Q4 2022 Universal Insurance Holdings Inc Earnings Call

February 24, 2023

The conference will begin shortly.

Raising the lower Johan during Q&A, you can dial star one one.

[music].

Okay.

Good morning, ladies and gentlemen, and welcome to Universal's fourth quarter 2022 earnings conference call.

Remind you this conference call is being recorded.

I would now like to turn the conference over to Raj to Lamont 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.

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 web.

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.

That I will turn the call over to Steve.

Thanks, Raj and good morning, everyone.

It was a tough year, but I'm proud of what our team accomplished despite the circumstances.

The Florida homeowners insurance market has faced significant challenges but.

But we remain committed to our home state and continue to write new and renewal business.

We are grateful to state officials for passing meaningful reforms at the recent special legislative session.

<unk> elimination of one way attorney fees and assignment of benefits.

Shortening the claims filing deadline to one year and taking steps to reduce the competitiveness of citizens among other measures.

It will take time for the reforms to benefit results.

We believe the legislature's actions will restore the health of the market over the long term.

Given our differentiated business model solid balance sheet and strong reinsurer relationships, we're uniquely positioned to succeed in the dynamic Florida landscape.

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

Great.

Thank you Steve.

Adjusted diluted earnings per common share was <unk> 72.

Up from diluted adjusted loss per common share of $1 53 in the prior year quarter with the increase mostly attributable to lower net loss and expense ratios and higher net investment income and commission revenue.

Core revenue of $326 4 million was up 11, 3% year over year with growth primarily stemming from higher net premiums earned net investment income and commission revenue.

Direct premiums written of $416 1 million were up four 2% from the prior year quarter, including three 6% growth in Florida and six 8%.

Growth in other states.

Overall growth reflects rate increases, partially offset by lower policies in force.

Direct premiums earned of $463 8 million.

We're up 11% year over year, reflecting rate driven direct premiums written growth over the last 12 months.

Net premiums earned were $291 9 million up seven 6% from the prior year quarter.

The increase was primarily attributable to higher direct premiums earned partially offset by higher seeded premiums earned.

The net combined ratio was 101, 4% down 30 points compared to the prior year quarter.

The decrease reflects lower net loss and expense ratios.

The 76, 3% net loss ratio was down 27 points year over year with the decrease primarily attributable to a lower current accident year net loss ratio and lower adverse prior year Reserve development.

The 25, 1% net expense ratio improved by three points year over year, primarily reflecting lower renewal commission rates paid to distribution partners.

During the fourth quarter the company repurchased approximately 186000 shares at an aggregate cost of $1 8 million.

The company's current share repurchase authorization program has.

$6 2 million remaining as of December 31, 2022 and.

And runs through December 15, 2024.

On February nine 2023, the board of directors declared a regular quarterly cash dividend of <unk> 16 per common share of stock payable March 16th 2023 to shareholders of record as of the close of business on March nine 2023.

With that I'd like to ask the operator to open the line for questions.

Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.

One moment for our first question.

And our first question comes from Paul Newsome of Piper Sandler. Please proceed.

Okay.

Good morning, Thanks for the call congratulations on the quarter.

Good morning, maybe you could.

Sir just with a little bit more detail.

The year over year improvement in the loss ratio is there any way to sort of.

Think about how much of it.

<unk> weather.

Cat losses versus.

<unk>.

Other components.

Pricing.

Yeah, Paul Good morning. This is Frank so as we have disclosed throughout the year, we've been proactive.

During 2022, increasing the current accident year loss pick each quarter, including Q4 ahead of the third party actuarial analysis.

And this is intended to capture emerging whether in 'twenty, two rather than reporting whether above plan, which is what we've done in the past.

And by being proactive its result in very minor adjustments coming out of that year end analysis versus what we booked going into it in Q4 as you know included into call. It also included the effective winter storms, representing the majority of the reserve entries in that period.

That was somewhere around $30 million range. So if you wanted to look apples to apples that would equate to the $28 million that we had last year, but absent Q4 weather and excluding a margin that was generated by handling claims were very close to the current accident year loss pick that we had booked up through the third quarter, which was.

The 47% range.

Now.

Certain aspects of our business model, including our in house claims and legal teams had a significant favorable impact in the fourth quarter. We've invested in these teams, which comprise the majority of our workforce carrying the cost year round. So that we're fully prepared to handle claims as efficiently as possible when were impacted.

The storms such such as Ian.

And dealing with those claims in the fourth quarter. So we're really pleased with the work that was performed by these teams to mitigate costs associated with handling. These claims on behalf of both our insurance entities in our reinsurance partners. We handle about 90% of these claims and we've always believed that we can service our business with more care than any.

The third party that said, we do maintain important relationships with third party adjusters when when needed.

And then we also benefit from the synergies that exist between these two groups, which translates into savings that would not exist outside of our consolidated group and there'll be a little bit more color on the economic benefit generated from those activities in the 10-K.

Reeds.

<unk>.

Any obviously youre optimistic about the tort reform.

Have we seen anything in the results yet or is just far too early.

To see the impact.

Hey, Paul This is Steve I think it's again optimistic I'll remove the term cautiously optimistic we are now optimistic in the future of the legislative reforms, thanks to governor to Santos and the new legislators.

I would say that.

It is a little bit early but we are seeing signs of a positive impact early on so we feel good about it.

Great.

And then I'll ask one more and then let somebody else ask.

The.

Reinsurance costs have gone up broadly through.

Hi, everybody.

How are you thinking about that for yourself.

And.

I guess.

So.

I assume.

The critical.

June July renewal I think the issue here, but maybe you could talk about what you think.

Happen through your reinsurance costs in 2023%.

Yes, it's definitely big question. Paul This time of year, just like just like our reserve analysis reinsurance now is something were doing 12 months a year every day working with our partners and with our team on how do we best place and acquire reinsurance, but as you know we placed certain portions of our cat.

Reinsurance on a multiyear basis as we enter in as we enter the 2023 buying season in combination with the estimated Florida Hurricane Cat Fund coverage, the rap program, which we deferred participation in both insurance companies from 'twenty two to 'twenty three.

We sit here with approximately 83% of our desired first.

First event catastrophe tower already secured so.

We feel as though the market will reflect.

Many of the things reinsurers have been forced to deal with in the past and we are hoping that as reinsurers look for safety and partners. We will stand above majority of the crowd due to our financial strength and reputation. So we feel good.

We feel like there's going to be some impact from the past and we're going to do our best to leverage our anticipated results and really there than anticipated results from the legislature reforms.

Going forward so.

There's going to be a lot of work to do Paul we feel good about it we feel I feel really good that we only have a small percentage needed to acquire the first event. So.

And that work has already started so we're well on our way to securing the balance.

I'll, let somebody else ask questions always I appreciate the help.

Back in queue.

Yes, Thanks, Paul I have a great afternoon.

Thank you one moment for our next question.

And our next question comes from Nicholas Akio Fellow of Dowling. Please go ahead.

Good morning, guys. Thanks for taking my question just first what was the gross prior year development in the quarter and then also what is your current estimated gross loss estimate for Ian.

Well the ultimate remains at $1 billion, we feel confident that that's that's.

Adequate.

As far as gross development I don't have those numbers in front of me, but I can tell you that we're very pleased with our year over year reduction in net reserve development, we know we're not perfect obviously, but.

We continue to drive that down and we expect it to be driven down.

Got it thank you.

And then just I know you just touched on it but I guess, how do we think about whether above plan going forward like what should we actually be assuming is incorporated in that plan figure now.

Yes, we are sort of reevaluating our view of that obviously, the total numbers won't change, but how we present that going forward remains of discussion among us we see some other.

Insurers do some different type of categorization and want to benchmark against that and just be in line.

So I'm not so sure that I have a figure for weather above plan, but I think what we're and what we've done this year as we've been more proactive to adjust our loss picks for emerging weather.

More to come on that.

Yes, Nick I would add to this is Steve I think between our actuarial staff and various teams around the company as we've become more proactive in our entire reserve analysis.

Weather and the impacts to weather or something we're contemplating disclosing on potentially a dollar basis, if it exceeds a certain amount and we'll probably have more information.

We get through Q1 regarding that point.

Got it and then can you guys quantify what the net benefit from the internal claims adjusting operations was this quarter.

David.

Yes, we don't disclose the exact figures there'll be some details on our in our 10-K for sure Nick I think the real message. There is that as we have adjusted claims and protected our reinsurers in ourselves from frivolous lawsuits, we've seen more and more benefit between the internal processing processing.

Of claims not just from a dollar impact to universal, but from a savings impact to universal as well as our reinsurance partner.

We don't discuss it too much Nick but I'll I'll take the opportunity for small commercial.

The impact of having your own adjustors and your own legal staff.

John .

On the payroll enables for tremendous communication and prepping of files so that.

Then and adjust our hand, something over to a desk examiner and eventually to a paralegal or an assistant of attorney they're all looking at the same information as a more consistent we can be in the preparation of those files. It eliminates a lot of conversation, which again just enables <unk>.

Folks to do their job better than they would be if they had to pick up the phone and asked people constantly what do you mean by a gable roof in this section of.

The home and what do you mean by this number of cabinets in the bathroom et cetera, I think as we continue to execute against our goal of being the best adjusting and legal enterprise.

It's one of the things, we've continued to leverage and fee tremendous benefit and that helps everybody in our in our circle so to say.

Got it.

Last one from me just on your captive can you talk about the capital levels and there was it fully exhausted from Ian and we'll just need to be funded again participate in the 23 program.

Yes, so the captive was used to.

Filling the layer of $66 million above our retention and the answer to your question is yes. It was fully exhausted with Ian and we intend to use that vehicle going forward and what capacity remains to be seen in terms of structuring or our program going forward.

Yes, Nick I would I would estimate to your prior question about the adjusting revenue.

Our legal expertise also gets to serve that we have the ability to replenish that capital after a storm by doing the same work we would pay third parties.

In the field, so it's kind of an offset to that capital position and I think makes our model kind of standout.

Across the across the country for that matter, especially in Florida.

Okay.

The $66 million was was fully utilized but was there capital already in the captive prior to program. It had been fully collateralized Thats correct, yes.

Okay. Thank you.

Okay.

Thank you.

I would now like to turn the conference back to Steve Donaghy CEO for closing remarks.

Yes.

Thank you very much I would like to thank all of our associates consumers Our agency force and our stakeholders for their continued support of Universal and I wish you all a great day.

This concludes today's conference call. Thank you for participating and you may now disconnect.

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Good morning, ladies and gentlemen, and welcome to Universal <unk> fourth quarter 2022 earnings Conference call.

As a reminder, this conference call is being recorded I would now like to turn the conference over to Ross Taylor Mauney 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 with that I will turn the call over to Steve.

Thanks, Raj and good morning, everyone.

It was a tough year, but I'm proud of what our team accomplished despite the circumstances.

The Florida homeowners insurance market has faced significant challenges.

While we remain committed to our home state and continue to write new and renewable business.

We are grateful to state officials for passing meaningful reforms at the recent special legislative session.

Including elimination of one way of turnkey fees and assignment of benefits.

<unk> the claims filing deadline to one year and taking steps to reduce the competitiveness of citizens among other measures.

It will take time for the reforms to benefit results, but we believe the legislature's actions will restore the health of the market over the long term.

Given our differentiated business model solid balance sheet and strong reinsurer relationships, we're uniquely positioned to succeed in the dynamic Florida landscape.

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

Great.

Thank you Steve.

Adjusted diluted earnings per common share was <unk> 72.

Core revenue of $326 4 million was up 11, 3% year over year with growth primarily stemming from higher net premiums earned net investment income and commission revenue.

Direct premiums written of $416 1 million were up four 2% from the prior year quarter, including three 6% growth in Florida, and six 8% growth in other states.

Overall growth reflects rate increases, partially offset by lower policies in force.

Direct premiums earned of $463 8 million were up 11% year over year, reflecting rate driven direct premiums written growth over the last 12 months.

Net premiums earned were $291 9 million up seven 6% from the prior year quarter.

The increase was primarily attributable to higher direct premiums earned partially offset by higher seeded premiums earned.

The net combined ratio was 101, 4% down 30 points compared to the prior year quarter.

The decrease reflects lower net loss and expense ratios.

The 76, 3% net loss ratio was down 27 points year over year with the decrease primarily attributable to a lower current accident year net loss ratio and lower adverse prior year Reserve development.

The 25, 1% net expense ratio improved by three points year over year, primarily reflecting lower renewal commission rates paid to distribution partners.

During the fourth quarter the company repurchased approximately 186000 shares at.

At an aggregate cost of $1 8 million.

The company's current share repurchase authorization program has $6 $2 million remaining as of December 31, 2022 and.

And runs through December 15, 2024.

With that I'd like to ask the operator to open the line for questions.

Thank you as a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one one again, please standby, while we compile the Q&A roster.

One moment for our first question.

And our first question comes from Paul Newsome of Piper Sandler. Please proceed.

Good morning, Thanks for the call congratulations on the quarter.

Good morning, maybe you could.

Concern just with a little bit more detail.

On the sort of year over year improvement in the loss ratio is there any way to sort of.

Think about how much of it.

Weather.

Cat losses versus.

<unk>.

Other components.

Like pricing.

Yeah, Paul Good morning. This is Frank so as we have disclosed throughout the year, we've been proactive during 2022, increasing the current accident year loss pick each quarter, including Q4 ahead of the third party actuarial analysis and this is intended to capture.

Emerging whether in 'twenty, two rather than reporting whether above plan, which is what we've done in the past.

And by being proactive its result in very minor adjustments coming out of that year end analysis versus what we booked going into it in Q4 as you know included into call. It also included the effect of winter storms, representing the majority of the reserve entries in that period.

That was somewhere around $30 million range. So if you wanted to look apples to apples that would equate to the 28 million that we had last year, but absent Q4 weather and excluding.

Margin that was generated by handling claims were very close to the current accident year loss pick that we had booked up through the third quarter, which was at 47% range.

Now certain aspects of our business model, including our in house claims and legal teams had a significant favorable impact in the fourth quarter. We've invested in these teams, which comprised the majority of our workforce carrying the cost year round. So that we're fully prepared to handle claims as efficiently as possible.

When we're impacted the storms such such as Ian.

And dealing with those claims in the fourth quarter. So we're really pleased with the work that was performed by these teams to mitigate costs.

Associated with handling these claims on behalf of both our insurance entities in our reinsurance partners. We handled about 90% of these claims and we've always believed that we can service our business with more care than any other third party that said, we do maintain important relationships with third party adjusters when when needed.

And then we also benefit from the synergies that exists between these two groups, which translates into savings that would not exist outside of our consolidated group and there'll be a little bit more color on the economic benefit generated from those activities in the 10-K.

Great.

Tom.

Any obviously youre optimistic about the tort reform.

Have we seen anything in the results yet or is just too early.

To see that.

Hey, Paul This is Steve Yes, I think it's again optimistic I'll remove the term cautiously optimistic we are now optimistic in the future of the legislative reforms, thanks to governor to Santos and the new legislators I would say that.

It is a little bit early but we are seeing signs of a positive impact early on so we feel good about it.

Great.

And then I'll ask one more and then.

Let somebody else ask.

The.

Reinsurance costs have gone up broadly for.

Morning, everybody.

How are you thinking about that for yourself.

<unk>.

I guess is it.

So that.

I assume.

The critical.

June July renewal I think is the issue here, but maybe you could talk about what you think.

Happen through your reinsurance costs in 2023.

Reinsurance on a multiyear basis as we enter in as we enter into 2023 buying season in combination with the estimated Florida Hurricane Cat Fund coverage, the rap program, which we deferred participation in both insurance companies from 'twenty two to 'twenty three.

We sit here with approximately 83% of our desired first.

First event catastrophe tower already secured so.

We feel as though the market will reflect.

We feel like there's going to be some impact from the past and we're going to do our best to leverage our anticipated results and really their anticipated results from the legislature reforms.

Going forward so.

There's going to be a lot of work to do Paul we feel good about it we feel I feel really good that we only have a small percentage needed to acquire the first event. So.

And that work has already started so we're well on our way to securing the balance.

Ill, let somebody else ask questions, but always I appreciate the help and I'll get back in queue.

Yes, Thanks, Paul I have a great afternoon.

Thank you one moment for our next question.

And our next question comes from Nicolas <unk> of Dowling. Please go ahead.

Good morning, guys. Thanks for taking my question just first what was the gross prior year development in the quarter and then also what is your current estimated gross loss estimates for Ian.

Well the ultimate remains at $1 billion, we feel confident that that that's adequate.

As far as gross development, how have those numbers in front of me, but I can tell you that we're very pleased with our year over year reduction in net reserve development. We know we're not perfect obviously, but we.

We continue to drive that down and we expect it to be driven down.

Got it thank you.

And then just I know you just touched on it but I guess, how do we think about whether above plan going forward like what should we actually be assuming is incorporated in that plan figure now.

Yes, we are sort of reevaluating our view of that obviously, the total numbers won't change, but how we present that going forward remains of discussion among us we see some other.

Insurers do some different type of categorization and want to benchmark against that and just be in line.

So I'm not so sure that I have a figure for weather above plan, but I think what we're and what we've done this year as we've been more proactive to adjust our loss picks for emerging weather.

More to come on that.

Yes, Nick I would add to this is Steve I think between our actuarial staff and various teams around the company as we've become more proactive in our entire reserve analysis.

Weather and the impacts to weather or something we're contemplating disclosing on potentially a dollar basis, if it exceeds a certain amount and we'll probably have more information.

We get through Q1 regarding that point.

Got it and then can you guys quantify what the net benefit from the internal claims adjusting operations was this quarter.

Okay.

You bet.

Of claims not just from a dollar impact to universal, but from a savings impact to universal as well as our reinsurance partners.

We don't discuss it too much Nick but I'll I'll take the opportunity for small commercial.

The impact of having your own adjustors and your own legal staff.

One.

On the payroll enables for tremendous communication and prepping of file so that when and adjust their hand, something over to a desk examiner and eventually to a paralegal or an assistant of attorney they're all looking at the same information as the more consistent we can be.

And the preparation of those files it eliminates a lot of conversation, which again just enables folks to do their job better than they would be if they had to pick up the phone and asked people constantly what do you mean by a gable roof in this section of.

The home and what do you mean by this number of cabinets in the bathroom et cetera. So I think as we continue to execute against our goal of being the best adjusting and legal enterprise.

It's one of the things, we've continued to leverage and fee tremendous benefit and that helps everybody in our in our circle so to say.

Got it.

Last one from me just on your captive can you talk about the capital levels and there was it fully exhausted from Ian and will this needs to be funded again is it participates in the 23 program.

Yes, so the captive was used to.

Yes.

Yes, Nick I would I would submit to your prior question about the adjusting revenue.

Our legal expertise.

<unk> gets to serve that we have the ability to replenish that capital after a storm by doing the same work we would pay third parties.

In the field. So it's kind of an offset to that capital position and I think makes our model kind of stand out.

Across the across the country for that matter, especially in Florida.

Okay.

The $66 million was fully utilized but was capital already in the captive prior to I guess 22 program. It had been fully collateralized Thats correct, yes.

Okay. Thank you.

Okay.

Thank you.

I would now like to turn the conference back to Steve Donaghy CEO for closing remarks.

Thank you very much and I'd like to thank all of our associates consumers Our agency force and our stakeholders for their continued support of Universal and wish you all a great day.

This concludes today's conference call. Thank you for participating and you may now disconnect.

Q4 2022 Universal Insurance Holdings Inc Earnings Call

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