Universal Insurance Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. The company is a vertically integrated property-and-casualty insurer, primarily writing homeowners’ insurance through independent agents; Florida accounted for 82.3% of year-to-date direct premiums written. Financial statements are unaudited interim statements reviewed by the company’s independent accountant.
Financial performance
Amounts in millions of dollars, except per-share data and ratios.
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Direct premiums written | 532.0 | 500.7 | 1,489.2 | 1,429.7 |
| Net premiums earned | 331.0 | 290.6 | 916.5 | 836.8 |
| Total revenue | 360.0 | 312.8 | 1,016.1 | 892.3 |
| Net income (loss) | (5.9) | (72.3) | 46.8 | (47.4) |
| Diluted EPS | $(0.20) | $(2.36) | $1.54 | $(1.54) |
| Combined ratio | 110.7% | 139.2% | 103.5% | 113.2% |
| Net loss and LAE ratio | 87.0% | 113.7% | 78.3% | 85.5% |
Quarterly revenue increased 15.1%, while the net loss narrowed substantially year over year. For the first nine months, the company returned to profitability. However, combined ratios remained above 100% in both periods, indicating underwriting losses before considering investment and other revenue. Net investment income rose 110% in Q3 to $12.8 million and 126.5% year to date to $34.7 million, principally as cash and maturing investments were reinvested at higher rates.
Q3’s lower loss ratio primarily reflected lower reported weather losses than in 2022, which included Hurricane Ian. The nine-month improvement also reflected the prior-year hurricane comparison. Current-year loss estimates and adverse prior-year development remained concerns: prior-year development was $17.7 million in Q3 and $34.8 million year to date, mostly associated with increased settlement costs, particularly for prior non-catastrophe claims. The 2023 results also included $1.4 million of unrealized gains on equity securities year to date, versus $16.4 million of unrealized losses in 2022.
Cash flow, balance sheet, and capital
- Operating cash flow was $70.6 million for the first nine months, down from $223.2 million in 2022. Investing activities used $14.5 million and financing activities used $34.5 million.
- Cash and cash equivalents were $343.5 million; restricted cash was $69.5 million, bringing total cash and restricted cash to $413.0 million. Much of the increase in restricted cash related to collateral in a consolidated reinsurance captive.
- Total assets were $2.56 billion, total liabilities $2.26 billion, and stockholders’ equity $301.5 million at September 30. Long-term debt, net, was $102.2 million, including $100 million of 5.625% notes due 2026. The company had not drawn on its $40 million revolving credit facility and reported compliance with debt covenants.
- Unpaid losses and LAE were $551.0 million, compared with $1.04 billion at year-end 2022; reinsurance recoverables were $323.0 million, down from $808.9 million. Management attributed much of the decline to claims settlements, collections, and reinsurance commutations.
- Available-for-sale debt securities had a fair value of $1.03 billion versus amortized cost of $1.17 billion. Accumulated other comprehensive loss was $107.1 million, reflecting unrealized investment losses. Book value per common share was $10.33; company-reported adjusted book value per share, a non-GAAP measure excluding accumulated other comprehensive income or loss, was $14.00.
- The company declared $0.16 per common share each quarter during the first nine months and repurchased approximately $18.4 million of stock during that period.
Changes, outlook, and material risks
- Direct premiums written rose 6.3% in Q3 and 4.2% year to date, primarily from rate increases and policy coverage adjustments for inflation. Premiums earned net rose 13.9% in Q3 and 9.5% year to date. Meanwhile, policies in force declined 7.5% year over year; premium in force increased 4.4%, while total insured value declined 1.2%.
- Management said it is prioritizing rate adequacy, underwriting discipline, and exposure management while seeking selective growth. It cited competition from Florida’s Citizens Property Insurance Corporation and noted that the benefits of recent Florida legal reforms will take time to emerge; many older claims remain subject to pre-reform laws. The filing provides no formal earnings or revenue guidance.
- The 2023–2024 reinsurance program began June 1, 2023. Its estimated cost was $620.6 million, before potential reinstatement premiums, or approximately 31.97% of projected direct premiums earned for the treaty year. Management said the programs met applicable regulatory and rating-agency requirements. Reinsurance limits losses but leaves the insurers exposed to retentions, losses outside coverage, and reinsurer credit risk.
- The Insurance Entities completed commutations with the Florida Hurricane Catastrophe Fund for the 2017–2018 contract year and with certain other reinsurers during Q3. The settlements generated cash and no reported gain or loss, but released reinsurers from future obligations on the commuted contracts.
- Florida catastrophe and severe-weather exposure, claims inflation, litigation and reserve uncertainty, reinsurance cost and availability, reinsurer collectability, investment-market and interest-rate changes, and regulatory constraints are significant risks. The insurers met statutory capitalization requirements, but could not pay ordinary dividends to the parent without regulatory approval. Future reinsurance commitments included $72.7 million in 2024 and $52.6 million in 2025.
- Management stated that operating cash flows should meet working-capital needs for at least the next 12 months. This outlook is subject to claims-payment timing, catastrophe losses, reinsurance collections, and the parent’s restricted access to subsidiary dividends. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether current- and prior-year loss estimates prove adequate, especially for Florida claims governed by pre-December 2022 laws.
- Actual catastrophe losses, recoveries, and collection timing under the 2023–2024 reinsurance program, including the effects of commutations and any reinsurer credit exposure.
- Whether rate increases and Florida legal reforms improve underwriting results enough to bring the combined ratio below 100%, given continuing policy-count declines and claims-cost inflation.
- Liquidity and statutory capital at the insurance subsidiaries, the holding company’s ability to fund obligations without subsidiary dividends, and the company’s ability to manage its reinsurance commitments and debt.
- Investment portfolio valuation and the effect of further interest-rate or equity-market changes on earnings, fair value, and reported equity.