CEDAR RAPIDS, Iowa, May 09, 2018 (GLOBE NEWSWIRE) -- United Fire Group, Inc. (Nasdaq:UFCS) -

Consolidated Financial Results - Highlights:(1)

Three Months Ended March 31, 2018 
Net income per diluted share(2)$1.80 
Adjusted operating income(3) per diluted share(2)$1.00 
Gain on sale of discontinued operations per diluted share(2)$1.07 
Net realized investment losses per diluted share(2)$(0.27)
GAAP combined ratio93.5%
Book value per share$38.96 
Return on equity(4)11.0%
   

United Fire Group, Inc. (the "Company" or "UFG") (Nasdaq:UFCS) today reported consolidated net income, including net realized investment gains and losses and changes in the fair value of equity securities, of $45.8 million ($1.80 per diluted share) for the three-month period ended March 31, 2018 (the "first quarter"), compared to consolidated net income of $19.9 million ($0.77 per diluted share) for the same period in 2017.

The Company reported consolidated adjusted operating income of $1.00 per diluted share for the first quarter, compared to consolidated adjusted operating income of $0.67 per diluted share for the same period in 2017.

First quarter 2018 net income was impacted by our previously announced sale of our wholly-owned subsidiary United Life Insurance Company, which received regulatory approval and closed on March 30, 2018. The sale resulted in a net gain after tax of $27.3 million or $1.07 per diluted share. Further, we adopted new accounting guidance which requires changes in the value of equity securities to be recognized in net income rather than accumulated other comprehensive income within shareholders equity. This change in accounting principles resulted in a net realized investment loss on equity securities after tax of $8.1 million or $0.32 per diluted share.

Excluding these items, adjusted operating income improved $8.1 million or $0.32 per diluted share as compared to the same quarter in the prior year primarily due to a decrease in catastrophe losses and an increase in prior year favorable reserve development. These were all partially offset by an increase in expenses from continued investment in our multi-year project to upgrade our underwriting and analytics technology platform and acceleration of amortization of deferred acquisition costs in our commercial and personal auto lines of business.
___________________
(1) Consolidated financial results include results from both continuing and discontinuing operations, unless otherwise noted.
(2) Per share amounts are after tax.
(3) Adjusted operating income is a commonly used non-GAAP financial measure of net income (loss) excluding realized investment
gains and losses, changes in the fair value of equity securities, the one-time gain on the sale of discontinued operations and related federal income taxes. Management evaluates this measure and ratios derived from this measure and the Company provides this information to investors because we believe it better represents the normal, ongoing performance of our business. See Definitions of Non-GAAP Information and Reconciliations to Comparable GAAP Measures for a reconciliation of adjusted operating income to net income.
(4) Return on equity is calculated by dividing annualized net income by average year-to-date equity.

Net premiums earned and total revenues increased 1.7 percent and decreased 2.7 percent, respectively, in the three-month period ended March 31, 2018 as compared to the same period of 2017. The decrease in revenues is primarily due to the change in accounting principles on recognizing the change in the value of equity securities in the income statement previously mentioned. Excluding the change in net realized investment gains and losses on equity securities, revenues increased 1.0 percent compared to the same period in 2017.  

The Company recognized net realized investment losses of $8.9 million during the first quarter, compared to net realized investment gains of $4.0 million for the same period in 2017. The change in net realized investment gains and losses was primarily due to the change in accounting principles on recognizing the change in the value of equity securities in the income statement previously discussed above.

Net investment income was $26.2 million for the first quarter, an increase of 4.5 percent, as compared to net investment income of $25.0 million for the same period in 2017. The increase in net investment income for the quarter was driven by an increase in invested assets and the change in the value of our investments in limited liability partnerships and not due to a change in our investment philosophy. The valuation of these investments in limited liability partnerships varies from period to period due to current equity market conditions, specifically related to financial institutions.

Consolidated net unrealized investment losses, net of tax, totaled $10.6 million as of March 31, 2018, a decrease of $225.5 million or 104.9 percent from December 31, 2017. The decrease in net unrealized investment gains is primarily the result of the cumulative change in accounting principles on recognizing the change in the value of equity securities in the income statement previously discussed above. The change in accounting principles required unrealized gains on equity securities of $191.2 million, after-tax, as of January 1, 2108, to be reclassifed to retained earnings from accumulated other comprehensive income, both within shareholders equity. The remaining decrease is due to a change in the value of the fixed maturity portfolio due to an increase in interest rates in the first quarter 2018.

Total consolidated assets as of March 31, 2018 were $2.8 billion, which included $1.9 billion of invested assets. The Company's book value per share was $38.96, which is a decrease of $0.10 per share or 0.3 percent from December 31, 2017 and is primarily attributed to a decrease in net unrealized investment gains of $34.2 million, net of tax, during the first three months of 2018, shareholder dividends of $7.0 million and share repurchases of $5.4 million, partially offset by net income of $45.8 million, which includes $27.3 million of gain on the sale of discontinued operations.

The annualized return on equity was 11.0 percent for the three-month period ended March 31, 2018 compared to 8.4 percent for the same period in 2017.

Property and Casualty Insurance Business

Our continuing operations excludes our former life insurance business, as discussed below. The net income from continuing operations, including net realized investment gains and losses, totaled $20.4 million ($0.80 per diluted share) for the first quarter, compared to net income from continuing operations of $18.6 million ($0.72 per diluted share) in the same period in 2017.

Net premiums earned from continuing operations increased 3.7 percent to $245.2 million in the first quarter, compared to $236.4 million in the same period of 2017. The increase in the three-month period ended March 31, 2018 was due to continued organic growth from new business writings and geographical expansion.

Overall average renewal pricing change for commercial lines decreased slightly, with pricing varying depending on the region and size of the account. The increase over the last several quarters was primarily driven by an increase in commercial auto pricing. Filed commercial auto rate increases processed during the quarter averaged in the high-single digits with mid-single digit negative rate changes for our workers compensation line of business. Overall average renewal pricing increased in the quarter for personal lines, with increases in the mid-single digits.

Reserve development

We experienced favorable development in our net reserves for prior accident years of $38.1 million in the three-month period ended March 31, 2018, compared to favorable development $24.9 million in the same period in 2017. We experienced favorable development in the three-month period ended March 31, 2018 in all lines except assumed reinsurance. The majority of the development came from other liability, commercial auto and commercial fire and allied lines of business. 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. At March 31, 2018, our total reserves were within our actuarial estimates.

GAAP combined ratio

The GAAP combined ratio improved by 3.0 percentage points to 93.5 percent for the first quarter, compared to 96.5 percent for the same period in 2017. The improvement in the combined ratio is primarily driven by a decrease in catastrophe losses and an increase in prior year favorable reserve development compared to the first quarter of 2017, partially offset by an increase in the expense ratio.

Pre-tax catastrophe losses totaled $3.4 million ($0.10 per diluted share) for the first quarter, compared to $9.7 million ($0.24 per diluted share) for the same period in 2017.

Expense Levels

The expense ratio for the first quarter was 34.5 percentage points, compared to 30.3 percentage points for the first quarter of 2017. 

The increase in the expense ratio during the first quarter is primarily the result of two items. First, we invested in a new multi-year project to upgrade our technology platform to enhance core underwriting decisions and productivity. Second, the acceleration of the amortization of our deferred acquisition costs in our commercial and personal auto lines of business from lower than expected profitability in these lines as discussed in prior quarters.

Life Insurance Business

On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company, to Kuvare US Holdings, Inc. subject to regulatory approval and on March 30, 2018, the sale transaction was completed. As a result, our life insurance business is presented as discontinued operations in all periods presented in this press release.

Net loss from discontinued operations was $1.9 million ($0.07 per diluted share) for the first quarter, compared to net income of $1.4 million ($0.05 per diluted share) for the first quarter of 2017. The decrease in net income during the first quarter of 2018 was primarily due to a decrease in net premiums earned and realized investment losses compared to realized investment gains in the first quarter of 2017.  The realized investment losses are primarily due to the change in the value of equity securities, which are now required to be recognized in the income statement due to the change in accounting principles adopted on January 1, 2018, as discussed above.

Capital Management

During the first quarter, we declared and paid a $0.28 per share cash dividend to shareholders of record as of March 7, 2018. We have paid a quarterly dividend every quarter since March 1968.

During the first quarter, 120,372 shares were repurchased under the program at a total cost of $5.4 million and an average share price of $44.90.

Earnings Call Access Information

An earnings call will be held at 9:00 a.m. Central Time on May 9, 2018 to allow securities analysts, shareholders and other interested parties the opportunity to hear management discuss the Company's first quarter 2018 results.

Teleconference: Dial-in information for the call is toll-free 1-844-492-3723. The event will be archived and available for digital replay through May 23, 2018. The replay access information is toll-free 1-877-344-7529; conference ID no. 10119136.

Webcast: An audio webcast of the teleconference can be accessed at the Company's investor relations page at http://ir.unitedfiregroup.com/event or http://services.choruscall.com/links/ufcs180509. The archived audio webcast will be available until May 23, 2018.

Transcript: A transcript of the teleconference will be available on the Company's website soon after the completion of the teleconference.

About UFG

Founded in 1946 as United Fire & Casualty Company, UFG, through its insurance company subsidiaries, is engaged in the business of writing property and casualty insurance.

Through our subsidiaries, we are licensed as a property and casualty insurer in 46 states, plus the District of Columbia, and we are represented by approximately 1,150 independent agencies. A.M. Best Company assigns a rating of “A” (Excellent) for members of the United Fire & Casualty Group.

For more information about UFG, visit www.ufginsurance.com or contact:

Randy Patten, AVP of Finance and Investor Relations, 319-286-2537 or IR@unitedfiregroup.com 

Disclosure of Forward-Looking Statements

This release may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. The forward-looking statements are not 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)," "remain optimistic," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operations, 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 1A "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission ("SEC") on February 28, 2018. 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. In addition, we can provide no assurance of the satisfaction of the conditions precedent to the consummation of the sale of our life insurance subsidiary, including the receipt of regulatory approval. 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 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.

Definitions of Non-GAAP Information and Reconciliations to Comparable GAAP Measures

The Company prepares its public financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Management also uses certain non-GAAP measures to evaluate its operations and profitability. As further explained below, management believes that disclosure of certain non-GAAP financial measures enhances investor understanding of our financial performance. Non-GAAP financial measures disclosed in this report include: adjusted operating income and net premiums written. The Company has provided the following definitions and reconciliations of the non-GAAP financial measures:

Adjusted operating income: Adjusted operating income is calculated by excluding net realized investment gains and losses and the one-time gain from the sale of discontinued operations after applicable federal and state income taxes from net income. Management believes adjusted operating income is a meaningful measure for evaluating insurance company performance. Investors and equity analysts who invest and report on the insurance industry and the Company generally focus on this metric in their analyses because it represents the results of the Company's normal, ongoing performance. The Company recognizes that adjusted operating income is not a substitute for measuring GAAP net income, but believes it is a useful supplement to GAAP information.

Net Income Reconciliation
 Three Months Ended March 31,
(In Thousands, Except Per Share Data)2018 2017Change %
Income Statement Data    
Net income$45,759  $19,936 129.5%
Less: gain on sale of discontinued operations, net of tax27,307   NM 
Less: after-tax net realized investment gains (losses)(7,048) 2,570 NM 
Adjusted operating income$25,500  $17,366 46.8%
Diluted Earnings Per Share Data     
Net income$1.80  $0.77 133.8%
Less: gain on sale of discontinued operations, net of tax1.07   NM 
Less: after-tax net realized investment gains (losses)(0.27) 0.10 NM 
Adjusted operating income$1.00  $0.67 49.3%
          

NM = Not meaningful.

Net premiums written: While not a substitute for any GAAP measure of performance, net premiums written is frequently used by industry analysts and other recognized reporting sources to facilitate comparisons of the performance of insurance companies. Net premiums written are the amount charged for insurance policy contracts issued and recognized on an annualized basis at the effective date of the policy. Management believes net premiums written are a meaningful measure for evaluating insurance company sales performance and geographical expansion efforts. Net premiums written for an insurance company consists of direct premiums written and reinsurance assumed, less reinsurance ceded. Net premiums earned is calculated on a pro rata basis over the terms of the respective policies. Unearned premium reserves are established for the portion of premiums written applicable to the unexpired term of insurance policy in force. The difference between net premiums earned and net premiums written is the change in unearned premiums and change in prepaid reinsurance premiums.

Net Premiums Earned Reconciliation
 Three Months Ended March 31,
(In Thousands, Except Ratios)2018 2017Change %
Premiums:    
Net premiums earned$258,170  $253,872 1.7%
Less: change in unearned premiums(11,523) (23,232)50.4%
Less: change in prepaid reinsurance premiums253  59 NM 
Net premiums written$269,440  $277,045 (2.7)%
          

NM = Not meaningful.

Supplemental Tables

Consolidated Financial Highlights
  Three Months Ended March 31,
(In Thousands, Except Per Share Data and Ratios) 2018 2017Change %
Revenue Highlights     
Net premiums earned $258,170  $253,872 1.7%
Net investment income 26,155  25,035 4.5%
Net realized investment gains (losses) (8,921) 3,954 NM 
Total revenues 275,550  283,059 (2.7)%
Income Statement Data      
Net income 45,759  19,936 129.5%
Gain on sale of discontinued operations, net of tax 27,307   NM 
After-tax net realized investment gains (losses) (7,048) 2,570 NM 
Adjusted operating income(1) $25,500  $17,366 46.8%
       
Diluted Earnings Per Share Data      
Net income $1.80  $0.77 133.8%
Gain on sale of discontinued operations, net of tax 1.07   NM 
After-tax net realized investment gains (losses) (0.27) 0.10 NM 
Adjusted operating income(1) $1.00  $0.67 49.3%
      
Catastrophe Data     
Pre-tax catastrophe losses $3,361  $9,725 (65.4)%
Effect on after-tax earnings per share 0.10  0.24 (58.3)%
Effect on combined ratio 1.4% 4.1%(65.9)%
      
Favorable reserve development experienced on prior accident years $38,055  $24,946 52.5%
      
Combined ratio 93.5% 96.5%(3.1)%
Return on equity 11.0% 8.4%31.1%
Cash dividends declared per share $0.28  $0.25 12.0%
Diluted weighted average shares outstanding 25,458,090  25,854,181 (1.5)%
         

NM = Not meaningful
(1) Adjusted operating income is a non-GAAP financial measure of net income. See Definitions of Non-GAAP Information and Reconciliations to Comparable GAAP Measures for a reconciliation of adjusted operating income to net income.

Income Statement
 Three Months Ended March 31,
(In Thousands, Except Ratios)2018 2017
Revenues   
Net premiums earned$245,167  $236,444 
Investment income, net of investment expenses13,492  12,585 
Net realized investment gains (losses)(7,864) 2,249 
Total Revenues$250,795  $251,278 
    
Benefits, Losses and Expenses   
Losses and loss settlement expenses$144,728  $156,552 
Amortization of deferred policy acquisition costs49,639  50,461 
Other underwriting expenses34,855  21,259 
Total Benefits, Losses and Expenses$229,222  $228,272 
    
Income before income taxes from continuing operations21,573  23,006 
Federal income tax expense from continuing operations1,209  4,422 
Net income from continuing operations$20,364  $18,584 
Net income (loss) from discontinued operations(1,912) 1,352 
Gain on sale of discontinued operations, net of tax27,307   
Net income$45,759  $19,936 
    
GAAP combined ratio:   
Net loss ratio - excluding catastrophes57.6% 62.1%
Catastrophes - effect on net loss ratio1.4  4.1 
Net loss ratio59.0% 66.2%
Expense ratio34.5  30.3 
Combined ratio93.5% 96.5%
      


Balance Sheet
 March 31, 2018 December 31, 2017
(In Thousands) 
Invested assets - continuing operations$1,905,060  $1,888,933 
Cash - continuing operations316,852  95,562 
Total assets:   
Continuing operations$2,845,364  $2,597,297 
Assets held for sale  1,586,134 
Total assets$2,845,364  $4,183,431 
Losses and loss settlement expenses   
Continuing operations$1,219,981  $1,224,183 
Total liabilities:   
Continuing operations$1,874,881  $1,862,923 
Liabilities held for sale  1,347,135 
Total liabilities$1,874,881  3,210,058 
Net unrealized investment gains (losses), after-tax$(10,627) $214,865 
Total stockholders’ equity970,693  973,373 
      


Discontinued Operations(1)
 Three Months Ended March 31,
(In Thousands)2018 2017
Revenues   
Net premiums earned$13,003  $17,428 
Investment income, net of investment expenses12,663  12,450 
Net realized investment gains (losses)(1,057) 1,705 
Other income146  198 
Total Revenues$24,755  $31,781 
    
Benefits, Losses and Expenses   
Losses and loss settlement expenses$10,823  $11,071 
Increase in liability for future policy benefits5,023  8,579 
Amortization of deferred policy acquisition costs1,895  1,673 
Other underwriting expenses3,864  3,631 
Interest on policyholders’ accounts4,499  4,744 
Total Benefits, Losses and Expenses$26,104  $29,698 
    
Income (loss) before income taxes$(1,349) $2,083 
Federal income tax expense563  731 
Net income (loss)$(1,912) $1,352 
        

(1) On September 18, 2017, the Company signed a definitive agreement to sell its subsidiary, United Life Insurance Company, to Kuvare US Holdings. The sale closed on March 30, 2018. Our life insurance business is presented as discontinued operations in all periods presented in this table.

Net Premiums Written by Line of Business
 Three Months Ended March 31,
 2018 2017
(In Thousands) 
Net Premiums Written(1)   
Continuing operations:   
Commercial lines:   
Other liability(2)$78,611  $82,307 
Fire and allied lines(3)58,542  58,557 
Automobile73,029  66,664 
Workers’ compensation25,093  28,214 
Fidelity and surety5,777  6,041 
Miscellaneous450  445 
Total commercial lines$241,502  $242,228 
    
Personal lines:   
Fire and allied lines(4)$8,983  $9,463 
Automobile7,280  6,841 
Miscellaneous290  284 
Total personal lines$16,553  $16,588 
Reinsurance assumed(1,620) 800 
Total net premiums written from continuing operations256,435  259,616 
Total net premiums written from discontinued operations13,005  17,429 
Total$269,440  $277,045 
        

(1) Net premiums written is a non-GAAP financial measure of net premiums earned. See Definitions of Non-GAAP Information and Reconciliations to Comparable GAAP Measures for a reconciliation of net premiums written to net premiums earned.
(2) Commercial lines “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.
(3) Commercial lines “Fire and allied lines” includes fire, allied lines, commercial multiple peril and inland marine.
(4) Personal lines “Fire and allied lines” includes fire, allied lines, homeowners and inland marine.

Net Premiums Earned, Losses and Loss Settlement Expenses and Loss Ratio by Line of Business
Three Months Ended March 31,2018 2017
   Net Losses     Net Losses  
   and Loss     and Loss  
 Net Settlement Net Net Settlement Net
(In Thousands, Except Ratios)Premiums Expenses Loss Premiums Expenses Loss
UnauditedEarned Incurred Ratio Earned Incurred Ratio
Commercial lines           
Other liability$75,593  $25,303  33.5% $74,080  $17,789  24.0%
Fire and allied lines57,399  34,229  59.6  55,519  44,123  79.5 
Automobile66,694  53,947  80.9  57,721  58,976  102.2 
Workers' compensation23,341  12,060  51.7  24,483  16,396  67.0 
Fidelity and surety5,473  658  12.0  5,897  208  3.5 
Miscellaneous425  184  43.3  378  57  15.1 
Total commercial lines$228,925  $126,381  55.2% $218,078  $137,549  63.1%
            
Personal lines           
Fire and allied lines$10,438  $7,401  70.9% $10,788  $6,374  59.1%
Automobile7,009  5,757  82.1  6,479  6,230  96.2 
Miscellaneous295  (105) (35.6) 279  (70) (25.1)
Total personal lines$17,742  $13,053  73.6% $17,546  $12,534  71.4%
Reinsurance assumed$(1,500) $5,294  NM  $820  $6,469  NM 
Total$245,167  $144,728  59.0% $236,444  $156,552  66.2%
                      

NM = Not meaningful