Universal Insurance Holdings, Inc. Reports Third-Quarter and First Nine-Months 2008 Financial Results
FORT LAUDERDALE, FL — (MARKET WIRE) — 11/10/2008 — Universal Insurance Holdings, Inc. (“the Company”) (NYSE Alternext U.S.: UVE) (AMEX: UVE), a vertically integrated insurance holding company, announced third-quarter net income of $7.4 million, or $0.19 per diluted share, compared to $13.8 million, or $0.33 per diluted share, in the third quarter of 2007.
UPCIC, the Company’s wholly-owned regulated insurance subsidiary, saw continued growth in its policy count, as it was servicing approximately 451,000 homeowners’ and dwelling fire insurance policies as of September 30, 2008, up from 432,000 policies at June 30, 2008. The increase in the number of policies in-force continues to be the result of heightened relationships with existing agents, an increase in new agents, a new web-based policy administration platform, and the disruption in the marketplace following the windstorm catastrophes in 2004 and 2005.
In-force premiums were approximately $519.3 million as of September 30, 2008, versus $513.0 million at June 30, 2008, while gross premiums written increased 5.0 percent to $124.7 million in the third quarter of 2008, as compared to $118.8 million for the same period of 2007.
Despite growth in the number of homeowners’ and dwelling fire insurance policies serviced by UPCIC and gross premiums written and earned during the 2008 third quarter, the Company experienced a decrease in net income in the current period primarily as a result of the effects of state mandated rate reductions and discounts, and increased losses and loss adjustment expenses incurred.
As the Company has previously discussed, a rate decrease mandated by the Florida Legislature resulted in rate decreases averaging 11.1 percent statewide on homeowners’ policies and 2.3 percent statewide on dwelling fire policies, and were integrated into UPCIC’s rates on June 1, 2007. This had an adverse effect on UPCIC’s premium volume. The effect of these rate decreases on existing policies and the corresponding premium decreases in direct written premium was fully recognized in UPCIC’s policies by May 31, 2008.
In addition, UPCIC implemented premium discounts in response to wind mitigation efforts by policyholders. Such discounts were mandated by the Florida Legislature and became effective on June 1, 2007, for new business, and August 1, 2007, for renewal business. Also, rate decreases of 4.1 percent statewide for homeowners’ policies and 0.2 percent statewide for dwelling fire policies were approved by the Florida Office of Insurance Regulation and implemented with effective dates in January 2008 for the homeowners’ program and March 2008 for the dwelling fire program. The effect of these rate decreases is flowing through UPCIC’s book of business such that the full impact of the premium decreases on direct premium written should be realized by January 2009 for the homeowners’ program and March 2009 for the dwelling fire program.
In the third quarter of 2008, net premiums earned increased 4.9 percent to $38.1 million from $36.3 million in the 2007 third quarter, mainly related to an increase in direct premiums earned (net of previously discussed rate decreases and implementation of wind mitigation credits).
The Company’s net investment income decreased 59.9 percent to $1.1 million in the 2008 third quarter, from $2.8 million for the same period in 2007. The decrease is primarily a result of a lower interest rate environment during the 2008 period.
Comparing the third quarter of 2008 with the same period of 2007, commission revenue increased 9.4 percent to $6.7 million from $6.1 million.
Other revenue increased 156.7 percent to $1.3 million in the 2008 third quarter, from $508,000 in the 2007 period. The increase in other revenue is primarily attributable to fees earned on new payment plans offered to policyholders by UPCIC, as such payment plans were not available during the 2007 period.
In the third quarter of 2008, net losses and loss adjustment expenses (LAE) increased 80.7 percent to $23.6 million from $13.1 million in the third quarter of 2007. The net loss ratio, which is derived from net losses and LAE as a percentage of net earned premium, for the three-month period ended September 30, 2008, was 62.0 percent compared to 36.0 percent for the same period of 2007. The increase in the net loss ratio is primarily attributable to the increase in direct loss and LAE incurred outpacing the increase in direct earned premium in the 2008 period. Except for incurred losses and LAE of approximately $5.3 million, or 4.1 percent of direct earned premium, related to Tropical Storm Fay in the third quarter of 2008, the Company’s loss experience did not vary significantly during the 2008 period compared to the 2007 period.
While total direct premiums earned increased 1.1 percent in the third quarter of 2008 compared to the same quarter in 2007, the average premium per policy decreased significantly due to the previously described rate decreases and wind mitigation credits. At September 30, 2008, UPCIC was servicing approximately 451,000 homeowners’ and dwelling fire insurance policies with in-force premiums of approximately $519.3 million, or an average of $1,151 per policy, while the amount of policies UPCIC was servicing at the comparable period of 2007 was approximately 365,000 with in-force premiums of approximately $526.0 million, or an average of $1,441. Consequently, as a result of increased net losses and LAE in connection with the servicing of additional policies, the direct loss and LAE ratio increased significantly for the 2008 period. Additionally, although the per unit price of reinsurance has decreased, total reinsurance costs are higher as UPCIC purchased additional coverage in 2008.
Third-quarter 2008 general and administrative expenses decreased 8.4 percent to $11.8 million from $12.9 million in the 2007 third quarter. The net decrease in general and administrative expenses was a result of several factors, including an increase in ceding commissions relative to greater ceded earned premium, an increase in corporate insurance expense, and a decrease in assessment expense due to increased collections of assessments from policyholders.
The Company’s income taxes decreased 26.2 percent to $4.4 million, or 37.1 percent of pre-tax income, in the 2008 third quarter, from $5.9 million, or 29.9 percent of pre-tax income, for the same period of 2007. The decrease in income taxes is primarily due to lower pre-tax income in the 2008 period versus the same period in 2007, and certain expenses that were not allowed as a tax deductible expense for the three-month period ended September 30, 2007. The disallowance had the effect of increasing taxable income and, therefore, income taxes, during the 2007 period. There were no similar expenses disallowed for income tax purposes for the three-month period ended September 30, 2008.
For the period ended September 30, 2008, stockholders’ equity increased to $100.8 million from $72.6 million at December 31, 2007, representing growth of 38.9 percent. As of September 30, 2008, UPCIC’s statutory capital and surplus was $89.2 million versus $98.7 million at December 31, 2007. The decline in UPCIC’s statutory capital relates to UPCIC’s payment of $23.0 million in dividends to the Company during the nine-month period ended September 30, 2008.
First Nine-Months 2008 Results
First-nine months 2008 net income was $32.9 million, or $0.81 per diluted share, compared to $43.7 million, or $1.06 per diluted share, in the same period of 2007.
In the first nine months of 2008, gross premiums written increased 3.4 percent to $394.4 million from $381.3 million for the same period of 2007, primarily attributable to an increase in new business. In the 2008 nine-month period, net premiums earned decreased 8.1 percent to $109.3 million from $119.0 million in the 2007 period, as a result of an increase in direct premiums earned (net of previously discussed rate decreases and implementation of wind mitigation credits) and a proportionally higher increase in ceded premiums earned, as the Company purchased additional coverage in the 2008 period as compared to the 2007 period.
Investment income decreased 56.0 percent to $3.6 million for the nine-months of 2008 from $8.2 million for the same period in 2007. The decrease is primarily the result of a lower interest rate environment during the 2008 period.
Comparing the first nine months of 2008 with the same period of 2007, commission revenue increased 29.3 percent to $20.5 million from $15.9 million as a result of a greater amount of reinsurance commission sharing and an increase in the managing general agent’s policy fee income.
Other revenue increased 491.4 percent to $3.7 million for the nine-month period ended September 30, 2008 from $619,000 in the comparable period of 2007. The increase is a result of the reasons listed above.
Net losses and LAE increased 42.0 percent to $53.9 million in the 2008 nine-month period compared to $37.9 million in the same period of 2007, while the Company’s net loss ratio for the nine-month period ended September 30, 2008, was 49.3 percent compared to 31.9 percent for the same period in 2007. The increase in the net loss ratio is a result of the factors which are described in greater detail above.
First nine-month general and administrative expenses decreased 14.3 percent to $29.3 million in the 2008 period from $34.2 million in the 2007 period as a result of the reasons listed above, and also a decrease in executive incentive compensation.
Income taxes decreased 24.1 percent to $21.1 million, or 39.1 percent of pre-tax income, for the nine-month period of 2008 from $27.8 million, or 38.9 percent of pre-tax income, for the nine-month period of 2007. The decrease is primarily a result of the reasons listed above.
As announced on August 26, 2008, the Company completed its $3.0 million stock repurchase program. In total, the Company repurchased 808,900 shares at an average price of $3.71 per share.
Bradley I. Meier, president and chief executive officer, stated, “Despite increased competition and state mandated rate decreases across UPCIC’s book of business, Universal Insurance Holdings continued to generate profitable results. Furthermore, we are pleased to have grown stockholders’ equity while working to increase shareholder value through the repurchase of over 800,000 shares of our common stock and the approved payout of 49 cents in cash dividends in 2008.”
Mr. Meier concluded, “As announced previously, UPCIC has been approved to write property and casualty insurance in South Carolina, Hawaii, and North Carolina, while its applications to Texas and Georgia remain pending. We look forward to executing on these growth and diversification opportunities in 2009.”
About Universal Insurance Holdings, Inc.
The Company is a vertically integrated insurance holding company. Through its subsidiaries, the Company is currently engaged in insurance underwriting, distribution and claims. UPCIC, which generates revenue from the collection and investment of premiums, is one of the top five writers of homeowners’ insurance policies in the state of Florida.
Readers should refer generally to reports filed by the Company with the Securities and Exchange Commission (SEC), specifically the Company’s Form 10-KSB, as amended, for the year ended December 31, 2007, and the Company’s Form 10-Q for the quarterly period ended September 30, 2008, for a discussion of the risk factors that could affect its operations. Such factors include, without limitation, exposure to catastrophic losses; reliance on the Company’s reinsurance program; underwriting performance on catastrophe and non-catastrophe risks; the ability to maintain relationships with customers, employees or suppliers; and competition and its effect on pricing, spending, third-party relationships, the Company’s financial stability rating, product pricing and revenues. Additional factors that may affect future results are contained in the Company’s filings with the SEC, which are available on the SEC’s web site at https://www.sec.gov. The Company disclaims any obligation to update and revise statements contained in this press release based on new information or otherwise.
Cautionary Language Concerning Forward-Looking Statements
This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. The words “believe,” “expect,” “anticipate,” and “project,” and similar expressions identify forward-looking statements, which speak only as of the date the statement was made. Such statements may include, but not be limited to, projections of revenues, income or loss, expenses, plans, and assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified. Future results could differ materially from those described in forward-looking statements.
Philip Kranz Dresner Corporate Services 312-780-7240 firstname.lastname@example.org