SEC filing summary
Entity note: The supplied filing is United Insurance Holdings Corp. (Nasdaq: UIHC), the parent of American Coastal Insurance Company (ACIC); it is not a standalone American Coastal Insurance Corp. filing. This Form 10-K covers the fiscal year ended December 31, 2019. Dollar amounts below are in USD millions unless noted.
Business context
UIHC is a property and casualty insurer focused on personal and commercial property coverage in 12 states. Florida remained its largest market, representing approximately 41% of policies in force and 53% of gross written premium. The company reported one operating segment. Policies in force rose 7.8% to 627,230.
Financial performance and position
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Gross premiums written | $1,380.3 | $1,252.4 | Up 10.2% |
| Net premiums earned | $752.4 | $689.3 | Up 9.2% |
| Total revenue | $825.1 | $723.9 | Included $24.8 of unrealized equity gains, versus a $9.3 loss in 2018 |
| Net income (loss) attributable to UIHC | $(29.9) | $0.3 | Diluted EPS was $(0.70), versus $0.01 |
| Combined ratio | 112.7% | 104.3% | Above 100% indicates underwriting loss; underlying ratio was 95.4% versus 89.2% |
| Net loss and loss adjustment expenses | $499.5 | $408.6 | Up 22.2%; net loss ratio rose to 66.4% from 59.3% |
| Operating cash flow | $149.0 | $25.8 | Investing cash flow was $(34.0); financing cash flow was $(12.1) |
At year-end, total assets were $2,467.2, total liabilities $1,943.4, and total stockholders’ equity $523.9. Cash, cash equivalents and restricted cash totaled $287.1; investments were $1,011.7, bringing total cash and investments to $1,298.8. Gross unpaid losses and LAE were $760.4, with $550.1 of reinsurance recoverables. Notes payable, net of issuance costs, were $158.9; management reported financial leverage of 24%, below the 30% covenant limit. Statutory surplus was $415.9.
Material changes and notable items
- Gross written premium growth reflected organic growth across regions, rate actions, and policy-term changes. Commercial property premium increased to $406.9 from $361.9; personal property premium increased to $973.4 from $890.5.
- 2019 catastrophe losses, net of reinsurance, were $96.9 and affected the combined ratio by 12.9 points. The company also recorded $33.1 of unfavorable prior-year reserve development, affecting the ratio by 4.4 points; management cited adverse development, particularly on 2017 and 2018 storm years, including Hurricane Irma.
- Reinsurance recoveries and expenses differed from 2018 as prior-year hurricanes had exceeded retention thresholds, while 2019 named storms did not exceed the catastrophe excess-of-loss threshold. Reinsurance costs were 41.7% of gross premiums earned, versus 40.1% in 2018.
- Investment portfolio fair value increased to $1,011.7 from $951.8. Approximately 85.8% of fixed maturities were U.S. Treasuries or corporate bonds rated A or better.
- The company paid $0.24 per share in dividends during 2019 and said it expected to continue quarterly dividends of $0.06 per share in 2020, subject to Board discretion and regulatory limits. A $25 million stock repurchase plan was authorized, but no shares had been repurchased by year-end.
Outlook, risks and contingencies
Management expected gross written premium growth to continue through increased business in current markets and possible expansion into other licensed states. The filing provides no specific earnings or revenue guidance. Key risks include catastrophe severity and frequency, Florida concentration, reserve-estimation uncertainty, reinsurance cost and collectability, regulatory limits on pricing and subsidiary dividends, and dependence on distribution relationships, including AmRisc for commercial business.
- The company was not in compliance with the BB&T note’s minimum cash-flow coverage covenant at year-end and obtained a waiver for the 2019 test period. It reported compliance with the other stated debt covenants.
- Management reported that a material weakness in internal control identified in prior years was remediated in 2019. Management and the auditor concluded internal control over financial reporting was effective at December 31, 2019; the financial statement audit opinion was unqualified.
- Routine claims-related legal actions were ongoing; the company reported no material non-claims-related legal actions at year-end.
- The company reported no off-balance-sheet arrangements. Loss reserves and reinsurance recoverables remain estimates subject to revision.
Important facts for investors to verify
- Confirm whether the intended issuer is UIHC or ACIC, since this filing reports consolidated parent-company results.
- Review subsequent reserve development and paid claims for 2017–2019 accident years, including the effect of Hurricane Irma and other storms.
- Assess the adequacy and availability of reinsurance, counterparty quality, and the company’s net exposure to future catastrophe losses.
- Check the status and terms of the BB&T covenant waiver and monitor debt covenant compliance and holding-company liquidity.
- Verify whether premium growth and rate actions improve underwriting profitability, given the 112.7% combined ratio and deterioration in the underlying ratio.
- Monitor Florida concentration, AmRisc production and fees, subsidiary dividend capacity, and the sustainability of the stated dividend outlook.