Q4 2020 Donegal Group Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Donegal Group incorporated fourth quarter 2020 earnings Conference call. At this time your participant lines are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. Please press Star then one on your <unk>.
Lithium keypad to withdraw your question press the pound key and as a reminder, today's call is being recorded if you require operator assistance press Star Zero and it's now my pleasure to hand, the conference over to Chief Financial Officer, Jeff Miller, Mr. Miller, I hand, it to you.
Thank you very much and good morning, and welcome to the Donegal Group Conference call for the fourth quarter and year ended December 31 2020.
On behalf of everyone at Donegal group I want to thank you all for your interest and our company.
Yesterday afternoon, we issued a news release outlining our financial results for a copy of that release. Please visit the Investor Relations section of our website at Donegal Group Dot Com. In addition, we have made available a supplemental investor presentation on our website.
And today's call, Kevin Burke, President and Chief Executive Officer, who will provide a business update and overview I'll follow Kevin's comments with highlights of our quarterly and full year financial results.
Evan and I look forward to answering any questions. You may have following our prepared remarks before we get started you should be aware that our commentary today includes forward looking statements that involve a number of risks and uncertainties. We described forward looking statements in our news release and we provided further information about risk factors that could cause actual results to differ materially from those we projected.
And the forward looking statements and the report on form 10-K that we submitted to the SEC we.
We expect to file our form 10-K for 2020 on or around March 5th.
You can access our form 10-K through the investors section of our website.
We use certain non-GAAP financial measures to analyze our business results and refer you to the reconciliation of non-GAAP information included in the news release, we issued yesterday.
With that I will turn it over to Kevin.
Thanks, Jeff and welcome everyone.
Yesterday, we reported favorable fourth quarter results that contributed to excellent results for the full year of 2020, we are grateful for the financial success, we achieved despite the events and challenges, we all face and 2020.
As I stated in past earnings calls and other forums. Our goal has been to build upon the foundational changes we implemented throughout our organization over the past several years and our improved underwriting performance demonstrates that these changes are having an impact.
We feel that Donegal has positioned perfectly to take advantage of the hardening commercial insurance market conditions and our operating regions.
We are also continuing to stabilize our personal lines segment, where we've been emphasizing profitability over growth in recent years.
We reported net income of $14 6 million or <unk> 49 per diluted class a share for the fourth quarter of 2020.
<unk> $52 8 million or one $1 83 per diluted class a share for the full year.
We achieved solid level of underwriting profitability with combined ratios of approximately 96% for both the quarter and the year and we've achieved favorable loss reserve development and each of the past two years.
We are particularly pleased with our full year 2020 results in light of the significant uncertainties surrounding the pandemic and its effect on economic and business conditions as well as the record setting severe weather activity throughout the U S.
Our net premiums earned decreased just under 2% for the year, while we continued to achieve solid commercial lines growth. During 2020, the modest net reduction and our premium revenue largely reflects the impact of corrective measures. We implemented beginning back in 2018 to restore profitability of our <unk>.
Personal lines business.
During 2020, we shifted our focus from corrective efforts to maintaining our core book of personal lines business as we prepare to launch new personal lines products later in 2021.
As we roll out those new products throughout the 11 states and which we write personal lines, we expect to return modest levels of personal lines growth in 2022 and beyond.
And commercial lines, we expect renewal premium increases to increase from the modest levels. We implemented in 2020, and we expect policy count growth to continue as our expanding relationship with our key agents provide a steady stream of new commercial accounts.
We have excellent momentum as we move into 2021.
In 2021, our commercial lines growth will include premiums from for southwestern States as we've announced previously Donegal group's 2021 results will include 80% of the pooled underwriting results of the Mountain States Insurance group, which Donegal mutual insurance company acquired back in 2017.
We currently expect that the mountain States insurance group will generate approximately $48 million to $50 million and net premiums written in 2021 of which 80% will be included in our consolidated net premiums written throughout the year.
As a result of the continued organic growth and the addition of mountain States premiums, we expect commercial growth will exceed the modest declines and personal lines net premiums written throughout 2021.
During 2020, our commercial lines business continued to grow as a proportion of our overall product mix, reaching 57% of our total net premiums written for the full year of 2020.
Our current mix reflects a diversified blend of products and geographical spread of risk.
We're continuing to gain market share throughout our operating regions and maintained and 86% premium retention level across our commercial accounts, which are great indicators of our strong agency relationships and favorable market conditions.
Considering the low interest rate environment higher frequency of severe weather events and the uncertain future impacts social inflation will have on loss costs. We expect the market conditions will remain favorable for additional premium rate increases in 2021.
Our commercial lines generated a detached.
Statutory combined ratio of 97, 8% for the full year of 2020, despite a modest increase and the impact of weather related losses, and the continuing lack of profitability and commercial auto we have seen incremental improvement and our commercial auto results over the past few years, and we expect additional premium rate increases and underwriting.
Refinement and select regions to have a favorable impact on the performance of that line of business in 2021 and beyond.
And our personal lines business segment, we benefited from lower claims frequency throughout 2020 due to reduced driving activity and traffic density. Our 2020 personal lines statutory combined ratio was 92, 4%, which compares very favorably to the 102, 6% for 2019.
We expect claims frequency to continue to revert back to historical norms, and we will continue to monitor our claims statistics and take appropriate rating actions in response.
As I mentioned earlier, we look forward to the phased rollout of our new personal lines products beginning in the second half of 2021 and continuing into the first half of 2022.
We have received regulatory approvals for our new rates and forms and several of the states that will be included and the initial rollout.
While the new products will include various coverage enhancements. The primary advantages that we anticipate relate to modernize rating methodology that includes enhanced pricing segmentation and application of predictive analytic coal pricing models as we delivered the enhanced products through a brand New agency web portal that aims to provide our.
Independent agents with the best in class user experience, we look forward to competing more effectively for new quality personal lines accounts.
While we are pleased with the Bottomline profitability Donegal group was able to achieve and 2020, we are making progress on a number of initiatives that we expect will lead to greater returns in future periods.
For example, it's difficult to quantify the future value, we will gain from the significant progress we've made on our systems modernization project. The replacement of our remaining legacy systems will enhance our ability to make significant advancements and underwriting data analytics and operational capabilities over the next few years.
As a quick project update we have made great strides and have significantly enhanced our project management resources and abilities.
Since the first foundational release was implemented last February we have converted the vast majority of our workers' compensation compensation policies to the new platform.
The scope of the next software release has been expanded to meet compelling business demands and numerous technical and business teams are actively coordinating their efforts to ensure a successful implementation.
The new personal lines products I described earlier are the primary deliverable of the current software release, which we referred to was released to <unk> and we will also implement new reporting systems that will enable further enhancements and data analytics and business intelligence.
Design and development work on the next software release, which we referred to was released to be will accelerate and the second quarter of 2021 running concurrently with released to a testing and deployment activities.
And the scope of released <unk> includes three additional commercial lines of business that will complement the workers compensation line, which is already in production.
And preparation for release to be we have performed a comprehensive review of our current workflows and developed a detailed road map for our future state and to and commercial underwriting process.
This preparation will greatly streamline released <unk> development efforts as we look forward to beginning to migrate those commercial lines to the new platform and 2022.
Shifting to our broader strategic priorities, we refreshed our three year strategic plan during 2020, the play and emphasizes several primary strategies, which include a focus on achieving sustained excellent financial performance strategically modernizing our operations and processes to transform our business capital.
<unk> on opportunities to grow profitably and deliver exceptional service to our agents and customers.
As we execute these strategies, we expect to continue to build and enhance the book value of Donegal group for the benefit of all of our stockholders.
Our book value per share at December 31, 2020 increased nine 3% to $17 13.
Compared to $15 67 at year end 2019, which was achieved during pandemic conditions and was primarily attributable to solid operating performance.
We were also pleased to declare a quarterly cash dividend of <unk> 15 per share of our class a common stock and 13 and a quarter cents per share of our class B common stock, which was paid on February 16, 2021 to stockholders of record as of the close of business on February <unk> 2021.
As a reminder, we have gradually increased our cash dividend for each of the past 18 years.
Based on yesterday's closing price of $13 90 per share our current dividend rate represents a four 3% yield on our class a common stock.
With that I'll turn the call over to Jeff for a review of our financial results and then I'll return with a few closing remarks. Thank you.
Thanks, Kevin I'll highlight a few of the operational and financial metrics for the fourth quarter of 2020 and I'll also comment on notable metrics for the full year and we will be glad to address any questions later on the call.
We entered 2020 with strong momentum anticipating favorable impacts from the many actions we implemented over the past several years to improve our financial results.
As Kevin noted, we understood that some of those actions would slow premium growth and the short term, but we also knew they would benefit profitability over the longer term.
We believe the majority of the negative growth impact is now behind us and that we are nearing an inflection point on which measured organic growth will resume at profit profitability levels that we deemed acceptable.
And commercial lines, we continued to achieve solid growth through increased new business writings and moderate pricing increases.
Marshall net premiums written grew by five 2% to $98 1 million for the quarter and $426 million for the year.
Excluding workers' compensation commercial premium rate increases accounted for approximately 2% growth for the fourth quarter and we expect to achieve a higher average rate increase and 2021.
Quickly moving through our main commercial lines of business for the fourth quarter commercial auto premiums increased by 11, 9% as discussed in prior calls the increase in commercial auto premiums primarily reflected premium rate increases as we are taking various actions to reduce exposures in certain regions.
Average commercial auto rate increases were six 8% and the fourth quarter and nine 7% for the full year 2020.
Our commercial multi peril book of business grew by eight 5% during the fourth quarter, primarily as a result of an increase and new business writings.
And finally premiums and our workers compensation line declined by six 9% during the fourth quarter, primarily as a result of bureau mandated rate reductions.
We've been monitoring the impact of premium audits that we performed following the exploration of workers' compensation policy terms as.
As we stated in last quarter's call, we do anticipate some level of reductions and exposure based premiums as we complete workers' compensation premium audits in 2021, we.
We are pleased that audit activity and virtually no impact on the fourth quarter workers' compensation premiums and we have not seen any evidence to date that suggests audit activity, we will have a material negative impact going forward.
The commercial growth and 2020 was more than offset by a decline and personal lines premiums, which decreased by eight 3% during the quarter $71 3 million and nine 1% for the year to $316 million.
The decline largely reflected the impact of corrective measures, we implemented beginning in 2018 to restore the profitability of the personal lines business segment.
And total net premiums written decreased 0.9% to $169 $4 million for the quarter and one 4% to $742 1 million for the year.
Moving from the top line to and analysis of underwriting results, while we expected improved results and the auto lines. During 2020 as a result of rate increases and underwriting adjustments. We made in 2019 reduced driving activity and lower traffic density due to the pandemic also contributed to reductions and auto claim frequency.
Fleet levels throughout the year.
Government mandates and restrictions on businesses and individuals vary greatly across our operating regions, making it challenging to measure the incremental impact of recent corrective actions versus pandemic related factors.
Welcome improvement and in the auto lines and a continuation of favorable workers compensation performance and key drivers of improved underwriting results and 2020 compared to 2019.
Our commercial lines generated a statutory combined ratio of 99, 5% for the fourth quarter of 2020, which was higher than the 92, 7% combined ratio for the prior year quarter.
This increase was partially due to the impact of weather related losses, and the southern states during the fourth quarter of 2020 compared to less active weather patterns and our operating regions during the fourth quarter of 2019.
For the full year 2020, we were pleased to achieve a commercial lines statutory combined ratio of 97, 8%. Despite the occurrence of record of a record number of severe weather events throughout the country.
For the personal lines segment, we experienced greatly improved underwriting results as evidenced by the 95, 1% statutory combined ratio for the fourth quarter of 2020, compared with 103% for the prior year quarter.
For the full year 2020.
92, 4% statutory combined ratio reflects the lower personal automobile claim frequency I mentioned earlier the.
And the reduction in claims was more pronounced and the second quarter.
Incoming claim volumes increase from that level throughout the remainder of the year, but stabilized below historical norms due to lower traffic density.
Our exit from the personal lines markets and several weather prone states. In 2019 also served as well considering the magnitude of severe weather events in those markets and 2020.
In terms of weather impact to overall results. The four eight percentage point loss ratio impact of weather related loss activity for the fourth quarter of 2020 exceeded the previous five year average of four percentage points for fourth quarter weather impact the weather impact to the full year 2020 loss ratio was in line with.
Our previous five year average of seven percentage points.
Net favorable development of reserves for losses incurred in prior accident years of $2 $6 million reduced the loss ratio for the fourth quarter of 2020 by one four percentage points that impact with similar to the full year of 2020 impact of favorable reserve development, which reduced the loss ratio by one seven.
Percentage points.
We are pleased that reserve development has been consistently favorable over the past two years and we continue to add to reserve levels. During 2020 and light of commercial lines exposure growth and in response to uncertainty related to changes to historical loss reporting patterns caused by the pandemic.
For our total operations, we achieved a 62, 7% loss ratio for the fourth quarter of 2020, which compared favorably to the 63, 9% loss ratio for the prior year quarter.
For full year 2020 loss ratio of 62% improved five percentage points compared to 67% for the prior year.
The expense ratio was 32, 4% for the fourth quarter of 2020 compared to 31% for the fourth quarter of 2019 for the full year the expense ratio increased from 31, 3% and 2019% to 33% and 2020.
We primarily attribute the expense ratio increased to a lower premium base commercial lines growth incentives for our agents and increase in underwriting based incentives for our agents and employees and higher technology systems related expenses associated with our multi year systems modernization project.
Our combined ratio was 96, 2% for the fourth quarter 2020, virtually unchanged from the 96, 1% combined ratio for the prior year quarter and for the full year. The combined ratio improved by three five percentage points to 96% compared to 99, 5% in 2019.
Moving briefly to investments, we continue to maintain and large percentage of high quality fixed income securities and our portfolio, representing 93, 5% of the $1 $2 billion invested at December 31 2020.
Net investment income of $7 6 million for the fourth quarter of 2020 was slightly lower compared to the prior year quarter as an increase in average invested.
And increase in average invested assets, largely offset a decrease and the average investment yield.
We projected investment income will remain relatively constant in 2021, as we expect to invest additional funds from positive operating cash flows to offset modest decreases and the average investment yield we expect to earn and 2021.
With that let me turn it back to Kevin for closing comments.
Thanks, Jeff.
Last year Donegal held its fourth quarter conference call on February 25th which was shortly before the onset of pandemic conditions that dramatically altered the lives of our employees our agents and our customers within one month of that call life as we knew it had changed and ways. We could not have imagine just weeks earlier.
Despite what may seem at times is in London, and barrage of challenging circumstances Donegal management team, our employees and network of independent agents pulled together like never before to overcome the obstacles that.
Pandemic placed before us.
Now, let's fast forward one year later, we have not missed a step we are steadily moving forward to execute our strategic plan and fulfill our mission to be there when it matters most for our employees.
As we execute these strategies, we expect to continue to build and enhance the book value of Donegal group for the benefit of all of our stockholders.
Before we open the lines for questions I want to take a moment to highlight the market valuation of Donegal group and comparison to the industry as a whole.
We recently spoke with a long term shareholder who encouraged us to emphasize to potential investors, where donegal is positioned with and its peer group in terms of price to book value.
As of yesterday's close Donegal group traded at an 18% discount to our previously reported book value.
At September 32020, if you compare that price to our December 31, 2020 book value of $17 13.
And the discount is now at 19%.
And our financial supplement we include comparable multiples for many of our peer companies as of February 22021, the average price to book value multiple across the base of those companies was one three to one or a 30% premium over book value.
<unk> group has now achieved a strong operating quarters in a row is and arguably the strongest financial position and our history and has a long history of returning solid dividends to our stockholders.
And sure we will continue to be proactive and communicating our investment theses to prospective investors over the course of 2021.
With that we'll ask the operator to open the lines for any questions that you may have.
Thank you as a reminder, if you would like to ask a question. Please press Star then one on your telephone keypad once again Thats star one to queue for a question.
Sure.
And our first question will come from the line.
Bob Farnam.
Bonnie and Scattergood.
Good morning.
It sounds like Youre for personal lines, you'll be and holding pattern. This year.
<unk> is where you want it to be so.
And we can say that the growth expectations. This year it can be basically flattish for personal lines.
Good morning, Bob Thanks for the.
Question, Yes, we anticipate right now that the first half of the year I think that that's appropriately said that we are in a bit of a holding pattern. We are we've made a lot of.
Improvement and sustaining and <unk>.
Maintaining the existing personal lines book of business on.
All the rate action that we had to take in late 2017, 2018, we believe that the impact of that disruption to the book of business is behind us.
Each month for the last several months, we've seen an increase.
In additional quoting activity and personal lines.
On the rate increases if any that we've taken has been very modest. So we think the first half of the year, there's really no disruption to that book of business and we do see some very incremental improvement.
As you've categorized it correctly the second half of the year when we rollout the.
And the initial wave of the personal lines products. Obviously, we're very anxious to do that we think that from a pricing standpoint, we haven't dialed and appropriately.
But the reality is we're really not going to see any real lift from the new product new personal lines products until 2022.
But we are anxious to launch those products the second half of the year and we will see some uptick but I think debt.
We're looking at very modest.
Increases if any.
It's more about making sure that we've got a price product that is going to make sure that from a profitability standpoint, we can grow that line with confidence. So we're anxious to launch that product second half of the year.
Alright.
Okay, Thanks for that and.
It looks like alright, so now youre going to be taking premium from the mountain States operations.
And.
You had.
And winter storm losses, and Texas, the past week or so.
Any impact on that on this book.
And youre going to be taking some of that exposure.
Yes, Bob This is Jeff first of all our thoughts go out to all those that are affected by that recent weather event, particularly in Texas.
It's still early but we have not received a significant number of reported claims from that event, so far and specific to the Texas exposures and mountain States rights only commercial business and has a relatively small amount of premium writings and that state.
From a stockholder perspective. It is there is an important point that I should make in relation to mountain states and the potential first quarter financial impact of Donegal group and.
The losses that relate to policies written prior to 2021 will be fully recognized by Donegal mutual.
So Donegal group will only begin participating and losses for policies that renew or are newly written in 2021. The only a mountain states losses that will be included and the pooling agreement that would be related to those policies that were either written new or renewed and the last seven weeks. So as of this morning, we checked on that and mountain and stay.
Thats only received a handful of claims on 2021 effective date policies.
Okay great.
And last question for me is for commercial auto it sounds like obviously and rates have been going up for quite a while can you just.
Give us an idea of the things you've been doing in terms of the exposure side or the re underwriting sides and debt.
Should benefit debt book going forward.
Sure.
Talk a little bit about some baseline results and then we can talk about where we're going and what we anticipate from a statutory combined ratio, we have made improvement and the line.
So last year was at a $117 four.
Now to $112 seven still unacceptable, but we've made almost a five point swing we.
We do have a commercial auto profit improvement team that meets frequently.
And they make adjustments as needed.
And every month.
Rate increases for 2021 is going to vary greatly by state and we started to look at a state by state basis.
I will give you an example of Wisconsin is.
Is at the low end of that scale, and we're probably looking at a 5% to 7% rate increase for commercial auto and Wisconsin at the other end of the spectrum is Georgia, which you've heard US report about on numerous quarters and Georgia continues to be a challenge for us.
In addition to rate increases that we're taking and those rate increases Bob are upwards of 30% also on accounts that we define as heavy exposure and are those are accounts with 10 vehicles or more.
In the past year in 2020, we have reduced our total vehicle count in Georgia by 22%, so by reducing the exposure and continuing to do that and the first half of this year aggressively taking rate action where warranted.
We believe that this line is going to come into rate adequacy here, maybe by the end of the year first quarter next year. We do have a number of states that are already very close to that and it's been as you know it's been a long term process for us.
And have half the customer and it's been accepting those rate increases.
And I wish you retention fare premium retention fared as you're as you've been trying to put through those rate increases.
And the retention is very good and so obviously thats indicative of whats going on and the industry and just as a reminder.
It was 2011 from an industry standpoint. It was the last time that commercial auto was profitable on an industry level. So.
Yes, the environment is right for those rate increases and our retention is good and so we're going to continue to push those rate increases and do what we need to do to get this line back and check and we are well on our way to doing that.
Great Best of luck and 2021.
Thats It from me Thanks, Bob.
<unk>.
And our next question will come from the line and Doug with Eden Capital management.
Good morning, Kevin and Jeff.
Doug.
Congratulations on another strong quarter, and especially the eight consecutive quarters now of the stable and favorable loss reserves.
Very well done by you and all of the employees, especially during this.
Challenging and unusual past year, we've had.
Also Kevin your comments at the end of your prepared remarks regarding the stock price discount not only just to the company's new $17 13, and book value, but also to the peer P&C company premiums to their book value multiples was very well said.
And I hope that message continues to get.
And part of it to the investment community.
And I have a couple of questions number one.
Maybe dovetailing a little bit on the weather question and Texas, We also had.
And the first quarter of this year already.
There are few nor easters.
Come up through the mid Atlantic asking you to the southeast and I.
I believe a few up and new England as well. So I just wanted to know you mentioned, Jeff the impact on Texas and minimal I was just curious about the nor Easter and some of the other first quarter weather, what youre seeing there and the.
And the existing more populated states from a book of business standpoint.
And then secondly.
Several of the publicly traded and reinsurers have mentioned.
Obtained one one renewal rate increases.
And the 10% to 15% range.
Donegal experienced something similar and your January pricing and and did you retain higher net levels. As you did a few years ago to offset the additional expense.
Sure Doug This is Jeff. Thank you for those questions and for your comments as well.
On the weather front to this point and the year, we have not seen a significant impact from the nor'easters and the weather.
And the cold temperatures that were and much of the country.
It is still early but we started the year and January with a very mild month.
Weather wise and on this record low.
Weather losses, so to the extent that we have a few losses from the.
Eastern and the snow events, we don't expect that to be anywhere close to.
Above average for us for the first quarter. So so far so good.
And we're cautiously optimistic as the temperatures are rising here.
And our home area and Pennsylvania, So hopefully the most.
Worst of the winter is behind us.
On the second question as to reinsurance increases we did have a very successful renewal of our reinsurance program and as and I believe you are aware our reinsurance program is now consolidated for the entire Donegal insurance group and.
And it all renews as of one one.
2021, we renewed the entire program we did have some pricing increases on our program because there were several of our contracts, where we did have losses and 2020.
We utilized the reinsurance that we purchased.
From a weather perspective, as well as some casualty losses that we incurred.
And I actually expect to recover nearly half of the reinsurance premiums that we paid and reinsurance losses for 2020, but as a result of that loss activity. We did incur some premium price increases on the program.
On average are about 20%, so a little bit higher than the range that you quoted there.
And that range is at the low end of the range for.
Insurers, who had loss activity on their reinsurance program. So we were not necessarily pleased with a 20% increase and reinsurance costs, but it was in line with what we expected and we did not increase our retentions, we did not change any of the retentions on our program.
But we did actually increase some of the coverage on a few of the casualty lines.
To reflect the fact that we are writing larger commercial accounts. So all in all we were pleased with the renewal and it went very well.
And.
We have a very solid panel of reinsurers on the program and.
And hopefully it gives you a good solid.
Understanding of the impact.
And it does and and I know, we consolidated amongst the different subsidiary companies from a purchasing and standpoint, a few years ago, which made a lot of sense.
And you expect much of an EPS hit or impact in 2021, because of the reinsurance pricing or its pretty well going to be Hubbard and when you think of the rate increases.
Fred out amongst the overall book that Youre getting from a primary basis.
Right, it's going to be part of the mix and we're going to have organic growth, we're going to see the mountain states growth from bringing that into the pool.
Kevin mentioned, and we'll likely see some continuing declines modest declines and personal lines, but we expect the commercial lines too.
We're projecting as high as perhaps and 18% net premium written growth and commercial lines, when you add and the organic growth and the mountain states growth.
This should translate to somewhere around the 7% to seven 5% net premium written growth overall when you include the decline and personal lines.
Yes, yes that would be great that would be back towards the historical averages.
And finally, one final question if I may regarding the work comp line.
I know.
The fourth quarter premiums dropped a little bit more of a rapid pace and comp and they did.
<unk> to debt year to date and and even.
Some of the more.
Historic quarterly trends.
Are you seeing pricing as you mentioned in the last few quarters stabilizing a bit and that line or our rate levels still going down and I was curious if the decreasing and premiums was more.
Reflective of fewer item count.
And as opposed to just the rate level decreases.
It was not necessarily item count decreases was primarily rate decreases and.
Unfortunately, not they are not necessarily seeing a bottom yet, but we are seeing a moderation of those decreases.
We are attempting to offset the bureau rate decreases with our and.
Changes to loss cost multipliers and other and.
Internal factors that we have control over.
We would like to see those the workers' comp rates kind of net out to roughly flat for 2020, we will be working toward doing that.
But it.
It wouldn't surprise me, if we're still and a slightly negative.
Growth are.
Negative reduction and workers' comp premiums going into 2021.
It's just a matter of getting those rate bureaus to recognize the loss costs are now increasing and certain areas.
But yes, so far the profitability of that line continues to hold steady and we are.
And we're expecting that to continue into 2021.
Okay. Thanks, Jeff.
To both of you and to the entire team and again congratulations on another very strong and consistent quarter, a very strong close to 2020. It sounds like 2021 is going to continue that momentum and hopefully the stock price will start to narrow that gap not only the curtain on the existing book value, but even.
More importantly to get to where it appears on it because I think we certainly deserve it but from an execution from an operational execution standpoint, I think you all and the team are leading and hitting on all cylinders. So.
On behalf of a lot of shareholders. Thank you for dual everything Youre doing very well noted and appreciable.
Thank you Doug.
And it's again, if you'd like to ask a question Press Star then one on your telephone keypad and our next question is going to come from the line of James Bock.
K B W.
Hi, I had a question on the commercial auto rates I saw a six 8% for the quarter, which looks like it's climbing down a bit from there.
The first three first on nine months of 2020. So I was just wondering if there is kind of a broader or more enduring trend towards decelerating rates and the commercial auto line.
Well this is Jeff teams and following up on what Kevin said earlier I would say that we are expecting net rates on average to be higher than that fourth quarter increase.
Likely closer to the high single digits.
So.
Based upon the mix of states and the activities that.
There are certain states, where we're not pushing for as high a and increase but there is still and the <unk>.
5% range or higher and then when you layer in the states, where we are pushing for 'twenty two as high as 30%.
Think of it should average out to close to a 10% rate increase for 2021. So yes. The fourth quarter. We think was somewhat lower than then what we expect to see going forward.
Alright, and kind of longer term what are the plans for trying to get the commercial auto combined ratio to sort of a more acceptable level on your view.
As we earn the premium increases that we put through in 2020, and then as we 2021 planned increases are earned and we expect to get a lot closer to having an underwriting profit we're targeting.
And I'd like a 96% combined ratio, but we know it's going to take us probably at least two years to get there. So I would say by the end of 2022, we would expect to be at least to a breakeven if not starting to see some modest profitability and the line assuming that loss costs and continue on the current rate.
Perfect. Thank you so much.
Youre welcome. Thank you and question.
Thank you.
And at this time, we have no further questions I'll turn the conference over to Mr. Miller for closing comments.
Thank you Holly and thanks to all of you for joining the call today and we appreciate the questions and the participation and we look forward to speaking to you again after reporting first quarter results.
Have a great day thank.
Thank you.
Once again, we'd like to thank you for participating on today's Donegal Conference call you may now disconnect.
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