Donegal Group Inc. Q2 FY2024 earnings call

• Weather: Above-average severe convective storm activity in Q2 2024, but strategic initiatives mitigated impact. • Commercial lines: Completed exit from Georgia and Alabama commercial lines, new business in targeted classes, small business initiatives gaining traction. • Personal lines: Strategy of rate increases and controlling new business growth, net premiums written up 12.1%. • Systems modernization: On track for major commercial and personal lines system releases starting 2025. • Expense reduction: Expense ratio improved to 31.9% in Q2 2024, mid-year at 33.8%, aiming to reduce by 1 point in 2024 and 2 points by 2025. • Investment: Conservatively opportunistic approach, net investment income up 9%, shifted from tax-exempt to higher-yield products.

For commercial lines, net premiums written increased 7.1% during the quarter. Excluding Georgia and Alabama, commercial lines net premium written growth was 10.4%. 66% of new business was in highly targeted classes. For personal lines, net premiums written increased 12.1% primarily due to aggressive premium rate increases and strong policy retention. Personal auto and homeowners rate and exposure increases were 13.4% and 16.3% respectively.

• Small commercial growth to be a significant emphasis in 2025 business plan. • Systems modernization projects on track for implementation starting 2025. • Aim to reduce expense ratio by 1 point in 2024 and 2 points by end of 2025.

• Weather-related losses: Severe storms caused over $20B in damages, potential impact on results. • Workers' comp reserving: Adjustments in workers' comp reserves due to medical developments in Pennsylvania. • Systems modernization costs: Higher technology costs related to ongoing modernization initiatives.

Q: How should we be thinking about growth by line in commercial? More specifically, what sort of trajectory would you like to see for commercial auto and workers' compensation moving forward?

A: This is Jeff Hay. We are an all-lines account writer, expect similar growth rates across lines, challenges in workers' comp rates due to bureau-mandated reductions, positive rate trends for commercial multi-peril and auto, outsized growth in Small Commercial expected.

Q: Can you quantify the increasing percentage of auto policies written on a six month basis, compared to 12 months ago?

A: Jeff Hay here. Mix of auto policies shifted from 28% six-month to 40% now, expect mix to continue shifting, beneficial for earning rate changes, no long-term targets but aim to retain profitable legacy business.

Q: Can you provide additional color on the moving pieces on reserve development this quarter?

A: Jeff Miller. Favorable development of $3M for commercial auto, $1.6M for personal auto, offset by unfavorable $4.7M for workers' comp due to higher severity in previously reported losses.

Q: Can you provide more details on the make-up of your mortgage-backed securities portfolio? Can you split it between Commercial versus Residential, or any details on geographical splits?

A: Tony Viozzi. MBS portfolio consists almost exclusively of fixed rate agency residential mortgages, diversified geographically, avoiding states like New York, Florida, California