United Insurance Holdings Corp. (UIHC) — Q1 2023 Form 10-Q
Entity note: The supplied filing is for United Insurance Holdings Corp., the parent of American Coastal Insurance Company (ACIC), rather than a standalone filing for American Coastal Insurance Corp. The quarter ended March 31, 2023; amounts below are in U.S. dollars and generally shown in millions.
Business context and reporting period
UIHC writes property and casualty insurance, principally commercial residential property in Florida through ACIC and personal residential insurance in New York through Interboro Insurance Company. UPC, its former subsidiary, entered Florida receivership on February 27, 2023, and was deconsolidated. Its results are reported as discontinued operations, so comparisons with 2022 reflect a materially different continuing business.
Financial performance and position
| Metric | Q1 2023 | Q1 2022 / comparison |
|---|---|---|
| Gross premiums written | $187.1 | $142.4; up 31.4% |
| Net premiums earned | $87.3 | $57.7 |
| Total revenue | $104.0 | $117.4 |
| Continuing-operations net income | $30.6 | $4.6 |
| Discontinued-operations income | $230.3 | Loss of $37.9 |
| Net income (loss) attributable to UIHC | $260.9 | Loss of $33.2 |
| Diluted EPS | $5.99 | Loss per share of $0.77 |
| Combined ratio | 70.5% | 191.7% |
| Cash from operating activities | $(104.2) | $(20.9) |
Commercial premiums written rose 38.0% to $176.6 million, while personal-lines premiums fell 27.5% to $10.5 million. Management attributed the commercial increase to Florida growth and its focus on specialty commercial business. Management fee income declined to $9.7 million from $50.2 million, principally because UPC was divested. The $230.3 million discontinued-operations income includes a $229.2 million gain on UPC’s deconsolidation; total net income therefore substantially reflects this unusual, nonrecurring item.
At March 31, cash and cash equivalents were $92.6 million, restricted cash $49.7 million, and investments $230.5 million; together these totaled $372.7 million. Total assets were $1.445 billion and total liabilities $1.362 billion, down substantially from year-end largely because UPC was removed from consolidation. Stockholders’ equity was $83.5 million, versus a deficit of $182.0 million at December 31, 2022. Senior notes had $150 million principal outstanding and $148.4 million net carrying value; the coupon increases from 6.25% to 7.25% effective June 15, 2023.
Loss and LAE expense was $19.1 million, compared with $32.5 million. The consolidated net loss ratio was 21.9%, expense ratio 48.6%, and combined ratio 70.5%. Prior-year reserve development was favorable by $3.2 million. Operating cash outflow was $104.2 million; investing cash outflow was $37.2 million. Cash-flow comparisons are affected by UPC’s deconsolidation and related changes in assets and liabilities.
Material changes versus the prior period
- UPC entered receivership and was divested from UIHC’s ownership, producing the large deconsolidation gain and a sharp reduction in reported assets and liabilities.
- Continuing-operations earnings improved, while reported total revenue decreased, partly because management fee income previously associated with UPC is no longer consolidated.
- Gross written premiums increased on Florida commercial growth, but the company’s policy count fell 51.3% year over year, from 48,152 to 23,473, following UPC’s exit.
- No common dividend was paid in Q1 2023; UIHC paid $2.6 million in Q1 2022. IIC’s ordinary dividends require prior New York regulatory approval through January 1, 2025.
Outlook, risks, and contingencies
Going concern: Management concluded that substantial doubt remains about UIHC’s ability to continue as a going concern. The April 19, 2023 memorandum with Florida’s Department of Financial Services (DFS) affirms the reinsurance allocation agreement and directs future Hurricane Ian recoveries under covered agreements to ACIC. However, recoveries already held by UPC remained unresolved, and ACIC’s June 1, 2023–May 31, 2024 catastrophe reinsurance placement was not finalized at the report date. Management identified resolving recoveries, renewing catastrophe cover, maintaining ratings, and exploring additional capital as key actions; it disclosed no committed source of additional capital.
UIHC reported approximately $38.4 million of net reinsurance recoveries due to it but held by UPC at March 31, 2023, and ACIC paid $12.9 million of reinsurance premiums on UPC’s behalf in April. A May 15 tax memorandum provides for cooperation to realize certain deferred tax assets and use a segregated account as collateral, subject to conditions including potential IRS objection and annual true-ups; it does not eliminate the uncertainties described by management.
Other significant risks include catastrophe and severe-weather exposure, reserve-estimation uncertainty, reinsurer collectability, reinsurance availability and cost, inflation-driven claims costs, interest-rate and investment risk, regulatory restrictions, and litigation. Management reported no material change in market risk and no material change in internal control over financial reporting; disclosure controls were considered effective.
Important facts for investors to verify
- Whether ACIC receives the disputed reinsurance recoveries held by UPC and how the tax memorandum’s conditions and true-ups are resolved.
- Whether ACIC and IIC secure adequate catastrophe reinsurance, at what cost and retention levels, and how coverage terms affect catastrophe exposure.
- Whether the company obtains additional capital or otherwise alleviates the disclosed substantial doubt about going concern, and the effect on shareholders if financing is raised.
- Whether reserve estimates, favorable prior-year development, and reinsurance recoverables remain supportable as claims develop.
- How the deconsolidation gain and shrinking policy base affect future recurring earnings, liquidity, ratings, and dividend capacity.