United Fire Reports First Quarter 2012 Results
GlobeNewswire |
- Net income of
$0.75 per diluted share for the first quarter of 2012, compared with net income per diluted share of$0.22 for the first quarter of 2011. - Operating income(1) of
$0.68 per share for the first quarter of 2012, compared with operating income of$0.16 per share for the first quarter of 2011. - Book value per share at
$28.20 , up$0.91 per share or 3.3 percent fromDecember 31, 2011 .
Financial Highlights | Three Months Ended |
|||||
(In Thousands Except Shares and Per Share Data) | 2012 |
2011(2) | Change % |
|||
Revenue Highlights | ||||||
Net premiums earned | 41.4% | |||||
Net investment income | 29,146 | 27,063 | 7.7 | |||
Total revenues | 193,699 | 144,076 | 34.4 | |||
Income Statement Data | ||||||
Operating income (1) | NM(3) | |||||
After-tax realized investment gains | 1,816 | 1,724 | 5.3 | |||
Net income | 230.2% | |||||
Diluted Earnings Per Share Data | ||||||
Operating income (1) | NM(3) | |||||
After-tax realized investment gains | 0.07 | 0.06 | 16.7 | |||
Net income | 240.9% | |||||
Catastrophe Data | ||||||
Pre-tax catastrophe losses (1) | (13.1)% | |||||
Effect on after-tax earnings per share | 0.36 | 0.40 | (10.0) | |||
Effect on combined ratio | 9.6 | 15.9% | (39.6)% | |||
Combined ratio | 93.8% | 106.5% | 11.9% | |||
Return on equity | 10.8% | 3.2% | 237.5% | |||
Cash dividends declared per share | — | |||||
Diluted weighted average shares outstanding | 25,572,541 | 26,252,408 | (2.6)% | |||
(2) The information presented for 2011 includes |
||||||
(3) Not meaningful |
(1) The Measurement of Results section of this release defines and reconciles data not prepared in accordance with U.S. GAAP. |
BUILDING ON SOLID GROWTH
"
"Net premiums earned are up 41.4 percent compared to the first quarter of 2011. The majority of that increase is due to the acquisition of
"The integration of
"Our life subsidiary's focus on traditional life products continues to be positive, using automated processes to make it easier for our agencies to do business with us.
CHALLENGES REMAIN
"Challenges still remain, however. The economy is still creating financial concerns for a good number of our policyholders, but the number of out-of-business policy cancellations eased slightly this quarter. Interest rates continue to remain low, and Federal Reserve pronouncements indicate that this will continue into 2014.
"Catastrophe losses of
"We've continued to tighten our underwriting guidelines by taking steps to substantially reduce our earthquake exposure around the New Madrid Fault. While our earthquake exposure has modeled very favorably, past lessons have taught us not to rely solely on the models. Various other methods that we have used to evaluate our earthquake exposure including realistic disaster scenarios, damageability factors based on fault proximity and soil type as well as reinsurer input have indicated a level of earthquake exposure in the New Madrid zone not supported by current pricing and capital requirements. Therefore, we are in the process of reducing our New Madrid Fault earthquake exposure by 50 percent. We expect to achieve this goal by the end of 2012.
"Finally, we took advantage of the opportunity to deploy our capital in pursuit of new business in the first quarter instead of buying back more shares. We believe our stock, which is trading at around 60 percent of our book value, is still a great value and we will continue to assess this capital strategy throughout the year," concluded Ramlo.
Property and Casualty Insurance Segment
For the three months ended
Property & Casualty Insurance Financial Results: | March 31, | |
(In Thousands) | 2012 | 2011(1) |
Revenues | ||
Net premiums written (2) | ||
Net premiums earned | ||
Investment income, net of investment expenses | 10,638 | 8,737 |
Net realized investment gains | 1,180 | 1,208 |
Other income | 100 | 8 |
Total Revenues | ||
Benefits, Losses and Expenses | ||
Losses and loss settlement expenses | ||
Amortization of deferred policy acquisition costs | 32,413 | 24,030 |
Other underwriting expenses | 17,868 | 12,726 |
Total Benefits, Losses and Expenses | ||
Income before income taxes | ||
Federal income tax expense (benefit) | 4,447 | (54) |
Net income | ||
GAAP combined ratio: | ||
Net loss ratio | 49.9% | 58.2% |
Catastrophes - effect on net loss ratio | 9.6 | 12.2 |
Net loss ratio | 59.5% | 70.4% |
Expense ratio | 34.3 | 36.1 |
Combined ratio | 93.8% | 106.5% |
Statutory combined ratio: (2) | ||
Net loss ratio | 50.7% | 58.2% |
Catastrophes - effect on net loss ratio | 9.6 | 12.2 |
Net loss ratio | 60.3% | 70.4% |
Expense ratio | 30.9 | 33.9 |
Combined ratio | 91.2% | 104.3% |
(1) The information presented for 2011 includes |
||
(2) The Measurement of Results section of this release defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP. |
- Net premiums earned increased 44.2 percent in the first quarter of 2012, compared to the first quarter of 2011, due to:
- Acquisition of
Mercer Insurance Group - Total net premiums earned increased$45.0 million for the quarter. The acquisition ofMercer Insurance Group contributed$34.9 million of the increase, with$30.0 million and$4.9 million , respectively, in commercial and personal lines.
- Organic growth - The additional increase in our net premiums earned is the result of a combination of rate increases across most lines, coupled with the internal growth initiatives we implemented at the beginning of 2011, such as appointing new agencies in geographic markets where
United Fire Group was under-represented. Those new agencies produced nearly$5.0 million in new business, exceeding our$4.0 million goal.
- Commercial lines pricing increased for the second consecutive quarter, with average increases in the low- to mid-single digits. Competitive market conditions continued to ease on renewals, but persisted on new business during the quarter.
- Personal lines pricing remains steady, averaging mid-single digit pricing increases for both homeowners and personal auto rates.
- Policy retention rates remained very strong for both commercial and personal lines, with approximately 82 percent of our policies renewing.
- GAAP combined ratio decreased 12.7 percentage points for the three-month period ended
March 31, 2012 , compared with the same period of 2011. This is attributable to the following:
- Net loss ratio, a component of the combined ratio, decreased by 10.9 percentage points in the three-month period ended
March 31, 2012 , compared with the same period of 2011. The net loss ratio was affected by the growth in net premiums earned and reduced losses related to our workers' compensation line of business.
- Expense ratio, a component of the combined ratio, decreased 1.8 percentage points for the three-month period ended
March 31, 2012 as compared to the same period of 2011. This ratio is higher than our historical expense ratio, which is attributable to:
- Amortization of deferred policy acquisition costs increased 34.9 percent in the three-month period ended
March 31, 2012 , primarily due to our acquisition ofMercer Insurance Group and the impact of amortization of the value of business acquired ("VOBA") asset. As ofMarch 31, 2012 , the remaining$1.7 million VOBA asset was fully amortized.
- Other underwriting expenses increased 40.4 percent in the three-month period ended
March 31, 2012 , compared with the same period of 2011 primarily due to our acquisition ofMercer Insurance Group . In addition, we incurred$7.9 million of nonrecurring transaction costs related to the acquisition in the first quarter of 2011. There were no such transaction costs in the first quarter of 2012.
- Accounting rules related to deferred policy acquisition costs - Effective
January 1, 2012 , we adopted the change in accounting rules related to deferred policy acquisition costs on a prospective basis. As a result of the change, the amount of underwriting expenses eligible for deferral has decreased. After consideration of our normal recovery assessment, which we refer to as a premium deficiency charge, and the amortization pattern of our deferred policy acquisition costs, we recognized approximately$3.7 million of additional expense in the three month period endedMarch 31, 2012 than we would have recognized had the rules remained the same.
The impact of the new accounting rules on our results for the full year will be influenced by a number of factors including: the volume of premiums written; our assessment of successful acquisition efforts; the profitability of our lines of property and casualty business, which impacts the level of premium deficiency charge recorded; and the normal amortization pattern of these deferred policy acquisition costs, which is generally over one year. The greatest impact will be experienced in the most current quarter as the recorded deferred policy acquisitions costs would amortize to expense in succeeding quarters to offset a portion of the initial impact when assessed on an annual basis. Accordingly, the impact of the new accounting rules on our results reported for the first quarter of 2012 should not be considered to be representative of the impact for the full year.
Life Insurance Segment
Life Insurance Financial Results: | Three Months Ended |
|||
(In Thousands) | 2012 | 2011 | ||
Revenues | ||||
Net premiums written (1) | ||||
Net premiums earned | ||||
Investment income, net of investment expenses | 18,508 | 18,326 | ||
Net realized investment gains | 1,614 | 1,445 | ||
Other income | 156 | 148 | ||
Total Revenues | ||||
Benefits, Losses and Expenses | ||||
Losses and loss settlement expenses | ||||
Increase in liability for future policy benefits | 10,138 | 8,182 | ||
Amortization of deferred policy acquisition costs | 2,138 | 2,016 | ||
Other underwriting expenses | 4,126 | 3,331 | ||
Interest on policyholders' accounts | 10,656 | 10,670 | ||
Total Benefits, Losses and Expenses | ||||
Income before income taxes | ||||
Federal income tax expense | 1,245 | 1,183 | ||
Net income | ||||
(1) The Measurement of Results section of this release defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP. |
- Net income increased
$0.1 million in the three-month period endedMarch 31, 2012 to$2.5 million from$2.4 million in the same period of 2011 as a result of the following factors:
- Net premiums earned increased 18.5 percent during the three-month period ended
March 31, 2012 , as compared to the same period last year. This was due to our focus on increasing sales of our single premium whole life product.
- Investment income increased
$0.2 million in the three-month period endedMarch 31, 2012 , compared to the same period of 2011. While the annualized net investment yield rate was 4.4 percent for the three-month period endedMarch 31, 2012 , compared to 4.6 percent for the same period in 2011, we had approximately$99 million more of average invested assets in the first quarter of 2012 compared to a year ago. In early 2011 we began the process of increasing the duration of our investment portfolio in order to more closely match our liabilities, which have increased in conjunction with sales of our single premium whole life product. We are maintaining the quality of our investments while we achieve our duration goals.
- Increase in liability for future policy benefits increased 23.9 percent in the first quarter of 2012, compared to the same period of 2011, due to an increase in sales as mentioned above, and the demographics of our insureds.
- Other underwriting expenses increased
$0.5 million in the first quarter of 2012, due to the change in accounting rules previously discussed.
- Deferred annuity deposits increased 55.4 percent in the three-month period ended
March 31, 2012 , as compared with the same period of 2011. We attribute this to some consumers seeking products with guaranteed rates of return as interest rates remain low. While deferred annuity deposits are not recorded as a component of net premiums written or net premiums earned, they do generate investment income.
- Net cash outflow related to our annuity business was
$0.3 million in the three-month period endedMarch 31, 2012 , compared to$6.2 million in the same period of 2011. We attribute this to the activity described above.
Consolidated Investment Results
Net investment income increased 7.7 percent in the three-month period ended
Net realized investment gainswere
Net unrealized investment gains totaled
Stockholders' Equity
As of March 31, 2012, the book value per share of our common stock was
As of
Measurement of Results
Our consolidated financial statements are prepared on the basis of GAAP. We also prepare financial statements for each of our insurance subsidiaries based on statutory accounting principles that are filed with insurance regulatory authorities in the states where they do business.
Management evaluates our operations by monitoring key measures of growth and profitability. The following provides further explanation of the key measures management uses to evaluate the results:
Premiums written is a statutory measure of our overall business volume. Premiums written is an important measure of business production for the period under review. Net premiums written comprise direct and assumed premiums written, less ceded premiums written. Direct premiums written is the amount of premiums charged for policies issued during the period. For the property and casualty insurance segment there are no differences between direct statutory premiums written and direct premiums written under GAAP. However, for the life insurance segment, deferred annuity deposits (i.e., sales) are included in direct statutory premiums written, whereas they are excluded for GAAP.
Assumed premiums written is consideration or payment we receive in exchange for insurance we provide to other insurance companies. We report these premiums as revenue as they are earned over the underlying policy period. Ceded premiums written is the portion of direct premiums written that we cede to our reinsurers under our reinsurance contracts.
(In Thousands) | Three Months Ended |
|||
2012 | 2011 | |||
Net premiums written | ||||
Net change in unearned premium | (14,806) | (9,090) | ||
Net change in prepaid reinsurance premium | (3,071) | 135 | ||
Net premiums earned |
Combined ratio is a commonly used statutory financial measure of property and casualty underwriting performance. A combined ratio below 100.0 percent generally indicates a profitable book of business. The combined ratio is the sum of two separately calculated ratios, the loss and loss settlement expense ratio (the "net loss ratio") and the underwriting expense ratio (the "expense ratio").
When prepared in accordance with GAAP, the net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premiums earned. The expense ratio is calculated by dividing nondeferred underwriting expenses and amortization of deferred policy acquisition costs by net premiums earned.
When prepared in accordance with statutory accounting principles, the net loss ratio is calculated by dividing the sum of losses and loss settlement expenses by net premium earned; the expense ratio is calculated by dividing underwriting expenses by net premiums written.
Operating income is a commonly used Non-GAAP financial measure of net income excluding realized capital gains and losses and related federal income taxes. Because our calculation may differ from similar measures used by other companies, investors should be careful when comparing our measure of operating income to that of other companies. Management evaluates this measurement and ratios derived from this measurement because we believe it better represents the normal, ongoing performance of our businesses.
(In Thousands Except Per Share Data) | Three Months Ended |
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2012 | 2011 | |||
Net income | ||||
After-tax realized investment gains | (1,816) | (1,724) | ||
Operating income | ||||
Diluted earnings per share | 0.75 | 0.22 | ||
Diluted operating income per share | 0.68 | 0.16 |
Catastrophe losses is a commonly used Non-GAAP financial measure, which utilize the designations of the Insurance Services Office (ISO) and are reported with loss and loss settlement expense amounts net of reinsurance recoverables, unless specified otherwise. According to the ISO, a catastrophe loss is defined as a single unpredictable incident or series of closely related incidents that result in
(In Thousands) | Three Months Ended |
|||
2012 | 2011 | |||
ISO catastrophes | ||||
Non-ISO catastrophes (1) | 110 | 12,065 | ||
Total catastrophes | ||||
(1) This number includes international assumed losses. |
About
Founded in 1946 as
Through our subsidiaries, we are licensed as a property and casualty insurer in 43 states, plus the
Our subsidiary,
For more information about
The
Disclosure of forward-looking statements
This release may contain forward-looking statements about our operations, anticipated performance and other similar matters. The Private Securities Litigation Reform Act of 1995 provides a safe harbor under the Securities Act of 1933 and the Securities Exchange Act of 1934 for forward-looking statements. The forward-looking statements are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and/or projected. Such forward-looking statements are based on current expectations, estimates, forecasts and projections about our company, the industry in which we operate, and beliefs and assumptions made by management. Words such as "expect(s)," "anticipate(s)," "intend(s)," "plan(s)," "believe(s)," "continue(s)," "seek(s)," "estimate(s)," "goal(s)," "target(s)," "forecast(s)," "project(s)," "predict(s)," "should," "could," "may," "will continue," "might," "hope," "can" and other words and terms of similar meaning or expression in connection with a discussion of future operating, financial performance or financial condition, are intended to identify forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in Part I Item 1A "Risk Factors" of our annual report on Form 10-K for the year ended December 31, 2011, filed with the
Supplemental Tables
The following table displays our consolidated results of operations for the three-month periods ended
Income Statement: | Three Months Ended |
|||
(In Thousands) | 2012 | 2011(1) | ||
Revenues | ||||
Net premiums written (2) | ||||
Net premiums earned | ||||
Investment income, net of investment expenses | 29,146 | 27,063 | ||
Net realized investment gains | 2,794 | 2,653 | ||
Other income | 256 | 156 | ||
Total Revenues | ||||
Benefits, Losses and Expenses | ||||
Losses and loss settlement expenses | ||||
Increase in liability for future policy benefits | 10,138 | 8,182 | ||
Amortization of deferred policy acquisition costs | 34,551 | 26,046 | ||
Other underwriting expenses | 21,994 | 16,057 | ||
Interest on policyholders' accounts | 10,656 | 10,670 | ||
Total Benefits, Losses and Expenses | ||||
Income before income taxes | 24,876 | 6,939 | ||
Federal income tax expense | 5,692 | 1,129 | ||
Net income | ||||
(2) The Measurement of Results section of this release defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP. |
The following table displays our consolidated financial condition at March 31, 2012 and December 31, 2011.
Balance Sheet: | ||||
(In Thousands) | March 31, 2012 | December 31, 2011 | ||
Total invested assets: | ||||
Property and casualty segment | ||||
Life insurance segment | 1,696,391 | 1,650,651 | ||
Total cash and investments | 3,096,184 | 3,052,535 | ||
Total assets | 3,687,342 | 3,618,924 | ||
Future policy benefits and losses, claims and loss settlement expenses | ||||
Total liabilities | 2,967,952 | 2,922,783 | ||
Net unrealized investment gains, after-tax | ||||
Total stockholders' equity | 719,390 | 696,141 | ||
Property and casualty insurance statutory capital and surplus (1) (2) | ||||
Life insurance statutory capital and surplus (2) | 164,320 | 167,174 | ||
(1) |
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(2) The Measurement of Results section of this release defines data prepared in accordance with statutory accounting practices, which is a comprehensive basis of accounting other than U.S. GAAP. |
The following tables display our net premiums written by line of business:
Three Months Ended March 31, | 2012 | 2011 | 2012 | 2011 | ||||
(In Thousands) | Excluding Premiums |
Including Premiums |
||||||
Net Premiums Written | ||||||||
Commercial lines: | ||||||||
Other liability (1) | ||||||||
Fire and allied lines (2) | 28,480 | 25,948 | 35,565 | 25,948 | ||||
Automobile | 27,831 | 24,381 | 34,834 | 24,381 | ||||
Workers' compensation | 19,411 | 15,239 | 21,729 | 15,239 | ||||
Fidelity and surety | 3,727 | 3,495 | 3,988 | 3,495 | ||||
Miscellaneous | 289 | 226 | 289 | 226 | ||||
Total commercial lines | ||||||||
Personal lines: | ||||||||
Fire and allied lines (3) | ||||||||
Automobile | 4,165 | 3,961 | 5,369 | 3,961 | ||||
Miscellaneous | 150 | 139 | 234 | 139 | ||||
Total personal lines | ||||||||
Reinsurance assumed | 1,832 | 1,223 | 1,832 | 1,223 | ||||
Total | ||||||||
(1)"Other liability" is business insurance covering bodily injury and property damage arising from general business operations, accidents on the insured's premises and products manufactured or sold. | ||||||||
(2) "Fire and allied lines" includes fire, allied lines, commercial multiple peril and inland marine. | ||||||||
(3) "Fire and allied lines" includes fire, allied lines, homeowners and inland marine. |
The following tables display our net premiums earned, losses and loss settlement expenses and loss ratio by line of business:
Three Months Ended |
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2012 | 2011 | |||||||||
Losses | Losses | |||||||||
and Loss | and Loss | |||||||||
Net | Settlement | Net | Settlement | |||||||
(In Thousands) | Premiums | Expenses | Loss | Premiums | Expenses | Loss | ||||
Unaudited | Earned | Incurred | Ratio | Earned | Incurred | Ratio | ||||
Commercial lines | ||||||||||
Other liability | 48.5% | 40.0% | ||||||||
Fire and allied lines | 31,546 | 25,842 | 81.9 | 23,898 | 19,668 | 82.3 | ||||
Automobile | 31,609 | 23,269 | 73.6 | 22,694 | 13,658 | 60.2 | ||||
Workers' compensation | 15,609 | 5,492 | 35.2 | 11,638 | 9,891 | 85.0 | ||||
Fidelity and surety | 4,297 | (44) | (1.0) | 4,061 | (9) | (0.2) | ||||
Miscellaneous | 232 | 1 | 0.4 | 203 | 217 | 106.9 | ||||
Total commercial lines | 59.4% | 60.4% | ||||||||
Personal lines | ||||||||||
Fire and allied lines | 35.6% | 35.2% | ||||||||
Automobile | 5,129 | 3,136 | 61.1 | 3,744 | 1,863 | 49.8 | ||||
Miscellaneous | 222 | 185 | 83.3 | 123 | 2 | 1.6 | ||||
Total personal lines | 44.8% | 40.2% | ||||||||
Reinsurance assumed | 188.3% | NM | ||||||||
Total | 59.5% | 70.4% |
CONTACT:Randy A. Ramlo , President/CEO orDianne M. Lyons , Vice President/CFO 319-399-5700
Source:
Copyright: | 2012 GlobeNewswire, Inc. |
Wordcount: | 4640 |
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