Universal Insurance - Q3 2024

Transcript

Arash Soleimani (Head of Investor Relations)

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. Our hearts and thoughts go out to those impacted by recent disasters, including hurricanes Debby and Helene in the third quarter and Hurricane Milton in the fourth quarter. We've been through many hurricanes in our nearly three-decade history, arming us with the requisite experience to quickly and efficiently get policyholders back on their feet. Our substantial reinsurance protection and the strong reinsurance relationships that we've built over many years provide us with the financial resilience to weather both high frequency and high-severity storm seasons. As we've previously disclosed, our consolidated retention drops for subsequent events, and we expect a smaller financial impact from weather in the fourth quarter, inclusive of Hurricane Milton. Non-catastrophe underwriting trends continue to improve, and we're highly encouraged as we look ahead. On a separate note, we opened for business in Wisconsin at the beginning of the month, our nineteenth state.

We're excited to offer our insurance products there as we continue to expand to new markets, diversifying our book of business, and growing our addressable market. I'll turn it over to Frank to walk through our financial results. Frank?

Frank C. Wilcox (CFO)

Thanks, Steve. Good morning. Adjusted loss per common share was $0.73, compared to an adjusted loss per common share of $0.16 in the prior year quarter. The higher adjusted net loss available to common stockholders mostly stems from lower underwriting income, partially offset by higher net investment income and commission revenue. Core revenue of $381.4 million was up 5.4% year over year, with growth primarily stemming from higher net premiums earned, net investment income, and commission revenue. Direct premiums written were $574.4 million, up 8% from the prior year quarter, including 2.1% growth in Florida and 32.9% growth in other states. Overall, growth mostly reflects higher policies in force, higher rates, and inflation adjustments.

Direct premiums earned were $507.7 million, up 7% from the prior year quarter, reflecting direct premiums written growth over the past twelve months. Net premiums earned were $345.7 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. The net combined ratio was 116.9%, up 6.2 points compared to the prior year quarter. The increase reflects higher net loss and expense ratios. The 91.7% net loss ratio was up 4.7 points compared to the prior year quarter, with the increase primarily attributable to higher weather losses, mostly from Hurricane Helene, partially offset by more favorable prior year reserve development.

The net expense ratio was 25.2%, up 1.5 points compared to the prior year quarter, with the increase primarily attributable to higher policy acquisition costs associated with gross growth outside Florida and higher operating costs. During the quarter, the company repurchased 226,000 shares at an aggregate cost of $4.4 million. The company's current share repurchase authorization program has approximately $10.3 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.

Operator (participant)

And thank you. 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. Please stand by while we compile the Q&A roster. And one moment for our first question. And our first question comes from Paul Newsome from Piper Sandler. Your line is now open.

Paul Newsome (Managing Director)

Good morning. Thanks for the call, and always appreciate the help. Can we talk about the reserve development to start with? Just give us some ideas about what the sources of the development was?

Frank C. Wilcox (CFO)

... Yeah, good morning, Paul. It's Frank. We actually had favorable development this quarter of just around $2.2 million from prior year cats.

Paul Newsome (Managing Director)

Great. Any particular source, whether it's just cats or, you know, all property?

Frank C. Wilcox (CFO)

A lot of the names that you recognize, Irma, Ian, Matthew, Michael, some of which were minor, other which a little bit more significant.

Paul Newsome (Managing Director)

Any additional detail you can give us on the cat losses in the quarter between lean and other, as well as, is there anything in those cat losses that are unusual or different than what you typically see after a large storm? I mean, I think flood versus wind mix may be a little different this time around, but that's just a conjecture on my part.

Stephen J. Donaghy (CEO)

Yeah, good morning, Paul. It's Steve Donaghy. Yeah, I think from a loss perspective, as we look at the three hurricanes now, between Debby, Helene, and Milton, we're looking at a range for all three storms, somewhere between $600 million and $900 million to the company. You know, our net retention on those, Debby's small, it's probably somewhere under $20 million, and Helene will be a full retention loss to the company, along with our AQS Re, so roughly $111 million to the company, and the rest will be picked up by our reinsurance partners. Then, Milton will be, as you know, a lower retention. Our second tower has a lower retention of $45 million, so we expect that to be incurred in Q4.

And, you know, thanks to our claims operation, which is heavily deployed and trying to assist all of our policyholders in the various areas impacted, which is a pretty serious geography for all the carriers. You know, they are now handling the storm, and we're trying to handle as many of the claims internally as possible, because we feel we do it better, and we also kind of understand how to adjust. Our team's really experienced between the flood and the wind and what the impacts of those two are. So, we're being very careful how we do it.

I think the from a claims incoming perspective, while every storm has its own nuance, the claim counts have been coming in at a steady flow, so I think people were listening to the messaging to be safe and get out of the impacted areas. I think that's a very good dynamic for the state, and I think that it's good that insurers are listening to the folks that are trying to help them. So we've seen a steady flow rather than a real big peak, so to say. So we feel good about where we're at, and we're hoping to recover as much of those retentions in Q4 with our operating staff. So if you have any other questions, happy to answer, but that's kind of an overview.

Paul Newsome (Managing Director)

Do you think most of the recovery revenue from claims management, et cetera, will happen for both storms in the fourth quarter? Or do you think we might see something maybe perhaps for Milton all the way into the first or, I guess-

Stephen J. Donaghy (CEO)

Yeah, it's a great question.

Paul Newsome (Managing Director)

All in the first-

Stephen J. Donaghy (CEO)

You know, Yeah, great question, Paul. We don't. As we sit here today, we're not 100% sure that we'd recover all those expenses, especially in Q4. I think you'll see some of that tail into 2025. So, hard to tell exactly where what we're gonna recover, as we sit here now. We'll have a better idea of that as we get into Q4. But, you know, the most important thing for us is to get out, see the insurers, make sure we're doing the right things, and getting them back on their feet, at their moment of need. So that's the paramount goal for us as we're entering Q4 right now.

Paul Newsome (Managing Director)

Maybe just one last big picture question. The weather obviously makes it more complicated to figure out kind of what's going on on a normalized basis. Could you, you know, give us your most recent thoughts, maybe, you know, year to date or so, about what you think is happening on kind of that normalized, underwriting basis? Because you've got a lot of stuff going on with pricing and tort reform and other factors. Do you think you're still making improvements in the underwriting results into next year because of those factors?

Stephen J. Donaghy (CEO)

Yeah, Paul, you know, we changed our kind of tone from cautiously optimistic to optimistic sometime this year. We see very favorable underwriting results coming in the door. I think our agency relationships continue to generate business where we are open, and I think outside the state of Florida, our relationships, as they grow in our newer states, people develop a comfort level with us about how we operate, how we respond to their questions and needs, and how we treat their clients or our insureds, so to say. I think as we looked at the legislative reforms and we looked at our rates, you know, we adjusted some models in a positive manner to Floridians.

So we ended up in a scenario where we had a small reduction in premium at our most recent filings, which I think, you know, when you think of the typical insurer in Florida, after getting increases of, you know, somewhere between 10% and 15% over the last several years, a flat or a reduction is a really good impact to the people that own homes in Florida. So and we're being very cautious about where we're open and continuing to work on our spread of business within the state of Florida. So I think you would say that as we continue to grow and mature, we're trying to be as smart as possible with the experience we've gained over several-...

You know, for me, twenty years, and for others in the company, over the last thirty years, in the state of Florida. So good, we feel good about the future. Very good.

Paul Newsome (Managing Director)

Yeah. Appreciate the help, as always.

Stephen J. Donaghy (CEO)

Thanks, Paul.

Nicolas Iacoviello (Equity Research Analyst)

Thank you.

Operator (participant)

And thank you. And one moment for our next question. And our first question comes from Nick Iacoviello from Dowling and Partners. Your line is now open.

Nicolas Iacoviello (Equity Research Analyst)

Great, thanks. And I'm sorry if you had already answered this question, but can we be considering any additional reinstatement premiums that flow through following Milton?

Stephen J. Donaghy (CEO)

Well, a lot of the layers, especially at the lower end of the tower, and I don't have it in front of me, are covered by Reinstatement Premium Protection. So although layers would have to be replenished, many would not trigger a reinstatement premium for us that would drop to the bottom line. Depending on how far it goes into the tower, the possibility exists, but, you know, as I said, I don't have it in front of me to say when that would occur.

And Nick, if it helps for your models, I wouldn't see any of that occurring in Q4 due to the nature and pace of claims coming in.

Nicolas Iacoviello (Equity Research Analyst)

Okay, thanks. That's helpful. That was the only question I had.

Stephen J. Donaghy (CEO)

All right, Nick. Thanks. Have a good day.

Operator (participant)

Thank you. I am showing no further questions. I would now like to turn the call back over to Steve Donaghy, Chief Executive Officer.

Stephen J. Donaghy (CEO)

Thank you. Good morning. I'd like to thank all of our associates, consumers, our agency force, and our stakeholders for their continued support of Universal. I wish you all a great day.

Operator (participant)

This concludes today's conference call. Thank you for participating. You may now disconnect.