Good morning. My name is Matthew and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group Q1 2017 Earnings Conference Call. [Operator Instructions] Thank you. Jeff Miller, you may begin your conference.

Thank you very much. Good morning and welcome to the Donegal Group conference call for the first quarter ended March 31, 2017. I'm Jeff Miller, Chief Financial Officer and 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 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. With that let's discuss Donegal Group's operating results. Our first quarter was highlighted by strong premium growth across our lines of business and solid profitability despite a higher frequency of weather-related claims during the period. We achieved an 8.5% increase in our net premiums written to $184.5 million during the quarter with 9.6% growth in our commercial lines and 7.4% growth in our personal lines. The growth rate would have been higher during the period but it was somewhat constrained by reinsurance reinstatement premiums that reduced net premiums written for our homeowners line of business and…

Thank you, Jeff. Overall we were pleased with the continued strong organic growth throughout all of our lines of business despite the weather activity that Jeff highlighted. The first quarter demonstrates our commitment and ability to continue to gain market share and grow within our existing agency base. We have built a culture focused on executing a strategy that leverages our strengths as a regional carrier to outperform over the long-term. We're committed to producing favorable underwriting results in pursuing including growth as we work closely with our independent agents. Our premium growth in the recent years have been remarkably consistent. From 2014 to 2015 Donegal grew net written premiums at approximately 8.5%. From 2015 to 2016 we also grew at approximately 8.5% and in the first quarter of 2017 net written premiums once again grew at 8.5%. We are pleased that we are growing consistently and more importantly we believe that we're growing the right way. We have continued to gain market share over many of our competitors by being highly responsive to our policyholders and agents, and providing a competitive array of personal commercial lines products. We’ve had excellent results in our workers’ compensation and commercial multi-peril lines with premium growth in the high single digits, along with favorable loss ratios. We have turned our focus to the personal and commercial automobile lines of business where we have begun to experience higher than expected loss ratios over the past few periods. Our peers throughout the property and casualty industry have noted similar or even more extreme trends and many have outlined reasons such as increased effects of distracted driving, the higher cost of repairs due to technology features in today's vehicles, and an increased number of miles driven due to improvement in economic conditions. As part of our…

Thank you, Kevin and Jeff. In many ways our performance in a period like the first quarter provides evidence that are more in line diversified strategy is an effective one. Especially as we deal with the challenges of a changing marketplace. We were pleased to achieve solid growth in both personal and commercial lines. Despite the weather events and changing dynamics within the automobile line that Jeff and Kevin highlighted, we continue to report profitable results. Our book value continued to increase during the period. At March 31, 2017 our book value per share increased to $16.43 compared to $16.21 at December 31, 2016. Our net income during the first quarter of 2017, as well as modest increase in unrealized gains within our investment portfolio contributed to the increase in our book value at March 31. We are committed to our long-standing goal to generate underwriting results that outperform the insurance industry and that combined with solid investment returns will help deliver superior book value appreciation over time. Needless to say, the overall profitability levels in the first quarter were not where we would like them today, but we believe the fundamentals of our book of business are very solid and form the basis for much better profitability going forward. At this point we would be glad to respond to questions that you may have.

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

Hi, good morning. Quick question on the premium growth, which has been pretty strong. How much of this is coming from new agency appointments versus just your existing agency plan?

Chris, the majority of it is coming from the existing agency plan. First quarter we appointed 38 new agencies and that's pretty consistent with what you would have seen last year at this time but what we're seeing is really a ramp up with the existing agency base committing more and more business to Donegal. So the majority of that growth has been really with the existing agency base, the agents that we have appointed over the last couple of years are absolutely committing additional business to us but it's really the existing agency plan that has been excellent for us.

Okay, great. And then just a second question on - I know, Donegal Mutual has - is the Mountain States acquisition as originally going to go through Donegal Mutual. Now as part of that Donegal Mutual is getting access to these independent agents out in Texas, Utah, Colorado and et cetera. Is there an opportunity for DGI to get to start distributing products through that independent agency network even before the results are pulled?

Chris, this is Jeff. At this point we're not planning to introduce the other companies the subsidiaries of Donegal Group in those states. We may do that over time as we build out our marketing presence but the current concentration is to obviously finish the mergers that we're getting close to that. We would hope that that's going to happen within the next month that we would see Donegal Mutual be able to complete the merger. And then there's going to be a period of time where we bring our technology, our products, and do a complete assessment of the marketing plan to the agencies they're representing Mountain States currently, building our marketing distribution system by appointing some additional agents in those states. And over time, we would expect that some of the other companies may also become admitted in those states. But currently the plan is that the Donegal Group will benefit through its participation in the pool but that won't happen until we complete the rehabilitation process of the underwriting activities that are currently transpiring in those states. And we at this point don't have a specific time frame in mind for that but it will be at least 18 months to two years before we are likely in a position to include that business in the pool between Donegal Mutual and Atlantic States.

Okay, great that was really helpful. And just a final housekeeping question. Lower taxes year-over-year, that was attributable to the lower underwriting income, correct? Is there anything else that…?

No, that is correct. We of course project out what we believe our annual taxable income will be and then calculate an effective tax rate and we would've done the same process in prior periods and the lower underwriting income is definitely impacting the projected tax rate.

Okay, great. Well thanks for all the answers and best of luck in 2Q.

[Operator Instructions] Your next question comes from the line Jamie Inglis with Philo Smith. Your line is open.

Good morning, guys. Both, Jeff and Kevin, you both talked about commercial auto and what's going on and I'm wondering what’s happening to that book of business. Meaning has the underlying characteristics with book changed the types of risks you're writing, the geography that’s been written sort of what's happening there?

Jamie, this is Kevin. First off the characteristics of the book of business has not changed. So there's no trends that we're seeing that we have ventured into different classes of business or different geography that would be causing any issue there. There's a couple of issues at play and these are really almost industry-wide. From our perspective because we are account writers when we look at an overall commercial account, we will write the commercial auto and at sometimes it's a little bit at a loss in terms of rate adequacy and so we're working hard to make sure that from a rate perspective, we are taking some rate increases in commercial auto. The other aspect of it too which you’re starting to see again cross industry is as the economy picks up, you are having frequency, you are having additional drivers on the road. In some areas of the business sector you're having qualifications of those drivers, is it - are they running the appropriate background checks on those drivers. From our perspective, our underwriting is still I think extremely well done and I think it's partially rate adequacy and frequency and it's those are two things that we are addressing. And as I noted in my comments we are piloting a predictive analytics tool for commercial auto and we're about to implement that in a couple of states and we're hopeful that over the next couple of months we’ll be able to analyze the results and with the intention of being able to roll that out through all the geographical areas where we write commercial auto.

Can I ask a follow-up question on the agency force. Are you - I’m trying to break down the difference between existing agents and new agents. Are your existing agents would you say larger and more diversified than your new agents?

No, I wouldn't say that. The new agents that we appointed Jamie will give you an example that the 38 newly appointed agents in the first quarter. The majority of those agents are commercially focused, not to say that they can’t write personal lines and we would encourage them to do that as well. But the key is the new agents that we have appointed have the ability to write a diversified product lineup which is what we want. And they also are the size that we know that we can grow with them long term. So these are agents that have to have certain mass to them so that as we continue to grow, we see that there's some really longer-term opportunities with the agents that we have appointed. And those are very reflective of the current agency base. So we have not really changed in terms of our appointment process for the agents but we do make sure that they are well vetted and we understand exactly what the prospects are in terms of future growth and the types of business that we want to be able to write with them.

Do you think the consolidation of the retail agency world is having much of an effect on you guys at the end of the day?

It's not having a measurable effect on us, however it is something that we're keenly aware of. We had spent a lot of time over the last two and three years particularly making sure that we forge relationships with some of them, the very larger banks if you will, as well some of the very, very large agencies that are going in and acquiring some of the smaller agencies. Obviously, we have a book of business in some of those smaller agencies. One could view it and say that that book of business now becomes in play. And so we have strategically made sure that we are building the relationships with some of those very large banks and agency groups so that when that does occur that we're in a position to continue to capitalize and protect that book of business that may be acquired. It has not had a real measured effect on us but it is something again that we’re keenly aware of.

Okay. Excellent. Thanks.

There are no further questions at this time.

We thank everyone for your participation in our conference call this morning. And we'll talk to you again at the end of the second quarter.

Yes, thank you, everybody.

Thank you.

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