United Fire Group Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, and thank you for joining this call.

Yesterday afternoon, we issued a press release on our results. To find a copy of this document, please visit our website at ufginsurance.com. Press releases and slides are located under the Investors tab. Joining me today on the call are UFG President and Chief Executive Officer, Kevin Leidwinger, Executive Vice President and Chief Operating Officer, Julie Stephenson, and Executive Vice President and Chief Financial Officer, Eric Martin. Before I turn the call over to Kevin, a couple of reminders. First, please note that our presentation today may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based on current expectations, estimates, forecasts, and projections about the company, the industry in which we operate, and beliefs and assumptions made by management.

The company cautions investors that any forward-looking statement includes risks and uncertainties and are not a guarantee of future performance. Any forward-looking statement made by us in this presentation is based only on information currently available to us and speaks only as of the date on which it is made. These forward-looking statements are based on management's current expectations, and the company assumes no obligation to update any forward-looking statements. The actual results may differ materially due to a variety of factors, which are described in our press release and SEC filings discussed specifically in our most recent annual report on Form 10-K. Please note that in our discussion today, we may use some non-GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures are also available in our press release and SEC filings.

At this time, I will turn the call over to Mr. Kevin Leidwinger, CEO of UFG Insurance.

Good morning. Thank you for joining UFG's second quarter 2026 earnings call. I'm pleased to report another quarter of exceptional performance for UFG. Our team delivered outstanding results across the organization, achieving our best second quarter combined ratio in more than 15 years, record net income, record net written premium, and our highest level of investment income in over a decade. These results reflect the success of the strategic actions we've taken to transform the company. By deepening our underwriting expertise, evolving our capabilities, strengthening alignment with our distribution partners, and improving investment performance, we continue to create meaningful value for our stakeholders. These efforts are driving sustained improvements in UFG's financial and operational performance while positioning the company for long-term success. While we achieved several notable performance milestones in the quarter, I'm particularly encouraged by the strength of our underwriting results.

Our combined ratio was the best for a second quarter in more than 15 years, reflecting disciplined risk selection, appropriate pricing relative to exposure, and the continued successful execution of our catastrophe management strategy. These results demonstrate the effectiveness of our underwriting approach and our commitment to delivering consistent profitability. Investment income was also a significant contributor to our performance, reaching its highest quarterly level in more than 10 years. The strength of our portfolio, combined with favorable market conditions, continued to support earnings growth. Together, strong underwriting execution and improved investment returns produced another quarter of excellent financial results. Beyond our second quarter achievements, we delivered a 13.2% return on equity for the first six months of 2026, representing our best year-to-date financial performance in 20 years. This milestone highlights the progress we've made in building a more profitable, resilient, and higher-performing organization.

As we look forward to the second half of the year, we remain confident in our ability to navigate evolving market conditions. Our deep underwriting expertise, strong agency relationships, and disciplined operating approach position us well to continue delivering profitable growth and creating long-term value. Before I turn the call over to Julie, I want to thank our employees, agency partners, and policyholders for their continued trust, commitment, and support. Their dedication is fundamental to our success, and I'm proud of all we've accomplished together. With that, I'll turn the call over to Julie to review the quarter in greater detail.

Thank you. Thanks, Kevin. We are pleased with the continued positive momentum and our results as our underwriting team successfully navigate a persistently competitive marketplace.

Our underwriters remain disciplined as they defend renewals, refine risk selection, and maintain strong relationships with their distribution partners to capitalize on the opportunities afforded to us by our deepened expertise and evolving capabilities. These efforts continue to support healthy new business production, positive rate achievement, and steady retention. Net written premium increased 9% in the second quarter, driven by sustained selective growth in our core commercial business, which includes small business, middle market, and construction. The average renewal rate change was 2.9%, reflecting ongoing competitive market conditions. Property rates remained under pressure during the quarter, and we are seeing modest pressure in general liability. Auto rate performance was consistent with the first quarter, while umbrella continued to deliver strong double-digit rate increases.

Although rate achievement has moderated over the past several quarters, we believe we are well-positioned for the current environment. The portfolio actions and underwriting discipline we have implemented over the last several years, combined with established pricing and risk selection rigor, enable us to selectively pursue opportunities that support continued profitable growth and attractive returns. By example, policies written from 2024 through Q2 of 2026 make up over 50% of the portfolio, and our new business is performing very well, meeting or exceeding our expectations. At the same time, the renewal portfolio has been thoroughly pruned through the lens of our current underwriting guidelines, so we have a high degree of confidence in the portfolio on the whole. In specialty excess and surplus lines, market conditions continue to evolve rapidly, with heightened competition across both property and casualty lines.

Net written premium decline compared to the prior year, as increased competition for larger accounts had a greater impact on our relatively small portfolio. Quarter-over-quarter production activity remains stable and disciplined. We continue to focus on moderate hazard opportunities and on retaining well-performing, adequately priced accounts to support a balanced and resilient portfolio. Surety delivered strong growth in the quarter, benefiting from several large project opportunities following a relatively flat first quarter. We remain confident in both the quality of the portfolio and the long-term growth prospects of the business. Alternative distribution, which includes treaty, programs, and funds at Lloyd's, increased net written premium by 13% over the prior year. This growth reflects the strong January 1 treaty and FAO renewal cycle and demonstrates the value of our diversified distribution platform.

Given our broad opportunities and disciplined exposure management, we believe this business remains well-positioned to support prudent growth through varying market cycles. Turning to profitability, our underlying loss ratio was 57.2% in the second quarter, a slight improvement from the prior year and consistent with first quarter results. Performance improved across our core lines of business, partially offset by impacts from assumed reinsurance. The assumed reinsurance market remains highly competitive, but our diversified portfolio continues to provide opportunities for profitable growth. Within our core business, we continue to benefit from strong earned rate achievement and a stable loss trend environment. Our portfolio remains positioned to deliver consistent long-term profitability while maintaining a conservative risk profile. Prior year reserve development was neutral overall in the second quarter.

Our actuarial review included a comprehensive analysis of all business segments, along with our annual assessment of adjusting and other reserves, and produced generally favorable indications. In recent quarters, we have seen some stability in emergence associated with our longer tail liability lines. This is a positive sign, but we continue to view these lines with caution and maintain a strong reserve position we've built over the past few years. We also experienced favorable emergence in automobile, property, and workers' compensation. Consistent with our approach in recent years, we redeployed the benefit of favorable emergence to maintain a conservative position in areas subject to greater uncertainty. The second quarter catastrophe loss ratio is 2.7%, 2.8 points below prior year, and well below both five and 10-year historical averages. Results benefited from favorable development on prior period events.