Donegal Group, Inc. · NASDAQ:DGICA
Donegal — Investor Presentation (September 2014)
32 slides from Donegal's investor presentation, Sep 2, 2014
Slide 1: Pursuing Effective Business Strategy in Regional Insurance Markets
Exhibit 99.1 Pursuing Effective Business Strategy in Regional Insurance Markets Investor Presentation September 2014
Slide 2: Forward-Looking Statements
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 uncerta
Slide 3: Insurance Holding Company With Mutual Affiliate
Insurance Holding Company With Mutual Affiliate • Regional property and casualty insurance group – 22 Mid-Atlantic, Midwestern, New England and Southern states – Distribution force of approximately 2,600 independent agencies – Completed 10 M&A transactions since 1988 • Interrelated operations and po
Slide 4: Structure Provides Stability to Pursue Successful Long-Term Business Strategy
Structure Provides Stability to Pursue Successful Long-Term Business Strategy • Outperform industry in service, profitability and book value growth • Drive revenues with organic growth and opportunistic transactions • Focus on margin enhancements and investment contributions 4 (Detailed organization
Slide 5: Objective: Outperform Industry Service, Profitability and Book Value Growth
Objective: Outperform Industry Service, Profitability and Book Value Growth Change in Net Written Premiums GAAP Combined Ratio Change in Book Value DGI CAGR: 10% Peer CAGR: 4%DGI Avg: 98% Peer Avg: 100% DGI CAGR: 2% Peer CAGR: 4% 40% 115% 20% 35% 15% 110% 30% 10% 105% 25% 5% 20% 100% 0% 15% 95% -5%
Slide 6: 2013: Strong Growth and Profitability
2013: Strong Growth and Profitability Operating EPS* of 96¢ vs. 73¢in 2012 • 7.4% increase in net written premiums – Driven by strong commercial lines growth • 97.4% statutory combined ratio – Q3 and Q4 combined ratios of 96.0% and 95.4% were lowest for any period in past five years – Measurable pro
Slide 7: 1H14: Favorable Core Underwriting Results Despite Weather and Other Loss Activity
1H14: Favorable Core Underwriting Results Despite Weather and Other Loss Activity • 8.4% increase in net written premiums – Driven by rate increases and 13.4% commercial lines growth • 102.7% statutory combined ratio – Improvements in homeowners and casualty loss ratios – $26.9 million weather-relat
Slide 8: Drive Revenues with Organic Growth and Opportunistic Transactions
Drive Revenues with Organic Growth and Opportunistic Transactions Net Written Premiums Michigan (dollars in millions) Sheboygan $533 Peninsula $496 Le Mars $454 Southern Atlantic States $392 $365 $363 $302 $307 $314 $283 $207 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 January 2004 Decemb
Slide 9: Focus on Underwriting Profitability to Enhance Margins
Focus on Underwriting Profitability to Enhance Margins Personal Lines Loss Ratio Commercial Lines Loss Ratio 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 2006 200720082009 201020112012 2013 20062007 20082009 2010 20112012 2013 9 Donegal Insurance Group (SNL P&C Group
Slide 10: Achieve Book Value Growth By Implementing Plan
Achieve Book Value Growth By Implementing Plan Pursue quality premium growth and enhance underwriting profitability Support insurance operations with conservative investment strategy 10
Slide 11: Maintain Multi-faceted Regional Growth Strategy
Maintain Multi-faceted Regional Growth Strategy • $533 million in 2013 net written premiums across 22 states in four operating regions – $720 million in direct written premiums for insurancegroup* • 10 M&A transactions since 1988 • Acquisition criteria: – Serving attractive geography – Favorable reg
Slide 12: Example: Michigan Insurance Company
Example: Michigan Insurance Company • Attractive franchise 2014 (Dollars in millions) 2013 2012 2011 2010 (under acquired in 2010 prior owner) • Potential for increased Direct written $116** $112 $111 $108 $105 premium contribution premiums • Track record of External quota share 20% 30% 40% 50% 75%
Slide 13: Continue Strategic Efforts to Balance Business Mix
Continue Strategic Efforts to Balance Business Mix • Commercial lines = Net Written Premiums by Line of Business (June 30, 2014) 44% of NWP in 1H 2014 – Commercial lines renewal premiums increases in 5- Workers' Homeowners 7% range 18% Comp 16% Other Personal – Ongoing emphasis on new 3% business gr
Slide 14: Emphasize Growth in Commercial Lines
Emphasize Growth in Commercial Lines • 95.7% statutory combined In-Force Policy Count Retention Levels ratio for 2013 90,000 100.0% • Introduce core Donegal 80,000 95.0% products in new regions 90.0% 70,000 • Growth focus on accounts 85.0% with premiums in $10,000 60,000 to $75,000 range 50,000 80.0
Slide 15: Focus on Personal Lines Profitability
Focus on Personal Lines Profitability In-Force Policy Count Retention Levels • 98.8% statutory combined 500,000 100.0% ratio for 2013 450,000 95.0% 400,000 90.0% • Focus on the preferred and superior risk markets 350,000 85.0% 300,000 80.0% • Underwriting initiatives: 250,000 75.0% – Rate increases
Slide 16: Organic Growth Centered on Relationships with ~2,600 Independent Agencies
Organic Growth Centered on Relationships with ~2,600 Independent Agencies • Ongoing objectives: – Achieve top three ranking within appointed agencies in lines of businesswe write – Cultivate relationships with existing agencies to expand writings – Leverage “regional”advantages and maintain personal
Slide 17: Support Agents with Best-In-Class Technology
Support Agents with Best-In-Class Technology Call Service Center Center ClaimCenter ImageRight Mobile App 17
Slide 18: Drive Increased Efficiency with Automation
Drive Increased Efficiency with Automation Direct Premiums per Employee• Current infrastructure can $1,000 support premium growth (Dollars in thousands) • Premiums per employee $900 rising due to underwriting $800 systems • Claims system allows $700 more rapid and efficient $600 claims handling • Mu
Slide 19: Enhance Underwriting Profitability to Improve Operating Margins
Enhance Underwriting Profitability to Improve Operating Margins • Sustain pricing discipline and conservative underwriting • Manage exposure to catastrophe/unusual weather events – Reinsurance coverage in excess of a 250-year event • Link employee incentive compensation directly to underwriting perf
Slide 20: Employ Sophisticated Pricing and Actuarial Tools
Employ Sophisticated Pricing and Actuarial Tools • Predictive modeling tools • External information enhance our ability to sources allow us to appropriately price our develop price products optimization strategies – Sophisticated predictive • Formal schedule of modeling algorithms for pricing/tierin
Slide 21: Maintain Emphasis on Reserve Adequacy
Maintain Emphasis on Reserve Adequacy • Reserves at $266 million Established Reserves at Year-end at year-end 2013 (dollars in thousands, net of reinsurance) Reserve Range at 12/31/2013 – Midpoint of actuarial Low $238,800 range High $295,500 $265,605 Selected at midpoint $250,936 – Conservative rei
Slide 22: Achieve Book Value Growth By Implementing Plan
Achieve Book Value Growth By Implementing Plan Pursue quality premium growth and enhance underwriting profitability Support insurance operations with conservative investment strategy 22
Slide 23: Maintain Conservative Investment Mix
Maintain Conservative Investment Mix $781 Million in Invested Assets* • 89% of portfolio invested (as of June 30, 2014) in fixed maturities at Short-Term June 30, 2014 Securities Treasury Agency Equity 4% 3% 6% – Effective duration = 3% Corporate 4.7 years 15% – Tax equivalent yield = Tax-Exempt 3.1
Slide 24: Donegal Financial Services Corporation Bank Investment = 5% of Invested Assets
Donegal Financial Services Corporation Bank Investment = 5% of Invested Assets • DFSC owns 100% of Union Community Bank – Serves Lancaster County (location of Donegal headquarters) • Expanded to 13 branches via acquisition in 2011 – Added scale to banking operation – Enhanced value of historic bank
Slide 25: Union Community Bank (48% owned by Donegal Group Inc.)
Union Community Bank (48% owned by Donegal Group Inc.) • 2013 financial results: – $513million in assets at year-end 2013 – $6.3 million in 2013 net income • Excellent capital ratios at June 30, 2014: Tier 1 capital to average total assets 16.01% Tier 1 capital to risk-weighted assets 24.77% Risk-ba
Slide 26: Review: Long-Term Business Strategy for Growth and Success
Review: Long-Term Business Strategy for Growth and Success • Maximize benefits of regional business approach • Outperform industry in service, profitability and book value growth • Drive revenues with organic growth and opportunistic transactions • Focus on margin enhancements and investment contrib
Slide 27: Strong Capital + Solid Plan to Drive Results
Strong Capital + Solid Plan to Drive Results Book Value Plus Cumulative Dividends • Rated A (Excellent) by $20.00 A.M. Best – Debt-to-capital of approximately 16% $15.00 – Premium-to-surplus of approximately 1.6-to-1 $10.00 • Dividend yield of 3.3% for Class A shares – 3% increase in April 2014 $5.0
Slide 28: Supplemental Information
Supplemental Information 28
Slide 29: Structure Provides Flexibility and Capacity
Structure Provides Flexibility and Capacity Public 55%(1) 45%(1) Donegal Mutual Stockholders Insurance Company Donegal Donegal Group Group Inc. Inc. 52% 20% 48% Donegal Financial Services POOLING 100% Corporation AGREEMENT Reinsurance (Union Community Bank) 80% 100% 100% 100% 100% 100% 100% Southern
Slide 30: History of Contributing Transactions
History of Contributing Transactions Southern Company Le Mars Peninsula Sheboygan Michigan Mutual Year Acquired 2004 2004 2008 2009 2010 Company Type Mutual Stock Mutual Mutual Stock Primary Product Line Personal Niche Personal Personal Pers./Comm. Georgia/ Geographic Focus Midwest Mid-Atlantic Wisc
Slide 31: Net Premiums Written by Line of Business
Net Premiums Written by Line of Business (in millions) Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Personal lines: Automobile $52.0 $50.5 $46.7 $50.9 $50.2 $48.6 $45.6 $51.4 Homeowners 31.1 22.9 25.7 29.8 29.1 21.9 22.3 27.6 Other 4.6 3.8 4.0 4.2 4.3 3.4 4.0 4.2 Total personal lines 87.7 77.2 76
Slide 32: Combined Ratio Analyses
Combined Ratio Analyses (percent) Q2 14 Q1 14 Q4 13 Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Stat combined ratios: Personal lines 99.5 102.7 99.3 97.9 100.2 98.1 108.9 101.3 Commercial lines 105.8 104.3 89.4 93.0 101.4 98.4 88.5 91.4 Total lines 102.1 103.2 95.4 96.0 100.6 98.0 101.2 97.6 GAAP combined ratios
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