Q2 2023 United Insurance Holdings Corp Earnings Call

Hello, and welcome to the American Coastal Insurance Corporation second quarter 2023 financial results conference call and webcast, that's pretty much it require operator assistance. Please press star zero on your telephone keypad.

Question and answer session will follow the formal presentation you May press star one at any times people, placing question queue.

As a reminder, this conference is being recorded.

It's now my pleasure to turn the call over to Karen Kelly, Vice President of Investor Relations with the equity group. Please go ahead Karen.

Thank you, Kevin and good afternoon, everyone.

American Coastal insurance Corporation has also made this broadcast available on its website at www dot and postal Dot com a replay will be available for approximately 30 days. Following the call. Additionally, you can find copies of the latest earnings release and presentation in the investors section of the company's website.

Speaking today will be chairman of the board and Chief Executive Officer Art, Danielle P and President and Chief Financial Officer Bennett Bradford Mark.

On behalf of the company I'd like to no statements made during this call that are not historical facts are forward looking statements.

The company believes these statements are based on reasonable estimates assumptions and plans.

However, if the estimates assumptions or plan underlying the forward looking statements prove inaccurate or other risks or uncertainties arise actual results could differ materially from those expressed in or implied by these forward looking statements.

Factors that could cause actual results to differ materially may be found in the company's filings with the U S Securities and Exchange Commission and the risk factors section in our most recent annual report on Form 10-K, and subsequent quarterly reports on Form 10-Q forward looking statements speak only as of the date on which they are made.

And except as required by applicable law. The company undertakes no obligation to update or revise any forward looking statement.

With that it's my pleasure to turn the call over to Mr. Daniel P. Dan you may begin.

Thanks, Karen.

Hello, and thanks for joining us on our second quarter earnings call and then to your chairman and CEO of American Coastal Insurance Corporation.

Thank you overview of the activities of the second quarter and the year to date numbers, including touching on the operating results of our continuing operations.

And specifically our commercial lines segment.

I'll, then turn it over to Brad Marshall will expand on our financial results for continuing operations.

Yeah.

We've nearly completed our transition to a commercial specialty insurance business underwritten through American coastal insurance company.

Our commercial lines segment now top of mind.

Prices over 97% of the.

Second quarter gross written premium and 92% of the gross earned premium.

In light of this transition to a predominantly commercial specialty business, we announced July 27th we have changed the holding company name from.

From the United Insurance, holding Corporation to American Coastal Insurance Corporation.

And effective August 15, we will begin trading with the new ticker AC I see.

We believe this better reflects the future direction of our company as American coastal insurance company has a 15 year track record of consistent product and financial performance in Florida.

Yeah.

Back to the numbers given the extreme variances introduced by the accounting for discontinued operations I consider the most applicable numbers to be quarterly.

Quarterly and year to date results from continuing operations in the commercial line side.

As such I'm going to highlight the results from our commercial lines segment.

And then Brad is going to focus mostly on continuing operations, which includes our continuing personal lines operations through interval.

Well the commercial line segment pretax income was $25 4 million in the second quarter and $64 3 million year to date.

Net loss ratio was 22.0% in the second quarter and 19, 7% year to date in line with expectations.

The net expense ratio was 37, 4% in the second quarter and 36, 5% year to date, both down about eight points from 45% last year.

The net combined ratio in the commercial line segment was 59, 4%.

In the second quarter, and 56, 2% year to date down from 61, 5% and 68.0% year over year, respectively.

The other dressing the commercial lines at <unk>.

Prior year development continues to be favorable at seven 2% in the second quarter and five 3%.

Year to date the.

The cat loss ratio was eight 4% in the second quarter and five 4% year to date, which is inline with expectations. Despite the very active catch season. This spring.

The underlying combined ratio was 58, 2% in the second quarter and 56, 1% year to date down from 72% and 71, 3%.

Year over year.

Demonstrating the improvement in the underlying profitability produced by the commercial lines portfolio.

To highlight a few underwriting metrics on the commercial lines portfolio. The total insured value exposure was down 12, 8%, while the probable maximum loss at the 100 year return period is down 21%.

As model using our <unk>.

Both on a year over year basis.

In contrast, the gross written premium was up 31% in the second quarter and 33, 8% year.

Year to date.

Valuation is up an average of 8% submit.

Submissions were up eight 2%.

And the hit ratio for quoted renewal business decreased from 85% to 81%.

Looking forward, we continue to believe the legislative changes made in Florida will prove to be an effective mitigation of some of the excess litigation issues over the last half dozen years.

Pre suite notification hasn't kept to litigate the reduced time to report.

Emanation of one way attorney fees and assignment of benefits as well as other changes will work their way through the system to reduce loss costs and subsequently insurance rates.

Yeah.

However, it will take some time for these changes to work their way through the system, but in the near term. It does appears to have mitigated some of the reinsurers negative sentiment surrounding the Florida exposure.

In conclusion, the Florida residential cat market remains hard.

It will take some time for reinsurers and investors get comfortable with the exposures and challenges the Florida offers.

The hard market creates challenges. It also creates an excellent opportunity for American coastal having the number one market share for admitted commercial residential.

Exposure in Florida.

I expect him back markets remain hard for at least the near and intermediate terms.

With that I'll turn it over to Brad Martz.

Thank you Dan and Hello. This is Brad Martz, the president and CFO of American Coastal Insurance Corporation I'm pleased to review our financial results, but encourage everyone to review the company's press release Investor presentation, and Form 10-Q, and 10-K for more information regarding our performance.

Pages, three and four of our Investor presentation provide a summary of the quarter ending June 32023, which included.

Core income of $28 4 million or 65 cents a share.

Is $8 5 million or 20 cents a share last year.

Which grew 236% year over year recast for discontinued operations.

Net income from continuing operations of $22 6 million or 52, a share compared favorably to $5 8 million or 14 cents a share in the same period last year driven by strong underwriting performance in our commercial lines segment, which was partially reduced by investment losses of $5 2 million or about 12 cents a share.

Net of tax in the current period.

Our combined ratio for the second quarter improved over nine points to 67, 7%.

Since last year fueled by a $36 million.

Our 17% increase in premiums written year over year, despite our intentional reduction in policies and risk exposure and the reduced premiums written in the personal lines segment.

The successful placement of our new catastrophe reinsurance programs for American coastal and into barrel, where the most significant accomplishments during the second quarter with no more overall protection against severity and the lowest retention we've had against the Florida Hurricane over the last decade at just $10 million.

Page five of our Investor presentation provides a breakdown of our results for the quarter and year against the recast 2022 amounts, which highlight gross premiums earned growing 22, 2% year over year in the second quarter.

Helping to overcome increased catastrophe losses and decreased revenue.

For a more premium ceded as well as nonrecurring investment losses.

Bite these items year to date net income from continuing operations grew to $54 $3 million, an increase of $48 $7 million or 870% year over year.

Page six of our Investor presentation breaks down our results by segment.

With $25 4 million of pretax profit from commercial lines, and a $1.3 million loss from personal lines.

Yeah.

Reduced by a 3 million dollar loss, primarily related to interest expense at the holding company.

During the current quarter, we determined that certain nonrecurring revenue and expenses of the personal lines segment are derived from our former affiliate United P. M C.

It should also be included now as part of discontinued operations. Accordingly page seven of our Investor presentation summarizes the impact of this change to help reconcile our year to date results. The net impact was immaterial with roughly a $1.1 million moving from discontinued operations to <unk>.

<unk> operations with no impact to net income or book value.

Reported last quarter.

Page eight of our Investor presentation provides balance sheet highlights as of June 30th, including stockholders' equity increasing to $106 5 million or $2.45 a share an increase of about 27% from the prior quarter.

Unrealized losses on our bond portfolio declined to $21 1 million or approximately 49 cents a share, indicating an underlying book value per share of $2.94.

Cash and invested assets totaled nearly 242 million with total assets of over 1.44 billion.

Reinsurance plays a critical role in our capital management strategy.

And the increase in our quota share reinsurance on June <unk> 2023 from 10% to 40%.

We will reduce the company's net premium risk, which in turn will help improve our risk based capital ratio this year.

But also has the impact of seeding away a higher portion of our expected underwriting profit in the short term.

However, our improving statutory capital position will allow us to write and retain more profitable commercial lines business over the long term.

Pages, nine and 10 of our Investor presentation show. The final 2023, 2020 for catastrophe reinsurance programs for American coastal and in Tomorrow.

Structure graph for American coastal on page nine shows the enduring effect of the Florida Hurricane catastrophe fund and four layers to the tower, which is not drawn perfectly to scale here.

And how the 220% quota share programs.

Interact with the remaining private open market limit.

Of the $371 million of private market occurrence limit about $236 million or 64% is reinstate a bowl with 95% of that cost prepaid.

And when combined all together it represents roughly $1.1 billion of a current space limit and $313 billion of aggregate limit.

The company also utilized its captive reinsurer to take a small participation.

9% on layer one of the American coastal program, but it did not participate on into breast program.

Thus the captive could have the effect of increasing our consolidated group retention.

From $10 million to $12 $3 million, if a florida event fully exhaust the first layer of American coastal program.

That completes our prepared remarks, and we're now happy to take any questions.

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Okay.

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Yeah.

If there are no questions at this time I'll turn the floor back over to management for any further or closing comments.

Okay. Thanks This is Dan.

I would like to thank our employees and associates for their diligent efforts as we transition this company to a commercial specialty underwriter.

For our investors. Thanks for your time on this call and your interest in our company.

Thanks again.

Thank you that does conclude today's teleconference and webcast you may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

Okay.