News Column

United Insurance Holdings Posts Financial Results for Its Fourth Quarter

February 24, 2014

United Insurance Holdings Corp., a property and casualty insurance holding company, 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

In a release on February 19, the Company noted that 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 Corp. (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 percent, 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 percent 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 premium growth, improvements in expense ratios and significant decreases in reinsurance costs as a percentage of earned premium. The 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 percent. These costs vary directly with the growth in gross premiums earned which increased 40.0 percent 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

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 percent, 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 Company's gross underlying loss ratio increased to 30.7 percent during the fourth quarter of 2013, which was up 6.8 points from 23.9 percent in the fourth quarter of 2012. This increase was also primarily due to water related frequency of loss rising approximately 11.6 percent over the fourth quarter of 2012 and the average severity of water related losses increasing 17.5 percent 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.

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

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

Investment Portfolio Highlights

The Company also noted, 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 money market instruments, U.S. Government and agency securities and corporate debt. Fixed maturities represented approximately 94 percent of total investments at December 31, 2013, and 98 percent at December 31, 2012.

Book Value Analysis

Book value per share increased 16.5 percent 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 percent from $5.53 at December 31, 2012 to $6.63 at December 31, 2013 because accumulated other 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 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 income decreased $2.5 million in 2013 due to the impact of rising interest rates on our fixed maturities portfolio.

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 insurance subsidiaries.

More information:

upcinsurance.com

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