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, 2022.
($ in thousands, except for per share data) | Three Months Ended | Year Ended | |||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||
Gross premiums written | $ | 229,239 | $ | 268,890 | (14.7 | )% | $ | 1,124,063 | $ | 1,329,445 | (15.4 | )% | |||||||||
Gross premiums earned | $ | 296,323 | $ | 341,886 | (13.3 | )% | $ | 1,223,183 | $ | 1,408,443 | (13.2 | )% | |||||||||
Net premiums earned | $ | 134,177 | $ | 145,081 | (7.5 | )% | $ | 462,626 | $ | 589,761 | (21.6 | )% | |||||||||
Total revenues | $ | 113,475 | $ | 154,544 | (26.6 | )% | $ | 455,422 | $ | 634,527 | (28.2 | )% | |||||||||
Loss before income tax | $ | (294,616 | ) | $ | (6,202 | ) | NM | $ | (442,625 | ) | $ | (83,857 | ) | NM | |||||||
Net loss attributable to UIHC | $ | (294,914 | ) | $ | (2,316 | ) | NM | $ | (467,999 | ) | $ | (57,919 | ) | NM | |||||||
Net loss available to UIHC common stockholders per diluted share | $ | (6.84 | ) | $ | (0.05 | ) | NM | $ | (10.87 | ) | $ | (1.35 | ) | NM | |||||||
Reconciliation of net loss to core loss: | |||||||||||||||||||||
Plus: Non-cash amortization of intangible assets and goodwill impairment (1) | $ | 812 | $ | 811 | 0.1 | % | $ | 16,817 | $ | 3,555 | NM | ||||||||||
Less: Net realized gains (losses) on investment portfolio | $ | (30,226 | ) | $ | (2,349 | ) | NM | $ | (32,082 | ) | $ | 3,567 | NM | ||||||||
Less: Unrealized gains (losses) on equity securities | $ | 3,285 | $ | 1,528 | NM | $ | (6,585 | ) | $ | 3,237 | NM | ||||||||||
Less: Net tax impact (2) | $ | 5,828 | $ | 343 | NM | $ | 11,652 | $ | (682 | ) | NM | ||||||||||
Core loss (3) (4) | $ | (272,989 | ) | $ | (1,027 | ) | NM | $ | (424,167 | ) | $ | (60,486 | ) | NM | |||||||
Core loss per diluted share (3) (4) | $ | (6.33 | ) | $ | (0.02 | ) | NM | $ | (9.85 | ) | $ | (1.41 | ) | NM | |||||||
Book value per share | $ | (4.16 | ) | $ | 7.20 | NM | |||||||||||||||
NM = Not Meaningful | ||
(1) | For the year ended December 31, 2022, non-cash amortization of intangible assets includes $13.6 million related to the impairment of goodwill attributable to the Company's personal residential property and casualty insurance policies (personal lines) operating segment. | |
(2) | In order to reconcile net loss to the core loss measures, the Company included the tax impact of all adjustments using the 21% corporate federal tax rate. | |
(3) | For the three months and year ended December 31, 2022, core loss includes $71.0 million and $128.5 million, respectively, in tax expense related to the Company's recognition of a valuation allowance. | |
(4) | Core loss, and core loss per diluted share, both of which are measures that are not based on GAAP, are reconciled above to net loss and net loss per diluted share, respectively, the most directly comparable GAAP measures. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section, below. | |
"We are deeply disappointed with our fourth quarter results driven by Hurricane Ian loss development that ultimately exhausted the reinsurance available to our subsidiary, United Property & Casualty Insurance Company (UPC)," said Dan Peed, CEO. "Our immediate focus has shifted to providing the Florida Department of Financial Services the Company's full cooperation to complete the separation and run-off of UPC. We have a lot of work to do in this regard, but our team remains optimistic that our continuing operations led by our commercial lines business underwritten by American Coastal Insurance Company will return us to profitability in 2023."
Return on Equity and Core Return on Equity
The calculations of the Company's return on equity and core return on equity are shown below.
($ in thousands) | Three Months Ended | Year Ended | |||||||||||||
December 31, | December 31, | ||||||||||||||
2022 | 2021 | 2022 | 2021 | ||||||||||||
Net loss attributable to UIHC | $ | (294,914 | ) | $ | (2,316 | ) | $ | (467,999 | ) | $ | (57,919 | ) | |||
Return on equity based on GAAP net loss attributable to UIHC (1) | NM | (2.7 | )% | NM | (16.9 | )% | |||||||||
Core loss | $ | (272,989 | ) | $ | (1,027 | ) | $ | (424,167 | ) | $ | (60,486 | ) | |||
Core return on equity (1)(2) | NM | (1.2 | )% | NM | (17.6 | )% | |||||||||
NM = Not Meaningful | ||
(1) | Return on equity for the three months and year ended December 31, 2022 and 2021 is calculated on an annualized basis by dividing the net loss or core loss for the period by the average stockholders' equity for the trailing twelve months. | |
(2) | Core return on equity, a measure that is not based on GAAP, is calculated based on core loss, which is reconciled on the first page of this press release to net loss, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section below. | |
Combined Ratio and Underlying Ratio
The calculations of the Company's combined ratio and underlying combined ratio on a consolidated basis and attributable to both the Company's personal lines and commercial residential property and casualty insurance policies (commercial lines) operating segments are shown below.
($ in thousands) | Three Months Ended | Year Ended | |||||||||||||
December 31, | December 31, | ||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||
Consolidated | |||||||||||||||
Loss ratio, net(1) | 252.6 | % | 58.9 | % | 193.7 pts | 137.8 | % | 71.6 | % | 66.2 pts | |||||
Expense ratio, net(2)(3) | 56.2 | % | 50.2 | % | 6.0 pts | 56.5 | % | 48.7 | % | 7.8 pts | |||||
Combined ratio (CR)(4) | 308.8 | % | 109.1 | % | 199.7 pts | 194.3 | % | 120.3 | % | 74.0 pts | |||||
Effect of current year catastrophe losses on CR | 146.5 | % | 8.6 | % | 137.9 pts | 61.2 | % | 19.3 | % | 41.9 pts | |||||
Effect of prior year unfavorable (favorable) development on CR | 43.9 | % | (2.4 | )% | 46.3 pts | 24.3 | % | 4.7 | % | 19.6 pts | |||||
Underlying combined ratio(5) | 118.4 | % | 102.9 | % | 15.5 pts | 108.8 | % | 96.3 | % | 12.5 pts | |||||
Personal Lines | |||||||||||||||
Loss ratio, net(1) | 430.3 | % | 71.2 | % | 359.1 pts | 225.9 | % | 88.2 | % | 137.7 pts | |||||
Expense ratio, net(2)(3) | 69.4 | % | 48.1 | % | 21.3 pts | 67.6 | % | 46.2 | % | 21.4 pts | |||||
Combined ratio (CR)(4) | 499.7 | % | 119.3 | % | 380.4 pts | 293.5 | % | 134.4 | % | 159.1 pts | |||||
Effect of current year catastrophe losses on CR | 252.5 | % | 11.5 | % | 241.0 pts | 98.4 | % | 25.0 | % | 73.4 pts | |||||
Effect of prior year unfavorable (favorable) development on CR | 85.5 | % | (1.3 | )% | 86.8 pts | 49.5 | % | 7.7 | % | 41.8 pts | |||||
Underlying combined ratio(5) | 161.7 | % | 109.1 | % | 52.6 pts | 145.6 | % | 101.7 | % | 43.9 pts | |||||
Commercial Lines | |||||||||||||||
Loss ratio, net(1) | 49.0 | % | 31.9 | % | 17.1 pts | 39.8 | % | 31.6 | % | 8.2 pts | |||||
Expense ratio, net(2) | 40.5 | % | 54.3 | % | (13.8) pts | 43.2 | % | 53.5 | % | (10.3) pts | |||||
Combined ratio (CR)(4) | 89.5 | % | 86.2 | % | 3.3 pts | 83.0 | % | 85.1 | % | (2.1) pts | |||||
Effect of current year catastrophe losses on CR | 24.9 | % | 2.2 | % | 22.7 pts | 19.8 | % | 5.5 | % | 14.3 pts | |||||
Effect of prior year favorable development on CR | (3.9 | )% | (4.9 | )% | 1.0 pts | (3.6 | )% | (2.5 | )% | (1.1) pts | |||||
Underlying combined ratio(5) | 68.5 | % | 88.9 | % | (20.4) pts | 66.8 | % | 82.1 | % | (15.3) 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) | Includes the impairment of goodwill, which had an impact of 2.9% on the company's consolidated expense ratios and a 5.6% impact on the company's personal lines expense ratios during the year ended December 31, 2022, respectively. | |
(4) | Combined ratio is the sum of the loss ratio, net and expense ratio, net. | |
(5) | Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section, below. |
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, | |||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||
Loss and LAE | $ | 338,977 | $ | 85,520 | $ | 253,457 | $ | 637,647 | $ | 422,134 | $ | 215,513 | ||||||||||
% of Gross earned premiums | 114.4 | % | 25.0 | % | 89.4 pts | 52.1 | % | 30.0 | % | 22.1 pts | ||||||||||||
% of Net earned premiums | 252.6 | % | 58.9 | % | 193.7 pts | 137.8 | % | 71.6 | % | 66.2 pts | ||||||||||||
Less: | ||||||||||||||||||||||
Current year catastrophe losses | $ | 196,581 | $ | 12,515 | $ | 184,066 | $ | 283,190 | $ | 113,740 | $ | 169,450 | ||||||||||
Prior year reserve unfavorable (favorable) development | 58,876 | (3,488 | ) | 62,364 | 112,636 | 27,856 | 84,780 | |||||||||||||||
Underlying loss and LAE (1) | $ | 83,520 | $ | 76,493 | $ | 7,027 | $ | 241,821 | $ | 280,538 | $ | (38,717 | ) | |||||||||
% of Gross earned premiums | 28.2 | % | 22.4 | % | 5.8 pts |
| 19.8 | % | 19.9 | % | (0.1) pts | |||||||||||
% of Net earned premiums | 62.2 | % | 52.7 | % | 9.5 pts | 52.3 | % | 47.6 | % | 4.7 pts | ||||||||||||
(1) | Underlying loss and LAE is a non-GAAP financial measure and is reconciled above to loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section, below. |
The calculations of the Company's expense ratios are shown below.
($ in thousands) | Three Months Ended | Year Ended | |||||||||||||||||||||
December 31, | December 31, | ||||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||
Policy acquisition costs | $ | 60,285 | $ | 44,501 | $ | 15,784 | $ | 154,233 | $ | 173,574 | $ | (19,341 | ) | ||||||||||
Operating and underwriting | 8,750 | 14,124 | (5,374 | ) | 43,632 | 56,257 | (12,625 | ) | |||||||||||||||
General and administrative | 6,427 | 14,278 | (7,851 | ) | 63,317 | 57,212 | 6,105 | ||||||||||||||||
Total Operating Expenses | $ | 75,462 | $ | 72,903 | $ | 2,559 | $ | 261,182 | $ | 287,043 | $ | (25,861 | ) | ||||||||||
% of Gross earned premiums | 25.5 | % | 21.3 | % | 4.2 pts | 21.4 | % | 20.4 | % | 1.0 pts | |||||||||||||
% of Net earned premiums | 56.2 | % | 50.2 | % | 6.0 pts | 56.5 | % | 48.7 | % | 7.8 pts | |||||||||||||
Quarterly Financial Results
Net loss attributable to the Company for the fourth quarter of 2022 was $294.9 million, or $6.84 per diluted share, compared to $2.3 million, or $0.05 per diluted share, for the fourth quarter of 2021. Drivers of the net loss during the fourth quarter of 2022 include decreased gross written premiums which were partially offset by a decline in ceded premiums earned, unfavorable development related to Hurricane Ian which exhausted the Company's personal lines reinsurance coverage for the event, unfavorable development on prior year losses, and impairment losses of $22.7 million realized on a portion of the fixed maturity portfolio attributable to the Company's personal lines operating segment. This was partially offset by income related to the sale of our remaining properties in 2022.
The Company's total gross written premium decreased by $39.7 million, or 14.7%, to $229.2 million for the fourth quarter of 2022, from $268.9 million for the fourth quarter of 2021. This decrease was driven primarily by the transition of the Southeast business to Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPCI) in the second half of 2022. In addition, the Company experienced a decline in written premiums across the personal lines business, due to underwriting actions taken by the Company throughout 2021 and 2022. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by region and gross written premium by line of business are shown in the table below.
($ in thousands) | Three Months Ended
| ||||||||||||
2022 | 2021 | Change $ | Change % | ||||||||||
Direct Written and Assumed Premium by Region (1) | |||||||||||||
Florida | $ | 202,211 | $ | 190,220 | $ | 11,991 | 6.3 | % | |||||
Gulf | 14,480 | 41,983 | (27,503 | ) | (65.5 | ) | |||||||
Northeast | 11,705 | 19,741 | (8,036 | ) | (40.7 | ) | |||||||
Southeast | 740 | 16,834 | (16,094 | ) | (95.6 | ) | |||||||
Total direct written premium by region | 229,136 | 268,778 | (39,642 | ) | (14.7 | ) | |||||||
Assumed premium (2) | 103 | 112 | (9 | ) | (8.0 | ) | |||||||
Total gross written premium by region | $ | 229,239 | $ | 268,890 | $ | (39,651 | ) | (14.7 | )% | ||||
Gross Written Premium by Line of Business | |||||||||||||
Commercial property (3) | 122,345 | 93,832 | 28,513 | 30.4 | |||||||||
Personal property | 106,894 | 175,058 | (68,164 | ) | (38.9 | ) | |||||||
Total gross written premium by line of business | $ | 229,239 | $ | 268,890 | $ | (39,651 | ) | (14.7 | )% | ||||
(1) | "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. The Company is no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, South Carolina as of June 1, 2022, Georgia as of October 1, 2022 and North Carolina as of December 1, 2022 as the policies have transitioned to HCPCI. | |
(2) | Assumed premium written for 2022 and 2021 primarily included commercial property business assumed from unaffiliated insurers. | |
(3) | Commercial written premium for 2022 and 2021 was primarily written in Florida. |
Loss and LAE increased by $253.5 million, or 296.5%, to $339.0 million for the fourth quarter of 2022, from $85.5 million for the fourth quarter of 2021. Loss and LAE expense as a percentage of net earned premiums increased 193.7 points to 252.6% for the fourth quarter of 2022, compared to 58.9% for the fourth quarter of 2021. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the fourth quarter of 2022 would have been 28.2%, an increase of 5.8 points from 22.4% during the fourth quarter of 2021.
Policy acquisition costs increased by $15.8 million, or 35.5%, to $60.3 million for the fourth quarter of 2022, from $44.5 million for the fourth quarter of 2021, primarily due to the expensing of deferred costs attributable to our personal lines operating segment, which were determined to provide no additional economic benefit in the future. In addition, external management fees incurred increased related to the Company's increase in commercial lines gross written premium during the fourth quarter of 2022. Finally, ceding commission income decreased due to changes in the terms of the Company's quota share reinsurance agreements.
Operating and underwriting expenses decreased by $5.4 million, or 38.3%, to $8.8 million for the fourth quarter of 2022, from $14.1 million for the fourth quarter of 2021, primarily due to decreased investments in technology and decreased underwriting expenses as the result of the decrease in personal lines premiums described above.
General and administrative expenses decreased by $7.9 million, or 55.2%, to $6.4 million for the fourth quarter of 2022, from $14.3 million for the fourth quarter of 2021, driven by a decrease in salary related expenses attributable to a reduction in payroll taxes attributable to an employee retention tax credit refund for taxes previously paid and recognized as an expense by the company, as well as a reduction in headcount in 2022.
Personal Lines Operating Segment Highlights
Pre-tax losses attributable to the Company's personal lines operating segment totaled $306.0 million for the fourth quarter of 2022 compared to $11.8 million for the fourth quarter of 2021. Drivers of the quarter-over-quarter increase in pre-tax losses include: an increase in loss and LAE incurred of $237.2 million due to unfavorable development related to Hurricane Ian, which exhausted the Company's personal lines reinsurance coverage for the event and unfavorable development on prior year losses, decreased net premiums earned of $28.3 million driven by decreased gross written premiums as described above, and impairment losses realized of $22.7 million on a portion of the fixed maturity portfolio attributable to the Company's personal lines operating segment.
Quarter-over-quarter, policy acquisition costs increased $14.8 million, driven by the expensing of deferred costs determined to have no economic benefit in the future. This was partially offset by a $5.1 million decrease in operating expenses, as expenses correlated to the movement of premium decreased with the decline in personal lines gross written premium. In addition, general and administrative expenses decreased $7.9 million, which can be attributed to a reduction in payroll taxes attributable to an employee retention tax credit refund for taxes previously paid and recognized as an expense by the company, as well as a reduction in headcount in 2022.
Commercial Lines Operating Segment Highlights
Pre-tax earnings attributable to the Company's commercial lines operating segment totaled $3.7 million for the fourth quarter of 2022 compared to $8.3 million for the fourth quarter of 2021. This decrease can be attributed to increased expenses of $17.1 million, driven by a $16.2 million increase in loss and LAE incurred due to unfavorable development related to Hurricane Ian.
This increased expense was partially offset by increased revenues of $12.5 million, driven by a $17.4 million increase in net premiums earned due to higher gross written premiums quarter-over-quarter as the Company transitions towards becoming a specialty commercial lines underwriter.
Year to Date Financial Results
Net loss attributable to the Company for the year ended December 31, 2022, was $468.0 million, or $10.87 per diluted share, compared to $57.9 million, or $1.35 per diluted share, for the year ended December 31, 2021. Drivers of the net loss during the 2022 include the impact of Hurricane Ian making landfall in Florida as a category four hurricane and exhausting the Company's personal lines reinsurance coverage for the event, decreased gross written premiums which were partially offset by a decline in ceded premiums earned, unfavorable prior year loss development during the year, an increase in our provision for income taxes from the recognition of a valuation allowance against our deferred tax asset, the impairment of goodwill attributable to the Company's personal lines operating segment, and impairment losses of $22.7 million realized on a portion of the fixed maturity portfolio attributable to the Company's personal lines operating segment. This was partially offset by lower policy acquisition costs and lower operating and underwriting costs during 2022.
The Company's total gross written premium decreased by $205.4 million, or 15.4%, to $1.1 billion for the year ended December 31, 2022, from $1.3 billion for the year ended December 31, 2021. This decrease was driven primarily by the transition of the Northeast business to Homeowners Choice Property & Casualty Insurance Company, Inc. (HCPCI) in the fourth quarter of 2021 and the first half of 2022, and the transition of the Southeast business to HCPCI in the second half of 2022. In addition, the Company experienced a decline in written premiums across the personal lines business, due to underwriting actions taken by the Company throughout 2021 and 2022. The breakdown of the year-over-year changes in both direct written and assumed premiums by region and gross written premium by line of business are shown in the table below.
($ in thousands) | Year Ended December 31, | ||||||||||||
2022 | 2021 | Change $ | Change % | ||||||||||
Direct Written and Assumed Premium by Region (1) | |||||||||||||
Florida | $ | 885,202 | $ | 852,711 | $ | 32,491 | 3.8 | % | |||||
Gulf | 162,786 | 225,013 | (62,227 | ) | (27.7 | ) | |||||||
Southeast | 42,780 | 93,188 | (50,408 | ) | (54.1 | ) | |||||||
Northeast | 32,769 | 158,217 | (125,448 | ) | (79.3 | ) | |||||||
Total direct written premium by region | 1,123,537 | 1,329,129 | (205,592 | ) | (15.5 | ) | |||||||
Assumed premium (2) | 526 | 316 | 210 | 66.5 | |||||||||
Total gross written premium by region | $ | 1,124,063 | $ | 1,329,445 | $ | (205,382 | ) | (15.4 | )% | ||||
Gross Written Premium by Line of Business | |||||||||||||
Personal property | $ | 615,819 | $ | 907,207 | $ | (291,388 | ) | (32.1 | )% | ||||
Commercial property (3) | 508,244 | 422,238 | 86,006 | 20.4 | |||||||||
Total gross written premium by line of business | $ | 1,124,063 | $ | 1,329,445 | $ | (205,382 | ) | (15.4 | )% | ||||
(1) | "Gulf" is comprised of Louisiana and Texas; "Northeast" is comprised of Massachusetts, New Jersey and New York in 2022 and Connecticut, Massachusetts, New Jersey, New York and Rhode Island in 2021; and "Southeast" is comprised of Georgia, North Carolina and South Carolina. The Company is no longer writing in New Jersey as of January 15, 2022, Massachusetts as of April 1, 2022, South Carolina as of June 1, 2022, Georgia as of October 1, 2022 and North Carolina as of December 1, 2022 as the policies have transitioned to HCPCI. | |
(2) | Assumed premium written for 2022 and 2021 primarily included commercial property business assumed from unaffiliated insurers. | |
(3) | Commercial written premium for 2022 and 2021 was primarily written in Florida. |
Loss and LAE increased by $215.5 million, or 51.1%, to $637.6 million for the year ended December 31, 2022, from $422.1 million for the year ended December 31, 2021. Loss and LAE expense as a percentage of net earned premiums increased 66.2 points to 137.8% for the year ended December 31, 2022, compared to 71.6% for the year ended December 31, 2021. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the year ended December 31, 2022, would have been 19.8%, a decrease of 0.1 points from 19.9% for the year ended December 31, 2021.
Policy acquisition costs decreased by $19.4 million, or 11.2%, to $154.2 million for the year ended December 31, 2022, from $173.6 million for the year ended December 31, 2021, primarily due to a decrease in expenses such as premium taxes, policy administration fees and agent commissions, which fluctuate in conjunction with the year-over-year decrease in personal lines gross written premium. This was partially offset by increased external management fees incurred related to the Company's increased commercial lines gross written premium during the year ended December 31, 2022. In addition, ceding commission income decreased in 2022 due to changes in the terms of the Company's quota share reinsurance agreements.
Operating and underwriting expenses decreased by $12.6 million, or 22.4%, to $43.6 million for the year ended December 31, 2022, from $56.3 million for the year ended December 31, 2021, primarily due to decreased investments in technology and decreased underwriting expenses as the result of the decrease in personal lines premiums described above.
General and administrative expenses increased by $6.1 million, or 10.7%, to $63.3 million for the year ended December 31, 2022, from $57.2 million for the year ended December 31, 2021, driven by the impairment of goodwill attributable to the Company's personal lines operating segment. This was partially offset by a decrease in salary related expenses attributable to a reduction in payroll taxes attributable to an employee retention tax credit refund for taxes previously paid and recognized as an expense by the company, as well as a reduction in headcount in 2022.
Personal Lines Operating Segment Highlights
Pre-tax losses attributable to the Company's personal lines operating segment totaled $479.3 million for the year ended December 31, 2022, compared to $104.6 million for the year ended December 31, 2021. Drivers of the year-over-year increase in pre-tax losses include an increase in loss and LAE incurred of $183.1 million due to unfavorable development related to Hurricane Ian which exhausted the Company's personal lines reinsurance coverage for the event and unfavorable development on prior year losses, decreased net premiums earned of $172.8 million driven by decreased gross written premiums as described above, and impairment losses realized of $22.7 million on a portion of the fixed maturity portfolio attributable to the Company's personal lines operating segment.
Year-over-year, policy acquisition costs and operating expenses decreased $20.2 million and $11.7 million, respectively, as expenses correlated to the movement of premium decreased with the decline in personal lines gross written premium. General and administrative costs increased $4.4 million as the result of the impairment of goodwill attributable to our personal lines operating segment, partially offset by reduced salary related expenses attributable to an employee retention tax credit refund for taxes previously paid and recognized as an expense by the company, as well as a reduction in headcount in 2022.
Commercial Lines Operating Segment Highlights
Pre-tax earnings attributable to the Company's commercial lines operating segment totaled $35.8 million for the year ended December 31, 2022, compared to $32.0 million for the year ended December 31, 2021. This increase can be attributed to increased revenues of $38.1 million, driven by a $45.7 million increase in net premiums earned due to higher gross written premiums year-over-year as the Company transitions towards becoming a specialty commercial lines underwriter.
This increase was partially offset by increased expenses of $34.3 million, driven by a $32.4 million increase in loss and LAE incurred due to increased catastrophe losses and a decrease in favorable prior year development year-over-year.
Reinsurance Costs as a Percentage of Gross Earned Premium
Reinsurance costs as a percentage of gross earned premium in the fourth quarter of 2022 and 2021 were as follows:
2022 | 2021 | ||
Non-at-Risk | (2.1)% | (2.2)% | |
Quota Share | (17.0)% | (23.2)% | |
All Other | (35.6)% | (32.2)% | |
Total Ceding Ratio | (54.7)% | (57.6)% |
Ceded premiums earned related to the Company's quota share reinsurance contracts decreased quarter-over-quarter driven by a decrease in the cession rate for one of the Company's external quota shares and changes to the geographic footprint and exposure covered by the external quota share contracts.
Ceded premiums earned related to the Company's catastrophe program decreased, driven by the need for less coverage for the 2022-2023 treaty year for the reduction in the geographic footprint and exposure, as well as the change from a cascading aggregate structure to an occurrence-based structure for the Company's 2022-2023 program. While premiums decreased quarter-over-quarter, the Company's ceding ratio related to its catastrophe program increased, driven by the Company's decrease in gross premiums earned quarter-over-quarter.
Reinsurance costs as a percentage of gross earned premium in the fourth quarter of 2022 and 2021 for the Company's personal lines and commercial lines operating segments were as follows:
Personal | Commercial | ||||||
2022 | 2021 | 2022 | 2021 | ||||
Non-at-Risk | (3.3)% | (3.1)% | (0.5)% | (0.3)% | |||
Quota Share | (19.4)% | (25.6)% | (13.5)% | (17.4)% | |||
All Other | (35.8)% | (29.0)% | (35.5)% | (39.5)% | |||
Total Ceding Ratio | (58.5)% | (57.7)% | (49.5)% | (57.2)% | |||
Investment Portfolio Highlights
The Company's cash, restricted cash and investment holdings decreased from $964.8 million at December 31, 2021 to $715.7 million at December 31, 2022. The Company'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 87.1% of total investments at December 31, 2022, compared to 92.2% at December 31, 2021. The Company's fixed maturity investments had a modified duration of 4.0 years at both December 31, 2022 and December 31, 2021.
At December 31, 2022, the Company's fixed maturity investment holdings decreased by $287.1 million, or 43.3% from December 31, 2021, through the sale of securities in order to satisfy the Company's liquidity requirements during 2022 and due to both realized impairment losses and unrealized losses recognized on the portfolio.
Book Value Analysis
Book value per common share decreased 157.8% from $7.20 at December 31, 2021, to $(4.16) at December 31, 2022. Underlying book value per common share decreased 146.9% from $7.35 at December 31, 2021 to $(3.45) at December 31, 2022. A decrease in the Company's retained earnings as the result of a net loss in 2022 drove the decrease in the Company's book value per share. As shown in the table below, removing the effect of AOCI increases the Company's book value per common share, as the Company experienced unfavorable capital market conditions for the twelve months ended December 31, 2022.
($ in thousands, except for share and per share data) | December 31, 2022 | December 31, 2021 | ||||||
Book Value per Share | ||||||||
Numerator: | ||||||||
Common stockholders' equity attributable to UIHC | $ | (180,183 | ) | $ | 312,406 | |||
Denominator: | ||||||||
Total Shares Outstanding | 43,280,173 | 43,370,442 | ||||||
Book Value Per Common Share | $ | (4.16 | ) | $ | 7.20 | |||
Book Value per Share, Excluding the Impact of Accumulated Other Comprehensive Income (AOCI) | ||||||||
Numerator: | ||||||||
Common stockholders' equity attributable to UIHC | $ | (180,183 | ) | $ | 312,406 | |||
Less: Accumulated other comprehensive loss | (30,947 | ) | (6,531 | ) | ||||
Stockholders' Equity, excluding AOCI | $ | (149,236 | ) | $ | 318,937 | |||
Denominator: | ||||||||
Total Shares Outstanding | 43,280,173 | 43,370,442 | ||||||
Underlying Book Value Per Common Share(1) | $ | (3.45 | ) | $ | 7.35 | |||
(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 directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section below. |
Definitions of Non-GAAP Measures
The Company believes that investors' understanding of UPC Insurance's performance is enhanced by the Company's disclosure of the following non-GAAP measures. The Company's methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.
Net loss excluding the effects of amortization of intangible assets, realized gains (losses) and unrealized gains (losses) on equity securities, net of tax (core loss) is a non-GAAP measure that is computed by adding amortization, net of tax, to net income and subtracting realized gains (losses) on the Company's investment portfolio, net of tax, and unrealized gains (losses) on the Company's equity securities, net of tax, from net loss. Amortization expense is related to the amortization of intangible assets acquired, including goodwill, through mergers and, therefore, the expense does not arise through normal operations. Investment portfolio gains (losses) and unrealized equity security gains (losses) vary independent of the Company's operations. The Company believes it is useful for investors to evaluate these components both separately and in the aggregate when reviewing the Company's performance. The most directly comparable GAAP measure is net loss. The core loss measure should not be considered a substitute for net loss and does not reflect the overall profitability of the Company's business.
Core return on equity is a non-GAAP ratio calculated using non-GAAP measures. It is calculated by dividing the core loss 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 loss is an after-tax non-GAAP measure that is calculated by excluding from net loss the effect of non-cash amortization of intangible assets, including goodwill, 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 loss, core loss 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 loss, core loss per share and core return on equity to evaluate performance against historical results and establish financial targets on a consolidated basis. The most directly comparable GAAP measure is return on equity. The core return on equity measure should not be considered a substitute for return on equity and does not reflect the overall profitability of the Company's business.
Combined ratio excluding the effects of current year catastrophe losses and prior year reserve development (underlying combined ratio) is a non-GAAP measure, that is computed by subtracting the effect of current year catastrophe losses and prior year development from the combined ratio. The Company believes that this ratio is useful to investors, and it is used by management to highlight the trends in the Company's business that may be obscured by current year catastrophe losses and prior year development. Current year catastrophe losses cause the Company's loss trends to vary significantly between periods as a result of their frequency of occurrence and severity and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. The Company believes it is useful for investors to evaluate these components both 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 that 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 both 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.
Book value per common share, excluding the impact of accumulated other comprehensive loss (underlying book value per common share), is a non-GAAP measure that is computed by dividing common stockholders' equity after excluding accumulated other comprehensive loss, by total common shares outstanding plus dilutive potential common shares outstanding. The Company uses the trend in book value per common share, excluding the impact of accumulated other comprehensive loss, in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. The Company believes this 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 that 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 loss, should not be considered a substitute for book value per common share and does not reflect the recorded net worth of the Company's business.
Conference Call Details
Date and Time: | March 2, 2023 - 5:00 P.M. ET | ||
Participant Dial-In: | (United States): 877-445-9755 | ||
(International): 201-493-6744 | |||
Webcast: | To listen to the live webcast, please go to http://investors.upcinsurance.com and click on the conference call link at the top of the page or go to: https://event.webcasts.com/starthere.jsp?ei=1594437&tp_key=d17c7e1d47 | ||
An archive of the webcast will be available for a limited period of time thereafter. | |||
Presentation: | The information in this press release should be read in conjunction with an investor presentation that is available on the Company's website at investors.upcinsurance.com/Presentations. | ||
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 through a variety of distribution channels. The Company currently writes policies in Florida, Louisiana, New York, and Texas. The Company also writes policies in South Carolina and North Carolina, where renewal rights have been sold and all premiums and losses are ceded.
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". The Company believes 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 expressed in, or implied by, the forward-looking statements. 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," "plan," "anticipate," "intend," "could," "would," "estimate" or "continue" or the negative variations thereof or comparable terminology. Factors that could cause actual results to differ materially may be found in the Company's filings with the U.S. Securities and Exchange Commission, in the "Risk Factors" section in the Company's 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, the Company undertakes no obligation to update or revise any forward-looking statements.
Consolidated Statements of Comprehensive Loss | ||||||||||||||||
In thousands, except share and per share amounts | ||||||||||||||||
Three Months Ended | Year Ended | |||||||||||||||
December 31, | December 31, | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUE: | ||||||||||||||||
Gross premiums written | $ | 229,239 | $ | 268,890 | $ | 1,124,063 | $ | 1,329,445 | ||||||||
Change in gross unearned premiums | 67,084 | 72,996 | 99,120 | 78,998 | ||||||||||||
Gross premiums earned | 296,323 | 341,886 | 1,223,183 | 1,408,443 | ||||||||||||
Ceded premiums earned | (162,146 | ) | (196,805 | ) | (760,557 | ) | (818,682 | ) | ||||||||
Net premiums earned | 134,177 | 145,081 | 462,626 | 589,761 | ||||||||||||
Net investment income | 4,124 | 3,035 | 14,011 | 13,772 | ||||||||||||
Net realized investment gains (losses) | (30,226 | ) | (2,349 | ) | (32,082 | ) | 3,567 | |||||||||
Net unrealized gains (losses) on equity securities | 3,285 | 1,528 | (6,585 | ) | 3,237 | |||||||||||
Other revenue | 2,115 | 7,249 | 17,452 | 24,190 | ||||||||||||
Total revenues | $ | 113,475 | $ | 154,544 | $ | 455,422 | $ | 634,527 | ||||||||
EXPENSES: | ||||||||||||||||
Losses and loss adjustment expenses | 338,977 | 85,520 | 637,647 | 422,134 | ||||||||||||
Policy acquisition costs | 60,285 | 44,501 | 154,233 | 173,574 | ||||||||||||
Operating expenses | 8,750 | 14,124 | 43,632 | 56,257 | ||||||||||||
General and administrative expenses | 6,427 | 14,278 | 63,317 | 57,212 | ||||||||||||
Interest expense | 2,448 | 2,381 | 9,613 | 9,391 | ||||||||||||
Total expenses | 416,887 | 160,804 | 908,442 | 718,568 | ||||||||||||
Loss before other income | (303,412 | ) | (6,260 | ) | (453,020 | ) | (84,041 | ) | ||||||||
Other income | 8,796 | 58 | 10,395 | 184 | ||||||||||||
Loss before income taxes | (294,616 | ) | (6,202 | ) | (442,625 | ) | (83,857 | ) | ||||||||
Provision (benefit) for income taxes | 298 | (3,333 | ) | 25,485 | (23,989 | ) | ||||||||||
Net Loss | $ | (294,914 | ) | $ | (2,869 | ) | $ | (468,110 | ) | $ | (59,868 | ) | ||||
Less: Net loss attributable to noncontrolling interests | - | (553 | ) | (111 | ) | (1,949 | ) | |||||||||
Net loss attributable to UIHC | $ | (294,914 | ) | $ | (2,316 | ) | $ | (467,999 | ) | $ | (57,919 | ) | ||||
OTHER COMPREHENSIVE LOSS: | ||||||||||||||||
Change in net unrealized gains (losses) on investments | 3,632 | (7,171 | ) | (56,600 | ) | (18,267 | ) | |||||||||
Reclassification adjustment for net realized investment losses (gains) | 30,226 | 2,349 | 32,082 | (3,567 | ) | |||||||||||
Income tax benefit related to items of other comprehensive income loss | - | 1,156 | 49 | 5,264 | ||||||||||||
Total comprehensive loss | $ | (261,056 | ) | $ | (6,535 | ) | $ | (492,579 | ) | $ | (76,438 | ) | ||||
Less: Comprehensive loss attributable to noncontrolling interests | - | (694 | ) | (164 | ) | (2,295 | ) | |||||||||
Comprehensive loss attributable to UIHC | $ | (261,056 | ) | $ | (5,841 | ) | $ | (492,415 | ) | $ | (74,143 | ) | ||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 43,101,872 | 42,973,753 | 43,052,070 | 42,948,850 | ||||||||||||
Diluted | 43,101,872 | 42,973,753 | 43,052,070 | 42,948,850 | ||||||||||||
Earnings available to UIHC common stockholders per share | ||||||||||||||||
Basic | $ | (6.84 | ) | $ | (0.05 | ) | $ | (10.87 | ) | $ | (1.35 | ) | ||||
Diluted | $ | (6.84 | ) | $ | (0.05 | ) | $ | (10.87 | ) | $ | (1.35 | ) | ||||
Dividends declared per share | $ | - | $ | 0.06 | $ | 0.06 | $ | 0.24 | ||||||||
Consolidated Balance Sheets | ||||||||
In thousands, except share amounts | ||||||||
December 31, 2022 | December 31, 2021 | |||||||
ASSETS | ||||||||
Investments, at fair value: | ||||||||
Fixed maturities, available-for-sale | $ | 376,463 | $ | 663,602 | ||||
Equity securities | 39,020 | 37,958 | ||||||
Other investments | 16,628 | 18,006 | ||||||
Total investments | $ | 432,111 | $ | 719,566 | ||||
Cash and cash equivalents | 229,893 | 212,024 | ||||||
Restricted cash | 53,717 | 33,254 | ||||||
Accrued investment income | 3,062 | 3,296 | ||||||
Property and equipment, net | 19,591 | 31,561 | ||||||
Premiums receivable, net | 86,036 | 79,166 | ||||||
Reinsurance recoverable on paid and unpaid losses | 1,632,293 | 997,120 | ||||||
Ceded unearned premiums | 213,028 | 430,631 | ||||||
Goodwill | 59,476 | 73,045 | ||||||
Deferred policy acquisition costs | 58,933 | 38,520 | ||||||
Intangible assets, net | 12,770 | 18,375 | ||||||
Other assets | 38,442 | 62,015 | ||||||
Total Assets | $ | 2,839,352 | $ | 2,698,573 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Liabilities: | ||||||||
Unpaid losses and loss adjustment expenses | $ | 1,946,938 | $ | 1,084,450 | ||||
Unearned premiums | 545,820 | 644,940 | ||||||
Reinsurance payable on premiums | 59,896 | 248,625 | ||||||
Payments outstanding | 215,057 | 114,524 | ||||||
Accounts payable and accrued expenses | 74,503 | 76,258 | ||||||
Operating lease liability | 1,689 | 1,934 | ||||||
Other liabilities | 23,159 | 39,324 | ||||||
Notes payable, net | 152,473 | 156,561 | ||||||
Total Liabilities | $ | 3,019,535 | $ | 2,366,616 | ||||
Commitments and contingencies | ||||||||
Stockholders' Equity: | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 authorized; none issued or outstanding | - | - | ||||||
Common stock, $0.0001 par value; 100,000,000 shares authorized; 43,492,256 and 43,360,429 issued, respectively; 43,280,173 and 43,370,442 outstanding, respectively | 4 | 4 | ||||||
Additional paid-in capital | 395,631 | 394,268 | ||||||
Treasury shares, at cost; 212,083 shares | (431 | ) | (431 | ) | ||||
Accumulated other comprehensive loss | (30,947 | ) | (6,531 | ) | ||||
Retained earnings (deficit) | (544,440 | ) | (74,904 | ) | ||||
Total stockholders' equity attributable to UIHC stockholders | $ | (180,183 | ) | $ | 312,406 | |||
Noncontrolling interests | - | 19,551 | ||||||
Total Stockholders' Equity | $ | (180,183 | ) | $ | 331,957 | |||
Total Liabilities and Stockholders' Equity | $ | 2,839,352 | $ | 2,698,573 | ||||
Contacts
United Insurance Holdings Corp.
Alexander Baty
Director of Financial Reporting
(727) 895-7737 / abaty@upcinsurance.com
OR
INVESTOR RELATIONS:
The Equity Group
Karin Daly
Vice President
(212) 836-9623 / kdaly@equityny.com
