United Insurance Holdings Corp. Reports Financial Results for Its Second Quarter Ended June 30, 2013

United Insurance Holdings Corp. Reports Financial Results for Its Second Quarter Ended June 30, 2013

Company to Host Quarterly Conference Call at 4:30 P.M. on August 5, 2013


ST. PETERSBURG, Fla.--(BUSINESS WIRE)-- United Insurance Holdings Corp. (NAS: UIHC) (UPC Insurance or the Company), a property and casualty insurance holding company, today reported its financial results for the second quarter and six months ended June 30, 2013.

    
($ in thousands, except per share and ratios)Three Months EndedSix Months Ended
June 30, June 30, 
2013  2012  Change2013  2012  Change
Gross premiums written$ 103,303$ 77,92832.6%$ 191,049$ 135,92440.6%
Total revenues$48,652$31,56454.1%$92,822$61,06752.0%
Earnings before income tax$7,246$5,23838.3%$14,330$12,72112.6%
Net income$4,509$2,99150.8%$8,860$7,73914.5%
Net income per diluted share$0.28$0.29(3.4)%$0.55$0.75(26.7)%
Book value per share$5.98$6.09(1.8)%
Return on average equity14.7%26.6%-11.9 pts
Loss ratio, net150.0%43.6%6.4 pts49.3%39.0%10.3 pts

Expense ratio, net2

39.8%43.5%-3.7 pts39.4%44.2%-4.8 pts
Combined ratio (CR)389.8%87.1%2.7 pts88.7%83.2%5.5 pts
Effect of current year catastrophe losses on CR3.9%3.9%4.1%2.0%-2.1 pts
Effect of prior year development from lines in run-off on CR%0.1%

0.1 pts

1.0%0.1%-0.9 pts
Effect of prior year development on CR3.9%(5.2)%-9.1 pts3.0%(3.1)%-6.1 pts
Underlying combined ratio482.0%88.3%-6.3 pts80.6%84.2%-3.6 pts
 
1 Loss ratio, net is losses and loss adjustment expenses relative to net premiums earned.
2

Expense ratio, net is calculated as the sum of all operating expenses less interest expense relative to net premiums earned.

3

Combined ratio is the sum of the loss ratio, net and the expense ratio, net.

4Underlying combined ratio, a measure that is not based on accounting principles generally accepted in the United States of America (GAAP), is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the "Definitions of Non-GAAP Measures" section of this document.
 

"Results in the second quarter were driven by continued strong premium growth of over 32% compared to the comparable period in 2012," said John Forney, CEO of UPC Insurance. "This was the first quarter in our Company's history where we wrote over $100 million in premium. Our growth was increasingly diversified geographically with 31% of our new policies coming from outside the State of Florida. We are now actively writing in Florida, South Carolina, North Carolina, Rhode Island and Massachusetts, have been approved to write business in Texas, New Jersey and New Hampshire, and have applications pending in Georgia, Connecticut, New York, and Maine. Our total policies in-force at the end of the quarter was 168,075.

Our underlying combined ratio was significantly improved to the prior year quarter, but several factors contributed to an overall increase in our reported combined ratio, which kept second quarter profitability from being stronger. Foremost among these was a higher loss ratio due both to non-catastrophe and catastrophe losses from the current and previous accident years. Beginning in late 2012, our claims department made significant changes in reserving philosophy and claims management practices to position ourselves to meet the demands of multi-state growth and the approach of a new management team. These changes have taken time to filter through to our results in a positive way, but we are pleased with the progress we are making and the claims infrastructure we are building."

Quarterly Financial Results

Net income for the quarter was $4.5 million, or $0.28 per diluted share, compared to $3.0 million, or $0.29 per diluted share in the second quarter in 2012. The increase in net income was primarily due to gross earned premium growth and a lower ceded reinsurance premium percentage which was partially offset by a higher expense ratio in the second quarter and a higher loss ratio for the current year.

Underlying Combined Ratio Decreased, but GAAP Combined Ratio Increased Due to Higher Loss Ratio

Losses and loss adjustment expenses (LAE) increased to $23.0 million for the quarter from $13.0 million during the same period of last year. The increase during the quarter was due to several factors including catastrophe losses incurred from winter storm Nemo in Massachusetts in February, a severe thunderstorm that struck Orlando in March, Tropical Storm Andrea, and development on catastrophe and non-catastrophe losses related to prior accident years as shown below:

    
($ in thousands except ratios)Three Months EndedSix Months Ended
June 30,June 30,
2013  2012  Change2013  2012  Change
Net Loss and LAE$ 23,007$ 12,969$ 10,038$ 43,554$ 22,451$ 21,103
% of Gross earned premiums30.7%23.8%6.9 pts30.1%21.4%8.7 pts
% of Net earned premiums50.0%43.6%6.4 pts49.3%39.0%10.3 pts
Less:
Current year catastrophe losses$1,777$1,155$622$3,595$1,155$2,440
Prior year development from lines in run-off15(15)86039821
Prior year reserve development (favorable)1,796 (1,545)3,341 2,654 (1,760)4,414
Underlying Loss and LAE*$19,434$13,344$6,090$36,445$23,017$13,428
% of Gross earned premiums25.9%24.5%1.4 pts25.2%21.9%3.3 pts
% of Net earned premiums42.2%44.8%-2.6 pts41.2%40.0%1.2 pts
 
Policy acquisition costs$12,169$8,878$3,291$23,452$17,131$6,321
Operating and underwriting2,6201,7578634,6793,1901,489
General and administrative3,530 2,300 1,230 6,654 5,093 1,561
Total Operating Expenses$18,319$12,935$5,384$34,785$25,414$9,371
% of Gross earned premiums24.5%23.8%0.7 pts24.0%24.2%-0.2 pts
% of Net earned premiums39.8%43.5%-3.7 pts39.4%44.2%-4.8 pts
 
Combined Ratio - as % of gross earned premiums55.2%47.6%7.6 pts54.1%45.6%8.5 pts
Underlying Combined Ratio - as % of gross earned premiums50.4%48.3%2.1 pts49.2%46.1%3.1 pts
 
Combined Ratio - as % of net earned premiums89.8%87.1%2.7 pts88.7%83.2%5.5 pts
Underlying Combined Ratio - as % of net earned premiums82.0%88.3%-6.3 pts80.6%84.2%-3.6 pts
 
* Underlying Loss and LAE is a non-GAAP financial measure and is reconciled above to Net Loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the "Definitions of Non-GAAP Measures" section of this document.
 

The Company's underlying loss costs increased approximately $6.1 million during the second quarter compared to the same period a year ago. This change was consistent with the growth of policies in-force as UPC Insurance's underlying loss ratio only increased 1.4 points. The increase in underlying loss ratio from 24.5% to 25.9% can be attributed to higher frequency of fire and water losses, which was partially mitigated by lower average severity for these two perils.

Policy acquisition costs increased to $12.2 million for the second quarter of 2013 from $8.9 million for the second quarter of 2012. These costs vary directly with premiums earned and as a percentage of gross premiums earned, and held constant at 16.2% for the current quarter and the second quarter last year.

Operating expenses increased to $2.6 million for the second quarter of 2013, from $1.8 million during the same period of last year due to increases in several expense categories none of which was individually significant. The increase in operating expenses was primarily driven by the Company's growth and expansion into new states.

General and administrative expenses increased to $3.5 million for the second quarter of 2013, from $2.3 million for the second quarter of 2012 primarily due to an increase in personnel costs related to the Company's continued growth.

Year-to-Date Financial Results

Net income for the six months ended June 30, was $8.9 million, or $0.55 per diluted share, compared to $7.7 million, or $0.75 per diluted share for the same period last year. Book value per share increased from $5.70 at December 31, 2012, to $5.98 at June 30, 2013. The increase in the Company's book value per share was reduced by the change in accumulated other comprehensive income as shown in the table below.

    
($ in thousands, except for per share data)June 30,December 31,
20132012
Book Value per Common Share
Numerator:
Common shareholders' equity$96,932 $87,986
Denominator:
Total Shares Outstanding16,202,739 15,448,839
Book Value Per Common Share$5.98 $5.70
 
Book Value per Common Share, Excluding the Impact of Accumulated Other Comprehensive Income
Numerator:
Common shareholders' equity$96,932$87,986
Accumulated other comprehensive income24 2,613
Shareholders' Equity, excluding AOCI$96,908 $85,373
Denominator:
Total Shares Outstanding16,202,73915,448,839
Underlying Book Value Per Common Share*
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