Greetings and welcome to the United Insurance Holdings Fourth Quarter and Year End Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions].

And as a reminder this conference is being recorded.It is now my pleasure to introduce your host, Adam Prior of Equity Group. Thank you sir. You may begin..

Thank you and good morning everyone. Thank you for joining us. You can find copies of UPC's earnings release today at www.upcinsurance.com in the Investor Relations section. In addition, the company has made an accompanying presentation available on its website.

You are also welcome to contact our office at 212-836-9606 and we would be happy to send you a copy. In addition, UPC Insurance has made this broadcast available on its website.Before we get started, I would like to read the following statement on behalf of the company.

Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of federal securities laws, including statements relating to trends in the company's operations and financial results and the business and the product of the company and its subsidiary.

Actual results from UPC may differ materially from those results anticipated in these forward-looking statements as a result of risks and uncertainties, including those described from time to time in UPC's filings with the U.S. Securities and Exchange Commission.

UPC specifically disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise.With that, I would now like to turn the call over to Mr. John Forney, UPC's Chief Executive Officer. Please go ahead, John..

Thanks Adam. This is John Forney, President and CEO of UPC Insurance. With me today is Brad Martz, our Chief Financial Officer. On behalf of everyone at UPC, we appreciate your taking time to join us on the call. As a reminder we are now publishing an investor presentation in conjunction with our earnings release.

You can find it on our website and I encourage you to review it. While we will not be going slide by slide through that presentation, we will refer from time to time to some of the data and analytics included therein.2019 was a tough year for our company and Q4 epitomized that.

Unusually high non-cat severity on fire and liability claims almost tripled the levels from last year's Q4 hurt our results. See slide 5 of the investor presentation to see what an outlier Q4 2019 was in that regard compared to the two prior Q4s.

Also suppressing results in Q4 was a decision we made to significantly strengthen our cat and non-cat reserves for 2019. See slide 10 of the investor presentation which shows that our year-end reserves are up almost 52% from 2018.

This much more conservative approach to 2019 reserving minimizes 2020 reserve risk and the measures we took in previous quarters during 2019 on prior accident years helped us to show zero adverse development in Q4.

What we did in Q4 should help that very positive trend continue into 2020.We're starting off 2020 in very strong position on several important fronts.

First rates look at slide 9 to the investor presentation, incremental premium from the many rate actions we took in 2019 is ramping up, hitting a $62 million annualized rate in December from policies renewing in that month alone.

And this is without any of the impact yet from our most recent large New York and Florida rate increases which are just starting to hit renewal policies.Add to that the hardening commercial market and a rate picture looks bright.

Second, reserves as I mentioned earlier our year-end reserves are up almost 52% from a year ago and our reserving posture overall it's much more conservative for both cat and non-cat. Look at slide 11 of the investor presentation to see how much we strengthen 2019 case reserves in addition to adding a lot of IBNR.

With no adverse development in Q4 and much higher accident year 2019 reserves we are looking to take reserve noise off the table for 2020. Third, reinsurance as one of the 10 largest purchasers of U.S. property cat reinsurance in the world with over $4 billion of total limit across our programs we are in reinsurance buying mode most of the year.

Our team at Skyway Re, our internal reinsurance broker is the best in the business and they did a great job on our 11 renewal and have made great progress on our 61 core cat tower renewal. See slide 12 of the investor presentation which shows that over 85% of that program is already placed.

We have amazing long-term reinsurance partners and we look forward to working with them on the remaining 15% of the program.Fourth, capital as slide 15 of the investor presentation shows despite retaining almost $400 million of cat losses in the past few years UPC's book value per share is down only slightly.

The seven-year compounded annual growth rate of 10.8% for book value reflects the long-term strength and anti-fragility of our business model.Our balance sheet is strong and we will not need to raise capital in 2020 even if we suffer two full hurricane retentions. All of our ratings for our insurance subsidiaries were affirmed in December.

So that's why we're optimistic. With rate increases flowing through, no adverse development plus much stronger reserves overall and nearly complete reinsurance program and a stable adequate capital base we're positioned to compete and thrive in the currently challenging operating environment.

2020 is off to a good start and we're looking forward to the rest of the year.At this point I'd like to turn it over to Brad for his remarks..

Thank you John and hello. This is Brad Martz, CFO of UPC insurance.

I'm pleased to review UPC's financial results I also encourage you to review our press release Form 10-K and investor presentation for more information regarding the company's performance.Highlights for the quarter ended December 31, 2019 include gross premiums earned of $347 million an increase of $39 million or 1% year-over-year, a loss before income tax of $5.3 million which compared favorably to a pre-tax loss of $19.4 million in the fourth quarter last year.A net loss of $8.2 million or $0.19 a share that was also better than $11.1 million net loss or $0.26 a share a year ago.

Our core loss of $15.2 million or $0.36 a share compared to unfavorably against a loss of a $0.5 million or a penny a share a year ago and cat losses of $19.2 million or approximately $0.35 a share after tax added over 10 points to the combined ratio.Premiums written for the quarter increased less than 1% from a year ago primarily due to a $14.4 million decrease in assumed commercial ENS premiums direct written premiums increased $17 million or 6.3% with Florida accounting for approximately 60% of the growth year-over-year with all other regions also showing modest increases from the same period a year ago.Stated earned premiums were 45.7% of gross premiums earned in the quarter compared to 41.1% last year.

The change was due to increased sessions to our quota share reinsurance program which were $42.8 million or 12.3% of gross premiums earned in the current quarter compared to just $23.6 million or 7.7% a year ago.

Excluding the quota share the ratio of ceded to gross premiums earned was unchanged from the prior year.Other significant items impacting total revenues during the fourth quarter included unrealized gains from equities of $9.2 million compared to an unrealized loss of 14.3 million in the same period a year ago and additional income tax expense due to a non-recurring valuation allowance which distorted the company's effective tax rate for the quarter and the year.UPC's fourth quarter net loss in loss adjustment expense was $130.6 million, an increase of 8.4 million or 7% year-over-year.

This produced a gross loss ratio of 37.6% and a net loss ratio of 69.3% which included $19.2 million of catastrophe losses.Catastrophe losses were driven by approximately $15.7 million of net retained losses primarily from tropical storms older and [indiscernible] plus three new [indiscernible] events in the quarter with a remainder stemming from increased retention under our aggregate reinsurance program.Underlying loss in LAE was $111.4 million, up $39.5 million or 55% year-over-year.

This resulted in an underlying gross loss ratio of 32.1% which compared unfavorably to 23.3% a year ago.

As John mentioned the unusually high loss severity from fire and liability claims for the primary driver of the deterioration but the underlying non-cat losses were also impacted by significant reserve strengthening during the fourth quarter as we sought to mitigate the reserve risk on accident years 2019 and prior in future periods.UPC's operating expenses were $82.8 million an increase of $7 million or 9% year-over-year.

The increase was driven primarily by policy acquisition costs which rose 10.1 million due to growth in premiums. The remaining 3.2 million decrease was driven by a reclassification of certain general and administrative expenses to loss adjustment expense which also contributed to the increase in underlying loss in LAE for the quarter.

Our gross expense ratio was 23.9%, a decrease of nearly a point from the prior year.On the balance sheet UPC ended the year with total assets of just under $2.5 billion including cash and assets of approximately $1.3 billion an increase of 14% in our liquidity year-over-year.

The duration of our fixed maturities remained at 3.4 years with an overall composite rating of 8 plus and our investment portfolio produced a total return of approximately 8% during 2019.

Shareholders equity attributable the UIC stockholders was approximately $503 million with a book value per share of $11.69 or $11.43 excluding unrealized gains.I'd now like to reintroduce John for some closing remarks..

Thank You Brad.

We're certainly not happy with the results we produced in 2019 but we are pleased that the multiple rate actions we've taken are starting to show up in a material way in our financial results that we were able to show no adverse development in Q4 while strengthening our reserves for accident year to 2019 and minimizing reserve risk in 2020, got a reinsurance program for June 1st it's 85% done at this point which lessens the probability of material pricing increases impacting our financials and that our capital is in good shape with no need to raise capital and all of our ratings having been affirmed recently.

We're ready to have a good year in 2020. I'm sure you're ready for that too. We appreciate your interest in UPC and we'll be happy to take any questions you have at this point..

Thank you. Ladies and gentlemen we will not be conducting the question-and-answer session. [Operator Instructions] Our first question is coming from Elyse Greenspan with Wells Fargo. Please proceed..

Hi, thanks. Good evening. My first question, I was hoping to get a little bit more color on me underlying losses in the quarter.

I guess two parts first off were the higher, I guess fire and liability losses you pointed to was that throughout the different states or more combined to Florida or some other geographic location? And then my second question related to that would be you mentioned strengthening accident year 2019.

could you just give us a sense of how much strengthening, how much of the losses in the current quarter were for strengthening related to the prior three quarters of 2019?.

Sure Elyse this is John Forney. I'll start. The fire and liability losses we saw which if you look at that investor presentation were is just a huge outlier compared to the prior Q4s were spread throughout the book that states there wasn't any particular pattern to it except that there were some series of unusually large losses throughout the quarter.

And second question on the amount of strengthening I'll let Brad take that..

So on the non-cat side on page 10 of our presentation you can see the total change in net loss LAE reserves year-over-year was approximately $67 million and of $32 million of that was in the fourth quarter..

Okay. That's great and then in terms of I guess you guys pointed to right there was a catch up for the other three quarters and then obviously it sounds like you expect some of the fire and liability losses to normalize going into 2020 based off of the rate increases that you have coming into your book.

Can you just give us a sense how you expect the underlying kind of trend through 2020 versus 2019?.

I guess we can start by saying we absolutely don't expect the same level of loss severity when it comes to fire. Lost costs for the quarter were an anomaly for those two causes of loss. Generally December and January are difficult lost months just so happened that December was unusually high this period compared to the same period a year ago..

But I will add we have not seen those extreme trends continue into 2020..

Okay.

Did you guys, was there any change to your hurricane Irma gross loss estimate in the quarter?.

Not since we last communicated with investors about that, no. No yearend change..

Okay. Great. And then just two numbers questions, Brad I think you usually give us the surplus as of the end of the quarter.

Do you have that number?.

I don't have that. Those will be available on or before March 1 when the annual statements are filed..

Okay and then you mentioned that there was like one off tax catch up I think this is what you said.

Can you just give us the amount and then as we think about modeling what should we think about as kind of a tax rate assumption in 2020?.

The tax rate guidance is really unchanged at about 23% that's a blend of the federal and state rates. The amount for the fourth quarter was driven by a net operating loss and our blue line operation.

We've got three different separate accounts that have filed 953D elections to the IRS it gets super complicated but dual consolidate loss limitations prohibit us from potentially utilizing some of the net operating loss in one of, the one sale that has been put in runoff which is the contributor to the decline and the assumed written premiums for the quarter and we talked about that quarter share with Lexington being put it placed in a runoff last quarter..

Okay. That's helpful. Thank you..

Thank you Elyse..

Thank you. Our next question comes from Marcos Holanda with Raymond James. Please proceed with your question..

Hey guys thanks for taking my question. I just had a big macro question, a big picture.

Can you guys give us a sense of what you've seen [indiscernible] commercial units market and maybe reminded us of what UPC's exposure is in there?.

Sure.

The commercially ENS market is that assume premium that we always delineate in our earnings release and that's with arrangement with several carriers that right there that portion of that business through AmRisc which is the big wind MGA that is owned by BB&T that we've been doing businesses for a long time through American coastal which is their admitted market company but they have several other surplus lines company and we do a quota share with some of them to assume some of the pro-rata share of their book with AmRisc.

It's very good business AmRisc has been the premier writer of that business since their inception in the year 2000 with combined ratios in the 50s and 60s cumulative to date including all cats.

So we have supreme confidence in AmRisc's underwriting ability and their proven track record and we have seen evidence here in the second half especially of 2019 in that commercial ENS market is hardening and we believe that that business is going to be quite good in 2020..

Okay.

Great and just another on reassurance and you guys have 85% of it locked down before the June one but could you just give us a sense of there what kind of sort of price volatility you expect heading into that renewal?.

As we said we've got 85% of it done, we have long-term reinsurance partners. They're committed to a win-win relationship with us one of the biggest buyers of U.S. property cat reinsurance in the world.

So people take a long-term view when they trade with us and we have really win-win relationships and win-win renewals that are fair to us and fair to them and we never have talked about what that means from a percentage increase but we certainly expect that it's going to be very manageable for us given everything that's happened already..

Got it. Thanks John. Just lastly can you just give us a flavor of what these fire liability claims look like? What's the average cost and just some more color there. Thanks you for your answers..

Well page five of the investor presentation gives you the loss severity. So that your average cost at least for the quarter as well as the previous four quarters.

So fire losses obviously can be very low frequency but very high severity and with homes burning a lot quicker today than maybe in years past with new building materials, plastics, other things I think the entire industry has seen lost severity for fire increase..

Thank you. We'll move on to our next question but just as a quick reminder, [Operator Instructions] The next question does come from Matt Carletti with JMP. Please proceed. Matt your line is live. You can proceed with your question. Matt as a final reminder your line is live. You may proceed. Thank you.

[Operator Instructions] Our next question is coming from the line of Ron Bobman with Capital Returns Managements. Please proceed with your question..

Hi, good afternoon.

I had a question about Florida rate filings and if you have one pending what the size of it might be?.

We filed one several months ago that was filing used 13.4% for our product writing with in Florida. We have implemented that -- so that was just we did in the last couple of months that we have got it programmed into our systems.

So we are just starting to see the first renewals go out with that $13.7 in there and we are doing rate indications for the states like Florida where we have a big presence that had some problems here recently on a monthly basis. So we are going to stay on top of it.

We think this rate increase will help quite a bit specially with some of the other repositioning we have done in the state of Florida which includes a lot of non-renewals and closing of certain areas that just have been problematic in terms of the loss ratio.

So we think we are positioned well but we are monitoring it like a hawk to make sure that we are getting the rate that we need and what's been a very challenging state..

Yes. Thanks a lot.

Relatively John the 13% that you mentioned does that include a portion attributable to your increased reinsurance cost or is that something separate and apart from this 13?.

Yes we did not have justification to file an increase for reinsurance cost. So we couldn't, we didn't do that because it wasn't needed based on how our placement came in last year..

Thanks a lot. Got you. Alright, best of luck..

Thank you..

Thank you. I would now like to turn the floor back over to management for any additional concluding comments..

Once again we appreciate everybody's interest in UPC. We are working hard to make 2020 a year that we can all be proud of and we look forward to talking to you on future calls this year. Thanks again for your interest..

Ladies and gentlemen this does concludes today's teleconfernce. We thank you for your participation and you may disconnect your lines at this time..