United Insurance Holdings Corp. has reported a net loss for the second quarter of 2021 of $23.5 million, driven by a reduction in revenue during the period as the firm’s ceded premiums earned spiked on the back of changes made to its reinsurance use.
This quarterly loss compares with net income of roughly $24 million for the prior year period, and is primarily a result of a 28.2% decrease in total revenues to $155.5 million.
United attributes this change to an increase in ceded premiums earned, which went from $158.6 million in Q2 2020 to $210.9 million in Q2 2021, as a result of changes made to its reinsurance structure at December 31st, 2020 and June 1st, 2021.
Modifications made to its reinsurance agreements include extending coverage to include American Coastal Insurance Company on the 15% quota share, alongside increasing the cession percentage by 8%. The company also entered into a quota share arrangement with HCP effective December 31st, 2020, which provided 69.5% reinsurance coverage on certain policies.
Furthermore, effective June 1st, 2021, United entered into a new quota share arrangement with HCP and TypTap Insurance Company.
As well as these changes to the structure of its reinsurance use, United also lowered the retention amounts related to its catastrophe excess of loss reinsurance program for the 2021/2022 season, which led to higher ceded premiums, year-on-year, but less risk if the current storm season is active.
Combined, these changes have driven increases in the firm’s ceding ratio for Q2, which jumped from 46.1% in 2020 to 59.2% in 2021, as a percentage of gross earned premium.
Across the group, gross premiums written fell by 3% in Q2 2021 to $426.4 million, as gross premiums earned increased by 3.6% to $356.4 million.
Loss and loss adjustment expenses (LAE) jumped by more than $16 million to $118.1 million for the second quarter of 2021; increasing by 26.4 points as a percentage of net earned premiums. Excluding losses from catastrophes and reserve development, and United reports that its gross underlying loss and LAE ratio for Q2 2021 would have hit 21.9%.
For Q2 2021, United has reported current year catastrophe losses of $40.3 million, and prior year favourable reserve development of $372 million. This compares with current year cat losses of $29.8 million a year earlier, and favourable reserve development of $823 million.
With a Q2 loss ratio of 81.2% and an expense ratio of 46.7%, United has reported a combined ratio of 127.9% for the second quarter of 2021, or 100.5% on an underlying basis. This compares with a loss ratio of 54.8% and an expense ratio of 44.6% for the prior year period, which resulted in a Q2 2020 combined ratio of 99.4%, or 83.7% on an underlying basis.
Dan Peed, the company’s Chief Executive Officer (CEO), commented: “The second quarter results reflect execution of our ongoing 2021 transition plan, in which we pivot to dramatically reduced named and non-named catastrophe retentions and increased quota share reinsurance protection.
“These all drive a significant increase in reinsurance spend, which reduces our margin during transition, but is priced into the portfolio going forward.”
