Universal Insurance Holdings Reports Third Quarter 2020 Results

Rhea-AI Summary

Universal Insurance Holdings reported a Q3 2020 diluted EPS of $(0.10) and non-GAAP adjusted EPS of $(1.43), with total revenue increasing 35.7% year-over-year to $311.7 million. The company faced challenges from hurricanes and reserve development, leading to an annualized return on equity of 10.0%. Direct premiums written grew 19.4%, primarily in Florida, despite a rising combined ratio of 134.7%. The firm reduced its EPS guidance for 2020 and repurchased approximately 534,000 shares for $9.9 million.

Positive

• Total revenue increased 35.7% year-over-year to $311.7 million.
• Direct premiums written rose 19.4%, with a 9.5% policy count growth in Florida.
• Annualized return on average equity (ROE) stands at 10.0%.
• Share repurchase program resulted in the buyback of 534,000 shares at $9.9 million.

Negative

• Q3 diluted EPS of $(0.10) and non-GAAP adjusted EPS of $(1.43) signal financial distress.
• Combined ratio increased to 134.7%, indicating worsening underwriting performance.
• Net investment income dropped 40.1%, impacting overall profitability.
• Guidance for 2020 EPS reduced significantly: GAAP EPS now $1.80 - $2.10, down from $2.31 - $2.61; non-GAAP adjusted EPS now $0.55 - $0.85, down from $2.40 - $2.70.

FORT LAUDERDALE, Fla.--(BUSINESS WIRE)--Universal Insurance Holdings (NYSE: UVE) (the “Company”) reported 2020 third quarter diluted EPS of $(0.10) on a GAAP basis and $(1.43) non-GAAP adjusted EPS¹. Total revenue was up 35.7% from the year ago quarter to $311.7 million. Year-to-date annualized return on average equity was 10.0%.

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 continued to see headwinds in the third quarter as we dealt with elevated industry-wide weather events year-to-date. As previously announced, we were affected by full retention events from Hurricanes Isaias and Sally, in addition to other PCS events year-to-date. Furthermore, we saw an increase in prior year’s companion claims in the run up to the expiration of the statute of limitations for Hurricane Irma, which contributed to prior year’s reserve development,” said Stephen J. Donaghy, Chief Executive Officer.

“Our primary rate increases continue to flow through our book as evidenced by our strong direct premiums written growth of 19.4% in the quarter. We continue to selectively write new business in our existing states, including Florida. Specifically in Florida, we have seen a 9.5% year-over-year policy count growth, with 97% of this growth coming from outside of the tri-county area.”

Summary Financial Results

($thousands, except per share data)	Three Months Ended September 30,												Nine Months Ended September 30,
	2020				2019				Change				2020				2019				Change
(GAAP comparison)
Total revenue	$	311,665			$	229,641			35.7	%			$	799,644			$	699,949			14.2	%
Income (loss) before income taxes	(3,792		)		27,896				NM				51,230				132,570				(61.4	)%
Income (loss) before income taxes margin	(1.2		)%		12.1		%		NM				6.4		%		18.9		%		(12.5	)pts
Diluted EPS	$	(0.10	)		$	0.59			NM				$	1.14			$	2.82			(59.6	)%
Annualized return on average equity (ROE)	(2.5		)%		14.0		%		NM				10.0		%		23.9		%		(13.9	)pts
Book value per share, end of period	$	15.15			$	17.13			(11.6	)%			$	15.15			$	17.13			(11.6	)%
(Non-GAAP comparison)2
Adjusted operating income	(59,594		)		28,476				NM				(817		)		125,520				NM
Adjusted EPS	$	(1.43	)		$	0.61			NM				$	(0.08	)		$	2.67			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.

Total revenue grew double digits for the quarter driven primarily by realized gains on investments, growth in net premiums earned (organic new business growth and primary rate increases) and services revenue. GAAP diluted EPS and non-GAAP adjusted EPS results for the quarter were driven by increased loss and loss adjustment expense (“LAE”) from elevated industry-wide weather events and prior year’s reserve development. Despite elevated activity year-to-date, the Company produced an annualized year-to-date return on average equity of 10.0%.

Underwriting

($thousands, except policies in force)	Three Months Ended September 30,												Nine Months Ended September 30,
	2020				2019				Change				2020				2019				Change
Policies in force (as of end of period)	965,462				872,603				10.6	%			965,462				872,603				10.6	%
Premiums in force (as of end of period)	$	1,459,971			$	1,267,681			15.2	%			$	1,459,971			$	1,267,681			15.2	%
Direct premiums written	$	409,418			$	342,872			19.4	%			$	1,148,656			$	990,066			16.0	%
Direct premiums earned	357,208				313,065				14.1	%			1,020,798				911,550				12.0	%
Net premiums earned	234,191				206,599				13.4	%			681,390				626,683				8.7	%
Expense ratio3	32.9		%		33.5		%		(60.0	)bps			32.8		%		33.2		%		(40.0	)bps
Loss & LAE ratio	101.8		%		64.3		%		37.5	pts			77.0		%		57.3		%		19.7	pts
Combined ratio	134.7		%		97.8		%		36.9	pts			109.8		%		90.5		%		19.3	pts
3 Expense ratio excludes interest expense.

Direct premiums written were up double digits for the quarter, led by strong direct premium growth of 18.8% in Other States (non-Florida), and 19.6% in Florida. The quarter’s growth benefited from organic new business growth, and primary rate increases continuing to flow through the book.

On the expense side, the combined ratio increased 36.9 points for the quarter. The increase was driven primarily by increased weather events, accruing reserves at a higher core loss ratio, prior year’s reserve development, and the impact of higher reinsurance costs, partially offset by a benefit from our claims adjusting business and a reduction in the expense ratio as set forth below.

• The expense ratio improved by 60 basis points for the quarter, primarily related to an 80 basis point improvement in the other operating expense ratio due in large part to economies of scale and lower stock based compensation, partially offset by the effect of increased cost of reinsurance on the expense ratio.
• The net loss and LAE ratio increased 37.5 points for the quarter. Quarterly drivers include:
  • Weather events in excess of plan of $68.0 million, or 29.0 points, for the quarter ($15.0 million in 3Q19) were primarily related to the previously announced hurricanes (Isaias and Sally), in addition to other PCS events that exceeded the plan year-to-date.
  • Prior year’s reserve development of $30.1 million, or 12.9 points, for the quarter ($3.2 million in 3Q19) was partially related to increased prior year’s companion claims being filed during the run up to the expiration of the 3-year catastrophe statute of limitations in September.
  • Core losses of $140.4 million, or 59.9 points, for the quarter ($114.4 million in 3Q19) were primarily related to accruing incremental reserves for the current accident year loss costs and diversified growth.

Services

($thousands)	Three Months Ended September 30,												Nine Months Ended September 30,
	2020				2019				Change				2020				2019				Change
Commission revenue	$	8,997			$	7,380			21.9	%			$	23,770			$	18,933			25.5	%
Policy fees	6,167				5,569				10.7	%			18,253				16,587				10.0	%
Other revenue	1,935				1,929				0.3	%			6,529				5,369				21.6	%
Total	$	17,099			$	14,878			14.9	%			$	48,552			$	40,889			18.7	%

Total services revenue increased 14.9% for the quarter. The increase was driven by commission revenue earned on ceded premiums and an increase in policy fees.

Investments

($thousands)	Three Months Ended September 30,												Nine Months Ended September 30,
	2020				2019				Change				2020				2019				Change
Net investment income	$	4,557			$	7,613			(40.1	)%			$	17,570			$	23,165			(24.2	)%
Realized gains (losses)	53,827				(22		)		NM				54,294				(13,152		)		NM
Unrealized gains (losses)	1,991				573				247.5	%			(2,162		)		22,364				NM
NM = Not Meaningful

Net investment income decreased 40.1% for the quarter, driven by lower yields on cash and fixed-income investments during 2020 when compared to 2019. Realized gains for the quarter resulted from taking advantage of increased market prices on our available-for-sale debt investment portfolio. Cash and cash equivalents increased 122.5% to $405.1 million when compared to the end of 2019 as a result of the actions taken to realize investment gains, leading to higher investment cash flows. As a result of the sales and reinvestment, future portfolio investment income will reflect current market rates.

Capital Deployment

During the third quarter, the Company repurchased approximately 534 thousand shares at an aggregate cost of $9.9 million. Year-to-date, the Company repurchased approximately 1.4 million shares at an aggregate cost of $26.5 million.

On July 6, 2020, the Board of Directors declared a quarterly cash dividend of 16 cents per share of common stock, which was paid on August 7, 2020, to shareholders of record as of the close of business on July 31, 2020.

Guidance

The Company is updating its guidance for 2020 to reflect increased top line revenue, offset by elevated third quarter loss and LAE (assuming no further extraordinary weather events and no realized or unrealized gains in 4Q20):

• GAAP EPS in a range of $1.80 - $2.10 (reduced from previous range of $2.31 - $2.61)
• Non-GAAP Adjusted EPS in a range of $0.55 - $0.85 (reduced from previous range of $2.40 - $2.70)
• Annualized return on average equity (derived from GAAP measures) in a range of 11.1% - 14.1% (reduced from previous range of 13.5% - 16.5%)

Conference Call and Webcast

• Wednesday, October 28, 2020 at 9:00 a.m. ET
• U.S. Dial-in Number: (855) 752-6647
• International: (503) 343-6667
• Participant code: 5317328
• Listen to live webcast and view presentation: 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: 5317328 through November 12, 2020

About Universal Insurance Holdings, Inc.

Universal Insurance Holdings, Inc. (“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 18 states (primarily Florida). Learn more at UniversalInsuranceHoldings.com.

Non-GAAP Financial Measures and Key Performance Indicators

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 Quarterly Report on Form 10-Q for the quarter ended September 30, 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 2019 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)
		September 30,				December 31,
		2020				2019
ASSETS:
Invested Assets
Fixed maturities, at fair value		$	842,574			$	855,284
Equity securities, at fair value		52,700				43,717
Investment real estate, net		15,280				15,585
Total invested assets		910,554				914,586
Cash and cash equivalents		405,132				182,109
Restricted cash and cash equivalents		21,115				2,635
Prepaid reinsurance premiums		333,062				175,208
Reinsurance recoverable		95,078				193,236
Premiums receivable, net		76,800				63,883
Property and equipment, net		52,300				41,351
Deferred policy acquisition costs		111,295				91,882
Goodwill		2,319				2,319
Other assets		42,529				52,643
TOTAL ASSETS		$	2,050,184			$	1,719,852
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses		$	202,720			$	267,760
Unearned premiums		789,137				661,279
Advance premium		55,334				30,975
Reinsurance payable, net		351,255				122,581
Long-term debt		8,823				9,926
Other liabilities		168,152				133,430
Total liabilities		1,575,421				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 - 15,487 and 14,069		(223,086		)		(196,585		)
Additional paid-in capital		101,438				96,036
Accumulated other comprehensive income (loss), net of taxes		1,662				20,364
Retained earnings		594,281				573,619
Total stockholders' equity		474,763				493,901
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	2,050,184			$	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 - 46,821 and 46,707 shares; Outstanding 31,334 and 32,638 shares.

 

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (in thousands)
		Three Months Ended									Nine Months Ended
		September 30,									September 30,
		2020				2019					2020				2019
REVENUES
Net premiums earned		$	234,191			$	206,599				$	681,390			$	626,683
Net investment income		4,557				7,613					17,570				23,165
Net realized gains/(losses) on investments		53,827				(22		)			54,294				(13,152		)
Net change in unrealized gains/(losses) of equity securities		1,991				573					(2,162		)		22,364
Commission revenue		8,997				7,380					23,770				18,933
Policy fees		6,167				5,569					18,253				16,587
Other revenue		1,935				1,929					6,529				5,369
Total revenues		311,665				229,641					799,644				699,949
EXPENSES
Losses and loss adjustment expenses		238,477				132,571					524,870				358,961
Policy acquisition costs		51,594				45,131					146,982				132,863
Other operating expenses		25,370				23,986					76,477				75,352
Interest expense		16				57					85				203
Total expenses		315,457				201,745					748,414				567,379
Income (loss) before income tax expense		(3,792		)		27,896					51,230				132,570
Income tax expense (benefit)		(623		)		7,750					14,450				34,983
NET INCOME (LOSS)		$	(3,169	)		$	20,146				$	36,780			$	97,587

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES SHARE AND PER SHARE INFORMATION (in thousands, except per share data)
		Three Months Ended									Nine Months Ended
		September 30,									September 30,
		2020				2019					2020				2019
Weighted average common shares outstanding - basic		31,659				33,649					32,116				34,230
Weighted average common shares outstanding - diluted		31,659				33,930					32,202				34,565
Shares outstanding, end of period		31,334				33,211					31,334				33,211
Basic earnings (loss) per common share		$	(0.10	)		$	0.60				$	1.14			$	2.85
Diluted earnings (loss) per common share		$	(0.10	)		$	0.59				$	1.14			$	2.82
Cash dividend declared per common share		$	0.16			$	0.16				$	0.48			$	0.48
Book value per share, end of period		$	15.15			$	17.13				$	15.15			$	17.13
Annualized return on average equity (ROE)		(2.5		)%		14.0		%			10.0		%		23.9		%

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES SUPPLEMENTARY INFORMATION (in thousands, except for Policies In Force data)
		Three Months Ended									Nine Months Ended
		September 30,									September 30,
		2020				2019					2020				2019
Premiums
Direct premiums written - Florida		$	334,916			$	280,141				$	948,196			$	819,185
Direct premiums written - Other States		74,502				62,731					200,460				170,881
Direct premiums written - Total		$	409,418			$	342,872				$	1,148,656			$	990,066
Direct premiums earned		$	357,208			$	313,065				$	1,020,798			$	911,550
Net premiums earned		$	234,191			$	206,599				$	681,390			$	626,683
Underwriting Ratios - Net
Loss and loss adjustment expense ratio		101.8		%		64.3		%			77.0		%		57.3		%
Policy acquisition cost ratio		22.1		%		21.8		%			21.6		%		21.2		%
Other operating expense ratio6		10.8		%		11.6		%			11.2		%		12.0		%
General and administrative expense ratio6		32.9		%		33.5		%			32.8		%		33.2		%
Combined ratio		134.7		%		97.8		%			109.8		%		90.5		%
Other Items
(Favorable)/Unfavorable prior year's reserve development		$	30,085			$	3,218				$	34,904			$	3,703
Points on the loss and loss adjustment expense ratio			12.9	pts		1.6		pts			5.1		pts		59		bps
6 Expense ratio excludes interest expense.

		As of
		September 30,
		2020				2019
Policies in force
Florida		715,130				653,202
Other States		250,332				219,401
Total		965,462				872,603
Premiums in force
Florida		$	1,202,318			$	1,051,030
Other States		257,653				216,651
Total		$	1,459,971			$	1,267,681
Total Insured Value
Florida		$	185,382,817			$	161,761,450
Other States		105,432,408				87,516,672
Total		$	290,815,225			$	249,278,122

	Three Months Ended September 30, 2020
	Direct				Loss			Ceded				Loss			Net				Loss
Premiums earned	$	357,208						$	123,017						$	234,191
Loss and loss adjustment expenses:
Core losses	$	140,470			39.3	%		$	78			0.1	%		$	140,392			59.9	%
Weather events7	70,000				19.6	%		2,000				1.6	%		68,000				29.0	%
Prior year’s reserve development	136,737				38.3	%		106,652				86.7	%		30,085				12.9	%
Total losses and loss adjustment expenses	$	347,207			97.2	%		$	108,730			88.4	%		$	238,477			101.8	%
7Includes only current year weather events beyond those expected.

	Nine Months Ended September 30, 2020
	Direct				Loss			Ceded				Loss			Net				Loss
Premiums earned	$	1,020,798						$	339,408						$	681,390
Loss and loss adjustment expenses:
Core losses	$	404,092			39.6	%		$	126			—	%		$	403,966			59.3	%
Weather events7	88,000				8.6	%		2,000				0.6	%		86,000				12.6	%
Prior year’s reserve development	190,804				18.7	%		155,900				46.0	%		34,904				5.1	%
Total losses and loss adjustment expenses	$	682,896			66.9	%		$	158,026			46.6	%		$	524,870			77.0	%
7Includes 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									Nine Months Ended									Guidance
	September 30,									September 30,									Full Year 2020E
	2020				2019					2020				2019
Income (Loss) Before Income Taxes	$	(3,792	)		$	27,896				$	51,230			$	132,570
Adjustments:
Reinstatement premium, net of commissions8	—				1,074					—				1,959
Net unrealized (gains)/losses on equity securities	(1,991		)		(573		)			2,162				(22,364		)
Net realized (gains)/losses on investments	(53,827		)		22					(54,294		)		13,152
Interest Expense	16				57					85				203
Total Adjustments	(55,802		)		580					(52,047		)		(7,050		)
Non-GAAP Adjusted Operating Income	$	(59,594	)		$	28,476				$	(817	)		$	125,520
GAAP Diluted EPS	$	(0.10	)		$	0.59				$	1.14			$	2.82				$ 1.80 - 2.10
Adjustments:
Reinstatement premium, net of commissions8	—				0.03					—				0.06					—
Net unrealized (gains)/losses on equity securities	(0.06		)		(0.01		)			0.07				(0.64		)			0.07
Net realized (gains)/losses on investments	(1.70		)		—					(1.69		)		0.38					(1.69	)
Total Pre-Tax Adjustments	(1.76		)		0.02					(1.62		)		(0.20		)			(1.62	)
Income Tax on Above Adjustments	0.43				—					0.40				0.05					0.40
Total Adjustments	(1.33		)		0.02					(1.22		)		(0.15		)			(1.22	)
Non-GAAP Adjusted EPS	$	(1.43	)		$	0.61				$	(0.08	)		$	2.67				$ 0.55 - 0.85
8 Includes reinstatement premiums not covered by reinstatement premium protection and related commissions.