United Fire Group, Inc

Good morning and welcome to the United Fire Group Incorporated first quarter 2023 results conference call. All participants will be in 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. Please note this event is being recorded. I would now like to turn the conference over to Eric Martin, Executive Vice President and Chief Financial Officer. Please go ahead.

Good morning and thank you for joining this call. Yesterday afternoon, we issued a press 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 Investors tab. Joining me today on the call are UFG President and Chief Executive Officer Kevin Leidwinger and Executive Vice President and Chief Operating Officer Julie Stevenson. Before I turn the call over to Kevin, 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 SEC filings. Also, please 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 will turn the call over to Mr. Kevin Lightninger, CEO of UFG Insurance. Thank you, Eric, and good morning, everyone. Welcome to our first quarter conference call. I'll begin this morning by providing a high-level overview of our first quarter results. Following my comments, Julie Stevenson, our Chief Operating Officer, will discuss our underwriting production results, and Eric Barton, our Chief Financial Officer, will discuss our financial results. As indicated in yesterday's press release, Despite these mixed results, I'm pleased with the progress we are making in positioning UFG to achieve superior financial and operational performance. We remain committed to the execution of our strategic plan designed to deliver long-term profitability, diversified growth, and continuous innovation. We also remain intensely focused on reducing the expense ratio while also attracting and retaining talent needed to evolve a company into a top-performing commercial lines insurer. Turning now to the results, net written premium grew 13% to $273 million in the first quarter of 2023 compared to $241 million in the first quarter of 2022. I'm pleased to note net written premium growth was driven by our poor commercial business as well as assumed reinsurance and surety. Growth returned to our poor commercial business as a result of increased new business production, improved retention, and positive renewal rate change, continuing the momentum we established in the fourth quarter of 2022. The combined ratio was 104% in the first quarter of 2023 compared to 89.5% in the first quarter of 2022. The deterioration in the combined ratio was driven by an increase in the underlying loss and expense ratios, as well as a lack of favorable prior period development. The underlying loss ratio in the first quarter of 2023 was 63.5% compared to 57.5% in the first quarter of 2022. The underlying loss ratio increased six points with approximately three points of the increase attributable to a shift in accident year loss ratio assumptions for our assumed reinsurance business as we more closely aligned expected losses with exposure in that portfolio. Despite the impact on the underlying loss ratio, we remain confident in the performance of our assumed reinsurance business and its expected contribution to our future success. In addition to the impact from assumed reinsurance, roughly two points of the increase in the underlying loss ratio are attributable to the impact of emerging loss trends that led to adverse prior period development in the third and fourth quarters of 2022. Finally, increased seeded reinsurance costs and higher retentions across the broader portfolio impacted the underlying loss ratio by about a point. Catastrophe losses contributed 4.6% to the combined ratio in the quarter compared to 2.6% in the first quarter of 2022. This was in line with our five-year historical average and consistent with our expectations. Our losses in the first quarter include the wind and thunderstorm event that impacted multiple states on March 31st. Prior period development was slightly adverse for the quarter with a 0.1% impact on the combined ratio compared to 4.4 points of favorable development in the first quarter of 2022. The expense ratio was 35.8% in the first quarter compared to 33.8% in the first quarter of 2022. The increase is the result of investments in senior talent that deepens our underwriting, operational, and actuarial expertise. In addition, the expense ratio was impacted by increased costs related to technology and changes in the design of the post-retirement benefit programs. Eric will discuss those in more detail in a few minutes. As I indicated in my opening comments, I'm pleased with the progress we are making. I'm confident we have the right people and the right strategies in place to continue to move our company forward and create long-term value for our shareholders. With that, I would like to introduce Julie Stevenson, our Chief Operating Officer, to discuss our underwriting production results in more detail. Julie?

Thank you, Kevin. We're very pleased with the momentum building across our portfolio of core commercial, assumed reinsurance, specialty excess and surplus, and surety businesses. Our core commercial lines portfolio comprised of small commercial, middle market, construction, and marine business returned to growth with net written premiums increasing by 10% in the first quarter. Core commercial contributed $38 million in new business for the first quarter, a significant increase compared to the first quarter of 2022. New business in this portfolio, while well diversified, relies heavily on our aligned underwriting, risk control, and claims expertise in construction. contributing just over 40% of our new business for the quarter. The line of business mix is consistent with our expectations, and necessary governance protocols are in place to ensure quality business is being added in support of our long-term profitability goals. The retention ratio for our core business was 81% for the first quarter, a five-point improvement compared to the first quarter of 2022. We are pleased to see retention levels improve following our re-underwriting efforts and credit the strength of our agency relationships with our ability to retain quality business and return to a steady state of portfolio management. Renewal premium change in our core commercial business was 7.4% for the quarter, a slight contraction from the first quarter of 2022. However, the renewal premium change in property exceeded 17% in the first quarter of 2023. as rate increases are accelerating to mitigate inflation and higher reinsurance costs. We remain committed to keeping price increases on pace with the current loss trend environment. Our assumed reinsurance portfolio grew net written premium nearly 30% as we continue to execute our strategy to deliver diversifying, profitable growth to the organization. We continue to optimize this highly curated portfolio through selective growth fueled by a hardening reinsurance market and new partnerships. We also chose to non-renew a portion of our legacy retrocession portfolio at January 1 to pursue other business opportunities that provide better diversification value to UFG. Net rent premium grew 30% in our profitable surety portfolio as we expanded our geographic presence and continue to grow our agency partnerships. Our specialty excess and surplus business saw a slight contraction in net written premium in the first quarter as we continue to manage our portfolio with appropriate attachment points and pricing to provide consistent, profitable results. New business increased in the quarter compared to the first quarter of 2022 when we took steps to manage volatility through the purchase of a variable quota shared treaty. I'll now turn the call over to Eric Martin to discuss the rest of our financial results.