Donegal Affiliates With Southern Mutual to Increase Market Reach

Donegal Affiliates With Southern Mutual to Increase Market Reach Chad Hemenway

The affiliation of Donegal Mutual Insurance Co. and Southern Mutual Insurance Co. is now in effect, in a move expected to achieve greater market penetration for Donegal in Georgia and South Carolina.

Under the terms, Donegal purchased a surplus note of Southern Mutual for $2.5 million, increasing Southern Mutual's surplus to more than $11 million, according to a statement. Southern Mutual's surplus fell from about $10 million at year-end 2008 to about $6 million as of June 30, 2009, due to significant underwriting losses from frequent tornadoes and hail events that fell within its reinsurance retention (BestWire, Sept. 10, 2009).

Jeffrey D. Miller, Donegal senior vice president and chief financial officer, told BestWire the weather patterns in Georgia and South Carolina experienced by Southern Mutual were "anomalies." Via the reinsurance agreement, Donegal Mutual, a member of Donegal Insurance Group, has assumed "all outstanding liabilities and losses" from Southern Mutual, said Miller, and it will assume 100% of future business in its pooling agreement with Atlantic State Insurance Co., a subsidiary of Donegal Group Inc.

Donegal Insurance Group had $1 billion in assets and $489 million in surplus as of June 30, 2009, with net written premiums of about $452 million in 2008. According to BestLink, the group's writings are somewhat concentrated, with Pennsylvania representing approximately 55%, but a substantial amount of business is written in other states including Virginia, Maryland, Delaware, Georgia, Ohio and Iowa through a network of independent insurance agencies. Donegal Mutual is headquartered in Marietta, Pa.

The affiliation, approved by Georgia regulators on Oct. 28, will allow Donegal to introduce its commercial products to a broader customer base through Southern Mutual's agents, said Miller. Athens, Ga.-based Southern Mutual is primarily a property/casualty insurance company that had about $12 million of net written premiums in 2008. Donegal's commercial lines products include commercial automobile, commercial multiperil and workers' compensation policies, according to BestLink.

Southern Mutual will remain a mutual company and maintain its Georgia domicile and headquarters, as well as its management, employees and agents. Donegal has also licensed its technology products to Southern Mutual for underwriting and automatic policy issuance.

Donegal Group Inc. (NASDAQ: DGICA) reported net income of $6.7 million during the third quarter, compared with about $6.3 million during the same period last year. The company's combined ratio was 98.9 for the third quarter of 2009, including the impact of $2.4 million of weather-related losses from operations in the Midwest.

Donegal Mutual Insurance Co. currently has a Best's Financial Strength Rating of A (Excellent). Southern Mutual Insurance Co. currently has a Best's Financial Strength Rating of A- (Excellent).

In morning trading on Nov. 2, shares of Donegal Group Inc. stock were selling at about $14.57, down about 0.2% from the previous close.

(By Chad Hemenway, associate editor, BestWeek: [email protected])

(c) 2009 A.M. Best Company, Inc. The affiliation of Donegal Mutual Insurance Co. and Southern Mutual Insurance Co. is now in effect, in a move expected to achieve greater market penetration for Donegal in Georgia and South Carolina. Under the terms, Donegal purchased a surplus note of Southern Mutual for $2.5 million, increasing Southern Mutual's surplus to more than $11 million, according to a statement.