UFG financials take a hit

UFG financials take a hit | Insurance Business America

Insurance News

UFG financials take a hit

Company discussing refund actions over identified overcharges to policyholders

Insurance News

By
Kenneth Araullo

United Fire Group, Inc (UFG) has reported its financial results for the second quarter ending June 30, 2024, with a consolidated net loss of $2.7 million, or $0.11 per diluted share, and a consolidated adjusted operating loss of $0.07 per diluted share.

That said, the company noted in its report that its net premiums written increased by 9.0% in the second quarter, driven by core commercial and assumed reinsurance business. Net premiums earned rose 12.9% due to growth in net premiums written in both prior and current quarters.

UFG’s commercial lines net premiums written, excluding surety and specialty, increased 13.2%, supported by increased pricing with an overall average renewal premium increase of 12.3%. Rate increases accounted for 9.8%, while exposure increases contributed an additional 2.3%.

Excluding the workers’ compensation line, the overall average renewal premium increase was 13.5%, with 11.0% from rate increases and 2.2% from exposure changes.

The GAAP combined ratio for UFG’s second quarter was 105.6%, an improvement of 27.4 points from 133.0%, driven by improvement in all components of the net loss ratio. Prior period development, excluding catastrophe losses, was neutral for the second quarter compared to 20.8% unfavorable development in the same period in 2023.

Pre-tax catastrophe losses added 11.2 percentage points to the GAAP combined ratio, a 1.8 point improvement and below both five-year and 10-year historical averages. The underlying loss ratio of 58.9% improved by 5.7 points, reflecting better performance in core commercial lines due to underwriting actions, increased pricing, expense management, and lower claim count trends.

The prior year’s underlying loss ratio for UFG was impacted by elevated surety losses, which did not recur in the current year. The underwriting expense ratio of 35.5% deteriorated by 0.9 points due to investments in underwriting talent and technology, offset by premium growth.

UFG to deal with overcharges

In July 2024, UFG identified rating errors related to umbrella and general liability products that resulted in overcharges to certain policyholders. Corrective actions are underway, and UFG said that it is cooperating with state insurance regulators to determine the appropriate extent of refunds.

The company has recorded an estimated liability of $3.2 million to cover anticipated exposure, though this estimate may change as more information becomes available. UFG is reviewing other business lines for similar issues and acknowledged that fines, penalties, or further refunds are possible, though the amount cannot be estimated at this time.

Net investment income for the second quarter was $18.0 million, an increase of $6.7 million. Income from the fixed maturity portfolio increased by $2.5 million due to higher interest rates. Income from cash and cash equivalents rose by $1.8 million.

Other long-term investments contributed an additional $4.1 million in income due to varying valuations of investments in limited liability partnerships. Investment expense increased by $0.5 million, while dividends on equity securities decreased by $1.2 million due to a strategic reallocation of equity securities to fixed income assets over the past year.

“The improvements in underlying profitability were sufficient to generate positive adjusted operating income in the second quarter, excluding the impact of this rating adjustment. We remain committed to continuing to drive improvements in our performance through strategic execution of our business plan during the second half of the year,” UFG president and CEO Kevin Leidwinger (pictured above) said.

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