United Fire Group, Inc. Stock

Good day, and welcome to the United Fire Group Insurance 2026 second quarter conference call. [Operator Instructions] Please note this event is being recorded.

I would now like to turn the conference over to Tim Borst. 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.

Also, 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, and 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, continue 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 6 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 in our results as our underwriting teams successfully navigate a persistently competitive marketplace. Our underwriters remain disciplined as they defend renewals, refine risk selection and maintain strong relationships with our 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 declined compared to the prior year as increased competition for larger accounts had a greater impact on our relatively small portfolio. However, quarter-over-quarter production activity remained 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 FAL 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. Overall, 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 was 2.7%, 2.8 points below prior year and well below both 5- and 10-year historical averages. Results benefited from favorable development on prior period events. Excluding this benefit, our current accident-year catastrophe loss ratio would have produced a result of approximately 6%, so still comfortably below historical averages and in line with our expectations, reflecting the ongoing impact of actions taken in recent years to improve our catastrophe risk profile. Our half-year catastrophe result of 3.2% is trending favorably to our full year estimate of 5%.

With that, I will turn the call over to Eric Martin to discuss the remainder of our financial results.

Thank you, Julie. Starting with investments. Our high-quality portfolio continued to deliver a sustainable increase in net investment income, which grew 33% in the second quarter to $29 million. I continue to be very pleased with the performance of our investments. This quarter represents the highest investment income since the sale of our life insurance operations in 2016 (sic) [ 2018 ].

Fixed maturity income of $26.3 million increased 24% from prior year while maintaining duration and an average AA credit quality rating. Over the past year, the size of our fixed maturity portfolio has grown approximately 16% as improved underwriting profitability fuels growth in investment income. The elevated interest rate environment provides opportunities to sustainably increase portfolio returns as new money yields of 5.1% continue to exceed the overall portfolio average by approximately 50 basis points.

Outside of fixed income, our portfolio of approximately $100 million of limited partnership investments contributed to these favorable results, generating a return of $2.3 million in the quarter. Looking back over the past 8 quarters, this portfolio has produced an annualized yield of 8.7%.

Turning to the expense ratio. The second quarter result of 35.4% increased approximately 0.5 point from prior year. We experienced a small onetime increase this quarter from actions to buy out a lease on a building in Houston that will reduce lease costs on a go-forward basis. This contributed about half of the increase from our recent run rate of 35%. We expect our ongoing actions to result in a continued gradual reduction of the expense ratio over time.

Based on our current growth plan and the continued transformation of the company, we expect future expense ratio improvements of 0.5 point to a full point per year. This includes continued investment in technology modernization beyond the policy administration system aimed at continued efficiency gains.

Second quarter net income was $1.29 per diluted share with non-GAAP adjusted operating income of $1.30 per diluted share. This quarter's earnings improved book value per common share to $38.02. The increase in interest rates in the second quarter caused our unrealized loss position to increase by approximately $4 million from the first quarter, negatively impacting book value per share by $0.15. Adjusted book value per share, which excludes the impact of unrealized investment losses, increased to $39.72. From a capital management perspective, during the second quarter, we declared and paid a $0.20 per share cash dividend to shareholders of record as of June 5, 2026.

This concludes our prepared remarks. I will now have the operator open the line for questions.

[Operator Instructions] Our first question comes from Jason Weaver with JonesTrading.

Just one on the commercial auto loss ratio. How much of that is related to social inflation and enhanced judgment costs? And where do you think auto rate needs to hold to get back into your target there?

Thanks so much for the question. I think the auto portfolio is a very important part of our ability to be a total account solution provider. So we know that auto has to be an important part of the portfolio going forward, but our underwriting rigor has deepened over the last few years. We certainly are paying attention to pricing. We've seen some moderating pricing in the auto line, but still positive for us. There's not a lot of social inflation in our auto risk profile. We're not in the heavy wheels business or the trucking business, so mostly associated with our middle market construction and small business portfolios, which are on the smaller to midsize of middle and construction. So not a lot of impact from social inflation for us, and we feel like we're still getting attractive rate.

Got it. And then on the 13.2% ROE versus your long-term 15% target, what is the board's threshold on looking at a repurchase program here? And how do you think about the relative merits of doing something like that versus the existing $0.20 dividend?

Yes, Jason, thanks for joining us. Thanks for your question. This is Eric here. As we think about capital management, we're going to continue to do the things we've done here in the past couple of years. We're going to focus first on making sure we've got the right amount of capital to grow. Second is, as you said, we've got a $0.20 per quarter dividend right now. We're going to make sure that, that is -- that's always important to us as a dividend, and we'll continue to make sure that's the case. We do have 2 million shares authorized for a buyback. We'll always consider that going forward, but it will be the third in the line of priorities there.

Our next question comes from Paul Newsome with Piper Sandler.

Just maybe expansion on the commercial auto question. Where do you think, generally speaking, you are with rate versus claims inflation? Do you think that underlying combined ratio has the ability to go lower?

The underlying combined ratio on the whole or just for auto?

The whole, beyond the commercial auto. I mean, I think you've sort of answered the commercial auto piece. I'm just curious about the rest of the business.

Yes. I mean I think we have a very high degree of confidence in the portfolio and our ability to navigate the market. I think both our new and renewal books, as we discussed, Paul, are performing well, and they're well within our expectations under our recent underwriting rigor. I think more importantly, we feel like that we've built the actuarial and the analytical rigor to monitor our pricing behavior and the performance of the portfolio across multiple dimensions and we can react more nimbly. So all that said, I think we have a high degree of confidence that we can maintain the underlying loss ratio even with the challenges in the marketplace.

Makes sense. In terms of the competitive environment, do you think the current environment will allow you to continue to scale? Or do you think we'll have to take a little bit of a pause before we see enough growth to scale? Obviously, you're working on the expense ratio, too. But what's your thought on top line growth and scalability in the near term?

Yes. I think we can continue to grow. As we've discussed before, we're seeing accounts from our agency plant that UFG has never seen before because they're recognizing the deepened expertise. They're recognizing the expanded capabilities. So it just gives us a much wider pool of opportunities to choose from. And with that as a tailwind, we really think we can continue to grow even though the market is softening. So as long as we are sticking to our guns relative to underwriting discipline and we're pricing the exposures that are coming to us, we think scale is still possible throughout this market cycle.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Leidwinger for any closing remarks.

Thank you for joining us today. We're very pleased with our second quarter and year-to-date results. The record financial performance we delivered reflects the success of our strategic transformation, the strength of our underwriting discipline and the commitment of our employees and agency partners. These results continue to underscore the progress we've made in building a more profitable, resilient and consistently performing organization.

Despite an increasingly competitive market, we remain confident in our ability to navigate changing conditions and continue generating profitable growth and attractive returns. As we move through the second half of 2026, we remain focused on disciplined execution and long-term value creation for all stakeholders.

Thank you for your continued support and interest in UFG, and we look forward to speaking with you again next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Hello, and welcome to the Annual Meeting of Shareholders of United Fire Group, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Jim Noyce, Chairperson of the Board of Directors of United Fire Group, Inc. Mr. Noyce, the floor is yours.

The meeting will please come to order. Good morning, and welcome to the Annual Meeting of Shareholders of United Fire Group, Inc., and thank you all for attending. I am Jim Noyce, Chairperson of the Board of Directors. And in accordance with our bylaws, I will be presiding at this meeting.

Today's meeting is being broadcast by live audio webcast. We believe this virtual meeting option will maximize participation of shareholders regardless of their location. Thank you very much to those who are participating virtually today. We will conduct our meeting in 2 parts. First, we will address our formal business -- our formal items of business, followed by a question-and-answer session. You may submit questions through the virtual meeting website. An agenda that outlines the order of business for the meeting has been made available.

The matters on which the shareholders at the meeting are voting include: election of the 5 Class A directors identified in the proxy statement; ratification of the Audit Committee's appointment of Ernst & Young LLP as our independent registered public accounting firm for 2026, approval on an advisory basis of the compensation of the company's named executive officers; and approval of the amendment and extension of the 2021 Nonemployee Director Stock Plan.

Sarah Madsen, Senior Vice President, Chief Legal Officer and Corporate Secretary, will serve as Secretary of the meeting. Computershare, the registrar and transfer agent for our common stock, will be acting as the Inspector of Election for this meeting.

Now I'd like to take this opportunity to introduce a few members of the UFG executive team, including Kevin Leidwinger, President and Chief Executive Officer and also a Director; Julie Stephenson, Executive Vice President and Chief Operating Officer; and Eric Martin, Executive Vice President and Chief Financial Officer.

I would also like to introduce you to my fellow directors participating in today's meeting. John-Paul Besong, Scott Carlton, Brenda Clancy, Christopher Drahozal, Matthew Foran, Mark Green, Lura McBride, George Milligan, Gilda Spencer and Susan Voss.

Following today's meeting, our long-standing Board member, John-Paul Besong, will retire after 13 years of dedicated service, having reached the age limit for Board service as set forth in our bylaws. On behalf of the Board of Directors, I thank JP for his commitment to UFG and our valued shareholders as well as his many contributions to our Audit and Risk management committees.

We have benefited greatly from JP's technological expertise and business insights over the years, and we congratulate him on a well-deserved retirement. Chris Yuska and Syed Raza of Ernst & Young LLP are also attending virtually and are available to make a statement if desired and answer questions concerning our financial statements.

I call your attention to the rules of conduct for this meeting. These are made available to each shareholder in the document section in the top right corner of the screen upon entering the virtual meeting room. To conduct an orderly meeting, we ask that you abide by these rules.

If you need a copy of the annual report or proxy statement, please refer to the company's website or the hyperlinks provided with your proxy materials. Corporate Secretary, Sarah Madsen has delivered an affidavit of mailing from Computershare, establishing that notice of this meeting was duly given. A copy of the notice of meeting and the affidavit of mailing will be incorporated into the minutes of this meeting.

All shareholders of record at the close of business on March 23, 2026, are entitled to vote at this meeting. The Inspector of Election has the shareholder list of the company as of the close of business on March 23, 2026, the record date for the meeting, which shows the shareholders and their respective number of shares entitled to vote at this meeting.

I am advised by the Inspector of Election that no less than a majority of the outstanding shares of common stock, which constitutes a quorum are present virtually by live webcast or by proxy at the meeting. So I declare the meeting duly and lawfully convened. We will now begin the formal business of the meeting. The polls are open for voting on the 4 proposals before the meeting. If you have not voted or wish to change your vote, you may do so now through the virtual meeting website.

Any shareholder who has already voted by proxy and does not want to change their vote should not take any further action. There are 4 proposals on the agenda for this year's Annual Meeting of Shareholders. Our articles of incorporation require that our Board of Directors be divided into 3 classes: A, B and C, with 1 class elected at each annual meeting.

The Board of Directors must consist of no more than 15 and no less than 9 members with the exact number fixed by the Board of Directors. The membership of our Board of Directors will be fixed at 11 directors following today's meeting and the retirement of JP Besong, with 5 directors in Class A, 2 directors in Class B and 4 directors in Class C. The first proposal is the election of 5 Class A directors to serve a term expiring in 2029.

The Board of Directors recommends a vote for the election of each of the following director nominees as Class A directors: Scott Carlton, Brenda Clancy, Kevin Leidwinger, Gilda Spencer and Susan Voss. The second proposal is the ratification of the Audit Committee's appointment of Ernst & Young LLP as our independent registered public accounting firm for 2026.

The Board of Directors recommends a vote for this proposal. The third proposal is the approval on an advisory basis of the compensation of our named executive officers. The Board of Directors recommends a vote for this proposal. The fourth proposal is the approval of the amendment of the 2021 nonemployee director stock plan to increase the number of shares of United Fire Group, Inc.'s common stock available for issuance thereunder to nonemployee directors and to extend the life of the plan from December 31, 2029 to December 31, 2034.

The Board of Directors recommends a vote for this proposal. No other matters for consideration at this meeting were brought to the company's attention by our shareholders in accordance with the requirements set forth in our bylaws or the applicable rules of the SEC. If you have not yet completed delivery of your proxies or ballots online, please do so now as we will be closing the polls for voting at this time.

[Voting]

The online voting will now be closed. Based on a preliminary count, the Inspector of Election has informed me that all director nominees have been elected, the appointment of Ernst & Young LLP as our independent registered public accounting firm for 2026 has been ratified. The advisory resolution relating to the compensation of our named executive officers has been approved and the amendment and extension of the 2021 nonemployee director stock plan has been approved.

A final vote count with respect to the matters voted on today will be reported on a Form 8-K as required by the SEC. I hereby request that the final report as the Inspector of Election be filed with the minutes of this meeting. I now turn this meeting over to UFG President and CEO, Kevin Leidwinger, for an update.

Thank you, Jim. Good morning, everyone, and thank you for joining us today. 2025 was a banner year for UFG, marking our second year in a row of delivering an underwriting profit as part of our ongoing transformation. UFG's strong performance was driven by the strategic execution of our business plan, strength and distribution of our partnerships and the exceptional efforts of my colleagues in positioning the company for superior financial and operational performance.

In 2025, we grew our business to record size, while delivering the best combined ratio, investment income and return on equity in a decade or longer. We also produced a record level of new business last year as our distribution partners have embraced the company's transformation. By anchoring our transformation to UFG's overarching strategic pillars of long-term profitability, diversified growth, continuous innovation, people development and expense management, we believe we have laid a strong foundation for the future as reflected in the company's financial turnaround between 2022 and 2025.

During this time period, we delivered an 11% compounded annual growth rate in net written premium and a 6.6 point improvement in the combined ratio, moving us from an underwriting loss to an underwriting profit. In addition, annual investment income more than doubled, earnings per share increased more than sevenfold. Return on equity improved more than 11 points and book value per share increased over 25%.

We've also greatly enhanced the company's reserve position during this time as part of our ongoing commitment to maintaining strong and stable reserves. These milestone achievements reflect the strategic actions we've taken over the past 3 years to position UFG for long-term profitable growth, including deepening our underwriting expertise, evolving our capabilities, enhancing our actuarial insights and improving alignment with our distribution partners.

We've also invested in technology to process business more efficiently and effectively, launching a new policy administration system, underwriting workbench and renewal underwriting center in 2025. We believe these investments will generate significant operational efficiencies as our capabilities mature.

Turning to the balance sheet. We ended 2025 with $3.8 billion in total assets, $941.2 million in total stockholders' equity and a $2.5 billion investment portfolio. As a follow-up to our 2024 capital raise of $70 million, we successfully issued $30 million of Series B notes in 2025 to further support our long-term growth strategies. I'm also pleased to share that A.M. Best reaffirmed our financial strength rating of A- excellent with a stable outlook in August of 2025, reflecting UFG's long-term balance sheet strength.

Throughout 2025, we paid quarterly dividends totaling $0.64 per share, returning $16.3 million to our shareholders over the course of the year. This aligns with our capital management priorities of funding profitable growth in the business and returning excess capital to shareholders. Community support is another important priority at UFG and core to who we are as a company.

In 2025, UFG Foundation proudly awarded $1 million in grants and scholarships, benefiting over 70 nonprofit organizations in our Eastern Iowa headquarters as well as our regional locations across the country. Since its establishment in 1999, the foundation has awarded more than $18 million in community support. With 2025 behind us, we've now turned our full attention to focus in 2026.

Earlier this month, we released our first quarter financial results, producing a net income of $1.15 per diluted share, a combined ratio of 95.6% and a return on equity of 12.7% to start the year. In addition to generating record quarterly net written premium, improved underwriting profitability and increased investment income in the first quarter, we delivered our highest first quarter earnings per share in 7 years, carrying forward our positive momentum into 2026. As of March 31, 2026, UFG's book value per share increased to $37.06, up $0.18 compared to the December 31, 2025.

As I reflect on our progress over the past 3 years, it's clear to me that our transformation has taken hold at UFG, embraced by both our people and our partners. Our strategic actions have transformed UFG into a disciplined solution-oriented underwriting company, positioned to more broadly serve our distribution partners with deepened expertise and expanded capabilities, underpinned by the personal relationships and responsive service they value when doing business with us.

2026 marks UFG's 80th year in business, a testament to our company's legacy of strength and stability, a legacy I'm committed to upholding as CEO. Though I've been part of UFG for only a brief chapter in its 80-year story, my admiration for its history, my pride in our current accomplishments and my excitement for the future deepen each day.

Looking ahead, we'll remain focused on thoughtfully, responsibly and profitably growing our business, while navigating the complexities of an evolving market. I have every confidence in our ability to continue to move the company forward through the ongoing strategic execution of our business plan and the collective efforts of our UFG team.

In closing, I'm grateful for the dedication of our employees, the support of our Board of Directors, the loyalty of our distribution partners and the enduring trust of our shareholders as we work to deliver on our company's promises and continue our pursuit of superior financial and operational performance. Thank you. Jim?

Thank you for your update, Kevin. Before we adjourn the meeting today, I would like to extend my congratulations to Kevin and the UFG leadership team and employees on their delivery of exceptional results in 2025 and a strong start to 2026. Their dedicated execution of the business plan has transformed UFG for the future, and the Board looks forward to continued positive momentum from their strategic actions in the year ahead.

I would also like to recognize my fellow Board members for their invaluable guidance and steadfast commitment to creating long-term value for our shareholders. As Chairman, it is a distinct honor and privilege to lead and serve alongside such a distinguished Board. The Board remains confident in the future direction of UFG as the leadership team continues to advance strategies centered on long-term profitability, diversified growth, continuous innovation, people development and expense management.

I will close by extending my sincere thanks to our shareholders for your trust and confidence in UFG, to my fellow directors for your esteemed oversight and governance and to the employees of UFG for your unwavering dedication to the company's value proposition of deep expertise, specialized capabilities, personal relationships and responsive service.

For 80 years, the company has been committed to delivering on its promises to stakeholders, and I'm confident that the work underway today is positioning UFG for its next 80 years of success. And with that, this concludes the formal business of today's shareholder meeting, and the meeting is hereby adjourned. We will now proceed to the question-and-answer session. We will wait for a moment to see if we have any questions.

There are no questions. On behalf of the entire Board and management team, I'd like to express our gratitude to all of our shareholders for their continued support. Thank you for attending our meeting today. We look forward to driving continued progress throughout 2026 and beyond.

This concludes the meeting. You may now disconnect.

Good morning, and welcome to the United Fire Group Insurance 2026 First Quarter Conference Call. [Operator Instructions] Please note this event is being recorded.

I'd now like to turn the conference over to Tim Borst, Vice President of Investor Relations. 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. Also, 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.

Thank you, Tim. Good morning, everyone, and thank you for joining us today. UFG is off to a terrific start in 2026. We delivered another quarter of excellent results, reflecting our continued positive momentum from the transformative actions we've taken over the past few years to position the company for long-term success. In the first quarter, we achieved record net written premium, a nearly 4-point improvement in the combined ratio and a 15% increase in net investment income. These achievements contributed to a return on equity of approximately 13% and the highest first quarter earnings per share in 7 years.

In addition to our strong financial performance, I'm also very pleased with our focus on growing the business in a disciplined manner, particularly in the face of a changing market. The coordinated strategic actions we've taken to deepen underwriting and actuarial expertise, expand capabilities, strengthen distribution relationships and invest in the organization's productivity are affording us access to a greater number of business opportunities than previously available to UFG. This has allowed us to remain disciplined, highly selective underwriters focused on profitably growing our business as we more broadly serve our distribution partners.

As we continue to thoughtfully, responsibly and profitably grow our business through expanded opportunity, I'm confident the underwriting discipline we've instilled in the organization over the past 3 years will serve us well in the evolving market.

I will now hand the call over to Julie Stephenson to discuss our underwriting results in more detail. Julie?

Thanks, Kevin. We are pleased with the continued positive momentum in the business, particularly in the face of competitive headwinds emerging in the marketplace. Net written premium increased 12% in the first quarter, driven by disciplined growth as well as lower ceded reinsurance premium. Net written premium growth was 9%, absent the impact of some unique ceded premium transactions outlined last year in our first quarter call.

Growth continues to be fueled by our core commercial business, which includes small business, middle market and construction. Core commercial grew net written premium 11% in the first quarter with all 3 business units contributing. We've been able to leverage our deep distribution relationships and expanded capabilities to maintain a healthy but moderating retention, secure positive rate outcomes and continue to grow new business by 14% while maintaining our unrelenting commitment to the underwriting rigor we've established over the last 3 years.

Our expanded capabilities have contributed to growth by allowing us to attract more complex risks within the lower to mid-range of the middle market spectrum. Our average account size is growing in a sector of the market that has so far experienced a more modest deceleration in pricing than national accounts, as evidenced by our 4.3% rate achieved for the quarter. Current pricing continues to offer attractive returns.

Specialty E&S net written premium growth in the first quarter was largely impacted by ceded premium adjustments in the first quarter of 2025. While submission activity is strong, competition is intensifying in the E&S market. Double-digit rate increases achieved a year ago are now mid-single digits as capacity is prevalent from both new entrants and the return of some accounts to the admitted market. Renewal defense for adequately priced and well-performing accounts remains a priority. New business efforts are focused on moderate hazard opportunities in both property and casualty to balance the volatility of the portfolio over time.

Surety premiums were stable compared to prior year as we remain staunchly focused on quality. With favorable growth momentum and strong submission activity, we continue to have high confidence in the underwriting discipline and growth prospects for this business. Alternative distribution, which provides UFG with profitable business through 3 primary channels: treaty, programs and funds at Lloyd's, grew net written premium 13% over prior year.

We had a successful and disciplined 1/1 standard treaty cycle, while pressure on market pricing has increased. We benefited from favorable premium development in existing relationships while selectively adding attractively priced accounts that offered opportunities beyond the lines feeling the brunt of the softening market. We also expanded our funds at Lloyd's portfolio with $20 million of additional stamp capacity supporting 4 new syndicates for 2026 that will provide additional premium throughout the year. The Lloyd's market enjoys an A+ rating from A.M. Best as a result of the improvement in operating returns. Rates are holding at recent highs, and this investment vehicle offers significant diversifying opportunities.

With the breadth of distribution and product opportunities available to us, combined with our tightly managed exposure in this space, we believe our alternative distribution business will continue to afford the flexibility to prudently grow this highly curated portfolio through varying market cycles.

Moving to profitability. Our loss ratio continues to reflect the quality of our improved portfolio with an underlying loss ratio of 57% in the first quarter. The commercial lines business continues to benefit from strong earned rate achievement and the benefits of our refined underwriting appetite and portfolio actions. The improvement in commercial results was offset by an increased loss ratio in the assumed reinsurance business, driven by rate reductions more prevalent in this market. Despite this impact, our reinsurance business continues to meet our profit expectations.

We've also incorporated some additional conservatism into our estimates, recognizing the uncertainty and the changing market dynamics, yielding a small increase in the underlying loss ratio over prior year. Prior year reserve development was neutral overall in the first quarter. Our actuarial review this quarter reflected an abbreviated analysis, and we made some modest offsetting adjustments across the portfolio.

Of particular note, however, development in our liability portfolio was flat as our estimates began showing some stability for the quarter after continued emphasis to strengthen these reserves. The first quarter catastrophe loss ratio of 3.7% was 1.3 points below prior year. Our first quarter result was below historical 5- and 10-year averages and reflects our ongoing actions to improve our catastrophe risk profile in recent years.

I will now turn the call over to Eric to discuss the remainder of our financial results.

Thank you, Julie. Our high-quality fixed income portfolio continued to deliver a sustainable increase in net investment income, which grew 15% in the first quarter to $27 million. Fixed maturity income of $24.9 million increased 18% from prior year while maintaining duration and an average AA credit quality rating. Over the past 4 quarters, the size of our fixed maturity portfolio has grown by nearly $300 million as the virtuous cycle of improved underwriting profitability benefits all aspects of enterprise value creation.

The elevated interest rate environment continues to provide opportunities to sustainably increase fixed maturity portfolio return as new money yields remained steady at approximately 5% and exceeded the overall portfolio average. Outside of fixed income, our portfolio of approximately $100 million of limited partnership investments generated a return of $1.3 million in the quarter, that while positive, was lower than in recent quarters.

Turning to the expense ratio. The first quarter result of 34.9% improved 3 points from prior year. While the prior year expense ratio was elevated by costs associated with the final stages of development of a new policy administration system, the benefits of ongoing growth and disciplined management actions have contributed more than 1 point of improvement in the expense ratio over the past year. We expect our ongoing actions to result in a continued gradual reduction of the expense ratio over time.

First quarter net income was $1.15 per diluted share with non-GAAP adjusted operating income of $1.16 per diluted share. This quarter's earnings improved book value per common share to $37.06. The increase in interest rates in the first quarter caused our unrealized loss position to increase from $34 million at year-end 2025 to $53 million at the end of the first quarter, negatively impacting book value per share by $0.57. Adjusted book value per share, which excludes the impact of unrealized investment losses, increased $0.74 to $38.61.

From a capital management perspective, during the first quarter, we declared and paid a $0.20 per share cash dividend to shareholders of record as of February 24, 2026. With UFG delivering double-digit return on equity and our stock price trading near adjusted book value, we are attractively positioned to deliver compelling growth and shareholder value over time. This concludes our prepared remarks.

I will now have the operator open the line for questions.

[Operator Instructions] And our first question comes from Cam Bianchi from Piper Sandler.

This is Cam on for Paul Newsome. Congrats on the quarter. You're starting to see solid business growth and retention improvement in core commercial. Are you seeing any incremental competition in that business? And how are you balancing that growth versus margin discipline in that business?

This is Julie. I'll answer that for you. This moderation in rates and increased competition is not unexpected for the quarter, but we still feel very good about our growth trajectory. The underwriting discipline that we've worked so hard to put in place over the past few years, I think, have positioned us really well going into this market. We believe there are still ample opportunities with positive margin available to us in this market. And we're very confident about the quality of the portfolio. So retention may fluctuate a bit quarter-to-quarter as the market continues to soften, but we'll continue to insist on adequate pricing account over account, and I think we're positioned very well to continue to grow.

Great. And then on the expense ratio improvement, you broke down a little bit how much of that is structural versus more of a onetime improvement. How can we begin to think about run rating those improvements from the new policy administration system on the expense ratio?

Cam, this is Eric. Thanks for joining us. As we mentioned in our comments, when you look quarter-over-quarter, we're down about 3 points on the expense ratio. And we had 2 points of that improvement was due to some -- the completion of some costs from our policy administrative system that we were finishing up in the early stages of last year, and then we've got 1 point due to growth. So this quarter's number is a very clean number at 34.9%. There's really nothing unusual from it. As we look forward here, we would continue to see improvement in the expense ratio with an assumption as we grow at 10%, we would expect it to come down around 60 or 70 basis points year-over-year looking into the future here.

The next question comes from Jason Weaver from JonesTrading. Jason, is your line on mute?

We're all back now. I know you touched on this before. It's just one for me. But looking at the deceleration trend in renewal rate increases, would you ascribe that to mix related, reflective of the elevated competition that you've been speaking about or possibly an intentional effort to bump share gains here?

I think it's more based on competitive behavior. We're very pleased that the rates are still positive. It does vary significantly by line of business. And so we're trying to approach every single account and every single opportunity by finding the right rate for the exposures that we're underwriting. We feel very good about where we're positioned, and we'll continue to navigate the competition in that way.

[Operator Instructions] There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Leidwinger for any closing remarks.

Well, thank you for joining us today. We're off to a great start in 2026. Our deepen underwriting expertise and expanded capabilities are affording us access to a greater number of business opportunities than previously available to UFG. We're leaning into those opportunities as a disciplined solution-oriented underwriting company focused on profitably growing our business as we more broadly serve our distribution partners.

We remain confident in our ability to strategically execute our business plan while navigating the complexities of a changing market. Thanks again for joining us, and we look forward to talking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning. My name is Nick, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the UFG Insurance Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note, this event is being recorded. Thank you.

I will now turn the call over to UFG Vice President of Investor Relations, Tim Borst. Please go ahead.

Good morning, and thank you for joining this call. Yesterday afternoon, we issued a press release on our results. T.

O 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.

Also, 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.

Thank you, Tim. Good morning, everyone, and thank you for joining us today. I'll cover a few highlights this morning, then Julie Stephenson will discuss our underwriting results, and Eric Martin will discuss our financial results in more detail.

Over the past 3 years, UFG has undergone significant transformation as we've deepened our underwriting expertise, evolved our capabilities to attract a more expansive customer base, enhanced our actuarial insights and improved alignment with our distribution partners. I'm proud to see the cumulative effect of our work reflected not only in our strong fourth quarter and full year 2025 results, but also in the company's significantly improved financial performance since 2022.

In 2025, we grew our business to record size while delivering the best annual underwriting profit, investment income and return on equity in a decade or longer. Underwriting profit grew from $9 million in 2024 to $67 million in 2025. Net investment income grew by nearly 20%, while our full year operating earnings per share improved by 80% and book value per share grew by more than $6.

Full year net written premium grew by 9% to more than $1.3 billion from record new business production, strong retention in our core commercial business and continued renewal premium increases as our underwriters remain diligent in an evolving market. The annual combined ratio improved to 94.8% with ongoing improvement in the underlying loss ratio, catastrophe loss ratio and expense ratio.

Consistent execution of our reserving philosophy across the year has afforded us the opportunity to deliver stability in financial results while advancing to a more conservative position in our range of actuarial estimates that reinforces the portfolio and strengthens our balance sheet. Improved underwriting profit and sustainable growth in net investment income contributed to an annual return on equity of 13.7%, the best in nearly 2 decades.

At the same time, our strategic investments in technology are improving operational efficiency and expanding our underwriting capabilities, allowing our people to focus on delivering the strong personal relationships and responsive service our partners and policyholders value. A few examples include our new policy administration system, underwriter workbench and artificial intelligence-based tools, augmenting processes to better serve our customers today.

We believe these investments will generate significant operational efficiencies as our capabilities mature. With 2025's record year behind us and our focus squarely on 2026, our 80th year in business, I could not be more pleased with the progress we've made since our transformation began in late 2022. I'd like to take a moment to highlight some key financial measures to illustrate how far the company has progressed over the last 3 years.

Between 2022 and 2025, net written premium has grown from $984 million to $1.3 billion, an 11% compounded annual growth rate as our distribution partners have embraced UFG's transformation. Our combined ratio has improved from 101.4% to 94.8%, rebounding from an underwriting loss to an underwriting profit of $67 million. Our annual investment income has more than doubled from $45 million to $98 million.

Operating earnings per share has increased more than fourfold from $1.09 to $4.60. Return on equity has climbed from 2% to 13.7% and book value per share has increased over 25% from $29.36 to $36.88. In addition, we've greatly enhanced the company's reserve position since 2022 as part of our ongoing commitment to maintaining strong and stable reserves. We're excited about the company's improved financial performance and momentum we've established with our distribution partners.

As we focus on the strategic execution of our business plan in 2026, we believe UFG is well positioned to deliver continued profitable growth as a disciplined solution-oriented underwriting company capable of more broadly serving our distribution partners than ever before. With confidence in our future financial performance and an enduring commitment to creating long-term value for our shareholders, I'm pleased to share that the Board of Directors has declared a 25% increase in our quarterly cash dividend from $0.16 per share to $0.20 per share.

And with that, I'll hand the call to Julie Stephenson to discuss our underwriting results in more detail.

Thanks, Kevin. The company's transformation over the past 3 years and the collective hard work and engagement of our employees have been nothing short of astounding. We're very pleased with our financial results and the improved underwriting practices we employ today will serve to support these positive outcomes and future results.

From a growth perspective, the headline net written premium growth numbers Kevin quoted have played out in a strategically differentiated manner across our business units that span much of the commercial market. Growth remained strongest in our core commercial business, which includes small business, middle market and construction. We continue to benefit from the greater number of opportunities our distribution partners are providing as they embrace our expanded capabilities and deeper expertise and are more aware of our desired risk profile.

We capitalized on these opportunities in 2025, delivering record new business of $247 million, nearly twice the amount of new business generated since the beginning of our transformation efforts. Rate increases moderated to 4.8% for the quarter, reflecting a more competitive environment. This is mostly observed in property with casualty lines experiencing a more modest impact with the exception of umbrella, which returned to double-digit increases on the heels of recent rate actions in that line.

While the market has become more competitive, we believe current pricing continues to be attractive, and our efforts to rebuild this portfolio have positioned us well heading into this market. In addition to benefiting from a strong rate environment over the last several years, we have been building increased rigor in our underwriting practices with an insistence on excellent risk selection, adequate price for exposure and contractual integrity.

We've instilled these practices as fundamental principles in our underwriting processes that will serve to provide sustainable results through any changing market dynamics. Specialty E&S net written premium grew at a double-digit pace in both the fourth quarter and full year. Although competitive pressure is emerging in the E&S market, our casualty pricing remains robust, while property rates moderate further. We continue to actively pursue moderate hazard opportunities in both property and casualty to balance the volatility of the portfolio over time.

Our Surety business also delivered double-digit net written premium growth for the quarter and full year. Our rebuilt surety organization is generating strong momentum while demonstrating the underwriting discipline necessary for ongoing success. Alternative distribution continues to provide UFG with profitable business through 3 primary channels: treaty, programs and funds at Lloyd's. Premium volume grew across all 3 channels in the fourth quarter compared to prior year.

For the full year, Lloyd's and Programs grew net written premiums in the mid-single digits, while treaty reinsurance was down slightly year-over-year as we chose to nonrenew a small number of treaties that no longer met our profitability objectives.

Moving to profitability. Our loss ratios are fully reflecting the quality and composition of the portfolio developed over the last 3 years. The underlying loss ratio improved to 55.4% in the fourth quarter and improved 1.6 points to 56.3% for the full year. The book of business continues to benefit from earned rate achievement, stabilized severity trends and favorable frequency across our portfolio that remained better than our forecast.

The business written over the last 3 years under our improved practices and more specifically defined appetite now accounts for 43% of the portfolio. And new business written in 2025 is outperforming the renewal portfolio on the whole as the synergy between our new underwriting habits and enhanced analytical capabilities are maturing. Overall, prior year reserve development was consistent with prior quarter observations, yielding an overall neutral result in the fourth quarter.

We are committed to maintaining a conservative posture with our reserves in order to better protect our balance sheet. The fourth quarter catastrophe loss ratio was 1.2% and the full year catastrophe loss ratio of 3.2% outperformed our expectations for the year. Considering the first quarter wildfires accounted for 1 point of our full year loss ratio, these results were truly exceptional.

While our results benefited from favorable industry-wide conditions, we saw significant impact from our ongoing underwriting and portfolio management efforts, including recent improvement in deductible profiles across the property portfolio. These actions, along with our exposure management improvement in prior years, are expected to generate sustainable benefits to our property catastrophe risk profile and results going forward. This is reflected in our modeled annual expected catastrophe loss ratio of below 5% in 2026.

Regarding the renewal of our 1/1 reinsurance treaties, we were very pleased with the outcome. It was a highly successful renewal, resulting in lower ceded margins, expanded coverage and improved terms and conditions. We experienced exposure-adjusted rate decreases in all of our major programs this year, including double-digit decreases across our natural catastrophe treaties. Coverage was expanded in many areas to keep pace with our growing portfolio and broadly, our program generated increased interest in the marketplace.

While we benefited from the overall market dynamics, our improved experience helped drive additional savings across our program. We received a 10% exposure adjusted rate decrease in the core multiline treaty, our largest program. This renewal included a modest increase in our retention as our increased confidence in our portfolio and stronger capital position allowed us to improve the economics of this program. We also received a 10% exposure adjusted rate decrease along with expanded coverage for our surety program, reflecting our improved results and execution in this line.

I will now turn the call over to Eric Martin to discuss the remainder of our financial results.

Thank you, Julie. We continue to deliver sustainable improvement in net investment income in the fourth quarter with our high-quality fixed income portfolio generating 17% more income than in the prior year. Improved profitability has allowed us to grow the size of our fixed maturity portfolio by approximately 10% in the fourth quarter as a virtuous cycle of improved underwriting profitability benefits all aspects of enterprise value creation.

The elevated interest rate environment continues to provide opportunities to sustainably grow fixed maturity income and overall earnings with new purchase yields steady at approximately 5% and exceeding the overall portfolio average. Outside of fixed income, our portfolio of approximately $100 million of limited partnership investments generated a strong return of $2.4 million in the quarter, an annualized return of approximately 10%. Turning to the expense ratio.

The fourth quarter result of 35.7% improved 1.4 points from prior year, reflecting the benefits of ongoing growth and disciplined management actions. While there will be occasional noise in the expense ratio, we expect our ongoing actions to result in a gradual reduction of the expense ratio over time. Fourth quarter net income was $1.45 per diluted share with non-GAAP adjusted operating income of $1.50 per diluted share. This quarter's earnings improved book value per common share to $36.88.

Adjusted book value per share, which excludes the impact of unrealized investment losses, grew to $37.87 at year-end. From a capital management perspective, during the fourth quarter, we declared and paid a $0.16 per share cash dividend to shareholders of record as of December 5, 2025. Our capital management priorities are to fund profitable growth in the business and then return excess capital to shareholders. Our capital position continues to strengthen.

And as a result, our financial flexibility continues to improve. With conviction in the sustainability of UFG's improved profitability, our Board of Directors has authorized a 25% increase in our shareholder dividend to $0.20 per share to be paid on March 10 to shareholders of record as of February 24. As it relates to share repurchases, our current Board authorization of 1 million shares provides ample flexibility to optimize how we deploy capital to shareholders.

With UFG's return on equity exceeding 13% in 2025 and our stock price trading near adjusted book value, we are well positioned to deliver compelling growth and shareholder value over time.

This concludes our prepared remarks. I will now have the operator open the line for questions.

[Operator Instructions] And the first question today will come from Matthew Erdner with JonesTrading.

Congratulations on a great end to the year. You guys touched a little bit about the rate increases, how it's more competitive, mostly in the property segment there. But as that seems to kind of be leveling off in the near term, can you talk about current pricing and the expectations there going forward and the effect that, that may have on achieving the mid-teens ROEs that you guys are targeting?

Matthew, it's Julie. I'll start. Certainly, we've seen the market demonstrating more competitive behavior. But we believe it's still reasonably rational. We're still achieving positive rates in the market. And we're approaching it, I think, confidently.

So we're sticking to the underwriting discipline that we've instilled over the last few years, these last few transformative years. And we think that through disciplined risk selection and just making sure we're getting the right price for the exposures that we're underwriting that we'll be able to navigate whatever the market throws at us in the near term. I think more importantly, we believe there's still business to be written at attractive margins, and we'll pursue that diligently.

Got it. That's helpful. Yes. No, that makes sense. And then I guess going to the underwriting expense ratio, you mentioned the gradual reduction over time and then saving with technology, operational efficiencies. What's the long-term target there? And then I guess, what should we be thinking about how you guys are looking at that?

Yes, Matt, this is Eric. Thank you for that question. When we look at our expense ratio, I'd say over the past 3 or 4 quarters, I've been targeting a run rate of about 35%. I think Q2 and Q3 were just a little bit below that Q4 is a little bit above it. But as we look forward here for the next couple of quarters, 35% is a good target run rate. But over time, that will come down.

As we see growth at a 10% clip going forward, we would think the expense ratio would tend to come down over the next several years. And we're going to take all the right actions for the company and investing in our future and that sort of thing. But that will continue to clip down, I mean, call it, roughly 0.5 point a year, we think, going forward here at that 10% growth.

The next question will come from Paul Newsome with Piper Sandler.

Maybe a few more thoughts on the assumed reinsurance business. Is it fair to assume that just given what's going on with the market, we should expect at least some margin compression in the book overall?

We took a hard look at every single treaty we write with this 1/1 renewal that we just experienced. And we certainly are seeing the dynamics that we actually benefited from on our ceded program play through in our alternative distribution book as well. We did see increased competition. It certainly affected rates and terms and line sizes. But we think we'll continue to succeed in this environment.

Our playbook emphasizes disciplined underwriting, relationship quality, and aligned risk appetite. We're looking to long-term commitments, and we continue to price every treaty -- treaty over treaty, and we insist on certain profit expectations, and we don't expect those to change. And if that means that we're putting less treaties on the books go forward then so be it, we're prepared. But we still believe that there's attractive business to be had. We had a nice 1/1 season. We bound new business. So we feel as good about it as we can at the moment.

Could you -- not so much on a quarterly basis, but maybe on an annual basis, dive a little deeper into the other liability line. The other parts of your business are showing really wonderful profitability, but that seems to be the one area where you have less profitability. I'm just curious what the dynamics of that are that are causing the differentiation.

We've certainly seen some pressure on profitability, mostly in the umbrella line. We've seen a few large umbrella losses. And so we've taken a very conservative approach. You may have noticed that we have made new rate filings, raised our minimum premiums on umbrella.

So we're confident that we'll be pricing the business appropriately moving forward. And as you would have observed, we've been strengthening our reserves ever since Q2 of 2022, we have strengthened those other liability reserves practically quarter-over-quarter. So we believe that we're protecting the profitability on a go-forward basis by right pricing and appropriate capacity deployment, and then we feel like the reserve position puts us in a good spot.

Is this the nuclear verdict problem that we've seen in many places that's affecting that umbrella? Or is there something else in your book that's different?

I don't think so. I mean, given the book of business that we have and the amount of capacity that we deploy risk over risk, we haven't seen big nuclear verdicts, but we're certainly subject to the other impacts of social inflation in general. So yes, we're guarding against it through how we price the portfolio and how we pull the reserves together.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Kevin Leidwinger, CEO, for any closing remarks.

We had a great fourth quarter and a record-setting year in 2025, and we believe we are exceptionally well positioned to continue to profitably grow in 2026. So thank you for joining us today, and we look forward to talking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning. My name is Gary, and I'll be your conference operator today. At this time, I would like to welcome everyone to the UFG Insurance Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded.

I will now turn the call over to UFG Vice President of Investor Relations, Tim Borst. Please go ahead.

Good morning, and thank you for joining this call. Yesterday afternoon, we issued a press release and 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 believes 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.

Also, 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.

Thank you, Tim. Good morning, everyone, and thank you for joining us today. We had an outstanding quarter as reported in our press release yesterday. Our third quarter net income increased to $39.2 million, nearly doubling from prior year and is the highest net income we've produced in the quarter in at least 20 years. We also achieved a 91.9% combined ratio in the quarter, our best third quarter underwriting result in nearly 20 years, and we grew net written premium to a third quarter record of $328 million. While prior period development was neutral overall in the quarter, favorable development in several lines of business afforded us the opportunity to once again advance our reserves to a more conservative position in our range of actuarial estimates, continuing to reinforce the portfolio and strengthen our balance sheet.

Finally and equally important, through the first 9 months of 2025, we've achieved a return on equity of 12.7%, the company's best year-to-date financial performance in nearly 2 decades. These milestones reflect the progress we've made over the past 3 years and the work we've done to transform the company by deepening our underwriting expertise, evolving our capabilities to serve a more expansive customer base, driving better alignment with our distribution partners, improving investment returns and stabilizing reserves.

Before I turn the call over to Julie Stephenson to discuss our underwriting results in more detail, let me say just how immensely proud I am of our people who have embraced change, develop new skills and shown great resilience as we've evolved the company and pursue a superior financial and operational performance. We are well positioned through the continued strategic execution of our business plan, to carry our momentum through the end of the year and into 2026 when we will probably mark the company's 80th year in business. Julie.

Thank you, Kevin. I'd like to start this quarter's commentary by highlighting our exceptional loss ratio results. The underlying loss ratio improved 1.9 points to 56% in the third quarter and improved 2 points to 56.7% year-to-date, compared to the same periods last year. These excellent results are the outcome of consistently strong earned rate achievement, disciplined and specialized underwriting and favorable frequency trends across our portfolio. Additionally, we achieved these results while continuing to position ourselves conservatively within our actuarial estimates for the current year.

Overall, prior year reserve development was neutral in the third quarter. Favorable results across several lines of business, including auto, property and BOP were offset by strengthening in certain casualty lines to guard against the uncertainties associated with higher levels of observed severity and inflation. We continue to take opportunities to build a conservative position in our loss reserves that has gradually increased over time within the actual range of indications.

We experienced another exceptional outcome this quarter with a catastrophe loss ratio of 1.3%, which was well below our expectations and both the 5-year and 10-year averages. While we certainly got some help from Mother Nature this quarter, we believe our recent underwriting and portfolio management efforts have contributed to this favorable outcome. As we mentioned last quarter, we have made significant progress in improving our deductible profile across the property portfolio. This shift has a material benefit on an accumulation of claim outcomes associated with catastrophic events. I'm pleased to be able to show continued progress in improving our property catastrophe risk profile and reported results.

Turning our attention to an equally strong production quarter. Net written premium grew 7% in the quarter, led by growth in our core commercial business of 22%. Core commercial, which includes small business, middle market and construction continued to deliver excellent production results with a strong contribution from new business, accounting for 27% of our third quarter premium. As we deepen relationships with our distribution partners, expand our capabilities and demonstrate the depth of our underwriting expertise, we see a wider range of new business opportunities that have been submitted previously. Not only have these new opportunities provided additional growth, but the performance of this business is also proving to contribute favorable margins to core commercial.

Retention was 86% in the third quarter, consistent with results achieved in the second quarter and reflective of our confidence in the portfolio while still allowing for continued refinement of the book. As indicated by our underlying loss ratio, our current portfolio is well positioned to support our objective of consistent profitable growth over the long term.

Third quarter rate increases of 5.8% moderated, but continue to offer strong returns across all core commercial business units. While some downward pressure on rate is evident, our portfolio is less subject to the more dramatic swings in rate being reported for larger risks. Our portfolio is expanding to include more complex risks. However, we remain committed to the small business and middle market space, with less than 1% of our accounts above $500,000. Our view of loss trends is fairly consistent from prior quarter. Favorable frequency trends continued with recent results showing further improvement. While we are subject to industry severity pressures, our underwriting efforts are delivering stabilizing and moderating severity outcomes. Overall, we are pleased with the current margins across the core commercial business and continue to maintain a disciplined poster in managing this portfolio.

Specialty excess and surplus lines premiums were down slightly compared to prior year after strong growth in the first half of the year. Competitive pressure persists in the E&S market as casualty pricing remains robust, while property rates continue to moderate. We continue to actively pursue moderate hazard opportunities in both property and casualty to balance the volatility of the portfolio over time. Surety continued to grow in the quarter while demonstrating the underwriting discipline necessary for ongoing success. The construction industry remains strong. We continue to be vigilant for the impacts of tariffs, material cost inflation and labor supply on the sector. Alternative distribution continues to provide UFG with profitable business through 3 primary channels: treaty; programs; and funds at Lloyd's.

Premium volume was relatively steady in the third quarter compared to the 2 prior quarters of 2025, but down compared to an elevated quarter last year. Net written premium is slightly down year-over-year as we remain selective to ensure the capacity deployed in this space meets our profitability objectives. In 2025, we have chosen to non-renew a small number of treaties that no longer met our profitability standards along with some turnover in our program business. We will continue to prioritize generating target returns ahead of growth.

I'll now turn the call over to Eric Martin to discuss the remainder of our financial results.

Thank you, Julie. We continued to deliver sustainable improvement in net investment income in the third quarter with our high-quality fixed income portfolio generating 17% more income than in the prior year. Extensive portfolio repositioning actions in 2024 have generated favorable tailwinds, while the third quarter new purchase yields of 5% exceeded the overall portfolio yield by approximately 60 basis points. The elevated interest rate environment continues to provide opportunities to sustainably grow fixed maturity income and overall earnings. Outside of fixed income, our portfolio of approximately $100 million of limited partnership investments generated a strong return of $2.7 million in the quarter, an annualized return exceeding 10%.

Turning to the expense ratio. The third quarter result of 34.6% improved 1.3 points from prior year, reflecting the benefits of ongoing growth and disciplined management actions. While there will be occasional lumpiness in the expense ratio, we expect our ongoing actions to result in a gradual reduction of the expense ratio over time.

Third quarter net income was $1.49 per diluted share with non-GAAP adjusted operating income of $1.50 per diluted share. This quarter's earnings improved book value per common share to $35.22. Adjusted book value per share, which excludes the impact of unrealized investment losses, grew $1.41 to $36.34 at quarter end.

From a capital management perspective, during the third quarter, we declared and paid a $0.16 per share cash dividend to shareholders of record as of August 29, 2025.

This concludes our prepared remarks. I will now have the operator open the line for questions.

[Operator Instructions] Our first question today is from Paul Newsome with Piper Sandler.

Congrats on the quarter. I was hoping you could start off with kind of a big picture question. We are clearly entering into a soft market. And I was wondering if you had any thoughts about how United Fire would be adjusting its strategy into the soft market? I'm afraid, I can't hear you.

Pardon me, this is the conference operator. Please stand by, the speaker's line as apparently having some audio issues. [Technical Difficulty].

Pardon me, this is the conference operator. We've rejoined the speakers into the call.

Paul, it's Kevin. Sorry for the brief technical delay there. But just to restate your question, you were looking for some broader perspective about UFG's strategy as we transition into a moderating or softening market. So let me just take the sort of high-level perspective, and then we can talk about how that might evolve into the changes that you might be looking for. So from a strategic point of view, we've been taking the steps necessary to, I think, achieve 2 fundamental things. The first is to deliver superior financial and operational performance. And then the second thing is to increase relevance with our distribution partners that will gain us access to a wider range of business opportunities. So when we think about superior financial and operational performance, we really focus on 5 key elements: And that's delivering consistent profitability over an extended period of time; diversifying growth across the entire landscape of our portfolio; attracting our training talent; innovation and expense management. And we believe if we focus on those things, that will result in our ability to deliver 15% ROE over an extended period of time. With respect to relevance, it's an interesting dynamic for the company because we've been evolving from a generalist to a specialist. And in some quarters, we were also considered the last stop before E&S. And so from my vantage point, being a generalist and the last stop from E&S is a bad combination. And that takes us down the path of evolving into the business unit contract that we've been talking with you about over the last several years. And through that process, that allows us to deepen our underwriting expertise, align risk control claims capabilities and then position the organization to develop additional capabilities around product and service to meet the specific needs of those customers. Now I share all that with you as background for how I think the company is really well positioned to navigate through the evolving market dynamics. And clearly, we're positioning ourselves in a way where the deep expertise and the capability expansion are affording us the opportunity to see a wider range of business, allowing us to compete for a wider range of opportunities. And we've got now also the actuarial capabilities behind all of that to help us understand the pricing dynamics and the profitability dynamics that will allow us to continue to deliver long-term profitability. And so Julie, if you have any additional color you want to add?

The only thing I'd add to that is just as the composition of the portfolio has changed. If you look at the book today, over 45% of the core commercial book is made up from policies that we wrote between '23 and Q3 of '25. And so if we think about that business and how much of that portfolio was written -- underwritten under our tight underwriting guidelines and we feel are appropriate pricing levels, it just gives us a greater degree of confidence that we'll be able to navigate as the market continues to moderate.

I guess the related question would be any thoughts or potential changes in capital management philosophy and buyback sector, I think or shift towards M&A or anything that you think from a capital management perspective as we go into a different environment?

Thanks, Paul. This is Eric. Really no changes on our end. We've had a focus here on making sure we've got the right amount of capital to continue to grow. That's going to be our first priority. And after that, we're going to make sure we continue with our dividend philosophy as we move forward here. So really no changes in our overall capital management approach.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Leidwinger for any closing remarks.

Well, thank you. And as we've all mentioned, I think throughout the course of the morning, we had an outstanding quarter, and we are well positioned to carry the momentum through the end of this year and into 2026. And so thank you for joining us this morning, and we look forward to speaking with you next quarter.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.