United Insurance Holdings Corp. Reports Financial Results for Its Fourth Quarter Ended December 31, 2015

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 ended December 31, 2015.

“2015 was a year when we validated many of the assumptions underlying our strategy and business model,” said John Forney, President and CEO of UPC Insurance. “We continued to grow organically and diversify geographically, with year-end policies in force up over 37% from the start of the year and more than half our insured value outside the State of Florida as of December 31, 2015. Even with over $28 million of net cat losses for the year we delivered a 12.4% return on equity to our shareholders. We’re excited by the resiliency our business model showed during the year, and believe the investments we have made in people, infrastructure, and distribution will continue to bear fruit in the coming year.”

Quarterly Financial Results

Net income for the fourth quarter of 2015 was $13.8 million, or $0.64 per diluted share, compared to $11.4 million, or $0.55 per diluted share for the fourth quarter of 2014. The increase in net income was primarily due to increases in gross written premium for the fourth quarter of 2015 compared to the fourth quarter of 2014.

The Company's total gross written premium increased by $30.8 million, or 27.1%, to $144.5 million for the fourth quarter of 2015 from $113.8 million for the fourth quarter of 2014, primarily due to the strong organic growth in new and renewal business generated both in and outside of Florida. The breakdown of the quarter-over-quarter changes in both written and assumed premiums by region is shown in the table below.

Loss and LAE increased $14.6 million, or 46.4%, to $46.1 million for the fourth quarter of 2015 from $31.5 million for the fourth quarter of 2014. Loss and LAE expense as a percentage of net earned premiums increased 5.3 points resulting in a net loss ratio of 49.3% for the quarter, compared to a net loss ratio of 44.0% for the same period last year. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the quarter was 31.7%, an increase of 1.1 points from 30.6% during the fourth quarter of 2014.

Policy acquisition costs increased $6.3 million, or 36.9%, to $23.3 million for the fourth quarter of 2015 from $17.0 million for the fourth quarter of 2014. These costs vary directly with changes in gross premiums earned and were generally consistent with the Company's growth in premium production and higher average commission rates outside of Florida.

Operating expenses decreased $700,000, or 19.9%, for the fourth quarter of 2015 to $2.6 million from $3.3 million for the fourth quarter of 2014, primarily due to lower underwriting costs.

General and administrative expenses increased $1.0 million, or 15.0% for the fourth quarter of 2015 to $7.6 million from $6.6 million for the fourth quarter of 2014, primarily due to increases in costs related to the Company's continued growth.

Year-to-Date Financial Results

Net income for the year ended December 31, 2015 was $27.4 million, or $1.28 per diluted share, compared to $41.0 million, or $2.05 per diluted share for the same period last year. The decrease was driven primarily by an increase in the Company's catastrophe losses during 2015 as compared to 2014.

The Company's overall gross written premium increased by $133.0 million, or 30.4%, to $569.7 million for the year ended December 31, 2015 from $436.8 million for the same period in 2014, primarily due to strong organic growth in new and renewal business outside of Florida. The Company's year-over-year growth in total gross written premiums broken down by region and direct vs. assumed is shown in the following table.

Losses and LAE increased $65.0 million, or 55.1%, to $183.1 million for the year ended December 31, 2015, from $118.1 million for the same period in 2014 primarily due to the growth of policies in-force and increased catastrophe losses in 2015. UPC Insurance experienced $28.9 million of net catastrophe losses during the year.

Policy acquisition costs increased $21.7 million, or 33.1% to $87.4 million for the year ended December 31, 2015 from $65.7 million for the same period in 2014, primarily due to the Company’s ongoing growth in gross earned premium.

Operating expenses increased $3.6 million, or 30.4% to $15.3 million for the year ended December 31, 2015 from $11.7 million for the same period in 2014 due to increased costs related to the Company's ongoing growth and continuing expansion into new states.

General and administrative expenses increased $9.9 million, or 49.2%, to $29.9 million for the year ended December 31, 2015, from $20.0 million for the same period in 2014 primarily due to an increase in personnel costs and infrastructure development related to the Company's continued growth and ongoing systems migrations.

Combined Ratio Analysis

The calculation of the Company's underlying loss and combined ratios is shown below.

UPC Insurance continued to experience favorable reserve development in the current quarter and its historical impact on the Company's net loss and net underlying loss ratios is outlined in the following table.

Reinsurance Costs as a % of Earned Premium

Excluding the Company's flood business, for which it cedes 100% of the risk of loss, reinsurance costs in the fourth quarter of 2015 were 30.0% of gross premiums earned compared to 30.6% of gross premiums earned for the fourth quarter of 2014. Reinsurance costs for the year ended December 31, 2015 were 30.3% of gross premiums earned compared to 30.7% for the same period last year.

Investment Portfolio Highlights

UPC Insurance's cash and investment holdings totaled $537.5 million at December 31, 2015 compared to $443.0 million at December 31, 2014. UPC Insurance's cash and investment holdings consist of investments in U.S. Government and agency securities, corporate debt and 100% investment grade money market instruments. Fixed maturities represented approximately 87.6% of total investments at December 31, 2015 with a modified duration of 3.9 years compared to 92.4% at December 31, 2014 and a modified duration of 3.8 years.

Book Value Analysis

Book value per share increased 13.9% from $9.75 at December 31, 2014, to $11.11 at December 31, 2015 and underlying book value per share increased 15.5% from $9.56 at December 31, 2014 to $11.04 at December 31, 2015. The increase in the Company's book value per share and underlying book value per share was driven primarily by retained earnings during 2015. The Company's underlying book value per share growth was impacted by the change in accumulated other comprehensive income as shown in the table below.

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 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 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 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 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. 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 and commercial property and casualty insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries. Our insurance affiliates write and service property and casualty insurance in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas and are licensed to write in Alabama, Delaware, Maryland, Mississippi, New Hampshire, New York and Virginia. 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, conference call identified above, and otherwise, that are not historical facts are “forward-looking statements” that anticipate results based on our estimates, assumptions and plans that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” and other words with similar meanings. We believe these statements are based on reasonable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements prove inaccurate or if other risks or uncertainties arise, actual results could differ materially from those communicated in these forward-looking statements. Factors that could cause actual results to differ materially from those expressed in, or implied by, the forward-looking statements may be found in our filings with the U.S. Securities and Exchange Commission, including the “Risk Factors” section in our most recent Annual Report on Form 10-K and quarterly report on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statement.