Universal Insurance - Earnings Call - Q2 2025
July 25, 2025
Executive Summary
- Q2 2025 delivered solid growth with total revenues of $400.1 million (+5.2% YoY) and adjusted diluted EPS of $1.23; GAAP diluted EPS was $1.21. Underwriting remained disciplined despite a higher ceded premium ratio; adjusted ROCE was 29.4%.
- Universal beat Wall Street consensus on both EPS and revenue: EPS $1.23 vs $1.09* and revenue $400.1 million vs $360.0 million*, marking the third consecutive quarterly beat on top and bottom line (also beat in Q1 2025 and Q4 2024)*. The beat was driven by higher net premiums earned, net investment income, and commission revenue, partially offset by a higher ceded premium ratio.
- Mix shift continued toward non-Florida markets: direct premiums written grew 25.4% in other states, offset by a 2.5% decline in Florida; policies in force rose 4.7% YoY to 872,343. The Florida market backdrop is improving, supporting management’s constructive tone.
- Capital return remained active: $7.4 million of share repurchases in Q2 with ~$15.2 million authorization remaining and a $0.16 dividend; a new $20 million repurchase program was authorized in May 2025.
- Potential stock movers: estimate beats, reinsurance program stability (top-of-tower raised to $2.526B), and multi-year capacity additions vs. watch for continued ceded premium pressure and AM Best’s negative review status for UNAIC (subsidiary, not UPCIC/APPCIC).
What Went Well and What Went Wrong
What Went Well
- Strong profitability metrics: adjusted diluted EPS rose to $1.23 (+4.2% YoY) and adjusted ROCE reached 29.4%; management highlighted “very strong 29.4% adjusted return on common equity” and favorable underwriting trends.
- Growth in non-Florida footprint: direct premiums written increased 25.4% in other states, supporting overall DPW growth (+3.2% YoY) and higher net premiums earned (+4.4% YoY).
- Higher investment and commission income: net investment income rose to $17.3 million (from $14.7 million), and commissions/policy fees/other reached $23.5 million (+20% YoY) as reinsurance brokerage commissions benefited from RAP replacement and cat bond shift to traditional coverage.
What Went Wrong
- Margin compression: operating income margin fell to 12.0% (from 13.0% YoY) and adjusted operating income margin to 12.2% (from 12.8%), primarily due to a higher ceded premium ratio.
- Higher underwriting ratios: net loss ratio increased 1.7 pts to 72.3%; combined ratio rose 1.9 pts to 97.8% as both loss and expense ratios edged up.
- Reinsurance-related comp effects: CFO noted year-over-year comparisons reflect different reinsurance programs (prior period including Florida RAP at no cost), contributing to higher ceded premium ratio in Q2 2025.
Transcript
Operator (participant)
Good morning, ladies and gentlemen, and welcome to Universal Insurance Holdings' second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. 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 one again. 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 (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 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 (CEO)
Thanks Arash. Good morning everyone. In the quarter we delivered a very strong 29.4% adjusted return on common equity. We are encouraged by favorable underwriting trends as the Florida market continues to improve, and we are optimistic as we look ahead. I'll turn it over to Frank to walk through our financial results.
Frank Wilcox (CFO)
Frank, thanks Steve. Good morning. Adjusted diluted earnings per common share was $1.23 compared to adjusted diluted earnings per common share of $1.18 in the prior year quarter. The higher adjusted diluted earnings per common share mostly stems from higher direct premiums earned, net investment income, and commission revenue, partially offset by a higher ceded premium ratio. Core revenue of $400.9 million was up 5.7% year-over-year, with growth primarily stemming from higher net premiums earned, net investment income, and commission revenue. Direct premiums written were $596.7 million, up 3.2% from the prior year quarter. The increase stems from 25.4% growth in other states, partially offset by a 2.5% decrease in Florida. Overall growth mostly reflects higher policies in force, higher rates, and inflation adjustments across our multi-state footprint.
Direct premiums earned were $523.4 million, up 6.7% from the prior year quarter, reflecting direct premiums written growth over the last 12 months. Net premiums earned were $360.2 million, up 4.4% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned, partially offset by a higher ceded premium ratio as described above. The net combined ratio was 97.8%, up 1.9 points compared to the prior year quarter. The increase reflects higher net loss and expense ratios. The 72.3% net loss ratio was up 1.7 points compared to the prior year quarter, with the increase primarily reflecting a higher ceded premium ratio. The net expense ratio was 25.5%, up 0.2 points compared to the prior year quarter, with the increase primarily driven by a higher ceded premium ratio and higher policy acquisition costs associated with growth outside of Florida, partially offset by economies of scale.
During the second quarter, the company repurchased approximately 287,000 shares at an aggregate cost of $7.4 million. The company's current share repurchase authorization program has approximately $15.2 million remaining. On July 9, 2025, the Board of Directors declared a quarterly cash dividend of $0.16 per common share, payable on August 8, 2025, to shareholders of record as of the close of business on August 1, 2025. With that, I'd like to ask the operator to open the line for questions. Thank you.
Operator (participant)
As a reminder 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 one again. One moment for questions. Our first question comes from Paul Newsome with Piper Sandler. You may proceed.
Paul Newsome (Managing Director and Senior Research Analyst)
Good morning. Could you give us a little bit more about the reinsurance coverage ceiling change and what's going on there?
Just as the drivers.
Frank Wilcox (CFO)
Good morning, Paul.
You have to appreciate that when you're comping over this particular quarter, you're looking at several different reinsurance programs that are earning in last year. The first two months, April and May, we were still earning in a program that included the RAT program, which was at no cost, and that was much lower than the cost to replace that. This year, April and May was last year's program winding up, plus the first month of this year's program. It's really just comping off a different structured program.
Paul Newsome (Managing Director and Senior Research Analyst)
You bought back some shares recently. Maybe a review of kind of where you think you are from a capital perspective, including kind of how you think about how we should measure it as an outsider.
Frank Wilcox (CFO)
Capital at the holding company is abundant. Naturally, we take opportunities to purchase shares when we believe that they're undervalued, and we continue to do so when appropriate.
Paul Newsome (Managing Director and Senior Research Analyst)
Okay.
Just a few thoughts on the competitive environment. There are concerns, I think, that we're seeing some companies, maybe not necessarily new, but some companies becoming more competitive in the environment, particularly in Florida, but maybe elsewhere as well. Do you think it's incrementally more competitive market today than it was last quarter or the quarter before?
Steve Donaghy (CEO)
Hey, Paul, this is Steve.
Good morning.
I wouldn't say that it's a more competitive market, you know, and we are not driven by the competition. We are driven by, you know, 25 years of experience in Florida and as we've expanded into other states, we use our boots on the ground, our claims expertise, etc. to really assess and understand where we want to write business and where it can be the most profitable for our shareholders. I would say that we've recently opened up additional territories in Florida and feel good about the business that we're bringing in at this time across the state. Clearly, there are more competitors in Florida as well than there was a year ago or a quarter ago, but we don't see anybody with a real hungry appetite from a competitive perspective across the state. We see pockets of competition in Florida, but nothing dramatic across the entire state.
Paul Newsome (Managing Director and Senior Research Analyst)
Appreciate the help. I'll let some other folks ask questions, but thank you.
Steve Donaghy (CEO)
Thanks, Paul. Have a good day.
Operator (participant)
Thank you. Our next question comes from Nicolas Iacoviello with Dowling & Partners Securities. You may proceed.
Nicolas Iacoviello (Equity Research Analyst)
Was there any net prior year development or claims handling benefits in the quarter? I'm assuming no, but just wanted to confirm
Frank Wilcox (CFO)
it was negligible. Nick, nothing to really speak of.
Nicolas Iacoviello (Equity Research Analyst)
Okay, great. Just on the new reinsurance program, I know we have one month of ceded premiums now with this Q2 result, but could you discuss the cost which wasn't disclosed this year, maybe as a percentage of direct earned premium as you've done in years prior?
Frank Wilcox (CFO)
The cost year over year, this program that went into effect June 1, 2025, is not significantly different than what the cost was as a percentage of direct earned premium for the previous period, which we're very pleased with.
Naturally, given the fact that we had three landfalling storms last year, which typically following those events, the price would go up significantly, and that's certainly an indication of the improvement in the Florida marketplace.
Nicolas Iacoviello (Equity Research Analyst)
Great.
That's all I had. Thank you.
Steve Donaghy (CEO)
Yeah, thanks, Dave.
Operator (participant)
Thank you.
I would now like to turn the call back over to Steve Donaghy for any closing remarks.
Steve Donaghy (CEO)
Thank you.
I'd like to thank all of our associates, consumers, agents, and our stakeholders for their continued support of Universal. Have a good day.
Operator (participant)
Thank you. This concludes the conference. Thank you for your participation. You may now disconnect.