Release Date: October 24, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Donegal Group Inc (NASDAQ:DGICA) achieved its highest level of quarterly earnings since 2020, with a net income of $16.89 million despite incurring $6 million in pre-tax catastrophe losses.
• Net premiums earned increased by 6% to $238 million, with strong premium rate increases and retention.
• The combined ratio improved to 96.4% from 104.5% in the prior year quarter, driven by a decrease in the loss ratio.
• The company is making excellent progress on its systems modernization project, which will enhance operational efficiency.
• Investment income increased by 2.8% from the prior year quarter, with a focus on high-quality credits and a strategic shift towards corporate debt.

Negative Points

• Weather-related losses were significant, totaling $24.4 million, which was higher than the previous five-year average for the third quarter.
• The expense ratio increased slightly to 34.5% due to higher underwriting-based incentives.
• The company is facing challenges in the workers' compensation market due to competitive pressures and downward rate trends.
• Personal lines policies in force declined by 7.3% compared to the prior year period, partly due to strategic non-renewals.
• The company incurred $6 million in net losses from Hurricane Helene, impacting homeowners in Georgia significantly.

Q & A Highlights

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Q: Can you provide an overview of Donegal Group's financial performance for the third quarter of 2024? A: Kevin Burke, Chairman, President, and CEO, highlighted that Donegal Group achieved net income of $16.89 million, or 51% per Class A share, despite incurring $6 million of pre-tax catastrophe losses related to Hurricane Helene. The company saw a 6% increase in net premiums earned, reaching $238 million, with a combined ratio of 96.4%, a significant improvement from the previous year's 104.5%.

Q: What were the main drivers behind the improvement in the combined ratio? A: Jeffrey Miller, CFO, explained that the improvement was primarily due to a decrease in the loss ratio, which declined by 6.6 percentage points from the prior year quarter. This was attributed to higher earned premiums and improved claim frequency and severity across all lines of business.

Q: How did Donegal Group's commercial lines perform during the quarter? A: Jeffery Hay, Chief Underwriting Officer, reported a 6.4% increase in net premiums written for commercial lines, driven by new business in targeted geographies and strong rate and retention achievements. The commercial lines statutory combined ratio improved to 89.8% from 97.5% in the prior year quarter, with a notable reduction in large fire loss activity.

Q: What strategies is Donegal Group implementing to improve profitability in personal lines? A: Jeffery Hay noted that the company is focusing on aggressive premium rate increases and strong policy retention. They are also intentionally reducing new business writings to maintain profitability and have begun non-renewing certain legacy personal lines business in Maryland due to profitability issues.

Q: Can you elaborate on Donegal Group's investment strategy and performance? A: V. Anthony Viozzi, Chief Investment Officer, stated that the investment strategy remains conservative, focusing on high-quality credits. Net investment income increased by 2.8% to $10.8 million, with an average yield of 3.28%. The company has been shifting from agency debt to corporate debt and has increased its equity holdings by 39% compared to the end of 2023.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.