UFCS - Earnings call transcript Q4 2020

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Operator

Good morning. My name is Chuck, and I'll be your conference operator today. At this time, I would like to welcome everyone to the UFG Insurance Fourth Quarter and Year-End 2020 Financial Results Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. the Controller. to turn Vice Patten, now and President will call Randy over Assistant I ahead, go Please sir.

Randy Patten

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

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

Randy Ramlo

fourth year-end XXXX and to conference quarter Good Randy. our Thanks, everyone, and welcome morning call.

XX, quarter year losses in XXXX, year severity As were strengthening. fourth prior current in release, in impacted February in accident our inflation, of we mentioned and resulting by increase an our on press negatively results reserve social accident

during impact pessimism. inflation magnified. and and California, amongst largest particularly auto more the the to states, to quarter, the with of trends the highest fourth in XXXX, is industry. entire Social were two and reserved social commercial Unfortunately, are recognition inflation UFG liability states, new meaning general impact social trending claims In Texas inflation our continues

insights claim the XXXX our the our established is pessimistic The the to negatively quarter, year the catastrophe the made process level points accident Also, prior prior also consideration in of Catastrophe years, full-year to XX.X case to ratio in past a in five-year Additionally, the results losses impacted in has of more average cycle, these of shorten highest were in view. and than we reserve earlier analytic being our during with progress of X.X historical by of reserves adequacy added open been driving new outcomes. which reserves the XXXX, combined last with reviewed year fourth higher losses. points than significantly five XXXX. historical years,

of Cedar area. These were Iowa, these August of the impacting peak impacted a Greater the April, our Cedar the mph, events areas. of reinsurance, of $XXX experienced geographically of some these catastrophe events losses reinsurance. came that the losses significant Two hailstorm events Midwest Rapids, majority occurred location before our million in winds we in and Rapids $XXX The of year, corporate three with XXX net million of Iowa headquarters. from exposed During largest derecho

foundation plan we we area improve in very are third Though to strategic Laura, with hurricane building XXXX the UFG XXXX, heavy our results Southern disappointed The Throughout another on profitability. event our was focused year. we of of agent our exposure impacted in which the new Louisiana, optimistic of our location XXXX, about future. the for remain

innovation. growth, we and initiatives a portfolio continuous which boldly call, plan, diversification, sustainable at of forward," aimed strategic Our long-term UFG profitability, contains "One number

auto commercial a frequency losses units. efforts, a able of our of decrease the auto consecutive As to fifth early including some point commercial result we and underlying to with are our improvements, quarter in exposure

pessimism. the claims core saw in more cautious being established our in and earlier loss despite We reserves improvement ratio with also cycle

into our ratio loss strategic same X.X from and XXXX. quarter in additional periods positive plan percentage will in core in XXXX. of and to outcomes go few discussing respectively, compared Mike depth X.X improved Dawn the the in full-year points, more and XXXX fourth a Our minutes

as level we excludes the nearly pandemic, this are we pandemic. firmly unacceptable, At In that Although language to coverages of interruption as specifically and to effect will that right to strategic this reminder, improvement issued our be viruses under all claims we losses COVID-XX year forward focused of the business contain a the the speed time, contract on our expect on remain the of manageable. was such we policies part improving attributable the path coverage on profitability currently have and regard believe ongoing plan. as COVID-XX

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

turn our legacy, founder, treating across to Wilkins. Scott right humble of country. insurance instilled is carried turning that the the UFG say, UFG over belief Though committed people to a I'm call founding XXXX, business people much and want Mike daily call the to has proud company to January the an It I business. milestone Before changed the mention Mike, doing that roots our right important by the business that the out principle who and Sr., our our will reached McIntyre, X, was anniversary. XXth existence, remain the employees XX-year way I in we way. to over is on now A in

Mike Wilkins

In the portion the of discuss Thanks, plan, our progress Randy, on for XXXX strategic of call, results, focusing will year, the while of our my and outcomes our good addressing I and positive past improvement. the morning, everyone. plans

the been has exposure XXXX, by size units. commercial underperforming portfolio reducing throughout mentioned of number as the First, accounts non-renewing focus of our auto and on reducing our

XX.X% the commercial of decreased book, which now compared XX.X% our our XXXX. up we makes XXXX, auto During of successfully at portfolio, to end

our premiums XXXX. new XX% for new versus in deck, only six the on at Looking XXXX, auto slide XX% commercial premiums, in on slide added accounts in

brush book also in the broad to mix, more business. the portfolio achieving. our we write and be plan to of XX% book California, In state of underwriting, to is region, geographic trends our Texas, Our risk regions on our auto focusing using represent selection. to are what on highest in strategic based our goal is XXXX, to balance across on of especially our established where a we which a states we of Part of the have commercial business balancing geographic risks targeted establishing improve we approach and inflation, In consistency in XXXX, and Florida. have our social intend to that the centralized selection closer strategy

commercial we September type reduced headquarters. especially With the auto, pricing specifically sale strategy, average renewal events of increases the rate been experienced XXXX, The our believe at double X, in our commercial in catastrophe XX-month digits on auto XX.X% XXXX, of on property, our have have renewal and remain books rates disciplined we nationwide, umbrella The to digits, increase effective the in We in the low near we personal fourth rate commercial the beginning of lines XXXX. our our exposure of auto average remained the year. since quarter business. double of the

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

the in from now our underperforming large book. non-renewing percentage Commercial improved fourth the at we up increases in reminder, third quarter, business at rate auto commercial our are renewal bottom of with average the X.X%, a X.X% a XX% of property As quarter.

be the exposures and there and our reducing property claim From book time, on we expenses, believe last an As the perspective, legal of aggressive we market our claims shortening hardening. see undesirable opportunity impact reducing more commercial is a cycle plan with focuses to rate stated we litigation. with increases, signs as strategic the of quarter,

other than and claims in business As this we our see started fourth social the more from of Randy case of given quarter, in inflation book improving the concentration reserves California. mentioned, impact our the UFG setting significant our process. claims carriers and to Part from claim the of is is the the shortening Texas to address with for strategy more earlier legal In impact pessimism. cycles and strategy process and for

enhanced precursor and that we year to us team to will the most leading to recognize on experts to a claims claims specialization, open In fourth claims. reserve prior adjusters strengthening. quarter, deployed our reserves allow we Additionally, by specialization on expertise a as review increased deploy our severe of complex accident

This claim deployed early also the regular assists the for indicators the severity in of fourth analytics our identifying and of model by models adjustors quarter. We an loss. severity

of We quarter continued expect accuracy. the to release of a reserving our by XXXX case reserving third in model commercial for auto support

today the growth discussing wrap are some we I reducing call our Additionally, pursuing portion opportunities early equitable tenure but settlements, claims. of of open the of up strategies. my for our will

Our expand our strategic is and profitable to lines. plan grow

XXXX the written and lines we Our the the and E&S and in E&S. with and opportunities exceeded surety most in greatest us premium goals XXXX. present believe profitability lines Both surety our are lines profitable

XXXX. in lines these grow to continue to are plans Our

producers E&S, and U.S. expansion, this additional For includes in this northeast state for includes and the product surety surety

Another will allow is line our line to intend assumed diversification Growth that this mix. of historically current profitable we portfolio grow in reinsurance.

We have of XXXX new will overall place reinsurance several in book that assumed business. programs our diversify in

in With discussion of to business online Dawn? the our to the line future. new BOP quoting Dawn allowing experience that, excited rollout agents, the a XXXX, turn Lastly, increase for mid our processing over are grow to of through profitable of we in initial I'll begin us our Jaffray. policies, straight and

Dawn Jaffray

XXXX. loss million Mike, to morning, consolidated in same everyone. a $XX.X compared quarter, period net million reported loss the the fourth we of Thanks, In $X.X and good net of a of

full-year reported $XXX.X a of XXXX, full-year we of for XXXX. million of of consolidated the the $XX.X with loss For million compared income net net

to accident results year Mike and impacted what Randy were believe and influence we reserve the As inflation of mentioned, social the severity of by development. prior losses quarterly from be

primarily our and unfavorable quarter, fourth of reserve $XX.X by commercial development the of business. During lines liability million, accident auto liability prior we recognized year driven

favorable of had development $X.X the full-year development XXXX, the million XXXX. million of $XX.X favorable for of full-year For to of we compared

with year $XX.X results reminder, continued continued results year fourth was on the and to were we've Catastrophes since XXXX. net a the contributing impactful accident prior $XXX losses. loss impact development million during million to of XXXX. for quarter compared Also of severity XXXX every As had of the reserve full-year in significant the favorable

quarters increase as gains million value increased investments of million of compared to our refer in our equities, I $X.X investment fourth or phantom million quarter And XXXX, due increased an compared funds. Moving on to the first of of bank fair in to an pre-tax net both limited to fourth fair quarter, of our income. or gains an our what to liability improvement in quarter primarily to of three quarter the fourth fair investment investment portfolio the In value decline the due for fourth income these XXXX. the is in a losses increase recovering investments, the investment of quarter investment and we and portion net realized This in value realized income XXXX, from the fourth primarily $X.X in reported of the $XX in increase XXXX. partnerships

losses also to we investment full-year the Our bond the net XXXX for year. the increased improvements Despite million of fourth $XX.X in and during an of unrealized with reported compared in decline realized quarter, investment portfolio XXXX of $XX after-tax net gain XXXX. in XX% of million full-year a of income the these

We have investment with sale reduced in this undertook the we year. portfolio the volatility the some equities of of

our XXX.X% operating in of ratio quarter, for XXXX. for metrics As the we period XXX.X% compared combined a the of same to reported

XXXX. For primarily in we of We XXX% from XXXX of in of expense combined to of a XX.X% a ratio reported a the the decrease quarter result for the decrease in XXX.X% is XX.X% see in fourth ratio The full-year did the of compared to the full-year, commissions. fourth reported quarter decrease the XXXX.

full-year ratio investment one was continued point was full-year in increase expense XX.X% of as The compared to XXXX, primarily initiatives. the less of XX.X% to due our the XXXX. for than technology the For of

design pension initiatives expense and to we sharing the including plans. profitability agent in in several as a impact plan and agency from medical second-half business schedule began the changes a have structure, shift establishment adjusted lines our of greater vendor our plan, have see a management benefits retiree We strategic commission changes volume. In change of an the commission our of in with aligning adjusted an a of XXXX, part our of XXXX. office, emphasizing in changes will the profit agency some commission These over to and our include impact profit structure. These of

this a We vendor negotiation We management contracts vendor of in additional our opportunities cost believe and XXXX further provide ultimately established going better forward. will track savings manage office also centralized contracts. for and approach to

at balance decision and we'll a ratio XXXX. a had the transition in on beginning For obligation. in XXXX equity pension This benefit long-term positive a of traditional expense liability and on have our we the potential our made volatility to our defined plan, positive pension the pension benefit the in XXXX which impact to effect plan significantly a end plan, reduced from cash

but exclusively we commencing change to announced the medical just start difficult to addition, our In plan by XXXX. funded voluntary decision participant the necessary of plan a retiree at

reporting We the through working this decision. and are currently accounting of financial implications

are that greatest will retiree short-term the a XXXX. we the expect 'XX, of decision for in expenses employer-provided to funding ongoing will the the to with proportion 'XX expectations Longer-term, the this of expense cost Our have additional this to medical end and impact action ratio benefit benefit for UFG. the plan saving escalating provide some to

statement plan recaptured at million. was along next release with XXXX, XX, the liability This the medical credits December retirees will the over be about the years. reference, obligation $XX two into prior income For existing

estimate be actions, XXXX, conservative for the performance ratio year. approximately is lower will management our premium to our dependent ratio decrease two Although points expense these XXXX on our expense a expectation in that for with levels, by with

will provide retiree first number a accounting completion the plan. XXXX definitive of and medical valuation conference following more quarter We our in the the change required during this of actuarial call,

by on, of discussing capital matters. end the I Moving my will portion call

the dating part One a balance by consistently a XXXX, new of to of XX, XXXX, $XX per our a with I two paid balance result of terms strong as with UFG sheet to debt fourth The negotiated the leverage debt-to-equity our paying our privately At quarter, to transaction. shareholders the report to of One impact UFG additional surplus our long-term ratio. as capital notes a a decision million structure, to dividend, XXXth of dividend continue the of instruments quarter that share the record, to add made our we X, UFG will initiative. we support plan. of cash holding March X% This XXXX, December marking of addition of growth profitable declared $X.XX end in adding debt, our consecutive business from to small sheet back in pleased now maintain Mike to during decision strategic XXXX. capital initiatives, plan support strategic Also As December we am of and and discussed,

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

Operator

Thank you.

now We Sandler. with will will come go first begin ahead. session. the Instructions] [Operator question Paul Piper from the Newsome Please And question-and-answer

Paul Newsome

call. the for Thanks morning. Good

Randy Ramlo

Morning, Paul.

Paul Newsome

are that give well. lawsuit that us you a seeing auto, of of could Hope going Is I to is sort sense inflation. what there if everyone bit of on the might be detail give to us you is any on? additional more much kinds commercial a it you was social call what severity specific details very little wondering and would

Randy Ramlo

with a from side. then the Corey start Paul, in claims little maybe one, and bit chime So, will this

just has and was commercial huge has there see things b, show a low-impact a used been brain think claims we then that bar, that awards, somewhat high there. states of out targets. one limits [Ph] I umbrella little of of of the And a been with characteristics are stick what the kind But kind target, led of have a more and especially or right amazing and and both as traumatic [autos] but lot auto tools, compensation compensation kind on our have analytics of And kind in covered less made at workers' necessarily auto it those really Yes, plaintiff's unfortunately a jury real maybe it's mentioned couple unique, and of of that not we attractive. And we've ones, were translate out. but we that scheduled and are see the an biggest time, the claims commercial see, two about our be that that, two so we up we've tools talked being two really even of a, claims kind those problem a states, And that judgment injuries, bit will of the Texas a press difficult that litigation, terms to stress on syndrome. post-traumatic into likelihood litigation. in is pick adverse bit of is percentage and those. which California

possible those into that's where from, of of likely payout. both So them conditions. diagnose coming But physicians more translate bigger it's if are to kind two

of negligence, it's the lot propensity it ignoring of judges also juries of injuries. So of is a kind these and kind but

on target, working UFG, getting auto, and adverse Unfortunately considerably kind auto of states, yes, peers. So of auto worst UFG. percentage book we some then And with been is both so very above our have a a line. a lot the umbrellas. of in we're big we're to our mentioned, those as large have Mike also that two of in in more And

maybe So ask if information wants a he specifically. with bit in some little on to here Corey just claims chime I'll more

Corey Ruehle

is Ruehle. This Paul. Corey Hi,

in social If you our on the as running well. basis, what overall look it's industry at line right seeing is with an inflation

last break double five auto Texas California out that year-over-year for and it's commercial years. you over If about the

We seeing are though. positive results some

dropping California of overall new if until and But Our XXXX now, look suits, for total starting run those Texas the steadily. you almost counts, at of half have suit suits. in been new January new

steady. has those cycle be to continued time suits very Our closing on

suits closed so gap And number and suits between new maintaining. a nice the created of that in we've we're the of is what still number coming

is in, We've get you doubled XXXX. I these years, ahead that of leading also has we've the in of claims. we're given tell reserving over where almost time level on the of new and claims in we're BI come auto been tracking a also we indictor that last out XXXX cycle of that a which good payment me for all few improved traditionally, establishing at commercial and to Our quarter, claims, that starting what can third those quarter were actually

making there. good we're really So progress

instituted be that fourth to bat, mentioned, last allowed off in seeing so And severity quarter claims right these getting these and to severity has of out model adjustors model As us triage claims of had settlements. right that the improved we randy able the we're to also year. the the ahead

at you close on two are that than open versus able the social claims longer continuing to that claims inflation a less is If look year, there years gap too. to widen we're those than in

longer a claim litigation, open, there. the in it bit we're is is a especially quite more seeing inflation if So

Paul Newsome

when fundraising the revenue together So, my second the book debt, regards the question would underwriting of of it in million your basis, of you $XX pieces needed be of to at shrink fund math of because on growth, initiatives? looks going $XX [indiscernible] kind like to could put least to the why is actually the million a

Randy Ramlo

tell how the maybe let little involved surplus was a note. Dawn you in about heavily we'll she So, most bit

kind her give of little let a I'll So background.

Dawn Jaffray

additional, Sure, amount I'll thought purposes, opportunistic well. to an know, support I'll opportunity Clearly, as weigh make a to looking it treated in that to Yet comments form growth very initiatives. our some was One as you on a we of GAAP a as to it's plan us Mike And then it in various surplus as for UFG couple Paul. debt. time the a basis was a forward, made small note. capital, insurance add sense for And treated here, add of what's our ask

Mike Wilkins

And, Paul, Mike… this is

Paul Newsome

Speakers] [Multiple

Mike Wilkins

Sorry, Paul.

accurate, premiums to You that expect going we see shrink were forward.

us aggressively. extremely surplus that Areas we would the think past, make and was adequately and However, grow that main our for areas be those we have supported. we to future. assumed into we out set growth represent there going this move sure the plan have to a in try some areas profitable to in opportunities lines that good been surety felt goals fairly The have fairly do We've reinsurance. operation, excess good aggressive areas

Paul Newsome

how segment putting cash just in desire do guess, So, more business end a for close? I'm is we right why capital? been if -- a still the it -- Maybe in doing. is spot surplus management you to and Or offline up need the that this the is take has wondering it not can particular shrinking, I

Dawn Jaffray

Thanks, Paul.

continuing that and prepared historical sheet our point strong think balance future. approach a I the retaining to for main is the being just

type opportunity is small this us. As uniqueness we've a very this a instruments the structure. part debt capital overall you're surplus amount our the aware, to draw note of And relative a had for also was being and no of

Paul Newsome

I'll let some you. the thank other if I questions okay, appreciate people have Great, [indiscernible]. they ask call, more.

Randy Ramlo

Thanks, Paul.

Operator

come Sidoti. will from question go Please next with ahead. Marla Backer The

Marla Backer

you. Thank

in So, discussion just a of couple questions around. what follow-up I have part to a talked the

you're a obviously we closures Do lot social makes courts. that in any now there's First, of of pessimistic you during delays that saw in impacts you think if terms the outright the seeing inflation? in XXXX not what of more

Randy Ramlo

judgments make seeing, Kind maybe the everything drivers to coming on he is but income of, a is and settle income in gaps necessarily are think be largest kind -- of are not we're also willingness a the Maybe thoughts. of some we inequality. big to kind have I'm of saw judgments. we out any that I'll sure quick them of has Randy. the not States has claims just most nuclear this this again, of did it's calling short-term on lot That's I lasted some pandemic. another on, early are but Corey baked So that early in then ask fad, a from one predicting kind factor people in of the comment big if where

necessarily We with haven't that. much that had problem

percentage of is ago. been years judgment five a would to or being have -- what added normal four kind on Ours a is more

inflation to has don't just courts itself. So, getting -- if up, but start are open the I pandemic the I to think, some ready on much effect social know had of overall

Corey, a just any think comments? more I it's society. have attitude changing of you of do kind

Corey Ruehle

that our driven at some I indicators of dropping… were at to starting. lot kind inflation, even pandemic mentioned of new social the suits prior were of those -- look we're had the with we where When good leading a you seeing have signs Marla. Hi, And

Marla Backer

That's what thought… I

Corey Ruehle

So be I'd basis the a pretty year-over-year on continued dropping, even steady. new of the mentioned rate has and with our suits pandemic, drop to

started wasn't interesting see It changes courts to the it pandemic happens drop it still approach be but But sharp early very way will we're the to there. up those approach as see So a are settled very people open off aggressive as a in there when what fair, things. there if taking to getting claims possible.

Marla Backer

And vis-à-vis terms trend and anniversary earlier shift higher that reserving, reserving Okay. should we least expect your does see sort until that this at that in in of then strategy to mean slight reserve? we continue of

Corey Ruehle

going We're it is, moving target are changing on claims inflation thing review about basis. is One that regular and a a a continue daily on basis. to to social claims

XXXX, so, be but to there developments for and there. us into important could And come to it's some to do there'll be do more constant continue continued review, a

Marla Backer

Okay. then… And

Randy Ramlo

Hi, Marla, this is Go Randy. ahead.

of claims. again. I when was maybe has Randy a that changed. times, of the to were One what I up would we of but pessimistic adequate look some on strengthening, going and you just have settle reserves bit mentioned, we reserve seeing is year and incorrectly, reserve may cost or further just we put these the kind for Okay, of settle what we're become kind things that of comments is put this you'll think a more ago, we've more of kind to seen the usually game as develop have two kind it's hear up The is make as

Marla Backer

Thank you.

talked mid-XXXX. a Okay, little talk its for online your expand an remarks my prepared actually introducing down agents some question, some last in road sometime perhaps you Thank you. to your at in functionality also on expand and the bit direct-to-consumer platform, bit a potential I'm offerings? about offer topics to platform point the you possibly before switching the Can now, about

Randy Ramlo

some So, kind our because but handle question is make let has platform, bit offer. I'll of Randy. think right now, not this a touch are could direct-to-consumer the Mike the respectfully good will We he of that, going on what enemies little with you some about a tell we Marla, I probably

Mike Wilkins

Hi, Marla, is Mike. this

a yes, more So, initiative. about little bit the information

to at as in broader going expect a not It's product a away, the pilot April, far that mid-year. We’re release to small so that but business release aimed seven that a states is segments.

as BOP We be expand the three segment or Policies. referred after often is It's they're The Business built that flexible. in Owners additional four insurance, centers. interface independent initial to very about We’ll to states that to them intuitive. business release. agents So, our lot the tool agents. with business handled service in And built through collaboration was very every now. segment the is in support market XXX% that our months user mid-year issuing to a is business been owners What is common in of

for servicing as make to And easy, of service business So, system that also provides self-servicing and allow also the agents. we a forward. the designed that some we've that of the do we of servicing center to have insurers lot business go a the

we're way with the very the flexible. time. insurers do it. it's with business a So, us change excited lot to And over opportunities and of agents pretty the will we It allow about

Marla Backer

Okay, you. thank

Operator

question-and-answer concludes Please session. I’d like sir. remarks. turn over for to [Operator back our to ahead, Randy Instructions] go the This any conference Patten closing

Randy Patten

you a our concludes now great conference for day. have This joining us and call. Thank

Operator

concludes today's for Thank this day. a joining gentlemen, great and and program. have you Ladies us

may your You lines. disconnect

United Fire (UFCS) 17 Feb 212020 Q4 Earnings call transcript