United Fire Group Q1 2024 Earnings Call Transcript

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May 8, 2024

There are 5 speakers on the call.

Operator

Good morning. My name is Anthony, and I will be your conference operator today. At this time, I would like to welcome everyone to the UFG Insurance First Quarter 2024 Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions.

Operator

Please note this event is being recorded. I would now like to turn the conference over to UFG Vice President of Investor Relations, Tim Borst. Please go ahead.

Speaker 1

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 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 1

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. 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.

Speaker 1

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 ks. 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.

Speaker 2

Thank you, Tim. Good morning, everyone, and welcome to our Q1 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. I'm pleased with our Q1 as net income increased to $13,500,000 driven by improved underwriting results and higher investment income.

Speaker 2

The momentum we established in 2023 carried into the Q1 of 2024 as net written premium grew 17 point 6% to $321,000,000 led by our core commercial and assumed reinsurance business. Core commercial growth remained strong fueled by an average renewal premium increase of 10.9%, steady retention and attractive new business opportunities reflective of our continued focus on profitability. Rates increased 9% and remained above loss cost trends. The 1st quarter combined ratio improved 4 points to 98.9% compared to the Q1 of 20 23 and our lowest over the past 8 quarters. The underlying loss ratio improved to 59.4%, reflecting continued underwriting and pricing discipline across the portfolio.

Speaker 2

Catastrophe losses contributed 4.6% to the combined ratio in line with the same period last year and just below our 5 year historical average. The expense ratio improved to 34.9% as we continue to diligently manage cost structure while supporting strategic long term investments in our business. Prior period reserve development was neutral overall with favorable emergence across several lines of business, enabling us to further reinforce our position against the heightened inflationary uncertainty in some liability lines. Investment income increased 28.5 percent to $16,300,000 as we continue to benefit from reinvesting at higher interest rates. In the Q1, we completed the strategic reallocation of public equity assets into fixed maturities and transition management of our investment portfolio to New England Asset Management.

Speaker 2

Through continued robust execution of our strategic initiatives, we believe we are well positioned to deliver improved long term performance. I'll now hand it over to Julie Stevenson, our Chief Operating Officer to discuss our underwriting results in more detail.

Speaker 3

Thank you, Kevin. Net rent premium in our core commercial business, which includes small business, middle market and construction grew 12% to $223,000,000 in the Q1 compared to prior year. Renewal premium change in our core commercial business was 10.9% with rates up 9% and exceeding loss trends. Commercial property premium change continued to exceed 20% with rate achievement at 16.5% and exposures increasing 5.5%. Commercial auto and umbrella continued to improve, now achieving rate above 11%.

Speaker 3

We remain diligently focused on price adequacy across the portfolio with an increased emphasis on general liability as the industry continues to battle ongoing inflationary pressures. New business production was consistent with our expectations this quarter, and we remain pleased with the quality of accounts being added to the portfolio. We are also encouraged by increased submission activity in middle market and construction as we better align with our distribution partners and focus on delivering additional capabilities in support of becoming an account solution provider. In small business, we've rolled out our new BOP product and quoting platform in 12 additional states, helping accelerate new business production. Retention remained consistent and within expectations at 80% as we continue to refine our portfolio profile.

Speaker 3

Our alternative distribution portfolio showed strong multifaceted growth in the quarter, resulting from the addition of several new accounts, continued benefit from 2023 contracts that have yet to expire and organic growth from a few accounts benefiting from favorable market conditions. Our outlook for this business remains within our stated expectations of 25% of the UFG portfolio, and we are pleased with the continued opportunities this portfolio affords. Specialty excess and surplus lines net written premiums declined approximately $1,000,000 from prior year as we continued repositioning our portfolio to reflect a mix of business that will produce more sustainable, consistent profitability. Surety net written premium declined slightly in the Q1 as we continue to take a measured approach to growth, taking steps to reinforce our underwriting discipline and territory management to return the portfolio to our historic levels of profitability. The Q1 underlying loss ratio of 59.4% improved just over 4 points from Q1 of 2023, as results reflect improvement in our core commercial lines from a combination of underwriting actions, rate achievement and improving frequency.

Speaker 3

Most notably, the property portfolio produced significant improvement, a steady rate and exposure increases are starting to fully manifest in the results. Additionally, automobile showed some improvement as prior re underwriting and changes in portfolio mix continue to show decreased frequency, while rate is covering our severity trends. Other liability and surety loss ratios are elevated relative to the Q1 2023 as they now reflect our recent opinion that evolved throughout 2023. Prior period reserve development was flat overall in the Q1. Loss emergence was neutral to favorable across most of the portfolio.

Speaker 3

Lines that required additional strengthening throughout the latter half of twenty twenty two and through 2023 revealed no additional pressure this quarter. However, favorable development in property, workers' compensation and surety allowed us to further secure our reserve position in the other liability line, though we did not see any notable adverse activity to weaken reserves. This will further strengthen our position given the uncertainty surrounding loss cost trends in these lines. I will now turn the call over to Eric Martin, our Chief Financial Officer to discuss the rest of our financial results.

Speaker 4

Thank you, Julie. Turning to the investment portfolio, as Kevin mentioned, late in the Q1, we successfully transitioned management of our fixed income investment portfolio to our partners at New England Asset Management. Total invested assets and cash ended the Q1 at $1,900,000,000 with a slightly higher position in cash equivalents as we completed the sale of our public equity portfolio and we'll work to reallocate that cash into fixed income. Net investment income was $16,300,000 in the 1st quarter, up 28.5% compared to the Q1 of 2023. We continue to realize the benefits of investing in a higher interest rate environment with new money yields exceeding total portfolio yield by a healthy margin.

Speaker 4

There was approximately $1,000,000 of realized losses in the Q1 as we have identified opportunities to make small adjustments in our fixed income portfolio that will further increase future income. 1st quarter net income was $0.52 per diluted share and non GAAP adjusted operating income of 0.56 dollars per diluted share. These positive earnings supported an improvement in book value per common share to $29.13 During the Q1, we declared and paid a $0.16 per share cash dividend to shareholders of record as of March 8, 2024, continuing our 56 year history of paying dividends back to March 1968. This concludes our prepared remarks. I will now have the operator open the line for questions.

Operator

We will now begin the question and answer session. It appears there are no questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Kevin Leidwanger for any closing remarks.

Speaker 2

Thank you for joining us and we look forward to talking with you again next quarter. Thank you.

Operator

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

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Key Takeaways

  • UFG reported Q1 net income of $13.5 million, driven by improved underwriting results and a 17.6% increase in net written premiums to $321 million.
  • The combined ratio improved 4 points to 98.9%, the lowest in eight quarters, as the underlying loss ratio fell to 59.4% and the expense ratio tightened to 34.9%.
  • Core commercial premiums grew 12% with average renewal premiums up 10.9% (rates +9%), while commercial property rate achievement reached 16.5%, reflecting disciplined pricing and steady retention.
  • Investment income rose 28.5% to $16.3 million after reallocating public equity into fixed maturities and transitioning portfolio management to New England Asset Management.
  • Small business production accelerated with the rollout of a new BOP product and quoting platform in 12 additional states, and alternative distribution growth remained on track at 25% of the portfolio.
AI Generated. May Contain Errors.
Earnings Conference Call
United Fire Group Q1 2024
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