Filing summary
Entity note: The filing is United Insurance Holdings Corp. (UPC Insurance), not American Coastal Insurance Corp. It reports the quarter ended September 30, 2016; American Coastal appears as part of a proposed acquisition announced in August 2016.
Business context and reporting period
UPC is a property and casualty insurer focused primarily on homeowners’ coverage across multiple U.S. states. It reported unaudited results for the three and nine months ended September 30, 2016, with comparisons to 2015. The April 2016 acquisition of Interboro Insurance Company (IIC) is included in results from April 29, 2016.
Key financial metrics
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Gross premiums written | $194.3m | $156.0m | $541.1m | $425.2m |
| Net premiums earned | $120.2m | $84.0m | $335.8m | $242.5m |
| Total revenue | $127.2m | $89.8m | $355.7m | $257.5m |
| Net income | $3.4m | $8.1m | $16.2m | $13.6m |
| Diluted EPS | $0.16 | $0.38 | $0.75 | $0.63 |
| Combined ratio | 101.4% | 91.5% | 98.5% | 97.4% |
For the nine months, operating cash flow was $89.3m, investing cash outflow was $34.8m, and financing cash inflow was $0.3m. Cash and cash equivalents were $139.6m at September 30, 2016, versus $84.8m at December 31, 2015. Total investments were $526.1m; cash, cash equivalents and investments together were $665.7m.
Total assets were $974.4m and stockholders’ equity was $259.5m at September 30, 2016. Notes payable totaled $25.1m, compared with $12.4m at year-end 2015. The filing reports compliance with the SBA note covenants and states that insurance affiliates met applicable regulatory requirements.
Changes versus comparable periods
- Q3 net income fell 57.7% year over year, despite 24.6% growth in gross written premiums. Management attributed the earnings decline primarily to higher losses.
- Q3 loss and loss adjustment expenses rose to $72.7m from $40.4m. The net loss ratio increased to 60.5% from 48.1%; the combined ratio worsened to 101.4% from 91.5%.
- For the first nine months, net income increased 19.6%. Premium growth, a lower ceding ratio and an improved expense ratio contributed, while the combined ratio edged higher.
- Policies in force reached 431,731, compared with 307,748 a year earlier. Growth was particularly strong outside Florida.
- Book value per share was $11.99 at September 30, 2016, up from $11.11 at December 31, 2015.
Outlook, commentary, risks and unusual items
- Management said it expects premium growth to continue through expansion in existing markets and entry into additional states where the company is licensed. No numerical earnings or revenue guidance was provided.
- Current-year catastrophe losses were $5.1m in Q3 and $23.9m for the nine months, net of reinsurance. Management cited fire and hail losses as drivers of higher underlying loss ratios. Prior-year reserve development was unfavorable by $5.9m in Q3 and $9.6m for the nine months, primarily associated with Florida non-catastrophe claims for accident year 2015.
- The 2016–17 catastrophe reinsurance program provided up to approximately $1.515bn of protection excess of $10m; estimated program cost was $191.5m. Reinsurance does not eliminate exposure if reinsurers fail to pay.
- After quarter-end, Hurricane Matthew generated more than 5,000 claims. Management estimated $30m of pre-tax catastrophe losses, net of reinsurance, in Q4 2016; this is an estimate, not a Q3 result.
- UPC completed the $60.5m IIC acquisition in April 2016. Purchase accounting remained preliminary. Separately, it entered a merger agreement to acquire AmCo Holding Company, whose subsidiaries include American Coastal and BlueLine Cayman Holdings. The filing describes a proposed transaction, not a completed acquisition.
- Key risks include catastrophe exposure and weather, loss-reserve estimation, reinsurance cost and collectability, regulation and restrictions on insurer dividends, investment-market risk, litigation, and acquisition integration. The company also disclosed related-party legal fees paid to a firm where an executive’s spouse is a partner and co-owner.
- The board declared a $0.06-per-share quarterly dividend in November 2016. The filing reported no legal proceedings under Part II, Item 1, and no off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the intended issuer: this 10-Q is for United Insurance Holdings Corp., not American Coastal Insurance Corp.
- Track Hurricane Matthew’s actual net losses and claims development against the $30m estimate, including recoveries under reinsurance.
- Review subsequent loss-reserve development, especially Florida non-catastrophe claims, and changes in underlying loss and combined ratios.
- Check final IIC purchase accounting and the status, terms, regulatory approvals and dilution implications of the proposed AmCo transaction.
- Assess reinsurance renewal costs, coverage availability and reinsurer credit quality, alongside cash needs and insurer-subsidiary capital and dividend restrictions.