Hello, and welcome to the United Insurance Holdings Corp q one conference call. At this time, all participants are in a listen only mode. If anyone should require operator assistance, please press 0 on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
It's now my pleasure to turn the call over to Adam Prior with The Equity Group. Please go ahead.
Thanks, Kevin, 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 I'd be happy to send you a copy.
In addition, UPC Insurance has made this broadcast available on its website as well. Before we get started, I'd 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 the federal securities laws, including statements relating to trends in the company's operations and financial results and the business and the products of the company and subsidiaries. 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 US 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'd now like to turn the call over to Mr. Dan Peet, UPC's Chief Executive Officer. Please go ahead, Dan.
Hello, and thanks for joining us on our first quarter earnings call. I'm Dan Pee, Chairman and CEO of UPC. I plan to offer an overview, and then Brad Marks will go over specific numbers, and then we'll take some questions. The first quarter yielded an underlying combined ratio of 90.4%, which is a slight improvement on a year over year basis. Our first quarter cats, including winter storm Uri, caused a loss near 24,000,000 net, somewhat better than planned and benefiting from a reduced AOP cat retention in our 2021 reinsurance program.
As such, we were set to deliver results for the first quarter on track with plan and in line with our expected transition year. However, due to unusual loss development patterns in February and especially March, at the end of the first quarter, we did an analysis of our exposure to the accelerating litigation terms in Florida. This resulted in a $30,000,000 strengthening of both cat and non cat prior year reserves focused in our Florida personal lines exposures. This drove a disappointing after tax core loss for the quarter of approximately 19,400,000.0. Subsequent to closing the quarter, we are very encouraged with last Friday's Florida legislative changes and believe that they will help to mitigate the accelerating litigation experienced in Florida.
Given our substantial exposure to Florida, we believe this will result in significant improvements for UPC and will make a material difference to our ultimate losses incurred in Florida while allowing UPC to keep the promise and stand strong for our investors, business partner partners and policyholders. As mentioned above, while our underlying combined ratio improved slightly year over year to 90.4%, we need to target the low eighties. To drive an underwriting profit and continue expanding our underlying margin, we need to continue driving up revenue and driving down loss and reinsurance costs through risk selection and exposure management. We're making good progress. For revenue, our rate increases are continuing with a 10.4% rate increase achieved year to date on personal lines renewal business and nearly 19% on personal lines new business.
We anticipate the hardening rates will continue and renewal business rate increases to even accelerate. We have filed rate increases in Florida, Texas, South Carolina, North Carolina, Louisiana, and New York averaging nearly 15%. Renewal retention rates remain strong. We have curbed new business dramatically as part of our exposure management plan. For exposure management, we are ahead of pace, reduced by 13% our pooled PML by September 30 on a year over year basis, which will result in over $300,000,000 less reinsurance limit need.
This takes a lot of pressure off our June 1 catastrophe reinsurance placement. To date, we expect to finish our placement soon. And as of today, we are over lined on our core cat placement. Program includes a significantly reduced occurrence and aggregate retention for hurricane exposure to the pooled companies of at most 25,000,000 per occurrence for first and second events and less than 70,000,000 in the aggregate. This retention level, when applied against the twenty twenty hurricane season, would have yielded about one third of the actual $2.00 $8,000,000 retention last year.
Our commercial lines business fared well and results are outlined in our investor supplement, which can be found on UPC's website. American Coastal continues with the number one market share of admitted commercial residential in Florida and is riding in a very firm market. The newly legislated citizens changes which include the annual rate increase glide path, inclusion of the reinsurance cost to the one hundred year, and the 20% keep out premium will positively impact terms for the Florida commercial residential space. We continue to be on track to roll out our Journey ENS platform and our direct to consumer technology product with SkyWay Technologies, both planned for the second half of twenty twenty one. We will have more information on our plans for these platforms as we near rollout.
As stated previously, we expect 2021 to be a transition year, but we remain well positioned to continue expanding our underlying margin while also significantly cutting our net catastrophe margins. We plan to take advantage of the accelerating rate increases and our opportunities in E and S and direct consumer technology. The property cat market remains as hard as it has been in years, the Florida personal lines market. With that, I'll turn
it over to Brad. Thank you, Dan, and hello. This is Brad Marks, 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 Q for more information regarding the company's performance. For the quarter ended 03/31/2021, the company reported a GAAP net loss of $17,800,000 or $0.41 a share compared to a loss of $12,700,000 or $0.30 per share last year.
Our core loss of $19,400,000 or $0.45 per share represented a $28,500,000 decline from core income of 9,100,000.0 or $0.21 a share in the first quarter last year. As Dan mentioned, the deterioration in core results was driven by a $30,000,000 charge to strengthen loss reserves due to higher than expected prior year loss development. This irregular loss development deviated from historical patterns in February and March due to higher frequency of litigation and a rise in severity fueled by higher material costs. This trend continued in April and was factored into our re estimation of ultimate loss liabilities at quarter end. Page six of our investor presentation paints a nice picture of the litigation trends we've seen since 2017 and why legislative changes in Florida were needed.
We applaud every leader in Florida who helped make that happen. Assuming, these changes become law on our about July 1, I believe it's a game changer and should have a positive impact on future results over time. Our GAAP and core losses also included $24,000,000 or $0.44 share of current year catastrophe losses, consistent with our preannouncement. Winter storm Uri was approximately $16,000,000 with the remaining $8,000,000 stemming from nine smaller cat events during the first quarter. Gross premiums written for the quarter decreased $23,500,000 or 7% from a year ago, driven primarily by a $21,000,000 or 9.4% decline in personal lines, consistent with our strategy to derisk and reshape our homeowners insurance risk portfolio.
Commercial premium production was down slightly due to lower assumed E and S premiums written of $19,000,000 which was offset by strong premium growth in American Coastal's admitted commercial residential portfolio of 16,500,000 or up 18% year over year, driven by higher rates. Ceded earned premiums were $210,700,000 an increase of $57,700,000 or approximately 38% year over year due to more business being ceded via our quota share reinsurance programs. Other items included in total revenue during the first quarter included $5,100,000 of fee income related to our renewal rights transaction in the Northeast that was completed in January, unrealized gains from equity securities of $2,600,000 and investment income of $3,600,000 which declined $3,300,000 or 48% from the prior year due to lower yields and dividends from equities. UPC's first quarter net loss and loss adjustment expense was $115,800,000 an increase of $12,900,000 or 12.6% year over year. Net retained cat losses added over 16 points, and the prior year reserve development added over 20 points to our net loss and combined ratio.
Excluding these two items, the underlying loss in LOE was down or was $62,000,000 down $24,800,000 or 29% year over year. This produced an underlying gross loss ratio of 17.4%, which improved nearly eight points compared to 25.2% a year ago due primarily to higher ceded losses. And our underlying net loss ratio of 42.5% improved approximately three points from 45.4% in the first quarter last year, which is a better baseline for comparison this period since it includes both ceded premiums and losses. UPC's operating expenses were $69,900,000 a decrease of $17,000,000 or 20% year over year. This decline was driven almost entirely by higher ceding commission income in the current quarter, which is reflected in lower acquisition costs.
Excluding ceding commissions, total operating expenses increased roughly $1,700,000 a year. Our gross expense ratio for the year was 19.6% to 25.2%. Including the benefit of ceding commissions. In contrast, our net expense ratio increased 2.6 points to 47.9%, inclusive of reinsurance costs. Speaking of reinsurance, our team made exceptional progress on renewing our core catastrophe reinsurance program that will become effective 06/01/2021.
I'm happy to report we've secured commitments from our reinsurance partners in excess of the total limit being sought and are now in the process of determining final allocation of lines. We were able to retain our aggregate cascading structure, which we believe provides superior protection against risk for ruin. And the risk adjusted cost increase is likely to be in the mid single digits, but is not finalized yet because we are still evaluating various options related to reducing our occurrence in aggregate retention. As Dan mentioned, the most significant change we expect to make this year is reducing potential earnings volatility in the second half of twenty twenty one from named windstorms. We look forward to announcing all the details later this month once the terms are finalized, but wanted to express today that our program is in great shape and much improved compared to a year ago.
On the balance sheet, UPC's total assets were $2,800,000,000 including cash and investments of approximately 1,200,000,000 The modified duration of our fixed income holdings increased to four point four years, but our composite rating of A plus remain unchanged. GAAP equity attributable to UIHC stockholders declined approximately 9% from year end to $359,000,000 with a book value per share of $8.32 Our unrestricted liquidity at the holding company was approximately $40,000,000 at quarter end, but we intend to utilize up to half of that liquidity for capital contributions to our pooled group of companies, given the impact of our reserve charge had to statutory surplus this quarter. Finally, I would also like to preview our intent to refresh our currently stale dated shelf registration statement. We can't provide any additional details regarding future plans to access Capital Markets at this time, but we always want to be properly positioned to do so. Thanks for your valuable time and interest in our company, and that concludes our prepared remarks.
We are now happy to take any questions.
You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, may be necessary to pick up your handset before pressing star one. 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.
Good afternoon. I'd like to focus first on the litigation chart that you charts you put on page six, some of the commentary you had in other parts of your presentation.
So the the
the legislation was passed, and it's gonna go into effect on July 1. So there's two parts to the litigation question. First of all, there are other parties that are have observed the litigation and observed the what's been passed and have suggested that while it might help a little bit on the margin, it's not going to go far enough to fixing the problem. And the second part of the litigation question would be if the trends accelerated in March, February, March, and now and and and it goes into effect July 1, should we expect that chart that's on page six on the right hand side of the page to go up even further or is there a rush to the to the filing date to get more claims filed? And will that result in a poor loss ratio in the second quarter?
Thanks, Greg. This is Dan. So we've heard a lot of feedback from the various parties on how effective the legislation will be. And of course, we did not get everything that was originally in the senate bill 76. And there were a few key things that were removed.
However, from the standpoint of just the dynamics of a claim and litigation, there's quite a bit of good stuff that puts more structure around that process and makes it more fair than it has been. Florida has been really, really difficult. And I think for people that are really close to the situation, they can see that there will be changes in how those claims are addressed. So we feel like they that will make a significant difference including, like, the two year time frame as it applies to the tail and stuff like that. So so we have heard the various things and and the fact is that we won't really know until we see how this this impacts some of the claims.
Your second question, which is really what do we expect out of q two? I would expect that we'll have something of a rush to the courthouse. But, of course, when we're looking at our reserves, we're thinking about how that impacts the future. And so, you know, we would not project the q two number of litigation events to continue to grow into q three or q four. We'd obviously, we would project that to to come down dramatically.
So I don't think that that will, have an impact, a negative impact on how we look at reserves at the end of q two.
Thank you for that that answer. And then as just as a follow-up, I know you report, the underlying number. I'm just curious about how meaningful the underlying number is in the context of the unfavorable reserve development. You know, it would suggest, you know, the 29,000,000 with or $29,769. It would suggest that is, you know, you had understated the underlying loss ratio in prior quarters.
So actually, the the actual underlying loss ratio or underlying combined ratio is running higher than what you're reporting is. Or am I looking at that wrong?
Greg, this is Brad.
I'll I'll try that one. I think the underlying number tends to help with comparability between periods by stripping out the noise. So for example, if some of the the data that emerged in the second half of the first quarter this year was available at year end when we were making certain decisions and and that $30,000,000 had been put into our year end numbers, you'd be talking about a pretty significant improvement in the combined ratio potentially. That that's that's the sort of thing that you know, it distorts comparability in the underlying, metric. It's just one of many metrics we we think all are important, especially the combined ratio.
Don't want to deemphasize the combined whatsoever, but it is a way to help improve comparability.
I got it. And then the last question would be on the reinsurance and risk based capital. I guess with this first quarter results, your risk based capital ratios deteriorated. Obviously, with the reinsurance, you have an opportunity to sort of reset that. How are you thinking about risk based capital ratios as we go through the second quarter and the reinsurance the reinsurance renewals?
And and maybe you wanna give us an update because it all ties in with the first quarter result, where they are, etcetera.
Yeah. We're we're comfortable with our capital position. We've put a lot of work and thought into that, obviously, year end with some of the additional reinsurance protections we've put in place both at year end and at January 1 with our, all other perils catastrophe access to loss program, which did help lower our retention of risk from from winter storm Uri. And we're gonna do the same thing for our six one renewals. So that is going to take pressure off of some of the earnings volatility that we've seen in in recent years, as we start to take more reasonable retentions of risk relative to our capital.
But the derisking of the portfolio is really driving down our net premium risk, and that is the primary driver of required capital. So actual capital will obviously be determined by the frequency and severity of losses in the second half of the year, but we're drawing we're doing everything in our power to improve our risk portfolio and drive down our required capital.
Got it. Thank you for the answers.
Thank you. Our next question today is coming from Elyse Greenspan from Wells Fargo. Your line is now live.
Hi. Thanks. My first question, I think Dan started off your discussion by saying, right, you're targeting a low 80s on an underlying basis. You just, you know, give us a sense, you know, kind of find an update on a time frame, you know, when you guys would would expect to get there.
Okay. Well, the, you know, the the way to get there is, of course, to drive down our loss cost and increase our revenue. So we're on a run rate. We we have achieved a 10 let's say, 10.2 or 10.4% rate increase looking backwards. And we have filings.
There's two filings in Florida for 14.7%, and I think Texas, Louisiana, South Carolina, North Carolina, and New York, which all averaged around 15% in addition to the 10% that we achieved for last year. So on the exposure management and on the loss cost side, we've taken a number of steps from the standpoint of underwriting and risk selection to try to eliminate what we call the bottom decile of our portfolio. So those steps will try to move that that underlying combined ratio down into the low eighties. I when is a good question. I mean, it moves around a little bit, obviously, with how quarters go, but we would certainly hope that we're there by the end of this year, 2021.
Okay. That's helpful. Then in terms of the color that you guys gave around, you know, bringing down your net cat cost, right, and just, you know, in reference to what we saw last year from the event. So is this this is following the addition the full placement of your reinsurance cover as you see it getting placed, right, as of June 1? I mean, it sounds like you have all the commitments, for the program, but, basically, you expect that the loss, I think you said 70,000,000.
Right? That's basically after we go through the full renewal of the program?
So the what we said was at the most 70,000,000, 20 5 million for the first and the second occurrences and a 70,000,000 aggregate. We're working to potentially bring that down even further, and we hope to have news over the next couple of weeks. But, yes, that would be applicable at June 1. We have a separate, what we call, all other perils cat tower that we placed at one one, which helped us in our loss and gave us a net loss that was reduced from that outside of hurricanes. So that retention applies to named storms, the 25.
Okay. That's helpful. And how much Brad, sorry. I think I might have missed some of your commentary on capital in your prepared remarks. I think you were talking about having to contribute some capital to the pooled entities just because of the reserve charge in the quarter.
Did you provide a number? Can you just kind of rehighlight to us what you said?
Certainly. We I I had mentioned in my remarks that we had approximately $40,000,000 of cash on hand, unrestricted cash on hand at the whole co level, and we intended to utilize up to half of that liquidity for for contribution. Those have not been finalized yet, in terms of exact amounts, but we do want to backfill, you know, the hole that that that was caused by the reserve charge, that we feel was prudent and warranted given the the lost development activity we saw. But so that that's essentially what was communicated.
Okay. Great. And then a couple of quick numbers ones. I had heard from another reinsurer, a reinsurer, actually. Sorry.
So they said that even though it's kind of more than three years out, that they're still, seeing some adverse development on Irma. So have you guys, seen your, gross loss from that event move recently, like, the current quarter?
Yes. We did reevaluate Irma at March 31 as well, and our gross loss increased a hundred and $50,000,000 for Irma.
From the end of last year?
That's correct.
Okay. And then one last one. So there's been some events, in April, just in terms of some of the storms that occurred. Some at the end of the month could be, I guess, of more significant losses. Is there anything, that we should think about you guys, in terms of April to date, maybe having more or, you know, perhaps you're less exposed to some of the events that we've seen so far?
Sure. Yeah. We can acknowledge some CAT activity in April, but nothing, out of the ordinary, and and we don't have anything to to preannounce at this time.
Okay. Thanks for the color.
You're welcome. Thank you.
Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to management for any further or closing comments.
Well, we just wanna thank everybody for being here, and thanks again.
Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.