EX-99.1 2 d495808dex991.htm EX-99.1 EX-99.1
Effective Consolidator of
“Main Street”
Property
and Casualty Insurers
Investor Meetings
March 2013
Exhibit 99.1

Forward-Looking Statements
The Company bases all statements made in this presentation that are not historic facts on its
current expectations. These statements are forward-looking in nature (as defined in the Private
Securities Litigation Reform Act of 1995) and involve a number of risks and uncertainties. Actual
results could vary materially. Factors that could cause actual results to vary materially include: the
Company’s
ability
to
maintain
profitable
operations,
the
adequacy
of
the
loss
and
loss
expense
reserves of the Company’s insurance subsidiaries, business and economic conditions in the areas
in which the Company operates, interest rates, competition from various insurance and other
financial businesses, terrorism, the availability and cost of reinsurance, adverse and catastrophic
weather events, legal and judicial developments, changes in regulatory requirements, the
Company’s ability to integrate and manage successfully the companies it may acquire from time to
time and other risks the Company describes from time to time in the periodic reports it files with
the Securities and Exchange Commission. You should not place undue reliance on any such
forward-looking statements.  The Company disclaims any obligation to update such statements or
to
announce publicly the results of any revisions that it may make to any forward-looking
statements to reflect the occurrence of anticipated or unanticipated events or circumstances after
the date of such statements.
Reconciliations of non-GAAP data are available in the Investors section of the Company’s website
at
www.donegalgroup.com
in
the
Company’s
news
releases
regarding
quarterly
financial
results.
2

Snapshot: NASDAQ:DGICA/DGICB
•
Insurance holding company with mutual affiliate
–
Class A dividend yield of 3.5%
–
Class A shares have 1/10 vote; Class B shares have one vote
•
Regional property and casualty insurance group
–
22 Mid-Atlantic, Midwestern, New England and Southern states
–
Distribution force of approximately 2,500 independent agencies
–
$496 million in 2012 net written premiums, up 9.3% from 2011
($673 million in agency direct written premiums for insurance group*)
–
Completed ten M&A transactions since 1988
•
Rated A (Excellent) by A.M. Best
–
Debt-to-capital of approximately 18%
3
* Includes Donegal Mutual Insurance Company and Southern Mutual Insurance Company

Objective: Outperform Industry
Service, Profitability and Book Value Growth
4
Change in Net Written Premiums
DGI CAGR: 10%   Index CAGR: 4%
Donegal Group
SNL
Small
Cap
U.S.
Insurance
Index
(average)
–
2012
data
not
yet
available
GAAP Combined Ratio
DGI Avg: 97%  Index Avg: 102%
Change in Book Value
DGI CAGR: 7%
Index CAGR: NA

2012: Strong Growth and Improved Operating
EPS* of 73¢
vs. 30¢
Loss in 2011
•
9.3% increase in net written premiums
•
99.8% statutory combined ratio
•
91.2%
commercial
lines
and
105.0%
personal
lines statutory
combined ratios
•
Book value per share at $15.63 vs. $15.01 at year-end 2011
Additional
details
are
available
in
the
Investors
section
of
our
website.
(www.DonegalGroup.com)
5

Achieve Objectives
By Implementing
Plan
Continue to pursue consolidation opportunities
Complement with organic growth and diversification
Translate into book value growth

Acquisition Strategy Drives Geographic
Expansion
•
10 M&A transactions since
1988
–
Experienced consolidation team
•
Acquisition criteria:
–
Serving attractive
geography
–
Favorable regulatory,
legislative and judicial
environments
–
Similar personal/commercial
business mix
–
Premium volume
up to $100
million
7

Acquisitions Have Made Meaningful
Contribution to Long-term Growth
8
$283
$302
$207
$307
$314
$365
$363
$392
$454
$496
January 2004
Acquired Le Mars and Peninsula
December 2010
Acquired Michigan
Implemented 25% Quota Share
December 2008
Acquired Sheboygan Falls
Implemented Pooling Change
Net Written Premiums
(dollars in millions)

(1)
Because
of
the
different
relative
voting
power
of
Class
A
common
stock
and
Class
B
common
stock,
public
stockholders
hold
approximately
34%
of
the
aggregate
voting
power
of
the
combined
classes,
and
Donegal Mutual holds approximately 66% of the aggregate voting power of the combined classes.
Opportunistic Ownership Structure Provides Flexibility and Capacity
Structure Provides Flexibility and Capacity
9

•
Donegal Mutual surplus note investment of $2.5 million
•
$16.8 million in 2012 direct written premiums
•
100% quota share reinsurance with Donegal Mutual
–
SMIC cedes underwriting results to Donegal Mutual
–
Donegal Mutual includes business in pooling agreement with
Atlantic States (80% of SMIC business to Donegal Group)
•
Expanded market presence in Georgia and South Carolina
•
Serves as model for mutual-to-mutual affiliations
10
Southern Mutual Insurance Company
Affiliation
with
Donegal
Mutual
–
2009

Michigan Insurance: Attractive Franchise
Acquired December 2010
•
Potential for increased
premium contribution
•
Track record of
profitability
•
Provided entry into new
state as part of Midwest
expansion strategy
–
Capable management
team
–
Quality agency
distribution system
–
Diversified mix of
business
11
(Dollars in millions)
2010
(under
prior
owner)
2011
2012
2013
Direct written
premiums
$105
$108
$111
$115**
External quota
share
75%
50%
40%
30%
Ceded to Donegal
Mutual*
N/A
25%
25%
25%
Retained by MICO
25%
25%
35%
45%
Included in DGI
NPW
N/A
$46
$57
$68**
Statutory
combined ratio
97%
95%
94%
N/A
* Premiums ceded to Donegal Mutual are included in 
pooling agreement with Atlantic States (80% to DGI)
** Projected based on estimated 2013 growth rate

Achieve Objectives
By Implementing
Plan
Continue to pursue consolidation opportunities
Complement with organic growth and
diversification
Translate into book value growth

Organic Growth Initiatives Emphasize Agent
Relationships
•
Ongoing objectives:
–
Achieve top three ranking within appointed agencies in lines of
business
we write
–
Leverage “regional”
advantages and maintain personal
relationships as agencies grow and consolidate
•
Continuing focus on commercial lines growth in 2013:
–
Emphasize expanded commercial lines products and capabilities
in current agencies
–
Appoint commercial lines focused agencies to expand
distribution in key geographies
–
Strengthen relationships with agencies appointed in recent years
13

Best-In-Class Technology and Agent Support
Personal Lines
•
Donegal offers state-of-the-art
quoting and underwriting
capabilities
Commercial Lines
•
Donegal offers web-based
underwriting system with
automated rating and
underwriting
14
Call
Call
Center
Center
Service
Service
Center
Center
ImageRight
ClaimCenter

Remain Focused on Underwriting to Best
Leverage Rate Increases
•
Commercial lines currently
38% of NWP
–
Commercial lines renewal
premiums increased
approximately 5-8% in 2012
–
2012 expansion partially due to
exposure growth
•
Personal lines currently
62% of NWP
–
Multiple rate increases
implemented in 2012 will
increase premium in 2013
–
Minimal exposure growth other
than MICO premiums retained
15
Net Written Premiums by Line of Business
(December 31, 2012)

Employ Sophisticated Actuarial Tools
•
Predictive modeling tools
enhance our ability to
appropriately price our
products
–
Sophisticated predictive
modeling algorithms for
pricing/tiering risks
–
Territorial segmentation
and analysis of
environmental factors that
affect loss experience
–
Exploring tools that allow
consideration of vehicle-
specific data in pricing
•
External information
sources allow us to
develop price optimization
strategies
•
Formal schedule of regular
rate adequacy reviews for
all lines of business,
including GLM analysis on
claim costs and agency
performance
•
Currently evaluating usage-
based insurance tools
16

Emphasize Commercial Lines Growth
•
Introduce core Donegal
products in new regions
•
Growth focus on accounts
with premiums in $10,000 to
$75,000 range
•
Expand appetite within
classes and lines already
written
–
Add related classes
–
Appropriately use reinsurance
•
Apply underwriting controls
–
Production underwriters
–
Large account reviews
–
Loss control processes
–
Manage catastrophe exposures
17

Leverage Personal Lines
•
Acquired companies
weighted to personal lines
•
Focus on the preferred and
superior risk markets
•
Rate increases in virtually
every jurisdiction
•
New and renewal inspection
and renewal re-tiering
•
Seek geographic spread of
risk
•
Balance portfolio
(auto/home)
18

Achieve Objectives
By Implementing
Plan
Continue to pursue consolidation opportunities
Complement with organic growth and diversification
Translate into book value growth

Build on Healthy Insurance Operations
20
Donegal Insurance Group (SNL P&C Group)
SNL P&C Industry (Aggregate) –
2012 data not yet available
Personal Lines Loss Ratio
Personal Lines Loss Ratio
Commercial Lines Loss Ratio
Commercial Lines Loss Ratio

Focus on Underwriting Profitability
•
Sustain pricing discipline and conservative underwriting
•
Manage exposure to catastrophe/unusual weather events
–
Purchase reinsurance coverage in excess of a one-in-200 year
event
•
Link employee compensation directly to underwriting
performance
•
Focus on rate adequacy and pricing sophistication
•
Leverage centralized oversight of regional underwriting
•
Emphasize IT-based programs such as automated decision
trees and predictive modeling
21

Maintain Reserve Adequacy
22
•
Reserves at $251 million
at year-end 2012
–
Midpoint of actuarial range
–
Reported redundant
reserves in seven out of past
10 years
–
Conservative reinsurance
program limits volatility
•
Emphasis on faster claims
settlements for reduced
longer-term exposures
Values shown are selected reserves
Vertical bars represent actuarial ranges
Reserve Range at 12/31/2012
Low  $228,720
High $275,282
Selected at midpoint
(dollars in thousands, net of reinsurance)
Established Reserves at Year-end
Established Reserves at Year-end

Drive Increased Efficiency with Automation
•
Current infrastructure can
support premium growth
•
Premiums per employee rising
due to underwriting systems
•
Claims system allows more
rapid and efficient claims
handling
•
Mutual structure provides
opportunities for operational
and expense synergies
•
Statutory expense ratio of
29.3% for 2012 vs. 29.0% for
2011
23
Direct Premiums per Employee
Direct Premiums per Employee

Maintain Conservative Investment Mix
24
* Excluding investments in affiliates
(as of December 31, 2012)
$769 Million
in Invested
Assets*

Conservative Investment Approach
•
91.3% of portfolio invested in fixed maturities at
year-end 2012
–
59%/41% tax-exempt to taxable mix
•
Emphasis on quality
–
86% AA-rated or better
–
98% A-rated or better
•
No exposure to euro debt, sub-prime, CDO or Alt-A
•
Effective duration =  4.8 years
•
Tax equivalent yield = 3.5%
•
Liquidity managed through laddering
25

Bank Investment = 5% of Invested Assets
•
Union Community Bank
–
Serves Lancaster County (location of Donegal headquarters)
•
Expanded to 13 branches via acquisition in May 2011
–
Added scale to banking operation
–
Enhanced value of historic bank investment
–
Increased potential for bottom-line contribution
•
DGI owns approximately 48% of bank holding company
–
52% owned by Donegal Mutual
•
Union Community Bank is financially strong and profitable
26

Union Community Bank is Financially Strong
and Profitable
•
Healthy 2012 results:
–
$509.8
million in assets at year-end 2012
–
$9.8 million in net income, up from $4.8 million in 2011
•
Excellent capital ratios at year-end 2012:
27
Tier 1 capital to average total assets
15.05%
Tier 1 capital to risk-weighted assets
21.14%
Risk-based capital to risk-weighted assets
23.18%

Outperform Industry in Service,
Profitability and Book Value
Growth
Continue to pursue consolidation opportunities
Complement with organic growth and diversification
Translate into book value growth

Strong Capital + Solid Plan to Drive Results
•
Rated A (Excellent) by
A.M.
Best
–
Debt-to-capital of
approximately 19%
–
Premium-to-surplus of
approximately 1.4-to-1
•
Dividend yield of 3.5% for
Class A shares
•
Repurchased 272,000
Class A shares under
current authorization since
2009
29
Book Value Plus Cumulative Dividends
Book Value Plus Cumulative Dividends

Effective Consolidator of “Main Street”
Property and Casualty Insurers
•
Continue to pursue consolidation opportunities
–
10% CAGR in net written premiums since 2002 driven by
contribution from transactions
•
Complement with organic growth and diversification
–
Strong agency relationships set stage for expansion of
commercial lines book
•
Translate into book value growth
–
Leveraging strong capital position and solid plan
30

Supplemental Information

History of Contributing Transactions
Company
Le Mars
Peninsula
Sheboygan
Southern
Mutual
Michigan
Year Acquired
2004
2004
2008
2009
2010
Company Type
Mutual
Stock
Mutual
Mutual
Stock
Primary Product Line
Personal
Niche
Personal
Personal
Pers./Comm.
Geographic Focus
Midwest
Mid-Atlantic
Wisconsin
Georgia/
South
Carolina
Michigan
Transaction Type
Demutualization
Purchase
Demutualization
Affiliation
Purchase
Net Premiums Acquired
$20 million
$34 million
$8 million
$11 million
$27 million*
Acquisition Price
$4 million
$24 million
$4 million
N/A
$42 million
Avg. Growth Rate**
4%
3%
13%
N/A
N/A
Avg. Combined Ratio**
93%
93%
106%
106%
95%
32
*   Michigan's direct premiums written were $105 million in 2010
** Since acquisition

Net Premiums Written by Line of Business
(in millions)
Q412
Q312
Q212
Q112
Q411
Q311
Q211
Q111
Personal lines:
Automobile
$45.6
$51.4
$50.2
$48.0
$44.6
$49.5
$47.7
$46.3
Homeowners
22.3
27.6
27.0
20.2
22.3
24.4
23.4
19.4
Other
4.0
4.2
4.2
3.7
3.8
3.9
3.9
3.4
Total personal lines
71.9
83.1
81.4
71.9
70.7
77.8
75.0
69.1
Commercial lines:
Automobile
12.0
12.5
14.0
12.9
10.6
10.9
11.8
11.3
Workers’
compensation
14.3
16.1
16.3
18.6
11.0
12.4
13.6
15.0
Commercial multi-peril
14.7
15.9
17.4
16.4
13.4
13.6
15.7
15.2
Other
1.8
1.7
2.0
1.5
2.0
1.5
1.8
1.5
Total commercial lines
42.8
46.2
49.7
49.4
37.0
38.4
42.9
43.1
Total net premiums written
$114.7
$129.3
$131.1
$121.3
$107.7
$116.2
$117.9
$112.2
33

Combined Ratio Analyses
(percents)
Q4 12
Q3 12
Q2 12
Q1 12
Q4 11
Q3 11
Q2 11
Q1 11
Stat Combined Ratios:
Personal lines
108.9
101.3
108.4
101.6
116.7
115.4
116.7
101.8
Commercial lines
88.5
91.4
95.1
88.8
105.5
101.4
93.9
94.3
Total lines
101.2
97.6
103.5
96.9
112.8
110.5
108.7
99.1
GAAP Combined Ratios (total lines):
Loss ratio (non-weather)
68.2
58.6
63.8
62.3
71.6
70.8
60.7
63.2
Loss ratio (weather-related)
3.9
9.3
9.6
4.5
10.6
11.6
19.5
7.2
Expense ratio
29.3
31.4
31.9
32.4
30.5
30.0
32.1
33.2
Dividend ratio
0.3
0.3
0.1
0.2
0.5
0.2
0.1
0.2
Combined ratio
101.7
99.6
105.4
99.4
113.2
112.6
112.4
103.8
GAAP Supplemental Ratios:
Fire losses greater than $50,000
5.5
5.5
5.9
2.9
6.0
7.5
2.3
4.1
Development (savings) on prior year loss reserves
1.6
2.4
1.9
0.4
2.2
(0.5)
(1.5)
(1.5)
34

Effective Consolidator of
“Main
Street”
Property
and Casualty Insurers
For Further Information:
Jeffrey D. Miller, Senior Vice President and Chief Financial Officer
Phone: (717) 426-1931  Fax: (717) 426-7031
E-mail: investors@donegalgroup.com
Website: www.donegalgroup.com