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 United Fire Group Insurance second quarter 2023 financial results conference call. 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 United Fire Group's AVP and Director of Investor Relations, Mr. Tim Borse. Please go ahead, sir.

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, Executive Vice President and Chief Operating Officer Julie Stevenson, and Executive Vice President and Chief Financial Officer Eric Martin. 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 Weidwinger, CEO of UFG Insurance.

Thank you, Tim, and good morning, everyone, and welcome to our second quarter conference call. I'll begin this morning by providing a high-level overview of our second quarter results. Following my comments, Julie Stevenson, our Chief Operating Officer, will discuss our underwriting results in more detail, and Eric Martin, our Chief Financial Officer, will discuss our financial results. As reported in our pre-announcement on July 31st and our press release yesterday afternoon, UFGE's combined ratio for the second quarter was 133%. Our results were impacted by $53 million of prior period reserve strengthening, as well as elevated catastrophe losses. Before we review the quarter's results in more detail, I'd like to take a minute to comment on our decision to strengthen reserves. UFG is committed to a strong actuarial foundation supporting not only the reserving process, but a broader range of business actions critical for delivering profitable growth. Over the past four quarters, we have deepened our actuarial expertise, including hiring UFG's first chief actuary. In addition, we've enhanced our actuary processes, which have increased the breadth and depth of our reserving analysis. The process enhancements have allowed us to better understand the behavior patterns of individually managed lines of business, resulting in more actionable insights across similar product exposures. Analyzing trends at the line of business level allowed us to see potential risks sooner than in the past and accelerated our response to changing conditions. With this decision, we believe any major reserve strengthening has been addressed. Of course, as part of our continued advancement of our reserving processes, continually work to evaluate emerging trends and changing environments. As we move forward, we will respond to adverse trends quickly and favorable ones cautiously. While our decision to strengthen reserves resulted in a near-term negative impact, we believe the robust actuarial organization we are building and the actual insights they will provide help reduce future risk to the company and create significantly stronger foundation on which to grow our business. Improving the sophistication of our actuarial capabilities is just one example of the progress we've made in reshaping the company over the past year. In addition, we've reengaged our distribution partners, restored responsible growth in our core commercial business, evolved the underwriting organization to deepen our expertise and better serve the distinctly different needs of small business and middle market customers, reduced our catastrophe footprint, acted to sustainably reduce our expense ratio, and funded critical investments in talent and technology. Despite the quarter's results, we believe we are executing the right strategies to move our company forward, deliver consistent profitability, and create long-term value for our shareholders. Turning now to the quarter's results, net written premium increased 14.6% to $299 million in the second quarter of 2023 compared to the second quarter of 2022. This marks the fifth consecutive quarter of enterprise premium growth, with core commercial business growing for the second consecutive quarter. Although all our business units except Surety contributed favorably this quarter, I'm especially pleased with the growth in our core commercial business, which resulted from increased new business production, improved retention, accelerating rate increases, and meaningful exposure growth. The underlying loss ratio was 64.6% in the second quarter, an increase of 5.8 points over the second quarter of 2022. Approximately three points of the increase were the result of small number of large losses in our Surety business and the impact of reinsurance reinstatement premiums. Surety Business can experience occasional volatility, but has been exceptionally profitable for UFG. We remain confident in its ability to deliver attractive long-term returns. Catastrophe losses contributed 13% to the combined ratio in the quarter compared to 12.1% in 2022. These results are slightly elevated relative to our five and 10 year averages of approximately 11%. Even though this quarter's results were within a reasonable range of our five and 10 year averages, We believe the current level of loss activity is unacceptable and continue to take a broad range of actions to reduce and optimize our catastrophe exposure across our portfolio. Prior period reserve strengthening contributed 20.8% to the combined ratio in the quarter compared to the favorable development of 5.4% in 2022. As mentioned previously, the $53 million in reserve strengthening was across multiple casualty lines and across multiple accident years. The primary drivers included enhancements to our processes as well as the ongoing impact of social and economic inflation. The expense ratio was 34.5% in the second quarter, down seven-tenths of a point compared to a year ago. We've been intensely focused on improving the expense ratio as part of our strategic plan and are pleased the actions we've been taking to sustainably reduce cost structure while growing the business are beginning to materialize. I'm pleased with the progress we're making in reshaping the company as we execute strategies designed to deliver consistent profitability and create long-term value for our shareholders. We remain fully confident in our path forward as we position UFG to deliver superior financial and operational performance. With that, I'll hand it over to Julie Stevenson, our Chief Operating Officer, to discuss our underwriting results in more detail. Julie?