Q1 2023 United Insurance Holdings Corp Earnings Call

Speaker 1: Interest.

Speaker 2: Hello, and welcome to the United Insurance Holding Court First Quarter 2023 Financial Results Conference Call and Webcast.

Speaker 2: If anyone would require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host, Karen Daly, and thus relations with the equity group. Please go ahead, Karen.

Speaker 3: Thank you, Kevin, and good afternoon, everyone. United Insurance Holding Support has also made this broadcast available on its website at www.uPCinsurance.com.

Speaker 3: A replay will be available for approximately 30 days following the call. Additionally, you can find copies of UIHC's earnings release and presentation in the investor section of the company's website.

Speaker 3: Speaking today, we'll be chairman of the Board and Chief Executive Officer, Ardenio Pied, and President and Chief Financial Officer, Bennett Bradford-Marx.

Speaker 3: On behalf of the company, I'd like to note that statements made during this call that are not historical facts are full of looking statements.

Speaker 3: The company believes these statements are based on reasonable estimates, assumptions, and plans. However, if the estimates, assumptions, or plans underlying the forward looking statements prove inaccurate, or if other risk or uncertainties arise, actual results could differ materially from those expressed in or implied by the forward looking.

Speaker 3: on Form 10Q.

Speaker 3: forward-looking statements speak only as of the date on which they are made and and accept as required by applicable law the company undertakes no obligation to update or revise any forward-looking statements.

Speaker 3: With that, it's my pleasure to turn the call over to Mr. Daniel Pied. Then, you may begin.

Speaker 4: Thanks, Karen.

Speaker 5: Hello and thanks for joining us on our first quarter earnings call. I'm Dan P, Chairman and CEO of United Insurance Holding Corp.

Speaker 5: I'll plan and overview the activities from the first quarter, including touching on the operating results in our continuing operations and specifically our commercial line segment.

Speaker 5: I'll also comment on our re-inference placement and then Brad Martz will expand on the financial results for the first quarter. Here.

Speaker 5: Over the last two years, we've been exiting our personal lines business written by UPC Insurance Company.

Speaker 5: This eventually culminated in receivership of United PNC Insurance Company on February 27.

Speaker 5: We are working diligently with the Department of Financial Services to support policy holders and complete the separation of UPC insurance company.

Speaker 5: The deconsolidation of UPC as of the effective date of February 27th drives some extreme numbers such as the net income of $260 million in our first quarter financial results.

Speaker 5: However, if you focus on the results of continuing operations

Speaker 5: as well as the results of our commercial lines portfolio, you'll get a better picture of our current and future business.

Speaker 5: First, it's worth noting that we do believe that the legislative change is made in May and December of last year will prove to be an effective mitigation of some of the excessive litigation issues in Florida over the last half dozen years.

Speaker 5: The pre-suit notice of Cate notification of intent to litigate. The time to report reduced to one year. The elimination of the one-way attorney fees and the assignment of benefits as well as other changes will work their way through the system to reduce loss costs and subsequently insurance premium rates over time.

Speaker 5: Industry estimates seem to suggest that these reductions will be approximately a 25% reduction in loss rates.

Speaker 5: However, it will take some time for these changes to work their way through the system, but they do appear to have mitigated some of the investor and reinsure negative sentiment surrounding the future Florida exposure. Back to our first quarter results. As mentioned, the most useful numbers reported in the first quarter

Speaker 5: are our results of continuing operations and specifically the commercial line segment.

Speaker 5: For the first quarter, continuing operations pre-tax income was approximately 40 million, with growth rate in premium up 31% year-over-year and net-interimium up 51% year-over-year.

Speaker 5: But a commercial line segment, pre-tax income was approximately $39 million driven by a grocery premiums up 38% year over year.

Speaker 5: And that loss ratio of 22%.

Speaker 5: and favorable development at 3.5%.

Speaker 5: The commercial line's combined ratio was 53 percent, and an underlying combined ratio of 54 percent, demonstrating this strong underlying profitability produced by the commercial line's portfolio.

Speaker 5: On the underwriting side, our first quarter of retention rate was 83%.

Speaker 5: Our probable maximum loss exposure is down 6% year to date.

Speaker 5: Valuations are improving materially with the portfolio average valuation up 21% year over year.

Speaker 5: Turning to our dream first CoreCat Reinsurance Program, the market has been supportive with capacity although risk adjusted rate increases are up as expected.

Speaker 5: From American Coastal, we are effectively done with over 100% of the limit authorized and the structure outlined in our Investors supplement.

Speaker 5: This creates first event hurricane protection exceeding the 160 year return period on a first event basis.

Speaker 5: Also, with our American Coastal Footprint limited to Florida, we will have significantly reduced frequency exposure.

Speaker 5: Reinsturings includes two corner, cornerstone, cool to share partners.

Speaker 5: It is important to point out that our FHCF and our forer capacity fits much higher in the structure than typical Florida residential books and provides greater than 60% of the marine coastal's first-ident limits, which dilutes the impact of private market rate increases.

Speaker 5: Our ACIC, a current for attention is expected to be 10 million, although we expect to modestly expand the group retention through use of our captain.

Speaker 5: In conclusion, the Florida Residential Cat Market remains extremely hard. It will take some time for reinsurers and investors to get comfortable with the exposures and challenges the Florida offers.

Speaker 5: Well, this creates challenges in our reinsurance placement. It also creates an excellent opportunity for both our reinsurers and American Postal with the number one market share for admitted commercial residential exposure in Florida.

Speaker 5: I expect the market to remain hard for both the near and the intermediate terms.

Speaker 5: With that, I'll turn it over to Brad Marx.

Speaker 6: Thank you, Dan and hello. This is Brad Marks, the president and CFO of UHC. I'm pleased to review our financial results, but encourage everyone to review the company's press release, investor presentation, and forms 10Q&K for more information regarding our performance.

Speaker 6: Page 3 of our investor presentation supplement provides a summary of the quarter.

Speaker 6: ending March 31, 2023, which included gap net income of $260.9 million, or $5.99 a share.

Speaker 6: compared to a net loss of 33.2 million or 77 cents a share last year. This included a non-recurring gain from discontinued operations of 230.3 million or $5.29 cents a share, resulting from the deconsolidation of our former affiliate.

Speaker 6: United Property Incasually Insurance Company.

Speaker 6: Last year, we did not have discontinued operations, so certain amounts for 2022 have been recast, consistent with the disclosure requirements for discontinued operations that help improve comparability between the current and prior year. The most meaningful result this period, as Dan mentioned, is the earnings from continuing operations before tax of $40.4 million.

Speaker 6: that compared favorably to 5.6 million last year in increase of approximately 619% year-to-year. Aftertax, net income from continuing operations was 30.5 million or 70 cents a share, which also compared favorably to 4.6 million or 11 cents a share a year ago.

Speaker 6: Page four of our investor presentation provides a reconciliation of net income to core income, which is a non-gab measure, we believe is the best metric of comparability between periods by excluding gains and losses from investments in the discontinued operations as well as non-cash, amortization of intangible assets. Core income for the first quarter 2023 was 30.9 million or 70 million.

Speaker 6: were offset by $3.2 million of favorable prior year reserve development, resulting in an underlying combined ratio for a group of 70.6% compared to 185.6% last year.

Speaker 6: Page 5 of our investor presentation provides a breakdown of our current year results against the recast 2022 amounts, which show the impact of other revenue earned by our operating affiliates, United Insurance Management and Skyway Claims Services, that is mostly non-recurring in nature.

Speaker 6: and the amounts related to UPC no longer eliminate in UIHC's consolidated financial statements.

Speaker 6: Page six of our investor presentation breaks down our results by segment with $39 million of pre-tax profit from commercial lines, $4.6 million from personal lines, which is reduced by a $3.2 million pre-tax loss, primarily related to interest expense.

Speaker 6: We also call out the personal line segments other revenue here because it's not included in the Expansor Combined Ratios for the Personal Line Segment, making those ratios less useful in the current period.

Speaker 6: Since most of this is related to UPC, we expect the management fees earned by United Insurance Management as other revenue in personal lines to decline in future periods. But operating expenses associated with that revenue will also follow suit.

Speaker 6: albeit at a slower rate as services being provided to support UPC's runoff wind down over time.

Speaker 6: Page 7 of our investor presentation provides some balance sheet highlights that as of March 31, 2023 included stockholders' equity of $83.5 million or $1.93 per share.

Speaker 6: unrealized losses on our bond portfolio included in accumulated other comprehensive income or loss of $25.6 million or $0.59 a share, indicating an underlying book value.

Speaker 6: excluding those unrealized losses of $2.52 a share.

Speaker 6: Cash invested assets total nearly 373 million with total assets of over 1.44 billion.

Speaker 6: The largest component of UHC's total asset include over 792 million of reinsurance recoverable.

Speaker 6: Included in re-insurance recoverable is approximately 38.1 million.

Speaker 6: of re-insurance recovered by UPC and not yet paid to American coastal insurance company.

Speaker 6: This amount increased to approximately 43 million during the second quarter due to required re-insurance premium payments made by American Coastal on behalf of our former affiliate UPC.

Speaker 6: However, management and the Florida Department of Financial Services see an opportunity to settle all balances due to American coastal, the other realization of certain deferred tax assets. UPC holds significant net operating loss carry forwards that are of no value.

Speaker 6: to UPC on a standalone basis. However, UIA has the opportunity subject to certain conditions.

Speaker 6: to utilize UPC's net operating losses and create a win-win scenario. Accordingly, UAHC and the Florida Department of Financial Services continued work towards a fair and equitable solution, we believe will result in all amounts due to American coastal being fully collected over time.

Speaker 6: While we believe the risk of this not occurring is remote, the probability isn't 0% either.

Speaker 6: UIHC intends to disclose the details of our proposed solution with the Florida Department of Financial Services in a form 8K filing. Honor before the date, our form 10Q for the current period is filed.

Speaker 6: Pages 8 and 9 of our investor presentation shows the projected 2023-2024 Catastrophe Reinsurance Program details for both American Coastal and Interborough Insurance Company.

Speaker 6: As Dan mentioned, ACIC is projecting a $10 million retention in a program exhaustion point of over 1.1 billion, which is approximately the one in 164-year return period using the AIR long-term with demand surge calculation.

Speaker 6: Reinstatement protection ensures ACIC would also have sufficient limits for a 50-year period second event followed by a 1 in 100 first event.

Speaker 6: A portion of the overall capacity is expected to come in the form of, quote, a share reinsurance from two highly rated reinsurers, which will have the benefit of decreasing net premium risk via more ceded premiums, which will be offset by ceding commission incomes that lower statutory underwriting expenses.

Speaker 6: and the statutory expense ratio that will help improve overall capital adequacy. Interbor insurance companies expected to maintain its $3 million retention and look very similar to prior years with an exhaustion point of $85 million or approximately the one in 139 year return period also using air long term with demand surge.

Speaker 6: It also includes reinstatement protection from multiple events similar to American Coastal.

Speaker 6: As Dan mentioned, we were substantially complete with the 6.1 placement for American Coastal, having secured all the needed capacity from the private market on fair and reasonable terms.

Speaker 6: But we are still working on finalizing the renewal of Interborough and allocation of lines to re-insurers, including the possible participation of our CAPTAV-PC RE.

Speaker 6: We expect to issue a Form 8K filing in early June of 2023, once all the details of our Catastrophe Reinsurance Program renewals are completed. In conclusion, management believes we have substantially rectified the going concern opinion expressed in the company's Form 10K.

Speaker 6: for 2022 and we are cautiously optimistic regarding our ability to demonstrate significant improvements in UHC's financial performance during the remainder of 2023. That completes our prepared remarks and we thank you for your continued interest in UHC.

Speaker 2: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.