United Fire Group, Inc

Good morning and welcome to the United Fire Group Insurance 2026 first quarter 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 remarks, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I'd now like to turn the conference over to Tim Borst, Vice President of Investor Relations. 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, 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 statement includes risks and uncertainties and are not a guarantee of future performance. Any forward-looking statement 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, and the company assumes no obligation to update any forward-looking statements. 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 thank you for joining us today. UFG is off to a terrific start in 2026. We delivered another quarter of excellent results, reflecting our continued positive momentum from the transformative actions we've taken over the past few years to position the company for long-term success. The first quarter, we achieved record net written premium, a nearly four-point improvement in the combined ratio, and a 15% increase in net investment income. These achievements contributed to a return on equity of approximately 13% and the highest first quarter earnings per share in seven years. In addition to our strong financial performance, I'm also very pleased with our focus on growing the business in a disciplined manner, particularly in the face of a changing market. The coordinated strategic actions we've taken to deepen underwriting and actuarial expertise, expand capabilities, strengthen distribution relationships, and invest in the organization's productivity are affording us access to a greater number of business opportunities than previously available to UFG. This has allowed us to remain disciplined, highly selective underwriters focused on profitably growing our business as we more broadly serve our distribution partners. As we continue to thoughtfully, responsibly, and profitably grow our business through expanded opportunity, I'm confident the underwriting discipline we've instilled in the organization over the past three years will serve us well in the evolving market. I will now hand the call over to Julie Stevenson to discuss our underwriting results in more detail. Julie?

Thanks, Kevin. We are pleased with the continued positive momentum in the business, particularly in the face of competitive headwinds emerging in the marketplace. Net rent premium increased 12% in the first quarter, driven by disciplined growth as well as lower seeded reinsurance premium. Net rent premium growth was 9%, absent the impact of some unique seeded premium transactions outlined last year in our first quarter call. Growth continues to be fueled by our core commercial business, which includes small business, middle market, and construction. Core commercial grew net written premium 11% in the first quarter with all three business units contributing. We've been able to leverage our deep distribution relationships and expanded capabilities to maintain a healthy but moderating retention, secure positive rate outcomes, and continue to grow new business by 14% while maintaining our unrelenting commitment to the underwriting rigor we've established over the last three years. Our expanded capabilities have contributed to growth by allowing us to attract more complex risks within the lower to mid-range of the middle market spectrum. Our average account size is growing in a sector of the market that has so far experienced a more modest deceleration in pricing than national accounts, as evidenced by our 4.3% rate achieved for the quarter. Current pricing continues to offer attractive returns. Specialty ENS net rent and premium growth in the first quarter was largely impacted by seeded premium adjustments in the first quarter of 2025. While submission activity is strong, competition is intensifying in the ENS market. Double-digit rate increases achieved a year ago are now mid-single digits as capacity is prevalent from both new entrants and the return of some accounts to the admitted market. Renewal defense for adequately priced and well-performing accounts remains a priority. New business efforts are focused on moderate hazard opportunities in both property and casualty to balance the volatility of the portfolio over time. Surety premiums were stable compared to prior year as we remained staunchly focused on quality. With favorable growth momentum and strong submission activity, we continue to have high confidence in the underwriting discipline and growth prospects for this business. Alternative distribution, which provides UFG with profitable business through three primary channels, treaty, programs, and funds at Lloyds, grew net written premium 13% over prior year. We had a successful and disciplined one-one standard treaty cycle, while pressure on market pricing has increased. We benefited from favorable premium development in existing relationships, while selectively adding attractively priced accounts that offered opportunities beyond the lines feeling the brunt of the softening market. We also expanded our funds at Lloyd's portfolio with $20 million of additional stamp capacity supporting four new syndicates for 2026 that will provide additional premium throughout the year. The Lloyd's market enjoys an A-plus rating from AM Best as a result of the improvement in operating returns. Rates are holding at recent highs, and this investment vehicle offers significant diversifying opportunities. With the breadth of distribution and product opportunities available to us, combined with our tightly managed exposure in this space, we believe our alternative distribution business will continue to afford the flexibility to prudently grow this highly curated portfolio through varying market cycles. Moving to profitability, our loss ratio continues to reflect the quality of our improved portfolio with an underlying loss ratio of 57% in the first quarter. The commercial lines business continues to benefit from strong earned rate achievement and the benefits of our refined underwriting appetite and portfolio actions. The improvement in commercial results was offset by an increased loss ratio in the assumed reinsurance business, driven by rate reductions more prevalent in this market. Despite this impact, our reinsurance business continues to meet our profit expectations. We've also incorporated some additional conservatism into our estimates, recognizing the uncertainty in the changing market dynamics, yielding a small increase in the underlying loss ratio over prior year. Prior year reserve development was neutral overall in the first quarter. Our actuarial review this quarter reflected an abbreviated analysis and we made some modest, offsetting adjustments across the portfolio. Of particular note, however, development in our liability portfolio was flat as our estimates began showing some stability for the quarter after continued emphasis to strengthen these reserves. The first quarter catastrophe loss ratio of 3.7% was 1.3 points below prior year. Our first quarter result was below historical five and 10 year averages and reflects our ongoing actions to improve our catastrophe risk profile in recent years. We'll now turn the call over to Eric to discuss the remainder of our financial results.

Thank you, Julie. Our high quality fixed income portfolio continued to deliver a sustainable increase in net investment income. which grew 15% in the first quarter to $27 million. Fixed maturity income of $24.9 million increased 18% from prior year while maintaining duration and an average AA credit quality rating. Over the past four quarters, the size of our fixed maturity portfolio has grown by nearly $300 million as the virtuous cycle of improved underwriting profitability benefits all aspects of enterprise value creation. The elevated interest rate environment continues to provide opportunities to sustainably increase fixed maturity portfolio return as new money yields remained steady at approximately 5% and exceeded the overall portfolio average. Outside of fixed income, our portfolio of approximately $100 million of limited partnership investments generated a return of $1.3 million in a quarter that, while positive, was lower than in recent quarters. Turning to the expense ratio, the first quarter result of 34.9% improved three points from prior year. While the prior year expense ratio was elevated by costs associated with the final stages of development of a new policy administration system, the benefits of ongoing growth and discipline management actions have contributed more than one point of improvement in the expense ratio over the past year. We expect our ongoing actions to result in a continued gradual reduction of the expense ratio over time. First quarter net income was $1.15 per diluted share with non-GAAP adjusted operating income of $1.16 per diluted share. This quarter's earnings improved book value per common share to $37.06. The increase in interest rates in the first quarter caused our unrealized loss position to increase from $34 million at year-end 2025 to $53 million at the end of the first quarter, negatively impacting book value per share by 57 cents. Adjusted book value per share, which excludes the impact of unrealized investment losses, increased 74 cents to $38.61. From a capital management perspective, during the first quarter, we declared and paid a 20 cent per share cash dividend to shareholders of record as of February 24th, 2026. With UFG delivering double digit return on equity and our stock price trading near adjusted book value, we are attractively positioned to deliver compelling growth and shareholder value over time. This concludes our prepared remarks. I will now have the operator open the line for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then 1 on your touchtone phone. If you're using any speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we'll pause momentarily to assemble our roster. And our first question comes from Ken Bianchi from Piper Sandler. Please go ahead.

Good morning, this is Cameron from Paul Newsome. Congrats on the quarter. You're starting to see solid business growth in retention improvement and core commercial. Are you seeing any incremental competition in that business and how are you balancing that growth versus margin discipline in that business?

Hi, this is Julie. I'll answer that for you. You know, this moderation in rates and increased competition is not unexpected for the quarter. But we still feel very good about our growth trajectory. The underlying discipline that we've worked so hard to put in place over the past few years, I think, have positioned us really well going into this market. We believe there are still ample opportunities with positive margin available to us in this market. And we're very confident about the quality of the portfolio. So retention may fluctuate a bit quarter to quarter as the market continues to soften, but We'll continue to insist on adequate pricing account over account, and I think we're positioned very well to continue to grow.

Great. And then on the expense ratio improvement, you broke down a little bit how much of that is structural versus more of a one-time improvement. How can we begin to think about run rating those improvements from the new policy administration system on the expense ratio?

Hey, good morning, Cam. This is Eric. Thanks for joining us. Yes, as we mentioned in our comments, when you look quarter over quarter, we're down about three points on the expense ratio. And we had two points of that improvement was due to the completion of some costs from our policy administrative system that we were finishing up in the early stages of last year. And then we've got one point due to growth. So this quarter's number is a very clean number at 34.9. There's really nothing unusual from it. As we look forward here, we would continue to see improvement in the expense ratio with an assumption as we grow at 10%, we would expect it to come down around 60 or 70 basis points year over year looking into the future here.

Awesome. Well, for me, thanks.

The next question comes from Jason Weaver from Jones Trading. Please go ahead. Hi, Jason. Is your line on mute?

Hi. Good morning, guys. Thanks for taking my question. We're all back now. I know you touched on this before. It's just one for me. But looking at the deceleration trend and renewal rate increases, would you ascribe that to mix-related, reflective of the elevated competition that you've been speaking about, or possibly an intentional effort to bump share gains here?

I think it's more based on competitive behavior. You know, we're very pleased that the rates are still positive. It does vary significantly by line of business. And so, you know, we're trying to approach every single account and every single opportunity by finding the right rate for the exposures that we're underwriting. We feel very good about where we're positioned and we'll continue to navigate the competition in that way.

All right. Thank you for that color. Congrats on the quarter, guys.

Again, if you have a question, please press star, then one. There are no more questions in the queue. This concludes our question and answer session. I would like to turn the conference back over to Kevin Bleidwinger for any closing remarks.

Well, thank you for joining us today. We're off to a great start in 2026. Our deep and underwriting expertise and expanding capabilities are affording us access to a greater number of business opportunities than previously available to UFGE. We're leaning into those opportunities as a disciplined, solution-oriented underwriting company focused on profitably growing our business as we more broadly serve our distribution partners. We remain confident in our ability to strategically execute our business plan while navigating the complexities of a changing market. Thanks again for joining us, and we look forward to talking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.