Earnings call transcript: United Fire Group Q1 2025 beats EPS forecast

United Fire Group Inc. reported its first-quarter 2025 earnings, surpassing expectations with an EPS of $0.67 compared to the forecast of $0.66. The company’s revenue fell short, reaching $308.41 million against a forecast of $311.90 million. Following the earnings report, the stock experienced a decline of 6.15%, closing at $28.60, reflecting investor concerns over the revenue miss. According to InvestingPro data, the company maintains a market capitalization of $681.81 million and has demonstrated strong momentum with a 25.49% return over the past year.

Key Takeaways

• United Fire Group’s EPS exceeded forecasts, while revenue fell short.
• Stock price dropped by 6.15% post-earnings announcement.
• Net written premiums grew by 4% to $335.4 million.
• The company maintained strong underwriting profitability.
• New policy administration systems were fully deployed in small business units.

Company Performance

United Fire Group demonstrated a mixed performance in Q1 2025. While the company achieved a higher EPS than anticipated, its revenue figures did not meet expectations. The net written premiums increased by 4% to $335.4 million, and the company recorded a combined ratio of 99.4%, indicating improved underwriting profitability. The deployment of new policy administration systems and growth in specialty and surety businesses were key operational highlights.

Financial Highlights

• Revenue: $308.41 million, below the forecast of $311.90 million
• Earnings per share: $0.67, exceeding the forecast of $0.66
• Net written premium: $335.4 million, a 4% increase
• Combined ratio: 99.4%
• Book value per share: $32.13
• Adjusted book value per share: $34.16
• Cash dividend declared: $0.16 per share

Earnings vs. Forecast

United Fire Group’s EPS of $0.67 slightly surpassed the forecast of $0.66, marking a positive performance in terms of profitability. The revenue, however, came in at $308.41 million, missing the forecast by $3.49 million. This mixed result highlights the company’s ability to manage costs effectively while facing challenges in revenue generation.

Market Reaction

The stock price of United Fire Group fell by 6.15% following the earnings release, closing at $28.60. This decline reflects investor concerns over the revenue miss despite the EPS beat. The stock’s performance remains within its 52-week range, with a high of $31.70 and a low of $18.04, indicating potential volatility in investor sentiment.

Outlook & Guidance

Looking forward, United Fire Group expects the impact of ceded premiums to lessen in the coming quarters. The company is focusing on improving process efficiency and maintaining disciplined pricing and risk selection. The deployment of policy administration systems in Middle Market and Construction units is planned for later this year, which could enhance operational efficiency and growth. With revenue growth of 14.41% in the last twelve months and analysts forecasting continued profitability, InvestingPro data suggests strong fundamental momentum. Access the full Pro Research Report for detailed analysis of growth drivers and market positioning.

Executive Commentary

CEO Kevin Leidwinger remarked, "2025 is off to a promising start," emphasizing the company’s positive outlook despite the revenue shortfall. He also assured investors that potential tariff impacts are being closely monitored and are expected to be manageable. A UFG representative noted, "Our rates are currently exceeding our view of net loss trends," highlighting the company’s pricing power.

Risks and Challenges

• Revenue growth remains a concern, as evidenced by the Q1 miss.
• Tariff impacts and macroeconomic pressures could affect future performance.
• Elevated severity trends, although stable, pose a risk to underwriting profitability.
• Expense ratio increases due to policy system development could pressure margins.
• Competitive pressures in the insurance industry may affect market share.

Q&A

During the earnings call, analysts questioned the company’s pricing strategy and its ability to counter loss expense inflation. Executives explained the dynamics of the expense ratio and highlighted investments in talent and technology as key drivers for future growth. The potential for cost leverage with premium growth was also discussed, providing insights into the company’s strategic priorities.

Full transcript - United Fire Group Inc (UFCS) Q1 2025:

Conference Operator: day, and welcome to the United Fire Group Insurance twenty twenty five First Quarter Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Tim Borst, Investor Relations.

Please go ahead.

Tim Borst, Investor Relations, United Fire Group Insurance: Good morning, and thank you for joining this call. Yesterday afternoon, we issued a press release on our results. To find a copy of this document, please visit our website at ufginsurance.com. Press releases and slides are located under the Investors tab. Joining me today on the call are UFG President and Chief Executive Officer Kevin Leidwinger Executive Vice President and Chief Operating Officer Julie Stephenson and Executive Vice President and Chief Financial Officer Eric Martin.

Before I turn the call over to Kevin, a couple of reminders. First, please note that our presentation today may include forward looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward looking statements are based on current expectations, estimates, forecasts, and projections about the company, the industry in which we operate, and beliefs and assumptions made by management. The company cautions investors that any forward looking statements include risks and uncertainties and are not a guarantee of future performance. Any forward looking statement made by us in this presentation is based only on information currently available to us and speaks only as of the date on which it is made.

These forward looking statements are based on management’s current expectations, and United Fire Group assumes no obligation to update any forward looking statements. The actual results may differ materially due to a variety of factors, which are described in our press release and SEC filings, discussed specifically in our most recent annual report on Form 10 ks. Also, note that in our discussion today, we may use some non GAAP financial measures. Reconciliations of these measures to the most comparable GAAP measures are also available in our press release and SEC filings. At this time, I will turn the call over to Mr.

Kevin Leidwinger, CEO of UFG Insurance.

Kevin Leidwinger, President and Chief Executive Officer, United Fire Group Insurance: Thank you, Tim. Good morning, everyone, and welcome to our first quarter conference call. I’ll begin this morning by providing a high level overview of our results. Following my comments, Julie Stephenson will discuss our underwriting results, and Eric Martin will discuss our financial results in more detail. 2025 is off to a promising start.

Through the continued execution of our strategic business plan, we achieved our third consecutive quarter of underwriting profitability, record net written premium and a significant increase in net income despite elevated industry catastrophe losses and a higher expense ratio in the quarter. Turning now to the specifics. Net written premium grew 4% to $335,400,000 However, our growth rate was not reflective of the disciplined pricing, stable retention and increased new business production we achieved across the portfolio as a few unusual ceded reinsurance premium adjustments reduced net written premium growth by three points. First quarter combined ratio was 99.4%, a zero five point increase over the first quarter of twenty twenty four. The underlying loss ratio improved 2.9 points to 56.5% as a result of ongoing strong earned rate achievement that exceeded loss trends, improving frequency trends and disciplined portfolio management.

Prior year reserve development remained neutral overall for the

Julie Stephenson, Executive Vice President and Chief Operating Officer, United Fire Group Insurance: fifth quarter in a row.

Kevin Leidwinger, President and Chief Executive Officer, United Fire Group Insurance: Catastrophe losses contributed five points to the combined ratio and include $8,200,000 of losses from California wildfires. The outcome is just below the midpoint of the 7,000,000 to $10,000,000 range we provided in February and is consistent with what we know to be our exposure to this event. The underwriting expense ratio increased three points to 37.9% and includes additional costs associated with the final stages of development of our new policy administration system as well as increased performance based compensation for agents as a result of strong prior year performance. Net investment income improved to $23,500,000 in the first quarter. The majority of this improvement was due to a sustainable increase in fixed maturity income that grew to $21,000,000 in the quarter, while we also benefited from improved valuations on our limited partnership portfolio.

Reported book value per share improved to $32.13 in the first quarter as a result of positive earnings and a decrease in interest rates, with adjusted book value per share growing to $34.16 on continued positive earnings. Before I turn the call over to Julie Stephenson, just a word about tariffs. We continue to monitor the issue closely. And while there is significant uncertainty with respect to the ultimate outcome, we expect any impact from tariffs to be manageable on our business. I’ll now hand the call over to Julie Stephenson, our Chief Operating Officer, to discuss our underwriting results in more detail.

Julie Stephenson, Executive Vice President and Chief Operating Officer, United Fire Group Insurance: Thank you, Kevin. Let me begin with how pleased I am to say UFG is in the final stages of development of a new policy administration system for our core commercial business units. Small Business is fully deployed across all 32 states. Middle Market and Construction will begin deployment for new business in July and renewals in November. The finalization of this investment is a key milestone in improving process efficiency and product management at UFG.

Written premium growth on a gross basis was nearly double digit, with all businesses contributing on strong underwriting fundamentals, including both pricing and risk selection. Net written premium growth in the quarter of 4% was suppressed relative to gross written premium as a result of some increased ceded reinsurance premium relative to prior year. We experienced some prior year adjustments and business mix impacts that uncommonly aligned to increased ceded premium for the quarter. We expect the impact of additional ceded premium to diminish in the remaining quarters. For the first time, we have included rate retention and new business details for each of the business units within core commercial Small Business, Middle Market, and Construction, in our earnings call presentation.

Net written premium in our Core Commercial businesses grew 6% in the first quarter compared to prior year. Renewal premium change in Core Commercial remained strong at 11.7%, with rates up 9.7 and continuing to exceed our view of loss trends. The moderation in rates from prior quarter was largely driven by middle market commercial property, where rate change came down slightly from the fourth quarter but remained strong at over 10% and still comfortably exceeding loss trends. Rate achievement for general liability exceeded 9% in the quarter, continuing the momentum built over the last four quarters. Automobile and Umbrella continued to produce rate changes in the double digits.

Our overall net loss trend remained consistent in the mid single digits. Severity trends remain elevated but stable, while we continue to see ongoing frequency improvement across the portfolio. Retention remains steady and within expectations. Core commercial new business production continued to grow over prior year to an all time high, with small business, construction, and middle market all contributing as we continue to increase our presence in the evolving distribution landscape. We remain diligently focused on ensuring the quality and rate adequacy of new business and are pleased with writing more business in our most attractive customer segments, as well as successfully building a pipeline of more sophisticated risks that offer better economics.

Our growing specialty and surety businesses continue to perform in line with our expectations as we remain focused on ensuring long term profitability while gaining traction in the marketplace. Alternative Distribution continues to provide UFG with diversifying and profitable business through three primary channels: treaty, programs, and funds at Lloyd’s. Turnover in our program business for the quarter led to a higher ceded premium ratio. So, although growth was strong on a gross basis, net written premium was lower than the prior year’s first quarter. Standard treaty business was down slightly as we non renewed business, primarily casualty, in the face of challenging market conditions.

We remain selective in how we deploy capacity in this space, and while overall market pricing is down slightly this year, we are still meeting our profitability objectives in this business unit. The first quarter underlying loss ratio of 56.5% improved 2.9 points from the first quarter of twenty twenty four, continuing the improvement seen throughout 2024 from strong earned rate achievement and favorable frequency trends observed across our portfolio. Severity trends remain stable and show some signs of moderating in a few lines where we have made progress in reducing risks with high severity exposure. We remain cautious, however, and continue to underwrite and price the business the elevated severity trends prevalent in the market today. Prior reserve development was flat overall in the first quarter, continuing the trends seen throughout 2024.

In general, we saw similar patterns with claim emergence within or better than our expectations. We saw favorable indications in most lines of business enabling us to further strengthen liability reserves in light of the ongoing uncertainty of social inflation. The additional strengthening this quarter was more modest than we had demonstrated throughout the prior year, as we believe our reserve position against underlying liability trends is well positioned across our entire portfolio. The catastrophe loss ratio of 5% included approximately 2.6 points of impact from the California wildfires. Losses from the wildfires were $8,200,000 including $4,800,000 within the alternative distribution portfolio and $3,400,000 from our core commercial book.

Our conservative limit deployment and stringent underwriting criteria in our alternative distribution business allowed us to experience a strong underwriting profit in light of this event. Additionally, the remaining non wildfire catastrophe losses reflected our lowest first quarter result for severe convective storms since 2019, despite an elevated number of events in the quarter. We are pleased our disciplined catastrophe management efforts produced this manageable outcome from such a difficult quarter for the industry. I will now turn the call over to Eric Martin to discuss the remainder of our financial results.

Eric Martin, Executive Vice President and Chief Financial Officer, United Fire Group Insurance: Thank you, Julie. We continue to experience strong and sustainable improvement in our investment portfolio results in the first quarter. Our fixed income portfolio is well positioned against the heightened uncertainty in the current market. The actions we’ve taken and discussed over the past year not only improved income and risk adjusted returns, but also improved diversification within the portfolio, improved the average quality from AA- to AA and maintained duration at approximately four years. In addition, in the first quarter, we executed targeted sales on approximately $25,000,000 of assets to further improve the credit quality of our portfolio.

These actions generated less than $1,000,000 of realized losses and will be accretive to income. New purchase yields in the first quarter of 5.3% exceeded the overall portfolio yield by approximately 100 basis points. The elevated interest rate environment contributed to the approximately 70 basis point increase in book yield since first quarter of last year and continues to provide favorable tailwinds for ongoing sustainable earnings growth. Outside of our fixed income portfolio, the current market reinforces our decision to exit our equity portfolio a year ago to lock in attractive fixed income yields that reduce volatility in our overall results. Our portfolio contains roughly $100,000,000 of investments in limited partnerships that generated a favorable first quarter result with $1,800,000 of income.

Many of these limited partnership investments contain equity like exposure and are at increased risk of volatility in the currently turbulent market. Turning to the expense ratio, as previously mentioned, the company has made a number of investments in talent and technology to support long term profitable growth. The first quarter expense ratio included approximately one point of additional costs associated with the final stages of development of our new policy administration system that we do not expect to recur. We also experienced continued elevated performance based compensation for agents as a result of strong 2024 performance that will normalize over time. First quarter net income was $0.67 per diluted share with non GAAP adjusted operating income of $0.70 per diluted share.

This quarter’s earnings improved book value per common share to $32.13 Adjusted book value per share, which excludes the impact of unrealized investment losses, grew $0.52 to $34.16 at quarter end. From a capital management perspective, during the first quarter, we declared and paid a $0.16 per share cash dividend to shareholders of record as of 03/07/2025. This concludes our prepared remarks. I will now have the operator open the line for questions.

Conference Operator: We will now begin the question and answer session. The first question is from Matthew Erdner with Jones Trading. Please go ahead.

Matthew Erdner, Analyst, Jones Trading: Hey, good morning guys. Thanks for taking the question. Could you talk a little bit about your current pricing power and the ability to kind of counter potential greater loss expenses due to material and labor cost inflation and just kind of talk about what you’re seeing there?

: Sure. Hey, thanks for joining and thanks for the question. We are watching the situation closely just like others in our industry. Our underwriting and our actuarial and finance and claims teams are staying very closely connected and monitoring any potential impact. But in anticipation of any impact and frankly in our normal course of business, our actuaries reevaluate trend every quarter.

And we take a conservative view that allows us hopefully enough cushion in our estimates giving us time to react. But also, as we mentioned in the transcript, our rates are currently exceeding our view of net loss trends. So we think that that combination of monitoring, making sure that the trends are being evaluated every quarter and keeping our pricing disciplined is really the path forward and trying to stay ahead of this.

Matthew Erdner, Analyst, Jones Trading: Got it. That’s very helpful. And then kind of as a follow-up to that, I’d like to talk a little bit about the underwriting expense ratio and what the levers are that you kind of have to pull there to bring that in a little bit.

Julie Stephenson, Executive Vice President and Chief Operating Officer, United Fire Group Insurance: Great. First off, thanks for your coverage. Appreciate having you guys here with us on the call. We mentioned in our prepared remarks here, we’re a little bit elevated this quarter by about one point related to some of the final costs with the deployment of our policy administration system. And we’re happy with that to get that system on board.

This has been a long road for us and we’re happy to get that moving forward here. Our small business team is already on that platform. And over the next few months, we’re going to get middle market and construction on that. And so if you look at from a year ago, we’re up about three points. And one of the things we’ve said is that we’re going to invest in talent and technology.

We brought a lot of new folks on board in the early part of last year and we’re happy with that. We feel it’s moving us forward here. And our performance was better last year as well. And to some extent, we’re sharing that with some of our agents through performance comp, and that’s those three items have really pushed our expense ratio up. So we feel good about our progress here.

The one point is going to go away. That was a onetime item with some of the final costs for the platform. We’re going to continue to grow here, and there’s going to be some leverage with our premium growth compared against fixed costs here. So that’s how we’re thinking about our expense ratio going forward.

Matthew Erdner, Analyst, Jones Trading: Got it. Yes, that’s helpful information there. And then I guess as a follow-up to that, as you guys kind of continue to grow, you’d expect this to normalize over time once all the people are onboarded and kind of as those agents kind of go back to historical averages in terms of production?

Julie Stephenson, Executive Vice President and Chief Operating Officer, United Fire Group Insurance: Right. If you look at our total cost, about a third of them are fixed cost, two thirds are variable. The agent performance comp is within that variable comp. But overall, particularly on the fixed costs, there’s some good leverage there with premium growth.

Matthew Erdner, Analyst, Jones Trading: Got it. Thank you. I appreciate it, guys.

Conference Operator: At this time, there are no further questions. So this concludes the question and answer session. I would like to turn the conference back over to Kevin Leidwinger, CEO for any closing remarks.

Julie Stephenson, Executive Vice President and Chief Operating Officer, United Fire Group Insurance: Thank you for joining us today and we look forward to talking with you again next quarter.

Conference Operator: The conference has concluded. Thank you for attending today’s presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.