US property and casualty insurer, United Fire Group (UFG), has announced its financial results for the third quarter of 2023, reporting a consolidated net income of $6.4 million and an improved combined ratio of 102.1%.
UFG Q3 2023 net income saw a considerable improvement compared to the net loss of $22.9 million reported in the same period last year.
Net premiums written in the quarter increased 0.1%, to $247.7 million, compared to the third quarter of 2022. According to the insurer, while growth in net premiums written slowed, the impact of growth in prior periods contributed to significant increases to earnings, as net premiums earned increased 8.9% in Q3 2023.
Core commercial lines grew 2.7% driven by increasing levels of rate achievement and new business, together with an overall increase in renewal premiums of 11.0%, with 2.6% from exposure changes and 8.4% from rate increases.
“I remain pleased with the progress we are making in positioning UFG to deliver superior financial and operational performance,” said UFG President and CEO Kevin Leidwinger. “Our third quarter results show signs of improvement while we continue to execute strategies to strengthen our Company.
“Net written premium was flat in the quarter as growth in our core commercial and assumed reinsurance business was offset by targeted underwriting action on underperforming segments as well as increased surety reinsurance reinstatement premiums.
“Core commercial new business remained significantly above the prior year period, and average renewal premiums change accelerated to 11.0% in the third quarter, representing our highest level since at least 2018. Rate achievement increased across all lines of business from the second quarter of 2023, excluding workers’ compensation, with property rates increasing 17.3%.
The firm’s combined ratio also saw an improvement this quarter, going down 9.6 points, from 111.7% in Q3 2022. According to UFG, this decrease is primarily attributable to lower prior period reserve adjustments and favourable catastrophe losses.
Prior period reserves were neutral this quarter compared to 4.8% unfavourable in the third quarter of 2022. The catastrophe loss ratio was 5.9% in Q3 2023, a decrease of 5.5 points, which was the lowest third quarter ratio in five years and below historic averages.
The underlying loss ratio increased to 60.5%, a result of counteracting factors across lines of business. In surety, the small number of large losses experienced in the second quarter 2023 continued in the third quarter.
Offsetting this negative impact was improved profitability in commercial auto driven by improved frequency and standard umbrella, where additional insights on rate levels have improved UFG’s outlook.
The underwriting expense ratio of 35.5% was 0.4 points higher in the quarter and impacted by surety reinstatement premiums that offset the insurer’s ongoing actions to sustainably reduce expenses.
Leidwinger continued: “The third quarter underlying loss ratio of 60.5% included approximately 2.0 points of impact from a small number of large claims and associated reinsurance reinstatement premiums in our surety business as economic conditions discussed last quarter continued. This impact was reduced by an improved outlook for profitability in other lines of business.
“The third quarter expense ratio of 35.5% was also impacted by surety reinstatement premiums that offset our ongoing actions to sustainably reduce expenses. In addition to reducing expenses through careful vacancy management, we took the additional step to implement a voluntary early retirement program that we anticipate will provide ongoing benefits to our expense ratio in 2024.
“Other results improved in the third quarter of 2023, including neutral prior period reserve development, catastrophe losses below long-term averages, and investment returns that benefited from investing at higher interest rates and the strategic reallocation of public equity assets into fixed maturities.
He concluded: “We continued to make strategic investments in the third quarter, including the ongoing rollout of our small business quoting platform in multiple states, and continued additions to leadership talent from within and outside the Company.
“We remain confident in our strategy and in the actions we are taking to position UFG for superior financial and operational performance in the long term.”
