United Fire Group, Inc

Good morning, everyone. My name is Jamie, and I'll be your conference operator today. At this time, I would like to welcome everyone to the UFG Insurance fourth quarter and year-end 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 and then one. To withdraw your questions, you may press star and two. Please note today's event is also being recorded. At this time, I'd like to turn the conference call over to Randy Patton, Co-Chief Financial Officer. Sir, please go ahead.

Good morning, everyone, and thank you for joining this call. This morning, 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. Joining me today on the call are Chief Executive Officer Randy Ramlow and Mike Wilkins, Chief Operating Officer. We also have other members of management available to answer questions at the end of our prepared remarks. Before I turn the call over to Randy Ramlow, a couple of reminders. First, 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 FTC filings. Also, please note that 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 Ramlow, CEO of U of T Insurance.

Randy Ramlow Thanks, Randy. Good morning, everyone, and welcome to our fourth quarter and year-end 2021 conference call. I am extremely pleased to report strong fourth quarter results today. The profitability we reported is a culmination of the hard work and team effort that has gone into developing and executing our one UFG strategic plan, which is aimed at long-term profitability, diversified growth, and continuous innovation. Based on the financial results reported today, it is clear to me that our strategic plan is working and achieving the desired outcome. Though we knew a plan of this scale would take time to fully implement, we believe we've hit our stride and are confident of our path forward. In the year ahead, we are committed to building on the progress we've made and continuing toward our goal of delivering consistent, sustainable, and profitable results for all UFG stakeholders. Now for some highlights from our results. The fourth quarter marks the third consecutive quarter we reported improvement in our core loss ratio. Our core loss ratio, which removed the impact of catastrophe losses and favorable prior year reserve development, improved 24.5 percentage points and 8.0 percentage points respectively in the fourth quarter and year-to-date 2021 as compared to the same periods of 2020. This trend of quarterly core loss ratio improvement began in the second quarter of 2021 and is a direct result of our strategic initiatives. For a summary of our core loss ratio calculation, refer to the slide 13 in the presentation on our website. The improvements in the core loss ratio contributed to the reported combined ratio of 83.1 percent in the fourth quarter, which is our lowest quarterly combined ratio in over 14 years, dating back to the second quarter of 2007. For the full year of 2021, we reported a combined ratio of 100.3 percent, an improvement of 15.6 percentage points over the previous year. The line of business with the most significant loss ratio improvement was commercial auto, which improved 68.1 percentage points in the fourth quarter and 25.1 percentage points for the full year of 2021 as compared to the same periods of 2020. The improvement in profitability in our commercial auto line of business was from a combination of a decrease in frequency and severity of losses and an increase in favorable prior year reserve development. The combined ratio also benefited from favorable prior accident year reserve development at 9.5 points and 5.1 points respectively during the fourth quarter and full year of 2021 compared to unfavorable prior accident year reserve development of 4.7 points in the fourth quarter of 2020 and favorable prior accident year reserve development of 1.7 points for the full year of 2020. Most of the favorable prior accident year reserve development this year was in our commercial auto line of business. The favorable reserve development of 5.1 points reported for 2021 continues our historical trend of having overall favorable reserve development every year since 2009. The annual average favorable development reported since 2009 is 6.3 points. Also contributing to our profitability in the fourth quarter were below average catastrophe losses. Pre-tax catastrophe losses added 3.5 percentage points to the combined ratio in the fourth quarter of 2021, which is nearly two points lower than our fourth quarter historical average of 5.3 percentage points. The fourth quarter is the first time in eight consecutive quarters that CAT losses were below our historical average dating back to the third quarter of 2019. For the full year of 2021, CAT losses added 10.2 percentage points to the combined ratio compared to 13.5 percentage points in the previous year. This compares to a 10-year historical average of 7.3 percentage points added to the combined ratio for cat losses. As part of our strategic plan, we are taking steps to reduce volatility by limiting our exposure to the level of catastrophe losses experienced in recent quarters. One example of this is our now nearly complete exit from personal lines, which was a contributing factor to below average cat losses incurred in the fourth quarter. In addition to the exit of personal lines, we've also strategically diversified our book of business with less cap-exposed business such as surety, ENS, in the marine, and assumed reinsurance business. Before I turn the call over to Mike, I want to make mention of some additional good news. In December, AMBEST affirmed the financial strength rating of A, excellent for the property and casualty subsidiaries of United Fire Group Inc. This is the 28th consecutive year we've earned an A financial strength rating from AMBEST. AMBEST ratings are a meaningful measure in the insurance industry, with an A rating given to companies that have an excellent ability to meet their ongoing insurance obligations. I will now turn the call over to Mike Wilkins. Mike?