Business context and reporting period
United Insurance Holdings Corp. (UPC Insurance) filed this unaudited Form 10-Q for the quarter ended March 31, 2018. The filing describes a property and casualty insurer focused on residential and commercial property coverage across 12 states. The requested company name, American Coastal Insurance Corp., is not the registrant: American Coastal Insurance Company (ACIC) is one of UPC’s wholly owned insurance subsidiaries.
Key financial results
Amounts are in U.S. dollars; financial statement amounts below are in millions except per-share data and ratios.
| Metric | Q1 2018 | Q1 2017 / prior date |
|---|---|---|
| Gross premiums written | $279.6 | $168.8 |
| Net premiums earned | $162.7 | $107.2 |
| Total revenue | $180.1 | $122.6 |
| Net income | $8.4 | $3.9 |
| Diluted earnings per share | $0.20 | $0.18 |
| Operating cash flow | $(15.8) | $(4.9) |
| Cash and cash equivalents | $216.7 | $276.3 at Dec. 31, 2017 |
| Total investments | $892.4 | $854.5 at Dec. 31, 2017 |
| Total assets | $2,066.4 | $2,059.9 at Dec. 31, 2017 |
| Stockholders’ equity | $535.1 | $537.1 at Dec. 31, 2017 |
| Notes payable on balance sheet | $161.0 | $161.4 at Dec. 31, 2017 |
Net loss ratio was 47.5% versus 59.1%; expense ratio was 54.6% versus 49.1%; and combined ratio was 102.1% versus 108.2%. The company’s non-GAAP underlying combined ratio was 92.4% versus 90.9%. Investment income was $5.7 million versus $3.0 million. Total comprehensive income was a loss of $9.3 million, compared with income of $6.4 million, principally reflecting investment-market movements.
Changes versus the prior comparable period
- Gross written premiums rose 65.6% to $279.6 million, primarily due to the April 2017 AmCo acquisition and organic growth. Policies in force increased 17.5% to 542,515.
- Net income more than doubled, which management attributed mainly to lower catastrophe and non-catastrophe loss ratios. The combined ratio improved but remained above 100%.
- Commercial property premiums increased substantially following AmCo: $95.9 million versus $4.0 million; personal property premiums were $183.7 million versus $164.9 million.
- General and administrative expense rose to $23.3 million from $11.3 million, including higher acquired-intangible amortization and claims staffing costs. Intangible amortization was $9.8 million versus $1.4 million.
- Cash and cash equivalents fell $59.6 million from year-end. Operating cash use increased, with cash-flow movements including higher reinsurance recoverables and loss payments.
Outlook, risks and unusual items
- Management expects gross written premium growth to continue through expansion of in-force policies in current markets and entry into additional states where the company is licensed; no specific numerical earnings or premium guidance is provided.
- Reinsurance costs were 39.9% of gross premiums earned versus 38.6% a year earlier, mainly reflecting commercial property exposures included in the combined catastrophe program. The program’s stated exhaustion point was $2.748 billion; the company also renewed a 20% quota-share agreement and added aggregate catastrophe cover of up to $20 million, subject to treaty terms.
- Loss and LAE reserves increased to $544.2 million from $482.2 million at year-end, reflecting continued Hurricane Irma development and first-quarter weather losses. Management increased its estimate of ultimate gross loss from 2017 hurricanes; it reported no net Q1 earnings impact because the reserve change was fully ceded under reinsurance. Reserve estimates remain judgmental, and the company remains liable if reinsurers do not pay.
- Operating cash flows may remain affected by catastrophe claim settlements and reinsurance recovery timing. Management said anticipated reinsurance inflows should largely offset near-term claim outflows and that current capital resources and operating cash were sufficient for anticipated working-capital needs.
- The company reported compliance with debt covenants and insurance regulatory requirements. Its $150 million senior notes bear 6.25% interest and mature in 2027. The filing’s debt table reports $164.3 million total debt before debt issuance costs, while the balance sheet reports $161.0 million of notes payable.
- Disclosure controls were deemed ineffective because of a previously reported material weakness involving third-party IT controls and accounting controls for income taxes, acquisition accounting and investments. Remediation was underway but not yet tested as effective.
- Adoption of the new equity-securities accounting standard moved a $9.3 million after-tax gain from accumulated other comprehensive income to retained earnings and resulted in a $2.4 million Q1 unrealized equity loss in earnings.
- The board declared a $0.06-per-share quarterly dividend in May 2018. Management reported no material non-claims-related legal actions and no material change to previously disclosed risk factors.
Most important facts for investors to verify
- Confirm the intended issuer: this filing is for United Insurance Holdings Corp.; ACIC is a subsidiary, not the filing registrant.
- Assess whether the improved loss ratio and earnings persist, given the 102.1% reported combined ratio and continuing catastrophe-reserve uncertainty.
- Review reinsurance recoverability, counterparty strength, program costs and the timing of recoveries against catastrophe claim payments.
- Track liquidity and operating cash flow alongside reserve development, dividends and debt service.
- Follow remediation and independent testing of the disclosed material weakness in financial reporting controls.
- Reconcile reported debt carrying value with gross debt and issuance costs, and monitor regulatory limits on subsidiary dividends and capital.