Good day, and welcome to the United Fire Group Insurance 2024 Second Quarter Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Tim Borst, Vice President of Investor Relations. 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. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about the company, the industry in which we operate and beliefs and assumptions made by management. The company cautions investors that any forward-looking statements include risks and uncertainties and are not a guarantee of future performance. Any forward-looking statements made by us in this presentation is based only on information currently available to us and speaks only as of the date on which it is made. 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 discussed specifically in our most recent annual report on Form 10-K. 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 second quarter conference call. I will begin this morning by providing a high-level overview of our results. Following my comments, Julie Stephenson will discuss our underwriting results, and Eric Martin will discuss our financial results in more detail. Our second quarter results reflect continued progress in our efforts to deliver improved performance through the strategic execution of our business plan. We remain focused on engaging with our distribution partners in the pursuit of profitably growing our business, deepening expertise across the company, enhancing our capabilities and leveraging technology to improve efficiency. Net written premiums grew 9% to $326.1 million, led by ongoing growth in our core commercial and alternative distribution business units. Core commercial growth remained steady with average renewal premium increases of 12.3%, healthy retention and attractive new business opportunities, reflecting our continued focus on profitability. Rate increases accelerated to 9.8% with all liability lines increasing in the second quarter and improving margins above loss cost trends. The second quarter combined ratio of 105.6% improved significantly over prior year, primarily due to lower prior period reserve development, lower catastrophe losses and improvement in underlying combined ratios. Prior period reserve development in the second quarter was neutral overall. Consistent with the first quarter, favorable emergence across several lines of business enabled us to further reinforce our position against the future inflationary uncertainty challenging our industry in certain liability lines. Loss emergence remains within our expectations, and we believe these proactive steps are a prudent measure to mitigate the impact of the potential further acceleration in severity trends. As you will recall, in the second quarter of 2023, we significantly strengthened loss reserves as a result of investments in our actuarial processes as well as increased depth of analysis that provided…

Thank you, Kevin. Net written premium in our core commercial business grew 13% to $224 million in the second quarter compared to prior year with small business, middle market and construction, all showing growth for the quarter. Renewal premium change in our core commercial business accelerated to 12.3%, with rates up 9.8% and exceeding loss trends. Commercial property premium change continued to exceed 20%, while liability pricing accelerated from the first quarter. As Kevin reminded everyone in his remarks, a year ago, our improved actuarial insights enabled us to more quickly recognize increased severities in our underlying loss trends. The elevated levels of trend we established at that time have been holding up over the past four quarters. We see loss trends in the mid-single digits with some easing severity pressure in property observed along with ongoing frequency improvement across the portfolio. With overall rate achievement solidly exceeding loss trends, we remain confident in our ability to maintain improvement in underlying profitability. Core commercial new business production increased in the second quarter with contributions across our portfolio of small business, middle market and construction. We remain pleased with the quality of accounts being added to the portfolio as we continue to improve alignment with our distribution partners and deliver additional capabilities to enhance our role as an account solution provider. Retention remained consistent and within expectations at 80% as we continue to refine our portfolio profile. Our alternative distribution portfolio continued to grow, supported by increased rate and exposure on existing accounts and new business. We remain pleased with the continued opportunities offered in this space to contribute profitable and diversifying business to the UFG portfolio. We continue to manage this book to stay within a 25% share. Specialty excess and surplus lines net written premiums declined approximately $7 million…

Thank you, Julie. Let me start by providing some additional perspective on the expense ratio. Since the beginning of 2023, we have made meaningful changes to the size and composition of the UFG team. Since last January, total headcount has come down significantly with a 20% reduction during that time. Included in that overall headcount change is a 35% reduction in the size of the claims team from process efficiencies and declining claims frequency. At the same time, we have made significant investments in technology and talent that will help us grow our business in a profitable way over the long-term, and we are already seeing the benefits of blending these fresh perspectives with those of our long-tenured UFG employees. This is having a meaningful shift in the geography of our overall expense base, which has increased for underwriting, but decreased for claims. It’s easy to see part of the impact of this shift in our underwriting expense ratio remaining elevated. However, we are seeing larger benefits from the reduced costs in our claims organization that shows up in the loss adjusting expenses included in our loss ratio. So far this year, our combined underwriting and loss adjusting expense ratio has declined from 2023. Overall, we are making progress in reducing expenses. It’s just not yet showing up in the underwriting expense ratio. We will continue to manage our overall cost structure down while making the necessary investments to achieve sustainable, profitable growth. Turning to the investment portfolio. Total invested assets and cash ended the second quarter at $2.1 billion, a high-quality portfolio with an overall credit rating of AA- and a duration of approximately four years. The transition of fixed income portfolio management to our partners at New England Asset Management has already begun to show benefits. In the…

We will now begin the question-and-answer session. [Operator Instructions] The first question today comes from Paul Newsome with Piper Sandler. Please go ahead.

Good morning. Thanks for the call. I wanted to ask a little bit more on the expense line. If I plotted the LAE ratio and the expense ratio combined, would I see the total fall this quarter or recently? Or is it the combined still – I mean, maybe just ask the question, if I could – if I had the LAE ratio, would it be up or down in the quarter…

Good morning, Paul. Sorry to interrupt. Good morning, Paul. This is Eric. Yes, you would. So if you plotted the LAE ratio from the first half of last year to the first half of this year or you looked at Q2 over Q2, you’d see that coming down a couple of points, and that’s a combination of expense ratio staying flat, up a little bit and claims costs coming down over that same time.

Okay. That’s great. Then maybe a little bit more on the ratings error situation. Obviously, it sounds like you just discovered it, so it’s early days. But I’ve never seen anything like this before. So I really don’t know how to begin in terms of especially about implications of the size. It looks like a manageable number, more of an earnings issue than a book value issue. But any thoughts in terms of maybe history of this or if you’ve seen anything like this before? And just to give us a sense of the importance of it.

Hi, good morning, Paul. It’s Kevin. And so I can’t really speak to the broader issue around rating errors. All I can speak to this morning is the fact that you’re right, this is a relatively new issue to us identified in July. And so we’re in the process of doing further investigation on both the umbrella and general liability product lines as well as other lines to ensure that there are no further rating error issues in the portfolio. And obviously, we’re in the process of having conversations with state regulators. And so at this point, we’ve recorded an estimated liability based on the information we have available to us at this time. And as we indicated in the press release, that could change as more information becomes available to us. But we’re diligently working through this issue, and we’ll have more to share as it becomes available to us.

Maybe a related modeling question. Is it fair to say that the $3.2 million was sort of what you overcharge those new customers last year? And so if we’re looking at sort of a run rate for revenue, do we just take $3.2 million and start with that as a base? Is that a good way to approach it? Or is it more complicated or different than that?

So I think as you look at the $3.2 million, we – that’s included right now in the revenue section, but as an other gain or loss. I think as we get this onetime item behind us, going forward, we don’t think there’s a significant premium impact from a run rate perspective after we get this onetime impact past us.

Okay. We’ll take it on. It doesn’t make any sense to me, but I could be very confused. And anyway, that’s – those are the two big questions I had for you. Thank you. I appreciate the help as always.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Leidwinger for any closing remarks.

Well, thanks again for joining us this morning, and we’ll talk to you next quarter. Thank you.

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