United Fire Group, Inc. :UFCS-US: Earnings Analysis: Q2, 2017 By the Numbers : October 2, 2017

United Fire Group, Inc. reports financial results for the quarter ended June 30, 2017.

Highlights

  • Summary numbers: Revenues of USD 286.98 million, Net Earnings of USD 2.96 million.
  • Change in operating cash flow of 59.40% compared to same period last year is about the same as change in earnings, likely no significant movement in accruals or reserves.
  • Earnings decline from operating margin decreases as well as from unusual items

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income (See complete table at the end of this report):

2017-06-30 2017-03-31 2016-12-31 2016-09-30 2016-06-30
Relevant Numbers (Quarterly)
Revenues (mil) 286.98 283.06 302 289.49 279.77
Revenue Growth (%YOY) 2.58 6.54 8.92 9.42 9.32
Earnings (mil) 2.96 19.94 12 12.37 3.11
Earnings Growth (%YOY) -5.01 -11.11 -61.17 -36.68 -79.26
Net Margin (%) 1.03 7.04 3.97 4.27 1.11
EPS 0.12 0.77 0.46 0.48 0.12
Return on Equity (%) 0.31 2.1 1.26 1.29 0.33
Return on Assets (%) 0.29 1.93 1.16 1.2 0.31

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Market Share Versus Profits

Revenues History
Earnings History

Compared to the same period last year, UFCS-US’s change in revenue was close to the amount of its change in earnings. It remains to be seen how the rest of its peer group’s results will turn out and if UFCS-US’s performance is a sign of any major shift in the composition of market share in this sector. Also, for comparison purposes, revenues changed by 1.38% and earnings by -85.16% compared to the previous period.

Earnings Growth Analysis

Insurance companies sometimes tradeoff for improvements in premiums earned by relaxing standards in underwriting policies. A quick way to check against such activity is to compare the changes in loan loss provisions as well any chnages in the level of policy claims. If either of these checks point to a decline in the underwriting standards, it is quite possible that the company’s performance is a result of underwriting policy changes that could have a longer term impact compared to the shorter term pop in premiums earned.

Premiums Earned Percent History
Loss Ratio History

The company’s year-on-year decline in earnings has been influenced by the following factors: (1) Decline in premiums earned as a percent of total revenues from 90.60% to 90.45% and (2) issues with underwriting policies. As a result, loss ratio went from 79.51% to 79.99% in this period. For comparison, premiums earned as a percent of revenues were 89.69% and the loss ratio 71.27% in the immediate last period.

Cash Versus Earnings – Sustainable Performance?

It is important to examine a company�s cash versus earnings numbers to gauge whether its performance is sustainable.

UFCS-US’s year-on-year change in operating cash flow of 59.40% is around its change in earnings. This suggests that there are likely no significant movement in accruals or reserves for managing earnings this period.

Margins

The company’s fall in earnings have been influenced by the following factors: (1) Contraction in operating margins after interest from 0.31% to 0.02% and (2) One-time items that contributed to a weakening of pretax margins from 0.31% to 0.02%.

EBIT Margin History
PreTax Margin History

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Company Profile

United Fire Group, Inc. operates as a holding company, which is engaged in the business of writing property, casualty insurance, life insurance and selling annuities through a network of independent agencies. It provides insurance protection to individuals, businesses and organizations. The company operates its business through two segments: Property and Casualty Insurance, and Life Insurance. The Property and Casualty Insurance segment is comprised of commercial lines insurance, including surety bonds, personal lines insurance and assumed reinsurance. The Life Insurance segment is comprised of deferred and immediate fixed annuities, universal life insurance products and traditional life insurance products. United Fire Group was founded in January 1946 and is headquartered in Cedar Rapids, IA.

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