United Fire Group, Inc · NASDAQ:UFCS
United Fire — NYSSA Conference 2015
39 slides from United Fire's conference presentation, Mar 12, 2015
Slide 1: NYSSA Conference — March 16, 2015
NYSSA Conference — March 16, 2015
Slide 2: Table of Contents
TABLE OF CONTENTS Company Overview Slide 3 P&C Companies Slide 4 Life Company Slide 4 2014 Highlights Slide 5 2020 Vision Slide 6 Life Company Objectives Slide 7 Enterprise Risk Management Slide 8 Additional Issues / Actions Small Business Unit Update Slide 9 2015 Reinsurance Changes Slide 10 Specia
Slide 3: Company Overview
United Fire Group, Inc. (NASDAQ: UFCS) • Super–regional • Provider of a complete line of insurance products • Founded in 1946; and based in Cedar Rapids, Iowa • Six regional offices plus an office in Los Angeles, CA • $817 million in shareholders’ equity at 12/31/2014 • Approximately 980 employees C
Slide 4: Company Overview: P&C Companies and United Life
COMPANY OVERVIEW P& C Companies • Rated “A” (Excellent) by A.M. Best • 91% commercial lines / 9% personal lines • Licensed in 43 states and the District of Columbia, active in 33 • Represented by approximately 1,200 independent agencies • At 12/31/2014, $805 million in net written premiums United Li
Slide 5: 2014 Highlights
2014 HIGHLIGHTS • GAAP combined ratio deteriorated to 97.8% from 94.8% • Book value grew 6% to $32.67 • Catastrophe losses were $50 million or 6.5 percentage points of the combined ratio, up slightly from our expected CAT load of 6% • GAAP expense ratio improved slightly to 31.4% • Policy retention
Slide 6: Current and Long-Term Objectives: 2020 Vision
CURRENT AND LONG-TERM OBJECTIVES • Objectives: • Increase ROE • Increase Written Premium • Provide best-in-class service • Be a “best place to work” (employee recruitment and retention) • Expand our agency plant and penetration • Leverage our existing product portfolio • Expand our geographic footpr
Slide 7: Life Company – Objectives
• Geographic expansion – eight new states in 2013 (currently receiving premium in five of those states) • Life / Fixed Annuity mix – goal is 50/50 in order to reduce exposure to interest sensitive products (currently 27/73) • Lapse ratio under 6% (5.4% in 2014) • Automation commitment (ease of doing
Slide 8: Enterprise Risk Management (ERM)
ERM management committee meets quarterly Board of Directors risk management committee oversees ERM effort – Management reviews risk metrics with risk management committee – Risk appetite statement developed – Economic capital modeling used to assess capital adequacy ORSA – Summary ORSA report
Slide 9: Additional Issues / Actions: Small Business Unit Update
ADDITIONAL ISSUES / ACTIONS Small Business Unit Update Assessment perspectives – Enhanced workflow – Enhanced class offerings – Enhanced coverage options – Enhanced pricing sophistication Distinct profit center 2014 growth in written premium of 5.3% 9 13.7% 5.7% (2.8%) NOTE: Significant increa
Slide 10: 2015 Reinsurance Programs
2015 Reinsurance Programs Catastrophe program • Renewed with ROL (rate on line) down 6% and adjustable rate down 11% • $230 million excess of $20 million retention • No co-participation on losses • 120-hour limit rather than 96-hour limit Core program • $2 million retention • $23 million per risk pr
Slide 11: New Branch Office for Specialty Division
ADDITIONAL ISSUES /ACTIONS New Branch Office for Specialty Division Effective February 1, 2014 Located in Los Angeles, California First policies effective in 1Q2014 Initially wrote business in states of CA, OR, NV, AZ 2015 expansion into UT, ID 2015 expansion to both admitted and non-adm
Slide 12: Branding Refresh Project
ADDITIONAL ISSUES / ACTIONS Branding “Refresh” Project “Refreshed” logo More unified look and feel across all regional offices Unified message (both internal and external) UFG rather than United Fire Group Corporate VP of Marketing 12
Slide 13: Smart Phone Apps
ADDITIONAL ISSUES / ACTIONS Smart Phone Apps 13 Tap into United Life for: • Customer searches • Policy and client details • Term and Whole Life quotes • Company publications • Current interest rates • Company contacts (P&C App currently under development for 2015)
Slide 14: Economic/Market Conditions
ECONOMIC/MARKET CONDITIONS • Positive rate environment for thirteen quarters • Rate increases are expected through 2015 but tapering • Positive audit premium for the last fifteen quarters • Our insureds continue to add exposures at renewal • Policy count growth opportunities 14
Slide 15: Premium Growth
PREMIUM GROWTH 15 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 $900,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Net Written Premiums ($ in 1,000's)
Slide 16: Organic Growth
ORGANIC GROWTH 16 Loss costs remain at approximately 3.5% according to a recent Towers Watson report YTD 2013 1Q2014 2Q2014 3Q2014 4Q2014 YTD 2014 Growth Components Rate Increases………………………….7.7% 7.3% 9.9% 6.7% 7.4% 7.7% New Business… ..2.1 4.0 1.6 3.2 5.2 3.0 Exposure Increases…………………..0.8% 0.2% 0.4
Slide 17: Underwriting Performance
UNDERWRITING PERFORMANCE GAAP Combined Ratio 17 Catastrophe Loss Contribution 81.3 % 113.9 % 115.2 % 99.9 % 112.1 % 101.2 % 94.8 % 97.8 % 0% 20% 40% 60% 80% 100% 120% 140% 2007 2008 2009 2010 2011 2012 2013 2014 65.9 % 70.1 % 64.2 % 61.3 % 59.4 % 58.6 % 60.0 % 18.6% 13.8% 4.7% 15.1% 10.3% 4.4% 6.5%
Slide 18: Financial Performance
FINANCIAL PERFORMANCE ROE averaged 7.6% (including unrealized gains/losses) Between 2001 and 2014 $32.67 18 $- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Book Value Per Share
Slide 19: Reserving
RESERVING Average 8.9% NOTE: 2008 and 2009 reflect litigation costs associated with Hurricane Katrina 19 -10% -5% 0% 5% 10% 15% 20% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Prior Year Development as % Premiums Earned
Slide 20: Portfolio Management
PORTFOLIO MANAGEMENT Conservative Investment Philosophy Manage our own portfolios • We maintain a fixed-to-equity ratio of 90/10 How we are addressing the low interest rate environment • We continue to purchase quality investments rated investment grade or better • We more closely match duration of
Slide 21: Capital Management
CAPITAL MANAGEMENT 21 February 20, 2015 Declaration of $0.20 quarterly cash dividend Record Date: March 2, 2015 Payment Date: March 16, 2015 1.5 1.2 1.2 0.8 0.7 0.8 0.8 0.7 1.0 1.1 1.1 1.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Premium
Slide 22: Compensation Alignment Toward Shareholder Value
COMPENSATION ALIGNMENT TOWARD SHAREHOLDER VALUE Maximize Shareholder Value 22 2014 Threshold Target Maximum Actual Performance Indicators (%) (%) (%) Results Chief Executive Officer Return on Equity (ex. AOCI) 8.0% 12.0% 16.0% 8.9% Corporate Growth 2.5% 5.0% 7.5% 11.1% All Others Return on Equity (e
Slide 23: Organizational Alignment Toward Shareholder Value
ORGANIZATIONAL ALIGNMENT TOWARD SHAREHOLDER VALUE Profitable organic and strategic growth Competitive advantage – Local market knowledge – Strong agency relationships – Disciplined underwriting – Service center – Exceptional customer service – Superior loss control services – Fair and ethical cl
Slide 24: Key Investment Considerations
• Expanded geographic presence through acquisition • Growth opportunities through recent acquisitions and existing markets • Decentralized underwriting and marketing • Opportunities for efficiencies • Exposure management -------------------------------------------------------------------------------
Slide 25: Appendix
Appendix ____________________________________________
Slide 26: Appendix Contents
APPENDIX Senior Management Slide 27 Financial Summary Slide 28 P&C Financial Highlights Slide 29 Definitions/Reconciliations Slide 30 Exposure Management Slide 31 Expertise (Businesses) Slide 32 Agency Philosophy Slide 33 Commission Strategy Slide 34 Reserving Philosophies Slide 35 Claims Philosophi
Slide 27: Senior Management
SENIOR MANAGEMENT RANDY A. RAMLO President and Chief Executive Officer Years at UFG: 30 Years in Industry: 30 MICHAEL T. WILKINS Executive Vice President and Chief Operating Officer Years at UFG: 29 Years in Industry: 29 KEVIN W. HELBING Interim Principal Financial Officer / Controller / AVP Years a
Slide 28: Financial Summary
FINANCIAL SUMMARY 28 (GAAP, $ in thousands except per share values) 2014 2013 2012 2011 2010 Selected Income Statement Items Net Premiums Earned 828,330$ 754,846$ 694,994$ 586,783$ 469,473$ Net Income / (Loss) 59,137 76,140 40,212 11 47,513 Realized Gains / (Loss), net of tax 4,725 5,652 3,544 4,186
Slide 29: P&C Operating Segment Financial Highlights
P&C OPERATING SEGMENT FINANCIAL HIGHLIGHTS 29 (GAAP, $ in thousands except per share values) 2014 2013 2012 2011 2010 Commercial Net Premiums Written 722,632$ 640,539$ 576,076$ 481,520$ 363,806$ Net Premiums Earned 685,148 613,878 551,846 464,942 370,479 Loss and Loss Settlement Expenses 443,541 384
Slide 30: Definitions and Reconciliations
DEFINITIONS AND RECONCILIATIONS NOT PREPARED IN ACCORDANCE WITH GAAP Operating income is a commonly used Non-GAAP financial measure of net income excluding realized capital gains and losses and related federal income taxes. Because our calculation may differ from similar measures used by other compa
Slide 31: Exposure Management
EXPOSURE MANAGEMENT Managing Catastrophe Exposure • 100-year PMLs below 2006 levels despite expanded portfolio due to Mercer Group transaction • Managing geographic exposures to reduce coastal and other risks • Updating policy terms and conditions • Policies written ex-wind • Policies written with w
Slide 32: Expertise with Main Street Businesses
EXPERTISE WITH “MAIN STREET” BUSINESSES Percent of DESCRIPTION (Property and Casualty) Total DWP Concrete Construction Including Flat Work 8 Carpentry - residential 7 Excavation 7 Lessors' risk 6 Carpentry - commercial 4 Land grading / earth moving 4 Automobile repair or service shops 4 Electrical w
Slide 33: Agency Philosophy
• We continually monitor agencies for compatibility • Criteria: loss ratio, volume, relationship • We seek “top three” position (as measured by direct premiums written) • We seek agencies that focus on providing value-added services to their customers • Our best agencies are medium-sized working in
Slide 34: Commission Strategy
COMMISSION STRATEGY Be competitive, but not excessive Support our corporate goals by encouraging agents to place and retain business in geographic locations targeted for organic growth Effectively balance commissions with other incentives – As part of a total compensation package 34
Slide 35: Reserving and Claims Handling Philosophy
RESERVING Claims Handling Philosophy • FAIR claims service • FAST claims service • Use of outside adjusters is infrequent, allowing us to more closely control the adjusting function • We employ top industry fraud predictive analytics technology Reserving Philosophy • We historically reported favorab
Slide 36: Capital Management Philosophy
• Strong economic capital position • Prudent reinsurance programs • History of consistently conservative reserves • Use of capital – acquisition of Mercer Insurance Company and organic growth CAPITAL MANAGEMENT PHILOSOPHY 36 Avg. Price No. Shares Total Price Share Repurchase Per Share ($) Repurchase
Slide 37: 2014 Product Niches
2014 PRODUCT NICHES • Religious Institutions – Churches • Auto Service and Repair Garages • Condominiums • Small Artisan Service and Repair contractors • Retail Small Business (Business Owners Program) • Land Improvement Contractors (Excavation, Land Grading) • Commercial Output Program (Manufacturi
Slide 38: Top Eight States
TOP EIGHT STATES 38 Twelve months ended 12/31/14 - NPW DPW Property/Casualty ($ in millions) $ % Texas 122.6 14.6% Iowa 97.8 11.7% California 92.8 11.1% New Jersey 51.4 6.1% Missouri 50.7 6.0% Illinois 41.8 5.0% Colorado 40.3 4.8% Minnesota 39.8 4.8% All Other States 301.4 35.9%
Slide 39: 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