Slide 1: Investor Presentation
Investor Presentation Dianne Lyons, Vice President/Chief Financial Officer Friday, August 24, 2012
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., waste haulers, religious institutions, surety bonds) and life insurance – $735 million in shareholders’ equity – S
Slide 4: Company Overview
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 1,240 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 $30.00 2007 2008 2009 2010 2011 6/30/2012 -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 2007 2008 2009 2010 2011 YTD 2012 (6mos) UFCS Peer Group* 5 Book Value Per Share Operating Return on Average Equity** * SNL Small Cap
Slide 6: Historical Underwriting Performance
Historical Underwriting Performance Net Written Premiums ($ in millions) $- $100 $200 $300 $400 $500 $600 $700 2007 2008 2009 2010 2011 6/30/2012 (6mos) 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) GAAP Combined Ratio excludin
Slide 7: Recent Results
Recent Results • Double-digit top-line growth driven by: – Low- to mid-single digit rate increases and continued solid retention of commercial business – New business contribution reflected diligent account-based underwriting practices • Sub-100% combined ratio: – Strong performance of core book of
Slide 8: Key Investment Considerations
Key Investment Considerations • Expanded geographic presence through MIGP acquisition • Now focused on growth opportunities: • Capitalizing on transaction • Organic growth in existing markets • Appointing new agents • Local market knowledge • Decentralized underwriting and marketing • Claims and bac
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 Expanded Scope in 2011 with MIGP Acquisition • All-cash transaction valued at approximately $191
Slide 10: Now Focused on Growth Opportunities
Now Focused on Growth Opportunities • Simplify BOP product to drive additional growth • Focus on increasing contribution from: – Property business –Workers’ compensation – Large accounts (over $100,000) • Seek additional production from new agents • Appoint new agents in cities where we are underrep
Slide 11: Now Focused on Growth Opportunities: Rate Change Comparison
Now Focused on Growth Opportunities -16.00% -12.00% -8.00% -4.00% 0.00% 4.00% 8.00% UFG MarketScout CIAB CLIPS • MarketScout is the nation's largest on-line insurance exchange with a distribution system to over 50,000 retail insurance agencies. The composite average includes all commercial lines and
Slide 12: Expertise with "Main Street" Businesses
Expertise with “Main Street” Businesses Net Written Premiums by Product Line Twelve months ended 12/31/11 – Property/Casualty ($ in millions) NPW Percent of total NPW Fire & Allied Lines $202.6 36.7% Automobile 139.7 25.3 Other Liability 121.7 22.0 Workers’ Compensation 57.2 10.4 Surety 15.8 2.9 Rei
Slide 13: Local Market Knowledge
Local Market Knowledge • Property/casualty competition is largely other regional carriers, including mutual companies • Decisions about risk acceptability and pricing are made locally • Local staff are knowledgeable about their region and relevant regulations • Pricing decisions reflect current risk
Slide 14: Local Market Knowledge
Local Market Knowledge Twelve months ended 12/31/11 – Property/Casualty ($ in millions) DPW Percent of total DPW Texas $74.8 12.9% Iowa 73.7 12.7 California 61.5 10.6 Missouri 42.2 7.3 Louisiana 36.7 6.3 All other 292.0 50.2 • Expertise with “Main Street” businesses • Disciplined underwriting – Unde
Slide 15: Decentralized Underwriting and Marketing
Decentralized Underwriting and Marketing Agency Philosophy • Continually monitor agencies for compatibility • Criteria: loss ratio, volume, relationship • Seek “top three” position (as measured by direct premiums written) • Competitive performance-based compensation Underwriting Strategies • Non-ren
Slide 16: Claims and Back-Office Functions Centralized
Claims and Back-Office Functions Centralized • FAIR claims service • FAST claims service • Use of outside adjusters is infrequent, allowing us to more closely control the adjusting function • Conservative reserving practices lead to consistent loss reserve redundancies • Employ top industry fraud pr
Slide 17: Claims and Back-Office Functions Centralized
Claims and Back-Office Functions Centralized 0.0% 10.0% 20.0% 30.0% 40.0% 2007 2008 2009 2010 2011 Expenses related to Mercer acquisition • Streamline how our agencies transact business with us • Enable producers to efficiently provide their clients with a high level of service • Enhance agency onli
Slide 18: Reserving
Reserving Net Reserve Redundancy (Deficiency) -6% 0% 6% 12% 18% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Reserving Philosophies • Historically reported loss redundancies • Consistent reserving practices • Reserve on a case basis with some pessimism • Reserve for IBNR and LAE using actu
Slide 19: Exposure Management
Exposure Management • Lowered 100-year PML (average of RMS and AIR) despite expanded portfolio due to Mercer transaction • Managing geographic exposures to reduce coastal and other risks • Better utilizing operating structure • Updated policy terms and conditions, e.g., wind deductibles • 2012 catas
Slide 20: Exposure Management: Modeled vs. Actual Losses
Exposure Management ($ in millions) RiskLink v10 Modeled Gross Loss RiskLink v11 Modeled Gross Loss Clasic/2 v12 Modeled Gross Loss Actual Loss Katrina $499.6 $506.4 $461.0 $367.3 Rita 11.7 71.6 26.8 33.9 Gustav 9.5 27.7 10.5 14.5 Ike 22.6 110.7 17.5 26.0 Notes on Modeled Losses • Modeled loss from
Slide 21: Conservative Investment Portfolio
Conservative Investment Portfolio (at June 30, 2012) $3.0 Billion Investment Portfolio ($ in millions) US Gov't $84 3% Foreign $235 8% Utilities $257 8% Other* $52 2% Financial $308 10% Industrial $983 32% Municipals $762 25% Mortgage Backed $176 6% Equity Securities $174 6% 21 * Other includes trad
Slide 22: Conservative Investment Portfolio
Conservative Investment Portfolio (at June 30, 2012) • Manage our own portfolios/buy and hold • Addressing low interest rate environment by: – Continuing to purchase quality investments rated investment grade or better – More closely matching duration of our investment portfolio to liabilities • Int
Slide 23: Financially Strong
Financially Strong Capital Management Philosophy • Strong economic capital position • Prudent reinsurance programs • Modest debt-to-capital ratio (6%) • Conservative investment portfolio • History of consistently conservative reserves • Use of capital – acquisition of Mercer Insurance Company Share
Slide 24: Experienced Senior Management
Experienced Senior Management Title Years with UFCS Years in Industry Randy Ramlo President and CEO 27 27 Mike Wilkins Executive Vice President 25 25 Dianne Lyons Vice President and CFO 27 27 David Conner Vice President and CCO 12 28 Barrie Ernst Vice President and CIO 8 31 Neal Scharmer Vice Presid
Slide 25: Key Investment Considerations
Key Investment Considerations • Expanded geographic presence through MIGP acquisition • Now focused on growth opportunities: • Capitalizing on transaction • Organic growth in existing markets • Appointing new agents • Local market knowledge • Decentralized underwriting and marketing • Claims and bac
Slide 26: Questions
Investor Presentation Questions
Slide 27: Appendix
UNITED FIRE GROUP’ Appendix
Slide 28: Catastrophe Loss History
Catastrophe Loss History Events in 2008-2009 • Hurricane Katrina development of $65 million due to unfavorable court rulings • Record number of catastrophe events in 2008 contributed $76 million to United Fire’s losses • A flood in 2008 forced us from our home office to a temporary location for 11 w
Slide 29: Reducing PML Exposure
Reducing PML Exposure $0 $50 $100 $150 $200 $250 $300 Jun 2006 Dec 2006 Jun 2007 Dec 2007 Jun 2008 Dec 2008 Aug 2009 Dec 2009 Aug 2010 Dec 2011* Jun 2011* 100-Year PMLs ($ in millions) RMS AIR Scenario RMS Gross Loss AIR Gross Loss Industry Gross Loss U FG ’s H u rrica n e RD S 1. A Katrina type eve
Slide 30: Foreign Investment Exposure
Foreign Investment Exposure International Holdings by Country International Holdings by Sector Sector Par Market Value Pct of Mkt Pct Total Portfolio Oil & Gas $ 42,007,000 $45,212,622 27.9% 1.57% Industrials 20,275,000 22,486,177 13.9 0.78 Banks 20,650,000 21,378,177 13.2 0.74 Healthcare 14,950,000
Slide 31: Management Biographies
DAVID E. CONNER VP/CCO Years at UFG: 12 Years in industry: 28 BARRIE W. ERNST VP/CIO Years at UFG: 8 Years in industry: 31 NEAL R. SCHARMER VP/General Counsel Years at UFG: 15 Years in industry: 21 DIANNE M. LYONS Vice President/Chief Financial Officer Years at UFG: 27 Years in industry: 27 • Direct
Slide 32: 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 33: Operating Segment Financial Highlights
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 Settlement Expenses 331,
Slide 34: 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 35: United Fire Group
UNITED FIRE GROUP’ Investor Presentation