Q3 2020 United Insurance Holdings Corp Earnings Call
Greetings and welcome to the United Insurance Holdings Corp, third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation is you would like to ask a question. Please press star one on your telephone keypad. If anyone's you require operator assistance during the conference. Please.
Stars Zero on your telephone keypad as a reminder, this conference is being recorded it is now my pleasure to introduce your host Adam prior at the equity group. Thank you Sir you may begin.
Good afternoon, everyone and thanks for joining us you.
You can find copies of your P. CS earnings release today W. W. W. Dot U P C insurance Dot com and the industrial Relations section. In addition to the companies maiden accompanying presentation available on its website.
We also welcome to contact our office at 2128369, 606, and we'd be happy to send you a copy.
In addition, you can see insurance is made this broadcast available on his website as well.
Before we get started I like to read the following 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 security laws, including statements relating to trends in the company's operations and financial it's all in the business and the product up the company and its subsidiary.
Actual results from your P. C may differ materially from those results anticipated in these forward looking statements as a result of risks and uncertainties, including goes described from time to time and you P. C filings with the security and Exchange Commission.
Despite the nonrecurring charge.
We are continuing our portfolio optimization activities, many of which are enabled by the harming us windstorm market for both our personal lines and commercial lines portfolios.
Our ongoing PML exposure management strategy targets nonrenewal of the lowest tier of our exposures, which we believe the twins capital efficiency as well as mitigating some of the challenges on our core cat excess of loss placement at six one.
Topline gross written premium increased by 15% in the third quarter, which is driven mostly by Reid.
And as shown on page eight of our Investor presentation, we have over a dozen filed and approved additional rate increases in our biggest states becoming effective over the last 90 days, which will enable us to continue our rate growth through 21 and 22.
We're also taking numerous underwriting actions to refine and focus our portfolio first.
First we are increasing use of a proprietary online inspection technology to enable us to focus on best in class risk.
Storm severity.
Three Q gross catalog is currently estimated at about $290 million, but was seven accumulative retentions or named storm catalog net of reinsurance total of approximately $125 million.
We still have over $3 billion of remaining limit and our core cat aggregate tower.
The cat losses, including early estimates of queue for events Delta Zeta have impacted our capital position and a reinsurance plans for 2021.
Our grocery and premium and <unk> is up by 15% and our cash and investments at the end of <unk> are up by 16%.
Get our total capital is down by seven 6%.
And our premium to stockholders equity increased from 149% to 166% increasing the leverage on our capital. Additionally year to date book gap value is down by nine 9%.
These decreases are disappointing and more than we would anticipate with even though for storm stress test.
However, they appear to be manageable given on our modest current codeshare sessions, and we have an excellent panel of long term reinsurance partners.
We are nearing completion of additional quota share capacity.
This is expected to decrease leverage correspondingly and we would anticipate this to have an immediate favorable impact of RPC.
However, we would also point out that several variables were Dana novels.
Including any losses that May result, from Canada, or any subsequent for <unk> named or not and cabinets.
Additionally, finalization of our <unk> pork and other deleveraging activities are not entirely under our control.
We're also working on our core cat excess loss program to deal with a physician will due to a mix of multiyear capacity.
Sure reinsurance catalogs, and a reducing P&L in our portfolio.
As such a significant majority of our core Cat tower Lippens are already secured 461 hundred 21 placement and we expect to have a redundant capacity available in the limits remaining to be secured next spring.
With a strong group of key reinsurance partners, we anticipate an orderly completion of our core cap program for June 1st 21.
Based on the impacts to our results from named storm frequency of 2020, we plan to decrease our nicknames storm Retentions and 21 as well as address are nominating can't exposure.
We expect this to drive and increased reinsurance spent however that will be offset by strong growth certain premium rate growth and achieving reducing volatility in 2021.
For me Infinity and for our company this quarter has been a significant challenge.
But expected continued improvement in the escalating non cat margins should drive future profitability and also enable a profitable underwriting margin on our cat exposures.
It is truly a challenge to be a cat specialist and record set in cat years. However, the elevated regional not named in Maine.
Named Cat activity over the last several years exacerbated by the impacts of global Pact and uncertainties of Covid related risks to the broader market has created a heartbeat market in both personal and commercial lines that we expect will enable strong margins moving forward for president class underwriters, we're taking the steps necessary to focus on.
Portfolio Encore competitive advantages and we currently expect these steps to bring us back to peer group profitability over the next four to six quarters and position as well as a top quartile specialist over the long term.
With that I'd like to come over to Brian months.
Thanks, again and blow everyone. This is Brad marks the president of CFO BPC insurance I'm pleased to review Upcs financial results, but also encouraged everyone to review our press release Investor presentation and form 10-Q for more information regarding the company's performance for.
For the quarter ending September 30th 2020, the company reported a gap net loss of 70 $411 million or a loss of $1.73 per share.
And a color loss of $83.8 million.
Or a loss of $1 95 a share.
These results included $140 million of Cat losses.
Which came out slightly higher than our pre announcement on September 22nd that excluded tropical storm data.
F retain losses from seven new name Windstorms during the third quarter or $125.1 million Ah roughly $2.30 a share.
We anticipate our company will experience hurricane losses in the third quarter, but I think it's fair to say this year's record setting season.
Let the higher net retained losses and a disappointing result this period.
However, if you strip away and the noise created from name windstorm activity and the card and prior year, you will see a more comparable underlying view of our business that has improved each quarter. This year.
As Dan mentioned, excluding name Windstorms, we produced core income of approximately $15 million or 35 cents a share compared to a loss of four and a half million or 11 cents a share last year, which is nearly $20 million improvement in our underlying results year over year.
Page five of our Investor presentation paints, a nice picture of core income excluding name Windstorms for each quarter. This year compared to 2019, and we present this information not to disclaim ownership of hurricane losses.
But to reiterate this is the earnings stream, we're focused on growing to absorb hurricane losses when they occur.
Premium straightened for the quarter increased 48 6 million over 15% from a year ago, driven by new business and rate increases primarily in Florida and Texas.
Plus 10% growth in our commercial property, both fueled primarily by rate changed not exposure growth as total insured value rose less than 1% year over year on commercial lines.
Exceeded our premiums for 46, 7% of gross premiums are compared to 44% last year the.
The change was due to increase sessions tour quota share reinsurance program, which were 13, 6% of gross premiums earned her 48 1 million in the current quarter versus $12, 2% or $42 $2 million last year as well as higher costs related primarily to our core.
Core catastrophe reinsurance program that renewed on June 1st of this year.
Of a significant items impacting total revenues during the third quarter included realized gains of 25 million stemming from the sale of roughly $107 million of equity securities representing approximately 80% of our common stock holdings at the time of disposal.
This is partially offset by unrealized losses from equity as of 11.6 million for a net investment game of $13 4 million and the current period compared to $2.6 million a year ago and.
Investment income of $6 million declined $1.8 million of 23% from the prior year due primarily to the collapse in short term yields back in March of 2020.
Upc's third quarter net loss and loss adjustment expense was $218 7 million, an increase of $75 million a 47, 6%.
That included $140 million, a cat losses, which added over 74 points to our net loss and combined ratio, which was partially offset by $4 $2 million a favorable reserve development not.
Non cat reserve development and continued at a slower pace than expected during the third quarter.
Excluding these two items are underlying loss Natalie was 82.9 million down approximately $2.8 million three 3% year over year is produced an underlying gross loss ratio of 23, 4%, which compared favorably to 24, 9% a year ago.
Ubc's operating expenses were $92.4 million, a decrease of $679000 year over year policy acquisition costs, which declined three $1 million due to higher seeding commissions earn which is an offset to the change and seated premiums earned.
Underwriting and operating expenses increased $2.3 million due to higher system and software costs.
And G&A was basically flat year over year, but as Dan mentioned included a nonrecurring charge of $2.8 million.
Related to our abandonment of capitalized costs for a new home office building project.
Covid definitely played apart and reassessing, our long term office space needs, but we also want our team 100% focused on underwriting results right now so the cost and distractions from that project have been taken off the table.
Our gross expense ratio was 26.1% an improvement of nearly a point from the prior year, but would have been closer to two points without that non-recurring charge. The same holds true for our underlying combined ratio, which was essentially unchanged from last year, but would have improves one four points to 91.4% excluding.
<unk> the expense item for the discontinued real estate protect.
On the balance sheet Upc's assets totaled three 1 billion, including cash and investments in 148 billion Commodified duration of our fixed income holdings increased to three nine years, but the overall composite rating of eight plus remain unchanged September 30th.
Gap equity attributable to UHC stockholders declined approximately 10% from your end of $454 million with a book value per share of $10.54 or $9 90 pounds, excluding a OCI.
And our merch statutory surplus.
Declined to $371 million at the end of the quarter.
In conclusion, we believe UBC as well position and heading in the right direction. So we greatly appreciate your interests I'd like to thank you for investing your valuable time today to learn more about our company.
We are now happy to take any questions.
Thank you at this time, we will be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
For me Chicken Lady keep would you mind answering the question queue. You May <unk>, if you would like to move your question from the queue.
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Our first question comes from the line of Great Peterson Raymond James. Please proceed with your question.
Alright, good afternoon, I guess I wanted to just.
Start off with.
Some questions around your exposure management.
The gross written premium is so.
Pretty pretty significantly in the quarter and that is you suggest is all right how.
How much more aggressive can you get with exposure management.
In the context of limiting your gross written premium growth.
Greg This is Dan.
I think that.
We are taking numerous steps that fall under the bucket of exposure management.
Right is right is one of them so I mentioned like.
The bottom.
The amount is right.
Risk selection, we're expecting much more of the new business.
We also looked at all of our lines of business at all of our states to decide or to determine if any of them didn't have the scalar profitability.
It was.
Better to focus on our and our key areas, where we can be profitable.
I think.
The market is is harming and I believe that it will continue to hire them even more.
And that we will be able to.
Continue improving improving the class of risks that we right as well as improving the terms and conditions under which we write it.
Well it certainly seems like it is.
It just it feels like.
You could.
Deal with a lot less loss.
Can you can you spend amendment and described by no you break out.
And your press release the.
By line of business so the personal.
Side versus the commercial side has there been a difference in underwriting performance of those businesses or are they performing.
This high frequency cat.
Cat environment.
Similarly.
I think that the the personal lines.
Takes longer to turn and we really.
Started improving the terms and the results of the reeds of the personalized book a year ago.
But it had further to come.
It is getting married and it seems to be continuing to improve on a pretty steady basis.
For the core X hurricane.
Numbers.
American coastal commercial residential books has always been in June and it is.
It is.
<unk> significantly profitable this year, even with the main storms.
And our commercial specialty business.
Has gone through some changes as we've moved from three different contracts to one.
But we believe that it had a great.
The dream prognosis and the commercials specialty.
Interesting can you the other the other question, it's popping up for the companies in your space is just <unk>.
Capital There are as you know almost all of the companies and the Florida market are under various levels of stress.
And there is rhetoric about some maybe a number of them.
Losing their capacity going forward can you talk about your capital position your demo Tech writing and your R. B C rating ratio in the context. Thank you mentioned.
Yeah, some anticipated additional quota share.
I guess ultimately what we're looking for is your ability to withstand this year the fourth quarter, you're gonna have some more catastrophe exposures and the bottom line is your ability to withstand this year and to live on and fight for next year.
Right well, that's that's a good question.
We feel pretty good about our position right now.
We've been working with our reinsurers.
As we stated we're very close to adding some additional quota sure.
We believe that that obviously that additional quota share would be what is needed to move our leverage back into.
Where it was before this season.
I think you you solve the RBC problem, then you are pretty consistent with Salt Lake.
The debit tech.
The Dermatitic questions also so we feel pretty comfortable but we wanted to also say.
That obviously will be dealing with.
The queue for Canada exposures and those aren't all known at the moment. So there's some unknown.
And some part of that remain outside of our control.
But we feel pretty comfortable that we've got the leverage that we could pull up to Angela.
Greg This is brand I would just add that.
Frequently affirms the ratings for journey and double check because recently done the same for a couple of numbers of our whole group.
Obviously, all that's subject to change depending on how the fourth quarter plays out, but as Dan said I think we feel.
Very good about our ability to utilize reinsurers to close that gap between our direct bribings in our net premium brands.
Obviously, we're well aware it we understand that reducing operating leverage and.
And earnings volatility is a top priority for us right now.
Got it.
Can you just conclude all my last question can you give us an idea.
<unk>.
I think you said that you're prepared comments you still have a lot of limit left but as we think about these.
The storms that have happened in the fourth quarter and the one that I guess is working out there what's your per event retention.
As it currently stands and sweet sort of model out for the fourth quarter results.
Sure Yeah, we still have 91% of our core reinsurance.
Program in place over $3 billion about three $3 billion tower. So.
No worries there we could we could experience a very very significant event is ada turned into something significant it wouldn't be a problem for us our retention is $25 million.
On a go forward basis so.
We're prepare for the worst some hoping for the best will Databank.
Probably if it comes into Florida is a tropical storm I don't think it will be a full retention.
The best for Us.
Got it I'll, let all those ask questions. Thanks.
Thank you. Our next question comes from the line of car Lady with JMP Securities. Please proceed with your question.
Hey, Thanks, good afternoon.
Uhm, Greg Greg Greg grab most of mine. So I just want to follow up on the kind of the capital and additional quota share potential conversation as we think about that additional quota share and kind of where where the market is the reinsurance market, obviously getting firmer and I'd agree insurers getting more <unk>.
<unk>, how how should we think about the terms on that if that you should expect them to be materially different than than what you have in place so far or another way of thinking about it is should we expect on a net.
Earn premiums basis it to have upward pressure on on an expense ratio. When we think about the seating commission coming in as opposed to negative pressure.
[noise] Hi, this is Brad.
Terms, we've already received are from existing panel partners I mean billing.
I definitely think if we were in the Ark and trying to put together in a brand new program with no quota share experience in terms can be very very challenging, but because luka great support from existing partners. It's just it's fairly straightforward to expand the session right without any significant changes.
Or even any changes to the main terms of the existing agreement. So that's our that's our first preference.
We are exploring all options.
But we got very partners. We've got offers already on the table in hand, and hopefully we'll have something to formally announce shortly.
Alright, Thanks, Brent best of luck.
Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad. Our next question comes from at least Greensand with Wells Fargo. Please proceed with your question.
Hi, Thanks. Good evening. My first question. So I think you mentioned right for California adventure retention Spider about 25 million Uhm do you have a 10.
Okay for the fourth corner check out today based off with some in the event that we've already had.
Yes, we stated on page three of our investment presentation.
Delta and they are likely to be between $55 million there is a.
The retention for the core group.
Is 25 states that there could be a little bit of additional loss related to our E&S business.
And that will line tower.
Thank the losses are contained within that range.
Is.
Preliminary.
Okay. That's helpful. And then based off of the questions that you've had with demo tacked I guess, what is there like a time frame I need that.
<unk> you guys to have on some additional capital supported pain as soon as you spelled them with them on no idea about typing a viewpoint. It kinda working towards getting you know that for any job back.
The way you were before the storms.
They haven't requested anything for us.
We're being proactive.
R.
And our modeling and capital planning.
In anticipation of the questions. They may have after reviewing the third quarter results, but they.
They haven't expressed any.
Desire to see us.
Do anything at this moment.
So when you think about I got the conversations that you've had with some partner I got some of these losses right that you're pointing to in the fourth corner when do you guys and they can kind of.
Getting your that bridge back to where you are before this one.
This quarter.
The targeting effective date of December 1st.
Clearly change but.
That is our target at the moment.
And we will so.
Some of that capital relief to.
The health.
Bolster RBC here inspired by.
Yes.
<unk>.
When comments.
The real key to our success and that is the the growing and underlying core profit margin because when you have that region that margin to work with it's not it's not difficult to have additional quota share partnerships.
Okay that and we have color.
Okay May I, please hang something.
Okay.
No go ahead please.
Okay, and then I was gonna say anything like to also mentioning.
Great. Thank you were getting in your Barkley's <unk> trying to redecorate into putting both have off gross premiums called in the corner. So what do you have a sad can you give us a little bit more color kind of weight increases that we should we should expect from here as you kind of on you know.
I'm good amount more pay to your pocket business.
Yeah, it's pretty significant on personal line side of the house of a J does a pretty good job of laying out some change.
Changes, we've already made and are planning to make.
We think.
The fact that these changes should be upwards of $100 million of additional premium with no increase in marginal exposure.
And is that right on that is extremely powerful.
Obviously, our capital position will dictate how much of that we get to keep.
We're happy to share some of that with our reassurance partners to the extent I need to but.
Going to be taking a dan matches, some pretty aggressive action to right in the direct writings over tub reassurances.
A long term strategy, but it's also share is probably more of a short charter tool to help us manage leverage until we.
Refined and the risks portfolio and get the direct writings dialed, it where we want them.
This is Dan also make the comment on the page Ada's investor presentation.
A lot of the reason that you see like for example, in Florida 14 13.
Percent.
Is the.
Right increase so we already have been working for a year under.
Wait increases made last year, which is what's driving up.
Sure right now, but but these these are right on right and we're seeing retention.
Ratios that are remaining very consistent so.
Seeing we're not seeing that gives us a higher.
Nonrenewable right.
Okay. That's helpful. And then last question for me I think you mentioned $4.2 million a favorable development.
You just have a little bit more color.
That's.
That sounds <unk>, what accident yourself it with cats are in Manhattan.
Primarily all non cat on the most recent accident here.
So my name.
Okay. Thank you for the color.
You're welcome thank you.
Thank you. Our next question comes from now for Awhile with Dowling and partners. Please proceed with your question.
Great. Thank you.
If we can just put it slide 12 of the presentation you talk about the the.
The AG program.
Which has been hit three years in a row.
Can you just maybe talk about the interest that you're seeing from reinsurance partners in terms of participation I know.
[laughter].
Presentation says you are going to switch to a fixed percentage or fix your attention rather than a sliding scale, but can you just talk about the interest that you're hearing right now for that.
Yes, I will be the first to admit aggregate coverage is difficult to come by these days a lot of companies.
Struggled with placing their eggs.
We're gonna use unique position because we have one strategic partner.
Who provided us flexible limit and it is part of.
Shared limit with our core catastrophe reinsurance program.
On the one one placement six fawn placement. So we've got a great deal of flexibility and how we can utilize that limit and structure something that works for both parties. So.
I will admit that we understand.
It's got it's got to work for them as well and we want.
To address that and we certainly that the primary goal. This year is to have some fixed retention instead of one that varies.
With premium because of that phenomenon, where as the retention goes up if your losses are unchanged. The possibility exists for you to to recapture losses previously ceded half cat losses incurred and a quarter, where he didn't really have any new cat. So that's what we'd like to sew for.
We don't have that finalized.
So stay tuned on that but it's or.
Our goal is to have a fixed amount of cat.
And stop our losses at that point in time.
Okay excellent alright, thank you for that.
Can you just in the press release.
This evening, you talked about UPC re.
And your recent exhaustion point can you just maybe explain to me what.
What that is.
Well <unk> was a participant later one of our core reinsurance program. So they had a 12 $5 million exposure.
That was.
Hurricane Laura.
So.
Max they hit the maximum liability under their contract.
So we.
And that's included in obviously the $125 million.
Net windstar losses retained in this quarter.
Got your towers full cascading rates so high.
Higher layers were dropdown for any future events.
Oh, that's okay.
We fully collateralize.
<unk>.
Participation, but yeah. It doesn't change the structure at all and Everything's cascaded down there are no gaps in coverage in our.
In our program.
Okay, perfect and if I think about the additional quota sure that you're looking.
Looking to.
<unk>.
And I think about kind of the queue for storms.
How much buffer do you think in your RBC ratios kind of do you expect to have.
After this so if it does come in or maybe another storm.
Would that buffer be enough fit you won't have to do maybe.
Something else to to address surplus.
<unk> comment on there.
I would just say, we don't want to be.
Anywhere near the 300% line. If we can if we can help but we want to be well above it we're going to do our best to give us a margin of safety there.
Is that is.
Reasonable and that's about all we can say at this point in time rbcs it complicated animal.
But the Derisking of the company that is ongoing right now.
And the additional reinsurance support should have us.
Good positioning here.
Great.
Maybe one last one maybe numbers how much cash do you have it the holdco and what was the <unk>.
Surplus at 930.
The unrestricted liquidity at the old dos $42 $2 million of September 30th and the statutory surplus birchard was $371 million.
Great. Thank you so much.
Thank you that concludes our question and answer period, and now like to turn the call back to management for closing remarks.
Okay Stan.
Thanks for your time and attention.
I wanted to say that I continue to be excited about the future with the executive team, we've put together over the last quarter and our employees and our key distribution of reinsurance partners, enabling us to navigate this market together.
So Thanksgiving.
Okay. Nathan Gentleman does does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect your lines at this time.