Q1 2022 Universal Insurance Holdings Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to Universal <unk> first quarter 2022 earnings Conference call. As a reminder, this conference call.

<unk> recorded I would now like to turn the conference over to Irrationally money Chief strategy Officer.

Good morning, Thank you for joining us today.

Come to our quarterly earnings call.

On the call with me today are Steve Donaghy, Chief Executive Officer, and Frank Wilcox Chief Financial Officer.

Before we begin please.

Please note today's discussion may contain forward looking statements and non-GAAP financial measures.

Forward looking 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 and Universal's 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.

A reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the quarterly press release and can also be found on Universal's website at Universal insurance Holdings Dot com with that I'll turn the call over to Steve.

Thank you Raj and good morning, everyone.

We reported a 16.9% annualized return on equity despite the challenging external environment.

Which is a testament to the strength and resilience of our business.

Direct premiums written were up eight 5% from the prior year quarter significantly outpacing a six 1% policies in force decline.

As meaningful rate increases benefited premium volumes.

We are laser focused on improving underwriting profitability as we prioritize combined ratio improvement over top line growth.

In addition to raising rates across Florida, and our broader footprint.

We've reduced exposure to less profitable geographies.

Tightened underwriting criteria renegotiated commission rates with our agency partners and exercise prudent expense management.

Lastly, rising yields are benefiting our investment income results and should continue to serve as a tailwind moving forward.

Given our strong capital position the profitability of our business and the steps we continue to take to improve results.

We believe we stand out favorably as reinsurers increasingly differentiate amongst seasons and the current market.

Our team has been hard at work over the last several months meeting face to face with our reinsurance partners around the globe securing our desired capacity for the June one 2022 renewal.

We recently released our firm order terms to the global reinsurance market before the capacity needed for all states first event catastrophe reinsurance tower.

With the capacity already locked in via the Florida Hurricane catastrophe fund various multiyear deals that will continue into 2022.

Including the catastrophe bond we issued in 2021.

We already have over 85% of our core all states first event catastrophe reinsurance tower secured.

We are pleased with the progress we have made especially given the current environment.

I'll turn it over to Frank to walk through our financial results Frank.

Thanks, Steve Good morning.

Adjusted EPS was <unk> 64 down from 84 cents in the prior year quarter with the decline mostly attributable to a higher net combined ratio, partially offset by higher revenues and a lower effective tax rate.

Total revenue of $287 5 million was up nine 4% year over year with growth primarily stemming from higher direct premiums earned commission revenues and net investment income, partially offset by higher unrealized losses on equity securities.

Direct premiums written of $396 5 million were up eight 5% from the prior year quarter, including eight 9% growth in Florida, and six 4% growth in other states.

Direct premiums earned of $414 6 million were up 10, 4% year over year.

Right was the main driver of premium growth, particularly given the policies in force decline that Steve mentioned in his remarks.

The net combined ratio was 97, 9% up four eight points compared to the prior year quarter.

The increase reflects a higher net loss ratio, partially offset by a lower net expense ratio.

The 68, 8% net loss ratio was up nine six points year over year.

With the increase mostly attributable to a higher initial accident year attritional loss pick.

Associated with the current Florida claims environment.

The 29, 1% net expense ratio improved by four eight points year over year, reflecting lower renewal Commission rates.

Lower employee compensation and benefits and economies of scale.

During the first quarter the company repurchased approximately 321000 shares.

At an aggregate cost of $3 9 million.

The company's current share repurchase authorization program has $13 9 million remaining as of March 31, 'twenty, two and runs through November 3rd of 2022.

On April 22022, the board of directors declared a quarterly cash dividend of <unk> 16 per share of common stock payable on may 22022 to shareholders of record as of the close of business on may 13th.

'twenty two.

As mentioned in our earnings release yesterday, we were maintaining our guidance for 2022, including a GAAP and non-GAAP adjusted EPS range of $1 80 to $2 20.

And a return on average equity of 12, 5% to 15%.

The guidance assumes no extraordinary weather events in 2022, and also assumes a flat equity market for GAAP EPS, if weather events exceed plan, we expect to see both the benefit from our claims adjusting business and increased loss costs with that I'd like to ask the operator to open the line.

For questions.

Thank you and to ask a question simply press star one on your telephone to withdraw the question press the pound or hash key once again that is star. One if you have a question one moment please.

We have a question from the line of Paul Newsome with Piper Sandler. Please go ahead.

Yeah.

Good morning apologize I.

Jump on and off.

The call here earlier, but.

I wanted to get your thoughts just generally about all of this potential tort reform.

Since we're talking about in Florida, there was some sort of announcement about potential.

No.

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Steve.

So you are coming back.

And.

You know I guess.

How do you sort of.

Thank you Bob.

Emerging and.

Are you.

More or less confidence that you might actually get something meaningful in the future.

Hey, Paul Good morning, this is Steve.

We commend the governor for taking action and call in the special session.

Later this month.

I think it puts a spotlight on the issues facing floridians from a cost and coverage perspective.

We are hopeful that the legislators take the opportunity to seriously discuss.

The topics that were covered in the last session and new ideas that are being bubbled up currently so.

We don't have a crystal ball, but.

We feel as though they recognize some of the issues and are hopeful that their constituents get some relief.

In the future as a result of their actions.

We'll keep our fingers crossed so what are the sort of big picture.

Questions I've gotten on the Florida market and Universal particular is.

This concern.

The rate need in general.

Way above.

Citizens.

We take.

Take every year.

You'll have sort of an environment where.

On a relative basis.

<unk>.

Citizenship.

Would we get sort of relatively more attractive.

Attractive because theyre going to be relatively more underpriced.

If inflation accelerates.

How do you react in that sort of environment.

Obviously eventually.

Great need has to be met.

Everyone, but yes.

What are you doing.

In between periods when you can.

Hello.

Understood.

When the industry was not quite able to get enough rate yet.

So hamzah.

Some folks with some really big.

Yes.

Places them competitively.

Extremely well from a pricing perspective.

Yes, Paul.

From our perspective, we are focused on rate adequacy and really the profitability from an underwriting perspective on our insurance carrier.

As we strive for rate adequacy, we look at the market, we understand what's taken place from a competitive nature and there've been years, where the market has been soft and we've looked at our rates and try to do the right thing in spite of.

Many carriers being less expensive, but we really have to stick to our knitting and ensure that our rates are adequate to to generate sustainable profitability going forward.

<unk> question is a unique one.

We're originally the insurer of last resort and as they become competitively priced it does it does bode some issues for them for the marketplace and it should events occur.

Four floridians from a cost perspective, so and I think the legislature did some things in the last session to assist citizens to take more rate than they traditionally had so they've got a runway to increase rates. It used to be locked at 10 and that will be increased to 15% over the next several years. So.

It might be something that's talked about in the special session to because they have to be careful with the growth in citizens.

Because it's meaningful right now.

Great. Thanks, I'll, let some other folks ask questions, but always appreciate the help.

Yes, Thanks, Paul I have a great day.

Thank you. Your next question comes from Nick Yeah, Coviello with Dowling and partners. Please go ahead.

Hey, good morning, guys.

Good morning, Good morning, Nick I'm not sure.

I'm not sure how much further you want to talk on the legislative session, but.

But maybe just your updated.

Thoughts on SB, 76% or anything tangible you or you are seeing from that but I don't know if you wanted to on the upcoming special session. Maybe what you guys are most interested in seeing past would be helpful. Thanks.

Yeah. Thanks, Nik the SB 76, our cautious optimism for that continues.

There clearly were some pillars within that.

Legislation that eliminates the window for hurricanes and various events to two years instead of three.

I think what we've seen is the NOI process or notice of intent to litigate, we've seen some benefits from that and that the plaintiffs' side needs to generate details in order to file a claim file a suit and we use that as an opportunity to.

Pursue closure on on files, where possible and we have a team of people dedicated to that process and I think.

I think the plaintiff side was slow to respond to it but they are now following the rules a little bit better and I think that will have some impact on case glide to us as it goes forward.

Relative to the special session clear.

Clearly you know and I believe the Governor has commented when you're right, 7% or 8% of the P&C business in the country and you have.

80% of of the litigated suits in that same state something's not right. So.

They're talking about a lot of important things, but really the the.

Our legal fees and the way that is structured would be the primary area I would suggest the focus but theyre not call on me right now, but we're trying to get us.

Much help as we can.

And aside from that I know they have the best intentions, so hopefully that they focus on the points that they have and we will see what comes out of it.

Great. Thanks, and then just given the cost of $4 million of repurchases. This quarter, maybe you guys could just.

It takes some time and update us on how you're viewing capital management as it relates to <unk>.

So the level of growth going forward.

Yes, I mean, we're pretty strong as it relates to capital we still have the vast majority of the proceeds that we raised through the 100 million dollar note issuance.

We have infused some capital into the insurance entities and we continue to monitor their needs that is the primary.

Objective right now is to ensure that the insurance companies are adequately capitalized in order to continue to provide the opportunities to the entire holding company system.

Share buybacks right now are hard.

Hard not to look at that and think it's a great opportunity. So to the extent that we believe that we have some excess we take advantage of that.

Great. Thanks.

My last question just on the expense ratio you guys had previously discussed that maybe coming back up to 32, 33% range still look to be below that this quarter. Q are you still thinking about the expense ratio in that range are you seeing some more efficiencies or something.

As more permanent post COVID-19 .

Yes, so that was prior to our reaching the decision to reduce the commission rate on renewals.

That plus.

Going into the.

Going into the fourth quarter and they are still being a lot of unknowns about inflation.

I thought that we ought to give ourselves a little bit of a wide berth there.

I think what you're seeing this quarter is probably more indicative.

For the rest of the year versus the guidance that we gave at the fourth quarter call.

Great. Thanks, that's all I had.

Alright, Thanks, Nick I appreciate the call.

Thank you and im not showing any further questions in the queue I will turn the call back to Stephen Donaghy for his final remarks.

Thanks Carl.

We'd like to thank our associates consumers agents and our stakeholders for their continued support of universal.

Thanks for your attendance and have a great day.

And we die ladies and gentlemen. This concludes the program. Thank you for participating and you may now disconnect.

Okay.

Good luck.

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