Q2 2023 Universal Insurance Holdings Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Universal second quarter 2023 earnings call. As a reminder, this conference is being recorded I would now like to turn the conference over to <unk> Soleimani Chief strategy Officer. Please go ahead.

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 .

So 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.

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.

Thanks, Raj and good morning, everyone.

Results were solid, including a 25, 3% annualized adjusted return on common equity.

And 85, 1% adjusted diluted earnings per share growth year over year.

While it's still early days, we're encouraged by favorable claims and litigation trends that are beginning to emerge as a result of recent legislative reforms.

And give us optimism as we look forward to 2024 and beyond.

We continued to benefit from rate driven premium growth and an improving spread of risk across our geographic footprint.

I'm very proud of the reinsurance program, we put together for the 2023 2020 for treaty year.

Our programs terms conditions and coverage are consistent with the prior year.

But we reduced our consolidated retention and our ceded premium ratio.

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

Thanks, Steve Good morning.

Adjusted diluted earnings per common share was <unk> 87.

Up from 47 in the prior year quarter, the increase mostly stems from higher underwriting income net investment income and commission revenue.

Core revenue of $337 million was up 11, 7% year over year with growth primarily stemming from higher net premiums earned net investment income and commission revenue.

Direct premiums written were $547 1 million up two 7% from the prior year quarter, including 8% growth in Florida, and 13, 6% growth in other states.

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

Direct premiums earned were $463 3 million up eight 1% from the prior year quarter, reflecting rate driven direct premiums written growth over the last 12 months.

Net premiums earned were $303 3 million up nine 5% from the prior year quarter.

The increase was primarily attributable to higher direct premiums earned.

And a lower ceded premium ratio.

The net combined ratio was 99, 1% down one eight points compared to the prior year quarter.

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

The 73, 8% net loss ratio was up one five points compared to the prior year quarter with the increase primarily attributable to higher unfavorable prior year reserve development, partially offset by a lower consolidated current accident year net loss ratio.

The 25, 3% net expense ratio improved by three three points compared to the prior year quarter, primarily reflecting lower renewal commission rates paid to distribution partners.

During the second quarter the company repurchased approximately 396000 shares at an aggregate cost of $6 1 million. The company currently has $21 million of share repurchase authorization remaining on.

On July 20th 2023, the board of Directors declared a quarterly cash dividend of <unk> 16 per share of common stock payable on August 11, 2023 to shareholders of record as of the close of business on August 4th 2023 with that I'd like to add.

Ask the operator to open the line for questions.

Thank you.

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 again.

Please standby, while we compile the Q&A roster.

Our first question comes from Paul Newsome with Piper Sandler Your line is open.

Hi.

Good morning, Thanks for the call, but could you give us a little bit more details about the reserve development.

Obviously, a lot of interest in what's going on in Florida.

The surge in claims.

The lawsuits that we saw around 12 reform.

More detail around that would be fantastic.

Better understand how.

What the sources are and maybe how it may be more.

Specific to universal more broadly.

More broadly generally by two other factors.

Yeah, Hey, Paul Good morning, Steve Donaghy, Thanks for checking in with Us.

I'll break down your question in two ways first of all regarding the prior year development.

We've been working through the quarter on in the normal course of business.

Multiple commutations with our reinsurance partners and the FH CF in the state of Florida, So that drove a majority of the.

$13 eight number so that's the explanation there regarding the litigation in <unk>.

We changed our tune from cautiously optimistic too optimistic a quarter or two ago, and we continue to see that favorability in our numbers.

Litigation is down considerably.

<unk> is down even more greatly.

And one of the things that we don't really talk a lot about is from.

The legislation that was passed in July of 'twenty, one we've seen an increase in.

Notice of intent and Fortunately due to our scale, we've got a great team of people that are attacking.

That particular area. So it gives us an opportunity to close claims to take care of our Insureds and keep the bad actors that base so to say so.

We are not upset with an increase in that particular area and we've seen benefit of eliminating.

Litigation through that.

Through that department.

Glad to expand on any other areas that you'd like.

I'm curious did you see this all news about.

Litigation funding.

It's a factor quarter broadly but is that.

Also having an impact.

You see that in nature.

We have we've seen the litigation funding out there we've talked to some plaintiffs folks who speak to us candidly and I think it is a market. It was certainly driving some behavior in Florida prior to the legislation passed at the end of last year and.

I think theres markets for it and it's probably moving more out of Florida at least on the P&C side then.

And then coming into it at this point.

And then finally, maybe you could step back a little bit.

Outside of the tort reform.

You folks, obviously like everybody else trying to raise rates rapidly.

How do you think that process has gone in terms of getting rates relative to what the.

Underlying claim cost you on yet.

And does that generate.

Should we see that in the next couple of quarters.

The combined ratio.

We think that takes more time.

Again, it's going to take another 12 14 months for the legislation.

Our entire book.

Our optimism.

It is driven by the legislation and how we're seeing that impact our numbers. So even the numbers from Q1 to Q2 inbound litigation has decreased our continues to decrease and we expect to see that trend throughout the year.

That ultimately leads to a benefit and as you know rate as the rate is driven by the prior 12 months. This.

This year the state of Florida has asked us to contemplate.

The future impacts of the ledger.

Legislation and our ratemaking and I think the state was very appropriately allowed us to take rate.

Both on a normal basis, and then also through the reinsurance increases that we experienced prior to this year. So.

And then the third piece of rate is always inflation and as you know inflation has been steady we have seen some of our ti numbers come under less duress.

In 2023, and I think Thats, a good indicator for the impact of insurance cost two floridians going forward. So hopefully there is benefit to all as we see commerce fees.

So as always I appreciate the help.

Yes, Thanks, Paul and jewelry weekend.

Thank you one moment our next question.

We have a question from Nick <unk> with Dowling <unk> partners. Your line is open.

Hey, guys just first off would there have been any weather above plan in the current quarter under the prior disclosure.

Hey, good morning, Nick No Theres no weather above plan in Q2 outside of our loss picks.

Thank you so is there any gross.

What was the gross prior year development number and I guess can we.

Also just further comment on the.

Multiple commutations with reinsurance partners I guess, how much you can talk about it but I'm assuming.

That probably related to prior.

Prior year coverage that you guys didn't think would attach and commuting it probably helps some of the capacity trade forward I'm trying to think of that in terms of what the gross reserves had been doing.

Yes, we really don't.

From a go forward basis, it's more just looking at what is in the commutation how do we distribute that into the prior years. What is our responsibility what are the reinsurers responsibilities going forward and again with the strength of the quarter. It didn't affect overall performance and I think it speaks well to our phone.

Because on reserves and also ensuring that our reinsurance partners are being adequately.

I appreciate it as we move forward as well.

Got it.

I guess this ties in with with the prior year development, but I'm just thinking right. Because we have a couple of years a couple of months removed from the the reform rate I'm wondering have you seen any change in the trend of reopening claims from the prior accident years in the context of attorneys maybe looking at older Clos.

That wouldn't be covered under the new reforms.

No the trends are not adverse to what we've seen in the past so.

Again, the legislation is having the impact desired and as more and more of our our book roles under the new legislation at renewal we receive that benefit.

I think there was somewhat of a run up maybe at the end of 'twenty two early in 'twenty three but.

I think a lot of the people are looking to make a living elsewhere. Fortunately.

We really don't see a driver of.

As compared to the past and reopens and others.

With our policies and with our our claims handling.

Reopened claim is handled expeditiously and we try and get the insured the best information. They can should they find something with a contract or somebody shows up so that's normal course of business.

Alright, that's all thank you.

Alright, Thanks, Nick I appreciate it.

Thank you and there are no other questions in the queue I would like to turn the call back to Steve Donaghy for closing comments.

Thanks, Catherine appreciate it.

I'd like to thank all of our associates consumers agents and our stakeholders and in particular our agents. We appreciate their assistance as we have continued to open up additional markets in Florida in the past two or three months and we appreciate their continued to support continued support in particular.

And for everyone and their continued support of Universal insurance holdings, Thanks, very much and have a great day.

This concludes today's conference call. Thank you for participating you may now disconnect everyone have a great day.

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