Q4 2019 Earnings Call
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Greetings and welcome to the United Insurance Holdings fourth quarter, and yearend conference call.
This time all participants are in listen only mode. A question and answer session will follow the formal presentation.
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If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad and as a reminder, this conference is being recorded it is now my pleasure to introduce your host Adam prior of the equity group. Thank you Sir you may begin.
Thank you and good afternoon, everyone. Thank you for joining US you can find copies of U.P. season earnings release today at Www Dot U.P.C. insurance Dot Com and the Investor Relations section. In addition, the company has made an accompanying presentation available on its website. You also welcome to contact our office it to one to 8369 606.
We'd be happy to send you a copy.
In addition, you'd be see insurance is made this broadcast available on its website.
Before we get started always to read the falling statement on behalf of 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 operation and financial results and the business and the products as a company that subsidiary.
Actual results from EGPC 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 U.P.C.S filings with the Securities and Exchange Commission.
Let me see specifically disclaims any obligation to revise or update 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, U.P.C.S Chief Executive Officer. Please go ahead John.
Thanks, Adam.
John Forney, President and CEO of U.P.C. insurance with me today is Brad Martz, our Chief Financial Officer.
On behalf of everyone at U.P.C.. We appreciate you were taking time to join us on the call.
As a reminder, we're now publishing and 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.
2019 was a tough year for our company and Q4 epitomized stat.
Unusually high non cat severity on fire and liability claims almost tripled the levels from last year's Q4 hurt our result.
Slide five of the Investor presentation to see what an outlier Q4 2019 was in that regard compared to the two prior Q fours.
Also suppressing results in Q4 with a decision we made to significantly strengthened our cat and non-GAAP reserves for 2019.
Slide 10 at the Investor presentation, which shows that our yearend reserves are up almost 52%.
From 2018.
This much more conservative approach to 2019 reserving minimize its 2020 reserve risk and the measures we took in previous quarters. During 2019 on prior accident years helped us to show zero adverse development in Q4.
What we did in Q4 should help that very positive trend continue into 2020.
We're starting off 2020 in very strong position on several important fronts first rates look at slide nine at the Investor presentation.
Incremental premium for the many rate actions, we took in 2019, it's amping up.
Getting a 62 million dollar annualized rate in December from policies renewing in that month alone.
And this is without any of the impact yet from our most recent large New York and Florida rate increases.
Which are just starting to hit renewal policies.
To that the hardening commercial market and a rate picture looks bright.
Second.
Reserves.
As I mentioned earlier, our year end reserves are up almost 52% from a year ago and our reserving posture overall, it's much more conservative for both cat and non cat look at slide 11 of the Investor presentation see how much we strengthen 2019 case reserves. In addition to adding a lot of I'd be NR with no.
No adverse development in Q4 and much higher accident year 2019 reserves, we are looking to take reserve annoyed off the table for 2020.
Third reinsurance.
That's one of the 10 largest purchasers of U.S. property cat reinsurance in the world with over $4 billion of total limit across our programs. We are in reinsurance buying mode. Most of the year.
Our team at Skyway read our internal reinsurance broker is the best in the business and they did a great job on a one one renewal and have made great progress on our six one core cat tower renewal.
See slide 12 of the Investor presentation, which shows that over 85%.
Program is already placed.
We have an amazing long term reinsurance partners and we look forward to working with them on the remaining 15% of the program.
Fourth capital I.
Slide 15 of the Investor presentation shows despite retaining almost $400 million of cat losses in the past few years, you Pcs book value per share is down only slightly.
The seven year compounded annual growth rate of 10.8% for book value reflects the long term strength and anti fragility of our business model.
Our balance sheet is strong and we will not need to raise capital in 2020, even if we suffered two full hurricane retentions.
All of our ratings for insurance subsidiaries were affirmed in December.
So that's why we're optimistic with rate increases flowing through no adverse development plus much stronger reserves overall, a nearly complete reinsurance program and a stable adequate capital base, we're positioned to compete and thrive in the currently challenging operating environment.
2020 is off to a good start and we're looking forward to the rest of the year.
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, if you PC insurance I'm pleased to review you Pcs financial results, but also encourage you.
To review our press release form 10-K, and Investor presentation for more information regarding the company's performance.
Highlights for the quarter ended December 30, Onest 2019 include gross premiums earned a 347 million an increase of 39 million or 13% year over year, a loss before income tax of 5.3 million, which compared favorably to a pre tax loss of 19.4 million in the fourth quarter last year.
Net loss of 8.2 million or 19 cents a share that was also better than an $11.1 billion net loss or 26 cents a share a year ago.
Our core loss of 15.2 million or 36 cents a share compared on favorably against a loss of a half a million dollars or a penny a share a year ago and cat losses of 19.2 million worth approximately 35 cents a share after tax.
Added over 10 points to the combined ratio.
Premiums written for the quarter increased less than 1% from a year ago, primarily due to a 14.4 million dollar decrease in assume commercially ines premiums.
Direct written premiums increased 17 million or 6.3% with Florida accounting for approximately 60% of the growth year over year with all other regions also showing modest increases from the same period a year ago.
Ceded earned premiums.
Were 45.7% of gross premiums earned in the quarter compared to 41.1% last year. The change was due to increased sessions to our quota share reinsurance program, which were 42.8 million or 12.3% of gross premiums earned in the current quarter compared to just 23.6 million or seven point.
7% a year ago.
Excluding the quota share the ratio of ceded to gross premiums earned was unchanged from the prior year.
Well, there's significant items impacting total revenues during the fourth quarter included unrealized gains from equities of 9.2 million compared to an unrealized loss of 14.3 million in the same period, a year ago and additional income tax expense due to a nonrecurring valuation allowance which decide.
The company's effective tax rate for the quarter and the year.
You'd be sees fourth quarter net loss and loss adjustment expense was 130.6 million, an increase of 8.4 million or 7% year over year. It's produced a gross loss ratio at 37.6% and a net loss ratio of 69.3%, which included 19.2 million of catastrophe losses.
Yes.
Catastrophe losses were driven by approximately 15.7 million of net retained losses, primarily from tropical storms older and nester, plus three new PC up events in the quarter with the remainder stemming from increased retention under our aggregate reinsurance program.
Underlying loss and Ellie was 111.4 million up 39.5 million or 55% your here.
This resulted in an underlying gross loss ratio, 32.1%, which compared unfavorably to 23.3% a year ago.
As John mentioned, the unusually high loss severity from fire and liability claims were the primary driver of the deterioration.
But the underlying non cat losses were also impacted by significant reserve strengthening during the fourth quarter as we sought to mitigate the reserve risk.
On an accident years 2019 and prior in future periods.
You Pcs operating expenses were 82.8 million, an increase of 7 million or 9% year over year increase was driven primarily by policy acquisition costs, which rose 10.1 million due to growth in premiums.
The remaining 3.2 million decrease was driven by a reclassification of certain general and administrative expenses to loss adjustment expense, which also contributed to the increase in underlying loss not only for the quarter.
Our gross expense ratio was 23.9% a decrease of nearly a point from the prior year.
On the balance sheet you'd be see ended the year with total assets of just under 2.5 billion, including cash and invested assets of approximately 1.3 billion, an increase of 14% and our liquidity year over year. The duration of our fixed maturities remained at 3.4 years when overall composite rating of eight plus.
And our investment portfolio produced a total return of approximately 8% during 2019.
Shareholders' equity attributable the whites. The stockholders was approximately 503 million with a book value per share of $11.69 or $11, a 43 cents excluding unrealized gains.
I'd now like to reintroduce John for some closing remarks.
Thank you Brad we're certainly not happy with the results. We produced in 2019, but we are pleased that the multiple rate actions. We've taken are starting to show up in a material way.
In our financial results that.
We were able to show no adverse development in Q4, while strengthening our reserves for accident year.
2019, and minimizing reserve risk in 2020.
Got a reinsurance program for June 1st is 85% don't at this point, which lessens the probability of material pricing increases impacting our financials and that our capital is in good shape.
With no need to raise capital and all of our ratings having been affirm recently, we're ready to have a good year in 2020, I'm sure you're ready for that too. We appreciate your interest in new PC and we'll be happy to take any questions you have at this point.
Thank you, ladies and gentlemen, we will not be conducted any question and answer session. He would like to ask the question. Please press star one on your telephone keypad confirmation to indicate that your line is in the question Q.
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One moment please poll for questions.
Thank you. Our first question is coming from at least Greenspan with Wells Fargo. Please proceed.
Hi, Thanks. Good evening. My first question was hoping to get a little bit more color on me underlying losses in the quarter I guess two parts first off where the on.
The higher I guess I'm fire and liability loss as you pointed to was that throughout the different states or more combined Florida or some other geographic location and then my second question related to that would be you mentioned strengthening accident year 2019 can you just give us a sense of how much on strengthening and.
You know how much of the losses in the current quarter, where for strengthening related to the prior three quarters of 2019.
Sure at least this is John Forney I'll start the.
Byron liability losses, we saw which if you look at that Investor presentation word is just a huge outlier compared to prior Q4's were spread throughout the.
The book that states there wasn't any particular pattern to it except that there were some a series of unusually large losses.
Throughout the quarter.
And second question on the amount of strengthening I'll, let Brad take that.
So I'm on the non cat side on page 10 of our presentation you can see the total.
Change in net loss Natalie reserved year over year was approximately 67 million.
And out 32 million or that was in the fourth quarter.
Okay. That's great and then in terms of you know I guess you guys. You know what pointed to right. There was a catch up or the other three quarters and then obviously it sounds like you expect some of the you know fire.
And liability losses to normalize going into 2020.
Based off of the rate increases that you have coming into your book can you just give us a sense on how you expect dog the underlying.
The only to kind of trend to 2020 versus 2019.
I guess, we can start by saying, we absolutely don't expect the same level of loss severity when it comes to fire.
You know loss costs for the quarter, one anomaly for those two causes of loss.
Yeah generally December and January our.
Difficult last months, just so happens that December was unusually high this period compared to the same periods a year ago, but I will add we have not seen those extreme trends continue into 2020.
Okay did you guys I was there any change to your hurricane Armada.
This loss estimate in the quarter.
No not not since we last communicated with with.
Investors about that no no you rent change.
Okay, Great and then just two numbers question.
Brad I think you usually give us the surplus as of the ended the quarter you have that number.
I don't have that those will be available on or before March 1st when the annual statements are file.
Okay, and then you mentioned that there was on Michael one off.
Tax catch up I think what is what you said can you just give us the amount and then as we think about modeling what's what should we think about as kind of a tax rate assumption I'm in 2020.
The tax rate guidance is really unchanged at about 23%, that's a blend of of the federal and state rate.
The amount for the fourth quarter was driven by.
A net operating loss and all our Blue line operation. We've got three different separate accounts that have filed 953 d. elections. The IRS. It gets super complicated, but dual consoles lost limitations prohibit us from udall potentially utilizing some of.
The net operating loss in one of the one cell that has been put in run off which is the contributor to the decline in the assume written premiums for the quarter and we talked about that that quota share with Lexington being put in place in the run off last quarter.
Okay. That's helpful. Thank you.
Thank you at least thank you.
Thank you. Our next question comes from more personal lined up with Raymond James. Please proceed with your question.
Hey, guys. Thanks for taking my question I, just sort of big macro question, a big picture you guys give a sense of what you've seen trend to commercial units market.
Maybe one is oh.
Exposure is in there.
Sure the commercially DNS market is that assumed premium that we always delineate and our earnings release and Thats with arrangement with several carriers that right. There that portion of that business through Amrisc, which is the big Wyndham GA that is.
Owned by BB and T that we've been doing business with for a long time through American coastal which is their admitted market company, but they have several other surplus lines company and we do a quota share with with some of them to assume some of their pro rata share of their book with Amrisc. It's it's very good business Amrisc has been the premier.
Right or if that business since their inception in the year 2000 with combined ratios in the 15th and 16th.
Cumulative to date, including all cat. So we have supreme confidence in and amorous is underwriting ability and they are proven track record and we have seen evidence you're in second half, especially of 2019, then that commercially in this market.
His hardening and we believe that that business is going to be quite good in 2020.
Okay, Great and just it's another one on reinsurance and you guys have 85% of it locked down before the June one.
But you could you just give us a sense is there you know what kind of sort of price volatility you expect a heading into into that renewal.
Yes.
As we said we've got 85% of at Dawn, we have long term reinsurance partners, they're committed to a win win relationship with US one of the biggest buyers of us property cat reinsurance in the world. So people take a long term view when they trade with us and we have really when when relationships a win win renewals.
There are fair to us and and fair to them and we never have talked about what that means from a percentage increase but we certainly expect that it's going to be very manageable for us given everything that's happened already.
Got it thanks, Sean I, just less than we can you just give us a flavor what these foreign liability claims look like.
<unk> costs and just just some more color there. Thanks. Thank you for your answers.
Well page five of the Investor presentation gives you the the loss severity. So the those that's your average cost at least for the quarter as was the previous four quarters. So fire losses, obviously can be very.
Very low frequency, but very high severity and with homes burning a lot quicker today than maybe in years past with.
New building materials plastics other things I.
I think the entire industry has seen loss severity for fire increase.
Thank you will move onto our next question, but just a quick reminder, if you'd like to Cuba question. Please press star one on your telephone keypad. The next question does come from that Carletti with JMP. Please proceed.
Matt. Your line is why did you May proceed with your question.
As a final reminder, your line is why do you May proceed.
Thank you once again, ladies and gentlemen, thank you a question. Please press star one. Our next question is kind of from the line of Ron Bobman, What capital returns management. Please proceed with your question Hi, good afternoon.
A question about Florida rate filings and.
If you if you have one pending.
What the size of it might be.
We filed one that several months ago that.
As a filing use 13.4% for the product that we're writing with in Florida, we've implemented that.
And so that was just.
Within the last couple of months that we've gotten a programmed into our system. So we're just starting to see.
The first renewals go out with that 13.7 in there and we're doing rate indications for.
The states like Florida, where we have a big presence that it had some problems here recently on a monthly basis and so we're going to stay on top of it. We think this this rate increase will help us quite a bit, especially with some of the other repositioning we've done in the state of Florida, Ron which includes a lot of non renewals and and closing of certain areas that just had been problematic.
In terms of loss ratio. So we think we're positioned well, but we are monitoring it likely hawk to make sure that we're getting the rate that we need and what's been a very challenging state.
Yes, Thanks a lot.
Related Lee.
John the 13% that you mentioned.
Does that include.
He portion attributable to your increased reinsurance costs or is that something separate and apart from the 13.
Yes, we did not have.
Justification to file an increase for reinsurance costs. So we couldn't we didn't do that because we didnt. It wasn't needed based on how our placement came in last year.
Thanks, a lot gotcha, our best of luck.
Thank you.
Thank you we now let's turn the floor back over to management for any additional concluding comments.
Once again, we appreciate Everybodys interest in you PC, we're working hard to make 2020, a year that we can all be proud up and we look forward to talking to you on future calls this year. Thanks again for your interest.
Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time.
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