Donegal Group, Inc.

Good day and thank you for standing by. Welcome to the Donegal Group, Inc. Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a 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 require any further assistance, please press star zero. I would now like to hand the conference over to Mr. Jeff Miller. Thank you. Please go ahead.

Thank you very much. Good morning and welcome to the Donegal Group conference call for the second quarter ended June 30th, 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've 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, and I'll 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 projected 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 second quarter on or around August 6th. You can access our SEC filings through the investor 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 that we issued yesterday. With that, I'll turn it over to Kevin.

Thanks, Jeff, and welcome, everyone. We are pleased to report solid underwriting results for the second quarter and for the first half of the year, resulting in an annualized first-half return on equity of 10% that contributed to continued book value appreciations. We achieved top-line growth, particularly in commercial lines, favorable reserve development, and we continue to make solid progress on our technology and analytical initiatives. For the second quarter of 2021, we reported net income of $16.2 million, or 53 cents diluted share of our Class A common stock. Net premiums written increased 8.2%, and our second quarter combined ratio is at 96.1%. Comparisons to prior year quarter results are somewhat challenging, given that all aspects of our business were impacted by the pandemic and related shutdowns throughout the country during that period. We are pleased that our results for the first half of 2021 represent significant improvement from pre-pandemic periods. Starting back in 2017, we made several significant changes to improve our profitability, including a shift of our mix of business towards commercial lines where we believe we will continue to have opportunities to obtain profitable growth through our independent agents. Our organization navigated the challenges of 2020 successfully thanks to the professionalism and dedication of our employees. We also leaned on the independent agency relationships that we have built and cultivated in some cases over several decades. While we stayed in close contact with our agents via remote communications during the pandemic, our marketing and underwriting teams have enjoyed opportunities to reengage with our agents through in-person meetings as our agents have begun to return to more normalized operations. I personally am looking forward to several meetings that are planned with senior leaders of several large agency groups with whom our national accounts teams have been working with over the past several years to strengthen relationships and bolster our position within these groups. We are committed to providing all agents with point-of-sales services that make it easy for them to produce business for us, along with compensation programs that are specifically tailored to incentivize them to send us quality business. We remain committed to sound underwriting and pricing discipline and working closely with our independent agents to deliver best-in-class customer service, which we believe is a key to achieving further market share gains. To that end, we reported solid top-line growth during the second quarter, with commercial lines net premiums written increasing to 19.9%. The largest contributor to this growth was an allocation of commercial premiums from four southwestern states from the Donegal Mutual underwriting pool. As we announced previously, Atlantic States Insurance Company, our largest insurance subsidiary, began to receive an 80% allocation of the underwriting results of the Mountain States Insurance Group for policies effective in 2021, which is the culmination of our plan that began with Donable Mutual's acquisition of that group back in 2017. Mountain States Insurance Group net premiums written added approximately $24 million to our net premiums written for the first half of 2021, which generally matched our forecast. For the second quarter, Mountain States premiums represented approximately half of our 19.9 percent overall commercial growth. The 26.7 percent growth in our commercial multi-parallel line of business during the second quarter reflected a combination of Mountain State's premiums, new business, and premium rate increases. In our commercial auto line of business, we've been implementing substantial premium rate increases over the past few years and have also taken decisive actions to substantially reduce exposures, and litigation-prone geographies. As a result, we believe that we will achieve rate adequacy in that line of business in 2022 when we will earn the premium increases we are implementing throughout 2021 and expect to fully benefit from our underwriting actions. In workers' compensation, favorable reserve development contributed to profitable second quarter results Our workers' compensation loss ratio has steadily increased due to Bureau-mandated premium reductions over the past few years. We are beginning to see some early signs that may indicate rates are stabilizing across our markets. Summarizing our commercial lines outlook, we believe current market conditions, including ongoing impacts of supply chain disruption, labor shortages, low interest rates, and social inflation, will continue to support reasonable new business pricing and renewal premium increases in the near term. Moving to personal lines, our net premiums written declined 6.4%, which was expected as we continue to emphasize sustainable profitability over growth in anticipation of the launch of our new personal lines products later this year. We will continue to look at the deployment of our products, which will be done incrementally in 11 states, with the rollout extending into 2022. And we expect to see premiums decline that we've experienced in the recent years start to ease with the rollout of these new products. The new products will provide diversified coverage options to meet the specific needs of personalized customers who recognize the value of the advice of a trusted independent agent and the value of excellent service and responsiveness from their insurance carrier. We will provide our agents and their customers with competitive pricing based on predictive analytical pricing models that segment risk characteristics and leverage external data to a much greater extent than our current product offerings and rating models. We look forward to competing more effectively for new quality personal lines accounts through our independent agents. Our book value per share at June 30, 2021 increased to $17.64 from $17.13 at December 31, 2020, as net income for the first half of 2021 was partially offset by declared cash dividends and unrealized losses within our available-for-sale fixed maturity portfolio due to an increase in market interest rates during the period. Since the end of 2018, our book value has grown by over 25 percent, even after our return of dividends to our stockholders that represented one of the highest dividend yields within our industry. We were also pleased to declare regularly quarterly cash dividends of 16 cents per share of our Class A common stock and 14 and a quarter cents per share of our Class B common stock. The quarterly dividends are payable on August 16, 2021, to stockholders of record as of the close of business on August 2nd, 2021. Based on yesterday's closing price of $15.10 per share, our current dividend rate represents 4.2% yield for our Class A common stock. As we successfully execute our business strategies, we expect to continue to grow the book value of Donegal Group for the benefit of all of our stockholders. 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.