Q1 2024 United Fire Group Inc Earnings Call
Anthony: Good morning, my name is Anthony, and I'll 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.
Good morning, My name is Anthony and I'll be your conference operator today.
Anthony: At this time I would like to welcome everyone to the U S. G insurance first quarter 'twenty 'twenty four financial results conference call.
Anthony: All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw from the question queue, please press star then 2. Please note that this event is being recorded. I would now like to turn the conference over to UFG Vice President of Investment Relations, Tim Borst.
Anthony: All participants will be in listen only mode.
Tim Borst: If you need assistance. Please signal conference specialist by Christmas Starkey, followed by zero.
Tim Borst: After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one your telephone keypad to withdraw from the question queue. Please press Star then two.
Tim Borst: Please note this event is being recorded.
Anthony: I would now like to turn the conference over to U F G Vice President of Investor Relations Tim Borst.
Tim Borst: Please go ahead.
Tim Borst: 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 at ufginsurance.gov. 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 Stephenson, and Executive Vice President and Chief Financial Officer Eric Martin. Before I turn the call over to Kevin, a couple of reminders.
Tim Borst: 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 at you. After your insurance Dot Com press releases and slides are located under the investors tab joining.
Tim Borst: Joining me today on the call are U F G President and Chief Executive Officer, Kevin Leiden winger 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.
Tim Borst: 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. Furthermore, these forward-looking statements are based on management's current expectations.
Tim Borst: The 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.
Tim Borst: 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 S. T. SEC filings discuss specifically in our most recent annual report on Form 10-K.
Tim Borst: 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-K. 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 filing. At this time, I will turn the call over to Mr. Kevin Leidwinger, CEO of UFG Insurance.
Kevin James Leidwinger: 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.
Kevin James Leidwinger: At this time I will turn the call over to Mr. Kevin widening or CEO of UFC insurance.
Kevin James Leidwinger: Thank you, Tim. Good morning, everyone, and welcome to our first quarterly conference call. I'll begin this morning by providing a high-level overview of our results. Following my comments, Julie Stephenson will discuss our underwriting results, and Eric Martin will discuss our financial results in more detail. I'm pleased with our first quarter as net income increased to $13.5 million, driven by improved underwriting results and higher investment income. The momentum we established in 2023 carried into the first quarter of 2024 as net written premium grew 17.6% to $321 million, led by our core commercial and assumed reinsurance business. Core commercial growth remains strong, fueled by an average renewal premium increase of 10.9 percent.
Kevin James Leidwinger: Thank you Tim Good morning, everyone and welcome to our first quarter conference call.
Kevin James Leidwinger: I'll begin this morning by providing a high level overview of our results. Following my comments, Julie Stephenson will discuss our underwriting results and Aric Martin will discuss our financial results in more detail.
Kevin James Leidwinger: I'm pleased with our first quarter as net income increased to $13 $5 million driven by improved underwriting results and higher investment income.
Kevin James Leidwinger: The momentum we established in 2023 carried into the first quarter of 'twenty 'twenty. Four is net written premium grew 17.6% to $321 million led by our core commercial and assumed reinsurance business.
Kevin James Leidwinger: Core commercial growth remain 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.
Kevin James Leidwinger: Steady retention and attractive new business opportunities reflect our continued focus on profitability; rates increased 9% and remained above the loss cost trend. The first quarter combined ratio improved four points to 98.9% compared to the first quarter of 2023 and our lowest over the past eight quarters. The underlying loss ratio improved to 59.4%, reflecting continued underwriting and pricing discipline across the portfolio. Catastrophe losses contributed 4.6% to the combined ratio, in line with the same period last year and just below our five-year historical average.
Kevin James Leidwinger: Rates increased 9% and remained above loss cost trends.
Kevin James Leidwinger: The first quarter combined ratio improved four points to 98, 9% compared to the first quarter of 2023, and our lowest over the past eight quarters.
Kevin James Leidwinger: The underlying loss ratio improved to 59.4%, reflecting continued underwriting and pricing discipline across the portfolio.
Kevin James Leidwinger: Catastrophe losses contributed 4.6% to the combined ratio in line with the same period last year and just below our five year historical average.
Kevin James Leidwinger: 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 and some liability lines. Investment income increased 28.5% to $16.3 million as we continued to benefit from reinvesting at higher interest rates. In the first quarter, we completed the strategic reallocation of public equity assets into fixed maturities and transitioned management of our investment portfolio to New England Asset Management.
Kevin James Leidwinger: The expense ratio improved to 34, 9% as we continued to diligently manage cost structure, all supporting strategic long term investments in our business.
Kevin James Leidwinger: 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 and some liability lines investment income increased 28, 5% to $16.3 million as we continued to benefit from reinvesting at higher interest rates.
Kevin James Leidwinger: In the first quarter, we completed the strategic reallocation of public equity assets into fixed maturities and transition management of our investment portfolio to new England asset management.
Kevin James Leidwinger: 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 Stephenson, our Chief Operating Officer, to discuss our underwriting results in more detail.
Kevin James Leidwinger: Through continued robust execution of our strategic initiatives. We believe we are well positioned to deliver improved long term performance.
Julie A. Stephenson: I'll now hand, it over to Julie Stevenson, our Chief operating officer to discuss our underwriting results in more detail. Thank you Kevin.
Julie A. Stephenson: Net rent premium in our core commercial business, which includes small business, middle market, and construction, grew 12% to $223 million in the first quarter compared to the prior year. Renewal premium change in our core commercial business was 10.9%, with rates up 9% and exceeding lost trends. Commercial property premium change continued to exceed 20% with rate achievement at 16.5% and exposures increasing 5.5%. Commercial auto and umbrella continue to improve, now achieving rates above 11%.
Julie A. Stephenson: Net written premium in our core commercial business, which includes small business middle market and construction grew 12% to $223 million in the first quarter compared to prior year.
Julie A. Stephenson: Renewal premium change in our core commercial business was 10, 9% with rates up 9% and exceeding loss trends.
Julie A. Stephenson: Commercial property premium change continue to exceed 20% with rate achieve minutes, 16.5% and exposures increasing five 5%.
Julie A. Stephenson: Commercial auto and umbrella continue to improve now achieving rate above 11%.
Julie A. Stephenson: 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 rolled out our new bot product and quoting platform in 12 additional states, helping accelerate new business production.
Julie A. Stephenson: 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.
Julie A. Stephenson: New business production was consistent with our expectations this quarter and we remain pleased with the quality of accounts being added to the portfolio.
Julie A. Stephenson: We were also encouraged by increased submission activity in middle market in construction as we better align with our distribution partners and focused on delivering additional capabilities and supported becoming an account solution provider.
Julie A. Stephenson: The small business, we've rolled out our new bought product in quoting platform in 12 additional states, helping accelerate new business production.
Julie A. Stephenson: Retention remained consistent and within expectations at 80% as we continue to refine our portfolio profile. 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.
Julie A. Stephenson: Retention remained consistent and within expectations at 80% as we continue to refine our portfolio profile.
Julie A. Stephenson: Our alternative distribution portfolio showed strong multifaceted growth in the quarter.
Julie A. Stephenson: Starting from the addition of several new accounts continued benefit from 'twenty to 'twenty three contracts that have yet to expire and organic growth from a few accounts benefiting from favorable market conditions.
Julie A. Stephenson: Our outlook for this business remains within our stated expectations of 25% of the U F. T portfolio and we are pleased with the continued opportunities this portfolio affords.
Julie A. Stephenson: Specialty excess and surplus lines, net written premiums declined approximately $1 million from the prior year. As we continue repositioning our portfolio to reflect a mix of business that will produce more sustainable, consistent profitability. Surety Net Rent and Premium declined slightly in the first quarter as we continued 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.
Julie A. Stephenson: Specialty excess and surplus lines net written premiums declined approximately $1 million from prior year.
Julie A. Stephenson: We continue repositioning our portfolio to reflect the mix of business that will produce more sustainable consistent profitability.
Julie A. Stephenson: Surety net written premium declined slightly in the first quarter as we continued 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.
Julie A. Stephenson: The first quarter underlying loss ratio of 59.4% improved just over 4 points from the first quarter of 2023, as results reflect improvement in our core commercial lines from a combination of underwriting actions, rate achievement, and improving frequency. Most notably, the property portfolio produced significant improvement; steady rate and exposure increases are starting to fully manifest in the results. Additionally, automobiles show some improvement as prior re-underwriting and changes in portfolio mix continue to show decreased frequency, while rates are covering our severity trend.
Julie A. Stephenson: The first quarter underlying loss ratio of 59.4% improved just over four points from first quarter of 2023 as results reflect improvement in our core commercial lines from a combination of underwriting actions rate achievement and improving frequency.
Julie A. Stephenson: Notably the property portfolio produced significant improvement a steady rate and exposure increases are starting to fully manifest in the results.
Julie A. Stephenson: Additionally, automobile show some improvement as prior we underwriting and changes in portfolio mix continue to show decreased frequency while rate is covering our severity trends.
Julie A. Stephenson: Other liability and surety loss ratios are elevated relative to the first quarter of 2023 as they now reflect our recent opinion that evolved throughout 2023. Prior period reserve development was flat overall in the first quarter. Loss emergence was neutral to favorable across most of the portfolio. Lines that required additional strengthening throughout the latter half of 2022 and through 2023 revealed no additional pressure this quarter. However, favorable developments in property, workers' compensation, and surety allowed us to further secure our reserve position in the other liability lines, though we did not see any notable adverse activity to weaken reserves.
Julie A. Stephenson: Other liability and surety loss ratios are elevated relative to the first quarter 2023 as they now reflect our recent opinion that evolved throughout 2023.
Julie A. Stephenson: Prior period Reserve development was flat overall in the first quarter loss emergence was neutral to favorable across most of the portfolio lines that.
Julie A. Stephenson: Required additional strengthening throughout the latter half of 2022 and through 'twenty twenty-three revealed no additional pressure this quarter.
Julie A. Stephenson: However, favorable development in property workers' compensation and surety allowed us to further secure our reserve position and the other liability line, though we did not see any notable adverse activity until we can reserves.
Julie A. Stephenson: This will further strengthen our position given the uncertainty surrounding lost 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. Thank you, Julie.
Julie A. Stephenson: 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. Thank you Julie turning to the investment portfolio as Kevin mentioned late in the first quarter, we successfully transitioned management of our fixed income investment.
Eric John Martin: Turning to the investment portfolio, as Kevin mentioned, late in the first quarter, 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 first quarter at $1.9 billion with a slightly higher position in cash equivalents as we completed the sale of our public equity portfolio and will work to reallocate that cash into fixed income. Net investment income was $16.3 million in the first quarter, up 28.5% compared to the first quarter of 2023.
Eric John Martin: Portfolio to our partners at New England asset management.
Eric John Martin: Total invested assets and cash ended the first quarter at $1.9 billion with a slightly higher position and cash equivalents as we completed the sale of our public equity portfolio and will work to reallocate that cash into fixed income.
Eric John Martin: Net investment income was $16 $3 million in the first quarter up 28, 5% compared to the first quarter of 'twenty twenty-three. We continued to realize the benefits of investing in a higher interest rate environment with new money yields exceeding total portfolio yield by a healthy margin.
Eric John Martin: 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. There was approximately $1 million of realized losses in the first quarter as we have identified opportunities to make small adjustments in our fixed income portfolio that will further increase future income. First quarter net income was $0.52 per diluted share, and non-GAAP adjusted operating income was $0.56 per diluted share.
Eric John Martin: There was approximately $1 million of realized losses in the first quarter as we've identified opportunities to make small adjustments in our fixed income portfolio that will further increase future income.
Eric John Martin: First quarter net income was 52 cents per diluted share and non-GAAP adjusted operating income of 56 cents per diluted share.
Eric John Martin: These positive earnings supported an improvement in book value per common share to $29.13. During the first quarter, 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. We will now begin the question...
Eric John Martin: These positive earnings supported an improvement in book value per common share to $29.13 during.
Eric John Martin: During the first quarter, we declared and paid a 16th cent per share cash dividend to shareholders of record as of March eight 2020 for 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.
Anthony: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.
Speaker Change: We will now begin the question and answer session.
Anthony: To withdraw from the question queue, please press star then 2. At this time, we will pause momentarily to assemble our roster. Again, if you have a question, please press star then 1. 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 Leidwinger for any closing remarks. Thank you for joining us.
Anthony: To ask a question you May press Star then one on your telephone keypad if.
Kevin James Leidwinger: If you're using a speakerphone please pick up your handset before pressing the keys.
Anthony: To withdraw from the question queue. Please press Star then two.
Anthony: At this time, we will pause momentarily to assemble our roster.
Anthony: Again, if you have a question. Please press Star then one.
Kevin James Leidwinger: 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 right winger for any closing remarks.
Kevin James Leidwinger: Thank you for joining us, and we look forward to talking with you again next quarter.
Kevin James Leidwinger: Thank you for joining us and we look forward to talking with you again next quarter. Thank you.
Anthony: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Kevin James Leidwinger: This is.
Kevin James Leidwinger: The conference has now concluded thank you for today's.
Kevin James Leidwinger: Today's presentation you may now disconnect.