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United Insurance Holdings Corp. Reports Financial Results for Its Fourth Quarter Ended December 31, 2016United 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, 2016.
"2016 was a year of accomplishment and challenge for us," said John Forney, President & CEO of UPC Insurance. "Continued robust organic growth, the strengthening of our claims team, and the pending merger with American Coastal all positioned us for a very bright future. However, catastrophe losses from Hurricane Matthew and many other smaller events, coupled with a very difficult noncat loss environment in Florida, hurt our bottom line results for Q4 and the full year. Nonetheless, I am proud of the efforts of our team, which is working hard every day so that our stakeholders can reap the benefits of what we are building at UPC." Quarterly Financial Results Net loss for the fourth quarter of 2016 was $(10.5) million, or $(0.49) per diluted share, compared to net income of $13.8 million, or $0.64 per diluted share for the fourth quarter of 2015. The change in net earnings was primarily due to increases in loss and loss adjustment expenses related to Hurricane Matthew for the fourth quarter of 2016 compared to the fourth quarter of 2015. The Company's total gross written premium increased by $22.6 million, or 15.6%, to $167.1 million for the fourth quarter of 2016 from $144.5 million for the fourth quarter of 2015, primarily due to strong organic growth in new and renewal business generated in the Company's Gulf and Northeast regions. Increases in direct written premium of over $36.9 million were partially offset by reductions in assumed premium as the Company sharply curtailed its takeout activities in 2016 compared to the prior year. The breakdown of the quarter-over-quarter changes in both direct written and assumed premiums by region is shown in the table below.
Loss and LAE increased $52.6 million, or 114.3%, to $98.7 million for the fourth quarter of 2016 from $46.1 million for the fourth quarter of 2015. Loss and LAE expense as a percentage of net earned premiums increased 32.2 points to 81.5% for the quarter, compared to 49.3% for the same period last year. Retained catastrophe losses of $32.0 million during the fourth quarter of 2016 included losses from Hurricane Matthew and certain other losses not covered by the Company's reinsurance programs. Prior year loss reserve development of $7.4 million for the quarter was driven primarily by non-catastrophe water claims in Florida for accident year 2015. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the quarter was 32.6%, an increase of 0.9 points from 31.7% during the fourth quarter of 2015, due primarily to increased severity from water, weather and fire losses as well as lower average premiums. Policy acquisition costs increased $10.3 million, or 44.3%, to $33.6 million for the fourth quarter of 2016 from $23.3 million for the fourth quarter of 2015. These costs vary 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 expenses increased by $2.6 million, or 97.1%, to $5.2 million for the fourth quarter of 2016 from $2.6 million for the fourth quarter of 2015, primarily due to increased costs related to the Company's ongoing growth and to increased assessment expense during the quarter, including an assessment from the North Carolina Joint Underwriting Association related to Hurricane Matthew. General and administrative expenses increased $3.6 million, or 47.2%, to $11.2 million for the fourth quarter of 2016 from $7.6 million for the fourth quarter of 2015, primarily due to increases in personnel costs related to the Company's continued growth and higher depreciation and amortization costs resulting from the acquisition of Interboro Insurance Company during the second quarter of 2016. Year-to-Date Financial Results Net income for the year ended December 31, 2016 was $5.7 million, or $0.26 per diluted share, compared to $27.4 million, or $1.28 per diluted share for the year ended December 31, 2015. The decrease in net income was primarily due to increases in loss and loss adjustment expenses during 2016 as compared to 2015. The Company's total gross written premium increased by $138.5 million, or 24.3%, to $708.2 million for the year ended December 31, 2016 from $569.7 million for the year ended December 31, 2015, primarily due to the strong organic growth in new and renewal business generated in the Company's Gulf and Northeast regions. Increases in direct written premium of over $159.3 million were partially offset by reductions in assumed premium as the Company sharply curtailed its takeout activity in 2016 compared to the prior year. The breakdown of the year-over-year changes in both direct written and assumed premiums by region is shown in the table below.
Loss and LAE increased $115.3 million, or 62.9%, to $298.4 million for the year ended December 31, 2016 from $183.1 million for the year ended December 31, 2015. Loss and LAE expense as a percentage of net earned premiums increased 10.8 points to 65.3% for the year, compared to 54.5% for the same period last year. Excluding catastrophe losses and reserve development, the Company's gross underlying loss and LAE ratio for the year was 33.8%, an increase of 2.7 points from 31.1% during 2015, due primarily to an increase in fire and weather related losses as well as lower average premiums. Retained catastrophe losses of $55.8 million during 2016 included losses from winter and spring storms in Florida and Texas, the August Louisiana storms, Hurricane Hermine, Tropical Storm Colin, Hurricane Matthew, and certain other losses not covered by the Company's reinsurance programs. Prior year loss reserve development of $17.0 million for the year was driven primarily by non-catastrophe claims in Florida for accident year 2015. Policy acquisition costs increased $30.3 million, or 34.6%, to $117.7 million for the year ended December 31, 2016 from $87.4 million for the year ended December 31, 2015. These costs vary 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 expenses increased by $5.2 million, or 34.0%, to $20.5 million for the year ended December 31, 2016 from $15.3 million for the year ended December 31, 2015, primarily due to increased costs related to the Company's ongoing growth and continuing expansion into new states. General and administrative expenses increased $13.1 million, or 43.9%, to $43.0 million for the year ended December 31, 2016 from $29.9 million for the year ended December 31, 2015, primarily due to increases in personnel costs related to the Company's continued growth and higher depreciation and amortization costs resulting from the acquisition of Interboro Insurance Company during the second quarter of 2016. Combined Ratio Analysis The calculation of the Company's underlying loss and combined ratios is shown below.
UPC Insurance experienced unfavorable 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.
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 2016 were 30.8% of gross premiums earned compared to 30.0% of gross premiums earned for the fourth quarter of 2015. Reinsurance costs for the year ended December 31, 2016 were 28.7% of gross premiums earned compared to 30.3% for the same period last year. Ceded earned premiums related to the Company's quota share reinsurance program that incepted on December 1, 2016 were $9.9 million and drove the 0.8% increase to reinsurance costs as a percentage of gross premiums earned in the current quarter compared to the fourth quarter last year. Investment Portfolio Highlights UPC Insurance's cash and investment holdings totaled $679.3 million at December 31, 2016 compared to $537.5 million at December 31, 2015. 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 93.5% of total investments at December 31, 2016 with a modified duration of 3.7 years compared to 87.6% at December 31, 2015 and a modified duration of 3.9 years. Book Value Analysis Book value per share increased 0.4% from $11.11 at December 31, 2015, to $11.15 at December 31, 2016 and underlying book value per share increased 0.6% from $11.04 at December 31, 2015 to $11.11 at December 31, 2016. The increase in the Company's book value per share and underlying book value per share was driven primarily by retained earnings during 2016. The Company's underlying book value per share growth was impacted by the decrease in accumulated other comprehensive income as shown in the table below.
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 and reserve development (underlying combined ratio) is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of current year catastrophe losses on the combined ratio and prior year development on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that may be obscured by current year catastrophe losses, losses from lines in run-off and prior year development. Current year catastrophe losses cause our 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. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our 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 our business. Net Loss and LAE excluding the effects of current year catastrophe losses and reserve development (underlying Loss and LAE) is a non-GAAP measure which is computed as the difference between loss and LAE, current year catastrophe losses and prior year reserve development. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these three items can have a significant impact on our loss trend in a given period. 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 our business. Consolidated net loss ratio excluding the effects of current year catastrophe losses, reserve development (underlying loss ratio) is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the consolidated net loss ratio, the effect of current year catastrophe losses on the loss ratio, and the effect of prior year development on the loss ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development. As discussed previously, these two items can have a significant impact on our consolidated net loss ratio in a given period. The most direct comparable GAAP ratio is our net consolidated Loss and LAE ratio. The underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business. Book value per common share, excluding the impact of accumulated other comprehensive income, is a ratio that uses a non-GAAP measure. It is calculated by dividing common shareholders' equity after excluding accumulated other comprehensive income by total common shares outstanding plus dilutive potential common shares outstanding. We use the trend in book value per common share, excluding the impact of accumulated other comprehensive income, in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of interest rates that can fluctuate significantly from period to period and are generally driven by economic and financial factors which are not influenced by management. Book value per common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of accumulated other comprehensive income, should not be considered a substitute for book value per common share, and does not reflect the recorded net worth of our business. Conference Call Details
About UPC Insurance Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services residential and commercial property and casualty insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries. Our insurance affiliates write and service property and casualty insurance in Connecticut, Florida, Georgia, Hawaii, Louisiana, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, South Carolina and Texas and are 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. Forward-Looking Statements Statements in this press release, 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 that are subject to uncertainty. These statements are made subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995 (PSLRA). These forward-looking statements do not relate strictly to historical or current facts and may be identified by their use of words like "may," "will," "expect," "believe," "anticipate," "intend," "could," "would," "estimate," "or "continue" and other words with similar meanings. 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 quarterly report on Form 10-Q. Forward-looking statements speak only as of the date on which they are made, and we assume no obligation to update or revise any forward-looking statement.
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