Q3 2021 Universal Insurance Holdings Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the third quarter.

2021 earnings conference call.

At this time, all participants are and listen only mode.

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

Can I ask a question during the session you will need to press star one on your telephone.

A reminder, this conference call is being recorded.

And now like to turn the conference over to Rob Luther Vice President of corporate strategy and Investor Relations.

Thank you and good morning, everyone welcomed our discussion of our third quarter of 2021 earnings results, which reported yesterday on the call with me today is Steve Debbie D Chief Executive Officer, and frame Wilcox Chief Financial Officer before it again. Please note today's discussion may contain forward looking statements and non-GAAP financial measures Board.

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

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

Thanks, Rob good morning, everyone.

Our third quarter results reported yesterday demonstrate continued execution of our multi year strategic priorities and.

Including discipline growth and operational improvements.

Our direct premiums earn growth of 15% in the third quarter was primarily driven by primary rate increases in Florida, earning through the book.

We have now filed for more than 34% in primary rate increases in Florida over the past 18 months.

While simultaneously continuing to shape, our underwriting risk with total policies in force relatively flat.

Year over year.

Our business expenses were lower from continued expense management controls, including lower agency commissions and employee productivity gains in.

In addition to lower executive compensation accruals.

These results were highlighted by 16.4% annualized return on average equity in the quarter.

I'd like to now turn it over to Frank to walk through our financial results Frank.

Thanks, Steve.

As a reminder, discussions today on adjusted operating income and adjusted EPS or on a non-GAAP basis and exclude effects from unrealized unrealized gains and losses on investments.

And any extraordinary reinstatement premiums and related conditions.

Adjusted operating income also excludes interest expense.

We ended the third quarter with total revenue down seven 8% 287, 3 million driven primarily by the realized gain on investments of $53.8 million in the third quarter of the prior year versus a 4.3 million realized gained in the current quarter.

Direct premiums earned were up 15% for the quarter led by primary rate increases in Florida, and other states, earning through the book as policies renewal.

EPS for the quarter was 64 cents on a gap basis.

And 63 cents.

On a non-GAAP adjusted basis, driven by a combined ratio improvement of 36, one points for the quarter to 98.6%.

The improvement was driven by 39 point improvement in the net loss in La <unk> ratio from decreased weather events and.

And lower prior years reserve development.

Partially offset by current year, strengthening and higher reinsurance costs impact on the ratio.

The expense ratio improved three seven points on a direct premiums earned basis due to continued focus on operating efficiencies as Steve mentioned in his remarks.

On a net basis the expense ratio improved five two points for the quarter.

On our investment portfolio, we saw our net investment income decrease 38, 6% to $2.8 million.

And Ah realized gains decreased 92% to four $3 million for the quarter.

Both decreases are the result of the sale and subsequent reinvestment at lower yields of a majority of securities in the portfolio that we're in an unrealized gain position and the third and fourth quarters of 2020 to recognize the fair value benefits and surplus.

In regards to capital deployment.

During the quarter the company repurchased approximately 101000 shares at an aggregate cost of 1.4 million.

The company's current share repurchase authorization program.

Is $17 $8 million remaining as of September 32021, and runs through November 3rd 2022.

On July.

Lie 19th 2021, the board of directors declared a quarterly cash dividend of 16 per share a common stock which was paid on August 9th 2021 to shareholders of record.

As of the close of business on August 2nd 2021.

As mentioned in our release yesterday, we are maintaining our guidance for 2021, we still expect a gap 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 gap EPS.

If weather events exceed plan, we expect to see both the 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.

Thank you you have a question at this time. Please press sardine one on your Touchtone telephone. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.

And our first question comes from the line as Tom Shimp like Piper stand My your line is open. Please go ahead.

Hey, good morning, guys.

Morning.

We are now a few months past the effective date of.

Or the property insurance reform I know, it's still early but.

You guys give us your.

First thoughts on how the bill is impacting litigation trends.

And Additionally are there aspects of the bill that are ending up to be more positive or more negative than you initially expected.

Good morning, Steve Donaghy.

I think our initial comment.

Use the term cautiously optimistic and we continue in that vein for several reasons.

The scale of Al Dor, other adjusting which is our internal adjusting arm enabled us to move very quickly and responding to the legislation and I think the other side of the legislation or of the attorneys are forced to.

Prepare.

Very request in a way they didn't have to in the past. So there is some pressure on them.

To be more organized and how they proceed and it gives us a window to settle the claim fairly which didn't exist in the past so we see that as a positive.

A result of the legislation. We also see the fact that the other side needs to look at their fee recoveries in a way that they didn't in the past and it forces them to be more fair in their request if they realize they have to go to court and eventually when a larger settlement that that usually.

He is.

Not achievable and has not been achievable in the past so those aspects of it we feel good about the two year tail on cats and other requests for funds. After the claim is settled is also.

We feel that will be favorable that's two years out so as we get to those points will see the benefit I would also point that case glide year over year is beginning to decline as well across the state. So I think that's a fair indicator to look at the legislation from 2019 continues to to.

To serve us.

The state well at this point, so sorry for the long answer, but figured I'd try not covered for Ya.

Oh, that's great.

So the company has been fortunate to avoid some of the most serious storms the past year or two maybe you could give us an update on capital adequacy.

And what is available to be downstream from the holding company. In addition, maybe some updated thoughts.

And your growth appetite as it relates to that capital because I know the third quarter fell in both.

Or to another state so maybe sent update there and how you are thinking through both of those dynamics.

Yes, good morning tons is Frank.

So I mean, the good news is that we are growing topline premium for <unk> through rate increases.

That's that increase in premium demands capital. So we continue to support the capital needs. In addition to that we have taken more conservative approach of the current accident year by increasing the loss pick up to 42%, which also puts demands on capital. So we infused 15 million of cash in the mud.

Of August.

And in the month of October we also infused 20 million, which will count as a surplus as of 930 through.

And approval process that you go through with BLA are similar to what we did at the end of the year. So the holding company continues to have capacity to continue to support the insurance entities, which we believe is the number one priority.

Yes, Tom I would add relative to your question about right in the other states. We are we are hyper focus on risk and right. At this point. So we analyze what we're willing to take in where we're willing to take it in and our internal property profitability model.

Served us well relative to ZIP codes, territory's et cetera, as to where we want to write business and a and a rate adequate manner and we continue to grow in certain states and we've pulled back and some others, where we didn't feel as though the rate was.

Adequate for growth, but but overall growth continues from.

From a policy counts more on a temporary basis, but on a right perspective continues to flow through the book.

Okay, Great and maybe just one more for me.

And the press release, you said at 34% rate increase in Florida over the past 18 months I think investors, sometimes forget it takes time for these rate increases to become active in Britain and then eventually.

Eventually earned into income the income statement. So maybe you could help us.

Through the timing of.

Of how we think we should think about these rate increases leading to it.

Improved underlying results.

Yeah, It's a really good aspect Tom that you pick up on that.

Great as always a laggard by 12 months within our business across it so while the rate is flowing through we continue to deal with a very hard market.

Cross several states, but within Florida. The the most recent approved rate is $14, 90% that is really just beginning to flow through for new business and in queue for will affect renewals. So.

A savvy investor could would understand that we will continue to take right throughout the next 12 months in a favorable matter at.

At <unk>.

Okay, Great. That's that's it for me.

Thanks have a good day, thanks, you too.

Thank you and again, ladies and gentlemen, if you would like to ask a question at this time. Please press Star then one.

Okay.

And I'm showing no further questions at this time and I would like to turn it back up I can see for any closing remarks.

Yes, I would like to thank all of our associates consumers agents at our stakeholders for their continued support of Universal wish you all a great day. Thank you.

Ladies and gentlemen, thank you for participating in today's conference does that conclude the program. You may now disconnect everyone have a great day.

Okay.

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