Donegal Group, Inc. · NASDAQ:DGICA
Donegal — Investor Presentation (December 2013)
33 slides from Donegal's investor presentation, Dec 6, 2013
Slide 1: Pursuing Effective Business Strategy in Regional Insurance Markets
Exhibit 99.1 Pursuing Effective Business Strategy in Regional Insurance Markets Investor Meetings December 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: Insurance Holding Company with Mutual Affiliate
3 Insurance Holding Company with Mutual Affiliate Structure provides stability for successful long-term business strategy Public company traded on NASDAQ (DGICA/DGICB) – Class A dividend yield of 3.25% – Class A shares have 1/10 vote; Class B shares have one vote Regional property and casualty insur
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: 2% Donegal Group SNL Small Cap U.S. Insurance Index (average) DGI Avg: 97% Index Avg: 103% DGI CAGR: 7% Index CAGR: N/A
Slide 5: 2013: Strong Growth and Operating EPS of 58¢
5 9mos 2013: Strong Growth and Operating EPS* of 58¢ vs. 53¢ in 9mos 2012 7.3% YTD increase in net written premiums – Driven by strong commercial lines growth 98.2% YTD statutory combined ratio – Q3 combined ratio of 96.0% is the lowest for any period in past five years – Measurable progress from ra
Slide 6: Achieve Book Value Growth By Implementing Plan
Achieve Book Value Growth By Implementing Plan Drive revenues with opportunistic transactions and organic growth Focus on margin enhancements and investment contributions
Slide 7: Opportunistic Ownership Structure Provides Flexibility and Capacity
Donegal Group Inc. Opportunistic Ownership Structure Provides Flexibility and Capacity 7 Atlantic States Insurance Company (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
Slide 8: Acquisitions Have Made Meaningful Contribution to Long-term Growth
8 Acquisitions Have Made Meaningful Contribution to Long-term Growth January 2004 Acquired Le Mars and Peninsula December 2010 Acquired Michigan Implemented 25% Quota Share December 2008 Acquired Sheboygan Falls Implemented Pooling Change $283 $302 $207 $307 $314 $365 $363 $392 $454 $496 Net Written
Slide 9: Acquisition Strategy Drives Geographic Expansion
9 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 10: Example: Southern Mutual Insurance Co.
10 Example: Southern Mutual Insurance Co. Affiliation with Donegal Mutual in 2009 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
Slide 11: Example: Michigan Insurance Company
11 (Dollars in millions) 2010 (under prior owner) 2011 2012 2013 Example: Michigan Insurance Company Attractive franchise acquired in 2010 Potential for increased premium contribution Track record of profitability Provided entry into new state as part of Midwest expansion strategy – Capable manageme
Slide 12: Business Mix Offers Broad-based Opportunities
12 Business Mix Offers Broad-based Opportunities Commercial lines = 41% of NWP in 9mos 2013 – Commercial lines renewal premiums increases in 5-7% range – Ongoing emphasis on new business growth in all regions Personal lines = 59% of NWP in 9mos 2013 – Rate increases in 3-8% range – Minimal exposure
Slide 13: Organic Growth Centered on Relationships with ~2,500 Independent Agencies
13 Organic Growth Centered on Relationships with ~2,500 Independent Agencies 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
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: Achieve Book Value Growth By Implementing Plan
Achieve Book Value Growth By Implementing Plan Drive revenues with opportunistic transactions and organic growth Focus on margin enhancements and investment contributions
Slide 16: Remain Focused on Underwriting to Best Leverage Rate Increases
16 Personal Lines Loss Ratio Commercial Lines Loss Ratio Remain Focused on Underwriting to Best Leverage Rate Increases Donegal Insurance Group (SNL P&C Group) SNL P&C Industry (Aggregate)
Slide 17: Focus on Underwriting Profitability
17 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 18: Emphasize Growth in More Profitable Commercial Lines
18 Emphasize Growth in More Profitable Commercial Lines 93.0% Q313 statutory combined ratio 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
Slide 19: Focus on Margin Improvement in Personal Lines
19 Focus on Margin Improvement in Personal Lines 97.9% Q313 statutory combined ratio 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
Slide 20: Employ Sophisticated Pricing and Actuarial Tools
20 Employ Sophisticated Pricing and 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
Slide 21: Maintain Reserve Adequacy to Support Margin Expansion
21 Established Reserves at Year-end Maintain Reserve Adequacy to Support Margin Expansion Reserves at $251 million at year-end 2012 – Midpoint of actuarial range – Conservative reinsurance program limits volatility Emphasis on faster claims settlements to reduce longer-term exposures Development YTD
Slide 22: Drive Increased Efficiency with Automation
22 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 and expense synergies Statuto
Slide 23: Maintain Conservative Investment Mix to Minimize Risk
23 Maintain Conservative Investment Mix to Minimize Risk * Excluding investments in affiliates $752 Million in Invested Assets* (as of September 30, 2013) 89% of portfolio invested in fixed maturities at September 30, 2013 – Effective duration = 5.3 years – Tax equivalent yield = 3.3% Taking proacti
Slide 24: Donegal Financial Services Corporation
24 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 May 2011 – Added scale to banking operation – Enhanced value of historic ba
Slide 25: Union Community Bank is Financially Strong and Profitable
25 Union Community Bank is Financially Strong and Profitable Results for first nine months of 2013: – $515 million in assets at September 30, 2013 – $5.4 million in YTD net income Excellent capital ratios at September 30, 2013: Tier 1 capital to average total assets 15.73% Tier 1 capital to risk-wei
Slide 26: Achieve Book Value Growth By Implementing Plan
Achieve Book Value Growth By Implementing Plan Drive revenues with opportunistic transactions and organic growth Focus on margin enhancements and investment contributions
Slide 27: Strong Capital + Solid Plan to Drive Results
27 Strong Capital + Solid Plan to Drive Results Rated A (Excellent) by A.M. Best – Debt-to-capital of approximately 18% – Premium-to-surplus of approximately 1.5-to-1 Dividend yield of 3.25% for Class A shares New authorization for repurchase of up to 500,000 shares of Class A common stock
Slide 28: Structure Provides Stability to Pursue Successful Long-Term Business Strategy
28 Structure Provides Stability to Pursue Successful Long-Term Business Strategy Regional property casualty insurance company – Insurance holding company with mutual affiliate Objective to outperform industry in service, profitability and book value growth Drive revenues with opportunistic transacti
Slide 29: Supplemental Information
Supplemental Information
Slide 30: History of Contributing Transactions
Company Le Mars Peninsula Sheboygan Southern Mutual Michigan 30 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 31: Net Premiums Written by Line of Business
(in millions) Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 31 Net Premiums Written by Line of Business Personal lines: Automobile $50.9 $50.2 $48.6 $45.6 $51.4 $50.2 $48.0 $44.6 Homeowners 29.8 29.1 21.9 22.3 27.6 27.0 20.2 22.3 Other 4.2 4.3 3.4 4.0 4.2 4.2 3.7 3.8 Total personal lines 84.8 83.6
Slide 32: Combined Ratio Analyses
(percents) Q3 13 Q2 13 Q1 13 Q4 12 Q3 12 Q2 12 Q1 12 Q4 11 32 Combined Ratio Analyses Stat Combined Ratios: Personal lines 97.9 100.2 98.1 108.9 101.3 108.4 101.6 116.7 Commercial lines 93.0 101.4 98.4 88.5 91.4 95.1 88.8 105.5 Total lines 96.0 100.6 98.0 101.2 97.6 103.5 96.9 112.8 GAAP Combined Ra
Slide 33: For Further Information
For Further Information: Jeffrey D. Miller Senior Vice President and Chief Financial Officer Phone: (717) 426-1931 E-mail: investors@donegalgroup.com Website: investors.donegalgroup.com Pursuing Effective Business Strategy in Regional Insurance Markets
Donegal Group — Investor Presentation (December 2013) on 6ix