Business context and reporting period
United Insurance Holdings Corp. (UIHC), a property and casualty insurer, filed this unaudited Form 10-Q for the quarter ended June 30, 2020. The filing describes American Coastal Insurance Company (ACIC) as a UIHC subsidiary; it is not an ACIC standalone filing. Amounts below are in U.S. dollars; financial statement amounts are generally in millions.
Financial performance and position
- Revenue and premiums: Second-quarter gross premiums written were $439.7 million, down 2.2% year over year; net premiums earned were $185.5 million, down 2.6%. Six-month gross premiums written were $774.8 million, up 0.8%, and net premiums earned were $377.1 million, up 1.6%. Total revenue was $216.4 million for Q2 and $392.7 million for the first half.
- Profit: Net income attributable to UIHC was $24.3 million in Q2, versus a $2.9 million loss a year earlier; diluted EPS was $0.56 versus a $0.07 loss. First-half attributable net income was $11.6 million, versus $6.6 million, with diluted EPS of $0.27 versus $0.15. Q2 core income, a company-defined non-GAAP measure, was $8.8 million; first-half core income was $17.9 million.
- Margins: The net loss ratio was 54.8% in Q2 and 54.2% for the first half, compared with 61.1% and 59.5%, respectively, in 2019. Combined ratios improved to 99.4% for Q2 and 99.2% for the first half, from 108.2% and 106.0%. Underlying combined ratios were 83.7% and 87.3%, respectively.
- Cash flow and liquidity: Operating cash flow was $139.3 million for the first half, down from $179.3 million. Cash, cash equivalents and restricted cash totaled $281.6 million at June 30, versus $287.1 million at year-end 2019. Investments were $1.158 billion; total cash, restricted cash and investments were $1.440 billion. Investing activities used $138.9 million, primarily reflecting net investment purchases.
- Debt and capital: Notes payable, net, were $158.3 million on the balance sheet; disclosed total long-term debt before debt issuance costs was $160.8 million. Stockholders’ equity totaled $549.5 million. The company paid $0.12 per share in dividends during the first half and declared another $0.06 quarterly dividend in July.
- Other metrics: Policies in force increased 2.5% year over year to 630,542. Book value per share was $12.27, compared with $12.54 at June 30, 2019.
Changes versus prior comparable periods
- Q2 earnings improved substantially from a year-earlier loss, mainly due to a $20.6 million unrealized gain on equity securities, lower losses and loss adjustment expenses, and lower policy acquisition costs. The equity gain is market-sensitive and should be distinguished from underwriting performance.
- First-half revenue declined 3.5% despite modest growth in gross written premiums, as net unrealized equity results shifted from a $12.9 million gain in 2019 to a $5.9 million loss in 2020. First-half net income nevertheless increased, primarily due to lower losses and LAE.
- Catastrophe losses rose: $29.8 million in Q2 and $46.9 million for the first half, compared with $15.8 million and $27.5 million. Favorable prior-year reserve development was $0.8 million in Q2 and $2.0 million for the first half; the comparable 2019 periods had adverse development.
- Gross written premium mix shifted toward personal property: first-half personal property premiums rose $35.8 million, while commercial property premiums fell $29.3 million. Assumed premiums also declined materially.
- Reinsurance costs increased as a share of gross earned premium: the total ceding ratio was 46.1% in Q2 and 45.3% for the first half, compared with 42.3% and 42.2% in 2019.
Outlook, risks and unusual items
- The filing gives no quantified earnings or premium guidance. Management said COVID-19 had not materially affected operations, liquidity or policyholder service through June 30, though it caused investment-market volatility and an immaterial early-Q2 reduction in Northeast new business. Future impacts remain uncertain.
- Management identifies catastrophe exposure, particularly Florida concentration, reserve estimation, reinsurance availability and collectability, investment-market risk, regulatory constraints, and COVID-related economic disruption as significant risks. The company’s catastrophe reinsurance program effective June 1, 2020 provides approximately $3.3 billion of coverage, subject to treaty terms and retentions; reinsurance does not relieve the company of its primary policyholder obligations.
- Unpaid losses and LAE were $683.5 million, including $376.0 million of IBNR reserves. Management considers reserves adequate, but estimates are judgmental and actual claims may differ. Reinsurance recoverables were $486.8 million.
- The Truist loan’s minimum cash-flow coverage covenant was not met at the latest annual test for 2019, but the lender waived that breach. The company reported compliance with the other described debt covenants at June 30, 2020. Insurance subsidiaries met applicable regulatory requirements.
- The CARES Act increased federal tax recoverable by $12.5 million and decreased the deferred tax asset by $7.3 million. A $0.06 per-share dividend was declared after quarter-end. Hurricanes Hanna and Isaias made landfall after quarter-end; the company could not yet estimate its retained losses.
- COVID-19 risks include premium-payment defaults, weaker production or retention, reinsurance-market changes, investment declines, claims changes, and operational or cybersecurity disruption from remote work and third-party vendors. No material non-claims-related legal actions or off-balance-sheet arrangements were reported.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for UIHC, with ACIC identified as a subsidiary, despite the request naming American Coastal Insurance Corp.
- Assess how much reported earnings depended on volatile equity-security marks; compare GAAP net income with the company-defined core income measure.
- Review catastrophe loss experience, the reinsurance program’s limits, retentions and recoverable amounts, and the subsequent-event hurricane exposure.
- Monitor reserve development and the adequacy and collectability of loss reserves and reinsurance recoverables.
- Check covenant compliance and any future waiver requirements, along with regulatory limits on insurance-subsidiary dividends and holding-company liquidity.