Donegal Group, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Donegal Group, Inc. Second Quarter 2020 Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star 1 on your touchtone phone. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key. I will now turn the call over to Jeff Miller, Chief Financial Officer, to begin.

Thank you very much. Good morning, everyone. Welcome to the Donegal Group conference call for the second quarter, ended June 30, 2020. Yesterday afternoon, we issued a news release outlining our quarterly results. For a copy of that release, please visit the investor relations section of our website at donegalgroup.com. In today's call, Kevin Burke, President and Chief Executive Officer, We'll provide an update on our business strategy and discuss recent developments. I'll follow Kevin's comments with highlights of our quarterly financial results. At the conclusion of our prepared comments, we will open the line for any questions you might have. Before we get started, please be aware that our commentary today includes forward-looking statements that involve a number of risks and uncertainties. We described forward-looking statements in our news release and we provided further information about risk factors that could cause actual results to differ materially from those we project in the forward-looking statements in the report on Form 10-K that we submitted to the SEC. You can access our Form 10-K through the Investors section of our website. Also, we use certain non-GAAP financial measures to analyze our business results and we refer you to the Reconciliation of Non-GAAP Information also included in the news release we issued yesterday. With that, I'll turn it over to Kevin.

Thanks, Jeff, and welcome, everyone. Overall, we are pleased with our second quarter results. We remain cautiously optimistic as we monitor uncertain long-term impacts created by the COVID-19 pandemic. Our employees and independent agents, as well as our customers, have proven to be adaptive and resilient in responding to the challenges related to COVID-19 and the related economic disruptions. Conditions and government responses have varied widely across our regions with restrictive mandates that may vary even from county to county within a given state. We've continued to focus our efforts on serving our agents and customers while paying close attention to all the regulatory activity to ensure compliance with all the state and local requirements that apply to us. In late March, we moved aggressively to equip our employees with the technology and tools they needed to conduct our business remotely. While the vast majority of our employees continue to work from home, we are beginning to bring small numbers of employees back into our offices. And when our agents and customers are comfortable doing so, our marketing staff and agents are beginning to resume limited in-person meetings. I want to emphasize that we are taking the health and well-being of our employees, agents, and customers very seriously. And as such, we're being extremely vigilant when it comes to making sure our interactions are conducted with appropriate precautions. All the states in which we conduct business began to ease restrictions and reopen their economies during the second quarter, but a number of states have taken a step back following reports of virus resurgence. Since it appears that we may be dealing with starts and stops for the foreseeable future, we are pleased that our online agency portals allow our agents to easily generate new business and provide support to our customers as needed. As a reminder, our business is roughly 60% commercial lines, primarily including multi-parallel, automobile, and workers' compensation products. While we write our fair share of larger accounts, we specifically target small to medium-sized businesses like contractors and Main Street business owners that serve critical roles in their local communities. Many of these small businesses received critical, well-deserved financial assistance through government programs that helped to bridge the gap until they could fully or partially reopen for business. As a result, we experienced relative stability within our commercial lines premiums. The level of new business submissions from our agents remained very strong, even as our overall premium retention rate increased during the quarter. We quickly responded to any requests for reductions in commercial premiums because material decreases and exposure related to the pandemic Mid-term endorsements reduced premiums in excess of $1 million during the second quarter, and we expect that we will continue to see declines in exposure-based premiums as we complete premium audits at the end of the policy terms during which shelter-in-place orders were in effect. Moving to personal lines, we saw a substantial decline in personal auto claims activity in the months of April and May that led to significant improvement in our second quarter loss ratio. Auto claims in the month of June began to return closer to our historical experience as driving activity began to increase, and we view the early months of the second quarter as a short-term aberration that will not likely reoccur. We will continue to monitor our personal auto results over the course of the remainder of the year and file rate adjustments we believe are appropriate in light of our loss experience. I am pleased to report we continue to make progress on the development of our new auto and homeowners products We are on track for deployment for the first group of states in July of 2021. In a minute, I'll turn a call over to Jeff for his comments on the results for the second quarter, but I want to highlight our net income of $22.7 million, or 79 cents per diluted Class A share for the quarter. We had much improved underwriting performance in our insurance operations, with a second quarter combined ratio of 92.3 percent compared to 102 percent in the second quarter of last year. Included in our net income figure was $5.1 million or 18 cents per diluted Class A share of after-tax net investment gains as the market value of our equity security holdings rebounded during the quarter. The net income coupled with the increase in the value of our available for sale bond portfolio drove a 7% increase in book value to $16.77 at June 30, 2020, compared with $15.67 at December 31, 2019. We also continue to maintain our dividend payments and policies throughout recent months as one of Donegal's core objectives is to achieve solid results and returns and also reward our stockholders over time. We declared a regular quarterly cash dividend of $0.15 per share of our Class A common stock and 13.25 cents per share of our Class B common stock. The dividends are payable on August 17, 2020 to stockholders of record as of the close of business on August 3, 2020. With that, I'll turn the call over to Jeff for more details about our second quarter operating results.