NASDAQ:UFCS United Fire Group Q2 2023 Earnings Report $28.63 +0.90 (+3.25%) Closing price 05/2/2025 04:00 PM EasternExtended Trading$28.62 -0.01 (-0.03%) As of 05/2/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast United Fire Group EPS ResultsActual EPS-$2.27Consensus EPS -$2.27Beat/MissMet ExpectationsOne Year Ago EPSN/AUnited Fire Group Revenue ResultsActual Revenue$267.09 millionExpected Revenue$266.80 millionBeat/MissBeat by +$290.00 thousandYoY Revenue GrowthN/AUnited Fire Group Announcement DetailsQuarterQ2 2023Date8/7/2023TimeN/AConference Call DateTuesday, August 8, 2023Conference Call Time10:00AM ETUpcoming EarningsUnited Fire Group's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by United Fire Group Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 8, 2023 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Good morning. My name is Chuck, and I will 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 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 Borst. Operator00:00:28Please go ahead, sir. Speaker 100:00:30Good 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 atufginsurance.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 Leidwanger Executive Vice President and Chief Operating Officer, Julie Stevenson and Executive Vice President and Chief Financial Officer, Eric Martin. Speaker 100:01:00Before 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. Speaker 100:01:31Also, 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. Speaker 200:01:49Thank you, Tim, and good morning, everyone, and welcome to our Q2 conference call. I'll begin this morning by providing a high level overview of our Q2 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 31 and our press release yesterday afternoon, UFG's combined ratio for the Q2 was 133 Our results were impacted by $53,000,000 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. Speaker 200:02:32UFG 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 4 quarters, we have deepened our actuarial expertise, including hiring UFG's 1st Chief Actuary. In addition, we have 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. Speaker 200:03:13With this decision, we believe any major reserve strengthening has been addressed. Of course, as part of our continued advancement of our reserving processes, we'll 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 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. Speaker 200:03:53In addition, we've reengaged our distribution partners, restored responsible growth in our core commercial business, evolved the underwriting organization to deepen our 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 percent to $299,000,000 in the Q2 of 2023 compared to the Q2 of 2022. This marks the 5th consecutive quarter of enterprise premium growth with core commercial business growing for the 2nd consecutive quarter. Speaker 200:04:41Although all our business units except Surety contributed favorably 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 2nd quarter, an increase to 5.8 points over the Q2 of 2022. Approximately 3 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. Speaker 200:05:17We 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 5 10 year averages of approximately 11%. Even though this quarter's results were within a reasonable range of our 5 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 quarter compared to the favorable development of 5.4 percent in 2022. Speaker 200:05:57As mentioned previously, the $53,000,000 in reserve completion. The expense ratio was 34.5 percent in the 2nd quarter, down 0.7 point compared to a year ago. We've been intensely focused on improving the expense ratio is 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. Speaker 200:06:43With that, I'll hand it over to Julie Stevenson, our Chief Operating Officer to discuss our underwriting results in more detail. Julie? Speaker 300:06:49Thank you, Kevin. I'm pleased to see momentum continuing to build across our portfolio of core commercial, which includes small business and middle market, grew 10% to $198,000,000 compared to the Q2 of 2022, with all components of production increasing. Core commercial new business premium was $39,000,000 in the 2nd quarter with efforts to reengage with our agents now supporting new business production levels appropriate for sustained measured growth. This coupled with our refined risk selection and underwriting discipline provide confidence this business will contribute favorably to our long term profitability. Retention for our core commercial business increased to 84% in the 2nd quarter, which we view as a steady state number that still allows for responsible pruning of accounts that no longer meet our pricing needs or risk profile. Speaker 300:07:49Renewal premium change in our core commercial business accelerated to 8.5% in the 2nd quarter. Average rate increases were up from the Q1 across all lines of business, with total rate achievement at the highest level since the Q4 of 2021. We are pleased with the 2nd quarter property renewal premium change of 19% with rate increases of 12% and exposure increases of 7%. We remain diligently focused on price adequacy across all lines of business relative to loss trends. Our Our assumed reinsurance portfolio grew net written premium over 30% in the second quarter as we continue to execute our strategy to deliver that enabled us to continue to optimize this highly curated portfolio by selectively adding new partnerships while non renewing a portion of our legacy retrocession portfolio as well as ongoing growth in our existing partnerships. Speaker 300:08:52Surety net written premium is down compared to the Q2 of 2022 due to reinsurance reinstatement premiums. While the business continues to grow on a gross basis as we expand our geographic presence and deepen our agency partnerships. Our Specialty Excess and Surplus business grew modestly in the 2nd quarter as we continue to manage attachment points and pricing to provide consistent profitable results. As Kevin mentioned, our 2nd quarter underlying loss ratio of 64.6% includes 3 points of impact from increased surety net losses and associated reinsurance reinstatement premiums. UFG's surety business has historically been very profitable. Speaker 300:09:36In the Q2, we experienced a few large losses, which can happen in this line from time to time. While these losses had unique circumstances, We also acknowledge that broader post pandemic economic conditions affecting the availability and cost of materials and labor, combined with robust construction demand, are contributing to heightened risk in this line. UFG is responding with increased underwriting rigor, resulting in refined guidelines to ensure the surety line continues to deliver favorable returns over the long term. Turning to the strengthening of prior period reserves, I want to first provide some additional insight on the investments and advances we have been making in this area over the past 4 quarters. Beneath the strategic investments in talent and rigor of actuarial processes Kevin mentioned, UFG has expanded the depth, to strengthen our position relative to loss trends across a range of long tailed liability lines of business. Speaker 300:10:44The largest impacts were in other liability in commercial automobile as seen in our MD and A tables. Other liability experienced approximately 64 points of prior period development across a range of long tailed exposures and prior accident years. Majority of this strengthening occurred in excess and surplus lines, excess casualty and Construction Defect Exposures. The nature of claim discovery for construction defect losses and differences in state legal environments introduces significant variation in loss behavior patterns. Traditional actuarial methods can be difficult to rely on given this uncertainty, So alternative techniques are required to better reflect the unique nature of these patterns. Speaker 300:11:29Additionally, frequency and severity can vary significantly across states. So it is necessary to segment the analysis appropriately recognizing these differences. The excess and surplus lines excess casualty book has grown over the last several years, while the risk profile has evolved. Relying solely on longer term loss patterns may not be appropriate, and additional benchmarks and loss trend analysis have been added to provide additional insight. This has allowed us to improve our reserve position for this book of business. Speaker 300:12:01More broadly, general liability and commercial auto reserves were also strengthened as additional studies led to an increased view of ultimate severity. We believe these actions position our reserves to better manage the uncertainty in these longer tailwinds and strengthen our balance sheet position against future risk. Turning to catastrophe losses, in the second quarter, we experienced 13 points on the combined ratio. Our underwriting teams continue to reduce and optimize our catastrophe exposure by improving our property risk profiles, raising deductibles and driving pricing increases in high risk geographies. As a result, property premiums are increasing, while expected loss ratio, PMLs and our catastrophe footprint are decreasing. Speaker 300:12:48I want to take a moment to provide some additional details on how we are evolving and investing in the success of our core commercial business. With nearly 70% of UFG's net written premium coming from core commercial, This business has a significant impact on our overall results and is an area of investment and focus. Over the past year, we have discussed expense management and attracting and retaining talent. A key part of delivering on this strategic plan is deepening the expertise in our underwriting organization by evolving our core commercial business from a generalist to a specialist, building on the previously established specialization in surety, Specialty and Assumed Reinsurance. As the market has evolved and the distribution landscape has changed, underwriting expertise is valued and recognized as a is a strong competitive advantage. Speaker 300:13:48Specialization creates alignment and greater opportunity for success with agency partners. Last month, we took significant steps to accelerate Core Commercial's journey from a generalist to a specialist by establishing distinct business units and operating models for small business and middle market, supported by a centralized business enablement function. In the small business market, success requires sophisticated and well tuned analytics, along with cutting edge digital technologies. This creates an efficient agency experience that results in high submission flow and low touch underwriting to attract lower volatility business. At UFG, we are already leveraging these capabilities and actively building others to better serve our agents and small business customers. Speaker 300:14:35Success in middle market requires highly specialized industry segment focused multiline underwriting strategies supported by equally sophisticated risk control and claims handling processes. Our current strength in construction lays the foundation for success in other industry verticals, helping us better align with the specialization happening across our distribution partners. We continue to advance our underwriting skill set across all lines of business to ensure appropriately robust risk selection, pricing, contractual integrity and account management. Developing line of business and industry expertise across the entire portfolio, including increased cross functional integration with actuarial, risk control and claims creates alignment and greater opportunities for successful acceleration of profitable growth. Driving operational efficiencies reduces the expense ratio and positions UFG to deliver consistently profitable results. Speaker 300:15:32I will now turn the call over to Eric Martin to discuss the rest of our financial results. Speaker 400:15:38Thank you, Julie. I will first provide some additional commentary on the 2nd quarter expense ratio of 34.5%, which declined 0.7 point from a year ago. As previously discussed, we've been intensely focused on reducing is a 7% decline in headcount since the beginning of Q4 of 2022 and increased earned premium levels from the rebound in growth. In the Q2, the benefits of these actions were sufficient to outweigh the upward impact on our expense ratio from strategic technology investments in our new policy administrative platform and benefits to our prior year expense ratio from a change in the design of employee post retirement benefits that we discussed last quarter. Turning to investment results, Invested assets ended the 2nd quarter at $1,800,000,000 85% of which is allocated to a high quality fixed income book. Speaker 400:16:45Within our portfolio, we began reducing our exposure to public equities, which shrank to 7% of assets in the 2nd quarter. The strategic reallocation of public equities We intend to continue executing on this trade as long as these attractive conditions exist. Net investment income was $11,300,000 in the 2nd quarter, up 23% compared to the Q2 of 2022. We continue to realize the benefits of investing in a higher interest rate environment with new money yields exceeding 5%, helping increase fixed maturity income relative to a year ago. The positive impact from higher bond yields was partially reduced by negative valuation impacts on our limited partnership portfolio of $4,000,000 in the 2nd quarter. Speaker 400:17:41Realized gains of $1,000,000 driven by changes in the valuation of our core equity portfolio rounded out 2nd quarter investment results. 2nd quarter underwriting and investment returns resulted in a net loss of $2.23 per diluted share and a non GAAP adjusted operating loss of $2.27 per diluted share. Return on equity in the second quarter was a negative 15.7 Conference and we saw a slight deterioration in our unrealized loss position that decreased the book value per common share to $26.77 During the Q2, we declared and paid a $0.16 per share cash dividend to shareholders of record as of June 2, 2023, continuing our 55 year history of paying dividends dating back to March 1968. This concludes our prepared remarks. I will now open the line for questions. Speaker 400:18:39Operator? Operator00:19:07And the first question will come from Paul Newsome with Piper Sandler. Please go ahead. Speaker 500:19:12Good morning. Thanks for the call. Maybe you could just talk a little bit more about rate versus What you peg is claims inflation for your broad businesses, not just core commercial, but The specialty businesses and reinsurance as well. Just to give us a sense of whether or not on an underlying basis You think you're making progress in getting rate versus current levels of claims inflation Speaker 600:19:51Certainly, we believe our rate increases are accelerating overall Faster than our view of trend. And I think that's important and remains a key focus for us moving forward. We're pleased with the rate achievement that We increased across all of our lines of business, across all of our business units. Certainly, most pleased with what's happening in the property space, Given the catastrophe results we took for the quarter, that remains a focus and we'll continue to accelerate through the end of the year. Speaker 500:20:27How should we think about the That loan perspective given what you're doing with your cash management efforts? Given what you're doing with your cat management efforts? Speaker 200:20:55So Paul, we're within expectations, I think, relative to the current cat loads. As we continue to reduce our cat footprint, we'll reevaluate those as we go forward. But for the moment, we're within expectations. Speaker 500:21:18The underlying combined ratio, if you pull out the 3 points from the surety business, Deteriorated a little bit, it looks like. Could you talk about sort of those the sources of that deterioration? Speaker 600:21:34Julie again. Yes. So we see the underlying loss ratio deteriorating by 6 points. You already mentioned the impact of surety. We certainly know that. Speaker 600:21:44We also are still feeling the impact of the increased ceded reinsurance costs from our oneone renewals. That's approximately a point. We also are experiencing a higher underlying loss ratio in our assumed reinsurance as compared to this time last year, which contributes really the remaining difference. As we stated in our Q1 results, we are enhancing our analysis of that book and have made some adjustments in the allocation of our loss reserves to better align with the exposures. I know we talked about that extensively last quarter. Speaker 600:22:18Although we know this creates some noise in the first and second quarter results, we think that the year to date underlying loss ratio For this book is a good representation of the portfolio going forward. Speaker 500:22:35Obviously, a new chief actuary changes the reserve philosophy, which resulted in The change in the reserves this quarter, but the year end tends to be when things really change, at least for most companies. Do you anticipate the year end process will be different than it has in the past? Speaker 200:23:00Hi, Paul, it's Kevin. So we believe that any major reserve strengthening has been addressed this quarter. And So, as I indicated in my prepared comments, we will continue to obviously pay very close attention The environmental dynamics going on around us and as we've also stated previously, we'll be very Operator00:23:42with Pico Wealth Management. Please go ahead. Speaker 700:23:47Yes. Good morning. Thank you for the conference call. I was looking at your results and I've been watching results at the fallen insurance company since 1980s. And when people mention the word reserve strengthening, what you're really saying is your reserves are understated And you're taking a charge for that understatement. Speaker 700:24:11Is that correct? Speaker 200:24:15Well, I think the better way for us To characterize that is that we've deepened our analysis around our reserves and based on additional insights, we've decided to strengthen the reserves. And so through that process, we believe that we've taken the appropriate action relative to the current reserves on the portfolio. Okay. Speaker 700:24:40Now with all these changes that you're making and you're talking about different lines of business, my That you're not getting your feet under you. I've seen multiple insurance companies report pretty decent results this If you I can't see the future I can't see what the results are going to look like in 1, 2, 3 years. And I was just wondering with all these changes and all these strengthening and improvement and redirecting the business, Conference. The focus that you're going to have, what can we expect as far as a combined ratio? What is the goal for your combined And what kind of return on equity are you trying to achieve going forward? Speaker 700:25:59Well, thanks for the Speaker 200:26:00question. We're not in a position to provide guidance, but I can give you some general views, right. So you know that the leadership team at the company is relatively new And we're driving a lot of change to reshape the organization with the express purpose of delivering consistent profitability over time. I mean, so the company has had a track record most recently of underperformance and we are making significant changes inside the organization to change The trajectory of the company in terms of both its growth and its profitability. And so you should expect over time to see continued improvement in The company's certainly its growth rate as well as its profitability. Speaker 700:26:40And are you expecting the rest of the year to be a reflection of these changes? Or would next year be a better place to make the analysis Yes, I think you can yes, I think you we anticipate Seeing improvement through the Speaker 200:27:06rest of this year, but and into next year. But the kinds of changes we're implementing We continue throughout this year into next year and into 2025. Thanks so Operator00:27:33much. This concludes our question and answer session. I would like to turn the conference back over to Mr. Kevin Leidwanger for any closing remarks. Please go ahead, sir. Speaker 200:27:44Thanks for joining us and we look forward to Speaker 700:27:45chatting next quarter. Thank you. Speaker 600:27:48Conference.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallUnited Fire Group Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) United Fire Group Earnings HeadlinesUnited Fire Group Inc (UFCS) Shares Gap Down to $27.21 on Apr 25April 25, 2025 | gurufocus.comUnited Fire Group, Inc. announces its first quarter 2025 earnings callApril 23, 2025 | gurufocus.comTrump to redistribute trillions of dollars Trump’s Final Reset Inside the shocking plot to re-engineer America’s financial system…and why you need to move your money now.May 4, 2025 | Porter & Company (Ad)United Fire Group, Inc. announces its first quarter 2025 earnings callApril 23, 2025 | globenewswire.comInstitutional owners may ignore United Fire Group, Inc.'s (NASDAQ:UFCS) recent US$74m market cap decline as longer-term profits stay in the greenApril 10, 2025 | uk.finance.yahoo.comUnited Fire Group initiated with a Buy at JonesResearchMarch 6, 2025 | markets.businessinsider.comSee More United Fire Group Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like United Fire Group? Sign up for Earnings360's daily newsletter to receive timely earnings updates on United Fire Group and other key companies, straight to your email. Email Address About United Fire GroupUnited Fire Group (NASDAQ:UFCS), together with its subsidiaries, provides property and casualty insurance for individuals and businesses in the United States. The company offers commercial and personal lines of property and casualty insurance; and reinsurance coverage for property and casualty insurance. Its commercial lines include fire and allied lines, other liability, automobile, workers' compensation, fidelity and surety coverage, and other insurance products; and personal lines comprise automobile, and fire and allied lines coverage, including homeowners, as well as provides assumed reinsurance products. The company sells its products through a network of independent agencies. 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There are 8 speakers on the call. Operator00:00:00Good morning. My name is Chuck, and I will 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 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 Borst. Operator00:00:28Please go ahead, sir. Speaker 100:00:30Good 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 atufginsurance.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 Leidwanger Executive Vice President and Chief Operating Officer, Julie Stevenson and Executive Vice President and Chief Financial Officer, Eric Martin. Speaker 100:01:00Before 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. Speaker 100:01:31Also, 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. Speaker 200:01:49Thank you, Tim, and good morning, everyone, and welcome to our Q2 conference call. I'll begin this morning by providing a high level overview of our Q2 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 31 and our press release yesterday afternoon, UFG's combined ratio for the Q2 was 133 Our results were impacted by $53,000,000 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. Speaker 200:02:32UFG 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 4 quarters, we have deepened our actuarial expertise, including hiring UFG's 1st Chief Actuary. In addition, we have 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. Speaker 200:03:13With this decision, we believe any major reserve strengthening has been addressed. Of course, as part of our continued advancement of our reserving processes, we'll 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 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. Speaker 200:03:53In addition, we've reengaged our distribution partners, restored responsible growth in our core commercial business, evolved the underwriting organization to deepen our 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 percent to $299,000,000 in the Q2 of 2023 compared to the Q2 of 2022. This marks the 5th consecutive quarter of enterprise premium growth with core commercial business growing for the 2nd consecutive quarter. Speaker 200:04:41Although all our business units except Surety contributed favorably 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 2nd quarter, an increase to 5.8 points over the Q2 of 2022. Approximately 3 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. Speaker 200:05:17We 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 5 10 year averages of approximately 11%. Even though this quarter's results were within a reasonable range of our 5 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 quarter compared to the favorable development of 5.4 percent in 2022. Speaker 200:05:57As mentioned previously, the $53,000,000 in reserve completion. The expense ratio was 34.5 percent in the 2nd quarter, down 0.7 point compared to a year ago. We've been intensely focused on improving the expense ratio is 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. Speaker 200:06:43With that, I'll hand it over to Julie Stevenson, our Chief Operating Officer to discuss our underwriting results in more detail. Julie? Speaker 300:06:49Thank you, Kevin. I'm pleased to see momentum continuing to build across our portfolio of core commercial, which includes small business and middle market, grew 10% to $198,000,000 compared to the Q2 of 2022, with all components of production increasing. Core commercial new business premium was $39,000,000 in the 2nd quarter with efforts to reengage with our agents now supporting new business production levels appropriate for sustained measured growth. This coupled with our refined risk selection and underwriting discipline provide confidence this business will contribute favorably to our long term profitability. Retention for our core commercial business increased to 84% in the 2nd quarter, which we view as a steady state number that still allows for responsible pruning of accounts that no longer meet our pricing needs or risk profile. Speaker 300:07:49Renewal premium change in our core commercial business accelerated to 8.5% in the 2nd quarter. Average rate increases were up from the Q1 across all lines of business, with total rate achievement at the highest level since the Q4 of 2021. We are pleased with the 2nd quarter property renewal premium change of 19% with rate increases of 12% and exposure increases of 7%. We remain diligently focused on price adequacy across all lines of business relative to loss trends. Our Our assumed reinsurance portfolio grew net written premium over 30% in the second quarter as we continue to execute our strategy to deliver that enabled us to continue to optimize this highly curated portfolio by selectively adding new partnerships while non renewing a portion of our legacy retrocession portfolio as well as ongoing growth in our existing partnerships. Speaker 300:08:52Surety net written premium is down compared to the Q2 of 2022 due to reinsurance reinstatement premiums. While the business continues to grow on a gross basis as we expand our geographic presence and deepen our agency partnerships. Our Specialty Excess and Surplus business grew modestly in the 2nd quarter as we continue to manage attachment points and pricing to provide consistent profitable results. As Kevin mentioned, our 2nd quarter underlying loss ratio of 64.6% includes 3 points of impact from increased surety net losses and associated reinsurance reinstatement premiums. UFG's surety business has historically been very profitable. Speaker 300:09:36In the Q2, we experienced a few large losses, which can happen in this line from time to time. While these losses had unique circumstances, We also acknowledge that broader post pandemic economic conditions affecting the availability and cost of materials and labor, combined with robust construction demand, are contributing to heightened risk in this line. UFG is responding with increased underwriting rigor, resulting in refined guidelines to ensure the surety line continues to deliver favorable returns over the long term. Turning to the strengthening of prior period reserves, I want to first provide some additional insight on the investments and advances we have been making in this area over the past 4 quarters. Beneath the strategic investments in talent and rigor of actuarial processes Kevin mentioned, UFG has expanded the depth, to strengthen our position relative to loss trends across a range of long tailed liability lines of business. Speaker 300:10:44The largest impacts were in other liability in commercial automobile as seen in our MD and A tables. Other liability experienced approximately 64 points of prior period development across a range of long tailed exposures and prior accident years. Majority of this strengthening occurred in excess and surplus lines, excess casualty and Construction Defect Exposures. The nature of claim discovery for construction defect losses and differences in state legal environments introduces significant variation in loss behavior patterns. Traditional actuarial methods can be difficult to rely on given this uncertainty, So alternative techniques are required to better reflect the unique nature of these patterns. Speaker 300:11:29Additionally, frequency and severity can vary significantly across states. So it is necessary to segment the analysis appropriately recognizing these differences. The excess and surplus lines excess casualty book has grown over the last several years, while the risk profile has evolved. Relying solely on longer term loss patterns may not be appropriate, and additional benchmarks and loss trend analysis have been added to provide additional insight. This has allowed us to improve our reserve position for this book of business. Speaker 300:12:01More broadly, general liability and commercial auto reserves were also strengthened as additional studies led to an increased view of ultimate severity. We believe these actions position our reserves to better manage the uncertainty in these longer tailwinds and strengthen our balance sheet position against future risk. Turning to catastrophe losses, in the second quarter, we experienced 13 points on the combined ratio. Our underwriting teams continue to reduce and optimize our catastrophe exposure by improving our property risk profiles, raising deductibles and driving pricing increases in high risk geographies. As a result, property premiums are increasing, while expected loss ratio, PMLs and our catastrophe footprint are decreasing. Speaker 300:12:48I want to take a moment to provide some additional details on how we are evolving and investing in the success of our core commercial business. With nearly 70% of UFG's net written premium coming from core commercial, This business has a significant impact on our overall results and is an area of investment and focus. Over the past year, we have discussed expense management and attracting and retaining talent. A key part of delivering on this strategic plan is deepening the expertise in our underwriting organization by evolving our core commercial business from a generalist to a specialist, building on the previously established specialization in surety, Specialty and Assumed Reinsurance. As the market has evolved and the distribution landscape has changed, underwriting expertise is valued and recognized as a is a strong competitive advantage. Speaker 300:13:48Specialization creates alignment and greater opportunity for success with agency partners. Last month, we took significant steps to accelerate Core Commercial's journey from a generalist to a specialist by establishing distinct business units and operating models for small business and middle market, supported by a centralized business enablement function. In the small business market, success requires sophisticated and well tuned analytics, along with cutting edge digital technologies. This creates an efficient agency experience that results in high submission flow and low touch underwriting to attract lower volatility business. At UFG, we are already leveraging these capabilities and actively building others to better serve our agents and small business customers. Speaker 300:14:35Success in middle market requires highly specialized industry segment focused multiline underwriting strategies supported by equally sophisticated risk control and claims handling processes. Our current strength in construction lays the foundation for success in other industry verticals, helping us better align with the specialization happening across our distribution partners. We continue to advance our underwriting skill set across all lines of business to ensure appropriately robust risk selection, pricing, contractual integrity and account management. Developing line of business and industry expertise across the entire portfolio, including increased cross functional integration with actuarial, risk control and claims creates alignment and greater opportunities for successful acceleration of profitable growth. Driving operational efficiencies reduces the expense ratio and positions UFG to deliver consistently profitable results. Speaker 300:15:32I will now turn the call over to Eric Martin to discuss the rest of our financial results. Speaker 400:15:38Thank you, Julie. I will first provide some additional commentary on the 2nd quarter expense ratio of 34.5%, which declined 0.7 point from a year ago. As previously discussed, we've been intensely focused on reducing is a 7% decline in headcount since the beginning of Q4 of 2022 and increased earned premium levels from the rebound in growth. In the Q2, the benefits of these actions were sufficient to outweigh the upward impact on our expense ratio from strategic technology investments in our new policy administrative platform and benefits to our prior year expense ratio from a change in the design of employee post retirement benefits that we discussed last quarter. Turning to investment results, Invested assets ended the 2nd quarter at $1,800,000,000 85% of which is allocated to a high quality fixed income book. Speaker 400:16:45Within our portfolio, we began reducing our exposure to public equities, which shrank to 7% of assets in the 2nd quarter. The strategic reallocation of public equities We intend to continue executing on this trade as long as these attractive conditions exist. Net investment income was $11,300,000 in the 2nd quarter, up 23% compared to the Q2 of 2022. We continue to realize the benefits of investing in a higher interest rate environment with new money yields exceeding 5%, helping increase fixed maturity income relative to a year ago. The positive impact from higher bond yields was partially reduced by negative valuation impacts on our limited partnership portfolio of $4,000,000 in the 2nd quarter. Speaker 400:17:41Realized gains of $1,000,000 driven by changes in the valuation of our core equity portfolio rounded out 2nd quarter investment results. 2nd quarter underwriting and investment returns resulted in a net loss of $2.23 per diluted share and a non GAAP adjusted operating loss of $2.27 per diluted share. Return on equity in the second quarter was a negative 15.7 Conference and we saw a slight deterioration in our unrealized loss position that decreased the book value per common share to $26.77 During the Q2, we declared and paid a $0.16 per share cash dividend to shareholders of record as of June 2, 2023, continuing our 55 year history of paying dividends dating back to March 1968. This concludes our prepared remarks. I will now open the line for questions. Speaker 400:18:39Operator? Operator00:19:07And the first question will come from Paul Newsome with Piper Sandler. Please go ahead. Speaker 500:19:12Good morning. Thanks for the call. Maybe you could just talk a little bit more about rate versus What you peg is claims inflation for your broad businesses, not just core commercial, but The specialty businesses and reinsurance as well. Just to give us a sense of whether or not on an underlying basis You think you're making progress in getting rate versus current levels of claims inflation Speaker 600:19:51Certainly, we believe our rate increases are accelerating overall Faster than our view of trend. And I think that's important and remains a key focus for us moving forward. We're pleased with the rate achievement that We increased across all of our lines of business, across all of our business units. Certainly, most pleased with what's happening in the property space, Given the catastrophe results we took for the quarter, that remains a focus and we'll continue to accelerate through the end of the year. Speaker 500:20:27How should we think about the That loan perspective given what you're doing with your cash management efforts? Given what you're doing with your cat management efforts? Speaker 200:20:55So Paul, we're within expectations, I think, relative to the current cat loads. As we continue to reduce our cat footprint, we'll reevaluate those as we go forward. But for the moment, we're within expectations. Speaker 500:21:18The underlying combined ratio, if you pull out the 3 points from the surety business, Deteriorated a little bit, it looks like. Could you talk about sort of those the sources of that deterioration? Speaker 600:21:34Julie again. Yes. So we see the underlying loss ratio deteriorating by 6 points. You already mentioned the impact of surety. We certainly know that. Speaker 600:21:44We also are still feeling the impact of the increased ceded reinsurance costs from our oneone renewals. That's approximately a point. We also are experiencing a higher underlying loss ratio in our assumed reinsurance as compared to this time last year, which contributes really the remaining difference. As we stated in our Q1 results, we are enhancing our analysis of that book and have made some adjustments in the allocation of our loss reserves to better align with the exposures. I know we talked about that extensively last quarter. Speaker 600:22:18Although we know this creates some noise in the first and second quarter results, we think that the year to date underlying loss ratio For this book is a good representation of the portfolio going forward. Speaker 500:22:35Obviously, a new chief actuary changes the reserve philosophy, which resulted in The change in the reserves this quarter, but the year end tends to be when things really change, at least for most companies. Do you anticipate the year end process will be different than it has in the past? Speaker 200:23:00Hi, Paul, it's Kevin. So we believe that any major reserve strengthening has been addressed this quarter. And So, as I indicated in my prepared comments, we will continue to obviously pay very close attention The environmental dynamics going on around us and as we've also stated previously, we'll be very Operator00:23:42with Pico Wealth Management. Please go ahead. Speaker 700:23:47Yes. Good morning. Thank you for the conference call. I was looking at your results and I've been watching results at the fallen insurance company since 1980s. And when people mention the word reserve strengthening, what you're really saying is your reserves are understated And you're taking a charge for that understatement. Speaker 700:24:11Is that correct? Speaker 200:24:15Well, I think the better way for us To characterize that is that we've deepened our analysis around our reserves and based on additional insights, we've decided to strengthen the reserves. And so through that process, we believe that we've taken the appropriate action relative to the current reserves on the portfolio. Okay. Speaker 700:24:40Now with all these changes that you're making and you're talking about different lines of business, my That you're not getting your feet under you. I've seen multiple insurance companies report pretty decent results this If you I can't see the future I can't see what the results are going to look like in 1, 2, 3 years. And I was just wondering with all these changes and all these strengthening and improvement and redirecting the business, Conference. The focus that you're going to have, what can we expect as far as a combined ratio? What is the goal for your combined And what kind of return on equity are you trying to achieve going forward? Speaker 700:25:59Well, thanks for the Speaker 200:26:00question. We're not in a position to provide guidance, but I can give you some general views, right. So you know that the leadership team at the company is relatively new And we're driving a lot of change to reshape the organization with the express purpose of delivering consistent profitability over time. I mean, so the company has had a track record most recently of underperformance and we are making significant changes inside the organization to change The trajectory of the company in terms of both its growth and its profitability. And so you should expect over time to see continued improvement in The company's certainly its growth rate as well as its profitability. Speaker 700:26:40And are you expecting the rest of the year to be a reflection of these changes? Or would next year be a better place to make the analysis Yes, I think you can yes, I think you we anticipate Seeing improvement through the Speaker 200:27:06rest of this year, but and into next year. But the kinds of changes we're implementing We continue throughout this year into next year and into 2025. Thanks so Operator00:27:33much. This concludes our question and answer session. I would like to turn the conference back over to Mr. Kevin Leidwanger for any closing remarks. Please go ahead, sir. Speaker 200:27:44Thanks for joining us and we look forward to Speaker 700:27:45chatting next quarter. Thank you. Speaker 600:27:48Conference.Read morePowered by