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Tickers in this Article: UFCS, TRV
United Fire Group, Inc (UFCS) reported operating earnings of 56 cents per share in the second quarter of 2012, striding ahead of the Zacks Consensus Estimate of 26 cents. Results rebounded from the loss of 71 cents incurred in the year-ago quarter. A combination of higher premium and net investment income aided United Fire to deliver the strong quarter. Lower share count due to share repurchases during the quarter aided the bottom line.

Including net realized investment gains of $0.37 million or 2 cents per share, the company reported a net income of $14.72 million, reversing the loss of $17.91 million or 69 cents per share in the second quarter of 2011.

Operational Update

Total revenue in the quarter under review was $199.65 million, rising 9.8% from the year-ago quarter, driven by the increase in premiums earned coupled with an increase in net investment income.

Net written premiums during the quarter increased 11.7% year over year to $170.09 million, largely attributable to increases in various rates and increased business opportunities.

Net investment income for the reported quarter edged up 3.6% year over year to $28.75 million, largely attributable to change in value of investments that are accounted for under the equity method.

Catastrophe ("cat") losses incurred totaled $11.96 million, much lower than  $36.85 million incurred in the prior-year quarter, as dry weather lowered the number of severe storms.

Segment Update

Property and Casualty Insurance: Net premium earned increased 10.7% year over year to $153.91 million in the quarter, largely driven by increases in renewal pricing followed by increasing rates in all lines of business, coupled with strong policy retention rates in all lines of business.

The combined ratio improved 3540 basis points year over year to 96.3%, mainly due to reduced cat losses.

Net income was $13.36 million in the second quarter of 2012, reversing the loss of $19.57 million incurred in the year-ago quarter, attributable to increased top-line and lesser losses and expenses incurred.

Life Insurance: Net premium earned in the quarter under review surged 22.5% year over year to $16.18 million, primarily due to a rise in sales of single premium whole life product.

Net income for this segment decreased 18% year over year to $1.36 million in the second quarter of 2012, attributable to decreasing investment income, increasing loss and loss settlement expenses and increasing liability for future policy benefits.

Financial Position

Total assets with United Fire at second quarter end were valued at $3.74 billion compared to $3.62 billion as on December 31, 2011. The book value per share increased 5.9% over 2011-end to $28.91 as on June 30, 2012.

As on June 30, the company's stockholders' equity totaled $735.36 million versus $696.14 million as on 2011-end.

Dividend and Share Repurchase

During the quarter, United Fire spent $2.1 million to buyback 101,901 shares. The Board also approved the buyback of an additional 1 million shares to be repurchased by August 2014.

The company also paid $7.6 million as cash dividends during the quarter.

Peer Take

The Travelers Companies (TRV), a close competitor of United Fire reported earnings of $1.26 per share in the second quarter of 2012, lagging the Zacks Consensus Estimate of $1.38 per share. Results rebounded from the loss of 88 cents incurred in the year-ago quarter.

Zacks Rank

United Fire carries a Zacks #1 Rank, implying a short-term Strong Buy rating. Travelers competes with a Zacks #3 Rank, implying a short-term Hold rating.

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