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United Fire shrinks Q3 underwriting loss by 63% to $23mn

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United Fire Group on Thursday said its third-quarter underwriting loss narrowed by 63%, largely due to its efforts to shed much of its commercial auto book and exit personal lines.

The Cedar Rapids, Iowa-based company reported an underwriting loss of $23.2mn, down from $63mn in the third quarter in 2020.

The combined ratio declined to 109.7% from 124.4%, largely due to improvements in commercial auto, which managed to improve its combined ratio by 43.7 points. Favorable prior accident year reserve development, mainly in commercial auto, improved the overall combined ratio by 4.6 points.

Those gains were offset by higher-than-average catastrophe losses, due to 19 cat events, with the largest being Hurricane Ida and European floods in UFG’s assumed reinsurance business. Cat losses of $39.5mn, which were preannounced, added 16.5 points to the combined ratio for the quarter. Despite the number of events, the total cat loss was down from $55.4mn last year.

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Gallagher, Jamie (US)

Net earned premium slipped 7.8% to $238.9mn from $259.1mn in Q3 2020.

UFG said its adjusted operating loss was $0.31 per share for the three months ended September 30, compared with an operating loss of $1.37 per share in the prior year.

On a conference call to discuss the results, CEO Randy Ramlo said the company has focused on reducing the size of its commercial auto portfolio and implementing nearly double-digit rate increases on what remains, which increased the quality and profitability of the lines.

Commercial auto now makes up 24.8% of UFG’s portfolio, compared with 28% for the same period last year, while the lines now account for 21% of new written business, compared with 33% in 2019.

The company also saw frequency and severity in commercial auto claims decline, Ramlo said.

UFG reported growth in general liability, which now represents 24% of its portfolio, and inland marine, now 16%.

Both areas, along with surety, which is 4.5% of the portfolio, are targets for company to build business, with an eye toward reducing volatility in cat losses.

“Part of our diversification strategy is to grow our non-cat assumed reinsurance business, as it has been very profitable for us traditionally,” Ramlo said during the call.

Net investment income for the quarter rose nearly 60% to $11.6mn, from $7.2mn in Q3 2020.

The company reported that it released $11.1mn in reserves, compared with $6.3mn a year ago.

“It is clear to me that our strategic plan is working, as is evident from the improvement in our core loss ratio the last two quarters,” Ramlo said.

“A plan of this scale takes time to be fully implemented, and we believe we are seeing significant progress and gaining momentum and all three pillars of our plan, including long term profitability, diversified growth and continuous innovation.”

“Overall, we wish things were progressing faster,” he said. “But all metrics are improving and we're convinced we're on the right path to deliver consistent, sustainable and profitable results.”

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