Good day, and welcome to the United Fire Group Insurance 2023 Fourth Quarter Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. And now, I would like to turn the conference over to Tim Borst. Please go ahead.

Good morning, and thank you for joining this call. Yesterday afternoon, we issued a press 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 Investors tab. Joining me today on the call are UFG President and Chief Executive Officer, Kevin Leidwinger; Executive Vice President and Chief Operating Officer, Julie Stephenson; and Executive Vice President and Chief Financial Officer, Eric Martin. Before I turn the call over to Kevin, 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 a 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 will turn the call over to Mr. Kevin Leidwinger, CEO of UFG Insurance.

Thank you, Tim. Good morning, everyone, and welcome to our fourth quarter conference call. I'll begin this morning by providing a high-level overview of our results. Following my comments, Julie Stephenson will discuss our underwriting results in more detail, and Eric Martin will discuss our financial results. I'm pleased with our fourth quarter results as the incremental improvement in profitability, continued growth and progress we've made to deepen our expertise as well as drive operational efficiency further position UFG to deliver superior financial and operational performance over time. In the fourth quarter, net written premium grew 5% to $247 million, led by our core commercial and assumed reinsurance business units. Core commercial production remained strong with increased new business and improved retention compared to the fourth quarter of 2022. In addition, average renewal premium increases accelerated to 11.6%, exceeding loss trends. On a full year basis, increased production trends led to net written premium growth of 8%, just over $1 billion, the highest level since 2019. The combined ratio in the fourth quarter was 99.2%, the lowest in the last seven quarters. Catastrophe losses contributed 1.5% to the combined ratio, well below historical averages. Prior-period reserves increased $8.8 million or 3.3% on the combined ratio due to a few late developing property claims as well as severity pressure in a few casualty lines. The underlying loss ratio was 60% in the fourth quarter, the lowest of 2023. Core commercial results show early signs of improvement resulting from our strategic efforts to deliver consistent long-term profitability and helped offset elevated surety loss activity, bringing our full year underlying loss ratio to 62.2%. Expense ratio in the fourth quarter was 34.4%, the lowest in 2023, as we continue to sustainably reduce expenses. In addition to ongoing disciplined vacancy management, we completed a…

Thank you, Kevin. Starting with growth, net written premium in our core commercial business, which includes small business, middle market and construction grew 7% to $162 million in the fourth quarter compared to prior year with all dimensions of production contributing. Improved production trends supported growth on a full year basis as well, with core commercial net written premium growing 7% to $724 million. Renewal premium change in our core commercial business continued its quarter-over-quarter acceleration to 11.6% in the fourth quarter, as we remain focused on price adequacy across all lines of business. Commercial property recorded a fourth quarter renewal premium change of 24%, with rate increases of 19% and exposure increases of 5%. Workers' compensation price change was negative, but to a lesser degree than the first three quarters of 2023. Retention in our core commercial business was 80% in the fourth quarter and approximately 83% for the full year, which supports healthy growth, but still allows for responsible pruning of accounts that no longer meet our pricing needs or risk profile. Core Commercial new business of $28 million in the fourth quarter of 2023 remained well above prior year compared to $22 million in the fourth quarter of 2022. I remain pleased with the quality of accounts in the line of business and industry segment mix we're adding to the portfolio. Our alternative distribution portfolio grew net written premium 9% in the fourth quarter and grew 27% for the full year as we continued to execute our strategy to deliver diversifying profitable growth to the organization. Specialty excess and surplus lines net written premiums declined from a year ago for the fourth quarter and full year, as we continue repositioning our portfolio to reflect a mix of businesses that will produce more sustainable, consistent profitability. Surety net…

Thank you, Julie. I will first provide some additional commentary on the expense ratio. As you know, we've been intensely focused on reducing the expense ratio as part of our broader corporate strategies to deliver sustainable, profitable growth. The most significant of these impacts is a significant decline in headcount since the beginning of the fourth quarter of 2022. Due to thoughtful management of attrition and the completion of a voluntary early retirement program in the fourth quarter, our headcount has declined from more than 1,100 to around 850 at the end of 2023. These reductions will provide more impactful benefits to our expense ratio in 2024. Our actions to reduce the expense ratio through expense management and operational leverage from premium growth reduced our run rate fourth quarter expense ratio by over a full point and full year expense ratio by over 2 points. While this positive momentum builds, our reported expense ratio of 34.4% for the fourth quarter and 34.9% for the full year were both a few tenths of a point above prior year levels, primarily because of a favorable one-time impact to 2022 results from a change in design of employee post-retirement benefits that we have previously discussed. Turning to the investment portfolio. Invested assets ended the fourth quarter at $1.9 billion, approximately 90% of which is allocated to a high-quality fixed income book. Net investment income was $19.1 million in the fourth quarter, up 48% compared to the fourth quarter of 2022. We continue to realize the benefits of investing in a higher interest rate environment with new money yields exceeding 6% in the fourth quarter. We also experienced positive valuation impacts on our limited partnership portfolio of $3 million in the fourth quarter, along with realized gains of $4 million as favorable equity market returns increased the value of our core equity portfolio. These favorable trends benefited full year net investment income as well, which increased 33% to $60 million as compared to 2022. Earlier this month, we announced a partnership with New England Asset Management to manage our investment portfolio, providing UFG with a cost-effective and scalable way to manage assets. We intend to maintain a consistent investment strategy with a high-quality portfolio. Fourth quarter net income was $0.77 per diluted share, and non-GAAP adjusted operating income of $0.65 per diluted share. Fourth quarter earnings and the significant improvement in our unrealized loss position increased book value per common share to $29.04. During the fourth quarter, we declared and paid a $0.16 per share cash dividend to shareholders of record as of December 1, 2023, continuing our 55-year history of paying dividends back to March 1968. This concludes our prepared remarks. I will now have the operator open the line for questions.

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Paul Newsome from Piper Sandler. Paul, please go ahead.

Good morning. Thanks for the call. Congratulations on the quarter. I was hoping you could talk a little bit more about the headcount decline. Is there any sort of areas of the firm that it was more pronounced than other places?

Thank you, Paul. Good morning. This is Eric Martin. Really not more pronounced anywhere in one area or the other. As we mentioned, we offered an early retirement program late in 2023, and we had about 120 people take us up on that, and that was pretty well across the board. We also had a small downside in our IT team, that was maybe about 40 people that also came late in the year. So, maybe a little bit heavier there. But overall, it is kind of across the organization.

Great. Maybe we could delve a little bit more into the reserve development. Certainly, the question of the quarter for the industry has been related to casualty reserves and particularly social inflation kind of questions. Looks like you had a little of that yourself in the umbrella and construction defect. Could you talk a little bit about sort of how you're thinking about the claims cost inflation in those areas? And I think you are fairly heavily casualty-focused book in general. So maybe some thoughts there.

Thanks, Paul. Hey, it's Julie. From a liability perspective, I think we see this move. It's not terribly extreme in magnitude. We do see that continued pressure on severity and construction defect and umbrella, but this is really our move to stay ahead of it. We can certainly point to the increased severity in accident years 2016 and 2019 that were certainly driven by social inflationary effects. But we think that the prior actions we took earlier in the year leave us in a good position for those accident years. So, this movement for the quarter is really more about updating our view of trend in the most recent accident years, so 2022 and 2023. So, we see this as more of a proactive stance, sort of staying true to our philosophy of getting ahead of adverse news quickly and responding slowly to favorable news. But we don't see anything really here that we would see as problematic.

That makes sense. Where do you peg loss trend for these sorts of types of books at this point?

Yeah, I think we see it in the mid-single digits for now. And certainly, are focused on making sure that our ongoing pricing is keeping pace with trend and our liability lines as a focus.

Turning to the workers' comp piece, was there any change in sort of the -- it seems like every year, there's a decline in frequency for workers' comp in general. Any change in your book from a frequency perspective for workers' comp?

So, we still see the frequency trends coming down and certainly pleased to do that. So even though we're experiencing persistently decreasing rates there, that negative frequency is outpacing that trend. So, we're pleased with that. I think what we saw is some upward pressure on severity, which is what you see reflected in our decision to proactively update our view of trend for the most recent accident years.

Got it. And last one, I'll let other folks ask the question. I missed the comments you made on the assumed reinsurance book. What's going on with that business at the moment?

I'm sorry, Paul, can you repeat the question? We had a little hard time hearing you.

Sorry. Could you talk a little bit about the assumed reinsurance book? I missed the comments you made on that and how that book is performing of late?

Absolutely. So, I can tell you a little bit about our most recent renewal. We feel pretty good about that program coming into 2024. We did see growth. About 70% of our assumed book renewed at 1/1. And we felt very good about the terms and conditions and the growth that we were able to achieve in this book. So, still staying very consistent to our goal of keeping that portfolio about 25% of our overall portfolio and count on it to continue to provide diversifying impact across the whole book.

Great. Thank you. Appreciate all the help as always.

[Operator Instructions] We are finished then with the question-and-answer session. And I will turn the conference back over to Kevin Leidwinger, CEO of UFG, for some closing remarks. Thank you.

Yes. Thank you, and thank you for joining us today, and we'll talk to you next quarter. Thank you.

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