ST. PETERSBURG, Fla.--(BUSINESS WIRE)--United Insurance Holdings Corp. (Nasdaq:UIHC) (UPC Insurance or the Company), a property and casualty insurance holding company, today reported its financial results for the fourth quarter and year ended December 31, 2018.
($ in thousands, except for per share data) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||||||||
Gross premiums written | $ | 292,187 | $ | 252,440 | 15.7 | % | $ | 1,252,401 | $ | 1,040,848 | 20.3 | % | ||||||||||||||||
Gross premiums earned | $ | 308,414 | $ | 274,373 | 12.4 | % | $ | 1,180,961 | $ | 986,023 | 19.8 | % | ||||||||||||||||
Net premiums earned | $ | 181,740 | $ | 166,195 | 9.4 | % | $ | 689,276 | $ | 585,490 | 17.7 | % | ||||||||||||||||
Total revenues | $ | 181,089 | $ | 182,586 | (0.8 | )% | $ | 723,942 | $ | 654,420 | 10.6 | % | ||||||||||||||||
Earnings before income tax | $ | (19,416 | ) | $ | 27,809 | (169.8 | )% | $ | (4,239 | ) | $ | 910 | (565.8 | )% | ||||||||||||||
Net income (loss) attributable to UIHC | $ | (11,071 | ) | $ | 27,001 | (141.0 | )% | $ | 290 | $ | 10,145 | (97.1 | )% | |||||||||||||||
Net income (loss) available to UIHC |
$ | (0.26 | ) | $ | 0.63 | (141.3 | )% | $ | 0.01 | $ | 0.27 | (96.3 | )% | |||||||||||||||
Reconciliation of net income (loss) to |
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Plus: Merger expenses | $ | — | $ | — | — | % | $ | — | $ | 6,906 | (100.0 | )% | ||||||||||||||||
Plus: Non-cash amortization of intangible assets | $ | 1,365 | $ | 9,839 | (86.1 | )% | $ | 13,920 | $ | 31,199 | (55.4 | )% | ||||||||||||||||
Less: Net realized gains on investment portfolio | $ | 2,329 | $ | 621 | 275.0 | % | $ | 1,655 | $ | 67 | 2,370.1 | % | ||||||||||||||||
Less: Unrealized losses on equity securities | $ | (14,346 | ) | $ | — | (100.0 | )% | $ | (9,300 | ) | $ | — | (100.0 | )% | ||||||||||||||
Less: Net tax impact(1) | $ | 3,346 | $ | 3,227 | 3.7 | % | $ | 5,391 | $ | 13,314 | (59.5 | )% | ||||||||||||||||
Core income (loss)(2) | $ | (1,035 | ) | $ | 32,992 | (103.1 | )% | $ | 16,464 | $ | 34,869 | (52.8 | )% | |||||||||||||||
Core income (loss) per diluted share(2) | $ | (0.02 | ) | $ | 0.77 | (102.6 | )% | $ | 0.38 | $ | 0.93 | (59.1 | )% | |||||||||||||||
Book value per share | $ | 12.10 | $ | 12.56 | (3.7 | )% |
(1) In order to reconcile net income to the core income
measure, we included the tax impact of all adjustments using the
effective rate at the end of |
(2) Core income and core income per diluted share,
measures that are not based on GAAP, are reconciled above to net
income and net income per |
"As expected, we had a lot of noise in our Q4 results due to Hurricane Michael and other cat events, as well as the impact of the new accounting rule about unrealized equity losses," said John Forney, President and CEO of UPC Insurance. "But, we improved our underlying combined ratio by over 600 basis points compared to a year ago, and, absent the factors mentioned earlier, we would have produced better pre-tax income than last year's Q4, when we had a cat-free quarter and produced our best results ever. We have a lot of positive momentum entering 2019, and the year is off to a good start."
Return on Equity and Core Return on Equity
Return on equity is a ratio the Company calculates by dividing the net income for the period by the average stockholders' equity for the trailing twelve months (or one quarter of such average, in the case of quarterly periods). Core return on equity (see calculation below) is a ratio calculated using non-GAAP measures. It is calculated by dividing the core income for the period by the average stockholders’ equity for the trailing twelve months (or one quarter of such average, in the case of quarterly periods). Core income is an after-tax non-GAAP measure that is calculated by excluding from net income the effect of non-cash amortization of intangible assets, special items such as merger related professional fees, unrealized gains or losses on the Company's equity security investments and net realized gains or losses on the Company's investment portfolio. In the opinion of the Company’s management, core income, core income per share and core return on equity are meaningful indicators to investors of the Company's underwriting and operating results, since the excluded items are not necessarily indicative of operating trends. Internally, the Company’s management uses core income, core income per share and core return on equity to evaluate performance against historical results and establish financial targets on a consolidated basis. The table above reconciles core income to net income, the most directly comparable GAAP measure.
($ in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
Net income (loss) attributable to UIHC | $ | (11,071 | ) | $ | 27,001 | $ | 290 | $ | 10,145 | |||||||||||
Return on equity based on GAAP net income (loss) attributable |
(8.3 | )% | 23.9 | % | 0.1 | % | 2.2 | % | ||||||||||||
Core income (loss) | $ | (1,035 | ) | $ | 32,992 | $ | 16,464 | $ | 34,869 | |||||||||||
Core return on equity (1) | (0.8 | )% | 29.2 | % | 3.1 | % | 7.7 | % |
(1) Return on equity for the three months ended December 31, 2018 and 2017 is calculated on an annualized basis. |
Combined Ratio and Underlying Ratio
The calculations of the Company's combined ratio and underlying combined ratio are shown below.
($ in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||||
Loss ratio, net(1) | 67.2 | % | 43.4 | % | 23.8 | pts | 59.3 | % | 62.4 | % | (3.1 | ) pts | ||||||||||||
Expense ratio, net(2) | 41.7 | % | 49.2 | % | (7.5 | ) pts | 45.0 | % | 48.7 | % | (3.7 | ) pts | ||||||||||||
Combined ratio (CR)(3) | 108.9 | % | 92.6 | % | 16.3 | pts | 104.3 | % | 111.1 | % | (6.8 | ) pts | ||||||||||||
Effect of current year catastrophe |
23.0 | % | 0.8 | % | 22.2 | pts | 14.5 | % | 19.8 | % | (5.3 | ) pts | ||||||||||||
Effect of prior year unfavorable |
4.7 | % | 0.1 | % | 4.6 | pts | 0.6 | % | (0.4 | )% | 1.0 | pts | ||||||||||||
Effect of ceding commission income on |
— | % | 4.2 | % | (4.2 | ) pts | — | % | 6.3 | % | (6.3 | ) pts | ||||||||||||
Underlying combined ratio(5) | 81.2 | % | 87.5 | % | (6.3 | ) pts | 89.2 | % | 85.4 | % | 3.8 | pts |
(1) Loss ratio, net is calculated as losses and loss adjustment expenses (LAE), net of losses ceded to reinsurers, relative to net premiums earned. |
(2) Expense ratio, net is calculated as the sum of all operating expenses less interest expense relative to net premiums earned. |
(3) Combined ratio is the sum of the loss ratio, net and expense ratio, net. |
(4) For the three months ended December 31, 2018, the
Company presented $10.7 million of ceding commissions earned as a
$2.1 million decrease |
(5) Underlying combined ratio, a measure that is not
based on GAAP, is reconciled above to the combined ratio, the most
directly comparable GAAP |
Quarterly Financial Results
Net loss attributable to the Company for the fourth quarter of 2018 was $11.1 million, or $0.26 per diluted share, compared to net income of $27.0 million, or $0.63 per diluted share, for the fourth quarter of 2017. The decrease in net income was primarily due to an increase in losses and LAE, partially offset by an increase in net premiums earned during the fourth quarter of 2018 compared to the fourth quarter of 2017.
The Company's total gross written premium increased by $39.8 million, or 15.7%, to $292.2 million for the fourth quarter of 2018, from $252.4 million for the fourth quarter of 2017, primarily reflecting organic growth in new and renewal business generated in all regions. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by region and gross written premium by line of business are shown in the table below.
($ in thousands) |
Three Months Ended |
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2018 | 2017 | Change $ | Change % | ||||||||||||||||
Direct Written and Assumed Premium by Region (1) | |||||||||||||||||||
Florida | $ | 151,374 | $ | 135,388 | $ | 15,986 | 11.8 | % | |||||||||||
Gulf | 47,779 | 45,835 | 1,944 | 4.2 | |||||||||||||||
Northeast | 45,025 | 38,871 | 6,154 | 15.8 | |||||||||||||||
Southeast | 25,092 | 22,042 | 3,050 | 13.8 | |||||||||||||||
Total direct written premium by region | 269,270 | 242,136 | 27,134 | 11.2 | % | ||||||||||||||
Assumed premium (2) | 22,917 | 10,304 | 12,613 | 122.4 | |||||||||||||||
Total gross written premium by region | $ | 292,187 | $ | 252,440 | $ | 39,747 | 15.7 | % | |||||||||||
Gross Written Premium by Line of Business | |||||||||||||||||||
Personal property | $ | 207,524 | $ | 181,123 | $ | 26,401 | 14.6 | % | |||||||||||
Commercial property | 84,663 | 71,317 | 13,346 | 18.7 | |||||||||||||||
Total gross written premium by line of business | $ | 292,187 | $ | 252,440 | $ | 39,747 | 15.7 | % |
(1) "Gulf" is comprised of Hawaii, Louisiana and Texas;
"Northeast" is comprised of Connecticut, Massachusetts, New
Jersey, New York and |
(2) Assumed premium written for 2018 and 2017 primarily included commercial property business assumed from unaffiliated insurers. |
Loss and LAE increased by $50.1 million, or 69.4%, to $122.2 million for the fourth quarter of 2018, from $72.1 million for the fourth quarter of 2017. Loss and LAE expense as a percentage of net earned premiums increased 23.8 points to 67.2% for the fourth quarter of 2018, compared to 43.4% for the fourth quarter of 2017. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the fourth quarter of 2018 would have been 23.3%, a decrease of 2.4 points from 25.7% during the fourth quarter of 2017.
Policy acquisition costs decreased by $0.7 million, or 1.4%, to $49.4 million for the fourth quarter of 2018, from $50.1 million for the fourth quarter of 2017. The primary driver of the decrease in costs was the change in presentation of ceding commission income as an offset to policy acquisition costs, partially offset by the managing general agent commissions related to AmCo Holding Company (AmCo) commercial premiums.
Operating and underwriting expenses increased by $2.9 million, or 34.2%, to $11.6 million for the fourth quarter of 2018, from $8.7 million for the fourth quarter of 2017, primarily due to increased agent incentive costs from our new contingent commission program.
General and administrative expenses decreased by $8.1 million, or 35.5%, to $14.8 million for the fourth quarter of 2018, from $22.9 million for the fourth quarter of 2017, primarily due to amortization costs related to the merger with AmCo incurred during the first three quarters of 2017 that were fully expensed at the end of the first quarter of 2018.
Year to Date Financial Results
Net income attributable to the Company for the year ended December 31, 2018 was $0.3 million, or $0.01 per diluted share, compared to net income of $10.1 million, or $0.27 per diluted share, for the year ended December 31, 2017. The decrease in net income was primarily due to an increase in losses and LAE, as well as policy acquisition expenses.
The Company's total gross written premium increased by $211.6 million, or 20.3%, to $1.3 billion for the year ended December 31, 2018 from $1.0 billion for the year ended December 31, 2017, primarily reflecting organic growth in new and renewal business generated in all regions. The breakdown of the year-over-year changes in both direct written and assumed premiums by region and gross written premium by line of business are shown in the table below.
($ in thousands) | Year Ended December 31, | ||||||||||||||||||
2018 | 2017 | Change $ | Change % | ||||||||||||||||
Direct Written and Assumed Premium by Region (1) | |||||||||||||||||||
Florida | $ | 655,736 | $ | 540,796 | $ | 114,940 | 21.3 | % | |||||||||||
Gulf | 210,230 | 201,475 | 8,755 | 4.3 | |||||||||||||||
Northeast | 177,958 | 154,502 | 23,456 | 15.2 | |||||||||||||||
Southeast | 104,266 | 92,753 | 11,513 | 12.4 | |||||||||||||||
Total direct written premium by region | 1,148,190 | 989,526 | 158,664 | 16.0 | % | ||||||||||||||
Assumed premium (2) | 104,211 | 51,322 | 52,889 | 103.1 | |||||||||||||||
Total gross written premium by region | $ | 1,252,401 | $ | 1,040,848 | $ | 211,553 | 20.3 | % | |||||||||||
Gross Written Premium by Line of Business | |||||||||||||||||||
Personal property | $ | 890,515 | $ | 799,097 | $ | 91,418 | 11.4 | % | |||||||||||
Commercial property | 361,886 | 241,751 | 120,135 | 49.7 | |||||||||||||||
Total gross written premium by line of business | $ | 1,252,401 | $ | 1,040,848 | $ | 211,553 | 20.3 | % |
(1) "Gulf" is comprised of Hawaii, Louisiana and Texas;
"Northeast" is comprised of Connecticut, Massachusetts, New
Jersey, New York and |
(2) Assumed premium written for 2018 and 2017 included commercial property business assumed from unaffiliated insurers. |
Loss and LAE increased by $43.1 million, or 11.8%, to $408.6 million for the year ended December 31, 2018, from $365.5 million for the year ended December 31, 2017. Loss and LAE expense as a percentage of net earned premiums decreased 3.1 points to 59.3% for the year ended December 31, 2018, compared to 62.4% for the year ended December 31, 2017. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the year would have been 25.8%, an increase of 0.3 points from 25.5% during the year ended December 31, 2017.
Policy acquisition costs increased by $27.7 million, or 15.8%, to $203.1 million for the year ended December 31, 2018, from $175.4 million for the year ended December 31, 2017. The primary drivers of the increase in costs were the managing general agent fees paid to AmRisc in relation to AmCo commercial premium, along with agent commission costs, which were generally consistent with the Company's growth in premium production and higher average market commission rates outside of Florida. These increases were partially offset by a decrease resulting from the change in presentation of ceding commission income as an offset to policy acquisition costs.
Operating and underwriting expenses increased by $12.9 million, or 46.7%, to $40.6 million for the year ended December 31, 2018, from $27.7 million for the year ended December 31, 2017, primarily due to increased agent incentive costs from our new contingent commission program, along with incurred expenses related to the Company's investment in software and assessments incurred in Texas and North Carolina throughout the year.
General and administrative expenses decreased by $15.7 million, or 19.1%, to $66.1 million for the year ended December 31, 2018, from $81.8 million for the year ended December 31, 2017, primarily due to amortization costs related to the merger with AmCo incurred during the first three quarters of 2017 that were fully expensed at the end of the first quarter of 2018.
Combined Ratio Analysis
The calculations of the Company's loss ratios and underlying loss ratios are shown below.
($ in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||||||||||
Loss and LAE | $ | 122,196 | $ | 72,137 | $ | 50,059 | $ | 408,589 | $ | 365,535 | $ | 43,054 | ||||||||||||||||||
% of Gross earned premiums | 39.6 | % | 26.3 | % | 13.3 | pts | 34.6 | % | 37.1 | % | (2.5 | ) pts | ||||||||||||||||||
% of Net earned premiums | 67.2 | % | 43.4 | % | 23.8 | pts | 59.3 | % | 62.4 | % | (3.1 | ) pts | ||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||
Current year catastrophe losses | $ | 41,737 | $ | 1,399 | $ | 40,338 | $ | 99,988 | $ | 116,424 | $ | (16,436 | ) | |||||||||||||||||
Prior year reserve unfavorable |
8,525 | 206 | 8,319 | 4,318 | (2,613 | ) | 6,931 | |||||||||||||||||||||||
Underlying loss and LAE (1) | $ | 71,934 | $ | 70,532 | $ | 1,402 | $ | 304,283 | $ | 251,724 | $ | 52,559 | ||||||||||||||||||
% of Gross earned premiums | 23.3 | % | 25.7 | % | (2.4 | ) pts | 25.8 | % | 25.5 | % | 0.3 | pts | ||||||||||||||||||
% of Net earned premiums | 39.6 | % | 42.4 | % | (2.8 | ) pts | 44.1 | % | 43.0 | % | 1.1 | pts |
(1) Underlying loss and LAE is a non-GAAP financial
measure and is reconciled above to net loss and LAE, the most
directly comparable GAAP |
The calculations of the Company's expense ratio and underlying expense ratios are shown below.
($ in thousands) | Three Months Ended | Year Ended | ||||||||||||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||||||||||||
2018 | 2017 | Change | 2018 | 2017 | Change | |||||||||||||||||||||||||
Policy acquisition costs | $ | 49,424 | $ | 50,142 | $ | (718 | ) | $ | 203,140 | $ | 175,444 | $ | 27,696 | |||||||||||||||||
Operating and underwriting | 11,614 | 8,655 | 2,959 | 40,590 | 27,675 | 12,915 | ||||||||||||||||||||||||
General and administrative | 14,786 | 22,937 | (8,151 | ) | 66,112 | 81,762 | (15,650 | ) | ||||||||||||||||||||||
Total Operating Expenses | $ | 75,824 | $ | 81,734 | $ | (5,910 | ) | $ | 309,842 | $ | 284,881 | $ | 24,961 | |||||||||||||||||
% of Gross earned premiums | 24.6 | % | 29.8 | % | (5.2 | ) pts | 26.2 | % | 28.9 | % | (2.7 | ) pts | ||||||||||||||||||
% of Net earned premiums | 41.7 | % | 49.2 | % | (7.5 | ) pts | 45.0 | % | 48.7 | % | (3.7 | ) pts | ||||||||||||||||||
Less: | ||||||||||||||||||||||||||||||
Ceding commission income (1) | $ | — | $ | 6,990 | $ | (6,990 | ) | $ | — | $ | 37,175 | $ | (37,175 | ) | ||||||||||||||||
Underlying expense (2) | $ | 75,824 | $ | 74,744 | $ | 1,080 | $ | 309,842 | $ | 247,706 | $ | 62,136 | ||||||||||||||||||
% of Gross earned premiums | 24.6 | % | 27.2 | % | (2.6 | ) pts | 26.2 | % | 25.1 | % | 1.1 | pts | ||||||||||||||||||
% of Net earned premiums | 41.7 | % | 45.0 | % | (3.3 | ) pts | 45.0 | % | 42.3 | % | 2.7 | pts |
(1) For the year ended December 31, 2018, the Company
presented $42.4 million of ceding commissions earned as a $9.3
million decrease in ceded |
(2) Underlying expense is a non-GAAP financial measure
and is reconciled above to total operating expenses, the most
directly comparable GAAP |
Reinsurance Costs as a Percentage of Earned Premium
Excluding the Company's business for which it cedes 100% of the risk of loss, reinsurance costs in the fourth quarter of 2018 were 40.0% of gross premiums earned, compared to 37.6% of gross premiums earned for the fourth quarter of 2017. The increase in this ratio was driven primarily by the increased coverage purchased for our 2018-19 combined catastrophe reinsurance program.
Investment Portfolio Highlights
The Company's cash and investment holdings stayed consistent at $1.1 billion at December 31, 2018 and 2017. UPC Insurance's cash and investment holdings consist of investments in U.S. government and agency securities, corporate debt and 100% investment grade money market instruments. Fixed maturities represented approximately 90.6% of total investments at December 31, 2018 compared to 89.3% at December 31, 2017. At December 31, 2018 our fixed maturity investments had a modified duration of 3.5 years, compared to 3.9 years at December 31, 2017.
Book Value Analysis
Book value per share decreased 3.7% from $12.56 at December 31, 2017, to $12.10 at December 31, 2018. Underlying book value per share decreased 0.3% from $12.35 at December 31, 2017, to $12.31 at December 31, 2018. A decrease in the Company's accumulated other comprehensive income drove the decrease in our book value per share. The decrease in the Company's accumulated other comprehensive income resulted from the Company's adoption of Accounting Standards Update 2016-01, which requires unrealized gains or losses on equity securities to be reflected on the income statement, rather than in other comprehensive income. Removing the effect of the decrease in accumulated other comprehensive income, our book value per share remained fairly consistent, as shown in the table below.
($ in thousands, except for share and per share data) | December 31, | December 31, | |||||||
2018 | 2017 | ||||||||
Book Value per Share | |||||||||
Numerator: | |||||||||
Common stockholders' equity attributable to UIHC | $ | 520,230 | $ | 537,125 | |||||
Denominator: | |||||||||
Total Shares Outstanding | 42,984,578 | 42,753,054 | |||||||
Book Value Per Common Share | $ | 12.10 | $ | 12.56 | |||||
Book Value per Share, Excluding the Impact of Accumulated Other |
|||||||||
Numerator: | |||||||||
Common stockholders' equity attributable to UIHC | $ | 520,230 | $ | 537,125 | |||||
Accumulated other comprehensive (loss) income | (9,030 | ) | 9,221 | ||||||
Stockholders' Equity, excluding AOCI | $ | 529,260 | $ | 527,904 | |||||
Denominator: | |||||||||
Total Shares Outstanding | 42,984,578 | 42,753,054 | |||||||
Underlying Book Value Per Common Share(1) | $ | 12.31 | $ | 12.35 |
(1) Underlying book value per common share is a
non-GAAP financial measure and is reconciled above to book value
per common share, the most |
Definitions of Non-GAAP Measures
We believe that investors' understanding of UPC Insurance's performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.
Combined ratio excluding the effects of current year catastrophe losses, prior year reserve development and ceding commission income earned (underlying combined ratio) is a non-GAAP ratio, which is computed by subtracting the effect of current year catastrophe losses, prior year development, and ceding commission income earned related to the Company's quota share reinsurance agreement from the combined ratio. The Company believes that this ratio is useful to investors and it is used by management to reveal the trends in the Company's business that may be obscured by current year catastrophe losses, losses from lines in run-off, prior year development, and ceding commission income earned. Current year catastrophe losses cause the Company's loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under the Company's quota share reinsurance agreement. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company's performance. The most directly comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of the Company's business.
Net loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying loss and LAE) is a non-GAAP measure which is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from net loss and LAE. The Company uses underlying loss and LAE figures to analyze the Company's loss trends that may be impacted by current year catastrophe losses and prior year development on the Company's reserves. As discussed previously, these two items can have a significant impact on the Company's loss trends in a given period. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company's performance. The most directly comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net loss and LAE and does not reflect the overall profitability of the Company's business.
Operating expenses excluding the effects of ceding commission income earned, merger expenses, and amortization of intangible assets (underlying expense) is a non-GAAP measure which is computed by subtracting ceding income earned related to the Company's quota share reinsurance agreement, merger expenses and amortization of intangibles. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under the Company's quota share reinsurance agreement. Merger expenses are directly related to past mergers and are not reflective of current period operating performance. Similarly, amortization expense is related to the amortization of intangible assets acquired through mergers and therefore the expense does not arise through normal operations. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company's performance. The most directly comparable GAAP measure is operating expenses. The underlying expense measure should not be considered a substitute for the operating expense ratio and does not reflect the overall profitability of the Company's business.
Net income excluding the effects of merger expenses, non-cash amortization of intangible assets, realized gains (losses) and unrealized gains (losses) on equity securities, net of tax (core income) is a non-GAAP measure which is computed by adding merger expenses and non-cash amortization, net of tax, to net income and subtracting realized gains (losses) on our investment portfolio, net of tax, and unrealized gains (losses) on our equity securities, net of tax, from net income. Merger expenses relate to professional fees associated with the AmCo merger which we completed during the second quarter of 2017. Amortization expense is related to the amortization of intangible assets acquired through merger and therefore the expense does not arise through normal operations. Investment portfolio gains (losses) and unrealized equity security gains (losses) vary independently of our operations. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most directly comparable GAAP measure is net income. The core income measure should not be considered a substitute for net income and does not reflect the overall profitability of our business.
Book value per common share, excluding the impact of accumulated other comprehensive income (underlying book value per common share), is a non-GAAP measure which is computed by dividing common stockholders' equity after excluding accumulated other comprehensive income, by total common shares outstanding plus dilutive potential common shares outstanding. We use the trend in book value per common share, excluding the impact of accumulated other comprehensive income, in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP measure is useful to investors because it eliminates the effect of interest rates that can fluctuate significantly from period to period and are generally driven by economic and financial factors which are not influenced by management. Book value per common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of accumulated other comprehensive income, should not be considered a substitute for book value per common share, and does not reflect the recorded net worth of our business.
Conference Call Details |
|
Date and Time: |
February 19, 2019 - 5:00 P.M. ET |
Participant Dial-In: |
(United States): 877-407-8829 |
(International): 201-493-6724 | |
Webcast: |
To listen to the live webcast, please go to www.upcinsurance.com
(Investor Relations - News & |
Presentation: |
The information in this press release should be read in
conjunction with an investor |
About UPC Insurance
Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services personal and commercial residential property and casualty insurance policies using a group of wholly owned insurance subsidiaries and one majority owned insurance subsidiary through a variety of distribution channels. The Company currently writes policies in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina and Texas, and is licensed to write in Alabama, Delaware, Maryland, Mississippi, New Hampshire and Virginia. From its headquarters in St. Petersburg, UPC Insurance's team of dedicated professionals manages a completely integrated insurance company, including sales, underwriting, customer service and claims. UPC Insurance is a company committed to financial stability and solvency.
Forward-Looking Statements
Statements made in this press release, or on the conference call identified above, and otherwise, that are not historical facts are “forward-looking statements” that anticipate results based on our estimates, assumptions and plans and are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words such as “may,” “will,” “expect,” "endeavor," "project," “believe,” “anticipate,” “intend,” “could,” “would,” “estimate” or “continue” or the negative variations thereof or comparable terminology. We believe these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. Factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements may be found in our filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section in our most recent Annual Report on Form 10-K and subsequent Quarterly Reports on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and, except as required by applicable law, we undertake no obligation to update or revise any forward-looking statement.
Condensed Consolidated Statements of Comprehensive Income In thousands, except share and per share amounts |
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Three Months Ended | Year Ended | |||||||||||||||||||
December 31, | December 31, | |||||||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||||||
REVENUE: | ||||||||||||||||||||
Gross premiums written | $ | 292,187 | $ | 252,440 | $ | 1,252,401 | $ | 1,040,848 | ||||||||||||
Change in gross unearned premiums | 16,227 | 21,933 | (71,440 | ) | (54,825 | ) | ||||||||||||||
Gross premiums earned | 308,414 | 274,373 | 1,180,961 | 986,023 | ||||||||||||||||
Ceded premiums earned | (126,674 | ) | (108,178 | ) | (491,685 | ) | (400,533 | ) | ||||||||||||
Net premiums earned | 181,740 | 166,195 | 689,276 | 585,490 | ||||||||||||||||
Investment income | 7,536 | 5,323 | 27,201 | 17,812 | ||||||||||||||||
Net realized investment gains | 2,329 | 621 | 1,655 | 67 | ||||||||||||||||
Net unrealized losses on equity securities | (14,346 | ) | — | (9,300 | ) | — | ||||||||||||||
Other revenue | 3,830 | 10,447 | 15,110 | 51,051 | ||||||||||||||||
Total revenues | $ | 181,089 | $ | 182,586 | $ | 723,942 | $ | 654,420 | ||||||||||||
EXPENSES: | ||||||||||||||||||||
Losses and loss adjustment expenses | 122,196 | 72,137 | 408,589 | 365,535 | ||||||||||||||||
Policy acquisition costs | 49,424 | 50,142 | 203,140 | 175,444 | ||||||||||||||||
Operating expenses | 11,614 | 8,655 | 40,590 | 27,675 | ||||||||||||||||
General and administrative expenses | 14,786 | 22,937 | 66,112 | 81,762 | ||||||||||||||||
Interest expense | 2,495 | 965 | 9,866 | 3,247 | ||||||||||||||||
Total expenses | 200,515 | 154,836 | 728,297 | 653,663 | ||||||||||||||||
Income before other income (loss) | (19,426 | ) | 27,750 | (4,355 | ) | 757 | ||||||||||||||
Other income | 10 | 59 | 116 | 153 | ||||||||||||||||
Income (loss) before income taxes | (19,416 | ) | 27,809 | (4,239 | ) | 910 | ||||||||||||||
Provision (benefit) for income taxes | (8,448 | ) | 808 | (4,633 | ) | (9,235 | ) | |||||||||||||
Net income (loss) | $ | (10,968 | ) | $ | 27,001 | $ | 394 | $ | 10,145 | |||||||||||
Less: Net income attributable to noncontrolling interests | 103 | — | 104 | — | ||||||||||||||||
Net income (loss) attributable to UIHC | $ | (11,071 | ) | $ | 27,001 | $ | 290 | $ | 10,145 | |||||||||||
OTHER COMPREHENSIVE INCOME: | ||||||||||||||||||||
Change in net unrealized gains (losses) on investments | 8,442 | 138 | (22,264 | ) | 10,647 | |||||||||||||||
Reclassification adjustment for net realized investment |
(2,329 | ) | (621 | ) | (1,655 | ) | (67 | ) | ||||||||||||
Income tax benefit (expense) related to items of other |
(1,407 | ) | 2,026 | 5,703 | (2,181 | ) | ||||||||||||||
Total comprehensive income (loss) | $ | (6,262 | ) | $ | 28,544 | $ | (17,822 | ) | $ | 18,544 | ||||||||||
Less: Comprehensive income attributable to noncontrolling |
138 | — | 139 | — | ||||||||||||||||
Comprehensive income (loss) attributable to UIHC | $ | (6,400 | ) | $ | 28,544 | $ | (17,961 | ) | $ | 18,544 | ||||||||||
Weighted average shares outstanding | ||||||||||||||||||||
Basic | 42,692,507 | 42,526,045 | 42,650,629 | 37,152,768 | ||||||||||||||||
Diluted | 42,692,507 | 42,753,303 | 42,838,886 | 37,375,340 | ||||||||||||||||
Earnings available to UIHC common stockholders per share | ||||||||||||||||||||
Basic | $ | (0.26 | ) | $ | 0.63 | $ | 0.01 | $ | 0.27 | |||||||||||
Diluted | $ | (0.26 | ) | $ | 0.63 | $ | 0.01 | $ | 0.27 | |||||||||||
Dividends declared per share | $ | 0.06 | $ | 0.06 | $ | 0.24 | $ | 0.24 | ||||||||||||
Condensed Consolidated Balance Sheets In thousands, except share amounts |
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December 31, 2018 | December 31, 2017 | |||||||||
ASSETS | ||||||||||
Investments, at fair value: | ||||||||||
Fixed maturities, available-for-sale | $ | 862,345 | $ | 762,855 | ||||||
Equity securities | 80,978 | 63,295 | ||||||||
Other investments | 8,513 | 8,381 | ||||||||
Portfolio loans | — | 20,000 | ||||||||
Total investments | $ | 951,836 | $ | 854,531 | ||||||
Cash and cash equivalents | 112,679 | 229,556 | ||||||||
Restricted cash | 71,441 | 46,719 | ||||||||
Accrued investment income | 6,017 | 5,577 | ||||||||
Property and equipment, net | 17,137 | 17,291 | ||||||||
Premiums receivable, net | 95,816 | 75,275 | ||||||||
Reinsurance recoverable on paid and unpaid losses | 625,998 | 395,774 | ||||||||
Ceded unearned premiums | 217,885 | 201,904 | ||||||||
Goodwill | 73,045 | 73,045 | ||||||||
Deferred policy acquisition costs | 105,582 | 103,882 | ||||||||
Intangible assets | 31,351 | 45,271 | ||||||||
Other assets | 12,641 | 11,096 | ||||||||
Total Assets | $ | 2,321,428 | $ | 2,059,921 | ||||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||
Liabilities: | ||||||||||
Unpaid losses and loss adjustment expenses | $ | 661,203 | $ | 482,232 | ||||||
Unearned premiums | 627,313 | 555,873 | ||||||||
Reinsurance payable | 175,272 | 149,117 | ||||||||
Payments outstanding | 56,534 | 41,786 | ||||||||
Accounts payable and accrued expenses | 71,048 | 46,594 | ||||||||
Other liabilities | 29,571 | 85,830 | ||||||||
Notes payable | 160,118 | 161,364 | ||||||||
Total Liabilities | $ | 1,781,059 | $ | 1,522,796 | ||||||
Commitments and contingencies | ||||||||||
Stockholders' Equity: | ||||||||||
Preferred stock, $0.0001 par value; 1,000,000 authorized; none
issued or |
— | — | ||||||||
Common stock, $0.0001 par value; 50,000,000 shares authorized; |
4 | 4 | ||||||||
Additional paid-in capital | 389,141 | 387,145 | ||||||||
Treasury shares, at cost; 212,083 shares | (431 | ) | (431 | ) | ||||||
Accumulated other comprehensive income | (9,030 | ) | 9,221 | |||||||
Retained earnings | 140,546 | 141,186 | ||||||||
Total stockholders' equity attributable to UIHC stockholders | $ | 520,230 | $ | 537,125 | ||||||
Noncontrolling interests | 20,139 | — | ||||||||
Total Stockholders' Equity | $ | 540,369 | $ | 537,125 | ||||||
Total Liabilities and Stockholders' Equity | $ | 2,321,428 | $ | 2,059,921 |