Universal Insurance Q2 Earnings Call Highlights

Key Points

• Universal Insurance posted stronger Q2 results, with adjusted diluted EPS rising to $1.84 from $1.23 a year earlier as improved claims trends, higher premiums earned and more investment income boosted results.
• Underwriting metrics improved significantly, including a 7.5-point drop in the net loss ratio to 64.8% and a 6.2-point improvement in the net combined ratio to 91.6%, helped by favorable Florida legislative reforms and better current-year accident results.
• The company is still focused on profitable growth and capital returns, expanding selectively outside Florida while maintaining rate discipline, and it repurchased $4.5 million of stock while declaring a quarterly dividend of $0.16 per share.

Universal Insurance NYSE: UVE reported higher second-quarter earnings as improved claims trends, premium growth and increased investment income helped lower its net loss ratio and strengthen underwriting results.

Chief Executive Officer Steve Donaghy said the company generated a 33.2% annualized adjusted return on common equity during the quarter, supported by underwriting and revenue performance. He said favorable claims and litigation trends contributed to a 7.5-point year-over-year improvement in the net loss ratio.

“The favorable claims and litigation trends in our results are a direct product of Florida's legislative reforms,” Donaghy said. He added that the Florida homeowners insurance market has stabilized and is operating more like insurance markets elsewhere in the country.

Earnings, Revenue and Premium Growth

Chief Financial Officer Frank Wilcox said adjusted diluted earnings per common share rose to $1.84 from $1.23 in the prior-year quarter. The increase primarily reflected a lower net loss ratio, higher net premiums earned and greater net investment income.

Core revenue increased 4.6% year over year to $419.4 million. Direct premiums written rose 4.1% to $621.3 million, including 0.8% growth in Florida and 14.4% growth in other states. Wilcox said the increase mostly reflected a higher number of policies in force across the company’s multistate footprint.

• Direct premiums earned increased 4.1% to $544.8 million.
• Net premiums earned rose 4.7% to $377.3 million.
• The net combined ratio improved 6.2 points to 91.6%.
• The net loss ratio declined 7.5 points to 64.8%.
• The net expense ratio increased 1.3 points to 26.8%.

Wilcox attributed the lower net loss ratio to better current accident-year results. The higher expense ratio was primarily driven by increased policy acquisition costs associated with growth outside Florida, partly offset by a lower ceded premium ratio.

Florida Reforms and Reserve Position

Donaghy said Universal’s litigation inventory has returned to levels seen before Florida’s insurance litigation crisis, and that the effects of claims practices that existed before reforms have moved into the past.

As a result, he said management believes the company’s aggregate reserves provide “a meaningful margin above expected ultimate losses.” Donaghy also cited more favorable reinsurance rates and the company’s ability to write rate-adequate premiums as factors that position Universal for sustained profitable growth.

During the question-and-answer session, Donaghy said Universal remains focused on underwriting profitability rather than growth for its own sake. The insurer is continuing to write new business across its portfolio while using internal profitability models to determine where and how it writes policies.

“Our goal is to continue to write rate-adequate business where possible,” Donaghy said.

Multistate Growth and Competitive Conditions

Outside Florida, Donaghy said the company continues to take rate increases in many markets and expands into additional areas as actuarial models indicate rate adequacy is improving. He said Universal’s agent relationships have supported its position across its operating footprint.

Donaghy said the company feels positive about its Florida book of business, as reflected in its premium growth in the state. He also described Florida’s Citizens Property Insurance Corp. as no longer being a competitive concern for Universal, noting that Citizens has reduced its size substantially.

“They’re not a competitive threat whatsoever to us any longer,” Donaghy said, adding that the state’s regulatory environment has been steady and that regulators have encouraged insurers to participate in the market.

Capital Returns

Universal repurchased approximately 122,000 shares during the second quarter for an aggregate cost of $4.5 million. The company had about $8.6 million remaining under its current share repurchase authorization as of the call.

The board also declared a quarterly cash dividend of $0.16 per common share on July 8. The dividend is payable Aug. 7 to shareholders of record as of the close of business on July 31.

About Universal Insurance (NYSE:UVE)

Universal Insurance Holdings, Inc NYSE: UVE is a property and casualty insurance holding company headquartered in Jacksonville, Florida. The company underwrites homeowners and other residential property insurance products to protect against natural catastrophes such as hurricanes, windstorms and fires. It distributes policies primarily through a network of independent agents and brokers, offering coverage for primary residences, secondary homes, condominiums, vacant dwellings and rental properties across its service territory.

In addition to personal lines, Universal provides commercial property and casualty insurance tailored to small businesses and institutional clients.

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