Q2 2021 Donegal Group Inc Earnings Call
Good day, and thank you for standing by and welcome to the Donegal Group, Inc. Second quarter.
'twenty 1 earnings conference call.
This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone please be advised that today's conference is being.
For 2 recorded if you require any further assistance. Please press star Zero I would now like to hand, the conference over to Mr. Jeff Miller. Thank you. Please go ahead.
Thank you very much good morning, and welcome to the Donegal Group Conference call for the second quarter ended June 32021.
Being 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.
In today's call, Kevin Burke, President and Chief Executive Officer, who will provide a business.
On this update and overview and I'll follow Kevin's comments with highlights of our quarterly results.
Then Kevin will return with closing remarks before we open the line for any questions you may have.
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 for forward looking statements.
News release, and we provided further information about risk factors that could cause actual results to differ materially from those we projected the forward looking statements in the report on form 10-K that we submitted to the SEC we.
We expect to file our form 10-Q for the second quarter on or around August 6.
Can access our SEC filing.
In our under the investors section of our web site.
Also we use certain non-GAAP financial measures to analyze our business results and we refer you to the reconciliation of non-GAAP information included in the news release that we issued yesterday.
With that I'll turn it over to Kevin.
Thanks, Jeff and welcome everyone. We are pleased to report solid underwriting.
<unk> sales for the second quarter for the first half of the year, resulting in an annualized first half return on equity of 10% that contributed to continued book value appreciation.
We achieved top line growth, particularly in commercial lines' favorable reserve development and we continue to make solid progress on our technology and analytics.
Resolvable initiatives.
For the second quarter of 2021, we reported net income of $16.2 million or <unk> 53 cents diluted share of our class a common stock net premiums written increased 8.2% and our second quarter combined ratio was 96, 1%.
<unk>.
Comparisons to prior year quarter results are somewhat challenging given that all aspects of our business were impacted by the pandemic and related shutdowns throughout the country during that period.
We are pleased that our results for the first half of 2021.
<unk> represents significant improvement from <unk>.
And a little endemic periods starting back in 2017, we made several significant changes to improve our profitability, including a shift of our mix of business towards commercial lines, where we believe we will continue to have opportunities to obtain profitable growth through our independent agents are organization navigated.
Again to the challenges of 2020 successfully thanks to the professionalism and dedication of our employees. We also leaned on the independent agency relationships that we've built and cultivated in some cases over several decades while.
While we stayed in close contact with our agents for Ya.
Remote.
Prepaid during the pandemic, our marketing and underwriting teams have enjoyed opportunities to re engage with our agents through in person meetings as our agents have begun to return to more normalized operations.
I personally personally looking forward to several meetings that are planned with senior leaders of several large agency groups with whom our national.
National accounts teams have been working with over the past several years to strengthen relationships and bolster our position within these groups. We are committed to providing all agents with point of sales services that make it easy for them to produce business for us along with compensation programs that are specifically tailored to incentivize them to send.
<unk> quality business.
We remain committed to sound underwriting and pricing discipline and working closely with our independent agents to deliver best in class customer service, which we believe is a key to achieving further market share gains.
To that end, we reported solid top line growth during the second quarter with commercial.
<unk> lines net premiums written increasing to 19, 9% the largest contributor to this growth was an allocation of commercial premiums from for southwestern states from the Donegal mutual underwriting pool.
As we announced previously Atlantic States insurance company, our largest insurance subsidiary began to receive.
And 80% allocation of the underwriting results of the Mountain States insurance group for policies effective in 2021, which is the culmination of our plan that began with Donegal mutual's acquisition of that group back in 2017.
Mountain States insurance group net premiums written added approximately.
$24 million.
2 our net premiums written for the first half of 2021, which generally matched our forecast for the second quarter Mountain States premiums represented approximately half of our 19, 9% overall commercial growth.
The 26, 7% growth in our commercial multi.
Apparel line of business during the second quarter reflected a combination of mountain states premiums new business and premium rate increases.
In our commercial auto line of business, we've been implementing substantial premium rate increases over the past few years and have also taken decisive actions to substantially reduce.
<unk> exposures and litigation prone geographies as a result, we believe that we will achieve rate adequacy in that line of business in 2022, when we will earn that premium increases we are implementing throughout 2021 and expect to fully benefit from our underwriting actions.
And workers compensation.
Favorable reserve development contributed to profitable second quarter results.
Our workers' compensation loss ratio has steadily increased due to bureau mandated premium reductions over the past few years. We are beginning to see some early signs that may indicate rates are stabilizing across our markets.
Summarizing our commercial lines outlook, we believe current market conditions, including ongoing impacts of supply chain disruption labor shortages low interest rates and social inflation will continue to support reasonable new business pricing and renewal premium increases in the near term.
Moving to personal lines, our net premiums written declined 6.4%, which was expected as we continue to emphasize sustainable profitability over growth in anticipation of the launch of our new personal lines products. Later this year, we will continue.
To look at the deployment of our.
Our products, which will be done incrementally in 11 states with the rollout extending into 2022, and we expect to see premiums decline that we've experienced in the recent years start to ease with the rollout of these new products.
New products will provide diversified coverage options to meet the specific needs of personal.
Personal lines customers, who recognize the value of the advice of a trusted independent agent and the value of excellent service and responsiveness from their insurance carrier, we will provide our agents and their customers with competitive pricing based on predictive analytical pricing models that segment risk characteristics.
Beverage external data to a much greater extent than our current product offerings and rating models.
We look forward to competing more effectively for new quality personal lines accounts through our independent agents.
Our book value per share at June 32021 increased to 7.
$17.60 for from $17.13 at December 31, 2020, as net income for the first half of 2021 was partially offset by declared cash dividends and unrealized losses within our available for sale fixed maturity portfolio due to an increase in market interest.
Interest rates during the period.
Since the end of 2018, our book value has grown by over 25% even after our return of dividends to our stockholders that represented 1 of the highest dividend yields within our industry.
We were also pleased to declare a regularly quarterly cash dividends of <unk> 16.
<unk> per share of our class a common stock and 14 and a quarter cents per share of our class B common stock.
Orderly dividends are payable on August 16, 2021 to stockholders of record as of the close of business on August <unk> 2021.
Based on yesterday's closing price.
A $15.10 per share our current dividend rate represents 4.2% yield for our class a common stock.
As we successfully execute our business strategies, we expect to continue to grow the book value of Donegal group for the benefit of all of our stockholders.
With that I'll turn.
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 Kevin as is my usual practice I will provide some additional color on our financial performance for the second quarter.
Beginning with net premiums written we reported an 8.2% increased to $209.6.
$6 million with commercial lines, representing approximately 62% of the total and personal lines representing approximately 38%.
The inclusion of mountain states premiums, which represent entirely commercial business has contributed to the ongoing shift toward a higher percentage of commercial business and our product mix.
As Kevin mentioned we.
Expect new personalized products will begin to stabilize that segment beginning in 2022.
Kevin also highlighted that commercial lines grew by 19, 9% to $129 million led by commercial multi peril growth of 26, 7%.
Overall commercial growth included $10.7 million on mountain States.
<unk> premiums that were added to the pool business allocated to Donegal group.
Representing roughly half of the commercial growth for the second quarter.
Factors driving organic growth included a steady flow of new business submissions strong premium retention and renewal premium increases averaging 6.8% for the commercial segment for.
Excluding workers' compensation.
The commercial lines premium retention rate was 90% for the first half of 2021.
We are continuing to achieve.
Substantial commercial auto rate increases excluding the impact of no fault reform in Michigan those rate increases averaged approximately 11%.
$8 for the quarter we.
We've also been achieving higher renewal premium increases in our commercial multi peril line of business, which averaged around 5% for the second quarter up from low single digits in the first quarter.
While we are pleased to report growth in every commercial line of business, we continue to closely monitor that underwriting.
<unk> segment is generating.
Commercial lines statutory combined ratio of 94, 3% compared favorably to 99, 3% for the first quarter of 2021 and was only modestly higher than 93, 5% for the prior year's second quarter, which reflected lower claim activity due to the pandemic.
Nick there were a number of moving parts within the favorable commercial performance for the second quarter of 2021.
Lower weather related losses were generally offset by higher large fire losses compared to the prior year quarter.
Increases in claim activity relative to the prior year quarter were generally attributable to the resumption of economic and driving activity.
<unk> offset partially by favorable reserve development on claims incurred in prior years.
We experienced favorable development across all commercial business lines, but it was heavily weighted toward workers' compensation, where we benefited from favorable claim settlements as courts reopened and our claims personnel were able to bring cases to closure.
Within the reserves, we had established.
Those were primarily claims from accident years 2017 through 2019.
For workers compensation development was quite a bit higher than in the second quarter of 2020, but very comparable to the second quarter of 2019.
Moving to personal lines our strategy.
For the past few quarters has been to stabilize that segment's results by limiting disruption in the legacy book of business that has now returned to profitability.
While personal lines net premiums written have continued to decline we have retained 87% of expiring personal lines policies in year to date 2021 that retention rate coupled with.
G over the thing a modest increase in new business writings has helped to slow the rate of premium declines we experienced a year ago.
As we've been discussing over the past year, we expect the launch of new personal lines products later in 2021 and continuing into 2022 will further stabilize our personal lines premium volume and ultimately provide.
<unk> opportunities for modest levels of premium growth as those products screen gained traction.
The personal lines statutory combined ratio was 96, 9% for the second quarter as auto claims frequency returned closer to pre pandemic levels.
Auto claim frequency was beginning to trend downward before the pandemic.
<unk> as a result of various underwriting actions we had taken so we were not surprised that frequency levels have remained more favorable than we experienced in 2019 in prior years.
The homeowners loss ratio reflected a lower weather related loss impact that was partially offset by higher large fire losses compared to the prior year quarter.
For both segments combined the loss ratio for the second quarter was 59, 2% higher compared to 57, 1% for the prior year quarter, but improved from 63, 7% for the first quarter of 2021.
The increase over the prior year quarter was largely due to the higher frequency of personal auto claims compared.
Covid impacted second quarter of 2020.
Weather related losses represented 6.1 percentage points for the loss ratio, which was lower than the previous 5 years second quarter average of 9.5 percentage points and 10, 1 percentage points for the prior year quarter.
Large fire losses, which we differ.
Define as individual fire losses in excess of $50000 increased to 6.1 percentage points of the loss ratio elevated somewhat compared to the 4 percentage points of the loss ratio for the prior year quarter.
We reviewed core loss ratios in comparison to the second quarter of 2019, which we believe.
<unk> is a better comparison period when analyzing the underlying trends.
Core loss ratios exclude the impact of weather fires and prior period reserve development with.
With the exception of workers' compensation, where the core loss ratio increased 4 percentage points, primarily as a result of premium rate decreases over the past several years.
We saw improvement in the second quarter of 2021 core loss ratios for all major lines of business.
Commercial auto is not yet generating an underwriting profit the core loss ratio improved 5 points versus the second quarter of 2019.
Personal auto improved by over 8 percentage points and commercial multi peril improved.
6 percentage points.
While a 3 month loss ratio can be distorted by a few large losses. We are pleased with trending improvement, particularly in lines, where we have taken substantial rate and underwriting actions to improve profitability.
We experienced net favorable development of reserves for losses incurred in prior accident years of 13.
<unk> $4 million for the second quarter, 2021, which reduced the loss ratio by 6.9 percentage points compared to $6.6 million of favorable development for the second quarter of 2020 that reduced the loss ratio by 3.6 percentage points.
In addition to the commercial lines I mentioned earlier, we had favorable development.
But in the personal auto line of business at a level consistent with the prior year quarter.
Development in both the commercial and personal auto lines related primarily to the 2020 accident year for which our actuaries conservatively assumed a continuation of historical loss emergence patterns due to a lack of clarity as to the ultimate impact.
Element endemic on those patterns.
1 last important point to make related to the reserves is that we continued to add to overall reserves with IBM on our loss and loss expense reserves, increasing by $11.7 million compared to year end 2020. The increases were primarily in commercial lines of business, where we've added.
For the exposures and also where we see the potential for social inflation and other inflationary pressures on loss costs.
The expense ratio was 36% for the second quarter of 2021 compared to 34, 3% for the second quarter of 2020.
We primarily attribute the expense ratio increased 2.
<unk> added a crystal lines growth incentives on underwriting based profit sharing incentives for our agents, particularly related to the performance of a number of larger agents, who are growing and profitable.
Along with increased allocations of technology systems related expenses associated with our multi year systems modernization project. There was also an increase in the current.
<unk> expense ratio due to due to a reallocation of certain costs from loss expenses to underwriting expenses that resulted from the implementation during the quarter of a new expense allocation software tool that enhanced our allocation methodology.
In total on the combined ratio was 96, 1% for the second quarter.
Quarter it from 'twenty, 1 compared to 92, 3% for the prior year quarter and 102% for the second quarter of 2019.
Moving quickly to investments net investment income increased 6.7% to $7.7 million for the second quarter of 2021 compared to $7.2 million.
2000, net investment income for the second quarter of 2020 the.
The increase in net investment income reflected primarily an increase in average invested assets relative to the prior year quarter.
At June 32021, we had $1.3 billion and total investments with an average investment yield of 2.6% and a duration.
8 years.
The average tax equivalent investment yield has remained fairly constant throughout the first half of 2021, but we expect that average yield will begin to decline modestly as currently available reinvestment rates continue to lag those for maturing investments.
With that let me turn it back to Kevin for closing comments.
Thanks, Jeff Let me conclude our prepared remarks by stating we are only now beginning to benefit from the significant operational and strategic changes we've implemented over the past 3 years, we are making solid progress on a number of critical inflight initiatives, we will continue to invest in additional technology and analytical.
Political capabilities to further enhance our underwriting and claims processes enhanced customer service capabilities and operational efficiencies, we will enhance shareholder value by gradually expanding our premium base to provide additional scale focusing on quality underwriting and rate adequacy to maintain and improve our.
Our profitability building on our excellent agency relationships to provide additional opportunities to increase market share and refining our marketing and underwriting strategies to maintain and enhance our position within our regional markets.
At this time last the operator to open the lines for any questions that you may have.
As a reminder to ask a question you will need to press star 1 on your telephone.
Your question Preston on Keene, Please standby, while we compile the Q&A roster.
And your first question comes.
From the line average.
Jamie Inglis with silos.
Hi, good morning, guys.
2 unrelated questions.
1 is free.
Can you tell me what your thought process about how the company will look post.
At World has.
As to a work environment and secondly, what.
Effect that might have on an expense ratio or loss ratio potentially smell I guess.
Jamie Good morning, Thank you for the question.
The first part of that we'll address.
In terms of what does it what are what.
On it will look like post COVID-19.
Donegal like many organizations is working through that right now and as I came in to the office. This morning.
We're more employees here on the home office and I have seen in the past.
Year to 18 months. So we're delighted that we've got more employees coming back into the office.
<unk>, we really started the process in June very gradual and bringing employees back. Our goal is that by the end of September that will have a higher percentage of our employees back into the work environment.
Donegal has always been a very what I'll categorize as a traditional <unk>.
Office work environment, the majority of our employees, who are working here in the office.
But COVID-19 has really caused us to take a step back operationally, we did extremely well in 2020, and so we see that there are opportunities to create hybrid work environments for employees.
So we've got employees that are here a.
A couple of days a week and also working from home. We are also really evaluated those employees.
Operationally, it's been very very efficient from working from home and in those cases those employees will continue to work from home in terms of the second part of that what does it do from.
Hence ratio standpoint, I think that's to be determined.
I would hate to say that we're going to see some reduction or we don't need office space I think that would be premature, but I do think that the Donegal organization from an office setting standpoint will have a different look to it for.
For the second half of this year.
And expand and I've always held to the point that as long as operationally we are hitting the mark.
Then we should remain flexible and open to make sure that we're providing the best and safe safest environment for our employees.
Okay great.
The other question sort of a broader audience.
Net.
Potential state auto acquisition.
Do you think for or is there any potential positive for.
It might come about as a result for that for you guys.
Yeah.
I appreciate the question.
We.
We have received.
Several inquiries from stockholders following the recent announcement of the transaction with state auto financial.
Which has a similar mutual company downstream holding company as ours.
Recognizing that Donegal is the last remaining company with this unique structure may generate.
Additional questions and candidly that is to be expected.
Jamie However, I will say that we are committed to staying focused on achieving and improving our operating results now and into the future.
I think it's important to remember that this senior management team officially took control of Donegal in.
Somehow isn't 18, and we have made tremendous progress in our overall operating results.
Of the company.
And given the number of current initiatives that we've highlighted in past earnings calls all of which are contributing to our current success and equally important our future success.
The Donegal senior management team and both boards of directors the Donegal mutual board of directors as well as the public company Donegal Group's board of directors are committed to long term success of our organization and really wanting to see us execute on many of these initiatives that we have started in the last 2 to 3 years.
In 2 days.
Jeff I appreciate that.
Misstated my question or didn't state it clearly.
On that from an operational point of view.
There'll be opportunities.
Within the agency World, which you operate in and sort of day, where agents don't want a place.
So much for their business will ultimately be 1 enterprise.
Well anytime that there is an acquisition.
In this case similar to our state auto and Liberty mutual given the size of that transaction, Jamie creates disruption in the marketplace.
You know, we would be very cautious in terms of.
What opportunities might come out of that transaction, but most certainly there will be some disruption in the marketplace.
Okay, well good luck with that.
Thank you.
Your next question is from Meyer Shields with K B W.
Thanks, I want to follow up on Jamie's question is kind of open ended.
Clearly the progress that you've put together the undeniable so don't worry about that but.
What are your thoughts on the fact that the your operating structure.
It's now gone I mean, it sounds like the company for failed it must have been acquired.
Wired or or taken private but is there any meaning from the fact that it's just.
Besides view nonexistent right now.
Well I think may or 1 of the things that we need to consider is when you. When we first saw the announcement. The first reaction is to the to the headline.
And when you start to look at it it's very important I believe for our analysts as well as our stockholders to understand that there are a number of very fundamental differences unique differences between state auto in Donegal in terms of.
How it's structured not necessarily a corporate organization, but just from.
Our financial structure standpoint in fact, it might be worth just going through a couple of <unk>.
Bullet points on those just for for clarity.
Jeff do you want to talk a little bit about the for.
Perhaps the surplus or even the ownership of the mutual not to mention the <unk>.
Stock option component.
<unk> of this as well.
So to <unk> question, certainly we are very similarly structured to state auto and.
From a corporate perspective, but there are some subtle nuances that are somewhat meaningful in terms of the economics as we reviewed the.
Transaction debt.
Was recently announced.
Is that the mutual company for state Auto 1 day, a larger percentage of the economic value of the stock of the public company.
The mutual company had a higher relative <unk>.
Surplus position.
Percentage of the entire enterprise and we have other.
Other factors such as outstanding stock options that are higher than what.
What state auto had so theres a number of moving parts, there and nuances that would impact the economics, if youre trying just to do with kind of an apples to apples comparison of.
What would something like that look like for Donegal group.
Yeah, I guess the reason for saying all of that is just to say you can't necessarily make broad assumptions based upon the metrics of a given transaction there's always vary.
A lot of details that go into any transaction like that but to your point mayor. Yes. We are the last remaining company that has this structure.
That's not necessarily any different from when we were 1 of 2 companies that had that structure. We still believe that the structure works well for US. It has we've tried to utilize that structure to the benefit of all of the various constituents that we serve including the mutual policy.
The holders as well as the stockholders.
Certainly there is.
Plenty of debate that we could have as to how that has played out and the impact of.
On the decisions that have been made by other companies that have that structure, but we're currently focused on our business strategy. We think we have a lot of.
Ahead of us to continue to improve our results and.
That's basically our focus at the current time.
No that all makes perfect sense. Thanks, a quick.
A quick modeling question is there any way of Ballparkish on the magnitude of the reallocation of loss expense to underwriting expense and I assume that that continues for.
Runway quarters.
That's a great question and I appreciate the opportunity to kind of clarify that it is somewhat technical but let me just kind of walk walk you through that.
As I said earlier, we implemented a new software tool during the quarter and it was.
Designed to enhance our expense allocation method.
For the next Realogy.
When doing that we determined that the overhead expenses that should be allocated to the loss function and the underwriting function.
Should be done flow on the basis of actual salaries for those functions as of June 30th.
That's similar to the method, we had in the past, but we refined it and we updated.
Methodologies.
The numbers that form the base for those allocations as at the end of June.
And the result was that we increased underwriting expenses and we decreased our loss expenses, meaning that we added to the expense ratio with a corresponding reduction to the loss ratio. So no overall financial effect.
In terms of the numbers the impact increased this second quarter expense ratio by about 1.5 percentage points compared to the first quarter of 2021 expense ratio.
And about 1 percentage point compared to the prior year second quarter.
On a year to date.
Basis, the relative allocation of overhead expenses to the loss function was fairly comparable.
2021 allocation added about.
0.3 percentage points 30 basis points.
2 the year to date expense ratio so going forward, we don't expect to see that same level of.
No it.
An additional reallocation so.
Year to date expense ratio is a more accurate run rate at the current time.
Okay perfect. That's all I was looking for thank you.
Youre welcome.
Your next question is from Bob Farnam with <unk>.
Go on scatter go.
Yeah, Hi, Thanks, good morning.
I wanted to continue the questions that Bayer was was addressing what the expense ratio can you just kind of give us an idea of how much of that expense ratio was related to the incentive compensation as well just trying to figure out how.
It won't be is trending and where that should be going going forward.
Sure.
Our agency incentive compensation accounts for about a 1 percentage point increase over the prior first half so looking at the first half of 2021 relative to 2020, it's about 1 percentage point increase.
That and.
And like I said that.
That's based upon our projections.
What we would pay out at the end of the year if the experience for all of our individual agents would continue to be as profitable in the growth rates would be maintained.
We've talked about the technology project and the impact that.
On the expense ratio and that's about a 50 basis point addition.
Our expense ratio relative to prior to our expense ratio prior to beginning that project.
Not yet having a real material impact.
But.
Higher agency compensation is definitely a factor.
Alright, okay.
In terms of the reserve development.
It sounds like most of it was from workers' comp, but you did have some from personnel on commercial auto can you just give us some numbers to back it up and just give us an idea of.
Specifically for the auto pieces, what accident years are coming from.
Absolutely.
It has on its Jeff again, the mid <unk>.
$13.4 million of favorable development in the second quarter. That's a I think a record high for force in any 1 given quarter $6.5 million was in workers' compensation and as I mentioned earlier, that's primarily from.
Favorable settlements from 2017 through 2019.
<unk> accident years.
There was some favorable development in the 2020 accident year, as well, which is kind of similar to what I talked about on auto with the assumptions on higher loss emergence.
<unk> ended up not coming to fruition on the commercial auto side, it was $2.1 million.
This is primarily in the 2020 accident year and the personal auto was $3.4 million again, primarily in the 2020 accident year.
Although we did have modest favorable development in the earlier.
Accident years for both of those lines CMP.
Rounds it out.
And that $1.1 million and Thats again into 2020 accident year, primarily.
Okay.
It sounded like you had just about everybody else said.
What does that with how 2020 went had some some maybe conservative baked into their numbers just to be safe.
Yeah, we really didn't know how those patterns are going to emerge.
So frequency was down severity was up.
I think we and others for somewhat conservative just not knowing what to expect right.
And maybe 1 for Kevin I know, you've got the new personal lines products coming out.
If you could.
You've commented the fact that the personal lines growth.
Has been negative but that should.
Start to change going forward can you give us an idea of.
Maybe the timing or expectations for growth going forward and personal lines.
Sure.
Obviously, we're looking forward to the rollout on the new product, we are going to be doing this in a staged approach sort of batch stages, we're calling them.
Just in terms of timing third and fourth quarter of this year, So states like Indiana, Ohio, and Pennsylvania will be part of the first group.
Route.
Debt will be deployed and then third and fourth quarters.
I'm sorry, the second and third quarters for next year will be the other batches of states.
Kind of rounding out the field.
We're looking for some modest growth Bob.
Our hope.
Is that some of the new business that will be able to add brings.
Brings us to a breakeven point, where we get to a zero and maybe even in the plus column.
As part of Jeff's remarks, he talked a little bit about an 80, 87%.
Policy retention rate in personal lines, which has been excellent.
It was part of our plan.
Land that that legacy book of business, which is performing well on is profitable, but now we do need to start to offset the attrition and we believe with the new products that we're going to be rolling out throughout 2022, we will start to see that lift.
To give you a sense of timing I think 2023.
Is where we'll start to see the new business.
To to level off for our overall personal lines performance.
But as you are aware personal lines business takes a couple of years to become profitable.
So we are going to be relying to a certain extent on that legacy book of business again, thats been performing well and we're going to.
So by mid year next year.
Well this product is doing and being received in the marketplace, particularly with the deployment of Pennsylvania with policies effective January 1.2022 by the end of the second quarter.
We're going to see how how well it's doing and we have taken.
I know a lot of time to ensure that our agency plan is ready the marketing team has been out working with our agents and so theres been a lot of buildup as we prepared to deploy these personal lines products throughout 2022.
Okay. So it sounds like it's more of a 'twenty.
'twenty 3 that's where you might see some some some growth in the personal lines.
Between now and then it's going to be more of a slow trickle, that's trying to offset the.
The attrition.
That's correct, that's probably when I when I use the <unk>.
Zero to 1 or 2% at 87%.
Policy retention rate, if we can close that gap in 2022, I think that sets us up for 2023.
With your comments are right on that Youll start to see some some modest growth, which is what we're looking forward to.
Great Okay. Thanks for that.
<unk>.
Your next question is from Douglas Eden with ECM.
Good morning, Kevin and Jeff.
Doug.
Congratulations on a solid quarter nice growth in book value and now 10 consecutive quarters and stable on favorable reserve development.
How the stock is not trading at least at book value is anathema to me, but that's a conversation for another day.
I have 2 questions.
First with Michigan being a large territory for the company I was wondering if youre seeing any initial impact from the recent storms and tornadoes that came across the state in the last week or 2.
Secondly, rigor.
Regarding the new personal lines product I know, we just discussed it but what if the CSR said, so far who have tested it relative to how it differs from the current products and I guess, even more importantly, how it what's its marketability compared with competitors in their offices from there on.
On their agent locations.
Well 2 good questions, we'll start first with Michigan, We actually received a report yesterday in terms of potential losses as it relates to those storm related.
Issues in so far it's been very modest so we think that we're fortunate we're.
We're not seeing some uptick in terms of claims activity. So.
For right now I can report and tell you that I think that we're in good shape in terms of those storms.
That hit, Michigan, particularly northern Michigan on the personal lines piece of it great question as it relates to the csrs because as you know they are the gatekeepers within any agency in terms of writing.
Some lines business 1 other things that we have done is.
To ensure that our pricing is appropriate.
We've run it through a couple of different models to ensure that the pricing that we have and we will be deploying with the new products is competitive and right now all indications Doug or that.
<unk> for those.
Those rates are very competitive when we built the product itself. We took a number of our peer companies and some larger national companies and really looked at their product in depth and built the product around it. So I think that from a coverage standpoint, we're going to be in very good shape, but as you know in personal.
Those things.
<unk> is is king and so we have to make sure that.
We are appropriately priced and we believe based on all that we have seen.
That we're going to be just fine from a rate standpoint.
Last couple of weeks in particular.
<unk>, we're getting ready to roll out this first batch of news of states for personal lines.
Our marketing team has spent a lot of time.
Indiana, Pennsylvania, and Ohio, preparing our agents for this rollout and building some enthusiasm for it and the feedback that we've been getting back from.
As our agents in particular, the CSR is as they are anxious.
To quote Donegal, they want to see is back engaged in that game.
And as you know historically Donegal has always been a very solid personal lines.
Carrier and so it's been a couple of years removed.
The actions that we had to take to bring it back to profitability.
We've executed on that but now it's time to re engage and we think that we are appropriately set to do that.
And I think the timing it'll be fortuitous as well with the marketing folks able to travel again and get out into the field visiting their agency plan.
Because it's just getting in front of the csrs.
Constantly it can be the key to getting the repetitive quotes coming in so I think that's going to work in our favor as well for you.
Agree.
Yeah did you say, Kevin, Pennsylvania isn't that first group is that you've got a fourth quarter or first quarter.
Plant that is expected it is in the first group. It's in the first group of states and so it will be for policies effective January 1.2022. So we will be working in late September October to deploy that product working with our agents and then we will be writing on January 1.
Okay, well keep up the great work another good quarter from both of you on the whole thing.
Thank you very much.
And there are no further questions at this time I will turn the call back over to management for closing remarks.
Thanks to all of you for joining the call today and thanks for the good questions.
<unk>, we look forward to speaking to you again after reporting third quarter results.
Enjoy your day. Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
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