DGICA - Earnings call transcript Q2 2024

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Karin Daly

Good morning, and thank you for joining us today. This morning, Donegal Group issued its second quarter 2024 earnings release outlining its results. The release and the supplemental investor presentation are available in the Investor Relations section of Donegal's website at www.donegalgroup.com. Please be advised that today's conference was prerecorded. [Operator Instructions] Speaking today will be President and Chief Executive Officer, Kevin Burke; Chief Financial Officer, Jeff Miller; Chief Underwriting Officer, Jeff Hay; Chief Operating Officer, Dan DeLamater; and Chief Investment Officer, Tony Viozzi.

actual statements are this involve forward-looking uncertainties could that not that risks aware materially. that facts vary historical statements cause be made call during are and Please to results and necessarily These factors Group's the and report and Securities quarterly annual in reports Commission, its XX-Q. Form filings including with Exchange on be can found Donegal XX-K on Form to any to to date The or publicly circumstances statements of any any results make may obligation or update the anticipated revisions disclaims of of they company the that events occurrence or reflect forward-looking announce such unanticipated statements. the after

With Burke. to Kevin? pleasure turn Kevin to Mr. that, it's it my over

Kevin Burke

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

severe exceeding Above-average tornado number the on quarter half the highest in first were hail, of which have XXXX. activity is with There reported country. for more XXXX, events the the into convective these damages of predict record events storm billion. XXXX, that across tornadoes resulted Experts X,XXX than wind $XX second and continued since reported

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

as earnings losses weather-related more the We and details about will call progresses. key drivers other discuss

of and of one which premiums strategic storyline been nonrenewals all state growth essentially we've past over is policies in the continue second commercial Georgia of is Our quarter earned the and year. impact sharing the now reflect that to completed. Commercial top in to the the similar the lines written line Alabama

new business quarter relative and of business. commercial targeted to states of higher achieve lines classes in year to continue We levels prior

underwriting We are the making solid capabilities to progress in business small growth. refining accelerate small strategies and commercial our business

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

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

strategy to actively segment we lines, and personal in rate margin premium control and For our past the further Earned future expansion within now further premiums expect increases remains implemented new implement to business increases years, improve margins growth. several significant rate renewal over periods. we this reflect

major the legacy X As line software release in products working call, within quarter project. our systems track modernize we that reported efforts on a Development remaining we systems. include final modernization other commercial commercial and are the package major are systems commercial new policy will on on releases our our first for

convert all to Other personal our systems. release are legacy remaining a our members team policies diligently project on lines working of major on

release auto personal first and policies. the dwelling include includes The of this second all phase phase policies, homeowners will remaining fire and and

in XXXX well of releases. continuing dates are We the to towards implementation major progress beginning these for both

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

Jeffrey Miller

Kevin. Thanks,

profit by in improvement. planned and X.X% premiums $XXX.X increased to attrition For written Net targeted second offset rate of or business partially retention increases quarter premiums strong X.X% as of earned we XXXX, states and were increased million. the have classes net are by premium exiting for

year the in percentages, double-digit comp. for was second when quarter second The prior ratio excluding of ratio with total remained year the accounting quarter. increases to the XX% quarter, workers' unchanged prior core for was The decline compared loss in combined the ratio XXX.X% in and the from Rate XXXX the a achieved quarter for primarily decrease. XXX% expense XXXX during of averaging XX%

of percentage second $XX.X of million loss or quarter quarter primarily points ratio the compared Weather-related percentage commercial the for of severity to of the The percentage XXXX losses ratio the higher quarter percentage of second of of business or the million of XXXX. the property that for multi-peril to of XX.X loss X.X million points XXXX. to due commercial impact $XX.X loss was XX.X losses ratio second X.X contributing points to with losses $X.X compared points for quarterly line in

$XX.X to XX line In of to of prior previous ratio, the weather points year for the than higher in X.X the The was average quarter weather homeowners total, claim homeowners X-year impact quarterly impact the loss the points. points million percentage XX.X or was compared second the which percentage quarter.

which their a incurred that Michigan subsidiaries in Large aggregate Donegal the we $XX,XXX Mutual. which in retention insurance quarter the reinsurance million lower X.X quarter. commercial Our caused the prior losses points loss contributed event tornado year May of fire as $X percentage slightly second than to exceeded was XXXX, for Indiana percentage X.X and losses damages, in ratio catastrophe losses, over from define property with points and for significant

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

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

of technology reflected second costs Dan that partially related to decrease minutes, expense of by higher decrease systems ongoing XX.X% quarter. in of initiatives. offset for XXXX modernization the ongoing impacts meaningful compared The our the highlight a a few initiatives will for represented reduction to The XX.X% ratio year expense quarter primarily prior

the for of second for by million $XX.X resulting In XXXX. summary, after-tax $X.X income we in of compared to net net of the modest million quarter was and investment the underwriting incurred than loss more offset of XXXX quarter million income $X investment second gains,

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

Jeffery Hay

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

June achieve XX, profit execution At our our very in and we had the to in significant business completed Georgia of Alabama. excited milestone initiatives. of commercial improvement lines essentially exit We're this

net lines X written states, the commercial quarter. for growth these Excluding our second XX.X% was premium

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

wrote within exceeded was the expect XX% we XX% higher classes over highly-targeted quarter. In for quarter XX% fact, which during business profitability, of the where year target we of our the improved prior new and

business; price hail introduction or across as within and a been mandatory a fire commercial improvement review profit deductibles business, the underwriting as continued comprehensive book execute identified introduction our guidelines We've historically wind of classes other state. footprint, has provide revised our they including: commercial to and properties; of a challenge probable whether the analysis maximum our to now for profit of that of cat-prone of several lines risk tools underwriters certain loss not initiatives underwriting factors state

using data integrating renewal advanced the evaluations increases when increase on precision conditions as valuations, further of aerial modeling appropriate property areas most are the such business changes imagery terms for ensure to more rate and our and catastrophe to to class, and properties. We're to exposed and appropriate We're also in actions continuing intersections that line considering geography. drive utilizing of of emphasize challenged taking third-party risk pricing, selection to roof

led we compensation, an workers' line's XX.X% book XX.X% rate achieved and across Excluding increase and at renewal average commercial at commercial auto by exposure multi-peril our XX.X%. commercial of

quarter, Turning second XXX.X% was earlier. a primarily from for due statutory the the deterioration prior very from active lines commercial slight line weather quarter, Kevin during of ratio The for pattern top as Jeff to impact results. growth the a and XXX.X%, to year mentioned quarter this combined

a Indiana, a quarter, the tornado and of losses over Carolina. due to was in or severe surprised weather-related primarily into losses event and from handful Michigan, so United we're prior States reported weather There large during every claims property increasing not of the from Ohio tornadoes hail of the states elevated XX% that year South somewhere the were in during commercial the with May, quarter month day hail

we we peril this across no the companies our geographic continue date served losses Large strategy on well going risk. reported. the impact to related weather commercial other mitigate diversification the significantly have we claims flat the large Despite a were to as actions Hurricane than also our ongoing increase, we loss industry and expect bears execute quarter, in reduction us received likelihood lower relatively believe that It ratio on was fires as to mentioning specific to fire forward fire of for incurred Beryl.

flagship higher of reported stable prior individual trends. line added medical years, reserves of longer accident on loss medical compensation in previously adjustments within cases part to estimates workers' related primarily our Within to see we These in medical inflation we relatively requiring loss Pennsylvania. as state our treatments to developments to continue our large for business, relate claims

favorable Both that essentially development commercial multi-peril and development. the compensation workers' commercial auto experienced reserve lines offset

that to We and the factors are compensation reserves. are drove underlying all the increase across activity business continuing unusual closely monitoring workers' analyze in lines our of reserving

with Liability physical historical Drilling frequency as in increases we damage the severity noted have loss auto claims commercial auto, post-pandemic the and levels. down generally increases have in to in remain abated trends well. line for believe moderation severity

For overall appears favorable severity frequency continue. trends multi-peril, commercial and moderating be to

our increase and favorable this business to We partially execute pressure pleased offset are upward trends, in traction. been we're commercial to offensive liability that but gain severity lines, continuing for frequency that our continue line. We're strategy small to on has initiatives continuing trends see by

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

personal quarter. auto were We aggressive for achieved of a second rate for continuation net our and increases retention. written the increases, primarily to the driven XX.X% strong policy by and XX.X% increase current rate Shifting in and homeowners premiums coupled business respectively, premium with exposure Personal a lines XX.X%, quarter, segment.

rate increase responsive XXXX. cost in margin increases trends, for as early personal took loss We're as resulting levels now are the lines rate actions to we relative expansion exceeding beginning segment. now seeing earned Earned

homeowners to nearly higher very again, remains ratio to in quarter. and loss continued hail no quarter I from in ratio development we're from auto renewal by the to at deteriorated consistent are from driven a our XX.X% that well. in compared by reserve retention combined seeing to return by increases active increases led quarter. prices unusually quarter, Similar strong to contributed as have Premium trends during profitability The used to ratio in accepting moderating the year XXX.X% points a prices for and parts impact actively to loss development. from decline increases year in a decreases by at X.X% was current auto policies have premiums accelerate profitable real retention earlier, lines which ratio and stable check. continuation by percentage XX.X% driven of combined prior prior tornado non-weather personal favorable off. Claim the rate commercial statutory improved moderate severity points year period, reserve auto, all the states. The claims the for XXX.X% year with level relatively percentage ratio begun improvement while core frequency largely shifted X.X a the force also XXXX. Policyholders remained to be the The decline mentioned statutory as for for and prior trends business and year-end remaining strong our with to due new strategy to car Our liability severity damage quarter. controlling ago X Furthermore, continue X.X% post-pandemic be season a volume, to physical loss

strategies. in other view maintain have actions pleased confident we our personal weather the ability we of by in We're solid the portfolio, momentum and to our progress modestly remain spread as weather taken making in geographies to growing in geographic identified risk property many as to prone reducing positive continue in and that to see to prone. our underwriting improvement due less on our the We're we we book, more diversifying exposures results as execute in we've X.X% lines severe strategic areas across our

With over call that, to I'll turn DeLamater. Dan Dan? the

William DeLamater

you, Thank Jeff.

the calls. in initiative of an we first As half foremost, and expense previous on I our provide operational assess first reduction will our performance the discussed in update year,

favorably For second compares we expense quarterly ratio of of operated XX.X% our to XXXX. the for expense quarter, of which second an the XX.X% ratio quarter

of significant expense recognize of to are our XXXX. now pleased ratio an half we operating This compares are through XX.X% We improvement, at of June through XX.X% favorably first and XX. expense midyear the to ratio

realizing by department are are the noteworthy reduce expense we XXXX These our X expense even considering in points peak XXXX. every are multiple ratio impact end pace expense point modernization initiatives the toward Nautilus, full clearly by Through across X in XXXX. the more Project on systems targeted reductions our to and organization, of we of our in expectation project

for before, these of line of from and changes underwriting to to policyholders; X; strategies many the company card for commercial footprint homeowner lines; targeted monoline comparative reductions range own credit regional and ensure business; of report our our the revisions staff; programs regions use offset to raters; of that they analytics personal open stated align our payments in reduction paid corporate the of agency with to of restrictions report the cost As across to in card by profitability; initiatives more. policies from reductions X in to the lines underwriting positions implementation incentive strategy to challenges improve hiring operating commissions recognize surcharge increased a credit our

and and across smaller serious ones company. are have And improvement. Several proud of to resilience Donegal and of that across every has is all for shown. of expense there visibility effort commitment this I'm contribute initiative, full for our difficult, leadership colleagues but a meaningful dozens and high-profile initiatives the the are they these sustainable

We and project. years peak of the XXXX need the XXXX offset acute improvement to expense our in infrastructure Nautilus recognize for

to We the profitability. expense long-lasting also operating efficiencies for to and recognized our need broader improvement contribute

teams we in and regional states, appropriate team and These also and plans national that growth in state weather-prone also books mix, every Aside define lines product work business state write. from we and strategy strategy, steer appropriate toward as all marketing of important especially help we where strategy to accounts property in rate our product underwrite marketing but are growth initiative, they underwriting mix our line through expense objectives product our and continue initiatives classes. and teams, our

state-by-state are teams transparency provide and Our and toward highly portfolio meetings and accountability engaged aligned our monthly objectives.

Mexico believe As us mitigate a in we New Midwestern fact, to in helped June. wildfires matter storms significantly these efforts that of and exposure May

this While are achievements complete, by work encouraged is already the not we recognized.

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

our on sustained the to We to are activity, inflation, reduction will costs rate performance. of And efforts. expense these inflation generally. social loss financial continue and obtain continue to Executing claims offset large will both in of excellent paramount we achievement

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

Vincent Viozzi

remains Thanks, our and Dan. our ongoing conservatively In effort to preserve opportunistic. expand capital, our investment approach

advantage rates are securities provide continuing taking historically expect in high we We to strength high-quality investment portfolio. reinvestment that while our buy will of ongoing

bonds. much and quarter from equivalent from favorable, to XXXX, yield was million. During rates quarter the of prior portfolio net increased for X% we the to second tax for flow higher-yielding income up $XX.X to interest the X.XX%, be cash year investment invest Market the X.XX% The average into second quarter XXXX. quarter continue continue of

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

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

our equity While have we still adding year-to-date. conservative equity position modestly allocation XX% increased

second Net gains equity of year These were approximately both for gains periods. for compared portfolio investment primarily XXXX to gains $X.X $XXX,XXX our unrealized the the quarter for prior were within million period.

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

X.XX% point our flow the during the reinvestment second quarter. average the a cash XXX of represented Overall, over bond improvement rate basis during quarter

were offset and losses $X.XX bond $XX.XX declared XXXX. loss, and June was XX, the of book half was increase of partially XX, XXXX. of during net gains a per as that unrealized increase value by $XX.XX, XXXX, share net to in portfolio underwriting by investment The cash value modest compared income available-for-sale driven dividends our a As in book December first our

I remarks. that, now Kevin closing will for to turn back With it

Kevin Burke

Thanks, Tony.

forward team's and further and in of As to in our to quarterly underlying financial our we our our providing sustained various proud now execution you made call. I I generate achieve session. improvements excellent back our am turn progress initiatives will remains the have moderate Karin the throughout our look efforts to team updates the we results. heard call to call focused entire on date, to results, to and are next beginning successful question-and-answer today,

Karin Daly

we from In questions of answered questions received of directly. questions Kevin. you, remarks, Thank interested a within advance address today's And and few requested will while management's we the call, of prepared the parties. many we

we trajectory be about like line workers' to forward? premium moving auto and sort The growth. growth what see by to should How in first you compensation of More for relates commercial? would thinking specifically, commercial question

Jeffery Hay

that This take is one. can Jeff Hay, I

We to within we account continue agents our writer. account, that an are be the an that underwriting account policies of opportunity all-lines the for appetite. to And our to all write ask and write fit expect when we

So from rates we lines across an exposure business commercial of lines. expect or basis, and a policy count similar growth

The variance dynamics. premium between the driven by be will growth rate market largely lines

comp see we in but lines. commercial do for For and trends multi-peril rates to due commercial continue rate bureau-mandated we expect example, to positive workers' auto to challenges reductions, expect

pushing growth for small package result, in as policies And in to to commercial, our a I've outsized calls. growth policies gains our commercial we momentum. as CPP outsized middle-market We're as relative small BOP strategy previous in expect see mentioned

Karin Daly

the basis compared ago? increasing relates The a next to percentage lines. you on to question policies months personal XX written of Can quantify auto X-month

Jeffery Hay

could seasoned our the Jeff renew limit we We policies disruption of originally those but were book they business. only being most that as write personal to here that XX-month continue on same business terms now policies, written book of auto, again. policies new we X-month with all of Hay, so for for within legacy our

policies shifted being terms X-month book our auto year, within to X-month policies XX% has being past XX% the now. Over from mix of our

continue mix several beneficial, because earn changes policies is naturally that to X-month rate higher to the percentage at allows we speed which a the over margins. improve expect will We years, can next us of quickly shifting which increase more

But that, we of long-term to as policies possible, do do terms. have much having convert book our for said we'll we on the profitable business targets desire not most retain as those XX-month shifting any of as and legacy

Karin Daly

to The additional moving provide reserving. Thank the question relates reserve next you Jeff. on color pieces you, Can development this quarter? on

Jeffrey Miller

$X business development development Jeff is workers' million $X.X auto, of auto for XXXX included offset commercial unfavorable line personal Miller. quarter Specific by for second of for of $X.X million This the compensation. of detail million for favorable

the shared workers' across older to higher-than-expected of XXXX, That As years. accident workers' Jeff percentage business. to Hay development previously primarily losses, small severity added but spread earlier, the also we attribute XX.X loss of line compensation number current for the in development accident quarter unfavorable XXXX a compensation and for years reported relatively ratio in points

Karin Daly

your Jeff. split mortgage-backed final you, investments. makeup the versus details Thank portfolio? question between provide relates Or any residential? splits? Can securities The more you commercial of our on details to Can on you it geographical

Vincent Viozzi

This is Tony.

MBS residential York, New a We avoid Our almost states mortgages. and agency consists pools and as large buy rate with when typically Florida exclusively such geographical exposure diversified possible. fixed major portfolio of California

Karin Daly

are the great Group and Thank Thank to Earnings a feel you, out reach day. you, now If Donegal concludes Tony. Second Quarter there This us. have additional XXXX free questions, please any to Webcast.

Donegal (DGICA) 25 Jul 242024 Q2 Earnings call transcript