Q4 2021 United Insurance Holdings Corp Earnings Call
Greetings and welcome to United Insurance Holdings Corp, fourth quarter, 2021 earnings conference call.
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I would now like to turn the conference well, what's your host.
Daily.
Vice President of the equity group.
Yes.
Thank you and good afternoon, everyone.
UPC insurance has also made this broadcast available on its website at UPC insurance Dotcom I.
A replay will be available for approximately 30 days following the call. Additionally, you can find copies of upc's, earning release and presentation in the investors section of the company's website.
Speaking today will be chairman of the board and Chief Executive Officer Art, Danielle Pete <unk>, President and Chief Financial Officer Bennett Breakfast Mart.
I'll be half of the company I'd like to note that statements made during this call that are not historical facts are forward looking statements the.
The company believes these statements are based on reasonable estimates assumptions and plans. However, if these estimates assumptions or plans underlying the forward looking statements prove accurate or if other risks or uncertainties arise actual results could differ materially from those expressed in or implied by the forward looking statements.
Factors that could cause actual results to differ materially may be found in our filings with the U S Securities and Exchange Commission and the risk factors section of our most recent annual report on Form 10-K , and subsequent quarterly reports on Form 10-Q .
Forward looking statements speak only as of the date on which they are made and except as required by applicable law. We undertake no obligation to update or revise any forward looking statements now I'd like to turn the call over to Dan Pete Dan.
Thanks, Karen.
Hello, and thanks for joining us on our fourth quarter earnings call on Dan Pete Chairman and CEO of UPC insurance.
I'm planning to offer an overview and discussion of some of our results and activities and then Brad Martz will provide more specific numbers.
And then we'll take questions.
Results for Q4 demonstrates that we are making good progress through our 2021 transition year plant.
Core income improved on both a quarter over quarter and year over year basis.
Year over year, it improved from a loss of 58 million in Q4 of 2020 to a loss of $1 million in Q4 of 2021.
Quarter over quarter and improved from a loss of $15 5 million in Q3 dollars 21 to a loss of $1 million in Q4 'twenty one.
Core income excluding named Windstorms was down slightly from a profit of $3 3 million in Q4 2020 to a loss of $1 million in Q4 2021.
This is due mostly to our de risking plan with higher reinsurance costs associated with a significantly reduced hurricane retention.
These additional costs are expected to be offset through 2022 significant and compounding rate increases earn their way through the portfolio.
As such as we exit our transition year of 'twenty, one we expect a growing underlying profitability margin leading to an underwriting profit in 'twenty, two and achievement of our targeted ROE used in 'twenty three.
We continue to execute on our strategic plan to bring personal lines and commercial lines to a 50 50 balance.
We ended 2021 with a premium mix up 63% to 37% personal commercial down from 70, 525% at the end of 2020.
At this rate we are ahead of pace to achieve 50 50 in three years.
On the personal lines side at the end of Q4, we sold renewal rights to our portfolio is in Georgia, North Carolina, and South Carolina.
When combined with last year's renewal rights sale of our four northeast States, we've reduced personal lines tid by 44%.
And our continuing portfolio through exposure management and risk selection, we've reduced the exposure by 15, 8% in 2021.
And currently have a run rate over a 4% per quarter.
<unk> third quarter 2022.
While decreasing exposure, we've increased rates an average across the personal lines portfolio of 11, 3% in Q4.
And 11, 5% for the year of 2021.
Rates are compounding and accelerating and we expect to continue to achieve significant rate increases throughout 'twenty two.
Compounding rate increases are beginning to earn their way through the portfolio, which will accelerate through 'twenty, two and into 'twenty three.
The commercial lines portfolio continues to perform well with premium ending the year up nearly 20% and exposure approximately flat.
And American coastal we have a market leader in Florida commercial residential risks.
<unk> is positioned extremely well to grow profitably and one of the hardest Florida markets in 15 years.
2022, we anticipate additional rate increases consistent with the 20% in two.
2021.
In summary, the fourth quarter results reflect a continuation of our plan for a return to underwriting profitability in 'twenty, two and target our lease in 'twenty three.
We're ahead of our three year schedule and achieving the 50 50 balance between commercial lines and personal lines, we're trimming our personal lines portfolio, both by selling renewal rates as well as ongoing exposure management and risk selection.
Our commercial lines business is performing well and are positioned to grow into the hard market anticipated in Florida for at least the next two to three years.
With that I'll turn it over to Brad Martz.
Thank you Dan and Hello, This is Brad Martz, President and CFO of UPC insurance.
To review Upc's financial results, but also encourage everyone to review our press release Investor presentation, and Form 10-K for more information regarding the company's performance.
For the quarter ended December 31, 2021, UHC reported a GAAP net loss of $2 3 million or five cents a share compared to a loss of $33 9 million or 79 cents a share last year.
Our core loss of $1 million or <unk>, <unk>, a share improved significantly compared to a core loss of $58 $1 million or $1 35, a share last year.
On page four of our Investor presentation, we highlight that our core loss included.
$12 5 million of net retained cat losses, which were partially offset by $3 5 million of favorable reserve development.
Despite our lower hurricane retention and aggregate reinsurance protections, we did not incur any named windstorm losses in the current quarter, which was in Stark contrast to the 78 million of net retained losses from named Windstorms in the fourth quarter of 2020.
Removing the effect of named Windstorms improve comparability of our core results with the prior year, which did decrease by $4 3 million as Dan mentioned due primarily to our higher reinsurance spend in the current year intended to reduce earnings volatility and protect capital.
Gross premiums written for the quarter declined $47 3 million or approximately 15% and gross premiums earned decreased six 1% to $342 million due to continued exposure management in our personal lines portfolio as well as the cancellation ballpark Ics in Connecticut, and Rhode Island.
Consistent with our intent to transfer that business HCI group.
Pages eight through 11 of our Investor presentation support Dan's comments that we're getting significantly more rate in both commercial lines and personal lines, while keeping the risks we want.
Page 12 provides a summary of our business in force at December 31, with and without the states where renewal rates were sold to demonstrate the good progress, we're making toward our goal of a more balanced risk portfolio.
Ceded earned premiums were $196 8 million, an increase of $32 4 million or 20% year over year due primarily to more business being ceded via the 100% quota share reinsurance program for the northeast region, and the 23% quota share session for American coastal insurance company.
These sessions are partially offset by ceded losses in ceding Commission income earned in the current period.
Other items included in total revenues.
During the fourth quarter were $7 2 million of.
Our fee income that increased year over year due to the renewal rights agreement announced in December to transfer the risk of loss in our southeast region.
HCI group.
Net investment income of $3 million.
Decline.
Year over year due to lower invested assets and net investment losses of $2 3 million.
<unk> declined due to fixed income sales during the quarter to meet liquidity needs.
We also had unrealized gains from equities of $1 5 million.
Okay.
Upc's fourth quarter net loss and loss adjustment expense was $85 5 million, a decrease of $99 6 million or 54% year over year.
Catastrophe losses added roughly eight five points to our net loss and combined ratios with the impact of favorable reserve development being about two and a half points on those same ratios.
Our underlying loss and loss adjustment expense was $76 5 million down $1 6 million or 2% year over year.
This is produced an underlying net loss ratio of 52, 7%.
Which was up roughly 13 five points from 39, 1% in Q4 last year.
The increase can be attributed mainly to ceded premiums earned as shown in our ceding ratio of 57, 6%, which increased 12 five points compared to the same period last year roughly.
Roughly five points of that change is related to ACI sees American coastal 23% quota share and nearly seven points is related to the HCI quota share in the northeast region.
Page five of our Investor presentation breaks down the key ratios.
For the year compared to the previous five years and our six year averages here, you'll see that our net loss and expense ratio as measured against gross premiums earned showed improvement.
But risk transfer would be a reinsurance pressured the same results measured against net premiums earned.
Page six of our Investor presentation summarizes our results by line of business and continues to show profitable results for commercial lines in the current period.
But much improved results for personal lines year over year.
Given our rapidly evolving an insurance portfolio, our Form 10-K , we'll provide additional disclosure and transparency as we move from a single reporting segment to breaking out our results in more detail between personal lines and commercial lines going forward.
Page seven of our Investor presentation provides an update on litigation trends for United property, and casualty insurance company compared to the industry basket of Florida homeowners carriers.
Our experience has been consistent with the industries, which indicates a downward trend in the frequency of new lawsuits filed in Florida during the second half of 2021.
Upc's operating expenses were $72 9 million a decrease of 26%.
Year over year.
This decline was driven mainly by higher ceding Commission income during the current quarter, which is reflected in lower acquisition costs.
However, our net expense ratio increased approximately seven tenths of a point to 52% inclusive of a ball reinsurance costs.
Page 13 of our Investor presentation provide some select balance sheet data.
Upc's total assets were $2 7 billion, including cash and investments.
965 million.
The modified duration of our fixed income holdings was approximately four years with an overall composite rating of AA.
And for the year, our GAAP equity attributed attributable to <unk> stockholders declined approximately 21% to $312 $4 million with a book value per share of $7.20 and tangible book value per share of $5.10.
We're still in the process of finalizing our statutory results, but do expect all of our carriers to have RBC in excess of 300% upon adding additional capital prior to filing our annual statements subject to regulatory approval.
Finally on page 14 of our Investor presentation recaps, our strategy to be a top quartile specialty underwriter of cat exposed property insurance.
I firmly believe the company is much better positioned for sustainable long term success, given the reduced exposure base and numerous underwriting improvement initiatives we've implemented during 2021.
That concludes our prepared remarks, we thank you for your continued interest in UPC insurance and are now happy to take any questions.
Thank you.
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One moment, please while we poll for questions.
Our first question is from.
Greg Peters.
Great Raymond James Please go ahead.
Good afternoon, everyone. This is actually said schultz, calling in for Greg.
First question is more of a broader one of we've been hearing rhetoric around the Florida homeowners market regarding legislative changes and so I'm. Just curious if you guys could provide any insight on what you might be seeing in that.
This is Dan.
Obviously, we can speak to a couple of things one would be the changes last summer S. P 76.
As we saw in our Investor presentation, we did see the.
Number of New litigation, New claims new litigant lawsuits drop off through August and September of last year.
And be reduced by about half through the end of.
2021.
It's hard to tell whether that's a it's hard to tell the impact that that will have over the long term.
But it has given us some ability to.
Respond to the lawsuits better the 10 10 day pretty certain notification is important.
And then the second part of your question might be more as to rumors.
About this year.
And we have heard a lot of.
Rhetoric, but really arent prepared to.
We don't have any way to handicap the legislature.
Any better than anybody else. There are some proposals that are on the table that definitely would improve there.
Barnett in Florida.
The reduced.
The reduced attachment point of the Florida Hurricane catastrophe fund.
It would be important.
And as one of the one of the key things.
Okay.
If that helps you.
Yeah.
During it.
I believe our team is all over it Senate Bill $17 20, a presented by center Boyd has got some.
It's compelling.
Features that we're actively monitoring, but I think dan's right. It's little early to speculate about two and a half weeks left in session lots of changes are expected.
Towards the end of the session.
Okay.
Thanks, and then for my second.
Question.
Just looking I know you guys have been able to take rate and reduced exposure and and so I'm. Just curious if there's any other underwriting actions you guys are taking or planning to take that maybe we should keep in mind when looking.
Through 2022, and 2023 or maybe just anything you guys think is important for us to keep in mind.
Yeah. Thanks. This is Dan again, and I'll take a stab at that we have I think I have seen the list of about 60 underwriting actions material underwriting actions that we've taken over the last 18 months, So certainly where you are or.
Doing a lot of different activities.
We're closely monitoring and assessing the age and the condition of the roofs.
It's something that we do better now than we did before.
We have developed.
Technology, and insure tech tool that actually.
Can assist us in.
Assessing the profitability of each one of the accounts down to the policy level.
We have withdrawn from.
Many of our various different products in different states that were small and not going to reach scale.
So those are some that are off the top of my head, but we have a long list of of underwriting actions that we've taken.
Okay.
Yeah, I would just add Brad I would just add the big changes obviously are the fact that the northeast region and southeast regions are transitioning away. So that that's going to definitely impacts our gross premiums written gross premiums earned as well as net premiums earned.
Oh, when compared to the prior periods.
Yeah.
Okay, great. Thanks, guys.
Thank you.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Yeah.
The next question is from and this greenspan.
If that's possible. Please go ahead.
Hi, Thanks, and good evening My first question.
So you guys said you expect to get back to you know get to your ROE targets I guess in 'twenty three so I just wanted to confirm.
Is that target still for the mid teens, and then could you give us a sense when you point to rate getting to underwriting income right in 'twenty. Two what do you think the ROE should shake out in 2022 relative to that target.
So this is Dan thanks.
Our plan has been in that we've been you know it really enunciated or we've talked about since last year and even in mid 2020 would be to have 2021 is our is our transition year we.
We needed to Derisk and deleverage the portfolio, we spent more money on reinsurance and as you can see we've we've derisked the portfolio in many different ways.
And then the second step of that in 2022 would be to achieve an underwriting profit and that's all we've really.
Specified, but or our target ROE, which are in the <unk>.
Mid teens plus in aggregate are an annual aggregate retention for cat.
In 'twenty by the end of 2023, so it's.
It's hard to we we really can't put a projection a specific number on 2022, but we would expect to achieve.
Underwriting profit.
That's the plan.
Okay and then.
You alluded to you guys highlighted that some of the reinsurance and other business transfers might impact at the underlying loss ratio on a net earned basis in the quarter would you expect that to continue and just help us think about kind of modeling on the underlying.
Last week, she we should think about 2022.
Sure Hi, Elyse this is Brad.
The the key assumption.
Assumption for 2022 is going to be the six one reinsurance renewal the company has taken.
Steps to mitigate the risk of you know cost increases at June 1st, notably, having some multiyear protection or reduced exposure base that it's ultimately leading to less limit being required year over year.
So there are a number of things we've done to properly position ourselves in that regard.
So I think we will fare better than most in terms of the overall net effect of a potential reinsurance cost increases just based on that.
The fact that we're gonna need significantly less limit year over year. We've also got embedded protections with the amount of cap limit in our quota share which should be helpful. And if there are changes to the Florida Hurricane catastrophe fund. This year you know those can be very very meaningful.
We can't.
Obviously, we're not planning on that.
We're modeling out our business around a fairly consistent ceding ratio.
Consistent 2021 .
So then when you guys say right underwriting profit what do you what are you modeling in for 2022 for net cats I'm, assuming there is a you know a retention plus you know some kind of of the smaller cat events that we typically see but what are you assuming you know it could be the net.
Mode. This year.
Yeah.
Okay.
Cat is inherently unpredictable so we hesitate to give any specific point estimates for for Cat I think we've always encourage people to to develop.
Estimates consistent with our historical experience, but also apply.
Prospective changes in our risk portfolio, including.
Our rate increases so if you're looking at a cat loss ratio I mean, you have to obviously consider the rising rate environment, we're in but the frequency and severity of.
Names wins cat losses from named Windstorms and all other perils is is not something we're going to provide guidance on.
Okay, and then one last one Brad I think you mentioned that you expect all your carriers have at RBC in excess of 300%, but you did say that you upon adding additional capital can you give us any sense on you know what what capital you expect to add.
It's still.
To be determined where we've still got a few.
Pieces of the annual statements to finalize before we can get finalize the actual RBC output, but we will.
<unk> capital contributions to a few of our companies not all I mean, we've got some companies that are overcapitalized and are well in excess of 300%. A couple of edits that are that are right. There it might be a little bit of additional capital.
Prior to filing our annual statements and we've previewed that with with our regulators and don't see a problem with doing that but we certainly are committed to ensuring all.
Our statutory entities have adequate risk adjusted capitalization.
Okay. Thanks for the color.
Welcome.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session.
And I would like to turn the call back to Mr. <unk> for closing remarks.
Thank you and with that we'll wrap up our call for today I want to thank our entire team for their tireless efforts and thanks to all of you for joining us on our call today.
Thanks again.
Thank you. This concludes today's conference you may disconnect your lines at this time.
Thank you for your participation.
Okay.
Yeah.