United Fire Group, Inc

Good morning. My name is Chuck, and I'll be your conference operator today. At this time, I would like to welcome everyone to the UFG Insurance Second Quarter 2021 Financial Results Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Randy Patton, Assistant Vice President and Controller. Please go ahead, sir.

Good morning, everyone, and thank you for joining this call. Earlier today, we issued a news release on our results. To find a copy of this document, please visit our website at UFGinsurance.com. Press releases and slides are located under the Investor Relations tab. Our speakers today are Chief Executive Officer Randy Ramlo, Mike Wilkins, Chief Operating Officer, and Don Jaffrey, Chief Financial Officer. Please note that our presentation today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The company cautions investors that any forward-looking statements include risks and uncertainties and are not a guarantee of future performance. These forward-looking statements are based on management's current expectations. The actual results may differ materially due to a variety of factors, which are described in our press release and SEC filings. Please also note that in our discussion today, we may use some non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures are also available in our press release and SEC filings. At this time, I'm pleased to present Mr. Randy Ramo, CEO of UofG Insurance.

Thanks, Randy. Good morning, everyone, and welcome to our second quarter 2021 conference call. We are very pleased to report our most profitable second quarter in six years with net income of 54 cents and adjusted operating income of 35 cents per diluted share. The improvement in profitability is primarily due to a decrease in frequency and severity of commercial auto liability losses and below average catastrophe losses. During the second quarter of 2021, we reported a commercial auto net loss ratio of 67%, an improvement of 11.7 percentage points compared to the second quarter of 2020. We are pleased with this improvement and believe it is a direct result of our strategic initiatives. Throughout 2020 and the first half of 2021, our focus has been on reducing the size of our commercial auto portfolio by non-renewing underperforming accounts and reducing the number of exposure units. Slide six in our presentation on our website highlights the progress we are making with our strategic initiative of portfolio diversification through rebalancing our mix of business. Commercial Auto now makes up only 21% of our new business premium for the first half of 2021 as compared to 33% in 2019. Also, we are achieving growth in our more profitable lines of business, with general liability increasing from 21% to 24%, commercial property increasing from 11% to over 18%, and inland marine growing from 9% to 15% from 2019 to 2021. We are also seeing growth in our surety, specialty, and assumed reinsurance lines of business, which contributed to our improved profitability in the second quarter of 2021. The decline of new commercial auto business, especially in targeted classes and jurisdictions, coupled with the growth of our more profitable lines, will allow us to continue to achieve greater diversification, reducing our vulnerability to commercial auto claims. Also contributing to the improvement in profitability in the second quarter of 2021 were below average catastrophe losses. Catastrophe losses added 9.6 points to the combined ratio in the second quarter of 2021 compared to 19.2 percentage points in the second quarter of 2020. Our 10-year historical average for the second quarter is 10.6 points. The largest catastrophic event in the second quarter of 2021 was a $4 million convective storm in early April in the state of Texas. During the second quarter of 2021, we also saw improvement in our core loss ratio. This improvement occurred while we also strategically established reserves earlier in the claim cycle with greater pessimism. Slide 12 in our presentation shows that our core loss ratio improved 3.5 percentage points in the second quarter of 2021 as compared to the same period in 2020. If we take into consideration the recovery of $15.4 million in the second quarter of 2020 under our all lines aggregate reinsurance program, our core loss ratio improved 9.3 percentage points in the second quarter of 2021 as compared to the second quarter of 2020. While we are encouraged by the improvement in our core loss ratio, we remain cautiously optimistic heading into the third quarter which is historically our second highest order for catastrophe losses. Before I turn the call over to Mike, I am pleased to report that our new online quoting platform, which we began piloting in mid-April, has now been rolled out in select states. The amount of premium written on the platform as of today is not material, but we believe this platform will propel our growth in the small commercial market, delivering straight-through processing and policies and growth in our profitable BOP line of business. I will now turn the call over to Mike Wilkins. Mike?