Donegal Group Inc. Q1 FY2024 earnings call

• Systems Modernization: Making progress on major software releases; development phase of commercial systems release (including new commercial package policy and modernizing legacy commercial products) and regulatory filings for personal line software release are ongoing, with phased rollout beginning in 2025.
• Regional Structure: Realigned to 4 regions from 6 effective January 1, 2024, expecting improved operating efficiencies, effectiveness, and economies of scale.
• Arizona Expansion: Positive early results with nearly surpassing new quote activity from final 5 months of 2023 and already surpassing new premium written in the same period in Q1 2024.
• Expense Reduction: Expecting to achieve offsetting cost reductions through targeted expense management; senior leadership team identified expense savings, with an accountability framework in place.
• National Account Team: Supporting regional teams, with agencies from strategically identified national relationships accounting for over 37% of new business in Q1 and nearly 35% of in-force book.

For the first quarter of 2024, net premiums earned increased 5.8% to $227.7 million. Net premiums written increased by 6%. In Commercial Lines, growth was slightly negative at -1% due to strategic nonrenewals in Georgia and Alabama, but excluding intentional attrition, premium growth was achieved with strong renewals; renewal rate increases were 11.9% across the commercial book (excluding workers' comp), with commercial multi-peril at 13.3% and commercial auto at 11.4%. In Personal Lines, significant rate increases were implemented, with earned premiums to reflect higher rate increases in future quarters; premium growth of 18.5% in Q1 2024 was driven by renewal rate increases, with rate increases averaging 15.2% for personal auto and 19% for homeowners.

• Expect more meaningful small business premium increases as operating capabilities are refined and expanded in 2023 for 2025.
• Continued rate increases in Personal Lines to drive performance improvements as loss trends stabilize and get closer to rate adequacy.
• Phased rollout of system implementations beginning in 2025.

• Large fire losses impacted the loss ratio, with large fire losses contributing 6.6 percentage points to the loss ratio in Q1 2024, higher than the prior year quarter.
• Unfavorable development of workers' compensation reserves due to higher-than-expected severity for some previously reported losses in accident years 2022 and 2023.
• Weather-related losses could impact the loss ratio; however, weather impact in Q1 2024 was close to historical average.
• Systems modernization project peak expense impact in 2024, with approximately 1.3 points of expense ratio impact from the project this year.

Karin Daly: While we requested and received questions in advance of today's call, we have worked answers to these questions into our prepared remarks. If there are any additional questions, please feel free to reach out to us. This now concludes the Donegal Group first quarter 2024 earnings webcast. You may now disconnect.