Q2 2024 Donegal Group Inc Earnings Call - Pre-Recorded

July 25, 2024

Explain of Donegal website at Www Dot Donegal group Dotcom.

Speaker Change: Please be advised that today's conference was prerecorded and all participants are in listen only mode.

Speaker Change: Speaking today will be president and Chief Executive Officer, Kevin Burke, Chief Financial Officer, Jeff Miller, Chief Underwriting Officer, Jeff, Hey, Chief Operating Officer, Dan Telemeter, and Chief Investment Officer, Tony Vse.

Speaker Change: Please be aware that statements made during this call that are not historical facts are forward looking statements and necessarily involve risks and uncertainties that could cause actual results to vary materially.

Speaker Change: These factors can be found in Donegal group's filings with the Securities and Exchange Commission, including its annual report on Form 10-K, and quarterly reports on Form 10-Q.

Speaker Change: The company disclaims any obligation to update or publicly announce the results of any revisions that they may make to any forward looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances. After the date of such statements with that it's my pleasure to turn it over to Mr. Kevin Burke Kevin.

Kevin Burke: Thank you Karen and welcome everyone in today's call, we will provide commentary on our quarterly financial results and an update on a number of strategic initiatives that we expect will continue to drive improved results in future periods.

Speaker Change: Above average severe convective storm activity continued into the second quarter of 2024 with Hale tornado and wind events reported across the country. There were more than 1200 tornadoes reported for the first half of 2024, which is the highest number on record since 2011.

Kevin Burke: Experts predict that these events have resulted in damages exceeding $20 billion.

Speaker Change: While we are working to restore properties for a number of policyholders who incurred tornado losses. We are pleased that decisions that we made as part of our state and regional strategies in recent years as well as our ongoing management of geographic risk concentrations served us well and mitigating the weather loss impact to our second quarter results. We are.

Kevin Burke: We'll discuss more details about weather related losses, and other key earnings drivers as the call progresses, our topline growth story line is similar to the one that we've been sharing over the past year commercial lines premiums earned and written in the second quarter continued to reflect the impact of the strategic non renewals of all commercial policies in the state of Georgia Enel.

Speaker Change: Obama, which is now essentially completed we continue to achieve higher levels of commercial lines, new business relative to prior year quarter and targeted states and classes of business, we are making solid progress in refining our small commercial business underwriting strategies and the capabilities to accelerate small business growth we are.

Speaker Change: Going forward to our annual state strategy sessions that will occur in early August when our sales underwriting and claims leaders across our organization will collaborate to refine our strategies and action plans in each of the 23 states in which we conduct business.

Speaker Change: We expect that small commercial growth will be a significant emphasis within our 2025 business plan as we prioritize opportunities for profitable growth within updated state specific action plans in the next few months.

Speaker Change: For personal lines, our strategy remains to implement renewal premium rate increases to further improve margins and actively control new business growth.

Speaker Change: Earned premiums now reflect significant rate increases we implemented over the past several years and we expect further margin expansion within this segment in future periods.

Speaker Change: As we reported in our first quarter call. We are working on the final two major software releases within our systems modernization project development efforts are on track for a major commercial lines systems release that will include a new commercial package policy and modernize the other commercial products remaining on our legacy systems.

Speaker Change: They're members of our project team are working diligently on a major release to convert all remaining personal lines policies on our legacy systems. The first phase of this release includes homeowners and dwelling fire policies in the second phase will include all remaining personal auto policies, we're continuing to progress well towards the implementation dates beginning in 2012.

Kevin Burke: Five for both of these major releases.

Kevin Burke: I will now turn the call over to Jeff Miller to review, our second quarter financial results.

Jeff Miller: Thanks, Kevin for the second quarter of 2024, net premiums earned increased eight 3% to $234 $3 million.

Jeff Miller: Net premiums written increased by nine 1% as strong premium rate increases and retention were offset partially by planned attrition in states and classes of business, we are exiting or have targeted for profit improvement.

Jeff Miller: Rate increases achieved during the second quarter of 2024 remained in double digit percentages, averaging 11% in total and 13% when excluding workers' comp.

Jeff Miller: The combined ratio was 103% for the second quarter of 2024 compared to 104, 7% for the prior year quarter with a decline in the expense ratio primarily accounting for the decrease.

Jeff Miller: The core loss ratio was unchanged from the prior year quarter.

Jeff Miller: Weather related losses of $24 $7 million or 10, six percentage points of the loss ratio for the second quarter of 2024 compared to $19 7 million or nine one percentage points for the second quarter of 2023.

Jeff Miller: The higher impact was primarily due to severity of commercial property losses with $8 2 million of losses, contributing 15, nine percentage points to the quarterly commercial multi peril loss ratio compared to nine two percentage points of the loss ratio for that line of business in the second quarter of 2023.

Jeff Miller: The weather impact to the homeowners line was $11 2 million or 31, seven percentage points of the homeowners loss ratio, which compared to 30 points in the prior year quarter.

Jeff Miller: In total the quarterly weather claim impact was higher than the previous five year average for the second quarter of eight eight percentage points.

Jeff Miller: Our insurance subsidiaries incurred $6 million in losses from a may tornado event that caused significant commercial property losses in Indiana, and Michigan and exceeded their aggregate catastrophe reinsurance retention with Donegal mutual.

Jeff Miller: Large fire losses, which we define as over $50000 in damages contributed five three percentage points to the loss ratio for the second quarter of 2024, which was slightly lower than five nine percentage points for the prior year quarter.

<unk> 24 earnings release outlining its results the release and the supplemental investor presentation are available in the Investor Relations section of Donegal website at Www Dot Donegal group Dot com.

Jeff Miller: Despite a handful of new Mexico wildfire claims for commercial properties, we experienced modest decreases in the frequency of both commercial and homeowners fire losses compared to the prior year quarter.

Speaker Change: Please be advised that today's conference was prerecorded and all participants are in listen only mode.

Jeff Miller: Our insurance subsidiaries experienced minimal development of reserves for losses incurred in prior accident years with virtually no impact on the loss ratio for the second quarters of 2024 and 2023.

Jeff Miller: The expense ratio of 31, 9% for the second quarter of 2024 represented a meaningful decrease compared to 34, 2% for the prior year quarter.

Jeff Miller: The decrease primarily reflected ongoing impacts of expense reduction initiatives that Dan will highlight in a few minutes offset partially by higher technology costs related to our ongoing systems modernization initiatives.

Speaker Change: These factors can be found in Donegal group's filings with the Securities and Exchange Commission, including its annual report on Form 10-K, and quarterly reports on Form 10-Q.

Dan: In summary, the underwriting loss, we incurred for the second quarter of 2024 was more than offset by $11 $1 million of investment income and modest net investment gains, resulting in after tax net income of $4 2 million compared.

Dan: Compared to $2 million for the second quarter of 2023.

Jeff Hey: I will now turn the call over to Chief underwriting Officer, Jeff Hey for more details about our commercial and personal lines segment results and related initiatives.

Speaker Change: Thank you Jeff.

Jeff Hey: Starting with commercial lines net premiums written increased seven 1% during the quarter with the execution of our go forward strategy producing positive momentum in new business and strong renewal rate achievement that exceeded intentional attrition related to our non renewal of less profitable business as we discussed in prior quarters.

Jeff Miller: <unk>.

Jeff Miller: At June 30, we had essentially completed our exit of commercial lines business in Georgia, and Alabama, We're very excited to achieved a significant milestone in the execution of our profit improvement initiatives.

Speaker Change: Experts predict that these events have resulted in damages exceeding $20 billion.

Jeff Miller: Excluding these two states our commercial lines net premium written growth was 10, 4% for the second quarter.

Jeff Miller: Our success in writing new business is highly aligned with the targeted geographic and class of business strategies that I've outlined previously.

Speaker Change: <unk>, 66% of the new business, we wrote during the quarter was within a highly targeted classes, where we expect higher profitability, which exceeded our target of 60% and improved over 59% for the prior year quarter.

Speaker Change: I'll discuss more details about weather related losses, and other key earnings drivers as the call progresses, our topline growth story line is similar to the one that we've been sharing over the past year commercial lines premiums earned and written in the second quarter continued to reflect the impact of the strategic non renewals of all commercial policies in the state of Georgia and al.

Speaker Change: We've continued to execute several other profit improvement initiatives within our commercial lines book of business, including the introduction of probable maximum loss underwriting tools that now provide to our underwriters a comprehensive analysis of fire risk factors as they review and price commercial properties.

Speaker Change: Bam, which is now essentially completed we continue to achieve higher levels of commercial lines, new business relative to prior year quarter and targeted states and classes of business. We're.

Jeff Miller: Revised underwriting guidelines for certain profit challenged classes of business and.

Speaker Change: We're making solid progress in refining our small commercial business underwriting strategies and the capabilities to accelerate small business growth.

Jeff Miller: And the introduction of mandatory wind hail deductibles across our footprint, whether or not the state has been historically identified as a cat prone state.

Speaker Change: We're looking forward to our annual state strategy sessions that will occur in early August when our sales underwriting and claims leaders across our organization will collaborate to refine our strategies and action plans in each of the 23 states in which we conduct business.

Jeff Miller: We're also taking further actions to increase the precision of our risk selection and pricing such as using third party data to ensure appropriate property valuations utilizing aerial imagery for roof evaluations and integrating advanced catastrophe modeling to drive appropriate changes to terms and conditions on more exposed properties.

Jeff Miller: We're continuing to emphasize the renewal rate increases in areas that are most challenged when considering the intersections of class line of business and geography excluding.

Speaker Change: For personal lines, our strategy remains to implement renewal premium rate increases to further improve margins and actively control new business growth.

Jeff Miller: Excluding workers' compensation, we achieved an average of 11, 8% renewal rate and exposure increase across our commercial lines book.

Speaker Change: Earned premiums now reflect significant rate increases we implemented over the past several years and we expect further margin expansion within this segment in future periods.

Jeff Miller: Led by commercial multi peril at 13, 8% and commercial auto at 10, 2%.

Speaker Change: Turning from topline growth to results the commercial line statutory combined ratio for the second quarter was $104 nine a slight deterioration from 103 six for the prior year quarter due primarily to the impact of a very active weather pattern. During this quarter as Jeff and Kevin mentioned earlier.

Speaker Change: As we reported in our first quarter call. We are working on the final two major software releases within our systems modernization project.

Speaker Change: <unk> efforts are on track for a major commercial lines systems release that will include a new commercial package policy and modernize the other commercial products remaining on our legacy systems.

Speaker Change: There was a tornado or hail event reported somewhere in the United States and everyday during the month of May. So we're not surprised that weather related losses were elevated during the quarter with commercial property losses from weather, increasing 90% over the prior year quarter, primarily due to a handful of severe claims from tornadoes in large hail and the state of Michigan.

Speaker Change: Other members of our project team are working diligently on a major release to convert all remaining personal lines policies on our legacy systems. The first phase of this release includes homeowners and dwelling fire policies in the second phase will include all remaining personal auto policies, we are continuing to progress well towards implementation dates beginning in 2000.

Speaker Change: In Indiana, Ohio, and South Carolina.

Speaker Change: 25 for both of these major releases.

Speaker Change: Despite this increase we believe our ongoing geographic diversification strategy served as well as the weather impact on our loss ratio was significantly lower than other companies across the industry have reported.

Speaker Change: I will now turn the call over to Jeff Miller to review, our second quarter financial results.

Jeff Miller: Thanks, Kevin for the second quarter of 2024, net premiums earned increased eight 3% to $234 $3 million.

Jeff Miller: It also bears mentioning that we received no claims to date related to hurricane barrel.

Jeff Miller: Large commercial fire losses incurred were relatively flat for the quarter and we expect a reduction in the likelihood of large fires going forward as we continue to execute on specific actions to mitigate fire apparel risk.

Speaker Change: Net premiums written increased by nine 1% as strong premium rate increases and retention were offset partially by planned attrition in states and classes of business, we are exiting or have targeted for profit improvement.

Jeff Miller: Within our workers compensation line of business, we added to our loss reserves for prior accident years, primarily related to higher medical loss estimates on previously reported claims in our flagship state of Pennsylvania.

Speaker Change: Rate increases achieved during the second quarter of 2024 remained in double digit percentages, averaging 11% in total and 13% when excluding workers' comp.

Jeff Miller: These adjustments relate in large part to medical developments requiring longer treatments within individual cases, as we continue to see relatively stable medical inflation trends.

Speaker Change: The combined ratio was 103% for the second quarter of 2024 compared to 104, 7% for the prior year quarter with a decline in the expense ratio primarily accounting for the decrease the core loss ratio was unchanged from the prior year quarter.

Jeff Miller: Both commercial auto and commercial multi peril lines experienced favorable reserve development that essentially offset the workers' compensation development. We are closely monitoring our reserving activity across all lines of business and are continuing to analyze the underlying factors that drove the unusual increase in workers' compensation reserves.

Speaker Change: Weather related losses of $24 7 million or 10, six percentage points of the loss ratio for the second quarter of 2024 compared to $19 7 million or nine one percentage points for the second quarter of 2023.

Jeff Miller: Drilling down into loss trends for commercial auto we believe that post pandemic increases in claims frequency have abated and have noted moderation and auto physical damage severity increases as well.

Speaker Change: The higher impact was primarily due to severity of commercial property losses with $8 $2 million of losses, contributing 15, nine percentage points to the quarterly commercial multi peril loss ratio compared to nine two percentage points of the loss ratio for that line of business in the second quarter of 2023.

Jeff Miller: Liability severity remained generally in line with historical levels.

Jeff Miller: For commercial multi peril overall severity appears to be moderating and favorable frequency trends continue.

Jeff Miller: We are continuing to see upward pressure on liability severity trends, but that increase has been partially offset by favorable frequency trends for this line.

Speaker Change: The weather impact to the homeowners line was $11 2 million or 31, seven percentage points of the homeowners loss ratio, which compared to 30 points in the prior year quarter.

Speaker Change: We're continuing to execute our offensive strategy in commercial lines and we're pleased that our small business initiatives continue to gain traction we expect to see further improvements in our straight through processing and hit rates on our new and improved small commercial products and service offerings going forward.

Speaker Change: In total the quarterly weather claim impact was higher than the previous five year average for the second quarter of eight eight percentage points.

Speaker Change: Our insurance subsidiaries incurred $6 million in losses from a may tornado event that caused significant commercial property losses in Indiana, and Michigan and exceeded their aggregate catastrophe reinsurance retention with Donegal mutual.

Jeff Miller: Shifting to our personal lines business segment, we achieved a 12, 1% increase in net premiums written for the second quarter, primarily driven by a continuation of aggressive premium rate increases coupled with strong policy retention personal auto and homeowners rate and exposure increases were 13, 4% and 16, 3% respect.

Speaker Change: Large fire losses, which we define as over $50000 in damages contributed five three percentage points to the loss ratio for the second quarter of 2024, which was slightly lower than five nine percentage points for the prior year quarter.

Jeff Miller: <unk> for the current quarter.

Jeff Miller: We're now saying earned rate increases relative to responsive actions, we took beginning as early as 2022.

Jeff Miller: Earned rate increase levels are now exceeding loss cost trends, resulting in margin expansion for the personal lines segment.

Speaker Change: Despite a handful of new Mexico wildfire claims for commercial properties, we experienced modest decreases in the frequency of both commercial and homeowners fire losses compared to the prior year quarter.

Jeff Miller: Our strategy remains to accelerate our return to profitability by actively controlling new business volume, which led to a three 7% decline in policies in force compared to a year ago and a two 3% decline from year end 2023.

Speaker Change: Our insurance subsidiaries experienced minimal development of reserves for losses incurred in prior accident years with virtually no impact on the loss ratio for the second quarters of 2024 and 2023.

Jeff Miller: Policyholders are accepting higher renewal premiums with a real retention remaining strong and consistent at 89, 1% for the quarter premium retention also continued to be very strong at 104, 7% for the quarter again driven by rate increases in all states.

Speaker Change: The expense ratio of 31, 9% for the second quarter of 2024 represented a meaningful decrease compared to 34, 2% for the prior year quarter.

Speaker Change: The decrease primarily reflected ongoing impacts of expense reduction initiatives that Dan will highlight in a few minutes offset partially by higher technology costs related to our ongoing systems modernization initiatives.

Jeff Miller: The personal lines auto loss ratio improved by six five percentage points from the prior year period, driven by core loss ratio improvement and a continuation of favorable prior year reserve development that contributed to a profitable 95, 6% statutory combined ratio for the quarter.

Dan: In summary, the underwriting loss, we incurred for the second quarter of 2024 was more than offset by $11 1 million of investment income and modest net investment gains, resulting in after tax net income of $4 2 million compared to $2 million for the second quarter of 2023.

Jeff Miller: Similar to commercial auto we're seeing moderating increases in auto physical damage severity as used car prices and parts prices have begun to level off.

Jeff Miller: Claim frequency trends have shifted from post pandemic increases to moderate decreases as well.

Speaker Change: I will now turn the call over to Chief underwriting Officer, Jeff Hey for more details about our commercial and personal lines segment results and related initiatives.

Jeff Miller: Furthermore, liability claims severity remained relatively stable during the current quarter.

Jeff Miller: The homeowners loss ratio deteriorated by nearly four percentage points due to the unusually active tornado and hail season, I mentioned earlier, while non weather trends continue to be largely in check.

Jeff Hey: Thank you, Jeff starting with commercial lines net premiums written increased seven 1% during the quarter with the execution of our go forward strategy producing positive momentum in new business and strong renewal rate achievement that exceeded intentional attrition related to our non renewal.

Jeff Miller: Statutory combined ratio for the quarter was $103 one with no impact from prior year Reserve development, we're making solid progress in diversifying the geographic spread of risk in our property book, reducing exposures by eight 8% and geographies. We have identified is more prone to severe weather and growing modestly and other areas we view as.

Speaker Change: Of less profitable business as we discussed in prior quarters.

Speaker Change: At June 30, we had essentially completed our exit of commercial lines business in Georgia, and Alabama, We're very excited to achieved a significant milestone in the execution of our profit improvement initiatives.

Jeff Miller: Less weather prone.

Jeff Miller: We're pleased to see the improvement in our personal lines underwriting results due to the many strategic actions, we've taken across our portfolio and we remain confident in our ability to maintain that positive momentum as we continue to execute on our strategies with that I will turn the call over to Dan Delamater Dan.

Speaker Change: Excluding these two states our commercial lines net premium written growth was 10, 4% for the second quarter our.

Speaker Change: Our success in writing new business is highly aligned with the targeted geographic and class of business strategies that I have outlined previously.

Speaker Change: Fact, 66% of the new business, we wrote during the quarter was within a highly targeted classes, where we expect higher profitability, which exceeded our target of 60% and improved over 59% for the prior year quarter.

Dan Delamater: Thank you, Jeff as we assess our operational performance in the first half of the year, our first and foremost provide an update on our expense reduction initiatives discussed in previous calls.

Dan Delamater: For the second quarter, we operated in an expense ratio of 31, 9%, which compares favorably to our quarterly expense ratio of 34, 2% for the second quarter of 2023.

Jeff Miller: We're pleased to recognize significant improvement and we are now operating mid year at an expense ratio of 33, 8% through June 30th. This compares favorably to our expense ratio of 35, 3% through the first half of 2023.

Speaker Change: Revised underwriting guidelines for certain profit challenged classes of business.

Speaker Change: And the introduction of mandatory wind hail deductibles across our footprint, whether or not the state has been historically identified as a cat prone state.

Jeff Miller: These expense reductions are even more noteworthy considering we are realizing the peak expense impact of project Nautilus our systems modernization project in 2024.

Speaker Change: We're also taking further actions to increase the precision of our risk selection and pricing such as using third party data to ensure appropriate property valuations utilizing aerial imagery for roof evaluations and integrating advanced catastrophe modeling to drive appropriate changes to terms and conditions on more exposed properties.

Jeff Miller: Through multiple targeted initiatives across every department in the organization, we are clearly on pace toward our expectation to reduce our expense ratio by one full point in 2024 and two points by the end of 2025.

Jeff Miller: As stated before these initiatives range from the reduction of our regional footprint from six operating regions to four <unk>.

Speaker Change: We're continuing to emphasize the renewal rate increases in areas that are most challenged when considering the intersections of class line of business and geography excluding.

Jeff Miller: <unk> to our underwriting report strategy in personal lines comparative raters.

Speaker Change: Excluding workers' compensation, we achieved an average of 11, 8% renewal rate and exposure increase across our commercial lines book.

Jeff Miller: Use of analytics to improve underwriting report strategies in commercial lines.

Jeff Miller: The implementation of our credit card surcharge to offset the increased cost of credit card payments by our policyholders.

Speaker Change: Led by commercial multi peril at 13, 8% and commercial auto at 10, 2%.

Jeff Miller: Revisions to agency incentive programs to ensure they align with our own corporate profitability.

Jeff Miller: Reductions in commissions paid for mono line homeowner policies to recognize the challenges of that line of business targeted reductions in staff hiring restrictions for many open positions across the company and more.

Speaker Change: I'm proud of our leadership and colleagues across Donegal for the commitment and resilience. They have shown several of these initiatives are difficult, but this is a serious effort and has full visibility across the company.

Speaker Change: And for every high profile initiatives, there are dozens of smaller ones that all contribute to meaningful and sustainable expense improvement.

Speaker Change: We recognize the acute need for improvement in 2024, and 2025 to offset the peak expense years of our Nautilus infrastructure project. We also recognize the need for broader efficiencies and long lasting expense improvement to contribute to our operating profitability.

Speaker Change: Indiana, Ohio, and South Carolina.

Speaker Change: Aside from our expense initiative. We also continue to work through our state strategy initiatives that define our product mix right strategy marketing strategy and growth objectives in every state and line of business, where we write.

Speaker Change: These are especially important as we underwrite property books and weather prone states, but they also help steer our regional marketing and underwriting teams product teams and national accounts team toward appropriate product mix and appropriate growth plans in all lines and classes.

Speaker Change: Our teams are aligned and highly engaged in our monthly portfolio meetings provide transparency and accountability toward state by state objectives.

Jeff Miller: As a matter of fact, we believe that these efforts helped us significantly mitigate exposure to Midwestern storms in may and new Mexico wildfires in June.

Jeff Miller: While this work is not complete we are encouraged by the achievements already recognized.

Jeff Miller: While the first half of 2024 wasn't without challenge, we believe it sets a solid foundation and provides ample opportunity in the second half of the year.

Speaker Change: Drilling down into loss trends for commercial auto we believe that post pandemic increases in claims frequency have abated and have noted moderation and auto physical damage severity increases as well.

Jeff Miller: We will continue to obtain rate to offset inflation large loss activity social inflation and claims cost generally and we will continue and our expense reduction efforts executing on both of these are paramount to the achievement of sustained excellent financial performance.

Speaker Change: <unk> ability severity remained generally in line with historical levels.

Speaker Change: For commercial multi peril overall severity appears to be moderating and favorable frequency trends continue we.

Jeff Miller: For additional insight into our investment results I'll now turn it over to Tony.

Speaker Change: We are continuing to see upward pressure on liability severity trends, but that increase has been partially offset by favorable frequency trends for this line.

Tony: Thanks, Dan and our ongoing effort to preserve and expand our capital our investment approach remains conservatively opportunistic we are continuing to buy high quality securities while taking advantage of historically high reinvestment rates that we expect will provide ongoing.

Speaker Change: We're continuing to execute our offensive strategy in commercial lines and we're pleased that our small business initiatives continue to gain traction.

Speaker Change: We expect to see further improvements in our straight through processing and hit rates on our new and improved small commercial products and service offerings going forward.

Tony: Strength in our investment portfolio.

Speaker Change: Shifting to our personal lines business segment, we achieved a 12, 1% increase in net premiums written for the second quarter, primarily driven by a continuation of aggressive premium rate increases coupled with strong policy retention personal auto and homeowners rate and exposure increases were 13, 4% and 16, 3% respectively.

Speaker Change: During the second quarter of 2022 net investment income increased 9% from the prior year quarter to 11 $1 million. The average tax equivalent yield for the quarter was 340% up from 321% for the second quarter.

Speaker Change: <unk> for the current quarter.

Speaker Change: There are 2023.

Speaker Change: We're now seeing earned rate increases relative to responsive actions, we took beginning as early as 2022.

Speaker Change: Market interest rates continued to be favorable and we continue to invest portfolio cash flow into much higher yielding bonds.

Speaker Change: Earned rate increase levels are now exceeding loss cost trends, resulting in margin expansion for the personal lines segment.

Speaker Change: During the quarter, we continued our move out of tax exempt municipal bonds and shifted into higher spread products, such as corporate debt and fixed rate mortgage backed securities.

Speaker Change: Our strategy remains to accelerate our return to profitability by actively controlling new business volume, which led to a three 7% decline in policies in force compared to a year ago and a two 3% decline from year end 2023.

Speaker Change: We expect to increase our position in equities at a conservative pace as market opportunities provide entry points.

Speaker Change: Still adding modestly conservative equity allocation, we have increased our equity position, 25% year to date.

Speaker Change: Net investment gains for the second quarter of 2024 were approximately $700000 compared to $2 $5 million for the prior year period.

Speaker Change: These gains were primarily unrealized gains within our equity portfolio for both periods.

Tony: We will continue to selectively modify our portfolio allocations in response to market trends and conditions moving forward.

Tony: Overall, our average reinvestment rate of 576% during the second quarter represented a 142 basis point improvement over the bond cash flow during the quarter.

Tony: As of June 32024, our book value per share was $14 48.

Tony: A 9% increase compared to $14 39 as of December 31, 2023.

Tony: The increase in book value was driven by investment income and gains that were partially offset by a net underwriting loss declared cash dividends and modest net unrealized losses in our available for sale bond portfolio. During the first half of 2024 with that I will now turn it back.

Tony: Back to Kevin for closing remarks.

Kevin Burke: Thanks, Tony as you heard throughout the call today are various initiatives are beginning to generate improvements in our underlying results and our entire team remains focus on successful execution to achieve sustained excellent financial results I am proud of our team's efforts and the progress we've made to date and we look forward to.

Speaker Change: Pleased to see the improvement in our personal lines underwriting results due to the many strategic actions, we've taken across our portfolio and we remain confident in our ability to maintain that positive momentum as we continue to execute on our strategies with that I will turn the call over to Dan Delamater Dan.

Kevin Burke: Adding further updates in our next quarterly call I will now turn the call back to Karen to moderate our question and answer session.

Karen: Thank you Kevin in advance of today's call, we requested and received questions from interested parties and while we answered many of the questions within management's prepared remarks, we will address a few of the questions correctly. The first question relates to premium growth.

Dan Delamater: For the second quarter, we operated in an expense ratio of 31, 9%, which compares favorably to our quarterly expense ratio of 34, 2% for the second quarter of 2023.

Speaker Change: We're pleased to recognize significant improvement and we are now operating mid year at an expense ratio of 33, 8% through June 30th. This compares favorably to our expense ratio of 35, 3% through the first half of 2023.

Speaker Change: Should we be thinking about growth by line and commercial more specifically what sort of trajectory would you like to see for commercial auto and workers' compensation moving forward.

Karen: This is Jeff Hey, I can take that one we are and expect to continue to be in all lines account writer and when we write an account we ask our agents for the opportunity to write all of the policies within that account that fit our underwriting appetite so from an exposure or policy count basis, we expect similar growth rates across lines of business.

Speaker Change: These expense reductions are even more noteworthy considering we are realizing the peak expense impact of project Nautilus our systems modernization project in 2024.

Speaker Change: Through multiple targeted initiatives across every department in the organization, we are clearly on pace toward our expectation to reduce our expense ratio by one full point in 2024 and two points by the end of 2025.

Karen: In commercial lines, the premium growth variance between lines will largely be driven by the market rate dynamics. For example, we expect to continue to see challenges in workers' comp rates due to bureau mandated reductions, but we do expect positive rate trends for commercial multi peril and commercial auto lines were pushing for outsized growth.

Speaker Change: As stated before these initiatives range from the reduction of our regional footprint from six operating regions to four <unk>.

Speaker Change: Changes to our underwriting report strategy in personal lines comparative raters.

Speaker Change: Use of analytics to improve underwriting report strategies in commercial lines.

Karen: In small commercial as I've mentioned in previous calls and as a result, we expect to see outsized growth in our BOP package policies relative to middle market CPP policies as our small commercial strategy gains momentum.

Speaker Change: Next question relates to personal lines can you quantify the increasing percentage of auto policies written on a six month basis compared to 12 months ago.

Jeff: Jeff Hey, here again, we know right six month policies only for all of our new business policies for personal auto, but we continue to renew our legacy book on the same terms as they were originally written with most of those being 12 month policies. So that we could limit disruption within that season book of business over the past year, our mix of terms within.

Speaker Change: Our auto book has shifted from 28% being six month policies to 40% being six month policies. Now we expect that mix will continue shifting naturally over the next several years, which is beneficial because a higher percentage of six month policies allows us to increase the speed at which we can earn rate changes to more quickly.

Speaker Change: Improved margins, but having said that we do not have any long term targets for shifting the book as we do desire to retain as much of our profitable legacy business as possible and we'll convert most of those policies on 12 month terms.

Speaker Change: Thank you Jeff. The next question relates to reserving can you provide additional color on the moving pieces on reserve development this quarter.

Jeff Miller: This is Jeff Miller specific line of business detail for the second quarter of 2024 included favorable development of $3 million for commercial auto $1 6 million for personal auto offset by unfavorable development of $4 7 million for workers' compensation.

Speaker Change: As Jeff shared earlier, we attribute the unfavorable development in workers' compensation to higher than expected severity for a relatively small number of previously reported losses, primarily in accident years, 2022, and 2023, but also spread across older accident years.

Speaker Change: While this work is not complete we are encouraged by the achievements already recognized.

Speaker Change: While the first half of 2024 wasn't without challenge, we believe it sets a solid foundation and provides ample opportunity in the second half of the year.

Speaker Change: That development added 17, four percentage points to the current quarter loss ratio for the workers compensation line of business.

Jeff Miller: Thank you Jess the final question relates to our investments can you provide more details on the makeup of your mortgage backed securities portfolio can you split it between commercial versus residential or any details on geographical split.

Speaker Change: We will continue to obtain rate to offset inflation large loss activity social inflation and claims cost generally and we will continue and our expense reduction efforts executing on both of these are paramount to the achievement of sustained excellent financial performance.

Jeff Miller: This is Tony our MBS portfolio consist almost exclusively of fixed rate agency residential mortgages, we typically buy large major pools with a diversified geographical exposure and avoid states such as New York, Florida, and California when possible.

Speaker Change: For additional insight into our investment results I'll now turn it over to Tony.

Speaker Change: Thanks, Dan and our ongoing effort to preserve and expand our capital our investment approach remains conservatively opportunistic we are continuing to buy high quality securities while taking advantage of historically high reinvestment rates that we expect will provide ongoing store.

Speaker Change: Thank you Tony if there are any additional questions. Please feel free to reach out to US. This now concludes the Donegal group's second quarter 2024 earnings webcast. Thank you and have a great day.

Speaker Change: <unk> and our investment portfolio.

Speaker Change: During the second quarter of 2022 net investment income increased 9% from the prior year quarter to $11 $1 million.

Speaker Change: The average tax equivalent yield for the quarter was 340% up from 321% for the second quarter of 2023.

Speaker Change: Interest rates continue to be favorable and we continue to invest portfolio cash flow into much higher yielding bonds.

Speaker Change: We expect to increase our position in equities at a conservative pace as market opportunities provide entry points.

Speaker Change: <unk> correctly. The first question relates to your premium growth how should we be thinking about growth by line in commercial more specifically what sort of trajectory would you like to see for commercial auto and workers' compensation moving forward.

Speaker Change: This is Jeffrey I can take that one we are and expect to continue to be in all lines account writer and when we write an account we ask our agents for the opportunity to write all of the policies within that account that fit our underwriting appetite.

Speaker Change: So from an exposure or policy count basis, we expect similar growth rates across lines of business in commercial lines. The premium growth variance between lines will largely be driven by the market rate dynamics. For example, we expect to continue to see challenges in workers' comp rates due to bureau mandated reductions, but we do expect positive.

Speaker Change: Great trends for commercial multi peril and commercial auto lines were pushing for outsized growth in small commercial as I've mentioned in previous calls and as a result, we expect to see outsized growth in our bulk packaged policies relative to middle market CPP policies as our small commercial strategy gains momentum.

Speaker Change: Next question relates to personal lines can you quantify the increasing percentage of auto policies written on a six month basis compared to 12 months ago.

Jeff: Jeff Hey, here again, we know right six month policies only for all of our new business policies for personal auto, but we continue to renew our legacy book on the same terms as they were originally written with most of those being 12 month policies. So that we could limit disruption within next season book of business over the past year, our mix of terms within.

Speaker Change: Thank you Jeff. The next question relates to reserving can you provide additional color on the moving pieces on reserve development this quarter.

Speaker Change: This is Jeff Miller specific line of business detail for the second quarter of 2024 included favorable development of $3 million for commercial auto $1 $6 million for personal auto offset by unfavorable development of $4 $7 million for workers' compensation.

Speaker Change: That development added 17, four percentage points to the current quarter loss ratio for the workers compensation line of business.

Speaker Change: Thank you Jess the final question relates to our investments can you provide more details on the makeup of your mortgage backed securities portfolio can you split it between commercial versus residential or any details on geographical split.

Speaker Change: This is Tony our MBS portfolio consist almost exclusively of fixed rate agency residential mortgages, we typically buy large major pools with a diversified geographical exposure and avoid states such as New York, Florida, and California when possible.

Speaker Change: Sure.

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