DONEGAL GROUP INC Q2 FY2023 earnings call

• Industry conditions: Larger industry peers faced significant impacts from catastrophic weather events, with inflationary pressures on auto and property loss costs continuing. - Weather-related losses: Total weather-related losses contributed 9.1 percentage points to the second quarter loss ratio, lower than 9.6 percentage points in Q2 2022. - Rate actions: Aggressively took rate actions since late 2021, with core loss ratios improving across major lines of business in Q2. - Commercial lines initiatives: New small commercial business agency portal live in 22 states, agents trained and quoting on new platform; work ongoing on commercial systems initiative including new package policy and modernizing legacy products. - Personal lines: Strong premium retention, rate increases continuing, and tightened underwriting guidelines to build profitable book. - Investment portfolio: Fifth consecutive quarter of higher investment income, average tax-equivalent yield 3.20%, net investment income up 24% due to higher cash equivalent and bond reinvestment yields.

Commercial lines: Renewal premium retention at approximately 89% with renewal rate increases in the low-to-mid teens (excluding workers' compensation). Net premiums written decreased by 3.2% due to strategic exits from Georgia and Alabama for commercial business. Statutory combined ratio was 103.6% in the quarter, and core loss ratios improved from prior-year quarter. Personal lines: Double-digit premium growth driven by strong premium retention exceeding 100%, with 11.5% increase for personal auto and 17% for homeowners during the quarter. Personal lines statutory combined ratio improved to 104.3% from 107.5% in the prior-year second quarter, with core loss ratios also improving compared to prior year.

• Expect further improvement in core loss ratios as rate and profit improvement actions continue. - Commercial lines anticipate increasing premiums across the book excluding the impact of the Georgia and Alabama commercial lines exit. - Personal lines expect rate increases to continue as the year progresses, focusing on long-term profitable book through limited new business growth and rate adequacy efforts.

• Catastrophic weather events could continue to impact results. - Loss cost inflation remains a challenge. - Unfavorable reinsurance environment when renewing contracts in 2023 affected property reinsurance costs. - Uncertainty in the domestic macroeconomic environment may impact equity exposure as conservative approach to equity investment is maintained.