Q4 2023 Universal Insurance Holdings Inc Earnings Call

Okay.

Good morning, ladies and gentlemen, and welcome to Universal's fourth quarter 2023 earnings Conference call.

As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Iraq, Solomonic 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 financial.

Yes.

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 is included in the quarterly press release and can also be found on Universal's website at Universal insurance Holdings Dot com.

That I will turn the call over to Steve.

Thanks, Raj and good morning, everyone. We closed out both the fourth quarter and full year with double digit adjusted returns on common equity.

And I believe that even stronger results are firmly in our future.

2023 was a transformative year for us and our significant efforts position us for meaningful success in the new legislative environment.

We've added a buffer to our loss picks and bolstered reserves for years that predate elimination of one way attorney fees and assignment of benefits.

What I view as the most conservative level in our history.

Importantly, we did this because we wanted to place the past in the rearview mirror and shift our focus to the future.

In 2023, we took yet another step toward the future by community Hurricane Irma the largest and most significant storm in our history with the Florida Hurricane catastrophe fund.

Now that we're past the one year anniversary date of the 2022 special Legislative session and all new and renewal policies are subject to the new legislation.

The impact of the reforms is becoming clear claims.

Claims trends across the board are improving.

Including reductions in total claims represented claims assign claims and daily claims.

Our first event 2020 for 2025 reinsurance tower is already 90% secured and we've negotiated additional multi year capacity for the future.

Given our size scale independent agency and reinsurer relationships.

The recent steps we've taken we are particularly well positioned to succeed in the revamp Florida environment.

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> 43.

Down from adjusted diluted earnings per common share of <unk> 72 in the prior year quarter.

The decrease mostly stems from our higher net loss ratio and lower commission revenue, partially offset by a lower net expense ratio and higher net investment income.

Core revenue of $365 7 million was up 12, 1% year over year.

With growth primarily stemming from higher net premiums earned and net investment income, partially offset by lower Commission revenue.

Direct premiums written were $432 6 million up 4% from the prior year quarter, including 6% growth in Florida, and 18, 6% growth in other states.

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

Direct premiums earned of $482 $1 million were up three 9% year over year, reflecting rate driven premiums written growth over the last 12 months.

Net premiums earned were $335 4 million up 14, 9% from the prior year quarter the.

The increase is primarily attributable to higher direct premiums earned and a lower ceded premium ratio.

The net combined ratio was 103, 7% up two three points compared to the prior year quarter.

The increase reflects a higher net loss ratio and a lower net expense ratio.

The 81, 9% net loss ratio was up five six points year over year with the increase primarily attributable to a higher calendar year loss pick.

21, 8% net expense ratio improved by three three points year over year, primarily reflecting lower renewal commission rates paid to distribution partners.

During the fourth quarter the company repurchased approximately 223000 shares at an aggregate cost of $3 6 million.

The company's current share repurchase authorization program has $4 1 million remaining.

On February eight 2024, the board of directors declared a regular quarterly cash dividend of <unk> 16 per share of common stock payable March 15th 2024 to shareholders of record as of the close of business on March eight 2024 with that.

I'd like to ask the operator to open the line for questions.

Yeah.

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 now open.

Good morning, Thanks for the call.

I was hoping you could maybe take a step back maybe you say port and talk about.

The outlook for premium growth perspective, we've got a number of sort of cross currents in my mind with obviously rates still a positive effect.

But I don't know if at some point you would expect to stop effectively shrinking in some areas to offset that rate.

And and other factors, obviously, the mix changes well effects premium growth.

You kind of just talk about those major.

Factors and how we should think of them as we're thinking about the company over the next couple of years.

Yes, good morning, Paul and thanks for the question.

As we analyze and look at the <unk>.

Successful legislation changes that went into effect at the end of 'twenty two.

That has an impact on a lot of things, we analyze and we do so in 'twenty three we had a premium indication of approximately 15% and we implemented a seven 2% increase across our book.

Several positive impacts to floridians and to the company and that our retention has improved and the book of business is more stable as we look to the future those rate increases are predicated on the prior 12 months experience. So we will take all those factors into it into okay.

Some time around may and in future years, as well and continue to make the best decisions possible for the company and our Insureds and our agents.

But I would.

If you are looking for an indication I would say we will continue to take some rate it won't be the extremes, we've taken in the past.

19 through 22.

But I think the indications are still positive and hopefully at some point in the future we will see rate reductions flowing through the book as a result of what was passed in the end of 'twenty two.

Are you at a point, where you are growing on a pitch counter want to grow on a pill count.

Both in and out side of Florida.

Yeah, Paul as you saw in the release, we grew last year outside of Florida and beginning in December we began adding policies to our Florida book of business as well. So again, we are laser focused on profitability and where the business is coming from.

Not all counties or territories in the state are behaving identically. So we are being very careful as we kind of head into the future in this new environment.

And then maybe turning to the extra.

Margin of.

Conservatives in loss pick.

Can we talk about the components of that.

Our obviously you'd expect it to go the other direction with.

The impact of tort reform, but there has to be some justification for that extra.

Hi Tech.

From other factors, maybe you could talk about those factors.

Yes, I think Paul is as I run the company and all the various influencers that affect our business and in particular, the Florida book of business. We felt it was very prudent to be extremely cautious are cautious as we went through 2023 because.

Because the legislation didn't affect our policies until the renewal point of each and we wanted to make sure that we have enough dry powder to <unk>.

Handle the business as well as be positioned going forward to be.

Very secure as we look to begin to grow the business once again.

Yes, and just to follow up on that Paul when you look at our reserves in multiple.

Respects, whether or not it's just absolute dollars on a net basis, whether it's on an average.

For the claim counts, which by the way are lower than they've been quite some time.

They are higher than they've ever been.

Higher relative to our insured values are higher relative to our premium in force. So we feel that our balance sheet stronger going forward than it than it's ever been.

I appreciate the help I'll, let some other folks ask questions.

Thanks, so much. Thank you. Thank you very much.

Thanks, Paul I have a good day.

Thank you one moment for our next question.

Our next question comes from Nick <unk>.

Yes.

Hello.

<unk> partners. Your line is now open.

Thanks, guys.

First question just was there any net adverse development in the quarter in itself from which events.

Yes, Nick as we went through.

2023, we had considerable redundancy into our loss pick so after working with our actuaries, both internal and external we decided to take a look at the claims and the files and add dry powder.

To any of those that were in place prior to the new legislation affecting.

<unk>.

That particular policy. So we added due to the redundancy.

The way it resulted we added four points to prior years.

But again, primarily that is dry powder will be used as we kind of put in put them in the rearview mirror going forward. So although it was four points of the loss picks that we took out of 'twenty three.

Spread across prior years.

Got it.

I'm just curious as always there are claims handling benefit booked in the quarter.

Yeah that was negligible for the quarter I believe it was under $1 million.

Thanks, I was just curious on the comment in the press release on 90% of the first event tower being secured can you talk about any of the current expectation for the captive utilization.

Yeah.

Nick can you repeat that last part of the question Im sorry.

No problem.

The current expectation for the captive participation in the 24 and 'twenty five tower.

Yes, again sitting at 90%.

Accomplished for the first tower, Nick we are very pleased with how our teams performed in the market the reinsurance now as a year round effort.

Myself and our reinsurance team, Matt Palmieri in particular, and we feel really good about where we're at I don't think that we will change our philosophy on how we have used the captive in the past we havent completed at this point and if the open market comes in at a competitive rate we would.

Consider that in Lula, but as I sit here today I think we would continue and it worked out very well for the company.

Last year has proven to be very effective.

Okay. That's all I had thanks guys.

Alright, great. Thanks, Nick.

Yeah.

Thank you.

This concludes the question and answer session.

I would now like to turn it back to Steve Donaghy CEO for closing remarks.

Thank you I'd like to thank all of our associates are ensured our agency force, our reinsurance partners and our stakeholders for their continued support of Universal and have a great day.

This concludes today's conference call.

Thank you for participating you may now disconnect.

Yeah.

Okay.

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