Good morning. My name is [Brandy], and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group 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. Mr. Jeff Miller, you may begin your conference.

Thank you. Good morning, everyone. Welcome to the Donegal Group conference call for the Fourth Quarter and Year Ended December 31, 2013. I am Jeff Miller, Chief Financial Officer, and I will begin today’s call by discussing highlights of our quarterly and full year financial results. Don Nikolaus, President and Chief Executive Officer, will then provide additional commentary on our results and provide an update on our business trends and developments. Please 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. We refer you 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 statement is included in our 2012 Form 10-K which is available on our website under the SEC filings link. We plan to file our 2013 Form 10-K within the next few weeks. Reconciliation of non-GAAP information as required by SEC Regulation G was provided in our news release which we have also made available in the Investor section of our website. Turning to our fourth quarter results, we were pleased to report a 54% increase in net income and a 95% increase in operating income. We achieved solid underwriting results for the quarter, producing a 95.4% statutory combined ratio and a 94.9% GAAP combined ratio. Earned premiums grew by 9.2% in the fourth quarter, contributing to our higher earnings and providing ongoing evidence of the success of our business plan and growth initiative. We achieved net premiums written growth of 7.9% for the quarter, which we attribute to premium rate increases in nearly all of our business lines, as well as commercial lines new business growth and additional premiums…

Well, good morning everyone and welcome to our earnings conference call for the fourth quarter. Needles to say we are very pleased with the results Jeff has gone through all the details of the 53.8% increase in net income and the significant improvement in both loss ratios and combined ratios. So we believe that the fourth quarter certainly demonstrates the improvements in underwriting profitability brought about by continued conservative underwriting premium increases over the last two to three years, expense management and reasonable profitable growth. One of the statistics that we think is certainly meaningful in our commercial lines of business for the fourth quarter. The combined ratio came in at 89.4% compared to the prior year of 95% and personal line came in at 99% compared to 108% in the prior year. Needles to say these are certainly very helpful statistics. On the standpoint of some of the other achievements in 2013 fourth quarter and coming into 2014, in the fourth quarter, we appointed 21 new agencies for a total of 101 for the year 2013. As you know, we look to continue to grow our distribution system and probably the most important part is that we want to grow a higher percentage of the business that we attract from each given agency relative to the book of business that they have to offer. On the rate increase side and everyone is generally always interested in that. Commercial renewals, we continue to average about 5% to 7% as the average increase of course that depends upon the particular state and so forth but we believe that’s very positive. We are optimistic that we can continue that as we move forward into 2014. In personal lines, we have our usual rate analysis on an ongoing basis by product line in…

Hey. Thanks, Doug. Brandy, if you would open the line for questions, please?

(Operator Instructions) And we do have a question from Vincent DeAugustino. Vincent DeAugustino - Keefe, Bruyette & Woods: Hi. Good morning, everybody.

Good morning, Vince.

Good morning. Vincent DeAugustino - Keefe, Bruyette & Woods: So, first, congratulations on the nice finished 2013 in order. And as far as first question, Don, you mentioned the new rating system and I’m just curios how we might think about the potential for there being any segmentation benefit from the upgrade, if that was something that we should think about as being part of that strategy?

Well, let me clarify, we have already installed and are rolling out and probably should have mentioned it, a more sophisticated productive modeling system in our personal lines auto and we are working on similar products for homeowners and commercial lines. What I was specifically referring to was rating from the standpoint of the mechanics behind the scene in terms of, if we are going to have a rate increase, we are going to introduce a new product, how that is all programmed and brought life. And currently, the current system takes some bit of time for that to be accomplished. And the new system will enable it to be done in a very quick period of time, which will enhance the ability to get rate increases and other changes live in a faster period of time. So there are two separate things from predictive modeling, which we are already in the process and have been rolling out on a various stages. Vincent DeAugustino - Keefe, Bruyette & Woods: Okay. That’s really helpful. Seems like you have maybe a better calculator but the algorithm behind it is -- you are kind of already working to improve that. So definitely good and just to change gears a little bit. In the press release you had mentioned unfavorable winter weather impact on auto and so just a few questions there from a winter weather standpoint. But first, kind of curios with the poor winter weather, if we might bee seeing some benefit to workers’ comp as the weather conditions might just be preventing some work being done in some of the higher hazard classes like construction. So, I’m just curios if there is anything going on there that we might be looking at?

I think there's certainly some dynamic to that as we looked at workers’ comp frequency. They were very favorable. In the fourth quarter, we didn’t see near the number of injuries being reported and certainly the level of severe injuries was down from what we would've seen earlier in year. So, I’m sure, the winter weather would've had some impact on that because there weren’t as many people doing that type of work. Vincent DeAugustino - Keefe, Bruyette & Woods: Okay. Good. And then just kind of looking at first quarter, Lancaster and York counties in Pennsylvania hit pretty hard. Pennsylvania in general hit pretty hard. I’m just curios if is there any storm that see in the first week of February, just how if you have any initial thoughts on how claims might be coming up through and then just any color that you might have from some of the earlier storms in January?

Sure. I will be glad to make some comment on that. Depending on your locality of those who aren’t listening to this call, pretty much nationwide, you've likely been impacted by the very active winter weather pattern that we’ve had since the beginning of 2014. Certainly the January deep freeze event that has been in the insurance press that has had a widespread impact, actually not just here in our local area, but from the Midwest to the Mid-Atlantic, to the Southeast and many of our peers have already been announcing that this event has generated record levels of water damage claims from frozen pipes. And we are certainly tracking that event as a catastrophe event in all of our regions and have claims that have been rolling in. We have also had numerous snow and ice storms that have resulted in a higher than usual volume of various types of claims. So it’s been a very active winner so far. It’s really too early to quantify the financial impact to the first quarter because some of those claims are still being reported. But it’s clear based upon what we’ve seen so far that the level of first quarter weather claims will exceed the average first quarter weather losses that we’ve had for the past five years and that figure is around $7 million on average and it’s clear that we’re going to be exceeding that in the first quarter, but too early really to give a more definite number. Vincent DeAugustino - Keefe, Bruyette & Woods: Okay.

Unfortunately, over the next couple of days it suppose to be gradually warming somewhat which should hopefully help to remove some of the snow that’s on rooftops and other similar conditions that hopefully will be helpful in the overall loss process. Vincent DeAugustino - Keefe, Bruyette & Woods: Okay. And just you guys had mentioned renewal rate increases are holding steady and I feel a lot of advantage in your smaller commercial focus as far as that being sustainable. But if I can play double advocate for a second, I’m curious if you might comment on how we should think about maybe the magnitude of loss ratio improvement going forward. It would be in the pipeline, if we kind of just think about migrating to a rate increase environment within commercial lines that basically only matches loss cost inflation. So, yes, I’m trying to get out is how should we think about rate now the pipeline between non-rate and than rate driven loss ratio improvement potential?

Well, let see if between Jeff and I, we can provide you some color there. Needless to say as we have raised premiums and rates over a period of time, as you everyone knows that it takes time over year, year and a half for it to be earn. So we would expect that for rate increases and premium increases in commercial that have been taken over the last year to year and a half that we have not felt all of the positive effects of earning that. And the rate, the premium increases that I would have spoken about in the fourth quarter, needles to say that’s part of the written premiums for the fourth quarter. But we have really not, really earned much of that yet. So we would be encouraged that we will see benefits from that. We can’t sitting here today quantify because we don’t know the extent of loss activity, but we think that it should continue to be a positive effect. And I would also remind you that while we have been doing that over the last year and a half to two years and we’ll continue to do that. We have taken the opportunity in this positive environment to make sure that we are riding top quality risk and that there is a combination of factors that we think have been part of improving our loss ratios. Its not just premium and rate increases, its enhance loss control and its also taking a kind of look at risk that we would potentially say, well, that risk may have changed overtime and therefore maybe we either need to have a significant rate increase or we need to move away from it. Vincent DeAugustino - Keefe, Bruyette & Woods: Okay. Great. Thank you for the color and look forward to talking to you guys soon.

Thank you, Vincent.

Thank you.

(Operator Instructions) And we do have a question from [Ryan Bowman].

Hi. Thanks a lot. I have a question about on the activist front, which hoping or thinking may have come to a conclusion. I want to say was the proposal or the activist was sort of pursuing which was drawn in the last week or two. From your perspective and where you all sit, do you assume that this sort of saga activity is sort of put to rest now?

Well, let us clarify for u.

Thanks.

What you would have seen in a recent 13-day that would have been filed by Mr. Shepherd, that he would have withdrawn is Form-A application in the six states in which we have domicile insurance company, which means that he withdrew his application to increase the percentage of share of DGI stock that he could purchase. He still has pending a shareholder proposal having to do with the dual class voting structure which he has submitted as a shareholders proposal or the proxy that would be sent to shareholders in the month of March. So there is two different pieces to it. The Form-As have been withdrawn the other is still active.

With respect -- thank you very much for the summary. With respect to this remaining item, this proxy proposal, the dual class? With the mutual substantial holdings, is that a win list, that seem to be a win list proposal, am I missing the new ones to that?

Well, no, you're not missing the new ones to that. Assuming that the mutual company votes its shares against this proposal and they owned 66% of the voting control, your assumption is correct. It's not a shareholder proposal that would pass.

Okay. Thanks again. So I guess quite obvious as far as a little closer. Best of luck.

Thank you.

And we have a follow up question from Vincent. Vincent DeAugustino - Keefe, Bruyette & Woods: Thanks for taking the follow-up. It's actually for Jeff on the investment portfolio changes. So just a couple of questions there and the first one would be as just wondering how large of a hit to the investment yield that we should be thinking about with some of the reallocations. And then second, with the reclassification the portion going to held for maturity, I was just kind of see there is a little bit interesting. I'm curious if there is anything driving that other than kind of one into side the mark-to-market impacts from interest rate movements. And then last if you guys might be able to comment on who the external advisor is and any specifics on the mandate in terms of how there will be running the allocation? And thanks for taking the follow-ups as well.

Sure, absolutely. I will be glad to give some more information about that. As the investment committee looked at our portfolios late in the fourth quarter, we decided to do a number of things with the intention of lowering the duration of the portfolio and really positioning ourselves for the likelihood of rate increases in the future and the unlikelihood that rates would go any lower in our estimation. And what we did was the longer duration securities that were within our portfolio we looked at those and primarily those with municipal bonds. And we thought there will be a dual benefit of lightening that concentration somewhat. So we sold about $34 million worth of muni bonds that were longer duration bonds. They had a yield of around 3.7%, duration about 7.4%. And so we unloaded those bonds and then transferred about a third of our remaining portfolio into held-to-maturity. The thinking behind that was that we thought it would be prudent to match the accounting treatment of those bonds with our intent. And our intent was that we would hold them to maturity and we classify them as available for sale simply to give us maximum flexibility. But it didn't makes sense to us that we would put ourselves in a position where we might incur a further declines in book value related to interest rate movements in the market on that portion of the portfolio when we clearly intended to hold that to maturity. So with the effort to match up the accounting treatment with our real intention. And what that did was, our available for sale bonds that remained have a duration of about 3.1 years and our held-to-maturity portfolio as a duration of about 7.3. So you can see that basically what we did was move to higher duration bonds which are higher yielding bonds into that held-to-maturity classification. On the outside investment, manager is an investment manager from Texas by the name of Sage Advisory and they specialized in fixed income, management and have been successful in managing money for other insurance companies. We were introduced to them by a local broker and we're impressed with their track record and abilities and saw that would be helpful to get another perspective from someone who is in that fixed income market everyday. And so we have allocated a fairly modest portion of our portfolio of $50 million that we've given to them to invest in fixed maturity investments. And the parameters we've given to them, whether they were not to invest in municipal bonds to any greater extent because we already have that concentration. But we are looking to them to invest primarily in BBB-rated corporate bonds to increase that allocation within our portfolio. I don’t know if, Don wants to give any further commentary on that but that was kind of the thinking behind it.

No, I think you've done a very good job of the overview of that. I would only add that we clearly researched the record and expertise usage and we were impressed with it. And in addition to some of the corporates, that they will be investing in and it's also other categories, agencies and mortgage-backed securities. And so we are -- at this point, we are pleased with the work that they have done.

I’m seeing no other questions in the queue. Let me just make a comment here related to our reinsurance renewal for 2014, because that will be relevant as we go into the first quarter. We were pleased to renew our external reinsurance program for 2014 with favorable terms compared to what we had in place for 2013. We were able to reduce our reinsurance premium cost, while also adding some additional coverage to further reduce our exposures in several areas of the program. And as a result of that favorable renewal, we've made some revisions with Donegal Mutual agreements with our insurance subsidiaries, and the net effect of those revisions is to decrease our insurance subsidiaries potential exposure to catastrophe loss events with the magnitude of that decrease varying by subsidiary. I would also want to mention that similar to the last two years, we have executed a reinsurance change for 2014 for Michigan Insurance Company to once again reduce the level of quota share reinsurance with external parties. We are reducing that percentage to 20% in 2014, and you will that remember that was 30% in 2013. So, we'll see a similar financial impact in 2014. It was adding around $10 million to our net premiums written for the year, which is above any growth that we get from the new business or rate increases. So, I just want to give that quick update. I’m seeing no other questions in the queue. I think we're ready to wrap up the call. Thanks everyone for your participation today.

Yes, thank you for participating. Have a good day.

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