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, 2022. The filing describes a property and casualty insurer operating personal and commercial property lines. The request names American Coastal Insurance Corp.; the filing’s registrant is United Insurance Holdings Corp. (UIHC), and American Coastal Insurance Company (ACIC) is a wholly owned insurance subsidiary.
UIHC announced that its personal-lines insurer UPC would withdraw from Florida, Louisiana and Texas and pursue an orderly run-off, subject to regulatory requirements. ACIC is the principal commercial-lines insurer.
Financial results and position
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Gross premiums written | $255.2 | $322.5 | $894.8 | $1,060.6 |
| Net premiums earned | $116.2 | $153.3 | $328.4 | $444.7 |
| Total revenue | $123.8 | $162.7 | $341.9 | $480.0 |
| Net loss attributable to UIHC | $(70.9) | $(14.3) | $(173.1) | $(55.6) |
| Diluted loss per share | $(1.65) | $(0.33) | $(4.02) | $(1.29) |
| Combined ratio | 165.4% | 116.9% | 147.4% | 123.9% |
- Q3 net loss and loss-adjustment expenses (LAE) were $117.2 million; the net loss ratio was 100.9%. The expense ratio was 64.5%. For the nine months, the net loss ratio was 90.9% and the expense ratio 56.5%.
- Q3 catastrophe losses were $37.4 million net of reinsurance, including Hurricane Ian. Q3 unfavorable prior-year reserve development was $44.6 million; nine-month unfavorable development was $53.8 million.
- Cash, cash equivalents and restricted cash totaled $223.2 million at September 30, down from $245.3 million at year-end 2021. Operating cash outflow was $97.9 million for the nine months; investing activities provided $101.0 million and financing activities used $25.1 million.
- Investments were $545.4 million, down from $719.6 million at year-end. Fixed-maturity fair value was $492.3 million versus $559.2 million amortized cost; accumulated other comprehensive loss reached $64.8 million, reflecting substantial unrealized investment losses.
- Total assets were $2.942 billion and total liabilities $2.862 billion. Stockholders’ equity fell to $80.4 million from $332.0 million at year-end. Unpaid losses and LAE were $1.680 billion; reinsurance recoverables were $1.547 billion.
- Notes payable, net, were $152.7 million on the balance sheet. The debt note reports $154.4 million of carrying value before debt issuance costs: $150.0 million of senior notes due 2027 and a $4.4 million Florida SBA note. The Truist term note was repaid in August.
Material changes versus the prior comparable period
- Premiums written fell 20.9% in Q3 and 15.6% year to date, mainly reflecting the Northeast business transfer and reduced personal-lines underwriting. Policies in force declined 42.5% year over year to 302,296.
- Q3 total revenue declined 23.9%; nine-month revenue declined 28.8%. UIHC’s net loss widened substantially, while combined ratios deteriorated.
- Personal-lines gross written premiums fell 30.9% year over year in Q3 and 30.5% for the nine months. Commercial-lines premiums rose 19.4% in Q3 and 17.5% year to date, but Q3 commercial results were affected by Ian losses.
- Management recorded a $13.6 million personal-lines goodwill impairment following the UPC run-off decision and a $57.5 million valuation allowance against deferred tax assets. The company reported a $25.2 million income-tax provision for the nine months despite a pretax loss.
- Equity declined sharply, including the year-to-date net loss, investment-related other comprehensive loss, and return of $18.3 million of capital to the former JIC noncontrolling interest holder.
Outlook, risks and unusual items
- The filing provides no numerical earnings or revenue guidance. Management states UPC may have insufficient liquidity absent additional capital contributions and describes considerable uncertainty about the viability of its run-off plan. It cites underwriting losses, weak risk-adjusted capitalization and potential difficulty obtaining future reinsurance.
- Demotech notified UPC of its intent to withdraw UPC’s Financial Stability Rating. A reinsurer terminated participation in a catastrophe layer after the rating action; UPC Re assumed that layer, and Ian caused an additional $20.1 million retained loss. The company reported about $891 million of Ian occurrence limit and $1.396 billion of aggregate limit remaining after Ian, based on estimated ultimate losses.
- A private reinsurer terminated an all-other-perils layer effective September 30. UIHC expects about $1.3 million of ceded-premium savings, but will retain non-hurricane catastrophe losses up to $30 million, excluding quota-share recoveries.
- In November, ACIC declared a $26 million dividend to UIHC, which UIHC intended to contribute to UPC. The filing also reports regulatory approval for UPC’s withdrawal plans in Florida, Louisiana and Texas; UPC subsidiaries met stated regulatory requirements at quarter-end.
- After quarter-end, Nasdaq notified UIHC that its share price failed the minimum bid-price requirement. UIHC received an initial 180-day compliance period. A lawsuit by a former employee remained unresolved; a separate SFR Services lawsuit was dismissed on October 12, 2022.
- Management cites catastrophe exposure, reserve-estimation uncertainty, inflation, reinsurance availability and collectability, investment-market risk, regulatory constraints, and reliance on agents and vendors. Management reported disclosure controls effective at the reasonable-assurance level.
Most important facts for investors to verify
- Confirm the entity distinction: this filing is for UIHC, not a standalone American Coastal Insurance Corp. filing; assess ACIC’s standalone financial results and capital position separately.
- Track UPC’s run-off approvals, statutory capital and liquidity, planned capital contributions, and the effect on policyholders and the holding company.
- Monitor Hurricane Ian ultimate losses, reinsurance recoveries and counterparty credit, remaining catastrophe limits, and any further reserve development.
- Review whether operating cash flow and available liquidity can meet claims and debt obligations, particularly at UPC; the filing specifically warns UPC may be short of liquidity without further capital.
- Assess the valuation allowance, investment unrealized losses and potential losses if securities must be sold; management estimates liquidation of available fixed-maturity and equity securities would realize about $66.9 million of losses.
- Check the outcome of UPC’s rating and Nasdaq listing matters, and whether the proposed $26 million ACIC dividend and UPC capital contribution were completed.