Business context and reporting period
This is United Insurance Holdings Corp.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2022, filed August 8, 2022. The filing describes UPC Insurance, a property and casualty insurer operating through subsidiaries including American Coastal Insurance Company (ACIC). The request names American Coastal Insurance Corp.; the filing itself is for United Insurance Holdings Corp., so investors should confirm the intended issuer.
The company writes personal and commercial residential property insurance, primarily in Florida, Louisiana, New York and Texas. It reduced its footprint through policy transfers and underwriting actions; policies in force fell 39.4% year over year to 344,522.
Financial results and position
Amounts below are in millions of dollars, except per-share data and ratios.
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Gross premiums written | $360.1 | $426.4 | $639.6 | $738.1 |
| Net premiums earned | $111.4 | $145.5 | $212.3 | $291.4 |
| Total revenue | $115.8 | $155.5 | $218.2 | $317.2 |
| Net loss attributable to UIHC | $(69.0) | $(23.5) | $(102.2) | $(41.3) |
| Diluted loss per share | $(1.60) | $(0.55) | $(2.38) | $(0.96) |
| Combined ratio | 131.6% | 127.9% | 137.7% | 127.5% |
Q2 net loss included a $36.2 million income tax provision despite a pretax loss; management attributed the increased tax burden largely to a deferred-tax valuation allowance. The company recorded a $58.3 million valuation allowance against deferred tax assets and identified $43.7 million of related tax expense in its core-loss discussion.
At June 30, cash, cash equivalents and restricted cash were $317.1 million; investments were $581.2 million. Six-month operating cash flow was positive $8.3 million, investing cash flow positive $85.3 million, and financing cash flow negative $21.7 million. Cash, cash equivalents and restricted cash increased $71.9 million during the period. Total debt was $156.0 million net on the balance sheet; notes payable at carrying value before debt issuance costs were $157.8 million. Stockholders’ equity was $167.0 million, down from $332.0 million at year-end 2021; book value per share was $3.85 versus $7.85 a year earlier.
Net investment income was $3.1 million in Q2 and $5.6 million for the first half, down from $3.7 million and $7.3 million, respectively, in 2021. Fixed-maturity fair value declined to $527.1 million from $663.6 million at December 31, 2021; accumulated other comprehensive loss increased to $48.9 million, primarily reflecting investment-market losses.
Material changes versus the prior comparable period
- Gross written premiums declined 15.5% in Q2 and 13.3% in the first half. Personal-lines premiums contracted, partly due to Northeast policy transfers and underwriting actions; commercial-lines premiums grew, led by Florida.
- Net premiums earned fell faster than gross premiums written, reflecting the smaller portfolio and reinsurance structure. The six-month total ceding ratio rose to 66.0% from 59.1%.
- Q2 loss and loss-adjustment expenses fell to $90.1 million from $118.1 million, but the consolidated combined ratio worsened to 131.6%. For the first half, net loss ratio rose to 85.5% from 80.2%, while expense ratio increased to 52.2% from 47.3%.
- Prior-year reserve development was adverse by $9.2 million in the first half; management cited strengthening catastrophe reserves based on historical loss trends. Current-year catastrophe losses, net of reinsurance, were $49.2 million, compared with $64.2 million in the prior-year period.
- FSIC merged into UPC effective May 31, 2022, and JIC merged into ACIC effective June 1, 2022. The company returned $18.3 million of capital to Kiln in connection with termination of JIC’s noncontrolling interest.
Outlook, commentary, risks and unusual items
- No specific earnings or premium guidance was provided. Management said capital resources and operating cash flows were expected to meet currently anticipated working-capital needs, while noting possible future capital contributions to insurance subsidiaries.
- After quarter-end, Demotech downgraded UPC’s Financial Stability Rating from “A” to “M” on August 1, 2022; ACIC and IIC remained rated “A.” The lower UPC rating does not meet Fannie Mae and Freddie Mac requirements. Florida regulators approved a Citizens reinsurance arrangement for eligible insurers, and UPC was approved to participate for Florida policies through June 1, 2023. The company requested regulatory approval for a $12 million capital contribution to UPC; approval was pending in the filing.
- Reinsurance remains central to catastrophe protection. The 2022–23 catastrophe program covers losses up to approximately $2.5 billion, with $16.4 million retention for each of the first two events under the core treaty. Reinsurers’ inability to pay would leave the company primarily liable to policyholders.
- Management cited inflation and rising interest rates as pressures: inflation may raise claim costs faster than approved or implemented premiums, while higher rates may depress investment values. Catastrophe exposure, reserve-estimation uncertainty, regulatory restrictions, reinsurance cost and availability, and insurer ratings are material risks.
- The company filed for a $10.2 million Employee Retention Credit refund but had received neither payment nor response; no gain was recognized. Two lawsuits seek unspecified damages; management said an unfavorable outcome was neither probable nor estimable. A $6.8 million commitment to fund limited-partnership investments remained outstanding.
- Management reported no material COVID-19 impact, no material change in market risk, and effective disclosure controls. The filing provides no clear forward-period earnings outlook.
Important facts for investors to verify
- Confirm the issuer: this filing is for United Insurance Holdings Corp. (UIHC), not a registrant named American Coastal Insurance Corp.
- Track the consequences of UPC’s rating downgrade, Citizens reinsurance participation, and the pending $12 million capital contribution approval.
- Assess whether personal-lines contraction and the elevated combined ratio can improve, including the effects of rate actions, policy transfers, catastrophe losses and adverse reserve development.
- Review the adequacy and collectability of loss reserves and reinsurance recoverables; net reinsurance recoverables were $757.5 million at quarter-end.
- Monitor the deferred-tax valuation allowance, investment portfolio marks, liquidity, and insurance-subsidiary statutory capital and dividend restrictions.