Donegal Group, Inc.

Good morning and thank you for joining us today. This morning, Donicle Group issued its fourth quarter and full year 2024 earnings release outlining its results. The release and the supplemental investor presentation are available in the investor relations section of Donicle's website at .doniclegroup.com. Please be advised that today's conference was pre-recorded and all participants are in listen-only mode. Speaking today will be President and Chief Executive Officer Kevin Burke, Chief Financial Officer Jeff Miller, Chief Underwriting Officer Jeff Hay, Chief Operating Officer Dan Dellamater, and Chief Investment Officer Tony Viasi. Please be aware that statements made during this call that are not historical facts or forward-looking statements and necessarily involve risks and uncertainties that could cause actual results to vary materially. These factors can be found in Donicle 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. We are pleased to provide an update on our quarterly results, important accomplishments in 2024, and areas of focus for 2025. At this time last year, I stated that we believe the action plans and rate increases we implemented during 2023 would lead to incremental improvement in our results for 2024 and beyond. In today's call, we'll outline the details of improvement we achieved. Our fourth quarter 2024 net income of $24 million represent the highest quarterly earnings in our history. While weather-related losses were lower than average during the fourth quarter of 2024, the primary driver of our favorable results was substantial improvement in our core loss ratios in both commercial lines and personal lines. We are now reaping the benefits of all the underwriting actions, specific state strategies, significant premium rate increases we implemented over the past several years, and leveraging our new technology and product enhancements. We are not finished with all those actions as we continue to address pockets of underperformance to build on the positive momentum. We made excellent progress during 2024 on the last two major software releases within our systems, Modernization Project. As a reminder, a major commercial systems release scheduled for deployment in the third quarter of 2025 will include new commercial package policy and will modernize our mid-market commercial products remaining on our legacy systems. These products will allow us to continue to compete effectively for profitable commercial accounts. Our last major software release will facilitate the conversion of all remaining legacy personal lines policy renewals to the new operating platform. I want to express my appreciation to the technology business teams that are working diligently to complete the development and testing of both of these releases, which will allow us to decommission all of our legacy systems when the conversion is completed in 2027. As our call progresses, you'll hear from Jeff Hay and Dan Delamater about our areas of focus for 2025. After implementing many changes over the past several years, we are now fine-tuning our strategy to respond to external challenges and opportunities. We have developed and implemented sophisticated analytical and reporting tools to give us granular insights into all aspects of our business, with performance monitoring routines in place to allow us to respond quickly to address issues or to meet market changes. We expect further efficiency gains as we take full advantage of recent and ongoing technology investments, including the development of a comprehensive cloud-based data infrastructure that will provide further enhancements in data analysis and reporting capabilities when fully deployed. Our favorable results for the second half of 2024 has generated confidence that our strategies will result in sustained excellent financial performance. Keeping profitability is our primary objective. We also desire to capitalize on opportunities to grow our premium base. Our business plan for 2025 includes detailed regional action plans to achieve high single-digit percentage growth in commercial lines, targeting profitable small and mid-market accounts in specific geographical regions and classes of business. We expect a our personal lines premium writings by gradually increasing new business levels while maintaining rate adequacy we worked so hard to achieve over the past several years. Our team is focused on the completion of the major systems transformation project, execution of ongoing profit focus initiatives and the achievement of measured intentional growth. At this point, I'll turn a

start with a summary of our fourth quarter results and then provide some highlights of our full year results. For the fourth quarter of 2024, net premiums earned increased .6% to $236.6 million. Net premiums written decreased by .6% with a 5% decrease in personal lines premiums offset partially by .8% growth in commercial lines. Rate increases achieved during the fourth quarter were double-digit percentages for all major lines of business except workers compensation, averaging 11% in total and 12% when excluding workers comp. The combined ratio for the fourth quarter of 2024 was an excellent .9% compared to .8% for the prior year quarter. We attribute the improvement to a 9.5 percentage point decrease in the core loss ratio compared to the prior quarter. The core loss ratio is a measure of our underlying underwriting performance after excluding the impact of weather-related losses, large fire losses and net development of reserves for losses incurred in prior accident years. Compared to the prior year quarter, we achieved a 4.4 percentage point decrease in the commercial lines core loss ratio and a 16.7 percentage point decrease in the personal lines core loss ratio for the fourth quarter of 2024. The substantial improvement in the personal lines core loss ratio was due largely to the favorable impact of premium rate increases on net premiums earned for that segment. Weather-related losses of 7.7 million or 3.3 percentage points of the loss ratio for the fourth quarter of 2024 decreased from 13.4 million or 5.9 points of the loss ratio for the fourth quarter of 2023. We incurred lower commercial property losses with 1.5 million dollars of weather losses contributing 2.8 percentage points to the quarterly commercial multi-parallel loss ratio compared to 3.5 million of weather losses contributing 7 percentage points for the fourth quarter of 2023. The fourth quarter of 2024 weather impact the homeowners line was 3.7 million or 10.5 percentage points of the homeowners loss ratio significantly lower compared to 8.3 million or 24.5 percentage points for the prior year quarter. In total, the quarterly weather claim impact was lower than the previous five-year average for the fourth quarter of 5.2 percentage points. Our insurance subsidiaries did not incur losses from any single event during the fourth quarter of 2024 or 2023 that exceeded their individual three million dollar catastrophe reinsurance retention with Donicle Mutual. Large fire losses which we define as over $5,000 in damages contributed 4 percentage points to the loss ratio for the fourth quarter of 2024 which was lower than 4.8 percentage points for the prior quarter. A decline in the severity of homeowner fire losses was the primary driver of the decrease. Our insurance subsidiaries experienced a nominal level of net development of reserves for losses incurred in prior accident years with minimal impact to the loss ratio for the fourth quarter of 2024 or 2023. Details by line of business for the fourth quarter of 2024 included net favorable development of $4.8 million for commercial multi-parallel, $600,000 for homeowners, and $500,000 for workers comp that was partially offset by unfavorable development of $5.1 million dollars for commercial auto and $1.6 million dollars for personal auto. We attribute the unfavorable development in those two lines to higher than expected severity for previously reported bodily injury losses in accident years 2021 through 2023 in light of continuing social inflation trends. Netting all of the lines together we had virtually no development in the fourth quarter. The expense ratio of 32.8 percent for the fourth quarter 2024 decreased from 34.1 percent for the prior year quarter. The decrease primarily reflected the benefits of various expense reduction initiatives that we discussed in the past several earnings calls. These benefits were offset partially by an increase in underwriting based incentive costs for employees and higher technology systems related expenses related to our ongoing system modernization initiatives. Shifting to the full year of 2024 results the loss ratio of 64.5 percent compared favorably to 69.1 percent for 2023 with a 3.5 percentage point improvement in the 2024 core loss ratio compared to the prior year. That improvement reflected a 2.1 percentage point decrease in the commercial lines core loss ratio and a 5.6 percentage point decrease in the personal lines core loss ratio. Weather related losses for the full year of 2024 were $67.7 million dollars or 7.2 percentage points of the loss ratio comparing favorably to $72.9 million dollars or 8.3 percentage points of the loss ratio for the full year of 2023 and generally in line with the previous five-year average of seven percentage points of the loss ratio. Large fire losses contributed 4.9 percentage points to the 2024 loss ratio a modest decrease from the 5.2 percentage points for 2023. Net favorable development of reserves for losses incurred in prior accident years reduced the 2024 loss ratio by 1.6 percentage points generally in line with the 1.9 percentage point reduction in the 2023 loss ratio. Details by line of business include favorable development of 13.9 million dollars in commercial multi-parallel, 3.8 million dollars for other commercial which is primarily commercial and home owners. In total we had net favorable development primarily for reserves in accident years 2019 through 2022 with virtually no net development for reserves in accident year 2023. The expense ratio was 33.7 percent for the full year of 2024 compared to 34.7 percent full year of 2023 again reflecting the benefits of various expense reduction initiatives we implemented during 2024 offset partially by higher underwriting based incentive costs and increased technology expenses. The decreases in our loss and expense ratios contributed to a combined ratio of 98.6 percent for 2024 representing a significant improvement from 104.4 percent for 2023. Before concluding my remarks I will provide a brief summary of the renewal of our reinsurance program for 2025. As in past years Donagle Mutual and the insurance subsidiaries of Donagle Group are purchasing reinsurance together to achieve economies of scale. We successfully renewed our program for 2025 with a similar structure but with several changes in coverage or loss retention. We added 25 million dollars to the top end limit of our property catastrophe reinsurance coverage primarily in response to changes within the catastrophe models we utilize to measure our potential exposures to severe weather events. Those changes within the models increased the expected losses at the targeted return period we use when determining the amount of reinsurance to purchase. We made no change to the retention level for that program or the inter-company catastrophe reinsurance agreement with Donagle Mutual. We've renewed the property per risk and workers compensation excess of loss programs for 2025 with no changes in cover or retentions from 2024. For our casualty excess of loss reinsurance program we increased our external retention amount from three million dollars to six million dollars because we considered the cost to renew coverage at a three million dollar retention to be unreasonably high in relation to our historical loss experience. To mitigate the potential impact of the higher retention to the results of several of our insurance subsidiaries they entered into a new inter-company reinsurance agreement with Donagle Mutual that maintains their individual company retentions at three million dollars. When including both external and internal reinsurance we expect our seated reinsurance premium costs for 2025 will be virtually unchanged from 2024. I will now turn the call over to our Chief Underwriting Officer Jeff Hay to provide more details about our commercial and personal line segment results and an update on rate activity and other underwriting initiatives.

Thank you Jeff. We're very pleased with the significant improvement in our bottom line performance for both the fourth quarter and the full year of 2024 that we believe reflects the strategies and the action plans that we've been executing to transform our underwriting discipline over the past few years. We saw improvement in the core loss ratio in every major line across our book of business compared to the prior year quarter with a nine and a half percentage point improvement for all lines combined which is a continuing trend from the third quarter of 2024 where we achieved 6.6 points of improvement over the prior year quarter. Commercial lines specifically net premiums written grew 2.8 percent during the fourth quarter resulting in a 3.7 growth for the full year. While we're still intentionally shedding business in certain profit challenged classes and geographies the execution of our go-forward strategy and our commercial lines of business is generating positive momentum as we head into 2025. As we mentioned in the third quarter webcast we completed our exit of commercial lines business in the states of Georgia and Alabama. This marked a significant milestone in our profit improvement efforts with the impact of this exit on our growth now behind us. During 2025 we will begin to non-renew all policies in Maine and New Hampshire which together represent less than two million of commercial lines premium. Our exit from these two states will further refine our core footprint and allow us to concentrate sources in areas where we have opportunities for sustainable growth. We continue to achieve solid new business growth and high retention rates for desired commercial accounts this past quarter. Our new business remains well aligned within our targeted geographies and classes of business. Notably we wrote 67 percent of our new business in highly targeted classes due to their higher expected profitability exceeding our goal of 60 percent and improving from 62 percent in Q4 of 2023. Next we'll be releasing an interactive appetite guide to our independent agents. The dynamic functionality of the appetite guide will provide our agents even more clarity in the types of business that we're looking to ensure. We believe this will be a valuable tool for our internal sales and underwriting staff as they work with our distribution partners to optimize our portfolio mix as we intentionally and strategically grow our commercial business. The appetite guide covers both our middle market and small business appetite. Our small business initiatives continue to gain traction, resulting in improvements in our straight through processing rate and hit rates on our new products and service offerings. While we're striving for outsized growth in our small business segment we expect the majority of our commercial lines premium over the next several years will continue to come from the writing of new high quality middle market accounts. We continue to institutionalize other measures designed to improve our underwriting discipline. They include but are not limited to the utilization of our new probable maximum loss fire underwriting analysis on our property book to identify factors that increase the risk of large fires, revised underwriting guidelines to reduce exposures in certain profit challenged classes of business, and mandatory wind hail deductibles in all cap prone states and even in some states not historically identified as subject to severe weather. These initiatives resulted in a planned level of retention of 80.5 percent for the quarter and 79.3 percent for the full year, similar to 23 levels of retention but lower than our historical average. Some other intentional actions driving our retention levels down but expected to improve future loss experience include insurance devalue improvements, enhanced roof underwriting through aerial imagery, and point of sale integrations to our catastrophe model results that prompt us to impose stricter terms and conditions on more exposed properties. Our enhanced underwriting tools helped us to identify less desirable risks within our portfolio resulting in the removal of over one billion dollars of total insured value through individual policy non-renewals over the past year. Our overall renewal rate increases continue to be strong at an average of 11.9 percent excluding workers compensation for the fourth quarter, led by commercial multi-parole at 13.7 percent, commercial auto at 10.3 percent, and commercial umbrella at 9.2 percent. For the full year, renewal rate increases averaged 11.8 percent for commercial lines excluding workers compensation. Relative to our state strategic postures, we continue to grow at higher rates of new business and retention in states we've targeted for growth with 4.6 growth in the quarter, which compared favorably to modest contraction in states where we desire to maintain our current volume or need further profit improvement. Of course, we continue to achieve higher levels of rate achievement in the profit improvement states averaging 13.2 percent excluding workers compensation. This deliberate shift in geographic mix of business is just one driver of the improvement of our overall profitability. Moving from the top line to a review of our profitability, the commercial line statutory combined ratio of 97.3 percent for the fourth quarter of 2024 improved 8.5 percentage points from the prior year quarter. The improvement was largely driven by a 4.4 percent decrease in the core loss ratio, a 1.8 point decrease in the weather loss ratio, and a mod deduction in the impact of large fires. Prior year reserve development was essentially flat for the quarter. For the full year, our commercial line statutory combined ratio was 98.2 percent compared to 101.6 percent for 2023. To provide an update on loss trends, for commercial auto, we are seeing claim frequency adhere to a longer term declining trend. Physical damage claim severity followed our expected trend line and liability severity came in just above the trend line for the fourth quarter. We are closely watching potential pricing pressure on imported automobile parts and are continuing to implement rate increases to keep up with the impact of social inflation that's resulting from the proliferation of attorney advertising, jury anchoring, third-party litigation financing, and growth in nuclear verdicts. Commercial multi-parallel claim severity continued to moderate relative to past periods primarily due to reduced frequency and severity of large fire losses. Similar to commercial auto, we're seeing a significant reduction in the cost of the first quarter. For workers' compensation, we experienced a continuation of favorable prior year reserve development that began in the third quarter, providing a two-point reduction in the workers' compensation loss ratio in the fourth quarter. From a loss trend perspective, we continue to see medical inflation returning to the long term trend line, a welcome contrast to the anomalous increase we saw in the first half of 2024. Frequency continues to follow a favorable multi-year negative trend, even deepening in recent observed increases in indemnity severity due to wage inflation showed a reversion to the trend line during the fourth quarter. While the workers' compensation market continues to be very competitive with premium pressure from ongoing negative rate filings from bureaus, we believe this line of business to be rate adequate. Shifting to personal lines, net premiums written decreased five percent during the fourth quarter, resulting in 7.4 percent growth in net premiums written for full year. That full year growth was entirely driven by significant rate increases that were partially offset by other factors. One of those factors was our strategy to pause new business, which was down 48 percent for the full year in an effort to accelerate our return to profitability in personal lines and to allow capacity to increase our commercial lines of business over time. Another factor was an intentional reduction in exposures in areas prone to severe weather. The number of personal lines policies in force at December 31, 2024 was down 11.6 percent compared to the prior year end. This accelerated rate of reduction was a direct result of our decision to non-renew the legacy business of one of our subsidiaries in the state of Maryland, which began in September and accounted for 1.7 percent of the decrease in policy count. We expect the runoff of the remaining approximately 15 million dollars of premiums will continue to express our growth in personal lines net premiums through August of 2025. We expect to increase slowly the amount of targeted new business ratings across our personal lines footprint beginning in the latter half of 2025, desiring to grow our personal lines book in a very measured fashion while ensuring the achievement of targeted returns. For the fourth quarter, our personal lines retention excluding the legacy runoff was 86.8 percent with overall average rate achievement of 11.8 percent, yielding a premium retention in the quarter of 97.3 percent. Rate and exposure achievement in the fourth quarter was 11.8 percent for personal auto and 13.1 percent for homeowners. We began implementing significant premium rate increases in late 2022 and are now seeing earned premium increases at levels exceeding loss costs, resulting in margin expansion for the personal line segment. While we believe we are essentially rate adequate for our overall personal lines of business, we will continue to take additional rate in states and lines of business as needed. Our personal line statutory combined ratio was 89.5 percent for the fourth quarter of 2024 compared to 111.1 percent for the prior year quarter. We attributed the enhanced profitability to higher earned premiums from the rate increases I just mentioned, as well as more favorable weather and large fire loss impacts. For personal auto, the loss ratio decreased 20.4 points from the fourth quarter of 2023, merrily driven by a 25.4 point improvement in the core loss ratio offset partially by net unfavorable prior year reserve in the quarter. The core loss ratio improvement is an indication of systemic improvement in the underlying performance of the book of business. Furthermore, similar to commercial auto, auto physical damage and liability trends are generally following the longer term trend lines. The homeowners loss ratio for the fourth quarter improved 23.4 points from prior year quarter, primarily driven by a 14 point improvement in weather related losses, a 5.9 point improvement in the core loss ratio, and a 3.4 point improvement in large fire losses as a result of lower frequency and severity. There was a similar modest net prior year reserve development. As shared in past calls, part of our offensive strategy in personal lines is to diversify our geographic footprint of our homeowners property book to optimize the spread of risk diversification benefit. We've identified down to the county level where we're looking to grow or shrink exposures to execute effectively on this strategy. In 2024, we successfully reduced policies in force by over 20% in counties targeted for reduced exposure concentrations. We believe this ongoing strategy will yield favorable impact on our results over time. As I highlighted throughout my commentary, we believe the progress we achieved in 2024 was the direct result of the strategic initiatives and disciplined action plans we've implemented across both our commercial and personal lines to enhance our underwriting discipline over the past few years. With that, I'll turn the call over to Dan Delemater. Dan.

Thank you, Jeff. As in the past, I will provide an update on several operational initiatives that support our underwriting actions and overall corporate objectives. We're pleased with our performance and significant improvement realized during the quarter and quarter period throughout 2024. Bottom line, in addition to all the strategies Jeff Hay just discussed, we believe that we are also seeing favorable results from our consolidated regional structure, robust state strategy planning process, one team alignment between marketing, underwriting, and product teams, enhanced price sophistication, and organizational focus on expense reduction. As highlighted in previous quarterly calls, our product team members continue to work closely with both underwriting and marketing staff to manage closely each regional product portfolio. This alignment is critical as we look to balance necessary rate achievement with top line growth objectives. Our analytics team continues to provide visibility to key data points for our book of business so that our teams have quick and easy access to key metrics at regional, state, territory, and agency levels. These analytical professionals work closely with our technical data team to provide robust and consumable data so that we can make intelligent, data-driven business decisions. Our ability to develop this area as a core operational strength during a multi-year overhaul of our entire policy management ecosystem is a testament to the technical team we have at Donegal. Additionally, our entire leadership team embraced our objective to reduce our expense ratio relative to our original 2024 projections by one percentage point in 2024 and two percentage points by the end of 2025. We are pleased to have achieved the objective we set for 2024. The timing of our expense reduction efforts is challenging but critical for our operations. We realized the peak expense impact of our multi-year systems modernization project in 2024, representing 1.3 percentage points of our expense ratio. Despite that headwind, we were able to operate in the fourth quarter of 2024 at an expense ratio of 32.8 percent compared to the prior year fourth quarter at 34.1 percent. This decrease contributed to a full-year expense ratio of 33.7 percent for 2024 compared to 34.7 percent for the full year of 2023. As I've discussed in previous calls, we recognize the challenge an elevated expense ratio poses to long-term profitability and we have undertaken an organization-wide effort to improve our efficiency and expense discipline. We were pleased to realize significant improvement in 2024 and will continue such efforts into 2025 and beyond. We believe that we are well positioned to face any new challenges that may emerge in the year ahead. We're monitoring recent volatility in weather patterns and will remain diligent in our property concentration management across regions. Industry-specific inflation remains a concern, as does the reality of social inflation driven by increasing litigation trends that vary in intensity depending on the legal jurisdiction. Our regional teams are coordinating closely with our national accounts team, which remains as active as ever following several noteworthy agency group acquisitions that were completed and or announced in 2024. Donegal remains committed to the independent agency channel as our sole distribution model and we recognize the rapidly changing environment due to the ongoing pace of mergers and acquisitions in that space. We are thankful for the more than 2,000 independent agencies who represent Donegal across our 21 state footprint and we believe more than ever that independent agents are an important differentiator for us as well as valuable trusted advisors for our insurance consumers. All told, we continue to expand our focus on operational excellence as we strive for sustained excellent financial performance both on the underwriting and investment side to the house. And with that, I'll turn it over to Tony for an investment update. Tony.

Thank you, Dan. Our investment approach remains firmly grounded in our conservative philosophy. By strategically selecting assets with strong fundamentals, we aim to mitigate risk while ensuring long-term stability. Our primary objective extends beyond capital preservation. We strive to construct a portfolio that is durable, flexible, and well positioned to navigate evolving market conditions. As such, in 2024, we continue to shift into higher spread products including corporate debt, mortgage-backed securities, equities, and structured notes. By diversifying across asset classes with attractive risk-adjusted yields, we seek to enhance income generation, strengthen portfolio resilience, and position ourselves for long-term growth in a dynamic market environment. These actions produced a net investment income growth of 12.5%, resulting in $12.1 million for the fourth quarter of 2024. For the full year, we achieved 10% growth in net investment income year over year to $44.9 million, which was the highest annual net investment income in our history, a testament to our disciplined investment strategy, consistent portfolio growth, and increased yields over the year. The average tax equivalent yield for the fourth quarter was 3.58%, up from .34% in the prior year fourth quarter. This increase reflects the ongoing favorable impact of higher market rates on reinvestment cash flow. During 2024, the approximately $153 million of bond cash flow yielding .31% was reinvested at .37% for a spread of 106 basis points. Looking forward to 2025, we project that we will receive approximately $135 million of portfolio cash flow with an average yield of approximately 3.85%. Assuming new money rates remain at current levels, we will receive 115 base points of improvement in our yield spread as we reinvest those funds. Our increase in portfolio assets in 2024 allowed us to capitalize on new opportunities, including increasing our equity holdings by approximately 42% throughout the year. While equity investments remain a modest allocation of our portfolio, this increase positions us to benefit from higher stock market valuations over time. While net investment gains were minimal for the fourth quarter of 2024, compared to a $2.2 million net investment gain for the fourth quarter of 2023, net investment gains for the full year of 2024 were $5 million, compared to $3.2 million for 2023. These net gains were primarily attributable to the increase in market value of the equity securities held at the end of the year. At December 31, 2024, book value per share was $15.36, a .7% increase from $14.39 at December 31, 2023. This increase was attributable to the positive impact of our operating income, a $4.7 million after-tax increase in the market value of our -for-sale fixed-income portfolio and net investment gains. Those increases were partially offset via regular quarterly cash dividends. Consistent with our long-standing investment approach, we remain dedicated to disciplined risk management and strategic asset allocation to navigate challenges, seize opportunities, and maintain resilience in a constantly evolving market environment. I will now turn it back to Kevin for closing remarks.

Thanks, Tony. I want to recognize the efforts of the entire Donogal team that led to the improvement in our results for the quarter and full year. We are pleased with the progress we made in 2024, but we have much more to accomplish as we execute on the strategies we believe will generate sustained favorable results. We look forward to sharing the details of those results in future calls. I'll now turn the call back to Karen.

Thank you, Kevin. While we requested and received questions in advance of today's call, we have worked answers to these questions into our prepared remarks. If there are any additional questions, please feel free to reach out to us. This now concludes the Donogal Group fourth quarter and full year 2024 earnings webcast. You may now disconnect.