Unless the context in any other case requires, all references to "we," "us," "our," and "Company" discuss withUniversal Insurance Holdings, Inc. ("UVE") and its wholly-owned subsidiaries. You ought to learn the next dialogue collectively with our unaudited condensed consolidated monetary statements ("Financial Statements") and the related notes thereto included in "Part I, Item 1-Financial Statements," and our audited condensed consolidated monetary statements and the associated notes thereto included in "Part II, Item 8-Financial Statements and Supplementary Data" in our Annual Report on Form 10-Okay for the yr endedDecember 31, 2021 . Operating outcomes for anyone quarter usually are not essentially indicative of outcomes to be anticipated for another quarter or for the yr.
Cautionary Note Regarding Forward-Looking Statements
In addition to historic data, this report could comprise "forward-looking statements" inside the that means of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The forward-looking statements anticipate outcomes primarily based on our estimates, assumptions and plans which might be topic to uncertainty. These forward-looking statements could also be recognized by their use of phrases like "plans," "seeks," "expects," "will," "should," "anticipates," "estimates," "intends," "believes," "likely," "targets," and different phrases with comparable meanings. These statements could deal with, amongst different issues, our technique for progress, disaster publicity and different danger administration, product improvement, funding outcomes, regulatory approvals, market place, bills, monetary outcomes, litigation and reserves. We consider that these statements are primarily based on affordable estimates, assumptions and plans. However, if the estimates, assumptions or plans underlying the forward-looking statements show inaccurate or if different dangers or uncertainties come up, precise outcomes might differ materially from these communicated in these forward-looking statements consequently of the dangers set forth under, that are a abstract of these set forth in our Annual Report on Form 10-Okay for the yr endedDecember 31, 2021 . We undertake no obligation to replace or revise publicly any forward-looking statements, whether or not consequently of new data, future occasions, or in any other case.
Risks and uncertainties which will have an effect on, or have affected, our monetary
situation and working outcomes embrace, however usually are not restricted to, the next:
•Unanticipated will increase within the severity or frequency of claims, together with these referring to catastrophes, extreme climate occasions and altering local weather circumstances, which, in some cases, have exceeded, and sooner or later could exceed our reserves established for claims; •Failure of our danger mitigation methods, together with failure to precisely and adequately value the dangers we underwrite and to incorporate efficient exclusions and different loss limitation provisions in our insurance coverage insurance policies;
•Loss of impartial insurance coverage brokers and incapability to draw new impartial
brokers;
•Reliance on fashions, that are inherently unsure, as a device to guage
dangers;
•The continued availability of reinsurance at present ranges and costs, and our
potential to gather funds due from our reinsurers;
•Changes in trade traits, together with modifications because of the cyclical nature of the
trade and elevated competitors;
•Geographic focus of our enterprise in
our progress and diversification technique in new markets;
•Loss of key personnel and incapability to draw and retain proficient workers;
•Failure to adjust to current and future tips, insurance policies and authorized and
regulatory requirements;
•The potential of our claims professionals to successfully handle claims;
•Litigation or regulatory actions that would end in important damages,
fines or penalties;
•A downgrade in our Financial Stability Rating® and its influence on our
aggressive place, the marketability of our product choices, our liquidity
and profitability;
•The influence on our enterprise and repute of information and safety breaches as a consequence of
cyber-attacks or our incapability to successfully adapt to modifications in know-how;
•Our dependence on the returns of our funding portfolio, that are topic to
market danger;
•Legal, regulatory or tax modifications that enhance our working prices and lower
our profitability, equivalent to limitations on charge modifications or necessities to
take part in loss sharing;
•Our dependence on dividends and permissible funds from our subsidiaries;
•The potential of our Insurance Entities to adjust to statutory capital and
surplus minimums and different regulatory and licensing necessities; and
•The ongoing influence of the COVID-19 pandemic on our enterprise and the financial system in
common.
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Table of Contents OVERVIEW We are a vertically built-in holding firm providing property and casualty insurance coverage and value-added insurance coverage companies. We develop, market and underwrite insurance coverage merchandise for customers predominantly within the private residential householders' line of enterprise and carry out considerably all different insurance-related companies for our major insurance coverage entities, together with danger administration, claims administration, and distribution. Our major insurance coverage entities,Universal Property & Casualty Insurance Company ("UPCIC") andAmerican Platinum Property and Casualty Insurance Company ("APPCIC" and along with UPCIC, the "Insurance Entities"), supply insurance coverage merchandise by each our appointed impartial agent community and our on-line distribution channels throughout 19 states (primarily inFlorida ), with licenses to put in writing insurance coverage in two further states. The Insurance Entities search to provide an underwriting revenue (outlined as earned premium minus losses, loss adjustment expense ("LAE"), coverage acquisition prices and different working prices) over the long run; keep a conservative steadiness sheet to organize for years during which the Insurance Entities usually are not in a position to obtain an underwriting revenue; and generate funding earnings on belongings. The following Management's Discussion and Analysis ("MD&A") is meant to help in an understanding of our monetary situation and outcomes of operations. This MD&A ought to be learn along with our Financial Statements and accompanying Notes showing elsewhere on this Report (the "Notes"). In addition, reference ought to be made to our audited Consolidated Financial Statements and accompanying Notes to Consolidated Financial Statements and "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-Okay for the yr endedDecember 31, 2021 . Except for the historic data contained herein, the discussions on this MD&A comprise forward-looking statements that contain dangers and uncertainties. Our future outcomes might differ materially from these mentioned herein. Factors that would trigger or contribute to such variations embrace, however usually are not restricted to, these mentioned above below "Cautionary Note Regarding Forward-Looking Statements."
Trends
Florida Trends
We are at the moment working by a cycle to enhance long-term charge adequacy and earnings for the Insurance Entities by rising charges and managing exposures, whereas taking benefit of what we consider to be alternatives in a dislocated market. TheFlorida private strains householders' market at the moment could be characterised as a "hard market", the place insurance coverage premium charges are escalating, insurers are lowering coverages, and underwriting requirements are tightening as insurers intently monitor insurance coverage charges and handle protection capability. Due to circumstances within theFlorida market and elements extra typically affecting theU.S. and international reinsurance markets, reinsurance capability in recent times has additionally been topic to much less favorable pricing and phrases. These market forces lower competitors amongst admitted insurers, and finally outcome within the elevated use ofCitizens Property Insurance Corporation ("Citizens"), which was created to be the State's residual property insurance coverage market. In current years, in response to hostile behaviors and circumstances within theFlorida residential market, most admitted market rivals have sought and usually obtained approval for important charge will increase. Meanwhile, Citizens' charge will increase are restricted by regulation, leading to its insurance policies, in a tough market, changing into priced decrease than admitted market insurance policies. This causes Citizens to grow to be considered as a fascinating various to the admitted market as admitted market insurers handle by the exhausting market challenges. Our Insurance Entities likewise have taken and proceed to take motion to handle by this tough market by rising charges and prudently managing exposures whereas additionally in search of to keep up their aggressive place out there and supporting our present policyholders and brokers. While addressing charge adequacy for the Insurance Entities, we proceed to expertise elevated prices for losses and LAE within theFlorida market, the place an trade has developed across the solicitation, submitting and litigation of private residential claims. These dynamics have been made worse by the litigation financing trade, which in some circumstances, funds these actions. In addition, rising inflation, as seen in the price of labor and materials provides, has additional escalated prices related to the settlement of claims. These behaviors and associated rising restore prices are a chief contributing issue for the speed will increase on this market. These behaviors end in a sample of continued will increase in year-over-year ranges of represented claims, the will increase in purported declare quantities, and elevated calls for for attorneys' charges. Active solicitation of private residential claims inFlorida by policyholder representatives, remediation firms and restore firms has led to an enhance within the frequency and severity of private residential claims inFlorida , exceeding historic ranges and ranges seen in different jurisdictions. Information ready by theFlorida Office of Insurance Regulation additionally exhibits that claims inFlorida are litigated at a considerably disproportionate charge when in comparison with different states. This is basically as a consequence of aFlorida statute offering a one-way proper of attorneys' charges towards insurers which has, when coupled with sure different statutes and judicial rulings, produced a authorized setting inFlorida that encourages litigation, in lots of circumstances with out regard to the underlying deserves of the claims. The one-way proper to attorneys' charges primarily signifies that until an insurer's place is completely upheld in litigation, the insurer should pay the plaintiff's attorneys' charges along with its personal protection prices. This impacts not solely claims which might be litigated to decision, but in addition the settlement discussions that happen with practically all litigated claims. This additionally impacts a big quantity of claims from inception or in the course of the adjusting course of as a considerable and rising proportion of policyholders get hold of illustration early within the course of, and typically even earlier than notifying insurers of their claims. These market circumstances additionally add, and will proceed so as to add, complexity to efforts to effectively and expeditiously modify claims. This is because of an rising quantity of policyholders who've one or more moderen prior losses with the Insurance Entities or with different insurers, which then require analysis throughout subsequent claims and determinations relating to whether or not property has been repaired constantly with the scope and quantity of harm beforehand asserted. The one-way proper to lawyer charges creates a virtually risk-free setting, and incentive, for attorneys to pursue litigation towards insurers. The outcome has been a considerable enhance in represented and litigated claims inFlorida , far outpacing ranges skilled in different states. InApril 2021 , theFlorida legislature handed a invoice desiring to curtail the hostile declare traits impacting theFlorida householders' insurance coverage market. Most provisions of the invoice went into impact onJuly 1, 2021 . Among its provisions, the invoice 33
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Table of Contents creates a brand new pre-suit discover requirement whereby an insured should make a proper financial demand of a residential property insurer earlier than commencing go well with. The Company has established an inner staff to overview and reply to those pre-suit calls for in an extra effort to resolve disputes earlier than litigation ensues. Another provision of the brand new regulation reduces the time interval during which to file a brand new or reopened declare to 2 years following the date of loss. In gentle of the current enactment of these reforms, it's untimely to evaluate whether or not the reforms can have their supposed impact. Whether these modifications are helpful to customers, insurers, insurance coverage firm holding methods or the residential property insurance coverage market as an entire might not be totally recognized for a while. In an extra effort to alleviate considerations within theFlorida property insurance coverage market,Florida's Governor known as a particular session of the legislature inMay 2022 . The legislature handed, and the Governor promptly signed into regulation, a number of further reforms supposed to curtail litigation abuses. Among different issues, the brand new regulation precludes the task of policyholders' rights to attorneys' charges, permits plaintiffs' attorneys to obtain charge multipliers solely in uncommon and distinctive circumstances, and requires plaintiffs to ascertain breaches of the insurance coverage coverage earlier than pursuing associated unhealthy religion actions. Because the brand new regulation solely lately was adopted, its influence on claims and claims-related prices, together with litigation, is not going to be totally recognized for a while. Despite our initiatives, equivalent to these talked about above, our prices to settle claims inFlorida have elevated for the explanations famous herein. For instance, the Company continues to regulate its estimate of anticipated losses and has elevated its present yr loss estimates and elevated estimates related to prior years' claims. Over the previous three years, at the same time as now we have elevated our estimates of potential losses annually, now we have recorded hostile declare improvement on prior years' loss reserves and additional strengthened present yr losses in the course of the yr to deal with the rising influenceFlorida's market disruptions, in addition to the influence of rising prices of constructing supplies and labor, have had on the claims course of and the institution of reserves for losses and LAE. The full extent and period of these market disruptions and inflationary pressures are unknown and nonetheless unfolding, and we'll monitor the influence of such disruptions on the recording and reporting of declare prices. The Company has taken a sequence of steps over time to mitigate the monetary influence of these detrimental traits within theFlorida market. We even have intently monitored charge ranges, particularly within theFlorida market, and have submitted charge filings primarily based upon evolving information. However, as a result of charge filings depend upon previous loss and expense information and take time to develop, file and implement, we will expertise important delays between figuring out wanted charge changes, gaining approval of charge modifications, and finally accumulating and incomes the ensuing elevated premiums. This is especially the case in an period of rising prices equivalent to the presentFlorida market, during which the prices of losses and loss adjustment bills proceed to extend as a consequence ofFlorida's outsized claims litigation setting and inflationary stress. In addition, the Company has applied a number of initiatives in its claims division in response to the hostile market traits. We make the most of our course of known as Fast Track, which is an initiative to deal with easy, meritorious claims as promptly as potential to mitigate the hostile impacts that may be seen with claims that stay open for longer durations. In addition, we elevated our emphasis on subrogation to scale back our web losses whereas additionally recovering policyholders' deductibles when losses are attributable to the actions of others. We have an inner employees of skilled water remediation consultants to deal with the extraordinary quantity of purported water harm claims filed by policyholders and distributors. We developed a specialised in-house unit for responding to the distinctive facets of represented claims, and now we have considerably elevated our in-house authorized employees in an effort to deal with the rise in litigated or represented claims as cost-effectively as potential. Additionally, now we have taken steps to implement declare settlement guidelines related with theFlorida laws handed in 2019 designed to cut back the detrimental results of claims involving assignments of advantages ("AOB"). See "Part I- Item 1-Business-Government Regulation" in our Annual Report on Form 10-Okay for the yr endedDecember 31, 2021 . An AOB is a doc signed by a policyholder that permits a 3rd social gathering to be paid for companies carried out for an insured house owner who would usually be reimbursed by the insurance coverage firm instantly after making a declare. Prior to the AOB reform laws, the Company skilled an enhance in AOB-related litigation initiated by distributors, in lots of circumstances unbeknownst to policyholders. Claims paid below an AOB usually contain pointless litigation, with the Company required to pay each its personal protection prices and these of the plaintiff, and, consequently, value the Company considerably extra than claims settled when an AOB isn't concerned. In 2019, theFlorida legislature handed laws designed to extend client protections towards AOB abuses and scale back AOB-related litigation. The legislature added to those AOB-related reforms within the lately concluded 2022 particular legislative session, throughout which it handed a brand new regulation precluding policyholders' assignments of attorneys' charges. Prior to the current 2022 regulation change, the general influence of the deterioration in claims-related ways and behaviors, together with different first-party litigation, continued to outpace advantages arising from the 2019 AOB reform laws. Following current 2022 particular legislative session, the Company intends to undertake procedures reflecting the brand new AOB regulation and monitor its results. Following laws adopted inFlorida's 2021 legislative session, we additionally have established procedures and devoted personnel to a brand new pre-suit discover and supply course of. The new course of requires policyholders or their attorneys to notify insurers not less than ten days earlier than commencing litigation and permits insurers a possibility to make pre-suit settlement affords. The policyholders' potential to get better attorneys' charges is decided in accordance with a scale that compares the last word outcomes of the circumstances to the insurers' pre-suit affords. Although this new course of is meant to cut back claims litigation and encourage settlements, it's too early to guage whether or not will probably be profitable in limiting the categories of settlement calls for and litigation which have plagued theFlorida market or in offsetting different elements adversely affecting the market equivalent to elevated prices of constructing supplies and labor.
Impact of COVID-19
Subsequent toMarch 2020 , now we have not seen a direct materials influence from COVID-19 on our enterprise, our monetary place, our liquidity, or our potential to service our policyholders and keep important operations. Indirectly, inflationary pressures, partly as a consequence of provide chain and labor constraints throughout the pandemic, have affected and proceed to have an effect on claims prices and, to a lesser diploma, different bills. As a supplier of companies which have been deemed important below most directives and tips, we're assured in our potential to keep up constant operations and consider we will proceed to handle with our hybrid work 34
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Table of Contents association consequently of our catastrophe preparedness planning, with little influence on our enterprise and service ranges and our requirements of take care of each underwriting and claims. We proceed to observe native, state and federal steering and will modify workforce actions as applicable. Although now we have not skilled a direct materials influence from COVID-19 since its onset in 2020, the last word influence of the COVID-19 pandemic, or future pandemics, on our enterprise and on the financial system typically can't be predicted.
KEY PERFORMANCE INDICATORS
The Company considers the measures and ratios within the following dialogue to be key efficiency indicators for its companies. Management believes that these indicators are useful in understanding the underlying traits within the Company's companies. Some of these indicators are reported on a quarterly foundation and others on an annual foundation. These indicators might not be similar to different efficiency measures utilized by the Company's rivals and ought to solely be evaluated along with our condensed consolidated monetary statements and accompanying notes. In addition to our key efficiency indicators and different monetary measures introduced in accordance with United States Generally Accepted Accounting Principles ("GAAP"). administration additionally makes use of sure non-GAAP monetary measures to consider the Company's monetary efficiency and the general progress in worth generated for the Company's frequent shareholders. Management believes that non-GAAP monetary measures, which can be outlined in a different way by different firms, assist to elucidate the Company's outcomes to buyers in a fashion that permits for a extra full understanding of the underlying traits within the Company's enterprise. The non-GAAP measures shouldn't be considered as an alternative for these decided in accordance with GAAP. The calculation of these key monetary measures together with the reconciliation of non-GAAP measures to the nearest GAAP measure are discovered under below - "Non-GAAP Financial Measures."
Definitions of Key Performance Indicators and GAAP and Non-GAAP Measures
Adjusted e book worth per frequent share - is a non-GAAP measure, that's calculated as adjusted frequent stockholders' fairness divided by frequent shares excellent at the top of the interval. Management believes this metric is significant, because it permits buyers to guage underlying e book worth progress by excluding the influence of rate of interest volatility. Adjusted frequent stockholders' fairness - is a non-GAAP measure, that's calculated by GAAP frequent stockholders' fairness, excluding accrued different complete earnings (loss). Management believes this metric is significant, because it permits buyers to guage underlying progress in stockholders' fairness by excluding the influence of rate of interest volatility. Adjusted web earnings attributable to frequent stockholders - is a non-GAAP measure, that's calculated by GAAP web earnings attributable to frequent stockholders, excluding web realized features (losses) on funding and web modifications in unrealized features (losses) of fairness securities, web of tax. Management believes this metric is significant, because it permits buyers to guage underlying profitability and enhances comparability throughout durations, by excluding objects that are closely impacted by funding market fluctuations and different financial elements and usually are not indicative of working traits. Adjusted working earnings - is a non-GAAP measure, that's computed by GAAP working earnings, excluding web realized features (losses) on funding and web modifications in unrealized features (losses) of fairness securities. Management believes this metric is significant, because it permits buyers to guage underlying profitability and enhances comparability throughout durations, by excluding objects that are closely impacted by funding market fluctuations and different financial elements and usually are not indicative of working traits. Adjusted working earnings margin - is a non-GAAP measure, which is computed by adjusted working earnings divided by core income. Management believes this metric is significant, because it permits buyers to guage underlying profitability and enhances comparability throughout durations, by excluding objects that are closely impacted by funding market fluctuations and different financial elements and usually are not indicative of working traits. Adjusted return on frequent fairness (Adjusted "ROCE") - is a non-GAAP measure, that is calculated by precise or annualized adjusted web earnings attributable to frequent stockholders divided by common adjusted frequent stockholders' fairness, with the denominator excluding present interval earnings assertion web realized features (losses) on investments and web modifications in unrealized features (losses) of fairness securities, web of tax. Management believes this metric is significant, because it permits buyers to guage underlying profitability and enhances comparability throughout durations, by excluding objects which might be closely impacted by funding market fluctuations and different financial elements and usually are not indicative of working traits. Book Value Per Common Share - whole stockholders' fairness, adjusted for most well-liked inventory liquidation, divided by the quantity of frequent shares excellent as of a reporting interval. Book worth per frequent share is the surplus of belongings over liabilities at a reporting interval attributed to every share of inventory. Changes in e book worth per frequent share informs shareholders of retained fairness within the Company on a per share foundation which can help in understanding market worth traits for the Company's inventory. Combined Ratio - the mixed ratio is a measure of underwriting profitability for a reporting interval and is calculated by dividing whole working prices and bills (which is made up of losses and LAE and common and administrative bills) by premiums earned, web, which is web of ceded premiums earned. Changes to the mixed ratio over time present administration with an understanding of prices to function its enterprise in relation to web premiums it's incomes and the influence of charge, underwriting and different enterprise administration actions on underwriting profitability. A mixed ratio under 100% signifies underwriting revenue; a mixed ratio above 100% signifies underwriting losses. 35
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Table of Contents Core Loss Ratio - a standard operational metric used within the insurance coverage trade to describe the ratio of present accident yr anticipated losses and LAE to premiums earned. Core loss ratio is a vital measure figuring out profitability traits of premiums in pressure. Core losses consists of all different losses and LAE, excluding climate occasions past these anticipated and prior years' reserve improvement. The monetary profit from the administration of claims, together with declare charges ceded to reinsurers, is recorded within the condensed consolidated monetary statements as a discount to core losses. Core income - is a non-GAAP measure, that's calculated by whole GAAP income, excluding web realized features (losses) on investments and web modifications in unrealized features (losses) of fairness securities, Management believes this metric is significant, because it permits buyers to guage underlying income traits and enhances comparability throughout durations, by excluding objects which might be closely impacted by funding market fluctuations and different financial elements and are not indicative of working traits.
Debt-to-Equity Ratio – long-term debt divided by stockholders’ fairness. This
ratio helps administration measure the quantity of financing leverage in place in
relation to fairness and future leverage capability.
Debt-to-Total Capital Ratio – long-term debt divided by the sum of whole
stockholders’ fairness and long-term debt (also known as whole capital
sources). This ratio helps administration measure the quantity of financing leverage
in place (long-term debt) in relation to whole capital sources and future
leverage capability.
Diluted adjusted earnings per frequent share - is a non-GAAP measure, which is calculated by adjusted web earnings obtainable to frequent stockholders divided by weighted common diluted frequent shares excellent. Management believes this metric is significant, because it permits buyers to guage underlying income traits and enhances comparability throughout durations, by excluding objects which might be closely impacted by funding market fluctuations and different financial elements and usually are not indicative of working traits. Direct Premiums Written ("DPW") - displays the whole worth of insurance policies issued throughout a interval earlier than contemplating premiums ceded to reinsurers. Direct premiums written, comprised of renewal premiums, endorsements and new enterprise, is initially recorded as unearned premium within the steadiness sheet which is then earned pro-rata over the subsequent yr or remaining coverage time period. Direct premiums written displays present traits within the Company's sale of property and casualty insurance coverage merchandise and quantities that might be acknowledged as earned premiums sooner or later.
DPW (
administration to investigate progress in our major market and can be a measure of
enterprise focus danger.
Expense Ratio (Including Policy Acquisition Cost Ratio and Other Operating Cost Ratio) - calculated as common and administrative bills as a proportion of premiums earned, web. General and administrative bills is comprised of coverage acquisition prices and different working prices, which incorporates such objects as underwriting prices, services and company overhead. The expense ratio, together with the sub-expense ratios of coverage acquisition value ratio and different working value ratio, are indicators to administration of the Company's value effectivity in buying and servicing its enterprise and the influence of expense objects to total profitability. Losses and Loss Adjustment Expense Ratio or Loss and LAE Ratio - a measure of the price of claims and declare settlement bills incurred in a reporting interval as a proportion of premiums earned in that very same reporting interval. Losses and LAE incurred in a reporting interval consists of each quantities associated to the present accident yr and prior accident years, if any, known as improvement. Ultimate losses and LAE are primarily based on actuarial estimates with modifications in these estimates acknowledged within the interval the estimates are revised. Losses and LAE consist of declare prices arising from claims occurring and settling within the present interval, an estimate of declare prices for reported however unpaid claims, an estimate of unpaid declare prices for incurred-but-not-reported claims and an estimate of declare settlement bills related to reported and unreported claims which occurred in the course of the reporting interval. The loss and LAE ratio could be measured on a direct foundation, which incorporates losses and LAE divided by direct earned premiums, or on a web foundation, which incorporates losses and LAE after quantities have been ceded to reinsurers divided by web earned premiums (i.e., direct premium earned much less ceded premium earned). The web loss and LAE ratio is a measure of underwriting profitability after giving consideration to the impact of reinsurance. Trends in the online loss and LAE ratio are a sign to administration of present and future profitability. Monthly Weighted Average Renewal Retention Rate - measures the month-to-month common of policyholders that renew their insurance policies over the interval of a calendar yr. This measure permits administration to evaluate buyer retention. Premiums Earned, Net - the pro-rata portion of present and beforehand written premiums that the Company acknowledges as earned premium in the course of the reporting interval, web of ceded premium earned. Ceded premiums are premiums paid or payable by the Company for reinsurance safety. Written premiums are thought of earned and are acknowledged pro-rata over the coverage protection interval. Premiums earned, web is a measure that permits administration to determine income traits. Policies in Force - represents the quantity of lively insurance policies with protection in impact as of the top of the reporting interval. The change within the quantity of insurance policies in pressure is a progress measure and supplies administration with a sign of progress towards reaching strategic aims. Inherent seasonality in our enterprise makes this measure extra helpful when evaluating every quarter's steadiness to the identical quarter in prior years. Premium in Force - is the quantity of the annual direct written premiums beforehand recorded by the Company for insurance policies that are nonetheless lively as of the reporting date. This measure assists administration in measuring the extent of insured publicity and progress towards assembly income objectives for the present yr, and supplies a sign of enterprise obtainable for renewal within the subsequent twelve months. Inherent seasonality in our enterprise makes this measure extra helpful when evaluating every quarter's steadiness to the identical quarter in prior years. 36
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Table of Contents Return on Average Common Equity ("ROCE") - calculated by precise or annualized web earnings attributable to frequent stockholders divided by common frequent stockholders' fairness. ROCE is a capital profitability measure of how effectively administration creates income. Total Insured Value - represents the quantity of insurance coverage limits obtainable on a coverage for a single loss primarily based on all insurance policies lively as of the reporting date. This measure assists administration in measuring the extent of insured publicity. Unearned Premiums - represents the portion of direct premiums equivalent to the time interval remaining on an insurance coverage coverage and obtainable for future incomes by the Company. Trends in unearned premiums typically point out growth, if rising, or contraction, if lowering, that are vital indicators to administration. Inherent seasonality in our enterprise makes this measure extra helpful when evaluating every quarter's steadiness to the identical quarter in prior years. Weather occasions - an estimate of losses and LAE from climate occasions occurring in the course of the present accident yr that exceed preliminary estimates of anticipated climate occasions when establishing the core loss ratio for every accident yr. This metric informs administration of elements impacting total present yr profitability.
REINSURANCE
Reinsurance allows our Insurance Entities to restrict potential exposures to catastrophic occasions. Reinsurance contracts are usually categorised as treaty or facultative contracts. Treaty reinsurance supplies protection for all or a portion of a specified group or class of dangers ceded by the first insurer, whereas facultative reinsurance supplies protection for particular particular person dangers. Within every classification, reinsurance could be additional categorised as quota share or extra of loss. Quota-share reinsurance is the place the first insurer and the reinsurer share proportionally or pro-rata within the direct premiums and losses of the insurer. Excess-of-loss reinsurance indemnifies the direct insurer or reinsurer for all or a portion of the loss in extra of an agreed upon quantity or retention. Developing and implementing our reinsurance technique to adequately defend our steadiness sheet and Insurance Entities within the occasion of a number of catastrophes whereas sustaining environment friendly reinsurance prices has been a key strategic precedence for us. In order to restrict the Insurance Entities' potential publicity to catastrophic occasions, we buy important reinsurance from third-party reinsurers and theFlorida Hurricane Catastrophe Fund ("FHCF").The Florida Office of Insurance Regulation ("FLOIR") requires the Insurance Entities, like all residential property insurance coverage firms doing enterprise inFlorida , to have a certain quantity of capital and reinsurance protection to be able to cowl losses upon the prevalence of a single catastrophic occasion and a sequence of catastrophic occasions occurring in the identical hurricane season. The Insurance Entities' respective 2022-2023 reinsurance applications meet the FLOIR's necessities, which are primarily based on, amongst different issues, efficiently demonstrating cohesive and complete reinsurance applications that defend the policyholders of our Insurance Entities in addition to satisfying a sequence of stress check disaster loss situations primarily based on previous historic occasions. Similarly, the Insurance Entities' respective 2022-2023 reinsurance applications meet the stress check and overview necessities ofDemotech, Inc. , for sustaining Financial Stability Ratings® of A (Exceptional). We consider the Insurance Entities' retentions below their respective reinsurance applications are applicable and structured to guard policyholders. We check the sufficiency of the reinsurance applications by subjecting the Insurance Entities' private residential exposures to statistical testing utilizing a third-party hurricane mannequin, RMS RiskHyperlink v18.1 (Build 1945). This mannequin combines simulations of the pure prevalence patterns and traits of hurricanes, tornadoes, earthquakes and different catastrophes with data on property values, building varieties and occupancy lessons. The mannequin outputs present data in regards to the potential for giant losses earlier than they happen, so firms can put together for his or her monetary influence. Furthermore, as half of our operational excellence initiatives, we frequently look to allow new know-how to refine our information intelligence on disaster danger modeling.
Effective
agreements comprising our 2022-2023 reinsurance program.
See “Item 1-Note 4 (Reinsurance).”
UPCIC’s 2022-2023 Reinsurance Program
•First occasion All States retention of
•All States first occasion tower extends to
in any of the layers, no limitation on loss adjustment bills for the
non-catastrophe bond
accelerated deposit premiums.
•Assuming a primary occasion utterly exhausts the
occasion exhaustion level could be
•Full reinstatement obtainable on$1.138 billion of the$1.288 billion of non-FHCF first occasion disaster protection for assured second occasion protection. For all layers bought between$111 million and the projected FHCF retention, to the extent that every one of our protection or a portion thereof is exhausted in a catastrophic occasion and reinstatement premium is due, now we have bought sufficient reinstatement premium safety ("RPP") restrict to pay the premium mandatory for the reinstatement of these coverages. •First occasion layer of 100% of$66 million in extra of$45 million established by UIH in captive insurance coverage association. While the Company retains the danger that in any other case could be transferred to 3rd party-reinsurers for this layer, the 37
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Table of Contents
further danger is considerably offset by the financial savings in premiums that may
in any other case have been paid to third-party reinsurers.
•Specific 2nd occasion non-public market extra of loss protection of
extra of
•Specific third and 4th occasion non-public market disaster extra of loss protection of$86 million in extra of$25 million supplies frequency safety for a number of occasions in the course of the treaty interval together with a$20 million discount in retention for a third and 4th occasion.
•For the FHCF Reimbursement Contracts efficient
continued the election of the 90% protection degree. We estimate the whole
obligatory FHCF layer will present roughly
UPCIC, which inures to the profit of the open market protection secured from
non-public reinsurers and
•To additional insulate for future years, UPCIC has secured$383 million of disaster capability with contractually agreed limits that reach protection to embrace the 2022 and 2023 wind seasons and$277 million of the$383 million extends by the 2024 wind season and is all capability which sits under theFlorida Hurricane Catastrophe Fund . UPCIC's disaster bond, secured main up to the 2021-2022 renewal,Cosaint Re Pte. Ltd , continues to offer one restrict of$150 million on this yr's program and it might additionally embrace the 2023 wind season, relying on loss exercise within the 2022 wind season.
Reinsurers
The desk under supplies the
every of the biggest rated third-party reinsurers in UPCIC’s 2022-2023
reinsurance program:
Reinsurer A.M. Best S&P Allianz Risk Transfer AG, Bermuda Branch A+ AA- Chubb Tempest Reinsurance Ltd. A++ AA Everest Re A+ A+ Munich Re A+ AA- Renaissance Re A+ A+ Various Lloyd's of London Syndicates A A+ Florida Hurricane Catastrophe Fund (1) N/A N/A
(1)No ranking is accessible, as a result of the fund isn’t rated.
APPCIC’s 2022-2023 Reinsurance Program
•First occasion All States retention of
•All States first occasion tower of
of the layers, no limitation on loss adjustment bills and no accelerated
deposit premiums.
•Full reinstatement obtainable for all non-public market first occasion disaster layers for assured second occasion protection. For the layer bought between$3.5 million and the projected FHCF retention, to the extent that every one of our protection or a portion thereof is exhausted in a catastrophic occasion and reinstatement premium is due, now we have bought sufficient RPP restrict to pay the premium mandatory for the reinstatement of this protection. •APPCIC additionally purchases intensive a number of line extra per danger reinsurance with numerous reinsurers because of the high-value dangers it insures in each the non-public residential and industrial a number of peril strains of enterprise. Under this a number of line extra per danger contract, APPCIC has protection of$8.5 million in extra of$500 thousand final web loss for every danger and every property loss, and$1 million in extra of$0.3 million for every casualty loss. A$19.5 million combination restrict applies to the time period of the contract for property-related losses and a$2.0 million combination restrict applies to the time period of the contract for casualty-related losses. This contract additionally incorporates a profit-sharing function if particular efficiency measures are met. •For the FHCF Reimbursement Contracts efficientJune 1, 2022 , APPCIC has continued the election of the 90% protection degree. We estimate the whole obligatory FHCF layer will present roughly$28.6 million of protection for APPCIC, which inures to the profit of the open market protection secured from non-public reinsurers. 38
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Table of Contents Reinsurers
The desk under supplies the
every of the biggest rated third-party reinsurers in APPCIC’s 2022-2023
reinsurance program:
Reinsurer A.M. Best S&P Chubb Tempest Reinsurance Ltd. A++ AA DaVinci Reinsurance Limited A A+ Lancashire Insurance Company Limited A A- Renaissance Reinsurance Ltd. A+ A+ Various Lloyd's of London Syndicates A A+
(1)No ranking is accessible, as a result of the fund isn’t rated.
The value of the 2022-2023 reinsurance applications for UPCIC and APPCIC is projected to be$696 million , representing roughly 37.6% of estimated direct premium earned for the 12-month treaty interval for UPCIC and APPCIC. 39
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Table of Contents
RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
Highlights for the quarter ended
•The Insurance Entities efficiently accomplished their 2022-2023 reinsurance applications offering a complete restrict safety of$3.2 billion to the Insurance Entities. The limits embrace expanded use of an inner captive insurance coverage entity. The estimated value to the Insurance Entities, as a proportion of direct earned premium, elevated from 36.4% of estimated premiums to 37.6% for the 2022-2023 program. •The Florida legislature, in a particular session, enacted a regulation this quarter introducing new reforms supposed to cut back the extent of inflated and litigated claims and present reduction to customers. These new reforms are on high of reforms enacted in 2019 and 2021 which have had some measured advantages. Management is optimistic these new reforms might be helpful, however acknowledges it'll take time earlier than the reforms are totally realized. •Previously permitted charge filings and inflation changes to coverage insured values are rising written and earned premium as they take impact and earn prospectively over the coverage interval. •Management is continuous its efforts to prudently handle new enterprise danger choice, enhance danger publicity diversification and reasonable new enterprise progress charges, in comparison with prior years, whereas the above charge will increase are taking impact to enhance profitability. Renewal retention charges have declined yr over yr as customers react to increased renewal premiums. As a outcome, the quantity of whole insurance policies in pressure is decrease, however will increase in written premium.
•Recently permitted charge will increase for
impact this quarter.
•Net funding earnings elevated as market rates of interest rise, nevertheless the rising rates of interest have lowered the market worth of our investments ensuing in unrealized losses. •Losses and LAE, web have been increased this quarter in comparison with the identical interval final yr primarily as a consequence of a better degree of anticipated losses and LAE for this yr (the 2022 accident yr) consequently of will increase in loss traits and increased declare inflation prices inFlorida and different markets. •Other expense and acquisition value administration efforts have lowered the expense ratio. InApril 2021 , the fee charge on coverage renewals was lowered 2 proportion factors and additional lowered onMay 1, 2022 by 2 proportion factors in response to premium charge will increase in the course of the previous yr. The profit of decrease fee charges are realized over the subsequent yr as insurance policies renew below this new fee charge construction.
•The firm continued to return shareholder worth with quarterly dividends and
modest share repurchases.
40
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Table of Contents
Second quarter of fiscal 2022 outcomes of operations comparisons are
to second quarter of fiscal 2021 (until in any other case specified).
Results of Operations – Three Months Ended
Months Ended
Net earnings for the three months endedJune 30, 2022 , was$7.4 million in contrast to$21.9 million for a similar interval in 2021. Weighted common diluted frequent shares excellent for the three months endedJune 30, 2022 have been decrease by 1.4% to 30.9 million shares from 31.3 million shares for a similar interval of the prior yr. Diluted earnings per share for the three months endedJune 30, 2022 was$0.24 in comparison with$0.70 for a similar interval in 2021. Benefiting the quarter have been will increase in premiums earned, web, a rise in fee income, and an enhance in web funding earnings, partially offset by a rise in working prices and bills, and a rise in each realized and unrealized losses. Direct premium earned and premiums earned, web have been up 9.2% and 8.2%, respectively, as a consequence of premium progress in 15 of the 19 states during which we're licensed and writing in the course of the previous 12 months consequently of charge will increase applied throughout 2021 and 2022. The web loss and LAE ratio was 72.3% for the three months endedJune 30, 2022 , in comparison with 65.3% for a similar interval in 2021 reflecting increased core losses partially offset by decrease prior years' reserve improvement. As a outcome of the above and additional defined under, the mixed ratio for the three months endedJune 30, 2022 was 100.9% in comparison with 97.3% for the three months endedJune 30, 2021 . Also see the dialogue above below "Overview-Trends."
An in depth dialogue of our outcomes of operations follows the desk under (in
hundreds, besides per share information).
Three Months Ended June 30, Change 2022 2021 $ % REVENUES Direct premiums written$ 532,527 $ 473,627 $ 58,900 12.4 % Change in unearned premium (103,722) (81,053) (22,669) 28.0 % Direct premium earned 428,805 392,574 36,231 9.2 % Ceded premium earned (151,744) (136,402) (15,342) 11.2 % Premiums earned, web 277,061 256,172 20,889 8.2 % Net funding earnings 5,221 2,858 2,363 82.7 % Net realized features (losses) on investments (725) 496 (1,221) NM Net change in unrealized features (losses) of fairness securities (8,884) 1,229 (10,113) NM Commission income 11,404 9,860 1,544 15.7 % Policy charges 5,940 6,575 (635) (9.7) % Other income 1,989 1,991 (2) (0.1) % Total revenues 292,006 279,181 12,825 4.6 % OPERATING COSTS AND EXPENSES Losses and loss adjustment bills 200,304 167,221 33,083 19.8 % General and administrative bills 79,291 81,866 (2,575) (3.1) % Total working prices and bills 279,595 249,087 30,508 12.2 % Interest and amortization of debt issuance prices 1,731 35 1,696 4,845.7 % INCOME (LOSS) BEFORE INCOME TAXES 10,680 30,059 (19,379) (64.5) % Income tax expense (profit) 3,310 8,118 (4,808) (59.2) % NET INCOME (LOSS)$ 7,370 $ 21,941 $ (14,571) (66.4) % Other complete earnings (loss), web of taxes (29,656) 7,996 (37,652) NM COMPREHENSIVE INCOME (LOSS)$ (22,286) $ 29,937 $ (52,223) NM DILUTED EARNINGS (LOSS) PER SHARE DATA: Diluted earnings (loss) per frequent share$ 0.24 $ 0.70 $ (0.46) (65.7) % Weighted common diluted frequent shares excellent 30,883 31,310 (427) (1.4) % NM - Not Meaningful Direct premiums written elevated by$58.9 million , or 12.4%, for the quarter endedJune 30, 2022 , pushed by premium progress inside ourFlorida enterprise of$52.8 million , or 13.2%, and premium progress in our different states enterprise of$6.1 million , or 8.3%, as in comparison with the identical interval of the prior yr. Rate will increase permitted in 2021 and 2022 forFlorida and for sure different states, as mentioned under, have been the principal driver of increased written premiums. In whole insurance policies in pressure declined 48,975, or 41
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Table of Contents 5.2%, from 943,593 atDecember 31, 2021 to 894,618 atJune 30, 2022 . A abstract of the current charge will increase that are driving will increase in written premium are as follows: •InMay 2022 , the Company filed a charge enhance with the FLOIR for an total 14.9% charge enhance for UPCIC onFlorida private residential householders' line of enterprise which turned efficientJune 1, 2022 , for brand spanking new enterprise andNovember 4, 2022 , for renewals. This submitting was made on a " Use and File" foundation. •InDecember 2021 , the FLOIR permitted an total 3.9% charge enhance for UPCIC onFlorida private residential householders' line of enterprise, efficientJanuary 2022 for brand spanking new enterprise andMarch 2022 for renewals.
•In
on
•In addition, in the course of the previous yr, charge will increase for UPCIC have been permitted in
These charge will increase are utilized on new enterprise submissions and renewals from the efficient date of their renewal and then are earned subsequently over the coverage interval. The current charge will increase inFlorida are in response to rising declare prices pushed by increased prices of materials and labor related to claims, the price of climate occasions, the rising value of disaster and different reinsurance defending policyholders and, extra importantly, the influence of "social inflation" on claims as declare settlements more and more have concerned inflated calls for, illustration, and litigation. In addition, the Insurance Entities' insurance policies present for protection limits to be adjusted at renewal primarily based on third-party information sources that monitor elements equivalent to modifications in prices for residential constructing supplies and labor. During 2022, administration continued efforts to prudently handle coverage counts and exposures supposed to sluggish the expansion of written premiums referring to new enterprise in comparison with prior years whereas the above charge will increase are taking impact. Reduced new enterprise writings, declines in renewal retentions throughout 2022 and the influence of chosen coverage non-renewals, have resulted in a lower in insurance policies in pressure in the course of the quarter of 22,127, or 2.4%, from 916,745 atMarch 31, 2022 to 894,618 atJune 30, 2022 . Direct premiums written proceed to enhance throughout the bulk of states during which we conduct enterprise. As a outcome of our enterprise technique, coverage premium charge will increase, decrease renewal retention, fewer new enterprise insurance policies written and disciplined underwriting initiatives, now we have seen a lower in coverage depend, however a rise in in-force premium and whole insured worth in a majority of states for the previous three years. In whole, we wrote insurance policies in 19 states throughout each of the second quarters of 2022 and 2021. In addition, we're licensed to do enterprise inTennessee andWisconsin and are continuing with product filings in these states. AtJune 30, 2022 , insurance policies in pressure decreased 82,633 insurance policies, or 8.5%; premium in pressure elevated$148.0 million , or 9.1%; and whole insured worth elevated$8.2 billion , or 2.6%, in comparison withJune 30, 2021 . The following desk supplies direct premiums written forFlorida and Other States for the three months endedJune 30, 2022 and 2021 ({dollars} in hundreds): For the Three Months Ended Growth June 30, 2022 June 30, 2021 yr over yr Direct Direct Premiums State Premiums Written % Written % $ % Florida$ 453,168 85.1 %$ 400,370 84.5 %$ 52,798 13.2 % Other states 79,359 14.9 % 73,257 15.5 % 6,102 8.3 % Total$ 532,527 100.0 %$ 473,627 100.0 %$ 58,900 12.4 % We search to prudently develop and generate long-term charge ample premium in every state the place we provide insurance policies. Our diversification technique seeks to extend enterprise exterior ofFlorida and to enhance geographical distribution insideFlorida . Premium progress exteriorFlorida is a measure monitored by administration in its efforts to fulfill that goal.
Direct premium earned elevated by
months together with the profit of charge modifications as a consequence of major charge filings,
filings to cowl elevated reinsurance prices in addition to coverage premium
changes as a consequence of will increase in insured values brought on by inflation.
Reinsurance allows our Insurance Entities to restrict potential exposures to catastrophic occasions and different lined occasions. Ceded premium represents premiums paid to reinsurers for this safety and is a price which reduces web written and web earned premiums. Ceded premium earned elevated$15.3 million , or 11.2%, for the quarter endedJune 30, 2022 , as in comparison with the identical interval of the prior yr. The enhance in reinsurance prices displays a rise within the worth of exposures we insure; elevated pricing when in comparison with the expired reinsurance program; and variations within the construction and design of the respective applications. Reinsurance prices, as a proportion of direct premium earned, elevated from 34.7% for the three months endedJune 30, 2021 to 35.4% for the three months endedJune 30, 2022 . Reinsurance prices related to annually's reinsurance program are earned over the annual coverage interval which usually runs fromJune 1st to May thirty first . See the dialogue above for the Insurance Entities' 2022-2023 reinsurance applications and "Item 1-Note 4 (Reinsurance)." 42
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Table of Contents Premiums earned, web of ceded premium earned, grew by 8.2%, or$20.9 million , to$277.1 million for the three months endedJune 30, 2022 , reflecting a rise in direct premium earned partially offset by elevated prices for reinsurance. Net funding earnings was$5.2 million for the three months endedJune 30, 2022 , in comparison with$2.9 million for a similar interval in 2021, a rise of$2.4 million , or 82.7%. In the fourth quarter of 2021, we noticed will increase in funding yields because theFederal Reserve took motion to deal with the market considerations of inflation and employment. As a outcome, liquidity generated by our portfolio from curiosity funds, principal repayments and new investments are being invested at increased charges, leading to total elevated funding returns on our portfolio. Total invested belongings have been$1,106.6 million as ofJune 30, 2022 in comparison with$1,093.7 million as ofDecember 31, 2021 . The enhance is attributable to capital contributions from UIH, extra money balances invested within the portfolio, receipt of curiosity funds partially offset by unrealized losses on available-for-sale debt securities. Unrealized losses reverse over time as debt devices are typically held to maturity. Cash and money equivalents have been$317.0 million atJune 30, 2022 in comparison with$250.5 million atDecember 31, 2021 , a rise of 26.5%. This enhance is basically attributable to modifications in operational money flows since yr finish. Cash and money equivalents are invested quick time period till wanted to settle loss and LAE funds, reinsurance premium funds and working money wants or till they're deployed by our funding advisors. Yields from money and money equivalents, short-term investments and the available-for-sale debt portfolio are depending on the composition of the portfolio, future market forces, financial coverage and rate of interest coverage from theFederal Reserve . During most of 2021, theFederal Reserve broadly maintained decrease rates of interest, which impacted the efficient yields on newly bought available-for-sale debt securities and in a single day money purchases and short-term investments. This total pattern modified in late 2021 and into 2022 as inflation worries started to influence the monetary markets, together with the markets' concern over futureFederal Reserve actions of charge hikes and different actions to deal with inflation considerations. As a outcome, we noticed elevated yields on securities bought in late 2021 and 2022 and elevated unrealized losses on our portfolio, mirrored after-tax within the fairness part of our steadiness sheet as elevated market yields negatively impacted the truthful worth of a lot of our available-for-sale debt securities. Although we typically maintain the overwhelming majority of debt securities to maturity, we promote investments, together with securities, from our funding portfolio from time to time to fulfill our funding aims or take benefit of market alternatives. During the three months endedJune 30, 2022 , gross sales of available-for-sale debt securities resulted in web realized losses of$0.9 million and gross sales of fairness securities resulted in web realized features of$0.2 million , producing whole web realized losses of$0.7 million in the course of the second quarter of 2022. During the three months endedJune 30, 2021 , gross sales of available-for-sale debt securities resulted in web realized losses of$0.2 million and gross sales of fairness securities resulted in web realized features of$0.7 million , in whole producing web realized features of$0.5 million . See "Item 1-Note 3 (Investments)." There was an$8.9 million web unrealized loss in fairness securities in the course of the three months endedJune 30, 2022 , largely pushed by macro inflationary pressures and the unsure recessionary outlook, which put stress on home equities broadly, in comparison with a$1.2 million web unrealized acquire in fairness securities in the course of the three months endedJune 30, 2021 . Net change in unrealized features or losses mirrored on the earnings assertion are the outcome of modifications within the truthful market worth of our fairness securities in the course of the interval for securities nonetheless held on the finish of the reported interval and the reversal of unrealized features or losses for securities offered in the course of the interval. See "Item 1-Note 3 (Investments)." Commission income is comprised principally of brokerage commissions we earn from third-party reinsurers (excluding the FHCF) on reinsurance positioned for the Insurance Entities. Commission income is earned pro-rata over the reinsurance coverage interval which runs fromJune 1st to May thirty first of the next yr. For the three months endedJune 30, 2022 , fee income was$11.4 million , in comparison with$9.9 million for the three months endedJune 30, 2021 . The enhance in fee income of$1.5 million , or 15.7%, for the three months endedJune 30, 2022 was primarily as a consequence of elevated commissions from third-party reinsurers earned on elevated reinsurance premiums which is attributable to progress in our insured values for this yr's reinsurance program in addition to the distinction in pricing and construction related to our reinsurance program when in comparison with the prior yr. Policy charges have been$5.9 million for the three months endedJune 30, 2022 in contrast to$6.6 million for a similar interval in 2021. The lower of$0.6 million , or 9.7%, was the outcome of a lower within the mixed whole quantity of new and renewal insurance policies written in the course of the three months endedJune 30, 2022 in comparison with the identical interval in 2021 in states the place we're permitted to cost this charge.
Other income, representing income from coverage installment charges, premium
financing and different miscellaneous earnings, was
ended
Core income, representing whole GAAP income, excluding web realized features (losses) on investments and web modifications in unrealized features (losses) of fairness securities, was$301.6 million for the three months endedJune 30, 2022 in contrast to$277.5 million for a similar interval in 2021. 43
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Table of Contents The following desk presents losses and LAE incurred on a direct, ceded and web foundation expressed in {dollars} and as a % of the respective quantities of premiums earned. These quantities are additional categorized as i) core losses, ii) climate occasions for the present accident yr and iii) prior years' reserve improvement ({dollars} in hundreds): Three Months Ended June 30, 2022 Direct Loss Ratio Ceded Loss Ratio Net Loss Ratio Premiums earned$ 428,805 $ 151,744 $ 277,061 Loss and loss adjustment bills: Core losses$ 196,630 45.9 %$ 36 - %$ 196,594 71.0 % Weather occasions* - - - - - - Prior years' reserve improvement 63,600 14.8 % 59,890 39.5 % 3,710 1.3 % Total losses and loss adjustment bills$ 260,230 60.7 %$ 59,926 39.5 %$ 200,304
72.3 %
*Includes solely present yr climate occasions past these anticipated.
Three Months Ended June 30, 2021 Direct Loss Ratio Ceded Loss Ratio Net Loss Ratio Premiums earned$ 392,574 $ 136,402 $ 256,172 Loss and loss adjustment bills: Core losses$ 159,412 40.6 %$ (78) (0.1) %$ 159,490 62.3 % Weather occasions* - - - - - - Prior years' reserve improvement 116,890 29.8 % 109,159 80.0 % 7,731 3.0 % Total losses and loss adjustment bills$ 276,302 70.4 %$ 109,081 80.0 %$ 167,221
65.3 %
*Includes solely present yr climate occasions past these anticipated.
See “Item 1-Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)”
for change in legal responsibility for unpaid losses and LAE.
Management seems to be at losses and LAE in three areas, as described under and represented within the tables above, every of which has completely different drivers that influence reported outcomes. As a outcome, these parts of losses and LAE are described individually. Overall losses and LAE, web of reinsurance recoveries, have been$200.3 million leading to a 72.3% web loss and LAE ratio for the quarter endedJune 30, 2022 . This compares to$167.2 million leading to a 65.3% web loss and LAE ratio for the quarter endedJune 30, 2021 . The Company continues to observe and modify its estimate of anticipated losses and has elevated its present yr loss estimates and elevated estimates related with prior years' claims. Over the previous three years, at the same time as now we have elevated our estimates of potential losses annually, now we have recorded hostile declare improvement on prior years' loss reserves and additional strengthened present yr losses in the course of the yr to deal with the rising influence ofFlorida's market disruptions, in addition to the influence of inflation from constructing materials prices and labor prices have on the reserving and declare settlement course of. The full extent and period of these market disruptions and inflationary pressures are unknown and nonetheless unfolding, and we proceed to observe the influence of such disruptions on the recording and reporting of declare prices. See the dialogue above for the Insurance Entities' 2022-2023 reinsurance applications and "Item 1 - Note 4 (Reinsurance)." Also see the discussion above under "Overview-Trends."
The elements impacting losses and LAE are as follows:
•Core losses
•Our core losses consist of all losses and LAE for the present accident yr excluding each climate occasions for the present yr past these anticipated in our common accrual course of and prior years' reserve improvement. Core losses have been 45.9% of direct premium earned for the quarter endedJune 30, 2022 in contrast to 40.6% for a similar interval in 2021. During the quarter endedJune 30, 2022 administration elevated the core loss ratio by one loss ratio level retroactive toJanuary 1, 2022 , with the cumulative influence being recorded within the quarter, as a outcome of worsening traits in total climate not related to named storms and in response to modifications in estimated losses brought on by deteriorating loss traits and increased restore prices consequently of materials and labor inflation. The pattern in core losses and LAE is rising yr over yr because the claims setting inFlorida continues to deteriorate and inflation continues to drive restore prices up. Also see the dialogue above below "Overview-Trends." Core losses additionally enhance as premium quantity will increase yr over yr. 44
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•Weather occasions past these anticipated
•There have been no climate occasions past these anticipated in the course of the quarter ended
•There have been no climate occasions past these anticipated in the course of the quarter ended
•Prior years’ reserve improvement
•Two drivers affect the quantities recorded as prior years’ reserve improvement,
particularly: (i) modifications to prior estimates of direct and web final losses on
prior accident years excluding main hurricanes and (ii) modifications to prior
estimates of direct and web final losses on hurricanes.
?During the quarter ended
totaled
improvement after the profit of reinsurance.
•Prior years' reserve improvement for the quarter endedJune 30, 2022 was$63.6 million offset by ceded losses of$59.9 million leading to web unfavorable improvement of$3.7 million . Prior yr hostile improvement consists of gross reserve improvement on Hurricane Irma of$39.3 million , of which$35.6 million was ceded, leading to web improvement on Hurricane Irma of$3.7 million within the quarter. In addition to Hurricane Irma improvement, the Company concluded a commutation in the course of the quarter, rising ceded prior yr loss funds which was offset by a provisory enhance in direct prior yr incurred however not reported ("IBNR") quantity, leading to no web impact.
•Excluding hurricanes, there was no prior years’ reserve improvement for the
quarter ended
?For the quarter ended
improvement.
•For hurricanes, prior years' reserve improvement for the quarter endedJune 30, 2021 was the outcome of a direct enhance within the final losses for hurricanes of$109.1 million offset by ceded hurricane losses of$109.2 million ensuing in web favorable improvement of$0.1 million . Direct losses elevated for Hurricanes Irma, Sally, Michael and Matthew. Ceded losses benefited from modifications to estimated non-Florida reinsurance protection, which has a decrease attachment level. As a outcome of ceded losses exceeding direct losses, web loss improvement on prior hurricanes was favorable throughout second quarter of 2021. •Excluding hurricanes, there was$7.8 million of direct and web prior years' reserve improvement for the quarter endedJune 30, 2021 . This improvement, from the 2019 and prior accident years, resulted from the settlement on litigated claims exceeding prior estimated quantities. The monetary influence generated by our claims adjusting affiliate from the administration of claims, together with declare charges ceded by our Insurance Entities to reinsurers, was a rise of$0.2 million for the three months endedJune 30, 2022 , in comparison with a profit of$1.2 million in the course of the three months endedJune 30, 2021 , pushed by the recoveries from reinsurers and inner declare companies. The influence was recorded within the condensed consolidated monetary statements as a discount or enhance to losses and LAE. For the three months endedJune 30, 2022 , common and administrative bills have been$79.3 million in comparison with$81.9 million throughout the identical interval in 2021, as follows ({dollars} in hundreds): Three Months Ended June 30, Change 2022 2021 $ % $ Ratio $ Ratio Premiums earned, web$ 277,061 $ 256,172 $ 20,889 8.2 % General and administrative bills: Policy acquisition prices 54,100 19.5 % 56,766 22.2 % (2,666) (4.7) % Other working prices 25,191 9.1 % 25,100 9.8 % 91 0.4 % Total common and administrative bills$ 79,291 28.6 %$ 81,866 32.0 %$ (2,575) (3.1) % 45
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Table of Contents General and administrative bills decreased by$2.6 million , which was the outcome of a lower in coverage acquisition prices of$2.7 million offset by a slight enhance in different working prices of$0.1 million . The whole common and administrative expense ratio was 28.6% for the three months endedJune 30, 2022 in comparison with 32.0% for a similar interval in 2021. •The lower in coverage acquisition prices of$2.7 million displays a discount within the fee charge paid to brokers on the renewal ofFlorida insurance policies which was lowered by 2 proportion factors to eight% efficientMay 1, 2022 , which can profit future durations as the brand new charge construction applies prospectively. The lower in coverage acquisition prices as a proportion of premiums earned, web in the course of the quarter is primarily because of the discount in commissions paid to brokers. •The enhance of different working prices of$0.1 million was primarily increased wage and efficiency bonus bills, largely offset by decrease stock-based compensation and coverage associated bills. The different working value ratio was 9.1% for the three months endedJune 30, 2022 , in comparison with 9.8% for a similar interval in 2021. This discount within the working value ratio displays a number of elements together with economies of scale as we proceed to develop premium, and efficiencies gained from leveraging know-how and spending self-discipline. As a outcome of the above, the mixed ratio for the second quarter endedJune 30, 2022 was 100.9% in comparison with 97.3% for a similar interval in 2021. The enhance was the outcome of a lower within the common and administrative expense ratio offset by a rise within the loss and LAE ratio as described above. Interest and amortization of debt issuance prices elevated by$1.7 million for the three months endedJune 30, 2022 . The enhance in curiosity and amortization of debt issuance prices is the outcome of a rise within the excellent debt as a outcome of our fourth quarter of 2021 borrowing. See "Item 1-Note 7 (Long-term debt)" for extra particulars. Income tax expense was$3.3 million for the quarter endedJune 30, 2022 in contrast to an earnings tax expense of$8.1 million for the quarter endedJune 30, 2021 . Our efficient tax charge ("ETR") elevated to 31.0% for the three months endedJune 30, 2022 , as in comparison with 27.0% for the three months endedJune 30, 2021 . The ETR elevated consequently of a better ratio of everlasting objects relative to the quantity of earnings earlier than taxes, principally non-deductible compensation, and a decrease degree of discrete tax advantages primarily as a consequence of a rise in inventory forfeitures. Other complete loss, web of taxes for the three months endedJune 30, 2022 , was$29.7 million in comparison with different complete earnings of$8.0 million for the similar interval in 2021, reflecting after-tax modifications in truthful worth of available-for-sale debt securities held in our funding portfolio and reclassifications out of accrued different complete earnings for available-for-sale debt securities offered. See "Item 1-Note 11 (Other Comprehensive Income (Loss))" for extra details about the quantities comprising different complete earnings (loss), web of taxes for these durations. Adjusted working earnings, representing GAAP working earnings, excluding web realized features (losses) on funding and web modifications in unrealized features (losses) of fairness securities, was$22.0 million for the three months endedJune 30, 2022 in comparison with$28.4 million for a similar interval in 2021. Adjusted working earnings margin, representing adjusted working earnings divided by core income, was 7.3% for the three months endedJune 30, 2022 in comparison with 10.2% for a similar interval in 2021. Adjusted web earnings attributable to frequent stockholders, representing GAAP web earnings attributable to frequent stockholders, excluding web realized features (losses) on funding and web modifications in unrealized features (losses) of fairness securities, web of tax was$14.6 million for the three months endedJune 30, 2022 in comparison with$20.6 million for a similar interval in 2021. Diluted adjusted earnings per frequent share, representing adjusted web earnings obtainable to frequent stockholders divided by weighted common diluted frequent shares excellent, was$0.47 for the three months endedJune 30, 2022 in contrast to$0.65 for a similar interval in 2021. 46
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Results of Operations – Six Months Ended
Ended
Net earnings was$24.9 million for the six months endedJune 30, 2022 in comparison with$48.3 million for the six months endedJune 30, 2021 . Weighted common diluted frequent shares excellent for the six months endedJune 30, 2022 have been decrease by 0.7% to 31.1 million shares from 31.3 million shares for a similar interval of the prior yr. Diluted earnings per share for the six months endedJune 30, 2022 was$0.80 in comparison with$1.54 in 2021. Benefiting the six months endedJune 30, 2022 have been will increase in premiums earned, web, a rise in fee income, and a rise in web funding earnings partially offset by a rise in working prices and bills, and a rise in each the realized and unrealized losses and decreased income from coverage charges and different income. Direct premium earned and premiums earned, web have been up 9.8% and 9.3%, respectively, as a consequence of premium progress in 16 of the 19 states during which we're licensed and writing in the course of the previous 12 months consequently of charge will increase applied throughout 2021 and 2022, partially offset by increased prices for reinsurance flowing by to premiums earned, web. The web loss and LAE ratio was 70.6% for the six months endedJune 30, 2022 , in comparison with 62.3% for a similar interval in 2021 reflecting increased core web losses and a rise in extra climate occasions past these anticipated partially offset by decrease prior years' reserve improvement. As a outcome of the above and as additional defined under, the mixed ratio for the six months endedJune 30, 2022 was 99.4% in comparison with 95.2% for the six months endedJune 30, 2021 . See "Overview - Trends."
An in depth dialogue of our outcomes of operations follows the desk under (in
hundreds, besides per share information).
Six Months Ended June 30, Change 2022 2021 $ % REVENUES Direct premiums written$ 929,008 $ 838,941 $ 90,067 10.7 % Change in unearned premium (85,600) (70,761) (14,839) 21.0 % Direct premium earned 843,408 768,180 75,228 9.8 % Ceded premium earned (297,283) (268,703) (28,580) 10.6 % Premiums earned, web 546,125 499,477 46,648 9.3 % Net funding earnings 9,263 5,844 3,419 58.5 % Net realized features (losses) on investments (667) 1,038 (1,705) NM Net change in unrealized features (losses) of fairness securities (12,280) 735 (13,015) NM Commission income 22,565 18,986 3,579 18.9 % Policy charges 10,719 11,962 (1,243) (10.4) % Other income 3,763 3,896 (133) (3.4) % Total revenues 579,488 541,938 37,550 6.9 % OPERATING COSTS AND EXPENSES Losses and loss adjustment bills 385,410 311,184 74,226 23.9 % General and administrative bills 157,588 164,289 (6,701) (4.1) % Total working prices and bills 542,998 475,473 67,525 14.2 % Interest and amortization of debt issuance prices 3,339 55 3,284 5970.9 % INCOME BEFORE INCOME TAXES 33,151 66,410 (33,259) (50.1) % Income tax expense 8,244 18,061 (9,817) (54.4) % NET INCOME$ 24,907 $ 48,349 $ (23,442) (48.5) % Other complete earnings (loss), web of taxes (72,566) (8,914) (63,652) 714.1 % COMPREHENSIVE INCOME (LOSS)$ (47,659) $ 39,435 $ (87,094) (220.9) % DILUTED EARNINGS PER SHARE DATA: Diluted earnings per frequent share$ 0.80 $ 1.54 $ (0.74) (48.1) % Weighted common diluted frequent shares excellent 31,060 31,292 (232) (0.7) % NM - Not Meaningful Direct premiums written elevated by$90.1 million , or 10.7%, for the six months endedJune 30, 2022 , pushed by premium progress inside ourFlorida enterprise of$80.2 million , or 11.3%, and premium progress in our different states enterprise of$9.8 million , or 7.5%, as in comparison with the identical interval of the prior yr. Rate will increase permitted in 2021 and 2022 forFlorida and for sure different states, as mentioned under, have been the principal driver of increased written premiums. In whole, insurance policies in pressure declined 48,975, 47
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or 5.2%, from 943,593 at
abstract of the current charge will increase that are driving will increase in written
premium are as follows:
•InMay 2022 , the Company filed a charge enhance with the FLOIR for an total 14.9% charge enhance for UPCIC onFlorida private residential householders' line of enterprise, efficientJune 1, 2022 , for brand spanking new enterprise andNovember 4, 2022 , for renewals. This submitting was made on a "Use and File" foundation. •InDecember 2021 , the FLOIR permitted an total 3.9% charge enhance for UPCIC onFlorida private residential householders' line of enterprise, efficientJanuary 2022 for brand spanking new enterprise andMarch 2022 for renewals.
•In
on
•InDecember 2020 , the FLOIR permitted an total 7.0% charge enhance for UPCIC onFlorida private residential householders' line of enterprise, efficientDecember 2020 for brand spanking new enterprise andMarch 2021 for renewals.
•In addition, in the course of the previous yr, charge will increase for UPCIC have been permitted in
These charge will increase are utilized on new enterprise submissions and renewals from the efficient date of their renewal, and then are earned subsequently over the coverage interval. The current charge will increase inFlorida are in response to rising declare prices pushed by increased prices of materials and labor related to claims, the price of climate occasions, the rising value of disaster and different reinsurance defending policyholders and, extra importantly, the influence of "social inflation" on claims as declare settlements more and more have concerned inflated calls for, illustration, and litigation. In addition, the Insurance Entities' insurance policies present for protection limits to be adjusted at renewal primarily based on third-party information sources that monitor elements equivalent to modifications in prices for residential constructing supplies and labor. During 2022, administration continued efforts to prudently handle coverage counts and exposures supposed to sluggish the expansion of written premiums referring to new enterprise in comparison with prior years whereas the above charge will increase are taking impact. Reduced new enterprise writings, declines in renewal retentions in 2022 and the influence of chosen coverage non-renewals, has resulted in a lower in insurance policies in pressure of 48,975, or 5.2%, throughout 2022 from 943,593 atDecember 31, 2021 to 894,618 atJune 30, 2022 . Direct premiums written proceed to extend throughout the bulk of states during which we conduct enterprise. As a outcome of our enterprise technique, charge modifications and disciplined underwriting initiatives, we have seen a lower in coverage depend, however a rise in in-force premium and whole insured worth in a majority of states for the previous three years. In whole, we wrote insurance policies in 19 states throughout every of 2022 and 2021. We actively wrote insurance policies in 19 states throughout 2021 and 2022. In addition, we're licensed to do enterprise inTennessee andWisconsin and are continuing with product filings in these states. AtJune 30, 2022 , insurance policies in pressure decreased 82,633 insurance policies, or 8.5%, premium in pressure elevated$148.0 million , or 9.1%, and whole insured worth elevated$8.2 billion , or 2.6%, in comparison withJune 30, 2021 . The following desk supplies direct premiums written forFlorida and Other States for the six months endedJune 30, 2022 and 2021 ({dollars} in hundreds): For the Six Months Ended Growth June 30, 2022 June 30, 2021 yr over yr Direct Premiums Direct Premiums State Written % Written % $ % Florida$ 787,605 84.8 %$ 707,381 84.3 %$ 80,224 11.3 % Other states 141,403 15.2 % 131,560 15.7 % 9,843 7.5 % Total$ 929,008 100.0 %$ 838,941 100.0 %$ 90,067 10.7 % We search to prudently develop and generate long-term charge ample premium in every state the place we provide insurance policies. Our diversification technique seeks to extend enterprise exterior ofFlorida and to enhance geographical distribution insideFlorida . Premium progress exteriorFlorida is a measure monitored by administration in its efforts to fulfill that goal. Direct premium earned elevated by$75.2 million , or 9.8%, for the six months endedJune 30, 2022 , reflecting the incomes of premiums written over the previous 12 months together with the profit of charge modifications as a consequence of major charge filings, filings to cowl elevated reinsurance prices in addition to coverage premium changes as a consequence of will increase in insured values brought on by inflation. Reinsurance allows our Insurance Entities to restrict potential exposures to catastrophic occasions and different lined occasions. Ceded premium represents premiums paid to reinsurers for this safety and is a price which reduces web written and web earned premiums. Ceded premium earned elevated$28.6 million , or 10.6%, for the six months endedJune 30, 2022 as in comparison with the identical interval of the prior yr. The enhance in reinsurance prices displays a rise within the worth of exposures we insure; elevated pricing when in comparison with the expired reinsurance program and variations within the construction and design of the respective applications. Reinsurance prices, as a proportion of direct premium earned, elevated from 35.0% in 2021 to 35.2% in 2022. Reinsurance prices related to annually's reinsurance program are earned over the annual coverage interval which usually runs fromJune 1st to 48
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reinsurance applications and “Item 1- Note 4 (Reinsurance).”
Premiums earned, web of ceded premium earned, grew by 9.3%, or$46.6 million , to$546.1 million for the six months endedJune 30, 2022 , reflecting a rise in direct premium earned offset by elevated prices for reinsurance. Net funding earnings was$9.3 million for the six months endedJune 30, 2022 , in comparison with$5.8 million for a similar interval in 2021, a rise of$3.4 million , or 58.5%. In the fourth quarter of 2021, we noticed will increase in funding yields because theFederal Reserve took motion to deal with the market considerations of inflation and employment. As a outcome, liquidity generated by our portfolio from curiosity funds, principal repayments and new investments are being invested at increased charges, leading to total elevated funding returns on our portfolio. Total invested belongings have been$1,106.6 million as ofJune 30, 2022 in comparison with$1,093.7 million as ofDecember 31, 2021 . The enhance is attributable to capital contributions from UIH, extra money balances invested within the portfolio, receipt of curiosity funds partially offset by unrealized losses on available-for-sale debt securities. Unrealized losses reverse over time as debt devices are typically held to maturity. Cash and money equivalents have been$317.0 million atJune 30, 2022 in comparison with$250.5 million atDecember 31, 2021 , a rise of 26.5%. This enhance is basically attributable to modifications in operational money flows since yr finish. Cash and money equivalents are invested quick time period till wanted to settle loss and LAE funds, reinsurance premium funds and working money wants or till they're deployed by our funding advisors. Yields from money and money equivalents, short-term investments and the available-for-sale debt portfolio are depending on the composition of the portfolio, future market forces, financial coverage and rate of interest coverage from theFederal Reserve . During most of 2021, theFederal Reserve broadly maintained decrease rates of interest, which impacted the efficient yields on newly bought available-for-sale debt securities and in a single day money purchases and short-term investments. This total pattern modified in late 2021 and into 2022 as inflation worries started to influence the monetary markets, together with the markets' concern over futureFederal Reserve actions of charge hikes and different actions to deal with inflation considerations. As a outcome, we noticed elevated yields on securities bought in late 2021 and 2022 and elevated unrealized losses on our portfolio mirrored after-tax within the fairness part of our steadiness sheet as elevated market yields negatively impacted the truthful worth of a lot of our available-for-sale debt securities. We promote investments, together with securities, from our funding portfolio from time to time to fulfill our funding aims or take benefit of market alternatives. During the six months endedJune 30, 2022 , gross sales of available-for-sale debt securities resulted in a web realized losses of$1.2 million and gross sales of fairness securities resulted in web realized features of$0.5 million , producing whole web realized losses of$0.7 million . During the six months endedJune 30, 2021 , gross sales of available-for-sale debt securities resulted in web realized losses of$0.5 million , gross sales of fairness securities resulted in web realized features of$1.1 million , and the sale of an funding actual property property resulted in a realized acquire of$0.4 million , in whole producing web realized features of$1.0 million . See "Item 1-Note 3 (Investments)." There was a$12.3 million web unrealized loss in fairness securities in the course of the six months endedJune 30, 2022 in comparison with a$0.7 million web unrealized loss in fairness securities in the course of the six months endedJune 30, 2021 . Net change in unrealized features or losses mirrored on the earnings assertion are the outcome of modifications within the truthful market worth of our fairness securities in the course of the interval for securities nonetheless held on the finish of the reported interval and the reversal of unrealized features or losses for securities offered in the course of the interval. See "Item 1-Note 3 (Investments)." Commission income is comprised principally of brokerage commissions we earn from third-party reinsurers (excluding the FHCF) on reinsurance positioned for the Insurance Entities. Commission income is earned pro-rata over the reinsurance coverage interval which runs fromJune 1st to May thirty first of the next yr. For the six months endedJune 30, 2022 , fee income was$22.6 million , in comparison with$19.0 million for the six months endedJune 30, 2021 . The enhance in fee income of$3.6 million , or 18.9%, for the six months endedJune 30, 2022 was primarily as a consequence of elevated commissions from third-party reinsurers earned on elevated reinsurance premiums which is attributable to progress in our insured values in addition to the distinction in pricing and construction related with our reinsurance program when in comparison with the prior yr. Policy charges for the six months endedJune 30, 2022 have been$10.7 million in contrast to$12.0 million for a similar interval in 2021. The lower of$1.2 million , or 10.4%, was the outcome of a lower within the mixed whole quantity of new and renewal insurance policies written in the course of the six months endedJune 30, 2022 in comparison with the identical interval in 2021 in states the place we're permitted to cost this charge.
Other income, representing income from coverage installment charges, premium
financing and different miscellaneous earnings, was
ended
Core income, representing whole GAAP income, excluding web realized features (losses) on investments and web modifications in unrealized features (losses) of fairness securities, was$592.4 million for the six months endedJune 30, 2022 in contrast to$540.2 million for a similar interval in 2021. 49
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Table of Contents The following desk presents losses and LAE incurred on a direct, ceded and web foundation expressed in {dollars} and as a % of the respective quantities of premiums earned. These quantities are additional categorized as i) core losses, ii) climate occasions for the present accident yr and iii) prior years' reserve improvement ({dollars} in hundreds):
Six Months Ended
Direct Loss Ratio Ceded Loss Ratio Net Loss Ratio Premiums earned$ 843,408 $ 297,283 $ 546,125 Loss and loss adjustment bills: Core losses$ 376,580 44.7 %$ 80 - %$ 376,500 69.0 % Weather occasions* 4,545 0.5 % - - % 4,545 0.8 % Prior years' reserve improvement 74,260 8.8 % 69,895 23.5 % 4,365 0.8 % Total losses and loss adjustment bills$ 455,385 54.0 %$ 69,975 23.5 %$ 385,410
70.6 %
*Includes solely present yr climate occasions past these anticipated.
Six Months Ended June 30, 2021 Direct Loss Ratio Ceded Loss Ratio Net Loss Ratio Premiums earned$ 768,180 $ 268,703 $ 499,477 Loss and loss adjustment bills: Core losses$ 304,640 39.7 %$ (50) - %$ 304,690 61.0 % Weather occasions* - - - - - - Prior years' reserve improvement 208,960 27.2 % 202,466 75.3 % 6,494 1.3 % Total losses and loss adjustment bills$ 513,600 66.9 %$ 202,416 75.3 %$ 311,184
62.3 %
*Includes solely present yr climate occasions past these anticipated.
See “Item 1-Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)”
for change in legal responsibility for unpaid losses and LAE.
Management seems to be at losses and LAE in three areas, as described under and represented within the tables above, every of which has completely different drivers that influence reported outcomes. As a outcome, these parts of losses and LAE are described individually. Overall losses and LAE, web of reinsurance recoveries, have been$385.4 million leading to a 70.6% web loss and LAE ratio for the six months endedJune 30, 2022 . This compares to$311.2 million leading to a 62.3% web loss and LAE ratio for the six months endedJune 30, 2021 . The Company continues to observe and modify its estimate of anticipated losses and has elevated its present yr loss estimates and elevated estimates related with prior years' claims. Over the previous three years, at the same time as now we have elevated our estimates of potential losses annually, now we have recorded hostile declare improvement on prior years' loss reserves and additional strengthened present yr losses in the course of the yr to deal with the rising influence ofFlorida's market disruptions, in addition to the influence of inflation from constructing materials prices and labor prices, have on the reserving and declare settlement course of. The full extent and period of these market disruptions and inflationary pressures are unknown and nonetheless unfolding, and we proceed to observe the influence of such disruptions on the recording and reporting of declare prices. See the dialogue above for the Insurance Entities' 2022-2023 reinsurance applications and "Item 1 - Note 4 (Reinsurance)." Also see the discussion above under "Overview-Trends."
The elements impacting losses and LAE are as follows:
•Core losses
•Our core losses consist of all losses and LAE for the present accident yr excluding each climate occasions for the present yr past these anticipated in our common accrual course of and prior years' reserve improvement. Core losses have been 44.7% of direct premium earned for the six months endedJune 30, 2022 in comparison with 39.7% for a similar interval in 2021. During the quarter endedJune 30, 2022 , administration elevated the core loss ratio by one loss ratio level retroactive toJanuary 1, 2022 , with the cumulative influence being recorded within the quarter. This was achieved in response to worsening climate expertise in the course of the quarter. Management elected to deal with this by a rise within the present accident yr loss decide relatively than file particular climate occasions given the total traits in recent times for climate not related to named storms and in response to modifications in estimated losses brought on by deteriorating loss traits and increased restore prices consequently of materials and labor inflation. The pattern in core losses and LAE is rising yr over yr because the claims setting inFlorida 50
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Table of Contents continues to deteriorate and inflation continues to drive restore prices up. Also see the dialogue above below "Overview-Trends." Core losses additionally enhance as premium quantity will increase yr over yr.
•Weather occasions past these anticipated
•There have been$4.5 million of climate occasions past these anticipated and included in the core losses in the course of the six months endedJune 30, 2022 . •There have been no climate occasions past these anticipated and included within the core losses in the course of the six months endedJune 30, 2021 .
•Prior years’ reserve improvement
•Two drivers affect the quantities recorded as prior years’ reserve improvement,
particularly: (i) modifications to prior estimates of direct and web final losses on
prior accident years excluding main hurricanes and (ii) modifications to prior
estimates of direct and web final losses on hurricanes.
?During the six months endedJune 30, 2022 , prior years' reserve improvement totaled$74.3 million of direct losses and$4.4 million of web unfavorable loss improvement after the profit of reinsurance. •For hurricanes, prior years' reserve improvement for the six months endedJune 30, 2022 was the outcome of a direct enhance within the final losses for a number of hurricanes of$74.3 million offset by ceded hurricane losses of$69.9 million leading to web unfavorable improvement of$4.4 million . Direct losses elevated for Hurricanes Irma, Sally, Michael and Matthew. Prior yr hostile improvement consists of gross reserve improvement on Hurricane Irma of$49.8 million , of which$45.6 million was ceded, leading to web improvement on Hurricane Irma of$4.2 million within the interval. Additionally, the Company concluded a positive commutation in the course of the quarter, rising ceded prior yr loss funds which was offset by a provisory enhance in direct prior yr IBNR quantity, leading to no web impact. Hurricane Matthew direct and web losses elevated$0.1 million .
•Excluding hurricanes, there was no direct and web prior years’ reserve
improvement for the six months ended
?For the six months endedJune 30, 2021 prior years' reserve improvement totaled$209.0 million of direct losses and$6.5 million of web losses after the profit of reinsurance. •For hurricanes, prior years' reserve improvement for the six months endedJune 30, 2021 was the outcome of a direct enhance within the final losses for hurricanes of$201.2 million offset by ceded hurricane losses of$202.5 million leading to web favorable improvement of$1.3 million . Direct losses elevated for Hurricanes Irma, Sally, Michael and Matthew. Ceded losses benefited from modifications to estimated non-Florida reinsurance protection, which has a decrease attachment level. As a outcome of ceded losses exceeding direct losses, web loss improvement on prior hurricanes was favorable in the course of the six months endedJune 30, 2021 . •Excluding hurricanes, there was$7.8 million of direct and web prior years' reserve improvement for the six months endedJune 30, 2021 . This improvement, from the 2019 and prior accident years, resulted from the settlement on litigated claims exceeding prior estimated quantities. The monetary profit generated by our claims adjusting affiliate from the administration of claims, together with declare charges ceded by our Insurance Entities to reinsurers, was$1.9 million for the six months endedJune 30, 2022 , in comparison with$9.3 million in the course of the six months endedJune 30, 2021 , pushed by the recoveries from reinsurers and inner declare companies. The profit was recorded within the condensed consolidated monetary statements as a discount to losses and LAE. 51
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Table of Contents General and administrative bills have been$157.6 million for the six months endedJune 30, 2022 , in comparison with$164.3 million throughout the identical interval in 2021, as follows ({dollars} in hundreds): Six Months Ended June 30, Change 2022 2021 $ % $ Ratio $ Ratio Premiums earned, web$ 546,125 $ 499,477 $ 46,648 9.3 % General and administrative bills: Policy acquisition prices 108,823 19.9 % 113,224 22.7 % (4,401) (3.9) % Other working prices (1) 48,765 8.9 % 51,065 10.2 % (2,300) (4.5) % Total common and administrative bills$ 157,588 28.8 %$ 164,289 32.9 %$ (6,701) (4.1) % General and administrative bills decreased by$6.7 million , which was the outcome of a lower in coverage acquisition prices of$4.4 million and different working prices of$2.3 million . The whole common and administrative expense ratio was 28.8% for the six months endedJune 30, 2022 in comparison with 32.9% for the six months endedJune 30, 2021 . •The lower in coverage acquisition prices of$4.4 million displays a discount within the fee charge paid to brokers on the renewal ofFlorida insurance policies which was lowered by 2 proportion factors to 10% efficientApril 1, 2021 . The fee charge paid to brokers on the renewal ofFlorida insurance policies was lowered by a further 2 proportion factors to eight% efficientMay 1, 2022 , which can profit future durations as the brand new charge construction applies prospectively. The lower in coverage acquisition prices as a proportion of premiums earned, web in the course of the interval is primarily because of the discount in commissions paid to brokers. •The lower in different working prices of$2.3 million primarily displays decrease worker advantages, stock-based compensation, and efficiency bonus accruals. The different working value ratio was 8.9% for the six months endedJune 30, 2022 in comparison with 10.2% within the six months endedJune 30, 2021 . This discount displays a number of elements together with economies of scale as we proceed to develop premium, and efficiencies gained from leveraging know-how, and spending self-discipline. As a outcome of the above, the mixed ratio for the six months endedJune 30, 2022 was 99.4% in comparison with 95.2% for a similar interval in 2021. The enhance was the outcome of a lower within the common and administrative expense ratio offset by a rise within the loss and LAE ratio as described above. Interest and amortization of debt issuance prices elevated by$3.3 million for the six months endedJune 30, 2022 . The enhance in curiosity and amortization of debt issuance prices is the outcome of a rise within the excellent debt as a outcome of our fourth quarter of 2021 borrowing. See "Item 1-Note 7 (Long-term debt)" for extra particulars. Income tax expense was$8.2 million for the six months endedJune 30, 2022 , in comparison with earnings tax expense of$18.1 million for the six months endedJune 30, 2021 . Our ETR decreased to 24.9% for the six months endedJune 30, 2022 , as in comparison with 27.2% for the six months endedJune 30, 2021 . The ETR decreased as a outcome of a decrease ratio of everlasting objects relative to the quantity of earnings earlier than taxes, principally non-deductible compensation, and a better degree of discrete tax advantages primarily as a consequence of a rise within theFlorida company earnings tax charge enacted onJanuary 1, 2022 . Other complete loss, web of taxes for the six months endedJune 30, 2022 , was$72.6 million in comparison with different complete loss of$8.9 million for the similar interval in 2021, reflecting after-tax modifications in truthful worth of available-for-sale debt securities held in our funding portfolio and reclassifications out of accrued different complete earnings for available-for-sale debt securities offered. See "Item 1-Note 11 (Other Comprehensive Income (Loss))" for extra details about the quantities comprising different complete earnings (loss), web of taxes for these durations. Adjusted working earnings, representing GAAP working earnings, excluding web realized features (losses) on funding and web modifications in unrealized features (losses) of fairness securities, was$49.4 million for the six months endedJune 30, 2022 in comparison with$64.7 million for a similar interval in 2021. Adjusted working earnings margin, representing adjusted working earnings divided by core income, was 8.3% for the six months endedJune 30, 2022 in comparison with 12.0% for a similar interval in 2021. Adjusted web earnings attributable to frequent stockholders, representing GAAP web earnings attributable to frequent stockholders, excluding web realized features (losses) on funding and web modifications in unrealized features (losses) of fairness securities, web of tax, was$34.7 million for the six months endedJune 30, 2022 in comparison with$47.0 million for a similar interval in 2021. Diluted adjusted earnings per frequent share, representing adjusted web earnings obtainable to frequent stockholders divided by weighted common diluted frequent shares excellent, was$1.12 for the six months endedJune 30, 2022 in comparison with$1.50 for a similar interval in 2021. 52
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Analysis of Financial Condition-As of
2021
We consider that money flows generated from operations might be ample to fulfill our working capital necessities for not less than the subsequent twelve months. We make investments quantities thought of to be in extra of present working capital necessities.
The following desk summarizes, by kind, the carrying values of investments as
of the dates introduced (in hundreds):
As of June 30, December 31, Type of Investment 2022 2021
Available-for-sale debt securities
Equity securities 79,844 47,334 Investment actual property, web 5,798 5,891 Total$ 1,106,648 $ 1,093,680
See “Item 1-Condensed Consolidated Statements of Cash Flows” and “Item 1-Note 3
(Investments)” for explanations on modifications in investments.
Restricted money and money equivalents elevated by$17.5 million to$20.1 million as ofJune 30, 2022 consequently of collateral held by a reinsurance captive association with one of the Insurance Entities reported as a Variable Interest Entities ("VIE") within the condensed consolidated monetary statements. See "Item 1-Note 14 (Variable Interest Entities)" for extra data. Prepaid reinsurance premiums symbolize the portion of unearned ceded written premium that might be earned pro-rata over the protection interval of our reinsurance program, which runs fromJune 1st to May thirty first of the next yr. The enhance of$349.1 million to$590.1 million as ofJune 30, 2022 was primarily as a consequence of further ceded written premium of$632.4 million recorded this quarter for the estimated reinsurance prices referring to our new 2022-2023 disaster reinsurance program startingJune 1, 2022 , much less amortization of ceded written premium for the reinsurance prices earned in the course of the interval.
Reinsurance recoverable represents the estimated quantity of paid and unpaid
losses, LAE and different bills which might be anticipated to be recovered from
reinsurers. The lower of
was primarily because of the collections of quantities recoverable from reinsurers
referring to settled claims from hurricanes and lined by our reinsurance
contracts and quantities obtained in reference to a commutation obtained by
UPCIC this quarter.
Premiums receivable, web, represents quantities receivable from policyholders. The enhance in premiums receivable, web of$14.4 million to$79.3 million as ofJune 30, 2022 pertains to client fee conduct of our enterprise. The quantity of direct premiums written throughout a calendar yr tends to extend simply prior to the second quarter and tends to lower approaching the fourth quarter. Deferred coverage acquisition prices ("DPAC") elevated by$2.2 million to$111.0 million as ofJune 30, 2022 , which is in keeping with the seasonal premium traits of written premium. In addition DPAC was impacted by the discount toFlorida renewal commissions applied throughout 2022 and 2021 and different modifications to the Company's fee construction. See "Item 1-Note 5 (Insurance Operations)" for a roll-forward within the steadiness of our DPAC. Income taxes recoverable represents the distinction between estimated tax obligations and tax funds made to taxing authorities. As ofJune 30, 2022 , the steadiness recoverable was$22.3 million , representing quantities due from taxing authorities at that date, in comparison with a steadiness recoverable of$16.9 million as ofDecember 31, 2021 . Income taxes recoverable as ofJune 30, 2022 will both be refunded or utilized to future durations to offset future federal and state earnings tax obligations. Deferred earnings taxes symbolize the estimated tax asset or tax legal responsibility induced by non permanent variations between the tax return foundation of sure belongings and liabilities and quantities recorded within the monetary statements. During the six months endedJune 30, 2022 , deferred tax belongings elevated by$13.9 million to$30.3 million primarily as a consequence of a rise in unrealized losses on investments and a rise in unearned premiums web of pay as you go reinsurance premiums. Deferred earnings taxes reverse in future years because the non permanent variations between e book and tax reverse. See "Item 1-Note 6 (Liability for Unpaid Losses and Loss Adjustment Expenses)" for a roll-forward within the steadiness of our unpaid losses and LAE. Unpaid losses and LAE decreased by$159.9 million to$186.3 million as ofJune 30, 2022 . The majority of the lower is from the settlement of losses from prior hurricanes and prior giant climate occasions. Overall, unpaid losses and LAE decreased, as declare settlements exceeded new rising claims. Unpaid losses and LAE are web of estimated subrogation recoveries. Unearned premiums symbolize the portion of direct premiums written that might be earned pro-rata sooner or later. The enhance of$85.6 million fromDecember 31, 2021 to$943.4 million as ofJune 30, 2022 displays the seasonality of our enterprise, which varies from month to month. 53
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Table of Contents Advance premium represents premium funds made by policyholders forward of the efficient date of the insurance policies. The enhance of$32.6 million to$86.3 million as ofJune 30, 2022 displays buyer fee conduct and the fee conduct of mortgage escrow service suppliers. We keep a short-term money funding technique sweep to maximise funding returns on money balances. There have been no e book overdrafts as ofJune 30, 2022 in comparison with e book overdrafts totaling$26.8 million as ofDecember 31, 2021 . The lower of$26.8 million is the outcome of increased money balances obtainable for offset as ofJune 30, 2022 in comparison withDecember 31, 2021 . See "-Liquidity and Capital Resources" for extra data. Reinsurance payable, web, represents the unpaid reinsurance premium installments owed to reinsurers, unpaid reinstatement premiums as a consequence of reinsurers and money advances obtained from reinsurers, if any. OnJune 1st of annually, we renew our core disaster reinsurance program and file the estimated annual value of our reinsurance program. These estimated annual prices are elevated or decreased in the course of the yr primarily based on premium changes or consequently of new placements in the course of the yr. The annual value initially will increase reinsurance payable, which is then lowered as installment funds are remodeled the coverage interval of the reinsurance, which usually runs fromJune 1st to May thirty first . The steadiness elevated by$449.2 million to$637.8 million as ofJune 30, 2022 consequently of the timing of the above objects. See "-Liquidity and Capital Resources" for extra details about timing of reinsurance premiums installment funds.
Other liabilities and accrued bills elevated by
million
liabilities because of the timing of funds.
Capital sources, web, decreased by$63.7 million for the six months endedJune 30, 2022 , reflecting a web lower in whole stockholders' fairness and long-term debt. The change in stockholders' fairness was principally the outcome of will increase coming from our 2022 web earnings and share-based compensation, offset by declines within the after-tax modifications within the truthful worth of our available-for-sale debt securities, treasury share purchases and dividends to shareholders. Available-for-sale debt securities decline in truthful worth of$96.3 million (earlier than tax) within the first half of 2022, induced the online unrealized loss place of$20.2 million atDecember 31, 2021 to extend to$116.5 million atJune 30, 2022 . Current market outlooks are signaling additionalFederal Reserve tightening which might proceed to have a detrimental influence on the valuation of available-for-sale debt securities. See "Item 1-Condensed Consolidated Statements of Stockholders' Equity" and "Item 1-Note 8 (Stockholders' Equity)" for clarification of modifications in treasury inventory.
The discount in debt of
debt throughout 2022. See “-Liquidity and Capital Resources” for extra data.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Liquidity is a measure of an organization's potential to generate ample money flows to fulfill its quick and long-term obligations. Funds generated from operations have been ample and we count on them to be ample to fulfill our present and long run liquidity necessities. The steadiness of money and money equivalents, excluding restricted money, as ofJune 30, 2022 was$317.0 million , in comparison with$250.5 million atDecember 31, 2021 . See "Item 1-Condensed Consolidated Statements of Cash Flows" for a reconciliation of the steadiness of money and money equivalents betweenJune 30, 2022 andDecember 31, 2021 . The enhance in money and money equivalents was pushed by money flows generated from working actions in extra of money flows utilized in investing and financing actions. Our money funding technique at occasions consists of money investments the place the appropriate of offset towards different financial institution accounts doesn't exist. A e book overdraft happens when aggregating the e book steadiness of all accounts at a monetary establishment, for accounts which have the appropriate of offset, and if the aggregation leads to a web detrimental e book steadiness, that steadiness is reclassified from money and money equivalents in our Condensed Consolidated Balance Sheet to e book overdraft. Cash and money equivalents balances can be found to settle e book overdrafts, and to pay reinsurance premiums, bills and claims. Reinsurance premiums are paid in installments in the course of the reinsurance coverage interval, which runs fromJune 1st to May thirty first of the next yr. The FHCF reimbursement premiums are paid in three installments onAugust 1st ,October 1st , andDecember 1st , and third-party reinsurance premiums are typically paid in 4 installments onJuly 1st ,October 1st ,January 1st andApril 1st , leading to important funds at these occasions. See "Item 1-Note 12 (Commitments and Contingencies)" and further dialogue under below the caption "-Material Cash Requirements" for extra data. The steadiness of restricted money and money equivalents as ofJune 30, 2022 andDecember 31, 2021 represents money equivalents on deposit with sure regulatory companies within the numerous states during which our Insurance Entities do enterprise and, in 2022, restricted money and money equivalents additionally consists of collateral held by a third social gathering in a consolidated VIE, in help of the holding firm's reinsurance captive association with UPCIC. The quantity of collateral held was$17.5 million as ofJune 30, 2022 . Previous years' captive preparations have included collateral posting by the holding firm, which was both returned to the holding firm earlier than yr finish when there have been no claims below the reinsurance safety with the VIE, or remitted to UPCIC below this association within the kind of VIE reinsurance settlements with UPCIC. See "Item 1-Note 14 (Variable Interest Entities)" for extra data. 54
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Table of Contents Liquidity is required on the holding firm for us to cowl the fee of holding firm common working bills and contingencies, dividends to shareholders (if and when licensed and declared by our Board of Directors), fee for the potential repurchase of our frequent inventory (if and when licensed by our Board of Directors), fee of our tax obligations to taxing authorities, settlement of taxes between subsidiaries in accordance with our tax sharing settlement, capital contributions to subsidiaries or surplus word contributions to the Insurance Entities, if wanted, and curiosity and principal funds on excellent debt obligations of the holding firm. Effective in 2021 for UPCIC and 2022 for APPCIC, the holding firm has put in place an ongoing surplus word association with the Insurance Entities, which has been permitted by theFlorida Office of Insurance Regulation because the Insurance Entities' home regulator. Surplus notes are unsecured debt issued by the Insurance Entities that's subordinated to all claims by policyholders and collectors, with curiosity and principal funds on the excess notes to the holding firm being made solely upon the FLOIR's specific approval. Surplus notes are thought of bonds in perform and payout construction, however are accounted for as fairness within the statutory reporting of the Insurance Entities. The holding firm has excellent with the Insurance Entities$134.0 million in surplus notes. Under the association, curiosity accrues at a variable charge (at the moment 8.27%) on the excellent surplus word balances and, if permitted by the FLOIR is payable yearly to the holding firm. In 2022, UPCIC obtained approval from itsFlorida regulator to allow UPCIC to pay curiosity accruing from surplus notes excellent throughout 2021. The declaration and fee of future dividends to our shareholders, and any future repurchases of our frequent inventory, might be on the discretion of our Board of Directors and will rely upon many elements, together with our working outcomes, monetary situation, debt covenants and any regulatory constraints. New laws or modifications to current laws imposed on the Company and its associates may influence the quantity and timing of future dividend funds to the guardian. Principal sources of liquidity for the holding firm embrace dividends paid by our service entities generated from earnings earned on charges paid by the Insurance Entities to affiliated firms for common company, inspections and claims adjusting companies. Dividends are additionally paid from earnings earned from brokerage commissions earned on reinsurance contracts positioned by our wholly-owned subsidiary,Blue Atlantic Reinsurance Corporation , and coverage charges. We additionally keep prime quality investments in our portfolio as a supply of liquidity together with ongoing curiosity and dividend earnings from these investments. As mentioned in "Item 1-Note 5 (Insurance Operations)," there are limitations on the dividends the Insurance Entities could pay to their instant guardian firm,Protection Solutions, Inc. ("PSI", previously generally known asUniversal Insurance Holding Company of Florida ). The most quantity of dividends that may be paid byFlorida insurance coverage firms with out prior approval of the FLOIR is topic to restrictions as referenced under and in "Item 1-Note 5 (Insurance Operations)." Dividends from the Insurance Entities can solely be paid from accrued unassigned funds derived from web working income and web realized capital features. Subject to such accrued unassigned funds, the utmost dividend which may be paid by the Insurance Entities to PSI with out prior approval (an "ordinary dividend") is additional restricted to the lesser of statutory web earnings from operations of the previous calendar yr or statutory unassigned surplus as of the previous yr finish. During the six months endedJune 30, 2022 and the yr endedDecember 31, 2021 , the Insurance Entities didn't pay dividends to PSI. As ofJune 30, 2022 , the Insurance Entities didn't have the capability to pay odd dividends. OnNovember 23, 2021 , we entered into Note Purchase Agreements with sure institutional accredited buyers and certified institutional patrons pursuant to which we issued$100 million of 5.625% Senior Unsecured Notes due 2026. We intend to make use of the online proceeds to help the Insurance Entities' statutory capital necessities and for common company functions. If mandatory, the Company additionally has quantities obtainable below our unsecured revolving mortgage as mentioned in "Item 1-Note 7 (Long-term debt)." Liquidity for the Insurance Entities is primarily required to cowl funds for reinsurance premiums, claims funds together with potential funds of disaster losses (offset by restoration of any reimbursement quantities below our reinsurance agreements), charges paid to associates for managing common company companies, inspections and claims adjusting companies, agent commissions, premium and earnings taxes, regulatory assessments, common working bills, and curiosity and principal funds on debt obligations. The principal supply of liquidity for the Insurance Entities consists of the income generated from the assortment of premiums earned, web, curiosity and dividend earnings from the funding portfolio, the gathering of reinsurance recoverable and financing charges. Our insurance coverage operations present liquidity as premiums are typically obtained months and even years earlier than potential losses are paid below the insurance policies written. In the occasion of catastrophic occasions, many of our reinsurance agreements present for "cash advance" whereby reinsurers advance or prepay quantities to us, thereby offering liquidity, which we make the most of within the declare settlement course of. In addition, the Insurance Entities keep substantial investments in extremely liquid, marketable securities, which might generate funds upon sale. The common credit standing on our available-for-sale securities was A+ as ofJune 30, 2022 andDecember 31, 2021 . Credit rankings are a measure of assortment danger on invested belongings. Credit rankings are supplied by third social gathering, nationally acknowledged ranking companies and are periodically up to date. Management establishes tips for minimal credit standing and total credit standing for all investments. The period of our available-for-sale securities was 4.4 years atJune 30, 2022 in comparison with 4.4 years atDecember 31, 2021 . Duration is a measure of a bond's sensitivity to rate of interest modifications and is utilized by administration to restrict the potential influence of longer-term investments. The Insurance Entities are answerable for losses associated to catastrophic occasions in extra of protection supplied by the Insurance Entities' reinsurance applications and retentions earlier than our reinsurance safety commences. Also, the Insurance Entities are answerable for all different losses that in any other case might not be lined by the reinsurance applications and any quantities arising within the occasion of a reinsurer default. Losses or a default by reinsurers could have a fabric hostile impact on both of the Insurance Entities, on our enterprise, monetary situation, outcomes of operations and liquidity. 55
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Table of Contents Capital Resources Capital sources present safety for policyholders, furnish the monetary power to help the enterprise of underwriting insurance coverage dangers and facilitate continued enterprise progress. The following desk supplies our stockholders' fairness, whole long-term debt, whole capital sources, debt-to-total capital ratio and debt-to-equity ratio for the durations introduced ({dollars} in hundreds): As of June 30, December 31, 2022 2021 Stockholders' fairness$ 366,551 $ 429,702 Total long-term debt 103,161 103,676 Total capital sources$ 469,712 $ 533,378 Debt-to-total capital ratio 22.0 % 19.4 % Debt-to-equity ratio 28.1 % 24.1 % The debt-to-total capital ratio is whole long-term debt divided by whole capital sources, whereas the debt-to-equity ratio is whole long-term debt divided by stockholders' fairness. These ratios assist administration measure the quantity of financing leverage in place in relation to fairness and future leverage capability.
Adjusted frequent stockholders’ fairness, representing GAAP frequent stockholders’
fairness, excluding accrued different complete earnings (loss), was
million
million
Adjusted e book worth per share frequent share, representing adjusted frequent
stockholders’ fairness divided by excellent frequent shares on the finish of the
reporting interval, was
Adjusted return on frequent fairness representing precise or annualized adjusted web earnings attributable to frequent stockholders divided by common adjusted frequent stockholders' fairness, with the denominator excluding present interval earnings assertion web realized features (losses) on investments and web modifications in unrealized features (losses) of fairness securities, web of tax, was 15.3% as ofJune 30, 2022 , 20.2% as ofJune 30, 2021 and 4.3% as ofDecember 31, 2021 . As described in our Annual Report on Form 10-Okay for the yr endedDecember 31, 2021 , UPCIC entered right into a surplus word with theState Board of Administration of Florida belowFlorida's Insurance Capital Build-Up Incentive Program onNovember 9, 2006 . The surplus word has a twenty-year time period, with quarterly funds of principal and curiosity that accrue per the phrases of the word settlement. AtJune 30, 2022 , UPCIC was in compliance with the phrases of the surplus word. Total adjusted capital and surplus, which incorporates the excess word, was in extra of regulatory necessities for each UPCIC and APPCIC. As mentioned in "Item 1-Note 7 (Long-term Debt)," we entered right into a credit score settlement and associated revolving mortgage withJPMorgan Chase Bank, N.A . inAugust 2021 which makes obtainable an unsecured revolving credit score facility with an combination dedication to not exceed$35.0 million . Borrowings below the Revolving Loan mature 364 days after the date of the mortgage. The Revolving Loan incorporates customary monetary covenants. As ofJune 30, 2022 , the Company was in compliance with all relevant covenants, together with monetary covenants. We had not drawn any quantities below the Revolving Loan as ofJune 30, 2022 . The revolving credit score facility withJP Morgan Chase Bank, N.A. is topic to annual renewals every August. InNovember 2021 , we accomplished a non-public placement providing by which we issued and offered$100 million of 5.625% Senior Unsecured Notes due 2026 (the "Notes") to sure institutional accredited buyers and certified institutional patrons. The Notes mature onNovember 26, 2026 , at which era the complete$100 million of principal is due and payable. At any time on or afterNovember 23, 2023 , the Company could redeem all or half of the Notes. See "Item 1-Note 7 (Long-term debt)" for extra particulars. As ofJune 30, 2022 , we have been in compliance with all relevant covenants, together with monetary covenants of this word settlement. We can even proceed to guage alternatives to entry the debt capital markets to boost further capital. We anticipate any proceeds could be used for common company functions, together with investing within the capital and surplus of the Insurance Entities. In addition to the liquidity typically supplied from operations, we keep a conservative, well-diversified funding portfolio, predominantly comprised of mounted earnings securities with a median credit standing of A+, that focuses on capital preservation and offering an ample supply of liquidity for potential declare funds and different money wants. The portfolio's secondary funding goal is to offer a complete charge of return with emphasis on funding earnings. Historically, now we have constantly generated funds from operations, permitting our money and invested belongings to develop. 56
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Impact of the COVID-19 Pandemic
The influence of the COVID-19 pandemic on the financial system and credit score markets stays a key danger asthe United States and the world continues to navigate its penalties and the efforts taken by governments to deal with monetary restoration and financial stability. We stay in common contact with our advisors to monitor the credit score high quality of the issuers of the securities in our portfolio and focus on applicable responses to credit score downgrades or modifications in firms' credit score outlook. We consider these measures, when mixed with the inherent liquidity generated by our enterprise mannequin and in our funding portfolio, will permit us to proceed to fulfill our short- and long-term obligations.
Looking Forward
We proceed to observe a spread of monetary metrics associated to our enterprise. Although now we have not but skilled materials hostile impacts on our enterprise or liquidity, circumstances are topic to vary relying on the extent of the financial downturn and the tempo and extent of an financial restoration. Significant uncertainties exist with the potential long-term influence of the COVID-19 pandemic, together with unexpected newly rising dangers that would have an effect on us and future financial modifications because theFederal Reserve addresses the rising financial considerations of inflation, employment and recession. We will proceed to observe the broader financial impacts of the COVID-19 pandemic and its influence on our operations and monetary situation together with liquidity and capital sources.
Common Stock Repurchases
OnNovember 3, 2020 , we introduced that our Board of Directors licensed a share repurchase program below which we could repurchase within the open market as much as$20 million of excellent shares of our frequent inventory byNovember 3, 2022 . We could repurchase shares occasionally at our discretion, primarily based on ongoing assessments of our capital wants, the market value of our frequent inventory and common market circumstances. We will fund the share repurchase program with money from operations. During the six months endedJune 30, 2022 , we repurchased an combination of 603,080 shares of our frequent inventory within the open market at an combination buy value of$7.4 million . Also, see "Part II, Item 2-Unregistered Sales ofEquity Securities and Use of Proceeds" for share repurchase exercise in the course of the three months endedJune 30, 2022 .
Off-Balance Sheet Arrangements
The Company doesn’t have any off-balance sheet preparations which might be moderately
more likely to have a fabric impact on the monetary situation, outcomes of
operations, liquidity, or capital sources of the Company, aside from
multi-year reinsurance contract commitments for future years that might be
recorded on the graduation of the protection interval. See “Item 1-Note 12
(Commitments and Contingencies)” for extra data.
Cash Dividends
The following desk summarizes the dividends declared by the Company in 2022: Cash Dividend Dividend Shareholders Dividend Per Common Share 2022 Declared Date Record Date Payable Date Amount First Quarter February 10, 2022 March 10, 2022 March 17, 2022 $ 0.16 Second Quarter April 20, 2022 May 13, 2022 May 20, 2022 $ 0.16
MATERIAL CASH REQUIREMENTS
The following desk represents our materials money necessities for which money
flows are mounted or determinable as of
Total Next 12 Months Beyond 12 Months Reinsurance payable and multi-year commitments (1)$ 876,113 $ 703,841 $ 172,272 Unpaid losses and LAE, direct (2) 186,349 105,101 81,248 Long-term debt (3) 131,893 7,230 124,663 Total materials money necessities$ 1,194,355 $
816,172 $ 378,183
(1)Amount represents the fee of reinsurance premiums payable below
multi-year commitments. See “Item 1-Note 12 (Commitments and Contingencies).”
(2)There are typically no notional or said quantities associated to unpaid losses and LAE. Both the quantities and timing of future loss and LAE funds are estimates and topic to the inherent variability of authorized and market circumstances affecting the obligations and make the timing of money outflows unsure. The final quantity and timing of unpaid losses and LAE might differ materially from the quantities within the desk above. Further, the unpaid losses and LAE don't symbolize all of the obligations that can come up below the contracts, however relatively solely the estimated legal responsibility incurred byJune 30, 2022 . Unpaid losses and LAE are web of estimated subrogation recoveries. In addition, these balances exclude quantities recoverable from the Company's reinsurance program. See "Item 1-Note 4 (Reinsurance)."
(3)Long-term debt consists of a Surplus word and 5.625% Senior unsecured notes.
See “Item 1-Note 7 (Long-term debt).”
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IMPACT OF INFLATION AND CHANGING PRICES
The monetary statements and associated information introduced herein have been ready in accordance with GAAP, which require the measurement of monetary place and working leads to phrases of historic {dollars} with out contemplating modifications in the relative buying energy of cash over time as a consequence of inflation. Our major belongings are financial in nature. As a outcome, rates of interest have a extra important influence on our efficiency than the results of the final ranges of inflation. Interest charges don't essentially transfer in the identical course or with the identical magnitude as the price of paying losses and LAE. Insurance premiums are established earlier than we all know the quantity of loss and LAE and the extent to which inflation could have an effect on such bills. Consequently, we try to anticipate the longer term influence of inflation when establishing charge ranges. While we try to cost ample charges, we could also be restricted in elevating premium ranges for aggressive and regulatory causes. Inflation additionally impacts the market worth of our funding portfolio and the funding charge of return. Any future financial modifications which end in extended and rising ranges of inflation might trigger will increase within the greenback quantity of incurred loss and LAE and thereby materially adversely have an effect on future legal responsibility necessities.
ARRANGEMENTS WITH VARIABLE INTEREST ENTITIES
We entered right into a reinsurance captive association with a VIE within the regular
course of enterprise, and consolidated the VIE since we’re the first
beneficiary.
For an extra dialogue of our involvement with the VIE, see “Item 1-Note 14
(Variable Interest Entities).”
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There have been no materials modifications in the course of the interval lined by this Quarterly Report on Form 10-Q to Critical Accounting Policies and Estimates beforehand disclosed in "Part II, Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our Annual Report on Form 10-Okay for the yr endedDecember 31, 2021 . 58
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Table of Contents NON-GAAP FINANCIAL MEASURES Non-GAAP monetary measures ought to be thought of along with, and not as a substitute for or superior to, monetary measures introduced in accordance with GAAP. For extra data relating to our key efficiency indicators, please discuss with the part titled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Performance Indicators." The following desk presents the reconciliation of GAAP income (whole premiums earned and different revenues) to core income, which is a non-GAAP measure (in hundreds): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 GAAP income$ 292,006 $ 279,181 $ 579,488 $ 541,938 much less: Net realized features (losses) on investments (725) 496 (667) 1,038 much less: Net change in unrealized features (losses) of fairness securities (8,884) 1,229 (12,280) 735 Core Revenue$ 301,615 $ 277,456 $ 592,435 $ 540,165 The following desk presents the reconciliation of GAAP earnings earlier than earnings taxes to adjusted working earnings, which is a non-GAAP measure (in hundreds): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 GAAP earnings earlier than earnings taxes$ 10,680 $ 30,059 $ 33,151 $ 66,410 add: Interest and amortization of debt issuance prices 1,731 35 3,339 55 GAAP working earnings 12,411 30,094 36,490 66,465 much less: Net realized features (losses) on investments (725) 496 (667) 1,038 much less: Net modifications in unrealized features (losses) of fairness securities (8,884) 1,229 (12,280) 735 Adjusted working earnings$ 22,020 $ 28,369 $ 49,437 $ 64,692 The following desk presents the reconciliation of working earnings margin to adjusted operation earnings margin, which is a non-GAAP measure (in hundreds): Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 GAAP working earnings$ 12,411 $ 30,094 $ 36,490 $ 66,465 GAAP income 292,006 279,181 579,488 541,938 GAAP working earnings margin 4.3 % 10.8 % 6.3 % 12.3 % Adjusted working earnings 22,020 28,369 49,437 64,692 Core income 301,615 277,456 592,435 540,165
Adjusted working earnings margin 7.3 % 10.2 % 8.3 % 12.0 %
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The following desk presents the reconciliation of GAAP web earnings (loss)
obtainable to frequent stockholders to adjusted web earnings obtainable to frequent
stockholders, which is a non-GAAP measure (in hundreds):
Three Months Ended Six Months Ended June 30, June 30, 2022 2021 2022 2021 GAAP web earnings$ 7,370 $ 21,941 $ 24,907 $ 48,349 much less: Preferred dividends 2 2 5 5 GAAP web earnings (loss) obtainable to frequent stockholders 7,368 21,939 24,902 48,344 much less: Net realized features (losses) on investments (725) 496 (667) 1,038 much less: Net modifications in unrealized features (losses) of fairness securities (8,884) 1,229 (12,280) 735 add: Income tax impact on above changes (2,329) 413 (3,138) 424 Adjusted web earnings obtainable to frequent stockholders$ 14,648 $ 20,627
Weighted common frequent shares excellent - Diluted 30,883 31,310 31,060 31,292 Diluted earnings per frequent share$ 0.24 $ 0.70 $ 0.80 $ 1.54 Diluted adjusted earnings per frequent share$ 0.47 $ 0.65
The following desk presents the reconciliation of GAAP stockholders' fairness to adjusted stockholders' fairness and e book worth per frequent share to adjusted e book worth per frequent share, which is a non-GAAP measure (in hundreds): As of June 30, June 30, December 31, 2022 2021 2021 Stockholders' fairness$ 366,551 $ 480,842 $ 429,702 much less: Preferred fairness 100 100 100 Common stockholders' fairness 366,451 480,742 429,602 much less: Accumulated different complete earnings (loss) (88,134) (5,571) (15,568) Adjusted frequent stockholders' fairness$ 454,585 $ 486,313 $ 445,170 Common shares excellent 30,716 31,269 31,221 Book worth per frequent share$ 11.93 $ 15.37 $ 13.76 Adjusted e book worth per frequent share$ 14.80 $ 15.55 $ 14.26 60
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The following desk presents the reconciliation of GAAP ROCE to adjusted ROCE,
which is a non-GAAP measure (in hundreds):
Three Months Ended Six Months Ended Year Ended June 30, June 30, December 31, 2022 2021 2022 2021 2021 Actual or annualized web earnings obtainable to frequent stockholders$ 29,472 $ 87,756 $ 49,804 $ 96,688 $ 20,397 Average frequent stockholders' fairness 381,346 467,654 398,027 464,952 439,382 ROCE 7.7 % 18.8 % 12.5 % 20.8 % 4.6 % Actual or annualized adjusted web earnings
obtainable to frequent stockholders
Actual or adjusted common frequent
stockholders' fairness* 458,292 476,567 454,782 465,392 444,775 Adjusted ROCE 12.8 % 17.3 % 15.3 % 20.2 % 4.3 %
Adjusted common frequent stockholders’ fairness excludes present interval web realized
* features (losses) on investments and
web modifications in unrealized features (losses) of fairness securities, web of tax.
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