Donegal Group, Inc. · NASDAQ:DGICA
Donegal — NYSSA Insurance Industry Conference 2017
25 slides from Donegal's conference presentation, Mar 20, 2017
Slide 1: NYSSA Insurance Industry Conference
NASDAQ: DGICA/DGICB There when it matters most. www.donegalgroup.com NYSSA Insurance Industry Conference | March 20, 2017
Slide 2: Kevin G. Burke, President & Chief Executive Officer
Kevin G. Burke President & Chief Executive Officer www.donegalgroup.com 2
Slide 3: 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 4: What Is Donegal Group?
WHAT IS DONEGAL GROUP? Insurance holding company with mutual affiliate pursuing an effective strategy in regional insurance markets • Regional property and casualty insurance group NASDAQ: DGICA/DGICB Corporate Headquarters Marietta, Pennsylvania – 21 Mid-Atlantic, Midwestern, New England and Southe
Slide 5: Structure Provides Stability to Pursue Successful Long-Term Business Strategy
STRUCTURE PROVIDES STABILITY TO PURSUE SUCCESSFUL LONG-TERM BUSINESS STRATEGY Public Donegal Mutual • Outperform industry in service, stockholders Insurance Company profitability and book value growth • Drive revenues with organic growth Donegal Group Inc. and opportunistic affiliations • Focus on m
Slide 6: Three Months and Year Ended 12/31/2016: Strong Financial Results
THREE MONTHS AND YEAR ENDED 12/31/2016: STRONG FINANCIAL RESULTS Net Written Premiums Net Income Annualized ROAE +8.5% +46.7% +2.2 pts. $800.0 $35.0 8.0% 7.3% $30.8 $700.0 $682.0 7.0% $30.0 $628.8 $600.0 6.0% +3.1 pts. $25.0 5.1% 5.0% $500.0 $21.0 5.0% +9.5% $20.0 +179.9% $400.0 4.0% $15.0 $300.0 3.
Slide 7: Year Ended 12/31/2016 Highlights
YEAR ENDED 12/31/2016 HIGHLIGHTS • 8.5% increase in net written premiums 9.5% increase for Q4 2016 – Represents a combination of 12.2% growth in commercial lines net premiums written and 5.5% growth in personal lines net premiums written • 96.8% statutory combined ratio* 100.4% for Q4 2016 – Continu
Slide 8: Drive Revenues with Organic Growth and Opportunistic Affiliations
DRIVE REVENUES WITH ORGANIC GROWTH AND OPPORTUNISTIC AFFILIATIONS $682 Michigan $629 Sheboygan $579 Peninsula $533 Le Mars $496 Southern $454 Atlantic States $392 $365 $363 $314 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 USD in millions December 2008 December 2010 2012 through 2015 Acquired S
Slide 9: Underwriting Profitability to Enhance Margins
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% 2011 2012 2013 2014 2015 2016 2011 2012 2013 2014 2015 2016 Donegal SNL P&C Industry (Aggregate) www.donegalgroup.com 9
Slide 10: Maintain Multifaceted Regional Growth Strategy
MAINTAIN MULTIFACETED REGIONAL GROWTH STRATEGY • Net premiums written of $682 million for the full year 2016 - across 21 states in four operating regions – $868 million in annual direct premiums written for insurance group* • 10 M&A transactions since 1988 • Acquisition criteria: – Serving attractiv
Slide 11: Strategic Efforts to Balance Business Mix
STRATEGIC EFFORTS TO BALANCE BUSINESS MIX Net Written Premiums in 2016 by Line of Business • Commercial lines = 45% of NWP Homeowners – Commercial lines renewal premium Workers' Comp 18% increases in 3-5% range 16% Other Personal 3% – Ongoing emphasis on new business growth in all regions • Personal
Slide 12: Emphasize Growth in Commercial Lines
EMPHASIZE GROWTH IN COMMERCIAL LINES • 90.7% statutory combined ratio for the year ended 100.0% 12/31/16 95.0% • Expand core Donegal products in newer regions 90.0% • Growth focus on accounts with premiums in $10,000 to 85.0% $75,000 range 80.0% • Expand appetite within classes and lines already wri
Slide 13: Focus on Personal Lines Profitability
FOCUS ON PERSONAL LINES PROFITABILITY • 101.8% statutory combined ratio for the year ended 12/31/16 • Focus on the preferred and superior risk markets • Underwriting initiatives: – Modest rate increases in virtually every jurisdiction – Expand use of predictive modeling – Property inspections – Seek
Slide 14: 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 curren
Slide 15: Support Agents with Best-in-Class Technology
SUPPORT AGENTS WITH BEST-IN-CLASS TECHNOLOGY ClaimsCenter BillingCenter ImageRight Call Center Service Center www.donegalgroup.com 15
Slide 16: Jeffrey D. Miller, Executive Vice President & Chief Financial Officer
Jeffrey D. Miller Executive Vice President & Chief Financial Officer www.donegalgroup.com 16
Slide 17: 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 200-year event • Link employee incentive compensation directly to underwriting perf
Slide 18: Drive Increased Efficiency with Automation
DRIVE INCREASED EFFICIENCY WITH AUTOMATION Direct Premiums per Employee • Current infrastructure can $1,100 support premium growth (USD in 000s) $1,000 • Premiums per employee rising $900 due to technology systems $800 • Claims system allows more rapid $700 and efficient claims handling $600 • Mutua
Slide 19: Maintain Conservative Investment Mix
MAINTAIN CONSERVATIVE INVESTMENT MIX $907.6 Million in Invested Assets* (at December 31, 2016) • 90% of portfolio invested in fixed Mortgage Backed maturities Corporate Securities (MBS) – Effective duration = 4.5 years 20% 29% – Tax equivalent yield = 3.0% Treasury and Agency • Emphasis on quality 1
Slide 20: Donegal Mutual's Pending Acquisition of Mountain States Insurance Group
DONEGAL MUTUAL'S PENDING ACQUISITION OF MOUNTAIN STATES INSURANCE GROUP Entering the Southwest – In December 2016, Donegal Mutual entered into an agreement whereby Mountain States Mutual Casualty Company would merge with and into Donegal Mutual. Mountain States Mutual . . . – is based in Albuquerque
Slide 21: Long-Term Growth Strategy
LONG-TERM GROWTH STRATEGY • Maximize benefits of regional business approach • Outperform industry in service, profitability and book value growth • Drive revenues with organic growth and opportunistic affiliations • Focus on margin enhancements and investment contributions www.donegalgroup.com 21
Slide 22: Strong Capital + Solid Plan to Drive Results
STRONG CAPITAL + SOLID PLAN TO DRIVE RESULTS Book Value Plus Cumulative Dividends • Rated A (Excellent) by A.M. Best – Debt-to-cash/investments of approximately 7.6% 20.00 – Premium-to-surplus of approximately 1.6-to-1 15.00 • Dividend yield of 3.3% for Class A 10.00 shares 5.00 • Authorization for
Slide 23: Valuation vs. Peers (at 3/10/2017)
VALUATION VS. PEERS (AT 3/10/2017) Price to Tangible Book Value (MRY) 200.0 150.0 100.0 50.0 0.0 HALL DGICA EMCI UFCS KMPR HMN THG NAVG Average AFG SIGI SAFT CINF Net Written Premium Growth 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% NWP Growth 2016 NWP Growth MRQ Donegal Peer Group Average www.donegalgroup.com
Slide 24: Key Takeaways
KEY TAKEAWAYS • Well-established regional insurance carrier with a diverse book of business of both personal and commercial lines • Organic top-line growth exceeding that of our peer group • Improved YTD 2016 underwriting performance in nearly every operating metric www.donegalgroup.com 24
Slide 25: There when it matters most.
NASDAQ: DGICA/DGICB There when it matters most. www.donegalgroup.com NYSSA Insurance Industry Conference | March 20, 2017
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