Good morning, my name is Allison, and I'll be your conference operator today. At this time, I would like to welcome everyone to the United Fire Group Second Quarter 2017 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. Thank you. And I would now turn the call over to Randy Patten, AVP of Finance and Investor Relations.

Good morning, everyone, and thank you for joining this call. Earlier today, we issued a news release on our results. To find a copy of this document, please visit our website at ufginsurance.com. press releases and slides are located under the Investor Relations tab. Our speakers today are Chief Executive Officer, Randy Ramlo; Michael Wilkins, our Chief Operating Officer; and Dawn Jaffray, Chief Financial Officer. 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. These forward-looking statements are based on management's current expectations, and we assume no obligation to update them. The actual result may differ materially due to a variety of factors, which are described in our press release and SEC filings. Please also 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. At this time, I'm pleased to present Mr. Randy Ramlo, Chief Executive Officer of United Fire Group.

Thanks, Randy. Good morning, everyone, and welcome to the UFG Insurance Second Quarter 2017 Conference Call. Earlier this morning, we've reported net income of $0.12 per diluted share, operating income of $0.05 per diluted share and a GAAP combined ratio of 107.2% for the second quarter of 2017. This compares with net income of $0.12 per diluted share, operating income of $0.08 per diluted share and a GAAP combined ratio of 104.8% in the second quarter of 2016. Our second quarter 2017 net income was comparable to last year's second quarter. In both periods, we had an elevated level of losses in our P&C segment. However, in second quarter of 2016, losses were driven by catastrophes, and in the second quarter of 2017, losses were driven by an increase in frequency and severity of commercial auto claims. We are disappointed that we are not making more progress in our commercial auto line. We will continue to take more aggressive actions until we see improvement, focusing on rate increases, additional tightening of underwriting guidelines, loss control requirements and - along with implementing new analytical tools. These initiatives will take some time before we realize the positive impact in our financial results. Mike will discuss the initiatives we're putting in place to improve our underwriting performance in this line in more detail. In the second quarter of 2017, we had 16 large commercial auto claims, which we define as claims larger than $500,000, compared to five large commercial auto claims in the second quarter of 2016. These claims were geographically dispersed, with losses occurring in each of our regions. Year-to-date, we had 28 large commercial auto claims as compared to 9 large claims in the prior year to-date. In both the second quarter and year-to-date 2017, we also experienced an increase in…

Thanks, Randy, and good morning, everyone. As Randy indicated, we had a deterioration in our core loss ratio in the second quarter of 2017, driven by an increase in frequency and severity of losses in our commercial auto line of business. Much of this deterioration is due to strengthening of reserves on the late - on the last three prior accident years and only slightly due to an increase in current accident year paid losses. This reserve strengthening is partially due to bodily injury loss inflation which we and the industry are experiencing. This inflation is due to jurisdictional issues and an increase in unfavorable awards, which increases potential exposures on commercial auto bodily injury cases. We believe a majority of this increase in commercial auto losses is due to an increase in miles driven and distracted driving. As we mentioned last quarter, one of our initiatives that we will be implementing later this year is the distracted driving campaign. This campaign, which we're calling 'worth it', is a comprehensive educational and marketing program to remind drivers their life is worth it, driving distracted is not. This collection of resources is designed to reach and engage. It can be used by business owners, insurance agents, educators or individuals, basically anyone interested in helping fight the epidemic of distracted driving. Other loss control efforts to improve profitability in our commercial auto line include tightening of underwriting guidelines and loss control requirements. During the second quarter of 2017, our loss control reps have increased the frequency of visits to our insureds aimed at improving commercial auto results. Our reps are working with insureds to implement vehicle use policies to set guidelines for acceptable driving behavior. They're also grading accounts A through F on the account's vehicle use policy, their attitude towards cell…

Thanks, Mike, and good morning. For the second quarter of 2017, we reported consolidated net income of $3 million or $0.12 per diluted share as compared to $3.1 million or $0.12 per diluted share in the second quarter of 2016. Through 2017 year-to-date, consolidated net income was $22.9 million or $0.89 per diluted share compared with $25.5 million or $1 per diluted share in 2016. The decrease in net income in the second quarter and year-to-date as compared to 2016 is primarily due to deterioration in our core loss ratio, previously discussed by Randy and Mike. Quarterly consolidated net premiums earned increased 2.4% in Q2 compared to 2016, and total revenues increased 2.6%. And year-to-date, consolidated net premiums earned increased 3.8% and total revenues increased 4.5% compared with 2016 year-to-date. Specifically, Property and Casualty segment net premiums earned increased 5.6% in the second quarter and 6.4% year-to-date as compared with the same period in 2016, and both relatively in line with previously mentioned expectation. Consolidated net investment income was $24.6 million for the second quarter of 2017, which was comparable to the prior second quarter with $24.5 million. Year-to-date 2017 investment income was $49.6 million or a 6.2% increase as compared to the same period in 2016. The increase in net investment income through the comparative first six months of 2017 was primarily driven by the change in value of our investments in limited liability partnership and not due to a change in our investment philosophy. This resulted in an increase of $2.2 million in investment income year-to-date 2017 as compared to the same period of 2016. Losses and loss settlement expenses increased by $17 million or 9.6% during second quarter 2017 compared with the second quarter of 2016, an increase of $43 million or 13.3% over 2016 on a…

[Operator Instructions] Our first question welcome from Paul Newsome from Sandler O'Neill. Please go ahead.

Good morning. Thanks for the conference call. I'm getting the impression - tell me if I'm wrong, that the issues in commercial auto are being primarily addressed with loss control efforts as opposed to just trying to raise rates. Is that a fair impression?

Paul, this is Randy Ramlo. I'll maybe make a comment and then maybe Michael Wilkins will want to comment as well. But I wish we could raise rates more. We were probably slightly disappointed with the rate increases that we were able to get. The market is kind of strange right now. I have never seen a time where I would call this a soft market, but there is some hardness in commercial auto, but not nearly enough in our markets, anyway, to be able to cure the problem. So we're having to do it with a combination of rate increases and underwriting actions and loss control actions. But in essence, the market won't let us get the rate that we really need to solve the problem with rates alone. Mike, do you have any other things to add?

Yes. Paul, maybe just to echo what Randy said, I would say it's a multi-pronged approach to try to improve the loss ratio. Everything from analytics to tightening underwriting guidelines, trying to get more rate, getting our loss control more involved, better tracking. I might say, on the claim side, we're trying to better job managing the claims, especially if litigation is involved. So we're trying to take a multi-faceted approach to improve the results from a lot of different angles.

Good, thanks.

Thank you, Paul.

[Operator Instructions] Our next question will come from Brian Hollenden from Sidoti. Please go ahead.

Good morning and thanks for taking my call.

Good morning.

Is there a particular geographic region where you're seeing a weakness in commercial auto? And just echoing what you were just talking about, other than price increases, what sort of technology tools are you utilizing to help mitigate these losses?

This is Randy Ramlo, again, Brian. Thanks for the question. I would say that there are geographic differences in the problem, but it's a problem pretty much across the United States. Kind of some of our regions that are doing a little bit better are maybe able to write business in less population-concentrated areas, and - but other than that, all of our regions have an issue with commercial auto. Like I said, some are much worse than others. Our West Coast has kind of continued to be the biggest area of problems and, again, that's a lot of population concentration there as well. Mike kind of mentioned jurisdictions, kind of along with what we're seeing in the distracted driving area. We're also seeing courts being very unsympathetic for people who cause accidents because they were distracted. So that's kind of a - multiplies itself. Mileage is up, and we've learned that with mileage increases, losses don't increase by the same percentage but some multiple of that. So on the analytics side, we're just trying to find more predictive characteristics other than the ones that our underwriters have been using in the past. Mike, do you have any other things to add?

Maybe the only thing to add to what Randy said, I'd say the makeup of the book of business in the regions is also a factor. So we've seen more issues with books that have more heavy-wheeled exposure, and - particularly on the severity side.

I appreciate the color. You reported a nice pickup in profitability within the life segment despite the significant decline in premiums. How much more opportunity do you see there?

This is Randy, again. Yes, we - as you can see, a lot of our profitability pickup was actually through the sales of some securities that we'd written down previously, but we did make some tough choices on commissions and rates that have been implemented fairly recently. But the good news is, we are starting to see some pick up there. So that's, obviously, a very interest rate-driven business, but - yes, I think, we've got a couple more things to - Dawn was pointing out to me, that we have in the future, so we think we can get a little bit more lift in that area in the quarters to come.

Okay. In terms of new premiums and organic growth, can you talk a little bit about your geographic expansion? And is that going as expected, better or worse? And just provide a little bit of overview of the - maybe your outlook and opportunities there?

Okay. This is Randy, again. So kind of - in our past, our philosophy has been that it's very difficult to grow kind of from square 1 in new geographic areas. We've tended to grow geographically through acquisitions. But kind of over the last couple of years, we've kind of put out the plan to grow in four additional states that we have somewhat surrounded. Ohio was our first expansion of a new state from scratch, and that is exceeding expectations for a competitive state. That's gone very well. Kentucky, I'd probably list, pretty new in the game, but as expected. And then, Michigan and Washington are - will be our two next areas of expansion, and kind of due to some internal resource strain on some of the projects we have, we'll probably be pushing those two back maybe a couple of quarters. But that's kind of in a nutshell how we're doing. A lot of our organic growth is really growing in areas that were already successful, and that's kind of the plan for the future.

I appreciate the color. If I can ask one more and I'll hop back into the queue. Can you just talk - can you talk about your - your framework with the share buybacks? Do you have any particular target range based on a price-to-book? Or is it more a function of organic premium growth opportunities? How do you guys think about capital allocation internally?

Well, we kind of - I've always felt that our best use of capital is to - organic growth, writing new business. That being said, we have kind of a price-to-book level that when our shares fall below that, we do buy back. And so we look at share buybacks as probably the worst use of capital that we have, but it is a use of capital and it - and sometimes, when there are no other opportunities such as acquisitions and things like that, it is a use of capital. So when our share prices drop below a certain price-to-book value, we do buy back. We're somewhat limited just by our daily number of shares traded. So it's - we're not able to make as big of an impact, but we like to use our capital for organic growth, which we do, but every now and then, when our shares drop a certain price-to-book, than we do that as well. So we try to - our capital management really is kind of looking and using all the tools we possibly can to utilize the capital in the best way.

All right. Thanks for taking my questions.

This will conclude our question-and-answer session. I would like to turn the conference back over to Randy Patten for any closing remarks.

This now concludes our conference call. As a reminder, a transcript of this call will be available on the company website at ufginsurance.com. On behalf of the management of the United Fire Group, I wish all of you a pleasant day.

The conference has now concluded. Thank you all for attending today's presentation. You may disconnect your lines at this time.