Q3 2021 Donegal Group Inc Earnings Call
Commercial lines net premiums written grew by 17, 6% for the third quarter.
As we discussed in the first half of the year that growth reflects in large part the impact of the additional commercial premiums from for southwestern States that we began to include in the Donegal mutual underwriting pool in 2021.
Atlantic States insurance company, our largest insurance subsidiary now receives an 80% allocation of the underwriting results of the mountain States insurance group, which Donegal mutual acquired back in 2017.
For the third quarter Mountain States premiums accounted for approximately $10 4 million.
Or 60% of our overall commercial growth for.
For the first nine months of 2021 Mountain States premiums added approximately $34 $5 million.
Two our net premiums written.
The remaining 40% of the commercial growth in the third quarter came from a continuation of new business opportunities and solid premium retention at 91% that was bolstered by premium rate increases that averaged five 6% across our commercial lines book of business excluding.
Excluding workers' compensation, where rates remain under regulatory pressure the commercial premium rate increases averaged seven 4%.
Moving to personal lines, our net premiums written declined by one 3% during the period, which was an improvement over recent quarterly declines.
While new business writings increased modestly and rate increases averaged four 6%. The main driver of the improvement was related to an anomaly that affected the prior year quarter.
Personal auto net premiums written in the third quarter of 2020 reflected premium reductions related to Michigan snowfall Auto insurance reform legislation that was effective on July one 2020.
A substantial number of Michigan policyholders requested a rework rewrite of their auto policies at lower premiums during the third quarter of 2020.
Although the impact of that legislation distorted the comparability of personal auto premium production in the second half of 2020 and continuing through the first half of 2021 that impact is now fully behind us and we expect further stabilization of our personal auto premium levels from this point forward.
As an update to our technology modernization project. We are pleased to report the successful deployment of the second major release of our new software systems in late August.
This release will primarily facilitate the introduction of new personal lines products in the 10 states, we believe represent compelling opportunities for profitable personal lines growth.
The new products will provide diversified coverage as well as pricing segmentation based on enhanced analytical models and the utilization of external data that will allow us to better compete for personal lines customers, especially those customers who appreciate the advice of a trusted independent agent and recognize the value of excellent service from their <unk>.
Lawrence carrier.
We began the new product rollout with the state of Indiana effective October one.
We have received a manageable volume of quoting activity that has allowed us to ensure that all of our systems and integrations are working as designed.
We recently added the availability of new products in Ohio in Ohio for policies effective in December and will begin to offer new products and our lead state of Pennsylvania for policies effective in January.
After achieving successful product launches in these three states, we will continue the phase rollout and the remaining seven states.
Upon full completion of the rollout, which will occur later in 2022, we expect to be in a position to achieve modest growth and sustained profitability in our personal lines segment.
With that I'll turn the call over to Jeff to provide more details related to our quarterly underwriting results.
Thank you Kevin.
Kevin mentioned, we reported a net loss of $6 7 million or <unk> 22 per class a share compared to net income of $11 8 million or <unk> 41 per diluted class a share for the third quarter of 2020.
Kevin already covered our top line growth metrics. So I'll focus on the factors that impacted our underwriting and operating performance.
Please keep in mind that the comparative results for the third quarter and first nine months of 2020 were impacted by the pandemic and related shutdowns throughout our operating regions.
The combined ratio for the third quarter of 2021 was 107, 7% compared to 98, 3% for the prior year quarter the.
The increase was due primarily to a higher than expected loss ratio of 75, 5%, which increased over 10 points compared to 65, 4% for the prior year quarter.
Contributing factors include severe weather large fires and workers compensation claims severity.
Weather related losses were approximately $18 million or nine two percentage points of the loss ratio for the third quarter of 2021, which was largely in line with the weather related loss impact of $16 9 million or nine one percentage points of the loss ratio for the third quarter of 2020.
Losses from tropical storm, the Ida where manageable at $2 $2 million with the remainder of the weather impact primarily attributable to localized summer storm activity.
Although elevated compared to the first half of 2021, the weather impacted the loss ratio for the third quarter of 2021 was generally in line with our previous five year third quarter average of nine percentage points.
Large fire losses, which we define as over $50000 in damages increased substantially to $12 7 million, which included $6 million from three individual commercial losses that exceeded our $2 million per risk reinsurance retention.
Overall large fire losses contributed six five percentage points to the loss ratio for the third quarter of 2021 compared to two one percentage points for the prior year period.
We continue to closely review the details of the large fire losses that for the past three quarters have exceeded our historical averages.
While we surmise that factors contributing to the increased fire activity include the resumption of economic activity. Following widespread widespread business shutdowns in 2020 and deferred property maintenance activities due to ongoing labor shortages.
These factors are difficult to prove.
We have not identified any commonality among the causes of severe losses, nor have we been able to definitively pinpoint a specific underlying reason for the increase in fire activity.
We also experienced a higher volume of severe injury claims in our workers compensation line of business with a statutory combined ratio in that line of business increasing to 109% during the third quarter of 2021 compared to 86, 8% in the prior year quarter.
We incurred a handful of severe claims resulting from workplace accidents that were unrelated to COVID-19 and that we're not attributable to inexperience or lack of safety training.
Four of those losses totaled $3 1 million or 11 points of the workers' compensation loss ratio.
While a few severe injury claims can be impactful to our quarterly results as they were in the third quarter of 2021, we did not identify any underwriting concerns or trends with respect to the severe losses.
The personal lines statutory combined ratio of 105, 2% during the quarter.
As the automobile claims frequency returned closer to pre pandemic levels and claims severity increased due to rising medical costs as well as accelerating cost to repair and replace vehicles due to shortages of new and unused new and used vehicles and replacement parts.
The increase in the homeowners loss ratio relative to the prior year quarter reflected the higher impact of both weather related and for large fire losses as well as inflationary pressures on the cost of labor and materials.
We reported $4 3 million of net favorable development of reserves for losses incurred in prior accident years, which reduced our loss ratio for the third quarter by two two percentage points.
And was primarily related to lower than expected loss emergence in our personal and commercial auto lines of business for the 2020 accident year.
One other point with respect to loss reserves is that we continued to add to our actuarially determined reserves with IBM, our loss and loss expense reserves at September 30, increasing by $26 million compared to year end 2020.
The increases were primarily in commercial lines of business, where we have added exposures and also where we see the potential for the impact of social inflation and other inflationary pressures.
Our expense ratio for the third quarter of 2021 decreased slightly to 31, 5% compared to 31, 9% in the prior year period the.
The decrease reflects lower underwriting based incentives for our agents and employees as a result of the elevated loss activity in the third quarter, partially offset by an increased allocation of technology systems related expenses associated with our multi year systems modernization project.
Our net investment income increased four 9% to $7 8 million for the third quarter of 2021 compared to $7 4 million for the third quarter of 2020.
The increase was primarily related to an increase in average invested assets relative to the prior year quarter.
At September 32021, we had $1 3 billion and total investments with an average tax equivalent investment yield of two 6% and a duration of four nine years.
The average investment yield has remained fairly constant throughout the first nine months of 2021, we do expect the average yields will decline modestly in future periods. As currently available reinvestment rates continued to lag those from maturing investments.
With that let me turn it back to Kevin for closing comments.
Thanks, Jeff because we expect a certain level of volatility due to large losses from time to time, we are taking a measured but deliberative approach in responding to the increased loss activity. Jeff just highlighted we are reinforcing the need for underwriters to exercise due diligence as they review policy renewals and new business.
<unk>, particularly encouraging a heightened sense of awareness to current economic factors that could lead to property maintenance issues or other changes in risk profiles.
We have tightened underwriting guidelines with respect to certain classes of property risk, where we've seen an increase in loss activity and we are also closely monitoring property concentrations using automated tools that track accumulation of risk and return risk scores for individual properties to our underwriters.
We're continuing to execute on our strategic plan and making solid progress in many of the operational initiatives that we expect will benefit us in the future.
As we develop strategies and tactics that will help us prioritize our efforts, we will seek to capitalize on opportunities to grow profitably.
And to deliver a superior experience to our agents and policyholders.
We believe Donegal his commitment to the independent agency system, and our ability to remain accessible and responsive to our agents are critical to our long term success as a regional insurance group.
For both commercial and personal lines, we will continue to seek premium increases to maintain rate adequacy, we believe current economic and market conditions, including the ongoing impact of supply chain disruption labor shortages low interest rate and social inflation trends will continue to support reasonable pricing increase.
In the near term.
We are also investing heavily in technology and analytics. Our goal is to develop a culture, where data and analytics are integrated into strategy and decision, making at all levels of the organization.
Our book value per share at September 32021 increased to $17 21 from $17 13 at December 31 2020.
Since the end of 2018, our book value has grown by over 22% even after our return of dividends to our stockholders that represents one of the highest dividend yields within our industry.
Our board of directors declared regular quarterly cash dividends of <unk> 16 per share of our class a common stock in 2014, and a quarter cents per share of our class B common stock.
Quarterly dividends are payable on November 15, 2021 to stockholders of record as of the close of business on November one 2021.
In conclusion, we have made a great deal of progress over the past several years and Donegal Senior leadership team is fully aligned on the strategies, we believe will position our business for profitable growth.
Success in the years ahead.
At this time, we will ask 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 one on your telephone to withdraw your question press the pound key please stand by while we compile the Q&A roster.
Your first question comes from the line of Derrick Heng with K B W.
Good morning. Thanks.
A question on personal auto in the past you've talked about pushing for rate increases in personal auto.
Modestly.
Are you seeing any additional pushback from regulators.
Theres been a lot of industry chatter about Florida, and Connecticut deny personal auto rate increases even as the profitability has taken a hit.
This is Kevin and I'll respond to that Jeff jump in if you have any additional comments on it I think that was really more of an issue in 2020, the latter part of 2009.
When we were taking.
<unk> of rate actions.
Particularly in private passenger auto as we were moving that book to profitability with Covid occurring in 2020, some of the regulators did take.
A more conservative approach for filings that were added or submitted.
For us we have since moderated the rate increases that we have submitted whether it's for the new product that we rolled out or the existing legacy book of business and a lot of those rates are in the kind of low to mid single digit range for private passenger auto. So we have not received a lot of pushback.
From individual state insurance departments on the filings that we've made in the last year.
Yes, the only thing that I would add to that is that we have received approvals for all of the filings for our new products.
In the 10 states that we're rolling them out.
I believe we have all of those approvals back now so I'll do.
We have not had any any difficulty with those filings.
Got it that's really helpful. And then secondly, a question on numbers question.
<unk> had expense ratio improvement in the quarter and you attributed some of that incentive comp would you be able to quantify how much that was.
I don't have a specific number there for you, but the differential from the if you looked at the first half expense ratio to the third quarter that.
That differential and the reduction reflects basically our <unk>.
Adjustment to the annualized expectation of the payouts for those programs.
There is a modest increase in our expense ratio related to the technology costs I can quantify that for you that was about $1 2 million in the third quarter and $3 $2 million year to date, So I would say outside of those technology cost increases the majority of the.
<unk>.
And the change between both quarters in the nine months, which would reflect.
The decrease in compensation costs.
Okay. That's really helpful. Thank you for taking my questions Youre welcome. Thank you.
Your next question comes from the line of Bob Farnam with Boenning Scattergood.
Hey, there good morning.
Two questions here, one is a reserve developments so another another quarter of favorable reserve development. It sounds like you're you mentioned it was mostly from auto lines, but can you just kind of spell out maybe what the other lines, how they otherwise develop as well.
Sure Youre correct Bob.
Primarily auto lines. It was $2 4 million in personal auto $1 8 million in commercial auto and about $400000 in workers comp and the other lines were basically immaterial.
Workers comp.
Development is much lower than what we experienced in the second quarter and as you recall, we talked about.
Our hypothesis that the courts, where reopening in the cases, where we're moving through and we were able to settle we did not see a recurrence of that in the third quarter.
Yes.
Talking about the workers comp losses.
This quarters workers comp losses, so it sounds like your commentary youre, saying its not really COVID-19 related it's not the economy opening up.
Yes first off is that correct and secondly, maybe just provide some.
Broad color on what types of claims these work.
Yes sure. This is Jeff I'll be happy to do that.
I'd say theres, probably some impact of the increased economic activity, but the most the most impactful.
Factor in the increase in our loss ratio or just a handful of severe losses or severe injuries.
I can give you. Some examples we had a 55 year old.
Each vac contractor, who fell off a ladder. So there is a guy who has been doing that.
Routinely.
In many years and had an unfortunate accident, we had a brick mason to sell off a roof and again.
Man, who who was known as a safety advocate for his company. So not definitely not an inexperienced worker, we had an accident in a car wash and we had an explosion in a.
Warehouse.
Working with centered so very unusual.
Kind of one off injuries that were very unfortunate, but impactful to our results alright, okay.
And in terms of.
Fire losses large fire losses, I know the last few quarters, you've had higher than expected fire losses.
And you've been trying to address that.
Re underwriting and making making sure that the underwriters are looking at the right classes or whatnot, but.
What point do you actually include higher loss and loss expectancy in rate. So in your filed rates for CMP. For example have you started to increase because of the potential for increased.
Perfect to increase in fire losses.
Bob This is Kevin Yeah. We have we've included we're looking at overall, especially in the last two quarters the uptick in large fire losses.
So we have to answer your question, Yes, we've included that in terms of our rate.
Scheduled rate increases going forward. We've also looked at inflationary impact as well those are baked into the rates one of the challenges that we're having and it's similar to what Jeff just went through with those large workers comp losses. All four of those losses were in excess of a quarter million dollars. When we look at.
These large fire losses, there is a very similar story.
The largest I've been with the organization for 21 years, and we experienced the largest single property loss this quarter a.
A business in Pennsylvania that we had insured for years. It was profitable we would we would write that business everyday of the week. Unfortunately, it appears though it may have been and alike.
Electrical issue that caused the fire.
Another small manufacturer down in Georgia was a $5 million plus loss.
We had a restaurant in the Midwest, which was over $3 million.
We're very familiar with that restaurant chain I personally have been to those restaurants and traveling in the Midwest again accounts, we would write everyday of the week and so when we look at.
The number of buyers the impact that it's having on a company our size, which has been significant.
We are taking into account overall rate, but we're trying to step back and see do we have a trend do we have anything developing.
We are unable to point to anything in particular underwriting integrity is where it needs to be.
So one of the items.
Bob that we've talked about is.
The impact of Covid.
Meaning that you see that organizations are struggling to be staffed.
Times, I question, whether or not the maintenance and upkeep on a facility is where it was pre COVID-19.
You have restaurants that have been shut down for a year now they turn the lights on and they start to.
Move forward, you've had a vacant building in place was all the maintenance done.
So those are some of the issues that we're taking a hard look at and emphasizing to our underwriters is when we're looking particularly at a large property risks are they fully staffed is the maintenance may.
Maintenance being done is there a record of it what is our loss control reports look like and do they in fact have the maintenance staff that was their pre COVID-19 in place because outside of that Jeff and I and others are struggling with.
Trying to find a trend and so we're starting to take a deeper dive into those areas.
Yes, I think what are the key quite severe your commentary there is in fact, a couple of year size I think.
A handful of claims for a much larger company with ultra.
Permian base probably.
Disappears and the blend of everything but since youre premium basis, maybe not as large as others.
Weird that these kind of stick out.
Well it does highlight the fact that Donegal does need to continue to grow profitably and gain scale for the exact point that you're raising is we look at a few of these losses.
In a given quarter, we really can't.
Shoulder losses of that size without having a real.
Can impact on the quarter. It also highlights why we are not taking a knee jerk reaction to it as well we've had multiple.
<unk> quarters now of improved operating performance.
We've had this quarter, which has been very challenging for us.
It highlights our scale.
Right and I assume you are not at this point youre not looking at changing reinsurance protection of what what not just because these seem to be one offs. This ad.
Yes, yes, that's a great question and no. That's for that exact reason, we're not looking to restructure at this point any of our reinsurance program that we have in place that served us well for the last couple of years, So we're not going to react to.
The one quarter, but good questions Bob.
Thanks for the color guys.
Thank you.
And as a reminder, if you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of Doug Eden with ECM capital.
Good morning, Kevin and Jeff.
Doug.
Yes, I have a few questions on different topics I'll just take them one at a time.
First I know, it's a bit early from the personal lines product rollout in Indiana that was just at the beginning of October but.
I know there is lot of truck work for it what have you seen so far relative to the percentage increase in the quote activity from the agents in that state.
And also from our price competitiveness standpoint, using the comparative raters.
What have you seen so far on the hit ratio in other words, the percentage of new business written to quoted.
Bob This is Kevin. Thank you for the question and we started with.
I'm sorry, Doug.
This is Kevin.
We started with the state of Indiana.
<unk>.
It was a perfect state to start with because we've been within the state for.
<unk> of years.
And we knew that we would be able to launch the product and if there were any issues as it relates to a system standpoint, it would not have a dramatic effect on the overall book the agents were very receptive and engaged.
We had very good quote activity, we did have about three weeks, where we're working with a couple of glitches.
On the system that was having a negative impact on our rate that has since worked its way out and that's why we start with the state like Indiana to work those bugs out.
And so engagement has been good the hit ratio has been low so on the quote standpoint, we've exceeded expectation on the actual policy issuance, we have some work to do there.
Ohio was just launched last week.
<unk>, Pennsylvania.
It was launched on a pilot program, where we identified 15 to 20 agents.
We've got a long standing relationship with it we launched that personal lines product with those won't be for policies effective until January one so from a system standpoint integrations launch of New agency portal.
What we call right pro two point.
Has gone exceptionally well engagement from the agents initially has been good in terms of quote activity.
But Doug realistically.
Not going to really know what we have in terms of engagement from the agents and how it's being received probably until June or July of 2020 to Pennsylvania for us as Youre well aware is really the major lift that we see that we could potentially gain with this new product.
We're very sensitive to where we fall in with the comparative rater. Our goal has always been to be in that top three and many of our agents.
Particularly in Pennsylvania.
Can sell a donegal product because were so well branded here against any national carrier, if we're within within a $100, let's say in terms of overall rate. So we feel good about where we are with it but we're going to know a lot more mid 2022.
The other piece Doug is just as a reminder, we do have a second rollout occurring with additional three states. One of those is a key state as Virginia that is scheduled for early part of second quarter of 2022, and then the latter part of the year, probably around third quarter will finish out the law.
Last batch of states.
Michigan plays a key role in how those.
Products are being received and what it may do in terms of.
Adding premium dollars in additional Pip count.
Okay.
And I know that in terms of our premium lift.
Mid 2022, and <unk> been very clear about that.
<unk> been discussing the original strategy around it.
But.
As this rolls out state to state.
We are able to measure the.
Quotes.
That's we're getting and then and then the the hit ratio how many of those at bats, we're actually writing as you mentioned you have that.
The top three positioning on the on the comp riders, we should have that data before second half of next year right that is that is correct and another nuance to this it's just worth mentioning is.
And again, we will start with the state of Pennsylvania, We may be let's say in the top three on a comparative rater so rates.
As we've discussed is so critically important as it relates to the personal lines area, particularly on auto.
But what we're also finding is that depending on the state in which we launch. This product is just because we may have the most competitive rate doesn't necessarily mean that that new potential customer is going to select Donegal.
Because of maybe the brand is not as strong and if there is a national carrier that is within that dollar range, sometimes that CSR and the agency may put it with the national carrier because that policyholder feels more comfortable in a state like Pennsylvania, Virginia, Michigan for example, though.
Those issues.
I don't want to say, they don't exist, but to a much lesser extent and so that's why I think when we get into Pennsylvania as long as we're competitive on rate.
Our agents can sell Donegal policy.
And the potential new customer knows Donegal from its brand and its reputation, particularly in those three states that I mentioned so that's that's the other part of it aside from rate that we have to take into consideration.
Okay. That's helpful.
My second question is more of a of an observation than a question, but given the weather related losses they were roughly.
At our historical average but.
We talked about the large fire losses in work comp losses that were significantly higher than expected.
In commercial.
So the combined ratio remains unprofitable.
It would also appear that the underwriters need to be obtaining larger rate increases than they have been on renewals to improve profitability.
And you mentioned it.
<unk> percentage ex work comp.
Even if this means maybe a decrease in retention.
Do you agree or are.
Are we providing instruction to the field force about it just seemed like the right level.
It may not be enough. If the combined are this high and there really is no commonality as Jeff mentioned amongst the claims.
Yes, Doug this is Jeff.
Start on that responses and Kevin can chime in if there's anything that I Miss but.
Definitely we are.
Creasing the rate.
Guidance that we're giving to the underwriters in for 2022 building into our business plan and expectation of higher rates than what we've been achieving.
In 2021, we have seen an increase in.
In the CMP rate increases for example, they were around five 3% in the third quarter.
We're targeting higher high single digits for 2022 for CMP on average commercial auto was still at 9% for the third quarter of 2021, and we expect that that will continue into 'twenty two.
Another 9% to 10% on average there are certain states for our commercial auto results have improved and we won't be pushing as much rate in those states, but there are still states, where it will be well into double digits.
<unk>.
One state that we've talked about is Georgia, and we will be continuing to.
To hit that stayed very hard with increased rates. So I would say overall, we do expect the average commercial rate to go up and in 'twenty. Two we think the market will.
Give us the opportunity to do that we think all of the various factors that Kevin mentioned earlier in his prepared comments we will.
Allow us to continue to push for more rate on the personal line side.
As we've talked about stabilizing the legacy book, we don't expect to to.
To require a lot of additional rate there, but we will be keeping pace with loss cost somewhere in the mid single digits is what we're expecting 5% to 6% for auto for homeowners, where getting the inflation adjustments that are automatically applied.
The coverage increases and so on in the third quarter, we saw an 8% increase in homeowners premiums from primarily from those inflation adjustments and we expect that to continue as well.
So hopefully that gives you a sense.
Yes.
Good good.
Right answer Jeff in a lot of rate that's going to be earning through next year from this year and I agree with you also based on what Im hearing from the other companies your peer competitors.
The ability to absorb it I guess.
By customers people are feeling pretty confident that that.
That can continue I mean, our retention is so high it seems like there's a little room, there to give us by taking more rates and especially to improve the profitability. Since it's not just one line of business in particular, but it seems at least in the third quarter more broadly based.
We would agree with Doug we have taken in addition to the right. We have really taken some underwriting action in terms of reducing your exposure.
Jeff and I, often talk about Georgia, because it's been the achilles' heel of all the states as it relates to commercial particularly commercial auto.
The fleet count has been reduced nearly 60%.
From August of 2020 to 2021, so very specific direct action that we've taken them from an exposure standpoint, and we've also really taken a hard look at the fleet size and limited.
And avoiding any heavy trucks.
In terms of the size so rate obviously is the driver behind it we're making sure that we reduce exposures anywhere we can.
Yes terrific.
And then finally I guess.
Kevin and you had mentioned this earlier.
Earlier to Bob's question, but I guess a bit more broadly.
The company's profitability results for the quarter were obviously disappointing in a bit of an outlier to that.
<unk> competitors that had been reporting similar top line growth high single digit.
Also had pretty strong earnings.
I was just wondering if you could address a bit further the issue of scale, particularly in personal lines and at what level Donegal needs to be at to generate an acceptable Roe.
In that segment and maybe also what the scale needs to look like for the company overall.
My thought is based on.
Selective in Hanover, as a result yesterday.
They experienced similar weather during the quarter in the northeast and southeast states, but they are able to absorb the larger losses, maybe better just due to their scale and still maintain profitability. So just appreciate your perspective your perspective on that.
Yes, Doug it's an excellent question and it's one that.
I think about a lot because of the size of the organization and what we're trying to achieve and so your comments on scale, it's appropriate it's one that.
Again this quarter highlights.
It highlights the fact that we really can endure any major losses in the quarter because of what it does.
Let's talk a little bit briefly about personal lines.
You brought that up.
With our book of business. If we include.
Donegal group.
Donegal mutual if we put the entire Donegal insurance group together.
The personal lines book of business represents over $400 million.
And with a bulk of that size, it's not something that we can jettison it is not something that.
A couple of years ago, we were limiting our personal lines footprint and exposure in the Midwest. It was about $22 million worth of personal lines business that we knew that we were not going to be able to make a profit at least and probably about five years.
And so we tried to take.
Very specific actions to put this book into the best position possible to be profitable.
That is why we spent the time money energy to build this new product because considering it's a $400 million book of business, we have to do something with it and that's something has to get it stable and profitable.
I've been very clear and transparent.
<unk> about what the expectations are for this new product in personal lines.
Doug we basically wanted to be able to write a new bid.
Enough new business through this product to offset attrition and so at the end of 2022.
We'd like to be able to report that we were at a leveling off spot we're at zero and maybe 2023, we start to grow.
At a modest one two or 3%.
The other item Thats worth, noting personal lines takes a lot of hits because it is a commodity it's turned into a commodity business, we all recognize it.
But there is also a large segment out there that.
They've accumulated wealth.
They have a house several cars.
And they don't necessarily want to.
Do everything online.
They wanted to be able to sit down with an independent agent somebody in their community that they know and trust.
And for us as long as we can be competitive on a pricing standpoint, and we work with that independent agents that independent agent has been very successful in selling <unk>.
Personnel lines. So we believe that there is an opportunity for us to grow that book of business profitably at a modest level and also recognize the fact that it still makes up 41% of our entire book of business. So it requires complete attention on our part which is what we've done for the last two.
And a half years.
On a more macro question as it relates to scale.
It's sort of being able to work on on both sides of the street, where youre trying to be very profitable and at the same time grow.
Some of the accounts that we brought on are larger premium volume accounts youre not going to get to one five or $2 billion by writing lots of small box you have got to be able to use analytics and be able to write some larger accounts while at the same time remaining profitable. So we are in.
In very much of a transition period in <unk> history, where we're going from this organization, where we know that we need scale, we're infusing analytics, we're modernizing our back office.
Systems.
In all at the same time, recognizing the fact that for Donegal to be relevant long term is we have to grow profitably.
Profitably and we also think that the nuance of agency consolidations that is happening in the marketplace, which we didn't talk about but there is also an opportunity for us.
I think to be relevant with some of those very large aggregators and there is an opportunity I think for us to grow not only commercially but also personal lines with some of those large groups and I think thats a three to five year plan, that's developing in front of US now and we're trying to position ourselves.
To take full advantage of that consolidation and making sure that we have a solid footprint in with those those large national aggregators.
Okay.
Thank you.
Very good answer very thorough I appreciate that.
Thank you.
And there are no further questions in queue at this time I will turn the call back over to you for closing remarks.
Well. Thank you everyone for joining the call today, we look forward to speaking to you again after reporting our fourth quarter and full year results.
Great day.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
Yes.