Donegal Group Inc. Q1 FY2025 earnings call

• Systems modernization: Team making progress on detailed testing for commercial line systems release in July, with first phase of personal lines software release deployed in February, and second phase on track for later this year, aiming for a single policy management system by mid-2027.
• Underwriting discipline: Enhanced intentionality and discipline in balancing growth and profitability goals, with greater insight into underwriting performance. Carefully monitoring economic uncertainty impacts on claims costs. Commercial lines are pruned of less profitable classes, with new business aligned to targeted strategies. Personal lines are rightsizing product mix with intentional limiting of new business volume and non-renewal of unprofitable Maryland book.
• Expense management: Expense ratio decreased modestly, reflecting expense reduction initiatives and modest decrease in technology costs, offset partially by increase in underwriting-based incentive costs. Have a comprehensive budgeting and expense monitoring tool in place.
• Investment updates: Net investment income totaled $12 million, up 9.2% from prior year quarter. Book value per share increased 5.7% to $16.24 as of March 31, 2025, driven by strong underwriting results, investment income, and improvement in available-for-sale fixed income portfolio value.

For the first quarter of 2025, net premiums earned increased 2.2% to $232.7 million. Net premiums written decreased by 1.7%, with a 9.9% decrease in personal lines net premiums written offset partially by 3.3% growth in commercial lines. The combined ratio was 91.6% for the first quarter, a substantial improvement from 102.4% the prior year. The core loss ratio improved in both commercial and personal lines. Commercial lines net premiums written increased 3.3%, with a combined ratio of 94.7% which improved 6.9 percentage points over the prior year quarter. Personal lines net premiums written decreased 9.9%, with a combined ratio of 83.6% which improved 16.7 percentage points over the prior year quarter. The commercial lines segment had a 0.7 percentage point decrease in core loss ratio, while personal lines had a 9.4 percentage point decrease in core loss ratio.

• Announced an increase in quarterly cash dividend, indicating confidence in business strategies. Look forward to reporting ongoing progress in future calls.

• Economic uncertainty: Potential impact of tariff policies on new and used automobile pricing, auto repairs, and construction costs, affecting claims costs.
• Workers' compensation market: Competitive with margin pressure from negative rate filings.
• Social inflation: Impact on claim costs due to attorney advertising, jury anchoring, etc.
• Medical utilization: Increase in medical visits, testing, and prescription medications putting upward pressure on claim costs.