Form 8-K UNITED INSURANCE HOLDING For: Feb 18

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February 18, 2015 4:10 PM EST


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of report (Date of earliest event reported): February 18, 2015


UNITED INSURANCE HOLDINGS CORP.
(Exact name of registrant as specified in its charter)
 
 
 
 
 
Delaware
 
001-35761
 
75-3241967
(State or other jurisdiction of incorporation)
 
(Commission File Number)
 
(IRS Employer Identification No.)
 
 
 
 
 
360 Central Avenue
Suite 900
Saint Petersburg, FL
 
33701
 
(727) 895-7737
(Address of principal executive offices)
 
(Zip Code)
 
(Registrant's telephone number, including area code)
 
 
 
 
 
 
 
 
 
 
(Former name or former address, if changed since last report.)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))




Item 2.02. Results of Operations and Financial Condition

On February 18, 2015, United Insurance Holdings Corp. (the Company, we, our) issued a press release relating to our earnings for the fourth quarter ended December 31, 2014 (the Earnings Release). We have attached a copy of the Earnings Release as Exhibit 99.1. The information furnished under this Item 2.02, including Exhibit 99.1 attached hereto, shall not be deemed “filed” for purposes of Section 18 of the Securities Act of 1934, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference to such filing.


Item 9.01. Financial Statements and Exhibits

We furnish Exhibit 99.1, a copy of the press release we issued on February 18, 2015, herewith.



Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.
    
 
 
UNITED INSURANCE HOLDINGS CORP.
February 18, 2015
By:
/s/ B. Bradford Martz
 
 
B. Bradford Martz, Chief Financial Officer
(principal financial officer and principal accounting officer)





EXHIBIT INDEX

 
 
 
 
Exhibit
No.
 
Description
99.1
     
Press release issued by the Company on February 18, 2015





Exhibit 99.1

FOR IMMEDIATE RELEASE
 
UNITED INSURANCE HOLDINGS CORP. REPORTS FINANCIAL RESULTS
FOR ITS FOURTH QUARTER AND YEAR ENDED DECEMBER 31, 2014
 
Company to Host Quarterly Conference Call at 9:00 A.M. on February 19, 2015

 
St. Petersburg, FL - February 18, 2015: United Insurance Holdings Corp. (NASDAQ: UIHC) (UPC Insurance or the Company), a property and casualty insurance holding company, today reported its financial results for the fourth quarter and year ended December 31, 2014.
 
($ in thousands, except per share and ratios)
Three Months Ended
 
Twelve Months Ended
December 31,
 
December 31,
 
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Gross premiums written
$
113,767

 
$
106,702

 
6.6
%
 
$
436,753

 
$
381,352

 
14.5
%
Gross premiums earned
$
107,610

 
$
91,794

 
17.2
%
 
$
400,695

 
$
316,708

 
26.5
%
Ceded premiums earned
$
(36,088
)
 
$
(31,505
)
 
14.5
%
 
$
(135,845
)
 
$
(119,330
)
 
13.8
%
Net premiums earned
$
71,522

 
$
60,289

 
18.6
%
 
$
264,850

 
$
197,378

 
34.2
%
Total revenues
$
76,172

 
$
63,441

 
20.1
%
 
$
280,230

 
$
208,080

 
34.7
%
Earnings before income tax
$
17,781

 
$
13,433

 
32.4
%
 
$
64,410

 
$
34,487

 
86.8
%
Net income
$
11,394

 
$
7,351

 
55.0
%
 
$
41,013

 
$
20,342

 
101.6
%
Net income per diluted share
$
0.55

 
$
0.45

 
22.2
%
 
$
2.05

 
$
1.26

 
62.7
%
Book value per share
 
 
 
 
 
 
$
9.75

 
$
6.64

 
46.8
%
Return on average equity, ttm
 
 
 
 
 
 
27.2
 %
 
20.8
%
 
6.4 pts

Loss ratio, net1
44.0
 %
 
49.2
 %
 
-5.2 pts

 
44.6
 %
 
50.0
%
 
-5.4 pts

Expense ratio, net2
37.6
 %
 
33.5
 %
 
4.1 pts

 
36.8
 %
 
37.7
%
 
-0.9 pts

Combined ratio (CR)3
81.6
 %
 
82.7
 %
 
-1.1 pts

 
81.4
 %
 
87.7
%
 
-6.3 pts

Effect of current year catastrophe losses on CR
(0.2
)%
 
(0.2
)%
 
0.0 pts

 
0.3
 %
 
1.8
%
 
-1.5 pts

Effect of prior year (favorable) development on CR
(1.9
)%
 
2.7
 %
 
-4.6 pts

 
(1.5
)%
 
2.1
%
 
-3.6 pts

Underlying combined ratio4
83.7
 %
 
80.2
 %
 
3.5 pts

 
82.6
 %
 
83.8
%
 
-1.2 pts

 
1 Loss ratio, net is calculated as losses and loss adjustment expenses (LAE) relative to net premiums earned.
2 Expense ratio, net is calculated as the sum of all operating expenses less interest expense relative to net premiums earned.
3 Combined ratio is the sum of the loss ratio, net and expense ratio, net.
4 Underlying combined ratio, a measure that is not based on U.S. generally accepted accounting principles (GAAP), is reconciled above to the combined ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the "Definitions of Non-GAAP Measures" section of this document.

“We ended the year with a strong quarter which capped a terrific year. During 2014, we gained licenses in seven additional states, bringing the total number of states in which we are licensed to 16. Since the end of the year, we added our 17th and 18th states - Hawaii and New York - to that list. In the fourth quarter of 2014, over 72% of our new policies came from outside Florida, compared to 47% for the fourth quarter of 2013. While Florida remains our largest state, this geographic diversification is a fundamental part of our strategy and investment thesis, and we believe it provides us a much stronger and longer growth trajectory than if we were limited to one or a handful of states.” said John Forney, President and Chief Executive Officer of UPC Insurance.

1


Quarterly Financial Results
 
Net income for the quarter was $11.4 million, or $0.55 per diluted share, compared to $7.4 million, or $0.45 per diluted share in the fourth quarter of 2013. The increase in net income was primarily due to strong growth in gross premiums earned and a decline in losses as a percentage of gross premium earned.

The Company's direct written premiums increased by $13.5 million, or 17.2%, primarily due to the strong organic growth in new and renewal business generated in all states outside of Florida. UPC Insurance augmented its Florida production by assuming policies from Citizens Property Insurance Corporation (Citizens). Assumed written premium was $21.6 million in the current quarter compared to $28.1 million in the same period a year ago. The quarter-over-quarter growth in total gross written premiums of $7.1 million, or 6.6%, is shown by state in the table below.
 
 
Three Months Ended December 31,
 
 
 
 
Direct Written and Assumed Premium By State
 
2014
 
2013
 
Growth
 
Growth %
Direct written premium
 
 
 
 
 
 
 
 
Florida
 
$
59,599

 
$
61,385

 
$
(1,786
)
 
(2.9
)%
Massachusetts
 
8,337

 
5,750

 
2,587

 
45.0

South Carolina
 
7,699

 
6,013

 
1,686

 
28.0

Rhode Island
 
4,722

 
3,015

 
1,707

 
56.6

North Carolina
 
5,018

 
1,793

 
3,225

 
179.9

Texas
 
4,911

 
150

 
4,761

 
3,174.0

New Jersey
 
1,833

 
502

 
1,331

 
265.1

Louisiana
 
26

 
—

 
26

 
100.0

Total direct written premium by state
 
92,145

 
78,608

 
13,537

 
17.2

Assumed premium (1)
 
21,622

 
28,094

 
(6,472
)
 
(23.0
)
Total gross written premium
 
$
113,767

 
$
106,702

 
$
7,065

 
6.6
 %
1 All assumed premiums are written in Florida due to policy assumptions from Citizens.

Losses and LAE increased $1.8 million, or 6.0%, to $31.5 million for the fourth quarter of 2014 from $29.7 million for the fourth quarter of 2013 primarily due to the growth of policies in-force.

Policy acquisition costs increased $2.9 million, or 20.9%, to $17.0 million for the fourth quarter of 2014 from $14.1 million for the fourth quarter of 2013. These costs vary directly with changes in gross premiums earned.

Operating expenses increased to $3.3 million for the fourth quarter of 2014, from $2.3 million during the same period of last year due to increases in home inspections, underwriting report costs, licensing costs and systems costs resulting from the Company's ongoing growth and continuing expansion into new states.

General and administrative expenses increased to $6.6 million for the fourth quarter of 2014, from $3.9 million for the fourth quarter of 2013 primarily due to increases in personnel costs, information technology investments and professional services related to the Company's continued growth. In addition, the Company began insourcing critical systems and processes for claims and policy administration which resulted in some cost redundancy.

Year-to-Date Financial Results

Net income for the year ended December 31, 2014 was $41.0 million, or $2.05 per diluted share, compared to $20.3 million, or $1.26 per diluted share for the same period last year. The increase was driven primarily by continued strong premium growth, a decrease in the ceded reinsurance premium percentage compared to the prior period and a decline in losses as a percentage of gross premium earned.


2


The Company's direct gross written premiums increased by $78.0 million, or 23.0%, primarily due to the strong organic growth in new and renewal business generated in all states in which we currently write policies, but especially outside Florida which represented nearly 73% of the total growth in direct written premiums. Assumed written premium for the 2014 was $19.0 million compared to $41.6 million during 2013. Our year-over-year growth in total gross written premiums of $55.4 million, or 14.5%, is shown by state in the following table.

 
 
Year Ended December 31,
 
 
 
 
Direct Written and Assumed Premium By State
 
2014
 
2013
 
Growth
 
Growth %
Direct written premium
 
 
 
 
 
 
 
 
Florida
 
$
304,604

 
$
283,460

 
$
21,144

 
7.5
 %
Massachusetts
 
32,001

 
24,666

 
7,335

 
29.7

South Carolina
 
30,716

 
16,156

 
14,560

 
90.1

Rhode Island
 
17,951

 
11,381

 
6,570

 
57.7

North Carolina
 
14,782

 
3,386

 
11,396

 
336.6

Texas
 
13,008

 
150

 
12,858

 
8,572.0

New Jersey
 
4,681

 
565

 
4,116

 
728.5

Louisiana
 
26

 
—

 
26

 
100.0

Total direct written premium by state
 
417,769

 
339,764

 
78,005

 
23.0

Assumed premium (1)
 
18,984

 
41,588

 
(22,604
)
 
(54.4
)
Total gross written premium
 
$
436,753

 
$
381,352

 
$
55,401

 
14.5
 %
1 All assumed premiums are written in Florida due to policy assumptions from Citizens.

Losses and LAE increased to $118.1 million for the year ended December 31, 2014, from $98.8 million for the same period last year primarily due to the growth of policies in-force.

Policy acquisition costs increased to $65.7 million for the year ended December 31, 2014 from $50.6 million for the same period of 2013, or 29.7%. These costs vary directly with changes in gross premiums earned.

Operating expenses increased to $11.7 million for the year from $9.2 million during the same period of last year due to increased costs for home inspections, underwriting reports, licensing costs, and systems costs resulting from the Company's ongoing growth and continuing expansion into new states.

General and administrative expenses increased to $20.0 million for the year ended December 31, 2014, from $14.6 million for the same period in 2013 primarily due to an increase in personnel costs and infrastructure development related to the Company's continued growth and planned migration away from certain outsourced vendors.

Combined Ratio Analysis

The Company's GAAP net combined ratio improved 1.1 points to 81.6% for the three months ended December 31, 2014 compared to 82.7% for the same period in 2013. The Company’s underlying net combined ratio, which excludes losses from catastrophes and all effects of reserve development, declined 3.5 points to 83.7% for the fourth quarter of 2014 compared to 80.2% for the same period in 2013. The net combined ratio decreased primarily due to a lower gross loss ratio and a lower ceded reinsurance premium percentage for the three months ended December 31, 2014 compared to the same period in 2013 whereas the underlying combined ratio increased primarily due to the effect of favorable loss development on prior accident years in 2014 compared to unfavorable development on prior accident years in the same period in 2013.

The Company's GAAP net combined ratio improved 6.3 points to 81.4% for the year ended December 31, 2014 compared to 87.7% for the same period in 2013. The Company’s underlying net combined ratio improved 1.2 points to 82.6% for the year ended December 31, 2014 compared to 83.8% for the same period in 2013. Both the net combined and underlying combined ratios decreased primarily due to a lower ceded reinsurance premium percentage for the year ended December 31, 2014 compared to the same period in 2013.


3


The calculation of the Company's underlying loss and combined ratios is shown below.
($ in thousands except ratios)
Three Months Ended
 
Twelve Months Ended
December 31,
 
December 31,
2014
 
2013
 
Change
 
2014
 
2013
 
Change
Loss and LAE
$
31,472

 
$
29,698

 
$
1,774

 
$
118,077

 
$
98,830

 
$
19,247

% of Gross earned premiums
29.2
%
 
32.4
%
 
-3.2 pts

 
29.5
%
 
31.2
%
 
-1.7 pts

% of Net earned premiums
44.0
%
 
49.2
%
 
-5.2 pts

 
44.6
%
 
50.0
%
 
-5.4 pts

Less:
 
 
 
 
 
 
 
 
 
 
 
Current year catastrophe losses
$
(145
)
 
$
(120
)
 
$
(25
)
 
$
829

 
$
3,602

 
$
(2,773
)
Prior year reserve (favorable) development
(1,329
)
 
1,635

 
(2,964
)
 
(4,037
)
 
4,078

 
(8,115
)
Underlying Loss and LAE*
$
32,946

 
$
28,183

 
$
4,763

 
$
121,285

 
$
91,150

 
$
30,135

% of Gross earned premiums
30.6
%
 
30.7
%
 
-0.1 pts

 
30.3
%
 
28.8
%
 
1.5 pts

% of Net earned premiums
46.1
%
 
46.7
%
 
-0.6 pts

 
45.8
%
 
46.1
%
 
-0.3 pts

Policy acquisition costs
$
16,989

 
$
14,056

 
$
2,933

 
$
65,657

 
$
50,623

 
$
15,034

Operating and underwriting
3,293

 
2,278

 
1,015

 
11,746

 
9,222

 
2,524

General and administrative
6,613

 
3,864

 
2,749

 
20,007

 
14,552

 
5,455

Total Operating Expenses
$
26,895

 
$
20,198

 
$
6,697

 
$
97,410

 
$
74,397

 
$
23,013

% of Gross earned premiums
25.0
%
 
22.0
%
 
3.0 pts

 
24.3
%
 
23.5
%
 
0.8 pts

% of Net earned premiums
37.6
%
 
33.5
%
 
4.1 pts

 
36.8
%
 
37.7
%
 
-0.9 pts

Combined Ratio - as % of gross earned premiums
54.2
%
 
54.4
%
 
-0.2 pts

 
53.8
%
 
54.7
%
 
-0.9 pts

Underlying Combined Ratio - as % of gross earned premiums
55.6
%
 
52.7
%
 
2.9 pts

 
54.6
%
 
52.3
%
 
2.3 pts

Combined Ratio - as % of net earned premiums
81.6
%
 
82.7
%
 
-1.1 pts

 
81.4
%
 
87.7
%
 
-6.3 pts

Underlying Combined Ratio - as % of net earned premiums
83.7
%
 
80.2
%
 
3.5 pts

 
82.6
%
 
83.8
%
 
-1.2 pts

* Underlying Loss and LAE is a non-GAAP financial measure and is reconciled above to Net Loss and LAE, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the "Definitions of Non-GAAP Measures" section of this document.

The Company’s gross underlying loss ratio for the fourth quarter of 2014 remained relatively flat at 30.6% compared to 30.7% in the fourth quarter of 2013. The Company's gross underlying loss ratio for the year ended 2014 increased to 30.3% from 28.8% for the year ended 2013. This increase was driven primarily by a shift in the mix toward business outside of Florida, where non-catastrophe loss costs as a percentage of gross earned premium tend to be higher. The shift in exposure mix impacting our gross underlying loss ratio is being offset by lower reinsurance costs outside Florida as evidenced by the net underlying loss ratio declining from 46.1% for 2013 to 45.8% for 2014. UPC Insurance continued to experience favorable reserve development in the current quarter and its historical impact on our net loss and net underlying loss ratios is outline in the following table.

 
Historical Reserve Development
($ in thousands, except ratios)
2009
 
2010
 
2011
 
2012
 
2013
 
2014
Prior year reserve development (unfavorable)
$
2,976

 
$
(1,006
)
 
$
4,158

 
$
(670
)
 
$
(4,078
)
 
$
4,037

Development as a % of earnings before interest and taxes
47.4
 %
 
71.0
%
 
32.3
 %
 
4.3
%
 
11.7
%
 
6.2
 %
Consolidated net loss ratio (LR)
52.1
 %
 
63.6
%
 
43.1
 %
 
47.9
%
 
50.0
%
 
44.6
 %
Prior year reserve unfavorable (favorable) development on LR
(3.8
)%
 
1.5
%
 
(3.9
)%
 
0.6
%
 
2.1
%
 
(1.5
)%
Current year catastrophe losses on LR
0.2
 %
 
—
%
 
—
 %
 
3.0
%
 
1.8
%
 
0.3
 %
Underlying net loss ratio*
55.7
 %
 
62.1
%
 
47.0
 %
 
44.3
%
 
46.1
%
 
45.8
 %
*
Underlying Net Loss Ratio is a non-GAAP measure and is reconciled above to the Consolidated Net Loss Ratio, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this document is in the "Definitions of Non-GAAP Measures" section of this document.


4


Consistent with our narrative related to the calendar year gross loss ratios above, the Company's expected ultimate gross loss and LAE ratio by accident year excluding catastrophes has also been trending upwards for the last two accident years. This is primarily due to higher overall frequency and severity of water related losses and lower premiums per unit of exposure resulting from our growth outside of Florida as shown in the following table:

($ in thousands, except ratios and per exposure amounts)
 
 
Expected
 
Expected
 
 
 
 
 
 
Case
 
 
 
Expected
 
Ultimate Gross
 
Ultimate
 
Premium
Accident
 
Paid
 
Loss & LAE
 
IBNR
 
Ultimate
 
Loss & LAE
 
Loss & LAE
 
per
Year
 
Loss & LAE
 
Reserves
 
Reserves
 
Loss & LAE
 
Ratio
 
per Exposure(1)
 
Exposure(2)
2006
 
$
29,551

 
$
—

 
$
—

 
$
29,551

 
22.0
%
 
$
392

 
$
1,781

2007
 
$
26,353

 
$
161

 
$
33

 
$
26,547

 
18.5
%
 
$
400

 
$
2,160

2008
 
$
26,720

 
$
—

 
$
—

 
$
26,720

 
20.7
%
 
$
376

 
$
1,820

2009
 
$
42,827

 
$
205

 
$
35

 
$
43,067

 
29.9
%
 
$
472

 
$
1,577

2010
 
$
40,644

 
$
841

 
$
165

 
$
41,650

 
28.5
%
 
$
476

 
$
1,670

2011
 
$
44,463

 
$
1,031

 
$
468

 
$
45,962

 
26.9
%
 
$
482

 
$
1,793

2012
 
$
52,611

 
$
1,763

 
$
1,297

 
$
55,671

 
25.8
%
 
$
478

 
$
1,851

2013
 
$
79,773

 
$
3,735

 
$
4,447

 
$
87,955

 
28.9
%
 
$
516

 
$
1,786

2014
 
$
84,910

 
$
21,466

 
$
16,365

 
$
122,741

 
31.8
%
 
$
563

 
$
1,770

1 Defined as the total sum we expect to pay for fully developed losses and LAE (i.e. paid losses, incurred losses and incurred but not reported (IBNR) losses) divided by earned house years.
2 Defined as gross earned premiums divided by earned house years.

As indicated above, our case loss & LAE and IBNR reserves by accident year (AY) excluding catastrophes are $29.2 million and $22.8 million, respectively, and a reconciliation of these reserves to our total reserves is as follows:

 
Case
 
 
 
 
 
Loss & LAE
 
IBNR
 
Total
 
Reserves
 
Reserves
 
Reserves
Total loss reserves from table above
$
29,202

 
$
22,810

 
$
52,012

Catastrophe reserves
288

 
144

 
432

Flood reserves and other reserve adjustments
236

 
1,756

 
1,992

Total case and IBNR reserves
$
29,726

 
$
24,710

 
$
54,436


Reinsurance Costs Decreased as a % of Earned Premium for both the Quarter and Year-to-Date

Excluding the Company's flood business, for which it cedes 100% of the risk of loss, reinsurance costs in the fourth quarter of 2014 were 30.6% of gross premiums earned compared to 31.1% of gross premiums earned for the fourth quarter of 2013. Reinsurance costs for the year ended December 31, 2014 were 30.7% of gross premiums earned compared to 34.5% for the same period last year.

Investment Portfolio Highlights
 
UPC Insurance's cash and investment holdings totaled $443.0 million at December 31, 2014 compared to $326.5 million at December 31, 2013. UPC Insurance's cash and investment holdings consist of investments in 100% investment grade money market instruments, U.S. Government and agency securities and corporate debt. Fixed maturities represented approximately 92.4% of total investments at December 31, 2014 with a modified duration of 3.8 years compared to 93.6% at December 31, 2013 and a modified duration of 3.5 years.


5


Book Value Analysis

Book value per share increased 46.8% from $6.64 at December 31, 2013, to $9.75 at December 31, 2014 and underlying book value per share increased 44.2% from $6.63 at December 31, 2013 to $9.56 at December 31, 2014. The increase in the Company's book value per share and underlying book value per share was primarily driven by the $54.0 million of equity capital raised during the first quarter of 2014 and the Company's growth in net income. The Company's underlying book value per share growth was impacted by the increase in accumulated other comprehensive income as shown in the table below.
($ in thousands, except for per share data)
 
December 31,
 
December 31,
 
 
2014
 
2013
Book Value per Common Share
 
 
 
 
Numerator:
 
 
 
 
Common shareholders' equity
 
$
203,763

 
$
107,587

Denominator:
 
 
 
 
Total Shares Outstanding
 
20,904,414

 
16,209,315

Book Value Per Common Share
 
$
9.75

 
$
6.64

 
 
 
 
 
Book Value per Common Share, Excluding the Impact of Accumulated Other Comprehensive Income
 
 
 
 
Numerator:
 
 
 
 
Common shareholders' equity
 
$
203,763

 
$
107,587

Accumulated other comprehensive income
 
4,011

 
92

Shareholders' Equity, excluding AOCI
 
$
199,752

 
$
107,495

Denominator:
 
 
 
 
Total Shares Outstanding
 
20,904,414

 
16,209,315

Underlying Book Value Per Common Share*
 
$
9.56

 
$
6.63

* Underlying book value per common share is a non-GAAP financial measure and is reconciled above to book value per common share, the most directly comparable GAAP measure. Additional information regarding non-GAAP financial measures presented in this press release is in the "Definitions of Non-GAAP Measures" section of this document.

Definitions of Non-GAAP Measures

We believe that investors' understanding of UPC Insurance's performance is enhanced by our disclosure of the following non-GAAP measures. Our methods for calculating these measures may differ from those used by other companies and therefore comparability may be limited.

Combined ratio excluding the effects of current year catastrophe losses and reserve development (underlying combined ratio) is a non-GAAP ratio, which is computed as the difference between four GAAP operating ratios: the combined ratio, the effect of current year catastrophe losses on the combined ratio and prior year development on the combined ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our business that may be obscured by current year catastrophe losses, losses from lines in run-off and prior year development. Current year catastrophe losses cause our loss trends to vary significantly between periods as a result of their incidence of occurrence and magnitude, and can have a significant impact on the combined ratio. Prior year development is caused by unexpected loss development on historical reserves. We believe it is useful for investors to evaluate these components separately and in the aggregate when reviewing our performance. The most direct comparable GAAP measure is the combined ratio. The underlying combined ratio should not be considered as a substitute for the combined ratio and does not reflect the overall profitability of our business.

Net Loss and LAE excluding the effects of current year catastrophe losses and reserve development (underlying Loss and LAE) is a non-GAAP measure which is computed as the difference between loss and LAE, current year catastrophe losses and prior year reserve development. We use underlying loss and LAE figures to analyze our loss trends that may be impacted by current year catastrophe losses and prior year development on our reserves. As discussed previously, these three items can have a significant impact on our loss trend in a given period.

6


The most direct comparable GAAP measure is net loss and LAE. The underlying loss and LAE measure should not be considered a substitute for net losses and LAE and does not reflect the overall profitability of our business.

Consolidated net loss ratio excluding the effects of current year catastrophe losses, reserve development (underlying loss ratio) is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the consolidated net loss ratio, the effect of current year catastrophe losses on the loss ratio, and the effect of prior year development on the loss ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development. As discussed previously, these two items can have a significant impact on our consolidated net loss ratio in a given period. The most direct comparable GAAP ratio is our net consolidated Loss and LAE ratio. The underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business.

Consolidated net loss ratio excluding the effects of current year catastrophe losses, reserve development (underlying loss ratio) is a non-GAAP ratio, which is computed as the difference between three GAAP operating ratios: the consolidated net loss ratio, the effect of current year catastrophe losses on the loss ratio, and the effect of prior year development on the loss ratio. We believe that this ratio is useful to investors and it is used by management to reveal the trends in our consolidated net loss ratio that may be obscured by current year catastrophe losses and prior year development. As discussed previously, these two items can have a significant impact on our consolidated net loss ratio in a given period. The most direct comparable GAAP ratio is our net consolidated Loss and LAE ratio. The underlying loss ratio should not be considered as a substitute for net consolidated loss ratio and does not reflect the overall profitability of our business.

Book value per common share, excluding the impact of accumulated other comprehensive income, is a ratio that uses a non-GAAP measure. It is calculated by dividing common shareholders' equity after excluding accumulated other comprehensive income by total common shares outstanding plus dilutive potential common shares outstanding. We use the trend in book value per common share, excluding the impact of accumulated other comprehensive income, in conjunction with book value per common share to identify and analyze the change in net worth attributable to management efforts between periods. We believe the non-GAAP ratio is useful to investors because it eliminates the effect of interest rates that can fluctuate significantly from period to period and are generally driven by economic developments, primarily capital market conditions, the magnitude and timing of which are generally not influenced by management, and we believe it enhances understanding and comparability of performance by highlighting underlying business activity and profitability drivers. Book value per common share is the most directly comparable GAAP measure. Book value per common share, excluding the impact of accumulated other comprehensive income, should not be considered a substitute for book value per common share, and does not reflect the recorded net worth of our business.

Conference Call Details

Date and Time:    February 19, 2015 - 9:00 A.M. ET

Participant Dial-In:    (United States): 877-407-8829
(International): 201-493-6724

Webcast:
To listen to the live webcast, please go to www.upcinsurance.com (Investor Relations) and click on the conference call link, or go to: http://upcinsurance.equisolvewebcast.com/q4-2014


About UPC Insurance

Founded in 1999, UPC Insurance is an insurance holding company that sources, writes and services residential and commercial property and casualty insurance policies using a network of independent agents and a group of wholly owned insurance subsidiaries. Our insurance affiliates write and service property and casualty insurance in Florida, Louisiana, Massachusetts, New Jersey, North Carolina, Rhode Island, South Carolina and Texas and are licensed to write in Alabama, Connecticut, Delaware, Georgia, Hawaii, Maryland, Mississippi, New Hampshire, New York and Virginia. From its headquarters in St. Petersburg, UPC Insurance's team of dedicated professionals manages a completely integrated insurance company, including sales, underwriting, customer service and claims.


7


Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. The forward-looking statements in this press release include statements regarding: the impact of our continued growth, and the expansion into other states. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation, the success of the Company's marketing initiatives, inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new Federal and State regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectibility of reinsurance, assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation, and health care; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company's Annual Report on Form 10-K filed on February 24, 2014. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore, appear to be volatile in certain accounting periods. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

 ### #### ###

CONTACT:
 
OR
 
INVESTOR RELATIONS:
United Insurance Holdings Corp.
 
 
 
The Equity Group
John Rohloff
 
 
 
Adam Prior
Director of Financial Reporting
 
 
 
Senior Vice-President
(727) 895-7737 / [email protected]
 
 
 
(212) 836-9606 / [email protected]
 
 
 
 
 
 
 
 
 
Terry Downs
 
 
 
 
Associate
 
 
 
 
 (212) 836-9615 / [email protected]

8


Consolidated Statements of Comprehensive Income
In thousands, except share and per share amounts

 
 
Three Months Ended December 31,
 
Twelve Months Ended
December 31,
 
 
2014
 
2013
 
2014
 
2013
REVENUE:
 
 
 
 
 
 
 
 
Gross premiums written
 
$
113,767

 
$
106,702

 
$
436,753

 
$
381,352

Increase in gross unearned premiums
 
(6,157
)
 
(14,908
)
 
(36,058
)
 
(64,644
)
Gross premiums earned
 
107,610

 
91,794

 
400,695

 
316,708

Ceded premiums earned
 
(36,088
)
 
(31,505
)
 
(135,845
)
 
(119,330
)
Net premiums earned
 
71,522

 
60,289

 
264,850

 
197,378

Investment income
 
1,904

 
1,227

 
6,795

 
3,871

Net realized gains (losses)
 
4

 
70

 
(20
)
 
(129
)
Other revenue
 
2,742

 
1,855

 
8,605

 
6,960

Total revenue
 
$
76,172

 
$
63,441

 
$
280,230

 
$
208,080

EXPENSES:
 
 
 
 
 
 
 
 
Losses and loss adjustment expenses
 
31,472

 
29,698

 
118,077

 
98,830

Policy acquisition costs
 
16,989

 
14,056

 
65,657

 
50,623

Operating expenses
 
3,293

 
2,278

 
11,746

 
9,222

General and administrative expenses
 
6,613

 
3,864

 
20,007

 
14,552

Interest expense
 
85

 
112

 
410

 
367

Total expenses
 
58,452

 
50,008

 
$
215,897

 
$
173,594

Income before other income
 
17,720

 
13,433

 
64,333

 
34,486

Other income
 
61

 
—

 
77

 
1

Income before income taxes
 
17,781

 
13,433

 
$
64,410

 
$
34,487

Provision for income taxes
 
6,387

 
6,082

 
23,397

 
14,145

Net income
 
$
11,394

 
$
7,351

 
$
41,013

 
$
20,342

OTHER COMPREHENSIVE INCOME:
 
 
 
 
 
 
 
 
Change in net unrealized gains (losses) on investments
 
1,966

 
(222
)
 
6,367

 
(4,233
)
Reclassification adjustment for net realized investment (gains) losses
 
(4
)
 
(70
)
 
20

 
129

Income tax (expense) benefit related to items of other comprehensive income
 
(758
)
 
113

 
(2,468
)
 
1,583

Total comprehensive income
 
$
12,598

 
$
7,172

 
$
44,932

 
$
17,821

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
 
 
 
 
 
 
 
Basic
 
20,751,031

 
16,129,247

 
19,933,652

 
16,100,882

Diluted
 
20,904,956

 
16,209,315

 
20,045,907

 
16,183,098

 
 
 
 
 
 
 
 
 
Earnings per share
 
 
 
 
 
 
 
 
Basic
 
$
0.55

 
$
0.46

 
$
2.06

 
$
1.26

Diluted
 
$
0.55

 
$
0.45

 
$
2.05

 
$
1.26

 
 
 
 
 
 
 
 
 
Dividends declared per share
 
$
0.04

 
$
0.03

 
$
0.16

 
$
0.12








9


Consolidated Balance Sheets
In thousands


 
 
December 31, 2014
 
December 31, 2013
ASSETS
 
 
 
 
Investments available for sale, at fair value:
 
 
 
 
Fixed maturities
 
$
352,630

 
$
273,024

Equity securities - common and preferred
 
25,987

 
15,602

Other investments
 
3,010

 
3,034

Total investments
 
$
381,627

 
$
291,660

Cash and cash equivalents
 
61,391

 
34,888

Accrued investment income
 
2,239

 
1,752

Property and equipment, net
 
8,022

 
2,408

Premiums receivable, net
 
31,369

 
26,076

Reinsurance recoverable on paid and unpaid losses
 
2,068

 
2,426

Prepaid reinsurance premiums
 
63,827

 
55,268

Deferred policy acquisition costs
 
31,925

 
25,186

Other assets
 
1,701

 
1,566

Total Assets
 
$
584,169

 
$
441,230

LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
 
Liabilities:
 
 
 
 
Unpaid losses and loss adjustment expenses
 
$
54,436

 
$
47,451

Unearned premiums
 
229,486

 
193,428

Reinsurance payable
 
45,254

 
39,483

Other liabilities
 
37,701

 
38,575

Notes payable
 
13,529

 
14,706

Total Liabilities
 
$
380,406

 
$
333,643

Commitments and contingencies
 
 
 
 
Stockholders' Equity:
 
 
 
 
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding
 
—

 
—

Common stock, $0.0001 par value; 50,000,000 shares authorized; 21,116,497 and16,421,398 issued; 20,904,414 and 16,209,315 outstanding, respectively
 
2

 
2

Additional paid-in capital
 
82,380

 
27,800

Treasury shares, at cost; 212,083 shares
 
(431
)
 
(431
)
Accumulated other comprehensive income
 
4,011

 
92

Retained earnings
 
117,801

 
80,124

Total Stockholders' Equity
 
$
203,763

 
$
107,587

Total Liabilities and Stockholders' Equity
 
$
584,169

 
$
441,230



10

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