United Fire Group, Inc · NASDAQ:UFCS
United Fire — KBW Insurance Conference 2012
33 slides from United Fire's conference presentation, Sep 6, 2012
Slide 1: KBW Insurance Conference Investor Presentation
KBW Insurance Conference Investor Presentation Randy Ramlo, President and Chief Executive Officer Mike Wilkins, Executive Vice President Dianne Lyons, Vice President and Chief Financial Officer September 5-6, 2012 Exhibit 99.1
Slide 2: Forward-Looking Statements
Forward-Looking Statements This presentation may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of
Slide 3: Company Overview
Company Overview • Regional provider of a complete line of insurance products, including traditional commercial and personal property/casualty insurance, niche specialty programs (e.g., contractors, retail business, auto service and repair, manufacturing and religious institutions) and life insuranc
Slide 4: Company Overview: P/C and Life Companies
Company Overview P/C Cos. Rated “A” by A.M. Best • $627 million in annual net written premiums • 2012 combined ratio of 95.1% • 90% commercial lines/10% personal lines • Represented by more than 1,200 independent agencies • Licensed in 43 states and Washington DC, active in 33 United Life Ins. Co. R
Slide 5: Historical Financial Performance
Historical Financial Performance $- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 6/30/12 5 Book Value Per Share Operating ROE averaged 7.7% between 2000 and 2011
Slide 6: Historical Underwriting Performance
Historical Underwriting Performance GAAP Combined Ratio 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 110.0% 120.0% 130.0% 2007 2008 2009 2010 2011 YTD 2012 (6mos) 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 110.0% 120.0% 130.0% 2007 2008 2009 2010 2011 YTD 2012 (6mos) UFCS Peer Group* 6 GAAP Combined Ratio excludi
Slide 7: Recent Results
Recent Results • Double-digit top-line growth: – Low- to mid-single digit rate increases – Solid commercial lines retention business – New business contribution reflected diligent account-based underwriting practices • Sub-100% combined ratio: – Benefits of improving pricing environment – Continued
Slide 8: Key Investment Considerations
Key Investment Considerations • Expanded geographic presence through MIGP acquisition • Growth opportunities: – Capitalizing on transaction – Organic growth in existing markets – Appointing new agents • Decentralized underwriting and marketing • Opportunities for efficiencies • Reserving – Consisten
Slide 9: Expanded Geographic Presence Through Acquisition
P& C WV WA GA SC NC IL ID MT UT NM OK TN KY OH MI VA MD DE NY VT NH MA RI ME WY KS NE SD ND MN IA MO AR LA MS AL IN WI TX FL CO CT DC OR CA NV PA AZ NJ V Expanded Geographic Presence Through Acquisition • All-cash transaction valued at approximately $191 million • Common business approach that diver
Slide 10: Growth Opportunities
Growth Opportunities • Automating BOP product: – More competitive product features – Driving additional growth • Focus on increasing contribution from: – Property business –Workers’ compensation – Large accounts (over $100,000) • Seek additional production from new agents • Appoint new agents in cit
Slide 11: Growth Opportunities: Rate Change Comparison
Growth Opportunities -16.00% -12.00% -8.00% -4.00% 0.00% 4.00% 8.00% UFG MarketScout CIAB CLIPS • MarketScout is the nation's largest on-line insurance exchange with a distribution system to over 50,000 retail insurance agencies. The composite average includes all commercial lines and sizes of accou
Slide 12: Expertise with "Main Street" Businesses
Expertise with “Main Street” Businesses Net Written Premiums by Product Line Property/Casualty Percent of total NPW Fire & Allied Lines 37% Automobile 25 Other Liability 22 Workers’ Compensation 10 Surety 3 Reinsurance Assumed 2 Miscellaneous 1 Top 15 Classes Show Main Street Focus Property/Casualty
Slide 13: Decentralized Underwriting and Marketing
Decentralized Underwriting and Marketing Property/Casualty Percent of total DPW Iowa 13% Texas 12 California 11 New Jersey 7 Missouri 7 All Other 49 • Local market knowledge • Strong agency relationships • Disciplined underwriting • Service center • Exceptional customer service • Superior loss contr
Slide 14: Decentralized Underwriting and Marketing: Agency Philosophy
Decentralized Underwriting and Marketing Agency Philosophy • Continually monitor agencies for compatibility • Criteria: loss ratio, volume, relationship • Seek “top three” position (as measured by direct premiums written) • Competitive performance-based compensation Agency Force (as of December 31,
Slide 15: Opportunities for Efficiency
Opportunities for Efficiency 0.0% 10.0% 20.0% 30.0% 40.0% 2007 2008 2009 2010 2011 Expenses related to Mercer acquisition • Streamline how our agencies transact business with us • Enable producers to efficiently provide their clients with a high level of service • Enhance agency online inquiry capab
Slide 16: Reserving: Net Reserve Redundancy
Reserving Net Reserve Redundancy (Deficiency) -6% 0% 6% 12% 18% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 16 Median: 10%
Slide 17: Reserving: Loss Cost Analysis and Philosophies
Reserving Loss Cost Analysis • Monitor inflationary trends • Exposure basis rating (including payroll- and sales-based rating) • Inflation factors applied to property values annually (buildings and contents) • Automobile symbol rating to accurately rate for autos based on cost new and repair costs •
Slide 18: Exposure Management: 100-Year PMLs
Exposure Management • 100-year PMLs below 2006 levels despite expanded portfolio due to Mercer transaction • Managing geographic exposures to reduce coastal and other risks • Updated policy terms and conditions – Policies written ex-wind – Policies written with wind exclusion 18 Managing Catastrophe
Slide 19: Exposure Management: Modeled vs. Actual Losses
Exposure Management ($ in millions) Average Modeled Gross Loss Actual to Average Model Miss % Actual Loss Katrina $483.7 32% $367.3 Rita 49.2 45 33.9 Gustav 19.1 32 14.5 Ike 64.1 147 26.0 Notes on Modeled Losses • Modeled loss from Katrina and Rita are based on UFG's June 2005 portfolio. • Modeled l
Slide 20: Exposure Management: Catastrophe Loss Contribution
Exposure Management 20 Catastrophe Loss Contribution $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 2007 2008 2009 2010 2011 YTD 22012 (6mos) Non-cat losses Cat losses Net of reinsurance 2012 Reinsurance Programs • Catastrophe program – $180 million excess of $20 million retention – 5% co-participat
Slide 21: Conservative Investment Portfolio
Conservative Investment Portfolio (at June 30, 2012) $3.0 Billion Investment Portfolio ($ in millions) US Gov't $84 3% Other* $52 2% Municipals $762 25% Mortgage Backed $176 6% Equity Securities $174 6% Foreign $235 8% Utilities $257 8% Financial $308 10% Industrial $983 32% Corporate Bonds $1,783 5
Slide 22: Conservative Investment Portfolio: Portfolio Management
Conservative Investment Portfolio (at June 30, 2012) Portfolio Management • Manage our own portfolios – Maintain a fixed-to-equity ratio of 90/10 • Addressing low interest rate environment by: – Continuing to purchase quality investments rated investment grade or better – More closely matching durat
Slide 23: Financially Strong
Financially Strong • Strong economic capital position • Prudent reinsurance programs • Outstanding debt paid off in July 2012 • History of consistently conservative reserves • Use of capital – acquisition of Mercer Insurance Company Share Repurchase Ave. Price Per Share Number of Shares Repurchased
Slide 24: Key Investment Considerations
Key Investment Considerations • Expanded geographic presence through MIGP acquisition • Growth opportunities: – Capitalizing on transaction – Organic growth in existing markets – Appointing new agents • Decentralized underwriting and marketing • Opportunities for efficiencies • Reserving – Consisten
Slide 25: Questions
Investor Presentation Questions
Slide 26: Appendix
UNITED FIRE GROUP’ Appendix
Slide 27: 2011 Product Niches
2011 Product Niches • Religious Institutions – Churches • Auto Service and Repair Garages • Garbage Refuse haulers • Condominiums • Small Artisan Service and Repair Contractors • Retail Small business (Business Owners Program) • Land Improvement Contractors (Excavation, Land Grading) • Commercial Ou
Slide 28: Foreign Investment Exposure
Foreign Investment Exposure International Holdings by Country Country Market ($ in millions) Pct of Mkt United Kingdom $64.9 40.1% Switzerland 26.7 16.5 Netherlands 22.9 14.2 Australia 11.9 7.4 Germany 5.7 3.5 India 4.9 3.0 Luxembourg 5.4 3.3 Ireland 4.3 2.7 Israel 4.2 2.6 Hong Kong 3.2 2.0 Qatar 3.
Slide 29: Management Team
DAVID E. CONNER VP/CCO Years at UFG: 14 Years in industry: 31 BARRIE W. ERNST VP/CIO Years at UFG: 10 Years in industry: 32 NEAL R. SCHARMER VP/General Counsel Years at UFG: 17 Years in industry: 22 DIANNE M. LYONS Vice President/Chief Financial Officer Years at UFG: 28 Years in industry: 28 • Direc
Slide 30: Financial Summary
Financial Summary (GAAP, $ in thousands except per share values) 2011 2010 2009 6 mos. 2012 6 mos. 2011 Selected Income Statement Items Net Premiums Written $604,867 $463,892 $467,427 $375,775 $295,355 Net Income / (Loss) 11 47,513 (10,441) 33,900 (12,104) Realized Gains / (Loss), net of tax 4,186 5
Slide 31: Property/Casualty Operating Segment Financial Highlights
Property/Casualty Operating Segment Financial Highlights (GAAP, $ in thousands except per share values) 2011 2010 2009 6 mos. 2012 6 mos. 2011 Commercial Net Premiums Written $481,519 $363,806 $380,727 $308,465 $239,548 Net Premiums Earned 464,942 370,479 394,000 264,560 211,114 Loss and Loss Settle
Slide 32: Definitions and Reconciliations of Data Not Prepared in Accordance With U.S. GAAP
Definitions and Reconciliations of Data Not Prepared in Accordance With U.S. GAAP (GAAP, $ in thousands) 2007 2008 2009 2010 2011 6 mos. 2011 6 mos. 2012 3 mos. 2011 3 mos. 2012 Net income (loss) $111,392 $(13,064) $(10,441) $47,513 $11 $(12,104) $33,900 $(17,914) $14,716 After-tax realized investme
Slide 33: United Fire Group
UNITED FIRE GROUP’ Investor Presentation