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UF

UNITED FIRE GROUP INC (UFCS)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 delivered the lowest combined ratio in 11 quarters at 94.4% with diluted EPS of $1.21 and adjusted operating EPS of $1.25, driven by improved underlying loss ratio (55.7%) and strong net investment income of $23.2M .
  • Net written premiums grew 13% to $278.5M on average renewal increases of 11.9%, stable retention, and higher new business; underlying combined ratio improved to 92.8% .
  • Expense ratio was elevated (37.1%) due to investments in talent, accelerated policy admin system development slated for 2025, and higher performance-based compensation; management reversed the $3.2M contingent liability from Q2 after rating errors were resolved with no financial impact .
  • Investment portfolio repositioning boosted yields; management expects fixed maturity income to exceed $80M in 2025, up from ~$78M annualized in Q3; portfolio quality improved from AA- to AA .
  • Near-term catalyst: estimated $7–$10M wildfire losses in Southern California expected to impact Q1 2025; continued margin improvement and rate achievement exceeding loss trends underpin medium-term thesis .

What Went Well and What Went Wrong

What Went Well

  • Strong underwriting: combined ratio fell to 94.4% and underlying loss ratio to 55.7% as earned rates exceeded loss trends with improved frequency and lower large loss activity (notably surety) .
  • Premium growth: net written premiums rose 13% to $278.5M, led by core commercial and assumed reinsurance; renewal premiums increased 11.9% with rate +10.8% and exposure +1.0% .
  • Investment performance: net investment income up 21.2% YoY to $23.2M; actions lifted book yield and quality to AA, with fixed income expected to generate >$80M annualized .

Management quotes:

  • “We achieved the highest level of net written premiums in our company’s 79-year history... best annual combined ratio and highest adjusted operating income since 2015.”
  • “The underlying loss ratio improved to 55.7%... reflecting strong earned rate achievement exceeding loss trends and continued underwriting discipline.”
  • “We expect the fixed maturity portfolio to generate over $80 million of annualized fixed maturity income.”

What Went Wrong

  • Elevated expense ratio: underwriting expense ratio increased to 37.1% on investments in talent, technology, and incentive compensation; this pressured near-term margins .
  • Umbrella conservatism: management proactively increased current-year umbrella loss ratio given social inflation and late reporting, tempering profit in that line .
  • Upcoming catastrophe headwind: management estimates $7–$10M losses from Southern California wildfires in Q1 2025 .

Analyst concerns and data points:

  • One-time item: $3.2M pretax reversal of contingent liability lifted the quarter; CFO flagged it as non-recurring .
  • Mixed line performance: commercial umbrella uncertainty persists; personal lines showed high Q4 net loss ratios (e.g., 124.3%) albeit small scale .
  • Expense ratio trajectory: despite longer-term cost focus, near-term underwriting expense ratio remains above prior-year levels .

Financial Results

Headline P&L and Margin Metrics

MetricQ4 2023Q3 2024Q4 2024
Total Revenues ($000s)$287,319 $322,964 $333,175
Net Earned Premiums ($000s)$264,366 $300,185 $308,137
Net Investment Income ($000s)$19,098 $24,459 $23,156
Diluted EPS ($)$0.77 $0.76 $1.21
Adjusted Operating EPS ($)$0.65 $0.81 $1.25
Combined Ratio (%)99.2% 98.2% 94.4%
Underlying Combined Ratio (%)94.4% 93.8% 92.8%
Net Loss Ratio (%)64.8% 62.3% 57.3%
Underwriting Expense Ratio (%)34.4% 35.9% 37.1%
Catastrophe Ratio (%)1.5% 4.4% 1.6%
Reserve Development (%)3.3% (unfavorable) —% —%
Net Written Premiums ($000s)$246,830 $305,551 $278,529

Balance Sheet KPIs

MetricQ4 2023Q3 2024Q4 2024
Book Value/Share ($)$29.04 $31.01 $30.80
Adjusted Book Value/Share ($)$31.69 $32.42 $33.64
Total Invested Assets ($000s)$1,886,494 $1,995,452 $2,093,094
Cash ($000s)$102,046 $197,371 $200,949
Total Assets ($000s)$3,144,190 $3,546,132 $3,488,469

Segment Breakdown – Net Written Premiums ($000s)

Line of BusinessQ4 2023Q3 2024Q4 2024
Other Liability (Commercial)$79,393 $85,110 $90,508
Fire & Allied (Commercial)$51,742 $66,219 $54,203
Automobile (Commercial)$46,667 $61,274 $53,776
Workers’ Comp (Commercial)$10,530 $13,925 $14,011
Surety (Commercial)$11,964 $13,407 $10,013
Personal Lines – Fire & Allied$136 $2,815 $3,804
Assumed Reinsurance$45,041 $57,319 $48,249
Total$246,830 $305,551 $278,529

KPI – Net Earned Premiums and Loss Ratios by Line (Q4 2024 vs Q4 2023)

LineNet Earned Premiums Q4’23 ($000s)Net Loss Ratio Q4’23 (%)Net Earned Premiums Q4’24 ($000s)Net Loss Ratio Q4’24 (%)
Other Liability (Commercial)$83,239 66.1% $91,016 90.2%
Fire & Allied (Commercial)$61,869 51.7% $62,019 26.6%
Automobile (Commercial)$54,068 73.6% $63,276 45.7%
Workers’ Comp (Commercial)$12,626 110.2% $14,914 55.2%
Surety (Commercial)$12,311 53.5% $15,537 (1.2%)
Assumed Reinsurance$38,904 61.8% $53,697 64.9%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Fixed Maturity Income (annualized)FY 2025~$78M annualized (Q3 commentary) >$80M expected Raised
Catastrophe Loss Estimate – Southern CA WildfiresQ1 2025N/A$7–$10M estimated New item
Policy Administration System2025In development (no prior timeline disclosed) Poised for implementation in 2025 Timeline defined
Quarterly DividendOngoing$0.16/share (Q3) $0.16/share (Q4 paid; Q1 2025 declared) Maintained
Rating Errors ContingencyQ4 2024$3.2M contingent liability recorded (Q2) $3.2M reversal; no financial impact Resolved positively

Earnings Call Themes & Trends

TopicQ2 2024 (Previous)Q3 2024 (Previous)Q4 2024 (Current)Trend
Rate achievement vs loss trendsRates +9.8%; renewal +12.3%; rates exceed loss trends Rates +11.2%; renewal +12.4%; exceed loss trends Renewal +11.9%; rates +10.8%; exceed loss trends Strengthening
Social inflation & umbrella reservesElevated severity; reserve reinforcement; +$90M since Q3’22 Neutral to favorable emergence; continued reserve reinforcement Proactive umbrella loss ratio increase; cumulative +$175M added since Q3’22 Continued strengthening
Cat risk managementCat ratio 11.2% below 5/10-yr avg Cat ratio 4.4% below averages; FL actions reduced exposure Cat ratio 1.6% below averages; continued property cat profile improvements Improving
Investment portfolio repositioning20% of fixed income at 5.6% yield; repositioning underway 10% at ~5.2%; ann. fixed income ~$78M Expect >$80M fixed income; quality AA; duration ~4 yrs Improving
Expense ratio & incentives/techUnderwriting ER 35.5% on investments; LAE down ER 35.9%; elevated on performance/tech spend ER 37.1%; elevated on talent, policy system, incentives Elevated near term
Rating errors resolution$3.2M charge; regulators engaged Lead regulator: no action; contingent unchanged Resolved; $3.2M reversal; no impact Resolved
Alternative distribution / treaty appetiteGrowth and diversification Growth across channels; treaty opportunities Growing across 7 channels; standard treaty largest Expanding

Management Commentary

  • “The fourth quarter combined ratio improved to 94.4%, the lowest in 11 quarters... underlying loss ratio improved to 55.7%... catastrophes well below historical averages at 1.6%.”
  • “Expense ratios were elevated due to investments in talent... accelerated development of our new policy administration system... increased performance-based compensation.”
  • “Net investment income improved to $23.2 million... We expect the fixed maturity portfolio to generate over $80 million of annualized fixed maturity income.”
  • “We successfully resolved the rating errors... resulting in no financial impact... reversed the $3.2 million contingent liability.”
  • “We estimate losses in the range of $7 million to $10 million” from Southern California wildfires .
  • “We improved the quality of the [investment] portfolio from AA minus to AA, while maintaining duration by approximately 4 years.”

Q&A Highlights

  • Run-rate and one-time item: CFO confirmed a $3.2M pretax one-time benefit in Q4 and indicated other items are largely run-rate; expense ratio remains elevated but a focus area .
  • Social inflation and appetite: COO highlighted tighter limits/capacity and less public-exposed risks in casualty; property appetite growing with increased treaty capacity to take more sophisticated risks .
  • Alternative distribution: UFG seeks to grow 6 of 7 channels (excluding retrocession), especially standard treaty, targeting margins and diversification; alternative distribution is the second-largest business unit .

Estimates Context

  • Wall Street consensus (S&P Global) EPS and revenue estimates for Q4 2024/Q1 2025 were unavailable due to a SPGI request limit error at retrieval time; as a result, beat/miss vs consensus cannot be assessed here. Values retrieved from S&P Global*.

Where estimates may need to adjust:

  • Sustained rate achievement exceeding loss trends and improved frequency suggest upward bias to underlying loss assumptions; elevated underwriting expense ratio and Q1 2025 wildfire losses may temper near-term EPS forecasts .

Key Takeaways for Investors

  • Underwriting improvement is real: combined ratio at 94.4% with underlying loss ratio at 55.7% reflects earned rate momentum and portfolio actions; watch expense ratio normalization over 2025 as system implementation completes .
  • Rate tailwind persists: renewal premiums +11.9% with rates +10.8% continue to outpace mid-single-digit loss trends, supporting margin trajectory into 2025 .
  • Investment income lever: portfolio upgrades and reinvestment at higher yields underpin >$80M fixed income run-rate, supporting earnings durability .
  • Reserve posture conservative in casualty: proactive umbrella loss ratio and multi-year reserve strengthening mitigate social inflation risk; surety performance restored toward historical profitability .
  • Near-term watch items: $7–$10M wildfire losses expected in Q1 2025 and elevated incentive/tech spend may create quarterly noise; underlying combined ratio trend remains favorable .
  • Growth drivers: core commercial, assumed reinsurance, and alternative distribution channels provide diversified premium growth with rate and exposure contributions .
  • Capital discipline: dividend maintained at $0.16/share; book value/adjusted book value improved YoY; portfolio quality enhanced to AA .