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spk00: Good morning, ladies and gentlemen, and welcome to Universal's first quarter 2022 earnings conference call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Arash Soleimani, Chief Strategy Officer.
spk01: Good morning. Thank you for joining us today. Welcome to our quarterly earnings call. On the call with me today are Steve Donaghy, Chief Executive Officer, and Frank Wilcox, Chief Financial Officer. Before we begin, please note today's discussion may contain forward-looking statements and non-GAAP financial measures. Forward-looking statements involve assumptions, risks, and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release and Universal's SEC filings, all of which are available on the investor section of our website at universalinsuranceholdings.com and on the SEC's website. A reconciliation... of non-GAAP financial measures to comparable GAAP measures is included in the quarterly press release and can also be found on Universal's website at universalinsuranceholdings.com. With that, I'll turn the call over to Steve.
spk06: Thanks, Arash. Good morning, everyone. We reported a 16.9% annualized return on equity despite the challenging external environment, which is a testament to the strength and resilience of our business. Direct premiums written were up 8.5% from the prior year quarter, significantly outpacing a 6.1% policies-enforced decline, as meaningful rate increases benefited premium volumes. We are laser-focused on improving underwriting profitability as we prioritize combined ratio improvement over top-line growth. In addition to raising rates across Florida and our broader footprint, we've reduced exposure to less profitable geographies, tightened underwriting criteria, renegotiated commission rates with our agency partners, and exercised prudent expense management. Lastly, rising yields are benefiting our investment income results and should continue to serve as a tailwind moving forward. Given our strong capital position, the profitability of our business, and the steps we continue to take to improve results, We believe we stand out favorably as reinsurers increasingly differentiate amongst sedents in the current market. Our team has been hard at work over the last several months meeting face-to-face with our reinsurance partners around the globe, securing our desired capacity for the June 1st, 2022 renewal. We recently released our firm order terms to the global reinsurance market for the capacity needed for our All States First Event Catastrophe Reinsurance Tower. With the capacity already locked in via the Florida Hurricane Catastrophe Fund, various multi-year deals that will continue into 2022, including the catastrophe bond we issued in 2021, we already have over 85% of our core All States First Event Catastrophe Reinsurance Tower secured. We are pleased with the progress we have made, especially given the current environment. I'll turn it over to Frank to walk through our financial results.
spk05: Frank. Thanks, Steve. Good morning. Adjusted EPS was 64 cents, down from 84 cents in the prior year quarter, with the decline mostly attributable to a higher net combined ratio, partially offset by higher revenues and a lower effective tax rate. Total revenue, of $287.5 million was up 9.4 percent year-over-year, with growth primarily stemming from higher direct premiums earned, commission revenues, and net investment income partially offset by higher unrealized losses on equity securities. Direct premiums written of $396.5 million were up 8.5 percent from the prior year quarter, including 8.9 percent growth in Florida and 6.4 percent growth than other states. Direct premiums earned of $414.6 million were up 10.4 percent year-over-year. Rate was the main driver of premium growth, particularly given the policies and force decline that Steve mentioned in his remarks. The net combined ratio was 97.9 percent, up 4.8 points compared to the prior year quarter. The increase reflects a higher net loss ratio, partially offset by a lower net expense ratio. The 68.8% net loss ratio was up 9.6 points year over year, with the increase mostly attributable to a higher initial accident year attritional loss pick associated with the current Florida claims environment. The 29.1 percent net expense ratio improved by 4.8 points year-over-year, reflecting lower renewal commission rates, lower employee compensation, and benefits and economies of scale. During the first quarter, the company repurchased approximately 321,000 shares at an aggregate cost of $3.9 million. The company's current share repurchase authorization program has $13.9 million remaining as of March 31st, 2022, and runs through November 3rd of 2022. On April 20th, 2022, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on May 20th, 2022 to shareholders of record as of the close of business on May 13th, 2022. As mentioned in our earnings release yesterday, we're maintaining our guidance for 2022, including a GAAP and non-GAAP adjusted EPS range of $1.80 to $2.20 and a return on average equity of 12.5% to 15%. The guidance assumes no extraordinary weather events in 2022 and also assumes a flat equity market for GAAP EPS. If weather events exceed plan, we expect to see both a benefit from our claims adjusting business and increased loss costs. With that, I'd like to ask the operator to open the line for questions.
spk00: Thank you. And to ask a question, simply press star 1 on your telephone. To withdraw the question, press the pound or hash key. Once again, that is star 1 if you have a question. One moment, please. We have a question from the line of Paul Newsome with Piper Sandler. Please go ahead.
spk02: Good morning. I apologize. I should jump on and off the call here earlier, but I wanted to get your thoughts just generally about all of this potential tort reform that seems to be talking about in Florida. There was some sort of announcement about potential of the state legislator coming back and And, you know, I guess, you know, how do you sort of think about that emerging and, you know, are you more or less confident that you might actually get something meaningful in the future?
spk06: Hey, Paul. Good morning. This is Steve. We commend the governor for taking the action and calling the special session later this month And I think it puts a spotlight on the issues facing Floridians from a cost and coverage perspective. And we're hopeful that the legislators take the opportunity to seriously discuss the topics that were covered in the last session and new ideas that are being bubbled up currently. So we don't have a crystal ball, but we feel as though they recognize some of the issues and are hopeful that their constituents get some relief in the future as a result of their actions.
spk02: Well, keep our fingers crossed. So, one of the sort of big picture questions I've gotten on the Florida market and the universal in particular is, this concern that the rate need in general is way above what citizens can take every year and that you'll have sort of an environment where on a relative basis, your competitors, including citizenship, would get sort of relatively more attractive because they're going to be relatively more underpriced if inflation accelerates how do you react in that sort of environment um obviously eventually the great need has to be met by everyone but you know what do you do in in between periods when you can um when the industry when the industry is not quite able to get enough rate yet and you still have uh um some folks with some really big need that places them competitively, you know, extremely low from a pricing perspective.
spk06: Yeah, you know, Paul, you know, from our perspective, we are focused on rate adequacy and really, you know, the profitability from an underwriting perspective on our insurance carrier. As we strive for rate adequacy, we look at the market and we understand what's taking place from a competitive perspective. And, you know, there have been years where the market has been soft, and we've looked at our rates and tried to do the right thing in spite of many carriers being less expensive. But we really have to stick to our knitting and ensure that our rates are adequate to generate sustainable profitability going forward. The citizens question is a unique one. You know, they were originally the insurer of last resort, and as they become competitively priced, it does bode some issues for them, for the marketplace, and, you know, should events occur for Floridians from a cost perspective. So, and I think the legislature did some things in the last session to assist citizens to take more rate than they traditionally had, so that they've got a runway to increase rates. It used to be locked at 10, and that'll be increased to 15 percent over the next several years, so, and that might be something that's talked about in the special session, too, because they have to be careful with the growth in citizens because it's meaningful right now.
spk02: Great. Thanks. I'll let some other folks ask questions, but always appreciate the help.
spk06: Yeah, thanks, Paul. Have a great day.
spk00: Thank you. Your next question comes from Nick Iacoviello with Dowling and Partners. Please go ahead.
spk03: Good morning, guys.
spk06: Morning. Morning, Nick.
spk04: I'm not sure. I'm not sure how much further you wanted to talk on the legislative session, but maybe just your updated thoughts on SB 76 and anything tangible you're seeing from that. And I don't know if you wanted to, on the upcoming special session, maybe what you guys are most interested in seeing passed would be helpful. Thanks.
spk06: Yeah, thanks, Nick. The SB 76, you know, our cautious optimism for that continues. There clearly were some pillars within that legislation that eliminates the window for hurricanes and various events to two years instead of three. I think what we've seen is the NOI process or notice of intent to litigate. We've seen some benefits from that in that the plaintiff's side needs to generate details in order to file a suit. We use that as an opportunity to pursue closure on files where possible. And we have a team of people dedicated to that process. And I think the plaintiff's side was slow to respond to it, but they are now following the rules a little bit better. And I think that will have some impact on CaseGlide, too, as it goes forward. Relative to the special session, you know, clearly, you know, and I believe the governor has commented When you write, you know, 7% or 8% of the P&C business in the country and you have 80% of the litigated suits in that same state, something's not right. So, you know, they're talking about a lot of important things, but really the legal fees and the way that is structured would be the primary area I would suggest them to focus. But they're not calling me right now, but we're trying to get as much help as we can. And aside from that, you know, I know they have the best intentions, so hopefully they focus on the points that they have, and we'll see what comes out of it.
spk04: Great. Thanks. And just given the close to $4 million of repurchases this quarter, maybe you guys could just take some time and update us on how you're viewing capital management as it relates to the level of growth going forward.
spk05: Yeah, I mean, we're pretty strong as it relates to capital. We still have the vast majority of the proceeds that we raised through the $100 million note issuance. We have infused some capital into the insurance entities, and we continue to monitor their needs. That is the primary objective right now is to ensure that the insurance companies are adequately capitalized in order to continue to provide the opportunities to the entire holding company system. Shared buybacks right now are hard not to look at that and think it's a great opportunity. So to the extent that we believe that we have some excess, we take advantage of that.
spk03: Great. Thanks. Last question, just on the expense ratio.
spk04: You guys had previously discussed that maybe coming back up to the 32%, 33% range, still look to be below that this quarter. Q, are you still thinking about the expense ratio in that range, or are you seeing some more efficiencies or some things more permanent post-COVID?
spk05: Yeah, so that was prior to our reaching the decision to reduce the commission rate on renewals. That plus the You know, going into the fourth quarter and there still being a lot of unknowns about inflation, you know, we kind of thought that we ought to give ourselves a little bit of a wide berth there. I think what you're seeing this quarter is probably more indicative for the rest of the year versus the guidance that we gave at the fourth quarter call.
spk03: Great. Thanks. That's all I have.
spk06: All right. Thanks, Nick. Appreciate the call.
spk00: Thank you. And I'm not showing any further questions in the queue. I will turn the call back to Steve and Donna Guy for his final remarks.
spk06: Thanks, Carmen. I would like to thank our associates, consumers, agents, and our stakeholders for their continued support of Universal. Thanks for your attendance, and have a great day.
spk00: And with that, ladies and gentlemen, we conclude the program. Thank you for participating, and you may now disconnect.
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