Business context and reporting period
United Insurance Holdings Corp. (UIHC, doing business as UPC Insurance) filed this unaudited Form 10-Q for the quarter ended September 30, 2021. It writes residential personal and commercial property insurance, with significant exposure in Florida and other catastrophe-prone states. Amounts below are in thousands of dollars unless stated otherwise. The filing metadata names American Coastal Insurance Corp., but the filing itself is for United Insurance Holdings Corp.
Financial results and key metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Gross premiums written | $322,493 | $365,819 | $1,060,555 | $1,140,653 |
| Net premiums earned | $153,271 | $188,741 | $444,680 | $565,819 |
| Total revenue | $162,740 | $212,733 | $479,983 | $605,434 |
| Net loss attributable to UIHC | $(14,322) | $(74,072) | $(55,603) | $(62,521) |
| Diluted loss per share | $(0.33) | $(1.73) | $(1.29) | $(1.46) |
| Combined ratio | 116.9% | 164.8% | 123.9% | 121.1% |
| Underlying combined ratio | 91.5% | 92.8% | 94.1% | 89.2% |
Q3 net loss improved year over year, primarily as catastrophe losses were lower; the quarter nevertheless remained unprofitable, with a combined ratio above 100%. For the nine months, catastrophe losses were $101,225 and prior-year adverse reserve development was $31,344, compared with favorable development of $6,165 in 2020. Management attributed adverse development to increased Florida litigation-related claims. Nine-month net loss and LAE was $336,614.
At September 30, cash and cash equivalents were $188,275 and restricted cash was $32,782; investments were $941,998. Together, cash, restricted cash and investments totaled $1,163,055, down from $1,296,549 at year-end 2020. Operating cash flow was negative $109,544 for the nine months, versus positive $164,592 in 2020, primarily reflecting growth in reinsurance recoverables. Total assets were $3,328,586; total liabilities were $2,987,930; and total stockholders’ equity was $340,656.
Balance-sheet unpaid losses and LAE were $1,509,477, while reinsurance recoverables were $1,351,731. Notes payable, net, were $157,152; disclosed gross long-term debt was $159,233, including $150,000 of 6.25% senior notes due 2027. The company paid $7,762 in dividends during the nine months, or $0.18 per share.
Material changes versus comparable periods
- Q3 gross written premiums declined 11.8% and nine-month gross written premiums declined 7.0%; personal property premiums fell, partly offset by growth in commercial property premiums over nine months.
- Policies in force fell 18.0% year over year to 525,969, following underwriting actions. New and renewal policies written also declined.
- Ceded premiums earned rose to $621,877 for nine months from $476,930, reducing net premiums earned. The total ceding ratio increased to 58.3% from 45.7%.
- Nine-month catastrophe losses were lower than in 2020, but included Winter Storm Uri and Hurricane Ida. Higher prior-year development and a higher net loss ratio partly offset the catastrophe-loss improvement.
- Equity securities increased to $29,407 from $7,445 at year-end 2020; investment income fell to $10,737 from $18,834 for the nine-month period.
- Accumulated other comprehensive income moved from $9,693 to a loss of $3,006; UIHC-attributable equity declined to $320,411 from $395,753.
Outlook, commentary, risks and unusual items
The filing provides no quantitative earnings or revenue guidance. Management said current capital resources and operating cash are expected to meet currently anticipated working-capital requirements, while noting that future effects of COVID-19 remain uncertain. Management described COVID-19 as having no material operational or liquidity impact through the quarter.
The June 2021 catastrophe reinsurance program provides up to approximately $2.9 billion of catastrophe protection; stated retentions vary by event and subsidiary, with maximum retention of $31 million under the core catastrophe treaties. The company also ceded 100% of policies in Connecticut, Massachusetts, New Jersey and Rhode Island to HCPCI and TypTap under the renewal-rights arrangement. Reinsurance does not remove the company’s primary obligation to policyholders, and recovery depends on reinsurer performance.
Key risks include catastrophe frequency and severity, reserve estimation and Florida litigation trends, reinsurance cost and availability and reinsurer collectability, regulatory limits on subsidiary dividends, investment-market changes, and the ability to service debt and maintain liquidity. Subsidiaries met applicable regulatory requirements at September 30; combined statutory net loss was $104,684 for the nine months. The Truist loan’s financial covenants were removed by amendment in June 2021; the company reported compliance with its senior-note and SBA-note covenants.
Other notable items: the company received 100,000 HCI shares valued at $5,007 as consideration in the renewal-rights transaction; it incurred $14,732 of reinstatement premiums related to its all-other-perils catastrophe cover after Winter Storm Uri; and it transitioned to a new ERP system during the quarter. Management stated disclosure controls were effective and that no material non-claims-related legal actions were pending. A $0.06-per-share dividend payable November 29, 2021 was declared after quarter-end.
Most important facts for investors to verify
- Whether elevated Florida litigation and adverse prior-year reserve development continue, and how actual claims compare with recorded reserves.
- Timing and collectability of the $1.35 billion reinsurance recoverable balance, including exposure to reinsurer credit risk.
- Whether the lower policy count and reduced personal-lines premiums stabilize, and the profitability of commercial-lines growth.
- Whether reinsurance costs, catastrophe retentions and future event losses support sustainable underwriting results.
- Liquidity and subsidiary statutory capital after negative operating cash flow, capital contributions and ongoing dividends; also verify debt covenant compliance and restrictions on subsidiary distributions.
- Whether the new ERP environment and related control changes operate effectively in subsequent reporting periods.