Business context and reporting period
This is United Insurance Holdings Corp.’s (UIHC; UPC Insurance) Form 10-Q for the quarter ended September 30, 2020. The request identifies American Coastal Insurance Corp., but the filing’s registrant is UIHC; American Coastal Insurance Company (ACIC) is one of its insurance subsidiaries. UIHC writes residential personal and commercial property insurance across 12 states, with significant Florida exposure.
Financial performance and position
Unless otherwise stated, amounts are in millions of dollars. Comparisons are with the corresponding 2019 period.
| Metric | Q3 2020 | Nine months 2020 |
|---|---|---|
| Gross premiums written | $365.8 (+15.3%) | $1,140.7 (+5.1%) |
| Net premiums earned | $188.7 (−2.2%) | $565.8 (+0.3%) |
| Total revenue | $212.7 (+2.5%) | $605.4 (−1.5%) |
| Net loss attributable to UIHC | $(74.1); diluted EPS $(1.73) | $(62.5); diluted EPS $(1.46) |
| Net loss ratio | 115.8% (vs. 76.8%) | 74.8% (vs. 65.4%) |
| Combined ratio | 164.8% (vs. 125.1%) | 121.1% (vs. 112.5%) |
| Underlying combined ratio | 92.8% (unchanged) | 89.2% (vs. 92.8%) |
| Net investment income | $6.0 (vs. $7.8) | $18.8 (vs. $22.7) |
| Operating cash flow | Not presented for the quarter | $164.6 (vs. $228.1) |
Q3 revenue included $25.0 million of net realized investment gains, while equity securities generated an $11.6 million unrealized loss. For the nine months, realized gains were $25.0 million and unrealized equity losses were $17.5 million. Management’s non-GAAP core loss was $83.8 million for Q3 and $65.9 million for the nine months; these measures exclude specified investment gains or losses and intangible amortization.
At September 30, cash, cash equivalents and restricted cash totaled $376.5 million; investments totaled $1,101.3 million. Together these were $1,477.8 million, up from $1,298.8 million at year-end 2019. Total assets were $3,064.8 million, total liabilities $2,589.4 million, and total equity $475.4 million. UIHC stockholders’ equity was $453.9 million, and book value per share was $10.54, versus $11.93 a year earlier.
Notes payable, net, were $158.0 million on the balance sheet; debt table carrying value before debt issuance costs was $160.5 million. The company reported compliance with Senior Notes and Florida State Board of Administration Note covenants. It had received a waiver for its Truist cash-flow coverage covenant noncompliance for the year ended December 31, 2019 and remained noncompliant with that covenant at September 30, 2020.
Material changes and management commentary
- Catastrophe losses drove the deterioration in underwriting results. Q3 catastrophe losses net of reinsurance were $140.0 million, versus $50.2 million a year earlier; nine-month losses were $186.9 million, versus $77.6 million. Q3 catastrophe losses alone added 74.2 percentage points to the combined ratio.
- Prior-year reserve development was favorable: $4.2 million in Q3 and $6.2 million for the nine months, compared with adverse development in 2019. Management attributed the higher nine-month incurred losses primarily to increased catastrophe activity and noted higher IBNR estimates related to Hurricane Irma.
- Written premium growth reflected Florida rate increases and organic growth, particularly in the Gulf and Southeast. Policies in force increased 2.6% year over year to 641,633.
- Reinsurance recoverables rose to $780.3 million from $550.1 million at year-end 2019, alongside unpaid losses and LAE rising to $1,082.1 million from $760.4 million. The company cautions that it remains liable to policyholders if reinsurers do not meet their obligations.
- UIHC reduced equity securities from 9.1% of invested assets at June 30 to 2.5% at September 30, realizing $24.3 million of gains from those sales. Management said COVID-19 had not materially disrupted operations, liquidity, credit-market access, or policyholder service to date, but future effects remained uncertain.
Outlook, risks and unusual items
The filing provides no specific earnings or premium guidance. Management said current capital resources and operating cash flows were expected to meet anticipated working-capital needs, while noting that pandemic-related economic effects could change. Principal risks include catastrophe severity and frequency, reserve estimation, Florida concentration and regulation, reinsurance cost and recoverability, investment-market volatility, and the ability to meet debt-service and covenant requirements.
As a subsequent event, Hurricanes Delta and Zeta made landfall after quarter-end. UIHC estimated combined pre-tax retained losses of $50 million to $55 million, net of reinsurance. The company also recorded a $2.8 million non-cash write-off of construction-in-progress costs after discontinuing negotiations to acquire an adjoining lot for a planned headquarters project. The CARES Act increased federal tax recoverable by $12.5 million and reduced deferred tax assets by $7.3 million. No material non-claims-related legal actions were reported; routine claims litigation continued.
Key facts for investors to verify
- Confirm the filing entity: the 10-Q is for UIHC, not a standalone filing by American Coastal Insurance Corp.
- Track ultimate losses and reinsurance recoveries from 2020 catastrophe events, including the disclosed Delta and Zeta estimate.
- Review reserve development, especially estimates for Hurricane Irma and the growth in IBNR reserves.
- Monitor reinsurance counterparties, recoverable balances, renewal pricing and the company’s catastrophe retention.
- Check compliance with the Truist covenant and any future waivers, as well as statutory capital and dividend restrictions at insurance subsidiaries.
- Assess whether investment gains, equity-market movements and reduced investment income obscure underlying underwriting performance.