United Fire Group, Inc. (Nasdaq: UFCS)
United Fire Group, Inc. (the “Company” or
“UFG”) (Nasdaq: UFCS) today reported financial results for the
three-month period ended March 31, 2023 (the “first quarter of
2023”) with a consolidated net income of $0.7 million ($0.03 per
diluted share) and consolidated adjusted operating income of $0.08
per diluted share.
“Despite the quarter's mixed results, I am pleased with the
progress we are making in positioning UFG to deliver superior
financial and operational performance,” said UFG President and CEO
Kevin Leidwinger. “We remain committed to the execution of our
strategic plan designed to achieve long-term profitability,
diversified growth and continuous innovation. We are intensely
focused on reducing the expense ratio while attracting and
retaining the talent needed to evolve the company into a
top-performing commercial lines insurer. In the first quarter, we
attracted significant industry talent that deepens our
underwriting, operational and actuarial expertise.
“Production results in the first quarter were strong as our net
premiums written grew 13% driven by the engagement of our
underwriting teams, strength of our distribution partnerships,
recovery of our core commercial business and continued growth in
our surety and assumed reinsurance business.
“The combined loss and expense ratio deteriorated 15 points
compared to the first quarter of 2022. The deterioration was driven
by an increase in the underlying loss ratio impacted by the
emerging loss trends that led to adverse prior period development
in the third and fourth quarters of 2022 as well as increased ceded
reinsurance costs and higher retentions across the broader
portfolio. There is an additional increase in underlying loss ratio
attributable to a shift in accident year loss ratio assumptions for
our assumed reinsurance business. This business continues to
perform in line with our expectations, and we remain confident in
its contribution to our future success.
“Our expense ratio increased 2 points compared to the first
quarter of 2022. The increase is the result of our investment in
strategic talent and higher technology costs. In addition, we no
longer receive the financial benefit of the re-design of our
post-retirement benefit plans that lowered the expense ratio in the
first quarter of 2022.
“Throughout 2023, we will continue to execute our strategic plan
and I remain confident the actions we are taking will position us
to deliver superior financial and operational performance over
time.”
_______________(1) Net premiums written is a performance measure
reflecting the amount charged for insurance policy contracts issued
and recognized on an annualized basis at the effective date of the
policy. See Certain Performance Measures for additional
information.(2) Net underlying loss ratio is defined as the net
loss ratio less impacts of catastrophes and non-catastrophe prior
period reserve development. See Certain Performance Measures for
additional information.
Consolidated Financial Highlights:
Consolidated Financial Highlights |
(unaudited) |
Three Months Ended March 31, |
(In
Thousands, Except Per Share Data) |
|
2023 |
|
|
2022 |
Net premiums earned |
$ |
256,127 |
|
|
$ |
234,228 |
|
Net premiums written |
|
273,268 |
|
|
|
241,010 |
|
|
|
|
|
Net underlying loss ratio (1) |
|
63.5 |
% |
|
|
57.5 |
% |
Catastrophes-effect on net loss ratio (1) |
|
4.6 |
|
|
|
2.6 |
|
Reserve development-effect on net loss ratio (1) |
|
0.1 |
|
|
|
(4.4 |
) |
Net loss ratio |
|
68.2 |
% |
|
|
55.7 |
% |
|
|
|
|
Underwriting expense ratio |
|
35.8 |
% |
|
|
33.8 |
% |
|
|
|
|
GAAP combined ratio |
|
104.0 |
% |
|
|
89.5 |
% |
Underlying combined ratio (2) |
|
99.3 |
% |
|
|
91.3 |
% |
|
|
|
|
Net investment income, net of investment expenses |
$ |
12,722 |
|
|
$ |
11,276 |
|
Net investment gains (losses) |
|
(1,745 |
) |
|
|
(465 |
) |
Other income (loss) |
|
(797 |
) |
|
|
(822 |
) |
|
|
|
|
Net income (loss) |
$ |
694 |
|
|
$ |
28,349 |
|
Adjusted operating income (loss) (3) |
|
2,073 |
|
|
|
28,716 |
|
|
|
|
|
Net income (loss) per diluted share |
$ |
0.03 |
|
|
$ |
1.12 |
|
Adjusted operating income (loss) per diluted share (3) |
|
0.08 |
|
|
|
1.13 |
|
|
|
|
|
Return on equity (4) |
|
0.4 |
% |
|
|
13.2 |
% |
_______________(1) Net underlying loss ratio is defined as the
net loss ratio less impacts of catastrophes and non-catastrophe
prior period reserve development. See Certain Performance Measures
for additional information.(2) Underlying combined ratio is defined
as the GAAP combined ratio less impacts of catastrophes and
non-catastrophe prior period reserve development. See Certain
Performance Measures for additional information.(3) Adjusted
operating income (loss) is a non-GAAP financial measure of net
income excluding net investment gains and losses, after applicable
taxes. See Non-GAAP Financial Measure for more information and a
reconciliation of adjusted operating income (loss) to net income.
(4) Return on equity is calculated by dividing annualized net
income by average year-to-date stockholders' equity.
Total Property & Casualty Underwriting
Results
First quarter 2023 results:(All comparisons vs.
first quarter 2022, unless noted otherwise)
Net premiums written grew for the fourth consecutive quarter vs.
prior year, increasing 13.4% with net premiums earned increasing
9.3% in the first quarter of 2023. Net premiums written growth
continued in assumed reinsurance and surety lines, with a return to
growth in core commercial lines now contributing to overall growth.
Core commercial lines grew 9.6% in the first quarter, supported by
increasing levels of new business and retention, together with an
overall change in renewal premiums of 7.4%, with 2.9% from exposure
changes and 4.5% from rate increases. Excluding the workers’
compensation line of business, the overall average change in
renewal premiums was 8.9%, with 3.1% from exposure changes and 5.8%
from rate increases.
The combined ratio was 104.0%, up from 89.5%. The underlying
loss ratio of 63.5% increased 6.0 points which was partially driven
by the impacts of the third and fourth quarter 2022 reserve
strengthening in long-tailed other liability lines of business that
increased our prospective view of loss costs as well as increased
ceded reinsurance costs and retentions across the broader
portfolio. Also contributing was a shift in accident year loss
ratio assumptions for the assumed reinsurance book, resulting in a
greater portion of loss attributed to the current accident year
that better reflects the exposure for this business. This shift was
effectively neutral across the total loss ratio. Unfavorable prior
period reserve development was 0.1% this quarter compared to
favorable development of 4.4% in the first quarter of 2022.
Elevated severe weather losses resulted in a catastrophe loss ratio
of 4.6% in the current quarter, an increase of 2.0 points. The
catastrophe loss ratio was 1.3 points above our 10-year historic
mean catastrophe loss ratio, and in line with our five-year mean
catastrophe loss ratio. The underwriting expense ratio of 35.8% was
2.0 points higher due to strategic investments in talent and
technology, as well as changes to our post-retirement benefit plans
that reduced expenses in 2022 but have since concluded.
Investment Results
First quarter 2023 results:(All comparisons vs.
first quarter 2022, unless noted otherwise)
Net investment income was $12.7 million for the first
quarter of 2023, an increase of $1.4 million. Income from our
fixed income portfolio increased by $2.4 million as we invested at
higher interest rates. This was partially offset by a $1.6 million
decrease in valuations in our limited liability partnerships
portfolio.
Investment Results |
(unaudited) |
Three Months Ended March 31, |
(In
Thousands) |
|
2023 |
|
|
2022 |
Investment income: |
|
|
|
Interest on fixed maturities |
$ |
13,297 |
|
|
$ |
10,891 |
|
Dividends on equity securities |
|
1,243 |
|
|
|
1,268 |
|
Income on other long-term investments |
|
(1,080 |
) |
|
|
531 |
|
Other |
|
1,860 |
|
|
|
708 |
|
Total investment income |
$ |
15,320 |
|
|
$ |
13,398 |
|
Less investment expenses |
|
2,598 |
|
|
|
2,122 |
|
Net investment income |
$ |
12,722 |
|
|
$ |
11,276 |
|
|
|
|
|
Average yields: |
|
|
|
Fixed income securities: |
|
|
|
Pre-tax (1) |
|
3.26 |
% |
|
|
2.68 |
% |
(1) Fixed income
securities yield excluding net unrealized investment gains/losses
and expenses |
Balance Sheet
Balance Sheet |
|
|
|
|
|
|
|
|
(In Thousands) |
|
March 31, 2023 |
|
|
|
December 31, 2022 |
|
|
(unaudited) |
|
|
Invested assets |
$ |
1,879,688 |
|
|
$ |
1,844,891 |
|
Cash |
|
53,230 |
|
|
|
96,650 |
|
Total assets |
|
2,898,403 |
|
|
|
2,882,286 |
|
Losses and loss settlement
expenses |
|
1,499,391 |
|
|
|
1,497,274 |
|
Total liabilities |
|
2,146,608 |
|
|
|
2,142,172 |
|
Net unrealized investment
gains (losses), after-tax |
|
(73,719 |
) |
|
|
(88,369 |
) |
Total
stockholders’ equity |
|
751,795 |
|
|
|
740,114 |
|
|
|
|
|
Book value per share |
$ |
29.80 |
|
|
$ |
29.36 |
|
|
|
|
|
|
|
|
|
Total consolidated assets as of March 31, 2023, were
$2.9 billion, which included $1.9 billion of invested
assets. The Company's book value per share was $29.80, an increase
of $0.44 per share, or 1.5%, from December 31, 2022. This
increase is primarily attributable to the $14.7 million increase in
the after-tax net unrealized value of our fixed maturity
securities.
Capital Management
During the first quarter of 2023, the Company declared and paid
a $0.16 per share cash dividend to shareholders of record as of
March 10, 2023. UFG has paid a quarterly dividend every quarter
since March 1968.
Earnings Call Access Information
An earnings call will be held at 9:00 a.m. CT on May 9,
2023, to allow securities analysts, shareholders and other
interested parties the opportunity to hear management discuss the
Company's first quarter of 2023 results.
Teleconference: Dial-in information for the call is toll-free
1-844-492-3723. The event will be archived and available for
digital replay through May 16, 2023. The replay access information
is toll-free 1-877-344-7529; conference ID no. 5329011.
Webcast: An audio webcast of the teleconference can be accessed
at the Company's investor relations page
at http://ir.ufginsurance.com or
https://event.choruscall.com/mediaframe/webcast.html?webcastid=sFrBNFKU.
The archived audio webcast will be available until May 16,
2023.
Transcript: A transcript of the teleconference will be available
on the Company’s website soon after the completion of the
teleconference.
About UFG
Founded in 1946 as United Fire & Casualty Company, UFG,
through its insurance company subsidiaries, is engaged in the
business of writing property and casualty insurance.
Through our subsidiaries, we are licensed as a property and
casualty insurer in 50 states, plus the District of Columbia, and
we are represented by approximately 1,000 independent agencies.
A.M. Best Company assigns a rating of “A” (Excellent) for members
of the United Fire & Casualty Group.
For more information about UFG, visit ufginsurance.com or
contact:
Investor Relations at IR@unitedfiregroup.com.
Disclosure of Forward-Looking Statements
This release may contain forward-looking statements about our
operations, anticipated performance and other similar matters. The
Private Securities Litigation Reform Act of 1995 provides a safe
harbor under the Securities Act of 1933 and the Securities Exchange
Act of 1934 for forward-looking statements. The forward-looking
statements are not historical facts and involve risks and
uncertainties that could cause actual results to differ from those
expected and/or projected. 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. Words such as “expect(s),”
“anticipate(s),” “intend(s),” “plan(s),” “believe(s),”
“continue(s),” “seek(s),” “estimate(s),” “goal(s),” “remain(s)
optimistic,” “target(s),” “forecast(s),” “project(s),”
“predict(s),” “should,” “could,” “may,” “will,” “might,” “hope,”
“can” and other words and terms of similar meaning or expression in
connection with a discussion of future operations, financial
performance or financial condition, are intended to identify
forward-looking statements. These statements are not guarantees of
future performance and involve risks, uncertainties and assumptions
that are difficult to predict. Therefore, actual outcomes and
results may differ materially from what is expressed in such
forward-looking statements. Information concerning factors that
could cause actual outcomes and results to differ materially from
those expressed in the forward-looking statements is contained in
Part I, Item 1A "Risk Factors" of our Annual Report on Form 10-K/A
for the year ended December 31, 2022, filed with the
Securities and Exchange Commission (“SEC”) on March 1, 2023.
The risks identified in our Annual Report on Form 10-K/A and in our
other SEC filings are representative of the risks, uncertainties,
and assumptions that could cause actual outcomes and results to
differ materially from what is expressed in the forward-looking
statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date
of this release or as of the date they are made. Except as required
under the federal securities laws and the rules and regulations of
the SEC, we do not have any intention or obligation to update
publicly any forward-looking statements, whether as a result of new
information, future events, or otherwise, except as required by
law. In addition, future dividend payments are within the
discretion of our Board of Directors and will depend on numerous
factors, including our financial condition, our capital
requirements and other factors that our Board of Directors
considers relevant.
Non-GAAP Financial Measure
The Company prepares its public financial statements in
conformity with accounting principles generally accepted in the
United States of America (“GAAP”). Management also uses adjusted
operating income, a non-GAAP measure, to evaluate its operations
and profitability.
Adjusted operating income: Adjusted operating
income is calculated by excluding net investment gains and losses,
after applicable federal and state income taxes from net income
(loss). Management believes adjusted operating income is a
meaningful measure for evaluating insurance company performance and
a useful supplement to GAAP information because it better
represents the normal, ongoing performance of our business.
Investors and equity analysts who invest and report on the
insurance industry and the Company generally focus on this metric
in their analyses.
Net Income Reconciliation |
(unaudited) |
Three Months Ended March 31, |
(In
Thousands) |
|
2023 |
|
|
2022 |
Income Statement Data |
|
|
|
Net income (loss) |
$ |
694 |
|
|
$ |
28,349 |
|
Less: after-tax net investment gains (losses) |
|
(1,379 |
) |
|
|
(367 |
) |
Adjusted operating income |
$ |
2,073 |
|
|
$ |
28,716 |
|
Diluted Earnings Per
Share Data |
|
|
|
Net income (loss) |
$ |
0.03 |
|
|
$ |
1.12 |
|
Less: after-tax net investment gains (losses) |
|
(0.05 |
) |
|
|
(0.01 |
) |
Adjusted operating income |
$ |
0.08 |
|
|
$ |
1.13 |
|
Certain Performance Measures
The Company uses the following measures to evaluate its
financial performance. Management believes a discussion of these
measures provides financial statement users with a better
understanding of results of operations. The Company has provided
the following definitions:
Net premiums written: Net premiums written is
frequently used by industry analysts and other recognized reporting
sources to facilitate comparisons of the performance of insurance
companies. Net premiums written are the amount charged for
insurance policy contracts issued and recognized on an annualized
basis at the effective date of the policy. Management believes net
premiums written are a meaningful measure for evaluating insurance
company sales performance and geographical expansion efforts. Net
premiums written for an insurance company consists of direct
premiums written and premiums assumed, less premiums ceded. Net
premiums earned is calculated on a pro-rata basis over the terms of
the respective policies. Unearned premium reserves are established
for the portion of premiums written applicable to the unexpired
terms of the insurance policies in force. The difference between
net premiums earned and net premiums written is the change in
unearned premiums and the change in prepaid reinsurance
premiums.
Net underlying loss ratio and underlying combined
ratio: Net underlying loss ratio represents the net loss
ratio less the impacts of catastrophes and non-catastrophe prior
period reserve development. The underlying combined ratio
represents the combined ratio less the impacts of catastrophes and
non-catastrophe prior period reserve development. The Company
believes that the net underlying loss ratio and underlying combined
ratio are meaningful metrics to understand the underlying trends in
the core business in the current accident year, removing the
volatility of prior period impacts and catastrophes. Management
believes separate discussions on catastrophe losses and prior
period reserve development are important to understanding how the
company is managing catastrophe risk and in identifying
developments in longer-tailed business.
Prior period reserve development is the increase (unfavorable)
or decrease (favorable) in incurred loss and loss adjustment
expense reserves at the valuation dates for losses which occurred
in previous calendar years. This measure excludes development on
catastrophe losses.
Catastrophe losses is an operational measure which utilizes the
designations of the Insurance Services Office (“ISO”) and are
reported with losses and loss adjustment expense amounts net of
reinsurance recoverables, unless specified otherwise. In addition
to ISO catastrophes, we also include as catastrophes those events
(“non-ISO catastrophes”), which may include U.S. or international
losses, that we believe are, or will be, material to our
operations, either in amount or in number of claims made.
Catastrophes are not predictable and are unique in terms of timing
and financial impact. While management estimates catastrophe losses
as incurred, due to the inherent unique nature of catastrophe
losses, the impact in a reporting period is inclusive of
catastrophes that occurred in the reporting period, as well as
development on catastrophes that may have occurred in prior
periods.
Supplemental Tables
Income Statement |
(unaudited) |
Three Months Ended March 31, |
(In
Thousands) |
|
2023 |
|
|
2022 |
Revenues |
|
|
|
Net premiums earned |
$ |
256,127 |
|
|
$ |
234,228 |
|
Investment income, net of
investment expenses |
|
12,722 |
|
|
|
11,276 |
|
Net investment gains
(losses) |
|
(1,745 |
) |
|
|
(465 |
) |
Other
income (loss) |
|
— |
|
|
|
(25 |
) |
Total Revenues |
$ |
267,104 |
|
|
$ |
245,014 |
|
|
|
|
|
Benefits, Losses and
Expenses |
|
|
|
Losses and loss settlement
expenses |
$ |
174,597 |
|
|
$ |
130,376 |
|
Amortization of deferred
policy acquisition costs |
|
59,835 |
|
|
|
50,471 |
|
Other underwriting
expenses |
|
31,876 |
|
|
|
28,644 |
|
Interest expense |
|
797 |
|
|
|
797 |
|
Total Benefits, Losses and Expenses |
$ |
267,105 |
|
|
$ |
210,288 |
|
|
|
|
|
Income (loss) before income taxes |
|
(1 |
) |
|
|
34,726 |
|
Federal income tax expense (benefit) |
|
(695 |
) |
|
|
6,377 |
|
Net income (loss) |
$ |
694 |
|
|
$ |
28,349 |
|
Net Premiums Written by Line of Business |
(unaudited) |
Three Months Ended March 31, |
(In
Thousands) |
|
2023 |
|
2022 |
Net Premiums Written(1) |
|
|
|
Commercial lines: |
|
|
|
Other liability(2) |
$ |
79,829 |
|
$ |
68,562 |
Fire and allied lines(3) |
|
62,029 |
|
|
58,789 |
Automobile |
|
59,279 |
|
|
54,932 |
Workers’ compensation |
|
13,364 |
|
|
16,242 |
Surety(4) |
|
15,401 |
|
|
11,812 |
Miscellaneous |
|
319 |
|
|
289 |
Total commercial lines |
$ |
230,221 |
|
$ |
210,626 |
|
|
|
|
Personal lines: |
|
|
|
Fire and allied lines(5) |
$ |
1,496 |
|
$ |
317 |
Automobile |
|
— |
|
|
— |
Miscellaneous |
|
5 |
|
|
8 |
Total personal lines |
$ |
1,501 |
|
$ |
325 |
Assumed reinsurance |
|
41,547 |
|
|
30,059 |
Total |
|
273,268 |
|
|
241,010 |
(1) Net premiums written is a performance measure reflecting the
amount charged for insurance policy contracts issued and recognized
on an annualized basis at the effective date of the policy. See
Certain Performance Measures for additional information.(2)
Commercial lines “Other liability” is business insurance covering
bodily injury and property damage arising from general business
operations, accidents on the insured’s premises and products
manufactured or sold.(3) Commercial lines “Fire and allied lines”
includes fire, allied lines, commercial multiple peril and inland
marine.(4) Commercial lines “Surety” previously referred to as
“Fidelity and surety.”(5) Personal lines “Fire and allied lines”
includes fire, allied lines, homeowners and inland marine.
|
Net Premiums Earned, Net Losses and Loss Settlement
Expenses and Net Loss Ratio by Line of Business |
Three
Months Ended March 31, |
|
2023 |
|
|
2022 |
|
|
|
Net Losses |
|
|
|
|
|
Net Losses |
|
|
|
|
|
and Loss |
|
|
|
|
|
and Loss |
|
|
|
Net |
|
Settlement |
|
Net |
|
Net |
|
Settlement |
|
Net |
(In Thousands, Except
Ratios) |
Premiums |
|
Expenses |
|
Loss |
|
Premiums |
|
Expenses |
|
Loss |
(unaudited) |
Earned |
|
Incurred |
|
Ratio |
|
Earned |
|
Incurred |
|
Ratio |
Commercial lines |
|
|
|
|
|
|
|
|
|
|
|
Other liability |
$ |
78,405 |
|
$ |
52,844 |
|
|
67.4 |
% |
|
$ |
70,569 |
|
$ |
36,801 |
|
|
52.1 |
% |
Fire and allied lines |
|
56,466 |
|
|
45,881 |
|
|
81.3 |
|
|
|
58,748 |
|
|
45,236 |
|
|
77.0 |
|
Automobile |
|
48,972 |
|
|
36,781 |
|
|
75.1 |
|
|
|
53,232 |
|
|
32,333 |
|
|
60.7 |
|
Workers' compensation |
|
13,245 |
|
|
8,051 |
|
|
60.8 |
|
|
|
14,609 |
|
|
5,078 |
|
|
34.8 |
|
Surety |
|
11,946 |
|
|
1,221 |
|
|
10.2 |
|
|
|
8,120 |
|
|
375 |
|
|
4.6 |
|
Miscellaneous |
|
265 |
|
|
137 |
|
|
51.7 |
|
|
|
279 |
|
|
162 |
|
|
58.1 |
|
Total commercial lines |
$ |
209,299 |
|
$ |
144,915 |
|
|
69.2 |
% |
|
$ |
205,557 |
|
$ |
119,985 |
|
|
58.4 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Personal lines |
|
|
|
|
|
|
|
|
|
|
|
Fire and allied lines |
$ |
1,952 |
|
$ |
2,186 |
|
|
112.0 |
% |
|
$ |
950 |
|
$ |
1,191 |
|
|
NM |
|
Automobile |
|
— |
|
|
(254 |
) |
|
NM |
|
|
|
1 |
|
|
(729 |
) |
|
NM |
|
Miscellaneous |
|
7 |
|
|
(46 |
) |
|
NM |
|
|
|
17 |
|
|
(18 |
) |
|
NM |
|
Total personal lines |
$ |
1,959 |
|
$ |
1,886 |
|
|
96.3 |
% |
|
$ |
968 |
|
$ |
444 |
|
|
NM |
|
Assumed reinsurance |
$ |
44,869 |
|
$ |
27,796 |
|
|
61.9 |
% |
|
$ |
27,703 |
|
$ |
9,947 |
|
|
35.9 |
% |
Total |
$ |
256,127 |
|
$ |
174,597 |
|
|
68.2 |
% |
|
$ |
234,228 |
|
$ |
130,376 |
|
|
55.7 |
% |
NM = Not meaningful
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