Property and casualty (P&C) insurance holding company, United Insurance Holdings Corp. (UPC Insurance), has returned to profitability in the second-quarter of 2020, posting net income of $24.3 million and a combined ratio of 99.4%.
These figures compare with a net loss of $2.9 million in the second-quarter of 2019 and a combined ratio of 108.2%. For the first half of the year, UPC Insurance has recorded net income of $11.6 million and a combined ratio of 99.2%, against income of $6.6 million and a combined ratio of 106% in H1 2019.
According to UPC Insurance, the increase in net income was mostly due to a rise in unrealised gains on equity securities, as well as reduced loss and loss adjustment expenses (LAE) and a decline in policy acquisition costs in Q2 2020 when compared with the prior year.
Loss and LAE fell by 12.6% for the firm in the quarter to $101.7 million, with current year catastrophe losses of $29.8 million and favourable prior year reserve development of less than $1 million. In comparison, Q2 2019 saw UPC Insurance book a lower level of cat losses at $15.8 million, but also more than $15.3 million of unfavourable prior year reserve development.
Regarding the COVID-19 pandemic, and UPC Insurance has revealed that it did not ” incur material claims or significant disruptions to the business for the three and six months ended June 30, 2020,” but adds that the uncertain nature of the event means it’s “not possible to reasonably estimate the extent of the impact of the economic uncertainties on the financial results and conditions of the Company in future periods”.
Policy acquisition expenses fell by $9 million in the quarter to $52.6 million, while operating and underwriting expenses jumped by 25% to $14 million. UPC Insurance’s general and administrative expense declined by $0.7 million to $16.1 million in the second-quarter of 2020.
In its results announcement, the insurer also offers some insight into its reinsurance costs as a percentage of gross earned premium in Q2 2020 when compared with the prior year Q2. The total ceding ratio as a percentage of gross earned premiums amounted to 46.1% in Q2 2020 against 42.3% in Q2 2019.
According to UPC Insurance, this increase is a result of the terms of the renewal of its quota share agreement in 2019. From inception this agreement only covered the firm’s subsidiary United P&C Insurance at a ceding percentage of 20%, but now, the terms have been modified to add the company’s subsidiary, FSIC, while the ceding percentage was increased at the renewal to 22.5%.
Commenting on the firm’s performance during the period, recently appointed Chief Executive Officer (CEO), Daniel Peed, said: “The second quarter saw a lot of change for me and for UIHC. I am very excited to join the leadership team as Chairman and CEO effective July 1st. As I have been a catastrophe underwriter for over 25 years, I am very comfortable we can continue to grow our non-cat underwriting margin and optimize catastrophe exposures and reinsurance coverages.
“The second quarter saw continuing improvement in our underlying combined ratio as rate increases earn their way through the portfolio, and underwriting and risk selection actions take effect. While the second quarter was an active non-named catastrophe quarter, in line with our peers, we were still able to generate a core income of $.20 per share and $.30 per share excluding named storms.”
Brad Martz, President and Chief Financial Officer (CFO) of UPC Insurance, added: “Our results for the second quarter continued to show improvement in several key metrics such as core income and the underlying combined ratio, and I’m grateful for the hard work and progress our team has made.
“However, we are just getting started on the exciting next chapter of our Company’s evolution under Dan’s leadership and more work must be done. A hardening property insurance market provides UPC with a great opportunity to be more selective and optimize our risk portfolio for long-term profitability, so that’s what we intend to focus on.”
