Good morning. My name is Keith, and I'll be your conference operator today. At this time, I would like to welcome everyone to the UFG Insurance third-quarter 2019 financial results conference call. [Operator instructions] Thank you. I will now turn the call over to Randy Patten, assistant vice president and controller. Please go ahead, sir.

Good morning, everyone, and thank you for joining this call. Earlier today, we issued a news release on the results. To find a copy of this document, please visit our website at ufginsurance.com. Press releases and slides are located in the investor relations tab. Our speakers today are Chief Executive Officer, Randy Ramlo; 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 results may differ materially due to a variety of factors, which are described in our press release and SEC filings. Please also note that in discussion today, we may use some non-GAAP financial measures. Reconciliation 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, CEO of UFG Insurance.

Thanks, Randy. Good morning, everyone, and welcome to our third-quarter conference call. Earlier this morning, we reported our third-quarter 2019 results, including a consolidated net loss of $0.09 per diluted share and adjusted operating loss of $0.40 per diluted share and a GAAP combined ratio of 110%. This compares with net income of $0.43, adjusted operating income of less than $0.01 and a 105.5% for the GAAP combined ratio in the third quarter of 2018. Catastrophe losses and increase in severity of losses and current accident year reserve additions in our commercial auto and liability lines of business are the primary drivers for the net loss reported in the third quarter of 2019. Increased catastrophe losses are not uncommon for third quarters, which, along with second quarters, are historically our most volatile quarters. In the third quarter of 2019, we incurred $19.3 million of catastrophe losses compared with 12.3 million in the same period of 2018. Dawn will discuss catastrophe losses in more detail in a few minutes. In the third quarter, we also incurred an increase in severity of losses and added additional reserves in the current accident year in our commercial auto and liability lines of business. This reserve strengthening is due to an increase in losses from a continuation of the challenging litigious environment, particularly in commercial auto and liability lines of business in the states of Texas and Florida. As a reminder, commercial auto is our largest line of business, with Texas being the state with our highest concentration of commercial auto business. Similar to our peers and as mentioned on prior conference calls, we continue to experience the impact of what our industry has termed social inflation with higher-than-expected legal settlements associated with bodily injury claims in our umbrella, commercial auto and liability lines. With…

Thanks, Randy, and good morning, everyone. In the third quarter of 2019, we reported a consolidated net loss of 2.3 million compared to net income of 11.1 million in the third quarter of 2018. Year to date, consolidated net income was 38 million compared to 57 million in 2018. As Randy mentioned, the net loss in the third quarter of 2019 was driven by catastrophe losses and increase in severity of losses and current accident year reserve additions in our commercial auto and liability lines of business. Benefiting the third quarter and year to date 2019 was continued strong equity market performance. This increased the value of our investment in equity securities, resulting in an after-tax gain of 7.7 million in the quarter and 37 million year to date. Also positively impacting results were higher net premiums earned with the quarter increase of 3.9% and 6.1% for the nine-month period of 2019. Premium growth has been primarily driven by an increase in rates, with the largest rate increases occurring in our commercial auto line of business. 2019 net investment income was basically flat at 13.3 million for the third quarter and 43.9 million year to date compared with 2018. In the third quarter of 2019, we recognized favorable reserve development of 5.5 million compared to unfavorable reserve development of $700,000 in the third quarter of 2018. Year to date in 2019, we experienced favorable development of $800,000 compared to favorable development of 47.7 million in the same period for 2018. Year-to-date changes in prior year reserve development are primarily from reserve strengthening in our commercial auto and liability lines of business in our Gulf Coast region. At September 30th, 2019, our total reserves remained within the actuarial estimates. As Randy mentioned, in the third quarter of 2019, we had 19.3…

[Operator instructions] And the first question comes from Paul Newsome with Sandler O'Neill.

Good morning. I was hoping you could talk a little bit about how the severity issue that you have experienced in commercial auto have expanded into the sort of noncommercial auto areas and kind of what were you seeing outside of commercial auto.

Paul, this is Randy. Number one, also in umbrella, so some of these losses have, went through the underlying policy and gotten into the umbrella. So that's number one. But we're also seeing kind of, I don't know if I like always using the term social inflation, but just court and jury awards have shown a pattern of increasing on all bodily injury situations and particularly in situations where there are severe or semi-severe bodily injuries, but little or no negligence, and yet courts and juries are overlooking that negligence aspect of it. And that's really where we're seeing. It's still predominantly in the commercial auto line, leaking a little bit into the general liability line, but also hitting the umbrella.

Is the umbrella principally just the commercial auto access?

Yes. Principally, yes.

And then I was, wanted to talk about the increased speed to claim process. So I certainly understand why you would want to do that to lower the ultimate claim cost, but is there a possibility that an accelerated claim process will have an accelerated recognition of claims themselves in the fourth quarter or beyond?

So this is -- we have Corey Ruehle here, our chief claims officer, and I'll let him if he has any comments. That is possible in the short term. Long term, I mean, all studies have shown that if you can settle a claim quicker, you can usually settle it at lower dollar amounts. But you're right, as you implement this, there's a possibility of some acceleration of claim payments, maybe for a quarter or two. Corey, do you have any other comments other than that?

I would agree with what Randy says. We are working pretty feverishly to speed up that process. And we are keeping an eye on whether or not that will have an impact in the short run or not.

But you don't plan to make any adjustments, assuming the reserving process, if you do see increased frequency claims because of the speed to reduced IBNR because you think ultimately the claims will be less?

I would say no, not at this point. As I said, that always could be possible if the actuaries see some of that coming through. But at this point, we don't have any plans to do that, no.

And then finally, how different will the fourth-quarter reserve process be for the -- between the -- from the quarterly ones?

How do you mean, Paul?

Well, sometimes it's much more involved. Sometimes it ends up being just a more careful recognition of trends, where sometimes the quarterly is just really a recognition of what you've seen just in that quarter.

Paul, this is Dawn. With respect to the reserving process, we have both an internal actuarial review and an external actuarial review. We have that done at each of the quarter ends. So we feel our process throughout the year is consistent and robust, so I don't foresee us changing any of our approach in that regard. Certainly, if other things develop, there could be potential for more items, more reserve changes, etc., but the overall process will remain consistent.

Thank you. [Operator instructions] As there is nothing more at the present time, I would like to return the floor to Randy Patten for any closing comments.

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

Thank you. This conference has now concluded. Thank you for attending today's presentation. Please disconnect your lines.