DONEGAL GROUP INC Q3 FY2023 earnings call

• Executing strategies to improve financial performance, modernize operations. - Non-renewing all commercial policies in Georgia and Alabama, with focus on promoting new BOP product and modernized commercial auto/umbrella products. - Ongoing systems modernization: start of development for new commercial package policy in early 2024, deployment in second half of 2025; conversion of legacy personal lines renewals to new platform starting early 2024. - Conducted third annual state strategy sessions in August to develop 2024 business plan. - Hosted event for top-performing agents in September to share business plan and gather feedback.

Commercial Lines: Net written premiums decreased ~2% during the quarter, primarily due to non-renewal of commercial accounts in Georgia and Alabama; excluding those actions, net premiums written increased ~7% with significant rate increases (nearly 13% excluding workers' compensation). Statutory combined ratio was 97.5% in the quarter, a significant improvement from 112.1% in the prior-year period, driven by lower core losses and a major decline in large fire losses. Personal Lines: Nearly 18% net premiums written growth in the third quarter from 14% average renewal rate increases; retention was 89%; statutory combined ratio increased to 119.4% compared to 107.8% in the prior-year period, impacted by weather events, particularly affecting the homeowners line.

• Systems modernization expense ratio impact expected to peak in 2024 at around 1.5 percentage points, then subside gradually. - Aim to achieve rate adequacy and capture additional market share within current geographic footprint. - 2024 business plan to guide coordinated marketing and underwriting activities in each region.

• Weather-related losses: increased frequency of severe weather events, highest weather-related loss ratio since 2018. - Inflationary pressures: ongoing impact on claim severity, particularly in personal auto with high repair and replacement costs. - Competitive market: highly competitive workers' comp market, and challenges in maintaining rate adequacy in commercial auto. - Volatility in equity markets: conservative approach to equity exposure due to market volatility.

Q: Can you talk more broadly about your updated view on the workers' comp market, both from a pricing, competitive landscape, and pair it with loss cost trends?

A: This is Jeff Hay. Workers' compensation is the most profitable line for us; we're growing its mix. Medical inflation is largely in check, but indemnity severity is up due to wage inflation. The market is highly competitive as many carriers are seeking to write more workers' comp.

Q: Can you provide an update on where the commercial auto line is from a rate adequacy perspective?

A: We've made good progress in commercial auto profitability, regaining rate adequacy in a challenging line. Exit from Georgia commercial market will further improve results; will continue rate and non-rate actions to stay ahead of inflationary trends.

Q: Can you remind us how much of your portfolio you expect to be reinvested over the next 12 months?

A: Sure, Karin. We estimate approximately $94 million of our bond portfolio will be available for reinvestment in 2024, currently yielding around 3.60%, and we can reinvest at higher yields if market rates remain higher for longer.