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Universal Insurance Holdings Reports Fourth Quarter 2021 Results

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·14 min read
In this article:
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  • 4Q21 direct premiums earned up 11.5%; FY21 up 14.4% driven by primary rate increases

  • 4Q21 diluted GAAP earnings per share (EPS) of $(1.54), non-GAAP adjusted EPS1 of $(1.53) predominantly driven by inflationary trends

  • FY21 diluted GAAP EPS of $0.65, non-GAAP adjusted EPS1 of $0.61

  • Clovered.com, our digital agency subsidiary surpassed $40 million in placed premiums in 2021

  • 4Q21 completed private placement of $100 million senior unsecured notes

FORT LAUDERDALE, Fla., February 24, 2022--(BUSINESS WIRE)--Universal Insurance Holdings (NYSE: UVE) (the "Company") reported fourth quarter and full year 2021 results.

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 approximately $1.7 billion of premiums in force and a return on average equity of 4.6%, despite the accelerated inflationary trends we announced on February 10th, which resulted in the Company increasing reserves," said Stephen J. Donaghy, Chief Executive Officer. "Additionally, Clovered.com, our digital agency subsidiary surpassed $40 million in placed premiums during 2021. The lion’s share of our approved rate filings for UPCIC in Florida over the past several quarters for new and renewal business are now effective. We continue to sharpen our pencils on our 2022 Florida primary rate filing in the coming months and are hitting the ground running on our reinsurance renewal, with over 77% of capacity on our first event All States tower already secured. We look forward to continuing to focus on resiliency through this cycle and are monitoring closely the actions in the Florida legislature in regards to several bills, including SB1728, SB1402 and SB186, amongst others."

Summary Financial Results

($thousands, except per share data)

Three Months Ended December 31,

Twelve Months Ended December 31,

2021

2020

Change

2021

2020

Change

(GAAP comparison)

Total revenue

$

292,659

$

273,126

7.2

%

$

1,121,851

$

1,072,770

4.6

%

Income (loss) before income taxes

(64,461

)

(26,999

)

(138.8

) %

28,413

24,231

17.3

%

Income (loss) before income taxes margin

(22.0

) %

(9.9

) %

(12.1) pts

2.5

%

2.3

%

20 bps

Diluted EPS

(1.54

)

(0.57

)

(170.2

) %

0.65

0.60

8.3

%

Annualized return on average equity (ROE)

(41.6

) %

(15.4

) %

(26.2) pts

4.6

%

4.1

%

50 bps

Book value per share, end of period

13.76

14.43

(4.6

) %

13.76

14.43

(4.6

) %

(Non-GAAP comparison)2

Adjusted operating income

(63,433

)

(38,227

)

(65.9

) %

27,205

(39,044

)

NM

Adjusted EPS

(1.53

)

(0.84

)

(82.1

) %

0.61

(0.90

)

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 7.2% for the quarter and 4.6% for the year, driven primarily by growth in net premiums earned from primary rate increases, partially offset, primarily by lower policies-in-force, and lower realized gains on the investment portfolio, and increased reinsurance costs. GAAP diluted EPS and non-GAAP adjusted EPS results for the quarter and the year benefited from continued primary rate increases earnings-in, but were predominantly impacted by strengthening of reserves due to inflationary trends and a reduction in realized gains on the investment portfolio when compared to the prior year period.

Underwriting

($thousands, except policies in force)

Three Months Ended December 31,

Twelve Months Ended December 31,

2021

2020

Change

2021

2020

Change

Policies in force (as of end of period)

943,593

984,830

(4.2

)%

943,593

984,830

(4.2

)%

Premiums in force (as of end of period)

$

1,679,822

$

1,519,949

10.5

%

$

1,679,822

$

1,519,949

10.5

%

Direct premiums written

399,327

368,823

8.3

%

1,671,252

1,517,479

10.1

%

Direct premiums earned

417,817

374,825

11.5

%

1,596,618

1,395,623

14.4

%

Net premiums earned

271,332

242,173

12.0

%

1,035,463

923,563

12.1

%

Expense ratio3

28.1

%

27.3

%

80 bps

30.2

%

31.4

%

(1.2) pts

Loss & LAE ratio

103.3

%

96.7

%

6.6 pts

75.3

%

82.2

%

(6.9) pts

Combined ratio

131.4

%

124.0

%

7.4 pts

105.5

%

113.6

%

(8.1) pts

3 Expense ratio excludes interest expense.

Direct premiums earned were up 11.5% for the quarter, and 14.4% for the year, led by primary rate increases in Florida and other states, while policies-in-force declined 4.2% as a result of continuing to shape our underwriting risks.

On the expense side, the combined ratio increased 7.4 points for the quarter driven primarily by strengthening reserves for the full accident year 2021 as a result of inflationary pressures and increased reinsurance costs impact on the ratio. For the full year, the combined ratio improved 8.1 points as a result of decreased weather events in 2021, lower prior years’ adverse reserve development, and continued business expense management.

  • The expense ratio increased 50 basis points on a direct premiums earned basis for the quarter. For the year, the expense ratio improved 1.2 points on a direct premiums earned basis due to business expense management, including a reduction in agent commissions, advertising, and lower executive compensation, as well as primary rate increases impact on the ratio.

  • The net loss and loss adjustment expense ratio increased 6.6 points for the quarter, but improved 6.9 points for the year. Quarterly and full year drivers for 2021 include:

    • Core losses of $216.0 million for the quarter ($134.5 million in 4Q20) and $696.8 million for the year ($538.5 million in 2020) resulted in a 15.8 point increase on a direct premiums earned basis for the quarter and a 5.0 point increase for the year, primarily driven by accruing incremental reserves as a result of materials, labor, and social inflation. On a net basis, core losses increased 24.0 points for the quarter and 9.0 points for the year.

    • A 21.1 point net improvement for the quarter and a 14.9 point net improvement for the year related to weather events being more in line with plan.

    • Net prior years’ adverse reserve development of $36.5 million for the quarter ($23.4 million in 4Q20) and $54.5 million for the year ($58.3 million in 2020) resulted in a 3.7 point net increase for the quarter and a 1.0 point net improvement for the year. The net prior years’ adverse reserve development for the year was primarily driven by Non-CAT claims, and to a lesser extent Hurricane Irma related claims.

Services

($thousands)

Three Months Ended December 31,

Twelve Months Ended December 31,

2021

2020

Change

2021

2020

Change

Commission revenue

$

11,245

$

9,393

19.7

%

$

41,649

$

33,163

25.6

%

Policy fees

4,892

5,520

(11.4

) %

22,713

23,773

(4.5

) %

Other revenue

1,769

1,972

(10.3

) %

7,631

8,501

(10.2

) %

Total

$

17,906

$

16,885

6.0

%

$

71,993

$

65,437

10.0

%

Total services revenue increased 6.0% for the quarter and 10.0% for the full year. The increases were driven by commission revenue earned on ceded premiums, partially offset by a decrease in policies fees due to a decrease in volume and other revenue.

Investments

($thousands)

Three Months Ended December 31,

Twelve Months Ended December 31,

2021

2020

Change

2021

2020

Change

Net investment income

$

3,894

$

2,823

37.9

%

$

12,535

$

20,393

(38.5

) %

Realized gains (losses)

535

9,058

(94.1

) %

5,892

63,352

(90.7

) %

Unrealized gains (losses)

(1,008

)

2,187

NM

(4,032

)

25

NM

NM = Not Meaningful

Net investment income increased 37.9% for the quarter, primarily due to higher levels of invested assets. For the full year, net investment income decreased 38.5% as well as a significant decline in realized gains for the quarter and full year. The declines are the result of the sale, and subsequent reinvestment at lower yields, of a majority of securities in the portfolio that were in an unrealized gain position in the third and fourth quarters of 2020 to recognize the fair value benefits in surplus. Unrealized losses for the quarter and for the full year were driven by market fluctuations in invested assets resulting in an unfavorable outcome for the quarter and the full year.

Capital Deployment

For the full year, the Company repurchased approximately 117 thousand shares at an aggregate cost of $1.6 million. The Company’s current share repurchase authorization program has $17.8 million remaining as of December 31, 2021 and runs through November 3, 2022.

During the fourth quarter the Board of Directors declared a quarterly regular and special cash dividend, together totaling 29 cents per share of common stock, which was paid on December 17, 2021, to shareholders of record as of the close of business on December 10, 2021. This marked more than 10 consecutive years declaring a fourth quarter special dividend. The 29 cents per share dividend consists of a regular quarterly cash dividend of 16 cents per share and a special cash dividend of 13 cents per share, bringing the total regular and special dividends declared in 2021 to 77 cents per share.

Guidance

Universal initiated the following guidance for fiscal 2022:

  • GAAP and Non-GAAP Adjusted EPS in a range of $1.80 - $2.20 (assuming no extraordinary weather events in 2022)

  • Annualized return on average equity in a range of 12.5% - 15.0%

Conference Call and Webcast

  • Friday, February 25, 2022 at 9:00 a.m. ET

  • U.S. Dial-in Number: (855) 752-6647

  • International: (503) 343-6667

  • Participant code: 7899332

  • 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: 7899332 through March 12, 2022

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, 2021.

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 2021 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,

2021

2020

ASSETS

Invested Assets

Fixed maturities, at fair value

$

1,040,455

$

819,861

Equity securities, at fair value

47,334

84,887

Investment real estate, net

5,891

15,176

Total invested assets

1,093,680

919,924

Cash and cash equivalents

250,508

167,156

Restricted cash and cash equivalents

2,635

12,715

Prepaid reinsurance premiums

240,993

215,723

Reinsurance recoverable

185,589

160,417

Premiums receivable, net

64,923

66,883

Property and equipment, net

53,682

53,572

Deferred policy acquisition costs

108,822

110,614

Goodwill

2,319

2,319

Other assets

52,990

49,418

TOTAL ASSETS

$

2,056,141

$

1,758,741

LIABILITIES AND STOCKHOLDERS' EQUITY

LIABILITIES:

Unpaid losses and loss adjustment expenses

$

346,216

$

322,465

Unearned premiums

857,769

783,135

Advance premium

53,694

49,562

Reinsurance payable, net

188,662

10,312

Long-term debt, net

103,676

8,456

Other liabilities

76,422

135,549

Total liabilities

1,626,439

1,309,479

STOCKHOLDERS' EQUITY:

Cumulative convertible preferred stock ($0.01 par value)4

Common stock ($0.01 par value)5

470

468

Treasury shares, at cost - 15,797 and 15,680

(227,115

)

(225,506

)

Additional paid-in capital

108,202

103,445

Accumulated other comprehensive income (loss), net of taxes

(15,568

)

3,343

Retained earnings

563,713

567,512

Total stockholders' equity

429,702

449,262

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

2,056,141

$

1,758,741

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 - 47,018 and 46,817 shares; Outstanding - 31,221 and 31,137 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,

2021

2020

2021

2020

REVENUES

Net premiums earned

$

271,332

$

242,173

$

1,035,463

$

923,563

Net investment income

3,894

2,823

12,535

20,393

Net realized gains (losses) on sale of investments

535

9,058

5,892

63,352

Net change in unrealized gains (losses) of equity securities

(1,008

)

2,187

(4,032

)

25

Commission revenue

11,245

9,393

41,649

33,163

Policy fees

4,892

5,520

22,713

23,773

Other revenue

1,769

1,972

7,631

8,501

Total revenues

292,659

273,126

1,121,851

1,072,770

EXPENSES

Losses and loss adjustment expenses

280,440

233,940

779,205

758,810

Policy acquisition costs

55,880

52,120

...

226,167

199,102

Other operating expenses

20,245

14,048

87,414

90,525...