Q1 2021 Universal Insurance Holdings Inc Earnings Call

April 29, 2021

Included in the quarterly press release with that Steve I'll turn it over to you.

Thank you Rob and good morning, everyone. Thank you for joining us today.

We are off to a strong start to 2021 with solid first quarter results, including.

Including close to 12% topline growth.

Margin expansion in excess of 200 basis points.

And a total annualized return on average equity of 23, 2%.

We continue to make progress on our reinsurance program renewal.

And we're oversubscribed on our first cat bond in March at rates below the low end of our initial range.

We have now completed procurement of our all states first event reinsurance program for UPC I see for the 2021 wind season and will have additional details in may as we finalize the remaining pieces of our risk management strategies for our insurance company subsidiaries.

In addition, we were encouraged earlier this month when the Florida Senate passed Bill 76, which would enable floridians to have reliable access to property insurance.

For a number of years, Florida has been a significant outlier compared to the rest of the country. When it comes to litigated property claims.

Which has put significant pressure on the Florida property insurance marketplace.

We have not been immune to these market dynamics and during the first quarter, we actively reduced our policies enforced sequentially and reduced new and renewal policy counts in aggregate this quarter when compared to the first quarter of 2020.

That being said, we continue to monitor closely the companion Bill in the house.

<unk> 305, which has differences from the Senate Bill 76.

We look forward to continue to make positive strides throughout 2021.

And should have additional details on our reinsurance program renewals in the next several weeks.

So with that let me now turn it over to Frank to walk through our financial results Frank.

Thank you, Steve and good morning, everyone.

As a reminder, discussions today on adjusted operating income and adjusted EPS are on a non-GAAP basis, and exclude effects from unrealized and realized gains and losses on investments and extraordinary reinstatement premiums and related commissions.

Adjusted operating income also excludes interest expense.

We ended the first quarter with total revenue up 11, 7% to $262 8 million driven by primary rate increases from 2020, earning through the book as policies renew and.

And an improvement in the unrealized portion of the investment portfolio.

Partially offset by the impact of higher reinsurance costs, when compared to the first quarter of 2020.

Margins expanded by 210 basis points for the quarter driven by the incremental fall through profit from the top line as previously discussed lower losses in LAE and lower operating expenses as a percentage of direct premiums earned.

EPS for the quarter was <unk> 84 on a GAAP and non-GAAP adjusted basis.

As to underwriting direct premiums written were up nine 2% for the quarter led by direct premium growth of 10, 2% in Florida.

On the expense side, the combined ratio improved one point for the quarter to 93, 1%.

The improvement was driven by a two point improvement in the loss and LAE ratio for.

From decreased weather favorable prior year reserve development.

On a benefit from our claims adjusting business, partially offset by increased reinsurance costs and less than a point of current year strengthening on a direct basis when compared to the first quarter of 2020.

The expense ratio improved on a direct earned basis by 45 basis points as a result of operating efficiencies, but was more than offset by the impact of increased reinsurance costs on the net ratio, resulting in a one point increase in the net expense ratio for the quarter.

On our investment portfolio net investment income decreased by 56, 3% to $3 million for the quarter, primarily due to significantly lower yields on the reinvested portfolio. Following the sale of majority of securities in the portfolio that were in an unrealized gain position in the <unk>.

Third and fourth quarters of 2020.

Unrealized equity losses improved substantially during the quarter when compared to the market volatility seen last March as a result of the COVID-19 pandemic.

Total invested assets increased 10, 6% to $1 billion since year end 2020.

In regards to capital deployment during the first quarter the company repurchased approximately 15000 shares at an aggregate cost of 245000.

On April 22nd 2021, the board of Directors declared a quarterly cash dividend of <unk> 16 per share of common stock, which is payable on may 21, 2021 to shareholders of record as of the close of business on May 14th 2021.

As mentioned in our release yesterday, we are maintaining our guidance for 2021, we still expect GAAP and non-GAAP adjusted EPS range of between $2 75, and $3 and a return on average equity of between 17% and 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 increase loss costs with that I'd like to ask the operator to now open the line for questions.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

To withdraw your question for Keith again, Thats Star one to ask a question.

We will have a question on the line from Mr. Tom Shrimp with Piper Sandler Your line is open.

Hi, good morning, guys.

Hey, good morning.

Sure.

Can you can you guys give me a.

For more of your thoughts on the build spring for the state legislature.

Insurance has got the most favorable aspects of the bills being contemplated.

How do you think about the potential benefit to you.

Your litigation trends.

Tom That's a question that is burning throughout the state currently and as you can imagine theres tremendous change currently occurring.

House Bill 76 that was passed by the Senate was seen as quite favorable.

There was a lot of good policy in the Bill.

Two year limitation on supplemental reported claims on a on a catastrophe.

Policyholders written notice within 60 days prior to pursuing litigation.

Attorney fees, which is really the symptom of the.

The yield is currently there is good language in there.

And I think we find ourselves now where the house is weighing in on those those topics on additional topics.

The house was contemplating those issues along with trying to assist citizens are becoming rate adequate and.

The session closes tomorrow so.

I would also say that I feel as though the department has done a a balance job of trying to represent the industry.

Floridians with several items that they've published to the house into the Senate.

The information is there the information is flowing there there are two strong sides. There is theres floridians on the insurance business. There is there is lawyers and hopefully tomorrow, we will get a favorable legislation that will.

Improve and enable carriers to begin writing and helping out Florida, Florida residents.

Okay, great staying.

Staying on the insurance regulators last year, there were some headlines.

For the regulators were examining the fees between the insurers and the corporate affiliates do we have an update on that or can we just still view that as just ongoing discussions typical discussions.

Yes, Tom I think it's a misnomer to feel as though the department of insurance is not intimately aware at least with universal of our relationship between subsidiaries and the per the fees that are charged how they relate to market. So sometimes that sounded like they don't do it but they do it.

With us they are.

Do a very good job of understanding the relationship and we have to file changes to the agreements between the subsidiaries on the parents. If we have any changes. So there is language in the house Bill that continues that the department has a lot of resources available to them should they want to know the intimate relationships between.

Yeah.

So there is some language, but where we sit where we had been an open book with them and the relationship has been solid with the department relative to Q&A regarding those yeah ill just add onto that that there are multiple instances, where they do evaluate and examine those fees and as Steve pointed out they have every opportunity to review them.

Object to the fee structure within the agreements.

We've not heard anything from them as to their dissatisfaction.

Okay great.

And then moving to <unk>.

Could you just talk about that a bit more Florida, Pip went down and I understand that comes out of the struggles in Florida and trying to shed some of those costly policies, but.

Outside of Florida that was also down two so can you just give me your updated thoughts on how youre thinking about growth outside of Florida.

Well.

The growth outside of Florida, we've taken numerous measures on the past several years relative to becoming more rate adequate the reduction in out of state is not is very very nominal at this point and we see a lot of upside in the future because we've recently seen some competitors take rate in some states.

We do quite well and so we might have been a little bit ahead of the market, but we're sitting in a good position.

Our desire for rate adequacy is paramount.

Two growth so we'd rather slow growth.

On profits then.

Vice versa. So we feel good about where we're at and we also feel it's very important that.

As we share data with our reinsurance partners.

I expect us to perform at the levels, we submit to them and we feel like we're right in line with what we communicated to that market and.

It's important that you do what you say you're going to do.

That's a piece of the equation for 2021.

Okay.

And then just hoping we could talk about reserves or reserve development.

It looked like on a net basis it was a favorable favorable development, but on direct basis.

There was some unfavorable development.

And we just have more color on that what were the moving parts.

Yeah. So this is Frank Tom.

Sally.

Salary developed by $92 million on a gross basis, but because of the way that our re insurance.

Programs operate and coordinate and just as a reminder, we have a program for all states and then we have a completely separate program for other states to the extent that the other states program exceeds the retention of $15 million on that that would come back to reduce our losses and thats. What we are re.

<unk> on a net basis for Sally so despite the gross development of $92 million, we had a net favorable development of salary of $5 million.

Okay.

Was there any other development from any other storms. Besides salary, yes, there were no. Other development. There was no other development on a gross basis with the losses that we cede to the Cat fund there are subject to.

Estimates and we re estimated the amounts that would be.

Under the contractual arrangements would be ceded to the cat fund so that that's at $3 8 million.

Adjustment offsetting the $5 million and there's your one two net favorable.

And that was on Irma I'm sorry.

Okay great.

And then.

To start on the second quarter and I think earlier. This month there was there's a weekend there with a pan handle on the rest of the for to have a line of severe storms that I saw on the headlines as it turns on.

You can tell us in regards to.

How youre thinking about losses from that.

It was a material or.

As the headline for IC make too much of it.

Tom We track each one there was a Pcs event that was identified for that.

<unk> got under 500 claims that were called in and we are under 100 open right now so we feel as though we've got that fairly well in hand.

As you know we have we have some room in our plan for weather.

Each quarter. So at this point, we don't see any reason to kind of pull any alarms, but we're tracking it closely the claims team is all over it and Fortunately we were able to handle the majority of those claims with internal associates. So alder adjusting continues to provide benefit to the parent in that regard.

Okay.

And then in general I was just hoping we could just get on.

High level update on how youre viewing your loss picks.

<unk> been.

<unk> been increasing them for the past few years.

Has there been any changes as of late any any trends.

On the past quarter to meet you.

Rethink your loss picks.

Any update there.

Tom We go at the end of 2019, we implemented controls that benefited the company last year as we put monies up throughout the year when we saw the need.

Q2, three and for of course.

As we went through those controls at the end of Q1 with Frank and our Actuaries, we saw the benefit of the loss pick this year benefiting from the rate increases that are flowing through our book in Florida and other states. So.

The 40% in 2021 for our loss pick compared to the 40% in 2020.

On the 40% in 2021 is a dynamically.

<unk> amount of money put up for reserves. So we see it we feel good at the end of Q1, the weather cooperated and we don't have a crystal ball, but if that trend continues we feel very good about the rest of the year.

Okay.

Then lastly, I was hoping we could just yes.

You guys could give us some strategic updates.

Announced partnerships with <unk> and you get the direct business and covert and I was just hoping we can get an update on how management is viewing their progress and for their potential and if theres any other strategic initiatives that.

And our management team is focusing on into 2021.

Yes.

Tom We continue to focus on our capital management, Frank and his team has done a good job of ensuring that we track the levers and understand our capital position and ensure that just like 2020 that the subsidiaries feed the parent.

In a fashion that we can take care of our insurance subsidiaries.

Clover.

The rest of the agency for us in the state of Florida. They are focused on growing their business in a non home market.

Citizens is really one of the few carriers open there.

Theyre not preferred carrier to write with because there is not as easy as others.

The commission is pretty low for the right reason, so we find ourselves cross selling quite a bit. So we're writing a lot more auto we're writing umbrella.

The benefit to Clover, It is theyre behaving more and more like a true agency. So we feel good about that they are.

Approaching $40 million in written premiums. So we're getting to a point, where we may be able to segregate that business.

More deeply and track it in our P&L level on type of things. So we can show that to yourself and others.

But if we continue to invest in that business and we feel good about it.

I think from a growth perspective, we will continue to enter additional states either in unified Universal or American platinum and.

We've been focusing on insurance score products in other states, which is somewhat unique for us and how we kind of approach the future.

There's a lot of very positive things that are occurring at the company.

Our underwriting team as well as written.

Since there is less business coming in we have gone back in.

Implemented additional.

Tools on their on their machines to ensure that we're looking at roofs more closely we're looking at the business more closely and going back and looking at the business on the books and we in our agency force are highly focused on our retention, which we feel very good about in light of the necessary increases that are that are flowing through.

Our book of business currently.

I could go on there's a ton of stuff it.

Best part about the job Tom is working on the strategy and the new things that the company is doing.

Alright, great I appreciate the answers and congrats on the for strong first quarter.

Thanks, Tom I appreciate your time, Inc.

Thank you.

As a reminder, ladies and gentlemen that star one to ask a question.

I'm showing no further questions I will now turn the call back over to management for closing remarks.

In closing I'd like to thank our associates consumers agents on our stakeholders for their continued support of Universal have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

Yes.

[music].

Yes.

Yeah.

[music].

Sure.

Okay.

Hi.

Yes.

[music].

Sure.

Yeah.

Yes.

Okay.

[music].

Yes.

[music] accounts.

For example.

Okay.

[music].

Yes.

And your sales force.

Sean.

Yes.

Okay.

Growth.

Hum.

Okay.

Hum.

Okay.

Yes.

Thank you.

Okay.

Hum.

Yes.

Okay.

Yes.

Okay.

[music].

Good morning, ladies and gentlemen, and welcome to the U V first quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press Star then one on your telephone.

As a reminder, this conference is being recorded.

I would now like to turn the conference over to Rob Luther Vice President of corporate strategy and Investor Relations. Sir you may begin.

Thank you and good morning, everyone welcome to our discussion on our first quarter 2021, the earnings results, which were reported yesterday on the call with me today is Steve Donaghy, Chief Executive Officer, and Frank Wilcox Chief Financial Officer before we begin. Please note today's discussion may contain forward looking statements on non-GAAP financial measures forward looking.

These statements involve assumptions risks and uncertainties that could cause actual results to differ materially from those statements for more information. Please see the press release on <unk> SEC filings all of which are available on the investors section of our website at Universal insurance Holdings Dot com and on the SEC's website, a reconciliation of non-GAAP financial.

Measures to comparable GAAP measures is included in the quarterly press release with that Steve I'll turn it over to you.

Thank you Rob and good morning, everyone. Thank you for joining us today.

We are off to a strong start to 2021 with solid first quarter results, including.

Including close to 12% top line growth.

Margin expansion in excess of 200 basis points.

On a total annualized return on average equity of 23, 2%.

We continue to make progress on our reinsurance program renewal.

And we're oversubscribed on our first cat bond in March at rates below the low end of our initial range.

In addition, we were encouraged earlier this month when the Florida Senate passed Bill 76, which would enable floridians to have reliable access to property insurance.

For a number of years, Florida has been a significant outlier compared to the rest of the country. When it comes to litigated property claims.

Which has put significant pressure on the Florida property insurance marketplace.

That being said, we continue to monitor closely the companion Bill in the house.

I'll spell three O five which has differences from the Senate Bill 76.

We look forward to continued to make positive strides throughout 2021.

And should have additional details on our reinsurance program renewals in the next several weeks.

So with that let me now turn it over to Frank to walk through our financial results Frank.

Thank you, Steve and good morning, everyone.

Adjusted operating income also excludes interest expense.

We ended the first quarter with total revenue up 11, 7% to $262 8 million driven by primary rate increases from 2020 earnings through the book as policies renew.

And an improvement in the unrealized portion of the investment portfolio, partially offset by the impact of higher reinsurance costs when compared to the first quarter of 2020.

Margins expanded by 210 basis points for the quarter driven by the incremental fall through profit from the topline as previously discussed.

Losses in LAE and lower operating expenses as a percentage of direct premiums earned.

EPS for the quarter was <unk> 84 on a GAAP and non-GAAP adjusted basis.

As to underwriting direct premiums written were up nine 2% for the quarter led by direct premium growth of 10, 2% in Florida.

On the expense side, the combined ratio improved one point for the quarter to 93, 1%.

The improvement was driven by a two point improvement in the loss and LAE ratio from decreased weather favorable prior year Reserve development.

And a benefit from our claims adjusting business, partially offset by increased reinsurance costs and less than a point of current year strengthening on a direct basis when compared to the first quarter of 2020.

The expense ratio improved on a direct earned basis by 45 basis points as a result of operating efficiencies.

But was more than offset by the impact of increased reinsurance costs on the net ratio, resulting in a one point increase in the net expense ratio for the quarter.

On our investment portfolio net investment income decreased by 56, 3% to $3 million for the quarter, primarily due to significantly lower yields on the reinvestment portfolio. Following the sale of a majority of securities in the portfolio that were in an unrealized gain position in the.

Third and fourth quarters of 2020.

Unrealized equity losses improved substantially during the quarter when compared to the market volatility seen last March as a result of the COVID-19 pandemic.

Total invested assets increased 10, 6% to 1 billion since year end 2020.

In regards to capital deployment during the first quarter the company repurchased approximately 15000 shares at an aggregate cost of 245000.

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 increase loss costs with that I'd like to ask the operator to now open the line for questions.

Ladies and gentlemen, as a reminder to ask a question you will need to press Star then one on your telephone.

For all your questions first about Keith again, Thats Star one to ask a question.

We will have a question on the line from Mr. Tom Shrimp with Piper Sandler Your line is open.

Hi, good morning, guys.

Hey, good morning.

Sure.

Can you can you guys give me a.

For more of your thoughts on the build spring for the state legislature.

Insurance has got the most favorable aspects of the bills being contemplated.

How do you think about the potential benefit to you.

Your litigation trends.

Tom That's a question that is burning throughout the state currently and as you can imagine theres tremendous change currently occurring.

House Bill 76, it was passed by the Senate was seen as quite favorable.

There was a lot of good policy in the Bill.

Two year limitation on supplemental reported claims on a on a catastrophe.

Policyholders written notice within 60.

60 days prior to pursuing litigation.

Attorney fees, which is really the the symptom of the.

For the illness. Currently there is good language in there.

And I think we find ourselves now where the house is weighing in on those those topics on additional topics.

The house is contemplating those issues along with trying to assist citizens are becoming rate adequate and.

The session closes tomorrow so.

I would also say that I feel as though the department has done a a balance job of trying to represent the industry.

Floridians with several items that they've published to the house to the Senate. So I think the information is there. The information is flowing there. There are two strong sides. There is theres floridians on the insurance business. There is there is lawyers and hopefully tomorrow, we will get a favorable legislation that will.

Proof and enable cash.

Harriers to begin writing and helping out Florida, Florida residents.

Okay, great staying.

Staying on the insurance regulators last year, there were some headlines that.

Yeah, Tom I think it's a misnomer to feel as though the department of insurance is not intimately aware at least with universal of our relationship between subsidiaries and the parent the fees that are charged how they relate to market. So sometimes that sounded like they don't do it but they do it.

At least with US they are they do a very good job of understanding the relationship and we have to file changes to the agreements between the subsidiaries and the parents. If we have any changes. So there is language in the house Bill that continues that the department has a lot of resources available to them should they want to know.

The intimate relationships between between US. So there is some language, but where we sit where we had been an open book with them and the relationship has been solid with the department relative to Q&A regarding those yeah ill just add onto that that there are multiple instances, where they do evaluate and examine those fees and as Steve pointed out there.

Have every opportunity to review an object to the fee structure within the agreements.

We've not heard anything from them as to their dissatisfaction.

Okay great.

And then moving to to Pip.

Can you just talk about that a bit more Florida, Pip went down and I understand that comes out of the struggles in Florida and trying to shed some of those costly policies, but.

Outside of Florida that was also down two so can you just give me your updated thoughts on how youre thinking about growth outside of Florida.

Well.

The growth outside of Florida, we've taken numerous measures on the past several years relative to becoming more rate adequate.

The reduction in out of state is not is very very nominal at this point and we see a lot of upside in the future because we've recently seen some competitors take rate in some states, we do quite well and so we might have been a little bit ahead of the market, but we're sitting in a good position.

Our desire for rate adequacy is paramount.

Two growth so we'd rather slow growth.

Profits then.

Vice versa. So we feel good about where we're at and we also feel it's very important that.

As we share data with our reinsurance partners.

I expect us to perform at the levels, we submit to them and we feel like we're right in line with what we communicated to that market.

It is important that you do what you say you're going to do.

That's a piece of the equation for 2021.

Okay.

And then just hoping we could talk about reserves just reserve development.

It looked like on a net basis it was a favorable favorable development, but on direct basis.

There were so net unfavorable development.

And we just have more color on that what were the moving parts.

Yeah. So this is Frank Tom.

Sally.

Salary developed by $92 million on a gross basis, but because of the way that our <unk> programs operate and coordinate and just as a reminder, we have a program for all states and then we have a completely separate program for other states to the extent that the other states program exceeds the retention.

<unk> of $15 million on that that would come back to reduce our losses and thats, what we realized on a net basis for Sally so despite the gross development of $92 million, we had a net favorable development of salary of $5 million.

Okay.

Estimates and we re estimated the amounts that would be.

Under the contractual arrangements would be ceded to the cat fund so that that's a $3 8 million.

Adjustments offsetting the $5 million and there is your one two net favorable.

And that was on Irma I'm sorry.

Okay great.

And then.

To start on the second quarter and I think earlier this month there was for us.

For a weekend there with our Panhandle on the rest of four and a half and a line of severe storms that I saw on the headlines is just is there anything you can tell us on regards to.

How youre thinking about losses from that is it.

It was a material or.

The headlines I see make too much of it.

Tom We track each one there was a Pcs event that was identified for that.

Got under 500 claims that were called in and we have under 100 open right now so we feel as though we've got that fairly well in hand.

As you know we have we have some room in our plan for weather.

Each quarter. So at this point, we don't see any reason to kind of pull any alarms, but we're tracking it closely the claims team is all over.

Fortunately, we were able to handle the majority of those claims with internal associates.

Alder adjusting continues to provide benefit to the parent in that regard.

Okay.

And then in general I was just hoping we could just get on.

High level update on how youre viewing your loss picks.

<unk> been increasing them for the past few years.

And any changes as of late any any trends.

Uh huh.

You know on the past quarter or two that made you rethink.

Rethink your loss picks.

Any update there.

Tom We go at the end of 2019, we implemented controls that benefited the company last year as we put monies up throughout the year when we saw the need.

Q2, three and four of course.

The 40% in 2021 for our loss pick compared to the 40% in 2020.

The 40% in 2021 is a dynamically hi.

Higher amount of money put up for reserves. So we see it we feel good at the end of Q1, the weather cooperated and.

We don't have a crystal ball, but if that trend continues.

We feel very good about the rest of the year.

Okay.

And then lastly, I was hoping we could just yes.

You guys could give us some strategic updates.

You've announced partnerships with <unk> and you have the direct business in <unk> and <unk>.

I was hoping we can get an update on how management is viewing their progress and further potential on and if theres any other strategic initiatives that.

And our management team is focusing on into 2021.

Yes.

We continue to focus on our capital management, Frank and his team has done a good job of ensuring that we track the levers and understand our capital position and ensure that just like 2020 that the subsidiaries feed the parent.

On a fashion that we can take care of our insurance subsidiaries.

<unk> like the rest of the agency for Us and the state of Florida. They are focused on growing their business in a non home market.

Citizens is really one of the few carriers open there.

Theyre not preferred carrier to write with because there is not as easy as others.

The commission is pretty low for the right reason, so we find ourselves cross selling quite a bit. So we're writing a lot more auto we're writing umbrella.

The benefit to Clover, It is theyre behaving more and more like a true agency. So we feel good about that they are.

They are approaching $40 million in written premiums. So we're getting to a point, where we may be able to segregate that business.

More deeply and track it in our P&L level on type of things. So we can show that to yourself and others.

But if we continue to invest in that business and we feel good about it.

I think from a growth perspective, we will continue to enter additional states either in unified Universal or American platinum and we've been focusing on insurance score products in other states, which is somewhat unique for us and how we kind of approach the future.

I think theres a lot of very positive things that are occurring at the company.

Our underwriting team as well as <unk>.

Since there is less business coming in we have gone back in.

Implemented additional.

Our book of business currently.

I could go on there's a ton of stuff. It that's the best part about the job Tom is working on the strategy and the new things that the company is doing.

Alright, great.

Appreciate the answers and congrats on the for strong first quarter.

Thanks, Tom I appreciate your time, Inc.

Thank you.

As a reminder, ladies and gentlemen that star one to ask a question.

I'm showing no further questions I will now turn the call back over to management for closing remarks.

In closing I'd like to thank our associates consumers agents and our stakeholders for their continued support of Universal have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

Q1 2021 Universal Insurance Holdings Inc Earnings Call

Request a DemoDemo

UVE

Universal Insurance Holdings

Earnings