Attached files
| file | filename |
|---|---|
| 8-K - 8-K - DONEGAL GROUP INC | d780397d8k.htm |
 Investor
Presentation
September 2014
Pursuing Effective
Business Strategy in
Regional Insurance
Markets
Exhibit 99.1 |
 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 uncertainties. Actual results could vary materially. Factors that could cause
actual results to vary materially include: the Company’s
ability
to
maintain
profitable
operations,
the
adequacy
of
the
loss
and
loss
expense
reserves of the Company’s insurance subsidiaries, business and economic conditions in
the areas in which the Company operates, interest rates, competition from various
insurance and other financial businesses, terrorism, the availability and cost of
reinsurance, adverse and catastrophic weather events, legal and judicial developments,
changes in regulatory requirements, the Company’s ability to integrate and manage
successfully the companies it may acquire from time to time and other risks the
Company describes from time to time in the periodic reports it files with the
Securities and Exchange Commission. You should not place undue reliance on any such
forward-looking statements. The Company disclaims any obligation to update such
statements or to
announce publicly the results of any revisions that it may make to any forward-looking
statements to reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements.
Reconciliations of non-GAAP data are included in the Company’s news releases
regarding quarterly
financial
results,
available
on
the
Company’s
website
at
investors.donegalgroup.com. 2
|
 Insurance
Holding Company With Mutual Affiliate
•
Regional property and casualty insurance group
–
22 Mid-Atlantic, Midwestern, New England and Southern
states
–
Distribution force of approximately 2,600 independent
agencies
–
Completed 10 M&A transactions since 1988
•
Interrelated operations and pooling agreement
with Donegal Mutual since inception in 1986
•
DGICA and DGICB trade on NASDAQ exchange
–
DGICA dividend yield of 3.3%
–
DGICA shares have 1/10 vote; DGICB shares have one
vote
3 |
 Structure
Provides Stability to Pursue Successful Long-Term Business Strategy
•
Outperform industry in
service, profitability
and book value growth
•
Drive revenues with
organic growth and
opportunistic
transactions
•
Focus on margin
enhancements and
investment
contributions
4
(Detailed organizational chart included in Supplemental Information – see page 29)
|
 Objective:
Outperform Industry Service, Profitability and Book Value Growth
5
Change in Net Written Premiums
DGI CAGR: 10% Peer CAGR: 4%
GAAP Combined Ratio
DGI Avg: 98% Peer Avg: 100%
Change in Book Value
DGI CAGR: 2% Peer CAGR: 4%
Donegal Group
Peer Group*
* Peer Group consists of CINF, EMCI, HMN, THG, SIGI, STFC, UFCS (Source: Bloomberg)
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
80%
85%
90%
95%
100%
105%
110%
115%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20% |
 2013: Strong
Growth and Profitability Operating EPS* of 96¢
vs. 73¢
in 2012
•
7.4% increase in net written premiums
–
Driven by strong commercial lines growth
•
97.4% statutory combined ratio
–
Q3 and Q4 combined ratios of 96.0% and 95.4% were
lowest for any period in past five years
–
Measurable progress from rate increases and underwriting
initiatives
–
Weather losses and large fire losses below prior year level
•
Book value per share at $15.02 vs. $15.63 at year-
end 2012
–
Interest-rate-driven mark-to-market adjustments
6
* Reconciliations and definitions of non-GAAP data also are available on our
website Additional
details
are
available
at
investors.donegalgroup.com |
 1H14: Favorable
Core Underwriting Results Despite Weather and Other Loss Activity
•
8.4% increase in net written premiums
–
Driven by rate increases and 13.4% commercial lines
growth
•
102.7% statutory combined ratio
–
Improvements in homeowners and casualty loss ratios
–
$26.9 million weather-related losses far exceeded previous
five-year first-half average of $18.8 million
–
$19.4 million in large fire losses also above average
•
Book value per share at $15.25 compared with
$15.02 at year-end 2013
7 |
 Drive Revenues
with Organic Growth and Opportunistic Transactions
8
$283
$302
$207
$307
$314
$365
$363
$392
$454
$496
Net Written Premiums
(dollars in millions)
$533
8
Michigan
Sheboygan
Peninsula
Le Mars
January 2004
Acquired Le Mars and Peninsula
Southern
Atlantic States
December
2008
Acquired Sheboygan Falls
Implemented Pooling Change
December 2010
Acquired Michigan
Implemented 25% Quota Share
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013 |
 Focus on
Underwriting Profitability to Enhance Margins
Donegal Insurance Group (SNL P&C Group)
SNL P&C Industry (Aggregate)
9
Personal Lines Loss Ratio
Commercial Lines Loss Ratio
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2006
2007
2008
2009
2010
2011
2012
2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2006
2007
2008
2009
2010
2011
2012
2013 |
 10
Achieve Book Value Growth
By Implementing
Plan
Pursue quality premium growth and enhance
underwriting profitability
Support insurance operations with conservative
investment strategy |
 Maintain
Multi-faceted Regional Growth Strategy
•
$533 million in 2013 net written premiums across
22 states in four operating regions
–
$720 million in direct written premiums for
insurance
group*
•
10 M&A transactions since
1988
•
Acquisition criteria:
–
Serving attractive
geography
–
Favorable regulatory,
legislative and judicial environments
–
Similar personal/commercial
business mix
–
Premium volume
up to $100
million
11
11
* Includes Donegal Mutual Insurance Company and Southern Mutual Insurance Company
|
 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 management
team
–
Quality agency
distribution system
–
Diversified mix of
business
(Dollars in millions)
2014
2013
2012
2011
2010
(under
prior
owner)
Direct written
premiums
$116**
$112
$111
$108
$105
External quota share
20%
30%
40%
50%
75%
Ceded to Donegal
Mutual*
25%
25%
25%
25%
N/A
Retained by MICO
55%
45%
35%
25%
25%
Included in DGI NPW
$74**
$62
$57
$46
N/A
Statutory combined
ratio
N/A
99%
94%
95%
97%
* Premiums ceded to Donegal Mutual are included in pooling
agreement with Atlantic States (80% to DGI)
** Projected based
on estimated 2014 growth rate 12
|
 Continue
Strategic Efforts to Balance Business
Mix
•
Commercial lines =
44% of NWP in 1H 2014
–
Commercial lines renewal
premiums increases in 5-
7% range
–
Ongoing emphasis on new
business growth in all
regions
•
Personal lines =
56% of NWP in 1H 2014
–
Rate increases in 3-
8%
range
–
Modest exposure growth in
addition to MICO premiums
retained
Net Written Premiums by Line of Business
(June 30, 2014)
13
Homeowners
18%
Other
Personal
3%
Personal
Auto
35%
Commercial
Auto
12%
Other
Commercial
1%
Multi Peril
15%
Workers'
Comp
16% |
 Emphasize
Growth in Commercial Lines •
95.7% statutory combined
ratio for 2013
•
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 use
reinsurance
•
Disciplined underwriting:
–
Large account reviews
–
Loss control
14
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
100.0%
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2008
2009
2010
2011
2012
2013
In-Force Policy Count
Retention Levels |
 Focus on
Personal Lines Profitability •
98.8% statutory combined
ratio for 2013
•
Focus on the preferred
and superior risk markets
•
Underwriting initiatives:
–
Rate increases in virtually
every jurisdiction
–
New and renewal
inspections
–
Seek geographic spread of
risk
–
Balance portfolio
(auto/home)
15
50.0%
55.0%
60.0%
65.0%
70.0%
75.0%
80.0%
85.0%
90.0%
95.0%
100.0%
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
450,000
500,000
2008
2009
2010
2011
2012
2013
In-Force Policy Count
Retention Levels |
 Organic Growth
Centered on Relationships with ~2,600 Independent Agencies
•
Ongoing objectives:
–
Achieve top three ranking within appointed agencies in
lines of business
we write
–
Cultivate relationships with existing agencies to expand
writings
–
Leverage “regional”
advantages and maintain personal
relationships as agencies grow and consolidate
•
Continuing focus on commercial lines growth:
–
Emphasize expanded commercial lines products and
capabilities in current agencies
–
Appoint commercial lines focused agencies to expand
distribution in key geographies
–
Strengthen relationships with agencies appointed in
recent
years
16 |
 Support Agents
with Best-In-Class Technology 17
Call
Center
Service
Center
ClaimCenter
ImageRight
Mobile App |
 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 affiliation provides
opportunities for
operational and expense
synergies
•
Statutory expense ratio of
30.2% for 2013 vs. 29.3%
for 2012
(Dollars in thousands)
Direct Premiums per Employee
Direct Premiums per Employee
18
$200
$300
$400
$500
$600
$700
$800
$900
$1,000 |
 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 250-year event
•
Link employee incentive compensation directly to
underwriting performance
•
Focus on rate adequacy and pricing sophistication
•
Leverage centralized oversight of regional
underwriting
•
Emphasize IT-based programs such as automated
decision trees and predictive modeling
19 |
 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
–
Exploring tools that allow
consideration of vehicle-
specific data in pricing
•
External information
sources allow us to
develop price
optimization strategies
•
Formal schedule of
regular rate adequacy
reviews for all lines of
business, including GLM
analysis on claim costs
and agency performance
•
Telematics/usage-based
insurance initiatives
20 |
 Maintain
Emphasis on Reserve Adequacy •
Reserves at $266 million
at year-end 2013
–
Midpoint of actuarial
range
–
Conservative reinsurance
program limits volatility
•
Emphasis on faster
claims settlements to
reduce longer-term
exposures
•
2013 development of
$10
million within
targeted range
Reserve Range at 12/31/2013
Low $238,800
High $295,500
Selected at midpoint
Values shown are selected reserves
Vertical bars represent actuarial ranges
(dollars in thousands, net of reinsurance)
21
Established Reserves at Year-end
$180,262
$217,897
$243,015
$250,936
$265,605
2009
2010
2011
2012
2013
Development
(Favorable)
$9,823 ($2,885)
($168) $7,596 $10,358
6.1%
(1.6%) --
3.1% 4.1
% |
 22
Achieve Book Value Growth
By Implementing
Plan
Pursue quality premium growth and enhance
underwriting profitability
Support insurance operations with conservative
investment strategy |
 Maintain
Conservative Investment Mix •
89% of portfolio invested
in fixed maturities at
June 30, 2014
–
Effective duration =
4.7
years
–
Tax equivalent yield =
3.1%
•
Emphasis on quality
–
74% AA-rated or better
–
93% A-rated or better
•
Liquidity managed
through laddering
* Excluding investments in affiliates
$781 Million in Invested Assets*
(as of June 30, 2014)
23
Short-Term
Securities
4%
Treasury
3%
Agency
6%
Corporate
15%
Mortgage
Backed
Securities
(MBS)
23%
Taxable
Munis
1%
Tax-Exempt
Municipals
45%
Equity
3% |
 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 2011
–
Added scale to banking operation
–
Enhanced value of historic bank investment
–
Increased potential for bottom-line contribution
•
DGI owns approximately 48% of DFSC
–
52% owned by Donegal Mutual
•
Union Community Bank is financially strong and
profitable
24 |
 Union Community
Bank (48% owned by Donegal Group Inc.)
•
2013 financial results:
–
$513
million in assets at year-end 2013
–
$6.3 million in 2013 net income
•
Excellent capital ratios at June 30, 2014:
25
Tier 1 capital to average total assets
16.01%
Tier 1 capital to risk-weighted assets
24.77%
Risk-based capital to risk-weighted assets
27.06% |
 Review:
Long-Term Business Strategy for Growth and Success
•
Maximize benefits of regional business approach
•
Outperform industry in service, profitability and
book
value growth
•
Drive revenues with organic growth and
opportunistic transactions
•
Focus on margin enhancements and investment
contributions
26 |
 Strong Capital
+ Solid Plan to Drive Results •
Rated A (Excellent) by
A.M.
Best
–
Debt-to-capital of
approximately 16%
–
Premium-to-surplus of
approximately 1.6-to-1
•
Dividend yield of 3.3%
for Class A shares
–
3% increase in April 2014
•
Authorization for
repurchase of up to
500,000 shares of
Class
A common stock
Book Value Plus Cumulative Dividends
Book Value Plus Cumulative Dividends
27
$-
$5.00
$10.00
$15.00
$20.00
Book Value
Dividends Paid |
 Supplemental
Information 28 |
 Structure
Provides Flexibility and Capacity 29
(1)
Because
of
the
different
relative
voting
power
of
Class
A
common
stock
and
Class
B
common
stock,
public
stockholders
hold
approximately
35%
of
the
aggregate
voting power of the combined classes, and Donegal Mutual holds approximately 65% of the
aggregate voting power of the combined classes. 100%
Reinsurance
= P&C Insurance Subsidiaries
= Thrift Holding Company/State Savings Bank
POOLING
AGREEMENT
100%
100%
80%
20%
Sheboygan Falls
Insurance
Company
Michigan
Insurance
Company
Southern
Insurance
Company of
Virginia
Le Mars
Insurance
Company
The Peninsula
Insurance
Company
Atlantic States
Insurance
Company
Southern Mutual
Insurance
Company
Peninsula
Indemnity
Company
100%
100%
100%
100%
100%
55%
(1)
45%
(1)
52%
48%
Donegal Group Inc.
Donegal Group Inc.
Public
Stockholders
Donegal Mutual
Insurance Company
Donegal Financial Services
Corporation
(Union Community Bank) |
 History of
Contributing Transactions Company
Le Mars
Peninsula
Sheboygan
Southern
Mutual
Michigan
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
Georgia/
South
Carolina
Michigan
Transaction Type
Demutualization
Purchase
Demutualization
Affiliation
Purchase
Net Premiums Acquired
$20 million
$34 million
$8 million
$11 million
$27 million*
Acquisition Price
$4 million
$24 million
$4 million
N/A
$42 million
Avg. Growth Rate**
5%
3%
13%
N/A
16%
Avg. Combined Ratio**
93%
94%
103%
N/A
96%
* Michigan's direct premiums written were $105 million in 2010
** Since acquisition
30 |
 Net Premiums
Written by Line of Business (in millions)
Q2 14
Q1 14
Q4 13
Q3 13
Q2 13
Q1 13
Q4 12
Q3 12
Personal lines:
Automobile
$52.0
$50.5
$46.7
$50.9
$50.2
$48.6
$45.6
$51.4
Homeowners
31.1
22.9
25.7
29.8
29.1
21.9
22.3
27.6
Other
4.6
3.8
4.0
4.2
4.3
3.4
4.0
4.2
Total personal lines
87.7
77.2
76.4
84.8
83.6
73.8
71.9
83.1
Commercial lines:
Automobile
17.5
17.3
13.0
14.0
15.7
15.5
12.0
12.5
Workers’
compensation
22.4
26.6
16.3
18.3
19.7
23.2
14.3
16.1
Commercial multi-peril
21.7
22.1
16.8
18.0
20.0
19.7
14.7
15.9
Other
2.1
1.4
1.3
1.4
1.6
0.3
1.8
1.7
Total commercial lines
63.7
67.4
47.4
51.8
57.0
58.6
42.8
46.2
Total net premiums written
$151.4
$144.6
$123.8
$136.6
$140.6
$132.5
$114.7
$129.3
31 |
 Combined Ratio
Analyses (percent)
Q2 14
Q1 14
Q4 13
Q3 13
Q2 13
Q1 13
Q4 12
Q3 12
Stat combined ratios:
Personal lines
99.5
102.7
99.3
97.9
100.2
98.1
108.9
101.3
Commercial lines
105.8
104.3
89.4
93.0
101.4
98.4
88.5
91.4
Total lines
102.1
103.2
95.4
96.0
100.6
98.0
101.2
97.6
GAAP combined ratios (total lines):
Loss ratio (non-weather)
63.2
61.7
59.1
57.8
63.1
64.1
68.2
58.6
Loss ratio (weather-related)
8.5
11.4
3.5
7.2
7.4
4.5
3.9
9.3
Expense ratio
31.9
31.3
31.9
32.3
32.3
30.7
29.3
31.4
Dividend ratio
0.4
0.3
0.4
0.3
0.3
0.4
0.3
0.3
Combined ratio
104.0
104.7
94.9
97.6
103.1
99.7
101.7
99.6
GAAP supplemental ratios:
Fire losses greater than $50,000
6.8
7.6
4.8
2.4
4.4
6.5
5.5
5.5
Development on prior year loss reserves
4.4
-0.3
0.1
2.4
3.7
1.5
1.6
2.4
32 |