Q2 2024 Universal Insurance Holdings Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to Universal's second quarter 2024 earnings conference call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Arash Soleimani, Chief Strategy Officer.

Operator: As a reminder, this conference call is being recorded.

Operator: As a reminder, this conference call is being recorded. I would now like to turn the call over to Arash Soleimani, Chief Strategy Officer.

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. Welcome to our quarterly earnings call.

Arash Soleimani: Good morning. Thank you for joining us today.

Speaker Change: Good morning. Thank you for joining us today. Welcome to our quarterly earnings call.

Arash Soleimani: On the call with me today are Steve Donaghy, Chief Executive Officer, and Frank Wilcox, Chief Financial Officer.

Arash Soleimani: 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 investor section of our website at universalinsuranceholdings.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 universalinsuranceholdings.com. With that, I'll turn the call over to Steve.

Speaker Change: On the call with me today are Steve Donaghy, Chief Executive Officer, and Frank Wilcox.

Arash Soleimani: 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.

Frank Crawford Wilcox: Chief Financial Officer. Before we begin, please note today's discussion may contain forward-looking statements and non-GAAP financial measures.

Speaker Change: Forward-looking statements involve assumptions, risks, and uncertainties that could cause actual results to differ materially from those statements.

Arash Soleimani: For more information, please see the press release and Universal's SEC filings, 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-GAAP financial measures to comparable GAAP measures is included in the quarterly press release and can also be found on Universal's website at universalinsuranceholdings.com.

Speaker Change: 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 www.universalinsuranceholdings.com and on the SEC's website.

Stephen Joseph Donaghy: 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 universalinsuranceholdings.com. With that, I'll turn the call over to Steve.

Stephen Donaghy: With that, I'll turn the call over to Steve. Thank you, Arash. Good morning, everyone. In the quarter, we delivered a solid 30.5% annualized adjusted return on common equity and 35.6% adjusted diluted earnings per share growth year over year. Results were driven by strong underwriting performance, and we continue to see encouraging claims and litigation trends. Florida policies and force increased sequentially for the second quarter in a row, and overall policies and force increased year over year for the first time since 2021. As we mentioned previously, we completed the placement of our 2024-2025 re-insurance renewal for our insurance entities.

Stephen Joseph Donaghy: Thanks, Arash. Good morning, everyone.

Stephen Joseph Donaghy: In the quarter, we delivered a solid 30.5% annualized adjusted return on common equity and 35.6% adjusted diluted earnings per share growth year over year. Results were driven by strong underwriting performance, and we continue to see encouraging claims and litigation trends. Florida policies in force increased sequentially for the second quarter in a row, and overall policies in force increased year over year for the first time since 2021.

Stephen Joseph Donaghy: Thanks Arash. Good morning everyone. In the quarter we delivered a solid 30.5% annualized adjusted return on common equity and 35.6% adjusted diluted earnings per share growth year-over-year.

Stephen Joseph Donaghy: Results were driven by strong underwriting performance and we continue to see encouraging claims and litigation trends.

Stephen Joseph Donaghy: Florida policies in force increased sequentially for the second quarter in a row and overall policies in force increased year-over-year for the first time since 2021.

Stephen Joseph Donaghy: As we mentioned previously, we completed the placement of our 2024-2025 reinsurance renewal for our insurance entity. We're very pleased with the outcome of the program and the support we received from our long-standing reinsurance partners and from new partners as well. Importantly, despite having substantially more demand for private market reinsurance following the expirations of the Reinsurance to Assist Policyholders layer and our catastrophe bond, the overall cost of our program was only up modestly. I'll turn it over to Frank to walk through our financial results. Thanks, Steve.

Stephen Joseph Donaghy: As we mentioned previously, we completed the placement of our 2024-2025 reinsurance renewal for our insurance entities.

Stephen Donaghy: We're very pleased with the outcome of the program and the support we received from our long-standing re-insurance partners and from new partners as well.

Stephen Joseph Donaghy: We're very pleased with the outcome of the program and the support we received from our long-standing reinsurance partners and from new partners as well.

Stephen Donaghy: Importantly, despite having substantially more demand for private market re-insurance, following the expiration of the re-insurance to assist policyholders' layer and our catastrophe bond, the overall cost of our program was only up modestly.

Stephen Joseph Donaghy: Importantly, despite having substantially more demand for private market reinsurance, following the expirations of the reinsurance to assist policy holders layer and our catastrophe bond, the overall cost of our program was only up modestly.

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

Frank Wilcox: Frank, thanks, Steve. Good morning. Adjusted deluded earnings per common share was $1.18, up from 87 cents in the prior year quarter. The increase mostly stems from higher underwriting and net investment income. Core revenue of $379.2 million was up 12.5% 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 $578.3 million, up 5.7% from the prior year quarter, including 0.9% growth in Florida and 30.1% growth in other states. Overall growth mostly reflects higher rates, inflation adjustments, and higher policies and forecasts.

Stephen Joseph Donaghy: I'll turn it over to Frank to walk through our financial results. Frank.

Frank Crawford Wilcox: Thanks, Steve. Good morning. Adjusted diluted earnings per common share was $1.18, up from $0.87 in the prior year quarter. The increase mostly stems from higher underwriting and net investment income. Core revenue of $379.2 million was up 12.5% 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 $578.3 million, up 5.7% from the prior year quarter, including 0.9% growth in Florida and 30.1% growth in other states.

Frank Crawford Wilcox: Thanks, Steve. Good morning.

Frank Crawford Wilcox: Adjusted diluted earnings per common share was $1.18, up from 87 cents in the prior year quarter. The increase mostly stems from higher underwriting and net investment income.

Frank Crawford Wilcox: Core revenue of $379.2 million was up 12.5% year-over-year with growth primarily stemming from higher net premiums earned in net investment income partially offset by lower Commission revenue.

Frank Crawford Wilcox: Direct premiums written were $578.3 million, up 5.7% from the prior year quarter, including 0.9% growth in Florida and 30.1% growth in other states.

Frank Crawford Wilcox: Overall growth mostly reflects higher rates, inflation adjustments, and higher policies in force. Direct premiums earned were $490.6 million, up 5.9% from the prior year quarter, reflecting direct premiums written growth over the last 12 months. Net premiums earned were $345 million, up 13.7% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned and a lower seeded premium ratio.

Frank Crawford Wilcox: Overall growth mostly reflects higher rates, inflation adjustments, and higher policies in force.

Frank Wilcox: Direct premiums earned, or 490.6 million, up 5.9% from the prior year quarter, reflecting direct premiums written growth over the last 12 months. Net premiums earned, or 345 million, up 13.7% 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 95.9%, down 3.2% compared to the prior year quarter. The decrease reflects a lower net loss ratio. The 70.6% net loss ratio was down 3.2% compared to the prior year quarter, with the decrease primarily attributable to higher net premiums earned associated with lower reinsurance cost in the current year quarter and a lack of reserve development in the current year quarter.

Frank Crawford Wilcox: Direct premiums earned were $490.6 million, up 5.9% from the prior year quarter, reflecting direct premiums written growth over the last 12 months.

Frank Crawford Wilcox: Net premiums earned were $345 million, up 13.7% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned and a lower seeded premium ratio.

Frank Crawford Wilcox: The net combined ratio was 95.9%, down 3.2 points compared to the prior year quarter. The decrease reflects a lower net loss ratio. The 70.6% net loss ratio was down 3.2 points compared to the prior year quarter, with the decrease primarily attributable to higher net premiums earned associated with lower reinsurance costs in the current year quarter and a lack of reserve development in the current year quarter. The net expense ratio was 25.3%, unchanged from the prior year quarter.

Frank Crawford Wilcox: The net combined ratio was 95.9% down 3.2 points compared to the prior year quarter.

Frank Crawford Wilcox: The decrease reflects a lower net loss ratio.

Frank Crawford Wilcox: The 70.6% net loss ratio was down 3.2 points compared to the prior year quarter, with a decrease primarily attributable to higher net premiums earned associated with lower reinsurance costs in the current year quarter and a lack of reserve development in the current year quarter.

Frank Wilcox: The net expense ratio was 25.3%, unchanged from the prior year quarter. During the second quarter, the company repurchased approximately 274,000 shares at an aggregate cost of 5.3 million. The company's current share repurchase authorization program has approximately 14.7 million remaining.

Frank Crawford Wilcox: The net expense ratio was 25.3% unchanged from the prior year quarter.

Frank Crawford Wilcox: During the second quarter, the company repurchased approximately 274,000 shares at an aggregate cost of $5.3 million. The company's current share repurchase authorization program has approximately $14.7 million remaining. On July 11, 2024, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on August 9, 2024 to shareholders of record as of the close of business on August 2, 2024. With that, I'd like to ask the operator to open the line for questions. Thank you.

Frank Crawford Wilcox: During the second quarter, the company repurchased approximately 274,000 shares at an aggregate cost of $5.3 million.

Frank Crawford Wilcox: The company's current share repurchase authorization program has approximately $14.7 million remaining.

Frank Wilcox: On July 11, 2024, the Board of Directors declared a quarterly cash dividend of 16 cents per share of common stock, payable on August 9, 2024, to shareholders of record as of the close of business on August 2, 2024.

Frank Crawford Wilcox: on July 11, 2024.

Frank Crawford Wilcox: The Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on August 9, 2024 to shareholders of record as of the close of business on August 2, 2024.

Operator: With that, I'd like to ask the operator to open the line for questions. Thank you. If you'd like to ask a question, please press Star 11. If your question has been answered and you'd like to remove yourself from the queue, please press Star 11 again. One moment for questions. Again, that star 11 to ask a question.

Operator: Thank you. If you'd like to ask a question, please press Star 1-1. If your question has been answered and you'd like to remove yourself from the queue, please press Star 11 again. One moment for questions. Again, that's Star 1-1 to ask a question. And our first question comes from Paul Newsome with Piper Sandler. Your line is open.

Speaker Change: With that, I'd like to ask the operator to open the line for questions.

Speaker Change: Thank you. If you'd like to ask a question, please press star 11. If your question hasn't answered and you'd like to remove yourself from the queue, please press star 11 again. One moment for questions.

Paul Newsome: And our first question comes from Paul Newsome with Piper Sandler. Your line is open. Good morning. Thanks for the call. Correction the quarter.

Speaker Change: Again, that's star 1-1 to ask a question.

Speaker Change: And our first question comes from Paul Newsome with Piper Sandler. Your line is open.

Jon Paul Newsome: Good morning. Thanks for the call, correction in the quarter. I was going to ask sort of any updated thoughts on the impact of tort reform in Florida, but then I've got to Tuesday, so I just missed my next question.

Paul Newsome: I was going to ask three update thoughts on the impact of reform in Florida. And then I've got to just use any questions to ask.

Jon Paul Newsome: Good morning, thanks for the call, congrats on the quarter. I was going to ask any updated thoughts on the impact of tort reform in Florida, and then I've got a few miscellaneous questions to ask.

Steve Dalyke: Hey Paul. Good morning.

Stephen Joseph Donaghy: Hey Paul, good morning. This is Steve Donaghy. Yeah, you know, we continue to see the positive impacts of the legislation from December 22, and it continues to flow through, primarily, you know, relative to representation and litigation affecting our book. So, we continue to see positive impacts, obviously turned from cautiously optimistic to optimistic a while back, and we continue to see positive outlooks, which, you know, really leads us to be very positive about our share repurchases and happy with the position we're in right now.

Steve Dalyke: This is Steve Dalyke. Yeah. We continue to see the positive impacts of the legislation from December 22. And it continues to flow through primarily relative to represented and litigation affecting our book. So continue to see positive impacts. Obviously turned from cautiously optimistic to optimistic a while back. And we continue to see positive outlooks, which really leads us to be very positive on our share repurchases and happy with that out of position right now.

Jon Paul Newsome: Hey Paul, good morning. This is Steve Donaghy. Yeah, you know, we continue to see the positive impacts of the legislation from December 22.

Jon Paul Newsome: And it continues to flow through, primarily, you know, relative to represented and litigation affecting our book. So, continue to see positive impacts. Obviously turned from cautiously optimistic to optimistic a while back.

Jon Paul Newsome: We continue to see positive outlooks, which really leads us to be very positive on our share repurchases and happy with the position we're in right now.

Paul Newsome: Great.

Jon Paul Newsome: Great. Were there any movements in the reserves? We had zero.

Frank Wilcox: Were there any movements in the reserves, development-wise, in the quarter? We had zero. Good morning, Paul, as is Frank. So no, we had zero net development this quarter on reserves.

Speaker Change: Were there any movement in the reserves?

Frank Crawford Wilcox: We had zero, good morning Paul, this is Frank. So no, we had zero net development this quarter on real estate.

Speaker Change: Development-wise in the quarter.

Speaker Change: We had zero, good morning Paul, this is Frank, so no we had zero net development this quarter on reserves.

Paul Newsome: Okay.

Frank Crawford Wilcox: What about like stashing your losses, and I think in the past you've talked about weather above plan. Looks like it was a pretty good weather quarter, all things being equal. Yeah, sure. I mean, we have weather like this every quarter, but it was well contained within our losses.

Paul Newsome: What about like the cashew losses, and I think in the past, you've talked about whether above plan looks like it was not kind of what a pretty good weather quarter, Paul, things needed. Yeah, sure. I mean, we have weather every quarter, but it was well contained within our loss pick. Great.

Speaker Change: Okay.

Jon Paul Newsome: What about like stash your losses and I think in the past you talked about you know weather above plan

Speaker Change: Looks like it was, knock on wood, a pretty good weather quarter, all things being. Yeah, sure. I mean, we have weather every quarter, but it was well-contained within our law spec.

Jon Paul Newsome: So back to the tort reform question, some questions about whether or not the industry is going to push back. We're going to get a fairly quick level of competition coming in with file rate decline. You know, is that something that we should be watching? Any thoughts on maybe what the regulators are asking for? lower rates at this point, given the sort of...

Paul Newsome: So back to the telephone question. Some questions about whether or not the industry is going to push back, and we're going to get a fairly quick level of competition coming in with five rate declines. You know, is that something that we should be watching? Any thoughts on maybe the regulators are asking for a lower rate at this point, given that it's what we're seeing?

Speaker Change: Great.

Speaker Change: So back to the tort reform question, some questions about whether or not the industry is going to push back and

Speaker Change: We're going to get a fairly quick level of competition coming in with file rate declines.

Speaker Change: Is that something that we should be watching? Any thoughts on maybe if the regulators are asking for...

Steve Dalyke: You know, Paul, it's an interesting question. We're not getting any pressure from anyone relative to rates or anything else, and you are currently in the midst of analyzing our rates with our actuaries and external actuaries on what the impact will be to 2024. We do see, you know, the impacts of the toward reform clearly are we're seeing, expecting a reduction in what is supposed to be passed along, and then we'll, you know, we'll weigh that as we always have with how we see the market as we take rate going forward. But again, we're optimistic, and the hope is that the market will continue to be successful. But as a company, you know, we don't worry a tremendous amount about the competition.

Stephen Joseph Donaghy: You know, Paul, it's an interesting question. We're not getting any pressure from anyone relative to rates or anything else, and, you know, we are currently in the midst of analyzing our rates with our actuaries and external actuaries on what the impact will be in 2024. We do see, you know, the impacts of tort reform clearly are, we're seeing, and expecting a reduction in what is supposed to be passed along. And then we'll, you know, we'll weigh that as we always have with how we see the market as we take rates going forward.

Speaker Change: [inaudible]

Speaker Change: You know, Paul, it's an interesting question. We're not getting any pressure from anyone relative to rates or anything else. And, you know, we are currently in the midst of analyzing our rates with our actuaries and external actuaries on.

Speaker Change: what the impact will be to 2024. We do see the impacts of the tort reform clearly we're seeing, expecting a reduction.

Speaker Change: in what is supposed to be passed along and then we'll, you know, we'll weigh that as we always have with how we see the market as we take rate going forward. But again, we're optimistic, and the hope is that the market will continue to be...

Stephen Joseph Donaghy: But again, we're optimistic, and the hope is that the market will continue to be successful. But as a company, you know, we don't worry a tremendous amount about the competition. We are really focused on rate adequacy, and our relationship with our agency force has proven to be stellar. So we have a high degree of confidence in our ability going forward relative to the market and where we'll be positioned.

Speaker Change: successful. But as a company, you know, we don't worry a tremendous amount about the competition.

Steve Dalyke: We are really focused on rate adequacy and our relationship with our agency forces proven to be stellar. So we have a high degree of confidence in our ability going forward relative to the market and where we'll be positioned.

Speaker Change: We are really focused on rate adequacy and our relationship with our agency force is proven to be Stellar so we have a high degree of confidence in our ability going forward relative to the market and where we'll be positioned

Paul Newsome: Great. Appreciate the help as always, and the registration in the course.

Jon Paul Newsome: Great, I appreciate the help as always, and congratulations on the course.

Paul Newsome: Thanks, Paul. Have a good day. Thank you.

Speaker Change: Great, appreciate the help as always and congratulations on the course.

Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to Steve Donaghy for any closing remarks.

Operator: There are no further questions at this time.

Speaker Change: Thanks, Paul. Have a good day.

Stephen Donaghy: I'd like to turn the call back over to Steve Damagey for Nicole's remarks. Thank you.

Speaker Change: Thank you. There are no further questions at this time. I'd like to turn the call back over to Steve Donaghy for any closing remarks.

Stephen Joseph Donaghy: Thank you. 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 day.

Stephen Donaghy: 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 day. Thank you for your participation. This does include the program. You may now disconnect. Everyone, have a great day.

Stephen Joseph Donaghy: Thank you. 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 day.

Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.

Speaker Change: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.