United Fire Group, Inc. — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter report. Amounts below are in U.S. dollars; financial amounts are rounded to millions unless stated otherwise.
Business context
UFG is a property and casualty insurer operating in one reportable segment, distributing primarily through about 1,000 independent agencies and licensed in all 50 states and the District of Columbia. The business focuses on commercial insurance, surety and assumed reinsurance; the company is winding down personal lines.
Financial performance and position
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Net premiums earned | $951.5 million | $962.8 million |
| Total revenue | $980.3 million | $1,066.2 million |
| Net investment income | $44.9 million | $55.8 million |
| Net investment gains (losses) | $(15.9) million | $47.4 million |
| Pre-tax income | $12.1 million | $96.8 million |
| Net income | $15.0 million | $80.6 million |
| Diluted EPS | $0.59 | $3.16 |
| Net loss ratio / expense ratio / combined ratio | 67.0% / 34.4% / 101.4% | 67.7% / 32.6% / 100.3% |
| Cash from operating activities | $(1.3) million | $29.9 million |
| Stockholders’ equity | $740.1 million | $879.1 million |
| Book value per share | $29.36 | $35.05 |
The 101.4% combined ratio indicates an underwriting loss before investment results. The company reported a $3.0 million income tax benefit in 2022. Cash and cash equivalents were $96.7 million at year-end, down from $132.1 million.
Total invested assets were $1.845 billion, including $1.551 billion of available-for-sale fixed maturities and $169.1 million of equity securities. After-tax net unrealized investment losses were $88.4 million, versus $49.8 million of unrealized gains in 2021, mainly reflecting higher interest rates. These unrealized changes reduced equity through other comprehensive income.
Gross loss and loss settlement expense reserves were $1.497 billion; net reserves after reinsurance were $1.350 billion. Long-term debt was $50 million in notes due 2040. The company had no balance outstanding on its $50 million revolving credit facility and reported compliance with its covenants. Statutory capital and surplus for the property and casualty business was $717.7 million; all insurance subsidiaries were above required capital levels.
Material changes versus prior year
- Net income fell 81.3% and total revenue declined 8.1%. Net investment results swung from gains to losses, while net investment income fell 19.4%.
- Net premiums written rose 4.6% to $984.2 million despite a 1.9% decline in direct premiums written, as assumed premiums written grew 45.9% to $190.2 million. Direct premium contraction reflected non-renewal of underperforming commercial auto accounts.
- Catastrophe losses declined to $73.5 million from $98.6 million and contributed 7.7 percentage points to the combined ratio.
- Prior-year reserve development was $12.9 million unfavorable, compared with $48.9 million favorable in 2021. Commercial other liability and commercial fire and allied losses drove unfavorable development; commercial auto provided a substantial offset.
- Equity fell 15.8%, primarily due to a $138.1 million after-tax decline in unrealized fixed-maturity values, plus dividends, partly offset by net income.
- Operating cash flow turned negative, at $1.3 million used, compared with $29.9 million provided in 2021.
Outlook, commentary and risks
Management said 2023 reinsurance renewals were completed amid a harder market, with expected reinsurance costs adding 1–2 percentage points to the combined ratio; it anticipated offsetting the increase through direct premium increases. The filing does not provide specific earnings or revenue guidance.
Management cited disciplined underwriting, continued commercial auto portfolio improvement, and growth in assumed reinsurance. It also highlighted increased severity and reserve strengthening in long-tail liability business, including construction defect exposure. Construction defect reserves excluding line-level IBNR were $103.8 million, up from $86.8 million a year earlier.
Key risks include reserve uncertainty and social inflation, catastrophe frequency and severity, climate-related exposure, geographic concentration (47.5% of 2022 direct statutory premiums came from Texas, California, Iowa, Missouri and New Jersey), interest-rate and equity-market volatility, reinsurance availability and pricing, and maintaining financial strength ratings. A.M. Best affirmed the group’s “A” Financial Strength Rating; its negative outlook, first assigned in 2020, remained unchanged in December 2022. The company reported ordinary and routine legal proceedings and did not expect them to materially affect its financial position or results.
There were significant executive changes: Kevin Leidwinger became CEO in August 2022, Eric Martin became CFO in April, and Julie Stephenson became COO in January 2023. The auditor gave unqualified opinions on the financial statements and internal control over financial reporting; reserve valuation was identified as a critical audit matter.
Important facts for investors to verify
- Whether further adverse development emerges in other liability and construction defect reserves, and how claims severity and inflation affect reserve adequacy.
- Whether direct rate increases and portfolio actions offset higher reinsurance costs and support underwriting profitability.
- How investment income, realized investment results and unrealized fixed-maturity losses evolve as interest rates and markets change.
- Whether operating cash flow and available subsidiary dividends remain adequate to fund claims, debt service and shareholder dividends.
- Whether the “A” A.M. Best rating and negative outlook change, and what that could mean for policy retention, premium growth and reinsurance access.