United Insurance Holdings is using technology to cut its losses.
United Insurance (Nasdaq: UIHC), a major St. Petersburg-based employer that provides property and casualty insurance and does business as UPC Insurance, is getting pickier about the properties for which it will provide insurance coverage and the agents that sell policies. It is also raising rates and deductibles in several states, including Florida.
Dan Peed, chairman and CEO, detailed the steps UPC is taking after the company reported a loss of $74.1 million, or $1.73 a share, on revenue of $212.7 million for the third quarter of 2020.
About $2.8 million of the loss, or 5 cents a share, was a one-time charge after the company decided to discontinue plans to build a new corporate headquarters downtown.
Most of the loss was due to an unusually active hurricane season that affected the 12 coastal states in which UPC operates.
“Year-to-date we have seen a record number of named storms in our geographic footprint. As an insurer that focuses on providing homeowners’ insurance in hurricane-prone coastal areas, we experienced our largest ever quarterly losses due to these unprecedented storms,” Peed said.
In an investor presentation, the company detailed claims and estimated losses as a result of named storms through Nov. 1.
Additional losses are expected from new storms in Q4, but the losses masked the company’s success in improving its underwriting profit on business not related to named storms, Peed said.
UPC is taking several underwriting actions to refine and focus its portfolio, he said
“First we are increasing use of a proprietary online inspection technology to enable us to focus on best-in-class risk. We are also refining our appetite on new business to restrict writing in unprofitable geographies. We are exiting products and territories that lack profitability or scale. Additionally, we are implementing minimum deductibles in Florida with plans to expand to the rest of our footprint. We also plan to refine our agency plan by addressing bottom quartile producers,” Peed said. “All these activities are expected to drive a significant continuing improvement to our underlying combined ratio, which helps to generate the underwriting profit needed to absorb the [catastrophe] risk inherent in our portfolio.”
The insurance market is hardening, Peed said. A hard insurance market is one in which premiums increase as companies’ appetite for writing new policies falls. Florida regulators have approved rate hikes ranging from 13.7 percent to 14.5 percent for UPC’s homeowners policies, according to the company’s investor presentation. Rate hikes have been filled or approved in nine other states.
“The market is hardening and I believe that it will continue to harden even more and that we will be able to continue improving the class of risk that we write, as well as improving the terms and conditions under which we write it,” Peed said.
The recent challenges have taken a toll on UPC’s stock price, Greg Peters, an analyst for Raymond James Financial, wrote in a report issued before the third quarter earnings were announced. The stock was trading at $7.66 a share on July 1, the start of Q3, but dropped to $4.35 a share by the end of the day on Nov. 6.
“We continue to believe UIHC’s core commercial business [American Coastal] is generating attractive returns and look for management to meaningfully scale back the exposure to the retail homeowners business over the next 24 months, which should lead to a gradual and sustained level of improved results over time,” Peters wrote.