United Insurance Holdings Corp.

Greetings. Welcome to United Insurance Holdings Corp. Third Quarter 2022 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. Please note this conference is being recorded. I will now turn the conference over to Karen Daly, Vice President of the Equity Group. Thank you. You may begin.

Thank you, Sherry, 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-Mark. On behalf of the company, I'd like to note that statements made during 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 differ materially may be found in the company's filings with the U.S. Securities and Exchange Commission in the risk factor section of their 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. 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 third 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, and then Brad Martz will provide for more specific numbers. Results in the third quarter continue to highlight the performance difference between our personal lines and commercial lines business. Please see page 5 of our investor supplement for more information. Personal Alliance was disappointing with a core loss of $69.8 million. Key factors include the loss of the UPC Insurance Company's financial stability rating issued by Demotech and the downgrade of UPC Insurance Company's CRO rating. These impact our renewal retention levels and therefore gross written premium and gross earned premiums. Another significant factor was our increased reinsurance spend coming out of our 6-1 CAT placement, which therefore increases seeded earned premium and decreases net earned premium faster than the exposures are decreasing. While current accident year non-CAT losses are down, the decrease in earned premium outpaces the decrease in losses, driving the poor result. This is compounded by significant strengthening of our prior year reserves, reflecting an increased claims severity. driven by inflation and the excessive Florida litigation on prior year losses. These results have driven the write-down of our DTA through a large valuation allowance in the second quarter, and in the third quarter, we wrote down approximately $13.6 million of goodwill against our personal lines operations. In personal lines, we continue to downsize the portfolio with total policies enforced down about 36%, since the beginning of 2022 and total insured values down 34.6%. We also continue to drive rate with an average of 20.4% rate increase and an average 35% rate lift when combining rate plus increased insurance to value. In commercial lines written in American Coastal Insurance Company, our business continues to grow with net premium earned larger than the personal lines net earned premium at $59.5 million. Results are strong with a profit for the third quarter despite Hurricane Ian losses. Core income of $1.8 million for the third quarter and $32 million year-to-date demonstrate the earnings power of the commercial lines book. The underlying combined ratio was 57.6% for the quarter and 66.1% year-to-date. In anticipation of increasing our CAT reinsurance costs, we are achieving strong rate increases, averaging over 30% in 3Q, improving insurance to value, improving terms, and reducing PML exposure. We also experienced favorable prior year development of $1.8 million in the third quarter and $5.5 million year-to-date for our commercial lights business. Given the loss of the Demotech financial stability rating and UPC insurance company and the very different outcomes between our personal lines and commercial lines businesses, in the third quarter, we decided to put our core personal lines businesses into runoff. To accomplish this, we filed plans of withdrawal in Florida, Texas, and Louisiana. These plans have been approved by the regulators in each state and will generally result in non-renewals of personal lines policies beginning as early as November 1st in Texas, and as late as January 1, 2023, in Florida and Louisiana. In New York, we are continuing to non-renew in UPC and offer renewals in Interboro Insurance Company. Interboro and American Coastal both retain statistically financial strength ratings in both Kroll and Demetech. As previously announced, we continue to evaluate Interboro options to divest from all personal lines. In summary, our third quarter reflected lots of change. We continue to de-risk the personal lines portfolio, which drives a headwind of decreasing net earn premium. A disappointing core loss for the quarter is due to poor performance in our personal lines business, reflecting loss of UPC insurance companies, financial stability ratings, increased reinsurance spend, significant prior year development, and a write-off of goodwill in our personal lines company. Our commercial lines business continues to perform well with a profit in the quarter despite one of the worst hurricanes to hit Florida in recent history. We expect the Florida 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 Florida litigation levels.