Greetings, and welcome to the United Insurance Holdings Corp. Fourth Quarter and Year-End Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host, Adam Prior of The Equity Group..

Thanks Brock and good afternoon, 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're also welcome to contact our office at 212-836-9606, and we'd be happy to send to a copy. In addition, UPC Insurance has made this broadcast available on its website..

Thanks, Adam. Hello and thanks for joining our call. I'm Dan Peed, Chairman and CEO of UPC. I'd like to offer an overview and then Brad Martz will provide some more details numbers. And then we'll take questions.

For Q4, UPC was again impacted by a high level of CAT activity, including tropical storms, Delta, Zeta, Eta, which combined with non-name CAT drove a net cap loss of approximately $107 million and a core loss of $58 million. We watched the core income excluding the windstorm very closely as a proxy for our underlying portfolio performance.

And it was an $0.08 profit in Q4 versus a $0.34 loss last year. That makes a strong $0.42 per share improvement. This measure shows consistent quarterly year-over-year improvement, up nearly $18 million in Q4 and $60 million for full year 2020.

The gross underlying loss ratio, which excludes CAT, was 21.5% versus 32.1% last year, mostly due to increasing rates and more stringent risk selection and underwriting activities. The underlying combined ratio improved to 88.5% from 103.1% last year, which shows a dramatic turnaround in our underlying portfolio performance.

We expect this to continue to improve as rate increases and risk selection activities achieved in 2019 and 2020 are their way through the portfolio. This is expected to be offset by the increased reinsurance spend on a significantly reduced CAT occurrence and aggregate retention, as well as our increased older share session in 2021.

We'll talk more about that in a few minutes. So, for full year 2020 results, we were impacted by unprecedented frequency of a dozen falling windstorms named storms breaking the record set over a hundred years ago in 1916 of nine new storms.

For UPC, as a coastal property specialist, with the portfolio from Texas to Maine, even though most of the storms were low, moderate in severity, the high-frequency drove elevated level of net potential..

Thank you, Dan and hello. This is Brad Martz, the President and CFO of UPC Insurance. I'm pleased to review UPC's financial results, but also encourage everyone to review our press release, investor presentation and Form 10-K for more information regarding the company's performance..

Thank you. At this time, we were conducting a question-and-answer session. The first question today comes from Greg Peters of Raymond James. Please proceed with your question..

Good afternoon. I guess to start things off, probably be appropriate and I recognize it's really early. But it would be appropriate for you guys to sort of comment on how you're thinking about what's unfolding in Texas and where the company's exposure might land..

Good afternoon, Greg. Thanks for your question. Sure. First our hearts go out to our friends and family in Texas. It's a terrible situation and that's what we're here for. That's why UPC exists. So, UPC is exposure to winter storm. URI is primarily in the Tier 1 and Tier 2 counties in Texas. So, market share analysis may be difficult.

It may not be useful as it relates to our losses. We do have plans to report it and do expect to incur losses, but it's far too early, really to comment on our potential ultimate gross or our net retained losses at this time. We do have appropriate reinsurance protections in place.

Our AOP CAT reinsurance program that we announced back in January, lays out the terms, so effective protection. There's a $15 million retention, and then there's also quota share protection that would reduce our retention further to approximately $10.4 million for that event.

So, it's likely we'll preannounce our estimated CAT losses for the first quarter near the end of March or beginning of April. But our focus right now is taking care of our policyholders, our agents, and our associates in their time of need..

Got it. Thanks for the answer. I wanted to go back to two things. First of all, Dan, during your comments, I think you were talking about how much of the reinsurance has been renewed for the expected June renewal -- there was a siren in the background, so it was hard to hear your comments. I was wondering if you could reread that.

And then also, I think, Dan, you said that your target is when we think about named events at $25 million per occurrence, $70 million aggregate for the upcoming storm year, is that correct?.

Yeah. So, to answer your question, as opposed to rereading it, I'd just say that we have quota share protections. We have -- at January 1st portion of our renewal as well as some multiyear portions and then, of course, the FHCF. But -- so we have currently -- I'll use the word pre-agreed.

I mean, the comments aren't signed, but there are agreed for 87.5% of our limit for six-one that we feel like we'll need, is already done. So that puts us in a really good position as we work towards finalizing that treaty.

The second part of the equation is, specifically, we plan to reduce our named storm retention to the $25 million and $70 million in the aggregate because we have a cascading tower. We've worked with our reinsurers to actually cap our aggregate, or it's not exactly there will be close to there with a very minor aggregate.

So that if we were to go through 2020 again, we would have a $70 million in the pool of companies. We have a couple of little ancillary retentions on the non-pool companies, but that's the main -- that's the bulk of it..

Thanks. And then I did -- the last question. I know there's -- I have a lot of others, but the last question I'll ask is, so as you worked through this major change, one of the statistics you report is your ceding ratio. And I think your ceding ratio was 45.1% in 2020 versus 45.7% in 2019.

How do you expect that ceding ratio to look in 2021, given you're talking about buying a lot of extra -- well relatively speaking, buy more reinsurance protection..

Greg, this is Brad. I'll take that one. We do expect it to increase, but really primarily driven by quota share. Now that we've really expanded our quota share program at December 31st, adding American Coastal to the mix and increasing the percentage ceded for the United Property & Casually, a family security insurance company.

So that's going to drive a pretty big change in ceded premiums earned year-over-year. But there is a corresponding benefit to ceded losses and lower acquisition costs through ceding commission income. So some of the components of the P&L are definitely changing and the ceded premium earned is going to increase the ceding rate..

All right. And then just, I guess, one small detail. On page 14 of your slide deck, you say as of December 31st, the premiums in-force were $1.39 billion, but then in the language, the left, you say $900 million of premium in-force.

I assumed the $900 million of premium in-force is less sort of like the pro form number after the renewal rights and all the changes.

Is that how I should be thinking about it?.

That's correct. You got to add the $350 million of premium in-force for commercial lines in that middle paragraph, and then the $900 million of premium in-force as footnoted down below exclude. We're on excluding the discontinued products and the territories where there were renewable rights is an assault ..

Got it. Thank you..

You're welcome..

The next question comes from Elyse Greenspan of Wells Fargo. Please proceed with your question..

Hi. Thanks. Good evening. My first question a follow-up I just want to make sure on the Texas storm, appreciate that it's an ongoing event and the color you gave in response to Greg's question.

So, I guess, your understanding, whether what you're thinking too is that it will be one of event, I guess when you think about the reinsurance protections, I think is maybe potentially multiple events with UPS, but it sounds like there'll be one event that could helping on your net retention to $10.4 million..

Yeah. Hi, Elyse. This is Brad. I believe that will be the case. We can't confirm that for sure at this time. It's still too early, but I believe the bulk of the loss will be contained into a single event..

And away from -- obviously Texas is a pretty big ongoing event, but away from that, it does seem that most other losses probably were pretty light so far in the first quarter away from Texas?.

January was a quiet month on the CAT front. Thank goodness..

Okay. That's helpful. And then, so a couple of -- a few other questions.

In your prepared remarks, I think it was you Dan, you mentioned flat earned premium after you were going through some of the moving components in terms of rate increases, and then the extra reinsurance that you guys are buying, is that a net -- that's a net earned premium comment, or was that on a gross basis?.

That was more on a gross basis and general from the perspective of we're decreasing exposure, but we're increasing rates. So that yield -- and again, that was -- so after the renewal rights was out on the remainder of the portfolio, we were expecting the increasing rates to kind of offset the decreasing exposure..

Okay. And then, in the slide deck and in the prepared remarks, slide talked just kind of 50/50 split between personal and commercial. Is there -- it sounds like you were laying out some of these goals kind of for the next two years.

Is there a timeframe when you ultimately want to get the business mix split in line with those parameters?.

No. I mean, you're right. It does -- eventual target. I would say that it's kind of more -- it's not really in the long-term, but it's probably more in the midterm. I'd say -- I put that in of the three to five-year would be our goal..

Okay. That's helpful. And then, obviously, I think you guys mentioned 2021 being a bit of a transition year, just given a lot of the moving parts. And then looking kind of to -- it sounds like rate would return to showing some growth and improvement beyond that time period.

Are there kind of return targets, like how you see from an ROI perspective 2021, and then some of the out years going forward coming in kind of in line with some of -- kind of the business plans that you laid out within the slide deck?.

We have those targets. And in the short term and in the long-term, and I would -- I wouldn't say in the long-term, which I think is more appropriate is, we're still targeting a 15% return on equity, inclusive of our net retained average annual loss for hurricane. I mean, that is the long-term goal.

That is where we're marching towards in pricing and underwriting, and managing our exposure base. But in the short term, as you mentioned, it'll be somewhere between recent results and our target..

Okay. That's helpful. One last one. You guys had to kind of work on between insurance kind of -- and the changing plan, I'm assuming you guys have been in discussions with Demotech.

Can you just kind of -- any color that you can provide in reference to kind of your discussions in terms of these initiatives?.

Yeah. I think so far the discussions we've had with, with AmBev related to our plans to expand Journey and getting into writings, specialty commercial property on a direct basis with our new carrier and pooling capital have been very favorable. We've got lots of -- that's an under leverage part of our organization prime and well position for growth.

Demotech is very comfortable with the pooling arrangement we have with our pool group. The risk based capital is is very good at it. And then we didn't have to use any holding company liquidity to prop up surplus at year-end, where we feel like we still got tremendous financial flexibility on that front.

So, the reinsurance transactions we did certainly helped. And as we reduced the direct writings over time, we'll be able to step down the quota share over time. The quota share is definitely a part of our approach to buying catastrophe reinsurance. We appreciate quota share with -- got CAT in it and real risk transfer in it.

So I don't know if that'll change long-term. But certainly as it relates to managing leverage, we we'd like to bring down the direct writings and reduce the quota share in step over time.

So, you don't -- so we'll see some slight growth in net premium earned, but the component -- the direct and the ceded numbers are what are going to change over the next few years..

Okay. That's helpful. Thanks for all the color..

Our next question comes from Ron Bobman of Capital Returns. Please proceed with your question..

Hi. Thanks a lot. Good evening. I had a couple of questions. You provide a lot of good, important detail. Brad, the $10 million that you mentioned, and Dan, the 89%. Brad, when you were the $10 million as it relates to Texas, it was a little bit over $10 million. You mentioned AOP -- I think you said AOP treaty, which I think is all other perils treaty.

I got confused because I think of this Texas event as a main storm, this URI.

Did I mishear you, or do I not sort of understand the point you were trying to make?.

When we refer to named windstorms, we're talking about storms that are named or numbered by the national hurricane center. So, we really are referring to hurricane and earthquake, tropical cyclotron that type of thing when we're talking about named windstorms.

So all other peril CAT would be winter storms and Uri is a winter storm, your tornado is your kale..

Okay. Now I understand. And that's a different treaty applies. Gotcha. Thanks..

Yeah. And I do think that gives us a competitive advantage because a lot of people lump all perils into one treaty and it becomes difficult to manage all that exposure, but we bifurcate..

Okay. Gotcha. When you -- and you -- you an essence box to sort of put a ceiling as to what Texas could mean on a net loss basis, which is really obviously in some respects, the most important thing for you -- for the company. But there's been all sorts of market estimates, single digit billions, up to 20 plus billion.

When you look at the claim flow you've received so far, and I know it's only a handful of days since the darkest days in Texas -- and you compare it to maybe something like your experience with Harvey, or some other experience that Dan you were -- the company has seen in the past.

What's your early estimate as far as the market loss from this event as compared to a Harvey or independent of Harvey, any wisdom you could share..

This is Dan. From the standpoint of the market loss, we've seen this -- it's obviously the Karen Clark 18 billion was more than half of that commercial. We do not have a lot of the commercial exposure in Texas. Our exposures are mostly personal lines. We have seen the claims they're dropping off already, but the claims counted within our expectations.

And I guess from the standpoint of the overall industry loss, I wouldn't know any more than they do other than Karen Clark has been write a lot. So -- but ….

Relative to your Harvey numbers, do you think it'll be -- your gross number will be less equal to more than your Harvey numbers?.

We had a lot of claims in Harvey. Although, a lot of them were flood claims, which actually we didn't cover. So they were closing out payment. The average claim probably will be a little bit higher, but the number of claims probably lower..

Okay. Thanks. Appreciate the little help. Dan, when you mentioned in your remarks, your prepared remarks about the renewal deal, and I'm sure you disclose this. I'm sorry. You did not mention Massachusetts, but I thought that the company has a decent size or a good size footprint in Massachusetts.

Did I miss? Did you not mention Massachusetts? Was it explicitly excluded from the renewal rights and how big is that book?.

Thanks for catching me. I think I said, but I've ….

Yeah. You said Maine..

That's fine. I misspoke. It's a Massachusetts. The total premium that was involved in the renewal rights was about $130 million in those four states..

Okay. Okay. And then, my last question was sort of a follow-up to Elyse's question about, sort of the longer term return profile. Brad, you mentioned, mid -- I think you said 15 or whatever, mid-teens ROE, assuming an average annual loss load.

So maybe the most direct question is, what is the average annual loss estimated to be once you get through the 2021 transition year and you're in 2022 and/or how many retentions is that?.

Right now, we're estimating for 2021 that to be around $40 million and our goal will be to try and drive that lower. And it depends on what we do at six-one. That was an initial estimate, but obviously retention of risk is an annual decision that that's kind of the beauty of our business. And we're not locked into any kind of specific risk profile.

We want to drive that forward. We can certainly drive down our retention lower. And right now, it's all about ensuring the marginal change in rates that we're getting through -- our rate underwriting actions exceeds the marginal change in reinsurance costs and loss costs and are seeing that happen.

And that's why we're seeing improvement in the underlying results..

Okay.

I'm just sort of wondering when you get to 2022, and if you have the $25 million event retention, $70 million aggregate retention, if you were to sort of exhaust those nearly three retentions or the aggregate retention, what's the return profile -- what's the ROE profile in that sort of scenario, if the -- if your policy retention stays at 90%, and if your rate trajectory, as far as invoiced rate continues on the glide path that you've been getting and hope to -- I guess, continue to get and reinsurance costs continue to go? I assume you're profitable, but I don't know if that plays out to a double-digit or -- I guess that's what I'm sort of trying to get to? Any help..

Yeah. That's a good question. But I don't know if I could add anything further to what we've already comment. Our long-term target is how we modeled it.

What we do believe is achievable and it really depends on a lot of variables, like the retention rate on our renewal book and what our average annual rate increase ultimately comes through at and how low we buy our retention, depending on what's going on with reinsurance costs and structure. So, there are a lot of moving parts to that number.

But we set targets and we massage those variables to the best of our ability. But yet it is definitely something we see that's achievable over the next couple of years..

Okay. Last question.

How has the Florida department response and tolerance for rate increases requested of to the Florida companies that have been seeking rate increases? Have they been sort of particularly cooperative, or not so, or middling, any -- what do you see there, or here?.

I can't really speak for the other companies. But as far as our interactions, regulatory relations have been outstanding.

We applaud the Florida office for supporting our need for additional rate and part of our desire to buy down retentions and lock some of those reinsurance costs into our rate filings and be intellectually honest with loss reserves is to get those costs into our rates as fast as possible.

And we're getting ready to make another filing here before the end of the month, seeing another 14.7% here in Florida. We've moved from an annual cycle. We'll buy annual cycle of rate change in Florida. And it's -- so far has not been a problem. We'll just have to monitor that carefully going forward..

Okay. Thanks a lot. I hope the weather is more favorable for everybody..

Thanks for your questions..

Thank you..

The next question is from Bill Broomall of Dowling & Partners. Please proceed with your question..

Great. Thank you. If I could just maybe continue on Ron's question about Texas.

Is there any thoughts you might have on what typical claim -- like a burst pipe what does that typically cost in your experience in the past? And then two, is there any thoughts that you might have on demand surge with everything going on what that might look like in Texas?.

Thanks for your question, Bill. This is Brad. As far as average severity of title burse, I think that is all over the road. I don't know if I'm comfortable giving an exact answer there on height burse specifically. I would just tell, and as far as demand surge goes, obviously, we look at the models.

We try to estimate both the model expected loss and the 500-year return period for winter storm. And our portfolio is a $90 million gross loss. So, that would be well within the reinsurance, the AOP reinsurance program..

Got it. Okay. Perfect. Thank you. And I was just wondering on this Skyway Technologies, I'm assuming that's personal residential.

But can you just maybe talk about what states you're going to be operating in and in timing on that, please?.

Yeah. So, this is Dan. We're going to start off with Florida only, and it would be personal lines. We actually -- as you know, we have American Coastal, which is the number one market share in commercial, residential condominium associations.

And we also sell an HO6 product, which is the condominium unit owners product that is well-suited to a direct-to-consumer type of. So those are the areas that we're starting in and we'll develop it as we move up from there..

Got it..

We have a target of being active with this by the end of the year. Although, that's subject to completion..

Yeah. I would just add that, obviously, the technological capabilities are there, investments have been made.

We're excited about leveraging all the fantastic underwriting that's been done on the commercial residential portfolio than we already insured those, the shell and the structures for now moving direct to those consumers with all that those primary and secondary characteristics are in hand, will allow us to develop a very slick offering for those unit owners in Florida.

So, that's what we're going to start. And HO3 is a natural evolution and, obviously beyond Florida overtime..

Perfect. Thank you. And just a point of clarification. I don't remember who said it, Dan or Brad here. But you talked about trimming your five to 10 of the PML annually. Can you just maybe say that again or explain that a little bit. I Kind of missed the details..

Well -- this Dan. That was me. Again, I was trying to kind of verbalize that we expect to be trimming our PML exposure and our TIV exposure while at the same time we're achieving the rate increases, which makes kind of our top line mostly flat. So they were very general comments..

Yeah. And page 20 of the investor presentation shows a couple of graphs that they kind of illustrate that point a little bit. One chart is showing this the change in premium on top relative to the change in TIV, premiums up significantly more than exposures.

And then the -- our pool group's 100-year PML moving down almost 9% over the last 12 months is really the best evidence that we can provide people.

If we can maintain premium levels flat, as Dan said through rate change, while the exposure base is shrinking, that's a recipe for margin improvement, because remember it's that exposure base that's driving reinsurance costs and loss cost.

So that's going down while premium -- while we're able to maintain premiums through increases in average premiums, you're going to see improvement in our results..

Perfect. Thank you very much..

You're welcome..

The next question is some Ron Bobman of Capital Returns. Please proceed with your question. .

Thanks.

Brad, did you say that the one and 500-year return period modeled loss for the portfolio is $90 million or $900 million gross?.

Nine zero for the winter storm peril..

Okay. Okay. All right. Thanks for that. I was thinking about that number as contrast it to the $40 average annual adjusting. Okay. Thanks a lot. That explains it..

There are no additional questions at this time. I would like to turn the call back to management for closing remarks..

Okay. This is Dan. Thanks. With that, we'll wrap up the call today. I want to thank our investors, but also thank our entire team here, including our executive leadership team and especially our claims department for all their efforts and perseverance as we work through the 2020 unprecedented hurricane season. But thanks to all..

This concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation..