Q4 2020 Universal Insurance Holdings Inc Earnings Call
We were impacted by Hurricane Sally ecas Zada and Ada in 2020 and to a much lesser extent hurricane Delta. In addition. We have that exposure to a series of other 20/20 PCS weather events and minimal exposure to the Midwest derecho
All told we had a bit over 10,000 claims in the fourth quarter from named 20/20 storms and other PCS events. We did not have any exposure to Hurricane Laura or any other weather in Texas or Louisiana, including the recent winter storms.
We also had no exposure to the West Coast wildfires as we do not write business in those markets.
Despite the weather in 20 20. We continued are focused on underwriting increasing our primary rates in Florida close to 20% for the full year in class seven percent in the fourth quarter for 2023 Insurance costs as well as increases in some of our other states.
We continue to implement new binding guidelines to address emerging lost trends.
We have continued to maintain a resilient balance sheet that has self-funded are risk-bearing entities Capital requirements in addition to enhancing our Reserves.
We continue to be backed by our great reinsurance program and partners with close to 75% of our first event reinsurance capacity for June 1st of 121 secured already.
We continued our Geographic expansion efforts in 2020 and implemented our catastrophe rapid response teams during the COVID-19 and Emmett which accelerated our use of digital technology for adjusting claims.
We also continue to develop adaptive adjusting approaches to address claims lost cost trends.
We look forward to 20 21 as we continue to focus on resiliency and taking the necessary steps to provide reliability to Consumers and reduce uncertainty for shareholders. So with that let me now turn it over to Frank to walk through our financial results Frank.
Thank you, Stephen. Good morning, everyone.
As a reminder discussions today on adjusted operating income and adjusted EPS or on a non-gaap basis and exclude effects from unrealized and realized gains and losses on investments with an extraordinary reinstatement premiums and related commissions adjusted operating income also excludes interest expense.
In 2020 with total revenue up 14.2% So one point 1 billion driven primarily by growth in net premiums earned realized gains on investments wage increases in service Revenue partially offset by decreases in net investment income and increased Insurance costs.
EPS for the quarter was a loss of $0.57 on a gaap basis and a loss of $0.84 on a non-gaap adjusted basis for the year. We generated EPL game is $0.60 on a gaap basis and a loss of $0.90 on a non-gaap adjusted basis. These results were impacted predominantly by weather events and 2920 and related social dynamics and increased free insurance costs are direct premiums written grew by 21.9% in Q4 compared to the prior Year's quarter led by the impact of rate increases in Florida and other states taking effect as well as strong direct premium growth in Q4 of 18.9% off in States outside of Florida.
For the full-year direct premiums written were up 17.4% led by rate increases and increased volume as well as strong direct premium written growth of 17.7% in other states and slightly improved policy retention.
On the expense side the combined ratio decreased 18.9 points for the quarter to 124% but increased 9.7 points for the full year to 113.6%
The full year increases were driven primarily by an increase of 13 points for increased weather in 2020.
In addition increases were also attributable to an increase in our core lost pic when compared to the full prior year and the effect on the ratio from increased reinsurance wage costs.
The increases were partially offset by a lower level of Prior years reserve development on prior Year's losses in l a e reserves which accounted for 4.1 loss ratio per month a benefit from our claims adjusting business and a 90 basis point Improvement in the expense ratio.
Net investment income decreased 62.7% for the quarter and 33.7% for the full year primarily due to lower yields on cash wage income Investments during 2021 compared to 2019 realize gains for the quarter and for the full year resulted primarily from taking advantage of increased black market prices on our available for sale debt investment for portfolio and to a lesser extent aided by the sale of equity Securities unrealized gains were given by market fluctuations in equity Securities resulting in a favorable outcome for the quarter and the full year.
In regards to Capital deployment during the fourth quarter the company repurchased approximately 193000 shares at an aggregate cost of two point four million jobs full year the company repurchased approximately 1.6 million shares at an aggregate cost of 28.9 million.
For 20 21 guidance, we expect a gaap and non-gaap adjusted EPS range of between $2.75 and $3 a month, assuming no extraordinary weather events in 2021. Any return on average Equity of between 17 to 19%
The guidance assumes no extraordinary weather events in 2021 and also assumes a flat Equity market for gaap eps.
If weather events exceed plan, we expect to see both a benefit from our claims adjusting business and increased lost costs with that. I'd like to ask the operator. So now open the line for questions.
Ladies and gentlemen, we have a question. You will need to press star one on your telephone and to withdraw your question, press the pound key, please standby awaiting the union roster.
My first question was something like Tom ship from Piper Sandler, maybe get good morning guys. I bought my first question relates to the core lost back in the in the fourth quarter. It was 55.6% which is 58.3 in the full year, you know, I know some of that's claim wage income, but when compared to the third quarter at 59.9% which I imagine would have had, you know adjusting income as well from Hurricane Sally. It seems like a decent size decline in the core lost pick, you know, I know we have pricing concerning in upset by Rising reinsurance call your insurance costs, but can you walk me through how you're thinking about that and
Also, I believe towards the start of the year. The direct Corliss pic was increased to 40% So, how did how did we end the year compared to to where you were where you started? And and what do you thinking about twenty one month?
Yeah, good morning Tom. This is this is Frank. So your observation is correct its 40% for the full year 2020 which was a tick or two up from the previous years. We we did that to build on additional reserves to take into consideration. The the Lost Trends the other adjustments that flow through there would be any Billings for the adjusting company and and you're absolutely right. The adjusting company is very busy in the the fourth quarter. Not only dealing with the weather events in that quarter, but a lot of the claims that came in through Thursday for events that occurred through 9:30.
And the bill, this is Steve. I would say that on a go-forward basis. We analyzed, you know, all the things that come in from claims litigation Etc on our side along with input from our actuaries and third parties and due to the the the very good rate increases that we've got flown through the book. We will stick with a 40% in 2021 as well. Okay. Next question. I have was just regarding guidance and weather events, you know, I know the guidance excludes extraordinary weather but according my model we've had eleven quarters in a row with other events Beyond plan. So, you know considering the headwinds in Florida regarding the you know, the the litigation environment seems like storms that would have been more moderate sized losses previously have and would have been below your weather package plan threshold seem to be coming, you know, significantly above that threshold, you know the past couple of years. So my question is just how is management, you know, viewing that in the context of the guidance with the worsening severe birth.
You have those losses and the frequency and you know, you know, how does that how does that relate to guidance and and how you're thinking about pricing adequacy?
Yeah, I think we look at that and we again we don't have a crystal ball in order to does the market on whether we have built the infrastructure of our company along with our our application team to be unique within the Florida Market relative to the strength that we provide to our insureds and to our shareholders. So it would be a challenge for us to begin with estimating what we think Could Happen even though we are preparing for all of that within our estimates as best possible. So as that weather comes we will announce if there is an impact month and if the weather comes we'll we'll announce how we handle it as we've done in the past and just to follow on just to point out if you were to look at the guidance that we offered last year, which is our core earnings guidance, you know, and that's what we intend to do is to provide guidance on our core earnings and deal with weather as it comes if you were to look back at the actual results for
Twenty-twenty and adjust for the weather that we report separately. You'll find that the results are right in line with the guidance that we provided. So we believe that going forward. That's the best bass line too long to deal with and as we progress through the years and to the extent that we incur whether we we layer that into future guidance.
Okay, next question just regarding growth versus Capital. We've you know, we've got a decent amount of growth coming in, you know, a lot of that is price increases, but you're also seeing some growth of Florida, you know, a lot of the Florida insurers are you know, shutting policies setting sending them off to Citizens give them the litigation environment. So I just, you know want to get your thoughts there and and how you're thinking about growth relative to Capital requirements and you know, how how you fit and and and what's going on in Florida right now?
It's on this is Steve.
At the end of a 2019 we put in additional controls both for reserves which we demonstrated in when we put up additional reserves throughout 20/20 along with a focus on Capital deployment. So as we sit here today will continue to enhance those controls. But we also feel like we've got a very good handle on our Capital our deployment of that page and we have taken underwriting steps in late nineteen relative to Tri-County. We've not been writing business. There. We we did disperse the business across Florida quite closely in 2020 and wrote in a lot of markets where many of our agents felt our rates were too high but the the market hardened we became a viable under and many of those spots. We we do not see with the way the market is right now being wide open in Florida in 2021 for a whole home.
Reasons one of them being adverse selection if if you're the only game in town, it's not a very good place to be within the insurance business. So we're going to be somewhat more conservative in 2021.
Okay, and then just you know building off of that, I think there was a press release earlier in the month about using some of the you know offerings by various wage, you know, hopefully, you know, I think they offer some data to to help, you know policy selection. Is there any color you can give us there and and now you're thinking deploying that yeah, you know, I appreciate you following up on that time. We we are we are data-driven so you know with when we talk about reinsurance we talk about it all year long. We we've got all the models in house run by our own staff and as we look across the underwriting Spectrum, we constantly look for better data so that our underwriting team at point-of-sale becomes more informed and we are better to control what comes into our underwriting Spectrum. So to say so many of the policies
Is that we we write and have written of course all the policies are are underwritten by our own Associates, but we feel good about the data and and have enhanced that data to get you know, a better better route geometries better better home year building et cetera, et cetera so verisk seems to be a great partner for us and we're quite excited about about the relationship.
A great and then just last question was just hoping to just get an update on the Florida operating environment in general. You know, I'm sure you see the same as as me and various articles and journals that off, you know, some people are alluding to that, you know will be reformed just wasn't the you know, the the big help that everyone was hoping for and and and litigation environments either, you know, either the same even possibly were seeing for some guys so, you know and and then the issues around Tri-County or spreading throughout the state so it just in general. Can you guys can you give us an update on and what your thoughts on what's going down in Florida right now?
yeah, you know, our thoughts are that we are very fortunate to
Build a company where all of the things that we do. We do ourselves as much as possible. And you know, if you look back, you know, we started Fast Track in 2016 by trying to do all of our adjusting that has a benefit today where when a case is filed against us for whatever reason we've got better content to defend that case in court so that you know, our own adjusters are more inclined whether they favor that or we force them to to take additional photos. Make sure the file is complete and provide our our litigators and ability to defend the case. We we were successful in Q4 end in q1 while the courts were open and even successful in an appellate decision relative to fees paid out on a case to the other side. So we're doing everything we can to represent our shareholders our Associates to do the best job in an invite.
That is you know is unpredictable. And you know, our subrogation team had a tremendous year last year in light of the the court systems not being open and those same adjusters when they get to a public Acclaim in a condominium or wherever are are trained and how to diagnose where the leak may have started whether it was in our unit that that we have a policy on or neighboring unit. That could be 206 stories above above ours. So again, we're trying to do everything we can to manage an unruly businesses best possible and I'm getting into specifics I would say, you know, the Florida Market is hard. There's tremendous rumors, which I try and avoid because they're normally not worth listening to but I think the market is down and unfortunately many of my peers are forced to deal with a lot of things that we have not had to deal with due to our our structure our subsidiaries generating profit wage.
And being able to kind of self fund our own our own operations, so it's kind of a long-winded answer and I apologize but there are a few points in there that I think are relevant. But we all know the the State of Florida and the one-way litigation fees are really the the the symptom that needs cured at this point and hopefully, you know, the department of legislature are doing everything they can to to help Floridians cuz it's only going to continue to come out in the form of rate. So yeah, I mean just one last question to to what you just brought up. You know, what what are what are you hearing in regards to, you know putting pressure on you know, the politicians the government down there to to to look at, you know me forms to to your point, too.
Do what needs to be done to you know, help help the the policy holders down in Florida.
Yeah, you know, I think the you know, if you if you look back Tom, you know, we've always had things to deal with you know, whether it was sinkholes, you know as referred and and I I give the legislature in the department great points for the legislation. It has been effective in thwarting some of the unsavory players across the state and I think that has somewhat diminished off the ability for first-party litigation to grow at the rate. They were they continue to grow and I think a lot of what you're seeing in case Glide and other areas, you know with the courts these systems be closed. You can't dismiss a case that shouldn't even be contemplated. So they're they're beginning to reopen we feel good about that and you know the same thing as sure on the suburbs side to the courts were closed quite a bit in 2020. So as we can get back to pressuring people to defend our case we feel good about that going forward as well.
But I do think the legislative.
To be more specific the legislature has a lot of bills that they're contemplating right now. Some of them are stronger or weaker. They've got a lot of constituents they have to satisfy as in dog carrier. We're doing our best to make sure that our case is represented as best possible but it is it is a complex business and I know that they have a lot on their minds off the contemplate the reform that we hope they they they they pass I appreciate all your answers. Thank you. Yeah, thanks hon-ney expression from dialing and partners. You may be good.
Great. Thank you. My first question is on the rates. I think you mentioned you got 7% free insurance rate in Q4. I was just wondering if you could lay out a strategy may be going forward in terms of maybe the frequency that you'll do rate filings and just your strategy how you think about getting raped through the whole system would be helpful.
Yeah, thanks Bill. This is Steve. We we have we are in the process now of we traditionally have somewhat of a spring to early fall filing for traditional rate. You know, we will do probably in the april-may timeframe. I don't have any indicators on that at this point, but the team is diligently preparing that for my review and then you know, secondly last year we we did use the reinsurance, um, uh the ability to take that rate due to the increase as we experienced and as we get through the reinsurance season this year, we will look at that and potentially do the same thing. If if the increases are substantial we feel that the benefit is necessary to the business and that's a good way to offset the expense we incur
Perfect. Just thing on that reinsurance come in the in the press release to talk about the 75% being completed. Can you just remind us I think I bought a piece of that is the multi-year and the fatf layer, but the multi-year can you just remind us how the multi-year should unfold over the next year or two?
Yeah, you know we we traditionally I think if you look back though, we were one of the first to enter into multi-year agreements with our our partners and you know, they've been very supportive, um throughout the years of our desire to secure the necessary reinsurance so that we're are not in a position where we have to focus on such a large Tower as we enter into the June season, so, you know right now we've got we've got areas in our art our that we are securing below the fhc and above it and you know all in all you know, that 75% number is actually a little low as we sit here today. So we feel good about where we're at. And again, you know, it gets loss in some of our translation, but the fact that we have our own Associates that work on reinsurance all day all year is a tremendous advantage to us so that when we're working with our actuaries
even prior to
Dual, we've got the expertise and the smarts to make decisions all year about how we are preparing for reinsurance. And as you know reinsurance is becoming more of an all-year-round event off rather than just waiting for a broker to get it for you for June 1st. So we feel good about our structure good about our team and our ability to work with people we've worked with for over 20 years on Multi years wage agreements.
Great know. It's helpful. Thank you on the adverse development, you know a large a large portion of the development for the full year came in Q3 and Q4. And I think last quarter you talked about companion just helping us understand. What was the bigger was it was it still companion claims in or or was there anything else that you might have song that changed? Maybe your some of your assumptions? Yeah. Well, you know again we were very fortunate Bill and 20/20 that the Irma date of three years Beyond a September arrived and that you know, we are we are hopefully putting the hopefully the industry is putting that behind us both for our reinsurance partners and ourselves that along with the wage legislation that worked both of those had somewhat of a run up in claims and some of the the players in Florida were were looking at people's homes and trying to figure out what other Opera
They might have to incorporate into a claim or multiple things on a single claim. So we did see some of that run up. I think you see some of that in our prior year development. I got to take the the medicine so to say for for for some of the claims that were called in in addition to an Irma or somebody that might have been represented in aob claim in the system. Well, we have seen a dissipate in Q4 as well. So we feel good about the basis of the book and the claims environment going forward, you know barring weather, but it definitely is in the soup so to say
Okay, perfect. Next just went ahead was it was more on that question on Capital Management? And you know, I'm actually quite can you just help us frame how you think about using resources for growth versus Capital Management? Whether it's BuyBacks or special dividend month and kind of how you balance it given the strong rate environment in Florida.
Yeah bill. This is this is Frank Wilcox. Thanks for the question. You know, our number one priority is to ensure that the insurance entities are adequately capitalized a few months opportunities for the entire holding company system. So we we first and foremost ensure that we have been there in the past. We currently made some additional contributions We Stand ready to do that in the future beyond that we look at returning value to shareholders when it's prudent to do so, you know, we've had quite wrapped up our uh repurchase program that's been authorized as 19 million on that that would be looked at very carefully before we make any decisions there. And then of course we're going to have discussions around dividends with the off the board.
Okay, and maybe just my last one of a number is question. What was your ratio at the end of the year and month. Did you Downstream any capital and oh, and maybe I'll stop there and then I have actually one more numbers question.
We did we we got approval to Downstream Capital after the reserve analysis was complete and we discovered that we need additional Capital at UPC. I am both entities are just above 300%
Okay, and last following up on Tom's question about the guidance you have an assumption for months. We you think of as a weather plan. Is there any way you could help us think about what your weather plan is so I can besides you know, how much you you're kind of thinking within that core guidance. And then I'm all done things. It's in the high single digits.
That's that's for weather time and I think we you know, we look at that as you know, obviously there's no crystal ball on whether so it is we we we took the whole lot about it. Are there different ways we could provide guidance relative to whether
you know, so it's it's a tough one, but we feel good about where we're at. And you know, hopefully we get back on a track of favorable weather so to say
Perfect, and that high single-digit that's points, correct, or okay. Thank you. Thank you very much. Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to the speakers for any closing remarks.
Yeah in closing. I'd like to thank our Associates consumers agents and our stakeholders for their continued support of universal and with that. I wish you all a great day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Yes.