Q2 2021 Donegal Group Inc Earnings Call
Okay.
Good day and thank you first.
And by welcome to the Donegal Group, Inc. Second quarter 2021 earnings Conference call. At 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.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to Mr. Jeff Miller and thank you. Please go ahead.
Thank you very much good morning, and welcome to the Donegal.
And your tolerance call for the second quarter ended June 32021 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 and Donegal group Dot com.
In addition, we have made available a supplemental investor presentation on our website.
Group today's call, Kevin Burke, President and Chief Executive Officer, who will provide a business update and overview and I'll follow Kevin's comments with highlights of our quarterly results and 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.
And the 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 that forward looking statements and the report on form 10-K that we submitted to the SEC.
We expect to file our form 10-Q for the second quarter.
The number around August 6 you.
You can access our SEC filings through the investors section of our website.
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.
On a range, Jeff and welcome everyone. We are pleased to report solid underwriting results for the second quarter and 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 analytical initiatives.
For the second quarter of 2021, we reported net income of $16.2 million or.
And were 53 diluted share of our class a common stock net premiums written increased 8.2%.
<unk> and our second quarter combined ratio was 96, 1% comp.
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.
Represents significant improvement from pre pandemic 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.
And through our independent agents are.
Our organization navigated the challenges of 2020 successfully thanks to the professionalism and dedication of our employees. We also leaned on the independent agency relationships that we have built and cultivated and some cases over several decades.
While we stay.
Stayed in close contact with our agents vs.
Remote communications during the pandemic, our marketing and underwriting teams have enjoyed opportunities to reengage with our agents through in person meetings as our agents have begun to return to more normalized operations.
Personally personally and looking forward to several meetings that are planned.
Plan with senior leaders of several large agency groups with whom our national accounts teams have been working with over the past several years to strength in 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 program.
Grams that are specifically tailored to incentivize them to send us 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 and we rip.
Solid top line growth during the second quarter with commercial lines net premiums written increasing to 19, 9% the largest contributor to this growth was and allocation of commercial premiums from for southwestern states from the Donegal mutual underwriting pool.
As we announced previously Atlantic States insurance.
<unk> 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 and added approximately $24 million.
So 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 and our commercial multi peril line of business during the second quarter reflected a combination of mountain states premiums new business and premium rate increases.
And our commercial auto line of business, we've been implementing substantial premium rate increases over the past few years.
And I have also taken decisive actions to substantially reduce 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.
And our underwriting actions.
And workers compensation and favorable reserve development contributed to profitable second quarter results.
Our workers' compensation loss ratio has steadily increased due to bureau mandated premium and 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 and anticipation of the launch of our new personal lines products later this year.
We will continue.
To look at the deployment of our products, which will be done incrementally and 11 states with the rollout extending into 2022, and we expect to see premiums decline that we've experienced and the recent years start to ease with the rollout of these new products.
The new products will provide diversified coverage options to meet the specific needs and 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.
And Dave analytical pricing models that segment risk characteristics and leverage 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.
Book value per share at June 32021, and increased to $17.64.
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.
Our available for sale fixed maturity portfolio due to an increase in market 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 per share of our class a common stock and 14 and a quarter cents per share of our class B common stock.
The dividends are payable on August 16, 2021 to stockholders of record as of the close of business on August.
And 2021.
Based on Yesterdays closing price of $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.
Second for the benefit of all of our stockholders.
With that I will 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.
And we reported an 8.2% increased to $209.6 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.
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 and mountain states premiums that were added to the pool business allocated to Donegal group.
Representing roughly half of the commercial growth for the second quarter and.
Factors driving organic growth included a steady flow of new business submissions strong premium retention and renewal premium increase.
Averaging 6.8% for the commercial segment or 8% 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.
<unk> chicken those rate increases averaged approximately 11% for the quarter.
We've also been achieving higher renewal premium increases and our commercial multi peril line of business, which averaged around 5% for the second quarter up from low single digits and the first quarter.
While we are pleased to report growth and every.
And missile line of business, we continue to closely monitor the underwriting results that segment is generating.
And 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.
Commercial water, which reflected lower claim activity due to the pandemic.
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 and claim activity.
Relative to the prior year quarter, but generally attributable to the resumption of economic and driving activities 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.
<unk> claim settlements as courts reopened and our claims personnel were able to bring cases to closure within the reserves and we had established.
Those were primarily claims from accident years 2017 through 2019.
And workers compensation development was quite a bit higher than in the second quarter of 2020, but very comparable.
Second quarter of 2019.
Moving to personal lines, our strategy over the past few quarters has been to stabilize that segment's results by limiting disruption and 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.
And to the science policies and year to date 2021 that retention rate, coupled with modest Inc, and a modest increase and new business writings has helped to slow the rate of premium declines we experienced a year ago.
And 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.
Personal for further stabilize our personal lines premium volume and ultimately provide opportunities for modest levels of premium growth as those products screen gained traction.
The personal lines statutory combined ratio was 96, 9% from the second quarter as auto claims frequency returned closer to pre pandemic.
Levels.
Auto claim frequency was beginning to trend downward before the pandemic 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 and prior years.
The homeowners loss ratio reflected a lower weather related loss impact that was.
And they 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.
Partial to the prior year quarter was largely due to the higher frequency of personal auto claims compared to the COVID-19 impacted second quarter of 2020.
Weather related losses represented 6.1 percentage points of the loss ratio, which was lower than the previous 5 years second quarter average of 9.5 percentage points and.
<unk>, 1 percentage points for the prior year quarter.
Large fire losses, which we 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 quarterly.
And 10 loss ratios and comparison to the second quarter of 2019, which we believe 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.
Core lines, primarily as a result of premium rate decreases over the past several years, we saw improvement and 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 by 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.
Percentage variances net favorable development of reserves for losses incurred in prior accident years of $13.4 million for the second quarter of 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 and the personal auto line of business at a level consistent with the prior year quarter to.
Development and both the commercial and personal auto lines related primarily to the 2020 accident year for which our actuaries conservatively assumed a continuation of.
Weaker cold loss emergence patterns due to a lack of clarity as to the ultimate impact of the pandemic on those patterns.
1 last important point to make related to the reserves is that we continued to add to overall reserves with IV and our loss and loss expense reserves, increasing by $11.7 million compared to year.
<unk> 2020 and.
The increases were primarily in commercial lines of business, where we've added 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% from the second quarter.
And <unk> thousand 20.
We primarily attribute the expense ratio increased to commercial lines growth incentives and 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.
2.2 year systems modernization project.
And there was also an increase and the current quarter expense ratio 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 methodologies.
Our multi total the combined ratio was 96, 1% for the second quarter of 2021 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.
<unk> second quarter 2021, compared to $7.2 million and net investment income for the second quarter of 2020 the.
The increase and net investment income reflected primarily and increase in average invested assets relative to the prior year quarter.
At June 32021, we had $1.3 billion and total investor.
<unk> with an average investment yield of 2.6% and a duration of 4.8 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 from 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.
And we will continue to invest and additional technology and analytical 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.
Underwriting and rate adequacy to maintain and improve 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.
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 press and Keene, please standby, while we compile the Q&A roster.
And your first question comes from the line and Jay.
Amy and glass.
And it follows.
Hi, good morning, guys.
And 2 unrelated questions.
Can you tell me what's your thoughts.
And just about how the company will look and sort of a post COVID-19 world has to work environment and secondly, what.
Effect that might have on an expense ratio at or loss ratio potentially smell I guess.
Jamie Good morning. Thank you for the question the first part of that.
Possibly we'll address.
In terms of what does it what is Donegal 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.
And there were more employees here and the home office and I've seen in the past.
Year to 18 months.
So we're delighted that we've got more employees coming back into the office.
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.
And a very what I'll categorize as a traditional office work environment and 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 and 2020 and.
And so we see that there are opportunities.
<unk> to create hybrid work environments for employees.
So we've got employees that are here.
A couple of days a week and also working from home. We have also really evaluated those employees that operationally have been very very efficient from working from home and in those cases those employees will continue to work from home.
Home in terms of the second part of that what does it do from an expense ratio standpoint, I think thats 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.
And look to it.
For the second half of this year and and I've always held to the point that as long as operationally we are hitting the mark.
And 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.
Yes.
The other question and sort of a broader audience.
Yeah.
Potential state auto acquisition.
Do you think theres any potential positive.
And I'm about as a result of that for you guys.
Well.
I appreciate the question 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 and.
Recognizing that Donegal is the last remaining company with this.
This unique structure may generate some 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 2018, and we have made tremendous progress and our overall operating results.
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.
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.
Our committed to long term success of our organization and really wanting to see us execute on many of these initiatives.
We have started and the last 2 to 3 years.
Jeff I appreciate that I must have misstated my question or didn't state it clearly.
And I met from an operational point of view do you think there'll be opportunities.
Within the agency World, which you operate in and.
And so today, we're agents don't want a place so much of their business will ultimately 1 enterprise.
Well anytime that there is an acquisition and.
And this case similar to our state auto and Liberty mutual given the size of that transaction, Jamie creates disruption and the marketplace.
You know we would be very.
They are cautious in terms of.
And 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.
And then is from Meyer shields with K B W.
Thanks, and I want to follow up on Jamie's question, and it's kind of open ended.
Clearly the progress that you've put together the undeniable so not worried about that but.
What are your thoughts on the fact that the.
And your operating structure.
And is now gone I mean, it's not like the companies have failed and mostly been acquired or are taken private but is there any meaning to the fact that it's just.
Besides the non existent right now.
Yes.
Well I think mayor 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 and 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 and Donegal in terms of how it's.
Structured not necessarily a corporate organization, but just from a financial structure standpoint in fact, it might be worth just going through a couple of a bullet.
Bullet points on those just for clarity.
Jeff do you want to talk a little bit about the perhaps the surplus or even the ownership of the mutual.
Not to mention the.
Stock option component of this as well.
Right. So to <unk> question and 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.
Omics.
<unk>.
The transaction that was recently announced.
1 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.
Surplus position.
The percentage of the entire enterprise and we have other factors such as outstanding stock options that are higher than what.
And 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 and kind of an apples to apples compare.
You know what would something like that look like for Donegal group. So.
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 and theres always vary.
A lot of details that go into any transaction like that but to your point mayor yes.
Chris I know the last remaining company that has the 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 and we've tried to utilize that structure to the benefit of.
Of all of the various constituents that we serve including the mutual policyholders as well as the stockholders.
And certainly there is.
Plenty of debate that we could have as to how that has played out and the impact of.
And the decisions that have been made by other companies that have that structure.
We're currently focused on our business strategy. We think we have a lot of runway 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.
Quick modeling question is there any way of ball parking and the magnitude of the reallocation.
Location of loss expense to underwriting expense and I assume that that continues for the next 3 quarters.
And 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 and walk you through that.
And as I said earlier, we implemented a new software tool during the quarter and.
It is.
Designed to enhance our expense allocation methodology.
When and doing that we determined that the overhead expenses that should be allocated to the loss function and the underwriting function and it should be done so and the basis of actual salaries for those functions as of June 30.
Similar to.
To the math that we had in the past, but we refined it and we updated and all of the.
And 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.
And 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.
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 a point.
<unk> 3 percentage points to 30 basis points.
And to the year to date expense ratio so going.
Going forward, we don't expect to see that same level of.
And there won't be a and additional reallocation so the.
Year to date expense ratio is a more accurate run rate at the current time.
Okay, perfect and that's what I'm looking for thank you.
Youre welcome.
Your next question is from Bob Farnam, with Boenning and Scattergood.
Yeah, Hi, Thanks, and good morning.
And why do you continue the questions.
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 compensate.
And as well and just trying to figure out how.
How that is trending and where that should be going going forward.
Sure.
The higher 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 2012.
It's about 1 percentage point increase.
And like I said that.
And based upon our projection of.
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 and the growth rates would be maintained.
<unk>.
<unk> talked about the technology project and the impact that has on the expense ratio and that's about a 50 basis point addition to.
Our expense ratio relative to prior to our expense ratio prior to beginning that project.
Not yet having a real material impact.
But.
The higher agency compensation is definitely a factor.
Alright, Okay and term.
And the reserve development.
It sounds like most of it was from Workers' comp and you did have some from <unk>.
Personal and commercial auto can you just give us some numbers to back it up and just give us an idea.
Specifically for the auto pieces what.
What accident years and those are coming from.
Absolutely Yeah, and this is Geoff again.
And at $13.4 million of favorable development and the second quarter, that's and I think a record high flow and any 1 given quarter $6.5 million was and workers compensation and as I mentioned earlier, that's primarily from.
Favorable settlements from 2017 through 2019 accident years.
And there was some favorable development and the 2020 accident year as well, which is kind of similar to what I talked about and auto with the assumptions of higher loss emergence.
<unk> ended up not coming to fruition.
On the commercial auto side, it was $2.1 million and Thats, primarily and the 2020 accident year and.
And the personal auto was $3.4 million again, primarily and the 2020 accident year.
Although we did have modest favorable development and earlier.
Accident years for both of.
Lines.
P.
Rounds, it out at about $1.1 million and Thats again into 2020 accident year, primarily.
Okay.
And it sounded like you and just about everybody else said had.
And with how 2020 went and had some some.
Those are baked into their numbers just.
Be safe.
And we really didn't know how those patterns, we are going to emerge and although frequency was down severity was up.
I think yes, we and other.
There's we're 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.
And you've commented the fact that the personal lines growth.
It's been negative but that should start to change going forward can you give us an idea of.
Maybe the timing.
Maybe you could expectations for growth going forward and personal lines.
Sure.
Obviously, we're looking forward to the rollout and the new product we are going to be doing this and 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 it part of the first group.
That 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.
<unk>.
We're looking for some modest growth Bob.
<unk>.
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 and the plus column.
As part of Jeff's remarks, he talked a little bit about an 80, 87%.
Policy retention.
Retention rate and personal lines, which has been excellent.
It was part of our plan that that legacy book of business, which is performing well and 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 will start to see the new business.
Start to level off 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.
Legacy book of business again, Thats been performing well and.
And we're going to know by mid year next year.
How well this product is doing and being received and the marketplace, particularly with the deployment of Pennsylvania with policies effective January 1.2022 by the end of the second quarter.
And on that.
We're going to see how how well it's doing and we have taken 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 2020.
2 okay. So it sounds like it's more of a 'twenty 'twenty 3 and that's where you might see some some some growth and the personal lines, but.
Between now and then it's going to be more of a slow trickle, that's trying to offset the.
And the attrition.
Yes, that's correct that's right when I when I use the.
<unk> growth to 1 or 2% and an 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.
Zero Okay.
Okay. Thanks for that thank you.
Your next question is from Douglas Eden with ECM.
Good morning, Kevin and Jeff.
Doug.
Congratulations on a solid quarter nice growth and book value and now <unk>.
Ken.
And consecutive quarters and stable and favorable reserve development.
How the stock is not trading at least at a book value of the naphtha Madam EBIT, that's a conversation for another day.
And I have 2 questions.
First with Michigan and 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 and the last week or 2.
And secondly.
Regarding the new personal lines product and are we just discussed it but what are the CSR said so far.
First and it relative to how it differs from the current products and I guess, even more importantly, how is what's the market would.
<unk> compared with competitors and their offices and their and.
And 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 and so far it's been very modest so we think that we're.
<unk> net.
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.
And so they are the gatekeepers within any agency in terms of writing personal lines business 1 of the 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.
As you know and with the new products.
And is competitive and right now all indications Doug or that 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 are rounded so.
Deploying that from a coverage standpoint, we're going to be and very good shape, but as you know and personal lines.
Rate 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.
And that we're going to be just fine from a <unk>.
So I think I point, the last couple of weeks and particular.
As we're getting ready to roll out this first batch of new states for personal lines.
Our marketing team has spent a lot of time.
And in Indiana, Pennsylvania, and Ohio, preparing our agents for this rollout.
Rates stay and building some enthusiasm for it.
And the feedback that we've been getting back from our agents and particularly the CSR is as they are anxious.
To quote Donegal, they want to see is back engaged and that game.
And as you know historically Donegal has always been a very solid personal.
Mines.
Carrier and so it's been a couple of years removed because of the actions that we had to take to bring it back to profitability. We've executed on that but now it's time to Reengage and we think that we are appropriately set to do that.
And I think the timing it'll be fortuitous and as well with the marketing.
<unk> able to travel again and get out into the field visiting their agency plan.
And getting in front of the csrs.
Constantly is going to be the key to getting the repetitive quotes come in and so I think that's going to work in our favor as well.
I agree.
And could you say.
<unk> and Pennsylvania isn't that first group is that you've got a fourth quarter or first quarter.
That is expect yes, it is and 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.
Take and working with our agents and then we will be writing on January 1.
Terrific Okay.
Well keep up the great work and another good quarter from both of you and the whole team.
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.
And thanks to all of you for joining the call today and thanks for the good questions. 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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