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Donegal Group Inc  (NASDAQ:DGICB)
Q1 2019 Earnings Call
April 30, 2019, 11:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning. My name is Cheryl, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donegal Group Inc. Q1 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. (Operator Instructions) Thank you.

Jeff Miller, Chief Financial Officer, you may begin your conference.

Jeffrey Miller -- Chief Financial Officer

Thank you very much. Good morning and welcome to the Donegal Group conference call for the first quarter ended March 31, 2019. Yesterday afternoon we issued a news release outlining our quarterly results. For a copy of that release, please visit the Investor Relations section of our website at donegalgroup.com.

In today's call, Kevin Burke, President and Chief Executive Officer, will discuss a number of our recent developments and update you on our business strategy and initiatives. I'll then follow his comments with a brief overview of our quarterly financial details. Following our prepared comments, we will open the line for any questions you might have.

Before we get started, you should be aware that our commentary today includes forward-looking statements that involve a number of risks and uncertainties. We described forward-looking statements in our news release and we provided further information about risk factors that could cause actual results to differ materially from those we project in the forward-looking statements in the report on Form 10-K that we submitted to the SEC. You can access our Form 10-K through the Investor section of our website under the SEC filings link.

We use certain non-GAAP financial measures to analyze our business results and refer you to the reconciliation of non-GAAP information that we included in the news release we issued yesterday.

With that, I'll turn it over to Kevin.

Kevin Burke -- President and Chief Executive Officer

Thanks, Jeff. And welcome, everyone. We were pleased that the initiatives we implemented throughout 2018 contributed to favorable financial and operating results for the first quarter for Donegal. The improvement in our results was driven by a number of different factors. The most notable being the strong underwriting performance of our commercial lines business segment, which I'll detail in a moment.

In addition, there were a number of unusual elements during the first quarter, which while all positive, did greatly impact our financial results and factor into comparisons to the prior year first quarter. First, we reported $6 million in net investment gains related to the impact of the first quarter equity market rebound from the late December decline in stock prices. Second, we completed the sale of Donegal Financial Services Corporation during the first quarter, which added $12.7 million to net investment and contributed significantly to our net income. Third, weather related losses and large fire and casualty losses were lower than our historical averages for the first quarter of the year. And finally, our comparative 2018 first quarter results reflected more severe weather and the impact of significant reserves strengthening actions we took in our automobile lines of business.

The combination of factors I just mentioned contributed to very favorable quarter for Donegal Group, with net income of $23 million or $0.82 per diluted Class A share. While we recognize that one favorable quarter does not mean that the challenges that we've been addressing over the past 18 months are fully resolved, we believe that the actions that we have taken have better positioned Donegal Group, both to compete effectively in our marketplace and to produce consistent results over time.

Let's take a deeper dive into the overall performance of our commercial lines business. We continue to shift our overall mix of business to a higher proportion of commercial business where we see greater opportunity for profitability, currently and in the future. Our net premiums written within our commercial segment grew 6.3% in 2018 and 12.7% in the first quarter for 2019. While the first quarter growth was partially attributable to our previously announced reinsurance changes as we implemented a consolidated group program for 2019. We attribute the majority of the premium increase to new accounts we have written across all of our operating regions.

We were pleased with the underwriting performance within our commercial lines of business with the exception of the ongoing commercial automobile challenges that we'll continue to address with rate increases that averaged 9.9% for the quarter, as well as reunderwriting actions and more restrictive underwriting guidelines in several underperforming states. Our commercial multi-peril and workers' compensation lines generated profitable results and we have many commercially focused independent agents who are actively growing their commercial business with us.

Moving to personal lines, we were pleased to see that the lower than average losses from first quarter weather events and relative stability within the prior period reserves for our personal auto line of business led to a 97.8% first quarter statutory combined ratio for the segment. As we outlined in previous calls, we entered into a book transfer agreement to facilitate an orderly exit from the personal lines market in seven states where we have not achieved profitability in recent years.

We began that process with policies effective in February and will non-renewal all of our personal lines policies in those seven states as they expire throughout the remainder of the year. While this non-renewal process will slow our top line growth during the year, we expect that our reduced exposure in those seven states will further accelerate the improvement of our personal lines results.

We continue to remain committed to balancing -- balanced presence in the remainder of the markets, offering a mix of commercial and personal lines products at pricing levels that will allow us to remain profitable through fluctuating market cycles.

Before I turn it to Jeff for a brief review of our financials, I do want to provide an update on the Legacy Systems Modernization Project that Donegal Mutual is undertaking. While we do not plan to give substantial technical updates every quarter, we do feel it's important for our stockholders to understand the favorable long term impact of this important initiative. The key goal is to position our business to keep pace with our larger competitors in our abilities to evaluate risk, leverage data analytics to determine appropriate pricing for our products, provide excellent service to our agents and customers and ultimately generate higher operating returns. The multi-year project includes the implementation of a new policy administration system and software platforms that will enable enhanced data analytics and reporting capabilities.

In addition, to increased operating stability and efficiencies we will gain by replacing the remaining legacy technology systems, our employees, agents and customers will benefit from the array of opportunities these new platforms will provide. Those opportunities include streamlining the business process and workflows that will enable us to transform our business operations, enhancing our ability to quickly implement product changes and bring new products to market, introducing greater digital capabilities to further our interactions with agents and policyholders and enhancing our data analytics and business intelligence and ultimately establishing a very strong foundation to support emerging technologies.

Donegal Mutual has employed leading industry consultants to assist in the design, configuration and implementation of these new systems. Following a phased implementation approach, we expect the first line of business to go live in this platform in early 2020.

With that, I'll turn it over to Jeff for a review of our quarterly results and then I'll return with a few closing comments.

Jeffrey Miller -- Chief Financial Officer

Thanks, Kevin. I'll briefly discuss a few of the operational and financial metrics for the first quarter and certainly welcome any questions later in the call. Overall, our net premiums written increased 2.4% to $199.9 million and net premiums earned grew 3.5% to $188.1 million for the first quarter of 2019. There were a number of moving parts that impacted our top line growth for the first quarter. First, we benefited from lower reinsurance premiums compared to the first quarter of 2018 as a result of implementing a consolidated reinsurance program for 2019 and making various changes to our intercompany reinsurance agreements with Donegal Mutual. Those changes added approximately $8.2 million to our 2019 net premiums written.

We continue to shift to -- continued our strategic shift in the mix of our business toward a sustainable balance that we believe will result in consistent underwriting profitability. Our commercial lines net premiums written represented approximately 57% of our total writings and grew at nearly 13% during the period. We attribute this growth primarily due to new commercial accounts or insurance subsidiaries that's written throughout their operating regions, a continuation of renewal premium increases that averaged 2.7% for the quarter and lower reinsurance premiums.

The renewal premium increases excluding workers compensation averaged 5.4%. Our commercial lines growth was offset by an 8.6% reduction in net premiums written in our personal lines, largely due to lower personal auto and new business growth and the impact of our exit from the personal lines markets in seven unprofitable states. Partially offset by rate increases that averaged 6.8% for the quarter and lower reinsurance premiums.

Shifting to loss activity. The 65.5% loss ratio for the first quarter of 2019 represented solid improvement as compared to the 86.1% loss ratio for the first quarter of 2018. Weather related losses of $9.7 million for the first quarter of 2019 were primarily related to typical winter weather conditions, including a short period of freezing temperatures in January and a wind storm event in the mid-Atlantic region in late February. However, the weather related losses for the first quarter of 2019 compared favorably to the $13.7 million of losses we incurred from severe winter weather conditions our regions experienced in the first quarter of 2018 and to our five year average of $11.8 million for the first quarter weather losses.

Large fire losses, which we define as individual fire losses in excess of $50,000 were $6.6 million for the first quarter 2019, which was lower than the large fire losses of $9.7 million for the first quarter of 2018. A decrease in commercial property fires accounted for the majority of the decrease from the prior year quarter.

We were pleased to report modest favorable prior year loss reserve development in virtually all of our lines of business in the first quarter of 2019, which represented a significant positive shift compared to the prior year first quarter when we took significant reserves strengthening actions in response to changes we noted in claim reporting and loss development trends. This favorable shift in loss reserve development accounted for 16.8 percentage points of the 20.6 percentage point improvement in our loss ratio compared to the prior year first quarter.

Our expense ratio remained consistent at 32.6% for the first quarter 2019 compared to 32.5% for the first quarter 2018. Overall, our combined ratio was 99.3%, much improved compared to the 119.3% in the prior year quarter, but not yet reflecting the level of underwriting profitability that we were targeting for the year as a whole. Net investment income of $7 million for the first quarter of 2019 was up 10.5%, primarily due to an increase in average invested assets relative to the prior year first quarter.

Net investment gains of $18.1 million for the first quarter of 2019 included $12.7 million from the previously announced sale of our banking subsidiary, Donegal Financial Services Corporation or DFSC, that closed on March 8, 2019. As well as $6 million related to unrealized gains in the fair value of equity securities held at March 31, 2019.

As of March 31st, Donegal Group had sold all of the shares of Northwest Bank stock that it received as part of the consideration in the DFSC sale. Our income tax expense for the first quarter of 2019 reflected an accounting tax benefit related to the sale of DFSC. Without getting into the technical accounting details, the key takeaway is that, our first quarter tax expense does not reflect the effective tax rate that we expect for the remaining quarters of 2019.

Moving to the bottom line. Our net income for the first quarter of 2019 was $23 million or $0.82 per diluted Class A share, compared to a net loss of $18.2 million or $0.66 per Class A share for the first quarter of 2018. As a result of that net income and the unrealized gains in our available for sale bond portfolio, our book value per share increased to $15.10 at March 31, 2019. compared to $14.05 at December 31, 2018. All in all, a great start to the year and we hope that we can continue to build on the positive momentum.

With that, let me turn it back to Kevin for closing remarks.

Kevin Burke -- President and Chief Executive Officer

Thanks, Jeff. As we've highlighted during this call, our results for the first quarter were impacted by a number of factors, some of which were substantial in terms of their financial impact. And as you have heard, there were many elements that went in our favor during the quarter.

However, it's very important to point out that when you strip out the unusual investment activity there were notable improvements such as our strong commercial lines production and substantial improvement in our underwriting results in both personal lines and commercial lines. The corrective actions we have taken over the past 18 months are having a direct impact.

As always, we thank everyone on the Donegal team for their efforts. And I'll conclude our prepared remarks by encouraging all of our investors to review our annual letter to shareholders. That was included in our printed annual report and is available in digital form in the Investor section of our website. In that letter we have outlined our strategic initiatives and several elements of our long term strategy, which we have organized into four general categories.

Number one, improve our financial performance. Two, utilize technology to improve our operational efficiency. Three, strategically modernize our business in order to achieve operational excellence. And four, enhance our market position to compete effectively.

While we were pleased with the first quarter results, we're continuing to focus our efforts on these key initiatives and strategies related to generating consistent favorable returns for our stockholders over the long term.

With that, we'll ask the operator to open the lines for any questions that you may have. Thank you.

Questions and Answers:

Operator

(Operator Instructions) The first question comes from Christopher Campbell of KBW. Please go ahead. Your line is open.

Christopher Campbell -- KBW -- Analyst

Hi. Good morning, gentlemen.

Kevin Burke -- President and Chief Executive Officer

Good morning, Christopher.

Christopher Campbell -- KBW -- Analyst

Can we just get a breakdown on the reserve releases by product line?

Jeffrey Miller -- Chief Financial Officer

I'd be happy to do that. As we said, virtually all of the lines of business had some breakdown or had some favorable development in terms of the impact on the loss ratio and in personal auto it was around 2.3% of the loss ratio, homeowners was around 2.4%, commercial auto was virtually flat, CMP virtually flat, workers comp 4.2% of the worker's comp loss ratio and other commercial lines, there was some development there too, although that's a fairly small line, some favorable development.

So for commercial lines, in total around two points and personal lines 2.3%, $4 million in total. I don't know if you would prefer that I give you the dollar amounts, but those were the impact on the loss ratios.

Christopher Campbell -- KBW -- Analyst

No, I think that's fine, because we have the combined ratios. So that's easy enough. Now had there been any negative premium impacts from the seven state personal lines exit?

Kevin Burke -- President and Chief Executive Officer

No, we have not seen any, Chris. We -- I was -- in fact, I was just in the Midwest last week and I was in South Dakota and Nebraska, two of the key states that were impacted by the personal lines decision. And I had an opportunity to really sit down with the agents in both of those states and we are not seeing any negative impact as a result of that. And in fact, when we looked at our commercial lines production, because many of those agents have commercial lines with us in addition to the personal lines, it was not impacted at all and we're seeing -- actually the growth in the Midwest and particularly in South Dakota and Nebraska from a commercial standpoint it's actually up above the 12.7% that I reported for the overall company in the 15% to 16% range in terms of new commercial opportunity.

So for that part of the country and there were -- as you're aware, a number of other carriers that make similar decisions as it relates to the personal lines, we have not seen any negative impact as a result of that, so we're very pleased to see that.

Christopher Campbell -- KBW -- Analyst

Okay. Great. And then, can you guys give us any additional color on current rate increases that you're seeing in the two auto lines and workers comp?

Kevin Burke -- President and Chief Executive Officer

On the commercial auto side, we continue to see aggressive rate taking that is sticking. As I noted, the 9.9% is what we had taken in commercial auto in the first quarter. We continued to see that across the board and there was a comment earlier in a couple of different carriers reporting on sort of the hardening of the market in commercial. We're not necessarily seeing that, we are seeing it in the commercial area -- commercial auto, so we see the continued rate increases and being fairly aggressive with that. We anticipate that we're going to continue to do that until we get that line to a level of profitability that we're comfortable with.

In the private passenger auto piece, we are starting to level that out a little bit. As you're aware, in 2018 and actually starting late in 2017, we took very, very aggressive rates in private passenger auto. Much of that, Chris, was base rate increases and that has substantially slowed our new business growth, which was planned. But now as we entered 2019, the approach is to take a much more refined approach in terms of those rate increases, lower base rate and then also allowing us to apply a higher rate where needed based on loss ratios. But also providing some relief on some better performing personal lines auto business, because our intent is to slowly start to grow that personal lines business once we get on solid footing from a profitability standpoint.

Jeffrey Miller -- Chief Financial Officer

Chris, just following up on that. The workers comp that you had asked about, there was a reduction in our rates in workers comp and it's somewhere around 3% range and that's likely to continue as we go into the year in a number of the states where we do business. The rate bureaus have mandated some rate reductions and we've offset some of that with loss cost multiplier increases, but we will see some rate decreases overall as we move forward and through the year. It's 3.4% for the first quarter and especially in the state of Pennsylvania which is our primary state, we'll see some additional rate reductions that were effective April 1.

Christopher Campbell -- KBW -- Analyst

Got it. And are you seeing any frequency or severity trend. From my guess, a strong economy or any of that starting to creep into the loss costs that aren't getting picked up by the rating bureaus?

Jeffrey Miller -- Chief Financial Officer

So the rating bureaus, obviously, are making their decisions on a lag. So they're looking at a very favorable experience that the industry has had over the last several years. We do see some increases in severity here and there, but I would say that our frequency statistics in workers comp continue to be very favorable and I think that's pretty much the case across the industry. So surprisingly so, with the economic growth that you mentioned, we're not necessarily seeing that result in an uptick in frequency. And for other lines of business that would be the case as well, very stable frequency trend. So that's very welcomed.

Christopher Campbell -- KBW -- Analyst

Okay. Got it. And then one last one on the expense ratio. So I know you guys are starting kind of a multi-year project upgrade systems, but the expense ratio is roughly flat year-over-year. I guess like 10 bps higher. So I guess, just -- I would have expected that to go up a little bit more. So how should we think about the expense ratio going forward?

Jeffrey Miller -- Chief Financial Officer

Yeah. Good question. Let me just kind of give you a sense of the -- when the system costs are going to kind of taken effect and have an impact on our expense ratio, because we're currently working on the first release of that project. We have not yet put any of that software into service. So we have not yet begun to depreciate the cost of the project. So when the first release goes live in early 2020, at that point we will then begin to depreciate the cost related to that release and that'll be spread over, roughly a five year period. So it's going to take a little bit of time before we see the impact in our expense ratio of the big project, but we're projecting somewhere in that 2021 to 2022 range that project will have as much as a 1.4% increase in our expense ratio.

We're reviewing this intervening time as a kind of an opportunity to take other actions to reduce our expense ratio so that we can offset those expenses when they begin to hit. So, over the next several years we're going to be focusing on ways we can reduce expenses to give us the headroom we're going to need to absorb those additional expenses.

Christopher Campbell -- KBW -- Analyst

Got it. But then over time you would -- I'm assuming that those rate increases that you have to pay on the technology, would that get put into your rates like the rates that you charge across the products. I mean, would it be fully absorbed over time by product level rate increases?

Jeffrey Miller -- Chief Financial Officer

Over time it will, but those costs will actually be spread out over, basically, a 10 year period. So it'll be a gradual inclusion of that expense base (inaudible) it'll take some time for that to really work its way through the numbers.

Christopher Campbell -- KBW -- Analyst

Got it. So there is a lot. So you'll get the expenses upfront, but eventually you'll end up capturing that in your rating algorithms?

Jeffrey Miller -- Chief Financial Officer

Correct. And we do expect that the new systems will ultimately give us a great deal of efficiencies that will allow us to do more with less. And especially as we have attrition with -- normal attrition within our workforce, we expect that we'll be able to process our business more efficiently and not have to add staff.

Christopher Campbell -- KBW -- Analyst

Okay. Wonderful. Well, thanks for all the answers. Best of luck in the next quarter.

Kevin Burke -- President and Chief Executive Officer

Thank you, Chris.

Operator

Your next question comes from Doug Eden of Eden Capital Management. Please go ahead. Your line is open.

Doug Eden -- Eden Capital Management -- Analyst

Good morning and congratulations on the strong start to the year.

Kevin Burke -- President and Chief Executive Officer

Good morning, Doug.

Doug Eden -- Eden Capital Management -- Analyst

I have two questions. One is a bit of a follow-up on the previous question around the expenses. What was the impact of the Peninsula office consolidation in the first quarter on EPS? And is that expected to continue? And then secondly, with the change in equity valuations affecting the fourth quarter results negatively and the first quarter results positively. Does it make sense to reduce these holdings from the current -- it's approximate 4% to 5% of assets. So it doesn't detract or deflect going forward from the core underlying operating results improvement that we're expecting? Thank you.

Kevin Burke -- President and Chief Executive Officer

Doug, I'll take the first peace on the -- the Peninsula piece. On an annualized basis the way that we had that projected is about a $4 million annualized savings. And so -- and the other piece of that is, we were really able to absorb that staff internally and then also take the product which was sort of garage -- smaller garage business at Peninsula and be able to market that and sell it through across our entire geographical footprint. But it's about a $4 million annualized savings that we've accounted for.

Jeffrey Miller -- Chief Financial Officer

That would translate about $0.03 to $0.04 per Class A share in terms of the EPS impact. And your second question on the equities, we don't have a significant portion of our portfolio invested in equities. And, yes, there is some volatility related to the market fluctuations that is in our earnings. That's the case for all insurance companies that are holding equities. In our view, we believe that equities still have an upside, we are certainly less exposed to equities than most of our peers and we're primarily investing in dividend paying stocks that we believe will long-term hold up better than the market as a whole. So, that's basically our strategy at this point. We're not necessarily adding significantly to those holdings, but we think that it's prudent to have some segment of our portfolio in equities to take advantage of what we believe will be a stronger return over time.

Doug Eden -- Eden Capital Management -- Analyst

Okay. And one follow up, if I may. I know we've talked about it before, but could you both give some color on your -- on the philosophy around potential share buybacks. I know there's a lot of -- there's some expense certainly around the technology initiatives over the next several years. But form an investment standpoint with the Class A shares trading at such a discount to tangible book, it would appear that it would be such a such a strong lift to ROE to be purchasing back some shares even at modest levels. Could you all give your current analysis or thoughts on that.

Jeffrey Miller -- Chief Financial Officer

Sure, Doug. This is Jeff again. We did kind of update our analysis at the end of the first quarter as a result of selling Donahoe Financial Services Corp and having some funds available to determine what's the best use of those funds. And we did consider share repurchases. As you know, we do have a share repurchase program that was approved a number of years ago by our board of directors and we have not exercised on that program.

We did analysis assuming that we would purchase the remaining shares that are available which is about 442,000 shares that we could purchase under that particular program. And even at different levels of the stock price, it made a fairly small impact in terms of our earnings per share over the next couple of years as we're projecting it. It really didn't have much impact on our return on equity or book value per share. So it would require a significant investment of resources for a fairly small impact on those metrics.

And as we viewed the opportunities before us -- the other thing we wanted to point out is that, we have multiple audiences. So we also are making sure that the regulators are comfortable with various metrics, including our underwriting leverage ratios. And so we're monitoring that from a statutory perspective and, I think it makes more sense for us to make sure that we have a strong surplus base to grow our premiums, because ultimately we believe that growing our premium base profitably is a better way to increase book value per share.

So that's our current view of it. And I understand that reasonable people could take a different view, but at this point we're not planning to invest any funds into the repurchase of shares

Doug Eden -- Eden Capital Management -- Analyst

Oaky. I appreciate the answer. I know it's a balancing act and that's may be something to consider over time once the shift continues to be settled. And then also, I noted that at the end of the fourth quarter a competitor, if you will Old Republic purchased a rather large stake in the company, approximately 3% of the outstanding shares. Had you all noted that and any knowledge about what they're -- what their intent is as far as growing that stake? It's unusual for one insurer to use their surplus to purchase shares of another insurer.

Kevin Burke -- President and Chief Executive Officer

Doug, we were aware of it. We've had no contact from them whatsoever. And so, we don't view it as anything that's sort of an anomaly for us or anything else. But I've had no contact, no -- obviously, we've had no communication with them. But it was duly noted.

Jeffrey Miller -- Chief Financial Officer

And I would say that it likely reflects our dividend yield which kind of ties to your first question. We view our dividend yield which is higher than most of our peers as kind of the way we're returning capital to shareholders. And I would suspect that Old Republic and others that are purchasing our stock would see that dividend yield as a favourable reason to buy it.

Doug Eden -- Eden Capital Management -- Analyst

Sure. Well, certainly a complement. I think it's a good thing. So -- Well, thank you both for your efforts and for a very strong quarter and keep up the good work.

Jeffrey Miller -- Chief Financial Officer

Thanks, Doug.

Kevin Burke -- President and Chief Executive Officer

Thank you, Doug

Operator

Your next question comes from the line of Bob Farnam of Boenning and Scattergood. Please go ahead. Your line is open

Bob Farnam -- Boenning and Scattergood -- Analyst

Yeah. Thanks and good morning. Just to -- I guess -- I just like to talk about commercial auto for a sec. So it sounds like you didn't have much in terms of prior year reserve development there, so the $116.5 million is kind of what the current accident year numbers look like. With rates going up 10% or so, I'm just curious kind of what you see -- where you see that line going in the future? How long do you think it will take to kind of get back down toward breakeven underwriting? I just don't know how much of that 10% rate increase is kind of offsetting a loss trends in that particular line. So any commentary you can provide on commercial auto?

Kevin Burke -- President and Chief Executive Officer

Sure. Bob, this is Kevin. A couple of items. First off, you're absolutely right. So we're going to continue to take aggressive rate increases as it relates to commercial auto. Those rates seem to be sticking, which we're pleased with that. But there's more to it than just taking rate. There's a number of things that we are currently doing to sort of accelerate, getting that line of business back to a reasonable level.

We have increased our loss control services as it relates to our larger accounts with fleet vehicles. And so we've done everything from add additional loss control representatives in the various states in which we operate. We're making those services available to our policyholders. We are evaluating a telematics program right now, several different ones that we could make available to our policy holders in a way to sort of monitor the driving of those fleet vehicles. And then, we are also taking a very hard look on a state by state basis in terms of the exposure growth that we're having where we've got commercial auto and growing. So certain states -- state of Georgia is a good example, where we're taking a very hard look at the new business that's coming in and making sure that when we look at contractors, landscapers in those areas, we're sort of refraining from being very aggressive on the quoting side.

So we think that between the loss control services that we've enhanced and we'll continue to push that including add -- adding loss control Donegal representatives in those very states to work with our policyholders. We'll continue to push the envelope on rate increases, on the commercial auto side of the house and then also taking on an account by account basis within the various states reducing our overall exposure based on the various accounts that we're having opportunities to quote.

The combination of those items were hopeful, will accelerate the recovery. In terms of when, I really don't know to project that out. Our hope is that, on a quarter by quarter basis we'll continue to see improvement in the loss ratios as we have. But it's not right around the corner, I will say that. The industry generally is struggling with this and it's going to take several more quarters where we really start to see some very, very solid gains on the profitability side.

Bob Farnam -- Boenning and Scattergood -- Analyst

Okay. So basically the only thing you can really say at this point is, you're hoping that the combined ratio will improve going forward quarter-to-quarter, but you can't really say to what extent, but hopefully we're looking in a positive direction.

Kevin Burke -- President and Chief Executive Officer

I would think we are absolutely looking in a positive direction because of the actions that we're taking. It would be hard to forecast whether that's three or four quarters from now given there's a lot of different components to it.

Bob Farnam -- Boenning and Scattergood -- Analyst

Right. Okay. Thanks, Kevin.

Kevin Burke -- President and Chief Executive Officer

Sure.

Operator

There are no further questions at this time. I'd like to turn the call over to Jeff Miller for closing remarks.

Jeffrey Miller -- Chief Financial Officer

Well, thank you to all of you for joining the call today. We look forward to speaking to you again following our second quarter financial results. Have a great day.

Kevin Burke -- President and Chief Executive Officer

Thank you.

Operator

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

Duration: 35 minutes

Call participants:

Jeffrey Miller -- Chief Financial Officer

Kevin Burke -- President and Chief Executive Officer

Christopher Campbell -- KBW -- Analyst

Doug Eden -- Eden Capital Management -- Analyst

Bob Farnam -- Boenning and Scattergood -- Analyst

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