Universal Insurance Holdings, Inc. Reports Fourth Quarter and Full Year 2017 Results
Fourth Quarter 2017 Highlights
- Premium Growth Continues – Direct premiums written grew 12.5% in the fourth quarter, with 9.4% growth in
Florida and 36.8% growth in Other States; Universal DirectSM contributed to growth in all geographies. We began writing inNew York during the quarter, and now write in 16 states with licenses in 4 additional states. - Strong Underwriting Profitability – The fourth quarter net combined ratio was 77.6%, improved from 95.0% in the prior year's quarter (which included Hurricane Matthew) with reductions in both the loss and LAE ratio and the G&A expense ratio. The current quarter includes a
$9.2 million (5.0 points) loss and LAE benefit from Hurricane Irma due to reinsurance recoveries recognized during the quarter, and approximately$35.0 million (19.1 points) of estimated pretax profit relating to additional income generated by our service company subsidiaries following the storm. The current quarter also includes$26.2 million (14.3 points) of prior accident year reserve strengthening and$18.3 million (9.9 points) of current accident year reserve strengthening. - Solid Balance Sheet – Book value per share grew 3.7% from
September 30, 2017 (19.6% from year-end 2016) to$12.67 . Our investment portfolio is stable and composed of high quality securities, we have minimal debt or goodwill, and we are protected by a comprehensive reinsurance program, which performed as expected and designed following Hurricane Irma. We took action to strengthen both current and prior accident year reserves during the fourth quarter, driven primarily by Assignment of Benefits (AOB) related claims within ourFlorida book, including the increased litigation frequency experienced during 2017 surrounding the AOB issue. We believe our loss reserves are appropriately set at current levels. - Focused on Shareholder Returns – Return on Average Common Equity (ROE) was 33.0% for the fourth quarter of 2017 and 25.7% for the full year 2017. We paid total dividends of
$0.69 per share during 2017 for an annual dividend yield of 2.8%, including a special dividend during the fourth quarter. We repurchased 10,000 shares for$0.3 million ($25.71 per share) during the fourth quarter and 770,559 shares for$18.1 million ($23.54 per share) during the full year;$19.8 million remains on our buyback authorization.
Fourth Quarter 2017 Results
Direct premiums written grew 12.5% from the prior year's quarter to
Commission revenue grew by 39.5% versus the prior year's quarter to
The net combined ratio was 77.6% in the fourth quarter of 2017 compared to 95.0% in the prior year's quarter. The increase in underwriting profitability was driven by both a reduction in the loss and loss adjustment expense ratio and the general and administrative expense ratio.
The net loss and LAE ratio was 45.3% in the fourth quarter of 2017, compared to 61.9% for the prior year's quarter. The main drivers of the change in the loss and LAE ratio are as follows:
- The current year's quarter included a benefit of
$9.2 million (5.0 points on the loss and LAE ratio), reflecting recoveries received from our reinsurance program related to Hurricane Irma (please see "Hurricane Irma Overview" section for additional details), compared to net losses and LAE of$26.6 million (16.2 points) in the fourth quarter of 2016 related to Hurricane Matthew. - Fourth quarter 2017 results include
$26.2 million (14.3 points) of unfavorable prior year reserve development, related to accident years 2013, 2015, and 2016, driven primarily by Assignment of Benefits (AOB) related claims within ourFlorida book, including the increased litigation frequency experienced during 2017 surrounding the AOB issue. Fourth quarter 2016 results included$4.5 million (2.8 points) of favorable prior year reserve development. - Fourth quarter 2017 results include
$18.3 million (9.9 points) of current accident year reserve strengthening, driven primarily by AOB related claims, as discussed above. The prior year's quarter included$16.8 million (10.2 points) of current accident year reserve strengthening. - We believe our loss reserves are appropriately set at current levels, as we note that the 2013-2016 accident years are well seasoned at this point and have been increased meaningfully from initial picks, while the current accident year loss pick includes added conservatism above the actuarial best estimate.
The net general and administrative expense ratio was 32.3% in the fourth quarter of 2017, compared to 33.1% for the prior year's quarter, as a modest increase in the policy acquisition cost ratio was more than offset by a decline of the other operating expense ratio. The net policy acquisition cost ratio was 20.7% compared to 20.4% in the prior year, while the net other operating expense ratio was 11.6% compared to 12.7% in the prior year.
Additionally, our service company subsidiaries generated substantial additional revenues following Hurricane Irma that led to approximately
Net investment income grew by 27.5% from the prior year's quarter to
Interest expense was
The effective tax rate for the fourth quarter of 2017 was 37.9%, compared to 39.9% in the prior year's quarter. The current year's quarter includes several discrete items, which in aggregate reduced our income tax expense by approximately
Stockholders' equity was
During the fourth quarter, the Company repurchased 10,000 shares for
On
Hurricane Irma Overview
Hurricane Irma made initial landfall in the
- Comprehensive Reinsurance Program – During the quarter ended
September 30, 2017 , the Company recorded gross losses and loss adjustment expenses of$452.0 million resulting from Hurricane Irma, reflecting gross losses and LAE of$450.0 million atUniversal Property & Casualty Insurance Company (UPCIC) and$2.0 million atAmerican Platinum Property and Casualty Insurance Company (APPCIC). The Company's reinsurance protection performed as expected, reducing exposure to the maximum retention limits, limiting net losses and loss adjustment expenses from Hurricane Irma to$37.0 million . During the quarter endedDecember 31, 2017 , the Company revised its estimated gross losses and loss adjustment expenses to$447.0 million , reflecting gross losses and LAE of$445.0 million at UPCIC and$2.0 million at APPCIC, which had no effect on the Company's net loss retention. This revision to gross losses at UPCIC was to account for claims experience during the fourth quarter, and we note that as ofFebruary 9, 2018 , the Company has received 68,634 claims relating to Hurricane Irma, of which 57,799, or approximately 84%, have already been closed. Because gross losses and LAE in states outside ofFlorida are projected to be$12.8 million (which is above our$5.0 million Non-Florida retention) additional recoveries from our Other States Reinsurance Program during the fourth quarter served to reduce UPCIC's aggregate retention from$35 million to$27.2 million . After adding in APPCIC's net retention of$2.0 million , this resulted in a total net retention of losses and loss adjustment expenses of$29.2 million related to Hurricane Irma for the year endedDecember 31, 2017 . Additionally, the Company experienced approximately$2.4 million of gross losses and loss adjustment expenses related to hailstorms inMinnesota that occurred in June of 2017. As a result of Hurricane Irma satisfying an otherwise recoverable provision within our Other States Reinsurance Program, the Company's retention in states outside ofFlorida was reduced to$1.0 million from$5.0 million . This resulted in an effective savings of$1.4 million recorded in the fourth quarter of 2017 on theMinnesota hailstorm events, as the Company retained only the first$1.0 million of losses on the event. ThroughMay 31, 2018 , our Other States Reinsurance Program will continue to have a net retention of$1.0 million as a result of the otherwise recoverable provision having been satisfied. - Vertically Integrated Structure – As we have previously disclosed, the Company benefits from our vertically integrated structure by retaining certain revenues and/or fees that are paid to our subsidiary service providers for various services provided, including reinsurance brokerage, claims adjusting and other services. This benefit is particularly notable during large catastrophic events such as Hurricane Irma, which result in a substantial number of claims leading to increased activity at our service company subsidiaries. As a result of Hurricane Irma, the quarter and year ended
December 31, 2017 included the benefit of additional net revenues within our service provider subsidiaries, particularlyUniversal Adjusting Corporation (UAC) andBlue Atlantic Reinsurance Corporation (BARC), which led to a higher level of profitability than would otherwise be the case in a normal quarter or year. In aggregate, the company estimates that these additional revenues at service company subsidiaries resulted in approximately$35.0 million of net pretax benefit during the fourth quarter and full year 2017. This favorable benefit related primarily to two factors: (1) as a result of the increased level of claims following Hurricane Irma, UAC, which manages our claims processing and adjustment functions, experienced a significant increase in net revenues and net profit in the months following the storm, and (2) Commission Revenue included a benefit of approximately$2.0 million related to reinstatement premium commissions received by BARC. - Other Factors – In addition to the items discussed above, Hurricane Irma resulted in various other effects on our ongoing business, in particular with respect to premium writings and policy fee income. We experienced an increased level of premium volume, including an increase in both new and renewal business, as well as a corresponding increase in policy fee income, during both the quarter ending
September 30, 2017 and the quarter endingDecember 31, 2017 . Several days after Hurricane Irma made landfall, the Florida Insurance Commissioner issued an emergency order that temporarily suspended policy cancellations and nonrenewals by insurance companies. Specifically, the order barred insurance companies from cancelling or nonrenewing policies betweenSeptember 4, 2017 andOctober 15, 2017 ; barred the cancellation or nonrenewal of policies covering residential properties damaged by Hurricane Irma until at least 90 days after the properties are repaired; and required that any cancellations or nonrenewals issued or mailed fromAugust 25, 2017 throughSeptember 3, 2017 were withdrawn and reissued no earlier thanOctober 15, 2017 . This emergency order resulted in increased levels of premium and policy fee volume as compared to both the prior year and our internal expectations. In addition, the emergency order resulted in a delay of our previously filed FL statewide rate increase (which was for an average statewide increase of 3.4%). We had initially expected our rates to be approved by the Florida OIR in September, and as a result of Hurricane Irma and the corresponding emergency order, the rates were not approved until early December. We began using our new rates onDecember 7, 2017 for new business and onJanuary 26, 2018 for renewal business.
Conference Call
Members of the Universal management team will host a conference call on
About
Forward-Looking Statements and Risk Factors
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," 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. Future results could differ materially from those described, and the Company undertakes no obligation to correct or update any forward-looking statements. 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
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CONSOLIDATED BALANCE SHEETS (UNAUDITED) |
||||
(in thousands, except per share data) |
||||
|
|
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2017 |
2016 |
|||
ASSETS |
||||
Invested Assets |
||||
Fixed maturities, at fair value |
$ 639,334 |
$ 584,361 |
||
Equity securities, at fair value |
62,215 |
50,803 |
||
Short-term investments, at fair value |
10,000 |
5,002 |
||
Investment real estate, net |
18,474 |
11,435 |
||
Total invested assets |
730,023 |
651,601 |
||
Cash and cash equivalents |
213,486 |
105,730 |
||
Restricted cash and cash equivalents |
2,635 |
2,635 |
||
Prepaid reinsurance premiums |
132,806 |
124,385 |
||
Reinsurance recoverable |
182,405 |
106 |
||
Premiums receivable, net |
56,500 |
53,833 |
||
Property and equipment, net |
32,866 |
32,162 |
||
Deferred policy acquisition costs |
73,059 |
64,912 |
||
|
2,319 |
2,319 |
||
Other assets |
28,900 |
22,324 |
||
TOTAL ASSETS |
$ 1,454,999 |
$ 1,060,007 |
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
LIABILITIES: |
||||
Unpaid losses and loss adjustment expenses |
248,425 |
58,494 |
||
Unearned premiums |
532,444 |
475,756 |
||
Advance premium |
26,216 |
17,796 |
||
Reinsurance payable, net |
110,381 |
80,891 |
||
Long-term debt |
12,868 |
15,028 |
||
Other liabilities |
84,677 |
40,852 |
||
Total liabilities |
1,015,011 |
688,817 |
||
STOCKHOLDERS' EQUITY: |
||||
Cumulative convertible preferred stock ( |
— |
— |
||
Common stock ( |
458 |
453 |
||
|
(105,123) |
(86,982) |
||
Additional paid-in capital |
86,186 |
82,263 |
||
Accumulated other comprehensive income (loss), net of taxes |
(6,281) |
(6,408) |
||
Retained earnings |
464,748 |
381,864 |
||
Total stockholders' equity |
439,988 |
371,190 |
||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY |
$ 1,454,999 |
$ 1,060,007 |
||
Notes: |
||||
1 - Cumulative convertible preferred stock ( |
||||
2 - Common stock ( |
|
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) |
|||||||||
(in thousands) |
|||||||||
Three Months Ended |
Twelve Months Ended |
||||||||
|
|
||||||||
2017 |
2016 |
2017 |
2016 |
||||||
REVENUES |
|||||||||
Net premiums earned |
$ 183,708 |
$ 163,973 |
$ 688,793 |
$ 632,416 |
|||||
Net investment income |
4,448 |
3,489 |
13,460 |
9,540 |
|||||
Net realized gains/(losses) on investments |
120 |
950 |
2,570 |
2,294 |
|||||
Commission revenue |
6,707 |
4,806 |
21,253 |
17,733 |
|||||
Policy fees |
4,244 |
3,787 |
18,838 |
16,880 |
|||||
Other revenue |
2,085 |
1,600 |
7,002 |
6,426 |
|||||
Total revenues |
201,312 |
178,605 |
751,916 |
685,289 |
|||||
EXPENSES |
|||||||||
Losses and loss adjustment expenses |
83,299 |
101,480 |
350,428 |
301,229 |
|||||
Policy acquisition costs |
38,092 |
33,523 |
138,846 |
125,978 |
|||||
Other operating expenses |
21,251 |
20,814 |
91,810 |
94,777 |
|||||
Interest expense |
79 |
59 |
348 |
422 |
|||||
Total expenses |
142,721 |
155,876 |
581,432 |
522,406 |
|||||
Income before income tax expense |
58,591 |
22,729 |
170,484 |
162,883 |
|||||
Income tax expense |
22,195 |
9,072 |
63,549 |
63,473 |
|||||
NET INCOME |
$ 36,396 |
$ 13,657 |
$ 106,935 |
$ 99,410 |
|
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SHARE AND PER SHARE INFORMATION |
|||||||||
(in thousands, except per share data) |
|||||||||
Three Months Ended |
Twelve Months Ended |
||||||||
|
|
||||||||
2017 |
2016 |
2017 |
2016 |
||||||
Weighted average common shares outstanding - basic |
34,589 |
35,042 |
34,841 |
34,919 |
|||||
Weighted average common shares outstanding - diluted |
35,495 |
35,802 |
35,809 |
35,650 |
|||||
Shares outstanding, end of period |
34,735 |
35,052 |
34,735 |
35,052 |
|||||
Basic earnings per common share |
$ 1.05 |
$ 0.39 |
$ 3.07 |
$ 2.85 |
|||||
Diluted earnings per common share |
$ 1.03 |
$ 0.38 |
$ 2.99 |
$ 2.79 |
|||||
Cash dividend declared per common share |
$ 0.14 |
$ 0.14 |
$ 0.69 |
$ 0.69 |
|||||
Book value per share, end of period |
$ 12.67 |
$ 10.59 |
$ 12.67 |
$ 10.59 |
|||||
Return on average equity (ROE) |
33.0% |
14.4% |
25.7% |
29.4% |
|
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SUPPLEMENTARY INFORMATION |
|||||||||
(in thousands, except Policies In-Force) |
|||||||||
Three Months Ended |
Twelve Months Ended |
||||||||
|
|
||||||||
2017 |
2016 |
2017 |
2016 |
||||||
Premiums |
|||||||||
Direct premiums written - |
$ 205,785 |
$ 188,170 |
$ 923,962 |
$ 860,646 |
|||||
Direct premiums written - Other States |
33,751 |
24,665 |
131,924 |
93,971 |
|||||
Direct premiums written - Total |
$ 239,536 |
$ 212,835 |
$ 1,055,886 |
$ 954,617 |
|||||
Direct premiums earned |
$ 263,392 |
$ 238,656 |
$ 999,199 |
$ 921,227 |
|||||
Net premiums earned |
$ 183,708 |
$ 163,973 |
$ 688,793 |
$ 632,416 |
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Underwriting Ratios - Net |
|||||||||
Loss and loss adjustment expense ratio |
45.3% |
61.9% |
50.9% |
47.6% |
|||||
Policy acquisition cost ratio |
20.7% |
20.4% |
20.2% |
19.9% |
|||||
Other operating expense ratio |
11.6% |
12.7% |
13.3% |
15.0% |
|||||
General and administrative expense ratio |
32.3% |
33.1% |
33.5% |
34.9% |
|||||
Combined ratio |
77.6% |
95.0% |
84.4% |
82.5% |
|||||
Other Items |
|||||||||
(Favorable)/Unfavorable prior year reserve development |
26,181 |
(4,532) |
27,499 |
(4,690) |
|||||
Points on the loss and loss adjustment expense ratio |
14.3% |
-2.8% |
4.0% |
-0.7% |
|||||
As of |
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|
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2017 |
2016 |
||||||||
Policies In-Force |
|||||||||
|
618,280 |
577,783 |
|||||||
Other States |
146,238 |
105,133 |
|||||||
Total |
764,518 |
682,916 |
|||||||
In-Force Premium |
|||||||||
|
$ 926,087 |
$ 862,332 |
|||||||
Other States |
131,515 |
93,637 |
|||||||
Total |
$ 1,057,602 |
$ 955,969 |
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Total Insured Value |
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|
|
|
|||||||
Other States |
51,772,540 |
35,543,396 |
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Total |
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Contacts: |
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Investors |
Media |
Dean Evans |
|
VP Investor Relations |
|
954-958-1306 |
212-355-4449 |
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SOURCE
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