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Section 1: 8-K (8-K)

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): February 21, 2018


UNITED INSURANCE HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
001-35761
 
75-3241967
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
 
 
800 2nd Avenue S.
Saint Petersburg, FL
 
33701
 
(727) 895-7737
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant's telephone number, including area code)
 
 
 
 
 
 
 
 
 
 
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company. o

If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o





Item 2.02. Results of Operations and Financial Condition

On February 21, 2018, United Insurance Holdings Corp. (the Company, we, our) issued a press release relating to our earnings for the fourth quarter ended December 31, 2017 (the Earnings Release). We have attached a copy of the Earnings Release as Exhibit 99.1. The information furnished under this Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.


Item 9.01. Financial Statements and Exhibits

We furnish Exhibit 99.1, a copy of the press release we issued on February 21, 2018, herewith.



Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.
    
 
 
UNITED INSURANCE HOLDINGS CORP.
February 21, 2018
By:
/s/ B. Bradford Martz
 
 
B. Bradford Martz, Chief Financial Officer
(principal financial officer and principal accounting officer)






EXHIBIT INDEX

 
 
 
 
Exhibit
No.
 
Description
     
Press release issued by the Company on February 21, 2018



(Back To Top)

Section 2: EX-99.1 (EXHIBIT 99.1)

Exhibit


Exhibit 99.1

392282270_uhiclogorta07.gif

FOR IMMEDIATE RELEASE
 
UNITED INSURANCE HOLDINGS CORP. REPORTS FINANCIAL RESULTS
FOR ITS FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2017
 
Company to Host Quarterly Conference Call at 4:30 P.M. ET on February 21, 2018

 
St. Petersburg, FL - February 21, 2018: 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, 2017.
($ in thousands, except for per share data)
Three Months Ended
 
Year Ended
December 31,
 
December 31,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Gross premiums written
$
252,440

 
$
167,103

 
51.1
 %
 
$
1,040,848

 
$
708,156

 
47.0
 %
Gross premiums earned
$
274,373

 
$
182,222

 
50.6
 %
 
$
986,023

 
$
666,829

 
47.9
 %
Net premiums earned
$
166,195

 
$
121,161

 
37.2
 %
 
$
585,490

 
$
456,931

 
28.1
 %
Total revenues
$
182,586

 
$
131,433

 
38.9
 %
 
$
654,420

 
$
487,117

 
34.3
 %
Earnings (loss) before income tax
$
27,809

 
$
(17,578
)
 
258.2
 %
 
$
910

 
$
7,003

 
(87.0
)%
Net income (loss)
$
27,001

 
$
(10,517
)
 
356.7
 %
 
$
10,145

 
$
5,698

 
78.0
 %
Net income (loss) per diluted share
$
0.63

 
$
(0.49
)
 
228.6
 %
 
$
0.27

 
$
0.26

 
3.8
 %
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation of net income (loss) to core income (loss):
 
 
 
 
 
 
 
 
 
 
 
Plus: Merger expenses
$

 
$
597

 
(100.0
)%
 
$
6,906

 
$
1,747

 
295.3
 %
Plus: Non-cash amortization of intangible assets
$
9,839

 
$
2,570

 
282.8
 %
 
$
31,199

 
$
9,361

 
233.3
 %
Less: Realized gains (losses) on investment portfolio
$
621

 
$
69

 
800.0
 %
 
$
67

 
$
547

 
(87.8
)%
Less: Net tax impact
$
3,227

 
$
1,084

 
197.7
 %
 
$
13,314

 
$
3,697

 
260.1
 %
Core income (loss)(1)
$
32,992

 
$
(8,503
)
 
488.0
 %
 
$
34,869

 
$
12,562

 
177.6
 %
Core income (loss) per diluted share(1)
$
0.77

 
$
(0.39
)
 
297.4
 %
 
$
0.93

 
$
0.58

 
60.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
Book value per share
 
 
 
 

 
$
12.56

 
$
11.15

 
12.6
 %
(1) Core income and core income per diluted share, measures that are not based on GAAP, are reconciled above to net income and net income per diluted share, respectively, the most directly comparable GAAP measures. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section, below.

"Our team produced a very strong ending to an eventful year," said John Forney, President & CEO of UPC Insurance. "Earnings for the quarter were the largest in Company history, and all our businesses had excellent momentum as we entered 2018. We are working hard to build on that momentum during the rest of the year."

Return on Equity and Core Return on Equity

Return on Equity is a ratio the Company calculates by dividing the net income for the most recent twelve months by the average stockholder's equity for the most recent twelve months. Core Return on Equity (see calculation below) is a ratio calculated using non-GAAP measures. It is calculated by dividing the core income for the most recent twelve

1



months by the average stockholders’ equity for the most recent twelve months. Core income is an after-tax non-GAAP measure that is calculated by excluding from net income the effect of non-cash amortization of intangible assets, special items such as merger-related professional fees, and realized gains or losses on the Company's investment portfolio. In the opinion of the Company’s management, core income, core income per share and core return on equity are meaningful indicators to investors of the Company's underwriting and operating results, since the excluded items are not necessarily indicative of operating trends. Internally, the Company’s management uses core income, core income per share and core return on equity to evaluate performance against historical results and establish financial targets on a consolidated basis. The table above reconciles core income to net income, the most directly comparable GAAP measure.

($ in thousands)
Three Months Ended
 
Year Ended
December 31,
 
December 31,
 
2017
 
2016
 
2017
 
2016
Net income (loss)
$
27,001

 
$
(10,517
)
 
$
10,145

 
$
5,698

Return on equity based on GAAP net income (loss) (1)
23.9
%
 
(16.8
)%
 
2.2
%
 
2.4
%
 
 
 
 
 
 
 
 
Core income (loss)
$
32,992

 
$
(8,503
)
 
$
34,869

 
$
12,562

Core return on equity (1)
29.2
%
 
(13.6
)%
 
7.7
%
 
5.0
%
(1) Return on equity for the three months ended December 31, 2017 is calculated on an annualized basis.

The calculations of the Company's combined ratio and underlying combined ratio are shown below.

($ in thousands)
Three Months Ended
 
Year Ended
December 31,
 
December 31,
 
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Loss ratio, net(1)
43.4
%
 
81.5
%
 
(38.1
) pts
 
62.4
 %
 
65.3
%
 
(2.9
) pts
Expense ratio, net(2)
49.2
%
 
41.2
%
 
8.0
 pts
 
48.7
 %
 
39.6
%
 
9.1
 pts
Combined ratio (CR)(3)
92.6
%
 
122.7
%
 
(30.1
) pts
 
111.1
 %
 
104.9
%
 
6.2
 pts
Effect of current year catastrophe losses on CR
0.8
%
 
26.4
%
 
(25.6
) pts
 
19.8
 %
 
12.2
%
 
7.6
 pts
Effect of prior year unfavorable (favorable) development on CR
0.1
%
 
6.1
%
 
(6.0
) pts
 
(0.4
)%
 
3.7
%
 
(4.1
) pts
Effect of ceding commission income on CR
4.2
%
 
3.4
%
 
0.8
 pts
 
6.3
 %
 
1.5
%
 
4.8
 pts
Underlying combined ratio(4)(5)
87.5
%
 
86.8
%
 
0.7
 pts
 
85.4
 %
 
87.5
%
 
(2.1
) pts
(1) Loss ratio, net is calculated as losses and loss adjustment expenses (LAE) relative to net premiums earned.
(2) Expense ratio, net is calculated as the sum of all operating expenses less interest expense relative to net premiums earned.
(3) Combined ratio is the sum of the loss ratio, net and expense ratio, net.
(4) Underlying combined ratio, a measure that is not based on GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in "Definitions of Non-GAAP Measures" section, below.
(5) Included in both the expense ratio and the combined ratio are $9.8 million and $38.1 million for the three and twelve months ended December 31, 2017, respectively, and $3.2 million and $11.1 million for the three and twelve months ended December 31, 2016, respectively, of merger professional fees and amortization expense predominately associated with the AmCo Holding Company (AmCo) and Interboro Insurance Company mergers. Excluding these additional expenses, the Company would have reported underlying combined ratios of 81.6% and 78.9% for the three and twelve months ended December 31, 2017, respectively, and 84.2% and 85.1% for the three and twelve months ended December 31, 2016, respectively.


Quarterly Financial Results
 
Net income for the fourth quarter of 2017 was $27.0 million, or $0.63 per diluted share, compared to net loss of $10.5 million, or a $0.49 loss per diluted share for the fourth quarter of 2016. The increase in net income was primarily due to the increase in gross premiums earned and improvement in the Company's underlying loss ratio for the fourth quarter of 2017 compared to the fourth quarter of 2016.


2



The Company's total gross written premium increased by $85.3 million, or 51.1%, to $252.4 million for the fourth quarter of 2017 from $167.1 million for the fourth quarter of 2016, primarily reflecting the Company's merger with AmCo on April 3, 2017, as well as organic growth in new and renewal business generated in all regions. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by region and gross written premium by line of business are shown in the table below.
($ in thousands)
 
Three Months Ended December 31,
 
 
 
 
 
 
2017
 
2016
 
Change $
 
Change %
Direct Written and Assumed Premium by Region (1)
 
 
 
 
 
 
 
 
Florida
 
$
135,388

 
$
68,697

 
$
66,691

 
97.1
%
Gulf
 
45,835

 
40,582

 
5,253

 
12.9

Northeast
 
38,871

 
35,351

 
3,520

 
10.0

Southeast
 
22,042

 
20,231

 
1,811

 
9.0

Total direct written premium by region
 
242,136

 
164,861

 
77,275

 
46.9
%
Assumed premium (2)
 
10,304

 
2,242

 
8,062

 
359.6

Total gross written premium by region
 
$
252,440

 
$
167,103

 
$
85,337

 
51.1
%
 
 
 
 
 
 
 
 
 
Gross Written Premium by Line of Business
 
 
 
 
 
 
 
 
Personal property
 
$
181,123

 
$
160,399

 
$
20,724

 
12.9
%
Commercial property
 
71,317

 
6,704

 
64,613

 
963.8

Total gross written premium by line of business
 
$
252,440

 
$
167,103

 
$
85,337

 
51.1
%
(1) "Gulf" is comprised of Hawaii, Louisiana and Texas; "Northeast" is comprised of Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and "Southeast" is comprised of Georgia, North Carolina and South Carolina.
(2) Assumed premium written for 2017 includes commercial property business assumed from an unaffiliated insurer and the Texas Windstorm Insurance Association (TWIA) and 2016 premium assumed includes homeowners' business from Citizens Property Insurance Corporation (Citizens) and TWIA.


Loss and LAE decreased by $26.6 million, or 26.9%, to $72.1 million for the fourth quarter of 2017 from $98.7 million for the fourth quarter of 2016. Loss and LAE expense as a percentage of net earned premiums decreased 38.1 points to 43.4% for the quarter, compared to 81.5% for the same period last year. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the fourth quarter of 2017 would have been 25.7%, a decrease of 6.9 points from 32.6% during the fourth quarter of 2016.

Policy acquisition costs increased by $16.6 million, or 49.4%, to $50.1 million for the fourth quarter of 2017 from $33.6 million for the fourth quarter of 2016. The primary driver of the increase in costs was the result of the managing general agent fees related to AmCo commercial premiums. The remaining change was the result of policy acquisition costs varying directly with changes in gross premiums earned and were generally consistent with the Company's growth in premium production and higher average market commission rates outside of Florida.

Operating and underwriting expenses increased by $3.5 million, or 66.5%, to $8.7 million for the fourth quarter of 2017 from $5.2 million for the fourth quarter of 2016, primarily due to increased costs related to the Company's ongoing growth, incurred expenses related to software improvements and costs related to the increase in underwriting reports.

General and administrative expenses increased by $11.7 million, or 104.8%, to $22.9 million for the fourth quarter of 2017 from $11.2 million for the fourth quarter of 2016, primarily due to amortization costs related to the merger with AmCo.

Year to Date Financial Results
 
Net income for the year ended December 31, 2017 was $10.1 million, or $0.27 per diluted share, compared to net income of $5.7 million, or $0.26 per diluted share for the year ended December 31, 2016. The increase in net income was primarily due to an increase in gross premiums earned and improvement in the Company's underlying loss ratio.

The Company's total gross written premium increased by $332.7 million, or 47.0%, to $1.0 billion for the year ended December 31, 2017 from $708.2 million for the year ended December 31, 2016, primarily reflecting the Company's

3



merger with AmCo on April 3, 2017, as well as organic growth in new and renewal business generated in the Company's Gulf and Northeast regions. The breakdown of the year-over-year changes in both direct written and assumed premiums by region and gross written premium by line of business are shown in the table below.
($ in thousands)
 
Year Ended
December 31,
 
 
 
 
 
 
2017
 
2016
 
Change $
 
Change %
Direct Written and Assumed Premium by Region (1)
 
 
 
 
 
 
 
 
Florida
 
$
540,796

 
$
336,591

 
$
204,205

 
60.7
%
Gulf
 
201,475

 
160,520

 
40,955

 
25.5

Northeast
 
154,502

 
123,964

 
30,538

 
24.6

Southeast
 
92,753

 
87,176

 
5,577

 
6.4

Total direct written premium by region
 
989,526

 
708,251

 
281,275

 
39.7
%
Assumed premium (2)
 
51,322

 
(95
)
 
51,417

 
54,123.2

Total gross written premium by region
 
$
1,040,848

 
$
708,156

 
$
332,692

 
47.0
%
 
 
 
 
 
 
 
 
 
Gross Written Premium by Line of Business
 
 
 
 
 
 
 
 
Personal property
 
$
799,097

 
$
685,402

 
$
113,695

 
16.6
%
Commercial property
 
241,751

 
22,754

 
218,997

 
962.5

Total gross written premium by line of business
 
$
1,040,848

 
$
708,156

 
$
332,692

 
47.0
%
(1) "Gulf" is comprised of Hawaii, Louisiana and Texas; "Northeast" is comprised of Connecticut, Massachusetts, New Jersey, New York and Rhode Island; and "Southeast" is comprised of Georgia, North Carolina and South Carolina.
(2) Assumed premium written for 2017 includes commercial property business assumed from an unaffiliated insurer and TWIA and 2016 premium assumed includes homeowners' business from Citizens and TWIA.


Loss and LAE increased by $67.2 million, or 22.5%, to $365.5 million for the year ended December 31, 2017 from $298.4 million for the year ended December 31, 2016. Loss and LAE expense as a percentage of net earned premiums decreased 2.9 points to 62.4% for the year ended December 31, 2017, compared to 65.3% for the year ended December 31, 2016. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the year would have been 25.5%, a decrease of 8.3 points from 33.8% during the year ended December 31, 2016.

During the third quarter of 2017, the Company's catastrophe losses included claims from Hurricane Harvey, which made landfall as a category 4 storm in Texas, and Hurricane Irma, which was also a category 4 storm making landfall in Florida. The Company's catastrophe excess of loss and quota share reinsurance limited retained losses to $83.0 million.

Policy acquisition costs increased by $57.8 million, or 49.1%, to $175.4 million for the year ended December 31, 2017 from $117.7 million for the year ended December 31, 2016. The primary driver of the increase in costs was the result of the managing general agent fees paid to AmRisc in relation to AmCo commercial premium. The remaining change was the result of policy acquisition costs varying directly with changes in gross premiums earned and were generally consistent with the Company's growth in premium production and higher average market commission rates outside of Florida.

Operating and underwriting expenses increased by $7.2 million, or 34.8%, to $27.7 million for the year ended December 31, 2017 from $20.5 million for the year ended December 31, 2016, primarily due to increased costs related to the Company's ongoing growth, incurred expenses related to software improvements and costs related to the increase in underwriting reports.

General and administrative expenses increased by $38.8 million, or 90.3%, to $81.8 million for the year ended December 31, 2017 from $43.0 million for the year ended December 31, 2016, primarily due to amortization costs related to the merger with AmCo.


Combined Ratio Analysis

The calculations of the Company's loss ratios and underlying loss ratios are shown below.

4



($ in thousands)
Three Months Ended
 
Year Ended
December 31,
 
December 31,
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Loss and LAE
$
72,137

 
$
98,738

 
$
(26,601
)
 
$
365,535

 
$
298,353

 
$
67,182

% of Gross earned premiums
26.3
%
 
54.2
%
 
(27.9
) pts
 
37.1
%
 
44.7
%
 
(7.6
) pts
% of Net earned premiums
43.4
%
 
81.5
%
 
(38.1
) pts
 
62.4
%
 
65.3
%
 
(2.9
) pts
Less:
 
 
 
 
 
 
 
 
 
 
 
Current year catastrophe losses
$
1,399

 
$
31,957

 
$
(30,558
)
 
$
116,424

 
$
55,842

 
$
60,582

Prior year reserve unfavorable (favorable) development
206

 
7,403

 
(7,197
)
 
(2,613
)
 
16,988

 
(19,601
)
Underlying Loss and LAE (1)
$
70,532

 
$
59,378

 
$
11,154

 
$
251,724

 
$
225,523

 
$
26,201

% of Gross earned premiums
25.7
%
 
32.6
%
 
(6.9
) pts
 
25.5
%
 
33.8
%
 
(8.3
) pts
% of Net earned premiums
42.4
%
 
49.0
%
 
(6.6
) pts
 
43.0
%
 
49.4
%
 
(6.4
) pts
(1) Underlying Loss and LAE is a non-GAAP financial measure and is reconciled above to Net Loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found is in the "Definitions of Non-GAAP Measures" section, below.

The calculations of the Company's expense ratio and underlying expense ratios are shown below.
($ in thousands)
Three Months Ended
 
Year Ended
December 31,
 
December 31,
2017
 
2016
 
Change
 
2017
 
2016
 
Change
Policy acquisition costs
$
50,142

 
$
33,572

 
$
16,570

 
$
175,444

 
$
117,658

 
$
57,786

Operating and underwriting
8,655

 
5,198

 
3,457

 
27,675

 
20,524

 
7,151

General and administrative
22,937

 
11,197

 
11,740

 
81,762

 
42,956

 
38,806

Total Operating Expenses
$
81,734

 
$
49,967

 
$
31,767

 
$
284,881

 
$
181,138

 
$
103,743

% of Gross earned premiums
29.8
%
 
27.4
%
 
2.4
 pts
 
28.9
%
 
27.2
%
 
1.7
 pts
% of Net earned premiums
49.2
%
 
41.2
%
 
8.0
 pts
 
48.7
%
 
39.6
%
 
9.1
 pts
Less:
 
 
 
 
 
 
 
 
 
 
 
Ceding commission income
$
6,990

 
$
4,086

 
$
2,904

 
$
37,175

 
$
6,882

 
$
30,293

Merger expenses and amortization
9,839

 
3,167

 
6,672

 
38,104

 
11,108

 
26,996

Underlying Expense (1)
$
64,905

 
$
42,714

 
$
22,191

 
$
209,602

 
$
163,148

 
$
46,454

% of Gross earned premiums
23.7
%
 
23.4
%
 
0.3
 pts
 
21.3
%
 
24.5
%
 
(3.2
) pts
% of Net earned premiums
39.1
%
 
35.3
%
 
3.8
 pts
 
35.8
%
 
35.7
%
 
0.1
 pts
(1) Underlying Expense is a non-GAAP financial measure and is reconciled above to total operating expenses, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section, below.

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

 
 
Historical Reserve Development
($ in thousands, except ratios)
 
2013
 
2014
 
2015
 
2016
 
2017
Prior year reserve development (unfavorable)
 
$
(4,078
)
 
$
4,037

 
$
2,368

 
$
(16,988
)
 
$
2,613

Development as a % of earnings before interest and taxes
 
11.7
%
 
6.2
 %
 
5.7
 %
 
219.9
%
 
62.9
 %
Consolidated net loss ratio (LR)
 
50.0
%
 
44.6
 %
 
54.5
 %
 
65.3
%
 
62.4
 %
Prior year reserve unfavorable (favorable) development on LR
 
2.1
%
 
(1.5
)%
 
(0.7
)%
 
3.7
%
 
(0.4
)%
Current year catastrophe losses on LR
 
1.8
%
 
0.3
 %
 
8.5
 %
 
12.2
%
 
19.8
 %
Underlying net loss ratio(1)
 
46.1
%
 
45.8
 %
 
46.7
 %
 
49.4
%
 
43.0
 %
(1) Underlying Net Loss Ratio is a non-GAAP measure and is reconciled above to the Consolidated Net Loss Ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section, below.


5




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 2017 were 37.6% of gross premiums earned, compared to 30.8% of gross premiums earned for the fourth quarter of 2016. The increase in this ratio was driven primarily by the Company's quota share reinsurance program, which was in effect for two months in the fourth quarter of 2017 but for only one month during the fourth quarter of 2016. If not for the effects of the quota share reinsurance program, the Company's reinsurance costs as a percent of earned premium would have decreased by 4.1 points during the quarter.

Investment Portfolio Highlights

The Company's cash and investment holdings totaled $1.1 billion at December 31, 2017 compared to $679.3 million at December 31, 2016. 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 76.9% of total investments at December 31, 2017 with a modified duration of 3.9 years compared to 85.3% at December 31, 2016 with a modified duration of 3.7 years.

Book Value Analysis

Book value per share increased 12.6% from $11.15 at December 31, 2016, to $12.56 at December 31, 2017, and underlying book value per share increased 11.2% from $11.11 at December 31, 2016 to $12.35 at December 31, 2017. An increase in the Company's retained earnings, along with an increase in paid in capital as a result of the AmCo merger, drove the increase in our book value per share and underlying book value per share. The increase in accumulated other comprehensive income, as shown in the table below, also impacted our underlying book value per share.
($ in thousands, except for per share data)
 
December 31,
 
December 31,
 
 
2017
 
2016
Book Value per Share
 
 
 
 
Numerator:
 
 
 
 
Common stockholders' equity
 
$
537,125

 
$
241,327

Denominator:
 
 
 
 
Total Shares Outstanding
 
42,753,054

 
21,646,614

Book Value Per Common Share
 
$
12.56

 
$
11.15

 
 
 
 
 
Book Value per Share, Excluding the Impact of Accumulated Other Comprehensive Income (AOCI)
 
 
 
 
Numerator:
 
 
 
 
Common stockholders' equity
 
$
537,125

 
$
241,327

Accumulated other comprehensive income
 
9,221

 
822

Stockholders' Equity, excluding AOCI
 
$
527,904

 
$
240,505

Denominator:
 
 
 
 
Total Shares Outstanding
 
42,753,054

 
21,646,614

Underlying Book Value Per Common Share(1)
 
$
12.35

 
$
11.11

(1) Underlying book value per common share is a non-GAAP financial measure and is reconciled above to book value per common share, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release can be found in the "Definitions of Non-GAAP Measures" section, below.

6



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 reserve development and ceding commission income earned (underlying combined ratio) is a non-GAAP ratio, which is computed by subtracting the effect of current year catastrophe losses, prior year development, and ceding commission income earned related to the Company's quota share reinsurance agreement from the combined ratio. The Company believes that this ratio is useful to investors and it is used by management to reveal the trends in the Company's business that may be obscured by current year catastrophe losses, losses from lines in run-off, prior year development, and ceding commission income earned. Current year catastrophe losses cause the Company's 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. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under the Company's quota share reinsurance agreement. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company's 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 the Company's business.

Net Loss and LAE excluding the effects of current year catastrophe losses and prior year reserve development (underlying Loss and LAE) is a non-GAAP measure which is computed by subtracting the effect of current year catastrophe losses and prior year reserve development from Loss and LAE. The Company uses underlying loss and LAE figures to analyze the Company's loss trends that may be impacted by current year catastrophe losses and prior year development on the Company's reserves. As discussed previously, these two items can have a significant impact on the Company's loss trends in a given period. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company's performance. 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 the Company's business.

Operating Expenses excluding the effects of ceding commission income earned, merger expenses, and amortization of intangible assets (underlying expense) is a non-GAAP measure which is computed by subtracting ceding income earned related to the Company's quota share reinsurance agreement, merger expenses and amortization of intangibles. Ceding commission income compensates the Company for expenses it incurs in generating the premium ceded under the Company's quota share reinsurance agreement. Merger expenses are directly related to past mergers and are not reflective of current period operating performance. Similarly, amortization expense is related to the amortization of intangible assets acquired through mergers and therefore the expense does not arise through normal operations. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company's performance. The most direct comparable GAAP measure is operating expenses. The underlying expense measure should not be considered a substitute for the expense ratio and does not reflect the overall profitability of the Company's business.

Net Income excluding the effects of merger expenses, non-cash amortization of intangible assets and realized gains (losses), net of tax (core income) is a non-GAAP measure which is computed by adding merger expenses, net of tax, and amortization, net of tax, to net income and subtracting realized gains (losses) on our investment portfolio net of tax, from net income. Merger expenses are directly related to past mergers and are not reflective of current period operating performance. Similarly, amortization expense is related to the amortization of intangible assets acquired through merger and therefore the expense does not arise through normal operations. Investment portfolio gains (losses) vary independent of the Company's operations. The Company believes it is useful for investors to evaluate these components separately and in the aggregate when reviewing the Company's performance. The most direct comparable GAAP measure is net income. The core income measure should not be considered a substitute for net income and does not reflect the overall profitability of the Company's business.



7



Conference Call Details

Date and Time:    February 21, 2018 - 4:30 P.M. ET

Participant Dial-In:    (United States): 877-407-8829
(International): 201-493-6724

Webcast:
To listen to the live webcast, please go to www.upcinsurance.com (Investor Relations) and click on the conference call link, or go to: http://upcinsurance.equisolvewebcast.com/q4-2017


About UPC Insurance

Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services personal and commercial residential property and casualty insurance policies using a group of wholly owned insurance subsidiaries through a variety of distribution channels. The Company currently writes policies in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina and Texas, and is licensed to write in Alabama, Delaware, Maryland, Mississippi, New Hampshire, 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. UPC Insurance is a company committed to financial stability and solvency.


Forward-Looking Statements

Statements made in this press release, or on the 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 and are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words such as “may,” “will,” “expect,” "endeavor," "project," “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology. 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 subsequent Quarterly Reports on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and, except as required by applicable law, we undertake no obligation to update or revise any forward-looking statement.


 ### #### ###

CONTACT:
 
OR
 
INVESTOR RELATIONS:
United Insurance Holdings Corp.
 
 
 
The Equity Group
Jessica Strathman
 
 
 
Adam Prior
SEC Reporting Manager
 
 
 
Senior Vice-President
(727) 895-7737 / jstrathman@upcinsurance.com
 
 
 
(212) 836-9606 / aprior@equityny.com

8



Consolidated Statements of Comprehensive Income
In thousands, except share and per share amounts

 
 
Three Months Ended
 
Year Ended
 
 
December 31,
 
December 31,
 
 
2017
 
2016
 
2017
 
2016
REVENUE:
 
 
 
 
 
 
 
 
Gross premiums written
 
$
252,440

 
$
167,103

 
$
1,040,848

 
$
708,156

Decrease (increase) in gross unearned premiums
 
21,933

 
15,119

 
(54,825
)
 
(41,327
)
Gross premiums earned
 
274,373

 
182,222

 
986,023

 
666,829

Ceded premiums earned
 
(108,178
)
 
(61,061
)
 
(400,533
)
 
(209,898
)
Net premiums earned
 
166,195

 
121,161

 
585,490

 
456,931

Investment income
 
5,323

 
2,893

 
17,812

 
10,679

Net realized gains
 
621

 
69

 
67

 
547

Other revenue
 
10,447

 
7,310

 
51,051

 
18,960

Total revenues
 
$
182,586

 
$
131,433

 
$
654,420

 
$
487,117

EXPENSES:
 
 
 
 
 
 
 
 
Losses and loss adjustment expenses
 
72,137

 
98,738

 
365,535

 
298,353

Policy acquisition costs
 
50,142

 
33,572

 
175,444

 
117,658

Operating expenses
 
8,655

 
5,198

 
27,675

 
20,524

General and administrative expenses
 
22,937

 
11,197

 
81,762

 
42,956

Interest expense
 
965

 
326

 
3,247

 
723

Total expenses
 
154,836

 
149,031

 
653,663

 
480,214

Income (loss) before other income
 
27,750

 
(17,598
)
 
757

 
6,903

Other income
 
59

 
20

 
153

 
100

Income (loss) before income taxes
 
27,809

 
(17,578
)
 
910

 
7,003

Provision (benefit) for income taxes
 
808

 
(7,061
)
 
(9,235
)
 
1,305

Net income (loss)
 
$
27,001

 
$
(10,517
)
 
$
10,145

 
$
5,698

OTHER COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
 
Change in net unrealized gains (losses) on investments
 
138

 
(10,934
)
 
10,647

 
(629
)
Reclassification adjustment for net realized investment gains
 
(621
)
 
(69
)
 
(67
)
 
(547
)
Income tax benefit (expense) related to items of other comprehensive income
 
2,026

 
4,154

 
(2,181
)
 
378

Total comprehensive income (loss)
 
$
28,544

 
$
(17,366
)
 
$
18,544

 
$
4,900

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
Basic
 
42,526,045

 
21,449,910

 
37,152,768

 
21,417,486

Diluted
 
42,753,303

 
21,645,141

 
37,375,340

 
21,614,443

 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 
Basic
 
$
0.63

 
$
(0.49
)
 
$
0.27

 
$
0.27

Diluted
 
$
0.63

 
$
(0.49
)
 
$
0.27

 
$
0.26

 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.06

 
$
0.06

 
$
0.24

 
$
0.23








9



Consolidated Balance Sheets
In thousands, except share amounts



 
 
December 31, 2017
 
December 31, 2016
ASSETS
 
 
 
 
Investments available for sale, at fair value:
 
 
 
 
Fixed maturities
 
$
762,855

 
$
494,516

Equity securities
 
63,295

 
28,398

Other investments
 
28,381

 
5,733

Short-term investments
 
137,115

 
50,785

Total investments
 
$
991,646

 
$
579,432

Cash
 
139,160

 
99,903

Accrued investment income
 
5,577

 
3,735

Property and equipment, net
 
17,291

 
17,860

Premiums receivable, net
 
75,275

 
38,883

Reinsurance recoverable on paid and unpaid losses
 
395,774

 
24,028

Prepaid reinsurance premiums
 
201,904

 
132,564

Goodwill
 
73,045

 
14,254

Deferred policy acquisition costs
 
103,882

 
65,473

Intangible assets
 
45,271

 
12,371

Other assets
 
11,096

 
11,183

Total Assets
 
$
2,059,921

 
$
999,686

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Unpaid losses and loss adjustment expenses
 
$
482,232

 
$
140,855

Unearned premiums
 
555,873

 
372,223

Reinsurance payable
 
149,117

 
99,891

Payments outstanding
 
41,786

 
21,933

Accounts payable and accrued expenses
 
46,594

 
26,124

Other liabilities
 
85,830

 
43,158

Notes payable
 
161,364

 
54,175

Total Liabilities
 
$
1,522,796

 
$
758,359

Commitments and contingencies
 
 
 
 
Stockholders' Equity:
 
 
 
 
Preferred stock, $0.0001 par value; 1,000,000 authorized; none issued or outstanding
 

 

Common stock, $0.0001 par value; 50,000,000 shares authorized; 42,965,137 and 21,858,697 issued; 42,753,054 and 21,646,614 outstanding, respectively

 
4

 
2

Additional paid-in capital
 
387,145

 
99,353

Treasury shares, at cost; 212,083 shares
 
(431
)
 
(431
)
Accumulated other comprehensive income
 
9,221

 
822

Retained earnings
 
141,186

 
141,581

Total Stockholders' Equity
 
$
537,125

 
$
241,327

Total Liabilities and Stockholders' Equity
 
$
2,059,921

 
$
999,686



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