Donegal Group Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Underwriting Improvements: Substantial improvement in core loss ratios in both commercial and personal lines. Benefits from underwriting actions, rate increases, and technology/product enhancements.
• Systems Modernization: Made excellent progress on major software releases. A major commercial systems release in 2025 will include a new commercial package policy. The last major software release will convert remaining legacy personal lines policy renewals to the new platform, aiming to decommission legacy systems by 2027.
• Technology Investments: Developed cloud-based data infrastructure for better data analysis and reporting. Expect efficiency gains from ongoing technology investments.
• Commercial Lines Strategy: Business plan for 2025 includes high-single-digit growth in commercial lines targeting profitable small and mid-market accounts. Exited commercial lines business in Georgia and Alabama, and will non-renew policies in Maine and New Hampshire.
• Personal Lines Strategy: Expect modest decline in 2025, then stabilize premium writings by gradually increasing new business while maintaining rate adequacy.
• Investment: Conservative investment approach with shift to higher-spread products. Net investment income grew 12.5% in Q4 2024 and 10% full-year. Book value per share increased to $15.36 as of December 31, 2024.

Segment Performance

• Commercial Lines: Fourth quarter net premiums written grew 2.8%, full-year grew 3.7%. Core loss ratio improved. Renewal rate increases were strong, with commercial multi-peril at 13.7%, commercial auto at 10.3%, and commercial umbrella at 9.2% for the fourth quarter. Full-year renewal rate increases averaged 11.8% excluding workers’ compensation.
• Personal Lines: Fourth quarter net premiums written decreased 5%, full-year grew 7.4% due to significant rate increases. There was a 11.6% decrease in policies-in-force as of December 31, 2024. Core loss ratio improved, with personal auto loss ratio decreasing 20.4 points and homeowners’ loss ratio improving 23.4 points from the prior-year quarter.

Guidance

• Commercial Lines: Business plan for 2025 includes detailed regional action plans aiming for high-single-digit percentage growth in commercial lines, targeting profitable small and mid-market accounts in specific regions and classes of business.
• Personal Lines: Expect modest decline in 2025, then stabilize premium writings by gradually increasing new business while maintaining rate adequacy.
• Systems Project: Expect completion of major systems transformation project by 2027, decommissioning all legacy systems.
• Investment: Project to receive approximately $135 million of portfolio cash flow in 2025 with an average yield of ~3.85%, expecting 115 basis points improvement in yield spread upon reinvestment.

Risks

• Weather-Related Losses: While weather-related losses were lower in 2024, potential future weather events could impact results.
• Social Inflation: Affects reserve development, particularly in commercial auto and personal auto lines due to higher-than-expected severity of bodily injury losses.
• Competitive Market: Workers’ compensation market is competitive with premium pressure from negative rate filings.
• Volatility in Weather Patterns: Monitoring recent volatility and managing property concentration accordingly.
• Industry-Specific Inflation: Concern for industry-specific inflation and social inflation from litigation trends.
• Agency Channel M&A Activity: Rapidly changing environment due to mergers and acquisitions in the independent agency channel.

Q: N/A (Questions were pre-worked into prepared remarks as stated in the transcript)