United Fire Group, Inc. Price & Performance (UFCS)

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 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. 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 Leidlinger, CEO of UFG Insurance. Thank you, Tim. Good morning, everyone, and welcome to our fourth quarter conference call. Begin this morning by providing a high level overview of our results. Financial results in more detail.

In 2024, we achieved the highest level of net written premium in our company's seventy nine year history.

Addition, we produced the best annual combined ratio and the highest adjusted operating income since '20 These milestones reflect the actions we've taken over the past two years to deepen our expertise, evolve our capabilities and improve our investment returns. While 2024 marked a return to underwriting profitability for UFG, our work is far from finished. We remain confident in our ability to execute our business plan to further improve and are grateful for our people and their dedication to delivering the deep expertise specialized capabilities, personal relationships and responsive service that our partners and policyholders value. Turning now to the results. In the fourth quarter, written premium grew 13% led by our core commercial and assumed reinsurance business.

Core commercial growth was driven by average renewal increases of 11.9% a substantial increase in new business production and stable retention. On a full year basis, net written premium grew 15% to $1,200,000,000 fourth quarter combined ratio improved to 94.4%, the lowest in eleven quarters. The full year combined ratio improved more than 10 points to 99.2% due to improvement in the underlying combined ratio stable prior year reserve development and catastrophe losses below historical averages. The fourth quarter underlying loss ratio improved 4.3 the full year underlying loss ratio improved 4.3 points to 57.9%, These improved results reflect strong earned rate achievement exceeding loss trends and continued underwriting discipline resulting in improved frequency. Tax fee losses were well below historical averages at 1.6% for the quarter and 5.4% for the year.

Prior year reserve development remained neutral overall in the fourth quarter and for the full year.

The fourth quarter and full year expense ratios were elevated at 37.135.9% respectively.

Due to investments in talent to deepen expertise across the company, accelerated development of our new policy administration system is now poised for implementation in 2025 and increased agency and employee incentive costs from the company's improved performance. Net investment income improved to $23,200,000 in the fourth quarter and $82,000,000 Fixed maturity income increased $70,000,000 for the year as new purchase yields remained strong and we also benefited from improved valuations on our limited partnership portfolio for the full year. Reported book value per share decreased slightly in the fourth quarter because of the increase in after tax unrealized loss caused by increased interest rate. Our improved annual earnings and ROE approaching double digits allowed adjusted book value per share to grow $1.95 for the year to $33.64 During the fourth quarter, we successfully resolved rating error in our core commercial business that were identified in the second quarter. As a result, we've reversed a $3,200,000 contingent liability established in the second quarter. Finally, our hearts go out to all those impacted by the tragic wildfires in [indiscernible] Our claims are risk control professionals continue to assist policyholders in the wake of the destruction. At this time, we estimate losses in the range of $7,000,000 to 10,000,000 in the first quarter from this tragic event.

I'll now hand it over to Julie Stevenson, our Chief Operating Officer, to discuss our underwriting results in more detail.

Thank you, Kevin. I want to begin by saying how pleased I am with our business United performance this year. We exceeded the full year growth and profit plan for 2024, while significantly advancing capabilities and efficiency across the organization. Positioning us well to continue our progress into 2025. Moving to the quarter's results, net written premium in our core commercial business, which includes small business, middle market and construction, grew 13% to $184,000,000 in the fourth quarter compared to prior year. Growth across each of these core commercial business units contributed to our record business volume and our growth prospects remain attractive in the current market. Renewal premium change in our core commercial business remained strong, at 11.9%, with rates up 10.8% and exceeding loss trends. Commercial property premium change moderated slightly from the third quarter, but remained strong at nearly 20% still significantly exceeding loss trends. Rate achievement for general liability increased in the quarter exceeding 9%. And has built steady momentum over the last three quarters. Automobile and umbrella continue to produce rate changes in the mid double digits. Our overall net loss trend remains steady in the mid single digits. Severity trends remain elevated, but in line with our expectations while we continue to see ongoing frequency improvement across the portfolio.

Retention remains steady and within expectations at 80%, allowing room to continue to reposition the portfolio and improve overall quality. Core commercial new business production was strong. And well above prior for the quarter with small business completing its rollout of a new platform and product, while middle market and construction added quality accounts delivered through improved alignment with our distribution partners. Our specialty business has generated three straight quarters as our target appetite and portfolio strategy has come together more clearly with our new leadership on board. Alternative Distribution delivered diversifying and profitable business volume. The fourth quarter underlying loss ratio of 55.7% improved 4.3 points from the fourth quarter twenty twenty three. Continuing the improvement seen throughout the year driven by strong earned rate achievement, and continuing favorable frequency trends. The quarter's results also reflect some adjustments associated with our Surety and Umbrella portfolios. In surety, we had been reflecting a conservative view of this book throughout 2024, following unfavorable experience in 2022 and 2023. As the year closed out, we reduced our current year reserves significantly to fully reflect the improved results seen throughout 2024. We are very pleased that our efforts to restore this portfolio to its historical profit levels are beginning to be realized.

An offsetting action was taken in the current year for our commercial umbrella [indiscernible] While there are no early signs of adverse experience in the current year, due to the late reporting nature of this line, we've proactively increased our current year loss ratio to be consistent with the strengthened reserve positions we've been building for prior accident years. Is only further exacerbated in the current increasingly litigious environment. We feel it is prudent to take a conservative view of this Despite some of this noise observed in the quarter, we are pleased with the trajectory of our full year results and our confident we will see continued improvement heading into 2025. We're now seeing an early upswing in our earned rate benefit from the last six quarters of accelerated rate achievement and expect to continue to see further benefit as this continues to earn into 2025. These elevated rate levels are now beginning to compound, resulting in a strong positive margin of rate and excess of loss trend despite stubbornly high, but importantly stable loss severity trends. Additionally, although these severity trends are creating significant hurdles for UF and the entire industry, we continue to see some partially offsetting benefit from improved frequency results emanating from our more disciplined underwriting and repositioning of the portfolio.

All of our core commercial lines have demonstrated continuous improvement in frequency over the last three years. We have been pricing and reserving our liability lines with estimated severity trends in the near to low double digit range for the last eighteen months and we maintain this view heading into the New Year. Although elevated, this has held steady and our rate and frequency improvement are proving to be a sustainable response to the current inflationary environment.

Prior year reserve development was flat overall in the fourth quarter as well as the full year. Generally speaking, we saw much of the same dynamics we have shared throughout the year, with many lines showing favorable indications affording We experienced some adverse movement in our assumed reinsurance portfolio and also some late emerging claims in our umbrella book for older accident years. Our efforts over the past eighteen months to both increases while maintaining a stable reserve position. Commercial automobile and general liability including our construction defect reserves, have been holding steady and in some cases indicating favorable movement. This umbrella activity reminds us that the liability environment is highly uncertain and increased litigation activity across the industry is delaying claim reporting and settlement [indiscernible] In light of this, we continue to bolster our reserve position in this line. As an update from our second quarter call, have added $175,000,000 in additional general liability, umbrella and excess casualty reserves to accident years 2023 and prior since the third quarter of twenty twenty two. Although the battle against social inflation does not appear to be subsiding, we we feel we are well positioned across our liability exposures to navigate the headwinds in the near future.

Our fourth quarter catastrophe loss ratio of 1.6% was well below our five year and ten year historical averages. Hurricane Milton had a small impact on our quarterly catastrophe loss ratio, and we experienced very modest non hurricane catastrophe losses. Our catastrophe management efforts in Florida specifically proved beneficial this year after three hurricane landfalls Our ongoing multifaceted strategies to improve our property catastrophe risk profile since exiting personal lines in 2022 contributed to a full year catastrophe loss ratio of 5.4%. This full year result is below our five year and ten year historical averages by 3.3 points and 1.8 points respectively. And slightly below our current annual expectations. We successfully renewed all of our ceded reinsurance programs that incepted January 1. Increased reinsurer appetite allowed us to improve coverage and terms across our programs, while adding new reinsurance partners to improve counterparty diversification. I will now turn the call over to Eric Martin to discuss the rest of our financial results.

Thank you, Julie. We are very pleased with the strong improvement we made with our investment portfolio during 2024 Over the past three quarters, we have taken actions to improve the risk adjusted returns of our investment portfolio which improved our annualized book yield more than 80 basis points with a minimal amount of realized losses. Over the course of 2024, we invested nearly $900,000,000 of fixed maturity assets or approximately 45% of our fixed maturity portfolio with an average new money yield of approximately 5.5% which was more than 150 basis points higher than the annual total portfolio yield. At the same time, we improved the quality of the portfolio from AA minus the AA while maintaining the duration of our portfolio at approximately four years. As a result, total net investment income $23,200,000 in the fourth quarter up $4,100,000 or 21% compared to the fourth quarter of twenty twenty three, due to strong improvement in fixed maturity income Full year net investment income grew to $82,000,000 in total, supported by 24% growth in annual fixed maturity income that increased to $70,000,000 We expect that to grow by $10,000,000 to $80,000,000 in 2025 with potential for further improvements from reinvestments at higher rates.

In addition, the results from our limited partnership portfolio performed well during 2024 returning approximately 8%. Turning to the expense ratio. As we've discussed previously, the company has made investments in talent and technology to support long term profitable growth. Improved business performance in the current year resulted in increased performance based comp for employees and agents that began impacting our expense ratio in the third quarter, and drove the year over year increases seen in the fourth quarter and full year underwriting expense ratio. While we are happy to share the company's success with our employees and agents, in no way do these results diminish our intense focus on improving the expense ratio. Fourth quarter net income was $1.21 per diluted share $2.39 For the full year, Non GAAP adjusted operating income was $1.25 per diluted share for the fourth quarter and $2.56 for the full year. This year's earnings improved book value per common share to $30.8 Adjusted book value per share, which excludes the impact of unrealized investment losses, grew $1.95 in 2024 to $33.64 at year end. From a capital management perspective, during the fourth quarter, we declared and paid a $0.16 per share cash dividend to shareholders of record as of November 29, 2024.

This concludes our prepared remarks. I will now have the operator open the line for questions.

We will now begin the question and answer session. The first question comes from Paul Newsome with Piper Sandler. Please go ahead.

Good morning.

Congratulations on the fourth quarter and year.

I want to start off with just the fourth quarter as kind of a run rate for profitability.

Anything that we should be calling out either way that would be [indiscernible] And on that topic, you did mention there was a $3,200,000 reversal of the contingent, is that was that actually in the fourth quarter? So is that an example of a one time benefit, that we would have had Good morning, Paul. This is Eric. That's right. We do have benefit of $3,200,000 pretax in the fourth quarter here, which I would call out as a one time item Otherwise, really not. I think the other things are pretty well run rate as we see it We've called out the expense ratio as being a little bit elevated here.

But that we'll continue to work on that as we go through time here.

Right. And maybe as a second question, a lot of conversations about trying to get ahead of Social inflation cash in reserves, which is obviously an issue for the entire industry. But I was thinking about this from a an appetite perspective for new business. Does this push you more towards property or less casualty? You guys are kind of a packaged product company. So I don't know if this changes the business mix given your more conservative view on trends.

Paul, it's Julie. Certainly, it has an impact on our choices around appetite.

We find ourselves leaning in the casualty space towards less public exposed risks. We're very [indiscernible] capacity management when it comes to those risks we think are more likely to see social inflationary impacts. We certainly want to grow the property portfolio and through this last reinsurance cycle, actually achieved greater property capacity in our treaty, which we're really pleased about. That will allow us to take on some more sophisticated property risks. So I think it's efforts on both fronts. So appropriate mix and appropriate appetite with social inflation always on our sites. [indiscernible] question, could you talk a little bit about your appetite for the reinsurance business? Talk about January 1 renewals being a little bit [indiscernible] [indiscernible] How do you think about your current appetite in the insurance business?

Paul, I think you're asking about our alternative distribution. [indiscernible] Yes, I think that's all reinsurance, if I What does she have? Yes, I didn't know if you're asking about our seeded reinsurance program or about alternative distribution. We feel really good about that Go ahead. I tend to think of it all as one big pot. But yes, go ahead, please.

Sure. As you know, we alternative distribution portfolio is made up of seven channels and we are looking to grow all seven of those channels, but for probably the retrocession channel, I'm certainly in Standard Treaty, which is the largest channel in alternative distribution, we feel good about the opportunities available to us in the marketplace where we can get the margin that we're looking for. It is our second largest business unit at UFG currently. And we feel good about our prospects.

Seeing that there are no further questions in the queue, this concludes our question and answer session. I would like to turn the conference back over to Kevin Leidwinger, Chief Executive Officer for any closing remarks.

Thank you. And as you can tell from this morning's discussion, we're quite excited about the progress we're making at UFG. And we look forward to talking with you again next quarter.

Thank you.

The conference has now concluded. You may now disconnect.