Donegal Group Inc. Q3 FY2024 earnings call

• Completed strategic non-renewals of all commercial policies in Georgia and Alabama in July, with commercial lines growth reflecting higher new business in targeted states and classes, and solid renewal premium increases.
• Ramping up small business commercial underwriting strategy for all four operating regions as a key focus for 2025 and beyond.
• Completed fourth annual state strategy sessions in August, refining strategies and action plans for 2025 business plan.
• Making excellent progress on systems modernization project, with first phase of a software release deployed over the weekend to automate conversion of legacy policies.
• Expense ratio for Q3 2024 was 34.5%, with year-to-date expense ratio at 34% due to expense reduction initiatives like agency incentive program revisions, commission schedule adjustments, and targeted staffing reductions.
• Actively diversifying the geographic footprint of personal lines property book to optimize diversification and mitigate weather-related loss impact.

Commercial Lines

• Net premiums written increased 6.4% during the quarter, primarily driven by new business in targeted geographies and classes of business, coupled with strong rate and retention achievement.
• Statutory combined ratio for the third quarter was 89.8%, a 7.7-point improvement from 97.5% in the prior-year quarter.
• Large fire loss activity was down 39% year-over-year, with lower average severity driving the decrease.
• Renewal rate increases remained strong, with an average 12.8% rate and exposure increase across commercial lines excluding workers’ comp.

Personal Lines

• Net premiums written increased 5.4% for the third quarter, driven by aggressive premium rate increases and strong policy retention, though partially offset by intentional reduction in new business writings and non-renewal of Peninsula Insurance Company's legacy personal lines business in Maryland.
• Policies-in-force declined 7.3% compared to the prior-year period, but overall personal lines retention was strong at 86.4%.
• Personal auto and homeowners renewal rate and exposure increases were 15.7% and 13.2%, respectively. Statutory combined ratio was 104.7% compared to 119.4% in the prior year period.

• Expect to capitalize on opportunities for profitable growth in 2025 through aligned strategies and actions.
• Systems modernization project to continue with further software releases.
• Aim to reduce expense ratio by one full point in 2024 and two points by end of 2025 through various initiatives.
• Continue to pursue rate increases in personal lines to offset loss trends and achieve targeted margin expansion.

• Weather-related losses remain a risk, with quarterly weather claim impact higher than previous five-year average for Q3.
• Competitive market pressures, particularly in workers’ compensation line with continued rate decreases filed by bureaus.
• Social inflation impact on liability severity trends in commercial multi-peril, which could affect pricing and profitability if not managed.