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

Hello, and welcome to the Annual Meeting of Shareholders 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. 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 2 parts today. 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 include: first, election of the 4 Class A directors identified in the proxy statement; second, ratification of the Audit Committee's appointment of Ernst & Young LLP as our independent registered public accounting firm for 2023; three, approval on an advisory basis of the compensation of the company's named executive officers; and fourth, approval on an advisory basis of the frequency of future shareholder votes on executive compensation. Sarah Madsen, Vice President, Chief Legal Officer and Corporate Secretary, will serve as Secretary of the meeting. Computershare, the registrar and transfer agent for our common stock will be acting as the Inspector of Elections for this meeting. Now I would like to take this opportunity to introduce a few members of the UFG executive team, including Kevin Leidwinger, President and Chief Executive Officer and also a Director; Julie Stephenson, Executive Vice President and Chief Operating Officer; and Eric Martin, Executive Vice President and Chief Financial Officer. Julie is the newest member of our leadership team, bringing more than 25 years of industry experience to UFG. She joined us this past January, succeeding longtime Chief Operating Officer, Michael Wilkins, who retired last year after 37 years with the company. Julie is a tremendous asset to the leadership team and the Board welcomes her to UFG. I would also like to introduce you to my fellow directors participating in today's meeting. Kyle Skogman, Vice Chair, John-Paul Besong; Scott Carlton; Brenda Clancy; Christopher Drahozal; Matthew Foran, Mark Green, Lura McBride, George Milligan; and Susan Voss. Following today's meeting, our long-standing Board member, Kyle Skogman will retire after 23 years of dedicated service. On behalf of the Board of Directors, I thank Kyle for his loyal service to UFG and our valued shareholders. UFG has grown and evolved significantly during Kyle's time on the Board, and we have benefited greatly from a strong business sense, vast real estate experience and proven leadership skills. In addition to his role as Vice Chairman, Kyle has devoted his time and talent to numerous Board committees, including effectively sharing or Nominating and Governance Committee for many years. As a long-standing member of the UFG Board, Kyle will be missed by all of us, though we congratulate him on a well-deserved retirement. Syed Raza and Chris Yuska of Ernst & Young LLP, are also attending virtually and are available to make a statement, if desired, on answered questions concerning our financial statements. I call your attention to the rules of conduct for this meeting. These were made available to each shareholder in the document section in the top right corner of the screen upon entering the virtual meeting room. To conduct an orderly meeting, we ask that you abide by these 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 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 20, 2023, are entitled to vote at this meeting. The Inspector of Election has the shareholder list of the company as of the close of business on March 20, 2023, the record date for the meeting, which shows the shareholders and their respective number of shares entitled to vote. I am advised by the Inspector of Election that no less than the majority of the outstanding shares of common stock, which constitutes a quorum are present in-person, virtually by live webcast or by proxy at the meeting. So I declare the meeting duly and lawfully convened. We would now like to begin the formal business of the meeting. 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 4 proposals on the agenda for this year's Annual Meeting of Shareholders. Our articles of incorporation require that our Board of Directors be divided into 3 classes: A, B and C with one class elected at each annual meeting. The Board of Directors must consist of no more than 15 and no less than 9 members with the exact number fixed by the Board of Directors. Given that Mr. Skogman will not be standing for reelection, the membership of our Board of Directors will be fixed at 11 directors following today's meeting with 3 directors in Class B and 4 directors in each of Classes A and C. The first proposal is the election of 4 Class A directors to serve a term expiring in 2026. The Board of Directors recommends a vote for the election of each of the following directors: Scott Carlton, Brenda Clancy, Kevin Leidwinger and Susan Voss as Class A directors. The second proposal is the ratification of the Audit Committee's appointment of Ernst & Young LLP as our independent registered public accounting firm for 2023. 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. The fourth proposal is the approval on an advisory basis of the frequency of future shareholder voting on 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 2023 has been ratified; three, the advisory resolution relating to the compensation of our named executive officers has been approved; and four, the advisory resolution related to the frequency of voting on 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 now turn this meeting over to President and CEO, Kevin Leidwinger, for the presentation.

Thanks, Jim, and good morning. Last August, I had the honor of becoming the sixth leader in USG's history. After 30 years in the insurance industry, I was drawn to UFG for several reasons, including its proud history of doing business and treating people the right way as well as its inspiring corporate vision built on delivering promises. As I stepped into the role of CEO over the past 9 months, I continue to be grateful for the support shown to me by my fellow Board members, the management team and my UFG colleagues across the country. Since taking over leadership, I'm pleased with our progress and especially proud of our people. They have worked tirelessly to fulfill our promises as an insurance company while executing our strategy to achieve superior financial and operational performance. In recent years, UFG has taken significant actions to improve profitability, diversify growth, strengthen underwriting governance and reduce volatility, and we are emerging as a much stronger company. These actions included exiting subscale personal lines business through a renewal rights agreement to reduce our catastrophe exposure and earnings volatility. Execute re-underwriting exercise of our core commercial book of business to improve portfolio fundamentals with a specific focus on non-renewing underperforming accounts and rightsizing the automobile line of business to 20% of the portfolio. Centralizing underwriting strategy and governance to improve consistency and quality of our underwriting decisions, introducing predictive models to improve pricing and risk selection and transforming claims to a specialized line of business operating model to maximize our adjusters expertise and resolve claims more efficient. With better data and deeper insights, I believe we are well positioned to move UFG boldly forward in the right direction, effectively managing our portfolio, responsibly and profitably growing our business and swiftly responding to changing markets and trends, including hardening reinsurance market, ongoing economic and social inflation and elevated weather events. To recap our financial results in 2022, we produced net income of $0.59 per diluted share, a combined ratio of 101.4% and a return on equity of 1.9%. In 2022, we achieved net written premium growth of 4.6% to $984 million, with strong contributions from our excess and surplus surety and assumed reinsurance businesses. We entered the new year with a strong balance sheet in place, including $2.9 billion in total assets, $740 million in total stockholders' equity and a $1.8 billion investment portfolio, of which 84% is allocated to a high-quality fixed income book. Book value per share was $29.36 as of December 31, 2022. Last week, we released our first quarter 2023 financial results, producing a net income of $0.03 per diluted share, a combined ratio of 104% and a return on equity of 0.4%. Book value per common share was $29.80 as of March 31, 2023, up 1.5% compared to December 31, 2022. Despite the quarter's mixed results, I'm pleased with our continued progress in positioning UFG to deliver superior financial and operational performance. We remain committed to executing our strategic plan for long-term profitability, diversified growth, continuous innovation with an intense focus on reducing the expense ratio while also attracting and retaining the talent needed to evolve our company into a top-performing commercial lines insurer. In the first quarter, we attracted significant industry talent to UFG that deepens our underwriting, operational and actuarial expertise. Production results were strong in the first quarter as net written premium grew 13%, marking our fourth consecutive quarter of growth. This was driven by the engagement of our underwriting teams, strength of our distribution partnerships, recovery of our core commercial business and continued growth in surety and assumed reinsurance businesses. The combined ratio was 104% in the first quarter of 2023 compared to 89.5% in the first quarter of 2022. The deterioration in combined ratio was driven by an increase in the underlying loss and expense ratios as well as the lack of favorable prior period development. We will, as we saw in the first quarter, faced challenges on the path to consistent profitability, but I firmly believe we have the right people and the right strategies in place to continue to move our company forward. During the first quarter, we also declared and paid a $0.16 per share cash dividend to shareholders of record as of March 10, 2023. UFG has a proud 55-year history of paying dividends to our shareholders with the first quarter of 2023 marking our 220th consecutive quarter, dating back to March of 1968. In the year ahead, I'm committed to providing a clear pathway for our people as we advance our strategy centered on long-term profitability, diversified growth, continuous innovation, expense management and people development. I'm confident that our actions will put us in a much stronger position for 2023. In closing, I thank our employees for embracing ambitious goals for 2023, our distribution partners for entrusting us with their business and our valued shareholders for the trust and confidence you've placed in our company. I'm excited for what the year holds as we continue to position UFG for superior performance and deliver value to our shareholders.

Thank you, Kevin. Before we adjourn the meeting today, I would like to thank Kevin for his strong and steady leadership since taking over as CEO last August. We are very pleased with the progress Kevin has made in furthering our strategic plan and connecting with both our people and our partners. His broad industry experience, along with his commitment to upholding our company's vision, mission and values will serve our UFG stakeholders well for the future. I am also grateful to my fellow Board members for their continued support and oversight, especially during UFG's successful leadership transition in 2022. In closing, I thank our shareholders for your continued trust and confidence in UFG, my fellow directors for their valued oversight and governance and the employees of UFG for their resilience and adaptability during a year of exciting change and continued transformation. I and my fellow Board members are confident in the future success of UFG as the leadership team continues to advance strategies, centered on long-term profitability, diversified growth, people development, continuous innovation and expense management. Our company made significant strides in 2022, and we expect continued momentum in 2023 as Kevin, Julie and the leadership team continue to position UFG for a strong and successful future. And with that, this concludes the formal business of today's shareholder meeting, and the meeting is hereby adjourned. We will now proceed to the Q&A session. I'll wait for a minute to see if there are any questions.

We have no questions, so we will conclude the question-and-answer portion of the meeting. 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, and thank you for attending our meeting today.

This concludes the meeting. You may now disconnect.