U.S primary holding company Donegal Group Inc. has restructured its reinsurance program following heavy losses in the fourth quarter of 2018 due to natural catastrophes, low investment returns, and underperformance in its personal and commercial auto lines.
Donegal’s 2019 reinsurance program, which applies to its insurance subsidiaries and Donegal Mutual Insurance Company, includes property catastrophe excess of loss contracts that provide coverage for losses resulting from a single event over a retention of $10.0 million.
It also includes excess of loss contracts for property losses over a retention of $1.0 million and for casualty losses (including workers’ compensation) of over $2.0 million.
Additionally, Donegal Mutual will provide each of the insurance subsidiaries with reinsurance coverage of up to $8.0 million for an accumulation of losses resulting from a single event over a retention of $2.0 million, and further coverage for losses over $5.0 million.
While Donegal anticipates an overall decrease of more than $25.0 million in total reinsurance premiums for 2019, it noted that the ultimate benefit or cost of its program is dependent on the incidence of large loss activity and the occurrence of catastrophe events.
Based on modelling procedures and back-testing against historical results, the company expects the restructured program to outperform its expiring one in terms of both managing volatility and preserving capital.
Donegal’s results were impacted by $12.5 million of weather-related losses in Q4 2018, including approximately $4.1 million of losses from Hurricane Michael.
This total was considerably higher than the company’s previous five-year average for Q4 weather losses of $5.2 million.
The insurer also reported after-tax net investment losses of $6.9 million in Q4, while higher loss severity trends continued in its personal and commercial automobile lines of business.
Donegal added approximately $6.5 million to its loss and loss expense reserves for prior-year personal and commercial automobile losses, and currently expects to report a combined ratio of between 110.0% and 111.0% for Q4.
Additional details of Donegal’s full-year 2018 results will be released on February 20.