Ladies and gentlemen thank you for standing by and welcome to the Donegal Group Third Quarter 2019 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today Jeff Miller, Chief Financial Officer. Please go ahead.

Thank you very much. Good morning and welcome to the Donegal Group conference call for the third quarter and nine months ended September 30 2019. Yesterday afternoon we issued a news release outlining our quarterly results. For a copy of that release please visit the Investor Relations section of our website at donegalgroup.com. In today's call Kevin Burke, President and Chief Executive Officer will discuss a number of recent developments and update you on our business strategy and initiatives. I'll follow Kevin's comments with an overview of our quarterly financial details. At the conclusion of our prepared comments we will open the line for any questions you might have. Before we get started, you should be aware that our commentary today includes forward looking statements but involves a number of risks and uncertainties. we described forward looking statements in our news release, and we provided further information about risk factors that could cause actual results to differ materially from those we project in the forward looking statements, in the report on Form 10-K that we submitted to the SEC. You can access our Form 10-K through the Investors section of our website under the SEC Filings link. We use certain non-GAAP financial measures to analyze our business results and refer you to the reconciliation of non-GAAP information included in the news release we issued yesterday. With that I'll turn it over to Kevin.

Thanks Jeff and welcome everyone. Looking back over the first nine months of 2019 we can see clear results of our efforts over the past two years to shift our business mix in favor of commercial lines and begin to return personal lines to sustained profitability. The dust has started to settle from the numerous tactical measures we implemented in 2018 and our focus on 2019 has shifted to forward-looking strategies and action plans to achieve longer-term objectives. Ultimately our goal is to develop a solid foundation and position Donegal Group to deliver consistent underwriting profitability and book value growth over time. Our third quarter and year-to-date 2019 results provide solid evidence of progress in several key areas. Commercial premiums again exceeded 50% of our total business writings and grew by over 13% in the third quarter. We were pleased with the incremental improvement over the prior year quarter and remain focused on addressing specific lines of business that have not achieved targeted level of profitability primarily commercial and personal auto. Commercial lines growth reflected strong new business writings and modest average pricing increases on renewal business. We are focused on - focusing on seeking profitable growth in specific geographical markets where we see attractive opportunities to increase scale and profitability. Despite competitive conditions in our regional markets we achieved double-digit percentage increases in net premiums written in our commercial multi-peril and auto business lines with the commercial auto growth largely resulting from continuing rate increases. We have maintained commercial retention levels consistent with our historical norms which we attribute to the strong and growing relationships we have with our independent agents and ongoing commitment to provide superior service to both our agents and customers. Top line growth is meaningless without profitability. And I'm pleased to report that our commercial…

Thanks Kevin. I'll highlight a few of the operational and financial metrics for the third quarter and certainly welcome any questions later in the call. Overall net premiums written decreased 0.4% to $183.9 million and net premiums earned grew 1.2% to $189.8 million for the third quarter 2019. Net premiums written for commercial lines increased 13.2% while personal lines net premiums written declined by 11.6%. Commercial lines net premiums written represented approximately 51% of our total writings for the quarter compared to 45% in the prior year quarter as we continue to shift our business mix toward a higher percentage of commercial line. Similar to the past few quarters we attribute the commercial lines growth primarily to new commercial accounts our insurance subsidiaries have written throughout their operating regions a continuation of renewal premium price increases and lower reinsurance premium. Commercial renewal pricing increases averaged 1.8% for the quarter as an 8.4% average rate increase in commercial auto was largely offset by a 5.1% average decrease in Workers' compensation rate. The commercial lines growth was offset by an 11.6% reduction in net premiums written in personal lines largely due to lower new business growth and the impact of our exit from the personal lines market in 7 unprofitable states. That were partially offset by rate increases that averaged 5.9% for the quarter and lower reinsurance premiums. Moving to underwriting results. We reported a 68.9% loss ratio for the third quarter of 2019 which improves compared to the 75% loss ratio for the third quarter of 2018. Weather-related losses of $13.9 million or 7.3 percentage points of the loss ratio for the third quarter of 2019 were much lower than the $21.2 million or 11.3 percentage points of the loss ratio for the third quarter of 2018. Weather-related loss activity for…

Thanks Jeff. We're generally pleased with the improvement in our third quarter results and look to maintain that momentum by continuing to focus on executing key strategies and related initiatives designed to enhance operational efficiency help us compete more effectively and ultimately further improve our financial performance. Net income during the first nine months of 2019 as well as unrealized gains within our available-for-sale bond portfolio during the period contributed to an increase in book value to $15.46 at September 30 2019 compared to $14.05 at December 31 2018. Our goal remains to successfully execute on strategies designed to generate consistent favorable returns for our stockholders over the long term. With that we'll ask the operator to open the lines for any questions that you may have.

[Operator Instructions] The first question comes from Christopher Campbell of KBW. Please go ahead. Your line is open

I guess first question is on Workers' comp. Results were a little bit worse year-over-year but still really strong. I guess how much did reserve releases contribute to this quarter's results versus last year's?

This year in terms of the impact on the loss ratio in the third quarter reserve development was 8 points - an 8-point reduction in the loss ratio. And in the third quarter of 2018 it was 9.8%.

And then are you switching over to some of the casualty lines. There has been some reports of social inflation and things like that out there. Are you seeing any pressure of that like in the auto casualty or within just the liability component of commercial property?

Well as we all know that's been the buzzword for the last quarter on the social inflation piece and it's a subjective term Chris as we're trying to - how do you calculate that. We are seeing some elevation in terms of average paid claims on the personal auto side on the commercial side. We're seeing the elevation as well. And I think it reflects back to even Jeff's comments on the call regarding actions that we took last year. We started to see some signs of that elevation particularly coming out of our Southeast region. And as we started to see that we very aggressively started to look at our reserve positions and took some dramatic action last year. Sitting here in the third quarter of 2019 I'm glad that we did it but we're going to continue to be very conservative and we are seeing it - in the 2 - in the commercial auto as well as the personal auto lines.

And switching to homeowners. I mean any onetime items in that this quarter driving the underwriting loss?

Yes. There were some kind of unusual losses that were not weather-related and that were not fires some liability claims as well as some unusual claims that resulted from broken pipes and some water damage. Also there was a case where a tree fell on a house but it was not weather-related. So just some kind of unusual claim activity there but nothing that we would say is a trend that's forming.

And then just one last one. Do you guys have an update on Mountain States? And when your plans are to start rolling that into the pooling arrangement?

Well Mountain States continues to make very solid progress month after month quarter after quarter. They are - as a result of all of our underwriting actions that we took in late 2017 2018 we're seeing very solid loss ratios that continue to come down and new business we're up almost $9 million in new business year-to-date for 2019. So we continue to see very solid progress there. However we have decided that we're not going to include them in the pooling arrangement right now. We will revisit that in 6 to 12 months. We just want to make sure that the consistency is there before we bring it into the pooling arrangement.

Your next question comes from Bob Farnam of Boenning and Scattergood. Please go ahead. Your line is open.

Jeff if you could - can you just break - you said you had kind of minimal reserve development in the quarter. Can you just kind of break out by line? I'm sure that you have - there's ups and downs by line.

Sure. I'd be glad to do that. As I said Workers' comp was favorable. We had favorable development of about $2.3 million in Workers' comp. And in CMP we had $1.3 million of unfavorable development. And then in commercial auto although it's not a big number about $800000 of unfavorable development and that was offset by favorable development in personal auto of about $500000. And then the other lines are up and down but very small numbers. So overall all of those numbers are within our expected range quite modest on the auto lines. And Workers' comp is generally in line with what we would have expected.

And so the commercial auto kind of combined ratio for the quarter 114%. Not a huge amount of that is related to adverse development. I mean you're getting - obviously getting a lot of rate increases there. Are you - you believe the rate increases are getting into excess of the loss trend? Or you're still trying to catch up?

Yes. That's a difficult line of business as you know for everyone. We have increased rates significantly but we are continuing to project our ultimate losses at a level that reflects high level of large loss activity. We believe that in some of the jurisdictions that we've talked about in past calls where we've had some elevated loss experience that we are getting ahead of the loss trends in terms of our rate. For example in most of our states on average our average earned premium per unit as a measuring stick there that is up 20% over the last two years. And we expect that it will increase another 10% in 2020 as we earned the rate increases that we've taken in 2019. That's even higher in some of the states where we have had some elevated loss experience. We've mentioned the state of Georgia in the past. And we're taking some very definitive actions in that state to not only increase rates 15% to 20% but also, we are as Kevin mentioned reducing exposures by non-renewing accounts if the commercial auto premium exceeds the certain threshold of the overall account premium. So between those actions we believe that we are at least keeping pace with the loss cost increases. In our case the loss cost increases are primarily driven by large losses because we don't have a significant amount of premium in that line. So a few large losses can really swing the severity trends in one direction or another. But because Georgia has been kind of an outlier for the proportion of large loss activity, we think scaling back in that particular state should bring our overall loss severity back into line such that our premium increases will actually be higher than the loss severity increases.

Have you - for commercial auto have you changed limits? Or any other terms and conditions for these policies to maybe reduce losses in that sense?

Not the limits per se but we have pulled back in terms of some of the classes that we're writing and particularly geographies. Our commercial auto activity our experience is quite good in the Midwest and other states. And the growth that we are seeing in terms of new business is much higher in the states where we've had relatively good commercial loss experience. So we're shifting the overall mix of that particular line to have more premiums from geographies that have performed within our expectations and reducing exposures in states where we have had poor experience.

And as you have been raising rates in basically all your lines how have you done in terms of retention of the policies? Is this - have these rate increases been sticking? Or you've been having a lot of people leaving to go to other competitors?

Yes. This is Jeff again. In commercial lines our retention ratios are holding steady. We are around 84% where we've been in the 85% 86% range in last several years. So it looks just slightly in that because of some of the actions we've been taking. In personal lines because of our exit from 7 states and lower new business writings over the past year we have seen retention slip to an amount that's much lower than what we would have historically seen in that line. We're down around 79% for our personal lines retention where we would have been closer to 90% about one and half years ago. Of course as we mentioned back then that was higher than what we really wanted it to be because that indicated that our rate levels were too low.

So as you complete the roll-off of the 7 states you would expect that retention in the personal lines to pick up some point next year?

Yes. Bob this is Kevin. That should start to moderate next year when we look at our 2020 plan we're incorporating as we forecast that out. The other piece is we are stepping back a little bit on some of the rate increases that we are taking. They're a little bit more modest. And in certain very defined areas there may even be a little bit of a decrease in certain areas as we work to really sustain and stabilize the existing personal lines book of business for 2020. That's going to be critically important for us.

There are no further questions at this time. I will turn the call over to Jeff Miller for closing remarks.

Well thank you everyone for joining the call today. We look forward to speaking to you again after reporting our year-end financial results in February 2020. Have a good day.

Thank you.

This concludes today's conference call. You may now disconnect.