Donegal (US:DGICA)2023-02-24 03:11Financial Data and Key Metrics Changes - For the fourth quarter of 2022, net premiums earned grew by 6.5% to $213 million, with net premium written growth of 10.2% primarily due to higher new business writings in personal lines and strong retention results [88] - The overall combined ratio for the full year of 2022 was 103.3%, compared to 101% for 2021, driven by a higher loss ratio [10][26] - The expense ratio for the full year 2022 increased to 34.1% from 33.3% in 2021, attributed to higher technology costs related to ongoing systems modernization initiatives [91] Business Line Data and Key Metrics Changes - Premium retention remained strong in the fourth quarter, holding in the mid-90 percentage range across most lines of business, with a quarterly average rate increase of 9.4% [12] - The commercial auto core loss ratio improved over 10 percentage points from the prior-year quarter due to profit improvement actions [14] - The personal auto core loss ratio was elevated due to higher loss severity related to inflationary impacts and modestly higher claim frequency [15] Market Data and Key Metrics Changes - Weather-related losses totaled $16.5 million, contributing 7.7 percentage points to the loss ratio for the fourth quarter of 2022, higher than the previous five-year average of 4.4 percentage points [8] - Large fire losses contributed 6.2 percentage points to the fourth quarter loss ratio, slightly higher than the prior-year quarter [9] - The homeowners line experienced a spike in the loss ratio due to weather-related losses, comprising 24 percentage points of the homeowners loss ratio in Q4 2022, compared to 17.7 percentage points in the prior-year quarter [47] Company Strategy and Development Direction - The company is focused on a multi-year systems modernization project, with plans to introduce new systems and products in multiple states throughout 2023 [5][6] - The strategic plan aims to achieve sustained excellent financial performance, with ongoing efforts to improve underwriting results and operational efficiency [25][92] - The company is targeting the small commercial market as a primary source of profitable growth over the next few years [104] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the significant impact of inflation on loss costs and emphasized the need for rate increases to achieve rate adequacy [16][22] - The company is confident that improvements in operations will lead to better service for agents and policyholders, contributing to sustainable profitability [71] - Management expressed optimism about the execution of strategic initiatives and their potential to improve future results [92] Other Important Information - The company experienced favorable net development of reserves for losses incurred in prior accident years, reducing the loss ratio by 5.4 percentage points for 2022 [91] - Total invested assets rose by $27.8 million, or 2%, from December 31, 2021, with net investment income increasing to $9.4 million, up 14.5% compared to the fourth quarter of 2021 [52] - The company made a conscious decision to decrease equity exposure by nearly half in 2022, shifting to a heavier weighting of value style stocks [53] Q&A Session Summary Question: Did Donegal Mutual and the Donegal Group subsidiaries make any notable changes to their reinsurance program for 2023? - The aggregate retention for any event impacting multiple subsidiaries was increased from $5 million for 2022 to $6 million for 2023, limiting the incremental increase in losses retained for catastrophe events [78][79] Question: Are you seeing any material changes in medical inflation impacting your book? - Medical inflation is impacting bodily injury liability claims under personal and commercial auto coverages, with current increases in the 7-8% range [64][74] Question: Can you provide a breakdown of the reserve development by line of business? - For the full year, there was $44.8 million of favorable reserve development, mainly comprised of $18.4 million in commercial auto and $10.8 million in personal auto [68] Question: What is Donegal's approach to capital management heading into 2023? - The company continues to utilize cash dividends as the primary means of returning capital to shareholders, focusing on growing book value through favorable operating returns [69]