Good morning. My name is Audrey, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group Inc.'s Q3 2014 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions). Thank you. Jeffrey Miller, Chief Financial Officer. You may begin your conference.

Thank you. Good morning everyone and welcome to the Donegal Group conference call for the third quarter ended September 30, 2014. As introduced I am Jeff Miller, Chief Financial Officer, and I will begin today's call by highlighting the quarterly financial results. Kevin Burke, Acting Chief Executive Officer is also on the call this morning and will provide additional commentary on the quarter and an update on our current business trends and development. As we announced in August, Don Nikolaus, our President and CEO, has taken a medical leave of absence and he is not on the call with us today. You should be aware that certain statements made in our news release within this conference call are forward-looking in nature, and involve a number of risks and uncertainties. Please refer to our news release for more information about forward-looking statements. Further information on Risk Factors that could cause actual results to differ materially from those projected in the forward-looking statements is available in the report on Form 10-K that we submitted to the SEC. You can find a copy of our Form 10-K in the Investor section of our website under the SEC filings link. Further reconciliation of non-GAAP information as required by SEC regulation G was provided in our news release, which is also available in the Investor section of our website. Turning to the quarterly results. We were pleased to achieve a 14% increase in net income for the third quarter and a 15% increase in operating income. At $8.7 million third quarter net income improved significantly over our quarterly results for the first half of the year and supports our ongoing optimism for the effectiveness of our business strategy. Our net premiums written increased 8.2% for the quarter, as we continue to benefit from premium rate…

Thank you, Jeff. Good morning everyone. As Jeff has reported, we are very pleased with our third quarter results and we are focused on executing our business plan as we enter the fourth quarter. I will review the commercial and personal lines underwriting segments of our business as we touch upon expanding distribution system and the continued enhancements that we are making in the area of our technology. Based on rate indicators and market data, we continue to focus on rate adequacy and quality underwriting to achieve our target profitability levels in commercial lines and personal lines. Both our commercial lines and personal lines business segments performed well in the third quarter, with personal lines achieving a combined ratio of 95.2% and the commercial lines a 94.4% combined ratio. These results demonstrate our commitment to sound underwriting discipline and loss control initiatives. In commercial lines, we continue to see strong premium growth with the commercial lines book of business now rising to approximately 43% of our total writings for the year. Commercial lines renewal premium increases were within the range of 6% to 7% during the third quarter. Despite some industry reports of the softening commercial market, we continue to experience favorable renewal rates, with some classes of business showing some modest rate softening. Commercial lines net premiums written increased 12% for the third quarter with retention levels in the mid 80% range. And based upon loss ratio results in market data, we are making select rate filings in various lines of our commercial business with increases in the low-to-high-single-digits depending on the line of business and state. Our commercial auto line of business has not performed to the level we expect. And we are reviewing our commercial auto book of business to ensure appropriate underwriting and loss control measures…

All right. Thank you, Kevin. And at this point Audrey we will ask you to open the lines for questions and complete the queue.

(Operator Instructions). Your first question comes from the line of Vincent DeAugustino with KBW. Your line is open.

Nice quarter. Just a few quick questions. As far as looking back over 2014 to-date so the weather and kind of the cat line has bounced around a little bit. But one of the things that's been consistent in each of the quarters is that the core loss ratio improving. And so that's clearly been one of your big initiatives. And with that kind of going in the right direction I was kind of curious, as you go through the year-end planning process if there's anything beyond kind of the margin improvement aspect that you're accelerating as an initiative into 2015. And I know you guys talked about some of the agency penetration aspects, but just wanted to maybe touch on that more specifically.

Sure Vincent, this is Jeff and we're going to continue to do what we've been doing throughout the year 2014 and that is emphasizing growth in commercial lines, we see that as a critical element in improving our profitability over time, because our commercial lines results have outperformed personal lines historically. So we expect to continue to do that. We're continuing to take all the same underwriting initiatives that we have put into place as far as improving our personal lines results, particularly in the homeowner's area by continuing to increase rates to increase deductibles. Much of that has already worked its way through their underwriting process but we'll continue to maintain vigilance to keep those results where we need them to be. So I don't think there is anything especially new that we're projecting to do in 2015 but that planning process will be kicking off here, it's already underway at some level but we'll begin in earnest here in the next few weeks to finalize our thinking for 2015.

Okay. Good to know. And then just to make sure I took this down correctly from your comments, Jeff. So from the first half there is some development on the storm events but that's all hitting your reinsurers at this point. Was that kind of what you guys talked about?

Yes, that is correct. There is a very modest couple of $100,000 impact from some of the smaller events that had not yet hit the retention out in the Midwest. But we have a very low retention out in the Midwest; it's only $0.5 million. So it's a couple of $100,000 impact at the current quarter nothing material.

Got it, okay. And then from the net investment income side so you had mentioned some higher investment expenses kind of hitting this quarter. Is that one-time or is that ongoing from this point?

It was elevated in the current quarter. We'd not expect that to continue. It has to do with some of the technical ways we allocate expenses in the pooling agreement with Donegal Mutual and some of those expenses were somewhat unusual. So I would not project that the level of the expenses going forward.

Okay. Good to know. And so last quarter -- forgive me if you mentioned it but last quarter there was some elevated fire losses, that there was some subrogation work that you guys were going to be doing. So I just wanted to see if we could touch on that real quick?

Sure. And I did follow-up with our claims management to get an update on those. There are a number of claims where we are pursuing subrogation. No recoveries to speak up in the third quarter that's a process that takes some time. But there are a number of claims where we do believe that there is a potential for picking up some subrogation. And you mentioned large fire losses that's probably an area where we could give some additional color. We have tracked large fire losses not because we think it's such a material thing that we need to look at and deal with but it's one of those areas that generally explain some volatility in our quarterly results, whether up or down, and it also is a metric that many of our peers report. And so the level for the current quarter it's just over $6 million. As I mentioned it was just slightly above our quarterly average for last year. It's reduced from where it was at the second quarter though we did see kind of a return to a more normal level of fire losses and the increase we saw was relative to the third quarter of 2013 was more related to the fact that that prior year quarter was fairly low and also it's just a handful of fire losses in our Michigan Insurance Company subsidiary where we are retaining a larger portion of that business. So that gives you just a few more details on the fire losses but we see them returning to a more normal level in the third quarter.

Okay, good. And then, as you might expect, a question on the auto reserves. And so in some cases in the past we've talked about some particular cases moving that number around a little bit on personal auto. Was that a similar dynamic this quarter?

No, this quarter there was nothing that I could point to as far as handful of cases, it was more an overall development, it was, as I mentioned in personal auto where we had a very good combined ratio. So we absorbed that development within the quarterly result.

Got you. Just my reserve OCD. So one last question, if I might. So one of your, I wouldn't call it a director competitor, but in any case, on one of the conference calls yesterday, Pennsylvania worker's comp was mentioned as a particular state in line of challenge. And so are you guys particularly seeing anything of those sorts in Pennsylvania? And, I guess, secondly, I know you guys focus more on the smaller account size so perhaps that would be part of the explanation, if you're not seeing it. So I'd just be curious of any thoughts that you might have.

Yes, Vincent, this is Kevin. Good question, what we're seeing is obviously we're getting good results with our worker's comp business. But we are starting to see and one of the comments I had said was the softening of the market in commercial. And again in most lines we have not seen it but we have started to see it in worker's comp. So, we continue to get the appropriate rate. We are starting to see some softening in the worker's comp market but for us it really has not been an issue and it may be as you talked about may be the segment of business that we're and the size of the accounts that we're going after.

Okay. I think that wraps me up. So again, guys, nice quarter and especially on that core loss ratio. So I look forward to talking to you soon. And if you could, please give Don my wishes. So take care.

Thank you. We will do that. Thanks, Vincent.

(Operator Instructions). And there are no further audio questions at this time.

All right. Well we thank everyone for participating in the conference call today and wish you a good day. Thank you for joining us.

Thank you.

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