Net income of $0.76 per diluted share and adjusted operating income of $0.81 per diluted share
Third quarter 2024 highlights compared to third quarter 2023:(1)
- Net income increased from $6.4 million to $19.7 million.
- Net investment income increased 49% to $24.5 million.
- GAAP combined ratio improved 3.8 points to 98.2%; composed of an underlying loss ratio of 57.9%, catastrophe loss ratio of 4.4%, no prior year reserve development, and underwriting expense ratio of 35.9%.
- The underlying combined ratio improved 2.1 points to 93.8%.
- Net premiums written(2) increased 23% to $305.6 million.
- Book value per common share increased $1.97 to $31.01 as of September 30, 2024, compared to December 31, 2023.
- Adjusted book value per share excluding net after-tax unrealized gains and losses of $32.42 as of September 30, 2024.
"Our third quarter results reflect our ongoing efforts to improve performance through the execution of our strategic business plan,” said UFG President and CEO Kevin Leidwinger. "This quarter, we generated the highest levels of net income and adjusted operating income in the past 10 quarters.
"Net written premiums grew 23% to $305.6 million, led by continued growth in our core commercial and assumed reinsurance business units. Core commercial growth remained steady with average renewal premium increases exceeding 12%, stable retention and strong new business production. Rate increases accelerated to 11.2%, exceeding loss trends with all liability lines near or exceeding double-digit rate increases.
"The third quarter GAAP combined ratio improved 3.8 points to 98.2% from ongoing actions to improve core margins, stable prior period reserve development, and catastrophe losses below prior year and historical averages.
"The third quarter underlying loss ratio of 57.9% improved 2.6 points from the prior year, reflecting strong earned rate achievement exceeding loss trends, continued underwriting discipline, and lower than expected property large loss experience.
"The underwriting expense ratio in the third quarter was 35.9%, slightly higher than prior year, as a result of stronger business performance during the current quarter and increased technology costs as we invest for continued growth.
"Prior period reserve development was neutral overall in the third quarter. The pattern of stable to favorable loss emergence continues and we are strategically positioning reserves to better defend against the industry's troubling litigation trends.
"The third quarter catastrophe loss ratio was 4.4%, below prior year and both five-year and 10-year historical averages. This quarter's results directly reflect our ongoing efforts to optimize our property catastrophe risk profile, including targeted actions in hurricane-exposed geographies over the past year that reduced our exposure to events like Hurricanes Helene, Debby and Beryl in the third quarter and Milton in the fourth quarter. At this time, we expect Hurricane Milton to have an immaterial impact on our fourth quarter catastrophe loss ratio. We remain committed to assisting policyholders affected by these recent devastating events and are grateful for the compassionate and responsive service delivered by our UFG catastrophe claims team.
"Third quarter net investment income of $24.5 million increased 49%, or $8.0 million, above prior year. Recent actions to reposition portions of our fixed income portfolio resulted in a strong and sustainable increase in fixed maturity investment income to $18.7 million in the third quarter and $78.0 million on an annualized basis going forward. New purchase yields remained strongly above total portfolio yields, creating potential for further improvement. Improved valuations on our limited partnership portfolio contributed $5.4 million of pre-tax investment income in the third quarter.
"Book value per share increased to $31.01 in the third quarter as a result of the quarter's improved net income and a significant reduction in after-tax unrealized loss from $78.0 million at June 30, 2024, to $35.8 million at September 30, 2024.
"We continue to make progress in resolving the rating errors in our core commercial business that were identified last quarter. We have reached a resolution with the Iowa Insurance Division, our lead regulator, resulting in no further action and no financial impact to the company. Through our lead regulator, we continue to work with regulators in other states to achieve resolution.
"Finally, I am pleased with our third quarter results and the cumulative progress we have made over the past nine months. Our strategic actions continue to materialize in our results, and we remain committed to driving ongoing improvements through the strategic execution of our business plan.”
(1) Underlying loss ratio, underlying combined ratio and adjusted book value per share are non-GAAP financial measures. See Definitions of Non-GAAP Information and Reconciliations to Comparable GAAP Measures for additional information.
(2) Net premiums written is a performance measure reflecting the amount charged for insurance policy contracts issued and recognized on an annualized basis at the effective date of the policy. See Certain Performance Measures for additional information.
Consolidated Financial Highlights:
| Consolidated Financial Highlights(1) | |||||||||||||||
| (Unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| (In thousands, except per share data) | 2024 | 2023 | 2024 | 2023 | |||||||||||
| Net premiums earned | $ | 300,185 | $ | 259,456 | $ | 868,613 | $ | 770,221 | |||||||
| Net premiums written | 305,551 | 247,727 | 952,941 | 820,071 | |||||||||||
| GAAP combined ratio: | |||||||||||||||
| Net loss ratio | 62.3 | % | 66.6 | % | 65.4 | % | 77.7 | % | |||||||
| Underwriting expense ratio | 35.9 | % | 35.4 | % | 35.5 | % | 35.0 | % | |||||||
| GAAP combined ratio | 98.2 | % | 102.0 | % | 100.9 | % | 112.7 | % | |||||||
| Additional ratios: | |||||||||||||||
| Net loss ratio | 62.3 | % | 66.6 | % | 65.4 | % | 77.7 | % | |||||||
| Catastrophes | 4.4 | % | 5.9 | % | 6.7 | % | 7.8 | % | |||||||
| Reserve development | - | % | 0.2 | % | - | % | 7.0 | % | |||||||
| Underlying loss ratio (non-GAAP) | 57.9 | % | 60.5 | % | 58.7 | % | 62.9 | % | |||||||
| Underwriting expense ratio | 35.9 | % | 35.4 | % | 35.5 | % | 35.0 | % | |||||||
| Underlying combined ratio (non-GAAP) | 93.8 | % | 95.9 | % | 94.2 | % | 97.9 | % | |||||||
| Net investment income | $ | 24,459 | $ | 16,459 | $ | 58,830 | $ | 40,508 | |||||||
| Net investment gains (losses) | (1,680 | ) | (1,960 | ) | (4,111 | ) | (2,581 | ) | |||||||
| Other income (loss)(2) | (2,962 | ) | (976 | ) | (9,688 | ) | (3,944 | ) | |||||||
| Net income (loss) | $ | 19,748 | $ | 6,380 | $ | 30,515 | $ | (49,308 | ) | ||||||
| Adjusted operating income (loss) | 21,075 | 7,927 | 33,764 | (47,270 | ) | ||||||||||
| Net income (loss) per diluted share | $ | 0.76 | $ | 0.25 | $ | 1.18 | $ | (1.95 | ) | ||||||
| Adjusted operating income (loss) per diluted share | 0.81 | 0.31 | 1.30 | (1.87 | ) | ||||||||||
| Return on equity(3) | 5.4 | % | (9.5 | )% | |||||||||||
(2) Other income (loss) is comprised of other income (loss), interest expense and other non-underwriting expenses.
(3) Return on equity is calculated by dividing annualized net income by average stockholders' equity, which is calculated using a simple average of the beginning and ending balances for the period.
Total Property & Casualty Underwriting Results
Third quarter 2024 results:
(All comparisons vs. third quarter 2023, unless noted otherwise)
Net premiums written and net premiums earned increased by 23% and 16%, respectively, in the third quarter of 2024 led by core commercial and assumed reinsurance business. Commercial lines net premiums written excluding surety and specialty increased 13%, supported by increased pricing with an overall increase in average renewal premiums of 12.4%. Rate increases accounted for 11.2% while exposure increases contributed an additional 1.1%. Excluding the workers' compensation line of business, the overall average increase in renewal premiums was 13.4%, with 12.2% from rate increases and 1.1% from exposure changes.
The GAAP combined ratio for the third quarter of 2024 was 98.2%, improving 3.8 points from 102.0% driven by improvement in all components of the loss ratio. Prior period reserve development, excluding catastrophe losses, was neutral for the third quarter of 2024 compared to 0.2% of unfavorable development in the third quarter of 2023. Pre-tax catastrophe losses added 4.4 points to the GAAP combined ratio, an improvement of 1.5 points and below both five-year and 10-year historical averages. The underlying loss ratio of 57.9% improved 2.6 points, reflecting improvement in core commercial lines from a combination of underwriting actions, increased pricing, expense management, lower claim count trends and lower large loss activity in property lines. The prior year underlying loss ratio was also impacted by elevated surety losses, which did not repeat in the current year. The underwriting expense ratio of 35.9% increased 0.5 points due to stronger business performance during the current quarter and increased technology costs as we invest for continued growth.
Investment Results
Third quarter 2024 results:
(All comparisons vs. third quarter 2023, unless noted otherwise)
Net investment income was $24.5 million for the third quarter of 2024, an increase of $8.0 million. Income from the fixed maturity portfolio increased by $4.2 million due to portfolio management actions and investing at higher interest rates. Income on other long-term investments increased $4.3 million from increased valuation of investments in limited liability partnerships, which can vary from period to period.
| Investment Results | |||||||||||||||
| (Unaudited) | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| (In thousands) | 2024 | 2023 | 2024 | 2023 | |||||||||||
| Investment income: | |||||||||||||||
| Interest on fixed maturities | $ | 18,719 | $ | 14,472 | $ | 49,826 | $ | 41,192 | |||||||
| Dividends on equity securities | - | 639 | 341 | 3,067 | |||||||||||
| Income (loss) on other long-term investments | 5,408 | 1,093 | 5,789 | (3,491 | ) | ||||||||||
| Other | 3,173 | 2,574 | 11,259 | 6,868 | |||||||||||
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