Donegal Group, Inc.

Good day. Thank you for standing by and welcome to the Donegal Group, Inc. Q1 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you should require any further assistance, please press star 0. I'd now like to hand the conference over to your speaker for today, Mr. Jeff Miller, Chief Financial Officer. Thank you, sir. Please go ahead.

Thank you very much. Good morning and welcome to the Donegal Group conference call for the first quarter ended March 31st, 2021. 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 will follow Kevin's comments with highlights of our quarterly results, and then Kevin will return with closing remarks before we open the line for any questions you may have. 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-Q for the first quarter on or around May 7. You can access our SEC filings 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 included in the news release we issued yesterday. With that, I'll turn it over to Kevin.

Thanks, Jeff, and welcome, everyone. Our results for the first quarter of 2021 demonstrated a continuation of solid progress we are making in a number of areas. We believe we are in an excellent position to benefit from the economic recovery in our regional markets throughout 2021. as the businesses we ensure continue to recover from the pandemic conditions over the past 12 months. Many of the strategic initiatives and operational changes we implemented at Donegal over the past three years are contributing to our improved financial results. We've made significant investments in technology and analytical capabilities. We are preparing for the deployment of our new personal lines products, and we continue to have strong growth in our commercial lines business segment. In the first quarter of 2021, we reported net income of $10.5 million, or $0.35 per diluted share of our Class A common stock. The net income compares favorably to the $3.7 million, or $0.13 per diluted share of our Class A common stock, for the first quarter of 2020. The increase was driven by several factors, including a net market-to-market gain on equity securities we held on March 31, 2021, that compared favorably to a substantial net market-to-market loss for the prior year quarter. We reported net operating income of $8.6 million with a combined ratio of 98.5%. We achieved this level of underwriting profitability despite unusually severe weather conditions across the country, and in the case of Donegal, higher than anticipated large fire losses for the period. Donegal achieved net premiums written growth of 8.9% during the first quarter of 2021, with 18.7% growth in our commercial lines compared to the prior year quarter. The largest contributor to this growth was the inclusion of commercial premium from our four southwestern states in our consolidated revenues for 2021. As we announced previously, Atlantic States Insurance Company, our largest insurance subsidiary, began to receive an 80% allocation of the underwriting results of Mountain States Insurance Group, which became part of Donegal Insurance Group through a Donegal Mutual Insurance Company acquisition back in 2017. We expect that Mountain States Insurance Group will generate approximately $48 to $50 million in net premiums written in 2021, of which 80% will be included in our consolidated net premiums written throughout the year. We also achieved market share gains and premium rate increases that contributed to growth in all of our commercial lines and expect to capitalize on opportunities to obtain additional rate increases due to favorable market conditions. We've been implementing substantial renewal premium increases in our commercial auto over the past few years and believe we are nearing rate adequacy in that line of business. In our commercial multi-parallel line of business, we are closely monitoring pricing and growth metrics as our agents continue to provide us opportunities to write new accounts and where we believe the market will continue to allow higher levels of renewal rate increases. We've been working to continue to build upon our well-established agency network despite the challenges inherent with remote working environments and decentralized office arrangements. We continue to view our strong agency relationships as a principal driver of commercial growth and expect to continue to cultivate these relationships further as additional opportunities to interact personally with our agents present themselves in the coming weeks and months ahead. Overall, we feel very confident that our forward-looking strategy fits perfectly with our commitment to the independent agency distribution channel and the market trends we are observing, particularly for commercial lines. We've expanded our capabilities to serve a broader segment of the commercial market within the classes of business we have historically served. We believe Donegal's product and geographic diversity, along with our expanding agency relationships, will help provide us with ample opportunities to profitably grow Commercial Lines in the foreseeable future. Moving to Personal Lines, our net premiums written declined 6.7% as we continue to emphasize sustainable profitability over growth in anticipation of the launch of our new Personal Lines products later this year. We are nearing our targeted level of overall stability in our personalized segment and expect to return to a modest level of growth as we begin to roll out new products in 11 states beginning later this year and continuing into 2022. We feel that we can grow our book of business and deliver profitable results by serving a targeted segment of the personalized market, focusing on customers who recognize the value of the advice of a trusted independent agent and desire protection from a highly responsive regional carrier who is partnering with that agent to serve and support their local communities. While our new products will include various coverage enhancements that will appeal to our targeted customers, the primary advantages we expect relate to the modernized rating methodology, including enhanced pricing segmentation and application of predictive analytical pricing models that leverage external data to a much greater extent. and our current product offerings. As we introduce these new products and pricing capabilities, we look forward to competing more effectively for new quality personalized accounts through our independent agents. In summary, we remain committed to sound underwriting of pricing discipline and working closely with our independent agents to deliver a best-in-class customer service, which we believe is key to achieving further market share gains in our geographic regions. We are executing on our business strategy with priorities of achieving sustained excellent financial performance, strategically modernizing operations and processes to transform our business, capitalizing on opportunities to grow profitably, and delivering a superior experience to our agents and customers. As we successfully execute these strategies, we expect to continue to grow the book value of Donegal Group for the benefit of all of our stockholders. To that end, our book value per share at March 31, 2021 increased to $17.29 from $17.13 at December 31, 2020. The increase reflected our net income for the quarter, which was partially offset by unrealized losses within our available-for-sale fixed maturity portfolio due to an increase in market interest rates during the period. We were also pleased to raise our regular quarterly cash dividend by 6.7% to $0.16 per share of our Class A common stock, and we increased our Class B common stock quarterly cash dividend to $0.1425 per share. The next quarterly dividends are payable on May 17, 2021 to stockholders of record as of the close of business on May 3, 2021. Based on yesterday's closing price of $16.66 per share, Our current dividend rate represents a 4% yield for 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.