Universal Insurance - Earnings Call - Q4 2024

Executive Summary

• Q4 2024 printed modest profitability amid elevated weather: Diluted EPS $0.21 and adjusted EPS $0.25 as underwriting income fell but investment income and commissions offset partially; combined ratio rose to 107.9% on Hurricane Milton and higher expenses.
• Topline was resilient: total revenues $384.8M (+2.5% YoY), net premiums earned $348.4M (+3.9% YoY), and direct premiums written $470.9M (+8.8% YoY), with strong growth outside Florida (+38.4% YoY).
• Capital actions remain supportive: $7.7M of buybacks in Q4; regular $0.16 dividend declared Feb 6, 2025; plus a $0.13 special dividend paid in December 2024, totaling $16.2M returned in Q4.
• Reinsurance visibility is a potential stock catalyst: 92% of the 2025 first-event CAT tower already placed and multi-year capacity secured for 2026; management also filed a modest Florida rate decrease tied to 2022 reforms.
• Consensus context: S&P Global Wall Street estimates were unavailable at the time of query; we cannot assess beats/misses vs consensus for Q4 2024 (S&P Global data unavailable at time of request).

What Went Well and What Went Wrong

• What Went Well

  • Growth outside Florida accelerated: Other states’ direct premiums written grew 38.4% YoY in Q4; policies in force rose 5.6% YoY; premiums in force +7.5% YoY.
  • Investment & fee tailwinds: Net investment income rose to $15.6M (from $13.7M) on higher reinvestment yields and balances; commissions/policy fees/other rose 35.6% YoY due to replacing RAP and a cat bond with traditional reinsurance.
  • Strategic positioning on reinsurance and Florida rates: “92% of our first event catastrophe tower already placed… significant additional multi-year capacity secured for the 2026 hurricane season” and a “modest rate decrease” filed in Florida reflecting legislative reforms (CEO).

• What Went Wrong

  • Weather drove underwriting pressure: Combined ratio rose to 107.9% (+4.2 pts YoY) on higher loss ratio (Milton) and higher expense ratio; operating margin fell to 2.3% (from 7.3%).
  • Expense intensity increased: Expense ratio up 3.8 pts YoY to 25.6% on policy acquisition costs tied to non-Florida growth and higher operating costs.
  • Higher ceded premium ratio: Ceded premium ratio increased to 32.9% (+2.5 pts YoY) due to replacing the state RAP layer with private market cover, diluting net earned premium leverage.

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to Universal's Fourth Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded. I would now like to turn the conference over to Arash Soleimani, Chief Strategy Officer. Please go ahead.

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 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.

Steve Donaghy (CEO)

Thanks, Arash. Good morning, everyone. In 2024, we experienced three hurricanes, including Debby, Helene, and Milton, and we're working hard, as we always do, to help our customers restore their lives. We continue to see progress relative to the claims trends in our Florida book and recently filed a modest rate decrease in the state that's directly correlated with the legislative changes made in December 2022. We're already well underway negotiating and placing our 2025 reinsurance program with 92% of our first event catastrophe tower already placed as we stand here today, along with significant additional multi-year capacity secured for the 2026 hurricane season. 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 $0.25, down from adjusted diluted earnings per common share of $0.43 in the prior year quarter. The decrease mostly stems from lower underwriting income, partially offset by higher net investment income and commission revenue. Core revenue of $386.4 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 $470.9 million, up 8.8% from the prior year quarter, including 0.8% growth in Florida and 38.4% growth in other states. Overall growth mostly reflects higher policies in force, higher rates, and inflation adjustments. Direct premiums earned of $519.3 million were up 7.7% year over year, reflecting direct premiums written growth over the last 12 months. Net premiums earned were $348.4 million, up 3.9% 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 107.9%, up 4.2 points compared to the prior year quarter. The increase reflects higher net loss and expense ratios. The loss ratio was 82.3%, up 0.4 points compared to the prior year quarter. The increase primarily reflects higher weather losses, primarily from Hurricane Milton, partially offset by more favorable prior year reserve development. The net expense ratio was 25.6%, up 3.8 points from 21.8% in the prior year quarter. The increase was primarily driven by higher policy acquisition costs associated with growth outside Florida and higher other operating costs. During the fourth quarter, the company repurchased approximately 370,000 shares at an aggregate cost of $7.7 million. The company's current share repurchase authorization program has $2.6 million remaining.

On February 6, 2025, the Board of Directors declared a regular quarterly cash dividend of $0.16 per common share, payable March 14, 2025, to shareholders of record as of the close of business on March 7, 2025. With that, I'd like to ask the operator to open the line for questions.

Operator (participant)

Certainly. 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 our first question will be coming from Adam McMahon of UVE. Your line is open. And one moment for our next question. Our next question will be coming from Paul Newsome of Piper Sandler. Your line is open.

Paul Newsome (Analyst)

Good morning. Thanks for the call. Maybe just a couple to start with sort of modeling questions. Could you talk about the size of the reserve development in the quarter and maybe talk about the level of cat losses, including Milton, with a little bit more detail?

Frank Wilcox (CFO)

Yeah. Good morning, Paul. This is Frank. Milton, I'll start with Milton. Milton was a $45 million net retention event. As you know, with our second event, that $66 million in excess of $45 is covered by third party. The captive was not a factor this quarter. Prior year development was down significantly, $45 million down from last year, which was $76.

Paul Newsome (Analyst)

Right. And then could you maybe a little bit more color on the growth efforts and where you're expanding and where you think you're seeing the most opportunity? And then I'll just ask the next question. Any thoughts on reinsurance renewals as they come forward later this year?

Steve Donaghy (CEO)

Yeah. Thanks, Paul. I would say from a growth perspective, with our agency relationships and marketing ability that we've demonstrated over the years, we continue to be laser-focused on profitability and writing business where it makes the most sense. We continue to be closed in markets that we don't feel as though we're rate adequate and open in others. The growth in the other states probably was the benefit of our entry into some new markets over the last 12 months. And I think as people hear our story and understand how we differentiate ourselves, it results in an opportunity to grow business. And again, it's all focused on profitability and rate adequacy across all markets. And I have the great help of our folks in our Minnesota office doing that on a daily quarterly basis. So it works out quite well. What was the second question, Paul?

Paul Newsome (Analyst)

Reinsurance. What are your thoughts prospectively for as we get into the important reinsurance renewals?

Steve Donaghy (CEO)

Yeah. We were very pleased to announce that we were 92% already accomplished in our first tower, Paul, and we found the market quite receptive, and we always try and go out as early as possible to secure the reinsurance that we need and then leave the market really to kind of dictate what's available to others, so we find that reinsurers like our story, like the presentation, and are interested in getting on board with us as early as possible. We were also similarly pleased on interest in renewing multi-year capability that takes pressure off us, so we renewed some of that in 2026, and we'll release all the details from a cost and other perspective in our May press release as we normally do.

We're still in the market for some, so we don't want to let too much out at this point, but we'll give the full update in May as normal.

Paul Newsome (Analyst)

Great. Thank you.

Steve Donaghy (CEO)

Thanks, Paul. Have a good day.

Operator (participant)

Again, if you would like to ask a question, please press star one one on your telephone. And that would be star one one for any questions. And I'm showing no further questions. I would now like to turn the conference back to Steve Donaghy, Chief Executive Officer, for closing remarks.

Steve Donaghy (CEO)

Yeah. Thank you. I'd like to thank all our associates, our consumers, agents, and our stakeholders for their continued support of Universal. And I wish you all a great day. Thank you.

Operator (participant)

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