United Fire Group Inc.

11/05/2025 | Press release | Distributed by Public on 11/05/2025 12:08

Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with Part I, Item 1 "Financial Statements and Supplementary Data."
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that are representative of significant judgments and uncertainties and that may result in materially different results under different assumptions and conditions. We base our discussion and analysis of our consolidated financial condition and results of operations on the amounts reported in our Consolidated Financial Statements, which we have prepared in accordance with U.S. generally accepted accounting principles ("GAAP"). As we prepare these Consolidated Financial Statements, we must make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses for the reporting period. We evaluate our estimates on an ongoing basis. We base our estimates on historical experience and on other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Our critical accounting policies are more fully described in our Management's Discussion and Analysis of Financial Condition and Results of Operations presented in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024, filed on February 26, 2025. There have been no changes in our critical accounting policies from December 31, 2024.
INTRODUCTION
The purpose of this Management's Discussion and Analysis is to provide an understanding of our results of operations and consolidated financial condition. Our Management's Discussion and Analysis should be read in conjunction with our Consolidated Financial Statements and related notes, including those in Part II, Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2024. Our Consolidated Financial Statements are prepared in accordance with GAAP. We also prepare financial statements for each of our insurance company subsidiaries based on statutory accounting principles and file them with insurance regulatory authorities in the states where they do business.
When we provide information on a statutory or other basis, we label it as such, otherwise all other data is presented in accordance with GAAP.
BUSINESS OVERVIEW
Originally founded in 1946 as United Fire & Casualty Company, United Fire Group, Inc. ("UFG," the "Company," "we," "us," or "our") and its consolidated insurance subsidiaries provide insurance protection for individuals and businesses through several regional companies. Our property and casualty insurance company subsidiaries are licensed in50 states and the District of Columbia and are represented by approximately 1,000 independent agencies.
Reportable Segments
Our property and casualty insurance business operates and reports as one business segment. For more information, refer to Note 13 "Segment Information" in Part I, Item 1.
Products and Lines of Business
Our business consists primarily of commercial lines property and casualty insurance, including surety bonds. In 2020, the Company announced its intent to withdraw as a direct writer of personal lines insurance. As of September 30, 2025, no exposure to direct personal lines of business remain.
Our core commercial products support a wide variety of customers including small business owners and middle market businesses operating in industries such as construction, services, retail trade, financial and manufacturing, along with contract surety and commercial surety bonds offered through approximately 1,000 independent property and casualty agencies. We also provide specialty and surplus lines coverage written exclusively through wholesale brokers on an admitted and non-admitted basis. The Company also participates as a member of Lloyd's of London syndicates through our insurance subsidiary, McIntyre Cedar Corporate Member LLP. Additionally, the Company offers reinsurance coverage for property and casualty insurance through traditional treaty reinsurance channels. The reinsurance operation supports primarily commercial lines of business but also assumes risk in professional, financial and personal lines of insurance. We also partner with Management General Agents ("MGAs") to offer delegated underwriting programs providing niche products including marine specialty, professional liability and earthquake coverages.
We review and report our results using lines of business. The following table shows the principal types of property and casualty insurance policies we write and issue, and in which lines of business they are reported:
Direct Writer
Treaty Reinsurance(1)
Lloyd's of London MGAs
Commercial Lines
Other Liability x P x
Fire and allied lines x P x
Automobile x P
Workers' compensation x P
Fidelity and surety x P
Other x x
Personal Lines
Fire and allied lines * P
Automobile *
Other *
Reinsurance Assumed NP x
* Personal lines direct business was discontinued in 2020, and as of September 30, 2025 no exposure to direct personal lines of business remain.
(1)Treaty Reinsurance is split between proportional reinsurance (P) and non-proportional reinsurance (NP).
Commercial other liability - primarily business insurance covering bodily injury and property damage including construction defect, excess and surplus lines excess casualty, and standard umbrella. Proportional assumed reinsurance on these lines and professional liability coverage managed by an MGA partner.
Commercial fire and allied lines - primarily multi-peril non-liability property coverage and inland marine. Proportional assumed reinsurance on these lines and earthquake coverage managed by an MGA partner.
Commercial automobile - physical damage to an insured's vehicle, as well as liabilities to third parties. Automobile physical damage insurance covers loss or damage to vehicles from collision, vandalism, fire, theft, flood or other causes. Automobile liability insurance covers bodily injury, damage to property resulting from automobile accidents caused by the insured, uninsured or under-insured motorists and the legal costs of defending the insured against lawsuits. Proportional reinsurance on these lines is also included.
Workers' compensation - business coverage for employees who are injured or become ill as a result of their job,
including proportional assumed reinsurance for this coverage. Our workers' compensation insurance covers primarily small- to mid-sized accounts.
Fidelity and surety - contract and commercial surety bond coverage which guarantees performance and payment by our bonded principals, protects owners from failure to perform on the part of our principals, and protects material suppliers and subcontractors from nonpayment by our contractors. Proportional reinsurance on these lines is also included.
Commercial other - commercial theft coverage, boiler and machinery and ocean marine business managed by an MGA partner.
Personal fire and allied lines - proportional assumed reinsurance for homeowners multi-peril coverage.
Reinsurance assumed - primarily non-proportional assumed reinsurance and Funds at Lloyd's property and casualty syndicates.
Lloyd's of London ("Lloyds") Syndicates
The Company is a member of Lloyd's through its insurance subsidiary, McIntyre Cedar Corporate Member LLP. Lloyd's operates as an insurance marketplace whereby members join syndicates to underwrite property and casualty and reinsurance business through a managing agent in return for receiving premiums. The Company participates in Syndicate 1492, Syndicate 1729, Syndicate 1969, Syndicate 1971, Syndicate 4747, Syndicate 2988, Syndicate 1699, Syndicate 5623, Syndicate 2358, Syndicate 1955 and Syndicate 1609. The Company is required to maintain capital at Lloyd's, referred to as Funds at Lloyd's ("FAL"), to support participation in these syndicates.
Pooling Arrangement
All of our property and casualty insurance subsidiaries belong to an intercompany reinsurance pooling arrangement. Pooling arrangements permit the participating companies to rely on the capacity of the entire pool's capital and surplus, rather than being limited to policy exposures of a size commensurate with each participant's own surplus level. Under such arrangements, the members share substantially all of the insurance business that is written and allocate the combined premiums, losses and expenses based on percentages defined in the arrangement.
Geographic Concentration
For the nine-month period ended September 30, 2025, approximately 48.9 percent of our property and casualty premiums were written in Texas, California, Iowa, Missouri, and New Jersey.
NON-GAAP FINANCIAL MEASURES
We evaluate profit or loss based upon operating and investment results. Profit or loss described in the following sections of this Management's Discussion and Analysis is reported on a pre-tax basis. Our primary sources of revenue are premiums and investment income. Major categories of expenses include losses and loss settlement expenses, underwriting and other operating expenses. Management uses metrics to provide financial statement users with a better understanding of results of operations, including adjusted operating income and three components of the loss ratio: underlying loss ratio, impacts of catastrophes and non-catastrophe prior period reserve development.
Adjusted operating income is calculated by excluding net investment gains and losses, after applicable federal and state income taxes from net income (loss). Management believes adjusted operating income is a meaningful measure for evaluating insurance company performance and a useful supplement to GAAP information because it better represents the normal, ongoing performance of our business. Investors and equity analysts who invest in and report on the insurance industry and the Company generally focus on this metric in their analyses.
Underlying loss ratio represents the net loss ratio less the impacts of catastrophes and non-catastrophe prior period reserve development. The underlying combined ratio represents the combined ratio less the impacts of catastrophes and non-catastrophe prior period reserve development. The Company believes that the underlying loss ratio and
underlying combined ratio are meaningful measures to understand the underlying trends in the core business in the current accident year, removing the volatility of catastrophes and impact of prior period reserve development. Management believes separate discussions on catastrophe losses and prior period reserve development are important to understanding how the Company is managing catastrophe risk and in identifying developments in longer-tailed business. Catastrophe losses is an operational measure that utilizes the designations of the Insurance Services Office ("ISO") and is reported with losses and loss adjustment expense amounts net of reinsurance recoverables, unless specified otherwise. In addition to ISO catastrophes, we also include as catastrophes those events ("non-ISO catastrophes"), which may include U.S. or international losses, that we believe are, or will be, material to our operations, either in amount or in number of claims made. Catastrophes are not predictable and are unique in terms of timing and financial impact. While management estimates catastrophe losses as incurred, due to the inherently unique nature of catastrophe losses, the impact in a reporting period is inclusive of catastrophes that occurred in the reporting period, as well as development on catastrophes that may have occurred in prior periods. Prior period reserve development is the increase (unfavorable) or decrease (favorable) in incurred loss and loss adjustment expense reserves at the valuation dates for losses which occurred in previous calendar years. This measure excludes development on catastrophe losses.
RESULTS OF OPERATIONS
The following table includes the consolidated results of our operations for the three- and nine-month periods ended September 30, 2025 and 2024, with more detailed components and discussion in the sections that follow. Discussions of the components of net income are presented on a pre-tax basis, unless otherwise noted.
FINANCIAL HIGHLIGHTS
Three months ended September 30, Nine months ended September 30,
(In thousands, except ratios) 2025 2024 2025 2024
Revenues
Net premiums earned $ 328,431 $ 300,185 $ 951,644 $ 868,613
Net investment income 25,992 24,459 71,123 58,830
Net investment gains (losses) (405) (1,680) (2,161) (4,111)
Other income (loss) - - - (3,200)
Total revenues $ 354,018 $ 322,964 $ 1,020,606 $ 920,132
Benefits, Losses and Expenses
Losses and loss settlement expenses $ 188,180 $ 187,148 $ 571,608 $ 568,119
Amortization of deferred policy acquisition costs 81,513 71,425 233,280 204,504
Other underwriting expenses 32,124 36,454 107,017 103,532
Interest expense 3,118 2,481 8,085 4,800
Other non-underwriting expenses 407 481 884 1,688
Total benefits, losses and expenses $ 305,342 $ 297,989 $ 920,874 $ 882,643
Income (loss) before income taxes $ 48,676 $ 24,975 $ 99,732 $ 37,489
Income tax expense (benefit) 9,486 5,227 19,895 6,974
Net income (loss) $ 39,190 $ 19,748 $ 79,837 $ 30,515
Combined ratio:
Net loss ratio 57.3 % 62.3 % 60.1 % 65.4 %
Underwriting expense ratio 34.6 35.9 35.8 35.5
Combined ratio 91.9 % 98.2 % 95.9 % 100.9 %
Additional ratios(1):
Net loss ratio 57.3 % 62.3 % 60.1 % 65.4 %
Catastrophes 1.3 4.4 3.9 6.7
Reserve development (favorable) unfavorable - - (0.5) -
Underlying loss ratio (non-GAAP)
56.0 % 57.9 % 56.7 % 58.7 %
Underwriting expense ratio 34.6 % 35.9 % 35.8 % 35.5 %
Underlying combined ratio (non-GAAP) 90.6 % 93.8 % 92.5 % 94.2 %
(1) Underlying loss ratio and underlying combined ratio are non-GAAP financial measures. See "Non-GAAP Financial Measures" in Part I, Item 2 for additional information.
Net Written Premium
Net written premium is the amount charged for insurance policy contracts issued and recognized on an annualized basis at the effective date of the policy. Net written premium is frequently used by industry analysts and other recognized reporting sources to facilitate comparisons of the performance of insurance companies. Management believes net written premium is a meaningful measure for evaluating insurance company sales performance and geographical expansion efforts. Net written premium for an insurance company consists of direct written premium and assumed premiums, less ceded premiums. The following shows our written premium for the three- and nine-month periods ended September 30, 2025 and 2024.
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 % 2025 2024 %
Direct written premium $ 311,878 $ 295,729 5.5 % $ 1,005,908 $ 901,286 11.6 %
Assumed written premium 49,277 55,882 (11.8) 153,154 171,182 (10.5)
Ceded written premium (32,943) (46,060) (28.5) (122,590) (119,527) 2.6
Net written premium $ 328,212 $ 305,551 7.4 % $ 1,036,472 $ 952,941 8.8 %
See "Premiums" below for a description of the changes in premiums for the periods presented.
Revenues
Premiums
Net earned premium is calculated on a pro-rata basis over the terms of the respective policies. Unearned premium reserves are established for the portion of written premium applicable to the unexpired terms of the insurance policies in force. The difference between net earned premium and net written premium is the change in unearned premium and the change in prepaid reinsurance premiums. Direct earned premium is recognized ratably over the life of a policy and differs from direct written premium, which is recognized on the effective date of the policy. The following shows our earned premium for the three- and nine-month periods ended September 30, 2025 and 2024.
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 % 2025 2024 %
Direct earned premium 319,203 283,447 12.6 % 931,984 815,614 14.3 %
Assumed earned premium 49,339 54,406 (9.3) % 153,596 158,947 (3.4) %
Ceded earned premium (40,111) (37,668) 6.5 % (133,936) (105,948) 26.4 %
Net earned premium $ 328,431 $ 300,185 9.4 % $ 951,644 $ 868,613 9.6 %
Direct Premiums
Direct premiums are the total policy premiums, net of cancellations, associated with policies issued and underwritten by the Company. Direct premiums increased $35.8 million and $116.4 million in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024 driven by growth in our core commercial lines resulting from substantial new business production, increased pricing and improved retention.
Assumed Premiums
Assumed premiums are the total premiums associated with the insurance risk transferred to us by other insurance and reinsurance companies pursuant to reinsurance contracts. Assumed premiums decreased $5.1 million and $5.4 million in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024 due to targeted management actions of exiting certain reinsurance programs.
Ceded Premiums
Ceded premiums are the portion of direct premiums that we cede to reinsurers under our reinsurance contracts. Ceded premiums increased $2.4 million and $28.0 million in the three- and nine-month periods ended September 30, 2025, respectively, compared to the same periods in 2024 due primarily to growth in the subject premium base and ceded reinsurance premium adjustments.
Net Investment Income
Net investment income was $26.0 million for the third quarter of 2025, an increase of $1.5 million compared to the same period in 2024. The increase was primarily from our fixed income portfolio increase of $3.2 million as a result of portfolio management actions and investing at higher rates and increased income on cash and cash equivalents, offset by lower income on other long-term investments.
Net investment income was $71.1 million for the nine-month period ended September 30, 2025, an increase of $12.3 million compared to the same period in 2024. The increase was primarily from the fixed income portfolio increase of $14.5 million as a result of portfolio management actions and investing at higher rates, offset by lower income on other long-term investments
Refer to Note 2 "Investments" in Part I, Item 1 for more information on net investment income.
Net Investment Gains (Losses)
Net investment losses were $0.4 million and $2.2 million for the three- and nine-month periods ended September 30, 2025, respectively, as compared to net investment losses of $1.7 million and $4.1 million for the same periods in 2024. The primary reason for the change relates to portfolio management actions taken during the year ended December 31, 2024 and an increase in the allowance for credit losses related to mortgage loans during the nine-month period ended September 30, 2025.
Refer to Note 2 "Investments" in Part I, Item 1 for more information on net investment gains and losses.
Benefits, Losses and Expenses
Losses and Loss Settlement Expenses
The following is a summary of losses and loss settlement expenses for the three- and nine-month periods ended September 30, 2025 and 2024:
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 2025 2024
Loss and loss settlement expenses, excluding catastrophes and prior year reserve development $ 183,920 $ 173,919 $ 539,593 $ 510,009
Impact of catastrophes, including prior year reserve development 4,310 13,266 37,155 58,225
Prior year (favorable) unfavorable reserve development on non-catastrophe losses (50) (37) (5,140) (115)
Loss and loss settlement expenses $ 188,180 $ 187,148 $ 571,608 $ 568,119
Net loss ratio 57.3 % 62.3 % 60.1 % 65.4 %
For the three-month period ended September 30, 2025, our loss and loss settlement expenses were $1.0 million, or 0.6%, higher than the same period in 2024, and our net loss ratio improved 5.0 points compared to the same period in 2024. This was driven by improvement in the underlying loss ratio and a catastrophe ratio below the five-year and 10-year historical averages. The underlying loss ratio improvement was driven by sustained lower frequency and earned rate achievement, as well as favorable large loss experience compared to historical levels.
For the nine-month period ended September 30, 2025, our loss and loss settlement expenses were $3.5 million, or 0.6%, higher than the same period in 2024, and our net loss ratio improved 5.3 points compared to the same period in 2024. This was driven by improvement in the underlying loss ratio, $5.1 million of favorable prior year reserve development on non-catastrophe losses, and a catastrophe ratio below the five-and ten-year historical averages. The underlying loss ratio improvement was driven by rate achievement and continued favorable frequency in most major lines.
The Company experienced favorable reserve development of $0.1 million and $5.1 million, excluding catastrophe losses, for prior accident years during the three- and nine-month periods ended September 30, 2025, respectively. The nine- month development was driven by better than expected loss adjustment expense payments. Adverse development in commercial other liability reflects the Company's continued response to increased loss settlements resulting from the impact of economic and social inflation, including increased litigation activity. This was offset by improvement in several other core commercial lines.
In the three- and nine-month periods ended September 30, 2025, our pre-tax catastrophe losses were $4.3 million and $37.2 million, respectively, a decrease of $9.0 million and $21.1 million, respectively, compared to the same periods in 2024. Our catastrophe losses included 14 new events in the third quarter of 2025. Catastrophe losses in the three- and nine-month periods ended September 30, 2025 added 1.3 and 3.9 points to the combined ratio, respectively, which is below our five-year and 10-year historical averages.
Amortization of Deferred Policy Acquisition Costs ("DAC")
The following is a summary of the components of DAC, including amortization:
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 2025 2024
Deferred policy acquisition costs asset, beginning of period $ 161,976 $ 144,021 $ 147,224 $ 126,532
Underwriting costs deferred 84,225 75,844 249,627 226,412
Amortization of deferred policy acquisition costs(1)
(81,755) (70,827) (232,405) (203,906)
Deferred policy acquisition costs asset, end of period $ 164,446 $ 149,038 $ 164,446 $ 149,038
(1) Amortization of deferred policy acquisition costs includes impact of changes in foreign currency exchange rates on the Lloyd's of London business, which is included as a component of accumulated other comprehensive income (loss).
DAC is amortized over the period the related premiums are earned. Amortization increased for the three- and nine-month periods ended September 30, 2025, primarily reflecting an increase in deferred underwriting costs over the last year aligned with continued premium expansion.
Net Loss Ratios by Line
The following tables display our net loss ratio for the three- and nine-month periods ended September 30, 2025:
Three months ended September 30, 2025 2024
(In thousands, except ratios) Net Earned Premium Net Losses and Loss Settlement Expenses Incurred Net Loss Ratio Net Earned Premium Net Losses and Loss Settlement Expenses Incurred Net Loss Ratio
Commercial lines
Other liability $ 101,540 $ 73,890 72.8 % $ 86,688 $ 68,495 79.0 %
Fire and allied lines 64,071 23,537 36.7 64,070 34,113 53.2
Automobile 74,696 42,033 56.3 62,489 22,214 35.5
Workers' compensation 17,657 12,295 69.6 13,959 14,630 104.8
Fidelity and surety 16,909 4,422 26.2 15,900 4,799 30.2
Other 2,299 1,030 44.8 2,840 3,104 109.3
Total commercial lines $ 277,172 $ 157,207 56.7 % $ 245,946 $ 147,355 59.9 %
Personal lines
Fire and allied lines $ 5,211 $ 2,323 44.6 % $ 2,780 $ (1,753) NM
Automobile 364 232 63.7 % 332 198 59.6
Other - (6) NM 2 171 NM
Total personal lines $ 5,575 $ 2,549 45.7 % $ 3,114 $ (1,384) NM
Reinsurance assumed(1)
$ 45,684 $ 28,424 62.2 % $ 51,125 $ 41,177 80.5 %
Total $ 328,431 $ 188,180 57.3 % $ 300,185 $ 187,148 62.4 %
NM = Not meaningful
(1) Reinsurance assumed includes Lloyd's of London.
Nine months ended September 30, 2025 2024
(In thousands, except ratios) Net Earned Premium Net Losses and Loss Settlement Expenses Incurred Net Loss Ratio Net Earned Premium Net Losses and Loss Settlement Expenses Incurred Net Loss Ratio
Commercial lines
Other liability $ 283,797 $ 207,438 73.1 % $ 252,011 $ 200,980 79.8 %
Fire and allied lines 193,013 88,600 45.9 190,123 109,293 57.5
Automobile 208,198 124,858 60.0 176,688 109,624 62.0
Workers' compensation 47,073 30,607 65.0 39,901 29,291 73.4
Fidelity & Surety 48,104 14,372 29.9 44,748 14,992 33.5
Miscellaneous 8,694 5,122 58.9 6,579 5,131 78.0
Total commercial lines $ 788,879 $ 470,997 59.7 % $ 710,050 $ 469,311 66.1 %
Personal lines
Fire and allied lines $ 9,876 $ 4,226 42.8 % $ 10,423 $ 3,215 30.8 %
Automobile 1,522 972 63.9 575 308 53.6
Miscellaneous 2 (47) NM 8 193 NM
Total personal lines $ 11,400 $ 5,151 45.2 % $ 11,006 $ 3,716 33.8 %
Reinsurance assumed(1)
$ 151,365 $ 95,460 63.1 % $ 147,557 $ 95,092 64.4 %
Total $ 951,644 $ 571,608 60.1 % $ 868,613 $ 568,119 65.4 %
NM = Not meaningful
(1) Reinsurance assumed includes Lloyd's of London.
Commercial Lines
The net loss ratio in our commercial lines of business was 56.7% for the third quarter of 2025, compared to 59.9% for the third quarter of 2024. This result was driven by improvement in the underlying loss ratio and favorable catastrophe experience.
Commercial Other Liability
We write numerous types of risk that are exposed to liability losses in our direct and assumed books of business. This includes, but is not limited to, bodily injury, property damage, standard umbrella, excess liability, and product liability (including construction defect).
The net loss ratio improved 6.2 and 6.7 points in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024. For both the three- and nine-month periods, the result was driven by improvement in the underlying loss ratio and favorable prior year development in 2025 compared to 2024.
Commercial Fire and Allied Lines
The net loss ratio improved 16.5 and 11.6 points in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024. For the three-month period, the result was driven by improvement in the underlying ratio including favorable large loss experience, coupled with a favorable catastrophe result. For the nine-month period, the result was driven in part by the underlying loss ratio, better favorable prior year development in 2025 compared to 2024, and a favorable catastrophe result.
Commercial Automobile
The net loss ratio deteriorated 20.8 and improved 2.0 points in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024. The three-month result was driven by less favorable prior year development in 2025 compared to 2024 and the catastrophe ratio. The catastrophe ratio for the three-month period in 2025 was higher than 2024, with the 2024 ratio impacted by favorable emergence on prior
period catastrophes. The nine-month result was driven in part by consistent pricing increases throughout 2024 and continued favorable frequency trends associated with more restrictive underwriting guidelines and exposure appetite.
Workers' Compensation
The net loss ratio improved 35.2 and 8.4 points in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024. Both the three- and nine-month improvement was driven by prior period favorable development in 2025.
Fidelity and Surety
The net loss ratio improved 4.0 and 3.6 points in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024. When surety losses occur, our loss is determined by estimating the cost to complete the remaining work and to pay the contractor's unpaid bills, offset by contract funds due to the contractor, reinsurance, and the value of any collateral to which we may have access. The change in loss ratio was driven by favorable prior year development in 2025 compared to 2024 on large losses from 2023 and 2022.
Reinsurance Assumed
The net loss ratio improved 18.3 and 1.3 points in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024. The change from 2024 was driven by favorable catastrophe results in 2025 compared to 2024.
Underwriting Expenses
The following is a summary of underwriting expenses, including the underwriting expense ratio:
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 2025 2024
Amortization of deferred policy acquisition costs $ 81,513 $ 71,425 $ 233,280 $ 204,504
Other underwriting expenses 32,124 36,454 107,017 103,532
Underwriting expenses $ 113,637 $ 107,879 $ 340,297 $ 308,036
Net earned premium 328,431 300,185 951,644 868,613
Expense ratio(1)
34.6 % 35.9 % 35.8 % 35.5 %
(1) Expense ratio is calculated by dividing non-deferred underwriting expenses and amortization of deferred policy acquisition costs by net earned premium. The expense ratio measures a company's operational efficiency in producing, underwriting and administering its insurance business.
The expense ratio decreased 1.3 points and increased 0.3 points in the three- and nine-month periods ended September 30, 2025, respectively, as compared to the same periods in 2024. The decrease in the third quarter of 2025, compared to the same period in 2024, was mainly driven by continued focus on disciplined expense management and business growth. The increase in the nine-month period ended September 30, 2025, compared to the same period in 2024, was driven by non-recurring expenses associated with the final stages of development of a new policy administrative system in the first quarter of 2025, offset by continued focus on disciplined expense management and business growth.
Interest Expenses
The following is a summary of interest expense:
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 2025 2024
Interest paid $ 3,118 $ 2,481 $ 8,085 $ 4,800
Our long term debt obligations include $50.0 million of private placement notes issued in December 2020 and $70.0 million and $30.0 million of senior unsecured notes issued in May 2024 and July 2025, respectively. Interest expense increased for the three- and nine-month periods ended September 30, 2025 due to the issuance of the senior unsecured notes. Refer to Note 8 "Debt" in Part I, Item 1 for more information on our long term debt.
Income Taxes
The following is a summary of income tax expense (benefit), including the effective tax rate:
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 2025 2024
Income (loss) before income taxes $ 48,676 $ 24,975 $ 99,732 $ 37,489
Income tax expense (benefit) 9,486 5,227 19,895 6,974
Effective tax rate(1)
19.5 % 20.9 % 19.9 % 18.6 %
(1)The effective tax rate is calculated by dividing "Income tax expense (benefit)" by "Income (loss) before income taxes."
The consolidated effective tax rate was 19.5 percent and 19.9 percent for the three- and nine-month periods ended September 30, 2025, respectively. Our effective tax rate for the three- and nine-month periods ended September 30, 2025 is different than the federal statutory rate of 21 percent, due primarily to the net effect of tax-exempt municipal bond interest income, state income taxes and interest on a federal tax refund.
Refer to Note 12 "Income Tax" in Part I, Item 1 for more information on the Company's income taxes.
Adjusted Operating Income (See "Non-GAAP Financial Measures")
The table below shows the adjustments made to reconcile Net income (loss) to Adjusted operating earnings:
Net Income Reconciliation
Three months ended September 30, Nine months ended September 30,
(In Thousands) 2025 2024 2025 2024
Income statement data
Net income (loss) $ 39,190 $ 19,748 $ 79,837 $ 30,515
Less: Net investment gains (losses), after-tax (320) (1,327) (1,707) (3,249)
Adjusted operating income (loss) $ 39,510 $ 21,075 $ 81,544 $ 33,764
Adjusted operating income increased in the third quarter of 2025, primarily due to an increase in net earned premium of $28.2 million combined with the underlying loss ratio improvement of 1.9 points to 56.0% and catastrophe loss ratio improvement of 3.1 points to 1.3%. In addition, net investment income increased by $1.5 million, driven by portfolio repositioning in 2024. The underwriting expense ratio improved 1.3 points to 34.6%.
Adjusted operating income increased in the nine-month period ended September 30, 2025, compared to the same period in 2024, primarily due to an increase in net earned premium of $83.0 million combined with an underlying loss ratio improvement of 2.0 points to 56.7%, catastrophe loss ratio improvement of 2.8 points to 3.9% and favorable prior year reserve development, excluding catastrophe losses, of 0.5 points. In addition, net investment income increased by $12.3 million, driven by portfolio repositioning in 2024. The underwriting expense ratio increased 0.3 points to 35.8%.
INVESTMENTS
Investment Philosophy
The Company's assets are invested to preserve capital and maximize total return while maintaining an appropriate balance of risk. The risk-adjusted return on our portfolio is an important component of overall financial results, but quality and safety of principal is the highest priority of our investment program. We administer our investment portfolio based on investment guidelines approved by management and the Investment Committee of our Board of Directors that comply with applicable statutory regulations. The portfolio is structured to be compliant with state insurance laws that prescribe the quality, concentration and type of investments that may be made by insurance companies.
We monitor our portfolio to appropriately manage risk, achieve portfolio objectives and maximize investment income as market conditions change. Our overall investment strategy is to stay fully invested (i.e., minimize cash balances). If additional cash is needed, we have the ability to take advances through the Federal Home Loan Bank of Des Moines ("FHLB Des Moines") facility. The Company entered into an investment management agreement with New England Asset Management ("NEAM") effective as of February 1, 2024, pursuant to which NEAM will provide investment management services.
Investment Portfolio
Our invested assets totaled $2.3 billion at September 30, 2025, compared to $2.1 billion at December 31, 2024, an increase of $178 million. We utilize a conservative investment philosophy, investing in a diversified portfolio of high-quality, intermediate-term taxable corporate bonds, taxable U.S. government and government agency bonds and tax-exempt U.S. municipal bonds. The composition of our investment portfolio at September 30, 2025 is presented at carrying value in the following table:
Carrying Percent
(In thousands, except ratios) Value of Total
Fixed maturities, available-for-sale(1)
US Treasury and government agencies $ 103,632 5.0 %
States, municipalities, and political subdivisions 249,716 11.0
Corporate 728,450 32.0
Residential mortgage-backed 630,372 28.0
Commercial mortgage-backed 146,254 6.0
Other asset-backed 157,942 7.0
Total Fixed maturities, available for sale 2,016,366 89.0
Mortgage loans 39,333 2.0
Other long-term investments(2)
215,363 9.0
Total $ 2,271,062 100.0 %
(1) Available-for-sale securities with fixed maturities are carried at fair value.
(2) As a member of Lloyd's, the Company participates in the syndicate results which include the fair value of the investments. As of December 31, 2024, these investments are included in other long-term investments. The fair value of Lloyd's syndicate investments included in other long-term investments was $116.6 million as of September 30, 2025. Also included in our other long-term investments on the Consolidated Balance Sheets is our interest in limited liability partnerships with a current fair value of $97.3 million at September 30, 2025.
Credit Quality
The following table shows the composition of fixed maturity securities by credit rating at September 30, 2025 and December 31, 2024. Information contained in the table is generally based upon the issued credit ratings provided by external rating agencies.
(In thousands, except ratios) September 30, 2025 December 31, 2024
Rating Carrying Value % of Total Carrying Value % of Total
AAA $ 582,754 28.9 % $ 1,013,702 54.3 %
AA 777,641 38.6 243,353 13.0
A 437,613 21.7 373,208 20.0
Baa/BBB 215,569 10.7 233,523 12.5
Other/Not Rated 2,789 0.1 4,545 0.2
$ 2,016,366 100.0 % $ 1,868,331 100.0 %
As of September 30, 2025 and December 31, 2024, we did not have direct exposure to investments in subprime mortgages or other credit enhancement vehicles.
Duration
Our investment portfolio is invested primarily in fixed maturity securities whose fair value is susceptible to market risk, specifically interest rate changes. Duration is a measurement used to quantify our inherent interest rate risk and analyze our ability to match our invested assets to our reserve liabilities. Invested assets and reserve liability accounts with similar durations will have an offsetting effect of any change in interest rates. The primary purpose for matching invested assets and reserve liabilities is liquidity, and with appropriate matching, our investments will mature when cash is needed, preventing the need to liquidate other assets prematurely. Mismatches in the duration of assets and liabilities can cause significant fluctuations in our results of operations.
We analyze potential changes in the value of our investment portfolio due to the market risk factors noted above within the overall context of asset and liability management. A technique we use in the management of our investment portfolio specifically related to interest rate risk is the calculation of duration. Our actuaries estimate the payout pattern of our reserve liabilities to determine their duration, which is the present value of the weighted average payments expressed in years. We then establish a target duration for our investment portfolio so that at any given time the estimated cash generated by the investment portfolio will closely match the estimated cash required for the payment of the related reserves. We structure the investment portfolio to meet the target duration to achieve the required cash flow, based on liquidity and market risk factors.
The weighted average effective duration of our portfolio of fixed maturity securities was 4.29 years at September 30, 2025 compared to 4.22 years at December 31, 2024. Refer to Note 2 "Investments" in Part I, Item 1 for more information on maturities.
Unrealized Investment Gains and Losses
As of September 30, 2025, net unrealized investment losses, after tax, totaled $28.5 million compared to net unrealized losses, after tax, of $72.2 million as of December 31, 2024. The net unrealized investment loss position improved from December 31, 2024 due to the decrease in bond market interest rates during the nine-month period ended September 30, 2025.
Refer to Note 2 "Investments" in Part I, Item 1 for more information on net investment unrealized gains and losses.
Allowance for Credit Losses and Watch List
We prepare a watch list with securities identified to evaluate for the potential of credit loss. Factors used in preparing the watch list include fair values relative to amortized cost, ratings, negative ratings actions and other factors. Detailed analysis is performed for each security on the watch list to further assess the presence of credit
impairment loss indicators and, where present, calculate an allowance for credit losses or direct write-down of a security's amortized cost.
At September 30, 2025, our fixed maturity watch list included five fixed maturity securities in an unrealized loss position with an amortized cost of $13.2 million, no allowance for credit losses, unrealized losses of $0.6 million and a fair value of $12.5 million.
At September 30, 2025, our mortgage loan watch list included one commercial mortgage loan in an unrealized loss position with an amortized cost of $6.6 million, $1.1 million allowance for credit losses, unrealized loss of $0.9 million and a fair value of $5.7 million.
Refer to Note 2 "Investments" in Part I, Item 1 for more information on our investments.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity measures our ability to generate sufficient cash flows to meet our short-term and long-term cash obligations. Our cash inflows are primarily a result of the receipt of premiums, reinsurance recoveries, sales or maturities of investments, and investment income. Cash provided from these sources is used to fund the payment of losses and loss settlement expenses, the purchase of investments, operating expenses, dividends, and common stock repurchases. When considering our liquidity and cash flow, it is important to distinguish between the needs of our insurance subsidiaries and the needs of the holding company, United Fire Group, Inc. As a holding company with no operations of its own, United Fire Group, Inc. derives its cash primarily from its insurance subsidiaries.
The sources of liquidity of the holding company are principally comprised of dividends from subsidiaries, existing surplus notes, investment income on holding company assets and the ability to raise long-term public financing under an SEC-filed registration statement or private placement offering. These sources of liquidity and cash flow support the general corporate needs of the holding company, interest and debt service, and investment in core businesses.
We monitor our capital adequacy to support our business on a regular basis. The future capital requirements of our business will depend on many factors, including our ability to write new business successfully and to establish premium rates and reserves at levels sufficient to cover losses. Our ability to underwrite is largely dependent upon the quality of our claims paying and financial strength ratings as evaluated by independent rating agencies. In particular, we require (1) sufficient capital to maintain our financial strength ratings, as issued by various rating agencies, at a level considered necessary by management to enable our insurance company subsidiaries to compete and (2) sufficient capital to enable our insurance company subsidiaries to meet the capital adequacy tests performed by regulatory agencies in the United States.
Cash outflows may be variable because of the uncertainty regarding settlement dates for losses. In addition, the timing and amount of individual catastrophe losses are inherently unpredictable and could increase our liquidity requirements. The timing and amount of reinsurance recoveries may be affected by reinsurer solvency and reinsurance coverage disputes.
The following table displays a consolidated summary of cash sources and uses for the nine-month periods ended September 30, 2025 and 2024:
Cash Flow Summary Nine months ended September 30,
(In thousands) 2025 2024
Cash provided by (used in)
Operating activities $ 149,911 $ 184,011
Investing activities (133,569) (143,072)
Financing activities 16,446 54,386
Net change in cash and cash equivalents $ 32,788 $ 95,325
Our cash flows were sufficient to meet our liquidity needs for the nine-month periods ended September 30, 2025 and 2024 and we anticipate they will be sufficient to meet our future liquidity needs. We also have the ability to draw on our credit facility if needed.
At September 30, 2025, our cash and cash equivalents included $47.8 million related to money market accounts, compared to $23.1 million at December 31, 2024.
Operating Activities
Net cash flows provided by operating activities were $149.9 million and $184.0 million for the nine-month periods ended September 30, 2025 and 2024, respectively. For the nine-month period ended September 30, 2025, the net operating cash inflows were driven by premium and investment income offsetting loss and expense outflows.
Investing Activities
Cash in excess of operating requirements is generally invested in fixed maturity securities. Fixed maturity securities provide regular interest payments and allow us to match the duration of our liabilities. For further discussion of our investments, including our philosophy and strategy for our portfolio, see the "Investment Portfolio" section of this Item 2.
Sales of investments and proceeds from calls or maturities of fixed maturity securities can also provide liquidity. During the next five years, $405.6 million, or 20.1 percent, of our fixed maturity portfolio will mature.
Net cash flows used in investing activities were $133.6 million for the nine-month period ended September 30, 2025, compared to net cash flows used in investing activities of $143.1 million for the nine-month period ended September 30, 2024. For the nine-month periods ended September 30, 2025 and 2024, we had cash inflows from scheduled and unscheduled investment maturities, redemptions, prepayments, and sales of investments of $305.2 million and $541.2 million, respectively. Our cash outflows for investment purchases were $432.9 million for the nine-month period ended September 30, 2025, compared to $675.4 million for the same period of 2024.
Financing Activities
Net cash flows provided by financing activities were $16.4 million for the nine-month period ended September 30, 2025, compared to $54.4 million provided by financing activities in the nine-month period ended September 30, 2024. The decrease of $37.9 million in net cash flows from financing activities was a result of our successful completion of a $30 million private placement offering of senior unsecured notes completed in the third quarter of 2025, compared to the $70 million private placement offering of senior unsecured notes completed in the second quarter of 2024.
Commitments for Capital Expenditures
Credit Facilities
In December 2023, UF&C became a member of FHLB Des Moines. Membership allows access to loans or advances pursuant to the terms of FHLB Des Moines' standard Advances, Pledge and Security Agreement (the "Advances Agreement"). As of September 30, 2025, there were no advances outstanding under the Advances Agreement. For further information regarding the agreement with FHLB Des Moines, see Note 8 "Debt" contained in Part I, Item 1.
Dividends
Dividends paid to shareholders totaled $12.2 million in each of the nine-month periods ended September 30, 2025 and 2024. Our practice has been to pay quarterly cash dividends, which we have paid every quarter since March 1968. Payments of any future dividends and the amounts of such dividends will depend upon factors such as net income, financial condition, capital requirements, and general business conditions. We will only pay dividends if declared by our Board of Directors out of legally available funds.
As a holding company with no independent operations of its own, UFG relies on dividends received from its insurance company subsidiaries in order to pay dividends to its common shareholders. Dividends payable by our insurance subsidiaries are governed by the laws in the states in which they are domiciled. In all cases, these state laws permit the payment of dividends only from earned surplus arising from business operations. For example, under Iowa law, the maximum dividend or distribution that may be paid within a 12-month period without prior approval of the Iowa Insurance Commissioner is generally restricted to the greater of 10 percent of statutory surplus as of the preceding December 31 less any dividends paid in the previous 12 months, or net income of the preceding calendar year on a statutory basis less any dividends paid in the previous 12 months, not greater than earned statutory surplus. Other states in which our insurance company subsidiaries are domiciled may impose similar restrictions on dividends and distributions. Based on these restrictions, at September 30, 2025, UFG's sole direct insurance company subsidiary, UF&C, is able to make a maximum of $51 million in dividend payments without prior regulatory approval. These restrictions are not expected to have a material impact in meeting the cash obligations of UFG.
Funding Commitments
Pursuant to agreements with our limited liability partnership investments, we are contractually committed through 2030 to make capital contributions upon request of the partnerships. The timing of these additional contributions is unknown and based upon the timing of when investments and agreements are executed or signed compared to when the actual commitments are funded or closed. Our remaining potential contractual obligation was $17.7 million at September 30, 2025.
Stockholders' Equity
Stockholders' equity increased to $898.7 million at September 30, 2025, from $781.5 million at December 31, 2024. The Company's book value per share was $35.22, which is an increase of $4.42 per share, or 14.4 percent, from December 31, 2024. The increase is primarily attributable to net income of $79.8 million and reduction in net unrealized losses of $43.7 million on fixed maturity securities, slightly offset by shareholder dividends of $12.2 million during the first nine months of 2025.
Recently Issued Accounting Standards
Information specific to accounting standards we adopted for the nine-month period ended September 30, 2025 or pending accounting standards we expect to adopt in the future is incorporated by reference from Note 1 "Summary of Significant Accounting Policies" contained in Part I, Item 1.
United Fire Group Inc. published this content on November 05, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on November 05, 2025 at 18:09 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]