Donegal Group, Inc. · NASDAQ:DGICA
Donegal — Investor Presentation (June 2012)
35 slides from Donegal's investor presentation, Jun 19, 2012
Slide 1: Effective Consolidator of “Main Street” Property and Casualty Insurers
Effective Consolidator of “Main Street” Property and Casualty Insurers Investor Meetings June 2012
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: Snapshot: NASDAQ:DGICA/DGICB
Snapshot: NASDAQ:DGICA/DGICB Insurance holding company with controlling mutual affiliate Class A dividend yield of 3.4% Class A shares have 1/10 vote; Class B shares have one vote Regional standard market property and casualty insurance group 22 Mid-Atlantic, Midwestern, New England and Southern sta
Slide 4: 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 Donegal Group SNL Small Cap U.S. Insurance Index (average)
Slide 5: Q1 2012: Best Quarter in Three Years
Q1 2012: Best Quarter in Three Years -Operating EPS* of 260 vs. 80 in Q1 2011 8.1% increase in net written premiums 5.7% from organic growth, including 11.2% commercial lines expansion with clear signs of improving pricing environment 2.4% from change in external quota-share agreement for Michigan I
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: Regional Focus: Serving States Through 2,500 Independent Agencies
Regional Focus: Serving 22 States Through 2,500 Independent Agencies 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
Slide 8: Structure Provides Flexibility and Capacity
Structure Provides Flexibility and Capacity P&C Insurance Subsidiaries Thrift Holding Company /Federal Savings Bank (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 com
Slide 9: Acquisitions Have Made Meaningful Contribution to Long-term Growth
Acquisitions Have Made Meaningful Contribution to Long-term Growth
Slide 10: Southern Mutual Insurance Company Affiliation with Donegal Mutual
Southern Mutual Insurance Company Affiliation with Donegal Mutual 2009 Donegal Mutual surplus note investment of $2.5 million $13.9 million in 2011 direct written premiums 100% quota share reinsurance with Donegal Mutual SMIC cedes underwriting results to Donegal Mutual, which includes business in p
Slide 11: Michigan Insurance: Attractive Franchise Acquired in December 2010
Michigan Insurance: Attractive Franchise Acquired in December 2010 $108 million in 2011 direct written premiums Track record of profitability Provides entry into new state as part of Midwest expansion strategy Capable management team Quality agency distribution system Diversified mix of business Mic
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
Organic Growth Initiatives Emphasize Agent Relationships Achieve top three ranking within appointed agencies in “lines of business we serve” Best-in-class customer service and technology High-quality products Consistent claims handling Attractive compensation package Semi-annual agency reviews Maint
Slide 14: Build On Solid Technological Capabilities
Build On Solid Technological Capabilities Personal Lines Donegal offers “National Company” quoting and underwriting capabilities Commercial Lines Donegal introducing web-based underwriting system with automated rating and underwriting
Slide 15: Remain Focused on Underwriting to Best Leverage Rate Increases
Remain Focused on Underwriting to Best Leverage Rate Increases Net Written Premiums by Line of Business (December 31, 2011) Personal lines currently 64% of NWP Multiple rate increases implemented in 2011 will increase premium in 2012 Minimal exposure growth other than MICO acquisition Commercial lin
Slide 16: Employ Sophisticated Actuarial Tools
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 tools tha
Slide 17: Leverage Personal Lines
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) * Includes Michigan pol
Slide 18: Build Commercial Lines
Build Commercial Lines 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 Apply underwriting controls Production underwriters Large account reviews Loss control processes Coastal c
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
Build on Healthy Insurance Operations Personal Lines Loss Ratio Commercial Lines Loss Ratio
Slide 21: Sustain Pricing Discipline and Conservative Underwriting
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 adequacy and pricing sophistication Leverage
Slide 22: Address Changing Claims Patterns
Address Changing Claims Patterns Quarterly Fire Losses Quarterly Weather Losses*
Slide 23: Reserve Adequacy
in Reserve Adequacy Reserves at $243 million at year-end 2011 (net of reinsurance) Midpoint of actuarial range Reported redundant reserves in seven out of past 10 years Conservative reinsurance program limits volatility Emphasis on faster claims settlements leading to higher paid losses but reduced
Slide 24: Drive Increased Efficiency with Automation
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 Expense ra
Slide 25: Conservative Investment Approach
Conservative Investment Approach $782 million in invested assets at March 31, 2012 93% of portfolio invested in fixed maturities 58% tax-exempt securities 42% taxable securities Emphasis on quality 89% AA-rated or better 98% A-rated or better No exposure to euro debt, sub-prime, CDO or Alt-A Effecti
Slide 26: Maintain Conservative Investment Mix
Maintain Conservative Investment Mix $749 Million in Invested Assets* Tax-Exempt Municipals 56% * Excluding Investments in Affiliates (as of March 31, 2012)
Slide 27: 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 acquisition in May 2011 Added scale to banking operation Enhanced value of historic bank investment Increased potential for bottom-line contribution DGI owns approxim
Slide 28: Union Community Bank is Financially Strong and Profitable
Union Community Bank is Financially Strong and Profitable $521 million in assets at March 31, 2012 •$4.8 million in 2011 net income $2.6 million in first quarter 2012 net income Excellent capital ratios at March 31, 2012: Tier 1 capital to average total assets 13.1% Tier 1 capital to risk-weighted a
Slide 29: Outperform Industry in Service, Profitability and Book Value Growth
Outperform Industry in Service, Profitability and Book Value Growth
Slide 30: 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-capital of approximately 19% Premium-to-surplus of approximately 1.3-to-1 Dividend yield of 3.4% for Class A shares Repurchase authorization of 300,000 Class A shares 119,000 pu
Slide 31: Appendix
Effective Consolidator of “Main Street” Property and Casualty Insurers Appendix
Slide 32: History of Contributing Transactions
History of Contributing Transactions Company Year Acquired Company Type Primary Product Line Le Mars Peninsula Sheboygan 2004 Mutual Personal 2004 Stock Niche 2008 Southern Mutual 2009 Michigan Mutual Personal Mutual 2010 Stock Personal Pers./Comm. Geographic Focus Transaction Type Midwest Mid-Atlan
Slide 33: Michigan Insurance Company Acquired December 1, 2010
Michigan Insurance Company Acquired December 1, 2010 Purchase price of $42 million = 1.22x GAAP book value Loss reserve guarantee and trust agreement $108 million in 2011 direct written premiums MICO retaining 25% MICO ceding 25% to Donegal Mutual (quota share) (Premiums ceded to Donegal Mutual incl
Slide 34: Net Premiums Written by Line of Business
Net Premiums Written by Line of Business (Dollars in millions) Q310 Q210 QUO Personal lines: Automobile $48.0 $44.6 $49.5 $47.7 $46.3 $41.9 $45.0 $43.4 $41.2 Homeowners 20.2 22.3 24.4 23.4 19.4 20.5 23.8 22.4 16.7 Other 3.7 3.8 3.9 3.9 3.4 3.4 3.5 3.5 2.9 Total personal lines 71.9 70.7 77.8 75.0 69.
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: ieffmiller@donegalgroup.com www.DonegalGroup.com