United Fire Group, Inc · NASDAQ:UFCS
United Fire — Investor Presentation (September 2012)
34 slides from United Fire's investor presentation, Sep 19, 2012
Slide 1: Investor Presentation
Investor Presentation Randy Ramlo, President and Chief Executive Officer Mike Wilkins, Executive Vice President Dianne Lyons, Vice President and Chief Financial Officer September 18-19, 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 • Based in Cedar Rapids, Iowa • Founded in 1946 • $735 million in shareholders’ equity • Six regional offices • Approximately 900 employees 3 United Fire Group (NASDAQ:UFCS)
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 • 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. Rated “A-” by A.M. Best • $4 bil
Slide 5: Historical Financial Performance
Historical Financial Performance $- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 5 Book Value Per Share Operating ROE averaged 7.7% between 2000 and 2011 $28.91
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) UFCS Peer Group* 6 * SNL Small Cap U.S. Insurance Index (Average) Catastrophe Loss Contribution $0 $50 $100 $150 $200 $250 $300 $350 $400 $450 20
Slide 7: Second-Quarter Highlights: Recent Results
Recent Results • Double-digit top-line growth: – 12% organic growth – Low- to mid-single digit rate increases – 82% commercial lines retention • 95% combined ratio: – Continued favorable prior-year reserve development – Significantly lower catastrophe losses • Offset by 2 percentage point increase i
Slide 8: Key Investment Considerations
Key Investment Considerations • Expanded geographic presence through MIGP acquisition • Growth opportunities: – Capitalizing on transaction – Organic growth in existing markets • Decentralized underwriting and marketing • Opportunities for efficiencies • Reserving – Historically reported loss redund
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 Strategies
Growth Opportunities • Improve BOP product • Increase property business • Increase workers’ compensation business • Market to larger accounts (over $100,000) • Appoint new agents in cities where we are under-represented 10 Growth Strategies
Slide 11: Growth Opportunities: Pricing Sophistication
Growth Opportunities 11 Pricing Sophistication • Multiple tools support pricing analysis – CATography – Predictive analytics – Loss control –Walk-away pricing – Credit scoring – Rating tiers • Advanced automated renewal screening
Slide 12: 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 13: Expertise with "Main Street" Businesses
Expertise with “Main Street” Businesses Net Written Premiums by Product Line Property/Casualty Percent of total NPW Commercial lines: Other liability 32% Automobile 22 Fire & allied lines 21 Workers’ compensation 12 Fidelity & surety 3 Total commercial lines 90% Personal lines: Fire & allied lines 6
Slide 14: 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 15: Agency Philosophy
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 • More than 1,200 independent agencies • Average agency size: over $500,00
Slide 16: Opportunities for Efficiency
Opportunities for Efficiency 0.0% 10.0% 20.0% 30.0% 40.0% 2007 2008 2009 2010 2011 YTD 2012 (6mos) Expenses related to Mercer acquisition • Streamline how our agencies transact business with us • Enable producers to efficiently provide their clients with a high level of service • Enhance agency onli
Slide 17: Reserving
Reserving Loss Cost Analysis • Monitor inflationary trends • Exposure basis rating (including payroll- and sales-based rating) • Inflation factors applied to property values annually (buildings and contents) • Automobile symbol rating to accurately rate for autos based on cost new and repair costs •
Slide 18: Reserving: Net Reserve Redundancy (Deficiency)
Reserving Net Reserve Redundancy (Deficiency) -6% 0% 6% 12% 18% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 18 Median: 10%
Slide 19: Exposure Management
Exposure Management • 100-year PMLs below 2006 levels despite expanded portfolio due to Mercer transaction • Managing geographic exposures to reduce coastal and other risks • Updated policy terms and conditions – Policies written ex-wind – Policies written with wind deductible 19 Managing Catastroph
Slide 20: Exposure Management: Modeled vs. Actual Losses
Exposure Management ($ 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 Modeled vs. Actual Losses from Historical Storms 20
Slide 21: Exposure Management: 2012 Reinsurance Programs
Exposure Management 21 2012 Reinsurance Programs • Catastrophe program – $180 million excess of $20 million retention – 5% co-participation on losses between $20 million and $200 million • Core program – $2 million retention – $13 million per risk property coverage – $38 million per occurrence casua
Slide 22: 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 $1,783 5
Slide 23: Conservative Investment Portfolio: Portfolio Management
Conservative Investment Portfolio (at June 30, 2012) Portfolio Management • Manage our own portfolios – Maintain a fixed-to-equity ratio of 90/10 • Addressing low interest rate environment by: – Purchasing quality investments rated investment grade or better – Matching duration of our investment por
Slide 24: Investment Yield
O UNITED FIRE GRO Investment Yield 2002 2003 -=—- 2004 «= 2005 2006 = 2007S 2008 «= 2009S 2010S 2011. ~S«sLTM*
Slide 25: Financially Strong
Financially Strong • Strong economic capital position • Prudent reinsurance programs • Outstanding debt paid off in July 2012 • History of consistently conservative reserves • Acquisition of Mercer Insurance Company Share Repurchase Ave. Price Per Share Number of Shares Repurchased Total Price ($ in
Slide 26: Questions
Investor Presentation Questions
Slide 27: Appendix
UNITED FIRE GROUP’ Appendix
Slide 28: 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 29: Foreign Investment Exposure
Foreign Investment Exposure* ($ in Millions) Sector Market Value % Market Value % Total Portfolio Industrials $67 41% 2.33% Energy 59 36 2.03 Financials 36 23 1.27 Total 162 100 5.63 ($ in Millions) Region Market Value % Market Value % Total Portfolio Europe $133 82% 4.62% Pan-Asia 22 13 0.75 Middle
Slide 30: 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 31: 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 32: 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 33: 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 34: United Fire Group
UNITED FIRE GROUP’ Investor Presentation
United Fire Group — Investor Presentation (September 2012) on 6ix