Jeffery Hay: We’ve been talking about our focus on personal lines rate achievements since the beginning of 2022 and throughout 2023, full year 2023 rate achievement in personal lines was 16.2% for homeowners and 9.9% for personal auto. The level of rate achievement accelerated in the second half of 2023 with homeowners rate achievement of 17.9% in the third quarter and 20.5% in the fourth quarter. For personal auto, that rate achievement was 10.0% in the third quarter and 13.1% in the fourth quarter. 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. 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.
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.
Karin Daly: The next few questions relate to prior period reserve development. First, can you provide line-of-business details for the fourth quarter and full year of 2023? And second, can you elaborate on your view of the reserve adequacy for past accident years, considering the mix of market conditions over that timeframe. Jeff Miller, do you want to take those?
Jeffrey Miller: Sure. First of all, specific line of business detail for the fourth quarter of 2023 included favorable development of $1.6 million for personal auto, $1.3 million for workers’ comp and $1.1 million across other lines. That favorable development was partially offset by unfavorable development of $1.7 million for commercial multi-peril and $1.5 million in other commercial, which is primarily commercial umbrella. 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. For the full year 2023 we had favorable development of $9.5 million in commercial auto, $4.8 million for personal auto, $2.7 million for workers’ comp and $2.2 million for homeowners.
The favorable development was partially offset by relatively modest unfavorable development of $2.6 million spread across commercial, multi-peril and other commercial and personal lines. Shifting to our view on reserve adequacy across various accident years. I’d first point out that most of our lines of business have a relatively short reserve development tail, generally five years or less for the vast majority of our claims in early 2018. We significantly strengthened reserves for accident years prior to 2018 and then began following a more conservative reserving philosophy from that point forward effect of the pandemic introduced significant uncertainty for accident years 2020 and 2021, but we maintained our conservative approach and ended up releasing some reserves for those years during 2022, after revisiting our assumptions when more data became available during 2023, we maintained and in some cases, moderately strengthened reserve levels to respond to some signs of potentially increasing ultimate claim costs for both bodily injury liability and auto physical damage claims.
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.
Karin Daly: Thank you. The next question relates to the Workers’ Compensation lifetime. Can you provide an update from the competitive perspective as well as your own deal unmask class as you pursue growth in that line moving forward? We’ll go back to Geoff hay for this response.
Jeffery Hay: Thanks, Karin. The workers’ comp market continues to be the most profitable line of business for Donegal and for the industry. We believe this favorable performance will drive continued downward pressure on pricing due to rating bureau actions. Despite this pressure, the continued downward claim frequency trends, expected moderate medical severity and increasing premium trend from higher wages. We continue to believe this line will deliver returns that meet or exceed our targets.
Karin Daly: We’re planning for outsized growth in this line, which dovetails with our plans to emphasize growth in the small commercial segment I previously mentioned somewhat related to workers’ compensation trends here, a follow-up question for you on medical inflation. Anything specific to those trends that you are seeing.
Jeffery Hay: Yes, as we continue to monitor inflation trends at a fairly granular level, we’re pleased that medical inflation in our workers’ comp experience continues to remain in check across our our liability book in both personal and commercial lines. We do have our eyes on some recent increases in bodily injury severity trends that we believe are more social inflation related than medical inflation related. And we do plan to monitor these trends closely in 2024 and respond as needed.
Karin Daly: The final question is on the topic of capital management. Can you provide an update on the company’s approach to capital management and priorities for 2024.
Kevin Burke: This is driven by work on the capital management front or approach has remained consistent over many years. 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 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. In the form of regular quarterly cash dividends.
Karin Daly: Thank you all for those responses. If there are any additional questions, please feel free to reach out to us. This now concludes the Donegal Group Fourth Quarter and Full Year 2023 earnings webcast. Thank you and have a great day.
