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 March 31, 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: 17,599,309 shares of
common stock as of May 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 three months
ended March 31, 2001 are not necessarily indicative of the results for the year
ending December 31, 2001.
2
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
MARCH 31, 2001
(Unaudited)
ASSETS
Debt securities held-to-maturity (fair value of $3,890,597) $ 3,798,184
Equity securities available for sale (cost of $367,436) 293,064
Cash and cash equivalents 10,252,343
Prepaid reinsurance premiums and reinsurance recoverable 11,465,836
Premiums and other receivables 700,550
Deferred policy acquisition costs 2,744,376
Property, plant and equipment, net 640,269
-----------
Total assets $29,894,622
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Unpaid losses and loss adjustment expenses $ 3,768,493
Unearned premiums 15,038,819
Accounts payable 2,077,111
Other accrued expenses 607,882
Accrued taxes, licenses and fees 28,441
Due to related parties 20,041
-----------
Total liabilities 21,540,787
-----------
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 14,699,309
shares outstanding 148,946
Common stock in treasury, at cost - 195,275
shares (98,749)
Additional paid-in capital 15,126,242
Accumulated deficit (6,749,619)
Accumulated other comprehensive loss (74,372)
-----------
Total stockholders' equity 8,353,835
-----------
Total liabilities and stockholders' equity $29,894,622
===========
The accompanying notes to consolidated financial statements are an integral
part of this statement.
3
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Three Months Ended
March 31, March 31,
2001 2000
---- ----
PREMIUMS EARNED AND OTHER REVENUES
Premium income, net $ 2,312,803 $ 2,047,449
Net investment income 191,222 194,125
Commission revenue 319,835 331,009
Other income 1,815,200 --
---------- ----------
Total revenues 4,639,060 2,572,583
OPERATING COST AND EXPENSES:
Losses and loss adjustment expenses 1,474,126 888,936
General and administrative expenses 1,661,946 1,076,972
---------- ----------
Total operating cost and expenses 3,136,072 1,965,908
NET INCOME $1,502,988 $606,675
========== ========
INCOME PER COMMON SHARE:
Basic $ 0.10 $ 0.04
======== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - BASIC 14,749,000 14,795,000
========== ==========
INCOME PER COMMON SHARE:
Diluted $ 0.10 $ 0.04
======== =======
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 15,317,000 16,590,000
========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
4
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
(Unaudited)
For Three Months For Three Months
Ended Ended
March 31, March 31,
2001 2000
---- ----
NET INCOME $1,502,988 $606,675
OTHER COMPREHENSIVE INCOME:
Change in net unrealized (loss) gain on
available-for- sale securities (14,500) 210,169
--------- ---------
COMREHENSIVE INCOME $1,488,488 $816,844
========== =========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
5
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended Three Months Ended
March 31, March 31,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,502,988 $ 606,675
Adjustments to reconcile net income
to cash provided by operations:
Amortization and depreciation 34,681 17,008
Gains on sales of equity securities available for sale - (16,029)
Net accretion of bond premiums and discount (11,744) -
Warrants issued in lieu of payments - 6,000
Net change in assets and liabilities relating to operating activities:
Prepaid reinsurance premiums and reinsurance recoverable 1,221,309 (1,643,724)
Other receivables and deposits 144,789 (46,548)
Deferred policy acquisition costs (945,709) (271,265)
Accounts payable (636,710) (323,116)
Other accrued expenses 30,625 (654,906)
Accrued taxes, licenses and fees (192,233) (98,012)
Unpaid losses and loss adjustment expenses 300,369 102,225
Unearned premiums (1,134,838) (585,992)
Due from related parties and other - 294,715
------------ ------------
Net cash provided by (used in) operating activities 313,527 (2,612,969)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (33,828) (107,792)
Purchase of equity securities available for sale - (412,370)
Proceeds from sale of equity securities available for sale - 233,995
Purchase of debt securities held to maturity (409,062) (339,034)
Proceeds from maturities of debt securities held to maturity 51,026 116,301
------------ -----------
Net cash used in investing activities (391,864) (508,900)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Preferred stock dividend (12,488) (12,488)
Purchase of treasury stock (14,495) -
------------ -----------
Net cash used in financing activities (26,983) (12,488)
------------ -----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS (105,320) (3,134,357)
CASH AND CASH EQUIVALENTS, Beginning of period 10,357,663 16,272,982
------------ -----------
CASH AND CASH EQUIVALENTS, End of period $ 10,252,343 $ 13,138,625
============ ============
The accompanying notes to consolidated financial statements are an integral part
of this statement.
6
UNIVERSAL INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2001
(Unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The accompanying 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 consolidated balance sheet of the Company as of March 31, 2001 and the
related consolidated statements of operations, comprehensive operations and cash
flows for three months ended March 31, 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. Management has determined the
adoption of SFAS No. 133 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.
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 March 31,
2001, the Company had unearned premiums totaling $15,038,819.
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 three months ended March 31, 2001
totaled $276,962.
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 March 31, 2001,
the Company has substantially complied with the requirements related to a
portion of the potential bonus payments and $1,815,200 was released from escrow
for 18,152 policies which reached their three-year anniversary. An additional
$696,100 was released from escrow in April for 6,961 policies after they had
reached their three-year anniversary. The bonus payments are not included in the
Company's assets until receipt from escrow. Accordingly, $1,815,200 is reflected
in income for the three months ended March 31, 2001. The $696,100 received in
April 2001, and 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 March 31, 2001, deferred policy acquisition costs
amounted to $2,744,376.
8
An allowance for uncollectible premiums receivable is established when it
becomes evident collection is doubtful. No allowance is deemed necessary at
March 31, 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 year 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 March 31,
2001 was approximately $4.6 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.
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.
9
Effective June 1, 2000, UPCIC entered into a quota share treaty and excess per
risk agreements with Swiss Reinsurance America Corporation, rated A+ by A.M.
Best. Under the quota share treaty, UPCIC cedes a portion of its gross written
premiums, losses and loss adjustment expenses with a ceding commission of 35%.
The Company has the option to retroactively increase the annual cession to 75%
or retroactively reduce the cession to 45%. For the three months ended March 31,
2001 and 2000, UPCIC elected to cede 50% of gross written premiums, losses and
loss adjustment expenses. For the nine months ended December 31, 2000 UPCIC
ceded 65% of gross written premiums, losses and loss adjustment expenses. In
addition, the quota share treaty has a limitation for any one occurrence of
$6,500,000 with an option for an additional $3,500,000. 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, 2000, under an excess catastrophe contract, UPCIC obtained
coverage of $39,000,000 in excess of $2,000,000. UPCIC also obtained variable
coverage of $10,000,000 in excess of $39,000,000 ultimate net loss each loss
occurrence.
UPCIC also obtained coverage from the Florida Hurricane Catastrophe Fund, which
is estimated to be $51,000,000. In addition, in the event a hurricane were to
decrease the limits of catastrophe coverage, UPCIC purchased contingency
coverage to replace the Florida Hurricane Catastrophe coverage for losses of
$40,000,000 in excess of $40,000,000.
The ceded reinsurance arrangements had the following effect on certain items in
the accompanying consolidated financial statements:
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
Loss Loss
and Loss and Loss
Premiums Premiums Adjustment Premiums Premiums Adjustment
Written Earned Expenses Written Earned Expenses
------- ------ -------- ------- ------ --------
Direct $ 5,826,776 $6,961,615 $3,084,468 $5,493,215 $6,079,207 $1,745,401
Assumed - - - (22,908) (22,908) 15,350
Ceded (2,378,180) (4,648,812) (1,610,342) (3,408,126) (4,008,850) (871,815)
---------- ---------- ---------- ---------- ---------- --------
Net $3,448,596 $2,312,803 $1,474,126 $2,062,181 $2,047,449 $888,936
========== ========== ========== ========== ========== ========
Other Amounts:
March 31, 2001
--------------
Reinsurance recoverable on unpaid losses
and loss adjustment expenses $ 2,089,181
Unearned premiums ceded 9,376,655
Prepaid reinsurance premiums and
reinsurance recoverable $ 11,465,836
10
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 March 31, 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 and
Notes thereto.
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 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
11
Services Group, Inc., and its wholly owned subsidiary Tigerquote.com Insurance
Solutions, Inc. are a network of Internet insurance agencies. At March 31, 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 March 31, 2001 aggregated $10,252,343.
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 March 31, 2001 UPCIC's investments were comprised of $10,252,343 in
cash and repurchase agreements, $3,798,184 in fixed maturity securities and
$293,064 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 52% 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 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 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 - THREE MONTHS ENDED MARCH 31, 2001 VERSUS THREE MONTHS
ENDED MARCH 31, 2000
Gross premiums written increased 6.1% to $5,826,776 for the three
month period ended March 31, 2001 from $5,493,215 for the three month period
ended March 31, 2000. The increase in gross premiums written is primarily
attributable to the Company's effort to solicit business in the open market
through independent agents.
Net premiums written (i.e. gross premiums written minus premiums
ceded to reinsurers) increased 67.2% to $3,448,596 for the three month period
ended March 31, 2001 from $2,062,181 for the three month period ended March 31,
2000. The increase in net premiums written reflects the impact of reinsurance
since $2,378,180 or 40.8% of premiums written were ceded to reinsurers for the
three month period ended March 31, 2001 as compared to $3,408,126 or 62.0% for
the three month period ended March 31, 2000. The increase in net premiums
written was a result of the Company's effort to solicit business in the open
market through independent agents, as well as decreased costs of the reinsurance
program relative to the premium base in 2001.
12
Net premiums earned increased 13.0% to $2,312,803 for the three
month period ended March 31, 2001 from $2,047,449 for the three month period
ended March 31, 2000. The increase is due to the Company's effort to solicit
business in the open market through independent agents, as well as decreased
costs of the reinsurance program relative to the premium base in 2001.
Investment income consists of net investment income and net realized
gains (losses). Investment income decreased 1.5% to $191,222 for the three month
period ended March 31, 2001 from $194,125 for the three month period ended March
31, 2000. The decrease is primarily due to gains recognized on the sale of
equity securities in the three months ended March 31, 2000.
Commission income decreased 3.4% to $319,835 for the three month
period ended March 31, 2001 from $331,009 for the three month period ended March
31, 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 $1,815,200 released
from escrow during the three months ended March 31, 2001.
Losses and loss adjustment expenses ("LAE") incurred increased 65.8%
to $1,474,126 for the three month period ended March 31, 2001 from $888,936 for
the three month period ended March 31, 2000. The Company's loss ratio, for the
three month period ended March 31, 2001 was 63.7% compared to 43.4% for the
three month period ended March 31, 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 a higher frequency
of claims in the three months ended March 31, 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 54.3% to $1,661,946
for the three month period ended March 31, 2001 from $1,076,972 for the three
month period ended March 31, 2000. General and administrative expenses have
increased due to further development of the Company's insurance operations.
Approximately $325,000 of general and administrative expenses were incurred in
the three months ended March 31, 2001 developing the Company's insurance
Internet initiative.
13
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of capital are premium revenues and
investment income.
For the three month period ended March 31, 2001, cash flows
provided by operating activities were $313,527 primarily due to JUA bonus
payments released from escrow in the first quarter of the year. If not for
receipt of the JUA bonus payments, cash flows from operating activities would
have been negative, primarily due to the relatively low number of policies with
renewal dates in the first quarter of the year. Cash flow from operating
activities is expected to be positive in the reasonably foreseeable future. In
addition, 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
preferred stock dividends 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 March 31, 2001 is
$10,252,343. This amount along with readily marketable debt and equity
securities aggregating $4,091,248 would be available to pay claims in the event
of a catastrophic event pending reimbursement for any aggregate amount in excess
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. The Company is also required to adhere to prescribed
premium-to-capital surplus ratios. The Company 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 the Company 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 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
14
DOI. UPCIC's statutory capital and surplus was $5,823,283 as of March 31, 2001.
Statutory net income was $320,205 for the three month period ended March 31,
2000 and $206,910 for the three month period ended March 31, 2000.
15
UNIVERSAL INSURANCE HOLDINGS, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company did not have any reportable legal proceedings during the
three months ending March 31, 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
The following exhibit required by item 601 of Regulation S-B is
filed herewith as part of this Filing.
EXHIBIT NO. EXHIBIT
10.1 Addendum No.3 to Employment Agreement
between the Company and Bradley Meier,
dated May 4, 2001.
11.1 Statement Regarding the Computation of
Per Share Income
Reports on form 8-K
None.
16
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 May 15, 2001 /s/ Bradley I. Meier
--------------------------------------
Bradley I. Meier, President
17
EXHIBIT 10.1
Addendum No.3 to Employment Agreement
Universal Insurance Holdings
ADDENDUM NO. 3
This ADDENDUM No. 3, dated May 4, 2001, by and between Universal
Insurance Holdings, Inc., (formerly Universal Heights, Inc.) (hereinafter the
"Company"), and Bradley I. Meier ("Employee"), modifies and amends the existing
employment agreement ("Agreement") and all prior ADDENDA thereto ("PRIOR
ADDENDA") between the Company and the Employee, only in respect of the matters
set forth herein, and otherwise the Agreement and Prior ADDENDA remain in full
force and effect as if this ADDENDUM No. 3 had not been executed:
I. In respect of the parties to the Agreement and Prior
ADDENDA, Universal Insurance Holdings, Incorporated is the now legal name of
Universal Heights, Inc., the name change having occurred on December 26, 2001,
and all reference in the Agreement and Prior ADDENDA to Universal Heights, Inc.,
shall now apply with equal force of law to Universal Insurance Holdings, Inc.
II. In respect of "Article 6." of the Agreement entitled
"Compensation," the first subsection (a) entitled "Base Salary" is modified as
follows: "the Employee shall receive for the 2001 calendar year an additional
fifteen (15%) percent increase in his base compensation in addition to the
cumulative base compensation and increase calculated as at the beginning of the
2001 calendar year, retroactive to January 1, 2001; and for each successive year
of the Term of the Agreement the base Compensation as adjusted by previous
percentage increase(s) shall be increased annually by ten (10%) percent.
IN WITNESS WHEREOF, this Addendum No. 3 has been signed and
executed as of the first date written above.
UNIVERSAL INSURANCE HOLDINGS, INC.
BY: /s/ Irwin I. Kellner
-----------------------------------
Secretary and Director
/s/ Bradley I. Meier
--------------------------------
Bradley I. Meier- Employee
EXHIBIT 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
three month periods ended March 31, 2001 and 2000.
Three Months Ended Three Months Ended
March 31, 2001 March 31, 2000
-------------- --------------
Income Income
Available Available
to Common Per-Share to Common Per-Share
Stockholders Shares Amount Stockholders Shares Amount
------------ ------ ------ ------------ ------ ------
Net income $1,502,988 $606,675
Less: Preferred stock dividends (12,488) (12,488)
Income available to common
stockholders 1,490,500 14,749,000 $0.10 $594,187 14,795,000 $0.04
===== =====
Effect of dilutive securities:
Stock options and warrants --- --- --- --- 1,227,000 ---
Preferred stock 12,488 568,000 --- 12,488 568,000 ---
------ ------- ------- ------- --------- -----
Income available to common
stockholders and assumed
conversion $1,502,988 15,317,000 $0.10 $606,675 16,590,000 $0.04
========== ========== ===== ======== ========== =====
Options and warrants totaling 10,737,000 and 9,510,000 were excluded from the
calculation of diluted earnings per share as their effect was anti-dilutive for
the three months ended March 31, 2001 and 2000, respectively.