United Fire Group, Inc. (UFCS) Earnings Call Transcript & Summary

Hello. Welcome to the Annual Meeting of Stockholders of United Fire Group Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Jim Noyce, Chairman of the Board of Directors of United Fire Group, Inc. Mr. Noyce, the floor is yours.

Thank you. The meeting will please come to order. Good morning, and welcome to the Annual Meeting of Shareholders of United Fire Group, Inc., and thank you all for attending. I am Jim Noyce, Chairman of the Board of Directors, and in accordance with our bylaws, I will be presiding at this meeting. It has been a true honor to serve on the UFG Board these past 13 years, with today's meeting marking the first that I have the privilege of presiding as Chairman. I'm grateful for the examples set forth by my predecessor, Jack Evans, who retired as Chairman of the Board last year. I thank Jack for his continued support as well as for the wisdom he imparted on the UFG Board during his tenure. Today's meeting is also being broadcast by live audio webcast. We believe this virtual meeting option will maximize participation of shareholders, regardless of their location. Thank you very much to those who are participating virtually today. We will conduct our meeting in two parts. First, we will address our formal items of business, followed by a question and answer session. You may submit questions through the virtual meeting website. An agenda that outlines the order of business for the meeting has been made available. The matters on which the shareholders at the meeting are voting today include: one, elect 1 Class C and 4 Class B Directors; two, ratify the Audit Committee's appointment of Ernst & Young LLP as our independent registered public accounting firm for 2022; three, approve on an advisory basis the compensation of our named executive officers; and four, vote upon such other matters as may properly come before the meeting or any adjournment or postponement thereof. Kristin Stauffer will serve as Secretary of the meeting. Computershare, the registrar and transfer agent for our common stock, will be acting as the Inspector of Election for this meeting. Now I would like to introduce a few members of the senior management team. Participating in today's meeting are Randy Ramlo, President and CEO, also a Director; and Randy Patten, Assistant Vice President, Corporate Controller and Head of Investor Relations. Our 2 newest members of the executive team are Eric Martin, Chief Financial Officer; and Sarah Madsen, Vice President, Chief Legal Officer and Corporate Secretary. Eric joined the company last month, bringing nearly 30 years of financial leadership experience to UFG. We are thrilled to have him on board, and my personal thanks to both Kevin Helbing and Randy Patten for serving as our interim co-CFOs these past several months and providing a smooth transition. In addition, we are pleased to have Sarah Madsen as our new Corporate Secretary. Sarah recently assumed the position of Vice President and Chief Legal Officer of UFG, succeeding our former Vice President, General Counsel and Corporate Secretary, Neal Scharmer, who retired at the end of March after 27 years at UFG. I would also like to introduce you to my fellow Directors participating in today's meeting: Vice Chairman, Kyle Skogman; John-Paul Besong; Scott Carlton; Brenda Clancy; Christopher Drahozal; Lura McBride, George Milligan; Susan Voss. Mary Quass. After 24 years of dedicated service, Mary will be retiring from the Board following today's meeting. We thank Mary for the many contributions she has made during her time on the Board. Mary, you will be missed tremendously. In light of Mary's retirement, we're excited to welcome Mark Green and Matt Foran as new Board members. Both Mark and Matt bring many years of property casualty experience to the Board, and I am confident that we will benefit greatly from their knowledge and expertise. Syed Raza and Chris Yuska of Ernst & Young LLP are also attending virtually and are available to make a statement, if desired, and answer questions concerning our financial statements. We call your attention to the rules of conduct for this meeting. These are made available to each shareholder in the File section in the lower left of the screen upon entering the virtual meeting room. Or for those attending in person, the rules are attached to the agenda. To conduct an orderly meeting, we ask that you abide by those rules. If you need a copy of the annual report or the proxy statement, please refer to the company's website or the hyperlinks provided with your proxy materials. Corporate Secretary, Sarah Madsen has delivered an affidavit of mailing from Computershare, establishing that notice of this meeting was duly given. A copy of the notice of the meeting and the affidavit of mailing will be incorporated into the minutes of this meeting. All shareholders of record at the close of business on March 21, 2022, are entitled to vote. The Inspector of Election has the shareholder list of the company as of the close of business on March 21, 2022, the record date for the meeting, which shows the shareholders and their respective number of shares entitled to vote at this meeting. I am advised by the Inspector of Election that no less than a majority of the outstanding shares of common stock, which constitutes a quorum, are present in person, virtually by live webcast or by proxy, so I declare the meeting to be duly and lawfully convened. We would now like to begin the formal business. The polls are now open for voting on the 4 proposals before the meeting. If you have not voted or wish to change your vote, you may do so now through the virtual meeting website or if you are present in person by raising your hand to submit a ballot. Any shareholder who has already voted by proxy and does not want to change their vote should not take any further action. There are 3 proposals on the agenda for this year's Annual Meeting of Shareholders. The first proposal is the election of 1 Class C to serve the remainder of a term expiring in 2024 and 4 Class B Directors to serve a term expiring in 2025. The Board of Directors recommends a vote for the election of each of the following Director nominees: Mark Green as a Class C Director; and John-Paul Besong, Kyle Skogman; Matthew Foran; and myself, James Noyce as Class B Directors. The second proposal is ratification of the Audit Committee's appointment of Ernst & Young LLP as our independent registered public accounting firm for 2022. The Board of Directors recommends a vote for this proposal. The third proposal is the approval on an advisory basis of the compensation of our named executive officers. The Board of Directors recommends a vote for this proposal. No other matters for consideration at this meeting were brought to the company's attention by our shareholders in accordance with the requirements set forth in our bylaws or the applicable rules of the SEC. If you have not yet completed delivery of your proxies or ballots online or in person, please do so now, as we will be closing the polls for voting at this time. [Voting]

The online voting will now be closed. Based on a preliminary count, the Inspector of Election has informed me that: one, all Director nominees have been elected; two, the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2022 has been ratified; and three, the advisory resolution relating to the compensation of our named executive officers has been approved. The final vote count with respect to the matters voted on today will be reported on a Form 8-K as required by the SEC. I'll now turn this meeting over to President and CEO, Randy Ramlo, for a presentation.

Thank you, Jim. Last year at this meeting, I reported that we aspired to deliver greatly improved results at UFG, confident that we were on the right path forward. Today, I'm extremely pleased to share that we did just that in 2021, producing net earnings of $3.16 per diluted share, a combined ratio of 100.3% and a return on equity of 9.5%, our highest in 6 years. As a company, we transitioned from one of the worst years in our history in 2020 to a solidly good year in 2021. With the fourth quarter combined ratio of 83.1%, our lowest in over 14 years, and a year-over-year increase in statutory surplus of 12% to $754 million, we were able to finish the year on a particularly high note. Earlier this month, we released our first quarter financial results, which showed a continuation of our trend toward improving profitability. We delivered net earnings of $1.12 per share, a combined ratio of 89.5% and return on equity of 13.2%. The first quarter was the second consecutive quarter that we've produced a combined ratio below 90%, marking the first time in 7 years that we delivered back-to-back quarters with combined ratios under 90%, dating back to the fourth quarter of 2014 and the first quarter of 2015. In addition, it was the fourth consecutive quarter with improvements in both our core loss ratio and commercial auto loss ratio. Overall, we are encouraged by the significant improvement in our profitability and a promising start to 2022. This progress is all thanks to our tremendously talented and resilient people who haven't skipped a beat amidst the pandemic. Their successful execution of our "One UFG boldly forward" strategic plan is positioning UFG for superior operational and financial performance in the short term and the long term. I'll now take the opportunity to provide an overview of the strides we've made towards our 3 strategic pillars of long-term profitability, diversify growth and continuous innovation. A key factor to our long-term profitability is reducing underwriting volatility, which we aim to achieve by limiting our exposure to catastrophe losses from past levels. Meaningful steps we've taken include exiting the personal lines market, diversifying our book of business and growing our historically profitable segments, including surety, excess and surplus lines, inland marine and assumed reinsurance. In the growth pillar of our strategic plan, we are carefully managing our portfolio to fit our risk appetite across all underwriting branches of UFG, using leading data and analytic tools to assist our underwriters in making better coverage and pricing decisions. Strategic initiatives currently underway include promoting a clearly defined risk appetite to our existing agency partners; appointing new agents that align with our business mix; evaluating current partnerships and parting ways with unprofitable agents; and scaling profitability in targeted states, product lines and business segments through mutually beneficial agency partnerships. At UFG, we also remain committed to cultivating a culture of continuous innovation across our teams. This includes adopting agile practices to deliver increased efficiency, expanded digital capabilities, improved customer experiences and shorter time to market. In 2021, we successfully launched our new small business online quoting platform, which is now available in 9 states, with plans to roll it out to 3 additional states later this year. Our new platform offers an enhanced and streamlined online quoting experience built based on direct feedback from our agent partners. In addition to quoting multiple lines of business, there is also the capability for some policies to be issued without human intervention. All in all, we are very pleased with the past year's progress, which we view as the beginning of more good progress to come as part of our ongoing transformation at UFG. 2021 provided us with strong validation that the path we're on is the right one, and we have numerous initiatives in place to keep our company moving boldly forward. Throughout 2022, we aim to stay the course, continuing to refine our strategy and sharpen our focus. As a company, our overreaching objectives remain to consistently deliver industry-leading financial results and to fulfill our vision, mission and values for the benefit of all UFG stakeholders. As you likely know, earlier this year, I announced my plans to retire after nearly 40 years at UFG. My career that began as a desk underwriter in 1984 will officially come to a close on October 31, 2022. Though my departure is bitter sweet, after 15 years as CEO, it's time to give a new leader the opportunity to lead our business and our people boldly forward. It has been a true honor to serve as CEO, and I am proud of the growth and success of UFG during my tenure. Over these past 15 years, we've overcame challenges, experienced success, celebrated milestones and even survived both the flood and a derecho at our corporate headquarters here in Cedar Rapids, a testament to our outstanding staff members, management team and Board of Directors. As CEO, it has been my promise to lead UFG with the kind of forethought that will move the needle of success in a positive direction for our shareholders, employees, agents, policyholders and communities. As a company, I'm proud to say we moved the needle of success in 2021, and we intend to keep moving it in a positive direction for our future. In closing, I personally thank our UFCS shareholders for your support and trust over the years. Together, as shareholders, we can look forward to hearing from UFG's next CEO at the 2023 Annual Meeting. My successor will serve as the sixth leader in our company's more than 75-year history, and I'm confident that whoever is elected will take UFG to great new heights. Here's to a successful future for UFG in 2022 and well beyond. Back to you, Jim.

Randy, thanks for your update and for your continued leadership over the next several months as you look ahead to a well-deserved retirement. . Before we adjourn the meeting today, I would like to congratulate Randy on a successful almost 40-year career at UFG, including the past 15 years as CEO. In this day and age, it is somewhat remarkable to have such a long-tenured CEO, and we feel very fortunate that Randy has been at the helm for so many years. UFG was founded on the belief that the insurance business is a people business, and no one exemplified this more than Randy. He has led UFG with both integrity and empathy, empowering his employees to succeed, earning the trust of our agency partners and furthering the company's mission of community support. Randy, thank you. Surely after Randy announced his retirement for later this year, the Board named a CEO Search Committee, which is headed by our Nominating and Governance Chair, George Milligan and consists of 4 other Board members. The interview process is well underway, and we are very pleased with the candidate pool. We are confident that a decision can be made in a time frame that will allow for a smooth transition from Randy's leadership to a new CEO. In closing, I thank all of you as shareholders for your continued trust and confidence in UFG. I thank my fellow Directors for their valued oversight and governance and the employees of UFG for their tireless efforts in advancing the company's ongoing transformation. I and my fellow Board members are confident in the future success of UFG and are in full support of our One UFG strategic direction. Over the past 2 years, we've witnessed the incredible strides made in executing the strategic plan and returning the company to profitability. It was clear from the start that a plan of this scale would take time to implement, and it has been rewarding to see the plan firmly take hold and begin to generate positive results for all UFG stakeholders. Your Board of Directors is optimistic for the year ahead, as the UFG leadership team continues to refine our strategy and take advantage of new opportunities for long-term profitability, diversified growth and continuous innovation. UFG is in a strong position with a bright future ahead. That concludes the formal business of today's shareholder meeting, and the meeting is hereby adjourned. We will now see if there are any questions.

Mr. Noyce, we have not received any questions. .

Thank you, Randy. On behalf of the entire Board and management team, I would like to express our gratitude to all of our shareholders for their continued support. Thank you for attending our meeting today.

This concludes the meeting. You may now disconnect.