Universal Insurance Holdings, Inc. (NYSE:UVE) Q3 2023 Earnings Call Transcript

Universal Insurance Holdings, Inc. (NYSE:UVE) Q3 2023 Earnings Call Transcript October 27, 2023

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. I would now like to turn the conference over to Arash Soleimani, Chief Strategy Officer.

Arash Soleimani: Good morning. Thank you for joining us today. Welcome 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 filing, all of which are available on the Investors 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.

Steve Donaghy: Thanks Arash. Good morning, everyone. The third quarter benefited from strong and improving underlying trends and I’m optimistic as I look forward. During the time, Hurricane Idalia 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 and structure, 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 in additional territories.

A woman in her car checking her insurance documents with a satisfied smile.

In the third quarter, we completed the commutation of Hurricane Irma with the Florida Hurricane Catastrophe Fund among partial commutations 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?

Frank Wilcox: Thanks Steve. Good morning. Adjusted loss per common share was $0.16 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. Core revenue of $361.8 million was up 14.2% year-over-year with growth primarily stemming from higher net premiums earned in 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. 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.

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Q&A Session

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 ceded premium ratio. The net combined ratio was 110.7%, down 28.5 points compared to the prior year quarter. The decrease reflects lower net loss and expense ratios. The 87% net loss ratio was down 26.7 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 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. On July 20, 2023 the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on August 11, 2023 to shareholders of record as of the close of business on August 4, 2023. With that, said I’d like to ask the operator to open the line for questions.

Operator: Thank you. [Operator Instructions] And it comes from the line of Nick Iacoviello with Dowling & Partners. Please proceed.

Nic Iacoviello: Good morning, guys. Just first off what were the net losses from Idalia in the quarter?

Steve Donaghy: Hey, Nick, good morning. Yeah, we set Idalia 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 above x $45 million.

Nic Iacoviello: Got it. And would that be the only — that $45 million would that be what you classify as whether above plan? Or are there other events they that you saw as well?

Steve Donaghy: There were other events in the quarter. And none of them were of a magnitude that we would have reported separately. But consolidated they’re probably in the area of like another $10 million or $15 million.

Nic Iacoviello: Got it. And then just maybe a comment on the commutations. I guess, could you quantify the gross and net prior year development incurred in the quarter? And how much of that related to these commutations?

Steve Donaghy: Yeah. Sure, Nick. 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 state of Florida. So at the end of 2022 we created an accrual at Alder which of course is the organization that handles all our 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 commutation, particularly on Irma we released that accrual to kind of reimburse UPCIC for the funds in that computation. And as you are aware Nick in 2017, the LAE reimbursement by the state was 5%. And as you know the reimbursement for LAE is typically in the area 15% to 25% on average.

So we knew we had some funds we were going to need. We put up a certain amount for the commutation of Irma which is around $15 million and about another $2.8 million — $2.7 million for Sally. So, those were the total that with it had we not been prepared for them through the accrual at the end of ’22.

Nic Iacoviello: Okay. And sorry just to make sure I’m understanding that. So on a fully consolidated basis excuse me is what was the net adverse then from that, right? That’s just between subsidiary and claims adjustment?

Frank Wilcox: Yes. So at the end of last year as Steve pointed out, we put up an accrual at Alder in anticipation of participating in the ultimate outcome of these commutations. So as UPCIC [indiscernible] prior development in the current year, it will receive a refund from Alder which in effect will replenish reserves from which those payments could be made.