Q4 2023 Universal Insurance Holdings Inc Earnings Call

Participants

Arash Soleimani; Chief Strategy Officer; Universal Insurance Holdings, Inc.

Stephen Donaghy; CEO; Universal Insurance Holdings, Inc.

Frank Wilcox; CFO & Principal Accounting Officer; Universal Insurance Holdings, Inc.

Paul Newsome; Analyst; Piper Sandler

Nic Iacoviello; Analyst; Dowling & Partners

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to Universal's fourth 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. Please go ahead.

Arash Soleimani

Good morning. Thank you for joining us today. Welcome to our quarterly earnings call. On the call with me today are Stephen 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 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 Investors 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.

Stephen Donaghy

Thanks, Arash. Good morning, everyone. We closed out both the fourth quarter and full year with double-digit adjusted returns on common equity. And I believe that even stronger results are firmly in our future.
2023 was a transformative year for us, and our significant efforts position us for meaningful success in the new legislative environment. We've added a buffer to our loss picks and bolstered reserves for years that predate the elimination of one-way attorney fees and assignment of benefits, to what I view as the most conservative level in our history. Importantly, we did this because we wanted to place the past in the rearview mirror and shift our focus to the future.
In 2023, we took yet another step toward the future by commuting Hurricane Irma, the largest and most significant storm in our history, with the Florida Hurricane Catastrophe Fund. Now that we're past the one-year anniversary date of the 2022 special legislative session and all new and renewal policies are subject to the new legislation, the impact of the reforms is becoming clear: claims trends across the board are improving, including reductions in total claims, represented claims, assigned claims, and daily claims.
Our first event 2024-2025 reinsurance tower is already 90% secured, and we’ve negotiated additional multi-year capacity for the future. Given our size, scale, independent agency, and reinsurer relationships, and the recent steps we’ve taken, we are particularly well positioned to succeed in the revamped Florida environment.
I'll turn it over to Frank to walk through our financial results. Frank?

Frank Wilcox

Thanks, Steve. Good morning. Adjusted diluted earnings per common share was $0.43, down from adjusted diluted earnings per common share of $0.72 in the prior-year quarter. The decrease mostly stems for a higher net loss ratio and lower commission revenue, partially offset by a lower net expense ratio and higher net investment income.
Core revenue of $365.7 million was up 12.1% year over year, with growth primarily stemming from higher net premiums earned and net investment income, partially offset by lower commission revenue. Direct premiums written were $432.6 million, up 4% from the prior-year quarter, including 0.6% growth in Florida and 18.6% growth in other states. Overall, growth reflects rate increases, partially offset by lower policies in force.
Direct premiums earned at $482.1 million were up 3.9% year over year, reflecting rate-driven premiums written growth over the last 12 months. Net premiums earned were $335.4 million, up 14.9% from the prior-year quarter. The increase is primarily attributable to higher direct premiums earned and a lower ceded premium ratio.
The net combined ratio was 103.7%, up 2.3 points compared to the prior-year quarter. The increase reflects a higher net loss ratio and a lower net expense ratio. The 81.9% net loss ratio was up 5.6 points year over year, with the increase primarily attributable to a higher calendar year loss pick. The 21.8% net expense ratio improved by 3.3 points year over year, primarily reflecting lower renewal commission rates paid to distribution partners.
During the fourth quarter, the company repurchased approximately 223,000 shares at an aggregate cost of $3.6 million. The company's current share repurchase authorization program has $4.1 million remaining. On February 8, 2024, the Board of Directors declared a regular quarterly cash dividend of $0.16 per share of common stock, payable March 15, 2024, to shareholders of record as of the close of business on March 8, 2024.
With that, I'd like to ask the operator to open the line for questions.

Question and Answer Session

Operator

(Operator Instructions) Paul Newsome, Piper Sandler.

Paul Newsome

Good morning news from the call. And I was hoping you could maybe take a step back or maybe take forward and talk about from the outlook food premium growth perspective. We've got a number of through cross current to my mind with obviously rates still a positive effect. But I don't know if it some point you expect to stop effectively shrinking in some areas to offset that rate and and other factors, obviously, mix changes as well as tax premium growth. Can you kind of just talk about those major factors and how we should think of them as we're thinking about the company in the next couple of years?

Stephen Donaghy

Yes, good morning, Paul, and thanks for the question. You know, as we analyze and look at the successful legislation changes that went into effect at the end of '22, that has an impact on a lot of things we analyze and we do. So in '23, we had a premium indication of approximately 15%, and we implemented a 7.2% increase across our book. That's had several positive impacts to Floridians into the company, in that our retention has improved and the book of business is more stable. As we look to the future, those ratings increases are predicated on the prior 12 months experience, so we'll take all those factors into account some time around May and in future years as well, and continue to make the best decisions possible for the company and our insurers and our agents.
But I would -- if you are looking for an indication, I would say we'll continue to take some rate. It won't be the extremes we've taken in the past, like '19 through '22. But I think the indications are still positive. And hopefully, at some point in the future, we'll see rate reductions flowing through the book as a result of what was passed in the end of '22.

Paul Newsome

Are you at the point where you are growing on the pit count or want to grow on a pit count in both in and out of sight of quarter?

Stephen Donaghy

Yes, Paul, as you saw in the release, we grew last year outside of Florida and beginning in December, we began adding policies to our Florida book of business as well. So again, we are laser focused on profitability and where the business is coming from, not all counties or territories, states are behaving identically. So we are being very careful as we kind of head into the future in this new environment.

Paul Newsome

And then maybe turning to load, thanks to a margin of foam conservativism in the loss pick. Could we kind of talk about the component to them? Some are obviously you'd expect to go the other direction with the impact of tort reform, but less to do some justification for that extra room. Some are all actually pick from other factors. Maybe you could talk a little --

Stephen Donaghy

Yes. I think Paul is, as I run the company and all the various influencers that affect our business and in particular, the Florida book of business, we felt it was very prudent to be extremely cautious or cautious as we went through 2023 because the legislation didn't affect all policies until the renewal point of each. And we wanted to make sure that we had enough dry powder to handle the business as well. We'll be positioned going forward to be a very secure as we look to continue to begin to grow the business once again.

Frank Wilcox

Yes. Just to follow up on that, Paul, when you look at our reserves in multiple respects, whether or not it's just absolute dollars on a net basis, whether it's on average, Rich or for the claim counts, which by the way, are lower than they've been quite some time, um, they're higher than they've ever been or higher relative to our insured value there, higher relative to our premium in force. So we feel that our balance sheet stronger going forward than it's ever been.

Paul Newsome

Appreciate the help. I'll let some other folks ask questions. Thank you very much.

Stephen Donaghy

Thanks, Paul, and good day.

Operator

Nic Iacoviello, Dowling & Partners.

Nic Iacoviello

First question, just was there any net adverse development in the quarter? And if so, from which events?

Stephen Donaghy

Yes. But as we went through 2023, we had considerable redundancy into our loss pick. So after working with our actuaries, both internal and external, we decided to take a look at the claims in the files and add dry powder to any of those that were in place prior to the new legislation affecting them, that particular policy. So we added up due to the redundancy and the the way it did resulted we added four points to prior years. But again, primarily that is dry powder. There will be used as we kind of put in the risk, put them into the rearview mirror going forward. So all in all was four points of the loss pick that we took out of '23 and a spread across prior years.

Nic Iacoviello

Got it. Just curious as always, there are claims handling benefit booked in the quarter?

Stephen Donaghy

Yes, that was negligible for the quarter. I believe it was under $1 million.

Nic Iacoviello

Thanks. I was just curious on the common in the press release on 90% of the first event tower being secured. Can you talk about me the current expectation for the captive utilization?

Stephen Donaghy

Nic, can you repeat that last part of the question?

Nic Iacoviello

I'm sorry, I know from the current expectation for the captive participation in the '24 and '25?

Stephen Donaghy

Yes, we would again, as sitting at 90% of accomplished for the first tower, Nick, we are very pleased with how our teams performed in the market and the other reinsurance now of the year around effort for myself and our reinsurance team, a pulmonary in particular. And we feel really good about where we're at. I don't think that we will change our philosophy on how we have used the captive in the past. We haven't completed it at this point. And if the open market comes in at a competitive rate, we would consider that engineered out very well for the company last year. It's proven to be very effective.

Nic Iacoviello

Yes. Okay. That's all I had. Thanks.

Stephen Donaghy

Great. Thanks, Nic. Thank you.

Operator

This concludes the question and answer session. I would now like to turn it back to Steve Donaghy, CEO, for closing remarks.

Stephen Donaghy

Thank you. I'd like to thank all of our associates are ensured our agency force, our reinsurance partners and our stakeholders for their continued support of Universal. Have a great day.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.