Good morning. My name is Scott and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group Inc.’s Q3 2016 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there’ll be a question-and-answer session. [Operator Instructions] Thank you. Jeff Miller, Chief Financial Officer, you may begin your conference.

Thank you very much. And good morning and welcome to the Donegal Group conference call for the third quarter and first nine months ended September 30, 2016. I will begin today’s call with commentary on our quarterly financial results. Kevin Burke, President and Chief Executive Officer, will then discuss our current business developments and growth initiatives. Following that, our Chairman, Don Nikolaus will share his perspective on the quarter and our ongoing business strategy before we open the line for questions. You should be aware that certain statements made in our news release and in 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 Investors 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 Investors section of our website. Our third quarter was highlighted by strong organic growth in our core markets, which was evidenced by higher premiums throughout the period in both our commercial and personal lines of business. Kevin and Don will go into more detail. All of the trends are moving in the right direction in terms of growth. In particular, we saw double-digit growth in our commercial lines, which is a continuation of a trend we’ve reported consistently over recent quarters. This led to an 8.2% increase in our net premiums written for the quarter. And again, Kevin will further…

Thank you, Jeff. Good morning, everyone. We’re pleased with the continued growth and profitable results we achieved for the third quarter, as well as our overall year-to-date results. Our focus on executing our long-term business strategy including our commitment to sound underwriting discipline, expanding our market share, providing best-in-class technology and being responsive to not only our customers but also to our independent agents who’ve contributed greatly to our positive results. The positive trends have increased premium growth, profitable underwriting results and a steady increase of policies in force are direct result of increased market penetration and strong policy retention. The double-digit premium growth we have seen recently in our commercial lines segment continued into the third quarter. Let me take a moment to separately review the commercial and personal lines underwriting segments of our business. During the third quarter, net premiums written increased 12% in commercial lines with each line multi-peril, workers’ comp, auto reporting strong premium growth. In addition, we achieved solid underwriting performance in most of these lines that helped contribute to a statutory combined ratio of a 94.3% for the quarter and 90.3% year-to-date. We continue to see opportunities to obtain modest renewal premium increases with increased competition for quality accounts. Our renewal premium increases during the third quarter generally range from 3% to 5%, which is consistent with the past several quarters. As we continue to obtain renewal premium increases and maintain excellent retention ratios, we’re optimistic that this segment of our business will continue to grow and achieve the underwriting results we’re targeting. Moving to personal lines segment of our business, we’re pleased to report an increase of 5.6% in net premiums written compared to the third quarter of 2015. We’re achieving new business growth within our auto and homeowners lines in spite of…

Thanks Kevin. Good morning everyone, welcome to our earnings conference call. The third quarter and more importantly the first nine months have been a solid indication of Donegal’s ability to achieve string growth without compromising underwriting profitability. As Jeff has indicated, we have for the nine months a statutory combined ratio of 95.6%. We have a strong focus on quality underwriting. We gauge our success on this principle and are pleased to have achieved gains in net income, book value and return on equity. Further, we have continued to return capital to shareholders via cash dividend. The core of our Company’s success is our longstanding commitment building relationships with our independent agents. We don’t take this for granted and we are constantly communicating with our agents to gather information and ensure that we understand changes within our regional markets. This communication is not only important for Donegal in terms of achieving proper rate for the risk we write in each of our states, but also writing and retaining profitable business. To conclude, we were very pleased with our financial results from the first nine months. We feel our financial strength, diversified book of business, focus on underwriting ,conservative investment strategy, technology resources and our regional business approach has helped us achieve those favorable results. I will now turn it back over to Jeff and the operator for questions.

Okay. Thank you, Don. Scott, we can now open the line for questions.

[Operator Instructions] Your first question comes from the line of Christopher Campbell from KBW. Your line is open.

My first question is just on your auto books. We saw the highest net written premium growth is where you have the highest combined ratios this quarter. So, I just wanted to get a little bit more color on where you’re at with your auto rate plans for personal and commercial, and how they compare with your current loss cost trends?

This is Jeff. I’ll start and then Don or Kevin can certainly add to my comments. We are continuing to increase rates in both the personal auto and commercial auto. And I can probably -- maybe it would make sense to give you some additional color on what we saw as far as the components of the loss ratio increase in the third quarter. And let’s start with personal auto. The increase in the third quarter loss ratio compared to the prior year quarter was primarily in the physical damage component of that loss ratio, as I mentioned in my prepared remarks increasing 8.5 points to 9 points over the prior year quarter. And to some extent, the prior year quarter was unusually low as far as the loss ratio we experienced in 2015. But we did see increases in nearly all of our subsidiaries during the quarter and it is higher as far as the physical damage component of the loss ratio. It is higher than what we experienced in the first half. We did notice though that collision severity has increased in 2016 and that would be consistent with what you’re reading in the industry publications. As vehicles cost more to repair, collision severity has increased. Comprehensive frequency also increased in the third quarter. But as we looked at our year-to-date frequency for comprehensive coverages that was -- it is consistent with what we had last year. So, we think that the physical damage claim increased during the quarter. It was more related to typical increased driving activities in the summer months, more than any other factor. But of course, the collision severity and the higher cost of repairs that’s going to continue. And we expect our rate increases to keep pace with that. On the liability side,…

This is Don Nikolaus. As a follow-up to what Jeff is saying, I think it also has to be kept in mind that the third quarter includes two very heavy summer months where the amount of driving is increased. And therefore, we believe what we have seen is somewhat seasonal. And we are very proactive and as Jeff has said in looking at rate adequacy which is to refine our predictive modeling for automobile. So that we are encouraged that the longer term trends should be good for us in all automobile, both on the personal line and the commercial line side.

Great, that’s very helpful. If I can ask a question kind of moving down. The favorable development of 100 bps that you have this time, where has that developed -- what lines is that coming from and is there any negative development in any of your order liability coverages that could be kind of masked by that 100 bps release?

Sure. That’s an insightful question. We have seen favorable development in workers’ comp. So that’s consistent with what we would have seen last year. That’s the line that is developing most favorably. We did have actually some favorable development in personal auto liability in the current quarter and that would be a welcome change from what we had seen a few years back. So, we did actually see relatively modest but it is favorable about $600,000 a favorable development in personal auto liability. In commercial auto liability, we did have some adverse development right around $1 million of adverse development in commercial auto liability. However, I would point out that that is lower than the adverse developments we had experienced in the third quarter of 2015 that was about 1.5 million 1.6 million. So, we are seeing improving development trends although we recognize that commercial auto is still an area that we have to continue to focus on. We also had a little bit of adverse development in CMP, in commercial multi-peril. But again, it’s improved over where we would have been a year ago. So, workers’ comp, the most favorable, offset by some modest development in CMP, commercial auto and then a small amount of favorable development in personal auto liability.

This is Don Nikolaus. Sort of as a summary, we are delighted that we had favorable loss development in the third quarter, because it has been an issue that we have dealt with over the last number of quarters. So that we are very pleased about it and we think it’s a very positive development. Thank you.

And just one final question on the workers’ comp which was up this quarter, but after a big drop of last quarter. And Jeff, I think you attributed that to a higher volume of large claim. And I just want to get a sense of how credible is this latest quarterly data point going forward.

Sure. In workers’ comp, because large loss for us would be a 1 million or higher, in the third quarter 2016, we actually had one claim that was in excess of $1 million and we do have an aggregate annual deductible on our reinsurance program for workers’ comp. So, we actually took a $1.5 million hit from that one claim. So, our large losses -- and as I said that’s any losses over $50,000, they were actually about $3 million higher than the third quarter of 2015 and $4 million higher than the second quarter of 2016. So, as we look through the data, it was -- there was a handful of larger claims that we incurred during the third quarter and they were actually third quarter 2016 losses. And we think that that’s an unusual aberration; we don’t believe it’s going to continue. But in relationship to the quarter, it certainly had an impact. But, year-to-date, our workers’ comp combined ratio is still very strong. As I mentioned, we had some favorable development from over claims that helped to offset these larger claims in the current quarter.

And just as a follow-up to Jeff. We remind everybody that the combined ratio for the three months for workers’ comp was 86.8 and for nine months 85.3 which is just absolutely excellent, and we’re just really pleased with it.

[Operator Instructions]

Seeing no other questions in the queue, we will wrap this up. So, we thank everyone for your participation in our call. And we’ll talk to you after the end of the fourth quarter. Thank you very much.

Thank you, everybody.