United Fire Group Q2 Earnings Call Highlights

Key Points

• Record second-quarter performance: United Fire Group reported record net income and net written premium, a 13.2% first-half return on equity, and its strongest second-quarter combined ratio in more than 15 years.
• Profitable growth despite softer pricing: Net written premium rose 9%, led by commercial lines, surety and alternative distribution. Catastrophe losses remained favorable, with a second-quarter catastrophe loss ratio of 2.7% and first-half ratio of 3.2%, below the company’s 5% full-year estimate.
• Investment income strengthened capital generation: Net investment income increased 33% to $29 million, while book value per share reached $38.02. Management plans to prioritize funding growth and maintaining the dividend before considering share repurchases.

United Fire Group NASDAQ: UFCS reported what President and Chief Executive Officer Kevin Leidwinger described as an exceptional second quarter, highlighted by record net income, record net written premium, its strongest second-quarter combined ratio in more than 15 years, and the highest quarterly investment income in over a decade.

Leidwinger said the insurer’s first-half return on equity reached 13.2%, which he called the company’s best year-to-date financial performance in 20 years. He attributed the results to underwriting discipline, enhanced capabilities, stronger distribution-partner alignment and improved investment performance.

“These efforts are driving sustained improvements in UFG’s financial and operational performance while positioning the company for long-term success,” Leidwinger said.

Premium Growth and Market Conditions

Executive Vice President and Chief Operating Officer Julie Stephenson said second-quarter net written premium increased 9%, driven by selective expansion in the company’s core commercial operations, including small business, middle market and construction.

The average renewal rate change was 2.9% during the quarter. Stephenson said property pricing remained under pressure, general liability experienced modest pressure, and commercial auto pricing was consistent with the first quarter. Umbrella business continued to generate strong double-digit rate increases.

Although rate gains have moderated over several quarters amid a competitive market, Stephenson said the company believes it is positioned to continue pursuing profitable growth. Policies written from 2024 through the second quarter of 2026 account for more than half of the portfolio, she said, and new business has performed at or above expectations. The renewal portfolio also has been pruned using current underwriting guidelines.

In specialty excess and surplus lines, net written premium declined from a year earlier as greater competition for larger accounts affected the company’s relatively small portfolio. UFG is focusing on moderate-hazard opportunities and retaining adequately priced, well-performing accounts, Stephenson said.

Surety business posted strong growth, aided by several large project opportunities following a relatively flat first quarter. Alternative distribution, including treaty, programs and funds at Lloyd’s, increased net written premium by 13% year over year, benefiting from the January treaty and FAO renewal cycle.

Underwriting Results and Catastrophe Experience

UFG’s underlying loss ratio was 57.2% in the second quarter, slightly improved from a year earlier and consistent with the first quarter. Stephenson said core-line performance improved, though the benefit was partly offset by assumed reinsurance. Prior-year reserve development was neutral overall.

The company’s actuarial review produced generally favorable indications, according to Stephenson. UFG experienced favorable emergence in automobile, property and workers’ compensation, but redeployed those benefits to maintain conservative reserves in areas with greater uncertainty. The company continues to monitor longer-tail liability lines cautiously despite recent stability in loss emergence.

The second-quarter catastrophe loss ratio was 2.7%, down 2.8 percentage points from the prior-year period and below the company’s five- and 10-year historical averages. Results included favorable development on prior-period catastrophe events. Excluding that benefit, the current accident-year catastrophe loss ratio would have been about 6%, which Stephenson said remained below historical averages and aligned with expectations.

For the first half, the catastrophe loss ratio was 3.2%, trending favorably against UFG’s full-year estimate of 5%.

Responding to analyst questions, Stephenson said UFG has limited exposure to social inflation within its commercial auto portfolio because it does not participate in heavy-wheels or trucking business. The company’s auto business is primarily tied to its middle-market construction and small-business portfolios. She said auto pricing remains positive and attractive for UFG.

Stephenson also said management has confidence it can maintain its underlying loss ratio despite market pressures, citing the company’s underwriting standards and its expanded actuarial and analytical capabilities. She said UFG continues to receive account opportunities from agency partners that it had not previously seen, supporting potential growth even as the market softens.

Investment Income, Expenses and Capital

Executive Vice President and Chief Financial Officer Eric Martin said net investment income rose 33% to $29 million in the second quarter, the company’s highest level since the sale of its life insurance operations in 2016.

Fixed-maturity income increased 24% from the prior year to $26.3 million. The fixed-maturity portfolio grew about 16% over the past year while maintaining duration and an average double-A credit-quality rating. New-money yields of 5.1% exceeded the overall portfolio average by about 50 basis points, Martin said.

UFG’s approximately $100 million limited-partnership portfolio contributed $2.3 million during the quarter. Over the prior eight quarters, the portfolio generated an annualized yield of 8.7%, according to Martin.

The expense ratio was 35.4%, roughly half a percentage point higher than a year earlier. Martin said the result included a small one-time cost from buying out a lease on a Houston building, a move expected to reduce future lease expenses. Management expects continued operational actions and technology modernization efforts to reduce the expense ratio gradually, targeting improvements of roughly half a point to a full point per year.

Second-quarter net income was $1.29 per diluted share, while non-GAAP adjusted operating income was $1.30 per diluted share. Book value per common share rose to $38.02, while adjusted book value per share, excluding unrealized investment losses, increased to $39.72. Rising interest rates during the quarter increased the unrealized loss position by about $4 million from the first quarter, reducing book value per share by $0.15.

The company declared and paid a quarterly cash dividend of $0.20 per share. Martin said UFG’s capital priorities remain funding growth first and maintaining the dividend second. The company has authorization to repurchase 2 million shares, though buybacks would rank third among capital-management priorities.

About United Fire Group (NASDAQ:UFCS)

United Fire Group, Inc NASDAQ: UFCS is an insurance holding company based in Cedar Rapids, Iowa, that specializes in property and casualty coverage for commercial and personal lines. The company underwrites business through three primary segments: commercial, personal and specialty insurance. Within the commercial segment, United Fire Group offers tailored policies for small- and medium-sized enterprises, including general liability, commercial property and workers' compensation. Its personal lines cover homeowners, auto, farm and umbrella policies.

United Fire Group distributes its products primarily through a national network of independent insurance agents and brokers.

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