Good morning. My name is Sean. I'll be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group First Quarter 2014 Earnings Conference Call. [Operator Instructions] Thank you. Mr. Jeffrey Miller, Chief Financial Officer, you may begin your conference. .

Thank you, Sean. Good morning, everyone, and welcome to the Donegal Group conference call for the first quarter ended March 31, 2014. As introduced, I'm Jeff Miller, Chief Financial Officer, and I will begin today's call with some comments on our quarterly financial results.

Don Nikolaus, President and Chief Executive Officer, will then provide comments on the quarter and discuss our current business trends. Kevin Burke, our Chief Operating Officer, is also present on the call this morning..

You should be aware that certain statements made in our news release and in this conference call are forward-looking in nature and involve a number of risks and uncertainties. Please refer you to our news release for more information about forward-looking statements.

Further information on risk factors that could cause actual results to differ materially from those projected in the forward-looking statements is available in the report on Form 10-K that we submitted to the SEC for 2013. You can find a copy of our Form 10-K in the Investors section of our website under the SEC Filings link.

Further, reconciliation of non-GAAP information as required by SEC Regulation G was provided in our news release, which we have also made available in the Investor Relations section of our website. .

Turning to the first quarter. Unfortunately, the severe winter weather across our operating regions disrupted the positive trends in underwriting results that we have been working hard to perpetuate.

I'll provide more details in a minute about the weather and the higher-than-usual fire losses that contributed to a statutory combined ratio of 103.2% for the quarter. But outside of the unusual weather-related losses, our core underwriting results showed a continuation of the favorable trends we experienced in 2013.

Our casualty lines performed well, and our non-weather loss ratios were well within our expectations. Further, our net premiums written rose 9.1% for the quarter, and we continue to pursue quality premium growth in all of our insurance subsidiaries. .

Similar to prior periods, the 3 major drivers of the premium growth were premium rate increases in most of our business lines, commercial lines new business growth, and as we reported previously, another reduction in Michigan Insurance Company's external quota share reinsurance agreement.

We expect the Michigan reinsurance change to add a further $10 million to our net premiums written in 2014, similar to the benefit from reinsurance reductions in the past 2 years. It also bears mentioning that net premiums written and earned in the quarter were reduced by $2 million of catastrophe reinsurance reinstatement premiums. .

To give you a better sense of the quarterly loss activity, I'll walk you through the various details..

Let's begin with the weather losses. Widespread and sustained subfreezing temperatures were the Polar Vortex, as it was called, contributed to water damage from frozen pipes in many areas of the country in early January and again, later in that same month.

Then numerous snow and ice storms in February contributed to car accidents and property damage claims from ice dams and roof collapses due to the weight of ice and snow. .

Our total weather losses of $15.3 million were more than double the $6.9 million average from first quarter weather losses we experienced in the previous 5 years. Among the losses were those from 2 designated catastrophe events.

They were the January deep-freeze and a weather system in mid-February that dumped large accumulations of snow in the Mid-Atlantic and Midwest.

Our losses from those 2 events were limited by reinsurance, but many of the weather losses we sustained during the quarter were related to more isolated snow, ice and wind events across our operating regions throughout January and February. .

Large fire losses of $10.1 million were higher than our normal range, exceeding the also above average $8.1 million from last year's first quarter.

The increased activity was primarily within our Homeowners line of business, where we saw more fires related to additional stress on heating systems, chimney fires, et cetera, related to the unusually called temperatures..

On a brighter note, our Worker's Compensation line of business performed very well during the quarter, likely benefiting to some degree from fewer hours worked by contractors due to the weather.

Likewise, the combined ratios for our Automobile lines of business improved over the prior year quarter in spite of an increased number of weather-related collision losses, which underscores the improved trends within the casualty portion of those lines of business. .

Finally, there was virtually no impact from prior accident year loss reserve development on the first quarter of 2014 compared to $1.8 million of unfavorable loss reserve development in the first quarter 2013. .

Because it reflects only 3 months of activity, we generally make few comments about the first quarter loss development, but we are certainly pleased that the trend appears to be heading in the right direction..

In summary, had we not experienced unusual weather and fire losses, our underwriting performance would have reflected the favorable trends we experienced in 2013, which gives us optimism that we have the ability to generate favorable underwriting results throughout the remainder of 2014..

Turning briefly to investment income. We reported a decrease of 4.1% for the quarter, mainly as a result of lower average investment yields in our fixed maturity portfolio.

During the quarter, we put to work some of the cash and short-term investments that we were holding at year end, buying corporate and mortgage-backed fixed maturities, as well as a modest amount of dividend-paying equity securities.

We believe that we are well-positioned to take advantage of rising interest rates should they materialize over the next few years. .

Our book value per share increased to $15.18 at March 31, 2014, up from $15.02 at year end 2013, primarily due to market interest-rate-driven unrealized gains in our bond portfolio..

Last week, we announced an increase in our quarterly dividend rate. Our Board of Directors declared cash dividends of $0.1315 per share of our Class A stock and $0.1160 per share of our Class B stock payable May 15 to stockholders of record as of the close of business on May 1. .

At this point, I'll turn the call over to Don for his comments on the quarter.

Don?.

Good morning, and welcome to our conference call. Jeff has done an excellent job of going over many of the details. I would just want to highlight that net premiums written increased by 9.1%, commercial lines by 14.9%, personal lines by 14.6%. .

A little discussion about the weather. Needless to say, the company has control over many things, but we don't have control over the weather. And clearly, the weather was extremely unusual, and Jeff has given a lot of details about that. .

On the underwriting and pricing environment, we continue to focus on our conservative underwriting. We continue to make rate increase filings in homeowners, private passenger automobile, dwelling fire and certainly, on the commercial side.

And we're pleased to tell you that commercial renewals, depending upon the specific month that the renewals -- we are putting into effect premium increases anywhere between 5% and 7.5%. We continue to refine our underwriting actions, and we have aggressive reinspection and loss control programs in place..

I'm pleased to tell you that in personal lines, 75-plus percent of our increases in premiums written are rate increases. And in commercial, we estimate it to be about 40-plus percent. .

On the agency side, we have appointed 50 new agencies to represent the company in the first quarter. And you may remember that in the spring of every year, we have a very aggressive agency meeting program, 26 large meetings across 12 states, and we have had very excellent attendance to date and very positive responses..

On the technology side, we have come live with our mobile apps. We're working on a new billing system, a new rating system. We're about to roll out e-signatures for personal lines. We're working and have gone live with some new predictive modeling.

We are pleased to tell you, I think, that within one of the earlier press releases, that we have been named to the top 50 Most Trusted (sic) [Trustworthy] Financial Companies by Forbes. .

Needless to say, the winter storms and the small earnings loss is a major part of the earnings call today. But from our viewpoint, the focus, we think, that you should take away is that we have a very dynamic strategy, and the company has momentum. And we have numerous projects and growth initiatives that we are developing.

At this point, I'll turn it back to Jeff. .

Okay, thanks, Don.

And Sean, if you would open the line for questions, please?.

[Operator Instructions] Your first question comes from the line of Vincent DeAugustino. .

Don, just -- first, I hope you're doing well.

And though, I'm not wishing you out the door, I'm just curious if we might be able to hit on some of the additional responsibilities that would fall on Jeff and Kevin's plate with their recent motions?.

Well, candidly, we are in the process of working through some of those details. And as the forthcoming weeks and months, we would have further disclosure of that. Clearly in their new capacities, they will have additional responsibility. And we will be willing, going forward, to provide more details. .

Okay, sounds good. Look forward to that. And then, Jeff, just with your comments on contractors just having less activity there.

I'm curious if we should think about that as essentially lowering first quarter frequency and then with the impact really just stopping there? Or if we should think about that really being a lull in construction activity that just gets pushed out to the second quarter and therefore, maybe we should be thinking about that as having an offsetting frequency increase in the second quarter of '14?.

Well, as you would know from the details that you've been analyzing, we have experienced a general decline in frequencies in our casualty lines of business, in Worker's Comp, as well as the bodily injury claims on the Auto side.

And I would not expect that the decrease in work in the first quarter would necessarily translate to increased frequency in the second quarter. I think safety programs that have been put in place, as well as just an overall -- I think the economy has been somewhat to blame for the some of the decreases in frequency.

But overall, we're not expecting any dramatic increase in frequency in the second quarter. .

Okay, that's helpful. And then on the personal, commercial auto lines, so there was some nice loss ratio improvement there and sometimes it's hard to tell if the bad weather keeps people off the roads or depending on when the weather actually hits, if it just increases collision activity.

So I'm just kind of curious if -- on the auto lines, if you have a sense for which might have been the bigger factor?.

It's very difficult to gauge that. We did see a decrease in the number of claims reported as far as injuries, serious injury claims. But of course, you have a lot of the additional fender-bender type losses that drives up the overall frequency of those types of losses.

So I think we would say that the underlying trends look very favorable in that line of business. We had one of the best quarters we've ever had from a loss ratio standpoint in personal auto liability.

So we -- I think that you don't want to read too much into that as far as the weather impact, but certainly, fewer people being on the roads because of the weather could have contributed to that. .

What I would add, Vincent, that I think we were pleasantly surprised that with all that severe weather that there weren't more severity in terms of the i-claims [ph]. So I think we were, I guess, pleasantly surprised by that, but time will tell whether it's more related to miles driven. .

Okay. And then just sticking on the loss cost side. I'm just looking at the reserve development trends over the last 4 quarters.

Things have been consistently improving, and I'm just curious now that we've had a couple of quarters of that, if the takeaway should be that loss cost trends are improving or whether sort of your picks have just appropriately adjusted to some of these elevated loss cost trends? I mean, now we're back at the point where it's almost like normal course of business with the step-up.

So just any thoughts that you might have there in terms of how we might think about the reserve development going forward and completely understanding that the reserve movements that we've seen have been rather small relative to the reserve base in that you kind of picked the midpoint. So -- but just any thoughts you might have there would be good. .

Well, certainly, we have been giving a lot of attention to that. And as you have mentioned, our loss developments have been within a fairly narrow band, a small percentage of our overall reserves. But there were some periods where we had some unfavorable development. And that seems to be moderating and improving.

With the first quarter, in the release, says that we had negligible loss development. Actually, it was a slight favorable development in the quarter, which is a positive trend that we would hope to see continue. As I've said in my comments, it's a little early to draw too many conclusions from development patterns in the first quarter.

It's just 3 months of the year. And with all the weather, that's -- it's hard to say what we might experience going forward. Certainly, we would expect that things continue. We believe we're making the right loss picks. The actuaries are certainly attuned to all of the changing dynamics within our book.

And we would think both that we are experiencing improving loss cost trends, as well as doing a better job of getting the initial picks where they need to be. .

Okay. And then hopefully, just if I can sneak one more quick one in? As far as the pricing range, it looks like it's still the same consistent 5% to 7% range.

And I know we've all been splitting hairs too much recently, but was there any shift within that range sequentially from last quarter, or are things pretty stable on the pricing front?.

Very consistent, Vincent. .

Okay. Very good. .

Specially our commercial. Yes, the commercial side has been very consistent, and personal lines as well. But I know a lot of the talk of -- in some of the -- in our peers have been on commercial side, and our renewal increases have really maintained a nice, consistent percentage over the last year. .

[Operator Instructions] There are no further questions at this time. Mr. Miller, I turn the call back to you. .

Okay. Well, we want to thank everyone for participating. Obviously, the weather was the big story. But as what we have indicated, we believe that the core underwriting results look very good, and we hope to have better results to share with you as the year progresses. So thank you, everyone, for your participation. .

Yes, thank you very much. Have a good day. .

This concludes today's conference call. You may now disconnect..