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UFCS United Fire

Participants
Randy Patten Assistant Vice President and Controller
Randy Ramlo CEO
Mike Wilkins COO
Dawn Jaffray CFO
Bob Cataldo Chief Investment & Strategy Officer
Call transcript
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Operator

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

Randy Patten

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

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

Randy Ramlo

XXXX morning, Thanks, to call. conference quarter and Randy. third everyone, Good our welcome

only financial quarter results of years. quarter on experienced this marks third out a have previously we This losses. in high October the the largest on we during historical announced historically of experience, level we As to our of on a which XX, consecutive XX typically our catastrophe Based XXXX experience impact quarter second once similar the every losses. catastrophe was XXXX

points or percentage quarter However, we percentage the quarters million points $XX.X losses million third the quarter compared of the two catastrophe had a XXXX, X of or third in XX.X our combined have ratio of - to XXXX. recorded In we of $XX.X on row. now in

X.X August percentage XX the August Midwest historical losses Our million the for $XX retention. catastrophe from catastrophe most our average The with event points. third quarter exceeded notable being reinsurance catastrophe derecho. The losses is derecho Midwest were in the events

$X third reinsurance event of this XXXX. recorded related also reinstatement premium million in We of quarter to the

costly of In to of every distance XX damage. were with with homes left greater headquarters derecho. from and some knocking up a to addition losses in mile again, their Administration, of we with a which our most the in to Cedar XX,XXX care the The experienced with than in National This Rapids Category city Despite per most including of only square devastation. derecho miles the it once power thousands nearly storm crops, at without a estimated power and trees people throughout the Midwest vehicles help X or the to our over of miles. down losses myself. deck hurricane in The experienced corporate Laura. personal number ranks hundreds Midwest are Iowa, most U.S. history. XXX of Eastern losses from strength of impacted derecho, Slide EFX our individually. dealing of an cat were miles square X to employees the homes Hurricane derecho, Rapids, our same personal presents from Midwest, storms, flattening million. Iowa the of employees together And in came convective sustained derecho massive wind two tornado for remaining and a peak August thunderstorm customers $XX.X website, weeks. Hurricane on the comparison the Nearly least According lines, to at was second from and covered slide of severe hour. losses equivalent thunderstorm its losses, being the location none as Laura to by full take Cedar gusts with and third to destroying limits Hurricane some structure and of other $X the in Oceanic XXXX, who cat dealt quarter Laura up severe of the Atmospheric the events Many significant XXX damage the million UFG the

to to following things, people of the the Our rise regards most amazed employees our agents policyholders from for own our our personal with remotely work outstanding dedication to hit, the to thing home and service are their to pandemic. One certain, nearly assisted due catastrophes our ongoing continue continue the when is with pandemic, by be derecho. even up claims employees, X,XXX ongoing I whom of In continue extraordinary dealing to to employees while and deliver do working policyholders. crisis.

safety, priority. employees and top of health our assess our continue current the with We well-being being the to situation

during our manageable. and policies As two of quarterly COVID-XX as contract the on coverage that At this the pandemic. excludes such have contain nearly specifically we of interruption business attributable reminder, COVID-XX the as coverages we expect losses all time, mentioned a claims currently viruses to language calls effect the be issued last under we to

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

and in law courts. thus the the Although still sector decisions insurance midst in for of favorable we being the far with the pandemic, the are court remain upheld contract litigation process

over Mike, highlight will of Before I turning the operational our results, with call our business. starting book to core

X.X combined This of both reduction of improved XXXX to prior favorable positive decreases continued loss frequency and auto of of is X.X in catastrophe the progress number in points our and commercial X.X in ratio. auto units, respectively, initiatives. exposure points, ratio compared same strategic third to slightly in year-to-date of claims impact driven core percentage improvement with the development, our signs Excluding the quarter being the commercial XXXX. our in period the commercial and improvements loss auto by improved and year intentional the Year-to-date, our reserve losses ratio

are our acceptable renewals auto September X. in X.X ratio insurance on continuing points auto respect remains range With including quarter. a The the earned nationwide do the signed loss to higher in compared our also we net of premiums, to of we to reserve surety in X% an forecast premiums with However, effective our in earned we in in is note, XXXX. third of decreased rights business and half factors, company now in call as of in with third strengthening the our and premiums which have still a business, Mike as last reduction agreement this detail. the agreement we than X% the with lines believe to losses to May with MGA know quarter will underwriting growth with We On profitable the third forecasted XXXX. quarter accurate percentage of second to and quarter discuss overall operational positive business work severity and due renewal for over the I became E&S our turn Arrowhead commercial personal Mike? experiencing more and of commercial results we to beginning Insurance. combination XXXX

Mike Wilkins

Thanks, Randy, good and morning, everyone.

commercial business commercial decline commercial the frequency book saw is improving auto make In on a to XXXX, auto our of down again auto progress September the of profitability continue claims. of in of XX%. XXXX. quarter, the in We Since frequency we third

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

reduction X.X auto both our in loss and decline pandemic. frequency resulted The of year-to-date. an insured the in reminder, commercial to frequency in exposure a number prior of As ratio claims number the commercial commercial and improvement units auto in auto began points the ongoing units of

in this we auto the increase did ratio third mentioned. factors quarter increase. contributing loss were our Randy However, in experience to an There three as commercial

million. we IBNR First, reserves $X.X of added

Second, prior And third year Lakes in Great regions. of in auto accident losses, was and quarter, finally, there Gulf the primarily third commercial our increase included in severity the reserve Coast an quarter strengthening.

ratio increase the commercial have in X.X auto severity. year quarter loss despite IBNR Excluding impact in reserve and strengthening of the prior improved reserve XXXX the accident would the of additions, third points

As Slide of year XXXX core reserve losses quarter same as highlighted and impact development removes catastrophe accident to loss ratio, the improved in which year-to-date Randy the as the website, in our on the deck prior XX our and slide third XXXX. in mentioned compared in and both periods

X.X ratio respectively. Our core improved points, percentage percentage points loss and X.X

strategy, continued We focused are specifically on on pricing pleased We business. books and auto, retention of and commercial umbrella our property with this our improvement. remain

and auto through commercial As unit is previously increases. on limits mentioned, strategy accounts, rate non-renewing reductions underperforming commercial umbrella our reduction

rate renewal of by driven average quarter commercial average During auto the and been the commercial XX.X% XXXX. renewal average have third commercial the auto in double-digits were the remained of pricing in since quarter at property. of year. the The XXXX, increases auto in double-digits beginning the The low commercial the increases increase XX-month rate third

most continue get commercial We bottom of our XX% book. in our auto to rate retained the

note on and to with of wrap XX% be our XXXX. As third in same XXXX, commercial our It the year our year-to-date we compensation and commercial auto compared and the non-renewing important X.X% we in The ratios the book rate for quarter was XXXX with in increases with loss a ratio percentage this the commercial more There property eight a a as believe property is commercial hardening, rate of few is respectively. increased XX.X% an there more is in an loss comments compensation aggressive to large are able in third large to believe compensation our workers' claims. in our of reduce in performance in should renewal underperforming workers' property book. the the again I mid-single The the are my XXXX. digits reminder, get book exceptional periods and of to We we In call third performance. from bottom was the business book. exposures. increase portion quarter is XXXX XXXX, of that and for rate be quarter increase average remaining up workers' undesirable XX.X% will with signs that opportunity our year-to-date market

that, this than I'll ratios is Our XXXX, discussion is to and respectively. of and business loss loss performing year-to-date our with expectation XXs. the With over book Therefore, expectations XX.X% in Dawn? of Dawn XX.X% Jaffray. the better turn quarter in third for ratios XXXX the low

Dawn Jaffray

$X gains, was a or what pretax as $XX which our and in of in added investment good phantom same result investments do change tend everyone. the and XXXX. in quarterly decreased net the both fluctuate in $XX.X and an catastrophe quarter the to These consolidated a Mike, reported consolidated for driving period funds. offsetting XXXX. we contributing $X.X respectively. was of our million results to the I losses in The million in The assets. Net $XX loss $XX.X million the the reported market compared million overall fair net million value we discussed to of value third invested income investments of in XXXX, the a Also loss compared decrease of liability morning, the year-to-date the bank income quarter, experience significant limited during volatility. was XXXX. in million primarily decrease our the Year-to-date, In loss with catastrophe third Thanks, of same in net income results. Partially partnerships, we've of of equities periods our to decline increase refer $XXX.X of million with a was period net to

of As position. end quarter, million third a equity gain $XXX unrealized portfolio in our remains of the

result the that actual goodwill for against COVID-XX first equity analysis of we recognizing We quarter. portfolio. basis the We been bond in a we trading recognized consideration this the in further the million. of below have quantitative gain fact a book securities. and pretax $XX our million a of undertook equity quarter, an sold of gain value our the of stock our in a markets disruptions in from cost unrealized these third as $X.X has of some securities when our measured XXXX, nine For Note, did months loss after-tax

this goodwill of million Group balance analysis, was goodwill of a related As the Mercer remaining the in Insurance quantitative write-off This XXXX. to our in a we acquisition result of onetime recorded third $XX.X of quarter.

in XXX.X% on from the operating same significant was with metrics the to year-to-date ratio Moving of to period XXX% impacts XXXX. combined compared catastrophes,

XXXX. X.X% to reserve property XXXX accident in prior year $XX third first the favorable have favorable of when development XXXX was development primarily more for compared three our XXXX year We workers' been higher $XXX,XXX. The and quarter quarters during The at recognized of at reserve has expense business. million XXXX from the compensation third lines to commercial compared quarter ratio of prior

increase ratio to end XX.X% due initiatives. in during in Our XXXX. investment comparable the our year-to-date matters. and three I to expense discussing The month compared capital the technology the by portion XX.X% periods primarily nine year-to-date was continued of is for call ratio will my expense

September XX, and available investment million sheet we balance a healthy with of maintain income As $XXX XXXX, continue good to opportunities. to liquidity seek

dividend the paid of quarter, and record third consecutive cash per consistently XXXth of share to XXXX, X, During as we September a declared marking $X.XX dividends. paying shareholders quarter of our

Lastly, open closing now of during quarter, which remain the the X.X of our for will we to prepared expire share purchase of an the repurchase questions. XXXX. made suspend repurchases. the shares. at I the any to And We Operator? line remarks, repurchase Directors August shares additional common share will authorized with our did under in UFCS end not stock mid-March program, our Board We million by decision of

Operator

[Operator Please of question from first Piper ahead. The go Instructions] Newsome Paul is Sandler.

Paul Newsome

and the business. safe personal if here - year-to-date lines impact loss quarterly you ratio the be have comparison what that that we to underlying you're ratio improvement Does the the exclude a wanted if we see would ask on could or basis? I Hopefully, that material talk a on see loss the of you and sound. you sort to

Randy Ramlo

book. Randy. lines have of is that area. I into We we and big of have is Midwest lot percentage this our assets write know don't Paul, The do of if in personal factor total lines of us. a don't lot personal a we though a as your front a ratio

ratio the did got we've hit lines hard the again, So, personal too. contributions pretty reinsurance

if overall expect. than have to normally our would was personal So, we that But ratio could find feeling our a loss lines I to probably look see of we a could more that. we contributor

Paul Newsome

there I'm just curious improvement we there's more expect. than actually if would

me lag run ask a to scratcher alternative head three-month to of an because It's pretty could a kind wanted results, venture not a relative bit little between I which used other goes of with suggested have to thing sort would we're actually funds, or hedge of for you other income companies help asset The whether investment the rate and to having capital that. why not in companies like But may that you their talk the or in looks improvement third for most alternatives guys. for didn't that may quarter? happen it happen Could you about or that for a little you accounting should give us where rate the think about a just investment we color are sense you differently bit us run gives income? any of for

Bob Cataldo

equity through and folks to atypical I Bob. our overall rates, treatment really have accounting yields, walk which level general experiencing speak investment interest of or peers. is again, this Paul, our can't not are to really defer partnerships. our is either Hi to partnerships. to the I'll of in our But accounting But the or decline limited say, the we exposure down could equities an I with accounting of of just unlimited

Dawn Jaffray

looking ratio. was income ex we personal lines of investment treatment difficulty]. commercial lines income, Are straight - or loss loss - about the personal I the number apologize Paul, the I lines the at investment the talking So for [technical

Paul Newsome

doing not impact were lag. or some No, you that as understand other income the obviously stuff, the quarter whether if quarter quarter been been fundamentally, long mark-to-market equities wondering investment on alternatives, and - And companies the just I them report report have a something a and I'm straight with have different But third technology always as and or an time, for here progresses. hedge same results? had the and

Dawn Jaffray

is for the funds Yes, the lag current on - that. There us component is largest the in of bank we quarter. book everything no

Paul Newsome

works a was of that profitability firm. process? firm mostly curious that entire just pretty And was of with function function that in the quick, real to now, is as the or the thought through Mercer operations goodwill well of by how the rest have the the would a But of integrated a I write-down, Mercer then particular? just

Dawn Jaffray

Yes, our and trading company has calculation. to as value. formulaic It's it's stock driven been price significantly a book entire below related the really

to So from well impairment. - had a at it's performance the stock quantitative we calculation looking basis, dictated the an excuse projections a a combination as that future as price of me,

is number aggregating small So in it very others. million compared it's a to unfortunately, the many $XX.X

current So with is converted the fully operations. Mercer

Paul Newsome

intangibles about maybe that thing be assets. other would left just to I actually, the think but need we guess, - Any only think tax any would I the tax But no checking?

Dawn Jaffray

some state We licenses, which portion then small have It's very a me, value. carry very agent million excuse but with agent relationships, so. it's And with small. $X associated very, licenses and obviously amount

Paul Newsome

worry about to anything a DTA? Well,

Dawn Jaffray

this No not at point.

Operator

of Sidoti. Marla go Next Please Backer from ahead. question is

Marla Backer

contribution cap way looking the about in quarters and quarter high two reinsurance like. with fourth during severe you're quarter weather Is seen given the the and events. how impacting anyway, some this thinking back-to-back we've approach? was has It also given So severe that the weather is your

Randy Ramlo

Marla, it this And three severe exposure And arguably in up wide. right of well. top into event an at we our ways we or look probably the got really it, to levels have our the held is Randy. One two had is a maximum. extremely from really but backyard, way we very long long, reinsurance country

from of So, I kind testament good we're bought. - think pretty it's where position we that a

layers probable That's lines contributor personal probably book off. maximum will some of some areas. of our a the after runs We our evaluate losses to big upper in some

pretty next to? off. the really, said, got rolled into but I lines but comfortable think we So where are I may like going we else after we're you are, Mike, year, right now, reevaluate personal anything

Mike Wilkins

us be for spend the I just reinsurance, year, we that about we I to what event at occur what and just longer even only program great evaluate ratio. that about the coverage And very had think, decade, we've UFG, program. to something had always the when like that every big on cat which Andy relationships Yes, that programs than would that, would out coverage. of in events helped it add cat get I like is said I much us that that much second every we - through that look brokers And think we a optimize the with help expect that would I try tail against reinsurance our we event have not half for we in we the through would with have coverage the really And went analysis. an tail

like like against protected So this. I we're future feel events well

Marla Backer

switching a bit past, what I've the know just terms then in little social inflation. gear industry And I about the asked

you So the terms litigation can inflation seeing there likely the changes way and of or or trends approaching is are that possible in way changes bit masking in pandemic you're is in address a it little be right now the what of any social litigation sort might people any any improvement trending?

Randy Ramlo

has is again negligence. Randy. see to seem and couple offer. we $X.XX my judges else this anything that I'll Marla, anyone and see ignoring over first so give actual court to the question. Good is, if A of worth things over

or especially the to two so times you to post-traumatic vehicles, injuries find traumatic you traumatic large maybe or deductibles injuries on were of have below constantly, - with negligence no you like to stress syndrome or have Also, limits a brain that now And yet year we've brain that had something court accidents damage case that - claimed. on couple a in with and car happen regards little if a were And that either were syndrome you really in stress saw literally claims. post-traumatic the yourself accidents car is see even ignored. almost

overnight. necessarily we see we to this so, don't have do And - changing

is the everything we limits, have So in don't stingy out do million. we have a stay a court, umbrella lot can I transcript, of large changing. we to $X think more be talked bit over about to especially we And to things Mike with these liability of see much little because

many States also kind that at judgments those conservative of dozen It try to or to of more could track businesses wanted United a keep more in many, are past. the really costs that of these be to - in We some see all around areas we more used stay jurisdictions. out-of-court pretty of so the you consider in places we

Operator

today's great are no and you gentlemen, joining Thank There for this have a at Instructions] [Operator time. other us, day. Ladies concludes program. questions and this

may your lines. You disconnect