United Fire's Q4 2024: Navigating Contradictions Amid Social Inflation, Reinsurance Strategies, and Profitability Concerns

These are the key contradictions discussed in United Fire's latest 2024Q4 earnings call, specifically including: Social Inflation Impact on Business Appetite, Reinsurance Market Strategy, Contingent Liability Reversal and Impact on Run-Rate Profitability:



Record Net Written Premium and Underlying Loss Ratio Improvement:
- United Fire Group Insurance achieved the highest level of net written premium in its 79-year history in 2024.
- The fourth quarter combined ratio improved to 94.4%, the lowest in 11 quarters.
- These milestones reflect actions taken over the past 2 years to deepen expertise, evolve capabilities, align with distribution partners, and improve investment returns.

Investment Portfolio Improvement:
- Net investment income improved to $23.2 million in the fourth quarter and $82 million for the full year.
- Fixed maturity income increased by $70 million for the year, with new purchase yields remaining strong and improved valuations on the limited partnership portfolio.
- This improvement was due to strategic investments in fixed maturity assets and the enhanced performance of the limited partnership portfolio.

Expense Ratio and Performance-Based Compensation:
- The fourth quarter and full year expense ratios were elevated at 37.1% and 35.9%, respectively.
- This increase was primarily due to investments in talent to deepen expertise, accelerated development of a new policy administration system, and increased agency and employee incentive costs.
- The company is focused on improving the expense ratio despite sharing its success with employees and agents through performance-based compensation.

Catastrophe Loss Ratios and Management Strategies:
- Catastrophe losses were well below historical averages at 1.6% for the fourth quarter and 5.4% for the year.
- The company's catastrophe management strategies, including improved property catastrophe risk profile and successful reinsurance renewals, contributed to these results.
- UFG successfully renewed all ceded reinsurance programs, improving coverage and terms, and adding new reinsurance partners for greater diversification.

Social Inflation Impact and Liability Reserve Strengthening:
- The company proactively adjusted its liability reserves to reflect ongoing pressure from social inflation, adding $175 million in additional general liability umbrella and excess casualty reserves since the third quarter of 2022.
- Despite increasing reserves, UFG maintained a stable reserve position through bolstering its liability exposure to navigate headwinds in the near future.
- This proactive approach is a response to the uncertain liability environment and increased litigation activity across the industry.