Attached files
file | filename |
---|---|
8-K - 8-K - UNITED INSURANCE HOLDINGS CORP. | a8-kq42017investorpresenta.htm |
United Insurance Holdings Corp.
NASDAQ: UIHC
Raymond James
39th Annual Institutional Investors Conference
March 5, 2018 | Orlando, FL
2 MARCH 2018 INVESTOR PRESENTATION
Presenting on Behalf of UIHC
John Forney has served as our Chief Executive Officer and a member of our
Board since June 14, 2012. He assumed the additional role of President in July
2013. From 2002 until he joined UIHC, Mr. Forney served in a number of
different capacities at Raymond James (NYSE: RJF), a financial services
holding company based in St. Petersburg, Florida. He last served there as
managing director in Raymond James' public finance department, where he
managed the department and led the firm's investment banking efforts in
catastrophe insurance financing. Mr. Forney received a B.A. in Economics from
Princeton University and an M.B.A. in Finance from the Wharton School at the
University of Pennsylvania. He also holds the Chartered Financial Analyst
designation.
B. Bradford Martz has served as our Chief Financial Officer since October 1,
2012. Prior to joining UIHC, Mr. Martz served as Chief Financial Officer and
Board Member of Bankers Financial Corporation, a Florida-based diversified
holding company system with operations in the property and casualty insurance,
life/annuity insurance, warranty, insurance agency, insurance business process
outsourcing and real estate markets. Mr. Martz obtained a B.S. in Finance from
the University of Colorado at Boulder and an M.B.A. from Northeastern
University. Mr. Martz is a Certified Public Accountant actively licensed in Florida
and also holds the Global Certified Management Accountant designation from
the American Institute of Certified Public Accountants.
3
The UPC Story
4 MARCH 2018 INVESTOR PRESENTATION
United Insurance Holding Corp. (NASDAQ: UIHC) is the
holding company for United Property & Casualty
Insurance Company (“UPC”) and its affiliated companies.
UPC is a specialized residential and commercial property
and casualty insurance underwriter with a geographically
diversified book of business and a long track record of
consistent underwriting profitability and strong returns
on invested capital.
UPC was founded in 1999, and since 2012 has
implemented a growth and diversification strategy that
has taken it from $246 million premium in force at Dec.
31, 2012 to over $1 billion premium in-force as of Dec.
31, 2017.
UPC currently writes in 12 states and is licensed in 18
states from Texas to Maine across our family of
companies.
Company Overview
UIHC as of December 31, 2017
Market Cap: $740 million
Total Assets: $2.1 billion
Total Equity: $501 million
Premium in-Force: $1.1 billion
Financial Strength
Ratings:
Credit Rating:
A- (Kroll)
A (Demotech)
BBB- (Kroll)
5 MARCH 2018 INVESTOR PRESENTATION
UPC Has a Significant Market Opportunity
Relative U.S. Hurricane Risk¹
¹ Source: AIR Worldwide
² Source: Karen Clark & Company
Export capabilities to all cat-exposed areas
Exposed Property Values ($ billion) ²
Coastal Peak
State All TIV TIV Coastal TIV
1 New York 7,838 5,610 2,484
2 Florida 4,673 3,657 688
3 Texas 5,963 1,588 1,187
4 Massachusetts 2,365 1,278 318
5 New Jersey 3,100 1,216 319
6 Connecticut 1,261 786 359
7 Louisiana 1,103 397 126
8 Virginia 2,019 312 104
9 South Carolina 998 276 103
10 Maine 398 239 105
11 North Carolina 2,092 180 57
12 Rhode Island 352 156 60
13 Alabama 1,100 144 98
14 Georgia 2,472 109 65
15 New Hampshire 406 109 109
16 Delaware 268 89 54
17 Mississippi 569 76 43
18 Maryland 1,551 22 22
Total 38,528 16,244 6,301
Florida is only 11%-
23% of the market
6 MARCH 2018 INVESTOR PRESENTATION
UPC’s Three Proven Pathways
for Growth
Organic
Underwriting
Carrier
Partnerships
Mergers &
Acquisitions
12,000 Appointed
Independent
Agencies & MGA’s
Nationally – this
is our primary
focus
Highest
premium-
in-force
of any
producer
Largest
producer
of our new
business
UPC has
executed 3
successful
acquisitions
7 MARCH 2018 INVESTOR PRESENTATION
UPC’s Value Proposition
8 MARCH 2018 INVESTOR PRESENTATION
Accumulated Cyclone Energy (ACE)
Sources: Dr. Klotzbach/Colorado State University and AIR Worldwide
259
250
231
230
227
227
226
211
205
0 50 100 150 200 250 300
1933
2005
1893
1926
2004
1995
2017
1950
1961
ACE is a value that can convey the destructive
potential of a single storm or an entire season
2017 was the 7th strongest season in the last
100 years, yet UPC remained profitable
9 MARCH 2018 INVESTOR PRESENTATION
UPC Expects to Outperform
the Industry
Manatee
Sarasota
Charlotte
Lee
Collier
Monroe
UPC Market Share Per County Hurricane Irma Overview ¹
• UPC’s overall market share in Florida – 6.56%
BUT
• UPC has some of the largest market share in
counties in the direct path of Irma:
Sarasota County: 14.92% (Largest In Co.)
Lee County: 14.63% (Largest in Co.)
Charlotte County: 13.68% (Largest in Co.)
Manatee County: 10.27% (2nd Largest in Co.)
Collier County: 9.47% (2nd Largest in Co.)
Hurricane Irma Path
Total residential property claims
reported in Florida: 750,847 ²
UPC claims reported: 30,651 ³
UPC % of total: 4.1%
¹ Market share data from Florida OIR as of September 30, 2017
² Claims reported data from Florida OIR as of February 9, 2018 for residential property
³ Data as of February 17, 2018
10 MARCH 2018 INVESTOR PRESENTATION
2017 Hurricanes in Perspective
2 CAT 4’s through our 2 largest states with Irma impacting our
largest area of concentration used just 18% of our program
2017 Events
2017/18 EXHAUSTION ($2.77B)
2017 Reinsurance Remaining
Estimated Modeled Expected Loss from Historical Events ¹
vs. 2017 Actual Hurricane Losses
0
500,000,000
1,000,000,000
1,500,000,000
2,000,000,000
2,500,000,000
3,000,000,000
¹ Modeled expected losses from historical events based projected exposures at 9/30/17 using AIR v3.1 LT
11 MARCH 2018 INVESTOR PRESENTATION
Investment Thesis
BIG MARKET OPPORTUNITY
• Permanent dislocation/lack of capacity in windstorm exposed markets
• Small market share needed to generate significant premium growth and strong returns
• UPC was the 21st largest homeowners insurer in U.S. for 2016 with production in only 12 states
• Approximately 85% of new business is being written outside Florida
LONG TRACK RECORD OF SUCCESS
• Cumulative written premiums nearly $4 billion; cumulative claims paid nearly $2 billion since inception
• Anti-fragility demonstrated during more than 50 different catastrophe events since 1999
• Business model has produced strong returns on invested capital through the cycle
CONSERVATIVELY CAPITALIZED
• Strong balance sheet with ample equity and liquidity – minimal financial leverage and investment risk
• Shareholders’ equity of $537 million augmented by over $2.2 billion of reinsurance remaining at Q4-17
• Conservative reserving philosophy with short tail exposure resulting in low reserve risk
• Low financial leverage and strong cash flow from both regulated and unregulated sources
MAJOR INVESTMENTS IN THE PLATFORM
• Merger with Florida’s largest commercial property writer – American Coastal
• Technology focused on ease of use and providing optimal efficiency, functionality and scalability
• Insourcing of key insurance functions gives UPC control over customer experience
• Seven member executive team has deep experience growing national platforms
12 MARCH 2018 INVESTOR PRESENTATION
Brad Martz
Chief Financial Officer
UPC Insurance
Financial Overview
13 MARCH 2018 INVESTOR PRESENTATION
Q4-2017 Highlights
IV. NON-RECURRING CHARGES
• $5.3m reduction in tax expense for Q4 related to the Tax Cuts & Jobs Act
• $2.4m increase in amortization expense in Q4 related to accelerated software amortization
I. RECORD OPERATING RESULTS
• Q4-17 produced record revenues of $182.6m, up 39% y/y
• EBITDA for the quarter was $42m, nearly double of any prior 4th quarter
• Remained profitable for 2017 despite $116m of retained CAT and a partial year of AmCo earnings
• Underlying Combined Ratio was 87.4% for the quarter and 85.3% for the year
• Favorable reserve development for 2017
• Stockholders’ Equity at 12/31/17 was $537.1m or $12.56 per share
II. IMPROVED CAPITALIZATION
III. CATASTROPHE MANAGEMENT
• Reinsurance program responded well and still had ~$2.2b (80%) of limit remaining
• Handled 43,460 CAT claims during 2017 (92% in Q4) with gross losses estimated at $533m
• Placed new quota share and aggregate stop loss on favorable terms with more CAT protection
• Secured $500m of limit for 6/1/18 renewal replacing loss effected layers with minimal cost increase
• Obtained investment grade credit rating of “BBB-”
• Raised $150m at fixed rate of 6.25%, reducing cost over 100bp & mitigating interest rate risk
• Total Assets at 12/31/17 were nearly $2.1 billion
• Liquidity at 12/31/17 was over $1.1 billion and we exceeded our benchmark investment returns in 2017
• Contributed $25m to UPC and $5m to FSIC to boost risk based capital ratio and reduce writings ratios
14 MARCH 2018 INVESTOR PRESENTATION
5-Year Underwriting Performance
Underlying combined ratio
consistently near our target of 85%
1 Catastrophe losses (CAT) include all events in excess of $1 million of incurred losses from 2 or more claims.
2 Underlying combined ratio, a measure that is not based on U.S. GAAP, is reconciled above to the combined ratio, the most directly comparable GAAP measure.
2013 2014 2015 2016 2017
Combined ratio (CR) 87.7 % 81.4 % 94.0 % 104.9 % 111.1 %
Effect of current year catastrophe
losses on CR ¹
1.8 % 0.3 % 8.5 % 12.2 % 19.8 %
Effect of prior year (favorable)
development on CR
2.1 % (1.5) % (0.7) % 3.7 % (0.4) %
Effect of ceding commission income
on CR
0.5 % 1.0 % 1.0 % 1.5 % 6.3 %
Underlying combined ratio ² 83.3 % 81.6 % 85.2 % 87.5 % 85.4 %
15 MARCH 2018 INVESTOR PRESENTATION
Core earnings are growing
EBITDA ¹
EBITDA excluding CAT ¹
Adding back depreciation and
amortization to earnings before
income tax is helpful analytically
given the significant non-cash
expenses related to recent
acquisitions
Catastrophe losses are core to our
property insurance business, but
adding them back to EBITDA
illustrates consistent core earnings
and cash flow generation that
allows us to take CAT risk
$ in millions
$ in millions
1 EBITDA and EBITDA X-CAT, measures that are not based on U.S. GAAP, adds back the impact of interest, taxes, depreciation and amortization, current year catastrophe losses to net
income (loss), which is the most directly comparable GAAP measure.
34.2
65.5
45.2
19.0
41.5
-
10.0
20.0
30.0
40.0
50.0
60.0
70.0
2013 2014 2015 2016 2017
37.8
66.4 73.8
74.8
158.0
-
50.0
100.0
150.0
200.0
2013 2014 2015 2016 2017
16 MARCH 2018 INVESTOR PRESENTATION
Components of Earnings Before Tax
Our Focus is on Improving Underwriting Results
Underwriting gains
represent the true
earnings power of
UPC over the long-
term
but…
CAT is why we
exist and a reality
that distorts core
performance in the
short-term
-120,000
-70,000
-20,000
30,000
80,000
130,000
2012 2013 2014 2015 2016 2017
Underwriting Gain Investment Income CAT Losses Reserve Development
1 Catastrophe losses (CAT) include all events in excess of $1 million of incurred losses from 2 or more claims.
¹
17 MARCH 2018 INVESTOR PRESENTATION
Gross Expense Ratios
Merger distorts comparability with PY
2017 % GPE 2016 % GPE Change
Gross Premiums Earned (GPE) $ 986,023 $ 666,829 319,194
I Policy acquisition costs (PAC) 175,448 17.8% 117,658 17.6% 57,790 0.1%
II Operating and underwriting 27,674 2.8% 20,524 3.1% 7,150 -0.3%
III General and administrative (G&A) 81,761 8.3% 42,957 6.4% 38,804 1.9%
Total operating expenses 284,882 28.9% 181,138 27.2% 103,744 1.7%
OPEX excluding merger & amortization expense 246,778 25.0% 170,030 25.5% -0.5%
I Drivers of PAC
Agent Commissions 107,776 10.9% 81,674 12.2% 26,103 -1.3%
Policy Administration 19,842 2.0% 18,883 2.8% 959 -0.8%
AmRisc MGA Fees 23,294 2.4% - 0.0% 23,294 2.4%
All other 24,536 2.5% 17,101 2.6% 7,435 -0.1%
Total PAC Drivers 175,448 17.8% 117,658 17.6% 57,790 0.1%
II Drivers of Operating & underwriting
Underwriting reports 6,959 0.7% 4,732 0.7% 2,227 0.0%
Equipment, Computer Services & Software 8,497 0.9% 6,610 1.0% 1,888 -0.1%
Printing & Postage 1,176 0.1% 434 0.1% 741 0.1%
All other 11,042 1.1% 8,748 1.3% 2,294 -0.2%
Total Operating & underwriting Drivers 27,674 2.8% 20,524 3.1% 7,150 -0.3%
III Drivers of G&A
Salaries and related expenses 25,468 2.6% 19,863 3.0% 5,604 -0.4%
Amortization & Depreciation 37,532 3.8% 11,713 1.8% 25,819 2.0%
Legal & Professional 13,940 1.4% 7,455 1.1% 6,485 0.3%
All other 4,821 0.5% 3,925 0.6% 895 -0.1%
Total G&A Drivers 81,761 8.3% 42,957 6.4% 38,804 1.9%
G&A excluding Amortization & Depreciation 4.5% 4.7% -0.2%
In thousands ($000)
18 MARCH 2018 INVESTOR PRESENTATION
Strong Liquidity & Low Leverage
Holding Co. Liquidity
Financial Leverage Underwriting Leverage
$ in millions
12.0%
6.2%
4.9%
18.3%
23.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
2013 2014 2015 2016 2017
$28.5
$52.3
$75.1
$36.5
$163.1
$-
$50.0
$100.0
$150.0
$200.0
2013 2014 2015 2016 2017
Dividend capacity of subsidiaries Unrestricted liquidity on hand
183.5%
130.0%
140.4%
189.3%
111.9%
0.0%
50.0%
100.0%
150.0%
200.0%
2013 2014 2015 2016 2017
NPE/Equity Debt/Capital
$110
$69
$98
$66
$14
$-
$50
$100
$150
2013 2014 2015 2016 2017
Cash Flow from Operations
$ in millions
19 MARCH 2018 INVESTOR PRESENTATION
Conservative Investment Portfolio
• Designed to preserve capital, maximize
after-tax investment income & liquidity
while minimizing asset & interest rate risk
• As of Dec. 31, 2017, 99.8% of the
Company’s fixed maturity portfolio
was rated investment grade
– Modified duration: 3.8 years
– Composite rating: A+
– Average YTM: 2.5%
All data as of December 31, 2017
Securities Portfolio
Value
($mm)
% of total
Cash and
Investments
Fixed Maturities $900.0 79.6%
Cash & Cash Equivalents 139.2 12.3%
Equity Securities 63.3 5.6%
Other Long-Term Investments 28.4 2.5%
Total cash and investments
$1,130.8 100%
Quality Distribution
Asset Allocation
21.0%
17.8%
12.1%
5.7%
2.5%
1.3%
12.3%
Government & Agency
Municipal Bonds
Short-term investments
Common & Preferred
Equity
Other long-term
investments
Asset backed securities
Cash & cash equivalents
25.9%
38.7%
21.9%
13.3%
0.2%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
A A A A A A B B B B B
20 MARCH 2018 INVESTOR PRESENTATION
Consistent Value Creation
510% INCREASE IN GAAP EQUITY
FROM 2012 - 2017
$ in thousands
87,986
537,125
-
100,000
200,000
300,000
400,000
500,000
600,000
2012 2013 2014 2015 2016 2017
GAAP Equity STAT Equity
17.1% CAGR IN BOOK VALUE PER
SHARE FROM 2012-2017
$5.70
$12.56
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$11.00
$12.00
$13.00
Q
4
'1
2
Q
1
'1
3
Q
2
'1
3
Q
3
'1
3
Q
4
'1
3
Q
1
'1
4
Q
2
'1
4
Q
3
'1
4
Q
4
'1
4
Q
1
'1
5
Q
2
'1
5
Q
3
'1
5
Q
4
'1
5
Q
1
'1
6
Q
2
'1
6
Q
3
'1
6
Q
4
'1
6
Q
1
'1
7
Q
2
'1
7
Q
3
'1
7
Q
4
'1
7
21 MARCH 2018 INVESTOR PRESENTATION
Conclusion
Long Track
Record of
Success
Conservatively
Capitalized
Significant
Market
Opportunity
Major
Investment in
the Platform
Shareholder
Value
Creation
22 MARCH 2018 INVESTOR PRESENTATION
Cautionary Statements
This presentation contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These forward
looking statements include expectations regarding our diversification, growth opportunities, retention rates, liquidity, investment returns and our
ability to meet our investment objectives and to manage and mitigate market risk with respect to our investments. These statements are based on
current expectations, estimates and projections about the industry and market in which we operate, and management's beliefs and assumptions.
Without limiting the generality of the foregoing, words such as "may," "will," "expect," "endeavor," "project," "believe," "anticipate," "intend," "could,"
"would," "estimate," or "continue" or the negative variations thereof, or comparable terminology, are intended to identify forward-looking statements.
Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could
cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:
the regulatory, economic and weather conditions in the states in which we operate; the impact of new federal or state regulations that affect the
property and casualty insurance market; the cost, variability and availability of reinsurance; assessments charged by various governmental agencies;
pricing competition and other initiatives by competitors; our ability to attract and retain the services of senior management; the outcome of litigation
pending against us, including the terms of any settlements; dependence on investment income and the composition of our investment portfolio and
related market risks; our exposure to catastrophic events and severe weather conditions; downgrades in our financial strength ratings; risks and
uncertainties relating to our acquisitions including our ability to successfully integrate the acquired companies; and other risks and uncertainties
described in the section entitled "Risk Factors" and elsewhere in our filings with the Securities and Exchange Commission (the "SEC"), including our
Annual Report on Form 10-K for the year ended December 31, 2016. We caution you not to place undue reliance on these forward looking statements,
which are valid only as of the date they were made. Except as may be required by applicable law, we undertake no obligation to update or revise any
forward-looking statements to reflect new information, the occurrence of unanticipated events, or otherwise.
This presentation contains certain non-GAAP financial measures. See the Appendix section of this presentation for further information regarding these
non-GAAP financial measures.
The Company has filed a registration statement (including a prospectus) and a preliminary prospectus supplement with the Securities Exchange
Commission ("SEC"). This presentation does not constitute an offer to sell or the solicitation of an offer to buy any securities. Any offering of
securities in the future will be made only by means of the prospectus in that registration statement and a related prospectus supplement, which will
be filed with the SEC. Before you invest in any potential offering, you should read the prospectus, the related prospectus supplement and other
documents the Company has filed with the SEC for more complete information about the Company and the potential offering. When available,
you may get these documents for free by visiting EDGAR on the SEC Web site at www.sec.gov. Alternatively, the Company will arrange to send you
the prospectus and the related prospectus supplement after filing if you request it.
The information in this presentation is confidential. Any photocopying, disclosure, reproduction or alteration of the contents of this presentation and
any forwarding of a copy of this presentation or any portion of this presentation to any person is prohibited.