Good morning. My name is Gina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group Incorporated Second Quarter 2014 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. I'll now turn the call over to our host Jeff Miller. Sir, you may begin.

Thank you. Good morning and welcome to the Donegal Group conference call for the second quarter ended June 30, 2014. I am Jeff Miller, Chief Financial Officer, and I will begin today's call with commentary on the quarterly financial results. Don Nikolaus, President and Chief Executive Officer; and Kevin Burke, Chief Operating Officer are also on call this morning and will provide additional comments on the quarter and an update on our current business trends and developments. 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 Investor 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 Investor section of our website. Turning to the quarterly results, we continue to make progress on several key objectives, especially related to our emphasis on expanding our commercial lines of business. However, second quarter net income fell short of our expectations due to a number of factors that I'll cover during my remarks this morning. Our net premiums written grew by 7.7% for the quarter. As we have reported in the past, the growth was due to premium rate increases in most of our business lines, commercial lines, new business growth, and an additional contribution from a reduction in Michigan Insurance Company's external quota…

Thank you, Jeff, and welcome everyone to our earnings conference call. Needless to say the earnings for the quarter were not to our expectations for our business plan, but reflect the result of weather and storm and also the higher than anticipated combined ratio and commercial property and commercial auto. Needless to say our reinsurance structure was beneficial to our overall results and that is certainly part of the strategic arrangements that we have put together. When we look at the personal lines combined ratio at 99.5%, homeowners combined ratio at 90.9%, it reflects the efforts that have been put into increasing rates looking at underwriting quality at all personal lines business. In the workers comp arena the combined ratio of 90.6% we are certainly pleased with that because needless to say that's very excellent and we will continue to work to try to achieve those results. As Jeff has indicated premiums were up 7.7 and our book value grew to $15.25 per share. For the year-to-date we have appointed 93 new agencies, 44 in the second quarter. Needless to say we have a complete focus on underwriting profitability throughout the organization. All of the storms provided -- they are something we would certainly would have preferred not to occur, but once they occur, it provided another opportunity to demonstrate superior claim service and I think that our claims people did an absolutely excellent job. As we have said in the past, the Donegal Insurance Group has a focused and dynamic business strategy for profitable growth and an expanding distribution system with state-of-the-art technology and committed to shareholder value and success as an independent regional property and casualty insurance group. At this point I would like to turn it over to Kevin Burke, Executive Vice President and Chief Operating Officer and he will give you some additional details on rate increases et cetera.

Thank you, Don. Good morning. I will review commercial and personal lines underwriting segments of our business as well as touch based upon several technology initiatives. We continue to focus on rate adequacy in achieving underwriting profitability levels in both commercial lines and personal lines. Despite the challenges we face as a result of cat events and other unusual claims activity in the second quarter, our continued premium growth, attention to rate adequacy and appropriate levels of reinsurance has helped to mitigate the impact of the claim activity. In commercial lines we continue to see strong premium growth with the commercial lines book of business now rising to 44.43% of our total writings for the first half of the year. Commercial lines renewal premium increases were within the range of 6.5% to 6.75%. For the second quarter commercial lines net premiums written increased 11.8%. We are making rate filings in various lines of commercial business with increases in the low-to-high-single-digits based upon the line of business and state in which we rate. Rate filings for increases in commercial auto range from low-single-digits to 9% depending on the state and subsidiary. And rate filing increases in workers compensation range from low-single-digits to 8% depending on the state and subsidiary. We continue to focus on expanding our commercial lines business in the appropriate -- and the appointment of additional agents with an increase in growing commercial lines with Donegal. We believe this increase in our agency distribution plan has created a good foundation for future growth in this line. In personal lines we continue to assess rate adequacy in all lines of our personal lines business and appropriate rate filings has been submitted. We continue to see progress towards our targeted profitability levels in personal lines. Rate filings increases in homeowners are…

Well, thank you, Kevin. I needed to say, Kevin has just given a very thorough overview of rate changes, premium increases, technology and other initiatives. So, at this point, I will turn it back to Jeff and we can move on with questions.

All right. Thank you, Don. Gina, if you would open the line for questions, please?

(Operator Instructions) Your first audio question comes from the line of Vincent DeAugustino with KBW. Vincent DeAugustino – KBW: I guess, first on the subrogation for the large fire losses, I know this is early, but I’m curious if happened to have any thoughts on maybe what percentages of those, as far incurred losses might be coming back or maybe what percent of at least of the large fire losses gross to the dollars just on the de novo claims, which were kind of initiated from not one of your insureds and maybe an adjacent property, just so we can get a sense for what the impact there might be.

Sure. It’s a bit early to speculate on what recoveries we might be able to ultimately receive, but there were several large losses that had damages, that were several hundred thousand, a few million dollars that related to those fires that I mentioned. So it’s going to take some time to develop those subrogation cases and those things tend to take a quite a bit time to resolve. So it’s very difficult at this point to estimate what level of success we’ll have in recovering funds, but we’re going to pursue them and expect to have some measure of recoveries from those specific loss.

And Vincent, let me add to that. We have a very experienced subrogation, the separate claims -- part of the claims department and every large claim is reviewed for several possibilities. And the claims that Jeff is referring to, needless to say, you have to have engineers, investigators, because you have to be able to identify the liability on the part of the other person. That whole process is currently under way and we do believe that there will be success, but it’s very difficult early on to measure the degree of success given circumstances that might arise in the investigation.

All right. And then just staying on this topic for hopefully just a moment longer, just with your proper inspections and loss mitigation efforts, I’m curious if for inspection, for example, if there is been any increased focus on sprinkler systems or ansul systems or perhaps in this case, may be adjacent properties that here you may be little suspect on. So I’m just curious, if in that process, if these issues would be something that would be potentially being addressed already, kind of as you work through those.

While on an ongoing basis, we always do an analysis of adjoining properties because there can be exposures because of the adjoining properties. That’s an ongoing part of our inspection program. And needless to say when losses occur, we want to know what were the circumstances. So that is clearly part of our inspection process. And needless to say, many times we will not write a risk because what is adjacent to what otherwise might be an acceptable risk.

Okay. Got it. And then moving to the reserve side, the development trajectory has been looking pretty good there. So I’m curious if we could just sort of discuss the dynamics, a, on the hand full of commercial auto claims, just maybe in terms of if this half dozen claims or if this is numbering more than that. And then kind of what advantages here in terms of being really long dated or something from the last few accident years. And then second, if we look at commercial auto outside of these claims, what was the reserve performance there and then, second, as far as other lines of business, again, how is the reserve performance there? I’m just trying to get an idea of some of the developed, which seemed was isolated to those claims and essentially everything outside of that is still on track or if there is any change sort of in what we’re seeing outside of commercial auto.

Certainly, Vincent, this is Jeff and that’s an excellent question. And certainly an area that we did quite a bit of research as we were preparing for the earnings release to determine in what exactly are the underlying trends and where should we be focusing. And I have an analysis that I prepared that compares the first six months of 2014 to the first six months of 2013 to get some sense of the underlying trends. And what I can tell you is that other than commercial auto with all address in a minute, virtually, every other line of business, the development trends are improving over what they would have looked like a year ago for the six month period. Workers comp, for example, has improved by $1 million just comparing six month development to prior year's six month development. And as well as private passenger auto liability we're seeing improving trends there. In the commercial auto line, as I mentioned, there were a handful of losses, and handful is actually five. There were five losses that individually those five losses account for $1.2 million of the increase which is really the entire increase for the six months relative to the first six months last year. So had it not been for those five claims, the commercial auto liability development would have come right in almost exactly where it should have or at least where we would have expected it. Those five claims are all 2012 accident year claims. So outside of that particular accident year, the other years development and it looks very stable and favorable to very modestly adverse. When I say modestly I'm still talking about the $100,000. Again, the change this year's first six months relative to last year. Those particular five claims one of them was a first notice of loss that we just received in May. Several of them whereas we received information from defense counsel that were indicating that a claimant now requires surgery or we received a packet of specials, what we call specials and medical reports that would give us a better indication of the severity of an injury. In another case there was a new attorney that's representing the claimant and they submitted information that we were not able to gather in the past. So I hope that gives you a little color that it was isolated in our view to a very small group of claims but in the absence of those claims all of our trends would have been favorable and that gives us some measure of comfort that things are on the right track.

Got it, that's actually really helpful. And then just on the hail losses kind of so much an odd question but I'm kind of just curious as on these type of losses if not in that fall accident or anything of that nature. So I'm just curious if we should think about it if there is any type of rate recalibration or response to this activity or if it's just something that it happens and you just have to pay it and move on?

Well clearly, Vincent, we will include all of that loss information as part of our next review of rate indication because it becomes part of the loss ratio. Now it will get factored in because you need to because you don't know if there is other occurrences in the future. So really it will be a factor that we will consider in the next rate increases.

And Vincent, if I could add just to that related to the hail losses, we looked at our homeowners combined ratio and it was quite favorable and one of the first things we look at how is that possible in light of all these hail losses. And what we found is that although there were quite a number of homeowners losses related to those hailstorms, the auto losses were a large percentage of the hail claims. And those auto losses were reported very quickly and the homeowners claims tend to be reported somewhat slower. And so as we are developing a cat event the losses that make up everything the amount that we're retaining versus what we're reinsuring tended to be more heavily concentrated on the auto line specifically private passenger auto. So that's some explanation as to why homeowners actually performed very well despite of this hail losses.

Okay. So to that comment it seems that the implication is that you're anticipating some hail to the homeowners side and that's already baked into your current loss estimates on the timing?

Well that would be correct. And any hail that we experienced would be ceded to outside reinsurers because we have exceeded our retentions on this particular events. So we would not expect any further net impact to our financial results from these hail storms.

Okay, good to know. And then one last one for Kevin, just on the rate increase side. It actually seems like things are fairly stable there relative to the commentary last quarter and prior to that. And so if we compare that with some of your non-rate driven margin improvement initiatives I was just kind of hoping if we could look bigger picture and think about what you're targeting as far as a combined ratio on ROE if we kind of assume more normalized fire cat and reserve release performance?

Well, Vincent, obviously we've had a bit of a challenging first part of the year considering some of the weather related issues and also some of the fires on the homeowners side. But Donegal's approach has always been and target is always to write below a 100 combined. With the first six months the challenges being in place we also have to be sensitive to the rate filings and increases that we will be taking. They have to be measured. That's why one of things that I reported on was the retention levels particularly in the personal lines is in the higher 80s -- 80% range. So our goal, Vincent, is to be a profitable company by the end of the year as far as the combined ratio being under 100% combined. We're working diligently to do that but we're also taking a very measured approach to it so that our rate increases are appropriate and they follow a good business model.

Okay, sounds good. Good quarter, our loss ratio performance definitely nice stuff to see that your strong performance here on a couple of quarters in a row. So look forward to talking to you guys soon and thanks.

(Operator Instructions).

No further questions in the queue, Gene, I think we're probably ready to close. We appreciate everyone's participation on the call this morning and good questions from Vincent and hope for a better results and report to you as our core operations, as Vincent has mentioned, continue to perform very strongly. We hope for better results as the year progresses.

Thank you everybody for your participation.

Thank you.

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