United Fire Group, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are with December 31, 2022. UFG writes property and casualty insurance through independent agencies and reports one business segment. Unless otherwise stated, dollar amounts below are in millions.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Net premiums earned | $256.1 | $234.2; up 9.3% |
| Total revenue | $267.1 | $245.0 |
| Net investment income | $12.7 | $11.3 |
| Net investment losses | $(1.7) | $(0.5) |
| Net income / diluted EPS | $0.7 / $0.03 | $28.3 / $1.12 |
| Combined ratio | 104.0% | 89.5% |
| Operating cash flow | $(6.8) | $1.6 |
Losses and loss settlement expenses rose 33.9% to $174.6 million, outpacing premium growth. The net loss ratio increased to 68.2% from 55.7%; the expense ratio rose to 35.8% from 33.8%. The reported pretax result was a loss of approximately $1,000, while a $0.7 million federal income tax benefit resulted in net income of $0.7 million.
At March 31, cash and cash equivalents were $53.2 million, down from $96.7 million at year-end. Investments totaled $1.88 billion. Total assets were $2.90 billion, total liabilities $2.15 billion, and stockholders’ equity $751.8 million, versus $740.1 million at year-end. Book value per share was $29.80, up 1.5% from year-end, mainly reflecting a $14.7 million after-tax increase in unrealized investment value and net income, partly offset by $4.0 million of dividends.
Long-term debt was $50.0 million, consisting of notes due 2040. The $50 million revolving credit facility had no amount outstanding; UFG reported compliance with its covenants. Q1 dividends were $4.0 million ($0.16 per share). The company stated cash flows should meet liquidity needs for at least the next 12 months and noted the revolver is available if needed.
Changes, outlook and notable items
- Underwriting deterioration: UFG attributed the higher loss burden to emerging loss trends, including increased prospective loss costs in long-tailed liability lines, higher ceded reinsurance costs and retentions, and a shift in assumed-reinsurance accident-year assumptions. Management said assumed-reinsurance business continued to perform in line with expectations.
- Catastrophes and reserves: Catastrophe losses were $11.7 million, versus $6.2 million a year earlier, adding 4.6 percentage points to the combined ratio versus 2.6 points. Prior-year net reserve development was $4.1 million unfavorable, compared with $6.7 million favorable in Q1 2022; unfavorable catastrophe development, including wind and hail losses from 2022 storms, was a key driver. Management said reserves remained within a reasonable range of actuarial estimates.
- Premium pricing and growth: Average renewal premium increases were 7.4%, including 4.5% from rate and 2.9% from exposure changes. Excluding workers’ compensation, the increase was 8.9%. Premium growth reflected assumed reinsurance, other liability and surety.
- Investments: Net investment income improved as higher fixed-maturity yields (3.26% versus 2.68%) offset other effects. Equity-market changes contributed to investment losses. Fixed maturities had $97.2 million of gross unrealized depreciation; UFG attributed these losses to interest-rate movements and said it did not intend, and was not likely to be required, to sell the securities before recovery or maturity.
- Liquidity and commitments: Operating cash flow was negative, primarily because loss and expense outflows exceeded premium and reinsurance-related inflows. UFG had a remaining potential capital contribution commitment of $40.0 million through 2030 to a limited partnership. A separate partnership investment valued at $24.7 million was subject to post-lockup repurchase terms.
- Forward risks: The filing highlights underwriting and reserve uncertainty, catastrophe and weather exposure, inflation and litigation trends, investment and interest-rate risk, geographic concentration, reinsurer capacity and credit, ratings, and cyber and regulatory risks. About 46.9% of Q1 property and casualty premiums were written in Texas, California, Iowa, Missouri and Louisiana.
- Guidance and contingencies: The filing provides no specific earnings or underwriting guidance. Management expects liquidity to be adequate for at least 12 months. Routine legal proceedings were not expected to have a material adverse effect; management reported no significant environmental contingent liabilities.
Key facts for investors to verify
- Whether underwriting trends, catastrophe experience and adverse reserve development persist, particularly in long-tailed liability lines and assumed reinsurance.
- The cover-page response to whether required prior reports had been filed: the supplied filing text shows “No” checked. Verify this against the filed document and related SEC records.
- How UFG’s cash position and operating cash flow evolve, including claims payments, reinsurance recoveries and investment purchases.
- Whether investment valuations, unrealized fixed-maturity losses and the $40.0 million partnership commitment affect capital or liquidity.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting; investors may review those statements alongside the cover-page filing-status response.