Q1 2021 United Insurance Holdings Corp Earnings Call
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Yes.
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Hello, and welcome to the United Insurance Holdings Corp, Q1 conference call. At this time all participants are in a listen only mode. If anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation.
As a reminder, this conference is being recorded.
It's now my pleasure to turn the call over to Adam prior with the equity group. Please go ahead.
Thanks, Kevin and good afternoon, everyone. Thank you for joining US you can find copies of Upc's earnings release today at Www Dot UPC insurance Dot com on the Investor Relations section. In addition, the company has made an accompanying presentation available on its website you're on.
Also welcome to contact our office at 2128, and $3 690, 606, and I'd be happy to send you a copy. In addition, UPC insurance has made this broadcast available on its web site as well before.
Before we get started I'd like to read the following 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 the federal securities laws, including statements relating to trends in the company's operations and financial results and the business and the products of the company and subsidiaries.
Actual results from UPC 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 in Upc's filings with the U S Securities and Exchange Commission.
<unk>, specifically disclaims any obligation to update or revise any forward looking statements, whether as a result of new information future developments or otherwise.
With that I'd now like to turn the call over to Mr. DNP Upc's Chief Executive Officer. Please go ahead Dan.
Hello, and thanks for joining us on our first quarter earnings call on Jmp's, Chairman and CEO of UPC.
Turning to offer an overview and then brand marks will go over specific numbers and then we'll take some questions.
The first quarter yielded an underlying combined ratio of 94%, which is a slight improvement on a year over year basis.
Our first quarter cats, including Winter storm, you already caused a loss near 24 million net.
On what better than plan and benefiting from a reduced IOP cat retention and our 2021 reinsurance program.
As such we were set to deliver results for the first quarter on track with plan and in line with our expected transition here.
However, due to the unusual loss development patterns in February and especially March at the end of the first quarter. We did an analysis of our exposure to the accelerating litigation trends on Florida.
This resulted in a $30 million strengthening of both cat and non cash prior year reserves focused in our Florida personal lines exposures.
This drove a disappointing after tax core loss for the quarter of approximately $19 4 million.
Subsequent to closing the quarter, we are very encouraged with last Friday's, Florida legislative changes and believe that they will help to mitigate the accelerating litigation experienced in Florida.
Given our substantial exposure to Florida. We believe this will result in significant improvements from UPC and will make a material difference to our ultimate losses incurred in Florida while.
Allowing UPC to keep the promise and stand strong for our investors business partners partners and policyholders.
As mentioned above while our underlying combined ratio improved slightly year over year to 94%, we need to target the low eighty's to.
To drive an underwriting profit and continue expanding our underlying margin we need to continue driving up revenue and driving down loss on reinsurance costs through risk selection and exposure management, we're making good progress for.
For revenue our rate increases are continuing with a 10, 4% rate increase achieved year to date on personal lines renewal business and nearly 19% on personal lines new business, we anticipate the hardening rates will continue and renewal business right.
Increases to even accelerate.
We have filed rate increases in Florida, Texas, South Carolina, and North Carolina, Louisiana, and New York, averaging nearly 15%.
Renewal retention rates remained strong.
Curbed new business dramatically as part of our exposure management plan.
Portfolio management, we are ahead of pace reduced by 13% are pooled P&L by September 30 on a year over year basis, which will result in over $300 million less reinsurance limited.
It takes a lot of pressure off our June 1st catastrophe reinsurance placement.
To date, we expect to finish our placement as soon and as of today, we are overlaying that our core cat placement.
The program includes a significantly reduced occurrence and aggregate retention for hurricane exposure to the pooled companies of at most 25 million per occurrence for first and second events and less than $70 million on the aggregate.
This retention level and apply it against the 2020 hurricane season would have yielded about one third of the actual $208 million retention last year.
Our commercial lines business fared well and results are outlined in our investor supplement which can be found on <unk> website.
American coastal continues with the number one market share of admitted commercial residential.
In Florida, and is writing and a very firm market.
The newly legislated citizens.
Changes, which include the annual rate increase glide path.
Inclusion of the reinsurance costs to the on 100 year and the 20% keep out premiums will positively impact terms for the Florida commercial residential space.
We continue to be on track to rollout our journey E&S platform in our direct to consumer technology product with Skyway technologies.
Both planned for the second half of 2021.
We will have more information on our plans for these platforms as we near rollout.
As stated previously we expect 'twenty, one to be a transition year, but we remain well positioned to continue expanding our underlying margin while also significantly cutting our net catastrophe.
We plan to take advantage of the accelerating rate increases and our opportunities in E&S and direct to consumer technology.
Property cat market remains as hard as it has been in years, especially the Florida personal lines market.
With that I'll turn it over to Brad.
Thank you Dan and Hello. This is Brad Marshall President and CFO of UPC insurance I'm pleased to review Upc's financial results, but also encourage everyone to review our press release Investor presentation on form 10-Q for more information on price.
Yes.
For the quarter ended March 31, 2021, the company reported a GAAP net loss of $17 8 million or 41, a share compared to a loss of $12 7 million or 30.
Per share last year.
Our core loss of $19 4 million or <unk> 45 per share representing a $28 $5 million decline from core income of $9, one or 21 cents a share in the first quarter last year.
As Dan mentioned the deterioration on core results was driven by a $30 million charge to strengthen loss reserves due to higher than expected prior year loss development.
This irregular loss development deviated from historical patterns in February and March due to higher frequency of litigation and horizon severity fueled by higher material costs.
This trend continued in April almost factored into a re estimation of ultimate loss liabilities at quarter end.
Page six of our Investor presentation paints, a nice picture of the litigation trends, we've seen since 2017 and Y legislative changes in Florida, where needed. We applaud every leader on Florida, who help make that happen.
Assuming these changes become law on or about July one I believe is a game changer and it should have a positive impact on future results over time.
Our GAAP and core losses also included $24 million or <unk> 44, a share of current year catastrophe losses, consistent with our pre announcement winter storm urea was approximately $16 million with the remaining 8 million stemming from non smaller cat events during the first quarter.
Gross premiums written for the quarter decreased $23 5 million or 7% from a year ago, driven primarily by a $21 million or nine 4% decline in personal lines consistent with our strategy to derisk and reshape our homeowners insurance risk portfolio <unk>.
Commercial premium production was down slightly due to lower assumed E&S premiums written of $19 million, which was offset by strong Permian growth in American coastal is admitted commercial residential portfolio of $16 5 million or up 18% year over year driven by higher rates.
So you earned premiums were $210 7 million, an increase of $57 $7 million on approximately 38% year over year due to more business being ceded via our quota share reinsurance programs.
Other items included in total revenue during the first quarter included $5 $1 million of fee income related to a renewal rights transaction in the northeast that was completed in January unrealized.
Unrealized gains from equity securities of $2 6 million in investment income of $3 6 million, which declined $3 3 million or 48% from the prior year due to lower yields and dividends from equities.
Upc's first quarter net loss and loss adjustment expense was $115 8 million, an increase of $12 9 million or 12, 6% year over year.
Net retained cat losses added over 16 per ounce in the prior year Reserve development adds over 20 points to our net loss on combined ratio.
Excluding these two items the underlying loss in LAE was down or was $62 million down $24 8 million or 29% year over year.
It's pretty it's an underlying gross loss ratio of 17, 4%, which improved nearly eight points compared to 25, 2% a year ago.
Due primarily to higher ceded losses.
On our underlying net loss ratio of 42, 5%.
Improved approximately three points from 45, 4% and the per quarter last year, which is a better baseline for comparison. This period since it includes both ceded premiums and losses.
Upc's operating expenses were $69 9 million, a decrease of $17 million or 20% year over year.
This decline was driven almost entirely by higher ceding Commission income in the current quarter, which is reflected in lower acquisition costs.
Excluding fee and commission total operating expenses increased roughly one 7 million from 1 billion.
I'll be here.
Our gross expense ratio for that was furnished yesterday.
19, 6%, 6% from.
Favorably to $25 per se.
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Okay.
Yeah.
Including the benefit of ceding commissions.
In contrast, our net expense ratio increased two six points to 47, 9% inclusive of branch <unk> costs.
Speaking of our insurance our team made exceptional progress on renewing our core catastrophe reinsurance program that will become effective June one 2021.
Happy to report, we have secured commitments from our reinsurance partners in excess of the total limit being solid and are now on the process of determining final allocation of lines.
We're able to retain our aggregate cascading structure, which we believe provides superior protection against risk gorilla and the risk adjusted cost increase is likely to be in the mid single digits.
But it's not finalized yet because we are still evaluating various options related to reducing our occurrence and aggregate retention.
As Dan mentioned, the most significant change we expect to make this year is reducing potential earnings volatility on the second half of 2021 from named Windstorms. We look forward to announcing all the details later this month once the terms are finalized but wanted to express today that our program is in great shape and much improved compared to a year ago.
On the balance sheet Upc's total assets were $2 8 billion, including cash and investments of approximately $1 2 billion.
Modified duration of our fixed income holdings increased to $4 four years, but our composite rating of eight plus remained unchanged.
GAAP <unk>.
QWERTY attributable to UHC stockholders declined approximately 9% from year end to $359 million with a book value per share of $8 32.
Our unrestricted liquidity at the holding company was approximately $40 million at quarter end, but we intend to utilize up to half of that liquidity for capital contributions to our pooled group of companies.
Given the impact of our reserve charge had to statutory surplus this quarter.
Finally, I would also like to preview our intent to refresh our currently stale dated shelf registration statement.
We can't provide any additional details regarding future plans to access capital markets at this time, but we always want to be properly positioned to do so.
Thanks for your valuable time and interest in our company and that concludes our prepared remarks, we are now happy to take any questions.
Thank you because that can be played from the question queue. Please press star one on your telephone keypad, a confirmation tone will indicate your line is from our question queue you.
You May press star two if you'd like to remove your question from the queue from.
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First question today is coming from Greg Peters from Raymond James Your line is no loss.
Good afternoon I'm.
I'd like to focus first on the litigation on <unk>.
The charts you put on page six some of the commentary you had in <unk>.
Other parts of your presentation. So.
On the.
The legislation was passed.
<unk> into effect from July one so.
Two parts to the litigation question first of all.
There are other parties that are have observed the litigation.
<unk> observed what's been passed from have suggested debt, while I might help a little bit on the margin, it's not going to go far enough to fixing the problem.
On the second half.
Art of the litigation question would be if the trends accelerated.
On March February March and now.
And it goes into effect July one should we expect that chart. That's on page six on the right hand side of the page to go up even further or is this a rush to the to.
The filing date to get more claims filed and will that result in.
Our core loss ratio in the second quarter.
Okay.
Thanks, Greg This is Dan.
So we've heard a lot of feedback from the various parties on how effective the legislation will be.
And of course, we did not get everything that was originally in the Senate Bill 76.
And there were a few key things that were removed.
However from the standpoint of just the dynamics of a claim in litigation.
There's quite a bit of good stuff that day.
Puts more structure around that process.
It makes it more fair than it has been Florida has been.
Really.
Really difficult and I think for people that are really close to the situation.
They can see that there will be changes on how those claims are.
Addressed.
So we feel like we'll make.
A significant difference.
Including like the two year timeframe.
As it applies to the tail and stuff like that.
So so we haven't heard the various things.
The fact is that we won't really know until we see.
Impact some of the claims.
Second question, which is really what do we expect that our Q2.
I would expect that we'll have.
Something of a rush to the courthouse.
But of course, when we're looking at on our reserves, we're thinking about how that impacts the future and so we would not project that Q2 <unk>.
Number of litigation.
Events to continue to grow into Q3 or Q4, we'd obviously, we would project debt to.
To come down dramatically, so I don't think that that will.
Have an impact a negative impact on how we look at reserves at the end of Q2.
Thank you for that that answer and then just as a follow up I know you report.
The underlying number I'm just curious about how meaningful the underlying number is in the context of the unfavorable reserve development.
No.
It would suggest the $29 million.
29 760 <unk>.
It would suggest that as you wish.
<unk> had understated.
The underlying loss ratio in prior quarters, so actually the actual underlying loss ratio underlying combined ratio was running higher than what you're reporting is or am I looking at that wrong.
Greg This is Brad I'll try that one and I think the.
Underlying number tends to.
Help with comparability between periods by stripping out the noise. So for example, if some of them the data that emerged in the second half of the first quarter of this year was available at year end, when we were making certain decisions.
On that $30 million have been put into our year end numbers you'd be talking about a pretty significant improvement in the combined ratio potentially.
That's that's the sort of thing.
Yes.
Stuart's comparability in the underlying.
Metric is just one of many metrics. We think all are important, especially the combined ratio don't want to deemphasize the combined whatsoever, but it is a way to help improve comparability.
Got it.
The last question would be on the reinsurance and risk based capital.
I guess with this first quarter results your risk based capital ratios deteriorated, obviously with the reinsurance do you have an opportunity to sort of reset that how are we how are you thinking about risk based capital ratios as we go through the second quarter on the reinsurance range in the reinsurance renewals.
And maybe you want to give us an update because it all ties in with the first quarter results, where they are et cetera.
Yes, we're comfortable with our capital position.
But a lot of work and thought into that obviously at year end with some of the additional reinsurance protections we put in place both at year end to end at January one with our all other perils catastrophe excess of loss program.
Which did help lower our retention of risk from from Winter Storm, Yuri and we're going to do the same thing for our six one renewals. So that is going to take pressure off of.
From the earnings volatility that we've seen in recent years as we start to take more reasonable retentions of risk relative to our capital, but the derisking of the portfolio is really driving down our net premium risk and that is the primary driver of required capital. So actual capital will obviously be determined.
Bye bye the frequency and severity of losses in the second half of the year, but we're driving we're doing everything in our power to.
Improve our risk portfolio and drive down our required capital.
Got it thank you for the answers.
Thank you as a reminder, Thats star one to be placed in the question queue. Our next question today from me from Elyse Greenspan from Wells Fargo. Your line is now live.
Hi, Thanks.
My first question I think Dan started off on your discussion by saying Youre targeting alone on an underlying basis.
Good day.
Give us expense.
Kind of a project update on the timeframe.
No one.
I would expect to get there.
Okay well.
The way to get there is of course to drive down our loss costs.
And increase our revenue so we're on a run rate.
We have achieved a 10 point, let's say $10, two or 10, 4%.
Rate increase.
Looking backwards and we have filings there is the two filings in Florida for 14, 7%.
<unk>, Texas, Louisiana, South Carolina, North Carolina, and New York, which all average around 15%.
In addition to the 10% that we achieved for last year.
No.
On the exposure management and on the loss cost side, we've taken.
Number of steps from the standpoint of underwriting and risk selection.
To try to eliminate what we call the bottom decile of our portfolio.
So those steps will try to move that net underlying combined ratio down.
Into the low <unk>.
When is a good question I mean, it moves around a little bit obviously with headquarters go but.
We would certainly hope that were there by the end of this year 2021.
Okay. That's helpful.
Net.
In terms of the color you guys gave around bringing down on your net Pat Ryan.
In reference to what we saw last year from the event so.
This is following.
Placement of European insurance cover as you see it getting place white packaging line.
Thank you on all the commitments.
For the program that basically you expect that the loss I think from from $70 million right that day.
Quickly after we go through the call vanilla on the program.
So the.
On what we said was at the most 70 million 25 million for the first and the second occurrences in our $70 million in aggregate.
We are working to potentially bring that down even further and we hope to have news over the next couple of weeks, but yes that would be.
Applicable at <unk>.
June one we have a separate.
We call it all other perils cat tower.
Debt, we placed at one one which helped us in our.
Yuri loss.
And gave us a net loss that was reduced from that outside of hurricanes, so that retention applies to named storms.
The 25.
Okay. That's helpful on.
And how much on Brad sorry, I think I might've missed from your commentary on cap on on your prepared remarks, I think you were talking about having to contribute from capital Corp entity because.
The reserve charge in the quarter did you provide a number can you just kind of highlight to us what you said.
Certainly.
We I had mentioned in my remarks that we had approximately $40 million of cash on hand unrestricted cash on hand at the Holdco level.
We intend to utilize up to half of that liquidity for contribution.
Those have not been finalized yet in terms of exact amounts, but we did want to backfill.
On the whole.
That was caused by the reserve charge debt.
Debt, we feel it was prudent and warranted given the the loss development activity, we saw but.
So that's essentially what was.
Communicated.
Okay, Great and then a couple of quick numbers one.
Another reinsurer, a reinsurer actually sorry, I thought you said that even though it's kind of more than three years out that theyre still seeing from.
On adverse development on Irma have you guys on.
On your gross loss from that event mode.
Recently like in the current quarter.
Yes, we did reevaluate Irma and at March Circuit, first as well and our gross loss increased to $150 million per Irma.
From the end of last year.
That's correct.
Okay.
And then one last one on <unk>.
In some events.
On April on Kathryn Thompson from must go on Becker from at the end of the month could be adjusted.
More significant losses is there anything on and we should think about it.
From people today.
Maybe having more or perhaps your loss exposure to some of the events that we've seen so far.
Sure Yeah, we can acknowledged some cat activity in April, but nothing out of the ordinary and we don't have anything to pre announce at this time.
Okay. Thanks for the color.
Youre welcome. Thank you.
Thank you we reached end of our question and answer session I'd like to turn the floor back over to management for any further or closing comments.
Okay.
Well, we just want to thank everybody for being here and.
Thanks again.
Okay.
Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.