Universal Insurance Holdings, Inc. reported strong second quarter 2024 results, delivering solid underwriting performance and continued favorable claims and litigation trends. The company's annualized adjusted return on common equity reached 30.5% and adjusted diluted earnings per share grew 35.6% year-over-year.

Business Overview

For the full year 2023, Universal Insurance reported net income of $66.8 million on revenue of $1.39 billion. The company generated operating cash flow of $71.0 million and free cash flow of $67.0 million. These results demonstrate the company's ability to generate consistent profitability and healthy cash flows to support its operations and growth initiatives.

Financials

In the second quarter of 2024, Universal Insurance reported adjusted diluted earnings per share of $1.18, up from $0.87 in the prior year quarter. This increase was primarily driven by higher underwriting profitability and improved net investment income.

Core revenue

, which excludes net realized and unrealized investment gains and losses, grew 12.5% year-over-year to $379.2 million.

Direct premiums written

increased 5.7% to $578.3 million, including 0.9% growth in Florida and 30.1% growth in other states. The growth was fueled by higher rates, inflation adjustments, and an increase in policies in force.

Direct premiums earned

rose 5.9% to $490.6 million, reflecting the earned impact of the premium growth over the past 12 months.

Net premiums earned

increased 13.7% to $345.0 million, primarily due to the higher direct premiums earned and a lower ceded premium ratio. The

net combined ratio

improved 3.2 percentage points to 95.9%, driven by a 3.2 percentage point decrease in the net loss ratio to 70.6%. The net expense ratio remained flat at 25.3%.

Recent Developments

The company noted that it continues to see positive impacts from the tort reform legislation enacted in Florida in December 2022. These reforms have helped curtail represented and litigated claims, which have been a significant driver of elevated losses and loss adjustment expenses in recent years. As a result, Universal Insurance reported zero net reserve development in the second quarter, compared to prior year reserve strengthening.

Outlook

Looking ahead, the company remains optimistic about the benefits of the tort reform and its ability to maintain rate adequacy in the Florida market. Universal Insurance recently completed the placement of its 2024-2025 reinsurance program, which saw only a modest increase in overall costs despite substantial demand for private market reinsurance following the expiration of certain government-backed reinsurance layers.

Capital Management

In terms of capital management, Universal Insurance repurchased approximately 274,000 shares at an aggregate cost of $5.3 million during the second quarter. The company's current share repurchase authorization program has approximately $14.7 million remaining. Additionally, the Board of Directors declared a quarterly cash dividend of $0.16 per share, payable on August 9, 2024.

Geographic Diversification

From a geographic perspective, Florida remains the company's primary market, accounting for 79.5% of direct premiums written in the second quarter. However, Universal Insurance has been actively diversifying its business, with the other 17 states in which it operates now contributing 20.5% of direct premiums written, up from 18.5% in the prior year quarter.

Revenue Breakdown

In terms of revenue breakdown, the majority of Universal Insurance's revenue comes from net premiums earned, which grew 13.7% year-over-year to $345.0 million in the second quarter. Net investment income also contributed to the top-line growth, increasing 25.4% to $14.8 million, driven by higher investment yields. Commission revenue, on the other hand, declined 34.5% to $11.5 million due to the absence of reinstatement premiums related to Hurricane Ian that were earned in the prior year quarter.

Liquidity

The company's balance sheet remains strong, with a debt-to-total capital ratio of 21.8% as of June 30, 2024. Universal Insurance's liquidity position is also robust, with $396.3 million in cash and cash equivalents and $1.20 billion in total invested assets as of the same date.

Conclusion

Universal Insurance delivered a solid performance in the second quarter of 2024, driven by improved underwriting results and favorable claims and litigation trends. The company's diversification efforts, disciplined risk management, and prudent capital allocation have positioned it well to navigate the evolving insurance landscape. With the continued benefits of the Florida tort reform and a well-structured reinsurance program, Universal Insurance appears poised to maintain its strong financial position and deliver value to its shareholders.