,805
Total held to maturity	$	385,822	$	387,533
Available for sale
Due in one year or less	$	52,789	$	53,178
Due after one year through five years		86,597		85,532
Due after five years through ten years		105,649		103,585
Due after ten years		17,745		18,024
Mortgage-backed securities		267,944		259,660
Total available for sale	$	530,724	$	519,979

Summary of Cost and Estimated Fair Values of Equity Securities

The cost and estimated fair values of our equity securities at June 30, 2018 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	48,013	$	7,107	$	1,518	$	53,602

The cost and estimated fair values of our equity securities at December 31, 2017 were as follows:

	Cost		Gross Gains		Gross Losses		Estimated Fair Value
	(in thousands)
Equity securities	$	44,219	$	6,505	$	279	$	50,445

Summary of Gross Realized Gains and Losses from Investments before Applicable Income Taxes

Gross realized gains and losses from investments before applicable income taxes for the three and six months ended June 30, 2018 and 2017 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	12	$	45	$	12	$	50
Equity securities		2,125		1,085		3,270		3,629
		2,137		1,130		3,282		3,679
Gross realized losses:
Fixed maturities		1		30		45		30
Equity securities		619		3		2,638		3
		620		33		2,683		33
Net realized gains	$	1,517	$	1,097	$	599	$	3,646

Summary of Fixed Maturities and Equity Securities with Unrealized Losses

We held fixed maturities with unrealized losses representing declines that we considered temporary at June 30, 2018 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	65,937	$	1,040	$	37,132	$	1,883
Obligations of states and political subdivisions		39,855		739		15,042		652
Corporate securities		166,767		4,644		31,547		2,018
Mortgage-backed securities		157,372		3,607		130,521		5,521
Totals	$	429,931	$	10,030	$	214,242	$	10,074

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2017 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	24,024	$	287	$	33,987	$	990
Obligations of states and political subdivisions		10,223		120		14,127		295
Corporate securities		35,204		253		31,561		1,004
Mortgage-backed securities		100,534		817		124,062		2,667
Equity securities		4,292		279		—		—
Totals	$	174,277	$	1,756	$	203,737	$	4,956

Summary of Financial Information

We have compiled the following summary financial information for DFSC at June 30, 2018 and December 31, 2017 and for the three and six months ended June 30, 2018 and 2017, respectively, from the financial statements of DFSC. The financial information of DFSC at June 30, 2018 and 2017 and for the three and six months then ended is unaudited.

	June 30, 2018		December 31, 2017
	(in thousands)
Balance sheets:
Total assets	$	560,519	$	567,935
Total liabilities	$	478,652	$	487,604
Stockholders’ equity		81,867		80,331
Total liabilities and stockholders’ equity	$	560,519	$	567,935

	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
	(in thousands)				(in thousands)
Income statements:
Net income	$	1,634	$	802	$	2,945	$	1,285

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

Summary of Financial Data by Segment

Financial data by segment for the three and six months ended June 30, 2018 and 2017 is as follows:

	Three Months Ended June 30,
	2018			2017
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	84,552		$	79,094
Personal lines		101,162			95,921
Premiums earned		185,714			175,015
Net investment income		6,342			5,650
Realized investment gains		1,517			1,097
Equity in earnings of DFSC		788			387
Other		1,429			1,432
Total revenues	$	195,790		$	183,581
Loss before income tax benefit:
Underwriting income (loss):
Commercial lines	$	150		$	3,340
Personal lines		(12,881	)		(17,407	)
SAP underwriting loss		(12,731	)		(14,067	)
GAAP adjustments		2,406			2,904
GAAP underwriting loss		(10,325	)		(11,163	)
Net investment income		6,342			5,650
Realized investment gains		1,517			1,097
Equity in earnings of DFSC		788			387
Other		345			633
Loss before income tax benefit	$	(1,333	)	$	(3,396	)

	Six Months Ended June 30,
	2018			2017
	(in thousands)
Revenues:
Premiums earned:
Commercial lines	$	166,778		$	155,713
Personal lines		200,701			188,458
Premiums earned		367,479			344,171
Net investment income		12,721			11,405
Realized investment gains		599			3,646
Equity in earnings of DFSC		1,420			620
Other		2,899			2,710
Total revenues	$	385,118		$	362,552
(Loss) income before income tax (benefit) expense:
Underwriting (loss) income:
Commercial lines	$	(20,060	)	$	3,672
Personal lines		(30,148	)		(22,897	)
SAP underwriting loss		(50,208	)		(19,225	)
GAAP adjustments		4,775			5,779
GAAP underwriting loss		(45,433	)		(13,446	)
Net investment income		12,721			11,405
Realized investment gains		599			3,646
Equity in earnings of DFSC		1,420			620
Other		825			1,103
(Loss) income before income tax (benefit) expense	$	(29,868	)	$	3,328

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Borrowings (Tables)

6 Months Ended

Jun. 30, 2018

FHLB of Pittsburgh [Member]

Amount of FHLB of Indianapolis/Pittsburgh Stock Purchased, Collateral Pledged and Assets Related to MICO's/Atlantic States Agreement

The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at June 30, 2018.

FHLB of Pittsburgh stock purchased and owned	$	1,631,800
Collateral pledged, at par (carrying value $42,213,270)		43,026,818
Borrowing capacity currently available		5,201,388

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurements for Investments in Available-for-Sale Fixed Maturity and Equity Securities

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at June 30, 2018:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	43,360	$	—	$	43,360	$	—
Obligations of states and political subdivisions		97,934		—		97,934		—
Corporate securities		119,025		—		119,025		—
Mortgage-backed securities		259,660		—		259,660		—
Equity securities		38,753		38,753		—		—
Total investments in the fair value hierarchy		558,732		38,753		519,979		—
Investment measured at net asset value		14,849		—		—		—
Totals	$	573,581	$	38,753	$	519,979	$	—

We did not transfer any investments between Levels 1 and 2 during the six months ended June 30, 2018.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2017:

	Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	44,049	$	—	$	44,049	$	—
Obligations of states and political subdivisions		132,117		—		132,117		—
Corporate securities		105,739		—		105,739		—
Mortgage-backed securities		257,041		—		257,041		—
Equity securities		36,736		36,736		—		—
Total investments in the fair value hierarchy		575,682		36,736		538,946		—
Investment measured at net asset value		13,709		—		—		—
Totals	$	589,391	$	36,736	$	538,946	$	—

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Liability for Losses and Loss Expenses (Tables)

6 Months Ended

Jun. 30, 2018

Text Block [Abstract]

Summary of Insurance Subsidiaries' Liability for Losses and Loss Expenses

We summarize activity in our insurance subsidiaries’ liability for losses and loss expenses as follows:

	Six Months Ended June 30,
	2018			2017
	(in thousands)
Balance at January 1	$	676,672		$	606,665
Less reinsurance recoverable		(293,271	)		(259,147	)
Net balance at January 1		383,401			347,518
Incurred related to:
Current year		266,093			234,045
Prior years		26,244			8,394
Total incurred		292,337			242,439
Paid related to:
Current year		127,392			120,392
Prior years		108,521			99,224
Total paid		235,913			219,616
Net balance at end of period		439,825			370,341
Plus reinsurance recoverable		307,805			272,905
Balance at end of period	$	747,630		$	643,246

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Organization - Additional Information (Detail) $ in Millions		6 Months Ended	59 Months Ended
	Jun. 11, 2018 USD ($)	Jun. 30, 2018 USD ($) Segment	Jun. 30, 2018 shares	Jul. 18, 2013 shares
Business Acquisition [Line Items]
Operations commenced date		Aug. 26, 1986
Stock ownership percentage owned by third party		51.80%
Number of operating segments | Segment		4
Voting power percentage of outstanding common stock		72.00%
Restructuring charge for employee termination costs		$ 1.9
Atlantic States [Member]
Business Acquisition [Line Items]
Percentage of share in results of pooled business subsidiary		80.00%
Donegal Mutual [Member]
Business Acquisition [Line Items]
Percentage of share in results of pooled business owned by third party		20.00%
DFSC and North West [Member] | Donegal Mutual Insurance Company [Member]
Business Acquisition [Line Items]
Consideration from sale of business	$ 85.0
Proceeds from dividend	$ 30.0
Donegal Financial Services Corporation [Member]
Business Acquisition [Line Items]
Outstanding stock ownership percentage		48.20%	48.20%
Donegal Financial Services Corporation [Member] | DFSC and North West [Member]
Business Acquisition [Line Items]
Outstanding stock ownership percentage	48.20%
Dividend payment to be received	$ 14.5
Donegal Financial Services Corporation [Member] | DFSC and North West [Member] | Minimum [Member]
Business Acquisition [Line Items]
Consideration from sale of business and dividend	38.9
Donegal Financial Services Corporation [Member] | DFSC and North West [Member] | Maximum [Member]
Business Acquisition [Line Items]
Consideration from sale of business and dividend	$ 43.0
Class A Common Stock [Member]
Business Acquisition [Line Items]
Stock ownership percentage held by major shareholder		43.00%
Class A Common Stock [Member] | Stock Repurchase Program Two [Member]
Business Acquisition [Line Items]
Authority to purchase shares | shares				500,000
Common stock shares purchased | shares			57,658
Class B Common Stock [Member]
Business Acquisition [Line Items]
Stock ownership percentage held by major shareholder		84.00%

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Earnings Per Share - Additional Information (Detail) - shares	3 Months Ended	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2018
Earnings Per Share [Abstract]
Minimum percentage of class A common stock declared dividend excess over class B dividend		10.00%
Options excluded from diluted earnings per share	1,388,400	1,388,400

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Earnings Per Share - Summary of Reconciliation of Numerators and Denominators Used in Basic and Diluted Per Share Computations (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Class A Common Stock [Member]
Numerator:
Allocation of net (loss) income	$ (625)	$ (1,858)	$ (15,476)	$ 2,282
Denominator:
Weighted-average shares outstanding	22,686	21,705	22,651	21,625
Basic (loss) earnings per share	$ (0.03)	$ (0.09)	$ (0.68)	$ 0.11
Numerator:
Allocation of net (loss) income	$ (625)	$ (1,858)	$ (15,476)	$ 2,282
Denominator:
Number of shares used in basic computation	22,686	21,705	22,651	21,625
Weighted-average shares effect of dilutive securities
Director and employee stock options		792		937
Number of shares used in diluted computation	22,686	22,497	22,651	22,562
Diluted (loss) earnings per share	$ (0.03)	$ (0.08)	$ (0.68)	$ 0.10
Class B Common Stock [Member]
Numerator:
Allocation of net (loss) income	$ (165)	$ (461)	$ (3,492)	$ 504
Denominator:
Weighted-average shares outstanding	5,577	5,577	5,577	5,577
Basic (loss) earnings per share	$ (0.03)	$ (0.08)	$ (0.63)	$ 0.09
Numerator:
Allocation of net (loss) income	$ (165)	$ (461)	$ (3,492)	$ 504
Denominator:
Number of shares used in basic computation	5,577	5,577	5,577	5,577
Weighted-average shares effect of dilutive securities
Number of shares used in diluted computation	5,577	5,577	5,577	5,577
Diluted (loss) earnings per share	$ (0.03)	$ (0.08)	$ (0.63)	$ 0.09

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Reinsurance - Additional Information (Detail) - USD ($)		6 Months Ended
	Mar. 01, 2018	Jun. 30, 2018
Ceded Credit Risk [Line Items]
Loss reinsurance, set retention amount		$ 1,000,000
Percentage of accumulation of losses		100.00%
Catastrophe reinsurance, set retention amount		$ 5,000,000
Catastrophe reinsurance, deductible amount		$ 5,000,000
Increase loss retention of reinsurance coverage	$ 250,000
Maximum [Member]
Ceded Credit Risk [Line Items]
Increase loss retention of reinsurance coverage	$ 1,000,000
Atlantic States [Member]
Ceded Credit Risk [Line Items]
Percentage of share in results of pooled business subsidiary		80.00%
Donegal Mutual [Member]
Ceded Credit Risk [Line Items]
Percentage of share in results of pooled business owned by third party		20.00%
Maximum amount of loss coverage under reinsurance agreement of property catastrophe		$ 170,000,000

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Investments - Summary of Amortized Cost and Estimated Fair Values of Fixed Maturities (Detail) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	$ 385,822,214	$ 366,655,077
Held to Maturity, Gross Unrealized Gains	8,543,000	15,342,000
Held to Maturity, Gross Unrealized Losses	6,832,000	1,547,000
Total held to maturity, Estimated Fair Value	387,533,000	380,450,000
Available for Sale, Amortized Cost	530,724,000	538,414,000
Available for Sale, Gross Unrealized Gains	2,527,000	5,418,000
Available for Sale, Gross Unrealized Losses	13,272,000	4,886,000
Available for Sale, Estimated Fair Value	519,979,000	538,946,000
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	72,936,000	71,736,000
Held to Maturity, Gross Unrealized Gains	40,000	804,000
Held to Maturity, Gross Unrealized Losses	1,529,000	547,000
Total held to maturity, Estimated Fair Value	71,447,000	71,993,000
Available for Sale, Amortized Cost	44,748,000	44,759,000
Available for Sale, Gross Unrealized Gains	6,000	20,000
Available for Sale, Gross Unrealized Losses	1,394,000	730,000
Available for Sale, Estimated Fair Value	43,360,000	44,049,000
Obligations of States and Political Subdivisions [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	149,759,000	137,581,000
Held to Maturity, Gross Unrealized Gains	8,092,000	11,162,000
Held to Maturity, Gross Unrealized Losses	795,000	112,000
Total held to maturity, Estimated Fair Value	157,056,000	148,631,000
Available for Sale, Amortized Cost	96,256,000	128,478,000
Available for Sale, Gross Unrealized Gains	2,274,000	3,942,000
Available for Sale, Gross Unrealized Losses	596,000	303,000
Available for Sale, Estimated Fair Value	97,934,000	132,117,000
Corporate Securities [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	118,611,000	108,025,000
Held to Maturity, Gross Unrealized Gains	360,000	2,860,000
Held to Maturity, Gross Unrealized Losses	3,746,000	731,000
Total held to maturity, Estimated Fair Value	115,225,000	110,154,000
Available for Sale, Amortized Cost	121,776,000	105,254,000
Available for Sale, Gross Unrealized Gains	165,000	1,011,000
Available for Sale, Gross Unrealized Losses	2,916,000	526,000
Available for Sale, Estimated Fair Value	119,025,000	105,739,000
Mortgage-Backed Securities [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	44,516,000	49,313,000
Held to Maturity, Gross Unrealized Gains	51,000	516,000
Held to Maturity, Gross Unrealized Losses	762,000	157,000
Total held to maturity, Estimated Fair Value	43,805,000	49,672,000
Available for Sale, Amortized Cost	267,944,000	259,923,000
Available for Sale, Gross Unrealized Gains	82,000	445,000
Available for Sale, Gross Unrealized Losses	8,366,000	3,327,000
Available for Sale, Estimated Fair Value	$ 259,660,000	$ 257,041,000

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Investments - Additional Information (Detail)		3 Months Ended		6 Months Ended		12 Months Ended
	Nov. 30, 2013 USD ($)	Jun. 30, 2018 USD ($) Securities	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) Securities	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Schedule of Investments [Line Items]
Net unrealized losses arising prior to reclassification date	$ 15,100,000
Amortization of unrealized losses recorded in accumulated other comprehensive (loss) income				$ 575,107	$ 604,812
Accumulated other comprehensive loss		$ (16,666,961)		(16,666,961)		$ (2,684,275)
Net realized gain on investment		$ 2,137,000	$ 1,130,000	$ 3,282,000	3,679,000
Donegal Financial Services Corporation [Member]
Schedule of Investments [Line Items]
Percentage of ownership interest		48.20%		48.20%
Obligations of States and Political Subdivisions [Member]
Schedule of Investments [Line Items]
Aggregate fair value of bond held		$ 172,200,000		$ 172,200,000		190,700,000
Amortized cost of bond held		166,500,000		166,500,000		181,400,000
Special Revenue Bonds [Member]
Schedule of Investments [Line Items]
Aggregate fair value of bond held		82,800,000		82,800,000		90,000,000
Amortized cost of bond held		79,500,000		$ 79,500,000		$ 84,700,000
Education Bonds [Member]
Schedule of Investments [Line Items]
Percentage of investments in special revenue bonds				53.00%		53.00%
Water and Sewer Utility Bonds [Member]
Schedule of Investments [Line Items]
Percentage of investments in special revenue bonds				27.00%		26.00%
Equity Securities [Member]
Schedule of Investments [Line Items]
Net realized gain on investment		2,125,000	1,085,000	$ 3,270,000	3,629,000
Net realized loss on investment				2,600,000
Fixed Maturities [Member]
Schedule of Investments [Line Items]
Net realized gain on investment		$ 12,000	$ 45,000	$ 12,000	$ 50,000
Number of fixed maturity securities classified as available for sale | Securities		523		523
Accumulated Net Unrealized Investment Losses [Member]
Schedule of Investments [Line Items]
Accumulated other comprehensive loss		$ (9,300,000)		$ (9,300,000)		$ (9,800,000)
Minimum [Member]
Schedule of Investments [Line Items]
Percentage of which the company held security of any issuer		0.10%		0.10%		10.00%

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Investments - Summary of Amortized Cost and Estimated Fair Value of Fixed Maturities by Contractual Maturity (Detail) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Held to maturity
Due in one year or less, Amortized Cost	$ 8,764,000
Due after one year through five years, Amortized Cost	70,693,000
Due after five years through ten years, Amortized Cost	129,890,000
Due after ten years, Amortized Cost	131,959,000
Mortgage-backed securities, Amortized Cost	44,516,000
Total held to maturity, Amortized Cost	385,822,214	$ 366,655,077
Available for sale
Due in one year or less, Amortized Cost	52,789,000
Due after one year through five years, Amortized Cost	86,597,000
Due after five years through ten years, Amortized Cost	105,649,000
Due after ten years, Amortized Cost	17,745,000
Mortgage-backed securities, Amortized Cost	267,944,000
Total available for sale, Amortized Cost	530,724,000
Held to maturity
Due in one year or less, Estimated Fair Value	8,755,000
Due after one year through five years, Estimated Fair Value	70,905,000
Due after five years through ten years, Estimated Fair Value	129,018,000
Due after ten years, Estimated Fair Value	135,050,000
Mortgage-backed securities, Estimated Fair Value	43,805,000
Total held to maturity, Estimated Fair Value	387,533,000	380,450,000
Available for sale
Due in one year or less, Estimated Fair Value	53,178,000
Due after one year through five years, Estimated Fair Value	85,532,000
Due after five years through ten years, Estimated Fair Value	103,585,000
Due after ten years, Estimated Fair Value	18,024,000
Mortgage-backed securities, Estimated Fair Value	259,660,000
Total available for sale, Estimated Fair Value	$ 519,978,816	$ 538,946,050

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Investment - Summary of Cost and Estimated Fair Value of Equity Securities (Detail) - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Investments, Debt and Equity Securities [Abstract]
Cost	$ 48,013,000	$ 44,219,000
Gross Gains	7,107,000	6,505,000
Gross Losses	1,518,000	279,000
Estimated Fair Value	$ 53,602,292	$ 50,445,243

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Investments - Summary of Gross Realized Gains and Losses from Investments before Applicable Income Taxes (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Gain (Loss) on Securities [Line Items]
Gross realized gains	$ 2,137,000	$ 1,130,000	$ 3,282,000	$ 3,679,000
Gross realized losses	620,000	33,000	2,683,000	33,000
Net realized gains	1,517,310	1,097,306	598,971	3,646,281
Fixed Maturities [Member]
Gain (Loss) on Securities [Line Items]
Gross realized gains	12,000	45,000	12,000	50,000
Gross realized losses	1,000	30,000	45,000	30,000
Equity Securities [Member]
Gain (Loss) on Securities [Line Items]
Gross realized gains	2,125,000	1,085,000	3,270,000	3,629,000
Gross realized losses	$ 619,000	$ 3,000	$ 2,638,000	$ 3,000

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Investments - Summary of Fixed Maturities and Equity Securities with Unrealized Losses (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Debt Securities, Available-for-sale [Line Items]
Less Than 12 Months, Fair Value	$ 429,931	$ 174,277
Less Than 12 Months, Unrealized Losses	10,030	1,756
More Than 12 Months, Fair Value	214,242	203,737
More Than 12 Months, Unrealized Losses	10,074	4,956
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Debt Securities, Available-for-sale [Line Items]
Less Than 12 Months, Fair Value	65,937	24,024
Less Than 12 Months, Unrealized Losses	1,040	287
More Than 12 Months, Fair Value	37,132	33,987
More Than 12 Months, Unrealized Losses	1,883	990
Obligations of States and Political Subdivisions [Member]
Debt Securities, Available-for-sale [Line Items]
Less Than 12 Months, Fair Value	39,855	10,223
Less Than 12 Months, Unrealized Losses	739	120
More Than 12 Months, Fair Value	15,042	14,127
More Than 12 Months, Unrealized Losses	652	295
Corporate Securities [Member]
Debt Securities, Available-for-sale [Line Items]
Less Than 12 Months, Fair Value	166,767	35,204
Less Than 12 Months, Unrealized Losses	4,644	253
More Than 12 Months, Fair Value	31,547	31,561
More Than 12 Months, Unrealized Losses	2,018	1,004
Mortgage-Backed Securities [Member]
Debt Securities, Available-for-sale [Line Items]
Less Than 12 Months, Fair Value	157,372	100,534
Less Than 12 Months, Unrealized Losses	3,607	817
More Than 12 Months, Fair Value	130,521	124,062
More Than 12 Months, Unrealized Losses	$ 5,521	2,667
Equity Securities [Member]
Debt Securities, Available-for-sale [Line Items]
Less Than 12 Months, Fair Value		4,292
Less Than 12 Months, Unrealized Losses		$ 279

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Investments - Summary of Financial Information (Detail) - Donegal Financial Services Corporation [Member] - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Balance sheets:
Total assets	$ 560,519		$ 560,519		$ 567,935
Total liabilities	478,652		478,652		487,604
Stockholders' equity	81,867		81,867		80,331
Total liabilities and stockholders' equity	560,519		560,519		$ 567,935
Income statements:
Net income	$ 1,634	$ 802	$ 2,945	$ 1,285

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Segment Information - Summary of Financial Data by Segment (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Premiums earned:
Premiums earned	$ 185,714,110	$ 175,014,872	$ 367,478,690	$ 344,171,019
Net investment income	6,342,152	5,649,870	12,720,521	11,405,269
Realized investment gains	1,517,310	1,097,306	598,971	3,646,281
Equity in earnings of DFSC	787,856	386,615	1,419,970	619,565
Other	1,429,000	1,432,000	2,899,000	2,710,000
Total revenues	195,790,028	183,580,716	385,118,306	362,551,679
Underwriting income (loss):
SAP underwriting income (loss)	(12,731,000)	(14,067,000)	(50,208,000)	(19,225,000)
GAAP adjustments	2,406,000	2,904,000	4,775,000	5,779,000
GAAP underwriting loss	(10,325,000)	(11,163,000)	(45,433,000)	(13,446,000)
Net investment income	6,342,152	5,649,870	12,720,521	11,405,269
Realized investment gains	1,517,310	1,097,306	598,971	3,646,281
Equity in earnings of DFSC	787,856	386,615	1,419,970	619,565
Other	345,000	633,000	825,000	1,103,000
(Loss) income before income tax (benefit) expense	(1,333,046)	(3,396,469)	(29,868,217)	3,328,360
Commercial Lines [Member]
Premiums earned:
Premiums earned	84,552,000	79,094,000	166,778,000	155,713,000
Underwriting income (loss):
SAP underwriting income (loss)	150,000	3,340,000	(20,060,000)	3,672,000
Personal Lines [Member]
Premiums earned:
Premiums earned	101,162,000	95,921,000	200,701,000	188,458,000
Underwriting income (loss):
SAP underwriting income (loss)	$ (12,881,000)	$ (17,407,000)	$ (30,148,000)	$ (22,897,000)

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Borrowings - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jul. 31, 2018	Dec. 31, 2017
Line of Credit Facility [Line Items]
Line of credit expiration month and year	2021-07
Outstanding borrowings	$ 60,000,000		$ 59,000,000
Line of credit, interest rate description	Interest rates equal to M&T's current prime rate or the then current LIBOR rate plus 2.25%.
Percentage commitment fee	0.25%
Manufacturers and Traders Trust Company [Member]
Line of Credit Facility [Line Items]
Outstanding borrowings	$ 25,000,000
Line of credit facility remaining borrowing capacity	$ 35,000,000
Interest rate on borrowings	4.34%
Line of credit covenant description	The credit agreement requires our compliance with certain covenants. These covenants include minimum levels of our net worth, leverage ratio, statutory surplus and the A.M. Best ratings of our insurance subsidiaries. With the exception of a requirement that we maintain a minimum interest coverage ratio, we complied with all requirements of the credit agreement during the six months ended June 30, 2018.
FHLB of Pittsburgh [Member] | Atlantic States [Member]
Line of Credit Facility [Line Items]
Right to request for extension of credit agreement with Manufacturers and Traders Trust Company	$ 5,201,388
Outstanding advances	$ 35,000,000
Revolving Credit Facility [Member] | Manufacturers and Traders Trust Company [Member]
Line of Credit Facility [Line Items]
Right to request for extension of credit agreement with Manufacturers and Traders Trust Company		$ 60,000,000
Lines of Credit [Member] | London Interbank Offered Rate (LIBOR) [Member]
Line of Credit Facility [Line Items]
Debt instrument basis spread on variable rate	2.25%
Lines of Credit [Member] | FHLB of Pittsburgh [Member] | Atlantic States [Member]
Line of Credit Facility [Line Items]
Interest rate on advances	2.32%
Subordinated Debentures [Member]
Line of Credit Facility [Line Items]
Debt instrument stated interest rate	5.00%
Subordinated Debentures [Member] | West Bend Mutual Insurance Company [Member]
Line of Credit Facility [Line Items]
Surplus note	$ 5,000,000

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Borrowings - Amount of FHLB of Indianapolis/Pittsburgh Stock Purchased, Collateral Pledged and Assets Related to MICO's/Atlantic States Agreement (Detail) - Atlantic States [Member] - FHLB of Pittsburgh [Member]	Jun. 30, 2018 USD ($)
Amount of FHLB of Indianapolis/Pittsburgh stock purchased, collateral pledged and assets related to MICO's/Atlantic States Agreement
FHLB stock purchased and owned	$ 1,631,800
Collateral pledged, at par	43,026,818
Borrowing capacity currently available	$ 5,201,388

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Borrowings - Amount of FHLB of Indianapolis/Pittsburgh Stock Purchased, Collateral Pledged and Assets Related to MICO's/Atlantic States Agreement (Parenthetical) (Detail)	Jun. 30, 2018 USD ($)
FHLB of Pittsburgh [Member] | Atlantic States [Member]
Line of Credit Facility [Line Items]
Collateral Pledged at carrying value	$ 42,213,270

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Share-Based Compensation - Additional Information (Detail) - USD ($)	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Compensation expense in stock compensation plans	$ 521,689	$ 602,380	$ 1,000,000	$ 1,200,000
Income tax benefit of stock compensation plans	109,555	210,833	218,897	420,068
Unrecognized compensation expense related to nonvested share-based compensation granted under the plan	1,800,000		$ 1,800,000
Weighted average period of unrecognized compensation expense			1 year 7 months 6 days
Cash from option exercises	0	652,027	$ 478,650.0	2,200,000
Tax benefit for tax deductions related to option exercises	$ 0	$ 70,822	$ 18,803	$ 178,356

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Fair Value Measurements - Fair Value Measurements for Investments in Available-for-Sale Fixed Maturity and Equity Securities (Detail) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 519,979	$ 538,946
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	43,360	44,049
Obligations of States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	97,934	132,117
Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	119,025	105,739
Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	259,660	257,041
Assets and Liabilities on Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	573,581	589,391
Assets and Liabilities on Recurring Basis [Member] | Investments Measured at Net Asset Value [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	14,849	13,709
Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	558,732	575,682
Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	43,360	44,049
Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Obligations of States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	97,934	132,117
Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	119,025	105,739
Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	259,660	257,041
Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	38,753	36,736
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Assets and Liabilities on Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	38,753	36,736
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	38,753	36,736
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	38,753	36,736
Significant Other Observable Inputs (Level 2) [Member] | Assets and Liabilities on Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	519,979	538,946
Significant Other Observable Inputs (Level 2) [Member] | Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	519,979	538,946
Significant Other Observable Inputs (Level 2) [Member] | Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	43,360	44,049
Significant Other Observable Inputs (Level 2) [Member] | Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Obligations of States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	97,934	132,117
Significant Other Observable Inputs (Level 2) [Member] | Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	119,025	105,739
Significant Other Observable Inputs (Level 2) [Member] | Assets and Liabilities on Recurring Basis [Member] | Total Investments in the Fair Value Hierarchy [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 259,660	$ 257,041

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Income Taxes - Additional Information (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Operating Loss Carryforwards [Line Items]
Other deferred tax assets, net	$ 28,400,000	$ 23,100,000
Parent Company [Member]
Operating Loss Carryforwards [Line Items]
Valuation allowance related to the portion of operating loss carryforwards	$ 77,100,000
Earliest Tax Year [Member]
Operating Loss Carryforwards [Line Items]
Tax years open for examination	2014
Latest Tax Year [Member]
Operating Loss Carryforwards [Line Items]
Tax years open for examination	2017
Le Mars [Member]
Operating Loss Carryforwards [Line Items]
Valuation allowance related to the portion of operating loss carryforwards	$ 264,467
Operating loss carryforwards	$ 1,600,000
Operating loss carryforwards expiration period	2020
Operating loss carryforwards annual limitations in amount on use	$ 376,000

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Liability for Losses and Loss Expenses - Summary of Insurance Subsidiaries' Liability for Losses and Loss Expenses (Detail) - USD ($)	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Liability for Claims and Claims Adjustment Expense [Abstract]
Balance at January 1	$ 676,671,727	$ 606,665,000
Less reinsurance recoverable	(293,271,000)	(259,147,000)
Net balance at January 1	383,401,000	347,518,000
Incurred related to:
Current year	266,093,000	234,045,000
Prior years	26,244,000	8,394,000
Total incurred	292,337,000	242,439,000
Paid related to:
Current year	127,392,000	120,392,000
Prior years	108,521,000	99,224,000
Total paid	235,913,000	219,616,000
Net balance at end of period	439,825,000	370,341,000
Plus reinsurance recoverable	307,805,000	272,905,000
Balance at end of period	$ 747,630,145	$ 643,246,000

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Liability for Losses and Loss Expenses - Additional Information (Detail) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Increase (Decrease) in liability for losses and loss expenses of prior years	$ 26,244	$ 8,394
Percentage of 2010 development	6.80%	2.40%
Personal Automobile [Member]
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Reserve created for commercial automobile	$ 7,400
Commercial Automobile [Member]
Causes of Increase (Decrease) in Liability for Unpaid Claims and Claims Adjustment Expense [Line Items]
Reserve created for commercial automobile	$ 18,800

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Impact of New Accounting Standards - Additional Information (Detail) - USD ($) $ in Millions		6 Months Ended
	Jan. 01, 2018	Jun. 30, 2018
Gain on equity securities		$ 2.1
Loss on equity securities		$ 2.6
Accounting Standards Update 2016-01 [Member] | Accumulated Net Unrealized Investment Losses [Member]
Reclassification from AOCI to retained earnings	$ 6.2