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Universal’s CR weakens to 134.7% in Q3 as loss and LAE ratio spikes

28th October 2020 - Author: Luke Gallin

Florida headquartered and expansive primary insurance carrier, Universal Insurance Holdings, has announced a loss of $3.8 million for the third-quarter of 2020 and a combined ratio of 134.7%.

universal-insurance-holdings-logoTowards the end of September, Universal announced estimated Q3 cat losses resulting in “full retention events” for Hurricanes Isaias and Sally, noting at the time that combined, these events led to a net negative impact of around $58 million (pre-tax).

In its Q3 2020 results announcement, the insurer reports that its combined ratio deteriorated by almost 40 percentage points year-on-year to 134.7%, which includes an expense ratio of 32.9% and a loss and LAE ratio of 101.8%. This compares with an expense ratio of 33.5% and a loss and LAE ratio of 64.3% in the same periods in 2019, respectively, which resulted in a combined ratio of 97.8%.

Universal explains that its underwriting performance suffered as a result of increased weather events, accruing reserves at a higher core loss ratio, prior year’s reserve development, and the impact of higher reinsurance costs. However, these factors were somewhat offset by a benefit from its claims adjusting business and a reduction in the expense ratio.

The significant rise in the loss ratio is attributable to a number of factors, including weather events above plan of $68 million, primarily related to the two hurricanes, as well as other PCS events that exceeded the plan year-to-date.

Prior year reserve development of $30.1 million for the quarter, which was mostly related to increased prior year’s companion claims being filed during the run up to the expiration of the 3-year catastrophe statute of limitations in September also played a role, notes Universal.

Adding that core losses of $140.4 million for the quarter, compared with $114.4 million in Q3 2019, were primarily related to accruing incremental reserves for the current accident year loss costs and diversified growth.

Staying with underwriting, and Universal has reported 19.4% growth in direct premiums written for the quarter to $409 million, while direct premiums earned increased by more than 14% to $357 million. At the same time, net earned premiums increased by 13.4% to 234 million in Q3 2020, compared with $207 million a year earlier.

Overall, the company’s total revenue improved by 35.7% from the $229.6 million reported for Q3 2019, to $311.7 million for Q3 2020.

Stephen J. Donaghy, the firm’s Chief Executive Officer (CEO), commented: “We continued to see headwinds in the third quarter as we dealt with elevated industry-wide weather events year-to-date. As previously announced, we were affected by full retention events from Hurricanes Isaias and Sally, in addition to other PCS events year-to-date. Furthermore, we saw an increase in prior year’s companion claims in the run up to the expiration of the statute of limitations for Hurricane Irma, which contributed to prior year’s reserve development.”

Adding: “Our primary rate increases continue to flow through our book as evidenced by our strong direct premiums written growth of 19.4% in the quarter. We continue to selectively write new business in our existing states, including Florida. Specifically in Florida, we have seen a 9.5% year-over-year policy count growth, with 97% of this growth coming from outside of the tri-county area.”

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