Donegal Group, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Donegal Group, Inc., fourth quarter 2020 earnings conference call. At this time, your participant lines are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question, please press star, then one on your telephone keypad. To withdraw your question, press the pound key. As a reminder, today's call is being recorded. If you require operator assistance, press star zero. and my pleasure to hand the conference over to Chief Financial Officer Jeff Miller. Mr. Miller, I hand it to you.

Thank you very much. Good morning and welcome to the Donegal Group conference call for the fourth quarter and year ended December 31st, 2020. On behalf of everyone at Donegal Group, I want to thank you all for your interest in our company. Yesterday afternoon, we issued a news release outlining our financial results. For a copy of that release, please visit the investor relations section of our website at donegalgroup.com. In addition, we have made available a supplemental investor presentation on our website. In today's call, Kevin Burke, President and Chief Executive Officer, will provide a business update and overview. I'll follow Kevin's comments with highlights of our quarterly and full-year financial results. Kevin and I look forward to answering any questions you may have following our prepared remarks. Before we get started, you should 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. We expect to file our Form 10-K for 2020 on or around March 5th. You can access our Form 10-K through the Investors section of our website. We use certain non-GAAP financial measures to analyze our business results and refer you to the reconciliation of non-GAAP information included in the news release we issued yesterday. With that, I will turn it over to Kevin.

Thanks, Jeff, and welcome, everyone. Yesterday, we reported favorable fourth quarter results that contributed to excellent results for the full year of 2020. We are grateful for the financial success we achieved despite the events and challenges we all faced in 2020. As I stated in past earnings calls and other forums, our goal has been to build upon the foundational changes we implemented throughout our organization over the past several years. And our improved underwriting performance demonstrates that these changes are having an impact. We feel that Donegal is positioned perfectly to take advantage of the hardening commercial insurance market conditions in our operating regions, We are also continuing to stabilize our personal line segment where we've been emphasizing profitability over growth in recent years. We reported net income of $14.6 million or 49 cents per diluted Class A share for the fourth quarter of 2020 at $52.8 million or $1.83 per diluted Class A share for the full year. We achieved solid level of underwriting profitability with combined ratios of approximately 96% for both the quarter and the year. And we've achieved favorable loss reserve development in each of the past few years. We are particularly pleased with our full year 2020 results in light of the significant uncertainty surrounding the pandemic and its effect on economic and business conditions, as well as the record-setting severe weather activity throughout the U.S. Our net premiums earned decreased just under 2% for the year, While we continue to achieve solid commercial lines growth during 2020, the modest net reduction in our premium revenue largely reflects the impact of corrective measures we implemented beginning back in 2018 to restore profitability of our personal lines business. During 2020, we shifted our focus from corrective efforts to maintaining our core book of personal lines business as we prepared to launch new personal lines products later in 2021. As we roll out those new products throughout the 11 states in which we write personal lines, we expect to return modest levels of personal lines growth in 2022 and beyond. In commercial lines, we expect renewal premium increases to increase from the modest levels we implemented in 2020, and we expect policy count growth to continue as our expanding relationship with our key agents provide a steady stream of new commercial accounts. We have excellent momentum as we move into 2021. In 2021, our commercial lines growth will include premiums from four southwestern states. As we've announced previously, Donegal Group's 2021 results will include 80% of the pooled underwriting results of the Mountain States Insurance Group, which Donegal Mutual Insurance Company acquired back in 2017. We currently expect that the Mountain States Insurance Group will generate approximately 48 to 50 million dollars Thank you for joining us. reaching 57% of our total net premiums written for the full year of 2020. Our current mix reflects a diversified blend of products and geographical spread of risk. We're continuing to gain market share throughout our operating regions and maintained an 86% premium retention level across our commercial accounts, which are great indicators of our strong agency relationships and favorable market conditions. Considering the low interest rate environment, higher frequency of severe weather events, and the uncertain future impact social inflation will have on loss costs, we expect the market conditions will remain favorable for additional premium rate increases in 2021. Our commercial lines generated a statutory combined ratio of a 97.8% for the full year of 2020, despite a modest increase in the impact of weather-related losses and the continuing lack of profitability in commercial auto. We have seen incremental improvement in our commercial auto results over the past few years, and we expect additional premium rate increases and underwriting refinement in select regions to have a favorable impact on the performance of that line of business in 2021 and beyond. In our personal lines business segment, we benefited from lower claims frequency throughout 2020 due to reduced driving activity and traffic density. Our 2020 Personal Lines statutory combined ratio was a 92.4%, which compares very favorably to the 102.6% for 2019. We expect claim frequency to continue to revert back to historical norms, and we will continue to monitor our claim statistics and take appropriate rating actions in response. As I mentioned earlier, we look forward to the phased rollout of our new Personal Lines products beginning in the second half of 2021. and continuing into the first half of 2022. We have received regulatory approvals for our new rates and forms in several of the states that will be included in the initial rollout. While the new products will include various coverage enhancements, the primary advantages that we anticipate relate to modernized rating methodology that includes enhanced pricing segmentation and application of predictive analytical pricing models. As we deliver the enhanced products through a brand new agency web portal that aims to provide our independent agents with the best-in-class user experience, we look forward to competing more effectively for new quality personal lines accounts. While we are pleased with the bottom-line profitability Donalgo Group was able to achieve in 2020, we are making progress on a number of initiatives that we expect will lead to greater returns in future periods. For example, it's difficult to quantify the future value we will gain from the significant progress we've made on our systems modernization project. The replacement of our remaining legacy systems will enhance our ability to make significant advancements in underwriting, data analytics, and operational capabilities over the next few years. As a quick project update, we have made great strides and have significantly enhanced our project management resources and abilities. Since the first foundational release was implemented last February, we have converted the vast majority of our workers' compensation policies to the new platform. The scope of the next software release has been expanded to meet compelling business demands, and numerous technical and business teams are actively coordinating their efforts to ensure a successful implementation. The new Personal Lines products I described earlier are the primary deliverable of the current software release. which we refer to as Release 2A. We will also implement new reporting systems that will enable further enhancements in data analytics and business intelligence. Design and development work on the next software release which we refer to as Release 2B will accelerate in the second quarter of 2021 running concurrently with Release 2A testing and deployment activities. The scope of Release 2B includes three additional commercial lines of business that will complement The Workers' Compensation Line, which is already in production. In preparation for Release 2B, we have performed a comprehensive review of our current workflows and developed a detailed roadmap for our future state end-to-end commercial underwriting process. This preparation will greatly streamline Release 2B development efforts as we look forward to beginning to migrate those commercial lines to the new platform in 2022. Shifting to our broader strategic priorities, we refreshed our three-year strategic plan during 2020. The plan emphasizes several primary strategies, which include a focus on achieving sustained excellent financial performance, strategically modernizing our operations and processes to transform our business, capitalizing on opportunities to grow profitably, and deliver exceptional service to our agents and customers. As we execute these strategies, we expect to continue to build and enhance the book value of Donegal Group for the benefit of all of our stockholders. Our book value per share at December 31, 2020 increased 9.3% to $17.13 compared to $15.67 at year-end 2019, which was achieved during pandemic conditions and was primarily attributable to solid operating performance. We were also pleased to declare a quarterly cash dividend of $0.15 per share of our Class A common stock and $0.1325 per share of our Class B common stock, which was paid on February 16, 2021 to stockholders of record as of the close of business on February 2, 2021. As a reminder, we have gradually increased our cash dividend for each of the past 18 years. Based on yesterday's closing price of $13.90 per share, Our current dividend rate represents a 4.3% yield on our Class A common stock. With that, I'll turn a call over to Jeff for a review of our financial results, and then I'll return with a few closing remarks. Thank you.