Donegal Group, Inc. · NASDAQ:DGICA
Donegal — Investor Presentation (September 2016)
31 slides from Donegal's investor presentation, Sep 2, 2016
Slide 1: Investor Presentation September 2016
Exhibit 99.1 Exhibitwhen There Investor www.donegalgroup.com 99.1 Presentation it matters most. | September NASDAQ:2016 DGICA/DGICB
Slide 2: Safe Harbor
SAFE The Act operations, various the Securities of Reconciliations www.donegalgroup.com any Company’s of Company HARBOR 1995) revisions insurance and the and Exchange bases adequacy ability of that involve and non-GAAP all itother to may statements 2Commission. integrate of a number make the financi
Slide 3: What Is Donegal Group?
WHAT Insurance Corporate (Voting DGICB Cash Mutual DGICA –identical •Price Return www.donegalgroup.com Regional Interrelated DGICA 21 Mid-Atlantic, Distribution Completed Majority Donegal and toon IS since rights Annual Book Share with Investments and dividend holding Equity Headquarters DONEGAL Mut
Slide 4: Public Structure Provides Stability to Pursue Successful Long-Term Business Strategy
STRUCTURE Public Donegal •and Other (Detailed www.donegalgroup.com Outperform Drive Focus opportunistic insurance Donegal revenues on Group organizational margin industry PROVIDES Inc. Mutual Atlantic with affiliations enhancements organic in chart States 4service, STABILITY included growth subsidia
Slide 5: Strong Financial Results
Net2015 $400.0 $348.3 +1.9 7.9% $300.0 +7.7% $13.3 6.0% $0.0 1H www.donegalgroup.com /Written Q2 $0.0 pts. 8.0% $200.0 6.2% $15.0 +8.1% $350.0 2016: 1H 0.0% $250.0 Premiums 2016 165.6 +32.8% $25.0 STRONG $20.4 Q2 178.2 +53.4% $322.2 2015 Net 5FINANCIAL 6.0% Income Q2 $20.0 12.0% 2016 $10.0 10.0% Ann
Slide 6: Improved Underwriting Results Led to Operating Income and Book Value Growth
*•–FH www.donegalgroup.com 8.1% 93.6% Book Represents Continuing Reconciliations 2016: increase value statutory IMPROVED aper benefits combination inshare combined and net definitions from written of UNDERWRITING 6$16.62, rate of ratio* premiums 12.2% increases of compared 95.0% non-GAAP growth 7.7%
Slide 7: Drive Revenues with Organic Growth and Opportunistic Affiliations
DRIVE Sheboygan Michigan $629 $302 2005 USD Acquired www.donegalgroup.com $307 2006 in millions REVENUES Sheboygan $314 2007 Peninsula 2008 December Falls WITH $533 2009 7 Acquired Le 2008 2010 ORGANIC Mars December 2011 Southern Michigan 2012 GROWTH 2010 2013 Atlantic Incrementally 2012 2014 ANDSta
Slide 8: Underwriting Profitability to Enhance Margins
UNDERWRITING Personal 90% 0% 2011 Donegal www.donegalgroup.com 0% 90% 2012 0%SNL Lines 90% 2013 P&C Loss 80% 2014 PROFITABILITY Industry Ratio* 80% 2015 880% 1H Commercial (Aggregate) 70% 201170% 2012 TOLines (* 70% ENHANCE 2013 Aggregate 60% Loss 201460% Ratio* 2015 LOB MARGINS 60% 1H Loss info 50%
Slide 9: Maintain Multifaceted Regional Growth Strategy
*–•MAINTAIN www.donegalgroup.com Acquisition $628 10 Over Serving Favorable Similar Premium FY M&A 2015—Includes million $800 personal/commercial attractive transactions volume regulatory, MULTIFACETED million criteria: full year up geography inDonegal to annual since legislative 2015 9$1001988 and
Slide 10: Strategic Efforts to Balance Business Mix
STRATEGIC Net (Second Workers’ 16% growth •3% 55% Commercial Other 1% www.donegalgroup.com Personal Commercial Written Other of in NWP Quarter Comp all lines Personal Premiums Personal regions for EFFORTS =Auto 2016) Second –Auto 33% Ongoing by10 TO Quarter 45% Line 13% BALANCE of emphasis 2016 NWP
Slide 11: Emphasize Growth in Commercial Lines
EMPHASIZE 95.0% Growth $75,000 85.0% 80.0% •75.0% –ILoss www.donegalgroup.com n-Force 88.2% Expand Disciplined Agency Add Appropriately Expand Large control related on account statutory range Policy core appetite use development with 2011 underwriting: classes of GROWTH Donegal Count use premiums re
Slide 12: Focus on Personal Lines Profitability
•–FOCUS www.donegalgroup.com 98.0% Focus Underwriting Strong Modest Expand Property Seek Balance geographic on statutory ON policy rate use portfolio inspections the PERSONAL of increases preferred initiatives: retention predictive combined spread (auto/home) in and 12of LINES virtually modeling rat
Slide 13: Organic Growth Centered on Relationships with Independent Agencies
–•ORGANIC www.donegalgroup.com Ongoing Achieve Cultivatetop-three Leverage objectives: relationships “regional” GROWTH ranking •advantages CENTERED Continuing with 13 within existing and appointed focus ON agencies maintain RELATIONSHIPS on commercial – –Emphasize – Appoint Strengthen lines commerci
Slide 14: Support Agents with Best-in-Class Technology
SUPPORT ClaimsCenter Call www.donegalgroup.com CenterAGENTS Service BillingCenter Center WITH 14 ImageRight BEST-IN-CLASS TECHNOLOGY
Slide 15: Drive Increased Efficiency with Automation
DRIVE Direct $1,000 (USD $900 and $200 $300 www.donegalgroup.com expense •in Premiums Premiums Statutory support INCREASED 000s) synergies premium expense per per Employee employee EFFICIENCY 15 growth ratio ofrising • 30.9% Current WITH $800 for infrastructure due full AUTOMATION year to technology
Slide 16: Enhance Underwriting Profitability to Improve Operating Margins
•–ENHANCE www.donegalgroup.com Sustain Manage Link Focus Coordinated Emphasize Reinsurance employee onpricing exposure rate UNDERWRITING IT-based underwriting coverage adequacy incentive discipline to programs catastrophe/unusual in 16 and compensation excess and across pricing conservative such PRO
Slide 17: Employ Sophisticated Pricing and Actuarial Tools
•–EMPLOY www.donegalgroup.com Telematics/usage-based Predictive Formal Territorial Sophisticated Expanding schedule SOPHISTICATED modeling segmentation usepredictive ofofpredictive regular tools 17 insurance and modeling enhance rate PRICING modeling analysis adequacy initiatives our algorithms ofab
Slide 18: Maintain Emphasis on Reserve Adequacy
–MAINTAIN •volatility $243,015 $265,605 2011 www.donegalgroup.com Reserves Emphasis 2015 Midpoint Conservative 2012 development Selected $250,936 at 2013 of onEMPHASIS $322.1 actuarial faster reinsurance 2014 at of million claims midpoint 2015 $7.2 range 18 ONHigh settlements million atReserve RESER
Slide 19: Maintain Emphasis on Conservative Investment Mix
MAINTAIN $892.2 (at Treasury Short-Term Securities Equity •–5% Municipals Tax-Exempt 4% 28% www.donegalgroup.com Emphasis Liquidity 73% 84% June 19% Securities * A-rated AA-rated Excluding 1% Million 30, and 11% Corporate managed on 32% Agency 2016) CONSERVATIVE –(MBS) quality or Effective –inor Mor
Slide 20: Donegal Financial Services Corporation
DONEGAL •–Bank www.donegalgroup.com DFSC Expanded DGI Union Added Serves Enhanced Increased 52% Investment owns owned Community owns scale Lancaster potential via value approximately FINANCIAL 100% by toacquisition banking Donegal =ofCounty 5% of Bank historic forUnion ofbottom-line 20 operation Inv
Slide 21: Union Community Bank
UNION •–48% Tier www.donegalgroup.com 2015 Excellent $508 $2.7 1owned capital million financial million COMMUNITY capital bytoin in Donegal average results: 2015 assets ratios net at Group total BANK at 21income YE June assets 2015 Inc. 30, 16.58% 2016: Tier 1 capital to risk-weighted assets 22.42%
Slide 22: Long-Term Growth Strategy
•LONG-TERM www.donegalgroup.com Maximize Outperform Drive Focus revenues on margin benefits industry GROWTH with enhancements oforganic inregional 22 service, STRATEGY growth business profitability and investment andapproach opportunistic andcontributions book value affiliations growth
Slide 23: Strong Capital Plan to Drive Solid Results
–STRONG •$10.00 $5.00 Book www.donegalgroup.com Authorization Debt-to-cash/investments Premium-to-surplus Value • Dividend CAPITAL Plusfor Dividends Cumulative yield repurchase +of Paid SOLID of 23 approximately 3.4% ofDividends $20.00 of PLAN for up Class $-approximately TO$15.00 •to Rated A DRIVE
Slide 24: Valuation vs. Peers
VALUATION Price 250.0 KMPR 0.0 www.donegalgroup.com to 200.0 BWINB Tangible 150.0 VS. HMN Book 100.0 PEERS DGICA Value 50.0 24(AT(MRQ) (MRY) EMCI 8/29/2016) HALL NAVG UFCS THG Average AFG SAFT SIGI NATL CINF JRVR
Slide 25: Favorable Operating Performance vs. Peer Group
FAVORABLE Net 9.0% Combined MRY Selected www.donegalgroup.com Written 100.0% YTDPeer Combined MRQ Premium Group 12.0% OPERATING Ratio Includes: 8.0% 0.0% Growth MRY 2599.0% PERFORMANCE Ratio Combined BWINB, 10.0% YTDCINF, 7.0% Ratio Ratio98.0% EMCI, Return MRQ VS. PEER 6.0% ROAE HALL, on Average GRO
Slide 26: Key Takeaways
•KEY www.donegalgroup.com Well-established Organic Improved TAKEAWAYS top-line YTD 2016 growth regional underwriting 26 exceeding insuranceperformance that carrier of our with peer aindiverse nearly group every book of operating businessmetric of both personal and commercial lines
Slide 27: Supplemental Information
SUPPLEMENTAL INFORMATION www.donegalgroup.com 27
Slide 28: Organizational Structure
STRUCTURE Public 45.2% Stockholders 48.2% Donegal 20% Corporation Union 80% Sheboygan 100% Thrift Peninsula (1) Company common www.donegalgroup.com Because Holding 100% P&C Community (1) 54.8% 51.8% Group Financial stock Virginia (1) Southern Insurance of POOLING 100% Insurance Donegal the PROVIDES
Slide 29: History of Contributing Affiliations
HISTORY Le Year Company Primary Geographic Georgia/ Transaction Net *Michigan’s www.donegalgroup.com Mars Premiums Acquired Product Peninsula Type OF Focus Type direct Acquired CONTRIBUTING 2004 Mutual Line Demutualization Midwest Sheboygan premiums 2004 Personal Stock $20 292008 Mid-Atlantic millio
Slide 30: Net Premiums Written by Line of Business
NET1.3 (USD Personal Automobile 4.6 compensation 1.4 www.donegalgroup.com 3.8 PREMIUMS in1.4 4.0 millions) lines: Total 4.2 $59.0 28.2 Total commercial Q2 $55.1 WRITTEN 31.0 personal 1621.8 $51.0 30 Q1 16 lines 22.2 lines BY $55.6 Q425.3 80.5 LINE 97.7 15$55.6 Q3 28.8 84.8 85.2 OF 15 $52.3 19.1 63.7
Slide 31: Combined Ratio Analyses
COMBINED (in Stat Personal 102.1 7.2 GAAP www.donegalgroup.com percentages) Expense combined 103.2 supplemental lines 95.4 ratio RATIO 100.2 ratios: Q2 96.0 32.8 16 95.6 ratios: ANALYSES GAAP 33.2 Q131 104.2 1632.2 Fire combined Q4101.4 losses 32.1 15 Q3 33.3 99.4 greater ratios 1532.7 98.4 Q2(total
Donegal Group — Investor Presentation (September 2016) on 6ix