Business context and reporting period
Unaudited Form 10-Q for the three months ended March 31, 2019. The filing is for United Insurance Holdings Corp. (UIHC), a property and casualty insurance holding company and parent of American Coastal Insurance Company (ACIC); it is not a standalone ACIC filing. UIHC writes personal and commercial property insurance, principally in Florida and other catastrophe-exposed states.
Unless otherwise noted, financial amounts below are in millions of dollars. Per-share figures are in dollars.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Gross premiums written | $318.6 | $279.6 |
| Net premiums earned | $180.7 | $162.7 |
| Total revenue | $202.3 | $180.1 |
| Net income attributable to UIHC | $9.5 | $8.4 |
| Diluted EPS | $0.22 | $0.20 |
| Net loss ratio / expense ratio | 57.8% / 45.9% | 47.5% / 54.6% |
| Combined ratio / underlying combined ratio | 103.7% / 94.1% | 102.1% / 92.4% |
| Operating cash flow | $(11.5) | $(15.8) |
| Cash, cash equivalents and restricted cash | $194.2 | $184.1 at Dec. 31, 2018 |
| Total investments | $956.4 | $951.8 at Dec. 31, 2018 |
| Notes payable, net on balance sheet | $159.8 | $160.1 at Dec. 31, 2018 |
| Total stockholders’ equity | $559.0 | $540.4 at Dec. 31, 2018 |
Net income included a $10.2 million unrealized gain on equity securities, compared with a $2.4 million unrealized loss in Q1 2018. Management’s non-GAAP core income was $3.2 million, or $0.07 per diluted share, versus $17.0 million, or $0.40, a year earlier; core income excludes intangible amortization and investment gains and losses. Book value per share was $12.52 at both period ends shown.
Net cash increased $10.1 million during the quarter: investing activities provided $15.5 million and financing activities provided $6.1 million, partly offset by operating cash use. The filing says management believes available capital resources and operating cash are sufficient for currently anticipated working-capital needs. Restricted cash of $65.3 million includes trust funds and regulatory deposits.
Material changes versus the prior comparable period
- Gross written premiums rose 13.9%, reflecting growth in new and renewal business across regions; policies in force increased 10.3% year over year to 598,294.
- UIHC-attributable net income increased 13.1%, but loss and LAE expense rose $27.3 million. Net loss ratio increased 10.3 percentage points, and the combined ratio worsened to 103.7% from 102.1%.
- Current-period catastrophe losses were $11.7 million, versus $6.3 million; unfavorable prior-year reserve development was $5.6 million, versus favorable development of $0.7 million.
- General and administrative expense declined $5.7 million, primarily because AmCo-related amortization was fully amortized in Q1 2018. The reported expense comparison also reflects a change in presentation of ceding commissions.
- Other revenue fell to $4.0 million from $14.0 million. Cash used in operations improved by $4.2 million year over year but remained negative.
Outlook, risks and unusual items
- Management expects gross written premium growth to continue through in-force growth in current markets and expansion into states where the company is licensed; no quantified earnings or premium guidance is provided.
- Catastrophe exposure, Florida concentration, reserve estimation, reinsurance availability and collectability, and investment-market movements are key risks. Reinsurance recoverables were $654.5 million at quarter-end; the company remains primarily liable to policyholders if reinsurers do not pay.
- Management reported a combined statutory net loss of $7.7 million for Q1 2019, versus statutory net income of $9.0 million in Q1 2018. Regulated subsidiaries met applicable requirements, with $439.1 million of statutory policyholder surplus at March 31, 2019.
- Disclosure controls were deemed not effective at the reasonable-assurance level because of a previously reported material weakness: monitoring of newly implemented or modified internal controls had not yet been fully performed. Management stated the financial statements fairly present results and is working on remediation; the weakness was not yet considered remediated.
- Debt covenants were reported in compliance. Routine claims-related litigation is ongoing; the company reported no material non-claims-related legal actions. A $0.06-per-share quarterly dividend was declared after quarter-end, and the company agreed to buy a St. Petersburg property for $5.0 million.
Most important facts for investors to verify
- Confirm the filing entity and exposure: UIHC is the registrant, and ACIC is one of its insurance subsidiaries.
- Assess whether loss trends, catastrophe claims and adverse prior-year reserve development persist, and whether reserves prove adequate.
- Evaluate earnings quality, distinguishing underwriting results from the quarter’s equity-market gain and comparing GAAP net income with non-GAAP core income.
- Review reinsurance recoverables, contract renewals and coverage, given the company’s large catastrophe exposures and continuing primary liability.
- Track remediation and testing of the material weakness in internal-control monitoring.
- Consider statutory capital, dividend restrictions, liquidity and debt obligations alongside consolidated cash and earnings.