Universal Insurance Q1 2023 Earnings Call Transcript

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April 28, 2023

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Universal's First 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.

Speaker 1

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.

Speaker 1

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 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.

Speaker 2

Thanks, Arash. Good morning, everyone. It was a strong quarter, including a 23.9% annualized adjusted return on common equity and 23.4 percent adjusted diluted earnings per share growth year on year. There are multiple factors benefiting our business and I'm optimistic as I look towards the future. The Florida legislature passed meaningful reforms at the December special session, which we believe will improve the long term stability and profitability of our core business.

Speaker 2

While rate adequacy improves and higher fixed income yields boost the productivity of our investment portfolio. Additionally, As we sit here today, we already have our core Allstate's property catastrophe reinsurance tower for the 2023, 2024 period fully supported and secured with no material changes to our historical reinsurance partners or our terms and conditions, while the costs are well within our budget parameters. We are very pleased with the progress we have made in the current environment, which is a testament to the strength of our business model and our associates. I'll turn it over to Frank to walk through our financial results. Frank?

Speaker 3

Thanks, Steve, and good morning. Adjusted diluted earnings per share was $0.79 up from $0.64 in the prior year quarter. The increase mostly stems from higher net premiums earned, net investment income and commission revenue and lower net expense ratio partially offset by a higher net loss ratio. Core revenue of $316,300,000 was up 8.8% year over year with growth primarily stemming from higher net premiums earned, net investment income and commission revenue. Direct premiums written were $410,100,000 up 3.4% from the prior year quarter, including 0.9% growth in Florida and 17.2% growth in other states.

Speaker 3

Growth reflects rate increases, partially offset by lower policies in force. Direct premiums earned were $455,400,000 up 9.8% from the prior year quarter, reflecting rate driven direct premiums written growth over the last 12 months. Net premiums earned were $282,200,000 up 4.9% 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 100%, up 2.1 points compared to the prior year quarter.

Speaker 3

The increase reflects a higher net loss ratio, partially offset by a lower net expense ratio. The 73.1 percent net loss ratio was up 4.3 points compared to the prior year quarter, with the increase primarily attributable to a higher attritional initial accident year loss pick and higher prior year reserve development as a percentage of net premiums earned, partially offset by lower weather losses as a percentage of net premiums earned. The 26.9 percent net expense ratio improved by 2.2 points compared to the prior year quarter, primarily reflecting lower renewal commission rates paid to distribution partners. On April 12, 2023, The Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on May 19, 2023 to shareholders of record as of the close of business on May 12, 2023. With that, I'd like to ask the operator to open the line for questions.

Operator

Our first question comes from the line of Paul Newsome from Piper Sandler. Your line is open.

Speaker 4

Good morning. Congrats on the quarter. Thanks for the call. Just a Couple of questions. First on the reinsurance tower, good to hear it's been secured.

Speaker 4

When you say no changes in the terms and condition, is that including the intercompany reinsurance provided by the company's reinsurance operation. And I assume that we are talking about some increase in rate online, Just not the retentions and limits on the tower, is that fair?

Speaker 2

Hey, Paul, good morning. Thanks for the question. Yes, I think that is fair. I think year over year we will see 2023 have a Very similar percentage of reinsurance cost to the company against premiums earned as we did in 2022 and we're very fortunate To have it completed as you mentioned and very fortunate to have the partners that we do in the reinsurance industry. And I don't see any changes to the retentions From an intercompany perspective as well.

Speaker 2

So you kind of hit all of them there. Thank you.

Speaker 4

Do you use The state's offer of reinterest to Semra?

Speaker 2

We did not use the WRAP program in 2022. We elected to use that this year. So that's the program That we are utilizing and as you know that's below the FHCF level. So we're very fortunate to have that instrument available to us and that is part of the equation.

Speaker 4

Yes. And then maybe turning to the tour performance is obviously the big question. Any sort of early reads on what we're seeing really from a pure claim perspective on Any changes and if you could give us some thoughts on we saw the surge in Lawsuits in general in Florida in front of the court reform, Not sure if that had any impact in your business at all, but just any thoughts in what you're actually seeing from a Pure play perspective during the quarter, really into the total performance.

Speaker 2

Yes. I believe, Paul, again, as we changed our Terminology from cautiously optimistic to optimistic. I would say at the end of Q1, we feel very good about that statement from the end of 2022. We have seen considerable reductions in litigation representations, etcetera, and we feel very optimistic About the future of the impact of that on our business. I also would say that even some of the changes from prior legislation legislative sessions such as the NOI process are working well and our staff is executing against trying to get as many settlements as possible before Anything would land in a litigious environment.

Speaker 2

So I think all in all very favorable signs.

Speaker 4

Do you have any thoughts about how that might work its way through the year end financial results? Is it Something we'll see quite quickly or is it do you think it will be something that impacts the loss ratio over time?

Speaker 2

I think it's going to take some time for the legislation to earn in. As you know, many of the changes are substantive. So They'll take effect as policies renew and new business comes on board. So it'll probably take some period of time as we look into the future for it to earn fully in, But I think there'll be some benefits on a go forward basis obviously. Great.

Speaker 4

Well, let's look at the folks ask questions, but appreciate the help as always.

Speaker 2

Yes. Thanks, Paul.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Nick Yacobello from Dowling. Your line is open.

Speaker 5

Good morning. Thanks for taking my question. I just want to make sure I'm understanding, Not seeing changes to the intercompany retention. Just so on a staff basis and a GAAP basis, Do you expect the retentions to be similar as they were last year's program?

Speaker 2

Good morning, Nick. Yes, we do. We looked at a lot of different options On various levels of what we're offered in the reinsurance market and we feel good about our capital position and our ability to handle Similar retentions both on the net retention as well as the ASOS lease program that we incorporate.

Speaker 5

Got it. And then just the cost being a similar percentage of earned and I get we'll get more Details

Speaker 2

with the AKS is usual, but

Speaker 5

was there a meaningful difference in the amount of private market limit You purchased and I get the wrap later this year and not there last year. And I guess also I'm thinking in terms of the first and second event coverage, This comment that the program was secured that relates to both of those. And if so, how does the prepaid reinstatements compare versus last year?

Speaker 2

Yes, Nick, great question. And we will have a detailed 8 ks as we have prior years and we'll have a press release out separate sometime in May, Late May most likely, but we feel very good about the entire program across the board. So from a ceiling perspective, it will be very close to where we were in 2022, as you know, policy count is down, so TIV is down a little bit, but it won't be a meaningful difference whatsoever. And I think your further questions about coverages and others, they'll be consistent with where we were last So as we exit that reinsurance market for 2023, we feel really good. The visits in Bermuda, the visits in London Went very well and I think we were again we separated a little bit from some of our peers relative to ability to secure and That's always our goal is to kind of stand tall and be different within the space.

Speaker 2

So that's what we're trying to do.

Speaker 5

Okay. I guess just if we could go elsewhere, I know last quarter you guys have mentioned you were reevaluating your view of weather above plan. So I'm just wondering if you had a determination there. And just trying to look at your results like for like with the year ago quarter, was there anything This quarter you would classify as weather above plan?

Speaker 3

Yes. Good morning, Nick. This is Frank. So weather cooperated in the Q1 for us. So to answer your question, we are still evaluating how we're going to report weather going forward.

Speaker 3

That being said, Under the old standard, there were no weather events. So everything for the current accident year was contained within what our loss picks were.

Speaker 5

Got it. Thanks. And last one, do you see any movement in your gross loss estimate for Ian or it's still around 1,000,000,000

Speaker 2

Yes, it's still around $1,000,000,000 Nick and we're pretty confident that we don't expect it to move north.

Speaker 5

Okay. That's all. Thank you, guys.

Speaker 2

Great. Thanks, Nick. Have a good day.

Operator

Thank you. I'm not showing any further questions at this time. I'd like to turn the Back over to our speakers for any closing remarks.

Speaker 2

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

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.

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Earnings Conference Call
Universal Insurance Q1 2023
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