Universal Insurance Holdings Reports Fourth Quarter 2020 Results

Rhea-AI Summary

Universal Insurance Holdings (NYSE: UVE) reported a fourth quarter GAAP diluted EPS of $(0.57) and non-GAAP adjusted EPS of $(0.84) for 2020. Despite a 21.9% increase in direct premiums written, total revenue grew by 14.1% to $273.1 million. The company faced record weather events impacting results. Underwriting improved, with policies in force rising 10.9%. Total net investment income fell by 62.7%, while repurchases of 1.6 million shares were made in 2020. For 2021, UVE projects EPS between $2.75 - $3.00, assuming no extraordinary weather events.

Positive

• Direct premiums written increased 21.9% to $368.8 million.
• Total revenue grew 14.1% to $273.1 million.
• Policies in force rose 10.9% to 984,830.
• Repurchased 1.6 million shares for a total of $28.9 million.

Negative

• GAAP diluted EPS decreased to $(0.57) from $(1.55) year-over-year.
• Non-GAAP adjusted EPS decreased to $(0.84) from $(1.57).
• Net investment income declined 62.7% to $2.8 million.
• Weather events greatly impacted performance, costing $162 million for the year.

Universal Insurance Holdings (NYSE: UVE) (the “Company”) reported 2020 fourth quarter diluted EPS of $(0.57) on a GAAP basis and $(0.84) non-GAAP adjusted EPS¹. Quarterly direct premiums written were up 21.9% from the year-ago quarter to $368.8 million.

1 Excludes net realized and unrealized gains and losses on investments as well as extraordinary reinstatement premiums and associated commissions (“non-GAAP adjusted EPS”). Reconciliations of GAAP to non-GAAP financial measures are provided in the attached tables.

“We ended the year with a record of $1.5 billion of premium now in force. Unfortunately, we also saw a record-setting frequency of weather events during the 2020 wind season, which impacted our fourth quarter and full year results,” said Stephen J. Donaghy, Chief Executive Officer. “In 2020 we continued our focus on underwriting, increasing our primary rates in Florida close to 20% for the full year, including 7% in the fourth quarter for reinsurance costs, as well as primary rate increases in some of our other states. We have continued to maintain a resilient balance sheet that has self-funded our risk bearing entities capital requirements, in addition to enhancing our reserves. We continue to be backed by our great reinsurance program and partners with close to 75% of our first event reinsurance capacity for June 1st, 2021 secured already. We continued our geographic expansion efforts in 2020, and implemented our catastrophe rapid response teams during the COVID-19 pandemic, which accelerated our use of digital technology for adjusting claims. We also continue to develop adaptive adjusting approaches to address claims loss cost trends. We look forward to 2021 as we continue to focus on resiliency and taking the necessary steps to provide reliability to consumers and reduce uncertainty for shareholders.”

Summary Financial Results

($thousands, except per share data)	Three Months Ended December 31,												Twelve Months Ended December 31,
	2020				2019				Change				2020				2019				Change
(GAAP comparison)
Total revenue	$	273,126			$	239,402			14.1	%			$	1,072,770			$	939,351			14.2	%
Income (loss) before income taxes	(26,999)				(69,053)				61.0	%			24,231				63,517				(61.9)	%
Income (loss) before income taxes margin	(9.9)		%		(28.8)		%		18.9 pts				2.3		%		6.8		%		(4.5) pts
Diluted EPS	(0.57)				(1.55)				63.2	%			0.60				1.36				(55.9)	%
Annualized return on average equity (ROE)	(15.4)		%		(38.4)		%		23.0 pts				4.1		%		9.2		%		(5.1) pts
Book value per share, end of period	14.43				15.13				(4.6)	%			14.43				15.13				(4.6)	%
(Non-GAAP comparison)2
Adjusted operating income	(38,227)				(69,687)				45.1	%			(39,044)				55,833				NM
Adjusted EPS	(0.84)				(1.57)				46.5	%			(0.90)				1.18				NM
2 Reconciliation of GAAP to non-GAAP financial measures are provided in the attached tables. Adjusted operating income excludes net realized and unrealized gains and losses on investments, interest expense, and extraordinary reinstatement premiums and associated commissions. Non-GAAP adjusted EPS excludes net realized and unrealized gains and losses on investments, as well as extraordinary reinstatement premiums and associated commissions. NM = Not Meaningful

Total revenue grew double digits for both the quarter and the year, driven primarily by growth in net premiums earned (organic new business growth and primary rate increases), partially offset by increased reinsurance costs. Revenue growth was also attributable to realized gains on investments, and increases in service revenue, partially offset by decreases in net investment income. GAAP diluted EPS and non-GAAP adjusted EPS results for the quarter and the year benefited from the aforementioned items, but were impacted predominantly by weather events and related social dynamics and increased reinsurance costs.

Underwriting

($thousands, except policies in force)
	Three Months Ended December 31,												Twelve Months Ended December 31,
	2020				2019				Change				2020				2019				Change
Policies in force (as of end of period)	984,830				888,361				10.9	%			984,830				888,361				10.9	%
Premiums in force (as of end of period)	$	1,519,949			$	1,296,416			17.2	%			$	1,519,949			$	1,296,416			17.2	%
Direct premiums written	368,823				302,655				21.9	%			1,517,479				1,292,721				17.4	%
Direct premiums earned	374,825				321,571				16.6	%			1,395,623				1,233,121				13.2	%
Net premiums earned	242,173				215,819				12.2	%			923,563				842,502				9.6	%
Expense ratio3	27.3		%		29.6		%		(2.3) pts				31.4		%		32.3		%		(90) bps
Loss & LAE ratio	96.7		%		113.3		%		(16.6) pts				82.2		%		71.6		%		10.6 pts
Combined ratio	124.0		%		142.9		%		(18.9) pts				113.6		%		103.9		%		9.7 pts
3 Expense ratio excludes interest expense.

Direct premiums written were up more than 20% for the quarter, led by the continued impact of rate increases in Florida and other states, as well as strong direct premium growth of 18.9% in Other States (non-Florida). For the year, direct premiums written were up double digits, led by rate increases and volume, with strong direct premium growth of 17.7% in Other States (non-Florida), and a slightly improved policy retention. In 2020 we implemented new guidelines on new business to address emerging loss trends that have since slowed the rate of growth in Florida.

On the expense side, the combined ratio decreased 18.9 points for the quarter, but increased 9.7 points for the year. The increases for the year were driven primarily by increased weather events in 2020, an increase in our core loss pick when compared to the full prior year, and the effect on the ratio from increased reinsurance costs. The increases were partially offset by lower prior year development, a benefit from our claims adjusting business, and an improvement in the expense ratio as set forth below.

• The expense ratio improved 2.3 points for the quarter driven by a 3.1 point improvement in the other operating expense ratio, partially offset by a 80 basis point increase in policy acquisition costs. For the year, the expense ratio improved 90 basis points driven by a 1.4 point improvement in other operating expenses, partially offset by a 50 basis point increase in policy acquisition costs. Increases in the policy acquisition cost ratio were primarily driven by the effect of reinsurance costs.
• The net loss and loss adjustment expense ratio increased 16.6 points for the quarter and 10.6 points for the year. Quarterly and full year drivers for 2020 include:
  • Core losses of $134.5 million or 55.6 points for the quarter and $538.5 million or 58.3 points for the year were primarily related to accruing incremental reserves as the industry continues to see increased severity in represented claims, which were offset by a benefit from our claims adjusting business. Reinsurance costs also drove increases in the core net loss ratio.
  • Weather events in excess of plan of $76.0 million or 31.4 points ($16.7 million in 4Q19) for the quarter were related to a number of weather events in the states where we do business. For the full year, weather events in excess of plan were $162.0 million or 17.6 points ($38.7 million in FY19), which includes one significant hurricane, Hurricane Sally, and a significant number of other smaller hurricanes and other PCS events.
  • Prior years’ reserve development of $23.4 million or 9.7 points for the quarter and $58.3 million or 6.3 points for the year were primarily related to the continued adjusting and settlement of Hurricane Irma and companion claims.

Services

($thousands)	Three Months Ended December 31,												Twelve Months Ended December 31,
	2020				2019				Change				2020				2019				Change
Commission revenue	$	9,393			$	7,168			31.0	%			$	33,163			$	26,101			27.1	%
Policy fees	5,520				4,973				11.0	%			23,773				21,560				10.3	%
Other revenue	1,972				2,603				(24.2)	%			8,501				7,972				6.6	%
Total	16,885				14,744				14.5	%			65,437				55,633				17.6	%

Total services revenue increased 14.5% for the quarter and 17.6% for the full year. The increase was driven by commission revenue earned on ceded premiums and an increase in policy fees due to an increase in volume, partially offset by other revenue.

Investments

($thousands)	Three Months Ended December 31,												Twelve Months Ended December 31,
	2020				2019				Change				2020				2019				Change
Net investment income	$	2,823			$	7,578			(62.7)	%			$	20,393			$	30,743			(33.7)	%
Realized gains (losses)	9,058				437				1,972.8	%			63,352				(12,715)				NM
Unrealized gains (losses)	2,187				824				165.4	%			25				23,188				(99.9)	%
NM = Not Meaningful

Net investment income decreased 62.7% for the quarter and 33.7% for the year, primarily due to lower yields on cash and fixed-income investments during 2020 when compared to 2019. Realized gains for the quarter and for the full year resulted primarily from taking advantage of increased market prices on our available-for-sale debt investment portfolio, and to a lesser extent aided by the sale of equity securities. Unrealized gains were driven by market fluctuations in equity securities resulting in a favorable outcome for the quarter and the full year.

Capital Deployment

During the fourth quarter, the Company repurchased approximately 193 thousand shares at an aggregate cost of $2.4 million. For the full year, the Company repurchased approximately 1.6 million shares at an aggregate cost of $28.9 million. The Company’s current share repurchase authorization program has $19.4 million remaining as of December 31, 2020 and runs through November 3, 2022.

Guidance

Universal initiated the following guidance for fiscal 2021:

• GAAP and Non-GAAP Adjusted EPS in a range of $2.75 - $3.00 (assuming no extraordinary weather events in 2021)
• Annualized return on average equity in a range of 17% - 19%

Conference Call and Webcast

• Friday, February 26, 2021 at 9:00 a.m. ET
• U.S. Dial-in Number: (855) 752-6647
• International: (503) 343-6667
• Participant code: 9074399
• Listen to live webcast: UniversalInsuranceHoldings.com
• Replay of the call will be available on the UVE website and by phone at (855) 859-2056 or internationally at (404) 537-3406 using the participant code: 9074399 through March 13, 2021

About Universal Insurance Holdings, Inc.

Universal Insurance Holdings (UVE) is a holding company offering property and casualty insurance and value-added insurance services. We develop, market, and write insurance products for consumers predominantly in the personal residential homeowners lines of business and perform substantially all other insurance-related services for our primary insurance entities, including risk management, claims management and distribution. We sell insurance products through both our appointed independent agents and through our direct online distribution channels in the United States across 19 states (primarily Florida). Learn more at UniversalInsuranceHoldings.com.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the U.S. Securities and Exchange Commission (“SEC”), including adjusted earnings per diluted share, which excludes the impact of the net realized and unrealized gains and losses on investments as well as extraordinary reinstatement premiums and associated commissions. Extraordinary reinstatement premiums are not covered by reinstatement premium protection and attach just below the Florida Hurricane Catastrophe Fund (“FHCF”) reinsurance layer. Adjusted operating income excludes the impact of the net realized and unrealized gains and losses on investments, as well as interest expense and extraordinary reinstatement premiums and associated commissions. A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). UVE management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. UVE management also believes that these non-GAAP financial measures enhance the ability of investors to analyze UVE’s business trends and to understand UVE’s performance. UVE’s management utilizes these non-GAAP financial measures as guides in long-term planning. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures presented in accordance with GAAP. For more information regarding our key performance indicators, please refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Performance Indicators” in our forthcoming Annual Report on Form 10-K for the year ended December 31, 2020.

Forward-Looking Statements

This press release may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “will,” “plan,” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such statements may include commentary on plans, products and lines of business, marketing arrangements, reinsurance programs and other business developments and assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, including those risks and uncertainties described under the heading “Risk Factors” and “Liquidity and Capital Resources” in our 2020 Annual Report on Form 10-K, and supplemented in our subsequent Quarterly Reports on Form 10-Q. Future results could differ materially from those described, and the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. For further information regarding risk factors that could affect the Company’s operations and future results, refer to the Company’s reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K and the most recent quarterly reports on Form 10-Q.

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share data)
		December 31,				December 31,
		2020				2019
ASSETS
Invested Assets
Fixed maturities, at fair value		$	819,861			$	855,284
Equity securities, at fair value		84,887				43,717
Investment real estate, net		15,176				15,585
Total invested assets		919,924				914,586
Cash and cash equivalents		167,156				182,109
Restricted cash and cash equivalents		12,715				2,635
Prepaid reinsurance premiums		215,723				175,208
Reinsurance recoverable		160,417				193,236
Premiums receivable, net		66,883				63,883
Property and equipment, net		53,572				41,351
Deferred policy acquisition costs		110,614				91,882
Goodwill		2,319				2,319
Other assets		49,418				52,643
TOTAL ASSETS		$	1,758,741			$	1,719,852
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses		$	322,465			$	267,760
Unearned premiums		783,135				661,279
Advance premium		49,562				30,975
Reinsurance payable, net		10,312				122,581
Long-term debt		8,456				9,926
Other liabilities		135,549				133,430
Total liabilities		1,309,479				1,225,951
STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock ($0.01 par value)4		—				—
Common stock ($0.01 par value)5		468				467
Treasury shares, at cost - 15,680 and 14,069		(225,506)				(196,585)
Additional paid-in capital		103,445				96,036
Accumulated other comprehensive income (loss), net of taxes		3,343				20,364
Retained earnings		567,512				573,619
Total stockholders' equity		449,262				493,901
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,758,741			$	1,719,852
Notes:
4 Cumulative convertible preferred stock ($0.01 par value): Authorized - 1,000 shares; Issued - 10 and 10 shares; Outstanding - 10 and 10 shares; Minimum liquidation preference - $9.99 and $9.99 per share.
5 Common stock ($0.01 par value): Authorized - 55,000 shares; Issued - 46,817 and 46,707 shares; Outstanding 31,137 and 32,638 shares.

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (in thousands)
		Three Months Ended									Twelve Months Ended
		December 31,									December 31,
		2020				2019					2020				2019
REVENUES
Net premiums earned		$	242,173			$	215,819				$	923,563			$	842,502
Net investment income		2,823				7,578					20,393				30,743
Net realized gains (losses) on sale on investments		9,058				437					63,352				(12,715)
Net change in unrealized gains (losses) of equity securities		2,187				824					25				23,188
Commission revenue		9,393				7,168					33,163				26,101
Policy fees		5,520				4,973					23,773				21,560
Other revenue		1,972				2,603					8,501				7,972
Total revenues		273,126				239,402					1,072,770				939,351
EXPENSES
Losses and loss adjustment expenses		233,940				244,445					758,810				603,406
Policy acquisition costs		52,120				44,667					199,102				177,530
Other operating expenses		14,048				19,298					90,525				94,650
Interest expense		17				45					102				248
Total expenses		300,125				308,455					1,048,539				875,834
Income (loss) before income tax expense		(26,999)				(69,053)					24,231				63,517
Income tax expense (benefit)		(9,324)				(17,980)					5,126				17,003
NET INCOME (LOSS)		$	(17,675)			$	(51,073)				$	19,105			$	46,514

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES SHARE AND PER SHARE INFORMATION (in thousands, except per share data)
		Three Months Ended									Twelve Months Ended
		December 31,									December 31,
		2020				2019					2020				2019
Weighted average common shares outstanding - basic		31,193				32,889					31,884				33,893
Weighted average common shares outstanding - diluted		31,295				32,889					31,972				34,233
Shares outstanding, end of period		31,137				32,638					31,137				32,638
Basic earnings (loss) per common share		$	(0.57)			$	(1.55)				$	0.60			$	1.37
Diluted earnings (loss) per common share		$	(0.57)			$	(1.55)				$	0.60			$	1.36
Cash dividend declared per common share		$	0.29			$	0.29				$	0.77			$	0.77
Book value per share, end of period		$	14.43			$	15.13				$	14.43			$	15.13
Annualized return on average equity (ROE)		(15.4)		%		(38.4)		%			4.1		%		9.2		%
NM = Not Meaningful

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES SUPPLEMENTARY INFORMATION (in thousands, except for Policies In-Force data)
		Three Months Ended									Twelve Months Ended
		December 31,									December 31,
		2020				2019					2020				2019
Premiums
Direct premiums written - Florida		$	302,552			$	246,927				$	1,250,748			$	1,066,112
Direct premiums written - Other States		66,271				55,728					266,731				226,609
Direct premiums written - Total		$	368,823			$	302,655				$	1,517,479			$	1,292,721
Direct premiums earned		$	374,825			$	321,571				$	1,395,623			$	1,233,121
Net premiums earned		$	242,173			$	215,819				$	923,563			$	842,502
Underwriting Ratios - Net
Loss and loss adjustment expense ratio		96.7		%		113.3		%			82.2		%		71.6		%
General and administrative expense ratio6		27.3		%		29.6		%			31.4		%		32.3		%
Policy acquisition cost ratio		21.5		%		20.7		%			21.6		%		21.1		%
Other operating expense ratio6		5.8		%		8.9		%			9.8		%		11.2		%
Combined ratio		124.0		%		142.9		%			113.6		%		103.9		%
Other Items
(Favorable)/Unfavorable prior year reserve development		$	23,433			$	84,365				$	58,337			$	88,068
Points on the loss and loss adjustment expense ratio		9.7		pts		39.1		pts			6.3		pts		10.4		pts
6 Expense ratio excludes interest expense.

		As of
		December 31,
		2020				2019
Policies in force
Florida		728,211				662,343
Other States		256,619				226,018
Total		984,830				888,361
Premiums in force
Florida		$	1,252,916			$	1,070,034
Other States		267,033				226,382
Total		1,519,949				1,296,416
Total Insured Value
Florida		$	192,504,430			$	164,654,848
Other States		109,976,625				91,401,560
Total		302,481,055				256,056,408

	Three Months Ended December 31, 2020
	Direct				Loss Ratio			Ceded				Loss Ratio			Net				Loss Ratio
Premiums earned	$	374,825						$	132,652						$	242,173
Loss and loss adjustment expenses:
Core losses	$	134,734			35.9	%		$	190			0.1	%		$	134,544			55.6	%
Weather events7	168,917				45.1	%		92,954				70.1	%		75,963				31.4	%
Prior years’ reserve development	93,511				24.9	%		70,078				52.8	%		23,433				9.7	%
Total losses and loss adjustment expenses	$	397,162			105.9	%		$	163,222			123.0	%		$	233,940			96.7	%
7 Includes only current year weather events beyond those expected.

	Twelve Months Ended December 31, 2020
	Direct				Loss Ratio			Ceded				Loss Ratio			Net				Loss Ratio
Premiums earned	$	1,395,623						$	472,060						$	923,563
Loss and loss adjustment expenses:
Core losses	$	538,826			38.6	%		$	316			0.1	%		$	538,510			58.3	%
Weather events7	256,917				18.4	%		94,954				20.1	%		161,963				17.6	%
Prior years’ reserve development	284,315				20.4	%		225,978				47.9	%		58,337				6.3	%
Total losses and loss adjustment expenses	$	1,080,058			77.4	%		$	321,248			68.1	%		$	758,810			82.2	%
7 Includes only current year weather events beyond those expected.

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (in thousands, except for per share data)
	Three Months Ended									Twelve Months Ended									Guidance
	December 31,									December 31,									Full Year 2021E
	2020				2019					2020				2019
Income (Loss) Before Income Taxes	$	(26,999)			$	(69,053)				$	24,231			$	63,517
Adjustments:
Reinstatement premium, net of commissions8		—				582					—				2,541
Net unrealized (gains)/losses on equity securities		(2,187)				(824)					(25)				(23,188)
Net realized (gains)/losses on investments		(9,058)				(437)					(63,352)				12,715
Interest Expense		17				45					102				248
Total Adjustments		(11,228)				(634)					(63,275)				(7,684)
Non-GAAP Adjusted Operating Income	$	(38,227)			$	(69,687)				$	(39,044)			$	55,833
GAAP Diluted EPS	$	(0.57)			$	(1.55)				$	0.60			$	1.36				$2.75 - $3.00
Adjustments:
Reinstatement premium, net of commissions8		—				0.02					—				0.07
Net unrealized (gains)/losses on equity securities		(0.07)				(0.03)					—				(0.68)
Net realized (gains)/losses on investments		(0.29)				(0.01)					(1.98)				0.37
Total Pre-Tax Adjustments		(0.36)				(0.02)					(1.98)				(0.24)
Income Tax on Above Adjustments		0.09				—					0.48				0.06
Total Adjustments		(0.27)				(0.02)					(1.50)				(0.18)
Non-GAAP Adjusted EPS	$	(0.84)			$	(1.57)				$	(0.90)			$	1.18				$2.75 - $3.00
8 Includes reinstatement premiums not covered by reinstatement premium protection and related commissions.

 

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FAQ

What were Universal Insurance Holdings' diluted EPS results for Q4 2020?

The diluted EPS for Q4 2020 was $(0.57) on a GAAP basis and $(0.84) on a non-GAAP basis.

How much did Universal Insurance Holdings increase direct premiums written in Q4 2020?

Direct premiums written increased by 21.9% to $368.8 million in Q4 2020.

What is the projected EPS for Universal Insurance Holdings in 2021?

Universal Insurance Holdings projects GAAP and non-GAAP adjusted EPS between $2.75 and $3.00 for 2021.

What significant weather-related impact did Universal Insurance Holdings face in 2020?

The company reported weather events costing $162 million, significantly affecting their financial results.

How many shares did Universal Insurance Holdings repurchase in 2020?

In 2020, Universal repurchased approximately 1.6 million shares at an aggregate cost of $28.9 million.