Q2 2020 United Insurance Holdings Corp Earnings Call
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Greetings and welcome to the you are eight see second quarter Twentytwenty earnings Conference call.
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Thank you and good afternoon, everyone. Thanks for joining US you can find copies of your Pcs earnings release today at Www Dot you PC insurance Dot com in the Investor Relations section. In addition, the company has made and accompanying presentation available on <unk> website.
You also welcome to contact our office of 2.28369606, only reactivation joke.
Addition, you could say choices made this broadcast available on its website as well.
Before we get started if I could lead to following on [laughter], except with respect to historical information statements made in this conference call constitute forward looking statements within the meaning of federal Securities law, including statements relating to trends in the company's operations and actual results and the business on the product of the company that subsidiary.
Actual results from you can see may differ materially from those results anticipated on these forward looking statement as a result of wish uncertainty, including those described from time to time indications filings with the Securities Exchange Commission.
You can't say, specifically disclaims any obligation to update or revise any forward looking statements such a result more information future developments.
With that I know, it's called turn the call over to Mr., Dan PPPC Chief Executive Officer. Please go ahead.
Hello.
Anthony Chairman and CEO, Mike I see thanks for joining our call.
Our second quarter one quarter at June 30 is just morning resource Center opportunities, we're friends with somebody who is joining and we wish him well.
Thank you John first the board of directors appointed namely the old Chairman and Chief Executive Officer.
Apparently you HD board of directors for 2017 acquisition.
And I'm excited to jump into his new role as CEO.
Just to provide attention information or whatever.
A co founder and whereas in 2000 surpassed underwriter, President and CEO and finally Vice chair.
And since 2000.
Aerospace engineering own IDBD interest in about one of the largest that's people oriented jay's or U.S., writing a large.
Especially commercial property business with a 20 year track record outstanding underwriting results.
And then from continues to underwriting for American coastal.
He sees choose to share a very strong relationship the partnership.
I've been involved would you be seasons, the sale of American coastal do you need to answer that 170 at that time I joined the board of directors licensure.
After July person at that point going as chairman of Board, Great branch assumed the role as chairman Emeritus.
As for instance provided excellent leadership.
I Didnt people continue to at least on board.
Also promoted Brad Martz system, you all president while continuing in his role as CFO.
Lastly, we promoted good stead men's virtually no there's no chief risk officer, Chris will focus on portfolio optimization, [laughter], while continuing to responsibilities to oversee garbage placement.
I'm very excited about.
That's exactly the teacher.
Huge opportunity to take our underwriting the Maxwell and prove our results we are well underway.
I can give you an overview of our Q2 in our year to date performance there Brad Martz Oh no.
We are cat focused specialty underwriter with competitive advantages.
All those coastal areas.
We are planning to prioritize an underwriting profit I stay within our specialty.
They're leveraging our and there's a bad.
It is critically important to be artistic focused on really buying ratio generating an underwriting profit. This addition to absorb writing and burn for games test losses.
I mentioned earlier part of the tightening or focus on generating that's great.
This may slow our topline growth.
We are committed to generating a consistent non cat underwriting profit for me personally topline growth.
While we are focused on the bottom line.
The this RV market.
So we might see some top line growth.
At a rate increases and where we feel rigs are adequate are likely to continue.
However, we intend to limit exposure growth areas outside of work at <unk>.
Nor I'm interested in writing new business areas, where rates appear to me.
We have taken numerous radio stations in various states over the last 18 months and these rates are working their way through the financials.
We expect to continue taking rate increases to accommodate <unk> changes in <unk> and <unk>.
Our success is driven by several components first we have our underlying non cat.
Underwriting profits are not named Yeah I.
I need to cat reinsurance expense.
Our reserves operating than it does.
I'll touch on each of these pre.
Our non cat the good answers, we started down at the rate increases on a risk selection.
Writing over the last four to six quarters.
We turned positive as our first quarter results. This year, we continue to seek an underlying combined ratio below the worse.
The success is mostly due to continuing filings.
He didn't pieces as well as good as much as.
As additional rate I mean burn and all the demand for six quarters, we are positioned bar.
It should generate more non.
Secondly, we have our nominee cat losses in the second quarter when experience I mean I mean.
Consistent with our peers.
This resulted in a 29.8 million net loss was inline with the 30 million <unk>.
Well, we were disappointed with our not being bad season, and non cat underwriting margins that enabled us to absorb.
Could you generate positive positive underwriting profit at boring.
Our names care in the second quarter, we have three small named storms, but large de tropical storm.
General and basis is estimated at a mid single digit new again.
Reinsurance.
Importantly, we completed our June 1st Cat Treaty, we know I'm sorry.
<unk>.
Results.
One competitive advantage, we had an excellent long term relationships are reinsurers, including many years 11 right.
Well 2017, 2018 generated significant cat losses.
Most of the other years were lost three and the majority of reinsurers that that's five years or more.
Right.
We believe this enabled our successful placement.
Year, and we expect this.
Vanished.
Reserves for Twoq, we continued our first quarter favorable are your development and management.
Sure.
Expenses, Brad will give you numbers better expense ratio continues to improve on both gross and net.
We continue to invest in our technology systems, which we believe will drive further expense ratio improvement as they migrate sorry, new policy administration in doing that age.
We rolled out agent in Texas, and currently expect roll out of all our product needs over the next day.
As we migrate away from various legacy systems into a single system, they will be better positioned to realize significant automation and expense reductions.
Investments, Brad what I specific numbers, but we had a strong quarter when rebounded not realized gains both [laughter] bar.
We were rewarded seizing the opportunities that that's right.
So again our.
Strategy toward the end of the park.
I will comment on cold and briefly.
We do not anticipate that we will have a material colder driven loss.
Personal lines book does not appear to have material exposure.
Residential booked through American coastal.
Associated business interruption or be guy. So we don't expect to have material exposure there either.
Herschel specialty portfolio typically has a specific virus.
Again, you don't expect the material loss there.
To summarize into Q, we continued our turns boards compatibility with the load of many underlying combined.
So even in a very I, just got quarter and the name storm with the mice that loss, we delivered a core income 20 cents per share.
And 30 cents shares when they named best dogs.
Not yet when we want to beat the moving in the rights rich.
We're working hard on it using our underwriting plan focusing our generation has [laughter].
We expect our underwriting and strengthen our exposure units all getting rate increases and things like that.
Next I'd be hearing excited to work at this management.
And at the end of July we crossed over 1 billion Mimi enforce our personal lines.
Just beginning to reflect the rate increases we've taken over the last couple of years potential generates.
Right.
We have American coastal.
Miramar, leading Florida commercial residential I'm sure which generate.
We continue to grow our commercial specialty exposures within journey, our best rated subsea.
We launched an excellent technology platform <unk> agent.
Which will enable us to reduce expenses and potentially to expand our distribution channels. So I said I'm excited to be you're looking forward.
With that I'd like to turn it over its bad markets and then we'll be happy to address your question.
Thank you Dan Hello, This is Brad Mark.
Bogey insurance I'm pleased right you can see its financial results also encourage everyone to review our press release form 10-Q, and investor presentation for more information regarding companies.
How are they put a second quarter ended June 30. It includes core income was 8.8 million, Berkeley sounds a share versus a loss of three to half million or is it fair.
There last year gross premiums earned approximately 344 million, an increased 14 billion or little over 4%.
Combined ratio, 99.4% and 8.8 improvement.
Year over year, which included 16 points of current here.
As totaling 29.8 billion coin.
That's fair.
And modest favorable reserve development of 823000.
Leading to an underlying combined ratio 80, Tracepoint, which compares very favourably to 91.8 last year improvements were fueled by favorable non cat loss frequency and lower policy acquisition cost.
[noise] premiums for the quarter decreased $10 million, approximately 2.2% from a year ago driven by.
First increases in direct premiums written up 32.9 them again offset by a 43 million dollar decrease.
Yeah.
The direct barring any combination.
Almost $22 million or 8%.
So on an $11 million or 10% right.
The decline of Sam DNS premiums written was driven by the termination of a quota share reinsurance agreement on a comp basis effective June 1st 2020.
You BCEI is still assuming commercial DNS business, Neil one remaining quota share brain, we renewed at Jim first and as expected part is approximately $50 million during the three Kerry ending may 31st 2021.
Florida premium written grew modestly at 8.2% and accounted for over 60% of the toll.
I mean growth year over year, well grow the Gulf region grew 16.3% southeast grew 10% in the North East region was down 1%.
Ceded earned premiums were 46.1% of gross premiums earned compared to 42.3% last year.
Change was due to the increase sessions to our quota share reinsurance program, which were 13% gross premiums for $44.7 million or.
The only 9.2% of gross premiums or 33 million last year.
Other significant items impacting total revenues during the second quarter and put in unrealized gains from equity securities. The 20.5 million compared to only 2.7 million for the same period a year ago.
I mean income of 5.9 million, which declined $1.7 million.
Year due to lower yields on cash that's fixed maturity securities.
You'd be second quarter net loss and LAE. He was 101 point.
Decreased 14 point, it's cleaner.
Your research.
You can see gross loss ratio of 29.5% improve.
[laughter] loss ratio of 54.8% increase over six point compared to second quarter last year.
As I mentioned cat losses of 29.
Point 8 million added 16 points to our net loss ratio, which partially offset by $823 a favorable reserve development. Excluding those two items, our underlying loss finale, setting 2.7 million down 12.4 million or 15% year over year, resulting in an underlying gross loss.
21.1%, which also compared favorably to 25, 20% a year ago.
You may see the operating expenses were 82.7 million, a decrease of 7 million or 20% year over year <unk>.
The decrease was primarily driven by policy acquisition costs, which declined $9 billion due to higher ceding commissions are and lower yes production.
Our gross expense ratio was 24% improvement of 3.2 points over the prior year.
On the balance sheet, he sees assets totaled 2.8 billion, including cash.
So just under 1.4 billion.
Five duration of our bond holdings was unchanged at 3.54 years and overall thoughts at rating they bought at June Thirtyth.
Yeah sure holders equity attributable to you I see stockholders was 520.3 million, resulting in a book value per share dollars point.
For $11 58, though excluding accumulated other comprehensive income.
And I heard statutory surplus was 427.2 million at the end of the current quarter.
That concludes our remarks, only now be happy to take any questions.
Thank you Sir we will now begin the question and answer session.
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One moment, please while we pull for questions.
Our first question today comes from at least Greenspan of Wells Fargo. Please proceed with your question.
Hi, Thanks, good evening.
First question just on the underlying loss ratio on so pretty favorable relative to where you've been trending.
Our remarks, you guys highlighted owning and some rate and then I think on right you pointed to a lower level.
Non cat loss frequency trends in the quarter, just hoping to get some more color sustainability there.
Yes, and answering that question do you think that there was any benefit on the law aside from cold in the corner.
Hi, Lisa Thanks for your question.
Yeah, the frequency trends remain favorable our business they were favorable prior to it where we're not sure how much how the city and the improvements we saw during the corporate break, let's see him and we obviously can't comment on a forward looking projections, but just to give you a flavor.
You know we look at break up the company by company prototype company.
A United property casualty, our August insurance company.
Q2 of 18 to 19 to 20 days going down, but you can be seen a 3.24% down the key to the 93.7% to 20, 22.1%, whereas the full year 19.
Actually and I seem to 0.6% frequency. So there's obviously.
Favorable trend that was already in place students at very aggressive underwriting initiatives, we take into hurt our risk exposures, but are there could be a a related.
With the current environment, it's coated.
Just a favorable trends persist in July.
And comment on.
Yeah.
Uh-huh and then in terms of.
Side, we've heard some comedy is kind of call out some cold weather related but they just from lack of TD.
Things like that was there a benefit.
So I can comment on the core.
It was minimal.
[laughter] Oh as I mentioned in my remarks was related to ceding commissions earned a we did not have families secure insurance company as part of our quota share it with a three months in 29 team. So.
And what ceding commissions, we did.
Absolutely were mostly are so 12 months of RMB commissions, and then our E and F assumed premium.
Thus went down and and there are higher acquisition costs, so to that partially das business that our personal lines business that had a favorable impact on the expense ratio as well.
And then on sometimes on these calls on right now.
No give a little bit of color on like the forward quarter Hot obviously, you know there's an ongoing tropical storm so that might be choosing to comment, but I was kind of.
So far in the quarter.
So we've had two events we stay in the in the third quarter I think it relatively small at this pretty bosses their various industry loss estimates floating around out there and we've seen.
Just under 700 by inside of the Hurricane Canada impact to access a we've got a little over 450 by Amazon East side, Yes.
Mostly North Carolina, New York.
That's very early to estimate the impact of those bad.
We're working through it as we speak.
Okay, and then one last numbers question.
The cost me.
The little low in the quarter was anything there just sometime.
Quarterly variability.
Yes, there was approximately a net benefit of about $2.2 million up but beyond that.
<unk>.
It's primarily related to the cares.
A bit some additional work during border engaged outside tax assistance from Pwc, He said and from our ability to carry back some additional losses.
And did the board at a benefit during the quarter.
Right.
Okay. Thank you appreciate the color.
Thank you.
The next question is from Greg Peters of Raymond James. Please proceed with your question.
Good afternoon, and welcome back to the hot seek them.
I wanted to I was looking at your Investor presentation and.
The slides it caught my attention we're slide seven where are you run through the pipeline of rate.
That is coming is gonna be coming through.
And then slide number eight where you have this target of a almost a 10% reduction.
And PML by the end of our by September of next year.
Can can you sort of walk us through with.
How that's going to.
Evolve because with such a tremendous pipeline of rate I'm not sure. How you are projected premium is still going to be down.
So maybe you can help bridge the gap on that.
Oh, Okay. Thanks, Greg.
So the rate increases we haven't been taking rate increases for the last four to six quarter that's no that.
That takes a while skin.
Being true.
Our writing.
They earn through the portfolio. So we're really in the middle or that are well underway, but there's quite a ways to go and that's why.
Is showing some of the various.
You know specific rate filing actions that we have planned over the rest of year.
And we are planning to continue with those rate increases their supported at squarely.
And Doug they of course within our through over the next 20.
Slide eight is maybe a little bit more interesting or that you pointed out of and this is a portfolio optimization exercise.
Something that itself and typically step and that team.
It's been involved with.
Over the past 15 years.
And it just demonstrates that we can take.
Some exposure management spares that eliminate relatively small portion of our renewal premium and generate a much bigger reduction in email and that of course puts us in a better position as they move forward on our reinsurance contract.
It's partnerships next year.
Well you know we won't see exactly those numbers because of course will lose some policy symbol right other costs.
But directionally you can say see that that makes a pretty big improvement Oh.
Oh I raised capital measures.
That's yeah. It does look pretty meaningful what is so you don't want to think about the portfolio optimization is that going to include exiting states or is it just going through and you know looking at almost on a granular basis risk by risk and.
And figuring out where you're keeping and what you're not maybe you can just help me understand how that process works.
Yeah, absolutely. So it's very granular it's down to the policy to than we actually and then we actually individually look at those policies and look at the situation on the agent. So.
And so and it's not at all a state by state basis, it's not even a county by 70 basis, but it's taking the.
It's taking the lease efficient policies that are portfolio that went exposure management, we can find those policies on renewal.
[laughter].
Got it on the other area that is worth having you guys comment on would be.
Of the Florida, and the legal environment in Florida, you know.
You know assignment of benefit reform past.
Some of your peers have just reported.
That.
The legal problems still continue and are serious impediment to.
The prospects for improving results in the state.
And.
And so you know when I look at the reserve development that you posted in the second quarter.
I'm trying to.
Sort of bridge the difference between what you're reporting which is relatively stable reserve position with the rhetoric from others about a legal environment. The continues to be very challenging for the insurance industry and I'm just curious.
You know how you guys are thinking about that how you're approaching it and what gives you some comfort that.
Your reserves are at the right levels at this point.
The question, Greg This is Brad I'll answer that.
Yeah, I think we saw some of that activity last year I moved quickly in some reserve strengthening last year and we can't get burned they are saying more litigated claims year over year and its problem for the state of Florida, Oh, No question about that but we do not take it.
Oh, the reserve releases that our actuarial analysis would seem to indicate we might or could do because.
Litigation, that's a big driver why we are on a very slow to release reserves for from the prior accident years. So our actual development was less are expected to develop and again, the sport with but the out and in the first quarter, but yet just.
Reporting a modest amount of favorable reserve development, because we don't want to be too.
Given the trends were saying on litigation, So, we think we're well positioned and and more than adequately reserved.
Oh for that.
Okay, great. Thank you for the answers.
I guess the final question I would have for you you know you talk about in this release the.
First a reinsurance renewal.
And you know maybe you could just re visits.
At a high level, because we're now in catastrophe season.
What we should be thinking about in terms of first about retention and subsequent retentions et cetera.
Sure. So on slide nine we've we've got a nice summary of all are in force a reinsurance programs at the moment retention varied by company and geography. So it really doesn't depend on on a state and the location of a score of where our exposure is.
Age, but we believe the retentions are a reasonable at worst case.
Acceptable relative to our capital position and a growing earnings power.
I will say the yeah, we're grateful thankful to our reinsurance partners. They really stepped up to the plate again. This year I was a very challenging renewable I'd be remiss to say the our team probably worked hard and the ever this year, so to get done, but I'm very proud of program we habits.
Unparalleled in terms of it.
First the then Verity protection in Florida.
Got it that's still 58.8 million retention for the first about and submitting the half million for the second.
That's correct.
Got it alright, thanks for the answers.
Well.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your Touchtone telephone.
The next question is from Matt Carletti.
GMP Securities. Please proceed with your question.
Thanks, Good afternoon.
Dan I wanted to step back kind of 30000 foot view in just ask you you know as it because you just kind of come in and take the rains. We look at U.P.C. and say 24 months time, you know what will look the same about you PC and what will look different about U.P.C. as we sit from the outside and Tnfs. Thanks.
Well, that's a question thanks man I.
I think that that we will start from the position was I think you heard.
Numerous times in my.
Opening remarks that job one is make an underwriting profit.
We.
Do that by starting with our core non cat combined ratio.
Underlying combined ratio.
And the good news is we're really well down that path, but we're going to see on that.
First party.
The second one is that we love American coastal is I.
Oh Premier it's the largest.
Florida Condominium Association writer.
With very good margins and we will continue to grow that.
And then thirdly, we want to continue.
Most of my experiences and they commercial specialty in commercial space.
And we are building, our our journey insurance company there.
And we want to continue growing that.
Commercial.
Specialty cat business and make that potentially a larger portion of our book.
I see.
American coastal in the journey is right now.
I'm really excited about new technology platform that rolling out.
There are a lot of different capability with that and a lot of waste goals that so you mentioned something there.
That's within the core things I think of what you would see at 24 months.
Great and actually last when you touched on there was was where I was going my next question that the age of cannot portal. You mentioned you kind of once it's rolled out once it's implemented there's there's expense ratio leverage opportunity just in rough numbers down. The road can you give us some idea of what the kind of order of magnitude there might be in terms of.
How much we shaved off the expense ratio once you get that fully rolled out implemented.
Oh hell be careful with.
Forward looking statements there, but I.
I think that.
Okay.
And in part there's the expense ratio, but in a bigger part.
It's really the ease of use other agents and also the potential.
The potential but that opens up freshmen technology perspective.
Okay.
And then a couple just quick numbers questions for probably for Brad.
Yeah on the reduction in assumed premiums the Canada quota share that canceled.
Can you give us what will be the premium impact in future quarters. If you have that are or did it all cut off in the car quarter.
Yes, basically I just highlighted what we think the annualized treaty year premiums are for the the one remaining quota shares so which we believe from June burst to make very burst of next year will produce about 50 million on the same written off from that commercially DNS.
Underwritten by Amarin.
So that you can just compare that to the previous periods, but it's a significant change that there is.
Going to be less yes assume written a as we move away from that.
Assumptions position.
Okay, and then last one just you touched on the investment income run or investment income down in the quarter.
Mostly due to yields is that yes. It was there any kind of onetimers pushing that one way or the other or is that up a decent proxy for where are you expecting to be in the near term.
I think it's a decent problems they had the biggest it was on the short term.
Positive the money market funds, the things, where we stockpile cash and had a lot investment income you can see the numbers in the 10-Q two last it's available.
Okay, great. Thanks, very much the answers.
Well thank you.
The next question is from built Broomall Downlink and partners. Please proceed with your question.
Thank you just a couple quick follow ups on some previous comments.
To Dan's comment about commercial specialty maybe being a larger percent edge of the mix going forward.
That.
In Florida or or southeast region, how should we think about the split in that permit.
I would say that the commercial has two components really American coastal obviously with commercial residential result, Florida.
Then on the commercial specialty we have both journey as well as I assume DNS.
Our assumed DNS is more national in nature, not really into the north east, but everywhere in the Carolinas through Texas.
And then our journey, we have rolled out in Texas and were in that process Oh.
Rolling it out in South Carolina.
Oh Im in a Florida.
That's a rolling it out in South Carolina and Texas.
Got it okay.
Thank you that.
Brad to follow up on your comment about.
Claims in.
Oh, I'm, sorry in New York would that be subject to the Interboro retention.
Even though.
Apparently.
The ever a book is smaller than our United can't be though in the United in C. As far the Eway stay cool group than they do you like secret so that there could be a little bit overlap there but.
Yes, no amount per annum borough, but larger amount.
Okay.
And then also following up on your litigation common thread about.
Being up year over year is bad.
For.
Hurricane related litigation or non cat weather litigation.
Or maybe is it kind of for both so.
[laughter] the daily claims in April me too and so.
So yes, it's all three of those.
And the or me.
You think it's tied to this three year statute or.
And I guess, if you will kick in recent quarters for the amount.
Are the new claims consistent.
Following it consistent pattern, what you've seen in recent quarters are they coming down or up.
[music].
I can't really comment on that I I think our has a very stable position and we've got.
Oh were 39000 claims that are important to us that idea he hired over the balance of 92% close but fairly stable on incurred at all that despite what was.
Lots of ideas are still left so we feel comfortable with our reserve position, but we're watching it carefully.
Okay.
And then.
On the.
Oh.
In the slide deck, you talk about.
Gross losses of 76 million and then.
You're seeing a piece of that out to get to your net bubbles.
30, how should we think about.
The split of those losses, among your differing reinsurance.
Programs that you list on slide nine what kind of thinking of your aggregate versus maybe your.
Push or anything like that.
Let me just say for the second quarter 20.80, we did $30 million to the aggregate.
And around the other 16 exactly instead of the quota share Oh, essentially so that's the split and depending on how long it's got to second half a year as our retention rises we may.
Unwinding, some oh those losses say into the accurate we may not depending on our purpose losses turnout for the year. It was a pretty significant.
No one for Hurricane Cat four as Dan mentioned that we did have also three needs to house that that data center space little bit but.
We've got some reinsurance programs in place so to manage that volatility.
[music].
Perfect. That's helpful. Thank you and then on the quota share.
The effective June 1st.
Was there any change in the cat sub limit in that quarter share ceding commissions or anything like that or was it similar structure to that the path.
I would just stay is very similar structure and when I got comments on that specific terms.
The treaty.
And there was a little bit of a reclassification.
Related to.
Previously bifurcated ceding commission between ceded written premiums and policy acquisition costs, just from an income statement classification perspective, but Jim Burke with the new Treaty.
Oh, Florida and changes that now has all of those ceding commissions are being classified as policy acquisition cost going forward.
Okay.
Got it.
And just on the main your mean core Cat Xol program.
Worth the.
Some of in the past your time itself.
Talked about having long term reinsurance partners did you see similar.
They're similar participants this year as as in the past.
Yes, very stable now very stable.
And more new for does better than exiting but just so.
We felt good about that.
Thank you very much if at all.
There are no additional questions at this time I like to turn the call back to management for closing remarks.
Hey, Thank you. Thanks again for your time and attention.
Let me here and looking forward to working with the team.
Thank you.
This concludes todays conference you may disconnect your lines at this time. Thank you for your participation.
[music].