United Fire Group, Inc · NASDAQ:UFCS
United Fire — Sandler O'Neill Meetings April 22, 2014
47 slides from United Fire's conference presentation, Apr 21, 2014
Slide 1: Sandler O'Neill Meetings April 22, 2014
Sandler O’Neill Meetings April 22, 2014
Slide 2: Table of Contents
TABLE OF CONTENTS Company Overview Slide 3 P&C Companies Slide 4 Life Company Slide 4 2013 Highlights Slide 5 2020 Vision Slide 6 Life Company Objectives Slide 7 Enterprise Risk Management Slide 8 Additional Issues / Actions Workers’ Comp Line Update Slide 9 Small Business Unit Update Slide 10 2014
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 a new office in Los Angeles, CA • $783 million in shareholders’ equity at 12/31/2013 • Approximately 960 employee
Slide 4: Company Overview: P&C Companies and United Life
COMPANY OVERVIEW P& C Companies • Rated “A” (Excellent) by A.M. Best • 90% commercial lines / 10% personal lines • Licensed in 43 states and the District of Columbia, active in 33 • Represented by approximately 1,200 independent agencies • At 12/31/2013, $723 million in net written premiums United L
Slide 5: 2013 Highlights
2013 HIGHLIGHTS • GAAP combined ratio improved to 94.8% from 101.2% • Book value grew 7% to $30.87 • Catastrophe losses were $30 million or 4.4 percentage points of the combined ratio, down slightly from our expected CAT load of 6% • GAAP expense ratio was consistent at 31.8% • Pure loss ratio impro
Slide 6: Current and Long-Term Objectives: 2020 Vision
CURRENT AND LONG-TERM OBJECTIVES • Expand our agency plant and penetration • Leverage our existing product portfolio • Expand our geographic footprint • Enter the Excess & Surplus lines • New Branch in Los Angeles as of February 1, 2014 • Continue to capitalize on strategic growth opportunities • Ob
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 • Lapse ratio under 6% (5.5% in 2013) • Automation commitment (ease of doing business) LIFE CO
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 risk ORSA ENTERPRISE RISK MANAGEMENT (ERM) 8
Slide 9: Workers' Compensation Line Update
ADDITIONAL ISSUES / ACTIONS Workers’ Compensation Line Update – Addressing Severity Underwriter referrals on all renewals with high hazard classes New “Cost Control” program with heavy focus on safety & injury management Focus on appropriate rate vs. hazard class Additional/advanced underwri
Slide 10: 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 2013 growth in written premium of 13.7% 10 $- $10,000 $20,000 $30,000 $40,000 $50,0
Slide 11: 2014 Reinsurance Programs
2014 Reinsurance Programs Catastrophe program • Renewed with ROL (rate on line) down 15% and adjustable rate down 25% • $230 million excess of $20 million retention • No co-participation on losses • 96-hour limit rather than 72-hour limit Core program • $2 million retention • $13 million per risk pr
Slide 12: New Branch Office for E&S Line of Business
ADDITIONAL ISSUES /ACTIONS New Branch Office for E&S Line of Business Effective February 1, 2014 Located in Los Angeles, California First policies effective in 1Q2014 Initially write business in states of CA, OR, NV, AZ 12
Slide 13: Usage-based Driving / Telematics
ADDITIONAL ISSUES / ACTIONS Usage-based driving / Telematics Advantages – Driver behavioral changes – Analytics (health of auto, youth-driving trends) – Usage-driven risk assessment for premium adequacy Current program – Scoping process completed in 2013 – Pilot program in 2014 13 Image of UBI d
Slide 14: 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) Creation of a dynamic identity – UFG rather than United Fire Group Newly appointed VP of Marketing 14
Slide 15: Smart Phone Apps
ADDITIONAL ISSUES / ACTIONS Smart Phone Apps 15 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 2014)
Slide 16: Economic/Market Conditions
ECONOMIC/MARKET CONDITIONS • Positive rate environment for nine quarters • Rate increases are expected through 2014 • Positive audit premium for the last nine quarters • Our insureds continue to add exposures at renewal • Policy count growth opportunities 16
Slide 17: Rate Improvement
RATE IMPROVEMENT -16.00% -12.00% -8.00% -4.00% 0.00% 4.00% 8.00% UFG MarketScout CIAB CLIPS Rate Change Comparison Sources: marketscout.com; ciab.com; towerswatson.com 17
Slide 18: Premium Growth
PREMIUM GROWTH 18 $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 $700,000 $800,000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Net Written Premiums ($ in 1,000's)
Slide 19: Organic Growth
ORGANIC GROWTH 19 YTD 2012 1Q2013 2Q2013 3Q2013 4Q2013 YTD 2013 Growth Components Rate Increases…………………………. 6.0% 6.8% 5.2% 8.0% 6.2% 7.7% New Business………………………….. 3.5% 1.8% 3.0% 3.1% 2.4% 2.1% Exposure Increases………………….. 3.0% 0.5% 0.8% 4.1% 0.8% 0.8% Overall Organic Growth………… 12.5% 9.1% 9.0% 15.2%
Slide 20: Underwriting Performance
UNDERWRITING PERFORMANCE GAAP Combined Ratio 20 81.3 % 113.9 % 115.2 % 99.9 % 112.1 % 101.2 % 94.8 % 0% 20% 40% 60% 80% 100% 120% 140% 2007 2008 2009 2010 2011 2012 2013 49.0 % 65.9 % 70.1 % 64.2 % 61.3 % 59.4 % 58.6 % 3.0% 18.6% 13.8% 4.7% 15.1% 10.3% 4.4% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 200
Slide 21: Financial Performance
FINANCIAL PERFORMANCE $- $5.00 $10.00 $15.00 $20.00 $25.00 $30.00 $35.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 ROE averaged 7.6% (including unrealized gains/losses) Between 2001 and 2013 $30.87 21 Book Value Per Share
Slide 22: Reserving
RESERVING Median: 9.0% NOTE: 2008 and 2009 reflect litigation costs associated with Hurricane Katrina 22 -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 Prior Year Reserve Development as % Premiums Earned
Slide 23: 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 24: Total Investment Yield
TOTAL INVESTMENT YIELD 24 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Life Insurance Segment 6.3% 6.1% 6.4% 5.9% 6.2% 5.2% 5.0% 4.5% 4.1% 4.1% P&C Insurance Segment 4.4% 4.9% 4.7% 5.5% 3.7% 3.4% 3.7% 2.8% 3.1% 3.0% Total Invested Assets 5.7% 5.7% 5.7% 5.7% 5.1% 4.5% 4.5% 3.8% 3.7% 3.7% 0.0% 1.
Slide 25: Portfolio Management: Total and Equity Portfolio
PORTFOLIO MANAGEMENT Corporate Bonds 45% U.S. Treasury Bonds 1% Municipal Bonds 24% Equities 7% Agency Securities 19% Private Placements 4% Total Portfolio Equity Portfolio 25 Financials 37.1% Industrials 15.8% Healthcare 13.0% Utilities 7.2% Energy 6.9% Consumer Staples 6.0% Info Tech 4.1% Material
Slide 26: Stock Price Improvement
STOCK PRICE IMPROVEMENT 52-week high 34.21; low $22.11; current $29.00; book value $30.87 26 $20.00 $25.00 $30.00 $35.00 High Low Close BV $29.30BV $29.00BV $30.01BV $28.90 BV $30.87 2013 2014
Slide 27: Historical Capital Management
HISTORICAL CAPITAL MANAGEMENT 1.5 1.2 1.2 0.8 0.7 0.8 0.8 0.7 0.9 1.1 1.1 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 Premium to Surplus Ratio 2010 2011 2012 2013 2010-2013 Total Shares O/S 26,195,552 25,505,350 25,227,463 25,360,893 Shares Repu
Slide 28: Compensation Alignment Toward Shareholder Value
COMPENSATION ALIGNMENT TOWARD SHAREHOLDER VALUE 2013 Threshold Target Maximum Actual Performance Indicators (%) (%) (%) Results Chief Executive Officer Return on Equity (ex. AOCI) 8.0% 12.0% 16.0% 12.2% Corporate Growth 2.5% 5.0% 7.5% 10.6% All Others Return on Equity (ex. AOCI) 8.0% 12.0% 16.0% 12.
Slide 29: 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 30: 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 31: Appendix
Appendix
Slide 32: Appendix
APPENDIX Senior Management Slide 33 4Q13 and 2013 Highlights Slide 34 Financial Summary Slide 35 P&C Financial Highlights Slide 36 Definitions/Reconciliations Slide 37 Exposure Management Slide 38 Modeled v. Actual Losses Slide 39 Expertise (Businesses) Slide 40 Agency Philosophy Slide 41 Commission
Slide 33: Senior Management
SENIOR MANAGEMENT RANDY A. RAMLO President/CEO Years at UFG: 30 Years in Industry: 30 MICHAEL T. WILKINS Executive Vice President Years at UFG: 28 Years in Industry: 28 DIANNE M. LYONS Vice President/CFO Years at UFG: 30 Years in Industry: 30 DAVID E. CONNER Vice President/CCO Years at UFG: 15 Years
Slide 34: 4Q13 and 2013 Highlights
4Q13 and 2013 Highlights 34 Note: ROE is calculated as net income divided by YTD average shareholders’ equity 2013 2012 2013 2012 EPS - Operating $1.00 ($0.12) $2.76 $1.44 Combined Ratio - GAAP 89.0% 111.1% 94.8% 101.2% ROE 10.1% 5.6% Catastrophe Losses $3.0 mm $30.2 mm $30.2 mm $64.7 mm Impact to C
Slide 35: Financial Summary
FINANCIAL SUMMARY 35 (GAAP, $ in thousands except per share values) 2013 2012 2011 2010 2009 Selected Income Statement Items Net Premiums Earned $ 754,846 $ 694,994 $ 586,783 $ 469,473 $ 478,498 Net Income / (Loss) 76,140 40,212 11 47,513 (10,441) Realized Gains / (Loss), net of tax 5,652 3,544 4,18
Slide 36: P&C Operating Segment Financial Highlights
P&C OPERATING SEGMENT FINANCIAL HIGHLIGHTS 36 (GAAP, $ in thousands except per share values) 2013 2012 2011 2010 2009 Commercial Net Premiums Written $ 640,539 $ 576,076 $ 481,520 $ 363,806 $ 380,727 Net Premiums Earned 613,878 551,846 464,942 370,479 394,000 Loss and Loss Settlement Expenses 384,62
Slide 37: 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 38: 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 39: Modeled vs. Actual Losses from Historical Storms
EXPOSURE MANAGEMENT Modeled vs. Actual Losses from Historical Storms 39 Avg Modeled Actual Actual to Avg ($ in millions) Gross Loss ($) Loss ($) Model Miss (%) Katrina 483.7 389.4 24.2 Rita 49.2 34.9 41.2 Gustav 60.7 14.5 319.0 Ike 22.7 30.0 (24.7) Isaac 4.1 3.3 22.8 Irene 17.2 6.4 168.3 Sandy 55.2
Slide 40: 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 41: 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 42: 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 42
Slide 43: 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 44: Capital Management Philosophy
• 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 CAPITAL MANAGEMENT PHILOSOPHY 44 Avg. Price No. Shares Total Price Share Repurchase Pe
Slide 45: 2014 Product Niches
2014 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 46: Top Eight States
TOP EIGHT STATES 46 Twelve months ended 12/31/13 - NPW DPW Property/Casualty ($ in millions) $ % Texas 104.8 13.9% Iowa 93.0 12.3% California 79.3 10.5% New Jersey 52.0 6.9% Missouri 47.8 6.3% Illinois 38.0 5.0% Louisiana 36.4 4.8% Colorado 36.0 4.8% All Other States 267.4 35.5%
Slide 47: 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
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