United Insurance Holdings Corp. (UIHC) — Q1 2020 Form 10-Q
Entity note: The filing is for United Insurance Holdings Corp., whose subsidiaries include American Coastal Insurance Company (ACIC). It is not filed by an entity named American Coastal Insurance Corp.; verify that this is the intended filing.
Unless stated otherwise, financial amounts below are in millions of dollars. The quarter ended March 31, 2020; comparisons are with Q1 2019 or December 31, 2019, as applicable.
Business context and reporting period
UIHC is a property and casualty insurance holding company focused on residential personal and commercial property insurance, with substantial Florida exposure. It reported one property-and-casualty segment and operated in 12 states. Policies in force grew 5.0% year over year to 628,355.
Financial performance and position
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Gross premiums written | $335.2 | $318.6; up 5.2% |
| Net premiums earned | $191.6 | $180.7 |
| Total revenue | $176.3 | $202.3 |
| Net income (loss) attributable to UIHC | $(12.7) | $9.5 |
| Diluted earnings per share | $(0.30) | $0.22 |
| Operating cash flow | $17.5 provided | $2.5 used |
| Cash, cash equivalents and restricted cash | $282.4 | $287.1 at year-end 2019 |
| Total investments | $995.3 | $1,011.7 at year-end 2019 |
| Debt | $158.6 notes payable, net on balance sheet | $161.2 gross long-term debt in note disclosure |
| Stockholders’ equity | $506.2 | $523.9 at year-end 2019 |
Net loss was principally driven by a $26.5 million unrealized loss on equity securities, versus a $10.2 million unrealized gain in Q1 2019. Net investment income was $6.9 million, down from $7.3 million. The reported loss ratio was 53.7% (57.8% prior year), expense ratio 45.3% (45.9%), and combined ratio 99.0% (103.7%). The non-GAAP underlying combined ratio was 90.7% versus 94.1%. Core income, a non-GAAP measure excluding specified investment effects and intangible amortization, was $9.1 million, or $0.21 per diluted share, versus $3.2 million, or $0.07.
Material changes and management commentary
- Premium growth reflected new and renewal business, rate increases, and organic growth in the Gulf and Southeast; Florida direct written premium rose, while assumed premium declined.
- Ceded premiums earned increased to $153.0 million from $131.1 million, with the quota-share ceding ratio increasing. Current-year catastrophe losses were $17.1 million, compared with $11.7 million; there were no named or numbered storm losses in either quarter.
- Prior-year reserve development was favorable by $1.1 million, versus adverse development of $5.6 million in Q1 2019. Management said quarterly incurred losses and payments were broadly in line with the prior-year quarter.
- Unpaid losses and LAE were $711.0 million at quarter-end, including $416.4 million of IBNR reserves. Reinsurance recoverables were $514.5 million. Management considers reserves adequate, but ultimate claims may differ from estimates.
- Cash and investments totaled $1,277.7 million. Operating cash flow improved year over year; investing activities used $19.2 million and financing activities used $3.0 million, including $2.6 million of dividends.
- Management reported no material operating, liquidity, or policyholder-service impact from COVID-19 through the filing date, apart from investment-market volatility. Employees shifted to remote work; management said operations continued at nearly full capacity. The June 1, 2020 catastrophe reinsurance placement was 91% complete as of May 7.
Outlook, risks, contingencies and unusual items
- No quantified earnings or premium guidance was provided. Management expected premium growth to continue through policy growth and expansion into states where the company is licensed, while noting that future COVID-19 effects were uncertain and not reasonably estimable.
- Equity-market volatility reduced Q1 results; management said equity exposure was less than 10% of invested assets. Further market declines could reduce investment returns and portfolio values.
- Key risks include catastrophe severity, Florida concentration, reserve uncertainty, reinsurance cost and recoverability, premium collection and retention, regulation, ratings, and COVID-19-related economic, operational and cybersecurity disruption.
- The company reported compliance with Senior Notes and SBA Note covenants. It had received a waiver for BB&T’s minimum cash-flow coverage covenant breach for the year ended December 31, 2019; it remained out of compliance with that covenant at March 31, 2020. Other BB&T covenants were reported as met.
- Insurance subsidiaries met regulatory requirements. Combined statutory net income was $7.2 million in Q1 2020; statutory surplus was $403.9 million at March 31, 2020.
- Adoption of the expected-credit-loss standard reduced opening 2020 retained earnings by $0.262 million. No material non-claims-related legal actions or off-balance-sheet arrangements were reported.
- After quarter-end, the board declared a $0.06 per-share dividend payable May 26, 2020. Shareholders approved an incentive plan adding 2.0 million shares to the equity plan.
Important facts for investors to verify
- Confirm that UIHC’s 10-Q, rather than a separate ACIC filing, is the intended reporting entity.
- Assess how much of the GAAP loss reflects market-driven unrealized equity losses versus underwriting and recurring investment performance; review the company’s non-GAAP reconciliations.
- Monitor catastrophe reinsurance renewal terms, costs, coverage completion, and reinsurer credit exposure.
- Review loss-reserve adequacy, reinsurance recoverables, and future adverse development, including the large IBNR balance.
- Track the BB&T covenant waiver and subsequent compliance, holding-company liquidity, and dividend capacity at regulated subsidiaries.
- Evaluate whether COVID-19 affects premium collections, renewals, claims, investments, vendors, and operations beyond the period described.