Universal strengthens reserves as inflationary pressures continue: CEO Donaghy

Universal Insurance Holdings, the Florida headquartered primary insurance carrier, has strengthened current accident year and prior year reserves as it seeks to mitigate the effects of inflationary pressures on loss cost trends, CEO Stephen J. Donaghy said.

On Friday, Universal reported an expected $80.1 million net impact to its fourth-quarter 2021 results, as the company continues to deal with loss creep related issues.

It’s all part of taking a “conservative” stance on inflationary pressures, the carrier said, as it looks to bring its reserving up to speed with inflation and social pressures.

For the current accident year, the insurer has strengthened reserves by $30.7 million on an after-tax, net basis.

For prior year loss events, Universal reported adverse development to both catastrophe and non-catastrophe related losses of $27.9 million on an after-tax, net basis.

In addition, Universal has also reported an additional $21.5 million in weather losses above plan, on an after-tax, net basis, for the current accident year.

The total impacts of which add up to the $80.1 million in net negative impact to Universal’s fourth-quarter earnings.

Universal, like many Florida property insurers, has suffered with loss creep and inflation in recent years.

This has been caused by a mix of factors, including claims litigation, such as the assignment of benefits (AOB) crisis in Florida, other social inflationary pressures, and COVID related price, materials and labour inflation.

These trends continue to impact the Florida property insurance market and are driving up rates. They are also one factor behind the rise in reinsurance rates for Florida, a trend expected to continue at the June renewal season.

“As the second half of 2021 has matured, we have seen the effects of inflationary pressures, which we are addressing through our primary rate increases and current year reserve strengthening on attritional claims and PCS events, as well as on prior years’ claims,” Stephen J. Donaghy, Chief Executive Officer of Universal explained.

He continued to say that, “These actions to combat inflationary and social pressures have resulted in substantial positive strides on our reserve position over the past 24 months.”

Adding that, “We remain positive on the recent legislative actions taken in Florida and continue to hold all of the capital we raised during the fourth quarter at the parent company level to continue to support growth.”

Universal is not the only carrier experiencing these trends in Florida and other wind exposed coastal US states. But Florida does remain the worst affected, it seems, with AOB claims still seen to be rising.

On Universal’s prior year reserve strengthening, this could have sent some further losses to its reinsurance panel, as the insurer still has cover available for prior year hurricane events, such as Irma.

Read some of our other Florida focused coverage:

United (UPC) stops writing new Florida homeowners business.

Florida Citizens staff call on Board to publicly support risk transfer.

Lowering Florida Hurricane Cat Fund attachment faces opposition.

Florida P&C rate filings show reinsurance firming needs to continue.

Assignment of benefit (AOB) claims rising for Florida P&C insurers.

Florida’s lack of profits seen as “bad bet” by ILS investors: Fermat’s Seo.

Florida market “unsustainable”, reinsurance rates to increase in 2022: Citizens CEO.