Q3 2022 United Fire Group Inc Earnings Call
Good morning, My name is Jordan and I'll be your conference operator today.
At this time I would like to welcome everyone to the U S. G insurance third quarter of 2022 financial results Conference call.
After todays presentation there.
Okay.
To ask a little more press Star then one on your telephone keypad.
Withdraw your question. Please press Star then two.
I will now turn the call over to U S. G.
He is president and Chief Financial Officer.
I don't know.
Go ahead.
Good morning, and thank you for joining this call yesterday afternoon, we issued a press release on our results.
A copy of this document please visit our website at USG insurance Dot com.
Press releases and slides are located under the investors tab.
Joining me today on the call is <unk>, President and Chief Executive Officer, Kevin Light Winter.
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 1095.
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.
Also please note that in our discussion today, we may use some non-GAAP financial measures reconciliations of these measures to.
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 <unk> CEO of UFC insurance.
Thanks, Eric Good morning, everyone and welcome to our third quarter 2022 conference call.
Today marks my first quarterly earnings call since joining <unk> as President and Chief Executive Officer in mid August .
As I step into my new position over the past several weeks I am grateful for the support shown to me by My Fellow Board members the management team and my incredible your FTE colleagues, all helping to ensure a seamless transition.
In addition, I've had the opportunity to meet a number of our agents and our value our strong partnerships and their ongoing support of USG.
A special Thanks also to your Ftes retired leaders Randy ran low end, Mike Wilkins for their hand in building a company with great people, a positive culture and strong relationships.
Turning now to results net written premium increased 9% to $247 million compared to $227 million in the third quarter of 2021.
Net written premium growth was driven by our specialty surety and assumed reinsurance businesses.
Our core commercial business made up of small business construction middle market and marine was down in the third quarter, but at a smaller rate than we experienced in the first half of the year.
For commercials retention ratios are stabilizing and new business production is increasing.
We expect the core commercial portfolio to contribute growth in the future.
The combined ratio was 111, 7% in the third quarter of two point deterioration over the third quarter of 2021.
Third quarter combined ratio was impacted by 11 four points of catastrophe activity. In addition to five nine points of adverse development.
The underlying combined ratio for the third quarter was 94% a four point improvement over the third quarter of last year and the best third quarter in five years.
Although the third quarter combined ratio was impacted by catastrophe loss activity and adverse development. We are pleased with the improvement in the underlying loss ratio for the quarter and through the first nine months of 2022.
The underlying loss ratio in the third quarter was 59, 3% compared to 61, 5% in the third quarter of 2021, while the underlying loss ratio through the first nine months of 2022 was 57, 5% compared to 65% as of nine months of 2021.
The ongoing improvement the underlying loss ratio was the result of significant actions taken over the past several years to improve profitability diversified growth strengthen underwriting governance and reduce volatility.
Those actions include exiting subscale personal lines business, which reduced our catastrophe exposure and improve volatility.
Executing our re underwriting exercise to improve portfolio fundamentals with a specific focus on non renewing underperforming accounts and right sizing the automobile line of business to 20% of the portfolio.
Interim rising underwriting strategy and governance to improve consistency and quality of underwriting decisions introducing.
Introducing predictive models to improve pricing and risk selection.
Transforming claims specialized line of business operating model.
Restructuring, our reinsurance program to reduce volatility and.
In establishing feedback loops to improve information sharing across the organization.
With our re underwriting actions largely concluded the underlying portfolio with sound, we have emerged as a more effective portfolio manager with better data and deeper insights. We are positioned to act on trends sooner, allowing us to continuously refine our portfolio avoiding major re underwriting exercises in the future.
We believe we are now well positioned to profitably grow across our portfolio, including small business construction middle market Marine specialty surety and assumed reinsurance.
While we have seen improvement in many aspects of the business. We recognized a 35% expense ratio was unsustainable going forward. We will apply the same level of intensity to improving the expense ratio because we had some loss ratio. However, we will continue to invest in talent technology and analytics to advance the business.
In closing, let me express how truly honored I am to be here, serving as the six liter and Usg's 76 year history.
Our team is excited for what the future holds as we continue to move the company forward with an intense focus on consistently delivering superior financial results and creating long term value for all <unk> stakeholders.
I will now turn the call over to our Chief Financial Officer, Eric Martin for a detailed discussion of the third quarter Eric.
Thanks, Kevin and good morning again.
This quarter, we're pleased to introduce an enhanced format for our quarterly earnings release and presentation, which.
Which will continue to evolve in the quarters ahead easier readability greater transparency and improved understanding.
In the third quarter, we reported a net loss of <unk> 91 per diluted share and non-GAAP adjusted operating loss of 47 per diluted share.
As Kevin mentioned net written premiums increased 9% in the third quarter.
<unk> to the third quarter of 2021.
Our renewal premium change was nine 5% for the quarter.
Rate increases remained stable at five 7%.
While the exposure increased to three 8% as our underwriters continue to focus on adequate property valuation.
Typically considering today's inflationary environment.
The total catastrophe impact for the third quarter was $27 million.
We're 11 four points of our combined ratio with.
With hurricane Ian accounting for half of that yet.
The adverse development of $14 million or five nine points impacted the other liability and property lines of business, but was partially offset by favorable development in automobile and workers' compensation.
The adverse development and the other liability line of business was primarily due to an increase in frequency and excess umbrella line of business as a growing number of losses projected to exhaust the primary limits.
Combined ratio through the first nine months of 2022 was 101%.
Five point improvement over the first nine months of 2021.
The underlying combined ratio through the first nine months of 2022 was 92%, which.
Which is the best underlying combined ratio over the last five comparable periods.
Net investment income was $11 6 million in the third quarter up slightly compared to the third quarter of 2021.
Within that result, we see the positive impact of higher fixed income reinvestment rates, improving investment income by $2 $1 million.
In the quarter compared to the prior year.
Our efforts to strategically position our portfolio to a shorter duration profile have and will continue to pay off as we reinvest at rates meaningfully higher than our current portfolio yield.
We are benefiting from new money rates of approximately 5%.
The impact from higher bond yields were offset by negative valuation impacts on our limited partnership portfolio.
In addition realized losses on investments of $14 $3 million were driven by negative changes in the valuation of our core equity portfolio.
On a year to date basis return on equity was negative <unk>, 9%.
This in conjunction with the declining value of our fixed maturity securities from increasing interest rates negatively impacted our balance sheet.
Resulting in a book value per common share of <unk> $27 82.
Our investment portfolio balance was $1 8 billion of invested assets in the third quarter, 85% of which is allocated to our high quality fixed income book.
During the third quarter, we declared and paid a <unk> 16 per share cash dividend to shareholders of record.
As of September <unk> 2022.
Marketing, our 218th consecutive quarter.
<unk> is a 54 year history of paying dividends dating back to March $19 68.
This concludes our prepared remarks I will now open the line for questions operator.
We will now begin the question answer session.
Ask a question press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
This concludes the question and answer session I would like.
Back over to Kevin <unk> for closing remarks.
Thanks for joining thanks for joining us for the third quarter call. We'll talk to you next quarter. Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.