Donegal Group, Inc. · NASDAQ:DGICA
Donegal — Investor Presentation (March 2013)
35 slides from Donegal's investor presentation, Mar 4, 2013
Slide 1: Effective Consolidator of "Main Street" Property and Casualty Insurers
Exhibit 99.1 Effective Consolidator of “Main Street” Property and Casualty Insurers Investor Meetings March 2013
Slide 2: Forward-Looking Statements
2 Forward-Looking Statements 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 uncer
Slide 3: Snapshot: NASDAQ:DGICA/DGICB
3 Snapshot: NASDAQ:DGICA/DGICB Insurance holding company with mutual affiliate – Class A dividend yield of 3.5% – Class A shares have 1/10 vote; Class B shares have one vote Regional property and casualty insurance group – 22 Mid-Atlantic, Midwestern, New England and Southern states – Distribution f
Slide 4: Objective: Outperform Industry
4 Change in Net Written Premiums GAAP Combined Ratio Change in Book Value Objective: Outperform Industry Service, Profitability and Book Value Growth DGI CAGR: 10% Index CAGR: 4% Donegal Group SNL Small Cap U.S. Insurance Index (average) – 2012 data not yet available DGI Avg: 97% Index Avg: 102% DGI
Slide 5: 2012: Strong Growth and Improved Operating Results
5 2012: Strong Growth and Improved Operating EPS* of 73¢ vs. 30¢ Loss in 2011 9.3% increase in net written premiums 99.8% statutory combined ratio 91.2% commercial lines and 105.0% personal lines statutory combined ratios Book value per share at $15.63 vs. $15.01 at year-end 2011 Additional details
Slide 6: Achieve Objectives By Implementing Plan
Achieve Objectives By Implementing Plan Continue to pursue consolidation opportunities Complement with organic growth and diversification Translate into book value growth
Slide 7: Acquisition Strategy Drives Geographic Expansion
7 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 – Premium volume up to $100
Slide 8: Acquisitions Have Made Meaningful Contribution to Long-term Growth
8 Acquisitions Have Made Meaningful Contribution to Long-term Growth $283 $302 $207 $307 $314 $365 $363 $392 $454 $496 January 2004 Acquired Le Mars and Peninsula December 2010 Acquired Michigan Implemented 25% Quota Share December 2008 Acquired Sheboygan Falls Implemented Pooling Change Net Written
Slide 9: Opportunistic Ownership Structure Provides Flexibility and Capacity
Opportunistic Ownership Structure Provides Flexibility and Capacity 9 (1) Because of the different relative voting power of Class A common stock and Class B common stock, public stockholders hold approximately 34% of the aggregate voting power of the combined classes, and Donegal Mutual holds approx
Slide 10: Southern Mutual Insurance Company
10 Donegal Mutual surplus note investment of $2.5 million $16.8 million in 2012 direct written premiums 100% quota share reinsurance with Donegal Mutual – SMIC cedes underwriting results to Donegal Mutual – Donegal Mutual includes business in pooling agreement with Atlantic States (80% of SMIC busin
Slide 11: Michigan Insurance: Attractive Franchise
11 (Dollars in millions) 2010 (under prior owner) 2011 2012 2013 Michigan Insurance: Attractive Franchise Acquired December 2010 Potential for increased premium contribution Track record of profitability Provided entry into new state as part of Midwest expansion strategy – Capable management team –
Slide 12: Achieve Objectives By Implementing Plan
Achieve Objectives By Implementing Plan Continue to pursue consolidation opportunities Complement with organic growth and diversification Translate into book value growth
Slide 13: Organic Growth Initiatives Emphasize Agent Relationships
13 Organic Growth Initiatives Emphasize Agent Relationships Ongoing objectives: – Achieve top three ranking within appointed agencies in lines of business we write – Leverage “regional” advantages and maintain personal relationships as agencies grow and consolidate Continuing focus on commercial lin
Slide 14: Best-In-Class Technology and Agent Support
14 Call Center Service Center Best-In-Class Technology and Agent Support Personal Lines Donegal offers state-of-the-art quoting and underwriting capabilities Commercial Lines Donegal offers web-based underwriting system with automated rating and underwriting Call Center Service Center ImageRight Cla
Slide 15: Remain Focused on Underwriting to Best Leverage Rate Increases
15 Remain Focused on Underwriting to Best Leverage Rate Increases Commercial lines currently 38% of NWP – Commercial lines renewal premiums increased approximately 5-8% in 2012 – 2012 expansion partially due to exposure growth Personal lines currently 62% of NWP – Multiple rate increases implemented
Slide 16: Employ Sophisticated Actuarial Tools
16 Employ Sophisticated Actuarial Tools Predictive modeling tools enhance our ability to appropriately price our products – Sophisticated predictive modeling algorithms for pricing/tiering risks – Territorial segmentation and analysis of environmental factors that affect loss experience – Exploring
Slide 17: Emphasize Commercial Lines Growth
17 Emphasize Commercial Lines Growth Introduce core Donegal products in new regions Growth focus on accounts with premiums in $10,000 to $75,000 range Expand appetite within classes and lines already written – Add related classes – Appropriately use reinsurance Apply underwriting controls – Producti
Slide 18: Leverage Personal Lines
18 Leverage Personal Lines Acquired companies weighted to personal lines Focus on the preferred and superior risk markets Rate increases in virtually every jurisdiction New and renewal inspection and renewal re-tiering Seek geographic spread of risk Balance portfolio (auto/home)
Slide 19: Achieve Objectives By Implementing Plan
Achieve Objectives By Implementing Plan Continue to pursue consolidation opportunities Complement with organic growth and diversification Translate into book value growth
Slide 20: Build on Healthy Insurance Operations
20 Personal Lines Loss Ratio Commercial Lines Loss Ratio Build on Healthy Insurance Operations Donegal Insurance Group (SNL P&C Group) SNL P&C Industry (Aggregate) – 2012 data not yet available Personal Lines Loss Ratio Commercial Lines Loss Ratio
Slide 21: Focus on Underwriting Profitability
21 Focus on Underwriting Profitability Sustain pricing discipline and conservative underwriting Manage exposure to catastrophe/unusual weather events – Purchase reinsurance coverage in excess of a one-in-200 year event Link employee compensation directly to underwriting performance Focus on rate ade
Slide 22: Maintain Reserve Adequacy
22 Established Reserves at Year-end Maintain Reserve Adequacy Reserves at $251 million at year-end 2012 – Midpoint of actuarial range – Reported redundant reserves in seven out of past 10 years – Conservative reinsurance program limits volatility Emphasis on faster claims settlements for reduced lon
Slide 23: Drive Increased Efficiency with Automation
23 Direct Premiums per Employee Drive Increased Efficiency with Automation Current infrastructure can support premium growth Premiums per employee rising due to underwriting systems Claims system allows more rapid and efficient claims handling Mutual structure provides opportunities for operational
Slide 24: Maintain Conservative Investment Mix
24 Maintain Conservative Investment Mix * Excluding investments in affiliates (as of December 31, 2012) $769 Million in Invested Assets*
Slide 25: Conservative Investment Approach
25 Conservative Investment Approach 91.3% of portfolio invested in fixed maturities at year-end 2012 – 59%/41% tax-exempt to taxable mix Emphasis on quality – 86% AA-rated or better – 98% A-rated or better No exposure to euro debt, sub-prime, CDO or Alt-A Effective duration = 4.8 years Tax equivalen
Slide 26: Union Community Bank
26 Bank Investment = 5% of Invested Assets Union Community Bank – Serves Lancaster County (location of Donegal headquarters) Expanded to 13 branches via acquisition in May 2011 – Added scale to banking operation – Enhanced value of historic bank investment – Increased potential for bottom-line contr
Slide 27: Union Community Bank is Financially Strong and Profitable
27 Union Community Bank is Financially Strong and Profitable Healthy 2012 results: – $509.8 million in assets at year-end 2012 – $9.8 million in net income, up from $4.8 million in 2011 Excellent capital ratios at year-end 2012: Tier 1 capital to average total assets 15.05% Tier 1 capital to risk-we
Slide 28: Outperform Industry in Service, Profitability and Book Value Growth
Outperform Industry in Service, Profitability and Book Value Growth Continue to pursue consolidation opportunities Complement with organic growth and diversification Translate into book value growth
Slide 29: Strong Capital + Solid Plan to Drive Results
29 Book Value Plus Cumulative Dividends Strong Capital + Solid Plan to Drive Results Rated A (Excellent) by A.M. Best – Debt-to-capital of approximately 19% – Premium-to-surplus of approximately 1.4-to-1 Dividend yield of 3.5% for Class A shares Repurchased 272,000 Class A shares under current autho
Slide 30: Effective Consolidator of "Main Street" Property and Casualty Insurers
30 Effective Consolidator of “Main Street” Property and Casualty Insurers Continue to pursue consolidation opportunities – 10% CAGR in net written premiums since 2002 driven by contribution from transactions Complement with organic growth and diversification – Strong agency relationships set stage f
Slide 31: Supplemental Information
Supplemental Information
Slide 32: History of Contributing Transactions
Company Le Mars Peninsula Sheboygan Southern Mutual Michigan 32 History of Contributing Transactions Year Acquired 2004 2004 2008 2009 2010 Company Type Mutual Stock Mutual Mutual Stock Primary Product Line Personal Niche Personal Personal Pers./Comm. Geographic Focus Midwest Mid-Atlantic Wisconsin
Slide 33: Net Premiums Written by Line of Business
(in millions) Q412 Q312 Q212 Q112 Q411 Q311 Q211 Q111 33 Net Premiums Written by Line of Business Personal lines: Automobile $45.6 $51.4 $50.2 $48.0 $44.6 $49.5 $47.7 $46.3 Homeowners 22.3 27.6 27.0 20.2 22.3 24.4 23.4 19.4 Other 4.0 4.2 4.2 3.7 3.8 3.9 3.9 3.4 Total personal lines 71.9 83.1 81.4 71
Slide 34: Combined Ratio Analyses
(percents) Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 Q3 11 Q2 11 Q1 11 34 Combined Ratio Analyses Stat Combined Ratios: Personal lines 108.9 101.3 108.4 101.6 116.7 115.4 116.7 101.8 Commercial lines 88.5 91.4 95.1 88.8 105.5 101.4 93.9 94.3 Total lines 101.2 97.6 103.5 96.9 112.8 110.5 108.7 99.1 GAAP Combined
Slide 35: For Further Information
Effective Consolidator of “Main Street” Property and Casualty Insurers For Further Information: Jeffrey D. Miller, Senior Vice President and Chief Financial Officer Phone: (717) 426-1931 Fax: (717) 426-7031 E-mail: investors@donegalgroup.com Website: www.donegalgroup.com