Donegal Group Inc (DGICA) 2017 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Donegal Group Inc. Q3 2017 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to introduce your host, Mr. Jeff Miller. Sir, the podium is yours.

Thank you very much. Good morning, and welcome to the Donegal Group Conference Call for the Third Quarter and First 9 Months ended September 30, 2017. I will begin today's call with commentary on our quarterly financial results. Kevin Burke, President and Chief Executive Officer, will then discuss our current business developments and growth initiatives. As we announced earlier this month, Don Nikolaus, our Chairman, has taken a medical leave of absence, and he is not on the call with us today.

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 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. 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 is also available in the Investors section of our website.

Moving to the third quarter results. Donegal Group reported improved underwriting results during the third quarter of 2017, driven by favorable loss trends that contributed to a 48% increase in net income to $7.1 million, or $0.26 per diluted Class A share, compared to $4.8 million or $0.18 per diluted Class A share, for the prior year third quarter.

Our combined ratio was 99.6% for the third quarter 2017 compared to 100.8% for the third quarter 2016. We attribute this improvement to excellent overall results in our commercial lines segment and particularly, in workers' compensation, which I will discuss further in a moment.

Our underwriting performance in this quarter was solid considering that weather-related losses totaled $18.2 million, which represented a substantial increase over the $11.7 million of weather-related losses for the third quarter of 2016 and the previous 5-year average for third quarter weather-related losses of $11.6 million.

The weather impact included $2.4 million of losses from the inland effects of Hurricane Irma, $2 million of losses from a September hail event in our largest geographic market of Pennsylvania, and during July and August, a continuation of weather patterns we experienced in the second quarter as several smaller wind and hail events impacted our operating regions during those months.

In total, our loss ratio decreased to 64.5% compared to 66.6% for the third quarter 2016. There are a number of offsetting factors that netted to the 2.1 percentage point decrease. First, the weather losses I just discussed contributed 10.3 percentage points to our loss ratio for the third quarter 2017 compared to 7 percentage points of weather impact to our prior year quarter -- quarterly loss ratio. Fire losses causing over $50,000 in damages were up slightly to $7.9 million for the third quarter 2017, compared to $6.7 million for the third quarter of 2016, with the primary increase in our homeowners line of business. However, the loss ratio impact was relatively consistent period over period as large fire losses represented 4.4 percentage points of our loss ratio for the current quarter compared to 4 percentage points for the prior year quarter.

On the positive side, reported workers' compensation claims over $50,000 were $3.1 million lower compared to the third quarter of 2016 when we experienced an unusual spike in large workers' compensation losses. In addition, favorable net development of reserves for losses incurred in prior accident years reduced our loss ratio for the third quarter of 2017 by 1.9 percentage points compared to 1 percentage point for the third quarter of 2016.

While unfavorable reserve development trends persisted in both personal automobile and commercial automobile, adding approximately $1.5 million to our quarterly losses for each of those lines, that development was more than offset by $6.2 million of favorable reserve development in our workers' compensation line of business. That $6.2 million figure is a large number for reserve development in a single quarter. So I thought it might be helpful to provide some additional details.

As we worked with our actuaries and claims management to analyze the quarterly workers' compensation reserve activity, we determined that while the level of favorable settlements during the quarter was fairly comparable to past periods, there was a noticeable decline in the level of case reserve increases on prior year claims. By way of background, our claim personnel adjust individual case reserves either as new information becomes available to them or during scheduled reviews of claims at established time intervals from the date of loss. There were no changes to our reserve philosophy or practices during the quarter, and the conclusion of our analysis was that there were simply fewer prior year claims that required reserve increases during the current quarter. Because the favorable workers' compensation development was primarily concentrated within the 2016 accident year, our actuaries reviewed various statistics to compare our remaining carried reserves for 2016 losses to the reserves we carried for the most recent prior accident year losses at the end of the past 8 third quarters. They found that our remaining case and IBNR reserves for the 2016 accident year were comparable to or stronger than the reserve levels we historically carried in terms of the percentage of those reserves to earn premiums as well as the average case reserve amount at each of those points in time.

As a result of that analysis, we believe our workers' compensation reserves remain adequate despite the unusually favorable reserve development in the third quarter.

So in summary, higher weather and fire loss activity was offset significantly by a favorable workers' compensation experienced and prior period reserve development compared to the prior year quarter. And the net 2.9% increase in losses incurred compared favorably to the 6.3% increase in premiums earned.

Moving to investments. Net investment income increased 7.1%, largely due to an increase in average invested assets relative to the prior year third quarter. Our premium growth in profitable operations have allowed us to add new money investments to our portfolio throughout the past year. We are pleased that the increase in invested assets has generally offset the impact of lower reinvestment rates compared to maturing investments.

Net realized investment gains were approximately $560,000 for the third quarter 2017 compared to $1 million for the third quarter 2016. Our average yield and duration have remained consistent over the prior -- the past several quarters.

At September 30, 2017, our book value per share increased to $16.39 compared to $16.21 at December 31, 2016. And our annualized return on equity improved to 6.4% compared to 4.4% at September 30, 2016.

Before I turn the call over to Kevin, I'll mention that Donegal Group Inc.'s Board of Directors recently declared a regular quarterly cash dividend of $0.14 per share of our Class A common stock and $0.1225 per share of our Class B common stock. These dividends are payable on November 15 to stockholders of record as of the close of business on November 1.

With that, I will turn the call over to Kevin for his comments on the quarter.

Thanks, Jeff. Good morning, everyone, and thank you for joining our call. The third quarter of 2017 was very positive in many respects for Donegal Group. We saw a premium growth, net income and book value growth. We continue to leverage our position as a well-capitalized regional insurance group with a business strategy centered on growing profitably and offering best-in-class service to differentiate ourselves from our competitors. We also benefit from a balance between multiple lines of business that allow us to expand in areas, and we feel that are best suited for our value proposition. Our growth rate remained consistent, and we had favorable loss trends in many of our lines. For the third quarter, we achieved net written premium growth of 6.1% to $182.5 million, which is well within our targeted growth rate. We are pleased to report that premium growth continued in both commercial lines and personal lines. When evaluating our consistent growth over time, it's important to note the important role that our independent agents play. Our top-tier independent agents clearly understand the value proposition of Donegal. And we're winning the day-to-day battles for quality accounts. As a result, we are seeing particularly strong growth in geographical markets, such as the Midwest and Southeast regions. These are committed agents that we value greatly and have had relationship with for years.

To a lesser extent, in terms of premium impact, we are also benefiting from a hardening market conditions in several of our lines. As we discussed last quarter, we continue to be proactive in making adjustments to our rates to ensure that the profitability of certain lines, such as personal and commercial auto, increases to levels that indicate our pricing is adequate, based on recent loss experience and continuing trends. As we take these necessary rate actions, our strong agency relationships are vitally important for both keeping us apprised of market developments and also maintaining our competitive position in the marketplace.

During the third quarter, we grew commercial lines 4.6% as a result of new commercial accounts written throughout our operating regions and a continuation of modest renewal premium increases. As we have discussed for several quarters, we are taking advantage of opportunities to increase commercial auto renewal premium rates in the mid-single-digit percentage range. We believe these increases will generate meaningful improvement in our commercial auto results over time, when combined with the ongoing implementation of our commercial auto predictive model. This model specifically scores policies based on predictive factors that correlate to risk of loss and allows us to segment our pricing with greater precision. We expect to realize benefits from this underwriting enhancement in the coming months and quarters ahead.

Jeff provided a good overview of our results for our best-performing line, which was workers' compensation. Donegal achieved a 67.6% statutory combined ratio in our workers' compensation line for the third quarter. Our workers' compensation products, which we provide predominantly for small-to-midsize businesses, have performed exceptionally well throughout the year. We continue to benefit from an ongoing trend of lower claims frequency within both indemnity and medical claims. From time to time, we get questions either from analysts or stockholders as to why our results continue to be very favorable in what has historically been a challenging line for the industry.

While we cannot necessarily point to a single reason for the excellent results, we attribute a large part of our success to our focus on specific classes of business we insure and the underwriting controls we have developed and implemented over many years. We've also been very proactive on the claims management side, working with injured employees to help in their return to work and promoting the timely settlement of claims. It's been an effective strategy executed by very talented professionals.

Our commercial lines retention levels remained very strong through the first 9 months of 2017. Our policy retention has held steady in the mid-80% range, and we believe we are in an excellent position within the marketplace to continue to profitably grow our commercial lines.

Moving to personal lines. Jeff already highlighted the above-average weather-related claims activity resulting from wind and hail events in our operating regions and the $2.4 million of losses from the inland effects of Hurricane Irma. While weather did impact our overall results, we were pleased to report solid increase in net income for our quarterly period where there was significant storm activity. Our historical strategy to conservatively manage our catastrophic risk served us well this quarter, and we expect to maintain that approach going forward.

In personal automobile, we maintained retention levels are very solid while continuing to aggressively pursue rate increases in the upper single-digit percentage range. We saw a few loss trends move in the right direction during the period, but we remained conservative in our performance expectations for that line until we have more quarters that indicate we are moving in the right direction.

As we discussed last quarter, we will continue to keep our stockholders apprised of the developments with respect to Donegal Mutual's recent affiliation with Mountain States. As a reminder, Mountain States Mutual Casualty Company merged with and into Donegal Mutual in May of this year. As a result of the merger, Donegal Mutual has an established presence in the Southwestern region, operating through Mountain States office, located in Albuquerque, New Mexico.

Along with its 2 insurance subsidiaries, Donegal Mutual is writing commercial insurance business in 4 Southwestern states where Donegal Mutual and our insurance subsidiaries were not doing business prior to the affiliation. While Donegal Group Inc. was not a party to the transaction and currently receives no benefit from it, Donegal Mutual and we will evaluate the merits of adding the business Donegal Mutual generates in the Southwestern region to the pooling agreement that is in place between Donegal Mutual and Atlantic States Insurance Company, our largest subsidiary, which would allow Donegal Group to benefit from those underwriting activities in the future.

We view the region as potential -- as a potential growth opportunity. While our team has made great progress towards introducing our systems, workflows and controls into the operations of Mountain States, I would hasten to reiterate our past comments that it will take some time to address the underwriting challenges Mountain States faces -- has faced in recent years. We will keep you apprised of our progress.

Overall, it was an excellent quarter for Donegal Group Inc. I wanted to personally thank everyone across our organization for their efforts. Over the past few months, our management and employees' dedicated commitment, the best-in-class customer service was particularly evident through all the weather events that impacted the various regions during the past 9 months. We have committed to our agents and policyholders that we will be there when it matters most. And I'm very proud of what our people accomplish every single day to fulfill that commitment.

At this point, we would be glad to respond to any questions that you may have.

(Operator Instructions) Our first question comes from the line of Christopher Campbell from KBW.

My first question is on personal auto's statutory combined ratio. Really strong improvement year-over-year in spite of -- it sounds, like, there was, like, $1.5 million of adverse development. Is there any way to unpack? Like, how much of that auto improvement came from, like, core loss ratios? You had mentioned reserve development. So we have that number. Weather and then the expenses. Like, to kind of see the underlying trends in those components.

Chris, this is Jeff. The only thing I could add to what's already in the release would be that on the weather front, weather did not have a significant impact to personal auto in the current quarter, as we had it in earlier parts -- the earlier quarters in the year we had more hail events that impacted our results and, of course, that has a detrimental impact on the loss ratio for personal auto. But most of the events in the third quarter were wind-related. So less hail and more wind. And so there was not much of a weather impact. So that definitely had something to do with the improvement during the current quarter.

Right. And then on the expenses, it looks like overall the expenses were higher because of, like, higher underwriting-related comp. Would auto have shared in that as well?

Yes. That would have been shared across all of the lines. And you're correct, the incentive-based compensation both for agents and employees increased during the third quarter because our performance was much better than the second quarter. So there's some catch-up in the third quarter related to the incentive costs.

Okay. That makes sense. Just switching to commercial auto, which it looks like you are kind of still having some severity challenges there. Can we get an update on what you're doing just beyond rates in terms of -- to try to improve that performance? I know you had mentioned improving the model or maybe rolling that out further. And then, like, just how would you categorize -- I know you have an account focus, how would you categorize the rates that you're taking in commercial auto now versus the loss cost trends you're seeing?

Chris, this is Kevin. We'll start off with some of the rates that we are taking in commercial auto. You're right, we are account writers and so in the past, when we're applying credits, usually commercial auto is the one where we're maybe a little bit underpriced where we need to be to get the total account. But we've had such stellar loss ratios in workers' comp and some others, the total account becomes very profitable. However, what we're seeing is the fact that there really is an underpriced book of business as it relates to commercial auto. And I will tell you that we're seeing a greater increase in terms of pricing for the commercial auto piece even if it's in as part of the account. Our commercial lines underwriting home office groups understands that it's imperative that we start making some inroads on that. With that, we can also speak to a little bit about the predictive analytics that we are applying. All new commercial business across our entire geographical footprint with the exception of Mountain States and New Mexico, is currently being scored right now for all new business. And so the risk factors are being applied. The commercial lines underwriters are able to take really a deeper dive and look at the account, and then also look at the risk factors associated with elevating the losses sometimes associated with those risk factors. We also had a profit improvement plan in place. It's been in place for the better part of 1.5 years. Our home office commercial group has a cross-functional department including claims representatives, research and development, and actuary that look at each account in its entirety to start to hone down whether some of the risk characteristics that we're seeing a trend with and then pricing it accordingly. And last but not least, I know that the commercial lines' underwriting group has really taken a deeper dive in each account so that when an underwriter gets an account that scores high in the risk index score, it's really on a referral basis. So the underwriter actually needs to look at the account and, again, take a deeper dive because of the risk index scores are scoring very high, which tells you that we either don't have appropriate price or there's risk factors associated with that loss, or that particular account. So I think we are doing a number of things to start to build that business back up from a profitability standpoint. And I would be optimistic and say that over the next several quarters, we should start to see that. The industry overall is being, I think, starting to be fairly aggressive in rating commercial auto and applying appropriate rate. And we should start to see that filter through the book and earn premium over the next several quarters.

Got it. Just switching to reserves real quick. I notice there wasn't any adverse development this quarter in CMP after last quarter's reserve charge. It looks like there was, like, some positive development as well. Should we assume that Donegal feels all the CMP issues are behind it at this point?

This is Jeff, again, Chris. I would probably stop short of saying that all of the issues are behind us. We would certainly like to hope that we're moving in the right direction. You are correct that in the third quarter there was a slightly favorable development really immaterial to the overall loss ratio. But relative to first 2 quarters when we had about, I think, it was, like $2.4 million in each of the first 2 quarters of unfavorable development, that's certainly a move in the right direction. We have put a lot of emphasis on getting the IBNR reserves up to speed in that line over the last 12 to 18 months. And we are continuing to take a conservative approach to current -- the current accident year, including some additional IBNR in that line. So we think we're on the right track. That's not to say that we can't have a loss or 2 that pop up that we weren't expecting, because, as you know, it doesn't take a lot of losses to generate that unfavorable development. But we certainly expect that things will continue to improve.

Okay. And just one final one I had on taxes. So year-to-date you're about 16.4%. Should we expect a true-up at year-end? Just how should we be thinking about taxes heading into Q4?

I would say that the year-to-date effective tax rate has a pretty good run rate. We're still projecting in the 19% to 20% range. Obviously, our profitability in the first half was not what we expected and that's driving it down somewhat relative to our initial expectations. But I think in the current quarter, it was little lower than you were probably expecting. And that's related to a small favorable settlement in that when we filed the final 2016 tax return as well as we picked up some benefit from the exercised options, which runs through the current provision now that the accounting rules changed beginning in 2017. So those 2 items are likely what impacted the current quarter effective tax rate relative to your expectations.

(Operator Instructions) Our next question comes from the line of Jamie Inglis from Philo Smith.

Would you think about your average or typical commercial account -- so you're talking about some account underwriting a second ago. Can you give me a sense of what you think you of that account in terms of size, like premium size? And secondly, in accounts of that for typical or average size, do they respond well to loss control measures in the commercial auto line? Or is it -- or they -- or all those accounts too different for that to really work?

Well, first -- this is Kevin. First off, let's talk a little bit about size of account. I think this has really been part of Donegal's real strong position in the marketplace. When you look at our average size accounts, we write a fair amount of accounts that are $5,000 in premium up to about $50,000. It's sort of what we consider to be our sweet spot. We write a lot of larger accounts as well. But for the most part, that's sort of the area that we target. What you find with accounts that size is they tend not to turn that off, it means that they're not necessarily shopping the market. You can have great influence on accounts of that size in terms of loss control measures. And they're also not as sensitive to various rate increases in terms of being able to move the accounts. So for a lot of different reasons, Donegal's focus on accounts of that size in commercial auto has been very, very positive. And I think if you go back quarter-over-quarter, the results show that and the agency base really looks at us as sort of that go-to-marketplace for accounts that size. When you start getting into much larger accounts, and I'm going to say accounts that are over $150,000 and above, and again, we write those, willingly. But it does require a whole different set of loss control components. The expectations on behalf of accounts that size are a little bit different, as you can imagine. And also when you start to try to get your hands around -- in this case, we're talking about commercial auto, around the size of the fleet, being able that you have control into that size, I think it also spills into what Jeff was talking about earlier in terms of our outstanding workers' comp results. Smaller accounts do allow you to control the account a little bit better in a lot of different respects. And I think that it's a very positive position for our organization to be in.

Yes, I would think so. I mean, you're -- the -- what Donegal is doing in selling, if you will, is sort of that longer-term relationship and et cetera, which as you said, works -- has worked over the long term. Separately, to what extent do you write personal auto or home as -- along with those small accounts?

We do -- oftentimes, we will get -- as you can imagine, you have a business owner, and we have a $25,000 business owner account, we look to see if they were interested in moving their personal accounts with us. We've had that. It's a good bridge as part of the relationship building with the agent as well as the policyholder. I can't quote you a percentage of how often that happens, but we do cross-sell.

And I'm currently seeing no further questions.

All right. If there are no further questions, then -- let's wait, maybe we have one entering the queue.

We do have a question from Bob Farnam from Boenning and Scattergood.

I thought I had entered my number before, but I guess not. So I have a question on the growth as it relates to your agency plan. It's -- how much of the growth is related to new agents versus increasing the share of existing agents?

Bob, thanks for the question. This is Kevin. The majority of our growth is still coming from our existing agency plan. In the last 2 years, we have really emphasized the ability to grow within our existing agency plan and build upon that relationship. We have appointed 42 new agents across the spectrum of our geographical footprint. So we are still out there appointing agents. The majority of these agents are very commercial-focused because that's really where our charter is going forward. And we do get a fair amount of business with some of the new agents. But overall, the majority of our growth is coming from existing agency relationships that we have, and we're really moving those existing agents to higher levels of premium with us. So it's been very, very positive. Those agents, as you can imagine, understand Donegal extremely well. In many cases, they have been with us for years. And now they are writing $2 million, $3 million, $5 million worth of premium with us. That relationship where they know us and vice versa, it really has been a very, very positive approach, because oftentimes the profitability level of those larger agents that have been with us for a while they understand our appetite, and it's been a really good approach for us.

Right. And I guess, with the existing agents, like, do you have an idea of what percentage you can get up to for these agents? Like, I'm trying to figure how much more wiggle room you have to continue to grow in the existing agents?

The -- we have so much room ahead of us. I will give you an example. We have right now in the neighborhood of about 65 agents that write more than $2 million worth of premium with the Donegal Insurance Group, the whole enterprise. We have 6 more currently that I'm aware of, Bob, that are going to be hitting that $2 million mark. And many of those agents that are in that $2 million mark or greater, the agency size is $10 million, $15 million, $20 million agents. So the runway with the existing agency base is great. And then a lot of the new appointed agents that we are bringing onboard, we are really appointing quality agents that have some real upward mobility in terms of growth with us. So we're not necessarily looking for an agent that just likes the value proposition and might be able to get to $0.5 million with us over 5 years. We're looking for the agents that are energetic, moving forward, have the business plan, have a commercial component with it, that are really looking to grow to a $2 million to a $5 million agency. And there's plenty of them out there. And as I had said in my comments, we're winning the day-to-day battle for accounts. That's really what it comes down to. Every day, being able to complete and win market share on a day-to-day basis, and we're doing that with some of our key agents. So there is a great runway out there for us.

All right. And just kind of related to that, I know with Mountain States, I know you're not getting it -- the premium on the public company. But the -- is the agency profile there going to be the same as your current book? And second question there is how is the assimilation of that business going? According to your expectations, are you ahead or behind schedule or what not? Just trying to get some feel for there.

Sure. Let's talk about the agency profile first. We believe that the agents that are currently appointed with Mountain States, these are very loyal agents, Bob. They -- when they had lost their rating 5 years ago and Mountain States ended up being a B rated company, this group of agents stayed with them through sort of a tough time. So they're very loyal group of independent agents. We've had an opportunity to meet some of them. I think that they -- their profile is very similar to a Donegal agent. And on Wednesday of this week, I will actually be in Albuquerque, New Mexico, and we have roughly 60 agents showing up for what I'd consider to be a kickoff meeting in Albuquerque. Where, they'll get opportunity to meet us, we're going to talk about our value proposition, and it's really going to give us an opportunity to get to meet these agents and find out what they're looking for. My expectation is they're going to be in the same profile that we currently have. So we're optimistic about what we might be able to do with that region. The second piece is where you talk about schedule where we are. If you think about it, we closed on this merger affiliation at the end of May. And in record time, we are -- have appointed agents in New Mexico. We're -- on January 1, we will have our operating platform in place, meaning our technology and products. That's why we're going to be out there on Wednesday. So the hope is that all new business and all renewal business will be on the Donegal platform January 1. So we are on schedule. But as I had said in some of my earlier comments, we also need to take an approach that we're not going to bring it into the pooling arrangement until we are very confident that we have worked through some of the underwriting and loss ratio issues. I don't know how long that's going to take, but we're going to be very conservative about it to ensure that when we bring it in, we're confident that we can grow the business profitably.

Right. And that's -- if I remember, that's all commercial, or was that -- is there a personal element there too?

It is. It is 100% commercial lines.

All right. Okay. Last question from me. With the predictive modeling, do you have an idea -- like, can you quantify the impact you think it might have on your underwriting when this is fully implemented?

Our confidence has grown greatly this past year with our predictive model. It has been in place for a couple of years. We were piloting it. We kind of went into it slowly to make sure that we were making the right decisions. This past year as we've implemented the predictive model that we have for private passenger auto, and then we did some analysis behind the scoring mechanism, we were very, very confident that what that predictive model was telling us was accurate. So there is very strong confidence. We are scoring all of our new business in private passenger auto. And we are scoring all of our new business on commercial auto. The real lift that we're going to get, which we're optimistic for, is when we can actually score our existing renewal book of business, which we are aggressively moving forward with. When that occurs, I think that we're going to be in a much better position to ensure that we're pricing the risks appropriately.

Right. So basically this is on new business right now. So you can't really compare old book versus new book to see how profitability has been impacted. This is more -- this is just new business, so you don't have any (inaudible) as a consequence?

Yes, it's -- right, it's new business right now and -- so it's been a good process looking forward to getting it on the renewal book because our retention numbers, as you see, are leading the industry. I mean, we have mid-80s to upper 80s to 90% retention. And so if we can accurately get at that business, making sure that we have rate adequacy in that book, it should yield very good results.

And our next question comes from the line of Jamie Inglis from Philo Smith.

My perception of Donegal over a very long period of time is that you -- sorry, the other phone was ringing. You've been one of few companies that has been able to demonstrate an ability to acquire or affiliate or merge companies into the group and fix them in a way or improve them, let's say it that way. In the past, have you pooled the business on acquisitions, affiliations immediately or have you waited a couple of years?

Jamie, this is Jeff. Excellent question, and it's really dependent upon the fact case for a particular [acquisition]. A number of the mutual companies that we had affiliated with in the past, Donegal Mutual would affiliate with the Mutual company, I mean, to the surplus note investment. And there would be a period of time in which Donegal Mutual would then do all of the various underwriting improvement activities. And so there was a period of time before the mutualization of those entities and then, ultimately, Donegal Group would purchase the company from Donegal Mutual. So there was a period of time where there was a -- basically, a cleanup period before the companies would become public companies. A couple of instances where we had quota share agreements where the business -- that Donegal Mutual would have assumed from other companies was placed into the pooling agreement with Atlantic States. So we've had a number of different approaches that really depended upon the profitability of the company, when we acquired it and the level of activity that was required to improve the profitability of those companies. And with Mountain States, it's a little bit different yet, doing a merger of the mutual into Donegal Mutual. That was done because Mountain States Mutual had a significant amount of surplus that we could utilize to help to fund the turnaround of the company. So we look at these different affiliations and acquisitions independently and determine what we think is the best route. And having the Donegal Mutual in our structure gives us a lot of flexibility in how we approach those types of deals.

Do you think that the book of business at Mountain States is that different than the other acquisitions you guys have done going back?

There are nuances to that region as to the types of risks that they've written. But as we dug into the details, it's not really that much different than what we do every day in any other regions. There's a few. Obviously, there's some oil and gas activities in that region. And Mountain States has historically written accounts that serviced that industry, electricians and that type of companies that would build fences around the wells and that type of things. They're writing -- not writing, the well coverage, and over-the-hole coverage things, which are more risky. So we -- as we looked at the book, there's not a lot of disparity in the types of the classes of business that they write, but certainly they're looking forward to the improvements in underwriting systems and controls that we can bring to them as well as we will bring a focus on the smaller business and the types of accounts that we've been historically successful at writing.

All right. Well, I guess, I was trying to get a sense of what your sort of preliminary view on timing might be to include it in the pool or not. But I guess that would depend -- it's hard to compare history because all those other acquisitions were done at different times and different underwriting cycles sort of, et cetera. So I'm not sure you'd be able to make a guess, a reasonable guess as to when it might be moved in.

You're very correct, Jamie. We've -- we're not at a point where we can make even an educated guess on when that -- what the timing might be. But we can tell you that we're working very hard every day to accelerate it and to get the company turned around. And we think there's a significant opportunity there for profitable growth going forward.

And I am currently seeing no further questions.

All right. Well, we thank everyone for your participation in the call and for the great questions.

Thank you.

Have a great day.

Ladies and gentlemen, thank you participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.