United Insurance Holdings Corp. (Nasdaq: UIHC) (UPC Insurance or
the Company), a property and casualty insurance holding company, today
reported its financial results for the second quarter ended June 30,
2018.
“This was a solid quarter for UPC,” said John Forney, President & CEO of
UPC Insurance. “We continued to show strong and balanced organic growth
across our geographic footprint, and produced record levels of written
and earned premium for the quarter. On the loss side, despite retaining
over $17 million of catastrophe losses, we posted our best Q2 earnings
performance ever, and the second best earnings of any quarter in company
history, behind only last year’s Q4, when we retained only $1.3 million
in catastrophe losses. I’m proud of the progress we are making, and
excited for the rest of the year.”
Return on Equity and Core Return on Equity
Return on equity is a ratio the Company calculates by dividing
annualized net income for the trailing three months by the average
stockholders’ equity for the trailing twelve months. Core return on
equity (see calculation below) is a ratio calculated using non-GAAP
measures. It is calculated by dividing the annualized core income for
the trailing three months by the average stockholders’ equity for the
trailing twelve months. Core income is an after-tax non-GAAP measure
that is calculated by excluding from net income the effect of non-cash
amortization of intangible assets, unrealized gains or losses on the
Company’s equity security investments and realized gains or losses on
the Company’s investment portfolio. In the opinion of the Company’s
management, core income, core income per share and core return on equity
are meaningful indicators to investors of the Company’s underwriting and
operating results, since the excluded items are not necessarily
indicative of operating trends. Internally, the Company’s management
uses core income, core income per share and core return on equity to
evaluate performance against historical results and establish financial
targets on a consolidated basis. The table above reconciles core income
to net income, the most directly comparable GAAP measure.
Combined Ratio and Underlying Ratio
The calculations of the Company’s combined ratio and underlying combined
ratio are shown below.
Quarterly Financial Results
Net income for the second quarter of 2018 was $14.7 million, or $0.34
per diluted share, compared to net income of $7.3 million, or $0.17 per
diluted share, for the second quarter of 2017. The increase in net
income was primarily due to the increase in gross premiums earned and
the decrease in amortization and merger expenses during the second
quarter of 2018 compared to the second quarter of 2017.
The Company’s total gross written premium increased by $32.3 million, or
9.2%, to $384.7 million for the second quarter of 2018 from $352.3
million for the second quarter of 2017, primarily reflecting organic
growth in new and renewal business generated in all regions. The
breakdown of the quarter-over-quarter changes in both direct written and
assumed premiums by region and gross written premium by line of business
are shown in the table below.
Three Months EndedJune 30,
Loss and LAE increased by $1.7 million, or 1.9%, to $88.6 million for
the second quarter of 2018 from $86.9 million for the second quarter of
2017. Loss and LAE expense as a percentage of net earned premiums
decreased 2.8 points to 51.7% for the second quarter of 2018, compared
to 54.5% for the same period last year. Excluding catastrophe losses and
reserve development, the Company’s gross underlying loss and LAE ratio
for the second quarter of 2018 would have been 24.9%, a decrease of 0.5
points from 25.4% during the second quarter of 2017.
Policy acquisition costs increased by $7.1 million, or 16.5%, to $50.5
million for the second quarter of 2018 from $43.3 million for the second
quarter of 2017. The primary driver of the increase in costs was the
managing general agent fees related to AmCo commercial premiums along
with agent commissions which were generally consistent with the
Company’s growth in premium production and higher average market
commission rates outside of Florida.
Operating and underwriting expenses increased by $3.4 million, or 54.7%,
to $9.7 million for the second quarter of 2018 from $6.3 million for the
second quarter of 2017, primarily due to increased costs related to
incurred expenses for software tools and agent incentive costs.
General and administrative expenses decreased by $(15.5) million, or
(55.1)%, to $12.6 million for the second quarter of 2018 from $28.2
million for the second quarter of 2017, primarily due to amortization
costs related to the merger with AmCo during the second quarter of 2017
that were fully expensed at the end of the first quarter of 2018 as well
as merger expenses that were incurred during the second quarter of 2017.
Combined Ratio Analysis
The calculations of the Company’s loss ratios and underlying loss ratios
are shown below.
The calculations of the Company’s expense ratio and underlying expense
ratios are shown below.
Reinsurance Costs as a % of Earned Premium
Excluding the Company’s business for which it cedes 100% of the risk of
loss, reinsurance costs in the second quarter of 2018 were 38.8% of
gross premiums earned, compared to 37.1% of gross premiums earned for
the second quarter of 2017. The increase in this ratio was driven
primarily by the increased coverage purchased for our 2018-19 combined
catastrophe reinsurance program.
Investment Portfolio Highlights
The Company’s cash and investment holdings increased to $1.2 billion at
June 30, 2018 compared to $1.1 billion at December 31, 2017. UPC
Insurance’s cash and investment holdings consist of investments in U.S.
government and agency securities, corporate debt and 100% investment
grade money market instruments. Fixed maturities represented
approximately 90.3% of total investments at June 30, 2018 compared to
89.3% at December 31, 2017. At June 30, 2018 the modified duration was
3.8 years compared to 3.9 years at December 31, 2017.
Book Value Analysis
Book value per share increased 1.3% from $12.56 at December 31, 2017 to
$12.72 at June 30, 2018, and underlying book value per share increased
5.2% from $12.35 at December 31, 2017 to $12.99 at June 30, 2018. An
increase in the Company’s retained earnings drove the increase in our
book value per share. Removing the effect of the decrease in accumulated
other comprehensive income, as shown in the table below, also impacted
our underlying book value per share.
Definitions of Non-GAAP Measures
We believe that investors’ understanding of UPC Insurance’s performance
is enhanced by our disclosure of the following non-GAAP measures. Our
methods for calculating these measures may differ from those used by
other companies and therefore comparability may be limited.
Combined ratio excluding the effects of current year catastrophe
losses, prior year reserve development and ceding commission income
earned (underlying combined ratio) is a non-GAAP ratio, which is
computed by subtracting the effect of current year catastrophe losses,
prior year development, and ceding commission income earned related to
the Company’s quota share reinsurance agreement from the combined ratio.
The Company believes that this ratio is useful to investors and it is
used by management to reveal the trends in the Company’s business that
may be obscured by current year catastrophe losses, losses from lines in
run-off, prior year development, and ceding commission income earned.
Current year catastrophe losses cause the Company’s loss trends to vary
significantly between periods as a result of their incidence of
occurrence and magnitude, and can have a significant impact on the
combined ratio. Prior year development is caused by unexpected loss
development on historical reserves. Ceding commission income compensates
the Company for expenses it incurs in generating the premium ceded under
the Company’s quota share reinsurance agreement. The Company believes it
is useful for investors to evaluate these components separately and in
the aggregate when reviewing the Company’s performance. The most direct
comparable GAAP measure is the combined ratio. The underlying combined
ratio should not be considered as a substitute for the combined ratio
and does not reflect the overall profitability of the Company’s business.
Net loss and LAE excluding the effects of current year catastrophe
losses and prior year reserve development (underlying loss and LAE)
is a non-GAAP measure which is computed by subtracting the effect of
current year catastrophe losses and prior year reserve development from
net loss and LAE. The Company uses underlying loss and LAE figures to
analyze the Company’s loss trends that may be impacted by current year
catastrophe losses and prior year development on the Company’s reserves.
As discussed previously, these two items can have a significant impact
on the Company’s loss trends in a given period. The Company believes it
is useful for investors to evaluate these components separately and in
the aggregate when reviewing the Company’s performance. The most direct
comparable GAAP measure is net loss and LAE. The underlying loss and LAE
measure should not be considered a substitute for net loss and LAE and
does not reflect the overall profitability of the Company’s business.
Operating expenses excluding the effects of ceding commission income
earned, merger expenses, and amortization of intangible assets
(underlying expense) is a non-GAAP measure which is computed by
subtracting ceding income earned related to the Company’s quota share
reinsurance agreement, merger expenses and amortization of intangibles.
Ceding commission income compensates the Company for expenses it incurs
in generating the premium ceded under the Company’s quota share
reinsurance agreement. Merger expenses are directly related to past
mergers and are not reflective of current period operating performance.
Similarly, amortization expense is related to the amortization of
intangible assets acquired through mergers and therefore the expense
does not arise through normal operations. The Company believes it is
useful for investors to evaluate these components separately and in the
aggregate when reviewing the Company’s performance. The most direct
comparable GAAP measure is operating expenses. The underlying expense
measure should not be considered a substitute for the expense ratio and
does not reflect the overall profitability of the Company’s business.
Net Income excluding the effects of merger expenses, non-cash
amortization of intangible assets, realized gains (losses) and
unrealized gains (losses) on equity securities, net of tax (core income)
is a non-GAAP measure which is computed by adding merger expenses and
non-cash amortization, net of tax, to net income and subtracting
realized gains (losses) on our investment portfolio, net of tax, and
unrealized gains (losses) on our equity securities, net of tax, from net
income. Merger expenses relate to professional fees associated with the
AmCo merger in the second quarter of 2017. Amortization expense is
related to the amortization of intangible assets acquired through merger
and therefore the expense does not arise through normal operations.
Investment portfolio gains (losses) and unrealized equity security gains
(losses) vary independent of our operations. We believe it is useful for
investors to evaluate these components separately and in the aggregate
when reviewing our performance. The most direct comparable GAAP measure
is net income. The core income measure should not be considered a
substitute for net income and does not reflect the overall profitability
of our business.
Book value per common share, excluding the impact of accumulated
other comprehensive income (underlying book value per common share), is
a non-GAAP measure which is computed by dividing common stockholders’
equity after excluding accumulated other comprehensive income, by total
common shares outstanding plus dilutive potential common shares
outstanding. We use the trend in book value per common share, excluding
the impact of accumulated other comprehensive income, in conjunction
with book value per common share to identify and analyze the change in
net worth attributable to management efforts between periods. We believe
the non-GAAP measure is useful to investors because it eliminates the
effect of interest rates that can fluctuate significantly from period to
period and are generally driven by economic and financial factors which
are not influenced by management. Book value per common share is the
most directly comparable GAAP measure. Book value per common share,
excluding the impact of accumulated other comprehensive income, should
not be considered a substitute for book value per common share, and does
not reflect the recorded net worth of our business.
Conference Call Details
Date and Time:
Participant Dial-In:
(International): 201-493-6724
Webcast:
To listen to the live webcast, please go to www.upcinsurance.com
(Investor Relations – News & Market Data – Event Calendar) and
click on the conference call link, or go to: http://upcinsurance.equisolvewebcast.com/q2-2018.
An archive of the webcast will be available for a limited period
of time thereafter.
About UPC Insurance
Founded in 1999, UPC Insurance is an insurance holding company that
sources, writes and services personal and commercial residential
property and casualty insurance policies using a group of wholly owned
insurance subsidiaries through a variety of distribution channels. The
Company currently writes policies in Connecticut, Florida, Georgia,
Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina,
Rhode Island, South Carolina and Texas, and is licensed to write in
Alabama, Delaware, Maryland, Mississippi, New Hampshire and Virginia.
From its headquarters in St. Petersburg, UPC Insurance’s team of
dedicated professionals manages a completely integrated insurance
company, including sales, underwriting, customer service and claims. UPC
Insurance is a company committed to financial stability and solvency.
Forward-Looking Statements
Statements made in this press release, or on the conference call
identified above, and otherwise, that are not historical facts are
“forward-looking statements” that anticipate results based on our
estimates, assumptions and plans and are subject to uncertainty. These
statements are made subject to the safe-harbor provisions of the Private
Securities Litigation Reform Act of 1995. These forward-looking
statements do not relate strictly to historical or current facts and may
be identified by their use of words such as “may,” “will,” “expect,”
“endeavor,” “project,” “believe,” “anticipate,” “intend,” “could,”
“would,” “estimate” or “continue” or the negative variations thereof or
comparable terminology. We believe these statements are based on
reasonable estimates, assumptions and plans. However, if the estimates,
assumptions or plans underlying the forward-looking statements prove
inaccurate or if other risks or uncertainties arise, actual results
could differ materially from those communicated in these forward-looking
statements. Factors that could cause actual results to differ materially
from those expressed in, or implied by, the forward-looking statements
may be found in our filings with the U.S. Securities and Exchange
Commission, including the “Risk Factors” section in our most recent
Annual Report on Form 10-K and subsequent Quarterly Reports on Form
10-Q. Forward-looking statements speak only as of the date on which they
are made, and, except as required by applicable law, we undertake no
obligation to update or revise any forward-looking statement.
Consolidated Statements of Comprehensive Income
(unaudited)
In thousands, except share and per share amounts
Losses and loss adjustment expenses
Consolidated Balance Sheets
(unaudited)
In thousands, except share amounts
Preferred stock, $0.0001 par value; 1,000,000 authorized; none
issued oroutstanding
Common stock, $0.0001 par value; 50,000,000 shares authorized;
43,034,270and 42,822,187 issued; 42,822,187 and 42,573,054
outstanding, respectively
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