Q3 2023 Universal Insurance Holdings Inc Earnings Call
Yeah.
Good morning, ladies and gentlemen, and welcome to Universal <unk> third quarter 2023 earnings Conference call. As a reminder, this conference call is being recorded I would now like to turn the conference over to Orange totally money 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.
Conciliation 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'll turn the call over to Steve.
Thanks, Raj and good morning, everyone.
Third quarter benefited from strong and improving underlying trends and I'm optimistic as I look forward.
During the quarter Hurricane Italia made Florida landfall.
And as always we were there immediately to assist our policyholders in their time of need.
The storm severity appears considerably smaller than initially anticipated.
And is comfortably absorbed within our retention.
We continue to enhance our best in class claims infrastructure, which together with our reinsurance capabilities serves to differentiate us from our peers.
As we look forward, we are more confident in the Florida market, which is our largest geography and have started to slowly increased new business and additional territories.
In the third quarter, we completed the commutation of Hurricane Irma with the Florida Hurricane catastrophe fund among partial commutation with private reinsurers for other storms as well.
We're pleased to have these transactions behind us and as we look ahead, we expect future storms to be more predictable and efficient given the benefits of recent legislation.
I'll turn it over to Frank to walk through our financial results Frank.
Thanks, Steve Good morning.
Adjusted loss per common share was <unk> 16, compared to an adjusted loss per common share of $2 and 27 in the prior year quarter.
The improvement mostly stems from higher underwriting income and net investment income.
Core revenue of $361 8 million was up 14, 2% year over year with growth primarily stemming from higher net premiums earned and net investment income.
Direct premiums written were $532 million up six 3% from the prior year quarter, including four 4% growth in Florida, and 14, 7% growth in other states.
Overall growth reflects rate increases, partially offset by lower policies in force.
Direct premiums earned were $474 3 million.
Up four 8% from the prior year quarter, reflecting rate driven direct premiums written growth over the last 12 months.
Net premiums earned were $331 million up 13, 9% 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 110, 7% down 28, five points compared to the prior year quarter.
The decrease reflects lower net loss and expense ratios.
The 87% net loss ratio was down $26 seven points compared to the prior year quarter with the decrease attributable to a lower consolidated current accident year net loss ratio, primarily stemming from lower weather related losses.
The 23, 7% net expense ratio improved by one eight points compared to the prior year quarter, primarily reflecting lower renewal commission rates paid to distribution partners.
During the third quarter the company repurchased approximately 894000 shares at an aggregate cost of $12 3 million.
The company currently has $7 8 million of share repurchase authorization remaining.
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 <unk>.
That said I'd like to ask the operator to open the line for questions.
Thank you and ladies and gentlemen, if you do have a question. Please press star one one on your telephone keypad and wait for your name to be announced.
To withdraw your question simply press Star one again, one moment for our first question. Please.
And he comes from the line of Nick <unk> with Dowling <unk> partners. Please proceed.
Good morning, guys. That's first off what are the net losses from one <unk> in the quarter.
Hey, good morning, and yes, we set it up at a $45 million loss at this point, which is well within the company's net retention and we do not expect to hit our SaaS lease coverage.
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Got it and would that be the only about $45 million would that be what you classify as weather above plan or are there other events.
That you saw as well.
There were other events in the quarter and none of them were of a magnitude that we would've reported separately, but consolidated there probably in the area of like another 10 or $15 million.
Got it.
Just you made a comment on the commutation I guess can you quantify the gross and net prior year development incurred in the quarter and how much of that related to these commutations.
Yes sure Great question.
We knew that we were going to be commuting Irma and other storms.
In Q3 of this year just based on the schedule laid out by the by the state of Florida.
At the end of 'twenty, two we created a accrual at Alder, which of course is the our organization that handles all are adjusting and benefits directly from that adjusting so we created an accrual that we took into account and as we logically got to the run up of the.
The commutation, particularly on Irma.
We released that accrual.
Reimburse UPC I see for the funds and the commutation and as you are aware Nic.
In 2017, the LAE reimbursement by the state was 5% and as you know that reimbursement for <unk>.
Operator: Good morning ladies and gentlemen and welcome to Universal's third quarter 2023 earnings conference call. As a reminder, this conference call is being recorded.
La is typically in the area of 15% to 25% on average so we knew we had some some funds were going to need.
Arash Soleimani: I would now like to turn the conference over to Arash Soleimani, Chief Strategy Officer. Good morning. Thank you for joining us today.
We put up a certain amount for the commutation of <unk>, which is around $15 million and about another $2 eight $2 7 million for Sally. So those were the total that would have hit had we not been prepared for them.
Operator: Welcome to our quarterly earnings call.
Arash Soleimani: On the call with me today, our 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-gap financial measures. Forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements.
Through the accrual at the end of 'twenty two.
Okay, and sorry, just make sure I'm understanding that's on a fully consolidated basement basis excuse me what was the.
The net adverse than from from that right Thats just between subsidiary in claims adjustment.
Arash Soleimani: For more information, please see the press release and Universal's SEC filing, all of which are available on the investor's section of our website at universalinsuranceholdings.com and on the SEC's website. A reconciliation of non-gap financial measures to comparable gap measures is included in the quarterly press release and can also be found on Universal's website at universalinsuranceholdings.com.
Yes, so at the end of last year as Steve pointed out we put up an accrual.
Order in anticipation of participating in the ultimate outcome of these these commutations.
As <unk> C C.
Prior year development in the current year.
We'll receive refunds, alder, which affect which in effect will replenish reserves from which those payments can be made.
Stephen Donaghy: With that, I'll turn the call over to Steve. Thanks Arash, good morning everyone. The third quarter benefited from strong and improving underlying trends and I'm optimistic as I look forward.
Okay got it.
Alright, I guess I had one more more macro I guess specific to hurricane Ian right. It seems like the reinsurers in the cat modeling firms are still still holding onto the $50 billion industry loss figure, but I mean, it looks like ground up losses from the primaries are implying a lower amount than that I'm wondering.
Stephen Donaghy: During the quarter, Hurricane Adalia made Florida landfall and as always, we were there immediately to assist our policyholders in their time of need. The storm severity appears considerably smaller than initially anticipated and is comfortably absorbed within our retention. We continue to enhance our best-in-class claims infrastructure, which together with our reinsurance capabilities serves to differentiate us from our peers. As we look forward, we are more confident in the Florida market, which is our largest geography and have started to slowly increase new business and additional territories.
You guys have seen in terms of claims development if you have it.
Similar similar view in losses trending lower than the $50 billion at the industry level.
Nik Theres so much involved in the industry level, but I'm going to leave that to those experts.
We pegged at $1 billion event and through the development, thus far and the benefits.
The timing, we're sticking with the $1 billion estimate that we released at the time of the Hurricane.
Stephen Donaghy: In the third quarter, we completed the commutation of Hurricane Irma with the Florida Hurricane catastrophe fund among partial commutations with private reinsures for other storms as well. We're pleased to have these transactions behind us and as we look ahead, we expect future storms to be more predictable and efficient given the benefits of recent legislation.
We feel good about that number as we sit here, even taking into account <unk> and other things in the future.
Alright, that's all I had thank you.
Great. Thanks, Mike.
One moment for our next question please.
From the line of Paul Newsome with Piper Sandler. Please proceed.
Frank Wilcox: I'll turn it over to Frank to walk through our financial results. Frank. Thanks Steve, good morning. Adjusted loss per common share was 16 cents compared to an adjusted loss per common share of $2.27 in the prior year quarter. The improvement mostly stems from higher underwriting income and net investment income. Poor revenue of 361.8 million was up 14.2% year-over-year with growth primarily stemming from higher net premiums earned and net investment income. Direct premiums written were 532 million up 6.3% from the prior year quarter, including 4.4% growth in Florida and 14.7% growth in other states.
Good morning.
Sorry, I got myself, a little confused here, but.
Could you talk a little bit more about the reserve impacts in the quarter.
Positive negative.
Let me start with there.
Strict manner.
Yes, so the biggest difference year over year when you look at the net ratio.
Which was I think a $113 7 million for the three months ended 22 versus 87%. This year. The biggest difference would be the the difference between the impact from Ian last year, which on a consolidated basis was $111 million versus the $45 million.
So.
The net loss ratio changed by 26 points that difference and the impact from the storms was about 25 25.
Frank Wilcox: Overall growth reflects rate increases partially offset by lower policies in force. Direct premiums earned were 474.3 million, up 4.8% from the prior year quarter, reflecting rate-driven direct premiums written growth over the last 12 months. Net premiums earned were 331 million, up 13.9% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned and a lower seeded premium ratio. The net combined ratio was 110.7% down 28.5% compared to the prior year quarter.
<unk> of that.
And then comparatively speaking prior development of the $17 seven that Steve.
Highlighted compares to $2 seven last year. So that's a $15 million. So and then of course Alder continues to.
Adjust claims for the Eon storm they generated profits of about $18 seven versus $5 million. So that's a little bit of an offset there, but when you kind of flush that away the biggest impact would be the difference in the storms year over year.
Alright.
No.
Are we looking at sort of ex cat.
Ex reserve development improvements or.
Frank Wilcox: The decrease reflects lower net loss and expense ratios. The 87% net loss ratio was down 26.7% compared to the prior year quarter with the decrease attributable to a lower consolidated current accident-year net loss ratio, primarily stemming from lower weather-related losses. The 23.7% net expense ratio improved by 1.8 points compared to the prior year quarter, primarily reflecting lower renewal commission rates paid to distribution partners. During the third quarter, the company repurchased approximately 894,000 shares at an aggregate cost of 12.3 million. The company currently has 7.8 million of share repurchase authorization remaining.
If we adjust all of that.
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Maybe talking about prospectively from that perspective as well.
Well right now I mean, we see a lot of favorable trends from an operational standpoint number of claims coming in number of represented claims litigated claims.
Benefit of which which will manifest in the future and Thats all coming from the favorable legislation, but as we stand here today, we are being conservative in our current accident year loss pick.
So when youre looking at the larger of the two insurance entities, we're booking to a higher pick this year. So far for the first nine months than we are than we were first nine months of last year.
Could we maybe explore that a little bit more why the loss pick is up not down you're pushing through.
Frank Wilcox: On July 20, 2023, the board of directors declared a quarterly cash dividend of 16 cents per share of Tom and Stock, payable on August 11, 2023, to share holders of record as of the close of business on August 4, 2023.
Ms amount of rate.
You had obviously some CAGR of claims inflation in there.
But then I guess just with no benefit from.
Potential tort reform in that peg.
Craig as well or is that does that kind of a way to think about it or.
Operator: With that said, I'd like to ask the operator to open the line for questions. Thank you. And ladies and gentlemen, if you do have a question, please press star 11 on your telephone keypad and wait for your name to be announced. To withdraw the question, simply press star 11 again. One moment for our first question, please.
Is there something more to be.
Don over there.
Well I think I think Paul you need we need to we look at it from a conservative perspective, and as we've talked about the legislation still has not impacted our entire book of business. So as that flows through the book of business and as we look to the future. We see a lot of very positive developments that I.
I believe that I think will be reflected in future years.
Nick Yacovello: And he comes from the line of Nick Yacovello with a Dowling partners. Please proceed. Morning, guys.
Again, when we look into the future we look at potential rate reductions in Florida as a result of the legislation.
Frank Wilcox: This first off, what were the net losses from Adalia in the quarter? Hey, Nick, good morning. And yet, we set Adalia up at a $45 million loss at this point, which is well within the company's net retention. And we do not expect to hit our Soxley's coverage above X45. Got it. And would that be the only, that $45 million? Would that be what you classify as whether above plan or there are other events that you saw as well?
We see a lot of positive impact and as you know.
The repurchase decision in the quarter reflects our optimism as we look forward as a result of a whole lot of things are impacting our business.
Yes.
I think that's very fair.
The actual question is why have a higher peg if youre pushing forward.
I think it's like 20% ish price increases that would imply that the underlying claims inflation is even higher than that 20%.
Is that just overwhelmed with look at it or.
Frank Wilcox: There were other events in the quarter. And none of them were of a magnitude that we would have reported separately. But consolidated, they were probably in the area of like another $10 or $15 million. Got it. And then just, you made the comment on the commutations.
Putting aside the impact of tourism.
Well I think again the rate reductions are always run 12 months in arrears right. So this year, we had a rate indication, which was almost double the rate that we took which reflected our optimism from the legislative changes going into the future. So we put that aside and then I think we build conservatism.
Frank Wilcox: I guess, can you quantify the gross and net prior year development incurred in the quarter? And how much of that related to these commutations? Yeah, sure. And a great question. You know, we knew that we were going to be commuting Irma and other storms in Q3 of this year just based on the schedule laid out by the state of Florida. So at the end of 22, we created a cruel at Alder, which of course is the R organization that handles all our adjusting and benefits directly from that adjusting.
Our reserves to ensure that we have plenty of funds moving forward to adjudicate our business.
Keep the company in the most healthy position in the future.
I appreciate the help as always guys. Thank you.
Yes, Thanks Paul.
And I don't see any further questions in the queue I will turn the call back to Stephen Donaghy for final comments.
Frank Wilcox: So we created an accrual that we took into account. And as we logically got to the run-up of the commutation, particularly on Irma, we released that accrual to kind of reimburse UPCIC for the funds in that commutation. And as you are aware, Nick, in 2017, the LA reimbursement by the state was 5%. And as you know, the reimbursement for LA is typically in the area of 15 to 25% on average. So we knew we had some funds we were going to need.
Thank you Carmen appreciate it I'd like to thank all of our associates consumers Our agency force and our stakeholders for their continued support of Universal have a great weekend.
And with that we thank you for your participation and you may now disconnect.
Okay.
[music].
Frank Wilcox: We put up a certain amount for the commutation of Irma with around 15 million and about another 2.8, 2.7 million for Sally. So those were the total that would have had we not been prepared for them through the cruel at the end of 22. Okay, and so I just want you to understand that's on a fully consolidated basement or basis. Excuse me. This was the net app. Adverse, then from that, right?
Okay.
Okay.
Okay.
Frank Wilcox: That's just between subsidiary and claims adjustment. Yeah, so at the end of last year at Speedpointed Out, we put up in a cruel at Alder in anticipation of participating in the ultimate outcome of these commutations. So as UPCIC represents the prior development in the current year, it will receive a refund from Alder which effect which effect will replenish reserves from which those payments could be made? Okay, Adam.
Nick Yacovello: All right, I guess this had one more macro, I guess, in specific to Hurricane Ian, right? It's like the re-insurers and the cat modeling firms are still holding on to the 50 billion industry loss figure. But, you know, it looks like ground up losses from the primaries are implying a lower amount in that.
Frank Wilcox: I'm wondering what you guys have seen in terms of claims development and if you had a similar view in losses trending lower than that, that 50 billion at the industry level. You know, Nick, there's so much involved in the industry level that I'm going to leave that to those experts. You know, we paged Ian a 1 billion event and through the development thus far and the benefits of the timing, we're sticking with the 1 billion estimate that we released at the time of the hurricane. And we feel good about that number as we sit here even taking into account IBM or other things in the future.
Nick Yacovello: All right, that's all I have.
Operator: Thank you.
Paul Newsome: One moment for our next question, please. It comes from the line of full news on with Piper Sandler. Please proceed.
Frank Wilcox: Good morning. Sorry, I got myself a little confused here, but could you talk a little bit more about the reserve impacts in the quarter positive negative start with there just to get it. Yeah, so the biggest difference year over year when you look at the net ratio, which was I think 113.7 for the three months ended 22 versus 87% this year. The biggest difference would be the difference between the impact from Ian last year, which on a consolidated basis was $111 million versus the 45 million.
Frank Wilcox: So the net loss ratio changed by 26 points that difference in the impact from the storms was about 25 points of that. And then comparatively speaking, prior development of the 17.7 that Steve highlighted compares to 2.7 last year, so that's a $15 million. And then of course, Alder continues to adjust claims for the Ian storm, they generated profits of about 18.7 versus 5 million. So that's a little bit of an offset there.
Frank Wilcox: But when you kind of flush that away, the biggest impact would be the difference in the storms year over year. Right. So, you know, are we looking at, you know, sort of tax cash, that ex-reserve development improvements, or if we adjust all of that, and maybe talking about perspective from that perspective as well. Well right now, I mean we see a lot of favorable trends from an operational standpoint. Number of claims coming in, number of represented claims, litigated claims, the benefit of which will manifest in the future, you know, and that's all coming from the favorable legislation.
Frank Wilcox: But as we stand here today, we're being conservative in our current accident, your loss pick. So when you're looking at the larger of the two insurance entities, we're booking to a higher pick this year, so far for the first nine months than we are. Then we were first nine months of last year. Could we maybe explore that a little bit more, why the loss pick is up, not down, if you're pushing through an almost amount of rate, you've had, obviously, I guess there's some peg of claims inflation in there, but then I guess there's no benefit from potential to our reform in that peg as well, is that is that kind of the way you think about it, or is there something more to be thought of there?
Frank Wilcox: Well, I think, Paul, we look at it from a conservative perspective, and as we've talked about, the legislation still has not impacted our entire book of business, so as that flows through the book of business, and as we look to the future, you know, we see a lot of very positive developments that I believe that I think will be reflected in future years. And, you know, again, when we look into the future, we look at potential rate reductions in Florida as a result of the legislation.
Frank Wilcox: We see a lot of positive impacts, and as you know, you know, the repurchase decision in the quarter reflects our optimism as we look forward as a result of a whole lot of things impacting our business. I think that that's very fair. I guess the actual question is, why have a higher peg, if you're pushing forward, you know, like it's like 20% price increases, that would imply that the underlying claims inflation is even higher than that 20%.
Frank Wilcox: Is that just to overly amplify with? Look at it, or putting aside the impact of Twitter. Well, I think, you know, again, the rate reductions are always run 12 months in a rears, right? So, this year, we had a rate indication, which was almost double the rate that we took, which reflected our optimism from the legislative changes going into the future. So, we put that aside, and then I think we build conservatism into our reserves to ensure that we have plenty of funds moving forward to adjudicate our business and keep the company in the most healthy position in the future. Appreciate the help as always, guys. Thank you. Yeah, thanks, Paul. Thank you.
Operator: And I don't see any further questions in the queue.
Stephen Donaghy: I will turn the call back to Stephen Donagui for final comments. Thank you, Carmen, appreciate it. I'd like to thank all of our associates, consumers, our agency force, and our stakeholders for their continued support of Universal.
Operator: Have a great weekend, and with that we thank you for your participation and you may now disconnect.