Business context and reporting period
This is United Insurance Holdings Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2013. The company is a property and casualty insurer focused primarily on homeowners’ coverage, operating in Florida and several other states. The filing identifies United Insurance Holdings Corp. as the registrant, not American Coastal Insurance Corp.; investors should verify the entity match.
Financial performance and condition
- Third quarter: Total revenue was $51.8 million, up 61% year over year; net premiums earned were $48.8 million, up 62%. Net income rose to $4.1 million from $1.0 million; diluted EPS was $0.26 versus $0.09.
- Nine months: Total revenue was $144.6 million, up 55%; net premiums earned were $137.1 million, up 56%. Net income increased to $13.0 million from $8.7 million, while diluted EPS declined to $0.80 from $0.84, reflecting a higher weighted-average share count.
- Premium growth: Gross premiums written increased 41% in both the quarter ($83.6 million) and nine-month period ($274.7 million). Policies in force were 178,605, up 43% from a year earlier.
- Underwriting: The company reported combined ratios of 92.1% for the quarter and 90.0% for nine months, compared with 102.7% and 89.9%, respectively, in 2012. Nine-month net loss and loss-adjustment expenses were $69.1 million versus $39.4 million. Management cited increased fire and lightning loss frequency and severity in Florida; nine-month results also included $3.7 million of catastrophe losses and $2.1 million of unfavorable prior-year reserve development.
- Cash flow and liquidity: Operating cash flow for nine months was $78.5 million, versus $52.2 million. Investing activities used $98.6 million, mainly reflecting purchases of securities; cash declined to $54.3 million from $71.2 million at year-end. Cash, cash equivalents and investments totaled $300.1 million.
- Balance sheet and capital: Total assets were $447.9 million, liabilities $347.1 million, and stockholders’ equity $100.9 million. Notes payable were $15.0 million, down from $15.9 million. Book value per share was $6.22 versus $5.70 at December 31, 2012. The insurance affiliate reported statutory surplus of $73.0 million and was in compliance with stated regulatory requirements and debt covenants.
- Other: Net investment income was $1.1 million for the quarter and $2.6 million for nine months. Net realized investment losses were $38,000 and $199,000, respectively. The company declared quarterly dividends of $0.03 per share during 2013.
Changes, outlook, and risks
Growth was driven by new and renewal business across Florida and other states, including policies assumed from Citizens Property Insurance Corporation earlier in 2013. Management expected premium growth to continue through expansion in existing markets and entry into additional states, but provided no quantified earnings or revenue guidance. On November 5, after quarter-end, the company assumed more than 18,000 additional Citizens policies representing approximately $63.0 million of annualized premiums; the amount may be reduced by opt-outs and cancellations. The board also declared a $0.03 per-share dividend payable in December.
Management said rising interest rates increased unrealized investment losses and anticipated that rates would remain below historical averages while markets stayed volatile. It also noted that reinvestment yields below current portfolio yields could pressure investment income. Key exposures include catastrophe and severe-weather losses, reinsurance cost and availability, insurance regulation and capital restrictions, reserve-estimation uncertainty, competition, litigation, and investment-market risk. The company reported ordinary-course claims-related legal actions, no material changes to previously disclosed risk factors, no off-balance-sheet arrangements, and effective disclosure controls.
Important facts to verify
- Confirm that United Insurance Holdings Corp. is the intended issuer given the request’s American Coastal Insurance Corp. label.
- Assess the sustainability of premium growth and the effect of the post-quarter Citizens policy assumption, including opt-outs and cancellations.
- Review loss trends, especially Florida fire and lightning claims, catastrophe exposure, and unfavorable prior-year reserve development.
- Evaluate reinsurance protection, recoverability, renewal terms, and the large reinsurance payable balance.
- Monitor investment valuation and yield effects from interest-rate changes, alongside available liquidity and restrictions on subsidiary dividends.