Q3 2019 Earnings Call

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Thank you very much and good morning, everyone. Thank you for joining us.

You can find copies of U.P.C.S earnings release today at Www Dot you PC insurance Dot com and the Investor Relations section. In addition, the company is made and accompanying presentation available on its website.

You're also walking to contact our office it to one to 8369 606, and we'd be happy to send you a copy.

In addition, U.P.C. insurance has made this broadcast available on its website as well.

Before we get started I'd like to read the following statement on behalf the company, except with respect to historical information statements made in this conference call constitute forward looking statements within the meaning of federal securities laws, including statements relating to trends and the company's operations and financial results and the business and the product at the company in a subsidiary.

Actual results from U.P.C. may differ materially from those results anticipated in these forward looking statements as a result of risks and uncertainties, including those described from time to time and you Pcs filings with the U.S. Securities and Exchange Commission you'd be specifically disclaims any obligation to update or revise any forward looking statements, whether as a result of new information future developments or otherwise.

With that I'd now like to turn the call over to Mr., John Forney Pcs Chief Executive Officer. Please go ahead John .

Thanks, Adam.

This is John Forney, President and CEO WPC insurance with me today, as Brad Barton, our Chief Financial Officer.

Hello, everyone at U.P.C., we appreciate your taking time to join us on the call.

As Adam said, we are now publishing an investor presentation.

In conjunction with our earnings release, you can find it on our website and I encourage you to review it.

While we will not be going slide by slide through that presentation. We will refer from time to time to some of the data and analytics included therein.

But for US the storyline is.

I'm more conservative cap reserving posture.

You had strong organic growth in both personal and commercial lines.

And improvement in underlying results.

We've been in the Cat business were 20 years and on the non Hurricane cat events were seen development patterns that have no precedent in the historical records.

On the growth from both personal lives to commercialize continue to show the ability to grow at double digit annual rate.

Even with significant rate increases in both lines.

He page four of our investor presentation for more detailed.

Retention remained very strong.

We've intentionally ramped down the growth on the personal lines side in areas that have given us last trouble, while we adjust rates and underwriting standards to reflect our recent experience.

The rate underwriting claims handling and technology initiatives, we have discussed on previous calls or in full swing and being implemented across our geographic footprint.

That's why our non cat loss ratio continues to decline and our underlying results are so much better year over year and that's why we're optimistic that we will finish 2019 strong enough good momentum heading into 2020.

At this point I'd like to turn it over to Brad for his remarks.

Thank you John and Hello. This is Brad Martz CFO of you'd be see insurance I'm pleased to review you'd be seats financial results, but also encourage everyone to review our press release Form 10-Q , and investor presentation for more information regarding the company's performance.

Highlights for the quarter ending September Thirtyth 2019 include gross premiums earned approximately 345 million, an increase of 41 million or 13% year over year, a core loss of 29.2 million or 68 cents, a share versus 14.9 million or 35 cents a share a year ago.

Cat losses of 58.2 million or dollar five a share from all accident years, what's the driver of results for this quarter, adding over 30 points to the combined ratio.

However, you Pcs underlying loss and combined ratios showed significant improvement compared to the same period a year ago.

The gross and net underlying loss ratios improved 4.3, and 7.3 points, respectively. From Q3, 2018, which also drove a six point for men in the underlying combined ratio year over year.

Florida accounted for approximately 54% of the growth in direct written premiums would the remaining 46 being well balanced among the Gulf northeast southeast regions.

Excluding the San DNS premiums commercial premiums increased over 27 per cent compared to the same period, a year ago further strengthening our industry leading position in the Florida commercial residential property market.

Ceded earned premiums were 44% of gross premiums earned in the quarter compared to 43.6% last year.

The change was due to increased sessions to our quota share reinsurance program, which totaled 42.2 million in the current quarter compared to just 25.8 million last year. So our seating ratio went down netting out the effects of the quota share.

Other significant items impacting total revenues during the third quarter included 13% increase in net investment income and 11% increase in fee income.

You'd be sees third quarter net loss and loss adjustment expense was 148.1 million an increase of 27.6 million were 23% year over year.

It's pretty Mr. Gross loss ratio of 43% and a net loss ratio, 76.8%, but included a 50.2 million of current year catastrophe losses, and 12.3 million of prior year development.

The remaining 18.9 million Oh.

Teen compared that to the first nine months of 2018, where you'd be see estimated only $6.8 million of I'd be in our representing 10.3% of the ultimate gross loss estimate.

Roughly 70% or 8.4 million of the prior year development was driven by various cat events across multiple accident years non cat development, primarily on accident year 2018 in Florida homeowners contributed most of the remaining reserve charge as actual loss development continued to exceed the development we expect.

Was 85.7 million down almost $3 million or 3% year over year.

This is very encouraging and suggest the profit improvement initiatives. We communicated previously have us on the right track.

You'd be season on lost operating expenses were 93.1 million an increase of 12.6 million year over year. The increase was driven primarily by policy acquisition costs, which rose 7.6 million or 14%, which was consistent with the change in gross premiums earned in the quarter.

The remaining 4.9 million was driven by salaries and related expenses, which were 2.8 million of the increase with the balance stemming from a 2 million dollar nonrecurring charge related to capitalized software.

Our gross expense ratio was 27% an increase of half a point from third quarter 2018, but what otherwise been in line with the prior year without the nonrecurring portion.

On the balance sheet you'd be see ended the quarter with total assets, a 2.7 billion, including nearly 1.4 billion of cash invested assets.

The duration of our fixed maturities remained at 3.4 years with an overall composite rating of a plus what yields continued to move lower during the quarter.

Shareholders' equity attributable to you wait to see stockholders.

It was 516 million with a book value per share up $11, a 93 cents or 11 61, excluding unrealized gains.

And lastly, the statutory surplus spar group was 426 million at the end of the quarter.

I'd now like to reintroduce John Forney for some closing remarks.

Thank you at this time will be conducting a question and answer session.

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First question is from Greg Peters Raymond James. Please go ahead Sir.

Hi, Good morning to me if you see this is mark was cold here for Greg.

Good morning.

I was hoping you guys could drill down a little bit more on to the prior year development and tell US you know <unk> Oh it fixed.

This year shaping out to be a last year.

Sure well this is John I'll take that.

So as we try and emphasized in our remarks.

Scored or to bump everything up you've heard how much more I'd be in our we have than we have had in previous years on these cat events.

Yes, we continue to take that into account when we're setting our current your reserves at how much I being our we're going to need on Florida, which continues to be a very difficult operating environment.

For next year you are our focuses on improving profitability. That's been our focus this entire year. That's why we've put in place all of the underwriting claims handling technology rate Agency Force management initiatives that we've talked about a lot on previous calls and included data on in our previous investor presentation.

Let me environment that we find ourselves in.

Okay. Thank you for that and.

Got switching to to premiums and there's some healthy organic growth and you guys singled that out in your remarks, but looking at how do you assumed premium line that's down 47%. This quarter can you can you guys give us mccolo there.

Okay, and I guess.

Final question would be if you guys could just give us an update on it'll be into what you guys are seen out there if it's getting better and anything you can tell us on on the journey adult be great. Thank you for your answers.

Sure.

It'll be legislation was good legislation, but the it'll be machine in Florida has not been deterred by that.

It'll be lawsuits coming in at rates that are higher than they were in 2018 again for us it's not a significant factor because it's mostly a tri county phenomenon. We don't have a lot of business down there, but there's no evidence to us that it'll be momentum had slowed materially in Florida.

The next question is some pretty slicer KBW. Please go ahead Sir.

Hi, Good morning, So just lastly on hockey, Michael and up where you.

You see an increasing gross losses than either of those storms and how much I do not do you currently have remaining for each.

Yes, we seen increasing gross losses for both of those events.

Well, we bumped our reserves on Irma by about 20% to execute up to about $1.2 billion.

Okay, well, Brad get those numbers all move onto next question. So catastrophes came in at 50 million bunker fuel 46 million Preannouncement. So just wondering what drove that delta.

The Delta was primarily our blue line affiliates the commercially enough business that we didn't have absolute clarity on we went a little bit more conservative at the end of the day as well so.

Cat was a little higher than previewed reserve development was lower than previewed net net it you know it was very very close to the previous shouldn't have been any surprises on those two fronts combined.

Okay, Great and I know its little early to talk about reinsurance renewal, but do you think the reason I need to Japanese types in activity could impact.

Your upcoming renewal.

We we would prefer not to speculate on that as as we mentioned we have a strong panel a really good reinsurance partners that have been with its a long time, we have win win relationships with them, we're always seeking to diversify and broaden our panel and we expect to work Collabra.

Finally, with a reinsurance partners to put together.

Accessible program next year.

Okay, and then just following up on that.

Two questions.

It sounds like you see impact on your financial results, so little bit correct inside that it'll be socal benefits will be impacting rate increases going forward since you've taken quite a lot of great increase in Florida. This year.

Right and continue to take rate in Florida, it's not specifically related to a it'll be it's just more related in Florida to the elevated level of non hurricane cat losses, because our.

Non cat loss ratio in Florida continues to decline not go up so that's not driving our rate need it's the cat events like the hailstorms in severe convective storms that are developing.

Reducing much more severity than in previous years, that's driving our rate need and the way that works is we can't get the rate for those those events until you have those events regulars won't give you modeled losses on hailstorms, but once you have the actual losses, you can get recoveries for them and passing through in your rates and that's what we're doing so it's not driven by it'll be but rather.

By non hurricane cat losses.

Right and then other than the rate increases.

Other actions improved underwriting results.

Okay, and then just lastly, given all the rate changes that you've been taking some of the expense movements. What do you currently see 2020 loss and expense ratios settling in <unk>.

Right, we don't give.

Forward looking estimates for that kind of information. So we continue to see downward trends in our non cat loss ratios and we're working hard to manage that they got lost stuff. So that we have enough rate in our book of business to to handle it I think Brad might have the numbers you were looking for earlier.

Hi, Hi, Freddie Yeah, the or am I being our is 276 million and Michael 30, So were about 306 million of I'd be in our just on those two events.

Okay, great. Thank you put me on that.

Welcome.

Hi, Good morning, just delve a little bit more color right I think you touched upon honest in your slide shows but on the rate increases.

Just what's the competitive market looking like in Florida as you take these rates are our customer staying with you are you losing people how does how does it what's the net effect.

Our retention has stayed strong in Florida cliff, even with these rate increases.

The the market is.

It is changed the landscape is it's changed a lot and there's a lot of companies out there that are paid losses on the same events that were paying losses on and it's a difficult operating environment, we happened to be relative to a lot of the competition in Florida, It very big company with lots of capital and lots of claims paying resources and so.

So yeah, we can we can fight through difficult operating circumstances, and so far we've not seen significant defections or backlash from the rate increases, which we need to take and it doesn't matter to us honestly. If we do have that if we need to get the rate, we're going to get the rate and we'll come out the other side.

Also I was wondering I'm sort of happened in October we had these tornadoes commit some through Texas was that a geography are exposed to or do you have any comment on that event.

Yeah that was up a Q4 event and we did have as of yesterday, we had a 37 claims on that with incurred of about a million and a half.

Great. Thank you.

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We have a follow on question from Greg Peters of Raymond James. Please go ahead Sir.

Hey, guys I just.

And when should we expect to see definitely through financials.

Launched in Florida currently writing commercial residential business focused on apartment buildings. We we gained momentum consistently on journey throughout the year, just had our best month ever and our partners in amorous are doing a great job on the marketing and distribution to help agents get comfortable with this new entity and that.

With us and we're seeing that happened, we've been very conservative and discipline on the underwriting guidelines and standards and we're not a rush to grow journey into a big company. So we're pleased with the progress that we've made there. We also have plans to launch journey personal lines in Texas in fact, we filed that product.

A couple months ago, now and it's working its way through the regulatory process, but we expect to be writing personal lines business in Texas with a ground up differentiated am best rated product early next year as well its commercial lines business in Texas, and South Carolina. So you start to see some some more significant ramp up in journey next.

Last year, and it's gonna be an important part of our growth story over the next few years.

Got it thanks, guys and good luck in the future.

Thank you.

This concludes todays question and answer session I would like to turn the call over to management for closing remarks.

This is John Forney I, just want to thank everybody again during a very busy earnings season to take time to get on a call and talk about you P.C. insurance. We appreciate your long term support and partnership when we look forward to deliver in some better results here going forward. So thanks again for your time.

This concludes todays conference you may disconnect your lines at this time, thank you for participation.

Have a good day and a happy Halloween.