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Universal Insurance Holdings Reports Third Quarter 2020 Results

·18 min read
  • 3Q20 total revenue up 35.7% to $311.7 million

  • 3Q20 direct premiums written up 19.4%

  • 3Q20 diluted GAAP earnings per share ("EPS") of $(0.10), non-GAAP adjusted EPS1 of $(1.43)

  • Book value per share increased 0.1% since the end of 2019 to $15.15 despite elevated industry-wide weather activity

  • YTD annualized return on average equity of 10.0%

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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20201027006150/en/

Contacts

Investor Relations Contact:
Rob Luther, 954-958-1200 ext. 6750
VP, Corporate Development, Strategy & IR
rluther@universalproperty.com

Media Relations Contact:
Andy Brimmer / Mahmoud Siddig, 212-355-4449
Joele Frank, Wilkinson Brimmer Katcher