Donegal’s Q2’23 earnings review

Donegal Insurance Group hosted its Q2’23 earnings call on July 27, 2023. Select highlights

• Market conditions in the industry have been affected by catastrophic weather events.
• Many peers are reporting the most significant quarterly losses since 2011 due to these events.
• Added challenges include high costs in auto and property loss, especially with auto repairs and replacements.
• Weather-related losses for the quarter contributed 9.1% to the loss ratio, slightly better than the same period last year.
• Improvement is credited to a data-driven approach for risk management across regions.
• Started taking rate actions in late 2021 to combat loss cost inflation and continued increasing rates into 2023.
• Various profit improvement plans are underway, resulting in slower commercial premium growth for 2023.
• Successful launch of a new commercial business portal, now available in 22 states.
• The goal is to grow the small commercial business segment, which has been historically profitable.
• Agents have been trained on the new platform, and initial feedback is positive.
• Dashboards have been developed to monitor quote and issuance levels for better agency engagement.
• As monitoring routines improve, the commercial underwriting team will prepare for a new major commercial system project.
• This will involve creating a new Commercial Lines package policy and updating older commercial products from old systems.
• Major software work is planned to go on throughout 2024 and will be ready by early 2025.
• Meanwhile, the team is transferring some old personal line products to a new platform.
• This transfer process will run alongside the commercial updates for the next few years.
• Upcoming state strategy sessions are scheduled for early August. During these sessions, key company teams will meet to assess performance and plan actions for each operational state.
• New data and analysis tools will help in creating these state-specific action plans and the 2024 business strategy.
• Despite slower growth, the aim is to achieve proper rate adequacy and hit targeted loss ratios for each business line. The company believes they are progressing well towards these objectives.
• In Q2’23, challenges included more frequent weather events and inflationary effects in property and auto sectors.
• Implemented measures to enhance business performance, including rate adjustments and retaining top-performing accounts.
• While previously defensive, Donegal is now increasingly proactive and forward-looking, aiming for growth when conditions stabilize. “While many of our actions over the past year have been defensive, Donegal is becoming more forward-looking each day, and our teams are preparing to grow new business in the future as both rate levels and loss trends improve.”
• Focus on risk-aware new business acquisitions to enhance profitability.
• Leveraging advanced analytics to be proactive in a challenging market and targeting the most profitable opportunities.
• Commercial lines renewal retention is at 89% with rate increases excluding workers’ compensation.
• Utilizing external data tools to ensure apt insurance-to-value ratios, especially as property values have risen.
• Commercial lines premiums decreased by 3.2% after strategic exits from Georgia and Alabama.
• Initiatives in place to adjust property values and deductibles due to rising repair and replacement costs.
• Expect premium growth excluding the Georgia and Alabama exit impacts.
• Q2’s commercial lines combined ratio stood at 103.6%. Small storm frequency increased, but core loss ratios have improved.
• Workers’ compensation is favorable with monitored medical inflation and wage inflation effects.
• Commercial auto and general liability trends are stable; property severity remains a significant challenge.
• In personal lines, Q2 premium growth was mainly due to strong retention, with an increase of 11.5% in auto and 17% in homeowners’ premiums. “The double-digit premium growth during the second quarter was entirely driven by strong premium retention that exceeded 100%, reflecting double-digit renewal rate increases and exposure increases.”
• New business intake has slowed down to achieve rate adequacy and manage exposure during the current inflated loss trend.
• Personal lines combined ratio improved to 104.3% from 107.5% YoY.
• Homeowners insurance faced increased weather-related loss frequency due to recent storm events.
• Exiting the Iowa personal lines reduced weather-related losses compared to the prior year.
• Large fire losses dropped by 25% in Q2 2023 compared to Q2’22, owing to lower severity.
• Improved core loss ratios for Q2’23 for personal auto and homeowners, attributed to recent rate hikes.
• Despite limiting new business growth, a record number of personal lines insurance shoppers are in the market.
• The company remains active in 10 states for personal lines, with stricter underwriting and aggressive rate hikes to ensure long-term profitability.