Ladies and gentlemen thank you for standing by and welcome to the Donegal Group Q4 and Year End 2019 Earnings Conference Call. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today Jeff Miller, Chief Financial Officer. Thank you. Please go ahead.

Thank you very much. Good morning and welcome to the Donegal Group conference call for the fourth quarter and year ended December 31 2019. Yesterday afternoon we issued a news release outlining our quarterly results. For a copy of that release please visit the Investor Relations section of our website at donegalgroup.com. In today's call Kevin Burke, President and Chief Executive Officer will provide an update on our business strategy and highlight recent developments. I'll follow Kevin's comments with an overview of our quarterly financial details. At the conclusion of our prepared comments we will open the line for any questions that you might have. Before we get started, you should be aware that our commentary today includes forward looking statements that involves a number of risks and uncertainties. We described forward looking statements in our news release, and we provided further information about risk factors that could cause actual results to differ materially from those we project in the forward looking statements, in the report on Form 10-K that we submitted to the SEC. You can access our Form 10-K through the Investors section of our website. We use certain non-GAAP financial measures to analyze our business results and refer you to the reconciliation of non-GAAP information included in the news release we issued yesterday. With that I'll turn it over to Kevin.

Thanks Jeff and welcome everyone. For the past two years our team has been working to improve our profitability to ensure that we have a solid foundation an effective strategy that will position Donegal Group to deliver consistent underwriting profitability in book value growth over time. We are pleased with the progress that we made in 2019. We saw a number of favorable trends in the fourth quarter that are providing significant positive momentum as we enter 2020. We benefited through the year from earned premium increases from pricing actions we implemented over the past 18 months and we expect this segment of the insurance market we serve to remain relatively stable in 2020, allowing us to implement additional pricing increases were warranted. Weather conditions in our operating regions were closer to historical norms throughout 2019 contributing to substantial reduction in weather related losses compared to 2018. The key highlight for the fourth quarter results was solid bottom line performance, evidenced by net income of $0.50 per diluted Class A share. Jeff will go through the details of the drivers of the significant improvement over the prior fourth quarter year. But I want to highlight the fact that as a result a solid earnings our book value increased by 1.4% despite the declaration of two quarterly dividend payments during the quarter. Our book value per share increased by 11.5% during the full year to $15.67 at December 31 2019. From an operational perspective, we continue to build on the solid progress we reported throughout the year and a number of strategic initiatives. Let's start with premium growth. We continue to shift our business mix in favor of commercial lines and made progress in returning personalized to sustain profitability. Commercial premiums accounted for approximately 54% of our total business writings for…

Thanks, Kevin. I'll highlight a few of the operation on financial metrics for the fourth quarter and certainly welcome any questions later in the call. Overall net premiums written increased to 1.6% to $171 million and net premiums earned grew 1.8% to $189.4 million for the fourth quarter 2019. Net premiums written for commercial lines increased 14.3%, while personal lines net premiums written declined by 10.3% during the quarter. We attribute the strong growth in commercial lines to market share gains by our insurance subsidiaries and continuation of renewal premium increases and lower reinsurance premiums. Commercial renewal pricing increases averaged 1% for the quarter in total, as a 7.3% average rate increase in commercial auto was largely offset by a 5.5% average decrease in worker's compensation rates. In terms of trends, we continue to obtain higher pricing in commercial auto with increase as well into double digits for accounts with loss experience or located in areas where a challenging legal environment is driving higher loss costs. The reduction in net premiums written in personal lines was largely due to lower new business growth and the impact of our exit from the personalized markets in the seven unprofitable states, partially offset by lower reinsurance premiums and rate increases that averaged 4.3% for the quarter. We expect to implement modest personalized rate increases in 2020 to maintain the level of rate adequacy we've worked diligently to restore over the past 18 months, but we expect our rate actions to be less disruptive in terms of our ability to compete for new business as the year progresses. Our premium growth also reflect the favorable impact of the consolidation and simplification of our reinsurance program for 2019. We reduced our 2019 reinsurance premiums thereby increasing net premiums written by nearly $25 million compared to…

Thanks, Jeff. I echo just comments that we were generally pleased with the improvement in our fourth quarter and full year results. We are working to maintain that positive momentum by continuing to focus on key strategies and related initiatives that are designed to enhance operational efficiency, help us compete effectively and ultimately further improve financial performance in book value growth. Our goal remains to successfully execute on strategies designed to generate consistent returns for our stockholders over the long term. With that, we'll ask the operator to open the lines for any questions that you may have.

[Operator Instructions] Your first question comes from Bob Farnam of Boenning and Scattergood. Please go ahead. Your line is open.

Yes. Hi, there. And good morning. I have a numbers question and then a thematic question. So in terms of reserve development Jeff can you kind of give us the fourth quarter break down by line? I know you said workers comp is up and commercial auto and CMP were down, but can you put numbers that?

I certainly can. Sure. Starting with worker's compensation, we had favorable development of $5.9 million and that was partially offset by commercial auto unfavorable development of $2 million and commercial multi peril of $700,000. And then we had some favorable development in personal auto of $700,000 there and the remaining lines accounted for favorable development of $1.1 million to get to the $5 million total.

Great, thanks for that. And probably a question for either of you. So personal lines. You obviously - you've been doing a letter re-underwriting. You've been - rates have been going up quite a bit. Wanted to know kind of what we should expect for top line and personal lines for 2020? And maybe more of a question as to, as these rates are getting put in, how are your agents dealing with these rate increases?

Well first off Bob, in terms of what we expect throughout 2020 as you well know the last 18 months to two years we have taken a lot of actions as it relates to personalize to get it to a point of profitability in the past 18 months in particular through the rate increases that we've taken where we're starting to see some nice incremental improvements on the profitability side. Because of those actions, we are going to take a very cautious conservative approach in terms of growing personal lines business throughout 2020. Our goal is to make sure that our gate - agents stay very engaged throughout the year because behind the scenes we are building a new personalized product that will be rolled out in 2021. So during this period of time the aggressive rate action that we took over the past 18 months what we're starting to see now is when we look at rate indications by state with the gap is not as is great. And so some of our increases that we'll be taking throughout this year will be modest. The hope is that we'll be able to write additional new business, but I would expect throughout the remainder of this year you will see some modest improvement in terms of new business and more importantly as we should continue to see profitability throughout each quarter for the remainder of this year and our personalized book of business in preparation for a rollout of new product in 2021, which again is designed to gear up some additional new business for us. So this year is about keeping the agents engaged. It's about not undoing the last 18 months of hard work to bring that line back to closer to profitability and we're going to continue to do that by selecting appropriate geographical locations to write new business, as well as taking modest rate increases where warranted.

Okay. So it sounds like, you're just going to be most mostly focused on the profitability. They're not really the top line. So we shouldn't really expect much expansion there in personal lines at least for this year?

Yes, I would agree.

Okay, great. Thanks.

Your next question comes from Meyer Shields of KBW. Please go ahead. Your line is open.

Great, thanks. I also wanted to talk about worker's compensation, I just want to get a sense in terms of whether you're seeing any changes in the frequency and severity trends maybe over the last 12 months 24 months>

Sure, Meyer. This is Jeff. We have not seen any significant changes in frequency or severity, frequency continues to decline modestly and severity has held steady. In terms of large loss activity, we've seen very stable levels of large losses, in terms of the number of losses, as well as the general severity of those losses. So no significant changes on that front.

Okay. Fantastic. And then maybe this is a multi-year question as well. I just want to get a sense in terms of how you're thinking about growing the agency network?

Well, Meyer as you're aware there's been a fair amount of consolidation out in the independent agency networks. What we have done I think fairly successfully over the last three or four years is really making sure that we are working closely with some of those very large aggregators, as the consolidation of the independent agents continues. Late last year in the November, December timeframe we actually signed an agreement with SIAA as an example of an organization that is the largest agency network in the country. They are a little over $8.5 billion. And so when we look at going forward, we've got a number of small to midsize agencies that are vulnerable over the next five to seven years from a consolidation standpoint. And it's our job to make sure that we're building the appropriate relationships with organizations like SIAA, McGriff, First Choice, Keystone, Arthur Gallagher. We have footprints in all of those, and those and Acrisure [ph] active sure as well. So we see that continuing to happen. It is a seller's market right now and a lot of those aggregators are looking at the consolidation to acquire to augment their organic growth right now. We do not see that changing. And so we're taking appropriate action.

Okay, great. Thank you so much.

Your next question is from Douglas Eden of ECM. Please go ahead. Your line is open.

Thank you. Good morning, gentlemen.

Good morning, Doug.

Congratulations on another very nice quarter. I have two questions. First I know in talking about work comp, I know we've seen favorable reserve development in the line the last couple of years. But given the historical volatility and its ability to provide sudden surprises are we booking higher current accident year lost numbers to provide ourselves some cushion so when the results change. And then secondly, I've noted it - I've noted that daily trading volume in the Class A shares have been declining in the past year from approximately 25,000 to 30,000 thousand shares a day, right now approximately half that amount, maybe even a little bit less. So really my question is would it make sense to consider doing an investor day and inviting analysts and maybe other interested parties to Marietta to generate more attention to the company's progress, maybe create greater investor involvement?

Sure, Doug. This is Jeff. Ill tackle the workers comp question and then Kevin can talk about our investor relations outreach plans for 2020. We have of course done a full year end reserve review that included all lines of business. In the workers comp line for 2019 we're projecting that that particular accident year will have similar results to the workers comp ultimate losses that we have booked for the past several years. So no real change that we have not necessarily increased our expectations of losses in that line. The rate declines that we've been experiencing have not yet reduced earn premiums to a measurable level, so as those earned premiums decline we would expect that the loss ratio may start to creep up. But for 2019 we haven't necessarily made any explicit changes related to the changing rate environment and that's because of basically the loss costs have not increased. We continue as I see - the question from for Meyer, we're seeing a declining frequency there which we expect will continue to show favorable results. But it’s definitely a line of business that we're keeping a close eye on because of the rate declines and our expectation that over the next few years those loss ratios are likely to creep up.

Okay, so just to be clear. We're booking to a loss ratio in 2020 for example accident year that's similar to what it was in ‘19 and even ’18.

I would think. So we'll have to talk to the actuaries and see what kind of loss cost inflation that we're expecting. We haven't really talked about the 2020 plan at this point, but my expectation is that it would not differ materially, as long as we don't see any specific change in the loss trends that are in the reported loss trends.

Okay.

Doug, this is Kevin, on the question as it relates to liquidity. Excellent question and you're very familiar with our story. You've been a supporter of the organization and so what we wanted to ensure is that that we were making the appropriate corrective actions to start to have the results show themselves. That it goes back to not making sure that you're over promise and under deliver. And so whether it's an Investor's Day, improving liquidity, all the things that we need to do, in order to do that well we wanted to make sure that we start to see the actual results of all the efforts that we've put forth in the last two years. I think the fourth quarter is starting to represent that and as we go into 2020 your point is very well taken, we would really like to see the liquidity improve, the daily volume, obviously the stock price continue to move up. And I think now we have a compelling story as many of the actions that we have taken are starting to show themselves. And so it is something that is on our radar screen and we appreciate that comment.

Okay, very good. Thank you.

Your next question comes from Jamie Inglis of Philo Smith. Please go ahead. Your line is open.

Hi. Good morning, guys. Two questions. One is sort of mathematical. And I noticed in your third quarter and full year, your policyholder dividend ratio bumped up. And I'm assuming that's because your lost ratio was down. Is that right?

Yes, Jamie. This is Jeff. There are two different factors that are influencing that workers comp dividend ratio. One of them is that worker's comp has been very profitable over the past several years and those dividends are paid. They follow the expiration of the policy terms. So yes, the profitability is definitely impacting that. The other factor that's influencing the number is that we have grown our worker's comp writings in the state of Wisconsin. And in that state worker's comp dividends are basically part of the mechanism for pricing and there's a flat dividend that's paid back to the policyholders at the conclusion of the policy term regardless of loss experience. And those flat dividends can be fairly substantial depending on the size of the count. It's basically a premium credit that's part of the pricing structure. And as we've grown our book and business in Wisconsin we've paid a higher volume of workers comp dividends back to those policyholders. That's also part of the impact that you're seeing.

Right. Okay. And secondly if you could speak to that commercial auto and obviously you guys have done a whole lot of work there to improve that. What if you could speak to where you think you are today on a rake [ph] versus lost costs A, and sort of B, suddenly how do you factor that in this year sort of philosophy about account underwriting what to do about that.

Part of it Jamie is really looking at from a geography standpoint that's where we start, a macro view. We do have certain geographies that are creating a little bit more problems for us in terms of litigation in the environment. So we start there, we're looking at each account. So we are underwriting each account that comes in we are account writers so we have to take that into consideration. But it is really somewhat of a perfect storm as it relates to commercial auto. We have - whether it's environmental from a litigious standpoint, lack of rate adequacy which has been existing for the better part of eight or nine years as many carriers have lumped it into their package policies and have not taken the appropriate rate. Well it clearly showed up in the last two years. Lack of qualified drivers due to the economics is well more miles driven. There is a social inflation aspect of it that we're not necessarily seeing it in our commercial auto book but it is there. And last but not least, you have distracted driving. So when you pull all those items together to answer your question where we at with rate, we are going to continue to be very aggressive in taking rate, we have taking in some aspects 20% to 25% rate increase, retention levels are remaining relatively stable so that tells you how underpriced that segment is and in other areas we're in the 9% to 10% and we're going to continue to do that throughout 2020 and 2021. And we just finished up with a series of agency meetings that we had in Georgia and Tennessee and some of the feedback that we had gotten from our agents. When you take aggressive rate increases oftentimes you get some very straightforward feedback from the agents. They let you know where you stand in the mix with other - with your competitors and they completely understood. We didn't get a lot of negative feedback on the rate increases that were taken for commercial auto. So that market's going to continue to harden and we are going to be as aggressive as we can be to continue to work to bring that line back into profitability.

Okay, great. Good luck to you guys.

Thank you, Jamie.

There no further questions at this time. I will turn the call over to Jeff Miller for closing remarks.

Okay, well we thank everyone for their participation today in our call. We look forward to speaking to you again after recording our first quarter financial results in April. Thank you everyone.

Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.