Universal Insurance Holdings Reports Fourth Quarter 2019 Results; Well-Positioned on EPS and ROAE guidance for 2020

Universal Insurance Holdings (NYSE: UVE) (the “Company”) reported 2019 fourth quarter diluted EPS of $(1.55) on a GAAP basis and $(1.57) non-GAAP adjusted EPS¹. Quarterly direct premiums written were up 12.5% from the year-ago quarter to $302.7 million. Book value per share grew to $15.13, an increase of 4.9% with a return on average equity of 9.2% for the year.

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 ended the year with strong top line growth thanks to our effective marketing strategy, agent relations and customer service,” said Stephen J. Donaghy, Chief Executive Officer. “Since taking over as CEO in July of 2019, we have continued to respond to the well-documented current Florida dynamics that have affected all industry participants. In spite of these challenges, we produced an annualized return on average equity of 9.2%. This annual result includes enhanced conservatism across many different fronts, including the run up of claims prior to the effective date of new AOB legislation, the impact of a hardening reinsurance market, and the overall influence of social inflation. We focused on prior and current years along with our subrogation expectation even though 2019 was our highest subrogation receivable in company history. Our financial strength, along with filing for double digit primary rate increases in Florida and our direct to consumer platform, Clovered^SM, have positioned us for long-term, sustainable bottom line growth going forward into 2020 and beyond. We believe the diligent work we have put forth, puts us in position to provide FY20 guidance of a GAAP and non-GAAP adjusted EPS range of $2.80 - $3.10 assuming no extraordinary weather events in 2020, and a Return on Average Equity of 17% - 20%.”

Summary Financial Results

($thousands, except per share data)	Fourth Quarter											Full Year
	FY19				FY18				Change			FY19				FY18				Change
(GAAP comparison)
Total revenue	$	239,402			$	216,373			10.6 %			$	939,351			$	823,816			14.0%
Income (loss) before income taxes	(69,053		)		(11,241		)		NM			63,517				152,873				(58.5)%
Income (loss) before income taxes margin	(28.8		)%		(5.2		)%		(23.6) pts			6.8		%		18.6		%		(11.8) pts
Diluted EPS	(1.55		)		(0.19		)		NM			1.36				3.27				(58.4)%
Annualized return on average equity (ROE)	NM				NM				NM			9.2		%		24.1		%		(14.9) pts
Book value per share, end of period	15.13				14.42				4.9%			15.13				14.42				4.9%
(Non-GAAP comparison) 2
Adjusted Operating Income	(69,687		)		3,324				NM			55,833				192,842				(71.0)%
Adjusted EPS	(1.57		)		0.12				NM			1.18				4.11				(71.3)%

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. NM = Not Meaningful

Total revenue grew double digits for both the quarter and the year, driven primarily by higher organic premium volume and retention due to our marketing and customer service efforts, premium pricing flowing through the book, and our investment portfolio performance, partially offset by increased reinsurance costs. Income before income tax was down 58.5% for the year and adjusted operating income was down 71.0% for the year, primarily impacted by a lower benefit from our claims adjusting business as prior years’ catastrophe claims conclude, current year reserve strengthening, and current year weather events above plan. Income before income tax produced a 6.8% margin for the year. GAAP diluted EPS and non-GAAP adjusted EPS results for the quarter and the year benefited from premium growth, investment performance, and commission revenue, offset by the aforementioned items. The Company produced an annualized return on average equity of 9.2% and book value per share growth of 4.9% for the year, despite where the industry sits in the current cycle and the number of factors affecting Florida.

Underwriting

($thousands, except policies in force)
	Fourth Quarter											Full Year
	FY19				FY18				Change			FY19				FY18				Change
Policies in force	888,361				828,653				7.2%			888,361				828,653				7.2%
In-force premium	$	1,296,416			$	1,193,019			8.7%			$	1,296,416			$	1,193,019			8.7%
Direct premiums written	302,655				268,934				12.5%			1,292,721				1,190,875				8.6%
Direct premiums earned	321,571				296,948				8.3%			1,233,121				1,121,640				9.9%
Net premiums earned	215,819				204,595				5.5%			842,502				768,382				9.6%
Expense ratio 3	29.6		%		31.7		%		(2.1) pts			32.3		%		33.4		%		(1.1) pts
Loss & LAE ratio	113.3		%		79.5		%		33.8 pts			71.6		%		53.9		%		17.7 pts
Combined ratio	142.9		%		111.2		%		31.7 pts			103.9		%		87.3		%		16.6 pts

3 Expense ratio excludes interest expense.

Direct premiums written were up double digits for the quarter, led by the continued impact of rate increases in Florida and other states, as well as strong direct premium growth of 23.3% in Other States (non-Florida). For the year, direct premiums written were up 8.6% led by the rate increases, as well as strong direct premium growth of 27.6% in Other States and a slightly improved policy retention.

On the expense side, the combined ratio increased 31.7 points for the quarter and 16.6 points for the year. The increases were driven primarily by reduced benefits from claim settlement fees as prior years’ catastrophe claims conclude, conservatism on prior years’ anticipated subrogation recoveries, current year reserve strengthening, and weather events above plan, partially offset by an improvement in the expense ratio as set forth below:

• The expense ratio improved 2.1 points for the quarter driven by a 1.8 point improvement in the other operating expense ratio, further aided by a 30 basis point decrease in the policy acquisition cost ratio. For the year, the expense ratio improved 1.1 points driven by a 1.7 point improvement in the other operating expense ratio, partially offset by a 60 basis point increase in the policy acquisition cost ratio.
• The net loss and loss adjustment expense ratio increased 33.8 points for the quarter and 17.7 points for the year. Quarterly and full year drivers for 2019 include:
  • Prior year reserve development was primarily made up of a $40.7 million reduction in anticipated subrogation recoveries in the fourth quarter, and $43.7 million of prior accident years adverse development in the fourth quarter resulting in a total of $84.4 million or 39.1 points for the quarter and $88.1 million or 10.4 points for the year.
  • Weather events in excess of plan of $16.7 million or 7.7 points ($9.8 million in 4Q18) for the quarter were directly related to strengthening IBNR for weather events in 2019. For the full year, weather events in excess of plan were $38.7 million or 4.6 points ($14.8 million in FY18).
  • All other losses and loss adjustment expense of $143.4 million or 66.5 points for the quarter and $476.7 million or 56.6 points for the year, were primarily related to diversified growth, $24.7 million in the fourth quarter of incremental reserve strengthening for accident year 2019 as the industry continues to see increased severity in represented claims, and a reduced benefit from our adjusting business as prior years’ catastrophe claims conclude.

Services

($thousands)	Fourth Quarter											Full Year
	FY19				FY18				Change			FY19				FY18				Change
Commission revenue	$	7,168			$	5,800			23.6%			$	26,101			$	22,438			16.3%
Policy fees	4,973				4,532				9.7%			21,560				20,275				6.3%
Other revenue	2,603				1,905				36.6%			7,972				7,163				11.3%
Total	14,744				12,237				20.5%			55,633				49,876				11.5%

Total services revenue increased 20.5% for the quarter and 11.5% for the full year. The increase was driven by commission revenue earned on ceded premiums and an increase in policy fees and other revenue related to volume.

Investments

($thousands)	Fourth Quarter											Full Year
	FY19				FY18				Change			FY19				FY18				Change
Net investment income	$	7,578			$	7,603			(0.3)%			$	30,743			$	24,816			23.9%
Realized gains (losses)	437				4				NM			(12,715		)		(2,089		)		NM
Unrealized gains (losses)	824				(8,066		)		NM			23,188				(17,169		)		NM

NM = Not Meaningful

Net investment income decreased 0.3% for the quarter, but increased 23.9% for the year, primarily due to increased assets under management and an asset mix shift to higher yielding investment grade bonds during 2018 and 2019. These results were partially offset by a lower trend in yields on cash and short term investments during the second half of 2019. Realized losses in 2019 resulted primarily from the sale of equity securities. Unrealized gains were driven by market volatility in equity securities.

Capital Deployment

During the fourth quarter, the Company repurchased approximately 567 thousand shares at an aggregate cost of $16.3 million. For the full year the Company repurchased approximately 2.3 million shares at an aggregate cost of $66.2 million. The Company’s current share repurchase authorization program has $28.3 million remaining as of December 31, 2019 and runs through December 31, 2021.

On February 11^th, 2020 the Board of Directors of the Company declared a quarterly cash dividend of 16 cents per share of common stock, payable March 19, 2020, to shareholders of record as of the close of business on March 12, 2020.

Guidance

Universal initiated the following guidance for fiscal 2020:

• GAAP and Non-GAAP Adjusted EPS in a range of $2.80 - $3.10 (assuming no extraordinary weather events in 2020)
• Annualized return on average equity in a range of 17% - 20%

Conference Call and Webcast

• Tuesday, March 3, 2020 at 9:00 a.m. ET
• U.S. Dial-in Number: [phone]
• International: [phone]
• Participant code: 4299054
• Listen to live webcast and view presentation: UniversalInsuranceHoldings.com
• Replay of the call will be available on the UVE website and by phone at [phone] or internationally at [phone] using the participant code: 4299054 through March 18, 2020

About Universal Insurance Holdings, Inc.

Universal Insurance Holdings (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

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.

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,” “predict,” “project,” “should,” “anticipate,” “will,” “plan,” and similar expressions identify forward-looking statements, which speak only as of the date the statements were made and include, but are not limited to, statements regarding the outlook for the Company’s future business and financial performance. Such statements may also include commentary on plans, products and lines of business, marketing arrangements, reinsurance programs and other business developments and assumptions relating to the foregoing. Such forward-looking statements are based on the current beliefs of our management as well as assumptions made by and information currently available to them, which are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. 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. For further information regarding risk factors that could affect the Company’s operations and future results, refer to the Company’s reports filed with the Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K.

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) (in thousands, except per share data)
		December 31,				December 31,
		2019				2018
ASSETS
Invested Assets
Fixed maturities, at fair value		$	855,284			$	820,438
Equity securities, at fair value		43,717				63,277
Investment real estate, net		15,585				24,439
Total invested assets		914,586				908,154
Cash and cash equivalents		182,109				166,428
Restricted cash and cash equivalents		2,635				2,635
Prepaid reinsurance premiums		175,208				142,750
Reinsurance recoverable		193,236				418,603
Premiums receivable, net		63,883				59,858
Property and equipment, net		41,351				34,991
Deferred policy acquisition costs		91,882				84,686
Goodwill		2,319				2,319
Other assets		52,643				37,966
TOTAL ASSETS		$	1,719,852			$	1,858,390
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses		$	267,760			$	472,829
Unearned premiums		661,279				601,679
Advance premium		30,975				26,222
Reinsurance payable, net		122,581				93,306
Long-term debt		9,926				11,397
Other liabilities		133,430				151,324
Total liabilities		1,225,951				1,356,757
STOCKHOLDERS' EQUITY:
Cumulative convertible preferred stock ($0.01 par value) 4		—				—
Common stock ($0.01 par value) 5		467				465
Treasury shares, at cost - 14,069 and 11,731		(196,585		)		(130,399		)
Additional paid-in capital		96,036				86,353
Accumulated other comprehensive income (loss), net of taxes		20,364				(8,010		)
Retained earnings		573,619				553,224
Total stockholders' equity		493,901				501,633
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	1,719,852			$	1,858,390
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 - 46,707 and 46,514 shares; Outstanding 32,638 and 34,783 shares.

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (LOSS) (UNAUDITED) (in thousands)
		Three Months Ended									Twelve Months Ended
		December 31,									December 31,
		2019				2018					2019				2018
REVENUES
Net premiums earned		$	215,819			$	204,595				$	842,502			$	768,382
Net investment income		7,578				7,603					30,743				24,816
Net realized gains/(losses) on investments		437				4					(12,715		)		(2,089		)
Net unrealized gains/(losses) on equity securities		824				(8,066		)			23,188				(17,169		)
Commission revenue		7,168				5,800					26,101				22,438
Policy fees		4,973				4,532					21,560				20,275
Other revenue		2,603				1,905					7,972				7,163
Total revenues		239,402				216,373					939,351				823,816
EXPENSES
Losses and loss adjustment expenses		244,445				162,740					603,406				414,455
Policy acquisition costs		44,667				42,994					177,530				157,327
Other operating expenses		19,298				21,792					94,650				98,815
Interest expense		45				88					248				346
Total expenses		308,455				227,614					875,834				670,943
Income (loss) before income tax expense		(69,053		)		(11,241		)			63,517				152,873
Income tax expense (benefit)		(17,980		)		(4,773		)			17,003				35,822
NET INCOME (LOSS)		$	(51,073	)		$	(6,468	)			$	46,514			$	117,051

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES SHARE AND PER SHARE INFORMATION (in thousands, except per share data)
		Three Months Ended									Twelve Months Ended
		December 31,									December 31,
		2019				2018					2019				2018
Weighted average common shares outstanding - basic		32,889				34,814					33,893				34,856
Weighted average common shares outstanding - diluted		32,889				34,814					34,233				35,786
Shares outstanding, end of period		32,638				34,783					32,638				34,783
Basic earnings (loss) per common share		$	(1.55	)		$	(0.19	)			$	1.37			$	3.36
Diluted earnings (loss) per common share		$	(1.55	)		$	(0.19	)			$	1.36			$	3.27
Cash dividend declared per common share		$	0.29			$	0.29				$	0.77			$	0.73
Book value per share, end of period		$	15.13			$	14.42				$	15.13			$	14.42
Annualized return on average equity (ROE)		NM				NM					9.2		%		24.1		%
NM = Not Meaningful

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES SUPPLEMENTARY INFORMATION (in thousands, except for Policies In-Force data)
		Three Months Ended									Twelve Months Ended
		December 31,									December 31,
		2019				2018					2019				2018
Premiums
Direct premiums written - Florida		$	246,927			$	223,751				$	1,066,112			$	1,013,290
Direct premiums written - Other States		55,728				45,183					226,609				177,585
Direct premiums written - Total		$	302,655			$	268,934				$	1,292,721			$	1,190,875
Direct premiums earned		$	321,571			$	296,948				$	1,233,121			$	1,121,640
Net premiums earned		$	215,819			$	204,595				$	842,502			$	768,382
Underwriting Ratios - Net
Loss and loss adjustment expense ratio		113.3		%		79.5		%			71.6		%		53.9		%
Policy acquisition cost ratio		20.7		%		21.0		%			21.1		%		20.5		%
Other operating expense ratio6		8.9		%		10.7		%			11.2		%		12.9		%
General and administrative expense ratio6		29.6		%		31.7		%			32.3		%		33.4		%
Combined ratio		142.9		%		111.2		%			103.9		%		87.3		%
Other Items
(Favorable)/Unfavorable prior year reserve development		$	84,365			$	97,295				$	88,068			$	99,522
Points on the loss and loss adjustment expense ratio		39.1		pts		47.6		pts			10.4		pts		13.0		pts
6 Expense ratio excludes interest expense.

		As of
		December 31,
		2019				2018
Policies in force
Florida		662,343				637,926
Other States		226,018				190,727
Total		888,361				828,653
In-force premium
Florida		$	1,070,034			$	1,015,666
Other States		226,382				177,353
Total		1,296,416				1,193,019
Total Insured Value
Florida		$	164,654,848			$	156,118,955
Other States		91,401,560				72,588,067
Total		256,056,408				228,707,022

UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (in thousands, except for per share data)
	Fourth Quarter									Full Year
	FY19				FY18					FY19				FY18
Income (Loss) Before Income Taxes	$	(69,053	)		(11,241		)			63,517				152,873
Adjustments:
Reinstatement premium, net of commissions 7	582				6,415					2,541				20,365
Net unrealized (gains)/losses on equity securities	(824		)		8,066					(23,188		)		17,169
Net realized (gains)/losses on investments	(437		)		(4		)			12,715				2,089
Interest Expense	45				88					248				346
Total Adjustments	(634		)		14,565					(7,684		)		39,969
Non-GAAP Adjusted Operating Income8	(69,687		)		3,324					55,833				192,842
GAAP Diluted EPS	$	(1.55	)		$	(0.19	)			$	1.36			$	3.27
Adjustments:
Reinstatement premium, net of commissions 7	0.02				0.18					0.07				0.57
Net unrealized (gains)/losses on equity securities	(0.03		)		0.23					(0.68		)		0.48
Net realized (gains)/losses on investments	(0.01		)		—					0.37				0.06
Total Pre-Tax Adjustments	(0.02		)		0.41					(0.24		)		1.11
Income Tax on Above Adjustments	—				(0.10		)			0.06				(0.27		)
Total Adjustments	(0.02		)		0.31					(0.18		)		0.84
Non-GAAP Adjusted EPS8	$	(1.57	)		$	0.12				$	1.18			$	4.11
7 Includes reinstatement premiums not covered by reinstatement premium protection and related commissions.
8 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.

 

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