United Fire & Casualty Co., headquartered in Cedar Rapids, Iowa, has reported a slight drop in net premiums earned and total revenues for the first quarter of 2011 compared with that of the same quarter in 2010.
Announcing the company’s first quarter results, President and CEO Randy Ramlo explained that United Fire had an increase in net premiums written, as well as a hike in the amount of new business written. The company’s top five states for direct premiums written were Iowa, Texas, Missouri, Louisiana and Illinois.
Ramlo said “unusual activity this year” made it difficult to compare the first quarter of 2011 with the first quarter of 2010.
The company had high catastrophe losses in the first quarter of this year, which raised the 2011 first quarter combined ratio by 12.1 percentage points. United Fire had $10 million in catastrophe losses in Q1 related to the February 2011 earthquake in New Zealand and the March 2011 earthquake and tsunami in Japan. The losses from these catastrophe events contributed 9.8 percentage points to its first-quarter property casualty combined ratio, reducing first quarter earnings by $6.5 million, or $0.25 per share.
Other assumed catastrophe losses added an additional 2 percentage points to the combined ratio.
In addition, the company experienced one-time expenses related to the acquisition of Mercer Insurance Group.
The Mercer acquisition closed on March 28, 2011, for a purchase price of $191.5 million. In the first-quarter, one-time expenses associated with the acquisition added $7.9 million to pre-tax underwriting expenses. Mercer’s net premiums written were $132.7 million and its GAAP combined ratio was 96.4 percent for full-year 2010.
The acquisition added more than 550 new agents and 200 employees in New Jersey, Pennsylvania, Arizona, California, Nevada and Oregon.
“To fund the acquisition, we borrowed $29.9 million from the Federal Home Loan Bank and $50.0 million against a bank line of credit. Including Mercer debt that we assumed, our net debt to net capitalization ratio was 13.7 percent at March 31, 2011. While we have traditionally minimized our reliance on debt financing, we believe this leverage is appropriate under current market conditions and in light of the advantages Mercer brings to United Fire,” said Ramlo.
Looking into the second quarter, Ramlo noted, “We are aware that a number of United Fire policyholders were affected by the tornadoes and severe storms that tore across the country in early April, and we also may have some exposure to last week’s storms in the South. Our claims staff is hard at work helping policyholders recover from the storms and showing the value of having their agent place their insurance coverage with United Fire. At this point, our estimate of catastrophe losses for the storms in early April is between $7.0 million to $9.0 million. We do not yet have an estimate for losses related to last week’s storms.”
Source: United Fire & Casualty
Topics Catastrophe Profit Loss
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