A.M. Best Co. reiterated the issuer credit ratings ("ICR") of
Donegal Group Inc
). Concurrently, the rating agency reiterated financial
strength ratings ("FSR") of A and ICR of "a" of the members of
the Donegal Insurance Group as well as Michigan Insurance Company
("MICO"), the subsidiaries of Donegal Group.
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The FSR affirmation of the members of the Donegal Insurance Group
came on the back of sustained profitability, well diversified
geographic and product portfolio, solid capitalization, and
strong liquidity. Also, the financial flexibility provided by
Donegal Group accounts for the affirmation.
However, low interest rates, slightly higher expense structure,
as well as weather events and lower investment yields
pressurizing operational results, dwarf the positives.
Nevertheless, initiatives undertaken by the company to improve
its operational results via rate increases, better underwriting
standards, and use of enterprise risk management are viewed
favorably by the rating agency.
The ICR affirmation takes into account the solid financial
positioning of the property/casualty insurance operation as well
as moderate financial leverage.
The ratings affirmations of MICO account for sturdy
capitalization, continued solid operational results, and support
provided by Donegal Mutual Insurance Company, the parent company
of MICO. However, geographic concentration, higher
leverage, and reliance on reinsurance to lower risks, coupled
with soft macro conditions, offset the positives to some extent.
The rating agency believes sustained profitability leading to
capital appreciation could help retain the ratings. However, if
Donegal Group fails to retain its streak of profitability or if
capital erodes, a downward revision in rating and outlook may
Rating affirmations or upgrades from credit rating agencies play
an important role in retaining investor confidence in the stock
and in maintaining credit worthiness in the market. Rating
downgrades, therefore, adversely affect the business, apart from
increasing the costs of future debt issuances. We believe that
strong ratings will help Donegal Group retain investor confidence
and enable it to write more businesses going forward, thereby
Donegal Group carries a Zacks Rank #5 (Strong). Though we prefer
to avoid the stock presently,
CNA Financial Corp.
Everest Re Group Ltd
), among other property and casualty insurers, are worth
considering. All these stocks carry a Zacks Rank #1 (Strong