Good morning. My name is Heidi and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group, Inc's Q2 2017 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. Jeff Miller, Chief Financial Officer, you may begin your conference.

Thank you, Heidi. Good morning everyone and welcome to the Donegal Group conference call for the second quarter and first half ended June 30, 2017. 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 move to a discussion on Donegal's operating results. Our second quarter was highlighted by two main themes; first, continued and balanced premium growth in our core markets. This growth was driven by our commitment to leveraging our regional strategy to offer individuals and businesses a broad base of insurance products in the markets we know well. Second, a higher frequency of weather related claims and higher than normal fire losses prevented us from reaching our profitability goals during the period. Kevin will go into greater detail on our top line growth but let me provide additional color…

Thank you, Jeff. Before I discuss the details of our quarterly results it's important to acknowledge the hard work and dedication of our claims staff and our independent agents during periods like our second quarter. Providing exceptional claims service over a prolonged period of severe weather like Donegal experienced in the second quarter can often be more challenging in servicing one large event in a particular area. Because of our claims automation we have the capability to balance incoming claim workloads among all of our regional claims operations. Our responsiveness to our policyholders and agents at the time of a claim is critically important as we deliver on our promise to be there when it matters most. We have viewed the unfortunate weather related issues as an opportunity to prove to our policyholders, agents, and stockholders that Donegal delivers. Turning to premium growth we achieved in the second quarter, we are pleased to report premium growth continued in both commercial lines and personal lines and the momentum we gained in the first quarter continued in the second quarter. We achieved a 7% increase in our net premiums written to $190.8 million for the quarter with 4.7% growth in our commercial lines and 8.9% in our personal lines. We are actively monitoring our growth rates in both commercial lines and personal lines and making specific underwriting rate adjustments to achieve the desired balance within our overall book of business. Balance is an ongoing strategic objective as we continue to grow our market share but at the same time recognize we need to take additional rate in certain lines such as personal auto, commercial auto where our results have not met our expectations. While some of the quarterly premium growth came from rate increases, the majority of our growth was related to…

Thank you, Kevin and Jeff. Good morning everyone and welcome to our earnings conference call. Over several years I have mentioned to our stockholders that one of our most important metrics is book value appreciation over time. At June 30, 2017 our book value per share increased to $16.23 compared to $16.21 at December 31, 2016. This is even in the face of a second quarter loss. Unrealized gains within our available for sale investment portfolio increased modestly and we believe that the premium growth that we have maintained reflects the appropriate combination of rate adequacy and new business. We were pleased that during the first half of 2017 Donegal continued to increase book value in spite of the unusual weather related and other loss factors that Jeff and Kevin discussed. We are committed to delivering underwriting results that outperform the insurance industry and we have of course have referenced that from the past. Combined with solid investment returns will help deliver our goal of superior book value appreciation overtime. Needless to say the insurance market with the weather conditions adds some additional complexity. But we believe that we are well positioned going forward to take advantage of the circumstances and our businesses many of you know weather is going to occur from time to time and the important thing is not that the weather is bad in any one particular quarter. But whether the company from an underwriting standpoint is structured to handle it and how we respond to it. At this point we would be glad to respond to any questions that you might have.

[Operator Instructions]. Your first question comes from the line of Christopher Campbell with KBW. Please go ahead.

Hi, good morning gentlemen.

Good morning Chris.

My first question is on DGIs premium growth which was a little bit heavier in personal versus commercial lines than I would have expected and Kevin you had mentioned in the introductory comments about balance. So, I am just -- and historically I think you guys have said that you want to be a little bit more focused on the commercial lines growth. So just with the most recent data points, what are your current thoughts on the relative growth between the two segments?

Chris, thanks for the question. Absolutely, our goal is to really bring this entire book of business into balance where we are split 50% commercial lines and personal lines. Given the second quarter results including the first half of the year, the personal lines business has continued to grow. There's a number of reasons for it from our perspective. There has been some disruptive action in the marketplace, we've talked about that a little bit before, whether it's a national or regional carrier taking very, very aggressive stance on rate taking. So we've also had some particular carriers remove themselves from various states and what that has done is it's created an opportunity where business is flowing our way, probably at an accelerated rate that we didn't really anticipate. From our perspective there's a silver lining to this, and that is as we are aggressively taking rate in private passenger, auto in particular we've taken the rate anywhere from 2.5% up to 9% given the various regions and locations. As that starts to filter through the book we think that we will start to see a very nice lift from the rate taking from an earned premium standpoint. Ideally Chris we would like to see our commercial lines grow at a faster pace than it has. We've had a lot of success the last two years and this past quarter with personal lines growing at the rate that it has I think part of it is reflective of some of the disruption in the marketplace and agents are moving some of that business to Donegal.

Great, that's very helpful and just kind of a follow up question on the especially the personal auto, is there -- so it sounds like there's more business that is -- that Donegal is getting a chance to see. Is your conversion ratio changing and what I mean by that is just the number of policies that you buy versus what you quote, is there any change in that metric as well?

There is not and I think that's an important piece to remember. Despite maybe some of the disruptions that are happening in the marketplace and again as it relates to private passenger auto, the Donegal process for underwriting and account, looking at it before we buying coverage has not changed. So it's important to recognize that we may have agents that come to us and say particular national carrier maybe do something very aggressive work stream. We're not interested in rolling a book of personal lines business into our portfolio. Our phrase is that we're open for business and so that book of business will be put through the same underwriting criteria and discipline that we would put a single account through. And so the uptick that you're seeing is not that we've changed anything in terms of our underwriting appetite or flexibility. We're underwriting to profitability but we have seen that uptick and we believe that it's something that with our rate increases that we are going to continue to take that should level out over the next few quarters.

Great. Yeah, just shifting to workers' comp, this quarter the premium growth was negative and stat combined ratio was up about 470 bps which I guess includes the reserve -- the modest reserve benefit. Could we get more color what's driving the premium trends and then the lower underwriting profits and then what would the worker's comp stat combined ratio have been excluding the reserve development?

From a premium standpoint Jeff is going to talk a little bit about some of the loss ratio issues there in the earnings. On the workers' comp Chris, we're seeing competitive, very aggressive competitiveness as it relates to the worker's comp business. As you can imagine the worker's comp line has been a very profitable line for many carriers for multiple quarters and as a result as various carriers are seeing some of the erosion in profitability whether it's commercial auto or private passenger auto they have ratcheted up their pressure in terms of some of the workers' comp. We believe that some of the lower numbers as it relates to that is some of the business we just simply were not going to price it at a lower rate. And so from an underwriting standpoint we made sure that we had discipline and that if there is a slight downward turn in worker's comp from a premium standpoint we want to make sure that we're not necessarily chasing rate in underwriting a piece of business that we don't think is profitable. So it's increased pressure from a competitive standpoint.

Chris, this is Jeff. On the losses, the favorable development in the first quarter represented about 5.6 points on the loss ratio so it would have reduced the overall combined ratio during the quarter by about 5.6 points. And the uptick relative to past periods is that that favorable development was somewhat lower than what we would have seen in the first quarter of 2017. It's consistent, actually a little bit better than what we saw in the second quarter 2016. We have seen favorable development pretty consistently in workers' comp over the past several quarters but not quite as high in the second quarter 2017 as in the first quarter. So if you're looking at it on a comparative basis quarter-over-quarter that that would account for the difference in the loss ratio.

Right, so would it be fair to say that the core loss ratio if we back out the 5.6%, that's increasing and that as a result of just the increase competitiveness in the line?

I would say its hasn’t changed significantly. The core loss ratio continued to be very good. We track large worker's comp losses which again we would consider a large loss over 50,000 and they were very consistent during the quarter. So the premium differential was on the written side not necessarily on the earned side. So I think overall we would say the results are fairly consistent with the difference being the fluctuation in the prior year losses.

Okay and then just one follow-up on for Kevin or Jeff. Just if there is lower workers compensation because of increasing competitor or increasing aggressiveness in pricing from competitors, is that going to hurt the given your account selling strategy is that going to hurt any of your selling efforts in auto or CMP?

We don't believe that it is. So I mean it's a very valid point. We think that as we move forward we're going to continue to sell and use it as an account writing but, I don't believe that it's going to be a major issue for us.

Great, that's very helpful. Thanks a lot for all the answers and best of luck in 3Q.

Thank you Chris.

[Operator Instructions]. Your next question comes from the line of Bob Farnham. Please go ahead.

Hello, good morning. I have a question on the technological advances that you guys have been working on over the last few years and it may be difficult to answer but I am just curious if you've seen any benefits or fruits to your labor behind the scenes, I know the cat losses or weather losses in development distort things but, I'm just curious if you are starting to see any improvements because of the technology?

Bob, this is Kevin, thank you for the question. We have, let's talk specifically about private passenger autos since that is the area of focus of the industry and rightly so. Several years ago we moved forward with what we call risk index scoring as a result of predictive analytics. And what we have done is number one, all of our new business has a scoring associated with it and in the past six months our personal and underwriting department has really looked at the higher risk scores, what we would categorize as nines and tens. These are risk index scores Bob that tells us that we have perhaps under priced that particular category of business and so there's been really a deeper dive in the last couple months by our entire personal lines underwriting department to look at those risk index scores of nines and tens. We think that it's relevant because we're really going to be able to start to hone in on maybe some different business that either needs additional rate and/or needs to different -- needs to be driven to a different score level where there would be rate attached to it. So we're starting to see some additional deeper dive if you will as it relates to predictive analytics and where our hope is in combination with that and then being able to take additional rate what the market will bear, we think that over a period of a number of quarters we should start to see the result of that.

And I would assume since you're starting with the commercial auto side as well that you'd expect to start seeing some improvement there over the next few quarters?

Absolutely, the same process is being undertaken in commercial auto. In homeowners as far as again the risk index scoring from predictive analytics as a result of that is also in pilot and so we're really looking to ratchet the work that we've put in over the last couple of years. Really putting it to tangible work, so we're starting to see the results from a profitability standpoint.

This is Don Nikolaus, let me add a little bit of additional flavor to this. I think that what we're also seeing is that agents recognizing that our company has invested substantial amount in technology and that they are recognizing us as a company that is gaining and making progress with its technology. So, at the end of the day that's important because agents want to be associated with companies that are in the forefront of technological advances. So, I think we are getting some of the benefits of that and that will play out over time.

Right, great. Okay, thanks for that guys.

Thank you Bob.

And there are no further questions in the queue.

Alright, at this point we will thank everyone for your participation and talk to you next quarter.

Thank you everybody.

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