United (UPC) losses hit retention, AOB drives adverse development in Q2

For the second-quarter of 2019 Florida headquartered and expanding primary insurer United Insurance Holdings (UPC Insurance) revealed that two severe weather catastrophe events hit its retention, while ongoing assignment of benefits (AOB) impacts drove adverse prior year development.

Underlying losses and loss adjustment expenses reached $85.1 million in the quarter for United (UPC), but the firms reinsurance panel assisted in moderating the impact to its earnings, particularly for two current quarter catastrophe events.

Commenting on the quarter, John Forney, President and CEO of UPC Insurance, said, “It was a tough quarter for us. Elevated levels of cat losses and the last gasp of the AOB industry in Florida combined to overshadow the continued strong growth and performance in most of our states and lines of business. Recent and pending rate increases and other initiatives should help us get back on track and show the true earnings power of our business.”

Overall earnings were up by 11% for the insurer, but the company suffered a small net loss of $2.9 million due to the impact of higher catastrophe losses in the period and this “last gasp” as Forney called it of the Florida AOB epidemic.

Premiums written were up by a very healthy 16%, suggesting further growth of the portfolio likely at better pricing, which will drive increasingly large reinsurance renewals for United (UPC).

Total losses and loss adjustment expenses (LAE) were $116.3 million for the quarter, but excluding this the  gross underlying loss and LAE ratio for the second quarter of 2019 would have been just 25.8%.

That demonstrates the size of the impact of current year catastrophes, at $15.8 million and prior year reserve developments of $15.3 million, which together boosted the combined ratio significantly.

But UPC passed on roughly $36 million of the impacts to its reinsurance panel during the quarter.

Two PCS designated catastrophe events in the quarter, severe weather events, drove losses that hit the retention on UPC’s non-hurricane reinsurance layer.

While the prior year development was largely driven by late reported claims, litigation and AOB activity, the insurer said.

It shows that AOB related loss creep is not yet over and there remains a chance of further development associated with both hurricane Irma and Michael in Florida, which could result in further deterioration of some reinsurance or ILS positions.

However, given insurers like United (UPC) feel this is the last gasp efforts of a systemically dysfunctional legal system, it is to be hoped that finally the market is seeing that last of this.