Universal Insurance Holdings Reports Second Quarter 2020 Results
Universal Insurance Holdings (NYSE: UVE) (the “Company”) reported 2020 second quarter diluted EPS of $0.62 on a GAAP basis and $0.52 non-GAAP adjusted EPS1. Quarterly direct premiums written were up 13.1% from the year-ago quarter to $404.7 million. 2Q20 annualized return on average equity was 15.6%.
1 Excludes net realized and unrealized gains and losses on investments as well as extraordinary reinstatement premiums and associated commissions (“non-GAAP adjusted EPS”). Reconciliations of GAAP to non-GAAP financial measures are provided in the attached tables.
“We delivered solid second quarter results, underpinned by strong top line growth as a result of pockets of attractive pricing and volume, resulting in an annualized return on average equity in the first half of 2020 of 15.5%,” said Stephen J. Donaghy, Chief Executive Officer.
“In addition, we continue to enter new states as an agent, serving independent third-party carriers with our digital insurance agency CloveredSM. We launched CloveredSM just over a year ago and continue to add partners and expand its offerings to consumers, while enhancing the overall digital experience. CloveredSM continues to be an attractive growth opportunity for us, with approximately 40% premium growth from the year-ago second quarter to its total book of business, while growing non risk bearing business by over 200% in the same time period. The shift to online policy acquisition continues to grow in part due to a very desirable refinance and new home market. CloveredSM represents Universal Property and Casualty’s fastest growing agency across its nearly 10,000 independent agents. Though we are off to a solid start to the first half of the year overall, including the successful completion of our reinsurance renewal on time and on budget, we are taking a more measured approach to guidance as a result of previously announced historically above average weather events in the second quarter. We believe our liquidity and ability to drive growth remain strong and we continue to execute for our consumers and stakeholders.”
Through the second quarter of 2020, we have not seen a material impact from the COVID-19 pandemic on our business, our financial position, our liquidity, or our ability to service our policyholders and maintain critical operations, with the exception of a decrease in fair value of certain investment securities, which substantially recovered in the second quarter.
Summary Financial Results
($thousands, except per share data)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change
2020
2019
Change
(GAAP comparison)
Total revenue
$
252,704
$
233,722
8.1
%
$
487,979
$
470,308
3.8
%
Income before income taxes
27,438
50,930
(46.1)
%
55,022
104,674
(47.4)
%
Income before income taxes margin
10.9
%
21.8
%
(10.9)
pts
11.3
%
22.3
%
(11.0)
pts
Diluted EPS
$
0.62
$
1.08
(42.6)
%
$
1.23
$
2.22
(44.6)
%
Annualized return on average equity (ROE)
15.6
%
26.9
%
(11.3)
pts
15.5
%
28.7
%
(13.2)
pts
Book value per share, end of period
$
16.56
$
16.57
(0.1)
%
$
16.56
$
16.57
(0.1)
%
(Non-GAAP comparison)2
Adjusted operating income
23,416
49,729
(52.9)
%
58,777
97,044
(39.4)
%
Adjusted EPS
$
0.52
$
1.05
(50.5)
%
$
1.32
$
2.05
(35.6)
%
2 Reconciliation of GAAP to non-GAAP financial measures are provided in the attached tables. Adjusted operating income excludes net realized and unrealized gains and losses on investments, interest expense, and extraordinary reinstatement premiums and associated commissions. Non-GAAP adjusted EPS excludes net realized and unrealized gains and losses on investments, as well as extraordinary reinstatement premiums and associated commissions.
Total revenue increased 8.1% for the quarter and 3.8% for 1H20, driven primarily by higher organic premium pricing and volume and our integrated services, partially offset by higher reinsurance costs and decreased net investment income. Income before income tax produced a 10.9% margin for the quarter and 11.3% for 1H20, which was primarily impacted by historically above average second quarter weather events. GAAP diluted EPS and non-GAAP adjusted EPS results for the quarter and the first half 2020 were driven by the aforementioned factors, partially offset by a reduced share count. The Company produced a solid annualized 1H20 return on average equity of 15.5%.
Underwriting
($thousands, except policies in force)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change
2020
2019
Change
Policies in force (as of end of period)
937,277
854,792
9.6
%
937,277
854,792
9.6
%
Premiums in force (as of end of period)
$
1,389,703
$
1,233,206
12.7
%
$
1,389,703
$
1,233,206
12.7
%
Direct premiums written
$
404,685
$
357,960
13.1
%
$
739,238
$
647,194
14.2
%
Direct premiums earned
337,639
303,108
11.4
%
663,590
598,485
10.9
%
Net premiums earned
226,370
210,357
7.6
%
447,199
420,084
6.5
%
Expense ratio3
32.6
%
33.0
%
(40.0)
bps
32.8
%
33.1
%
(30.0)
bps
Loss & LAE ratio
66.9
%
53.9
%
13.0
pts
64.0
%
53.9
%
10.1
pts
Combined ratio
99.5
%
86.9
%
12.6
pts
96.8
%
87.0
%
9.8
pts
3 Expense ratio excludes interest expense.
Direct premiums written were up double digits for the quarter, led by strong direct premium growth of 14.5% in Other States (non-Florida), and 12.8% in Florida. For 1H20, direct premiums written were also up double digits led by 16.5% in Other States (non-Florida), and 13.8% in Florida. In addition to increased volume, rate increases becoming effective in Florida and certain other states, along with slightly improved retention, contributed to the premium growth.
On the expense side, the combined ratio increased 12.6 points for the quarter and 9.8 points for 1H20. The increases were driven primarily by increased weather events, a higher core loss ratio and the impact of higher reinsurance costs on the ratio, partially offset by a reduction in the expense ratio as set forth below.
The expense ratio improved by 40 basis points for the quarter, primarily related to an 80 basis point improvement in the other operating expense ratio due in large part to economies of scale. The policy acquisition cost ratio increased by 50 basis points for the quarter, primarily due to the impact of higher reinsurance costs. For 1H20, the expense ratio improved by 30 basis points. The improvement was driven by a 80 basis point decrease in the other operating expense ratio, which was partially offset by a 50 basis point increase in the policy acquisition cost ratio. The net loss and loss adjustment expense (“LAE”) ratio increased 13.0 points for the quarter and 10.1 points for 1H20. Quarterly and 1H20 drivers include: Weather events in excess of plan of $17.0 million or 7.5 points ($2.0 million in 2Q19) for the quarter were related to the previously announced historically above average second quarter weather events from 14 Property Claims Services (PCS) events across a series of states where the company does business. For 1H20, weather events in excess of plan were $18.0 million or 4.0 points ($7.0 million in 1H19). Prior year reserve development of $478 thousand or 20 basis points for the quarter and $4.8 million or 1.1 points for 1H20 were incurred but not reported related to prior year’s catastrophe events. All other losses and LAE of $133.9 million or 59.2 points for the quarter, and $263.6 million or 58.9 points for 1H20 were primarily related to diversified growth, and accruing incremental reserves for the current accident year.Services
($thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change
2020
2019
Change
Commission revenue
$
7,758
$
6,048
28.3
%
$
14,773
$
11,553
27.9
%
Policy fees
6,546
5,997
9.2
%
12,086
11,018
9.7
%
Other revenue
1,812
1,756
3.2
%
4,594
3,440
33.5
%
Total
$
16,116
$
13,801
16.8
%
$
31,453
$
26,011
20.9
%
Total services revenue increased 16.8% for the quarter and 20.9% for 1H20 driven primarily by commission revenue earned on ceded premiums.
Investments
($thousands)
Three Months Ended June 30,
Six Months Ended June 30,
2020
2019
Change
2020
2019
Change
Net investment income
$
6,179
$
7,410
(16.6)
%
$
13,013
$
15,552
(16.3)
%
Realized gains (losses)
168
(1,605)
NM
467
(13,130)
NM
Unrealized gains (losses)
3,871
3,759
3.0
%
(4,153)
21,791
NM
NM = Not Meaningful
Net investment income decreased 16.6% for the quarter and 16.3% for the first half of 2020, primarily due to lower yields on cash and short term investments during the first half of 2020 when compared to the first half of 2019. The prior year also included one-time income benefits from a special dividend received and a one-time reduction in investment expenses. Cash and cash equivalents increased 82.2% to $331.7 million when compared to the end of 2019 as a result of taking defensive measures to preserve liquidity as COVID-19 impacts continue to be felt across the global economy. Yields from the fixed income portfolio are dependent on future market forces, monetary policy and interest rate policy from the Federal Reserve. Unrealized gains on our equity securities were again driven by market fluctuations, resulting in a favorable outcome for the quarter and an unfavorable outcome for the first half of 2020.
Capital Deployment
During the second quarter, the Company repurchased approximately 572 thousand shares at an aggregate cost of $10.0 million. For 1H20, the Company repurchased approximately 884 thousand shares at an aggregate cost of $16.6 million. The Company’s current share repurchase authorization program has $11.7 million remaining as of June 30, 2020 and runs through December 31, 2021.
On July 6, 2020 the Board of Directors declared a quarterly cash dividend of 16 cents per share, payable on August 7, 2020, to shareholders of record as of the close of business on July 31, 2020.
Guidance
The Company is updating its guidance for 2020 to reflect the previously announced historically above average second quarter weather events (assuming no further extraordinary weather events in 2H20):
GAAP EPS in a range of $2.31 - $2.61 (reduced from previous range of $2.80 - $3.10) Non-GAAP Adjusted EPS in a range of $2.40 - $2.70 (reduced from previous range of $2.80 - $3.10) Annualized return on average equity (derived from GAAP measures) in a range of 13.5% - 16.5% (reduced from previous range of 17% - 20%)Conference Call and Webcast
Thursday, July 30, 2020 at 9:00 a.m. ET U.S. Dial-in Number: (855) 752-6647 International: (503) 343-6667 Participant code: 9294332 Listen to live webcast and view presentation: UniversalInsuranceHoldings.com Replay of the call will be available on the UVE website and by phone at (855) 859-2056 or internationally at (404) 537-3406 using the participant code: 9294332 through August 14, 2020About Universal Insurance Holdings, Inc.
Universal Insurance Holdings, Inc. (“UVE”) is a holding company offering property and casualty insurance and value-added insurance services. We develop, market, and write insurance products for consumers predominantly in the personal residential homeowners lines of business and perform substantially all other insurance-related services for our primary insurance entities, including risk management, claims management and distribution. We sell insurance products through both our appointed independent agents and through our direct online distribution channels in the United States across 18 states (primarily Florida). Learn more at UniversalInsuranceHoldings.com.
Non-GAAP Financial Measures and Key Performance Indicators
This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the U.S. Securities and Exchange Commission (“SEC”), including adjusted earnings per diluted share, which excludes the impact of the net realized and unrealized gains and losses on investments as well as extraordinary reinstatement premiums and associated commissions. Extraordinary reinstatement premiums are not covered by reinstatement premium protection and attach just below the Florida Hurricane Catastrophe Fund (“FHCF”) reinsurance layer. Adjusted operating income excludes the impact of the net realized and unrealized gains and losses on investments, as well as interest expense and extraordinary reinstatement premiums and associated commissions. A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). UVE management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. UVE management also believes that these non-GAAP financial measures enhance the ability of investors to analyze UVE’s business trends and to understand UVE’s performance. UVE’s management utilizes these non-GAAP financial measures as guides in long-term planning. Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures presented in accordance with GAAP. For more information regarding our key performance indicators, please refer to the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Key Performance Indicators” in our forthcoming Quarterly Report on Form 10-Q for the quarter ended June 30, 2020.
Forward-Looking Statements
This press release may contain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” “will,” “plan,” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such statements may include commentary on plans, products and lines of business, marketing arrangements, reinsurance programs and other business developments and assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, including those risks and uncertainties described under the heading “risk factors” in the Company’s Annual Report on Form 10-K and in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2020, as well as in our other filings with the SEC. Future results could differ materially from those described, and the Company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(in thousands, except per share data)
June 30,
December 31,
2020
2019
ASSETS:
Invested Assets
Fixed maturities, at fair value
$
869,418
$
855,284
Equity securities, at fair value
49,708
43,717
Investment real estate, net
15,377
15,585
Total invested assets
934,503
914,586
Cash and cash equivalents
331,716
182,109
Restricted cash and cash equivalents
2,945
2,635
Prepaid reinsurance premiums
453,018
175,208
Reinsurance recoverable
46,860
193,236
Premiums receivable, net
76,885
63,883
Property and equipment, net
49,159
41,351
Deferred policy acquisition costs
103,527
91,882
Goodwill
2,319
2,319
Other assets
45,967
52,643
TOTAL ASSETS
$
2,046,899
$
1,719,852
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses
$
147,659
$
267,760
Unearned premiums
736,927
661,279
Advance premium
55,640
30,975
Reinsurance payable, net
499,656
122,581
Long-term debt
9,191
9,926
Other liabilities
70,125
133,430
Total liabilities
1,519,198
1,225,951
STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock ($0.01 par value) 4
—
—
Common stock ($0.01 par value) 5
468
467
Treasury shares, at cost - 14,953 and 14,069
(213,201)
(196,585)
Additional paid-in capital
99,768
96,036
Accumulated other comprehensive income (loss), net of taxes
38,083
20,364
Retained earnings
602,583
573,619
Total stockholders' equity
527,701
493,901
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
$
2,046,899
$
1,719,852
Notes:
4 Cumulative convertible preferred stock ($0.01 par value): Authorized - 1,000 shares; Issued - 10 and 10 shares; Outstanding - 10 and 10 shares; Minimum liquidation preference - $9.99 and $9.99 per share.
5 Common stock ($0.01 par value): Authorized - 55,000 shares; Issued - 46,806 and 46,707 shares; Outstanding 31,853 and 32,638 shares.
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
REVENUES
Net premiums earned
$
226,370
$
210,357
$
447,199
$
420,084
Net investment income
6,179
7,410
13,013
15,552
Net realized gains/(losses) on investments
168
(1,605)
467
(13,130)
Net change in unrealized gains/(losses) of equity securities
3,871
3,759
(4,153)
21,791
Commission revenue
7,758
6,048
14,773
11,553
Policy fees
6,546
5,997
12,086
11,018
Other revenue
1,812
1,756
4,594
3,440
Total revenues
252,704
233,722
487,979
470,308
EXPENSES
Losses and loss adjustment expenses
151,345
113,296
286,393
226,390
Policy acquisition costs
48,524
44,221
95,388
87,732
Other operating expenses
25,380
25,207
51,107
51,366
Interest expense
17
68
69
146
Total expenses
225,266
182,792
432,957
365,634
Income before income tax expense
27,438
50,930
55,022
104,674
Income tax expense
7,556
13,637
15,073
27,233
NET INCOME
$
19,882
$
37,293
$
39,949
$
77,441
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
SHARE AND PER SHARE INFORMATION
(in thousands, except per share data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Weighted average common shares outstanding - basic
32,102
34,311
32,347
34,525
Weighted average common shares outstanding - diluted
32,170
34,612
32,440
34,903
Shares outstanding, end of period
31,853
34,160
31,853
34,160
Basic earnings per common share
$
0.62
$
1.09
$
1.23
$
2.24
Diluted earnings per common share
$
0.62
$
1.08
$
1.23
$
2.22
Cash dividend declared per common share
$
0.16
$
0.16
$
0.32
$
0.32
Book value per share, end of period
$
16.56
$
16.57
$
16.56
$
16.57
Annualized return on average equity (ROE)
15.6
%
26.9
%
15.5
%
28.7
%
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
SUPPLEMENTARY INFORMATION
(in thousands, except for Policies In Force data)
Three Months Ended
Six Months Ended
June 30,
June 30,
2020
2019
2020
2019
Premiums
Direct premiums written - Florida
$
334,769
$
296,896
$
613,280
$
539,044
Direct premiums written - Other States
69,916
61,064
125,958
108,150
Direct premiums written - Total
$
404,685
$
357,960
$
739,238
$
647,194
Direct premiums earned
$
337,639
$
303,108
$
663,590
$
598,485
Net premiums earned
$
226,370
$
210,357
$
447,199
$
420,084
Underwriting Ratios - Net
Loss and loss adjustment expense ratio
66.9
%
53.9
%
64.0
%
53.9
%
Policy acquisition cost ratio
21.5
%
21.0
%
21.4
%
20.9
%
Other operating expense ratio6
11.2
%
12.0
%
11.4
%
12.2
%
General and administrative expense ratio6
32.6
%
33.0
%
32.8
%
33.1
%
Combined ratio
99.5
%
86.9
%
96.8
%
87.0
%
Other Items
(Favorable)/Unfavorable prior year reserve development
$
478
$
670
$
4,819
$
485
Points on the loss and loss adjustment expense ratio
21
bps
32
bps
108
bps
12
bps
6 Expense ratio excludes interest expense.
As of
June 30,
2020
2019
Policies in force
Florida
696,829
644,469
Other States
240,448
210,323
Total
937,277
854,792
Premiums in force
Florida
$
1,144,326
$
1,030,019
Other States
245,377
203,187
Total
$
1,389,703
$
1,233,206
Total Insured Value
Florida
$
177,854,339
$
158,970,803
Other States
99,662,951
82,642,109
Total
$
277,517,290
$
241,612,912
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(in thousands, except for per share data)
Three Months Ended
Six Months Ended
Guidance
June 30,
June 30,
Full Year 2020E
2020
2019
2020
2019
Income Before Income Taxes
$
27,438
$
50,930
$
55,022
$
104,674
Adjustments:
Reinstatement premium, net of commissions7
—
885
—
885
Net unrealized (gains)/losses on equity securities
(3,871)
(3,759)
4,153
(21,791)
Net realized (gains)/losses on investments
(168)
1,605
(467)
13,130
Interest Expense
17
68
69
146
Total Adjustments
(4,022)
(1,201)
3,755
(7,630)
Non-GAAP Adjusted Operating Income
$
23,416
$
49,729
$
58,777
$
97,044
GAAP Diluted EPS
$
0.62
$
1.08
$
1.23
$
2.22
$ 2.31 - 2.61
Adjustments:
Reinstatement premium, net of commissions7
—
0.02
—
0.02
—
Net unrealized (gains)/losses on equity securities
(0.12)
(0.11)
0.12
(0.62)
0.12
Net realized (gains)/losses on investments
(0.01)
0.05
(0.01)
0.38
(0.01)
Total Pre-Tax Adjustments
(0.13)
(0.04)
0.11
(0.22)
0.11
Income Tax on Above Adjustments
0.03
0.01
(0.02)
0.05
(0.02)
Total Adjustments
(0.10)
(0.03)
0.09
(0.17)
0.09
Non-GAAP Adjusted EPS
$
0.52
$
1.05
$
1.32
$
2.05
$ 2.40 - 2.70
7 Includes reinstatement premiums not covered by reinstatement premium protection and related commissions.
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