United Fire Group, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. UFG writes property and casualty insurance through independent agencies and reports one business segment.
Financial performance
| Metric | Q1 2024 | Q1 2023 / comparison |
|---|---|---|
| Net premiums earned | $280.9 million | $256.1 million; up 9.7% |
| Total revenue | $296.0 million | $267.1 million; up 10.8% |
| Net investment income | $16.3 million | $12.7 million; up 28.5% |
| Net investment gains (losses) | $(1.2) million | $(1.7) million |
| Net income | $13.5 million; diluted EPS $0.52 | $0.7 million; diluted EPS $0.03 |
| Losses and loss settlement expenses | $179.6 million | $174.6 million; up 2.9% |
| GAAP combined ratio | 98.9% | 103.4% |
| Underlying loss ratio | 59.4% | 63.5% |
| Operating cash flow | $36.2 million | $(6.8) million |
The combined ratio below 100% indicates underwriting profitability for the quarter. The reported net loss ratio was 64.0%; catastrophe losses contributed 4.6 percentage points in both periods. The expense ratio improved to 34.9% from 35.2%.
Financial position and liquidity
At March 31, 2024, total assets were $3.245 billion, total liabilities $2.508 billion, and stockholders’ equity $736.8 million. Cash and cash equivalents were $217.8 million, up from $102.0 million at year-end 2023. Investments totaled $1.730 billion, down from $1.886 billion, largely offset by higher cash. Book value per share was $29.13, up 0.3% from December 31, 2023.
Cash flows were $36.2 million provided by operating activities, $83.9 million provided by investing activities, and $4.3 million used in financing activities. Investment sales, maturities and redemptions generated $127.8 million of inflows. The company paid $4.0 million in dividends, or $0.16 per share.
Long-term debt was $50.0 million, consisting of notes due 2040; Q1 interest expense was $0.9 million. UFG reported no FHLB advances outstanding and borrowing capacity of up to $425.6 million. Management said cash flows and available resources should meet liquidity needs for at least the next 12 months.
Changes, management commentary and risks
- Management attributed the rise in net income primarily to higher underwriting income and investment income. Average renewal premiums increased 10.9%, including 9.0% from rate and 1.7% from exposure changes; excluding workers’ compensation, the increase was 12.2%.
- The underlying loss ratio improved, which management attributed to underwriting actions, higher renewal pricing and lower claim frequency. Catastrophe losses were $12.8 million, versus $11.7 million a year earlier.
- Prior-year reserves had $2.4 million of net unfavorable development, attributed to assumed catastrophe exposures. Management said reserves were within a reasonable range of actuarial estimates. Long-tail liability reserves remain sensitive to claim severity, litigation and social inflation.
- Fixed-maturity securities were 91.9% of the investment portfolio. The portfolio had $96.2 million of gross unrealized losses at quarter-end, which management attributed to interest-rate movements; UFG said it did not intend, and was not likely to be required, to sell the securities before recovery or maturity. Net unrealized investment losses reduced equity by $6.7 million after tax during the quarter.
- UFG completed the liquidation of its equity securities portfolio during the quarter and entered an investment management agreement with New England Asset Management, effective February 1, 2024. The company also reported a remaining potential capital contribution commitment of $27.2 million to investment partnerships.
- Key disclosed risks include catastrophe and climate-related losses, geographic concentration, reserve uncertainty, social inflation and litigation, investment and interest-rate risk, reinsurance availability and counterparty risk, and dependence on independent-agent relationships. Approximately 48.5% of Q1 property and casualty premiums were written in Texas, California, Iowa, Louisiana and New Jersey.
- The filing provides no specific earnings or premium guidance. It notes that interim results are not necessarily indicative of full-year results. Management reported effective disclosure controls and no material change in internal control over financial reporting; routine legal proceedings were not expected to have a material adverse effect.
Important facts for investors to verify
- Whether pricing and underwriting improvements persist, particularly in commercial other liability, auto and surety.
- Further development in long-tail and assumed catastrophe reserves, including the effects of social inflation and claim severity.
- Investment portfolio sensitivity to interest rates, the realization of unrealized losses, and the effects of continued portfolio repositioning.
- Catastrophe exposure, geographic concentration and the cost and availability of reinsurance.
- Liquidity and capital needs, including use of the FHLB facility, subsidiary dividend restrictions and the $27.2 million partnership commitment.