News Details

Company to Host Quarterly Conference Call at 9:00 A.M. on February 20, 2014

ST. PETERSBURG, Fla.--(BUSINESS WIRE)-- United Insurance Holdings Corp. (NASDAQ:UIHC)(UPC Insurance or the Company), a property and casualty insurance holding company, today reported its financial results for the fourth quarter and year ended December 31, 2013.

“We ended the year in strong fashion, and I am pleased with the momentum we are building as we enter 2014," said John Forney, President and CEO of UPC Insurance." We passed the 200,000 policies in force threshold during the quarter, and began writing in Texas, our seventh active state and one where we see a lot of promise. Both of these milestones are indicative of the continued progress at UPC Insurance as we implement our strategy to write a diversified book of homeowners business from Texas to Maine. With the continued strengthening of our management team, we feel prepared to meet the challenges in the marketplace and to keep moving forward in 2014."

Quarterly Financial Results

Net income for the quarter was $7.4 million, or $0.45 per diluted share, compared to $1.0 million, or $0.09 per diluted share in the fourth quarter in 2012. The increase in net income was primarily due to gross earned premium growth in Florida and in the new states in 2013. This premium growth includes an assumption of 18,156 polices from Citizens Property Insurance Corporation (Citizens) in November 2013, whereas the Company did not assume any policies from Citizens during the same period in 2012.

Policy acquisition costs increased $3.8 million, or 35.9%, to $14.1 million for the fourth quarter of 2013 from $10.3 million for the fourth quarter of 2012. These costs vary directly with the growth in gross premiums earned which increased 46.7% over the fourth quarter of 2012.

Operating expenses decreased to $2.3 million for the fourth quarter of 2013, from $3.8 million during the same period of last year because the Company incurred a $1.6 millionFlorida Insurance Guaranty Association (FIGA) assessment in 2012 and did not incur any significant assessments in the current quarter.

General and administrative expenses increased to $3.9 million for the fourth quarter of 2013, from $3.6 million for the fourth quarter of 2012 primarily due to an increase in personnel costs related to the Company's growth.

Year-to-Date Financial Results

Net income for the year ended December 31, 2013 was $20.3 million, or $1.26 per diluted share, compared to $9.7 million, or $0.91 per diluted share for the prior year. The net income increase was driven primarily by continued strong premium growth, improvements in expense ratios and significant decreases in reinsurance costs as a percentage of earned premium. The strong premium growth includes the assumption of 15,133 policies from Citizens in January of 2013, and the assumption of an additional 18,156 policies from Citizens in November 2013. The Company did not assume any policies in 2012.

Policy acquisition costs increased to $50.6 million for the year ended December 31, 2013, from $36.9 million for the same period of 2012, or 37.3%. These costs vary directly with the growth in gross premiums earned which increased 40.0% over the prior year.

Operating expenses increased to $9.2 million for the year from $8.6 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. The increase in operating expenses for the current year was partially offset by the $1.6 million FIGA assessment the Company incurred last year whereas the Company did not incur any significant assessments in 2013.

General and administrative expenses increased to $14.6 million for the year ended December 31, 2013, from $11.7 million for the same period in 2012 primarily due to an increase in personnel costs related to the Company's continued growth.

Combined Ratio Analysis

The Company's GAAP net combined ratio improved 24.6 points during the fourth quarter of 2013 and 7.1 points for the year compared to the same periods in 2012. UPC Insurance’s underlying net combined ratio, which excludes losses from catastrophes and reserve development, also improved 15.3 points for the fourth quarter and 7.4 points for the year signaling a significant improvement in the Company’s core operating results over the same periods a year ago. Both the combined and underlying combined ratios decreased primarily due to strong premium growth and a lower ceded reinsurance premium percentage for the quarter compared to the prior period. As a result of these factors, net premiums earned increased $26.1 million, or 76.1%, to $60.3 million in the fourth quarter of 2013 compared to $34.2 million for the fourth quarter of 2012 as the Company continued to generate new policies in Florida and in other states and assumed policies from Citizens. The increase in net premiums earned was partially offset by the increase in the Company's underlying loss costs, which increased approximately $13.2 million during the fourth quarter of 2013 compared to the same period a year ago. The increase in underlying loss costs for the three months ended December 31, 2013 was driven primarily by the growth of policies in-force and increased frequency and severity of water-related losses throughout Florida as shown below:

The Company’s gross underlying loss ratio increased to 30.7% during the fourth quarter of 2013, which was up 6.8 points from 23.9% in the fourth quarter of 2012. This increase was also primarily due to water related frequency of loss rising approximately 11.6% over the fourth quarter of 2012 and the average severity of water related losses increasing 17.5% from the same period a year ago. Partially offsetting water related loss activity during the fourth quarter 2013 were favorable declines in average severity of fire and sinkhole claims compared to the same period in 2012.

Losses and loss adjustment expenses increased to $98.8 million for the full year 2013, from $58.4 million for the same period last year. Prior year adverse development for the year ended December 31, 2013, was $4.1 million compared to $0.7 million for the same period in 2012. UPC Insurance's net loss and loss adjustment expense ratio history along with the impact of reserve development and catastrophe losses is as follows:

Overall the Company's attritional loss experience by accident year excluding catastrophes has been stable or trending downwards for the past several years, but did increase in the 2013 accident year due to higher overall frequency and severity of water related losses, and lower premiums per unit of exposure resulting from the Company’s growth outside of Florida as shown in the following table:

Reinsurance Costs Decreased as a % of Earned Premium for Both the Quarter and Year-to-Date

Excluding the Company's flood business, for which it cedes 100% of the risk of loss, reinsurance costs in the fourth quarter of 2013 were 31.1% of gross premiums earned compared to 42.1% of gross premiums earned for the fourth quarter of 2012. Reinsurance costs for the year ended December 31, 2013 were 34.5% of gross premiums earned compared to 42.9% for the same period last year.

Investment Portfolio Highlights

UPC Insurance's cash and investment holdings totaled $323.8 million at December 31, 2013, compared to $223.4 million at December 31, 2012. UPC Insurance's cash and investment holdings consist primarily of investments in high-quality money market instruments, U.S. Government and agency securities and high-quality corporate debt. Fixed maturities represented approximately 94% of total investments at December 31, 2013, and 98% at December 31, 2012.

Book Value Analysis

Book value per share increased 16.5% from $5.70 at December 31, 2012, to $6.64 at December 31, 2013. The increase in the Company's book value per share was primarily driven by the Company’s growth in net income. The Company's underlying book value per share increased 19.9% from $5.53 at December 31, 2012 to $6.63 at December 31, 2013 because accumulated other comprehensive income was $2.6 million at the end of December 31, 2012 compared to a balance of $0.1 million at the end of the current year. The Company’s large accumulated other comprehensive income balance at the end of 2012 reduced the Company’s underlying book value per share by $0.17 per share compared to the balance at the end of the current year which reduced the Company’s underlying book value per share by $0.01 per share. Accumulated other comprehensive income decreased $2.5 million in 2013 due to the impact of rising interest rates on our fixed maturities portfolio.

Definitions of Non-GAAP Measures

We believe that investors' understanding of UPC Insurance's performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Combined ratio excluding the effects of current year catastrophe losses, prior year development on lines in run-off and reserve development (underlying combined ratio) is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of current year catastrophe losses on the combined ratio, the effect of development from lines in run-off and prior year development on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that may be obscured by current year catastrophe losses, losses from lines in run-off and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development from lines in run-off is caused by unexpected development from our commercial auto product that is no longer offered by the Company. Prior year development is caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

Net Loss and LAE excluding the effects of current year catastrophe losses, prior year development on lines in run-off and reserve development (underlying Loss and LAE) is a non-GAAP measure which is computed as the difference between loss and LAE, current year catastrophe losses and prior year reserve development. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these three items can have a significant impact on our loss trend in a given period. The most direct comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net losses and LAE and does not reflect the overall profitability of our business.

Consolidated net loss ratio excluding the effects of current year catastrophe losses, reserve development (underlying loss ratio) is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the consolidated net loss ratio, the effect of current year catastrophe losses on the loss ratio, and the effect of prior year development on the loss ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development. As discussed previously, these two items can have a significant impact on our consolidated net loss ratio in a given period. The most direct comparable GAAP ratio is our net consolidated Loss and LAE ratio. The underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business.

Book value per common share, excluding the impact of accumulated other comprehensive income, is a ratio that uses a non-GAAP measure. It is calculated by dividing common shareholders' equity after excluding accumulated other comprehensive income by total common shares outstanding plus dilutive potential common shares outstanding. We use the trend in book value per common share, excluding the impact of accumulated other comprehensive income, in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of interest rates that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. We note that book value per common share, excluding the impact of accumulated other comprehensive income, is a measure commonly used by insurance investors as a valuation technique. Book value per common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of accumulated other comprehensive income, should not be considered a substitute for book value per common share, and does not reflect the recorded net worth of our business.

About UPC Insurance

Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services residential property and casualty insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries. United Property & Casualty Insurance Company, the primary operating subsidiary of UPC Insurance, writes and services property and casualty insurance in Florida, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas and is licensed to write in Georgia and New Hampshire. From its headquarters in St. Petersburg, UPC Insurance's team of dedicated professionals manages a completely integrated insurance company, including sales, underwriting, customer service and claims.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. The forward-looking statements in this press release include statements regarding: the impact of our continued growth, and the expansion into other states. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation, the success of the Company's marketing initiatives, inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new Federal and State regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectibility of reinsurance, assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation, and health care; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company's Annual Report on Form 10-K filed on March 6, 2013. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore, appear to be volatile in certain accounting periods. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

United Insurance Holdings Corp.
John Rohloff, 727-895-7737
Director of Financial Reporting
jrohloff@upcinsurance.com
or
Investor Relations:
The Equity Group
Adam Prior, 212-836-9606
Senior Vice-President
aprior@equityny.com
or
Terry Downs, 212-836-9615
Associate
tdowns@equityny.com

Source: United Insurance Holdings Corp.