UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2001
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
COMMISSION FILE NUMBER 0-20848
UNIVERSAL INSURANCE HOLDINGS, INC.
(Exact name of small business issuer as specified in its charter)
DELAWARE 65-0231984
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2875 N.E. 191 STREET
SUITE 300
MIAMI, FLORIDA 33180
(Address of principal executive offices)
(305) 792-4200
(Issuer's telephone number)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the last practicable date: 17,585,939 shares of common
stock as of August 1, 2001.
Transitional Small Business Disclosure Format Yes __ No X
UNIVERSAL INSURANCE HOLDINGS, INC.
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The following unaudited consolidated financial statements of the Company
have been prepared in accordance with the instructions to Form 10-QSB and,
therefore, omit or condense certain footnotes and other information normally
included in financial statements prepared in conformity with accounting
principles generally accepted in the United States of America. In the opinion of
management, all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of the financial information for the interim
periods reported have been made. Results of operations for the six months ended
June 30, 2001 are not necessarily indicative of the results for the year ending
December 31, 2001.
2
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
JUNE 30, 2001
(Unaudited)
ASSETS
Debt securities held-to-maturity (fair value of
$3,695,408) $3,617,905
Equity securities available for sale (cost of
$366,309) 346,014
Cash and cash equivalents 10,470,760
Prepaid reinsurance premiums and reinsurance
recoverable 9,440,575
Premiums and other receivables 926,887
Deferred policy acquisition costs 2,328,357
Property, plant and equipment, net 766,585
-----------
Total assets $27,897,083
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $4,208,745
Unearned premiums 12,768,981
Accounts payable 2,464,889
Other accrued expenses 460,805
Accrued taxes, licenses and fees 8,441
Loan payable 259,206
Total liabilities 20,171,067
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY: Cumulative convertible preferred
stock, $.01 par value, 1,000,000 shares authorized,
138,640 shares issued and outstanding, minimum
liquidation preference of $1,419,700 1,387
Common stock, $.01 par value, 40,000,000 shares authorized,
14,894,584 shares issued and 14,685,939 shares outstanding 148,946
Common stock in treasury, at cost - 208,645 shares (101,819)
Additional paid-in capital 15,126,242
Accumulated deficit (7,428,445)
Accumulated other comprehensive loss (20,295)
Total stockholders' equity 7,726,016
Total liabilities and stockholders' equity $27,897,083
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
3
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Six Months Ended Three Months Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
PREMIUMS EARNED AND OTHER REVENUES
Premium income - net $4,118,080 $3,654,146 $1,805,277 $1,606,697
Net investment income 354,237 520,435 163,015 326,687
Commission revenue 851,991 644,797 532,156 313,788
Other income 2,637,300 - 822,100 -
---------- ---------- ---------- ----------
Total revenues 7,961,608 4,819,378 3,322,548 2,247,172
---------- ---------- ---------- ----------
OPERATING COST AND EXPENSES:
Losses and loss adjustment expenses 3,220,248 1,600,812 1,746,122 711,876
General and administrative expenses 3,726,765 2,493,649 2,064,819 1,417,054
---------- ---------- ---------- ----------
Total operating cost and expenses 6,947,013 4,094,461 3,810,941 2,128,930
---------- ---------- ---------- ----------
NET INCOME (LOSS) $1,014,595 $724,917 ($ 488,393) $ 118,242
========== ========== ========== ===========
INCOME (LOSS) PER COMMON SHARE:
Basic $ 0.07 $ 0.05 ($ 0.03) $ 0.01
========== ========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 14,698,000 14,795,000 14,687,000 14,795,000
========== ========== ========== ===========
INCOME (LOSS) PER COMMON SHARE:
Diluted $ 0.07 $ 0.05 ($ 0.03) $ 0.01
========== ========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 15,266,000 15,968,000 14,687,000 15,412,000
========== ========== ========== ===========
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
4
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
Six Months Three Months
Ended Ended
June 30, June 30, June 30, June 30,
2001 2000 2001 2000
---- ---- ---- ----
NET INCOME (LOSS) $1,014,595 $724,917 ($488,393) $118,242
OTHER COMPREHENSIVE INCOME:
Change in net unrealized (loss) gain on
available-for- sale securities 39,577 (160,364) 54,077 (370,533)
--------- ---------- --------- ----------
COMREHENSIVE INCOME (LOSS) $1,054,172 $ 564,553 $ (434,316) $(252,291)
========= ========== ========== ==========
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
5
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended Six Months Ended
June 30, June 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,014,595 $ 724,917
Adjustments to reconcile net income
to cash provided by used in operations:
Amortization and depreciation 72,109 33,630
Gains on sales of equity securities available for sale - (98,083)
Net accretion of bond premiums and discount (12,739) -
Warrants issued in lieu of payments - 20,890
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums and reinsurance recoverable 3,246,570 (2,223,680)
Other receivables and deposits (81,548) (114,630)
Deferred policy acquisition costs (529,690) 128,463
Accounts payable (248,932) (4,368)
Other accrued expenses (116,452) (259,532)
Accrued taxes, licenses and fees (212,233) (202,878)
Unpaid losses and loss adjustment expenses 740,621 176,266
Unearned premiums (3,404,677) (1,266,500)
Due from related parties and other (20,040) -
---------- ----------
Net cash provided by (used in) operating activities 447,584 (3,085,505)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (197,572) (197,725)
Purchase of equity securities available for sale - (412,370)
Proceeds from sale of equity securities available for sale - 434,253
Purchase of debt securities held to maturity (601,062) (884,375)
Proceeds from maturities of debt securities held to maturity 425,427 313,220
---------- ----------
Net cash used in investing activities (373,207) (746,997)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Loan payable 259,206 --
Cash dividends (202,921) (24,976)
Purchase of treasury stock (17,565) -
---------- ----------
Net cash provided by financing activities 38,720 (24,976)
---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 113,097 (3,857,478)
CASH AND CASH EQUIVALENTS, Beginning of period 10,357,663 16,272,982
---------- ----------
CASH AND CASH EQUIVALENTS, End of period $10,470,760 $12,415,504
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $ 1,095 $ -
Income taxes paid - 40,000
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
6
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2001
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed consolidated financial statements include the
accounts of Universal Insurance Holdings, Inc. ("Company"), its wholly-owned
subsidiary, Universal Property & Casualty Insurance Company ("UPCIC"), and other
wholly-owned entities which are under common control through common ownership.
All intercompany accounts and transactions have been eliminated in
consolidation.
The condensed consolidated balance sheet of the Company as of June 30, 2001, the
related consolidated statements of operations and comprehensive operations for
the six months and three months ended June 30, 2001 and 2000, and cash flows for
six months ended June 30, 2001 and 2000 are unaudited. The accounting policies
followed for quarterly financial reporting are the same as those disclosed in
the Notes to Consolidated Financial Statements included in the Company's Annual
Report on Form 10-KSB for the year ended December 31, 2000. The interim
financial statements reflect all adjustments (consisting of only normal and
recurring accruals and adjustments) which are, in the opinion of management,
necessary for a fair statement of the results for the interim periods presented.
The Company's operating results for any particular interim period may not be
indicative of results for the full year and thus should be read in conjunction
with the Company's annual statements.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Certain reclassifications have been made in the 2000 financial statements to
conform them to and make them consistent with the presentation used in the 2001
financial statements.
NEW ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards
Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. Among other
provisions, SFAS No. 133 establishes accounting and reporting standards for
derivative instruments and for hedging activities. It also requires that an
entity recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value. In
July 1999, the FASB issued SFAS No. 137, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES - DEFERRAL OF THE EFFECTIVE DATE OF FASB STATEMENT NO.
133, which changes the effective date of SFAS No. 133 for financial statements
for fiscal years beginning after June 15, 2000. In June 2000, the FASB issued
SFAS No. 138, ACCOUNTING FOR CERTAIN DERIVATIVE INSTRUMENTS AND CERTAIN HEDGING
ACTIVITIES, which amended SFAS No. 133. The Company adopted both effective
January 1, 2001. The Company does not have derivative instruments and thus, the
adoption of SFAS No. 133 and No. 138 did not have a material impact on the
Company's financial position, results of operations or cash flows.
7
In March 1998, the National Association of Insurance Commissioners adopted the
Codification of Statutory Accounting Principals (the "Codification"). The
Codification, which is intended to standardize regulatory accounting and
reporting to state insurance departments was effective January 1, 2001. However,
statutory accounting principles will continue to be established by individual
state laws and permitted practices. The state of Florida required adoption of
the Codification for the preparation of statutory financial statements effective
January 1, 2001. The adoption of the Codification as modified by Florida did not
have a material adverse effect on the Company's statutory capital and surplus.
In July 2001, the Financial Accounting Standards Board issued SFAS No. 141,
BUSINESS COMBINATIONS and SFAS No. 142, GOODWILL AND OTHER INTANGIBLE ASSETS.
SFAS No. 141 requires all business combinations entered into subsequent to June
30, 2001 to be accounted for using the purchase method of accounting. SFAS No.
142 provides that goodwill and other intangible assets with indefinite lives
will not be amortized, but will be tested for impairment on an annual basis.
SFAS No. 142 is effective for fiscal years beginning after December 15, 2001.
The new standards are not expected to have a significant impact on the Company's
financial statements.
NOTE 2 - INSURANCE OPERATIONS
UPCIC commenced its insurance activity in February 1998 by assuming policies
from the Florida Residential Property and Casualty Joint Underwriting
Association ("JUA"). UPCIC received the unearned premiums and began servicing
such policies. Since then, UPCIC has been renewing these policies as well as
soliciting business actively in the open market through independent agents.
Unearned premiums represent amounts that UPCIC would refund policyholders if
their policies were canceled. UPCIC determines unearned premiums by calculating
the pro-rata amount that would be due to the policyholder at a given point in
time based upon the premiums owed over the life of each policy. At June 30,
2001, the Company had unearned premiums totaling $12,768,981.
Universal Property and Casualty Management, Inc., an outside management company,
provides the Company with management and personnel for UPCIC's underwriting,
claims and financial requirements, together with support offices, equipment and
services. The fees for such services for the six months ended June 30, 2001and
2000 totaled $578,437 and $534,929, respectively. The fees for the three months
ended June 30, 2001 and 2000 totaled $301,475 and $355,527, respectively.
The JUA's incentive program provided approximately $2,700,000 to an escrow
account to fund bonus payments to UPCIC. These funds will be progressively
released to UPCIC as certain conditions are met, including not canceling
policies acquired from the JUA for a three year period. As of June 30, 2001, the
Company has substantially complied with the requirements related to most of the
potential bonus payments and $2,511,300 was released from escrow for 25,113
policies which had reached their three-year anniversary. An additional $126,000
was released from escrow in July for 1,260 policies after they had reached their
three-year anniversary in June 2001. The bonus payments are not included in the
Company's assets until they are eligible to be released from escrow.
Accordingly, $2,637,300 is reflected in other income for the six months ended
June 30, 2001. For the three months ended June 30, 2001, $822,100 is reflected
8
in other income. No bonus payments were reflected in income in the prior year
periods. The remaining escrow account balance is not included in the
accompanying consolidated financial statements.
Premiums earned are included in earnings evenly over the terms of the policies.
UPCIC does not have policies that provide for retroactive premium adjustments.
Policy acquisition costs, consisting of commissions and other costs that vary
with and are directly related to the production of business, net of unearned
ceding commissions, are deferred and amortized over the terms of the policies,
but only to the extent that unearned premiums are sufficient to cover all
related costs and expenses. At June 30, 2001, deferred policy acquisition costs
amounted to $2,328,357.
An allowance for uncollectible premiums receivable is established when it
becomes evident collection is doubtful. No allowance is deemed necessary at June
30, 2001.
Claims and claims adjustment expenses, less related reinsurance, are provided
for as claims are incurred. The provision for unpaid claims and claim adjustment
expenses includes: (1) the accumulation of individual case estimates for claims
and claims adjustment expenses reported prior to the close of the accounting
period; (2) estimates for unreported claims based on past experience modified
for current trends; and (3) estimates of expenses for investigating and
adjusting claims based on past experience.
Liabilities for unpaid claims and claims adjustment expenses are based on
estimates of ultimate cost of settlement. Changes in claims estimates resulting
from the continuous review process and differences between estimates and
ultimate payments are reflected in expense for the period in which the revision
of these estimates first became known.
UPCIC estimates claims and claims expenses based on historical experience of
similar entities and payment and reporting patterns for the type of risk
involved. These estimates are continuously reviewed by UPCIC's affiliated
management professionals and any resulting adjustments are reflected in
operations for the period in which they are determined.
Inherent in the estimates of ultimate claims are expected trends in claims
severity, frequency and other factors that may vary as claims are settled. The
amount of uncertainty in the estimates for casualty coverage is significantly
affected by such factors as the amount of historical claims experience relative
to the development period, knowledge of the actual facts and circumstances, and
the amount of insurance risk retained.
NOTE 3 - REINSURANCE
UPCIC's in-force policyholder coverage for windstorm exposures as of June 30,
2001 was approximately $4.5 billion. In the normal course of business, UPCIC
seeks to reduce the loss that may arise from catastrophes or other events that
cause unfavorable underwriting results by reinsuring certain levels of risk in
various areas of exposure with other insurance enterprises or reinsurers.
9
Amounts recoverable from reinsurers are estimated in a manner consistent with
the reinsurance policy. Reinsurance premiums, losses and loss adjustment
expenses are accounted for on bases consistent with those used in accounting for
the original policies issued and the terms of the reinsurance contracts.
Reinsurance ceding commissions received are deferred and amortized over the
effective period of the related insurance policies.
UPCIC limits the maximum net loss that can arise from large risks or risks in
concentrated areas of exposure by reinsuring (ceding) certain levels of risks
with other insurers or reinsurers, either on an automatic basis under general
reinsurance contracts known as "treaties" or by negotiation on substantial
individual risks. The reinsurance arrangements are intended to provide UPCIC
with the ability to maintain its exposure to loss within its capital resources.
Such reinsurance includes quota share, excess of loss and catastrophe forms of
reinsurance.
Effective June 1, 2001, UPCIC entered into a quota share reinsurance treaty and
excess per risk agreements with Swiss Reinsurance America Corporation, rated A+
by A.M. Best. Under the quota share treaty, UPCIC cedes 50% of its gross written
premiums, losses and loss adjustment expenses with a provisional ceding
commission of 35%; the commission percentage will be adjusted based on the ceded
loss ratio. In addition, the quota share treaty has a limitation for any one
occurrence of $6,500,000. Under the excess per risk agreement, UPCIC obtained
coverage of $1,300,000 in excess of $500,000 ultimate net loss for each risk,
each loss, excluding losses arising from the peril of wind to the extent such
wind related losses are the result of a hurricane. A $2,600,000 limit applies to
any one-loss occurrence.
Effective June 1, 2001, under an excess catastrophe contract, UPCIC obtained
coverage of $47,500,000 in excess of $2,000,000. UPCIC also obtained coverage
from the Florida Hurricane Catastrophe Fund; the coverage is estimated to be
$38,000,000.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Loss Loss
and Loss and Loss
Premiums Premiums Adjustment Premiums Premiums Adjustment
Written Earned Expenses Written Earned Expenses
------- ------ -------- ------- ------ --------
Direct $10,433,019 $13,837,696 $6,819,380 $11,808,568 $13,075,068 $3,929,433
Assumed - - - (22,908) (22,908) 37,806
Ceded (6,190,344) (9,719,616) (3,599,132) (10,442,675) (9,398,014) (2,366,427)
---------- ---------- ---------- ----------- ---------- ----------
Net $4,242,675 $4,118,080 $3,220,248 $1,342,985 $3,654,146 $1,600,812
========== ========== ========== ========== ========== ==========
10
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Loss Loss
and Loss and Loss
Premiums Premiums Adjustment Premiums Premiums Adjustment
Written Earned Expenses Written Earned Expenses
------- ------ -------- ------- ------ --------
Direct $4,606,243 $6,876,081 $3,734,912 $6,315,353 $6,995,861 $2,184,032
Assumed - - - - - 22,456
Ceded (3,812,164) (5,070,804) (1,988,790) (7,034,549) (5,389,164) (1,494,612)
---------- ---------- ---------- ---------- ---------- ----------
Net $794,079 $1,805,277 $1,746,122 $(719,196) $1,606,697 $711,876
======== ========== ========== ========= ========== ========
Other Amounts:
June 30, 2001
-------------
Reinsurance recoverable on unpaid losses
and loss adjustment expenses $ 2,337,054
Unearned premiums ceded 7,103,521
---------
Prepaid reinsurance premiums and reinsurance recoverable $ 9,440,575
UPCIC's reinsurance contracts do not relieve UPCIC from its obligations to
policyholders. Failure of reinsurers to honor their obligations could result in
losses to UPCIC; consequently, allowances are established for amounts deemed
uncollectible. No allowance is deemed necessary at June 30, 2001. UPCIC
evaluates the similar geographic regions, activities, or economic
characteristics of the reinsurers to minimize its exposure to significant losses
from reinsurer insolvencies. UPCIC currently has reinsurance contracts with
various reinsurers located throughout the United States and internationally.
UPCIC believes that this distribution of reinsurance contracts adequately
minimizes UPCIC's risk from any potential operating difficulties of its
reinsurers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The following discussion and analysis by management of the Company's
consolidated financial condition and results of operations should be read in
conjunction with the Company's Consolidated Financial Statements.
FORWARD-LOOKING STATEMENTS
Certain statements made by the Company's management may be considered to
be "forward-looking statements" within the meaning of the Private Securities
Litigation Act of 1995. Forward-looking statements are based on various factors
and assumptions that include known and unknown risks and uncertainties. The
words "believe," "expect," "anticipate," and "project," and similar expressions,
identify forward-looking statements, which speak only as of the date the
statement was made. Such statements may include, but not be limited to,
projections of revenues, income or loss, expenses, plans, as well as assumptions
relating to the foregoing. Forward-looking statements are inherently subject to
risks and uncertainties, some of which cannot be predicted or quantified. Future
11
results could differ materially from those described in forward-looking
statements as a result of the risks set forth in the following discussion, among
others.
OVERVIEW
The Company is a vertically integrated insurance holding company. The
Company, through its subsidiaries, is currently engaged in insurance
underwriting, distribution and claims. UPCIC generates revenue from the
collection and investment of premiums. The Company's agency operations which
include Universal Florida Insurance Agency and U.S. Insurance Solutions, Inc.
generate income from policy fees, commissions, premium financing referral fees
and the marketing of ancillary services. Universal Risk Advisors, Inc., the
Company's managing general agent, generates revenue through policy fee income
and other administrative fees from the marketing of UPCIC's and third party
insurance products through the Company's distribution network and UPCIC. Capital
Resources Group Ltd. was formed to participate in contingent capital products.
Universal Risk Life Advisors, Inc. was formed to be the Company's managing
general agent for life insurance products. In addition, the Company has formed
an independent claims adjusting company, Universal Adjusting Corporation, which
adjusts UPCIC claims in certain geographic areas and an inspection company,
Universal Inspection Corporation, which performs property inspections for
homeowners' policies underwritten by UPCIC.
The Company has also formed two subsidiaries that specialize in selling
insurance via the Internet. Tigerquote.com Insurance & Financial Services Group,
Inc., and its wholly owned subsidiary Tigerquote.com Insurance Solutions, Inc.
are a network of Internet insurance agencies. At June 30, 2001, agencies have
been established in 22 states. Separate legal entities have been formed for each
state and are governed by the respective states' department of insurance.
FINANCIAL CONDITION
Cash and cash equivalents at June 30, 2001 aggregated $10,470,760. The
source of liquidity for possible claims payments consists of net premiums, after
deductions for expenses.
UPCIC expects that premiums will be sufficient to meet UPCIC's working
capital requirements for at least the next twelve months. Amounts considered to
be in excess of current working capital requirements have been invested. At June
30, 2001 UPCIC's investments were comprised of $10,470,760 in cash and
repurchase agreements, $3,617,905 in fixed maturity securities and $346,014 in
equity securities.
Policies originally obtained from the Florida Residential Property and
Casualty Joint Underwriting Association ("JUA") provided the opportunity for
UPCIC to solicit future renewal premiums. Approximately 50% of the policies
obtained from the JUA are currently renewed with the Company. UPCIC does not
expect to participate in takeouts of additional policies from the JUA. In an
effort to further grow its insurance operations, in 1998 the Company began to
solicit business actively in the open market. Through renewal of JUA business
combined with business solicited in the market through independent agents, UPCIC
is currently servicing approximately 40,000 homeowners and dwelling fire
insurance policies. In determining appropriate guidelines for such open market
policy sales, UPCIC employs standards similar to those used in its selection of
JUA policies. Also, to improve underwriting and manage risk, the Company uses
12
analytical tools and data currently developed in conjunction with Risk
Management Solutions (RMS). To diversify UPCIC's product lines, management may
consider underwriting inland marine and personal umbrella liability policies in
the future. Any such program will require the approval of the Florida Department
of Insurance.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2001 VERSUS SIX MONTHS ENDED
JUNE 30, 2000
Gross premiums written decreased 11.6% to $10,433,019 for the six month
period ended June 30, 2001 from $11,808,568 for the six month period ended June
30, 2000. The decrease in gross premiums written is primarily attributable to
the Company's nonrenewal of certain policies in high exposure areas in order to
mitigate reinsurance costs.
Net premiums written (i.e. gross premiums written minus premiums ceded
to reinsurers) increased 215.9% to $4,242,675 for the six month period ended
June 30, 2001 from $1,342,985 for the six month period ended June 30, 2000. The
increase in net premiums written reflects the impact of reinsurance since
$6,190,344 or 59.3% of premiums written were ceded to reinsurers for the six
month period ended June 30, 2001 as compared to $10,442,675 or 88.4% for the six
month period ended June 30, 2000. The increase in net premiums written was
primarily a result of the Company's election under its quota share reinsurance
treaty to cede 50% of gross premiums written, losses and loss adjustment
expenses during both of the first two quarters of 2001, versus 50% during the
first quarter of 2000 and 65% in the second quarter of 2000.
Net premiums earned increased 12.7% to $4,118,080 for the six month
period ended June 30, 2001 from $3,654,146 for the six month period ended June
30, 2000. The increase is primarily due to the Company's election under its
quota share reinsurance treaty to cede 50% of gross premiums written, losses and
loss adjustment expenses during both of the first two quarters of 2001, versus
50% during the first quarter of 2000 and 65% in the second quarter of 2000.
Investment income consists of net investment income and net realized
gains (losses). Investment income decreased 31.9% to $354,237 for the six month
period ended June 30, 2001 from $520,435 for the six month period ended June 30,
2000. The decrease is primarily due to gains recognized on the sale of equity
securities in the six months ended June 30, 2000.
Commission income increased 32.1% to $851,991 for the six month period
ended June 30, 2001 from $644,797 for the six month period ended June 30, 2000.
Commission income is comprised mainly of the managing general agent's policy fee
income on all new and renewal insurance policies and commissions generated from
agency operations.
Other income consists of JUA bonus payments of $2,637,300 eligible to be
released from escrow during the six months ended June 30, 2001.
Losses and loss adjustment expenses ("LAE") incurred increased 101.2% to
$3,220,248 for the six month period ended June 30, 2001 from $1,600,812 for the
six month period ended June 30, 2000. The Company's net loss ratio for the six
month period ended June 30, 2001 was 78.2% compared to 43.8% for the six month
period ended June 30, 2000. Losses and LAE, the Company's most significant
expenses, represent actual payments made and changes in estimated future
payments to be made to or on behalf of its policyholders, including expenses
13
required to settle claims and losses. Losses and LAE are influenced by loss
severity and frequency. Losses and LAE increased due to the Company's election
under its quota share reinsurance treaty to cede 50% of gross premiums written,
losses and loss adjustment expenses during both of the first two quarters of
2001, versus 50% during the first quarter of 2000 and 65% in the second quarter
of 2000, as well as a higher frequency of claims in the six months ended June
30, 2001.
Catastrophes are an inherent risk of the property-liability insurance
business which may contribute to material year-to-year fluctuations in UPCIC's
and the Company's results of operations and financial position. The level of
catastrophe loss experienced in any year cannot be predicted and could be
material to the results of operations and financial position. While management
believes UPCIC's and the Company's catastrophe management strategies will reduce
the severity of future losses, UPCIC and the Company continue to be exposed to
similar or greater catastrophes.
General and administrative expenses increased 49.5% to $3,726,765 for
the six month period ended June 30, 2001 from $2,493,649 for the six month
period ended June 30, 2000. General and administrative expenses have increased
due to further development of the Company's insurance operations. Approximately
$400,000 of general and administrative expenses were incurred in the six months
ended June 30, 2001 developing the Company's insurance Internet initiative
versus approximately $500,000 in the six months ended June 30, 2000.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2001 VERSUS THREE MONTHS
ENDED JUNE 30, 2000
Gross premiums written decreased 27.1% to $4,606,243 for the three month
period ended June 30, 2001 from $6,315,353 for the three month period ended June
30, 2000. The decrease in gross premiums written is primarily attributable to
the Company's nonrenewal of certain policies in high exposure areas in order to
mitigate reinsurance costs.
Net premiums earned increased 12.4% to $1,805,277 for the three month
period ended June 30, 2001 from $1,606,697 for the three month period ended June
30, 2000. The increase is primarily due to the Company's election under its
quota share reinsurance treaty to cede 50% of gross premiums written, losses and
loss adjustment expenses during both of the first two quarters of 2001, versus
50% during the first quarter of 2000 and 65% in the second quarter of 2000.
Investment income consists of net investment income and net realized
gains (losses). Investment income decreased 50.1% to $163,015 for the three
month period ended June 30, 2001 from $326,687 for the three month period ended
June 30, 2000. The decrease is primarily due to gains recognized on the sale of
equity securities in the three months ended June 30, 2000.
Commission income increased 69.6% to $532,156 for the three month period
ended June 30, 2001 from $313,788 for the three month period ended June 30,
2000. Commission income is comprised mainly of the managing general agent's
policy fee income on all new and renewal insurance policies and commissions
generated from agency operations.
Other income consists of JUA bonus payments of $822,100 released from
escrow during the three months ended June 30, 2001.
14
Losses and loss adjustment expenses ("LAE") incurred increased 145.3% to
$1,746,122 for the three month period ended June 30, 2001 from $711,876 for the
three month period ended June 30, 2000. The Company's loss ratio, for the three
month period ended June 30, 2001 was 96.7% compared to 44.3% for the three month
period ended June 30, 2000. Losses and LAE, the Company's most significant
expenses, represent actual payments made and changes in estimated future
payments to be made to or on behalf of its policyholders, including expenses
required to settle claims and losses. Losses and LAE are influenced by loss
severity and frequency. Losses and LAE increased due to the Company's election
under its quota share reinsurance treaty to cede 50% of gross premiums written,
losses and loss adjustment expenses during both of the first two quarters of
2001, versus 50% during the first quarter of 2000 and 65% in the second quarter
of 2000, as well as a higher frequency of claims in the three months ended June
30, 2001.
Catastrophes are an inherent risk of the property-liability insurance
business which may contribute to material year-to-year fluctuations in UPCIC's
and the Company's results of operations and financial position. The level of
catastrophe loss experienced in any year cannot be predicted and could be
material to the results of operations and financial position. While management
believes UPCIC's and the Company's catastrophe management strategies will reduce
the severity of future losses, UPCIC and the Company continue to be exposed to
similar or greater catastrophes.
General and administrative expenses increased 45.7% to $2,064,819 for
the three month period ended June 30, 2001 from $1,417,054 for the three month
period ended June 30, 2000. General and administrative expenses have increased
due to further development of the Company's insurance operations.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are premium revenues and
investment income.
For the six month period ended June 30, 2001, cash flows provided by
operating activities were $447,584 primarily due to JUA bonus payments released
from escrow during the period. If not for receipt of the JUA bonus payments,
cash flows from operating activities would have been negative, primarily due to
the decrease in gross premiums written related to nonrenewal of certain policies
in high exposure areas in order to mitigate reinsurance costs. The Company's
investment portfolio is highly liquid as it consists almost entirely of readily
marketable securities. Cash flows from investing activities are primarily
comprised of purchases and sales of debt and equity securities. Cash flows from
financing activities is comprised of payment of cash dividends on common and
preferred stock and purchases of treasury stock.
The Company believes that its current capital resources will be
sufficient to support current operations and expected growth for at least 24
months.
The balance of cash and cash equivalents at June 30, 2001 is
$10,470,760. Most of this amount, along with readily marketable debt and equity
securities aggregating $3,963,919 would be available to pay claims in the event
of a catastrophic event pending reimbursement for any aggregate amount in excess
15
of $1 million up to the 100 year probable maximum loss which would be covered by
reinsurers. Catastrophic reinsurance is recoverable upon presentation to the
reinsurer of evidence of claim payment.
To retain its certificate of authority, the Florida insurance laws and
regulations require that UPCIC maintain capital surplus equal to the statutory
minimum capital and surplus requirement defined in the Florida Insurance Code.
UPCIC is also required to adhere to prescribed premium-to-capital surplus
ratios. UPCIC is in compliance with these requirements.
The maximum amount of dividends which can be paid by Florida insurance
companies without prior approval of the Florida Commissioner is subject to
restrictions relating to statutory surplus. The maximum dividend that may be
paid by UPCIC without prior approval is limited to the lesser of statutory net
income from operations of the preceding calendar year or 10.0% of statutory
unassigned capital surplus as of the preceding year end. Pursuant to a consent
order between UPCIC and the Florida Department of Insurance ("DOI"), during
UPCIC's first four years of operations, any dividend by UPCIC would require DOI
approval.
The Company is required to comply with the National Association of
Insurance Commissioner's ("NAIC") Risk-Based Capital ("RBC") requirements. RBC
requirements prescribe a method of measuring the amount of capital appropriate
for an insurance company to support its overall business operations in light of
its size and risk profile. NAIC's RBC requirements are used by regulators to
determine appropriate regulatory actions relating to insurers who show signs of
weak or deteriorating condition. As of December 31, 2000, based on calculations
using the appropriate NAIC RBC formula, the Company's total adjusted capital is
in excess of the amount which would require any form of regulatory action. GAAP
differs in some respects from reporting practices prescribed or permitted by the
DOI. UPCIC's statutory capital and surplus was $5,140,510 as of June 30, 2001.
Statutory net income was $178,319 for the six month period ended June 30, 2001
and $711,935 for the six month period ended June 30, 2000.
16
UNIVERSAL INSURANCE HOLDINGS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company did not have any reportable legal proceedings during the six
months ending June 30, 2001. Certain claims and complaints have been filed or
are pending against the Company with respect to various matters. In the opinion
of management all such matters are adequately reserved for or covered by
insurance or, if not so covered, are without any or have little merit or involve
such amounts that if disposed of unfavorably would not have a material adverse
effect on the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits
Exhibit No. Exhibit
11.1 Statement Regarding Computation of Per Share Income
Reports on form 8-K
None.
17
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UNIVERSAL INSURANCE HOLDINGS, INC.
Date August 14, 2001 /s/ Bradley I. Meier
----------------------------------
Bradley I. Meier, President
18
EXIBIT 11.1
Universal Insurance Holdings, Inc.
Statement Regarding the Computation of Per Share Income
The following table reconciles the numerator (earnings) and denominator (shares)
of the basic and diluted earnings per share computations for net income for the
six month and three month periods ended June 30, 2001 and 2000.
Six Months Ended Six Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Income Income
Available Available
to Common Per-Share to Common Per-Share
Stockholders Shares Amount Stockholders Shares Amount
------------ ------ ------ ------------ ------ ------
Net income $1,014,595 $724,917
Less: Preferred stock dividends (24,976) (24,976)
------- -------
Income available to common
stockholders 989,619 14,698,000 $0.07 699,941 14,795,000 $0.05
=====
Effect of dilutive securities:
Stock options and warrants --- --- --- --- 605,000 ---
Preferred stock 24,976 568,000 --- 24,976 568,000 ---
------ ------- ------- ------- ------- ------
Income available to common
stockholders and assumed
conversion $1,014,595 15,266,000 $ 0.07 $724,917 15,968,000 $0.05
========== ========== ======= ======== ========== =====
Options and warrants totaling 10,812,000 and 10,382,000 were excluded from the calculation of diluted earnings per share as
their effect was anti-dilutive for the six months ended June 30, 2001 and 2000, respectively.
Three Months Ended Three Months Ended
June 30, 2001 June 30, 2000
------------- -------------
Income Income
Available Available
to Common Per-Share to Common Per-Share
Stockholders Shares Amount Stockholders Shares Amount
------------ ------ ------ ------------ ------ ------
Net income (loss) ($488,393) $118,242
Less: Preferred stock dividends (12,488) (12,488)
------- -------
Income (loss) available to common
stockholders (500,881) 14,687,000 ($0.03) 105,754 14,795,000 $0.01
======== ========== ====== ======= ========== =====
Effect of dilutive securities:
Stock options and warrants --- --- --- --- 49,000 ---
Preferred stock --- --- --- 12,488 568,000 ---
------ -------
Income (loss) available to common
stockholders and assumed
conversion ($500,881) 14,687,000 ($ 0.03) $118,242 15,412,000 $0.01
========= ========== ======= ======== ========== =====
Options and warrants totaling 10,812,000 and 10,938,000 were excluded from the calculation of diluted earnings per share as
their effect was anti-dilutive for the three months ended June 30, 2001 and 2000, respectively.