Good morning and welcome to the UFG Insurance Fourth Quarter and Year-End 2019 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Randy Patten, Assistant Vice President and Controller. Please go ahead.

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 under the Investor Relations tab. Our speakers today are Chief Executive Officer, Randy Ramlo; Mike Wilkins, 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 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 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, CEO of UFG Insurance.

Thanks Randy. Good morning, everyone and welcome to our fourth quarter and year-end 2019 conference call. Earlier this morning we reported our fourth quarter 2019 results including a consolidated net loss of $0.93 per diluted share and adjusted operating loss of $1.04 per diluted share and a GAAP combined ratio of 117.9%. This compares with a net loss of $1.17 and adjusted operating loss of $0.30 and a GAAP combined ratio of 108.5% in the fourth quarter of 2018. For the full year of 2019, we reported net income of $0.58 per diluted share and adjusted operating loss of $1.08 per diluted share and a GAAP combined ratio of 109%. This compares with full year 2018 net income of $1.08 per diluted share, adjusted operating income of $0.67 per diluted share and a GAAP combined ratio of 104%. Our 2019 results continued to be negatively impacted by commercial auto losses and prior year reserve strengthening in our Gulf Coast region with the majority of this strengthening occurring in the first half of 2019. From a profitability standpoint, the fourth quarter was disappointing in an unacceptable end to a year in which we failed to meet expectations and failed to make an operational profit. Commercial auto losses continued to be the main driver of the net operating loss in the fourth quarter. We know we have work to do and we are focused on moving forward with our strategic plan to improve profitability. As part of our strategic plan, we have several initiatives underway in underwriting, claims, analytics, portfolio management and technology innovation to name some of our focus areas. Mike will discuss our strategy in more detail. But one example of a noteworthy development at UFG is within our portfolio management strategy, specifically related to our commercial auto book. Despite…

Thanks Randy and good morning everyone. As Randy mentioned our focus remains on improving profitability. Our strategic plan contains some very ambitious initiatives in several areas including underwriting, claims, analytics, portfolio management, and innovation. The three I will focus on today are portfolio management, underwriting initiatives, and claims. First our portfolio management initiative focuses on balancing the portfolio of our various lines of business targeting profitable geographies, classes of business and products to optimize profitability. Today with the exception of commercial auto the majority of our book of business is performing within our expectations from a profitability standpoint. The portfolio management initiative will increase the percentage of our business written in profitable lines and reduce the percentage of business written in the auto line. With most key metrics showing no improvement for commercial auto it is clear we need to reduce the size of our commercial auto book of business. The performance of our commercial auto book of business has failed to meet our expectations and is a drag on profitability. We will accomplish this by being more aggressive with nonrenewal of underperforming accounts focusing on the bottom 30% of our book and we won't write new accounts that are heavy auto. As a consequence of this we stand to lose entire accounts since we have traditionally been a package writer providing insured all of their commercial insurance needs. But we feel this is a necessary step to balance our book of business and improve profitability. In the fourth quarter of 2019 we began to see this initiative take hold with a reduction in policy and premium retention and a reduction in insured auto units of approximately 15%. Our expectation for 2020 is that policy count, premium retention and insured auto units will continue to decline with no expected premium…

Thanks Mike and good morning, everyone. In the fourth quarter of 2019 we reported a consolidated net loss of $23.2 million compared to a net loss of $29.3 million in the same period for 2018. For the full year 2019 consolidated net income was $14.8 million compared to $27.7 million in 2018. As Randy mentioned 2019 results were negatively impacted by an increase in severity of commercial auto losses and prior year reserve strengthening in our Gulf Coast region and these were the main factors contributing to our disappointing loss ratio for the year. Our investment portfolio continued to benefit during 2019 from the strong equity markets. We reported an after-tax gain of $40.5 million for the full year 2019 with the increases in the value of our equity securities. For comparison purposes in 2018 we had a decrease in the fair value of equity securities with an after-tax loss of $17.4 million. However last year's decrease was offset by the $27.3 million gain on the sale of our life company in March of 2018. Our investment in limited liability partnerships or what we refer to as our bank funds also benefited from the strength of the financial markets and were a positive contributor to our 14% increase in net investment income for 2019. Specifically during the fourth quarter of 2019 we reported net investment income of $16.5 million and $60.4 million for the full year. For 2018 we reported $9 million in the fourth quarter and $52.9 million for the full year. We recognized slightly less favorable reserve development quarter-over-quarter $4.6 million in the fourth quarter of 2019 compared to $6.5 million in the fourth quarter of 2018. However for the entire 2019 year there was a more significant year-over-year impact with a $49 million reduction in reported favorable…

[Operator Instructions] Our first question will come from Paul Newsom with Piper Sandler O'Neill.

Could you give me a little bit more detail about the components of the reserve development between what was the impact of issues in your Gulf Coast operation versus commercial auto versus kind of everything else? Just to kind of get a sense of what may or may not persist?

Paul this is Mike Wilkins. I'll take a stab at it. We have Corey Ruehle here, our Chief Claims Officer too. He may have some additional information on that. The components would be heavily weighted towards commercial auto but most of that commercial auto impact is coming from our Gulf Coast office. So its focused in both of those areas commercial auto but out of the Gulf - primarily out of the Gulf Coast office. Corey anything to add there?

I'll just add to that that the deficiency in the Gulf Coast was roughly $40 million last year and about $32 million to $33 million of that was commercial auto.

Is there significant reserve issues outside of the Gulf Coast with commercial auto?

No.

Okay. And then I was a little bit surprised to see that incrementally the rate increases had decelerated slightly fourth quarter versus third quarter. Maybe you could talk about the components of that change?

Yes. This is Mike again. So first the reduction was primarily driven by less rate increase in the auto line of business. That surprised us a little bit at first. As we dug into it two comments I'll make. One it seemed to rebound in January; and two I think what may have driven that we really took a lot more aggressive nonrenewal actions. And a lot of those accounts that we nonrenewed would have been accounts where we would have been able to achieve the largest rate increases. So I think that would have moved the average auto rate increase down just the fact that a lot of the accounts prior to our more aggressive nonrenewal we would have got the biggest increases on.

Paul we mentioned a couple of times that we're kind of focusing on the bottom 30%. And we've kind of found ourselves now to the point where the top 70% is actually pretty close to where we want it to be priced. So as Mike said we're leaning more toward nonrenewal in that bottom 30% simply because some of those are accounts are so far off we can't get there with rates. So instead of last year or previous quarters we may have raised something 25%, 30%. Now we're just not renewing it. So we lose that big impact on the overall rate increase.

And my final question. I don't know if [indiscernible] ever just to answer this. But do you have any sense of sort of what is the all-in claims inflation for the book? Obviously there's some negatives in workers' comp and deposits in commercial auto. But I guess we're all trying to figure out whether or not net for the entire book we need more rate or less rate than you're currently achieving?

Paul this is Randy. And I wish I could help you but we're kind of struggling with that too. We see evidence of the inflation every day. But to try to put a number on we haven't really been able to do that either.

Do you have a sense of what it was last year?

No.

[Operator Instructions] At this time I'm showing no 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.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.