Universal Insurance Q4 2023 Earnings Call Transcript

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February 23, 2024

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Universal's 4th 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. Please go ahead.

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. We closed out both the Q4 and full year with double digit adjusted returns on common equity, and I believe that even stronger results are firmly in our future. 2023 was a transformative year for us and our significant efforts position us for meaningful success in the new legislative environment. We've added a buffer to our loss picks and bolstered reserves for years that predate elimination of one way attorney fees and assignment of benefits to what I view as the most conservative level in our history.

Speaker 2

Importantly, we did this because we wanted to place the past in the rearview mirror and shift our focus to the future. In 2023, we took yet another step toward the future by commuting Hurricane Irma, the largest and most significant storm in our history with the Florida Hurricane Catastrophe Fund. Now that we're past the 1 year anniversary date of the 2022 special legislative session and all new and renewal policies are subject to the new legislation, the impact of the reforms is becoming clear. Claims trends across the board are improving, including reductions in total claims, represented claims, assigned claims and daily claims. Our first event, 2024 2025 reinsurance tower is already 90% secured and we've negotiated additional multiyear capacity for the future.

Speaker 2

Given our size, scale, independent agency and reinsurer relationships and the recent steps we've taken, we are particularly well positioned to succeed in the revamped Florida environment. I'll turn it over to Frank to walk through our financial results. Frank?

Speaker 3

Thanks, Steve. Good morning. Adjusted diluted earnings per common share was $0.43 down from adjusted diluted earnings per common share of $0.72 in the prior year quarter. The decrease mostly stems from a higher net loss ratio and lower commission revenue, partially offset by a lower net expense ratio and higher net investment income. Core revenue $5,700,000 was up 12.1 percent year over year with growth primarily stemming from higher net premiums earned and net investment income, partially offset by lower commission revenue.

Speaker 3

Direct premiums written were $432,600,000 dollars up 4% from the prior year quarter including 0.6% growth in Florida and 18.6% growth in other states. Overall, growth reflects rate increases partially offset by lower policies in force. Direct premiums earned 482,100,000 dollars were up 3.9% year over year, reflecting rate driven premiums written growth over the last 12 months. Net premiums earned were $335,400,000

Speaker 4

up

Speaker 3

14.9% from the prior year quarter. The increase is primarily attributable to higher direct premiums earned and a lower ceded premium ratio. The net combined ratio was 103.7%, up 2.3 points compared to the prior year quarter. The increase reflects a higher net loss ratio and a lower net expense ratio. The 81.9% net loss ratio was up 5.6 points year over year with the increase primarily attributable to a higher calendar year loss pick.

Speaker 3

The 21.8% net expense ratio improved by 3.3 points year over year, primarily reflecting lower renewal commission rates paid to distribution partners. During the Q4, the company repurchased approximately 223,000 shares at an aggregate cost of $3,600,000 The company's current share repurchase authorization program has $4,100,000 remaining. On February 8, 2024, the Board of Directors declared a regular quarterly cash dividend of $0.16 per share of common stock payable March 15, 2024 to shareholders of record as of the close of business on March 8, 2024. With that, I'd like to ask the operator to open the line for questions.

Operator

Our first question comes from Paul Newsome with Piper Sandler. Your line is now open.

Speaker 4

Good morning. Thanks for the call. I was hoping you could maybe take a step back or maybe a step forward and talk about the outlook for premium growth perspective. You've got a number of sort of crosscurrents in my mind with obviously rates still a positive effect. But I don't know if at some point you expect to stop effectively shrinking in some areas to offset that rate and other factors, obviously, the mix changes well affects premium growth.

Speaker 4

Could you kind of just talk about those major factors and how we should think of them as we're thinking about the company over the next couple of years?

Speaker 2

Yes. Good morning, Paul, and thanks for the question. As we analyze and look at the successful legislation changes that went into effect at the end of 2022, that has an impact on a lot of things we analyze and we do. So in 2023, we had a premium indication of approximately 15% and we implemented a 7.2% increase across our book. That's had several positive impacts to Floridians and to the company and that our retention is improved and the book of business is more stable.

Speaker 2

As we look to the future, those rate increases are predicated on the prior 12 months experience. So we'll take all those factors into account sometime around May and in future years as well and continue to make the best decisions possible for the company and our insurers and our agents. But I would if you're looking for an indication, I would say we'll continue to take some rate. It won't be the extremes we've taken in the past like 2019 through 2022. But I think the indications are still positive.

Speaker 2

And hopefully at some point in the future, we'll see rate reductions flowing through the book as a result of what was passed in the end of 'twenty two.

Speaker 4

Are you at the point where you are growing on a PIF count or want to grow on a PIF count in both in and outside of Florida?

Speaker 2

Yes, Paul, as you saw in the release, we grew last year outside of Florida. And beginning in December, we began adding policies to our Florida book of business as well. So again, we are laser focused on profitability and where the business is coming from. Not all counties or territories in the state are behaving identically. So we are being very careful as we kind of head into the future in this new environment.

Speaker 4

And then maybe turning to the extra margin of conservatism and the loss pick, could we kind of talk about the components of that? Obviously, you would expect it to go the other direction with the impact of Tort reform, but there must have been some justification for that extra higher exit pick from other factors and maybe you could talk about those factors.

Speaker 2

Yes. I think Paul, as I run the company and all the various influencers that affect our business and in particular the Florida book of business, we felt it was very prudent to be extremely cautious or cautious as we went through 2023 because the legislation didn't affect all policies until the renewal point of each and we wanted to make sure that we had enough dry powder to handle the business as well as be positioned going forward to be very secure as we look to continue begin to grow the business once again.

Speaker 3

Yes. And just to follow-up

Speaker 5

on that, Paul, when you look at our reserves in multiple respects, whether or not it's just absolute dollars on a net basis, whether it's on average for the claim counts, which by the way are lower than they've been quite some time, they're higher than they've ever been. They're higher relative to our insured value. They're higher relative to our premium in force. So we feel that our balance sheet is stronger going forward than it's ever been.

Speaker 4

Appreciate the help. I'll let some other folks ask questions, but thank you very much.

Speaker 2

Thanks, Paul. Have a good day.

Operator

Thank you. One moment for our next question. Our next question comes from Nick Chiaolo with Dowling and Partners. Your line is now open.

Speaker 6

Thanks guys. First question, was there any net adverse development in the quarter and if so from which events?

Speaker 2

Yes, Nick. As we went through 2023, we had considerable redundancy into our loss pick. So after working with our actuaries, both internal and external, we decided to take a look at the claims and the files and add dry powder to any of those that were in place prior to the new legislation affecting that particular policy. So we added due to the redundancy and the way it resulted, we added 4 points to prior years. But again, primarily that is dry powder that will be used as we kind of put in the put them in the rearview mirror going forward.

Speaker 2

So all in all, it was 4 points of the loss pick that we took out of 2023 and spread across prior years.

Speaker 6

Got it. Just curious as well, was there a claims handling benefit booked in the quarter?

Speaker 5

Yes. That was negligible for the quarter. I believe it was under $1,000,000

Speaker 6

Thanks. I was just curious on the comment in the press release on 90% of the First Event Tower being secured. Can you talk about maybe the current expectation for the captive utilization?

Speaker 2

Nick, can you repeat that last part of the question? I'm sorry.

Speaker 6

No problem. Just like the current expectation for the captive participation in the 2024 and 2025 tower?

Speaker 2

Yes. We were again, sitting at 90% accomplished for the first tower, Nick, we are very pleased with how our teams performed in the market. The reinsurance now is a year round effort for myself and our reinsurance team, Matt Palmeir, in particular. And we feel really good about where we're at. I don't think that we will change our philosophy on how we have used the captive in the past.

Speaker 2

We haven't completed it at this point. And if the open market comes in at a competitive rate, we would consider that in lieu of. But as I sit here today, I think we would continue and it worked out very well for the company last year. It's proven

Speaker 5

to be very effective. Yes.

Speaker 6

Okay. That's all I had. Thanks guys.

Speaker 2

All right. Great. Thanks Nick.

Operator

Thank you. This concludes the question and answer session. I would now like to turn it back to Steve Donaghy, CEO for closing remarks.

Speaker 2

Thank you. I'd like to thank all of our associates, our insureds, our agency force, our reinsurance partners and our stakeholders for their continued support of Universal. Have a great day.

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Earnings Conference Call
Universal Insurance Q4 2023
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