United Fire Group, Inc

Good day and welcome to the United Fire Group Insurance 2024 second quarter 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 a touch-tone phone. To withdraw your question, please press star, then two. 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 Lidewinger, 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. Such forward-looking statements are based on current expectations, estimates, forecasts, and projections about the company, the industry in which we operate, and beliefs and assumptions made by management. The company cautions investors that any forward-looking statements include risks and uncertainties and are not a guarantee of future performance. Any forward-looking statements made by us in this presentation is based only on information currently available to us and speaks only as of the date on which it is made. 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 discussed specifically in our most recent annual report on Form 10-K. 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 Leidwinger, CEO of UFG Insurance.

Thank you, Tim. Good morning, everyone, and welcome to our second quarter conference call. I'll begin this morning by providing a high-level overview of our results. Following my comments, Julie Stevenson will discuss our underwriting results and Eric Martin will discuss our financial results in more detail. Our second quarter results reflect continued progress in our efforts to deliver improved performance through the strategic execution of our business plan. We remain focused on engaging with our distribution partners in the pursuit of profitably growing our business. deepening expertise across the company, enhancing our capabilities, and leveraging technology to improve efficiency. Net written premiums grew 9% to $326.1 million, led by ongoing growth in our core commercial and alternative distribution business units. Core commercial growth remained steady with average renewal premium increases of 12.3%, healthy retention, and attractive new business opportunities reflecting our continued focus on profitability. Rate increases accelerated to 9.8% with all liability lines increasing in the second quarter and improving margins above lost cost trends. The second quarter combined ratio of 105.6% improved significantly over prior year, primarily due to lower prior period reserve development, lower catastrophe losses, and improvement in underlying combined ratios. Prior period reserve development in the second quarter was neutral overall. Consistent with the first quarter, favorable emergence across several lines of business enabled us to further reinforce our position against the future inflationary uncertainty challenging our industry in certain liability lines. Loss emergence remains within our expectations, and we believe these proactive steps are a prudent measure to mitigate the impact of a potential further acceleration in severity trends. As you will recall, in the second quarter of 2023, we significantly strengthened loss reserves as a result of investments in our actuarial processes, as well as increased depth of analysis that provided a more informed understanding of our reserve position. Those investments also led to greater visibility into our underlying loss trends, and we reacted quickly to recognize the increased levels of severity observed in our liability portfolio. For the last four quarters, we've been reflecting this elevated view of trend in our analysis, as well as management decisions, which has fostered greater confidence in the strength of our reserve position. We remain committed to establishing a strong and stable reserve position, providing a solid foundation to grow our business. The second quarter catastrophe loss ratio of 11.2% improved nearly two points over prior year and was below our historical five-year and 10-year averages in a quarter of elevated industry losses. We continue to execute a broad range of actions to improve our property catastrophe risk profile. The second quarter underlying loss ratio of 58.9% improved 5.7 points from the prior year, reflecting strong earned rate achievement and continued disciplined underwriting. In addition, results in the second quarter of last year were impacted by elevated surety loss activity. Our intense focus on expense management has reduced our overall cost structure compared to last year. Efficiencies in non-revenue generating functions have funded investments in talent and technology supporting our underwriting capabilities, shifting our cost structure toward the underwriting expense ratio. As a result, the underwriting expense ratio increased to 35.5% in the second quarter, while reductions in loss adjustment expenses contributed to a lower loss ratio. We will continue to diligently manage the underwriting expense ratio down over time. The second quarter underlying combined ratio of 94.4% improved 4.8 points over prior year as a result of successful execution of our ongoing actions to improve core margins, as well as normalizing surety loss activity that impacted prior year's results. Net investment income increased 59.2% from prior year to $18 million on improving fixed maturity income along with higher valuations on alternative assets. Fixed maturity investment income increased 19% from prior year to $16 million as we repositioned portions of our fixed income portfolio to take advantage of the current attractive reinvestment rates and further support future earnings. Recently, we identified rating errors within our core commercial business and recorded a pre-tax charge of $3.2 million in anticipation of voluntarily issuing refunds to certain affected policyholders. We are committed to resolving this matter as expediently as possible and have begun working with state regulators to ensure resolution. This charge was recorded in the other income and loss line and does not impact any of this quarter's combined ratio metrics. The improvements in underlying profitability were sufficient to generate an operating profit in the second quarter, excluding the impact of this rating error adjustment. We remain committed to continuing to drive improvements in our performance through strategic execution of our business plan during the second half of the year. I'll now turn the call over to Julie Stevenson, our Chief Operating Officer, to discuss her underwriting results in more detail.