Universal Insurance Holdings, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also reports fourth-quarter results. Universal is a vertically integrated homeowners insurer, writing primarily in Florida through independent agents; Florida represented 92.6% of 2015 direct written premium. The financial statements were audited, and the auditor reported effective internal control over financial reporting.
Financial performance and position
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $546.5 million | $369.3 million | +48.0% |
| Net premiums earned | $504.0 million | $326.9 million | +54.2% |
| Income before tax | $175.0 million | $127.6 million | +37.2% |
| Net income | $106.5 million | $73.0 million | +45.9% |
| Diluted EPS | $2.97 | $2.08 | +$0.89 |
| Operating cash flow | $219.3 million | $123.3 million | +$95.9 million |
- Net loss and loss-adjustment-expense (LAE) ratio was 37.2%, versus 37.7% in 2014. Statutory combined ratios were 75% for UPCIC and 74% for APPCIC; these measures are net of reinsurance.
- Cash and cash equivalents were $197.0 million, up from $115.4 million. Investments reported on the balance sheet totaled $489.4 million, including $416.1 million in fixed maturities, $42.2 million in equity securities and $25.0 million in short-term investments.
- Total assets were $993.5 million; stockholders’ equity was $293.1 million. Long-term debt was $24.1 million, down from $30.6 million. The company reported a 7.6% debt-to-total-capital ratio and an 8.2% debt-to-equity ratio.
- Unpaid losses and LAE were $98.8 million, down from $134.4 million; unearned premiums were $442.4 million, up from $395.7 million.
- Common dividends declared were $0.63 per share, including a $0.15 special dividend. The company repurchased 748,100 shares for $18.7 million during 2015.
Material changes versus 2014
- Direct premiums written rose 11.9% to $883.4 million. Policies in force increased 12.3%; total insured value outside Florida grew to 16% of the company total from 12.1%.
- Effective June 1, 2015, the company eliminated its 30% quota-share reinsurance arrangement, retaining more premiums and associated risk. Net premiums written increased 60.7% to $626.4 million, while ceded premiums written fell 35.7% to $257.0 million.
- Net earned premiums rose by $177.1 million, reflecting both direct premium growth and lower ceded earned premiums. Losses and LAE increased 52.3% to $187.7 million, partly because less loss was ceded. General and administrative expenses rose 55.2% to $183.8 million; management attributed much of the increase to higher net deferred policy acquisition cost amortization following reinsurance changes.
- Net investment income increased to $5.2 million from $2.4 million, while realized investment gains fell to $1.1 million from $5.6 million.
- The company acquired claims-adjusting firm Aplin Peer & Associates in March 2015. It said claims-processing times improved and claims operating expenses declined 2.3% despite policy growth.
Outlook, risks and unusual items
- Management’s strategy is profitable organic growth in Florida, expansion into other states, and continued investment in claims operations and reinsurance. The filing provides no quantified earnings, revenue or growth guidance and cautions that reinsurance changes may not improve future results.
- The 2015–2016 program combines Florida Hurricane Catastrophe Fund and private catastrophe coverage. UPCIC’s stated net retention was $35 million per catastrophe for covered losses within the program’s limits; losses above the top layer remain the company’s responsibility. A modeled repeat of the four major 2004 Florida hurricanes was estimated to produce approximately $84 million of after-tax net loss. This is a model estimate, not a forecast or cap on losses.
- Key risks include Florida and coastal catastrophe concentration, the possibility that losses exceed reserves or reinsurance, reinsurer credit and availability, catastrophe-model limitations, rate regulation, litigation, and dependence on independent agents. Management reported no significant catastrophe effects in 2015.
- Management said pending legal matters were not expected to have a material adverse effect; estimated reasonably possible losses that it could quantify as immaterial. Claims and reserve outcomes remain uncertain. Prior-year reserve development was modestly favorable in 2015, while the current accident year was strengthened in the fourth quarter.
- Cash from operations was considered sufficient for working-capital needs over at least the next 12 months. The $15 million revolving credit facility was undrawn at year-end; the term loan had a $6.9 million carrying amount and matures in May 2016. Insurance-subsidiary dividends are regulated, and the subsidiaries paid none to the parent in 2015.
- Fourth-quarter 2015 net income was $29.2 million, versus $21.0 million in fourth-quarter 2014. The company attributed higher quarterly revenue and expenses chiefly to organic growth and the quota-share elimination.
Important facts for investors to verify
- Whether retained premiums after the quota-share termination translate into sustained profitability after accounting for the additional retained catastrophe risk and reinsurance costs.
- How reserve adequacy develops as faster claim settlement and the Fast Track initiative affect claim patterns; review the actuarial assumptions and reserve-development disclosures.
- Whether geographic diversification reduces concentration risk in practice: Florida still accounted for 84% of total insured value at year-end.
- The actual collectability and timing of reinsurance recoveries, and the company’s exposure to losses exceeding program limits.
- Parent-company liquidity, the May 2016 term-loan maturity, debt covenants, and the limits on dividends from regulated insurance subsidiaries.