Business context and reporting period
United Insurance Holdings Corp. (the registrant named in the filing) reported unaudited results for the three months ended March 31, 2012, compared with the first quarter of 2011. The company writes property and casualty insurance, primarily homeowners and dwelling coverage, through subsidiaries in Florida, South Carolina, Massachusetts and Rhode Island. It began writing in Rhode Island in March 2012 and in Massachusetts in November 2011. Amounts below are in thousands of dollars unless stated otherwise.
Financial results and position
| Metric | Q1 2012 | Q1 2011 / comparison |
|---|---|---|
| Gross premiums written | $57,996 | $50,775; up 14% |
| Net premiums earned | $27,790 | $19,108; up 45% |
| Total revenue | $29,503 | $20,468 |
| Losses and loss adjustment expenses | $9,482 | $8,384 |
| Total expenses | $22,044 | $18,742 |
| Net income | $4,748 | $1,124 |
| Diluted earnings per share | $0.46 | $0.11 |
| Operating cash flow | $19,068 | $15,050 |
Net income increased substantially year over year. Net investment income was $747, compared with $534; net realized investment gains were $81, versus none reported. Comprehensive income was $5,088, compared with $1,085. The company declared a $0.05-per-share dividend, totaling $518.
At March 31, 2012, cash and cash equivalents were $58,254, investments were $126,566, total assets were $241,338, and stockholders’ equity was $59,559. Total liabilities were $181,779. Notes payable were $16,765, down from $17,059 at year-end 2011; the note carried a variable rate of 1.91%. The company reported compliance with its debt covenants. Cash increased by $16,615 during the quarter. Investing activities used $1,826, and financing activities used $627.
Material changes and management commentary
- Management attributed premium growth to writing more policies and the continuing effect of rate increases. The company wrote approximately 6,800 more policies during the quarter than a year earlier; approximately 600 were in Massachusetts and Rhode Island.
- Homeowner policyholders numbered approximately 107,700 at quarter-end, compared with 101,800 at December 31, 2011 and 89,000 a year earlier. Direct business and policies assumed from other carriers made up 89% of homeowner in-force policies; Citizens-assumed policies were 11%.
- Management said losses rose less than expected given premium growth, attributing the result to rate increases and an improving book of business. Policy acquisition costs and general and administrative expenses increased with business growth.
- Cash from operations increased, while investment cash use fell sharply from the prior-year quarter, when the company made substantially larger investment purchases.
- Prepaid reinsurance premiums fell to $19,731 from $40,968, and reinsurance payable fell to $337 from $16,571, primarily reflecting reinsurance premium amortization and payment of the final installment on the 2011–2012 contracts.
Outlook, risks and unusual items
- The company had no pending rate increase applications. Previously implemented 2011 rate increases were still being applied at renewals and, according to management, could continue affecting earned premiums through the fourth quarter of 2013. Rate changes require regulatory approval.
- Management believed existing capital resources and operating cash flows would meet currently anticipated working-capital needs, but cautioned that future sufficiency was not assured. It did not anticipate needing the Federal Home Loan Bank credit facilities in the near term.
- Catastrophe exposure, dependence on reinsurance and reinsurer ability to pay, loss-reserve estimates, regulatory requirements, pricing competition, investment-market risks and litigation were identified as risks. The filing reports no off-balance-sheet arrangements and no material changes to previously disclosed risk factors.
- UPC reported $48,188 of statutory policyholder surplus and compliance with applicable regulatory requirements. The filing notes that insurer dividends and repayment of the surplus note are subject to regulatory limits or approval.
- Following a letter from Florida’s insurance regulator, the company terminated its management-services agreement with 1347 Advisors effective April 2, 2012; its interim CFO resigned in connection with the termination. Three directors resigned between March 28 and April 4, 2012. The filing does not provide the regulator’s letter’s full substance here.
- Ordinary-course claims-related legal actions were disclosed; the filing does not provide a quantified loss contingency. Management said it records estimated losses when an unfavorable outcome is probable and estimable.
Important facts for investors to verify
- Confirm the registrant’s identity: the request metadata names American Coastal Insurance Corp., but this filing identifies United Insurance Holdings Corp.
- Review the Florida regulator’s April 2012 letter, the associated Form 8-K, and the implications of the management-services agreement termination and director departures.
- Assess reserve adequacy, catastrophe exposure, reinsurance protection and counterparty credit risk, including the terms of the Florida Hurricane Catastrophe Fund contract effective June 1, 2012.
- Check statutory capital and dividend restrictions, debt-note covenants and approval requirements for insurer payments.
- Evaluate whether premium growth and rate increases translate into sustainable underwriting profitability; the filing does not provide formal earnings guidance.