Good morning and welcome to the United Fire Group, Inc. Q3 2021 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Randy Patten. Please go ahead.

Good morning, everyone and thank you for joining this call. This morning, 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. Joining me today on the call are Chief Executive Officer, Randy Ramlo and Mike Wilkins, Chief Operating Officer. We also have other members of management available to answer questions at the end of our prepared remarks. Before I turn the call over to Randy Ramlo, a couple of reminders, first, 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. The actual results may differ materially due to variety of factors, which are described in our press release and SEC filings. Also, please 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 am pleased to present Mr. Randy Ramlo, CEO of UFG Insurance.

Thanks, Randy. Good morning, everyone and welcome to our third quarter 2021 conference call. I will begin today by discussing the strong improvement in our core loss ratio in the third quarter, which improved 10.1 percentage points as compared to the same period last year. On a year-to-date basis, our core loss ratio improved 2.6 percentage points compared to the same period last year. When taking into consideration the recovery of $7.1 million and $22.5 million respectively in the third quarter year-to-date last year under our all lines aggregate reinsurance program, our core loss ratio improved 12.8 percentage points and 5.5 percentage points, respectively. Summary of our core loss ratio, which removes the impact of catastrophe losses and favorable prior year reserve development, can be found on Slide 13 in the presentation on our website. We are pleased with this significant improvement, which is a direct result of our strategic initiatives. For the third quarter, we reported a combined ratio of 109.7%, a decrease of 14.7 percentage points as compared to third quarter of last year. Year-to-date, we reported a combined ratio of 106.1%, a decrease of 7.4 percentage points as compared to year-to-date 2020. The most significant improvement was in our commercial auto loss ratio, which improved 43.7 percentage points in the third quarter and 11.8 percentage points year-to-date to 2021 as compared to the same periods last year. The combined ratio continued to benefit from favorable prior accident year reserve development at 4.6 points and 3.6 points, respectively, during the third quarter and year-to-date 2021 compared to 2.4 points and 3.8 points in the same periods last year. Most of the favorable prior accident year reserve development this year was in our commercial auto line of business. Offsetting the improvement in our core loss ratio was higher-than-average catastrophe…

Thanks, Randy, and good morning, everyone. I will echo Randy’s comments that we are transforming UFG and believe we are on the correct course to improving our profitability. Our focus on reducing the size of our commercial auto portfolio by non-renewing underperforming accounts and reducing the number of exposure units continued to show progress in the third quarter of 2021. Through our strategic efforts, I’m pleased to report that exposure units decreased 24% over the past 12 months from 235,000 units in September of 2020 to approximately 179,000 units in September of 2021. This decrease is a result of targeted reductions in our worst-performing accounts as part of our strategic plan. Commercial auto claims frequency expressed in claims per insured units also continues to decrease, with the 12-month moving average declining again in the third quarter of 2021 down to 4.42% from 4.78% in the third quarter of 2020. This decline is summarized on Slides 8 and 9 in our presentation on our website. It is important to note that the decline in frequency began prior to the pandemic and continues to decline despite an increase in miles driven in 2021. We believe this continued decline is a direct result of our strategic underwriting actions. Slides 10 and 11 provide a 3-year view of our claim counts by major commercial casualty lines of business. For example, our commercial auto, bodily injury and property damage claim counts are down 22% year-to-date 2021 as compared to the same period in 2020. We have also provided commercial general liability, BOP liability and workers’ compensation claim counts on these slides, as all are down year-to-date 2021, which is a positive sign of our strategic efforts. Part of our strategic plan is to focus on pricing adequacy in our commercial auto, property and umbrella books…

Thanks, Mike, and good morning again, everyone. In the third quarter, we reported a consolidated net loss of $9.6 million, compared to a net loss of $37.2 million in the same period of 2020. Year-to-date, we reported consolidated net income of $22.9 million, compared to a net loss of $103.8 million year-to-date prior year. As Randy mentioned, our core loss ratio continued to improve in the third quarter, but was offset by $39.5 million of catastrophe losses, which is $17.5 million or 7.3 points higher than our average for third quarter. Also contributing to net income in the third quarter and year-to-date 2021 was an increase in investment income. Net investment income was $11.6 million and $42.4 million in the third quarter and year-to-date 2021 as compared to $7.2 million and $22.3 million in the same period of 2020. The increase in both periods was primarily due to the change in the fair value of our bank fund limited liability partnerships, which increased in value by $1.3 million and $10.8 million in the third quarter and year-to-date 2021, compared to a decrease of $4.6 million and $13.8 million in the same period of 2020. We reported net realized investment losses of $2 million in the third quarter of 2021 and net realized investment gains of $28.2 million year-to-date as compared to net realized investment gains of $15.2 million and investment losses of $62.4 million in the same period of 2020. The majority of the change between the two periods was driven by a change in the fair value of our equity security investments, which is required to be reported in net income. The remaining change was primarily driven by actual sales of equity holdings. As mentioned during our earnings call this year, we expect improvement in the expense ratio in…

[Operator Instructions] Our first question today comes from Marla Backer with Sidoti. Please go ahead.

Thank you. So you’ve done a very strong job at reducing exposure in commercial auto. How much more pruning do you think you want to do in that category?

Marla, this is Randy. I would say we’re substantially through it. There is more to go. I think we’ve highlighted kind of what percentage of our book of business is in auto. And ultimately, we’d like to get that down to about 20% or so. So we do have a little ways to go, but I think we’re substantially through it right now.

Okay. And then on the flipside, some of the categories where you’re emphasizing greater growth, again, we’ve seen some nice growth in many of those categories. I’m specifically curious right now about inland marine and how that category is doing right now. Is there any impact also from some of the global logistics issues that are impacting a lot of other sectors?

I’m not sure what you mean by global logistics, but that line is doing well. We have a couple of underwriters that really specialize in that business. We’re – we do a lot of insuring buildings in course of construction, builder’s risk in that area. But I don’t think we’ve seen any material impact on that line from kind of the global shortages that we’re seeing.

Okay. And then finally, last question is, back when we were more at the height, I guess, of the pandemic, there was a lot of talk around the potential risk of business interruption claims. And I think that you’ve said in the past that that’s not a risk that you foresee regarding your book of business. But has there been any updates within the industry overall regarding business interruption as potential risk factor?

So we didn’t mention it in our conference call, which, I guess, is a good thing. There has been a couple of court cases in the last quarter, and they have been positive ones. We’ve kind of continued to say it’s not zero exposure, but it’s a very manageable exposure. As a reminder, we have the requirement of direct physical loss. Plus, we have the virus exclusion on almost every policy that we write. So we continue to watch the court cases as they develop. But everything we’ve seen in the last quarter has been, for the most part, positive. And what we have seen in claims, if we had to pay all of them, would be very manageable. But so far, it looks like the courts are upholding that, that is not going to be a covered cause of loss.

[Operator Instructions] There being no further 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. 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.