Universal Insurance Holdings, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020; the filing also reports quarterly results. Amounts below are in U.S. dollars unless noted. The company is a property-and-casualty insurer focused primarily on homeowners insurance, with 82.4% of 2020 direct premiums written in Florida.
Financial results and key metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Direct premiums written | $1,517.5 million | $1,292.7 million |
| Net premiums earned | $923.6 million | $842.5 million |
| Total revenue | $1,072.8 million | $939.4 million |
| Net income | $19.1 million | $46.5 million |
| Diluted EPS | $0.60 | $1.36 |
| Net loss and LAE ratio | 82.2% | 71.6% |
| General and administrative expense ratio | 31.4% | 32.3% |
| Combined ratio | 113.6% | 103.9% |
| Operating cash flow | $29.3 million | $84.6 million |
A combined ratio above 100% indicates an underwriting loss. Net investment income fell 33.7% to $20.4 million, while net realized investment gains were $63.4 million, compared with a $12.7 million net realized loss in 2019. Total expenses rose 19.7% to $1,048.5 million, faster than revenue.
At December 31, 2020, cash and cash equivalents were $167.2 million (plus $12.7 million restricted cash), invested assets were $919.9 million, total assets were $1,758.7 million, and stockholders’ equity was $449.3 million. Long-term debt was $8.5 million; the debt-to-equity ratio was 1.9%. Unpaid losses and LAE were $322.5 million, and unearned premiums were $783.1 million. The company reported combined statutory capital and surplus of approximately $373.6 million for its insurance entities; statutory capital includes contributions treated differently from the U.S. GAAP consolidated statements.
Changes versus the prior comparable period
- Direct premiums written increased 17.4%; net premiums earned increased 9.6%. Policy count and premium in force grew, with written premiums up 17.3% in Florida and 17.7% in other states. Monthly weighted average renewal retention was 88.8%.
- Net income declined 58.9% and diluted EPS fell 55.9%. The loss ratio worsened by 10.6 percentage points, principally due to severe weather and continued adverse claims development.
- Weather losses beyond plan were $162.0 million net of reinsurance, versus $38.7 million in 2019. Net adverse development on prior-year reserves was $58.3 million, down from $88.1 million.
- Reinsurance costs increased: ceded premiums earned rose 20.8%, and reinsurance costs were 33.8% of direct premiums earned, versus 31.7% in 2019.
- Cash from operations declined to $29.3 million. Cash and cash equivalents fell 8.2%; financing cash outflows included $28.9 million of share repurchases and $24.5 million of common dividends.
- Fourth-quarter 2020 net loss was $17.7 million, compared with a $51.1 million net loss in fourth-quarter 2019.
Outlook, commentary, risks and unusual items
- Rates and underwriting: Florida regulators approved a 12.4% homeowners rate increase for UPCIC in 2020 and a further 7.0% increase in December 2020, with renewal pricing effective March 2021. The company also tightened underwriting guidelines and reduced new business in certain Florida territories. No formal earnings or revenue guidance is provided.
- Claims and reserves: Management attributes elevated Florida claim costs to represented, litigated, reopened and allegedly inflated claims, legal conditions including one-way attorneys’ fees, and reduced subrogation effectiveness. The $322.5 million reserve estimate is judgment-intensive; the independent auditor identified unpaid losses and LAE as a critical audit matter. Ultimate claims may differ materially from recorded reserves.
- Catastrophe exposure and reinsurance: The business remains concentrated in Florida and exposed to hurricanes and severe weather. The 2020–2021 programs met regulatory requirements; UPCIC’s first-event tower extended to $3.36 billion. Projected combined program cost was $499.8 million. Losses above coverage, uncovered losses, or reinsurer nonpayment remain risks.
- Investment items: The company sold approximately $1.1 billion of securities during 2020, recognizing $63.4 million of net realized gains and reinvesting at lower market yields. Available-for-sale debt portfolio book yield declined from 3.08% to 1.16%; management expects lower investment income under prevailing rates. Comprehensive income was $1.5 million, reflecting a $17.6 million other comprehensive loss.
- Capital and distributions: UVE contributed $114 million to UPCIC during 2020. Insurance entities paid no dividends to their immediate parent in 2020 or 2019; ordinary dividend capacity for 2021 was limited to $2.1 million for UPCIC and zero for APPCIC. The company declared $0.77 per common share in 2020, including a special dividend, and repurchased 1.61 million shares for $28.9 million.
- COVID-19: The company moved substantially all employees to remote work and reported no material 2020 impact on operations, liquidity or policyholder service. It cautioned that future economic, claims, litigation, investment and premium-collection effects remain uncertain.
- Legal and regulatory matters: The company said reasonably possible losses from legal proceedings that it could estimate were immaterial, while cautioning actual outcomes may vary and exposure may exceed accruals. Insurance operations are extensively regulated, including rate approvals, capital, dividends and claims practices.
- Audit and controls: The independent auditor issued an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective.
Important facts for investors to verify
- Whether Florida claim frequency, litigation costs and prior-year reserve development stabilize, and how actual claim payments compare with the $322.5 million reserve.
- Whether approved rate increases and underwriting actions adequately offset loss trends and higher reinsurance costs without materially weakening retention or growth.
- Actual catastrophe losses and reinsurance recoveries, including the timing and collectability of amounts due from reinsurers.
- Investment income and portfolio yields following the large securities sales, and the effect of interest-rate and market changes on asset values and liquidity.
- Insurance entities’ statutory capital and RBC positions, the treatment and timing of capital contributions, and constraints on distributions to the holding company.
- Cash generation after claims, reinsurance payments, dividends and buybacks; the filing does not provide a standalone formal forward earnings target.