Universal to stand out, as reinsurers differentiate: CEO Donaghy

Universal Insurance Holdings, the Florida headquartered primary insurance carrier, has continued to prune its portfolio, shedding policies as it looks to combat the challenges of the Florida property insurance market, the effects of catastrophes and weather losses.

As one of the larger carriers in Florida and other coastal property markets, Universal has been affected by the issues the market has faced, but has been responding by attempting to optimise its portfolio to deliver improved results.

In announcing its first-quarter 2022 results, the carrier believes progress is being made and that this stands it in good stead for its reinsurance renewal.

The company reported a 9.4% increase in revenues, but an elevated loss ratio dented its net income, which dropped 33.6% year-on-year, so it’s clear the weather and catastrophe environment in Q1 2022, as well perhaps as the ongoing Florida market challenges are not gone away.

But Universal has reported a profit and positively the rate increases it has achieved in Florida and elsewhere are now driving higher premiums in-force, which have risen 10%, while policies in-force fell by 6.1% as the insurer continued to prune its book.

Commenting on the results, Stephen J. Donaghy, Chief Executive Officer, said, “We reported a 16.9% annualized ROE despite the challenging external environment, which is a testament to the strength and resilience of our business.

“Direct premiums written were up 8.5% from the prior year quarter, significantly outpacing a 6.1% policies in force decline, as meaningful rate increases benefited premium volumes.”

Donaghy gave some colour on what it takes to become a more profitable, still Florida-focused property insurance player.

“We are laser focused on improving underwriting profitability, as we prioritize combined ratio improvement over top line growth. In addition to raising rates across Florida and our broader footprint, we’ve reduced exposure to less profitable geographies, tightened underwriting criteria, renegotiated commission rates with our agency partners and exercised prudent expense management,” he explained.

Macro-economics are also helping Universal, as Donaghy noted, “Rising yields are benefiting our investment income results, and should continue to serve as a tailwind moving forward.”

Universal was early to the reinsurance market this year, having said it had started on the renewals for its reinsurance arrangements back in February, seeking to get ahead of the market, while continuing to take steps to restore profitability to its Florida book.

Donaghy thinks all the steps taken at Universal are going to help the insurer gain better reinsurance execution.

“Given our strong capital position, the profitability of our business and the steps we continue to take to improve results, we believe we stand out favorably as reinsurers increasingly differentiate amongst cedants in the current market,” the CEO explained.

Given where the Florida market is and how the reinsurance market is approaching these renewals, carriers really are going to have to stand out from the crowd to be able to secure the best execution, pricing and terms.

While Universal’s loss ratio was elevated in the last quarter, some 9.6 points higher than the prior year and its combined ratio was 4.8 points higher at 97.9%, it’s likely if you compared this to other carriers operating in the same space this will have been favourable, as many remain unprofitable.

That, along with the steps being taken to constantly improve, should be looked on favourably by reinsurers. However, in the current market environment, that doesn’t mean pricing isn’t going to move higher for the likes of Universal at this renewal season.

An upward trajectory seems the most likely direction of travel, when it comes to risk adjusted reinsurance pricing for June and July 1st.