Donegal Group, Inc. · NASDAQ:DGICA
Donegal — Q3 2020 Earnings Presentation
28 slides from Donegal's earnings presentation, Oct 28, 2020
Slide 1: Third Quarter 2020 Investor Presentation
NASDAQ: DGICA/DGICB Third Quarter 2020 Investor Presentation October 28, 2020
Slide 2: Safe Harbor
Safe Harbor The Company bases all statements made in this presentation that are not historic facts on its current expectations. These statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and involve a number of risks and uncertainties. Actual
Slide 3: Investment Thesis
Investment Thesis • Well-established regional insurance group with a diverse book of business including both commercial and personal lines • Shift in focus to commercial lines growth and actions to improve personal lines results contributed to recent margin improvement (95.9% combined ratio and 8% b
Slide 4: Company Overview
Company Overview Donegal Group Inc. is an insurance holding NASDAQ: DGICA/DGICB company offering property and casualty Corporate Headquarters Marietta, Pennsylvania insurance in 20 states. DGICA Share Description 24.1 million shares outstanding (Voting rights 0.1:1) 5.6 million shares outstanding Th
Slide 5: 2020 Accomplishments
2020 Accomplishments • Substantial improvement in financial results in 2019 and year-to-date 2020 • Continuing growth in our commercial lines segment • Commenced development of new personal lines products for deployment beginning in 2021 • Favorable net development of reserves following strengthenin
Slide 6: Balanced Mix of Commercial and Personal Lines
Balanced Mix of Commercial and Personal Lines Net Premiums Written for First Nine Months of 2020 by Line of Business Personal Auto Homeowners Homeowners Personal lines = 42.8% of NPW 15.0% Other Personal 2.7% Other Personal Renewal Premium Workers' Comp 15.1% Personal Auto Increases Averaged 2.6% 25
Slide 7: Third Quarter and Nine Months 2020 – Operating Results
Third Quarter and Nine Months 2020 – Operating Results Solid Organic Growth and Improved Results Profitability in Commercial Lines in Personal Lines Substantial Improvement in Combined Ratio due to Growth Increase Increase in Non-GAAP Emphasis on Commercial in Net Income Operating Income* in Book Va
Slide 8: Growth in Commercial Lines
Growth in Commercial Lines 97.3% Commercial Lines Statutory Combined Ratio for the First Nine Months of 2020 100,000 100.0% Expand core Donegal products across regions 90,000 95.0% Growth focus on accounts with premiums in $10,000 to 80,000 90.0% $150,000 range 70,000 85.0% Expand appetite wit
Slide 9: Strong Capital Position / Shareholder Returns
Strong Capital Position ~ Shareholder Returns Book Value Plus Cumulative Dividends • Rated A (Excellent) by 20.00 A.M. Best – Debt-to-cash/investments of approximately 6.9% 15.00 – Premium-to-surplus of approximately 1.6-to-1 10.00 • Dividend yield of 4.1% for Class A shares based on 5.00 $14.58 clo
Slide 10: Donegal: Where We've Been and Where We're Going
Donegal: Where We’ve Been and Where We’re Going www.DonegalGroup.com 10
Slide 11: Organic Growth Centered on Relationships with ~2,400 Independent Agencies
Organic Growth Centered on Relationships with ~2,400 Independent Agencies Ongoing Objectives Continuing Focus on Commercial Lines Growth • Achieve top-three ranking within appointed • Emphasize expanded commercial lines products agencies in lines of business we write and capabilities in current agen
Slide 12: Organic Growth and Opportunistic Affiliations
Organic Growth and Opportunistic Affiliations USD in millions $900 Atlantic States Southern Le Mars* Peninsula Sheboygan* Michigan $800 $744 $753 $729 $700 $682 $629 $600 $579 $533 $496 $500 $454 $392 $400 $363 $300 $200 $100 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 www.DonegalGroup.co
Slide 13: Maintain Multi-Faceted Regional Growth Strategy
Maintain Multi-Faceted Regional Growth Strategy Net premiums written of $753 million for the full year 2019, across 20 states in four operating regions – an increase of 1.2% compared to 2018 M&A transactions 10 since 1988 Acquisition Criteria • Serving attractive geography • Favorable regulatory, le
Slide 14: History of Strategic M&A
History of Strategic M&A History of Contributing Acquisitions Company Le Mars Peninsula Sheboygan Southern Mutual Michigan Year Acquired 2004 2004 2008 2009 2010 Company Type Mutual Stock Mutual Mutual Stock Personal/ Primary Product Line Personal Niche Personal Personal Commercial Geographic Focus
Slide 15: Donegal Mutual Acquisition of Mountain States Insurance Group
Donegal Mutual Acquisition of Mountain States Insurance Group Entering the Southwest – In May 2017, Donegal Mutual completed the merger of Mountain States Mutual Casualty Company with and into Donegal Mutual. Donegal Mutual and its two insurance subsidiaries conduct business as the Mountain States I
Slide 16: Decades of Community Involvement
Decades of Community Involvement • Based in Lancaster County, PA • Top-20 Writer of P&C Insurance in PA • Donegal’s community outreach efforts helped nonprofits raise nearly $2 million throughout Central Pennsylvania in 2019. www.DonegalGroup.com 16
Slide 17: Significant Benefits to Shareholders from Mutual Relationship
Significant Benefits to Shareholders from Mutual Relationship • Interrelated operations and pooling agreement with Donegal Mutual since inception in 1986 • At December 31, 2019, Donegal Mutual held approximately 43% of our outstanding Class A common stock and approximately 84% of our outstanding Cla
Slide 18: Drive Increased Efficiency with Automation
Drive Increased Efficiency with Automation Direct Premiums per Employee (USD in 000s) $1,200 • Current infrastructure can support premium $1,100 growth $1,000 • Premiums per employee rising over time due to $900 technology systems $800 • Link employee incentive compensation directly $700 to underwri
Slide 19: Conservative Investment Strategy
Conservative Investment Strategy $1.2 Billion in Invested Assets • 93.7% of portfolio invested in fixed (at September 30, 2020) maturities Corporate – Effective duration = 4 years 32.5% Mortgage Backed Securities (MBS) 22.1% – Tax-equivalent yield = 2.7% • Emphasis on quality Treasury and Agency • L
Slide 20: Valuation vs. Multi-Line Insurers
Valuation vs. Multi-Line Insurers (as of October 26, 2020) 2.5 Price to Book Multiple 2.1 2.0 1.9 1.5 1.4 1.3 1.1 1.1 1.1 1.0 1.1 1.0 1.0 0.9 0.9 0.8 0.7 0.7 0.5 0.0 www.DonegalGroup.com 20
Slide 21: Investment Conclusions
Investment Conclusions • Diverse book of business of both commercial and personal lines • Room for growth in multiple lines of business and several regional markets • Emphasis on solid underwriting returns driving margin improvement • Strength of brand and solid agency relationships provide competit
Slide 22: Contact Information
Contact Information Contact Information Donegal Group Inc. 1195 River Road P.O. Box 302 Marietta, PA 17547 Phone: (800) 877-0600 Corporate Website: donegalgroup.com Investor Relations Contact Mr. Jeffrey D. Miller Adam Prior Phone: (800) 877-0600 x7357 (212) 836-9606 investors@donegalgroup.com aprio
Slide 23: Financial Supplement
Financial Supplement 2020 Third Quarter NASDAQ: DGICA/DGICB www.donegalgroup.com www.DonegalGroup.com 23
Slide 24: Summary of Third Quarter and Nine Month Results
SUMMARY OF THIRD QUARTER AND NINE MONTH RESULTS Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 % Change 2020 2019 % Change (dollars in thousands, except per share amounts) Income Statement Data Net premiums earned $ 184,926 $ 189,821 -2.6% $ 556,552 $ 566,658 -1.8% Invest
Slide 25: Insurance Operations
INSURANCE OPERATIONS Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 % Change 2020 2019 % Change (dollars in thousands) Net Premiums Earned Commercial lines $ 103,436 $ 98,324 5.2% $ 307,080 $ 284,593 7.9% Personal lines 81,490 91,497 -10.9 249,472 282,065 -11.6 Total net
Slide 26: Underwriting Performance
UNDERWRITING PERFORMANCE Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 GAAP Combined Ratios (Total Lines) Loss ratio (non-weather) 56.3% 61.6% 54.1% 60.8% Loss ratio (weather-related) 9.1 7.3 7.6 7.2 Expense ratio 31.9 30.5 33.2 31.5 Dividend ratio 1.0 1.2 1.0
Slide 27: Investment Operations
INVESTMENT OPERATIONS September 30, 2020 December 31, 2019 Amount % Amount % (dollars in thousands) Fixed maturities, at carrying value: U.S. Treasury securities and obligations of U.S. government corporations and agencies $ 121,221 10.0% $ 102,281 9.2% Obligations of states and political subdivisio
Slide 28: Reconciliation of Net Income to Non-GAAP Operating Income
RECONCILIATION OF NET INCOME TO NON-GAAP OPERATING INCOME Three Months Ended September 30, Nine Months Ended September 30, 2020 2019 % Change 2020 2019 % Change (dollars in thousands, except per share amounts) Reconciliation of Net Income to Non-GAAP Operating Income Net income $ 11,837 $ 5,186 128.