Universal Insurance Holdings(UVE) - 2025 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements of Universal Insurance Holdings, Inc. and its subsidiaries for the periods ended March 31, 2025, and December 31, 2024, including balance sheets, income statements, comprehensive income, stockholders' equity, and cash flows, along with detailed notes explaining the nature of operations, significant accounting policies, and specific financial components Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (March 31, 2025 vs. December 31, 2024) | Metric (in thousands) | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Total invested assets | $1,428,256 | $1,371,276 | | Cash and cash equivalents | $398,184 | $259,441 | | Total assets | $2,714,716 | $2,841,861 | | Total liabilities | $2,292,329 | $2,468,611 | | Total stockholders' equity | $422,387 | $373,250 | Condensed Consolidated Statements of Income Condensed Consolidated Statements of Income (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands, except per share) | 2025 | 2024 | | :------------------------------------ | :----------- | :----------- | | Direct premiums written | $467,078 | $446,179 | | Premiums earned, net | $355,721 | $334,025 | | Net investment income | $16,060 | $13,523 | | Total revenues | $394,867 | $367,959 | | Losses and loss adjustment expenses | $250,555 | $240,187 | | General and administrative expenses | $87,244 | $78,666 | | Total operating costs and expenses | $337,799 | $318,853 | | Income before income taxes | $55,456 | $47,484 | | Net income | $41,439 | $33,657 | | Basic earnings per common share | $1.48 | $1.17 | | Diluted earnings per common share | $1.44 | $1.14 | | Cash dividend declared per common share | $0.16 | $0.16 | Condensed Consolidated Statements of Comprehensive Income Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands) | 2025 | 2024 | | :-------------------- | :----------- | :----------- | | Net income (loss) | $41,439 | $33,657 | | Other comprehensive income (loss), net of taxes | $12,094 | $(2,542) | | Comprehensive income (loss) | $53,533 | $31,115 | Condensed Consolidated Statements of Stockholders' Equity Changes in Stockholders' Equity (Three Months Ended March 31, 2025) | Metric (in thousands) | Balance, Dec 31, 2024 | Net Income (Loss) | Other Comprehensive Income (Loss) | Declaration of Dividends | Balance, Mar 31, 2025 | | :-------------------- | :-------------------- | :---------------- | :-------------------------------- | :----------------------- | :-------------------- | | Total Stockholders' Equity | $373,250 | $41,439 | $12,094 | $(4,491) | $422,387 | Changes in Stockholders' Equity (Three Months Ended March 31, 2024) | Metric (in thousands) | Balance, Dec 31, 2023 | Net Income (Loss) | Other Comprehensive Income (Loss) | Declaration of Dividends | Balance, Mar 31, 2024 | | :-------------------- | :-------------------- | :---------------- | :-------------------------------- | :----------------------- | :-------------------- | | Total Stockholders' Equity | $341,297 | $33,657 | $(2,542) | $(4,762) | $364,664 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands) | 2025 | 2024 | | :-------------------- | :----------- | :----------- | | Net cash provided by (used in) operating activities | $186,769 | $82,916 | | Net cash provided by (used in) investing activities | $(41,548) | $(74,381) | | Net cash provided by (used in) financing activities | $(6,478) | $(9,518) | | Net increase (decrease) during the period | $138,743 | $(983) | | Balance, end of period (Cash & Restricted Cash) | $400,819 | $398,958 | Notes to Condensed Consolidated Financial Statements NOTE 1 - NATURE OF OPERATIONS AND BASIS OF PRESENTATION - Universal Insurance Holdings, Inc. (UVE) is a vertically integrated insurance holding company primarily engaged in property and casualty insurance, offering residential homeowners' insurance in 19 states, with Florida comprising the majority of policies in force. Revenues are generated from premiums, investment returns, brokerage commissions, and policy fees[25][26] - The financial statements are prepared in conformity with U.S. GAAP and SEC rules for interim financial information, relying on management estimates for liabilities such as unpaid losses, loss adjustment expenses, and reinsurance recoveries[27][28][31] NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES - The Company's significant accounting policies are consistent with those reported in its Annual Report on Form 10-K for the year ended December 31, 2024[32] NOTE 3 - INVESTMENTS Available-for-Sale Debt Securities Fair Value (March 31, 2025 vs. December 31, 2024) | Debt Securities (in thousands) | March 31, 2025 Fair Value | December 31, 2024 Fair Value | | :----------------------------- | :------------------------ | :------------------------- | | U.S. government obligations and agencies | $21,491 | $19,747 | | Corporate bonds | $901,783 | $868,948 | | Mortgage-backed and asset-backed securities | $377,522 | $357,030 | | Municipal bonds | $14,578 | $14,354 | | Redeemable preferred stock | $8,964 | $9,000 | | Total | $1,324,338 | $1,269,079 | Credit Quality of Available-for-Sale Debt Securities (March 31, 2025 vs. December 31, 2024) | Average Credit Ratings | March 31, 2025 Fair Value | % of Total | December 31, 2024 Fair Value | % of Total | | :--------------------- | :------------------------ | :--------- | :------------------------- | :--------- | | AAA | $403,447 | 30.4 % | $378,732 | 29.9 % | | AA | $145,768 | 11.0 % | $146,456 | 11.5 % | | A | $441,890 | 33.4 % | $425,503 | 33.5 % | | BBB | $328,126 | 24.8 % | $313,265 | 24.7 % | | No Rating Available | $5,107 | 0.4 % | $5,123 | 0.4 % | | Total | $1,324,338 | 100.0 % | $1,269,079 | 100.0 % | Net Investment Income Components (Three Months Ended March 31, 2025 vs. 2024) | Component (in thousands) | 2025 | 2024 | | :----------------------- | :----------- | :----------- | | Available-for-sale debt securities | $10,719 | $7,214 | | Equity securities | $796 | $894 | | Cash and cash equivalents | $5,122 | $5,823 | | Other | $166 | $177 | | Total investment income | $16,803 | $14,108 | | Less: Investment expenses | $(743) | $(585) | | Net investment income | $16,060 | $13,523 | NOTE 4 - REINSURANCE - The Company uses reinsurance agreements to reduce risk from catastrophic losses, primarily through catastrophe excess of loss reinsurance. It remains responsible for retained loss amounts and losses exceeding reinsurance coverage. The Company evaluates the financial strength of reinsurers to mitigate credit risk[50] Reinsurance Recoverables and Prepaid Premiums (March 31, 2025 vs. December 31, 2024) | Metric (in thousands) | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Prepaid reinsurance premiums | $105,480 | $262,716 | | Reinsurance recoverables on paid losses and LAE | $37,519 | $65,681 | | Reinsurance recoverables on unpaid losses and LAE | $433,670 | $561,936 | | Total Reinsurance recoverables | $471,189 | $627,617 | NOTE 5 - INSURANCE OPERATIONS Deferred Policy Acquisition Costs (DPAC) (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands) | 2025 | 2024 | | :-------------------- | :----------- | :----------- | | DPAC, beginning of period | $121,178 | $109,985 | | Capitalized Costs | $54,108 | $50,852 | | Amortization of DPAC | $(59,456) | $(54,205) | | DPAC, end of period | $115,830 | $106,632 | - The Insurance Entities (UPCIC and APPCIC) are subject to Florida Office of Insurance Regulation (FLOIR) standards, requiring specific statutory capital levels and restricting dividend payments. As of March 31, 2025, neither UPCIC nor APPCIC could pay ordinary dividends, but both exceeded minimum statutory capitalization requirements[55][56][58] Statutory Capital and Surplus (March 31, 2025 vs. December 31, 2024) | Entity (in thousands) | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | UPCIC Statutory capital and surplus | $384,559 | $385,530 | | APPCIC Statutory capital and surplus | $28,195 | $27,985 | | UPCIC Ten percent of total liabilities | $175,350 | $161,438 | | APPCIC Ten percent of total liabilities | $3,096 | $3,179 | NOTE 6 – LIABILITY FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES Change in Liability for Unpaid Losses and LAE (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands) | 2025 | 2024 | | :-------------------- | :----------- | :----------- | | Balance at beginning of period | $959,291 | $510,117 | | Total incurred | $250,555 | $240,187 | | Total paid | $187,903 | $238,276 | | Balance at end of period | $893,677 | $429,629 | - The liability for unpaid losses and loss adjustment expenses decreased by $65.6 million to $893.7 million as of March 31, 2025, primarily due to the settlement of Hurricane Ian claims and other prior-year claims. There was no prior year development during the three months ended March 31, 2025 and 2024[62][63] NOTE 7 – LONG-TERM DEBT Long-Term Debt (March 31, 2025 vs. December 31, 2024) | Debt Type (in thousands) | March 31, 2025 | December 31, 2024 | | :----------------------- | :------------- | :---------------- | | Surplus note | $2,206 | $2,573 | | 5.625% Senior unsecured notes | $100,000 | $100,000 | | Total principal amount | $102,206 | $102,573 | | Less: unamortized debt issuance costs | $(1,153) | $(1,330) | | Total long-term debt, net | $101,053 | $101,243 | - The Company has a $25.0 million surplus note with the State Board of Administration of Florida, with a 20-year term and variable interest. It also has $100.0 million in 5.625% Senior Unsecured Notes due 2026, redeemable after November 30, 2023. The Company was in compliance with all debt covenants as of March 31, 2025[66][67][69] - A $50.0 million unsecured revolving credit line with JP Morgan Chase Bank, N.A. was established on May 31, 2024, replacing a previous $40.0 million line. No amount has been borrowed under this facility as of March 31, 2025[71] NOTE 8 – STOCKHOLDERS' EQUITY Common Stock Repurchases (Three Months Ended March 31, 2025 vs. 2024) | Repurchase Plan | Dollar Amount Authorized (in thousands) | Shares Repurchased (2025) | Shares Repurchased (2024) | Aggregate Purchase Price (2024, in thousands) | | :---------------- | :------------------------------------ | :------------------------ | :------------------------ | :-------------------------------------------- | | March 11, 2024 | $20,000 | — | 288 | $6 | | June 12, 2023 | $20,000 | — | 207,722 | $4,133 | NOTE 9 – INCOME TAXES - The effective tax rate for the three months ended March 31, 2025, was 25.3%, a decrease from 29.1% for the same period in 2024. The Company determined no valuation allowance was needed on its gross deferred tax assets[74][75] Income Tax Expense Reconciliation (Three Months Ended March 31, 2025 vs. 2024) | Component | 2025 | 2024 | | :-------------------- | :---- | :---- | | Expected provision at federal statutory tax rate | 21.0 % | 21.0 % | | State income tax, net of federal tax benefit | 2.8 % | 3.6 % | | Disallowed compensation | 1.4 % | 1.3 % | | Equity compensation shortfall | — % | 3.3 % | | Nondeductible expenses | 0.2 % | 0.1 % | | Dividend received deduction | (0.1)% | (0.2)% | | Total income tax expense (benefit) | 25.3 % | 29.1 % | NOTE 10 – EARNINGS (LOSS) PER SHARE EPS Reconciliation (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands, except per share) | 2025 | 2024 | | :------------------------------------ | :----------- | :----------- | | Net income (loss) | $41,439 | $33,657 | | Income (loss) available to common stockholders | $41,436 | $33,654 | | Weighted average common shares outstanding - Basic | 28,091 | 28,869 | | Weighted average diluted common shares outstanding | 28,779 | 29,404 | | Basic earnings (loss) per common share | $1.48 | $1.17 | | Diluted earnings (loss) per common share | $1.44 | $1.14 | NOTE 11 – OTHER COMPREHENSIVE INCOME (LOSS) Components of Other Comprehensive Income (Loss) (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands) | 2025 Pre-tax | 2025 After-tax | 2024 Pre-tax | 2024 After-tax | | :-------------------- | :----------- | :------------- | :----------- | :------------- | | Unrealized holding gains (losses) arising during the period | $16,015 | $12,083 | $(3,442) | $(2,594) | | Reclassification adjustments for (gains) losses realized in net income (loss) | $14 | $11 | $69 | $52 | | Other comprehensive income (loss) | $16,029 | $12,094 | $(3,373) | $(2,542) | NOTE 12 – COMMITMENTS AND CONTINGENCIES - The Company has multi-year reinsurance contract commitments for future years, with obligations of $73.8 million in 2025, $127.3 million in 2026, and $53.5 million in 2027[80] - The Company is involved in various legal proceedings, primarily disputes over coverage or damages. Accrued liabilities are established for probable and estimable loss contingencies. Reasonably possible losses for legal proceedings are currently estimated to be immaterial[81][83][84] NOTE 13 – FAIR VALUE MEASUREMENTS - The Company classifies assets measured at fair value into a three-level hierarchy: Level 1 (unadjusted quoted prices in active markets), Level 2 (observable market-based inputs or corroborated unobservable inputs), and Level 3 (unobservable inputs reflecting management's best estimate)[93] Assets Measured at Fair Value (March 31, 2025) | Asset Type (in thousands) | Level 1 | Level 2 | Level 3 | Total | | :------------------------ | :------ | :---------- | :---------- | :---------- | | Available-For-Sale Debt Securities | — | $1,324,338 | — | $1,324,338 | | Equity Securities | $79,983 | — | — | $79,983 | | Investment in Private Equity Limited Partnership | — | — | $11,750 | $11,750 | | Total assets accounted for at fair value | $79,983 | $1,324,338 | $11,750 | $1,416,071 | | Investment in Private Equity Limited Partnerships (NAV, in thousands) | | | | $3,932 | | Total assets at fair value (in thousands) | | | | $1,420,003 | Level 3 Investment in Private Equity Limited Partnership (March 31, 2025 vs. December 31, 2024) | Metric (in thousands) | March 31, 2025 Fair Value | December 31, 2024 Fair Value | | :-------------------- | :------------------------ | :------------------------- | | Investment in Private Equity Limited Partnership | $11,750 | $12,202 | | Weighted Average Mean EBITDA Multiple | 6.6x | 5.8x | NOTE 14 – VARIABLE INTEREST ENTITIES - The Company consolidates Mangrove Risk Solutions Bermuda Ltd. (formerly Isosceles Insurance Ltd.), a captive reinsurance provider, as a variable interest entity (VIE) because the Company is its primary beneficiary[100] NOTE 15 – SEGMENT INFORMATION - The Company operates as a single, integrated business segment, offering homeowners insurance policies across various states. The CEO, as the Chief Operating Decision Maker, evaluates the entire business as a unified entity for resource allocation and performance assessment[101][102] NOTE 16 – SUBSEQUENT EVENTS - On April 14, 2025, the Company declared a quarterly cash dividend of $0.16 per share of common stock, payable on May 16, 2025, to shareholders of record on May 9, 2025[105] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations, highlighting key performance indicators, market trends, and the impact of legislative reforms in Florida. It details revenue and expense drivers, investment performance, and liquidity and capital resources, offering a comprehensive analysis of the Company's financial health and strategic direction Cautionary Note Regarding Forward-Looking Statements - The report contains forward-looking statements based on estimates, assumptions, and plans, which are subject to uncertainties and risks. Actual results may differ materially due to factors such as catastrophic events, Florida's regulatory and economic conditions, claims exceeding reserves, inadequate pricing, reinsurance availability, and litigation[108][109] OVERVIEW - Universal Insurance Holdings, Inc. (UVE) is a vertically integrated holding company offering property and casualty insurance and related services, primarily residential homeowners' insurance in 19 states, with Florida accounting for 73.7% of direct premiums written for the three months ended March 31, 2025[112] - The Company aims for long-term underwriting profit and growth in other revenue sources, including investment portfolio returns, reinsurance brokerage, and managing general agency fees[112] Trends and Geographical Distribution Florida Trends - The Florida personal lines homeowners' market has faced distressed conditions with significant increases in losses, LAE, and reinsurance costs, leading to higher premiums, reduced coverages, and tightened underwriting standards. Legislative reforms enacted in December 2022 aim to mitigate rising claims costs and premium increases by eliminating one-way attorneys' fees, restricting assignment of benefits, and reducing claim submission periods[114][115][116] - While the Company is optimistic about the reforms improving the claims environment, the ultimate benefits are uncertain and subject to political, economic, and market factors. The active 2024 hurricane season added complexity, but the Company has cautiously increased its appetite for new business due to reforms and operational initiatives[117][119][123] Summary of Recent Rate Changes - UPCIC implemented a 1.4% rate decrease for Florida Homeowners' and 1.6% for Dwelling Fire effective July 15, 2023, due to participation in the Reinsurance to Assist Policyholders Program (RAP), which expired May 31, 2024. Subsequently, a 7.5% rate increase for Florida personal residential homeowners' was effective July 17, 2023 (new business) and November 4, 2023 (renewal business), and a 4.1% rate increase for Florida personal dwelling-fire lines was effective January 15, 2024[125][126] - In August 2024, UPCIC implemented an average rate decrease of 1.5% for new homeowners policies in Florida, with renewal rates effective May 17, 2025. Various rate increases were approved for 2025 in other states, including Michigan (+24.8%), Georgia (+7.4%), Alabama (+8.0%), Indiana (+6.0%), North Carolina (+7.5%), Massachusetts (+13.0%), and South Carolina (+8.7%)[126][130] KEY PERFORMANCE INDICATORS - The Company uses various key performance indicators (KPIs) and non-GAAP financial measures to understand underlying business trends and evaluate financial performance, including adjusted book value per common share, adjusted net income, combined ratio, core loss ratio, direct premiums written, and policies in force[127][129] Definitions of Key Performance Indicators and GAAP and Non-GAAP Measures - This section defines key performance indicators and both GAAP and non-GAAP financial measures used by the Company, such as Adjusted book value per common share, Adjusted common stockholders' equity, Adjusted net income (loss) available to common stockholders, Combined Ratio, Direct Premiums Written (DPW), Expense Ratio, Losses and Loss Adjustment Expense Ratio, and Policies in Force[130][132][133][138][144][146][147][150] REINSURANCE - The Company's 2024-2025 catastrophe reinsurance program, effective June 1, 2024, meets FLOIR and rating agency requirements, with a first event combined retention of $45 million and a tower extending to $2.415 billion. It includes full reinstatement availability and reinstatement premium protection (RPP)[155][157] - The program utilizes a captive insurance arrangement for the first event layer ($66 million in excess of $45 million) and includes specific third and fourth event private market excess of loss coverage for frequency protection. The Florida Hurricane Catastrophe Fund (FHCF) provides approximately $1.26 billion for UPCIC and $20.4 million for APPCIC[157] - The 2024-2025 catastrophe reinsurance program is projected to cost $676 million, representing approximately 33.0% of projected direct premium earned for the 12-month treaty period[159] RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION Highlights for the quarter ended March 31, 2025 - Direct written premium increased by 4.7% to $467.1 million, driven by a 34.7% growth in premiums outside of Florida. Net investment income rose by 18.8% due to higher portfolio reinvestment rates and increased cash investments[162] - The Company observed favorable loss trends from policies issued after the 2022 legislative reforms and experienced reduced weather events compared to the previous four years. Demotech reaffirmed its A rating for UPCIC and APPCIC on April 8, 2025[162] Results of Operations—Three Months Ended March 31, 2025 Compared to Three Months Ended March 31, 2024 Key Financial Results (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands, except per share) | 2025 | 2024 | Change ($) | Change (%) | | :------------------------------------ | :----------- | :----------- | :----------- | :----------- | | Direct premiums written | $467,078 | $446,179 | $20,899 | 4.7 % | | Premiums earned, net | $355,721 | $334,025 | $21,696 | 6.5 % | | Net investment income | $16,060 | $13,523 | $2,537 | 18.8 % | | Commission revenue | $16,275 | $11,033 | $5,242 | 47.5 % | | Total revenues | $394,867 | $367,959 | $26,908 | 7.3 % | | Losses and loss adjustment expenses | $250,555 | $240,187 | $10,368 | 4.3 % | | General and administrative expenses | $87,244 | $78,666 | $8,578 | 10.9 % | | Total operating costs and expenses | $337,799 | $318,853 | $18,946 | 5.9 % | | Net income | $41,439 | $33,657 | $7,782 | 23.1 % | | Diluted earnings per common share | $1.44 | $1.14 | $0.30 | 26.3 % | | Comprehensive income (loss) | $53,533 | $31,115 | $22,418 | 72.0 % | - Net income increased by 23.1% to $41.4 million, and diluted EPS rose by 26.3% to $1.44, driven by higher net premiums earned, investment income, and commission revenue. The net loss ratio improved to 70.5% (from 71.9%), and the combined ratio improved to 95.0% (from 95.5%)[163] Premium Revenues - Direct premiums written increased by 4.7% to $467.1 million, primarily due to a 34.7% growth in premiums outside Florida, offsetting a 3.0% reduction in Florida business. This growth was influenced by new rate changes, policy inflation adjustments, and a 1.1% increase in policies in force to 864,817[166][167] - Direct premium earned increased by 6.5% to $513.3 million, reflecting premiums written over the past year, including rate filings, inflation adjustments, and higher policy counts[168] Reinsurance - Ceded premium earned increased by 6.4% for the three months ended March 31, 2025, primarily due to higher costs for the 2024/2025 reinsurance contract period and $0.3 million in reinstatement premiums for prior hurricanes. The ratio of ceded premiums to direct premiums remained steady at 30.7%[168] Investment Results - Net investment income increased by 18.8% to $16.1 million for the three months ended March 31, 2025, driven by higher returns from new investments and a $55.3 million increase in invested balances, partially offset by reduced yields from invested cash[169] - Realized and unrealized gains and losses on the equity portfolio were insignificant in Q1 2025, contrasting with a $3.1 million unrealized gain in Q1 2024. The Company is monitoring downward pressure on reinvestment book yields due to Federal policy and geopolitical events[170][171] Commissions, Policy Fees and Other Revenue - Commission revenue increased by 47.5% to $16.3 million, mainly from reinstatement premiums for Hurricanes Helene and Milton, and increased reinsurance spending. Policy fees rose by 2.0% to $4.5 million due to an increase in policies written in states permitting such fees. Other revenue increased by 19.4% to $2.3 million[172][173] Operating Costs and Expenses Losses and Loss Adjustment Expenses - Net losses and LAE increased by 4.3% to $250.6 million, with a net loss ratio of 70.5% (down from 71.9% in Q1 2024), primarily due to increased premium volume. Weather-related losses significantly decreased in Q1 2025 compared to previous years, with no major weather events[174][175] - There was no prior-year development on catastrophe or non-catastrophe losses in Q1 2025 or Q1 2024. The Company observes favorable claim trends on Florida losses for policies issued after the December 2022 reforms, but pre-reform claims still exhibit greater uncertainty[176][177][178] General and Administrative Expenses General and Administrative Expenses (Three Months Ended March 31, 2025 vs. 2024) | Expense (in thousands) | 2025 | 2025 Ratio | 2024 | 2024 Ratio | | :--------------------- | :----------- | :--------- | :----------- | :--------- | | Policy acquisition costs | $60,574 | 17.0 % | $54,821 | 16.4 % | | Other operating costs | $26,670 | 7.5 % | $23,845 | 7.2 % | | Total general and administrative expenses | $87,244 | 24.5 % | $78,666 | 23.6 % | - Total general and administrative expenses increased by $8.6 million, or 10.9%, driven by a $5.8 million increase in policy acquisition costs (due to higher commissions from increased net earned premiums and growth outside Florida) and a $2.8 million increase in other operating costs (due to employee compensation and policy-related costs)[181][186] Combined Ratio - The combined ratio improved to 95.0% for the three months ended March 31, 2025, compared to 95.5% for the same period in 2024, indicating improved underwriting profitability[182] Interest and Amortization of Debt Issuance Costs - Interest and amortization of debt issuance costs remained stable at $1.6 million for both three-month periods ended March 31, 2025 and 2024, primarily related to senior unsecured notes[183] Income Tax Expense (Benefit) - Income tax expense was $14.0 million in Q1 2025, up from $13.8 million in Q1 2024. The effective tax rate decreased to 25.3% in Q1 2025 from 29.1% in Q1 2024[184] Other Comprehensive Income (Loss) - Other comprehensive income, net of taxes, was $12.1 million for Q1 2025, a significant improvement from a $2.5 million loss in Q1 2024, reflecting favorable shifts in market prices and reduced unrealized losses on debt securities as they approach maturity[185] Non-GAAP Non-GAAP Financial Measures (Three Months Ended March 31, 2025 vs. 2024) | Metric (in thousands, except per share) | 2025 | 2024 | | :------------------------------------ | :----------- | :----------- | | Core revenue | $394,871 | $364,930 | | Adjusted operating income (loss) | $57,072 | $46,077 | | Adjusted operating income (loss) margin | 14.5 % | 12.6 % | | Adjusted net income (loss) available to common stockholders | $41,439 | $31,370 | | Diluted adjusted earnings (loss) per common share | $1.44 | $1.07 | Analysis of Financial Condition—As of March 31, 2025 compared to December 31, 2024 Key Balance Sheet Changes (March 31, 2025 vs. December 31, 2024) | Metric (in thousands) | March 31, 2025 | December 31, 2024 | Change ($) | | :-------------------- | :------------- | :---------------- | :----------- | | Total invested assets | $1,428,256 | $1,371,276 | $56,980 | | Cash and cash equivalents | $398,184 | $259,441 | $138,743 | | Prepaid reinsurance premiums | $105,480 | $262,716 | $(157,236) | | Reinsurance recoverables | $471,189 | $627,617 | $(156,428) | | Deferred policy acquisition costs | $115,830 | $121,178 | $(5,348) | | Deferred income tax asset, net | $46,217 | $42,163 | $4,054 | | Unpaid losses and LAE | $893,677 | $959,291 | $(65,614) | | Unearned premiums | $1,014,267 | $1,060,446 | $(46,179) | | Advance premium | $81,922 | $46,237 | $35,685 | | Reinsurance payable, net | $115,136 | $220,328 | $(105,192) | | Income taxes payable | $28,567 | $6,561 | $22,006 | - Total invested assets increased by $57.0 million, and cash and cash equivalents increased by $138.7 million, primarily due to investment of excess cash and unrealized gains. Prepaid reinsurance premiums and reinsurance recoverables decreased due to amortization and collection of ceded paid losses[193][195] - Unpaid losses and LAE decreased by $65.6 million due to claim settlements, while unearned premiums decreased by $46.2 million reflecting business seasonality. Advance premiums increased by $35.7 million due to customer payment behavior[199][200][201] LIQUIDITY AND CAPITAL RESOURCES Liquidity - Cash and cash equivalents increased by $138.7 million to $398.2 million as of March 31, 2025, primarily from operating activities. Restricted cash and cash equivalents remained stable at $2.6 million[205] - Holding company liquidity is supported by dividends from service entities, brokerage commissions, policy fees, and a high-quality investment portfolio. Dividends from Insurance Entities to the parent are restricted by FLOIR regulations; neither UPCIC nor APPCIC had capacity to pay ordinary dividends as of March 31, 2025[206][207] - The Insurance Entities maintain liquidity through premiums earned, investment income, reinsurance recoverables, and highly liquid marketable securities. The average credit rating on available-for-sale securities was A+ with a duration of 3.3 years[208][209] Capital Resources Capital Resources (March 31, 2025 vs. December 31, 2024) | Metric (in thousands) | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Stockholders' equity | $422,387 | $373,250 | | Total long-term debt | $101,053 | $101,243 | | Total capital resources | $523,440 | $474,493 | | Debt-to-total capital ratio | 19.3 % | 21.3 % | | Debt-to-equity ratio | 23.9 % | 27.1 % | - Capital resources increased by $48.9 million, driven by a net increase in stockholders' equity (due to net income and improved AOCI) partially offset by a slight decline in long-term debt. Additional paid-in capital increased by $0.1 million from share-based compensation[211][212] Adjusted Capital Metrics (March 31, 2025 vs. December 31, 2024) | Metric (in thousands, except per share) | March 31, 2025 | December 31, 2024 | | :------------------------------------ | :------------- | :---------------- | | Adjusted common stockholders' equity | $473,359 | $436,316 | | Adjusted book value per common share | $16.79 | $15.53 | | Adjusted return on common equity | 36.4 % | 12.4 % | Revolving Loan - The Company has an unused $50.0 million unsecured revolving credit line with JP Morgan Chase Bank, N.A., maturing on May 30, 2025. The Company was in compliance with all covenants as of March 31, 2025[215] Long-term Debt - The Company has $100 million in 5.625% Senior Unsecured Notes due November 30, 2026, which are redeemable after November 30, 2023. The Company was in compliance with all applicable covenants as of March 31, 2025[216] - The Company continues to evaluate opportunities to access debt capital markets for additional capital, primarily for general corporate purposes and investing in the capital and surplus of its Insurance Entities[217] Common Stock Repurchases - Under the March 11, 2024, authorization, the Company can repurchase up to $20.0 million of common stock through March 11, 2026. As of March 31, 2025, approximately $2.6 million remains available for repurchase, with no shares repurchased during Q1 2025[221] Off-Balance Sheet Arrangements - The Company has no material off-balance sheet arrangements, except for multi-year reinsurance contract commitments for future years that will be recorded at the commencement of their coverage periods[222] Cash Dividends Cash Dividend Declared (Q1 2025) | Quarter | Dividend Declared Date | Shareholders Record Date | Payable Date | Per Common Share Amount | | :---------- | :--------------------- | :----------------------- | :----------- | :---------------------- | | First Quarter | February 6, 2025 | March 7, 2025 | March 14, 2025 | $0.16 | MATERIAL CASH REQUIREMENTS Material Cash Requirements (as of March 31, 2025, in thousands) | Requirement | Total | Next 12 Months | Beyond 12 Months | | :-------------------------- | :----------- | :------------- | :--------------- | | Reinsurance payable and multi-year commitments | $369,742 | $215,706 | $154,036 | | Unpaid losses and LAE, direct | $893,677 | $539,969 | $353,708 | | Long-term debt | $113,544 | $7,171 | $106,373 | | Total material cash requirements | $1,376,963 | $762,846 | $614,117 | IMPACT OF INFLATION AND CHANGING PRICES - The Company's financial statements reflect historical dollar values without inflation adjustments. Performance is influenced by economic, regulatory, and market factors, including interest rates and inflation. Prolonged inflation could significantly impact future costs, particularly for settling estimated losses and LAE liabilities[225] ARRANGEMENTS WITH VARIABLE INTEREST ENTITIES - The Company consolidates a captive reinsurance arrangement with a Variable Interest Entity (VIE) because it is the primary beneficiary, as detailed in Note 14[226] CRITICAL ACCOUNTING POLICIES AND ESTIMATES - There have been no material changes to the Company's Critical Accounting Policies and Estimates during the period covered by this Quarterly Report on Form 10-Q[226] NON-GAAP FINANCIAL MEASURES Reconciliation of GAAP Revenue to Core Revenue (in thousands) | Metric (in thousands) | March 31, 2025 | March 31, 2024 | | :-------------------- | :------------- | :------------- | | GAAP revenue | $394,867 | $367,959 | | less: Net realized gains (losses) on investments | (14) | (77) | | less: Net change in unrealized gains (losses) on investments | 10 | 3,106 | | Core Revenue | $394,871 | $364,930 | Reconciliation of GAAP Operating Income (Loss) to Adjusted Operating Income (Loss) (in thousands) | Metric (in thousands) | March 31, 2025 | March 31, 2024 | | :-------------------- | :------------- | :------------- | | GAAP income (loss) before income tax expense (benefit) | $55,456 | $47,484 | | add: Interest and amortization of debt issuance costs | 1,612 | 1,622 | | GAAP operating income (loss) | $57,068 | $49,106 | | less: Net realized gains (losses) on investments | (14) | (77) | | less: Net changes in unrealized gains (losses) on investments | 10 | 3,106 | | Adjusted operating income (loss) | $57,072 | $46,077 | Reconciliation of GAAP Net Income (Loss) Available to Common Stockholders to Adjusted Net Income (Loss) Available to Common Stockholders (in thousands) | Metric (in thousands, except per share) | March 31, 2025 | March 31, 2024 | | :------------------------------------ | :------------- | :------------- | | GAAP net income (loss) available to common stockholders | $41,436 | $33,654 | | less: Net realized gains (losses) on investments | (14) | (77) | | less: Net changes in unrealized gains (losses) on investments | 10 | 3,106 | | add: Income tax effect on above adjustments | (1) | 745 | | Adjusted net income (loss) available to common stockholders | $41,439 | $31,370 | | Diluted earnings (loss) per common share | $1.44 | $1.14 | | Diluted adjusted earnings (loss) per common share | $1.44 | $1.07 | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section discusses the Company's exposure to market risk, primarily from changes in interest rates and equity prices, affecting its investment portfolio. It outlines the objectives of the investment portfolio, which prioritize capital preservation and liquidity, followed by total return with an emphasis on investment income Interest Rate Risk - Interest rate risk refers to the sensitivity of the fair market value of fixed-rate financial instruments to changes in interest rates. The Company's fixed income portfolio, primarily available-for-sale debt securities, is exposed to this risk[234] Fixed Income Financial Instruments (March 31, 2025 vs. December 31, 2024) | Metric (in thousands) | March 31, 2025 | December 31, 2024 | | :-------------------- | :------------- | :---------------- | | Amortized cost | $1,392,573 | $1,353,532 | | Fair market value | $1,324,338 | $1,269,079 | | Coupon rate | 3.36 % | 2.94 % | | Book yield | 3.14 % | 2.34 % | | Years to effective maturity | 4.0 years | 4.1 years | Equity Price Risk - Equity price risk is the potential for loss in fair value of common stock and mutual funds due to adverse changes in market prices. A hypothetical 20% decrease in market prices of equity securities would result in a $16.0 million decrease in fair value as of March 31, 2025[236][237] Equity Securities Subject to Price Risk (March 31, 2025 vs. December 31, 2024) | Equity Securities (in thousands) | March 31, 2025 Fair Value | Percent | December 31, 2024 Fair Value | Percent | | :------------------------------- | :------------------------ | :------ | :------------------------- | :------ | | Common stock | $17,170 | 21.5 % | $14,409 | 18.5 % | | Mutual funds and other | $62,813 | 78.5 % | $63,343 | 81.5 % | | Total equity securities | $79,983 | 100.0 % | $77,752 | 100.0 % | Item 4. Controls and Procedures This section details the Company's evaluation of its disclosure controls and procedures and reports on any changes in internal control over financial reporting Evaluation of Disclosure Controls and Procedures - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective as of March 31, 2025, ensuring timely and accurate reporting of information required under the Exchange Act[238] Changes in Internal Control Over Financial Reporting - There were no material changes in the Company's internal controls over financial reporting during the period covered by this report[239] PART II – OTHER INFORMATION Item 1. Legal Proceedings This section outlines the nature of legal proceedings against the Company, primarily disputes related to insurance coverage and damages, and states the Company's approach to establishing reserves and estimating potential losses - The Company is involved in various legal proceedings, mainly disputes concerning insurance coverage or the scope and amount of damages. Accrued liabilities are established for probable and estimable loss contingencies[240][241][242] - The Company estimates that reasonably possible losses for legal proceedings, whether in excess of accrued liabilities or where no liability exists, are immaterial. These estimates are based on current information and may vary significantly from actual results[243] Item 1A. Risk Factors This section refers to the comprehensive discussion of risk factors previously disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2024 - For a detailed discussion of risk factors, refer to 'Part I, Item 1A—Risk Factors' in the Company's Annual Report on Form 10-K for the year ended December 31, 2024[244] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section provides an update on the Company's common stock repurchase program, including the authorized amount, shares repurchased, and remaining capacity - The Board of Directors authorized a $20.0 million common stock repurchase program on March 11, 2024, valid through March 11, 2026. As of March 31, 2025, approximately $2.6 million remains available for repurchase, with no shares repurchased during Q1 2025[246] - No shares were repurchased under this program during the quarterly period ended March 31, 2025[246] Item 5. Other Information This section reports on other information not covered elsewhere, specifically regarding Rule 10b5-1 plans and non-Rule 10b5-1 trading arrangements - During the three months ended March 31, 2025, no director or Section 16 officer adopted or terminated any Rule 10b5-1 plans or non-Rule 10b5-1 trading arrangements[247] Item 6. Exhibits This section lists all exhibits filed as part of the Form 10-Q, including corporate governance documents, certifications, and financial statements in iXBRL format - Key exhibits include the Amended and Restated Certificate of Incorporation and Bylaws, Accountants' Acknowledgment, CEO and CFO Certifications (Sections 302 and 906 of Sarbanes-Oxley Act), and financial statements formatted in iXBRL[248] Signatures This section contains the required signatures for the Form 10-Q filing, confirming its submission by authorized officers of Universal Insurance Holdings, Inc - The report was signed on April 30, 2025, by Stephen J. Donaghy, Chief Executive Officer, and Gary Lloyd Ropiecki, Principal Accounting Officer[253]