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spk04: Good morning, ladies and gentlemen, and welcome to Universal's first quarter 2023 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.
spk05: Good morning. Thank you for joining us today.
spk03: 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 on 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.
spk00: Thanks, Arash. Good morning, everyone. It was a strong quarter, including a 23.9% annualized adjusted return on common equity, and 23.4 percent adjusted diluted earnings per share growth year on year. There are multiple factors benefiting our business, and I'm optimistic as I look towards the future. The Florida legislature passed meaningful reforms at the December special session, which we believe will improve the long-term stability and profitability of our core business. While rate adequacy improves, and higher fixed income yields boost the productivity of our investment portfolio. Additionally, as we sit here today, we already have our core all-states property catastrophe reinsurance tower for the 2023-2024 period fully supported and secured with no material changes to our historical reinsurance partners or our terms and conditions, while the costs are well within our budget parameters. We are very pleased with the progress we have made in the current environment, which is a testament to the strength of our business model and our associates. I'll turn it over to Frank to walk through our financial results. Frank.
spk01: Thanks, Steve, and good morning. Adjusted diluted earnings per share was 79 cents, up from 64 cents in the prior year quarter. The increase mostly stems from higher net premiums earned, net investment income, and commission revenue, and lower net expense ratio partially offset by a higher net loss ratio. Core revenue of $316.3 million was up 8.8 percent year-over-year with growth primarily stemming from higher net premiums earned, net investment income, and commission revenue. Direct premiums written were $410.1 million, up 3.4 percent from the prior year quarter, including 0.9 percent growth in Florida and 17.2 percent growth in other states. Growth reflects rate increases partially offset by lower policies in force. Direct premiums earned were $455.4 million, up 9.8 percent from the prior year quarter, reflecting rate-driven direct premiums written growth over the last 12 months. Net premiums earned were 282.2 million, up 4.9 percent from the prior year quarter. The increase is primarily attributable to higher direct premiums earned, partially offset by a higher seeded premium ratio. The net combined ratio was 100 percent, up 2.1 points compared to the prior year quarter. The increase reflects a higher net loss ratio, partially offset by a lower net expense ratio. The 73.1% net loss ratio was up 4.3 points compared to the prior year quarter, with the increase primarily attributable to a higher attritional initial accident year loss pick and higher prior year reserve development as a percentage of net premiums earned, partially offset by lower weather losses as a percentage of net premiums earned. The 26.9% net expense ratio improved by 2.2 points compared to the prior year quarter, primarily reflecting lower renewal commission rates paid to distribution partners. On April 12, 2023, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on May 19, 2023 to shareholders of record as of the close of business on May 12, With that, I'd like to ask the operator to open the line for questions.
spk04: To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A roster. One moment for our first question. Our first question will come from the line of Paul Newsome from Piper Sandler. Your line is open.
spk02: Good morning. Congrats on the quarter. Thanks for the call. Just a couple of questions. First on the reinsurance tower, good to hear it's been secured. When you say no changes in the terms and conditions, is that including the the intercompany reinsurance provided by the company's reinsurance operation. And I assume that we are talking about some increase in rate online, just not the retentions and limits of the tower. Is that fair?
spk00: Hey, Paul. Good morning, and thanks for the question. Yeah, I think that is fair. I think year over year we will see 2023 have a very similar percentage of reinsurance costs to the company against premiums earned as we did in 22. And we're very fortunate to have it completed, as you mentioned, and very fortunate to have the partners that we do in the reinsurance industry. And I don't see any changes to the retention from an intercompany perspective as well. So you kind of hit all of them there. Thank you.
spk02: Did you use the state's offer of reinsurance this time around?
spk00: We did not use the WRAP program in 2022. We elected to use that this year. So that's the program that we are utilizing. And as you know, that's below the FHCF level. So we're very fortunate to have that instrument available to us. And that is part of the equation.
spk02: Yeah. And then maybe turning to the tort reform, which is obviously the big question. Any sort of early leads on what we're seeing really from a pure claim perspective on any changes? And if you could give us some thoughts on, we saw the surge in lawsuits in general in Florida in front of the tort reform. Not sure if that had any impact in your business at all, but... Just any thoughts on what you're actually seeing from a claim perspective during the quarter related to tort reform?
spk00: Yeah. I believe, Paul, that, you know, again, as we changed our terminology from cautiously optimistic to optimistic, I would say at the end of Q1, we feel very good about that statement from the end of 2022. We have seen considerable reductions in litigation, representations, et cetera. And we feel very optimistic about the future of the impact of that on our business. I also would say that even some of the changes from prior legislative sessions, such as the NOI process, are working well. And our staff is executing against trying to get as many settlements as possible before anything would land in a litigious environment. So I think all in all, very favorable signs.
spk02: Do you have any thoughts about how that might, you know, work its way through the year in the financial results? Is it something we'll see quite quickly, or do you think it will be something that impacts the loss ratio over time?
spk00: I think it's going to take some time for the legislation to earn in. As you know, many of the changes are substantive, so they'll take effect as policies renew and new business comes on board. So it'll probably take some period of time as we look into the future for it to earn fully in, but I think there'll be some benefits on a go-forward basis, obviously.
spk02: Great. Well, it's a lot of folks who ask questions, but appreciate the help as always.
spk00: Yeah, thanks, Paul.
spk04: Thank you. One moment for our next question.
spk05: Our next question comes from the line of Nick Iacovello from Dowling.
spk04: Your line is open.
spk06: Morning. Thanks for taking my question. I guess I just want to make sure I'm understanding, not seeing changes to the intercompany retention. Just so on a staff basis and a GAAP basis, do you expect the retentions to be similar as they were last year's program?
spk00: Good morning, Nick. Yeah, we do. We looked at a lot of different options on various levels of what we were offered in the reinsurance market, and we feel good about our capital position and our ability to handle similar retentions, both on the net retention as well as the ASASA lease program that we incorporate.
spk06: Got it. And just the cost being a similar percentage of earned and I get we'll get more details with the AK as usual. But was there a meaningful difference in the amount of private market limit you purchase and I get the rap layer this year not there last year. And I guess also I'm thinking I'm thinking in terms of the first and second event coverage is this this comment that the program was secured that relates to both of those and if so, how does the prepaid reinstatement compare versus last year?
spk00: Yeah, Nick, great question. And we will have a detailed 8K as we have prior years, and we'll have a press release out separate sometime in May, late May most likely. But we feel very good about the entire program across the board. So from a ceiling perspective, it'll be very close to where we were in 2022. As you know, policy count is down, so TIB is down a little bit, but it won't be a meaningful difference whatsoever. And I think your further questions about coverages and others, they'll be consistent with where we were last year. So as we exit the reinsurance market for 23, we feel really good. The visits in Bermuda, the visits in London went very well. And I think we were, again, we separated a little bit from some of our peers relative to ability to secure. And that's always our goal is to kind of stand tall and be different within the space. So that's what we're trying to do.
spk06: okay i guess just if we could go elsewhere i know last quarter you guys mentioned you were reevaluating your view of weather above plan so i'm just wondering if you had a determination there and just trying to look at your results like for like with the year ago quarter was there anything this quarter you would classify as weather above plan yeah uh good morning nick this is frank so weather uh cooperated in the first quarter for us um so to answer your question we are still
spk01: evaluating how we're going to report weather going forward. That being said, under the old standard, there were no weather events. So everything for the current accident year was contained within what our loss picks were.
spk06: Got it. Thanks. And last one, do you see any movement in your gross loss estimate for Ian, or is it still around a billion?
spk00: Yeah, it's still around a billion, Nick, and we're pretty confident that it We don't expect it to move north. Okay. That's all. Thank you, guys. Great. Thanks, Nick. Have a good day.
spk04: Thank you. I'm not showing any further questions at this time. I'd like to call back over to our speakers for any closing remarks.
spk00: I'd like to thank all of our associates, consumers, agents, and our stakeholders for their continued support of Universal. I wish you all a great day.
spk04: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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