Hello and welcome to the United Insurance Holdings Corp. First Quarter 2022 financial results conference call and webcast. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require Operator assistance during the conference,.

As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karin Daly, Vice President with the Equity Group. Please go ahead..

Thank you, Kevin. And good morning -- good afternoon, everyone. UPC Insurance has also made this broadcast available on its website at www.upcinsurance.com. A replay will be available for approximately 30 days following the call.

Additionally, you can find copies of UPC's earnings release and presentation in the Investors section of the company's website. Speaking today will be Chairman of the Board and Chief Executive Officer R. Daniel Peed, and President and Chief Financial Officer Bennett Bradford Martz.

On behalf of the company, I'd like to note that statements made during this call that are not historical facts are forward-looking statements. The company believes 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 expressed in or implied by the forward-looking statements.

Factors that could cause actual results to differ materially may be found in our filings with the U.S. Securities and Exchange Commission in the Risk Factors section of our most recent annual report on Form 10-K or 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 statements. With that, it's my pleasure to turn the call over to Mr. Daniel Peed. Dan..

Thanks, Karin. Hello and thanks for joining us on our first quarter earnings call. I'm Dan Peed, Chairman and CEO of UPC Insurance. I'm planning to offer an overview of some of our activities and then Brad Martz will provide some more specific numbers.

The first quarter had a core loss of $29.3 million, which reflects a reduced net earned premium combined with elevated catastrophe losses from 10 PCS events and higher loss severity on both attritional and CAT claims. Revenues for the first quarter reflect our aggressive de -risking and de -leveraging activities over the last 18 months.

Gross earned premium on a year-over-year basis is down by approximately 10% due in part to the sale of our Northeast renewal rights. Also, we continue with exposure management activities in our remaining core portfolio, which decreased TAV by nearly 14% on a year-over-year basis.

But exposure management reductions were generally offset by rate increases on both our personal lines and commercial lines portfolios. Our net earned premium is down just over 30% again due in part to the 100% quota share treaties associated with the sale of the Northeast and Southeast renewal rights.

As well as increased reinsurance spend to enhance our hurricane protection through reduced retention levels on both the quota occurrence basis, as well as an aggregate basis. As such, ceding ratios are up from 59% to 68% with quota share up 5.8 points. And other, which is mostly cut excessive loss up 3.5 points.

While losses are down $21.4 million or 21% year-over-year, the net loss ratio is up significantly due to the 30% reduction in net earned premium. Losses were impacted by modestly elevated catastrophe events in the first quarter, as well as increased severity due to litigation and inflation on both CAT and non-CAT losses.

If we look at our performance on a direct written premium basis, the non-CAT loss ratio was down slightly from 32.4% to 32.3%, while lower-frequency offset by increased severity. A CAT loss ratio was down significantly from 29% to 13% due in part to winter store on URI last year, but still elevated over long-term averages.

Expenses were reduced in-line with direct written premium reductions and the direct expense ratio was up only slightly from 27.9% to 28.0%. On the underwriting activity side, we continue to achieve compounding rate increases.

In personal lines, we achieved rated -- average rate increases across our core portfolio of 17.9% in the first quarter on top of the 11.5% achieved in 2021. Combined with our insurance-to-value initiatives, average renewal premium across the portfolio increased 26.6% and is expected to continue to accelerate throughout the remainder of this year.

The Commercial Lines portfolio continues to perform well with an $11.6 million pre -tax income for the quarter. For Commercial Lines, our premium is up by 22.7% year-to-date, while TIV is just under a 4% increase.

We announced in April that we have filed application with the Florida OIR to merge Journey Insurance Company into American Coastal Insurance Company to support the growth in ACIC and to better allocate capital between the statutory companies. This is progressing according to plan.

The application is pending and we expect to close, subject to regulatory approval in the second quarter. We continue to make progress towards our goal of a 50-50 balance between personal lines and commercial lines, moving from 63-37 at the end of last year to 61-39 at the end of the first-quarter.

Brad will discuss further that our 6-1 CAT treaty renewal is progressing on track, with most of the lower layers committed and total capacity needed down dramatically due to the portfolio de -risking discussed earlier. For Florida litigation, we continue to see the number of initial lawsuits down significantly from the peak rates of June 2021.

However, with escalating pre -suit notification of intent to litigate, it is less certain the excessive litigation in Florida will continue to decelerate due to SB 76. There is now plans special session of the legislature scheduled to convene on May 23rd to address property insurance issues.

In summary, first quarter results reflect the transition to derisk and deleverage our portfolio, resulting in significantly decreased gross and net earned premiums, which combined with elevated catastrophe losses and increased severity. We're continuing to take compounding rate actions, as well as risk selection and exposure management actions.

The increased rates are earning their way through the portfolio and we expect to continue with rate increases through at least the middle of 2023. Our Commercial Lines business is positioned for profitable growth with a market-leading position in a specialty commercial niche in one of the hardest markets in the last 20 years.

With that, I'll turn it over to Brad Martz to discuss more specific numbers..

rate and coverage increases. Last year, we implemented new controls to ensure that 100% of our personal lines risk being renewed were at no less than 100% of the current replacement cost estimate that is index for inflation monthly.

We refer to this as our insurance-to-value or ITV initiative, and when combined with our rate changes, it's beginning to have a significant uplift on rate adequacy in personal lines. UPC's operating expenses were $54.3 million, a decrease of $15.7 million or 22.4% year-over-year.

This decline was driven mainly by higher ceding commission in the current quarter, which is reflected in lower policy acquisition costs and driving a favorable comparison to gross premiums earned.

However, our direct expense ratio shown on Page five of our investor presentation as Dan mentioned, was basically unchanged at 28%, once you exclude the effect of ceding commissions in comparison to gross premiums earned. That being said, our net expense ratios did increase approximately 6 points to 53.8% inclusive of reinsurance costs.

Speaking of reinsurance, Page 12 of our investor presentation, shows our projected 2022 - '23 core catastrophe reinsurance program. We have secured virtually all the limit needed in the first three layers, where market capacity is very limited. And we found approximately 75% of the $2.2 billion of limit projected at June 1st.

But when at this year, the limit needed this year is significantly less due to already risking efforts and our retention is unchanged approximately $15 million, but the structure is changing from an aggregate program to a more traditional occurrence-based approach.

We expect the program to be finalized in early June and plan to issue a press release with more details once complete. Our balance sheet as of March 31st, included total assets of $2.4 billion, including cash and investments of approximately $909 million, which decreased $56.1 million or $5.8% from year-end.

The modified duration of our fixed income holdings decreased to 3.8 years with an overall composite rating of a and yield to maturity increase into 2.86%. GAAP equity attributable to UIHC stockholders declined approximately 17.4% to $258 million, or the book value per share of $5.96, and tangible book value per share of $3.86.

Rising interest rates caused our accumulated other comprehensive income to decrease by $25.7 million, which impacted book value per share and tangible book value per share by approximately $0.59 after-tax. That's story, policyholder surplus at the end of the first quarter was approximately $285 million.

And it's also worth noting the company received regulatory approval to terminate it's intercompany pulling agreement, which improves our ability to potentially raise additional capital to support American Coastals profitable Commercial Lines growth going forward. That concludes our prepared remarks.

We thank you for your continued interest and are now happy to take any questions..

Thank you. We'll now be conducting a question-and-answer session,. One moment please, while we poll for questions. Our first question today is coming from Greg Peters, from Raymond James. Your line is now live..

Great. Good afternoon. I guess I'm going to have two questions and the first question will focus on Slide 8, which is your reduction in your policies, in your premium, in your TIV. The second question will be on reinsurance costs.

So, in looking over Slide 8, if we take the states that you're no longer in, we're still seeing pretty rapid sequential decline in policies for the, for example, down much 6.9% from end-of-year to March 31st.

Is this sort of rate of change in the shrinkage of your policy count? Is that sort of a good run rate to think about for the balance of the year as you continue your derisking efforts?.

I can take that. This is Dan. Yes, so you have a personal line adjusted there 6.6% on a fifth count that is probably in line with the run rate. But notice that the premium is not dropping at the same rate because of the rate increases. So, our premium wouldn't be going down at that rate. The premium will be going down at a lesser rate..

That makes sense. And then it also makes sense that the TIV isn't going down at the same rate because you're readjusting your TIV.

Is there any hope that you in some of the smaller states can more rapidly exit or is that as a regulatory consideration that are holding you back?.

Remember that we have 100% quota share behind those smaller states. So, what you see written there is basically past directly through to HCI and renewal rights sale..

Got it. Okay. And then -- thanks for the color in your -- on Slide 12 about your reinsurance program. And then I was looking in the press release when you talk about reinsurance costs as a percentage of gross earned premium.

I know the final details aren't available for the program yet, but directionally, can you give us a sense of how the cost -- how those ratios might look in the back half of the year? Or any color on what's going on there would be helpful..

Hi, Greg. This is Brad. That's a great question. I -- we have some visibility into that, but I don't think it would be appropriate to the comment at this time, given all the uncertainty around those special session in Florida that could potentially change our outlook.

So, I would -- I appreciate the inquiries, but my guidance would be we will attempt to provide as much color as we can as early as we can once we've got -- we're close to -- closer to fully bound on the program, we know with certainty what those costs are.

But right now, we're still in the middle of the market placement and negotiations with with the market, so I don't think it'd be appropriate to comment on the expectation of price direction..

I guess that makes sense. I didn't even touch the Florida special session, but given the staff you throw on page nine, I think provides some compelling evidence that maybe we'll do some. Thank you..

Thank you. Next question is coming from Bill from Teton Capital. Your line is now live..

Thank you. I'd like to pick up on the special session.

Would you please discuss the items that are on the agenda and what potentially you're hearing that legislators would like to come out of that session?.

Okay, Bill. Thanks. This is Dan. I'm not exactly sure what specific items are on the agenda. I know there are several things that have been kicked around, either in the past or associated with this and it includes, potentially a change in the Florida Hurricane Catastrophe plan to attachment point is one of them.

One of the things that is specifically needed is some weighted deal with the roof covering issues, and so -- so they.

You'd mentioned the roof covering issues in addition to --.

Thanks. Yes. So, roof covering just dealing with the actual cash value versus the replacement cost value, there's potentially a group deductible type of provision that would apply a roof deductible to non-hurricane wind.

And then of course, if they were to get in and try to work a little bit more with the litigation from the perspective of the SB 76 and how that impacted the litigation, when it would apply and how it applies.

I'm sorry, that's not a great answer, but we do expect that they're going to have some negotiations going into that session, but we are completely uncertain of what comes out of it..

No, that's fair, Dan. Thank you. Do you have a sense whether there is a consensus in the legislature that they want to limit the litigation? Particularly the frivolous litigation or at this point, there's just an awareness that the industry is overburdened and they're going to explore options to assist from multiple angles..

Again, Bill, I think a hard question to answer because certainly, the commissioner of Insurance has suggested that there is excessive or frivolous litigation. But having said that, the legislature has worked for years trying to find solutions to that, but they've not seemed to be able to come to conclusion.

However, I think there is a growing consensus that something needs to be done. Otherwise, the Florida insurance space is becoming very hospital to the insurance..

Great. Thank you..

Thank you..

Thank you. We reached end of our Question-and-Answer Session. I'd like to turn the floor back over for any further closing comments..

Okay. Thanks for joining us on our call and that will wrap up our call for today. I want to thank our entire team for their tireless efforts and thanks to all of you for joining our call today. Thanks again..

Thank you. That does conclude today's teleconference or webcast, you may disconnect your lines at this time and have a wonderful day. We thank you for your participation today..