United Fire Group, Inc. Reports Third Quarter 2013 Results
The following excerpt is from the company's SEC filing
Three Months Ended September 30, 2013 Nine Months Ended September 30, 2013 Operating income(1) per diluted share(2)$0.42 Operating income(1) per diluted share(2)$1.76Net income per diluted share(2)$0.45 Net income per diluted share(2)$1.94Net realized investment gains per share(2)$0.03 Net realized investment gains per share(2)$0.18Catastrophe losses(3) per share(2)$0.21 Catastrophe losses per share(2)$0.69Combined ratio100.3% Combined ratio96.8% Book value per share$29.30 Return on equity(4)9.0%
United Fire Group, Inc. (the “Company”) (NASDAQ OMX: UFCS) today reported consolidated operating income(1) of $0.42 per diluted share for the three-month period ended September 30, 2013 (the "third quarter") and $1.76 per diluted share for the nine-month period ended September 30, 2013 ("year-to-date"), compared to operating income of $0.31 and $1.55 per diluted share for the same periods in 2012.
The Company reported consolidated net income, including realized investment gains and losses, of $11.7 million ($0.45 per share) for the third quarter and $49.6 million ($1.94 per share) year-to-date, compared to net income of $8.7 million ($0.34 per share) and $42.6 million ($1.67 per share) for the same periods in 2012.
"I'm pleased to report yet another positive quarter," stated Randy Ramlo, President and Chief Executive Officer. "For the quarter, net written premium increased 13.6 percent due mostly to rate increases in our commercial lines of business; net premiums earned increased 10.0 percent due to "rate over rate" increases; total revenues are up 8.0 percent and our return on equity is up 15.4 percent compared to the same quarter in 2012. We continue to be on track to meet or exceed our 2013 expectations."
(1) Operating income (loss) is a commonly used Non-GAAP financial measure of net income (loss) excluding realized investment gains and losses and related federal income taxes. Because our calculation may differ from similar measures used by other companies, investors should be careful when comparing our measure of operating income to that of other companies. Management evaluates this measure and ratios derived from this measure because we believe it better represents the normal, ongoing performance of our business. See Supplemental Tables - Financial Highlights for a reconciliation of operating income to net income.
(3) Catastrophe losses is a commonly used non-GAAP financial measure that uses the designations of the Insurance Services Office (ISO) and are reported with loss and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise.
Consolidated net realized investment gains were $1.2 million during the third quarter and $7.3 million year-to-date, compared to consolidated net realized investment gains of $1.3 million and $4.7 million for the same periods in 2012.
Consolidated net investment income was $27.3 million for the third quarter and $82.8 million year-to-date, a decrease of 4.8 percent for the third quarter and a decrease of 4.4 percent year-to-date, compared to net investment income of $28.7 million and $86.6 million for the same periods in 2012.
Consolidated net unrealized investment gains, net of tax, totaled $115.6 million as of September 30, 2013, a decrease of $28.5 million or 19.8 percent from December 31, 2012. The decrease in unrealized gains was driven by a decrease in the fair value of our fixed maturity investment portfolios due to rising interest rates, partially offset by an increase in the fair value of the equity portfolios.
"Our investment portfolios continue to perform as expected," stated Ramlo. "We are seeing a decline in our bond portfolios due to changes in the interest rate environment with a favorable offset due to equity portfolios that are currently outperforming the S&P 500." stated Ramlo. "Our investment portfolios remain well-structured to perform well during periods of rising interest rates and in time, we expect to see improvement in net investment income as a result."
Total consolidated assets as of September 30, 2013 were $3.7 billion, which included $3.0 billion of invested assets. The Company's book value was $29.30 per share, which is an increase of $0.40 per share or 1.4 percent from December 31, 2012 and is primarily attributed to net income of $49.6 million offset by a decrease in net unrealized investment gains of $28.5 million, net of tax, during the first nine months of 2013 and by stockholder dividends of $12.9 million.
Net income for the property and casualty insurance segment, including realized investment gains and losses, totaled $10.3 million ($0.40 per diluted share) for the third quarter and $44.2 million ($1.73 per diluted share) year-to-date compared to net income of $7.6 million ($0.30 per diluted share) and $37.6 million ($1.47 per diluted share) for the same periods in 2012.
Net premiums earned increased 10.7 percent to $178.6 million in the third quarter, compared to $161.2 million in the same period in 2012. Year-to-date, net premiums earned increased 10.8 percent to $511.8 million, compared to $461.9 million in the same period in 2012.
"Competitive market conditions were unchanged on renewals while persisting on new business during the quarter," stated Ramlo. "Commercial lines renewal pricing increased in most regions with average percentage increases in the upper-single digits on most small and mid-market accounts and double digit increases on accounts with adverse loss experience. Personal lines pricing increased slightly due to double-digit rate increases in the Homeowners line of business."
"Premiums written from new business remained strong and up from the same quarter a year ago, but down from second quarter 2013," continued Ramlo. "Our success ratio on quoted accounts while down slightly, remains strong as new business pricing held steady."
Catastrophe losses totaled $8.5 million ($0.21 per share after tax) for the third quarter, compared to $8.5 million ($0.22 per share after tax) for the same period in 2012. Year-to-date, catastrophe losses totaled $27.2 million ($0.69 per share after tax), compared to $34.5 million ($0.88 per share after tax) for the same period of 2012.
"Third quarter catastrophe losses were consistent with the third quarter of 2012, and somewhat better than our expectations due to a benign hurricane season so far this year," stated Ramlo. "Year-to-date, catastrophe losses were significantly less than at September 30, 2012. Year-to-date catastrophe losses have added 5.3 percentage points to the combined ratio compared to 7.5 percentage points during the first nine months of 2012."
The property and casualty insurance segment experienced $8.6 million of favorable development in our net reserves for prior accident years during the third quarter and $49.0 million year-to-date. Year-to-date, favorable development remains consistent with our 2012 nine-month experience. Development amounts can vary significantly from quarter-to-quarter and year-to-year depending on a number of factors, including the number of claims settled and the settlement terms, and are subject to reallocation between accident years and lines of business. In third quarter 2013, our total reserves remained relatively flat and within our actuarial estimates.
The GAAP combined ratio improved 2.2 percentage points to 100.3 percent for the third quarter, compared to 102.5 percent for the same period of 2012. Year-to-date, the GAAP combined ratio also improved to 96.8 percent, compared to 97.7 percent for the same period in 2012.
"Our combined ratio in the third quarter improved, but not as much as we expected," stated Ramlo. "The quarter was significantly impacted by a nearly 60 percent increase in the number of large losses (defined as losses greater than $500,000) primarily in our commercial auto and general liabilities lines of business. Large losses in the third quarter totaled $20.6 million, net of reinsurance recoveries, and added 11.6 percentage points to the combined ratio compared to $11.5 million, net of reinsurance recoveries, and 7.2 percentage points in third quarter 2012. Though a single quarter would not suggest a trend, we are actively analyzing these claims to determine if there are any correlations in the type of claims, geographic location of these claims, or other factors associated with these claims."
The expense ratio for the third quarter was 30.5 percentage points, compared to 31.3 percentage points for the third quarter of 2012. Year-to-date, the expense ratio improved to 31.9 percentage points, compared to 32.2 percentage points for the same period in 2012.
Net income for the life insurance segment totaled $1.4 million ($0.05 per share) for the third quarter, compared to $1.1 million ($0.04 per share) for the third quarter of 2012. Year-to-date, net income for the life segment was $5.4 million ($0.21 per share), compared to $5.0 million ($0.20 per share) for the same period in 2012.
Net premiums earned increased 2.4 percent to $15.7 million for the third quarter, compared to $15.3 million for the third quarter of 2012. Year-to-date, net premiums earned decreased 1.3 percent to $45.6 million, compared to $46.2 million for the same period in 2012. The increase in net premiums earned for the third quarter was due to a slight increase in the guaranteed interest rate for sales of annuity products with life contingencies; however, the increase in guaranteed interest rates has not been sufficient to offset the overall decline in net premiums earned year-to-date.
Net investment income decreased 11.5 percent to $15.6 million for the third quarter, compared to $17.6 million for the third quarter of 2012. Year-to-date, net investment income decreased 9.1 percent to $48.3 million, compared to $53.2 million for the same period in 2012 due to the continued low interest rate environment.
Loss and loss settlement expenses increased $1.6 million for the third quarter compared to third quarter of 2012. Year-to-date, loss and loss settlement expenses increased $1.2 million compared to the same period in 2012 due to an increase in policy claims.
The increase in liability for future policy benefits decreased in the third quarter and year-to-date, compared to the same periods in 2012 due to the increase in net withdrawals of annuity products as we continue to achieve a more equal balance between our fixed annuity products and our life insurance products.
Deferred annuity deposits increased 93.2 percent for the third quarter and decreased 11.0 percent year-to-date, compared with the same periods in 2012. The increase in guaranteed interest rates had a favorable effect for the quarter; however, the increase in guaranteed interest rates was not sufficient to offset the decrease year-to-date.
Net cash outflow related to our annuity business was $17.1 million for the quarter and $63.2 million year-to-date, compared to a net cash outflow of $13.2 million and $18.8 million in the same periods in 2012. We attribute this to the activity previously described.
During the third quarter, we declared and paid an $0.18 per share cash dividend to stockholders of record on September 3, 2013. We have paid a quarterly dividend every quarter since March 1968.
Under our share repurchase program, we may purchase United Fire common stock from time to time on the open market or through privately negotiated transactions. The amount and timing of any purchases will be at management's discretion and will depend upon a number of factors, including the share price, general economic and market conditions, and corporate and regulatory requirements. We are authorized by the Board of Directors to purchase an additional 1,126,143 shares of common stock under our share repurchase program, which expires in August 2014. During the third quarter, no shares were repurchased under the program.
An earnings call will be held at 9:00 am Central Standard Time on November 5, 2013 to allow securities analysts, stockholders and other interested parties the opportunity to hear management discuss the Company's 2013 third quarter results and its expectations for 2013.
Teleconference: Dial-in information for the call is toll-free 1-877-407-8291. The event will be archived and available for digital replay through November 19, 2013. The replay access information is toll-free 1-877-660-6853; conference ID no. 420952.
Webcast: An audio webcast of the teleconference can be accessed at the Company's investor relations page at http://ir.unitedfiregroup.com/events.cfm. The archived audio webcast will be available until November 19, 2013.
Founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc., through its insurance company subsidiaries, is engaged in the business of writing property and casualty insurance and life insurance and selling annuities.
Through our subsidiaries, we are licensed as a property and casualty insurer in 43 states, plus the District of Columbia, and we are represented by approximately 1,200 independent agencies. The United Fire pooled group is rated "A" (Excellent) by A.M. Best Company.
Our subsidiary, United Life Insurance Company, is licensed in 37 states, represented by more than 900 independent life agencies and rated an "A-" (Excellent) by A.M. Best Company.
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 our company, the industry in which we operate, and beliefs and assumptions made by management. Words such as “expect(s),” “anticipate(s),” “intends(s),” “plan(s),” “believe(s)” “continue(s),” “seek(s),” “estimate(s),” “goal(s),” “target(s),” “forecast(s),” “project(s),” “predict(s),” “should,” “could,” “may,” “will continue,” “might,” “hope,” “can” and other words and terms of similar meaning or expression in connection with a discussion of future operating, 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 IA “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 4, 2013, and in our quarterly report on Form 10-Q for the quarter ended September 30, 2013, to be filed with the SEC on November 5, 2013. The risks identified in our Form 10-K 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 Securities and Exchange Commission ("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.
Financial Highlights Three Months Ended September 30, Nine Months Ended September 30,(In Thousands Except Per Share Data and Ratios)2013 2012Change % 2013 2012Change %Revenue Highlights Net premiums earned$194,219 $176,53110.0 % $557,403 $508,1249.7 %Net investment income27,278 28,665(4.8)% 82,761 86,560(4.4)%Total revenues223,024 206,5818.0 % 648,048 599,9268.0 %Income Statement Data Operating income10,951 7,88638.9 % 44,901 39,60313.4 %After-tax net realized investment gains774 844(8.3)% 4,713 3,02755.7 %Net income$11,725 $8,73034.3 % $49,614 $42,63016.4 %Diluted Earnings Per Share Data Operating income$0.42 $0.3135.5 % $1.76 $1.5513.5 %After-tax net realized investment gains0.03 0.03— % 0.18 0.1250.0 %Net income$0.45 $0.3432.4 % $1.94 $1.6716.2 %Catastrophe Data Pre-tax catastrophe losses$8,454 $8,493(0.5)% $27,186 $34,546(21.3)%Effect on after-tax earnings per share0.21 0.22(4.5)% 0.69 0.88(21.6)%Effect on combined ratio4.7% 5.3%(11.3)% 5.3% 7.5%(29.3)% Combined ratio100.3% 102.5%(2.1)% 96.8% 97.7%(0.9)%Return on equity 9.0% 7.8%15.4 %Cash dividends declared per share$0.18 $0.1520.0 % $0.51 $0.4513.3 %Diluted weighted average shares outstanding25,571,621 25,526,6620.2 % 25,514,211 25,566,646(0.2)%
Consolidated Income Statement Three Months Ended September 30, Nine Months Ended September 30,(In Thousands)2013 2012 2013 2012Revenues Net premiums written (1)$193,976 $170,725 $599,413 $546,500Net premiums earned$194,219 $176,531 $557,403 $508,124Investment income, net of investment expenses27,278 28,665 82,761 86,560Net realized investment gains (losses) Other-than-temporary impairment charges(139) — (139) (4)All other net realized gains1,329 1,300 7,389 4,662Net realized investment gains1,190 1,300 7,250 4,658Other income337 85 634 584Total Revenues$223,024 $206,581 $648,048 $599,926 Benefits, Losses and Expenses Losses and loss settlement expenses$131,168 $119,756 $349,073 $318,006Increase in liability for future policy benefits8,415 9,815 26,520 28,309Amortization of deferred policy acquisition costs38,767 36,167 113,556 104,897Other underwriting expenses21,654 20,496 67,310 63,031Interest on policyholders’ accounts8,625 10,327 27,026 31,610Total Benefits, Losses and Expenses$208,629 $196,561 $583,485 $545,853 Income before income taxes14,395 10,020 64,563 54,073Federal income tax expense2,670 1,290 14,949 11,443Net income$11,725 $8,730 $49,614 $42,630
Consolidated Balance Sheet September 30, 2013 December 31, 2012(In Thousands) Total invested assets: Property and casualty segment$1,401,982 $1,343,295Life insurance segment1,635,695 1,701,068Total cash and investments3,124,368 3,151,829Total assets3,723,697 3,694,653Future policy benefits and losses, claims and loss settlement expenses$2,450,383 $2,470,087Total liabilities2,979,470 2,965,476Net unrealized investment gains, after-tax$115,596 $144,096Total stockholders’ equity744,227 729,177 Property and casualty insurance statutory capital and surplus (1) (2)$629,030 $585,986Life insurance statutory capital and surplus(2)164,466 158,720
(1) Because United Fire & Casualty Company owns United Life Insurance Company, property and casualty insurance statutory capital and surplus includes life insurance statutory capital and surplus and therefore represents our total consolidated statutory capital and surplus.
Property & Casualty Insurance Financial Results Three Months Ended September 30, Nine Months Ended September 30,(In Thousands, Except Ratios)2013 2012 2013 2012Revenues Net premiums written (1)$178,313 $155,433 $553,795 $500,303Net premiums earned$178,553 $161,232 $511,781 $461,902Investment income, net of investment expenses11,691 11,051 34,464 33,409Net realized investment gains (losses) Other-than-temporary impairment charges(139) — (139) —All other net realized gains955 1,214 5,544 1,765Net realized investment gains816 1,214 5,405 1,765Other income (losses)145 (19) 229 177Total Revenues$191,205 $173,478 $551,879 $497,253 Benefits, Losses and Expenses Losses and loss settlement expenses$124,643 $114,846 $332,264 $302,376Amortization of deferred policy acquisition costs37,243 34,060 108,591 98,355Other underwriting expenses17,219 16,332 54,854 50,353Total Benefits, Losses and Expenses$179,105 $165,238 $495,709 $451,084 Income before income taxes$12,100 $8,240 $56,170 $46,169Federal income tax expense1,818 624 11,963 8,562Net income$10,282 $7,616 $44,207 $37,607 GAAP combined ratio: Net loss ratio - excluding catastrophes65.1% 65.9% 59.6% 58.0%Catastrophes - effect on net loss ratio4.7 5.3 5.3 7.5Net loss ratio69.8% 71.2% 64.9% 65.5%Expense ratio30.5 31.3 31.9 32.2Combined ratio100.3% 102.5% 96.8% 97.7% Statutory combined ratio:(1) Net loss ratio - excluding catastrophes65.4% 66.7% 59.9% 58.7%Catastrophes - effect on net loss ratio4.7 5.3 5.3 7.5Net loss ratio70.1% 72.0% 65.2% 66.2%Expense ratio32.4 33.1 31.4 31.6Combined ratio102.5% 105.1% 96.6% 97.8%
Life Insurance Financial Results Three Months Ended September 30, Nine Months Ended September 30,(In Thousands)2013 2012 2013 2012Revenues Net premiums written (1)$15,663 $15,292 $45,618 $46,197Net premiums earned$15,666 $15,299 $45,622 $46,222Investment income, net of investment expenses15,587 17,614 48,297 53,151Net realized investment gains (losses) Other-than-temporary impairment charges— — — (4)All other net realized gains374 86 1,845 2,897Net realized investment gains374 86 1,845 2,893Other income192 104 405 407Total Revenues$31,819 $33,103 $96,169 $102,673 Benefits, Losses and Expenses Losses and loss settlement expenses$6,525 $4,910 $16,809 $15,630Increase in liability for future policy benefits8,415 9,815 26,520 28,309Amortization of deferred policy acquisition costs1,524 2,107 4,965 6,542Other underwriting expenses4,435 4,164 12,456 12,678Interest on policyholders’ accounts8,625 10,327 27,026 31,610Total Benefits, Losses and Expenses$29,524 $31,323 $87,776 $94,769 Income before income taxes$2,295 $1,780 $8,393 $7,904Federal income tax expense852 666 2,986 2,881Net income$1,443 $1,114 $5,407 $5,023
(1) “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.
Net Premiums Earned, Losses and Loss Settlement Expenses and Loss Ratio by Line of BusinessThree Months Ended September 30,2013 2012 Net Losses Net Losses and Loss and Loss Net Settlement Net Net Settlement Net(In Thousands, Except Ratios)Premiums Expenses Loss Premiums Expenses LossUnauditedEarned Incurred Ratio Earned Incurred RatioCommercial lines Other liability$52,251 $28,406 54.4 % $50,887 $28,579 56.2%Fire and allied lines41,717 27,260 65.3 33,574 24,637 73.4Automobile37,646 36,140 96.0 34,087 24,703 72.5Workers' compensation21,519 20,524 95.4 17,606 16,933 96.2Fidelity and surety4,877 (163) (3.3) 4,365 1,962 44.9Miscellaneous628 (104) (16.6) 258 214 82.9Total commercial lines$158,638 $112,063 70.6 % $140,777 $97,028 68.9% Personal lines Fire and allied lines$10,786 $8,307 77.0 % $10,247 $11,758 114.7%Automobile5,624 3,615 64.3 5,711 3,562 62.4Miscellaneous240 1,068 NM 235 42 17.9Total personal lines$16,650 $12,990 78.0 % $16,193 $15,362 94.9%Reinsurance assumed$3,265 $(410) (12.6)% $4,262 $2,456 57.6%Total$178,553 $124,643 69.8 % $161,232 $114,846 71.2%
Net Premiums Earned, Losses and Loss Settlement Expenses and Loss Ratio by Line of BusinessNine Months Ended September 30,2013 2012 Net Losses Net Losses and Loss and Loss Net Settlement Net Net Settlement Net(In Thousands, Except Ratios)Premiums Expenses Loss Premiums Expenses LossUnauditedEarned Incurred Ratio Earned Incurred RatioCommercial lines Other liability$146,755 $77,721 53.0 % $145,604 $70,793 48.6%Fire and allied lines122,107 71,954 58.9 97,365 81,968 84.2Automobile108,629 91,090 83.9 98,785 75,891 76.8Workers' compensation60,786 51,364 84.5 50,068 30,260 60.4Fidelity and surety13,684 (843) (6.2) 12,780 1,607 12.6Miscellaneous1,190 555 46.6 735 278 37.8Total commercial lines$453,151 $291,841 64.4 % $405,337 $260,797 64.3% Personal lines Fire and allied lines$31,911 $25,273 79.2 % $30,479 $22,633 74.3%Automobile16,485 11,177 67.8 15,896 10,999 69.2Miscellaneous528 1,969 NM 691 158 22.9Total personal lines$48,924 $38,419 78.5 % $47,066 $33,790 71.8%Reinsurance assumed$9,706 $2,004 20.6 % $9,499 $7,789 82.0%Total$511,781 $332,264 64.9 % $461,902 $302,376 65.5%
The above information was disclosed in a filing to the SEC. To see this filing in its entirety, click here. United Fire Group next reports earnings on November 05, 2013.
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