Back to top

Analyst Blog

A.M. Best Co. reiterated the issuer credit ratings (“ICR”) of “bbb” of Donegal Group Inc. (DGICA).  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.

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 take place.

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 boosting results.

Donegal Group carries a Zacks Rank #5 (Strong). Though we prefer to avoid the stock presently, Alleghany Corp. (Y - Snapshot Report), CNA Financial Corp. (CNA - Snapshot Report), and Everest Re Group Ltd. (RE - Analyst Report), among other property and casualty insurers, are worth considering. All these stocks carry a Zacks Rank #1 (Strong Buy).

Please login to Zacks.com or register to post a comment.

New to Zacks?

Start Here

Zacks Investment Research

Close

Are you a new Zacks Member or a visitor to Zacks.com?

Top Zacks Features

My Portfolio Tracker

Is it Time to Sell?

One of the most important steps you can take today is to set up your portfolio tracker on Zacks.com. Once you do, you'll be notified of major events affecting your stocks and/or funds with daily email alerts.

More Zacks Resources

Zacks Rank Home - Evaluate your stocks and use the Zacks Rank to eliminate the losers and keep the winners.

Mutual Fund Rank Home - Evaluate your funds with the Mutual Fund Rank for both your personal and retirement funds.

Stock/Mutual Fund Screening - Find better stocks and mutual funds. The ones most likely to beat the market and provide a positive return.

My Portfolio - Track your Portfolio and find out where your stocks/mutual funds stack up with the Zacks Rank.

Zacks #1 Rank Top Movers for Zacks #1 Rank Top Movers

Company Symbol Price %Chg
ERBA DIAGNO… ERB 3.55 +11.64%
CHINA BIOLO… CBPO 55.57 +7.40%
BITAUTO HOL… BITA 96.14 +5.58%
LUXOFT HOLD… LXFT 38.77 +3.64%
INSITE VISI… INSV 0.30 +3.41%