Universal cites “Florida claims environment” in Q2 underwriting loss

Universal Insurance Holdings, the Florida headquartered primary insurance carrier, has cited the states challenging insurance claims environment as a key driver of a technical underwriting loss for the second-quarter of the year.

Of the Florida headquartered property insurance carrier cohort, Universal is one of the largest and most soundly capitalised, with a significant reinsurance tower to support its business.

But still, the dysfunctional Florida property insurance marketplace challenges Universal, even with its greater scale and capital than many of the Florida carrier cohort.

In announcing its second-quarter results last night, Universal reported a net loss ratio of 72.3%, which is up 7.0 points compared to the prior year quarter.

“The increase primarily reflects a higher initial accident year attritional loss pick associated with the challenging Florida claims environment and inflationary and weather trends,” Universal explained.

These were partly offset by lower adverse prior year reserve development, as a percentage of net premiums earned.

Because of this, Universal’s combined ratio for Q2 2022 came out at 100.9%, so a technical underwriting loss, and 3.6 points up on the prior year.

This in a quarter with no significant storm activity, but it seems a good deal of attritional weather related loss activity, with claims from those inflated thanks to Florida’s challenged legal system and marketplace.

Core losses reached $196.6 million for the quarter, against premiums earned of $428.8 million.

Only around $60 million of prior year losses were ceded to reinsurance capital during the quarter, which was down considerably on the prior year’s $109 million of ceded loss development.

Despite the elevated combined ratio and effects of Florida’s challenging claims environment, Universal still delivered 12.4% growth in premiums written and $301.6 million of core revenues during the period.

“We reported a 12.8% annualized adjusted return on common equity in the quarter, an impressive feat in the current environment,” explained Stephen J. Donaghy, Chief Executive Officer. “Direct premiums written growth of 12.4% accelerated from 8.5% in the first quarter of this year, and significantly outpaced an 8.5% policies in force decline. In addition to rate increases, we continue to optimize and rebalance our portfolio, increasing exposure to more profitable regions, while reducing exposure to less profitable geographies.”

Donaghy also highlighted Universal’s successful reinsurance renewal, which saw the insurer buying the most catastrophe capacity in its history with insurance-linked securities (ILS) markets playing a critical role.

He commented, “Our capital position remains strong at both of our insurance subsidiaries and on an enterprise-wide basis, and I’m particularly proud of the robust reinsurance program that we completed prior to the June 1 renewal date. Despite the challenging reinsurance market, our program includes full protection for both hurricanes and tropical storms, has no gaps in coverage and no co-participation and provides coverage across multiple events. We are well prepared for hurricane season and expect the actions we’ve taken to bear fruit in future periods.”