Universal Insurance Holdings Inc. Q1 2023 Earnings Call

Speaker 1: Good morning, ladies and gentlemen, and welcome to Universal's first quarter 2023 earnings conference call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Arash Soleimani, Chief Strategy Officer.

Speaker 1: Good morning. Thank you for joining us today. Welcome to our quarterly earnings call. On the call with me today are Steve Donegee, 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.

Speaker 1: 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 on Universal's SEC filings, all of which are available on the investor section of our website at UniversalInsuranceHoldings.com.

Speaker 1: 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 UniversalInsuranceHoldings.com. With that, I'll turn the call over to Steve. Thanks Arash. Good morning everyone.

Speaker 2: It was a strong quarter, including a 23.9% annualized adjusted return on common equity and 23.4% adjusted diluted earnings per share growth year on year.

Speaker 2: There are multiple factors benefiting our business, and I'm optimistic as I look towards the future.

Speaker 2: The Florida Legislature passed meaningful reforms at the December special session.

Speaker 2: which we believe will improve the long-term stability and profitability of our core business.

Speaker 2: while rate adequacy improves and higher fixed income yields boost the productivity of our investment portfolio.

Speaker 2: Additionally, as we sit here today, we already have our core All-States Property Catastrophe Reinsurance Tower for the 2023-2024 period fully supported and secured, with no material changes to our historical reinsurance partners.

Speaker 2: or our terms and conditions.

Speaker 2: while the costs are well within our budget parameters.

Speaker 2: We are very pleased with the progress we have made in the current environment, which is a testament to the strength of our business model and our associates.

Speaker 2: I'll turn it over to Frank to walk through our financial results. Frank. Thanks, Stephen. Good morning. Thanks, Steve. And good morning. Thanks, Steve.

Speaker 3: Adjusted diluted earnings per share was 79 cents, up from 64 cents in the prior year quarter.

Speaker 3: The increase mostly stems from higher net premiums earned, net investment income, and commission revenue, and lower net expense ratio partially offset by a higher net loss ratio. Core revenue of $316.3 million was up 8.8% year over year.

Speaker 3: with growth primarily stemming from higher net premiums earned, net investment income, and commission revenue.

Speaker 3: Direct premiums written were $410.1 million, up 3.4 percent from the prior year quarter, including 0.9 percent growth in Florida and 17.2 percent growth in other states.

Speaker 3: Growth reflects rate increases partially offset by lower policies and force.

Speaker 3: Direct premiums earned were $455.4 million, up 9.8% from the prior year quarter, reflecting rate-driven direct premiums written growth over the last 12 months.

Speaker 3: Net premiums earned were $282.2 million, up 4.9% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned partially offset by a higher seated premium ratio.

Speaker 3: The net combined ratio was 100%, up 2.1 points compared to the prior year quarter.

Speaker 3: The increase reflects a higher net loss ratio, partially offset by a lower net expense ratio.

Speaker 3: The 73.1% net loss ratio was up 4.3 points compared to the prior year quarter, with the increase primarily attributable to a higher attritional initial accident year loss pick, and higher prior year reserve development as a percentage of net premiums earned partially offset.

Speaker 3: by lower weather losses as a percentage of net premiums earned.

Speaker 3: The 26.9% net expense ratio improved by 2.2 points compared to the prior year quarter, primarily reflecting lower renewal commission rates paid to distribution partners.

Speaker 3: On April 12, 2023, the Board of Directors declared a quarterly cash dividend of 16 cents per share of common stock, payable on May 19, 2023, to shareholders of record as of the close of business on May 12, 2023.

Speaker 3: With that, I'd like to ask the operator to open the line for questions.

Speaker 1: To ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster.

Speaker 1: One moment before our first question.

Speaker 1: Our first question will come from Paul Newsome from Piper Sandler. Your line is open. This space will take you three minutes and start outline with thelow bounce action.

Speaker 1: Our first question comes from Paul Newsome from Piper Sandler. Your line is open.

Speaker 4: Good morning. Congrats on the quarter. Thanks for the call. Just a couple of questions. Thanks for the call.

Speaker 4: Reinsurance tower, good to hear it's been secured. When you say no changes in the terms and conditions, is that including the intercompany reinsurance provided?

Speaker 4: by the company's re-insurance operation. I assume that's...

Speaker 4: We are talking about some increase in weight on line.

Speaker 4: just not the retention to

Speaker 4: Loomis on the tower, is that fair?

Speaker 2: Hey, Paul. Good morning and thanks for the question. Yeah, I think that is fair. I think year over year, we will see 2023 have a very similar percentage of reinsurance costs to the company against premiums earned as we did in 22. We're very fortunate.

Speaker 2: to have it completed as you mentioned, and very fortunate to have the partners that we do in the reinsurance industry. I don't see any changes to the retention from an intercompany perspective as well. So, kind of hit all of them there. Thank you.

Speaker 4: Do you use the state's offer of re-entrance this time around? Yes, I do. I use the state's offer of re-entrance this time around.

Speaker 2: We did not use the RAP program in 2022. We elected to use that this year. So that's the program that we are utilizing. And as you know, that's below the FHCF level. So we're very fortunate to have that instrument available to us, and that is part of the equation.

Speaker 4: Yep, and then maybe turning to the tort reform, which is obviously the big question.

Speaker 4: Any sort of early leads on what we're seeing really from a pure claim perspective.

Speaker 4: on any changes. And if you could give us some thoughts on, we saw the surge in lawsuits in general in Florida and throw them the video.

Speaker 4: tolach vict click

Speaker 4: I'm not sure if that had any impact on your business at all.

Speaker 4: Just any thoughts on what you're actually seeing from a clay perspective during the corner going into the torch.

Speaker 2: Yeah, I believe, Paul, that, again, as we changed our terminology from cautiously optimistic to optimistic, I would say at the end of Q1, we feel very good about that statement from the end of 2022. We have seen considerable reductions in litigation, representations, et cetera.

Speaker 2: and we feel very optimistic about the future of the impact of that on our business. I also would say that even some of the changes from prior legislative sessions, such as the NOI process, are working well and our staff is...

Speaker 2: is executing against trying to get as many settlements as possible before anything would land in a litigious environment. So I think all in all, very favorable signs.

Speaker 4: Do you have any thoughts about how that might work its way through the year in the financial results? I'll be providing the audio solution after.

Speaker 4: something we'll see quite quickly or do you think it will be

Speaker 4: something that impacts the loss ratio over time.

Speaker 2: I think it's going to take some time for the legislation to earn in. As you know, many of the changes are substantive, so they'll take effect as policies renew and new business comes on board. So it'll probably take some period of time as we look into the future for it to earn fully in.

Speaker 2: But I think there'll be some benefits on a go-forward basis, obviously.

Speaker 4: Great. Well, let's let other folks ask questions, but appreciate the help as always.

Speaker 4: Well, let's have other folks ask questions, but appreciate the help as always. Yeah, thanks, Paul.

Speaker 5: Thank you. We'll take a moment for our next question.

Speaker 5: Our next question comes from the line of Nick Iacobello from Dowling. Your line is open. Your line is open.

Speaker 6: Morning thanks for taking my question.

Speaker 6: I just want to make sure I'm understanding not seeing changes to the inner company retention. Just so on a staff basis and a gap basis, do you expect the retentions to be similar as they were last year's program?

Speaker 2: Good morning, Nick. Yeah, we do. We look at a lot of different options on various levels of what we're offered in the reinsurance market, and we feel good about our capital position and our ability to handle similar retentions, both on the net retention as well as the Asasoleas program that we incorporate.

Speaker 6: And just the cost being a similar percentage.

Speaker 6: earned and I get we'll get more details with the AK as usual but

Speaker 6: Was there a meaningful difference in the amount of private market limit you purchased? And I get the RAP layer this year, not there last year. And I guess also I'm thinking in terms of the first and second event coverage, is this comment that the program was secured. That relates to both of those. And if so, how does the prepaid reinstatement?

Speaker 2: compare versus last year? Yeah, Nick, great question and we will have a detailed 8k as we have prior years.

Speaker 2: We'll have a press release out separate sometime in May, late May most likely, but we feel very good about the entire program across the board. So from a ceiling perspective, it'll be very close to where we were in 2022. As you know, policy count is down, so TIV is down a little bit, but it won't be a meaningful difference whatsoever.

Speaker 2: your further questions about coverages and others, they'll be consistent with where we were last year. So as we exit the reinsurance market for 23, we feel really good. The visits in Bermuda, the visits in London went very well, and I think we were again, we separated a little bit.

Speaker 2: from some of our peers relative to ability to secure. That's always our goal is to kind of stand tall and be different within the space. So that's what we're trying to do.

Speaker 7: Okay.

Speaker 6: I guess just if we could go elsewhere. I know last quarter you guys I mentioned you were reevaluating your view of weather above plan. So I'm just wondering if you had a determination there and just trying to look at your results like for like with the year ago quarter. Was there anything this quarter you would classify as weather above plan? Yeah, good morning Nick, this is Frank. So weather cooperated in the first quarter.

Speaker 6: Thanks. And last one, do you see any movement in your gross loss estimates for in or still around a billion? So please just in case everybody hears me mention this, click the subscribe button to

Speaker 2: Yeah, it's still around a billion, Nick, and we're pretty confident that we don't expect it to move north.

Speaker 7: Okay, that's all. Thank you.

Speaker 7: Okay, that's all. Thank you, yes. Great. Thanks, Nick. Have a good day.

Speaker 5: Thank you. I'm not showing any further questions at this time. I'd like to turn the call back over to our speakers for any closing remarks.

Speaker 2: I'd like to thank all of our associates, consumers, agents, and our stakeholders for their continued support of Universal. I wish you all a great day.

Speaker 5: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.