United Insurance Holdings Corp.

Hello, and welcome to the United Insurance Holdings second quarter 2022 financial results conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karen Daly, Vice President with the Equity Group. Please go ahead, Karen.

Thank you, Kevin, and good afternoon, everyone. UPC Insurance has also made this broadcast available on its website at www.upcinsurance.com. A replay will be available for approximately 30 days following the call. Additionally, you can find copies of UPC's earnings release and presentation in the investor section of the company's website. Speaking today will be Chairman of the Board and Chief Executive Officer, R. Daniel Pede, and President and Chief Financial Officer, Bennett Bradford-Marx. On behalf of the company, I'd like to note that statements majoring this call 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. Factors that could cause actual results to vary materially may be found in our filings with the U.S. Securities and Exchange Commission in the risk factor section of our most recent annual report on Form 10-K or subsequent quarterly reports on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and except as required by applicable law, we undertake no obligation to update or revise any forward-looking statement. With that, it's my pleasure to turn the call over to Mr. Daniel Pede. Dan?

Thanks, Karen. Hello, and thanks for joining us on our second quarter earnings call. I'm Dan Pede, Chairman and CEO of UPC Insurance. I'm planning to offer an overview of some of our activities in the second quarter, and then Brad Marks will provide more specific numbers. The second quarter was busy. During the quarter, we closed on restructuring both our personal lines and commercial lines businesses. In personal lines, we closed the merger of Family Security Insurance Company and UPC, effective May 31st, with UPC as the surviving entity. In our commercial lines business, we merged Journey Insurance Company and American Coastal Insurance Company, effective June 1st, with American Coastal as the surviving entity. Both of these were done to separate out our personal lines and commercial lines businesses, simplifying the structure from five writing companies to three, reallocate capital, and reduce expenses. Turning to results, the main theme in our personal lines business is continued de-risking necessary to right-size the portfolio and reduce the amount of catastrophe reinsurance that was needed at the 6-1 renewal. We continued to shrink the personal lines portfolio with the TID of the core portfolio down 16% year-over-year and the hurricane PML down approximately 24% when considering the Southeast renewal rights transaction. This enabled a successful 6-1 catastrophe reinsurance renewal. However, shrinking the personal lines portfolio creates a temporary headwind as the gross earned premium shrinks significantly faster than the seeded earned premium. Gross earned premiums were down by 14% due mostly to the sale of the Southeast renewal rights, while net earned premiums were down by 23%. This is reflected in our personal line's seeded earned premium ratios at 68.9% up from 59.7%. Losses in both catastrophe and non-catastrophe claims continue to be impacted by increasing inflation and excessive litigation driving increased severity. These factors drove a poor underwriting performance. with a core loss of $64.3 million, which included a $43.6 million valuation allowance against our deferred tax asset. The core loss excluding the valuation allowance was $20.6 million, which is improved by about $4 million from the $24.6 million in second quarter 21. However, our commercial lines business performed well in the second quarter, as I'll describe in a minute. On the underwriting activity side, we continue to achieve compounding rate increases along with exposure management and risk selection activities. In personal lines, we achieved average rate increases across our core portfolio of 18.8%. These are compounding with the 11.5% rate increases achieved in 2021. We're also continuing with our insurance to value initiatives which are delivering 12.9% average increase in our personal lines core portfolio. Between rate and valuation, we're achieving an average 31% year-over-year on renewal accounts. For commercial lines, we had a good quarter with a combined ratio of 61.5% and an underlying combined ratio of 70.2%, down slightly from 72.4% in the first quarter of 22. We wrote $181 million of gross written premium for the second quarter, surpassing for the first time our personal lines, which wrote $179 million. This resulted in pre-tax earnings for commercial lines of $18.8 million for the second quarter versus $11.6 million in the first quarter and $5.6 million in the second quarter of 21. Commercial lines average rate increased by nearly 20% and we anticipate continued growth of 20% or more for at least the next 12 to 18 months. Florida litigation continues to see the total number of lawsuits when adjusted for notice of intent to litigate, decreasing over the last quarter from peak rates in June and July of 21. We believe that the provisions of SB 76 will begin to help the excess litigation issues in Florida as SB 76 applies to an increasing percentage of lawsuits. We also believe the provisions in SB 2D and 4D will favorably impact excessive litigation in Florida. However, much of the benefit will adhere to claims with a date of loss after July 1st, 2021, the effective date of SB 76. As a subsequent event, on August 1st, Demotech downgraded UPC from A for exceptional to M for moderate. UPC is participating in the Florida Market Stabilization Arrangement through Citizens Property Insurance Corp. that is effective through June 1, 2023. Under the arrangement, citizens will assume by endorsement 100% of UPC's liability for any covered loss payable, but unpaid under certain circumstances. The Florida OIR has a great summary of the arrangement and frequently asked questions on its website that I invite you to check out. Our subsidiaries, American Coastal Insurance Company and Interboro Insurance Company, continue to be rated A-, and continue to be rated A, exceptional by Demetech. And American Coastal, Interboro, and UPC are all rated A- by Cruel Bond Rating Agency. In summary, our second quarter reflected lots of change. We continued to de-risk the personal lines portfolio, which drives the headwind of decreasing net earn premium in personal lines. Our core loss is due to poor performance in our personal lines business, as well as a large valuation allowance against the deferred tax asset. However, the core loss excluding the valuation allowance improved on a year over year basis by approximately 4 million. We continued to experience inflation and excessive litigation levels in Florida, causing significantly increased severity in current and prior accident years. We restructured the company through the merger of FSIC into UPC for personal lines and Journey Insurance Company into American Coastal Insurance Company for commercial lines. This will simplify our structure and reduce expenses. Our commercial lines business is performing well and is positioned for profitable growth with a market-leading position and a specialty commercial niche. And lastly, we expect the Florida residential market to remain hard for the foreseeable future due to a skeptical and hard capital and reinsurance market, recently elevated catastrophe activity, and continued headwinds created by excessive obligation levels. With that, I'll turn it over to Brad Martz.