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UFCS United Fire

Participants
Randy Patten Assistant Vice President and Controller
Randy Ramlo Chief Executive Officer
Mike Wilkins Chief Operating Officer
Dawn Jaffray Chief Financial Officer
Bob Cataldo Chief Investment & Strategy Officer
Marla Backer Sidoti
Paul Newsome Piper Sandler
Call transcript
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Operator

Good morning. My name is Grant, and I'll be your conference operator today. At this time, I would like to welcome everyone to the UFG Insurance Second Quarter 2020 Financial Results Conference Call.[Operator Instructions] Please note this event is being recorded. I will now turn the call over to Randy Patten, Assistant Vice President and Controller.

Randy Patten

Good morning, everyone, and thank you for joining this call. a on issued results. we today, news our release Earlier please of website To copy document, visit find a this our at ufginsurance.com. Press the Investor are located slides releases Relations and tab. under

of filings. Chief Officer speakers are statements Officer. Financial Securities as comparable that today XXXX. to Ramlo, performance. Reconciliations this may Ramlo, variety Our guarantee defined our some may SEC release measures and Chief Litigation factors, the today note and these press to of Mr. cautions described forward-looking Executive and company measures. which Please presentation measures materially statements we non-GAAP pleased forward-looking are that most financial Mike Jaffray, of today Please Wilkins, are in available forward-looking SEC include our Operating Insurance. also expectations. are our Chief based our press in of in future Officer; any The may to management's Dawn UFG include Reform results note Private Randy I'm statements not present differ At uncertainties are also and Act that use filings. investors discussion risks current a GAAP actual a of time, in These and due on CEO The Randy release the

Randy Ramlo

Good Thanks, and Quarter welcome morning, Call. everyone, XXXX Randy. to our Conference Second

and we policyholders These efforts the remarkable, completed delivering this I is during everyone second interruption policyholders service working being this hope employees, employees higher-than-normal experienced remotely. without quarter safe during we the extraordinary considering our our be to of agents and truly in continue year. pandemic. shareholders, outstanding amazed this our time, healthy catastrophe to losses ongoing to agents, are by First, while by work and the

corporate XXXX floods in home. our at and to preexisting prepared seamless dealing and the a the plan had catastrophes, with infrastructure in we work year. to including in we Thanks our to continuity plan had a pandemic followed be last from mid-March we call, basis. of continues experience headquarters, daily This activated already a technological past in for place As to prior business place was were XXXX this on well transition mentioned and personally

services in our offices continue essential to have of the remotely. employees our our majority While necessary, remained work as employees

a dates We yet. definitive have have discussions for had no ongoing plan employees, on been our set but return-to-office

have during call course, it plan our the of and office all specifically the such currently we Of expect and policies of health interruption the return to under Also, the coverages our safety, business is a contract pandemic. will top when viruses as the COVID-XX which issued COVID-XX to on employees coverage as At we this reminder, the contain manageable. quarter wellbeing our losses the be to of attributable first claims time, we mentioned nearly finalized. language effect be as priority of excludes

pandemic impact However, future to or the how of predict will we cannot and court actions the impact regulation us. evolve, COVID-XX legislation, continues

nonrenewal a significantly COVID-XX our The much of as types of portion courts. insurance as expected. it decisions, with the less some premiums of This it first impact these operations primarily business, net reduced sign our of auto the half expect first XXXX. was not recent economic a courts on and other Through the impacted premiums bit will pandemic significant XXXX, have of contractors, in to accounts half profitability of the exposure our the due pressure endorsement business. news promising interruption related to half New and profitability Although business net anticipate in to early In On half we our initiatives law two the some auto than net many was large York the environment, XXXX contract There through be other in the earned the current one our to line as good in submission the are the of process, the as litigation units. focus of decisions, industry A underperforming pandemic, earned an book payrolls, upheld decrease court the improving been is as new of of physical first the in core is from in impact coverage. that and X% on in impact damage sales midst of we businesses. in and XXXX from did we emerged requirement half is not second We premiums have additional premiums. first decrease with compared some who the in Michigan. some business of we commercial still on of in is commercial but one business upheld year have in as

of the combination to addition, a factors. COVID-XX believe and surrounding remains pandemic. premiums the will latter we estimate in impact the net due of the X% in overall growth in In of to part half uncertainty range anticipate We second Overall, XXXX in we XXXX. taper reduction underwriting earned overall an X% business economic of off premium of

whole this remain a economy continues the some for Although the there not recovery And was as of to a felt markets impact levels. the businesses which to demand are moderate a historically in have may at premiums condition not closed the and quarter, number Unemployment on be These at or results and operating impact time. financial future our products, operations. factors contribute our pressure their financial full of for on could may doors. capacity

turning I'll manageable core results. just our historically catastrophe quarterly quarterly XXXX. June this themes results, high briefly Mike The Before insurance operational losses, COVID-XX discuss quarter pandemic XX, our to on as and, the improving were impact to I call from through comment profitability the over discussed,

the we second points of percentage ratio, during catastrophe XXXX. $XX.X In largest or losses. quarter on or the impact of the XX, to reported second percentage the second X of financial losses was XXXX, combined in points on announced July XXXX compared of we quarter of $XX million previously XX.X As catastrophe the our quarter XXXX, million results

in the average for points. second historical catastrophe Our XX.X is percentage quarter losses

the The second majority the quarter the the Missouri. a of impact XXXX, incurred we where large one-out-of-every-XX-years in two Joplin, catastrophe and second being in Southern unrest quarter included riots seven XX from Rapids, of losses XX is States. losses office Midwest ratio hailstorm of near on tornado and quarter home when in quarter also our the losses. civil our with losses came from quarterly marks the events largest million Included from in fire Cedar This highest Iowa. in in $X the since The events, experienced XXXX primarily a catastrophic we losses Minneapolis, Minnesota, United of this combined

I'm faced pandemic, results. progress of book in second of with auto the the through As COVID-XX ratio. pleased with XX.X Despite our quarter for commercial the in loss underwriting the we actions our challenges tools. profitability our analytical our improving in of we improvement and operational XXXX, use a the reported

will in prior ratio, contributed We the in business. improvement general which discuss and X.X-point an a in excludes also XX.X-point in our core accident more Mike? business Improvements loss of workers' lines had X-point liability of improvement detail. Mike our now these our a improvement compensation in reserve improvement to development. caps year in lines

Mike Wilkins

Thanks, Randy, and good morning, everyone.

quarter book make In is mentioned, the XXXX, second with of profitability of business X%. again improving commercial commercial auto progress our Since As commercial in down XXXX. frequency in Randy claims. decline the to a we of of June of the continue we XXXX, frequency auto saw auto

the auto units insured commercial our website moving Slides XX-month deck slide XXXX. present of June has declines. X of in average and these Additionally, XX% our since on declined X

the exposure frequency of the note and began quarter, the of is that decline, it well claims important number The prior during of COVID-XX along XXXX. of strategic deliberate to in frequency was May second in an the the points. our and ratio the primarily and accident ratio loss improvement XX increased units, the auto of quarter both is driven have second the to contributed June to in even Although of in development, XXXX result favorable commercial with year of points XXXX. and during actions. number commercial point this of of resulted loss Also, in claims XX.X another compared continued auto may auto the auto commercial miles in insured second as commercial pandemic improvement important decline when quarter before decline months our Year-to-date, pandemic is to that our some of units reduction frequency

line XXXX. improvement business of in quarter second experienced X-point compensation in during of a an and XX.X-point also other our We the liability improvement workers'

with pleased very are We these results.

we we steps to commercial acknowledge take been line we a auto since have our to lose that business entire As package writer. of profitability, we stand traditionally to return accounts,

auto non-renewing renewal change rate a decrease experienced we we third to accounts increased quarter and and the seek continue commercial a commercial property lines retention pricing in The of on increases. X.X% both the XXXX. consecutive commercial as average focus The in increases X.X% premium of first For quarter, the auto were XXXX in policy underperforming for and pricing quarter by increase compared rate renewal second commercial driven to increases.

wrap XX.X% commercial increases up during the remained lines an in rate in the rate change the quarter second of portion my to increased of during a Also XX.X% compared strategic During the first quarter by made the XXXX, a second today's profitability. increase in will the commercial quarter the renewal mid-single to change quarter X.X% to effective discussing increase first property X.X% second the increased XXXX. couple XXXX, Personal I we decisions of of additional quarter auto by improve of effective call compared digits. price XXXX.

to surplus entered with First, we Insurance insurance lines concentrate strategic us Nationwide in as our This core lines commercial allowing rights was lines Company. bonds. planning, and part long-term our surety and personal business, of profitability our May, of efforts agreement completed Mutual insurance, and excess agreement into growth commercial including renewal on a

This UFG's the COVID-XX represents not Our our purely the market was of commercial conditions into XX% business was agents transfer initiated XXXX applicable their the receipt beginning agreement subject this mix. a policies agreement personal from provides entry of and of result to Nationwide pandemic. to as lines strategic lines quarter our the approvals. of to independent Company regulatory Insurance opportunity Mutual in third

business the our first portfolio on In steering, Jeremy new the Chief Corporate our of quality promoting role, Jeremy's of enterprise, the Officer. of lead and focus will drive initiatives. strategic priority consistency this decision Jeremy this our Louisiana during Also made across country the lines the exception with to almost quarter, agents be in A at to will named offer personal Ball in our Louisiana. of of second all Nationwide a the assurance lines agents Department to be development. underwriting of part underwriting, and way personal Underwriting implementation date. as later implementation UFG the will we As Underwriting agreement, will related across contracts the staff

Finally, make in year, to workers' we of in compensation We [BOP] analytics use that will model our the Dawn be in that, anticipate discussion analytical Jaffray. over turn and the production I'll Dawn? development will progress models. of our for continue model the third with quarter. the in fourth With to be our this production quarter

Dawn Jaffray

good of million period second declined XXXX. underperforming to our securities, we of everyone. million; or the per And value second million reported XXXX, the of commercial XXXX level of quarter historically consolidated of million in commercial and improve losses, or one-time [indiscernible] benefit million to XX% operating of in In efforts $XX.X $X.XX income in net Mike. losses increase period of result the with compared of positively through liability by reported compared an with a was decrease net period with same a what in or rights a or of Net contributed the high reported as investment same reported of invested adjusted fair profitability in to $XX.X XXXX. like same Year-to-date, non-renewing income investments offset from of The of morning, net XX%, our of income quarter $X.XX our investment an a second share lines of quarter business $X.X decrease what pretax XXXX agreement million in improvement core an period partnerships, $X additional note These for adjusted premiums with in million our reported net the items loss profitability income our Operationally, realized of the assets. of to with gains we share in catastrophe operating in auto quarter the to value second $X.X business, fund. of Also, net equity the auto along compared $XX.X were our in of income the of XXXX, refer positives business in million adjusted in operating an quarterly some due liability continued from to $X.XX adjusted the change in the limited and the we $XX.X loss earned portfolio. our million per operating to share Thanks, I attributable loss of investment $X.X XXXX. to compared personal primarily million of Year-to-date, investment net Couple we primarily $X.X our share accounts. in as the $X.XX or a renewal or decreased the an to bank consolidated our of loss XXXX. quarter Nationwide. Year-to-date, second loss the we the income same XXXX. the per refer per with $X.X of of

gain equity recognized during unrealized an an $XXX million remains Our unrealized XXXX. XXXX. bond $XX of of of And in gain we months after-tax X in million portfolio the position XX, first as portfolio our of June

In measured basis. addition, losses from an equity had These as actual we securities. gain basis our realized saw future securities. realized portfolio sale reduce against use recognized certain a cost our offsetting of losses primarily losses. holdings tax the in for pretax these We $XX from of were and GAAP million investment a to opportunity equity volatility We on

was metrics. in website to the to adjusted second XX reported XXXX XXX.X% a in in combined in XXX.X%, quarter Moving on ratio our XXX.X% of same quarter Slide XXXX. improving The second compared ratio. to components our operating ratio in period Year-to-date, combined compared reconciliation the to of presentation combined of the on slightly XXX.X% XXXX. the was that are contains

the ratio, year-to-date year to in million Our XXXX auto, business. $XX and reserve by quarter prior XXXX. Mike reserve improved commercial favorable XXXX and and respectively, and workers' development, of loss prior as in impact due to unfavorable $XX.X reserve and $X.X has profitability quarter, million in $X.X compensation We lines mentioned. our XX accident line and The of million which quarter in commercial development other points favorable year accident year primarily core removes primarily reserve million was year property the prior year-to-date improved second the business, catastrophe prior second from workers' accident the our compensation compared of in losses recognize of of liability development development and

added year-to-date same position reserve ratio estimates. our within to expense in XXXX points actuarial the second Oasis an the is expense commercial of investment increase business, was the to second Our in increase the acceleration as our quarter increased in underwriting of expense cash technology, the due the X.X which during line I deferred a primarily my capital including as of ratio remains the of end total aforementioned our The discussing in the of XXXX. along in and the in flow. added expense platform. prior technology our the quarter periods Year-to-date, will ratio, our to costs continued acquisition The with X.X portion the point compared in to matters year compared now second to auto ratio. about multiyear costs, which amortization upgrade and the in to project, call technology quarter increase latter points

XX, XXXX, remains our June year-to-date flow positive. of cash As

remains structure, strong. our in debt X having including position, capital Our

to As $XXX in $XXX XXXX. of June equivalents million million XX, XX, XXXX, cash we and had December compared at

income look maturities investments drive We arrive. to for continue to opportunistic investment as

programs our in for done, the a As have of result the industry pandemic. of payment we policyholders leniency have many implemented COVID-XX as some

allowance cash significant for of programs. a these impact premium an increase of to in accounts see [docile] result or we as not a XX, inflows XXXX, As June our did

were and increase which of an Our canceled, X% majority of lapsed driven, of year-over-year. only non-renewed accounts, the non-renewed accounts initiative UFG represented

premiums draw products periods of cash intention future in portfolio We However, determined. could cancelations, from need arises. writing uncertainty collectability the of agreements. results. for to financial is maintained this a the and impacts investment But both leniency; remains requirement premiums with and it we our be in level the the on no to quarter. during the dividends impact the to demand time, any return our event and And UFG-provided pandemic. future or current The markets, yet deferred At corresponding of is of down funds second have available our impact our credit state-mandated

quarter, the consecutive to consistently XXXth this repurchases marks per-share During we as any the shareholders cash X, Of mid-March And suspend lastly, interim. the XXXX. of of quarter in of UFCS decision not dividends. paying declared paid we $X.XX a shares. June in note, dividend and did the repurchase to We quarter, our share made during record

we million expire additional authorized basis. We common just over line X.X the reminder, unless on repurchased purchase month shares share prepared extended to Operator? stock million this our an repurchase our remain program, a will by for of at under questions. the Board $X.X will a had open Directors our of I for Board. remarks, [XX,XXX] now the with which And As of shares closing of the year-to-date it end is by

Operator

Backer, Instructions] [Operator with Marla Sidoti.

Marla Backer

So just about frequency insurers items. of questions a some in the severity pandemic, auto that but climbed the of from been couple other we've collisions reading of hearing the this and many during declined markets. What is clarify to

Is So that seem that read that? the doesn't to way saying. what be you're to

Randy Ramlo

This thing. is same actually Randy. exact We've experienced the

pretty construction didn't were of pandemic. have we heavily of think we considerably. the continued losses. area, mentioned frequencies most But break our I kind any But severity through line of business that the so we're the in that in of pretty down

driving kind exact been the have must've like seems around empty But experienced that same driving were thing. it the of faster. people roads on So out we

Marla Backer

why agreement bit can what you structured a Was they it way that think one was So structured was to just there? state? it reason the said? I Or provide for specific to was And exclude because little write you on more color to Nationwide exclude Nationwide there? don't policies agreement, the the the Louisiana,

Randy Ramlo

Yes, that's exactly it.

I one think in is And don't. the that Louisiana they Nationwide states. XX writes

good that having agents deal. pretty a XX% get start, high forward. The we'll Nationwide commitments got from So go out with to kind We've success. figured of We're going non-renewals XX/X. of starting

So other well. going we comment, than pretty not to much think it's more

yet. get approval had done progress We good we're And we've all that have the to completely states. but there, not process from with

you do anything Mike, add? So to have

Mike Wilkins

you think hit high I No, all there, points Randy. the

I approval don't remaining have states have from we that three yet. we think

of pretty are think those two close. I

So progress. yes, good

no are we are segment, We the business in to starting decline the the new personal longer bit. so even already writing in production lines a second little quarter seeing

Marla Backer

news that two And then, business you of that COVID? Or because many of else occurred possibly great have states there think on being is should Is those question, the that's terms so might because COVID else testing mentioned. arise that we anything which supported should clauses we interruption horizon? cases and that those being riots there the of last in because anything in policies about is about thinking that be -- the in the tested in markets? Anything of is that about

Randy Ramlo

is this. from This a ways on expert I'm Randy. long And an

going civil going forward of and kind bankruptcies; biggest I business, going unrest is more which of knows cause Riots the due where more industry businesses more a of is to shutdowns, who shrinkage And of covered think insurance peril. kind that. out just go? that's thing to could the possibility of the

question a going been a part have So but are on And general. -- little is the I compensation bit they if gigantic industry regulatorily, see -- how in pretty don't things continue, to riots -- a respond of been down There's those legislation which on being to quieting do good. continue, as if workers' legislatively, this. the the have covered, big they

I think might And obviously, guess write med say. stuff. I'm any had just I negative California's any some compensation any or you -- We don't don't workers' of do rumblings, California. mal that if in we

factor. that going cases individual really we keep court be it's I But go a large us, think individual south. watching for to on could So don't states,

the all track said I'd it. But I knew if keeping lying I answers. So of be

Operator

next Newsome will from of come Our Paul Piper question Sandler.

Paul Newsome

ask little second a more the about reduction that premium comments to the I made bit for wanted half. you

that correctly is the recall, think decline of the I you lines runoff that Or personal commercial there if XX%. talking it, And said it just looking you're as at well? in about? lines that of the business include does we're a

Mike Wilkins

be of does calculation as will specialty won't Couple for really think I'll that is take this nice Paul, growth had in think have Yes, to reasons. that, things impact don't in increase is And from as that will half. make the estimate we other Hi, second premium lines personal large, -- one They contribution the think for that to we half, runoff written try continue an half one. the various that think half. Mike. include division. probably percentage will that we get in the but our second tried And second we first as much quite the we growth unit. because quite we the

our program we've have also a of We kind on. capacity California some Arrowhead in reached business with writing earthquake that

So little half think again from of the see that But expecting from the second that in in half, in in rate first that segment. a we'll aren't we contribution growth second we the the saw half. increases bit we

the we more topline combined, things are pessimistic second in little about the those half. So a

Paul Newsome

down of we'd personal premium. business. And expect, some I But sort declining expense assume your that, that? there's you're offsets about shutting while with lines help of that the then, because me could talk you you here or Could outlook obviously, ratio? the there relatedly, pressure for see would the some

Dawn Jaffray

Hi, Dawn. Sure. Paul, this is

couple a things. think I So

the impact correct, to certainly our to make You're that in decline is with numbers. an premium, going

portion get to we're commercial due the to the it then the formulaic very payments think of out, state in Currently, the what we where I term. I it'll ratio and be. quarter calculation because that as doing. the undertake. for see also, not that to also cancel continue a of make to they interesting been deferred, during investments billed is that to out not impact the [indiscernible] had is we are mentioned, of little mandates still been as think, needs remaining that spread third required able to a companies get had of works defer be have inability number have to loss We the deferred be I the auto, continue bit to payments technology, on the over how -- will for cancelation And the

So depending in between realistically, a of premiums. circumstances, probably nature that with XX.X, sort maybe decline XX, on the of the the in

Paul Newsome

to probably that, at lines the just Is that year, -- maybe of least, imagine, both next further the half, me. long these at little be it I fair as personal that probably this And would thinking the issues, the well, first would is say something half bit Second premium talking given than and expensing, about first to the be a take pardon off? we'd of would half? run

Dawn Jaffray

I it will depend. think

As also you and a considerable both have Randy as know, and of Mike non-renewals. deliberate taken indicated, amount Paul, we've on

ratio. our every expenses. we the commissions and clearly, biggest components our at are salaries expense element two of The are of looking So

pay we So of to to both have attention those.

offset We in I our a early completely will have to for to of happen. that But I a looked will next be half pressure smaller changes look would at start we're take commission to plans there little But ways effect. what think expect in the But to going it's with year, next to a say premium base, to first few that. continue year.

Paul Newsome

personal United business the to at lines resources Fire? there much dedicated Was just

Randy Ramlo

on our high we Paul. And hair Randy, expenses. a about X% writings. probably benchmarked made It is This up of

of kind that about area. that's So same

I I think employees? there's XX, how think? many Under

Mike Wilkins

Yes.

Randy Ramlo

basis small very And deal So to that, compete something a for player. of huge then future is not found us. especially of like -- But grim kind reasons was cost we little factor. it with lines a Nationwide it one carriers overall difficult did on the a the a as small an personal probably we bit

think a So on or I expenses drag little term. But be it that'll short negative positive a in the a long might term. don't be necessarily

Paul Newsome

if That declining. thing me then, Lots wondering talking invested maybe of is the last same sense. of thing, was And about I the seeing folks help think. you the could components assets the I makes with are

talking invested the had moment? I'll balance look And assets is position flow-negative essentially you total a were at falling? answer Or [indiscernible] You the -- why other you've around. that that then, some looking like in is bump changes are component just the prospectively. investments, at doesn't there you question. sheet, cash invested Are let assets, in about there that And huge

Bob Cataldo

Hi, No, Paul, we've is erase cash the initiated Thanks reduce Cataldo. the have this or no any effort question. -- to for or Bob had portfolio. concerted not in

of But policy. bit change any side, equity just what assets make as sense you're or slightly. again follow is exercise trend was contracted as would Dawn. rebalancing the mentioned on that it business I think natural has just Overall, runoff the earlier a well. more was would and the reduce philosophy seeing that by little did as opportunistic We a that than investment reallocation or in the

Operator

Instructions] back This the conference conclude like will any closing remarks. to over I would for session. turn to question-and-answer [Operator Patten our Randy

Randy Patten

have us, This you for and Thank now call. concludes a joining our day. conference great

Operator

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

You disconnect. may now