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| Statement |
|---|
| Premium retention continued to remain very strong across our 10 state Personal Lines footprint at 106.2% for the fourth quarter |
| We believe these expense savings initiatives will complement the underwriting actions Jeff has outlined and further help us to achieve our strategic goal of sustained excellent financial performance |
| Our commercial premium retention has remained strong despite these intentional actions, largely due to overall rate and exposure increases of 12.7% for the quarter and 11% for the full year |
| Loss trends remain elevated, and we're actively driving improvements on our underlying loss ratio by diligently executing on a number of initiatives to enhance our underwriting risk selection and pricing |
| We're closely monitoring and continuing to take appropriate rate actions to mitigate potential impacts of these trends on our business, workers' compensation continue to perform favorably with declining claim frequency |
| Our real retention rate, excluding rate and exposure change, was also strong at 88%, which suggests that most customers are accepting the higher renewal premiums |
| Our primary objective is to improve our underwriting profitability, and we believe the action plans and rate increases we implemented during 2023 will lead to incremental improvements in our results for 2024 and beyond |
| But for the full year, we saw a significant improvement as large fire losses were down 18% |
| While you heard comments in the call today about profit improvement actions that limited premium growth in 2023, we expect to capitalize on opportunities for profitable commercial lines growth in the years ahead |
| We're confident in those strategies and optimistic that our actions will soon show the results we expect |
| We expect to earn the majority of these rate changes in 2024 which will drive margin expansion as those earned rate amounts exceed moderating loss cost |
| Net premiums written increased by 6.1% following the consistent pattern we experienced throughout 2023 as accelerating premium rate increases and strong retention for offset partially by lower new business volume and planned attrition in states we are exiting or have targeted for profit improvement rate increases achieved during the fourth quarter were in double digit percentages for all major lines of business, except Workers' Compensation averaging 12% in total and 14% when excluding workers' comp combined ratio was 106.8% for the fourth quarter of 2023 compared to one or 2.8% for the prior year quarter, with a lower impact of net favorable prior year reserve development driving the increase |
| We began pushing for rate and margin expansion in commercial auto several years ago and have been averaging just over double digit written rate increases in this line for the past two years |
| We expect our financial results will soon begin to reflect the incredible amount of work our team has put into building a solid foundation for prudent growth and consistent underwriting profitability |
| This ranks as the highest quarterly average portfolio yield we have achieved since 2012, reflecting the favorable impact of higher market rates on reinvested cash flow |
| Throughout 2023, we made strategic asset allocation shifts that allowed us to take full advantage of historically high market rates which contributed to net investment income of $10.7 million for the fourth quarter of 2023 and represented our seventh consecutive quarter of higher investment income for the full year of 2023, we achieved a record level of net investment income with 20% growth year over year to $40.9 million for the fourth quarter of 2023, the average tax equivalent yield was 3.34%, up from 3% for the same period in 2022 |
| I'm extremely pleased with the level of engagement we're seeing at the main street level all the way to regular interactions with the national leadership teams of these groups |
| Our senior leadership team has worked collaboratively to identify tangible expense savings in several areas where we can improve our operational efficiency, while also still making significant investments in developing our people, enhancing our products and capabilities, improving customer service and making other investments that will facilitate achievement of our long-term strategic objectives |
| While our commercial lines segment results improved from the prior year quarter, primarily as a result of lower weather-related and large fire losses |
| In addition to targeted nonrenewals and select classes in other states that planned attrition more than offset growth from new business and strong rate increases and led to an overall commercial lines |
| And lastly, our marketing team actively engages in profitability initiatives to earn the best quality new business in the specific classes and lines of business that we are targeting and they hold our independent agency partners accountable to their commitments in delivering this focused new business production along with home office and regional leaders |
| As we closed out 2023, we completed the realignment of our regional structure and solidified the leadership for our regional operations |
| Our premium growth in personal lines is coming almost exclusively from rate achievement needed to drive margin expansion in alignment with our strategy shift to emphasize commercial lines, we do continue to grow commercial lines exposure when adjusting for the impact of our exit from the states of Georgia and Alabama and the pullback from more challenging classes of business during 2023, we expect commercial lines growth will begin to accelerate after we complete those corrective initiatives |
| We continue to believe this line will deliver returns that meet or exceed our targets |
| And over time, we expect these measures will reduce our overall impact from roof damage claims as we move forward in 2024, our teams are fully engaged aligned and continue to work diligently to execute on strategies and action plans to drive incremental improvement in our underwriting results over time |
| I especially look forward to the profitable growth opportunities these groups will provide to us in the future, particularly as we seek to grow in the small commercial market segment |
| We are keenly focused on improving our underwriting profit margin in order to grow surplus to support future growth and to continue returning capital to our stockholders |
| Our reserve position relative to underlying exposures at the end of 2023 was as strong as it's ever been, and we will continue to keep a close eye on loss trends to maintain an expected level of reserve adequacy |
| The remaining project activities will provide additional benefits that largely relate to the operational efficiencies we will gain and the risks we will mitigate by eliminating our legacy systems |
| The workers' comp market continues to be the most profitable line of business for Donegal and for the industry |
| Statement |
|---|
| As discussed in our third quarter earnings commentary we began non-renewing all commercial policies in the state of Georgia and Alabama during the second half of 2023 due to sustained profit challenges in those states |
| Our personal lines segment results came in well below expectations despite the significant premium rate increases we implemented over the past two years, you'll hear more details about our results and the actions we have taken to generate improved performance going forward |
| We've continued to execute our initiative to non-renew and exit commercial lines in Georgia and Alabama due to profit concerns |
| That process continued during the fourth quarter and contributed to a modest net decrease in commercial lines net premiums compared to the prior year quarter |
| Now in response to the higher personal lines premium growth relative to commercial lines, I reiterate my earlier comments because of the underperformance of personal lines for us and the industry were carefully controlling true exposure growth as demonstrated by our policies in force actually being down by 1% year over year |
| Excluding workers' compensation, we continue to emphasize higher rate increases in the areas where the intersections of class line of business and geography are the most challenged for commercial lines |
| Karin Daly This rate and exposure change, coupled with the underwriting actions that I previously talked about expected to bring this line of business back to profitability while we're on the topic of rate increases, we also received several questions about the trajectory of personal lines rate increases and the related inquiry about the higher rate of premium growth in personal lines relative to commercial lines, considering the underperformance of personal lines in the industry and your own book of business |
| While economic inflation trends appear to be moderating, loss costs remain elevated due to labor shortages and increased prices to repair and replace damaged autos and properties |
| Weather-related losses in the fourth quarter for homeowners increased 18% compared to the prior year period |
| Net premium decrease of 1% in the fourth quarter |
| At December 31, 2023 book value per share was $14.39 compared to $14.79 as of December 31, 2022 for a $0.40 per share decrease year over year |
| Average large fire losses contributed 5.2 percentage points to the 2023 loss ratio down compared to 6.5 percentage points for 2022 |
| Our insurance subsidiaries did not incur losses from any single event during the fourth quarter of 2023 that exceeded their individual $3 million catastrophe reinsurance retention with Donegal Mutual large fire losses, which we define as over $50,000 in damages, contributed 4.8 percentage points to the loss ratio for the fourth quarter of 2023, which was lower than 6.2 percentage points for the prior year quarter |
| While we've seen some stabilization in the macroeconomic environment |
| The core loss ratio decreased modestly from the prior year quarter, with improvement in our Commercial Lines core loss ratio largely offset by higher personal lines, core loss ratio compared to the prior year quarter weather related losses of $13.4 million or 5.9 percentage points of the loss ratio for the fourth quarter of 2023 were down from $16.5 million or 7.7 percentage points for the fourth quarter of 2022 |
| We attribute the unfavorable development in those two lines to higher than expected severity for a relatively small number of previously reported losses in accident years 2019 through 2022 |
| Conversely, we plan to remain conservative as we manage our personal lines book of business continuing to limit new business growth until we see our profitability improve |
| While we reduced our equity holdings in 2023 to take full advantage of strong fixed income rates |
| In spite of the absence of any major event in the fourth quarter of 2023, weather related losses remained elevated compared to our five year fourth quarter average |
| We expect short-term rates will begin to trend lower as the year progresses |
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