Slide 1: Effective Consolidator of "Main Street" Property and Casualty Insurers
Exhibit 99.2 Effective Consolidator of “Main Street” Property and Casualty Insurers !Investor!Presenta,on!
Slide 2: Forward-Looking Statements
Forward-Looking Statements The!Company!bases!all!statements!made!in!this!presenta,on!that!are!not!historic!facts!on!its!current! (as!defined!in!the!Private!Securi,es! ability!to!maintain!profitable!opera,ons,!the!adequacy!of!the!loss!and!loss!expense!reserves!of!the! vary!materially.!Factors!that!co
Slide 3: Snapshot: NASDAQ:DGICA/DGICB
Snapshot: NASDAQ:DGICA/DGICB •– Insurance!holding!company!with!controlling!mutual!affiliate! – Class!A!dividend!yield!of!3.5%! Class!A!shares!have!1/10!vote;!Class!B!shares!have!one!vote! •– Regional!standard!market!property!and!casualty!insurance!group! – 22!Mid=Atlan,c,!Midwestern,!New!England!and
Slide 4: Objective: Outperform Industry Service, Profitability and Book Value Growth
Objective: Outperform Industry Service, Profitability and Book Value Growth Change’in’Net’Wri-en’Premiums’ DGI’CAGR:’9.9%”‘Index’CAGR:’1.9%’ GAAP’Combined’Ra@o’ Change’in’Book’Value’ DGI’Avg:’97.2%”Index’Avg:’101.8%’ DGI’CAGR:’7.0%”Index’CAGR:’6.5%’ 50%! 40%! 130%! 125%! 25%! 20%! 120%! 15%! 30%! 11
Slide 5: 1H 2012: Strong Growth and Improved Operating EPS of 30¢ vs. 10¢ Loss in 1H 2011
1H 2012: Strong Growth and Improved Operating EPS* of 30¢ vs. 10¢ Loss in 1H 2011 • 9.7%!increase!in!net!wriben!premiums! – – 7.4%!from!organic!growth,!including!12.0%!commercial!lines!expansion!with! con,nued!signs!of!improving!pricing!environment! Insurance!Company!subsidiary! 2.3%!from!change!in!
Slide 6: Achieve Objectives By Implementing Plan
Achieve Objectives By Implementing Plan Con@nue’to’pursue’consolida@on’opportuni@es’ Complement!with!organic!growth!and!diversifica,on!! Translate!into!book!value!growth!
Slide 7: Acquisitions Have Made Meaningful Contribution to Long-term Growth
Acquisitions Michigan’ Have Made Meaningful Contribution to Long-term Growth Sheboygan’Net’Wri-en’Premiums’ (dollars’in’millions)’ $454’ Peninsula’ Le’Mars’ 10%’CAGR’ $392’ Southern’$365’ $363’ Atlan@c’States’ $302’ $307’ $314’ $283’ $195’ 2002! $207’ 2003! 2004! 2005! 2006! 2007! 2008! 2009! 2010!
Slide 8: Acquisition Strategy Drives Geographic Expansion
Acquisition Strategy Drives Geographic Expansion °10 M&A transactions since 1988 — Experienced consolidation team * Acquisition criteria: — Serving attractive geography — Favorable regulatory, legislative and judicial environments.. — Similar personal/commercial business mix Le — Premium volume up t
Slide 9: Opportunistic Ownership Structure Provides Flexibility and Capacity
Structure Public Provides 47%(1) Flexibility and CapacityOpportunistic Ownership Structure Provides Flexibility and Capacity Donegal’Mutual” Stockholders Insurance’Company” 52% 20% 53%(1) Donegal’Financial’ Services’Corpora@on’ 48% (Union!Community!Bank)! Donegal’Group’Inc.” AGREEMENT POOLING 100% R
Slide 10: Southern Mutual Insurance Company Affiliation with Donegal Mutual – 2009
Southern Mutual Insurance Company Affiliation with Donegal Mutual – 2009 •• Donegal!Mutual!surplus!note!investment!of!$2.5!million! • $13.9!million!in!2011!direct!wriben!premiums! 100%!quota!share!reinsurance!with!Donegal!Mutual! – SMIC!cedes!underwri,ng!results!to!Donegal!Mutual! •– Expanded!market
Slide 11: Michigan Insurance: Attractive Franchise Acquired December 2010
Michigan Insurance: Attractive Franchise Acquired December 2010 •• Track!record!of!profitability! Purchase!price!of! $42!million!=!1.22x!GAAP! book!value! • Provided!entry!into!new! state!as!part!of!Midwest! expansion!strategy! – – Capable!management!team!! Quality!agency!distribu,on! system! – Dive
Slide 12: Michigan Insurance: Potential for Increased Premium Contribution
Michigan Insurance: Potential • Op,on!to!con,nue!to! for Increased Premium Michigan!Insurance! Contributionbusiness! increase!reten,on!of! • successfully!navigated! Michigan!Insurance!has! state’s!economy! – Michigan!is!8th!largest! state!based!on!number! of!households! • system!and!product! 2012!fo
Slide 13: History of Contributing Transactions
History of Contributing Transactions
Slide 14: Achieve Objectives By Implementing Plan
Achieve Objectives By Implementing Plan Con,nue!to!pursue!consolida,on!opportuni,es! Complement’with’organic’growth’and’ diversifica@on” Translate!into!book!value!growth!
Slide 15: Organic Growth Initiatives Emphasize Agent Relationships
Organic Growth Initiatives Emphasize Agent Relationships • Achieve!top!three!ranking! within!appointed!agencies!in! “lines!of!business!we!serve”! – – Best=in=class!customer!service! High=quality!products! and!technology! – Consistent!claims!handling! – Abrac,ve!compensa,on! package!! – Semi=annual!a
Slide 16: Build On Solid Technological Capabilities
Build On Solid Technological Personal’Lines” Capabilities Commercial’Lines’ • Donegal!offers!”Na,onal! • Donegal!introducing!web=based! Company”!quo,ng!and! underwri,ng!system!with! underwri,ng!capabili,es! automated!ra,ng!and! underwri,ng!
Slide 17: Remain Focused on Underwriting to Best Leverage Rate Increases
Remain Focused on Underwriting to Best Leverage Rate Increases Net’Wri-en’Premiums’by’Line’of’Business’ Workers’! Homeowners! (December’31,’2011)’ Compensa,on! 20%! 11%! Other!Personal! 2%! Mul,!Peril! 13%! Other! Commercial! 2%! Commercial! Personal!Auto! Auto! 10%! 41%! • Personal!lines!currently!
Slide 18: Employ Sophisticated Actuarial Tools
Employ Sophisticated Actuarial Tools •enhance!our!ability!to! Predic,ve!modeling!tools! • External!informa,on!sources! allow!us!to!gather!compe,tor! appropriately!price!our! pricing!informa,on!and!to! products! develop!price!op,miza,on! – Sophis,cated!predic,ve! strategies! modeling!algorithms!for!
Slide 19: Leverage Personal Lines
Leverage Personal Lines In=Force!Policy!Count! Reten,on!Levels! !500,000!! !450,000!! 100.0%! 95.0%! !400,000!! 90.0%! !350,000!! !300,000!! 85.0%! 80.0%! !250,000!! 75.0%! !200,000!! !150,000!! 70.0%! 65.0%! !100,000!! 60.0%! !50,000!! 55.0%! !=!!!! 50.0%! 2008! 2009! 2010! 2011*! *”Includes”Michig
Slide 20: Build Commercial Lines
Build Commercial Lines products!in!new!regions! • Introduce!core!Donegal! • with!premiums!in!$10,000!to! Growth!focus!on!accounts! $75,000!range! •• Apply!underwri,ng!controls! Expand!appe,te!within! wriben! classes!and!lines!already! – Produc,on!underwriters! – Loss!control!processes! – Large!accou
Slide 21: Achieve Objectives By Implementing Plan
Achieve Objectives By Implementing Plan Con,nue!to!pursue!consolida,on!opportuni,es! Translate’into’book’value’growth’ Complement!with!organic!growth!and!diversifica,on!!
Slide 22: Build on Healthy Insurance Operations
Build on Healthy Insurance Operations Personal’Lines’Loss’Ra@o’ Commercial’Lines’Loss’Ra@o’ 90%! 80%! 90%! 80%! 70%! 70%! 60%! 50%! 60%! 50%! 40%! 40%! 30%! 20%! 30%! 10%! 20%! 10%! 0%! 0%! 2005! 2006! 2007! 2008! 2009! 2010! 2011! 2005! 2006! 2007! 2008! 2009! 2010! 2011! Donegal!Insurance!Group!(S
Slide 23: Sustain Pricing Discipline and Conservative Underwriting
Sustain Pricing Discipline and Conservative Underwriting •– Manage!exposure!to! Purchase!reinsurance! catastrophe/unusual! weather!events! coverage!in!excess!of!a!one= in=200!year!event! •• Link!employee! compensa,on!directly!to! Focus!on!rate!adequacy!and! underwri,ng!performance! pricing!sophis,ca
Slide 24: Maintain Reserve Adequacy
Maintain Reserve Adequacy •$6! Reserves!at!$243!million!at! Quarterly’Reserve’Development’ year=end!2011!(net!of! (dollars!in!millions)! reinsurance)! – $4! – Midpoint!of!actuarial!range! Reported!redundant!reserves!$2!$2!$2! in!seven!out!of!past!10!years! $0! $1! – Conserva,ve!reinsurance! =$1! =$1
Slide 25: Drive Increased Efficiency with Automation
Drive Increased Efficiency with Automation Direct’Premiums’per’Employee’ !$900!! support!premium!growth! • Current!infrastructure!can! (Dollars!in!thousands)! • Premiums!per!employee!rising! !$800!! !$700!! due!to!underwri,ng!systems! • Claims!system!allows!more! rapid!and!efficient!claims! !$600!!
Slide 26: Conservative Investment Approach
Conservative Investment Approach •– $794!million!in!invested!assets!at!June!30,!2012! 90%!of!portolio!invested!in!fixed!maturi,es! •• 55%!tax=exempt!securi,es! • 45%!taxable!securi,es! Emphasis!on!quality! – !98%!A=rated!or!beber! – !86%!AA=rated!or!beber !! • No!exposure!to!euro!debt,!sub=prime,!CD
Slide 27: Maintain Conservative Investment Mix
Maintain Conservative Investment Mix ShortaTerm” $759’Million’ Securi@es’ Treasury’ 5%’ 3%’ Agency’ in’Invested’ Corporate’ 7%’ Assets*’ 10%’ MortgageaBacked’ Securi@es’(MBS)’ 16%’
Slide 28: Bank Investment = 4% of Invested Assets
Bank Investment = 4% of Invested Assets •– Union!Community!Bank!! Lancaster!County!(Donegal!headquarters)!bank! • Expanded!to!13!branches!via!acquisi,on!in!May!2011! – – Added!scale!to!banking!opera,on! – Enhanced!value!of!historic!bank!investment! Increased!poten,al!for!bobom=line!contribu,on! • DG
Slide 29: Union Community Bank is Financially Strong and Profitable
Union Community Bank is Financially Strong and Profitable • $516!million!in!assets!at!June!30,!2012! •• $4.8!million!in!2011!net!income!! $5.0!million!in!first!half!2012!net!income! • Excellent!capital!ra,os!at!June!30,!2012:! – – Tier!1!capital!to!average!total!assets Tier!1!capital!to!risk=weighte
Slide 30: Outperform Industry in Service, Profitability and Book Value Growth
Outperform Industry in Service, Profitability and Book Value Growth
Slide 31: Strong Capital + Solid Plan to Drive Results
Strong Capital + Solid Plan to Drive Results Book’Value’Plus’Cumula@ve’Dividends’ A.M.!Best! • Rated!A!(Excellent)!by! – Debt=to=capital!of! !$20.00!! – approximately!19%!! Premium=to=surplus!of! •!$15.00!! approximately!1.3=to=1! Dividend!yield!of!3.5%!for! !$10.00!! •!$5.00!! Class!A!shares! Repur
Slide 32: Effective Consolidator of "Main Street" Property and Casualty Insurers
Effective Consolidator of “Main Street” Property and Casualty Insurers •– Con,nue!to!pursue!consolida,on!opportuni,es! contribu,on!from!transac,ons! 10%!CAGR!in!net!wriben!premiums!since!2001!driven!by! • Complement!with!organic!growth!and!diversifica,on!! – commercial!lines!book! Strong!agency!rela
Slide 33: Appendix
Effective Consolidator of “Main Street” Property and Casualty Insurers Appendix’
Slide 34: Net Premiums Written by Line of Business
Net Premiums WrittenQ212’ (Dollars’in’millions)’ by Line of Business Q112’ Q411’ Q311’ Q211’ Q111’ Q410’ Q310’ Q210’ Personal’lines:’ !!!!Automobile! !!!!Homeowners! $50.2! $48.0! $44.6! $49.5! $47.7! 19.4!$46.3! $41.9!22.4! $45.0! $43.4! !!!!Other! 4.2! 3.7! 3.8! 3.9! 3.9! 3.4! 3.4!23.4! 27.0! 20.2
Slide 35: Quarterly Loss Activity Detail
Quarterly Loss Activity Detail Quarterly’Fire’Losses’ (dollars!in!millions)! Quarterly’Weather’Losses*’ $50! $12! $40! $13! $30! $4!$10! $5! $3! $20! $8! $10! $6! $6! $21! $5! $10! $2! $3! $2! $6! $8! $8! $11! $0! $7! 2009! Q1! Q2!2010! Q3!2011! 2012! 2009! 2010! 2011! 2012! Q4! *!Net&of&reinsurance
Slide 36: For Further Information
Effective Consolidator of “Main Street” Property and Casualty Insurers !For!Further!Informa,on:! Jeffrey!D.!Miller,!Senior!Vice!President!and!Chief!Financial!Officer! E=mail:!jeffmiller@donegalgroup.com! www.DonegalGroup.com! Phone:!(717)!426=1931!!Fax:!(717)!426=7031!