United Insurance Holdings Corp.

Greetings. Welcome to the United Insurance Holding Corporation second quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If you'd like to ask a question, please press star 1 on your telephone keypad. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Adam Pryor of the Equity Group. Thank you. You may begin.

Thank you, Alex, and good afternoon, everyone. Thank you for joining us. You can find copies of UPC's earnings release today at www.upcinsurance.com in the investor relations section. In addition, the company has made an accompanying presentation available on its website. You're also welcome to contact our office at 212-836-9606, and I'd be happy to send you a copy. In addition, UPC Insurance has made this broadcast available on its website as well. Before we get started, I'd like to read the following statement on behalf of the company. Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws, including statements relating to trends in the company's operations and financial results, and the business and the products of the company and its subsidiaries. Actual results from UPC may differ materially from those results anticipated in these forward-looking statements. As a result of risks and uncertainties, including those described from time to time in UPC's filings with the U.S. Securities and Exchange Commission, UPC specifically disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future developments, or otherwise. With that, I'd now like to turn the call over to Mr. Dan Pede, UPC's Chief Executive Officer. Please go ahead, Dan.

Thanks, Adam. Hello, and thanks for joining us on our second quarter earnings call. I'm Dan Pede, Chairman and CEO of UPC. I'm planning to offer an overview and discussion of some of our activities and then turn it over to Brad Martz and he'll go over specific numbers. The second quarter results reflect continued execution of our 2021 transition plan. The plan is to rotate to a dramatically reduced named and non-named cat retention level and increased quota share protections. both of these to de-stress capital and reduce volatility. These actions drive a significantly increased reinsurance spend, which reduces our margin during the transition but are subsequently priced into the portfolio, meaning that we capture the increased price of our reinsurance and our policy premiums. We continue to stay focused on the steps necessary to achieve a strong underwriting profit beginning in 2022 and continuing to grow in 2023, along with reduced volatility at the same time from both our commercial and personalized businesses. These steps include compounding rate increases, adequate reserving, exposure management, and enhanced risk selection. Many of the underwriting actions that we began to take in the second half of 2020 are beginning to flow through as written and subsequently earned premiums. In the second quarter, our personal lines average rate was again up by 10.4%, and commercial lines average rate was up by nearly 18%. Our personal lines renewal business premium increased over the last 12 months on like-for-like accounts by $89.9 million, with a record $27 million increase in the second quarter. Our current filings across all states will yield an average renewal business rate increase in the third quarter of nearly 20%, and near 15% in the fourth quarter. Note that these rate increases are compounding on top of at least one, if not two, prior rate increases. Despite these rate increases, we have renewal retention rates excluding non-renewals of 90.6% in personal lines and near 94% in commercial lines. On top of these rate increases, we are reassessing the replacement cost estimate of both our personal lines and commercial lines portfolios, given the rapid increase in construction and materials costs. We expect this to add an additional 30 to 50 million of written premium to the personal lines portfolio over the next 12 to 18 months. We are shrinking our exposure in personal lines with a TIV reduction of 5.8% in only the second quarter and on track for a portfolio annual PML reduction of nearly 13% by September 30th of this year. This had a major impact on reducing the pressure on our June 1 CAT reinsurance placement. That June 1 XOL CAT reinsurance placement was very successful and included most of our long-term reinsurance partners. The reinsurance tower continues on a strong aggregate cascading basis, offering stronger first event protection than a traditional placement. We also were able to significantly reduce our hurricane retentions. Our first and second event retentions are $15 million per occurrence, plus we buy an aggregate protection for losses in the pooled companies at $31 million for the year. This retention is a significant reduction from the approximately $200 million retention in the 2020 hurricane season. Effective July 1st, 2021, Florida adopted Senate Bill 76, which was an insurance reform package that, among other reforms designed to protect consumers, addressed litigation trends experienced by Florida carriers. We feel like there are several material changes which will reduce litigation over time. However, it is still too early to estimate the impact to loss costs given the July 1 effective date. Looking forward, We plan to continue to rebalance our portfolio towards a 50-50 mix of personal lines and commercial lines over the next several years. For example, in the second quarter, our commercial lines direct written and assumed premium is up 18.4%, while our personal lines direct written premium is down 12.2%. See our investor supplement for results broken down by personal lines and commercial lines. We continue on track for a third quarter launch of Skyway Technologies, our managing general agent direct-to-consumer platform, beginning with an HO6 product. The technology developed by Skyway will create a new distribution channel for UPC, reduce acquisition expenses, reach the new generation of insurance buyers, and transform how UPC deploys its data and technology resources. We plan to expand the suite of products offered through Skyway Technologies, and we are currently developing a strategy to launch HO3 products in Florida through Skyway Tech in 2022. The current insurance market continues to be as firm as it has been in years, and the Florida market is expected to remain hard for an extended period of time, especially for personal lines businesses. 2021 continues to be a transition year for UPC as we rotate to reduce CAT retentions, reduce personal line exposure, but that incurs an additional reinsurance cost and a reduced margin during the transition. However, as we get through the transition, we expect to return to a strong underwriting profit and targeted margins beginning in 2022 and continuing to grow into 2023. With that, I'll turn it over to Brad Martz.