Universal Insurance Holdings (ticker: NYSE:UVE) reported a strong second quarter in 2024, with notable increases in adjusted return on common equity and adjusted diluted earnings per share. The company's performance was bolstered by robust underwriting and favorable claims and litigation trends, leading to an increase in policies in force for the first time since 2021.
The successful renewal of the 2024-2025 reinsurance program, despite higher demand and the expiry of certain layers, saw only a modest increase in overall costs.
Key Takeaways
- Universal delivered a 30.5% annualized adjusted return on common equity.
- Adjusted diluted earnings per share grew by 35.6% year-over-year.
- Policies in force increased sequentially and year-over-year, marking the first increase since 2021.
- The 2024-2025 reinsurance program was renewed with only a modest increase in cost.
- Adjusted diluted earnings per common share rose to $1.18, up from $0.87 in the prior year.
- Core revenue increased by 12.5% year-over-year to $379.2 million.
- Direct premiums written grew by 5.7%, with significant growth outside Florida.
- Net premiums earned were up 13.7%, primarily due to higher direct premiums earned and a lower ceded premium ratio.
- The net combined ratio improved to 95.9%, with a notable decrease in the net loss ratio.
- The company repurchased approximately 274,000 shares and declared a quarterly cash dividend of $0.16 per share.
Company Outlook
- Universal is optimistic about the impact of tort reform legislation from December 2022.
- The company is analyzing rates for 2024 with the expectation of a reduction due to tort reform.
- Universal maintains a focus on rate adequacy and strong agency relationships.
Bearish Highlights
- There is no mention of specific challenges or bearish indicators in the provided summary.
Bullish Highlights
- Continued positive impacts from tort reform legislation in Florida.
- Strong underwriting performance and encouraging claims and litigation trends.
- Growth in policies in force and a successful reinsurance program renewal.
Misses
- The summary does not indicate any misses or shortfalls in Universal's second quarter performance.
Q&A Highlights
- CEO Stephen Donaghy reaffirmed the positive effects of tort reform on the company.
- CFO Frank Wilcox confirmed there was no net development in reserve during the quarter.
- Weather-related losses were contained within the company's loss pick.
- The company is not facing regulatory pressure to lower rates post-tort reform.
- Universal is focused on maintaining rate adequacy regardless of market competition.
Universal Insurance Holdings' Q2 2024 earnings call showcased a company on a positive trajectory, with a strong financial performance and strategic focus on maintaining rate adequacy and leveraging agency relationships. The successful navigation of reinsurance renewals and the impact of legislative changes in Florida have positioned Universal favorably in the market.
InvestingPro Insights
Universal Insurance Holdings (UVE) has recently demonstrated strong financial health with a market capitalization of $545.45 million and a robust price-to-earnings (P/E) ratio of 7.15 for the last twelve months as of Q1 2024. This favorable P/E ratio is supported by a considerable revenue growth of 15.29% over the same period, indicating the company's effective growth strategy and operational efficiency.
An InvestingPro Tip highlights Universal's high shareholder yield, which is a testament to its commitment to returning value to its investors. This is further evidenced by the company's history of maintaining dividend payments for 19 consecutive years, with a current dividend yield of 3.85% as of the latest data.
Additionally, analysts predict that Universal will remain profitable this year, which aligns with the company's positive performance trends and strategic initiatives such as the successful reinsurance program renewal. With a strong free cash flow yield and trading at a low earnings multiple, Universal appears to be an attractive option for investors seeking value.
For more detailed analysis and additional InvestingPro Tips, such as Universal's ability to manage its short-term obligations despite them exceeding its liquid assets, and its profitability over the last twelve months, interested readers can explore further with InvestingPro. There are 6 more InvestingPro Tips available, providing a deeper dive into the company's financials and market potential.
Investors can also take advantage of a special offer using the coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription. This could be an invaluable resource for those looking to gain comprehensive insights into Universal Insurance Holdings and other investment opportunities.
Full transcript - Universal Insurance Holdings Inc (UVE) Q2 2024:
Operator: Good morning, ladies and gentlemen, and welcome to Universal Second Quarter 2024 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.
Arash Soleimani: Good morning. Thank you for joining us today. 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 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: Thank you, Arash. Good morning, everyone. In the quarter, we delivered a solid 30.5% annualized adjusted return on common equity and 35.6% adjusted diluted earnings per share growth year-over-year. Results were driven by strong underwriting performance, and we continue to see encouraging claims and litigation trends. Florida policies in force increased sequentially for the second quarter in a row and overall policies in force increased year-over-year for the first time since 2021. As we mentioned previously, we completed the placement of our 2024-2025 reinsurance renewal for our insurance entities. We're very pleased with the outcome of the program and the support we received from our long-standing reinsurance partners and from new partners as well. Importantly, despite having substantially more demand for private market reinsurance, following the expirations of the Reinsurance to Assist Policyholders layer and our catastrophe bond, the overall cost of our program was only up modestly. 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 $1.18, up from $0.87 in the prior year quarter. The increase mostly stems from higher underwriting and net investment income. Core revenue of $379.2 million, was up 12.5% 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 $578.3 million, up 5.7% from the prior year quarter, including 0.9% growth in Florida and 30.1% growth in other states. Overall growth mostly reflects higher rates, inflation adjustments and higher policies in force. Direct premiums earned were $490.6 million, up 5.9% from the prior year quarter, reflecting direct premiums written growth over the last 12 months. Net premiums earned were $345 million, up 13.7% 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 95.9%, down 3.2 points compared to the prior year quarter. The decrease reflects a lower net loss ratio. The 70.6% net loss ratio was down 3.2 points compared to the prior year quarter, with the decrease primarily attributable to higher net premiums earned associated with lower reinsurance costs in the current year quarter and a lack of reserve development in the current year quarter. The net expense ratio was 25.3%, unchanged from the prior year quarter. During the second quarter, the company repurchased approximately 274,000 shares at an aggregate cost of $5.3 million. The company's current share repurchase authorization program has approximately $14.7 million remaining. On July 11, 2024, the Board of Directors declared a quarterly cash dividend of $0.16 per share of common stock payable on August 9, 2024 to shareholders of record as of the close of business on August 2, 2024. With that, I'd like to ask the operator to open the line for questions.
Operator: Thank you. [Operator Instructions] And our first question comes from Paul Newsome with Piper Sandler. Your line is open.
Paul Newsome: Good morning. Thanks for the call. Congrats on the quarter. I was going to ask sort of any updated thoughts on the impact of tort reform in Florida? And I've got just other -- just miscellaneous questions to ask.
Stephen Donaghy: Hey, Paul. Good morning. This is Steve Donaghy. Yeah. We continue to see the positive impacts of the legislation from December '22, and it continues to flow through, primarily relative to represented and litigation affecting our book. So continue to see positive impacts, obviously turned from cautiously optimistic to optimistic a while back, and we continue to see positive outlooks, which really leads us to be very positive on our share repurchases and happy with the position we're in right now.
Paul Newsome: Great. Were there any movement in the reserves development wise in the quarter?
Frank Wilcox: We had zero -- good morning, Paul. This is Frank. So no, we had zero net development this quarter on reserves.
Paul Newsome: Okay. What about like the catastrophe losses, and I think in the past, you've talked about weather above plan. It looks like it was knock on wood, pretty good weather quarter, all things even.
Frank Wilcox: Yeah. Sure. I mean we have weather every quarter, but it was well contained within our loss pick.
Paul Newsome: Great. So back to the tort reform question, some questions about whether or not the industry is going to push back, and we're going to get a fairly quick level of competition coming in with filed rate declines. Is that something that we should be watching? Any thoughts on maybe, if the regulators are asking for lower rates at this point given the tort reform?
Stephen Donaghy: Paul, it's an interesting question. We're not getting any pressure from anyone relative to rates or anything else. We are currently in the midst of analyzing our rates with our actuaries and external actuaries on what the impact will be to 2024. We do see the impacts of the tort reform, clearly, are we're seeing -- expecting a reduction in what is supposed to be passed along. And then, we'll weigh that as we always have with how we see the market as we take rate going forward, but again, we're optimistic. And the hope is that the market will continue to be successful. But as a company, we don't worry a tremendous amount about the competition. We are really focused on rate adequacy and our relationship with our agency force has proven to be stellar. So we have a high degree of confidence in our ability going forward relative to the market and where we'll be positioned.
Paul Newsome: Great. Appreciate the help, as always and congratulations on the quarter.
Stephen Donaghy: Thanks, Paul. Have a good day.
Operator: Thank you. There are no further questions at this time. I'd like to turn the call back over to Steve Donaghy for any closing remarks.
Stephen Donaghy: Thank you. I'd like to thank all of our associates, consumers, our agency force and our stakeholders for their continued support of Universal. Have a great day.
Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.
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