Q3 2022 Universal Insurance Holdings Inc Earnings Call
Okay.
Good morning, ladies and gentlemen, and welcome to Universal's third quarter 2022 earnings Conference call. As a reminder, this conference call is being recorded.
I would now like to turn the conference over to Iraq stole the money Chief strategy Officer.
Good morning, Thank you for joining us today welcome 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 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 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.
I will turn the call over to Steve.
Thanks Raj and.
Good morning, everyone.
Our thoughts continue to be with all those impacted by Hurricane Ian.
Since landfall we've had boots on the ground, helping our policyholders in their time of need.
As we recently disclosed our portfolio is underway and the most impacted regions and is further cushioned by our high proportion of condo unit and renters policies.
Which provide interior and contents coverage.
To date <unk>.
James volume from Hurricane in reflects approximately 50% of.
<unk> volume received at this point.
We maintain the largest claims and legal team and the state of Florida, providing us with significant resources and capacity to efficiently close and related claims.
Despite our $1 billion estimated gross loss from Hurricane Ian.
Have a $3 billion reinsurance tower in place for a subsequent event in the 2022 Atlantic Hurricane season.
And our consolidated retention would be meaningfully lower.
Highlighting the strength and breadth of our catastrophe reinsurance program.
We started the planning process for the 2023 Atlantic Hurricane season.
Our already well underway.
As we have almost $400 million pre.
<unk> multi year capacity below the Florida Hurricane catastrophe fund attachment point.
Approximately $200 million.
Of estimated cost free coverage from the reinsurance to assist policyholders program.
And a projected $150 million from our catastrophe bond.
Coupled with our 90% participation rate and the Florida Hurricane catastrophe fund.
We estimate the vast majority of our first event 2023 catastrophe reinsurance program will be insulated from open market pricing dynamics.
We value our reinsurance partner relationships and appreciate their support.
I'll turn it over to Frank to walk through our financial results Frank.
Thanks, Steve and good morning.
Adjusted diluted loss per common share was $2 27.
Diluted adjusted earnings per common share of <unk> 63 in the prior year quarter with the decline mostly attributable to a higher net combined ratio associated with hurricane in currently.
Partly offset by higher net investment income and commission revenue.
Core revenue of $316 7 million was up 10, 5% year over year with growth primarily stemming from higher net premiums earned net investment income and commission revenue.
Direct premiums written of $507 million were up 15, 6% from the prior year quarter, including 16, 3% growth in Florida, and 12, 7% growth in other states.
Overall growth reflects rate increases, partially offset by lower policies in force.
Direct premiums earned of 452 5 million were up 10, 2% year over year, reflecting rate driven direct premiums written growth over the last 12 months.
The net combined ratio was 139, 2% up 47 points compared to the prior year quarter.
The increase reflects a higher net loss ratio, partially offset by a lower net expense ratio.
113, 7% net loss ratio was up 42 eight points year over year with the increase primarily attributable to the retained losses associated with hurricane Ian and a higher attritional initial accident year loss pick partially offset by better prior year.
Reserve development.
The 25, 5% net expense ratio improved by two one points year over year.
Primarily reflecting lower renewal commission rates paid to distribution partners.
During the third quarter the company repurchased approximately 203000 shares at an aggregate cost of $2 4 million.
The company's current share repurchase authorization program has $8 million remaining as of September 32022.
Run through November three 2022.
On July 19, 2022, the board of directors declared a quarterly cash dividend of <unk> 16.
<unk> per share of common stock payable on August nine 2022 to shareholders of record as of the close of business on August <unk> 2022.
With that I'd like to ask the operator to open the line for questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone please standby, while we compile the Q&A roster.
Sure.
Sure.
Okay.
Our first question comes from Paul Newsome with Piper Sandler You May proceed.
Good morning.
Thanks for the call.
Wanted to.
You asked about the expense ratio.
Comp Peters.
Users.
If you could give us some sense of maybe how sustainable that is it looks like a pretty good sized drop.
Overall.
And maybe just your thoughts on how that will trend Jim.
Okay.
Yes. Good morning, Paul This is Frank.
I appreciate the question.
Our expense ratio has been trending down primarily because of that decision to reduce the commission rate. Although the distribution partners are receiving the same dollars as we increased primary rates.
So that's the principal reason for the overall trend coming down but in the third quarter. We also dialed back on some accruals that were building up.
For the year for.
Performance bonuses and other discretionary accruals. So the $25 five is not indicative of what the run rate would be I think that if you look at the first nine months, which is just under 28% that would be a better barometer of what to expect going forward.
Do you think.
We sort of hit a new normal in terms of comp through the markets Youre in.
I've always wondered why you didn't see frankly Lulu.
<unk>.
Being paid.
Given the.
Difficultly the home market.
Do you think that that is that.
Standing out.
Your peers in terms of comp levels or are you about the same.
What do you think tomorrow, how to market to be reactive.
Hey, Paul This is Steve good morning, I think as we gauge the market so to say in Florida in particular, we see the rates rising dramatically.
And as we reduce the agent's commission. They received the same amount of dollars. So we are competitive.
Within the marketplace.
And we would continue to assess that on an annual basis as we as we move forward, but as capital is key in the management of capital. It's one of the levers that we control that we.
We worked with our agency force as we kind of move forward. So.
It's something we keep a very close eye on and our relationships with the agents or are paramount to our success and how we built the company. So we're very careful about it.
I guess the other big question.
So were hurricane issues.
Issues aside.
Is the profitability prospectively on.
Hawaii business.
It didn't seem like.
In general.
Universal may be specifically, but in general have made a ton of progress in trying to get rate higher than claims inflation.
Where do you think we are at that.
Assuming the series have been.
Essentially the rates youre getting up growing up about as fast as its past regulatory pass it will be go.
And maybe that's not high enough to actually overcome currently.
The underlying claims inflation with some markets.
Maybe your thoughts on that would be great.
Yes, we were.
We constantly analyze the payouts and the rates that are adjusted on an annual basis and we've taken advantage of our ability to also.
Yes rate due to our reinsurance cost increasing I think when you combine those factors.
We feel as though we are approaching rate adequacy.
Aggressively.
And the Hurricanes that of course has a dramatic effect on our Q3 results, but as we look forward, we feel as though the model and our ability to assess claims with our own staff and our own legal team will benefit us in the future. So I think all in all the inflation is.
As a byproduct of the economy, but I think a lot of it has been has been built into some extent as we.
As we continue to assess rates and as you know the rates are always a year in arrears, because the justification for the rate increase stems from the past 12 months. So the.
The future appears as though rate will continue to be assessed in order to facilitate our claims.
All the things that affect the payout.
Great. Thanks, I appreciate all the helpful as always.
Yes, Thanks, Paul I have a good day. Thank you.
One moment for questions.
Our next question comes from Nick <unk> with Cowen You May proceed.
Good morning, guys.
Good morning, Nick.
We just we just start with you've discussed the claims volume from Ian being about 50% less than <unk>. At this point can you just talk a little bit about what youre seeing on the severity side relative to Irma.
Okay.
Yes.
Severity is less than what we originally had seen in Irma.
We have we have a tremendous amount of resources in the markets affected and are trying to get to all of the claims as fast as possible because as.
As you know.
The slower you respond the more bad things can happen to a claim and I think we're really well positioned due to the volume of Anne as well as due to the resources that we've deployed.
At this point to assess the damage.
Got it and just.
On the net cat number it was $111 million, which was a bit lower than what the implied would've been from a net retention loss at both insurance and the captive speaking just talking about the difference between that 111 and about $114 five.
Yes, that's a great pickup Nick we had an excess loss coverage policy at American platinum so that reduced the overall retention and our partners have been very very good about delivering capital to us.
In the time and our time of need for our insurance. So that was the driver of it.
And if I'm just thinking about reinsurance coverage for second events do you have <unk> on the flavor layer or do we begin to see incremental reinstatement premiums beginning where the cat fund attaches.
Youll definitely see the that effect again, the storm hit at the very tail end of September so there wasn't a dramatic impact to Q3 results.
We will have an offset for those expenses through R. R.
Our adjusting.
Expenses that we we deliver so I think that will all kind of flow through the P&L in future quarters in an orderly fashion I wouldn't expect any anything dramatic.
Got it Okay that was my follow on was specific to the internal adjusting operations is there any can you guys just help us quantify anything or the timing of anything related to the net benefit from the internal adjusting and the offset to the incremental reinstatement premiums.
I don't have specifics for you, but although again with 800 people in that organization. We are trying to do as much of the adjusting internally as possible.
We end up certain certain claims to third parties to.
To keep them on our list so to say going forward in the event, we need those resources, but.
I think from an overall in and out you'll see it you'll see the effects.
Again, I think we will offset.
<unk> expenses incurred as headwinds and the <unk> will be our own adjusting and legal organization doing a lot of our own work and that work not only benefits our insureds. It also benefits our reinsurance partners because we monitor the expense and manage the claims I would say tighter than anyone in the industry. So.
Theres benefits all around for that.
Okay.
Got it.
And then just.
So we've seen the press reports.
<unk> session.
Presumably before year end.
And I guess, if I could get your.
Things that you're most interested on I got the litigation trends, but maybe anything more.
Pacific in addressing that and then also we've had reform passed this year in recent years as well.
Like I know the calendar year litigation trends they are impacted from claims from prior year's Hurricanes, but is there any way you could sort of discuss our recent accident quarter or what are you seeing on a monthly basis with the claims that were specifically opened.
After events that occurred post the legislation.
Yes, it's a complex question, Nick I'll do my best to address it.
We have seen benefits of recent legislation.
The NOI process.
<unk> reform two years ago, and we've seen them working we've also seen the plaintiff's bar be very aggressive in trying to file as many cases as possible, but the NOI impacts that somewhat because they have to do some work in order to file a case.
So we do see benefits of it and I think on an ongoing basis I would say the messaging around hurricane as it was approaching from CFO Petronas and governor to Santos was very positive and educating consumers as to how they should behave and I think thus far we've seen very very few.
<unk> or litigious files come in the door not saying they will adjust in the future, but I think so far our ability to respond and the messaging from.
Politicians has been very supportive of the industry and I think from a legislative.
Perspective going forward again.
The politicians are very educated as to the issue and the issue is clearly one way attorney fees.
When we win cases today, which we do regularly.
Cannot recoup our expenses from the plaintiffs' bar and we would like to see that and we would like to see the mitigation or elimination of of that in the state of Florida, which leads to such.
A high density of.
Litigation in our state and the state of Florida compared to others. So.
Sorry, it's a long answer but there was a lot into our next sorry about that.
No no no that's perfect I appreciate it.
One final one test at the holding company liquidity number as of Q3.
It's not a number that we disclose on an interim basis that number will come out in the Form 10-K, when we produce the holding company only financial statements in the back of the 10-K.
Okay.
Thank you guys.
Great. Thanks, Thanks have a good day. Thank you.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Steve Donaghy for any further remarks.
Thank you I'd like to thank all of our associates consumers agents and our stakeholders for their continued support of Universal and have a great day.
Thank you.
This concludes today's conference call. Thank you for participating you may now disconnect.
And during Q&A, you can dial stones.
The.
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