Universal Insurance - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered a clean beat versus Wall Street: diluted EPS of $1.44 vs $1.12 consensus*, and revenue of $394.9M vs $355.0M consensus*, driven by lower weather losses, higher net investment income, and stronger commission revenue.
• Underwriting improved: net loss ratio fell 1.4 pts YoY to 70.5% and the combined ratio improved to 95.0%, while the expense ratio rose 0.9 pts due to growth outside Florida.
• Reinsurance program was completed early and as expected; capacity and pricing were favorable, with $352M of multi‑year cover added and the tower top raised to $2.526B—an incremental +$110M vs 2024‑2025—supporting risk appetite into hurricane season.
• Capital returns and capital planning remain supportive: regular dividend maintained at $0.16 per share and a new $20M share repurchase authorization through May 1, 2027.

What Went Well and What Went Wrong

What Went Well

• Underwriting and investment tailwinds drove adjusted EPS to $1.44 (vs $1.07 prior year), with core revenue up 8.2% YoY on higher net premiums earned, net investment income, and commissions.
• Management secured reinsurance early with favorable terms: “fully supported and secured well before the June 1 inception date,” and added $352M of multi‑year coverage through 2026‑2027; CEO cited positive market dynamics post‑Florida reforms.
• Geographic diversification: direct premiums written grew 34.7% in other states (Florida down 3.0%), reflecting policy growth, rate actions, and inflation adjustments.

What Went Wrong

• Expense ratio increased 0.9 pts YoY to 24.5%, reflecting higher policy acquisition costs tied to non‑Florida growth and other operating costs.
• Florida direct premiums written declined 3.0% YoY, offset by strong growth in other states; management remains “laser‑focused” on profitability over broad expansion.
• Continued sensitivity to weather events in preceding quarters underscores volatility: Q4 2024 combined ratio was 107.9% (Milton second‑event retention), and Q3 2024 was 116.9% (Helene).

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Universal's first quarter 2025 earnings conference call. As a reminder, this conference call is being recorded. I'll now like to turn the conference over to Arash Soleimani, Chief Strategy Officer.

Arash Soleimani (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 on 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.

Stephen J. Donaghy (CEO)

Thanks, Arash. Good morning, everyone. We continue to see signs that the 2022 Florida legislative reforms are working, providing much-needed stability to the property insurance market, which ultimately benefits policyholders with increased certainty and choice. In the quarter, we experienced lower weather losses benefiting the loss and LAE ratio. On a separate note, I'm pleased to announce the completion of our 2025-2026 reinsurance renewal for our insurance entities. Our program was fully supported and secured well before the June 1 inception date, something we have consistently achieved over the last few renewal cycles. We also secured $352 million of additional multi-year coverage, taking us through the 2026-2027 hurricane season. The program cost and coverage were consistent with our expectations and will provide specific details at the end of May, as we typically do.

The solid execution of our reinsurance strategy is a testament to the strength and consistency of our long-term reinsurance partnerships, some of which span two decades. I'll turn it over to Frank to walk through our financial results. Frank.

Frank Wilcox (CFO)

Thanks, Steve. Good morning. Adjusted diluted earnings per common share was $1.44 compared to adjusted diluted earnings per common share of $1.07 in the prior year quarter. The higher adjusted diluted earnings per common share mostly stems from higher underwriting and net investment income and higher commission revenue. Core revenue of $394.9 million was up 8.2% year-over-year, with growth primarily stemming from higher net premiums earned, net investment income, and commission revenue. Direct premiums written were $467.1 million, up 4.7% from the prior year quarter. The increase stems from a 34.7% growth in other states, partially offset by a 3% decrease in Florida. Overall growth mostly reflects higher policies in force, higher rates, and inflation adjustments. Direct premiums earned were $513.3 million, up 6.5% from the prior year quarter, reflecting direct premiums written growth over the last 12 months.

Net premiums earned were $355.7 million, up 6.5% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned. The net combined ratio was 95%, down 0.5 percentage points compared to the prior year quarter. The decrease reflects a lower net loss ratio, partially offset by a higher net expense ratio. The 70.5% net loss ratio was down 1.4 percentage points compared to the prior year quarter, with a decrease primarily reflecting lower weather losses in the current year quarter. The net expense ratio was 24.5%, up 0.9 percentage points compared to the prior year quarter, with the increase primarily driven by higher policy acquisition costs associated with growth outside of Florida and higher other operating costs.

On April 14th, 2025, the Board of Directors declared a regular quarterly cash dividend of $0.16 per share of common stock, payable on May 16th, 2025, to shareholders of record as of the close of business on May 9th, 2025. With that, I'd like to ask the operator to open the line for questions.

Operator (participant)

Thank you. At this time, we'll conduct the question-and-answer session. As a reminder to ask a question, you'll need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from a line of Paul Newsom of Research. Your line is now open.

Paul Newsome (Analyst)

Good morning. Thanks for the call, guys. Maybe we can start with a little bit more detail on both the competitive environment as well as your thoughts on growth perspectively. Looks like you're growing a little bit, but you're a little faster than I thought. In both Florida and outside of Florida is your view. Please.

Stephen J. Donaghy (CEO)

Yeah. Good morning, Paul. This is Steve. From a growth perspective, we are laser-focused on profitability and managing the overall book of business. As we continue to work on our internal profitability model, we use that to gauge where we are open and where we want to grow our business profitably. From a competitive environment, we're very interested in ensuring that there is no adverse development within our book. We want to grow where we know we will grow profitably. We don't really let competition drive our pricing, so to say. We have seen new entrants in Florida. We haven't seen anyone growing across the entire state. I think a lot of companies are looking at specific areas to write and grow.

As we talked about earlier, it is leading to a healthier environment across the state of Florida, which is very positive for everyone.

Paul Newsome (Analyst)

Maybe a little bit more detail on the reinsurance. I know you'll give us more in the future, but Aon this morning was talking about sort of June renewals that would be down 5%-20%, I think they said, if I recall correctly. That seems like a step function a little bit more in the favor of buyers than we would have thought at the beginning of the year. Just any thoughts there and any direction you're making that your deals were in the same direction of what Aon was talking about this morning?

Stephen J. Donaghy (CEO)

Yeah. You know, Paul, we were very pleased with the capacity and the response to our offer, so to say. I think across the board, we were pleased to get out early, establish our own market, and we were very happy with the way we were treated. We see rates favorable compared to where they could have been when you contemplate two hurricanes or three hurricanes in 2024. The fact that, in my experience for 20 years at the company, anytime that would have occurred, you would have seen an increase in rates across the board. I think even flat or a little bit of a reduction is very acceptable to us for this year's renewal. As you said, we'll get you all the details in May surrounding that.

I think with the number of hurricanes you saw and to have no capacity issue and have favorable rates, it really speaks volumes to the legislative changes that occurred in 2022 and the market's perspective on those changes and their interest to continue writing reinsurance and rewarding good carriers with favorable terms and conditions.

Paul Newsome (Analyst)

Do you think the reinsurers have reflected the tort reform impacts yet in any really large way or just or not? I guess that's the question. Do you think it's been reflected as much as folks think maybe next year it gets more reflected? I don't know about that or not, but any thoughts there?

Stephen J. Donaghy (CEO)

As I said, I think at any time you have a number of hurricanes and people are impacted, reinsurers in particular, and the global nature of that business, to have lots of capacity and favorable pricing, I think it is reflected in their approach to the market. I think it is certainly reflected in our approach to the market. The healthier the market, the better and more people that are writing business, both from a P&C perspective and also reinsurance. I think it will continue to be demonstrated in the future, maybe more meaningfully in the future as we continue to go.

Paul Newsome (Analyst)

One last question that a lot of other folks ask. I know you've been trying to build conservatism in the reserves. Was there any reserve development in the quarter?

Frank Wilcox (CFO)

Good morning, Paul. This is Frank. No, the answer is there is no prior development. We took a conservative approach to both the first quarter of 2024, and we continue doing that with 2025. The difference is the non-GAAP weather this quarter was much lighter.

Paul Newsome (Analyst)

Great. Thank you. Appreciate the help, as always.

Stephen J. Donaghy (CEO)

Thanks, Paul.

Operator (participant)

Thank you. One moment for our next question. Our next question comes from the line of Nicolas Iacoviello of Dowling & Partners. The line is now open.

Nicolas Iacoviello (Analyst)

Good morning. Was there any claims handling benefit booked in the quarter?

Stephen J. Donaghy (CEO)

It was negligible.

Nicolas Iacoviello (Analyst)

Great. Thanks. I know we'll get the full details on the reinsurance placement closer to 6/1. Is there anything you could add maybe around the GAAP retention? Should we expect it to be similar to the $111 million pre-tax last year with $66 million of coverage from the captive?

Frank Wilcox (CFO)

Yeah. The company plans to use that cover in the same exact capacity. It would be covering the first layer above the $45 million retention, so $66 million in excess of $45 million, translating to $111 million net for the first event. In the second event, that $66 million layer is covered by third-party coverage.

Nicolas Iacoviello (Analyst)

Okay. I appreciate it. That's all I had.

Frank Wilcox (CFO)

Sure.

Stephen J. Donaghy (CEO)

Thanks, Nick.

Operator (participant)

Thank you. I'm showing no further questions at this time. I'll now turn it back to Steve Donaghy, Chief Executive Officer, for closing remarks.

Stephen J. Donaghy (CEO)

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 (participant)

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.