Donegal Group, Inc.

Good morning, and thank you for joining us today. This morning, Donegal Group issued its third quarter 2022 earnings release, outlining its results. The release and a supplemental investor presentation are available in the investor relations section of Donegal's website at www.donegalgroup.com. Please be advised that today's conference was pre-recorded and all participants are in listen-only mode. After management remarks, there will be a question and answer session for questions submitted ahead of the call. Speaking today will be President and Chief Executive Officer Kevin Burke, Chief Financial Officer Jeff Miller, Chief Underwriting Officer Jeff Hay, and Chief Investment Officer Tony Biazi. Please be aware that statements made during this call that are not historical facts are forward-looking statements. and necessarily involve risk and uncertainties that could cause actual results to vary materially. These factors can be found in Donegal Group's filings with the Securities and Exchange Commission, including its annual report on Form 10-K and quarterly reports on Form 10-Q. The company disclaims any obligation to update or publicly announce the results of any revisions that they may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. With that, it's my pleasure to turn it over to Mr. Kevin Burke. Kevin?

Thank you, Karen, and welcome, everyone. I will start the call with an update on our strategic initiatives and then ask Jeff Miller to provide details on our financial results for the third quarter of 2022. Jeff Hay will then highlight our commercial and personal line segment results, followed by Tony Viazzi with an update on our activities and results within our investment portfolio. I will then provide a few closing remarks before we address questions that were submitted to us. As part of our ongoing state strategy initiatives, we continue to evaluate market opportunities in industry performance and outlook to refine our state strategy approach in each line of business. We are pleased with the successful execution of this strategy during the third quarter of 2022, as premiums in states that we've identified for profit improvement have, as planned, declined, while premiums in growth-targeted states increased by more than twice our overall average growth rate, while generating very profitable loss ratios that are well below our average loss ratio. We continue to realign resources and further refine our state strategies to focus on specific geographical areas and classes of business we believe represent the most promising opportunities for profitable growth. Based on the results to date, we expect this ongoing shift to accelerate underwriting profit improvement over the next few years. Our new personal lines products and agency portal are now available in nine of the 10 states in which we offer personal lines, and we remain on schedule to launch the new products in Michigan in early 2023. Personaline's new business production nearly doubled during the quarter compared to our third quarter of 2021, which is slightly ahead of our projections. While the launch of the new Personaline's products has been very successful in terms of its technical execution and market acceptance, we are actively managing new business volumes through rate and comparative rate or adjustments to limit growth until we have enough credible data to give us full confidence in the pricing and performance of these new products. particularly in light of the current inflationary challenges. We are making significant strides in our ongoing modernization initiatives, which we believe are positioning us well to excel in the years ahead. We are in the early testing phases of the next deployment, which will include a brand-new BOP product and the migration of our commercial auto and commercial umbrella lines to our new operating platform, which will enhance our straight-through processing capabilities to increase our operating efficiency And more importantly, allow us to more effectively compete for smaller commercial accounts. We expect to roll out the new commercial lines capabilities in 25 states starting in the second quarter of 2023. We are very proud of our dedicated team that has continued to work tirelessly to develop and deliver our new products and modernize technology solutions. Our ongoing business transformation goes far beyond the technology infrastructure upgrades. We are truly modernizing our products, processes, and capabilities to allow us to compete effectively for profitable accounts that will help us achieve and sustain excellent financial performance. I would like to take a moment to make a few comments regarding Hurricane Ian. First of all, we are saddened by the loss experienced by individuals and families in Florida and other damaged areas. Our hearts go out to all those recovering from that loss. We do not write insurance in the state of Florida. We were fortunate that we had nominal property exposures in the areas of greatest impact as the storm made its second landfall in South Carolina. We incurred a small number of claims primarily from Pennsylvania to Virginia as the remnants of the storm moved to the mainland. That said, we do expect Hurricane Ian losses to result in higher property reinsurance rates and we have been in discussions with our reinsurance intermediary and many of our reinsurance business partners over the past several weeks to update them on our strategies and CAT risk management practices as we prepare for the 2023 reinsurance renewal. All of our reinsurance treaties renew on January 1. We will be exploring various options to cost-effectively optimize our reinsurance purchases. At this point, I'll turn a call over to Jeff Miller for a review of our financial results for the third quarter.

Thank you, Kevin. We continued to see modest premium growth in the third quarter, which was by design in the current environment. Net premiums written for the third quarter grew by 4.7% to $206 million. With a growth primarily related to strong retention results, premium rate increases that averaged 10.5% for all lines other than workers' compensation and new business writings. Quarterly underwriting results were impacted by typical third quarter severe weather activity in our regions. and claimed severity for large fire losses that exceeded historical norms. The combined ratio was 109.6% for the third quarter of 2022, compared to 107.7% for the prior year quarter. Claims from weather events and large fires are generally costing more to settle due to ongoing inflationary pressures on repair costs and duration. And we also noted increases in our core loss ratios for the property lines of business that reflect the impact of inflation on smaller claims as well. As Kevin mentioned, our results did not reflect any material impact from Hurricane Ian. In fact, we did not incur significant losses from any single catastrophe event during the third quarter. But the accumulation of claims from smaller events resulted in total weather-related losses of $19.4 million. or 9.4 percentage points on the loss ratio, which was in line with our previous five-year average weather loss ratio impact for the third quarter. Our non-weather loss ratio was 66.2%, elevated relative to our target, but in line with the 66.3% for the third quarter of 2021. Compared to the prior year quarter, modest core loss ratio improvement and favorable reserve development were offset by higher large fire losses. We experienced an unprecedented quarterly impact from fire losses in the third quarter, totaling $17.4 million or 8.4 points on the overall loss ratio, compared to $12.7 million or 6.5 points on the loss ratio for the prior year quarter. Similar to many other insurance carriers, we have experienced an elevated fire loss trend since early 2021. While the frequency of fire losses has not significantly increased compared to pre-pandemic periods, severity has accelerated. Current inflationary increases in repair and replacement costs are certainly driving higher severity when major losses occur, and Jeff Habe will provide more information about what we are doing to address this trend later in the call. We continue to experience favorable net development of reserves for losses incurred in prior accident years, totaling $6.2 million, or a three-point reduction in the third quarter loss ratio, compared to $4.3 million, or a 2.2-point reduction in the loss ratio for the prior year quarter. Our insurance subsidiaries experienced favorable development, primarily related to reserves for accident years 2020 and 2019, in the commercial multi-parallel, commercial automobile, and personal automobile lines of business. The expense ratio increased to 33.4% for the third quarter of 2022, compared to 31.5% for the third quarter of 2021. We primarily attribute the increase in expenses to higher technology costs related to our ongoing systems modernization initiatives. The combination of all of the factors I discussed, along with pre-tax net investment losses of $2.4 million, contributed to a net loss of $10.4 million for the quarter. Excluding the net investment losses, we had an operating loss of $8.5 million, or 27 cents per Class A share for the third quarter. As we continue to work to mitigate the macroeconomic headwinds that are outside our control, we expect our ongoing premium rate increases and the effect of ongoing strategic initiatives will lead to improved profitability in future periods. From a capital perspective, on October 20th, 2022, We declared regular quarterly cash dividends of 16.5 cents per share for our Class A common stock and 14.75 cents per share for our Class B common stock, which are payable on November 15, 2022, to stockholders of record as of the close of business on November 1, 2022. With that, let me turn it to Jeff Hay to provide more details about our commercial and personal line segment results.