Universal Insurance Holdings Inc.

02/28/2025 | Press release | Distributed by Public on 02/28/2025 15:16

Annual Report for Fiscal Year Ending December 31, 2024 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is intended to assist in an understanding of our financial condition and results of operations and should be read in conjunction with our consolidated financial statements and accompanying notes in "Part II-Item 8-Financial Statements and Supplementary Data" below. Except for the historical information contained herein, the discussions in this MD&A contain forward-looking statements that involve risks and uncertainties. Our future results could differ materially from those discussed herein. Factors that could cause or contribute to such differences include, but are not limited to, those discussed above under "Cautionary Note Regarding Forward-Looking Statements" and "Part I- Item 1A-Risk Factors."
Overview
We are a vertically integrated holding company offering property and casualty insurance and value-added insurance services. In addition, we generate revenue from our investment portfolio, reinsurance brokerage services, the receipt of managing general agency fees from policy holders and from other sources of revenue (collectively "Other Revenue Sources"). We develop, market, and underwrite insurance products for consumers predominantly in the personal residential homeowners' line of business and perform substantially all insurance-related services for our insurance entities, including risk management, claims management, and distribution. Our Insurance Entities offer insurance products through both appointed independent insurance agents and through our online distribution channel across 19 states with Florida representing 77.2% of our direct premiums written for the year ended December 31, 2024, with licenses to write insurance in one additional state. We seek to produce an underwriting profit (defined as earned premium-net minus losses, LAE, policy acquisition costs and other operating costs) over the long term, along with growing our Other Revenue Sources.
Revenues
We generate revenue primarily from the collection of insurance premiums. Other sources of revenue include: commissions paid by our reinsurers to our reinsurance intermediary subsidiary BARC on reinsurance it places for the Insurance Entities; policy fees collected from policyholders by our managing general agent subsidiary, ERA; and financing fees charged to policyholders who choose to defer premium payments reflected in other income. In addition, our subsidiary Alder receives fees from the Insurance Entities for claims-handling services. The Insurance Entities are reimbursed for these fees on claims that are subject to recovery under the Insurance Entities' respective reinsurance programs. These fees, after expenses, are recorded in the consolidated financial statements as an adjustment to LAE. We also generate income by investing our assets.
The nature of our business tends to be seasonal during the year, reflecting consumer behaviors in connection with the Florida residential real estate market and the hurricane season. The amount of direct premiums written tends to be highest in the second and third quarters of our fiscal year and lowest in the first and fourth quarters.
Trends and Geographical Distribution
Florida Trends
We seek to achieve long-term rate adequacy and earnings for the Insurance Entities while managing our risks through market cycles and looking to take advantage of what we believe to be market opportunities. The Florida personal lines homeowners' market in recent years has operated under distressed conditions wherein insurance companies' major cost items, such as losses, LAE and reinsurance, significantly increased and led to insurance companies' striving to recover or mitigate these costs through rate and underwriting action. While we took these steps and increased our estimates of expected losses, in recent years we have recorded adverse claim development on prior years' loss reserves to address the impacts of Florida's market disruptions on claim cost trends.
As a result of market conditions in Florida, personal residential insurance premiums have risen significantly, many insurers have reduced coverages, and underwriting standards have tightened. Due to these conditions and factors more generally affecting the U.S. and global reinsurance markets, reinsurance for Florida property insurance risk also has been subject to increases in pricing and less favorable terms in recent years. These market forces combined to decrease insurance availability among admitted insurers, and consequently to increase the policy count of Citizens. Although Citizens was created to be the "market of last resort" or residual property insurance market in Florida, its rate increases are limited by law, resulting in its policies typically being priced lower than admitted market policies. This causes Citizens, for many policy types and areas of Florida, to become viewed as a desirable lower-cost alternative to the admitted market.
After several prior efforts at legal reforms that had limited effect, in December 2022 the Florida Legislature enacted substantial law changes intended to mitigate rising claims costs and further premium increases, while also enhancing service standards for the benefit of policyholders. These laws required insurers, including the Insurance Entities, to implement faster claims-response standards, increased penalties for non-compliance, enhanced regulatory oversight of insurers' financial conditions and holding company systems, and added other consumer protections. The reforms also sought to curtail certain claimants' abusive claims practices against insurance carriers, which contributed substantially to the Florida market's recent problems. Among the reforms, the Florida Legislature eliminated policyholders' former one-way statutory right to attorneys' fees and eliminated the ability of policyholders to assign their insurance benefits to third parties. The Florida Legislature also reduced the post-loss time period for submitting claims to one year as contrasted with prior laws permitting claims to be reported two years or even three years after loss events, which led to extended solicitations of claims by contractors, public adjusters, and attorneys and created challenges for insurers in evaluating the cause and amount of the late-reported claims.
The most significant statutory reforms took effect for policies issued after December 16, 2022. Remaining pre-reform claims typically reflect disproportionately high incidences of represented and litigated claims. As a result, losses and LAE associated with these claims remain high, exceeding historical patterns in Florida and in other states. Although the Insurance Entities' number of remaining claims subject to pre-reform laws continues to decline, it will be several years before all of these claims are settled or brought to an adjudicated conclusion. We are optimistic that the legislative reforms will gradually improve the Florida claims environment as the number of claims associated with the pre-reform era continues to decline and more of the Insurance Entities' claims benefit from the reforms.
We seek to achieve rate adequacy for the Insurance Entities, recognizing the effects of the recent Florida claims environment on losses, LAE and expenses, while also taking into account potential benefits associated with the reforms. The favorable impact
of the reforms has led many insurers in Florida, including the Insurance Entities, to submit rate filings in 2024 reflecting overall average rates equal to or even slightly lower than their prior year's rates. Even so, some areas of Florida such as Miami-Dade, Broward and Palm Beach Counties continue to experience disproportionately high incidences of represented and litigated claims as compared to other areas of the state and other jurisdictions. These dynamics are compounded by the litigation financing industry and other types of third-party financing, which in some cases fund the solicitation and litigation of claims or the activities of certain contractors. In addition, inflation, as reflected in the cost of labor and materials, remains a contributing factor in elevated costs associated with the settlement of claims.
Rate filings rely upon past loss and expense data and take time to develop, file and implement. We therefore can experience significant delays between identifying needed rate adjustments, filing the associated rate changes, and ultimately collecting and earning the resulting increased premiums. This is particularly the case following active hurricane seasons in Florida, when administrative orders can extend the regulatory review period for rate filings. Further, the ultimate effectiveness of Florida's reforms is still unknown and difficult to quantify, especially because future market conditions or claims patterns might differ from recent or past experience. Similarly, the Company evaluates and periodically adjusts its policy forms in response to market factors and competitive considerations. While policy form changes can be beneficial in the Company's risk management initiatives, like with rate adjustments, we can experience delays between identifying desired changes, filing and gaining regulatory approval of the changes, and implementing the new forms.
The Company updates its claims-handling procedures over time in response to market trends. The Company has adopted initiatives to adjust and pay straightforward, meritorious claims as promptly as possible to mitigate the adverse impacts that can be seen with claims that remain open for longer periods. The Company also has increasingly used video and other technology to facilitate reviews of damaged property and improve efficiency in the claims process. In addition, we develop in-house expertise, often in the form of dedicated internal units, to respond to certain types of claims such as water damage claims, represented claims, and large-loss claims. The Company additionally has established significant in-house legal services to address the high volume of litigated or represented claims as cost-effectively as possible, as well as a subrogation unit that seeks to mitigate losses for the benefit of policyholders and the Company when damages are caused by third parties.
The active 2024 hurricane season adds complexity to a market that is still experiencing residual adverse effects of pre-reform laws and behaviors even as it begins to benefit from the legal changes. As a result of the reforms and operational initiatives taken by the Company in recent years, the Insurance Entities have cautiously increased their appetite for new business. Several new competitors also have entered the Florida market after the law changes, with some seeking to assume policies from Citizens. It is premature to evaluate the impact of the current hurricane season on reinsurance and capital markets, competitors and potential future entrants to the market, and the overall level of admitted market writings and corresponding effect on Citizens' exposures. Additionally, the full impact of the legal changes and our operational initiatives on the claims settlement process and associated costs is unknown and may evolve differently following an active hurricane season than in a non-catastrophe environment. We will continue to monitor these impacts and market conditions on recording and reporting of claims costs, rate levels and competitive conditions.
Summary of Recent Rate Changes
In April 2023, UPCIC submitted and received approval for a rate decrease of 1.4% for Homeowners', and a rate decrease of 1.6% for Dwelling Fire in the State of Florida, effective July 15, 2023, for new and renewal business. This filing resulted from UPCIC's statutorily required participation in Florida's Reinsurance to Assist Policyholders Program ("RAP"). This program is unrelated to the FHCF and allowed insurers to access a layer of reinsurance coverage below the FHCF industry retention at no cost to the insurer. In exchange the Insurance Entities adopted a corresponding one-year rate reduction. The RAP program expired with the reinsurance contract year ending May 31, 2024. Accordingly, the rate decrease that was temporarily implemented in response to the RAP coverage expired one year from its effective date, on July 15, 2024.
In July 2023, UPCIC filed a 7.5% rate increase on Florida personal residential homeowners' line of business, effective July 17, 2023, for new business and November 4, 2023, for renewal business. Additionally, in October 2023, UPCIC filed a 4.1% rate increase on Florida personal dwelling-fire lines of business, effective January 15, 2024, for both new and renewal business. Both of these rate increases were implemented under use and file rating laws and subsequently received regulatory approval. In August 2024, UPCIC implemented new homeowners rates for new policies, resulting in an average rate decrease of 1.5% compared to previous rates. The implementation of these rates for renewal business was initially scheduled for November 2024 but has been postponed due to a tolling period for regulatory reviews adopted by the Florida Office of Insurance Regulation following Hurricanes Helene and Milton. UPCIC will seek to implement the filed rates after the expiration of the tolling period.
For 2024, the following rate changes for UPCIC have been approved by regulators in states other than Florida:
•Georgia: +14.8% effective November 21, 2023, for new business, and January 10, 2024, for renewal business
•South Carolina: +7.8% effective January 16, 2024, for new business, and March 6, 2024, for renewal business
•Alabama: +14.3% effective March 13, 2024, for new business, and May 2, 2024, for renewal business
•Indiana: +8.0% effective March 22, 2024, for new business, and May 11, 2024, for renewal business
•Minnesota: +14.9% effective April 19, 2024, for new business, and May 20, 2024, for renewal business
•Massachusetts: +11.9% effective April 8, 2024, for new business, and May 28, 2024, for renewal business
•Pennsylvania: +3.0% effective June 1, 2024, for new business, and July 21, 2024, for renewal business
•Maryland: +13.3% effective June 17, 2024 for new business, and August 6, 2024, for renewal business
•Illinois: +11.8% effective August 12, 2024 for new business, and October 1, 2024, for renewal business
•New Jersey: +4.8% effective August 21, 2024 for new business, and October 10, 2024, for renewal business
•New Hampshire: +14.3% effective September 23, 2024 for new business, and November 12, 2024, for renewal business
•Virginia: +15.4% effective November 11, 2024 for new business, and December 31, 2024, for renewal business
•Michigan: +24.8% effective January 20, 2025 for new business, and March 11, 2025, for renewal business
•Georgia: +7.4% effective March 1, 2025 for new business and existing business
•Alabama: +8.1% effective March 13, 2025 for new business and existing business
•Indiana: +6.0% effective March 22, 2025 for new business and May 11, 2025, for renewal business
•North Carolina: +7.5% effective June 1, 2025 for new business and existing business
The following rate filings are pending approval by state regulators:
•South Carolina: +8.6%, the effective date for new business, and renewal business is pending approval
•Massachusetts: +12.9%, the effective date for new business, and renewal business is pending approval
•Minnesota: +15.0%, the effective date for new business, and renewal business is pending approval
•New York: +10.2%, the effective date for new business and renewal business is pending approval
Geographical Distribution
Direct premiums written continue to increase across 18 of the 19 states in which we conduct business year-over-year. As a result of our business strategy, rate changes and disciplined underwriting initiatives, we have seen an increase in total policy count in 16 out of 19 states, as well increase in in-force premium in 18 states and total insured value in 16 states. Direct premiums written for states outside of Florida increased 32.1%, representing a $114.6 million increase during 2024. Direct premiums written for Florida increased 2.1%, representing a $33.2 million increase during 2024. The following table provides direct premiums written for Florida and other states for the years ended December 31, 2024 and 2023 (dollars in thousands):
For the Years Ended Growth
Year Over Year
December 31, 2024 December 31, 2023
State Direct Premiums Written % Direct Premiums Written % $ %
Florida $ 1,598,426 77.2 % $ 1,565,197 81.4 % $ 33,229 2.1 %
Other states 471,266 22.8 % 356,636 18.6 % 114,630 32.1 %
Grand total $ 2,069,692 100.0 % $ 1,921,833 100.0 % $ 147,859 7.7 %
We seek to prudently grow and generate long-term rate adequate premium in each state where we offer policies. Our diversification strategy seeks to increase business outside of Florida and to improve geographical distribution within Florida.
The geographical distribution of our policies in force, premium in force and total insured value across all states were as follows, as of December 31, 2024, 2023 and 2022 (dollars in thousands, rounded to the nearest thousand):
As of December 31, 2024
Policies Premium Total Insured
State In Force % In Force % Value %
Florida 567,307 66.4 % $ 1,608,142 77.3 % $ 186,751,842 52.1 %
North Carolina 65,901 7.8 % 86,556 4.2 % 33,078,243 9.2 %
Georgia 29,470 3.4 % 59,530 2.9 % 16,332,651 4.6 %
Massachusetts 24,475 2.9 % 44,279 2.1 % 20,418,055 5.7 %
Virginia 21,751 2.5 % 30,011 1.4 % 15,044,367 4.2 %
New Jersey 18,834 2.2 % 28,012 1.3 % 13,830,947 3.9 %
Alabama 18,907 2.2 % 39,774 1.9 % 9,072,192 2.5 %
South Carolina 24,766 2.9 % 43,306 2.1 % 12,745,333 3.6 %
Indiana 12,861 1.5 % 20,945 1.0 % 5,737,050 1.6 %
Minnesota 11,340 1.3 % 26,351 1.3 % 7,103,977 2.0 %
Pennsylvania 8,375 1.0 % 12,139 0.6 % 4,562,202 1.2 %
Maryland 15,669 1.8 % 20,284 1.0 % 9,591,760 2.7 %
New York 7,951 0.9 % 14,056 0.7 % 6,828,505 1.9 %
Michigan 10,655 1.2 % 18,041 0.9 % 6,199,390 1.7 %
Delaware 3,219 0.4 % 4,883 0.2 % 2,249,566 0.6 %
Illinois 5,634 0.7 % 9,637 0.5 % 3,767,743 1.0 %
New Hampshire 330 - % 397 - % 252,782 0.1 %
Iowa 7,978 0.9 % 12,611 0.6 % 4,865,077 1.4 %
Wisconsin
103 - % 115 - % 79,529 - %
Total 855,526 100.0 % $ 2,079,069 100.0 % $ 358,511,211 100.0 %
As of December 31, 2023
Policies Premium Total Insured
State In Force % In Force % Value %
Florida 567,893 70.1 % $ 1,577,210 81.5 % $ 188,516,949 58.3 %
North Carolina 56,787 7.0 % 70,170 3.6 % 25,990,577 8.0 %
Georgia 31,335 3.9 % 54,315 2.8 % 16,704,678 5.2 %
Massachusetts 21,443 2.6 % 33,902 1.8 % 16,702,823 5.2 %
Virginia 19,213 2.4 % 25,736 1.3 % 12,788,156 4.0 %
New Jersey 18,606 2.3 % 25,712 1.3 % 13,358,747 4.1 %
Alabama 16,440 2.0 % 29,589 1.5 % 7,404,975 2.3 %
South Carolina 19,201 2.4 % 28,184 1.5 % 8,997,564 2.8 %
Indiana 12,584 1.6 % 18,386 1.0 % 5,326,469 1.6 %
Minnesota 9,446 1.2 % 19,407 1.0 % 5,613,856 1.7 %
Pennsylvania 9,439 1.2 % 12,648 0.7 % 4,965,478 1.5 %
Maryland 8,671 1.1 % 9,379 0.4 % 4,431,977 1.4 %
New York 7,102 0.9 % 12,359 0.6 % 5,771,055 1.8 %
Michigan 4,890 0.6 % 7,641 0.4 % 2,634,991 0.8 %
Delaware 2,341 0.2 % 3,330 0.2 % 1,531,896 0.5 %
Hawaii 858 0.1 % 1,100 0.1 % 510,735 0.2 %
Illinois 2,491 0.3 % 3,720 0.2 % 1,498,349 0.4 %
New Hampshire 318 - % 358 - % 230,587 0.1 %
Iowa 874 0.1 % 1,222 0.1 % 476,843 0.1 %
Total 809,932 100.0 % $ 1,934,368 100.0 % $ 323,456,705 100.0 %
As of December 31, 2022
Policies Premium Total Insured
State In Force % In Force % Value %
Florida 615,796 72.5 % $ 1,547,383 83.4 % $ 201,237,145 62.4 %
North Carolina 54,988 6.5 % 60,990 3.3 % 23,135,353 7.2 %
Georgia 35,174 4.2 % 53,250 2.9 % 17,684,518 5.5 %
Massachusetts 18,849 2.2 % 28,729 1.5 % 13,886,783 4.3 %
Virginia 20,123 2.4 % 24,622 1.3 % 12,691,444 3.9 %
New Jersey 17,965 2.1 % 23,551 1.3 % 12,434,136 3.9 %
Alabama 14,218 1.7 % 22,794 1.2 % 6,043,021 1.9 %
South Carolina 17,260 2.0 % 20,304 1.1 % 7,344,000 2.3 %
Indiana 14,441 1.7 % 18,804 1.0 % 5,885,207 1.8 %
Minnesota 9,545 1.1 % 18,100 1.0 % 5,456,394 1.7 %
Pennsylvania 11,179 1.3 % 13,700 0.7 % 5,645,993 1.7 %
Maryland 6,840 0.8 % 6,642 0.4 % 3,116,236 1.0 %
Michigan 3,897 0.5 % 5,963 0.3 % 2,912,117 0.9 %
New York 3,497 0.4 % 4,995 0.3 % 1,756,525 0.5 %
Delaware 1,939 0.2 % 2,645 0.1 % 1,220,586 0.4 %
Hawaii 1,566 0.2 % 1,901 0.1 % 875,158 0.3 %
Illinois 1,057 0.1 % 1,435 0.1 % 588,925 0.2 %
New Hampshire 350 0.1 % 306 - % 239,970 0.1 %
Iowa 172 - % 225 - % 89,629 - %
Total 848,856 100.0 % $ 1,856,339 100.0 % $ 322,243,140 100.0 %
KEY PERFORMANCE INDICATORS
The Company considers the measures and ratios in the following discussion to be key performance indicators for its businesses. Management believes that these indicators are helpful in understanding the underlying trends in the Company's businesses. Some of these indicators are reported on a quarterly basis and others on an annual basis. Please also refer to "Part II-Item 8-Note 2 (Summary of Significant Accounting Policies)" for definitions of certain other terms we use when describing our financial results.
These indicators may not be comparable to other performance measures used by the Company's competitors and should only be evaluated together with our consolidated financial statements and accompanying notes.
In addition to our key performance indicators and other financial measures presented in accordance with United States Generally Accepted Accounting Principles ("GAAP"), management also uses certain non-GAAP financial measures to evaluate the Company's financial performance and the overall growth in value generated for the Company's common shareholders. Management believes that non-GAAP financial measures, which may be defined differently by other companies, help to explain the Company's results to investors in a manner that allows for a more complete understanding of the underlying trends in the Company's business. The non-GAAP measures should not be viewed as a substitute for those determined in accordance with GAAP. The calculation of these key financial measures including the reconciliation of non-GAAP measures to the nearest GAAP measure are found below under "-Non-GAAP Financial Measures."
Definitions of Key Performance Indicators and GAAP and Non-GAAP Measures
Adjusted book value per common share ―is a non-GAAP measure that is calculated as adjusted common stockholders' equity divided by common shares outstanding at the end of the period. Management believes this metric is meaningful, as it allows investors to evaluate underlying book value growth by excluding the impact of unrealized gains and losses due to interest rate volatility.
Adjusted common stockholders' equity ―is a non-GAAP measure that is calculated as GAAP common stockholders' equity less accumulated other comprehensive income (loss). Management believes this metric is meaningful, as it allows investors to evaluate underlying growth in stockholders' equity by excluding the impact of unrealized gains and losses due to interest rate volatility.
Adjusted net income (loss) attributable to common stockholders ―is a non-GAAP measure that is calculated as GAAP net income (loss) attributable to common stockholders, less net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, net of tax. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Adjusted operating income (loss) ―is a non-GAAP measure that is calculated as GAAP operating income (loss), less net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Adjusted operating income (loss) margin ―is a non-GAAP measure that is computed as adjusted operating income (loss) divided by core revenue. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Adjusted return on common equity (Adjusted "ROCE") ―is a non-GAAP measure that is calculated as actual or annualized adjusted net income attributable to common stockholders divided by average adjusted common stockholders' equity, with the denominator excluding current period income statement net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, net of tax. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Book Value Per Common Share ― total stockholders' equity, adjusted for preferred stock liquidation, divided by the number of common shares outstanding as of a reporting period. Book value per common share is the excess of assets over liabilities at a reporting period attributed to each share of common stock. Changes in book value per common share informs shareholders of retained equity in the Company on a per share basis, which may assist in understanding market value trends for the Company's stock.
Combined Ratio ― the combined ratio is a measure of underwriting profitability for a reporting period and is calculated by dividing total operating costs and expenses (which is made up of losses and LAE and general and administrative expenses) by premiums earned, net, which is net of ceded premium earned. Changes to the combined ratio over time provide management with an understanding of costs to operate its business in relation to net premiums it is earning and the impact of rate, underwriting and other business management actions on underwriting profitability. A combined ratio below 100% indicates an underwriting profit; a combined ratio above 100% indicates an underwriting loss.
Core Loss Ratio ―an operational metric used in the insurance industry to describe the ratio of current year losses and LAE, excluding current accident year weather and prior year development, to premiums earned. Core loss ratio is an important measure identifying profitability trends of premiums in force. Core losses consists of losses and LAE excluding current year weather events and prior years' reserve development and is net estimated subrogation recoveries. The financial benefit from the management of claims, including claim fees ceded to reinsurers, is also recorded in the condensed consolidated financial statements as a reduction to core losses. The core loss ratio can be measured on a direct basis, using direct earned premiums, or on a net basis, using premiums earned, net (i.e., direct premiums earned less ceded premiums earned).
Core revenue ―is a non-GAAP measure that is calculated as total GAAP revenue, less net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments. Management believes this metric is meaningful, as it allows investors to evaluate underlying revenue trends and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Debt-to-Equity Ratio ― long-term debt divided by stockholders' equity. This ratio helps management measure the amount of financing leverage in place in relation to equity and allows investors to evaluate future leverage capacity.
Debt-to-Total Capital Ratio ―long-term debt divided by the sum of total stockholders' equity and long-term debt (often referred to as total capital resources). This ratio helps management measure the amount of financing leverage in place (long-term debt) in relation to total capital resources and allows investors to evaluate future leverage capacity.
Diluted adjusted earnings per common share ― is a non-GAAP measure, which is calculated as adjusted net income available to common stockholders divided by weighted average diluted common shares outstanding. Management believes this metric is meaningful, as it allows investors to evaluate underlying profitability and enhances comparability across periods by excluding items that are heavily impacted by investment market fluctuations and other economic factors and are not indicative of operating trends.
Direct Premiums Written ("DPW") ―reflects the total value of policies issued during a period before considering premiums ceded to reinsurers. Direct premiums written, comprised of renewal premiums, endorsements, and new business, is initially recorded as unearned premium in the balance sheet, which is then earned pro-rata over the next year or remaining policy term. Direct premiums written reflect current trends in the Company's sale of property and casualty insurance products and amounts that will be recognized as earned premiums in the future.
DPW (Florida) ― includes only DPW in the state of Florida. This measure allows management to analyze growth in our primary market and is also a measure of business concentration risk.
Expense Ratio (Including Policy Acquisition Cost Ratio and Other Operating Cost Ratio) ― calculated as general and administrative expenses as a percentage of premiums earned, net. General and administrative expenses are comprised of policy acquisition costs and other operating costs, which includes such items as underwriting costs, facilities, and corporate overhead. The expense ratio, including the sub-expense ratios of policy acquisition cost ratio and other operating cost ratio, are indicators to management of the Company's cost efficiency in acquiring and servicing its business and the impact of expense items to overall profitability.
Losses and Loss Adjustment Expense Ratio or Loss and LAE Ratio ― a measure of the cost of claims and claim settlement expenses incurred in a reporting period as a percentage of premiums earned in that same reporting period. Losses and LAE incurred in a reporting period includes both amounts related to the current accident year and prior accident years, if any, referred to as development. Ultimate losses and LAE are based on actuarial estimates with changes in those estimates recognized in the period the estimates are revised. Losses and LAE consist of claim costs arising from claims occurring and settling in the current period, an estimate of claim costs for reported but unpaid claims, an estimate of unpaid claim costs for incurred-but-not-reported claims and an estimate of claim settlement expenses associated with reported and unreported claims which occurred during the reporting period. The loss and LAE ratio can be measured on a direct basis, which includes losses and LAE divided by direct earned premiums, or on a net basis, which includes losses and LAE divided by premiums earned, net (i.e., direct premium earned less ceded premium earned). The net loss and LAE ratio is a measure of underwriting profitability after giving consideration to the effect of reinsurance. Trends in the net loss and LAE ratio are an indication to management of current and future profitability.
Monthly Weighted Average Renewal Retention Rate ― measures the monthly average of policyholders that renew their policies over the period of a calendar year. This measure allows management to assess customer retention.
Premiums Earned, Net ― the pro-rata portion of current and previously written premiums that the Company recognizes as earned premium during the reporting period, net of ceded premium earned. Ceded premiums are premiums paid or payable by the Company for reinsurance protection. Written premiums are considered earned and are recognized pro-rata over the policy coverage period. Premiums earned, net is a measure that allows management to identify revenue trends.
Policies in Force ―represents the number of active policies with coverage in effect as of the end of the reporting period. The change in the number of policies in force is a growth measure and provides management with an indication of progress toward achieving strategic objectives. Inherent seasonality in our business makes this measure more useful when comparing each quarter's balance to the same quarter in prior years.
Premium in Force ― is the amount of the annual direct premiums written previously recorded by the Company for policies which are still active as of the reporting date. This measure assists management in measuring the level of insured exposure and progress toward meeting revenue goals for the current year, and provides an indication of business available for renewal in the next twelve months. Inherent seasonality in our business makes this measure more useful when comparing each quarter's balance to the same quarter in prior years.
Return on Average Common Equity ("ROCE") ― calculated as actual net income (loss) attributable to common stockholders divided by average common stockholders' equity. ROCE is a capital profitability measure of how efficiently management creates profits.
Total Insured Value ― represents the amount of insurance limits available on a policy for a single loss based on all policies active as of the reporting date. This measure assists management in measuring the level of insured exposure.
Unearned Premiums ―represents the portion of direct premiums corresponding to the time period remaining on an insurance policy and available for future earning by the Company. Trends in unearned premiums generally indicate expansion, if growing, or contraction, if declining, which are important indicators to management. Inherent seasonality in our business makes this measure more useful when comparing each quarter's balance to the same quarter in prior years.
Weather events ― an estimate of losses and LAE from weather events occurring during the current accident year that exceed initial estimates of expected weather events when establishing the expected loss ratio for each accident year. This metric informs management of factors impacting overall current year profitability.
REINSURANCE
Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events. Developing and implementing our reinsurance strategy to adequately protect our policyholders, balance sheet, and Insurance Entities in the event of one or more catastrophes while maintaining efficient reinsurance costs has been our key strategic priority. To limit the Insurance Entities' potential exposure to catastrophic events, we purchase significant reinsurance from third-party reinsurers and the FHCF. The FLOIR requires the Insurance Entities, like all residential property insurance companies doing business in Florida, to have a certain amount of capital and reinsurance coverage to cover losses upon the occurrence of a single catastrophic event and a series of catastrophic events occurring in the same hurricane season. The Insurance Entities' 2024-2025 catastrophic reinsurance program meets the FLOIR's requirements, which are based on, among other things, successfully demonstrating cohesive and comprehensive reinsurance coverages that protect the policyholders of our Insurance Entities under a series of stress test catastrophe loss scenarios. Similarly, the Insurance Entities' 2024-2025 catastrophic reinsurance program meets the stress test and review requirements of Demotech, Inc., for maintaining Financial Stability Ratings® of "A" (Exceptional) and of Kroll for maintaining insurer financial strength rating of "A-".
We believe the Insurance Entities' retentions under the jointly shared reinsurance program are appropriate and structured to protect policyholders and the Insurance Entities' capital structure. We test the sufficiency of the catastrophe reinsurance coverage by subjecting the Insurance Entities' personal residential exposures to scenario testing using third-party catastrophe models. These models combine simulations of the natural occurrence patterns and characteristics of hurricanes, tornadoes, earthquakes, and other catastrophes with information on property values, construction types, and occupancy classes. These models' outputs provide information concerning the potential for simulated large losses, which enables the Insurance Entities to limit the financial impact from catastrophic events. Refer to the risk factors disclosed in "Part I, Item 1A-Risk Factors," set forth elsewhere in the Annual Report on Form 10-K, for details of specific risks attributable to catastrophic losses and reinsurance.
Effective June 1, 2024, the Insurance Entities entered into multiple reinsurance agreements comprising our 2024-2025 reinsurance program. See "Item 1-Note 4 (Reinsurance)."
Insurance Entities 2024-2025 All States Reinsurance Program ("All States")
•First event All States combined retention of $45 million.
•All States first event tower extends to $2.416 billion with no co-participation in any of the layers, no limitation on loss adjustment expenses and no accelerated deposit premiums.
•Assuming a first event completely exhausts the $2.416 billion tower, the second event exhaustion point would be $1.134 billion.
•Full reinstatement is available on the combined $1.023 billion of the All States first-event catastrophe coverage for a guaranteed second-event coverage. For all layers purchased between $111.0 million and the projected attachment point of the FHCF layer, to the extent that all of our coverage or a portion thereof is exhausted in a first catastrophic event and reinstatement premium is due, we have purchased enough reinstatement premium protection coverage ("RPP") to fund the reinstatement premiums due on the reinstatement of these coverages. Losses exceeding the RPP limit would be subject to reinstatement premiums.
•Universal Insurance Holdings, Inc. ("UIH") established the first event layer of 100% of $66.0 million in excess of $45 million in a captive insurance arrangement. See "Part II-Item 8-Note 18 (Variable Interest Entities)."
•Additionally, a second event private market excess of loss coverage of $66.0 million in excess of $45 million succeeds the captive in the event of a loss from a second event, resulting in a $66 million reduction in retention on a consolidated basis for a second event.
•Specific third and fourth event private market excess of loss coverage of $86 million in excess of $25 million provides frequency protection for multiple events during the treaty period, an incremental $20 million reduction in retention for a third and fourth event.
•For the FHCF Reimbursement Contracts effective June 1, 2024, the Insurance Entities have continued the election at the 90% coverage level. We estimate the total mandatory FHCF coverage will provide approximately $1.262 billion of coverage for UPCIC, and $20.4 million for APPCIC which complements and inures to the benefit of the All States coverage secured from private market reinsurers and discussed above.
•To further insulate future years, the Insurance Entities have secured certain multi-year treaties, providing $240 million of capacity that extends portions of the catastrophe coverage to include the 2025-2026 treaty year.
Reinsurers
The table below provides the A.M. Best and S&P financial strength ratings for each of the largest rated third-party reinsurers in the Insurance Entities' 2024-2025 reinsurance program:
Reinsurer A.M. Best S&P
Florida Hurricane Catastrophe Fund (1) N/A N/A
Various Lloyd's of London Syndicates
A+
AA-
Munich Reinsurance America Inc.
A+
AA
DaVinci Reinsurance Ltd.
A
A+
Renaissance Reinsurance Ltd. A+ A+
Chubb Tempest Reinsurance Ltd. A++ AA
Markel Bermuda Ltd.
A
A
Everest Reinsurance Co.
A+
A+
(1)No rating is available, because the fund is not rated.
The catastrophe reinsurance program for the Insurance Entities, covering the period of June 1, 2024 to May 31, 2025, as described above, is projected to cost $676 million, prior to any potential reinstatement premiums due, and represents approximately 33.0% of projected direct premium earned for the 12-month treaty period.
SELECTED FINANCIAL DATA
The following selected historical consolidated financial data should be read in conjunction with our consolidated financial statements and notes thereto and "Item 7-Management's Discussion and Analysis of Financial Condition and Results of Operations" set forth elsewhere in the Annual Report on Form 10-K. The historical results are not necessarily indicative of the results to be expected in any future period.
The following tables present historical selected consolidated financial data of Universal Insurance Holdings, Inc. and Subsidiaries for the five years ended December 31, 2024 (in thousands, except per share data):
Years Ended December 31,
2024 2023 2022 2021 2020
Statement of Income Data:
Revenues:
Direct premiums written $ 2,069,692 $ 1,921,833 $ 1,845,786 $ 1,671,252 $ 1,517,479
Change in unearned premium (69,887) (46,704) (86,085) (74,634) (121,856)
Direct premium earned 1,999,805 1,875,129 1,759,701 1,596,618 1,395,623
Ceded premium earned (626,732) (623,193) (631,075) (561,155) (472,060)
Premiums earned, net 1,373,073 1,251,936 1,128,626 1,035,463 923,563
Net investment income (1) 59,148 48,449 25,785 12,535 20,393
Other revenue (2) 79,694 80,380 81,044 71,993 65,437
Total revenues 1,520,536 1,391,582 1,222,658 1,121,851 1,072,770
Costs and expenses:
Losses and loss adjustment expenses 1,087,366 992,636 938,399 779,205 758,810
Policy acquisition costs 233,444 208,011 214,259 226,167 199,102
Other operating costs 108,639 96,055 90,638 87,428 90,532
Total expenses 1,429,449 1,296,702 1,243,296 1,092,800 1,048,444
Interest and amortization of debt issuance costs 6,476 6,531 6,609 638 95
Income (loss) before income tax expense (benefit) 84,611 88,349 (27,247) 28,413 24,231
Income tax expense (benefit) 25,683 21,526 (4,990) 8,006 5,126
Net income (loss) $ 58,928 $ 66,823 $ (22,257) $ 20,407 $ 19,105
Per Share Data:
Basic earnings (loss) per common share $ 2.07 $ 2.24 $ (0.72) $ 0.65 $ 0.60
Diluted earnings (loss) per common share $ 2.01 $ 2.22 $ (0.72) $ 0.65 $ 0.60
Dividends declared per common share $ 0.77 $ 0.77 $ 0.77 $ 0.77 $ 0.77
As of December 31,
2024 2023 2022 2021 2020
Balance Sheet Data:
Total invested assets $ 1,371,276 $ 1,160,784 $ 1,105,806 $ 1,093,680 $ 919,924
Cash and cash equivalents 259,441 397,306 388,706 250,508 167,156
Total assets 2,841,861 2,316,561 2,890,154 2,056,141 1,758,741
Unpaid losses and loss adjustment expenses 959,291 510,117 1,038,790 346,216 322,465
Unearned premiums 1,060,446 990,559 943,854 857,769 783,135
Long-term debt (3) 101,243 102,006 102,769 103,676 8,456
Total liabilities 2,468,611 1,975,264 2,602,258 1,626,439 1,309,479
Total stockholders' equity $ 373,250 $ 341,297 $ 287,896 $ 429,702 $ 449,262
Shares outstanding end of period 28,096 28,966 30,389 31,221 31,137
Book value per share $ 13.28 $ 11.78 $ 9.47 $ 13.76 $ 14.43
Return on average common equity (ROCE) 16.5 % 21.2 % (6.2) % 4.6 % 4.1 %
Selected Data:
Loss and loss adjustment expense ratio (4) 79.2 % 79.3 % 83.2 % 75.3 % 82.1 %
General and administrative expense ratio (5) 24.9 % 24.3 % 27.0 % 30.2 % 31.4 %
Combined Ratio (6) 104.1 % 103.6 % 110.2 % 105.5 % 113.5 %
(1)Net investment income excludes net realized gains (losses) on sale of investments and net change in unrealized gains (losses) on investments.
(2)Other revenue consists of commission revenue, policy fees, and other revenue.
(3)For the years ended December 31, 2024, 2023, 2022 and 2021 long-term debt includes a private placement of $100 million of 5.625% Senior Unsecured Note due 2026. See "Part II-Item 8-Note 7 (Long-term debt)."
(4)The loss and loss adjustment expense ratio is calculated by dividing losses and loss adjustment expenses by premiums earned, net.
(5)The general and administrative expense ratio is calculated by dividing general and administrative expense by premiums earned, net.
(6)The combined ratio is the sum of the losses and loss adjustment expense ratio and the general and administrative expense ratio.
RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
2024 Financial and Business Highlights (comparisons are to 2023 unless otherwise specified)
•Management is continuing its efforts to prudently manage new business risk selection, improve risk exposure diversification and moderate new business growth rates, compared to prior years, while prior year rate increases are taking effect to improve profitability.
•Rate filings and inflation adjustments to policy insured values are increasing written and earned premiums as the new rates and property insured values take effect on policy renewals and new business, and earn prospectively over the policy period.
•Policies in force increased to 855,526 as of December 31, 2024, an increase of 45,594 policies, or 5.6%, compared to 809,932 policies in force as of December 31, 2023.
•Renewal retention rates have improved to 92.0% from 88.6% year over year as the pace of rate increases has slowed.
•Ceded premiums earned for 2024 were $626.7 million, $3.5 million or 0.6% higher than 2023. The increase is due to the higher cost of reinsurance from 3rd party reinsurers as well as the expiration of Florida's RAP program, which served to reduce reinsurance premiums reported in periods prior to the reinsurance contract period (June to May). The higher reinsurance costs, effective June 1, 2024, impact financial ratios which are based on net earned premium.
•On September 26, 2024, Hurricane Helene, a Category 4 storm, made landfall in the Big Bend area of the Florida Gulf Coast, causing damage across several southeastern states. Net losses and LAE for Insurance Entities are estimated at $45.0 million after reinsurance recoveries. Consolidated net losses for Hurricane Helene are $111.0 million after including $66.0 million of losses from the Company's captive reinsurance arrangement.
•On October 9, 2024, Hurricane Milton, a Category 3 storm, made landfall near Sarasota, primarily impacting our central and north Florida policyholders. This was the second event under our 2024-2025 reinsurance program. The retained losses for a second event were $45.0 million.
•UPCIC began operations in Wisconsin and issued its first policy in October 2024. UPCIC completed its withdrawal from the Hawaii market in 2024.
•Net investment income increased in 2024 to $59.1 million, an increase of $10.7 million or 22.1% compared to $48.4 million in 2023,
•The net combined ratio was 104.1% for the year ended December 31, 2024, an increase of 50 basis points compared to the year ended December 31, 2023.
•The Company continued to return shareholder value with quarterly dividends and share repurchases. In the year ended December 31, 2024, the Company repurchased 1,079,149 shares, at an average share price of $19.97, for a total of $21.5 million. As of December 31, 2024, $2.6 million remains available under the March 2026 Share Repurchase Program, which runs until March 11, 2026.
•Demotech reaffirmed its A rating for UPCIC and APPCIC on December 12, 2024.
•Kroll reaffirmed its A- rating for UPCIC and APPCIC on September 20, 2024.
•Egan-Jones reaffirmed its A rating for UIH on October 03, 2024.
All comparisons for the year ended December 31, 2024 results of operations are to the corresponding prior year period (unless otherwise specified).
YEAR ENDED DECEMBER 31, 2024 COMPARED TO YEAR ENDED DECEMBER 31, 2023
Net income for the year ended December 31, 2024, was $58.9 million, compared to $66.8 million in the previous year. Diluted earnings per share was $2.01 compared to $2.22 in 2023. Retained losses from Hurricanes Helene and Milton were $111.0 million and $45.0 million, respectively, affecting 2024 results compared to Hurricane Idalia's $45.0 million retained loss in 2023. Positive factors in 2024 included higher net premiums earned and investment income, offset by lower commission revenue and higher operating costs. Prior-year net loss reserve development was $29.1 million in 2024, compared to $110.6 million in 2023. Direct and net premiums earned grew by 6.6% and 9.7%, respectively, due to premium growth in 18 states and more policies in force in 16 states.
The net loss ratio was 79.2% in 2024 compared to 79.3% in 2023, with the combined ratio at 104.1%compared to 103.6% in 2023. Further details are available in the "Overview-Trends and Geographical Distribution-Florida Trends" section.
A detailed discussion of our operations follows the table below (in thousands, except per share data).
Years Ended December 31, Change
2024 2023 $ %
REVENUES
Direct premiums written $ 2,069,692 $ 1,921,833 $ 147,859 7.7 %
Change in unearned premium (69,887) (46,704) (23,183) 49.6 %
Direct premium earned 1,999,805 1,875,129 124,676 6.6 %
Ceded premium earned (626,732) (623,193) (3,539) 0.6 %
Premiums earned, net 1,373,073 1,251,936 121,137 9.7 %
Net investment income 59,148 48,449 10,699 22.1 %
Net realized gains (losses) on investments (1,315) (1,229) (86) 7.0 %
Net change in unrealized gains (losses) on investments
9,936 12,046 (2,110) (17.5) %
Commission revenue 51,792 54,058 (2,266) (4.2) %
Policy fees 19,490 18,881 609 3.2 %
Other revenue 8,412 7,441 971 13.0 %
Total revenues 1,520,536 1,391,582 128,954 9.3 %
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 1,087,366 992,636 94,730 9.5 %
General and administrative expenses 342,083 304,066 38,017 12.5 %
Total operating costs and expenses 1,429,449 1,296,702 132,747 10.2 %
Interest and amortization of debt issuance costs 6,476 6,531 (55) (0.8) %
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT) 84,611 88,349 (3,738) (4.2) %
Income tax expense (benefit) 25,683 21,526 4,157 19.3 %
NET INCOME (LOSS) $ 58,928 $ 66,823 $ (7,895) (11.8) %
Other comprehensive income (loss), net of taxes 11,006 29,610 (18,604) (62.8) %
COMPREHENSIVE INCOME (LOSS) $ 69,934 $ 96,433 $ (26,499) (27.5) %
DILUTED EARNINGS (LOSS) PER SHARE DATA:
Diluted earnings (loss) per common share $ 2.01 $ 2.22 $ (0.21) (9.5) %
Weighted average diluted common shares outstanding 29,274 30,147 (873) (2.9) %
Premium Revenues
Direct premiums written increased by $147.9 million, or 7.7%, for the year ended December 31, 2024, driven by premium growth within our Florida business of $33.2 million, or 2.1%, and premium growth in our other states business of $114.6 million, or 32.1%, as compared to the prior year. The primary factors contributing to the increase in written premiums were new and previous rate changes earned in during 2024, increased policies in force during 2024 and policy inflation adjustments. There was an increase in policies in force across 16 states. In total, policies in force increased 45,594, or 5.6%, from 809,932 at December 31, 2023 to 855,526 at December 31, 2024. A summary of the recent rate adjustments driving changes in written premiums is discussed above under "Overview-Trends and Geographical Distribution-Florida Trends."
Rate changes are applied on new business submissions at policy inception and on renewals from the effective date of their renewal, and then are earned subsequently over the policy period. Rate changes that are implemented are in response to trends in claim costs driven by changes in costs of material and labor associated with claims, the cost of weather events, the cost of catastrophe and other reinsurance protecting policyholders and the legacy effect of the cost to settle litigated claims in Florida. See "Overview-Trends and Geographical Distribution-Florida Trends and Summary of Recent Rate Changes." Due to the time associated with analyzing data, preparing and submitting rate filings, implementing new rate levels and earning the corresponding premiums, the Insurance Entities' rate adjustments typically lag their experience by months or even years. The Insurance Entities' policies also adjust coverage limits at renewal to account for inflation since the last renewal which is based on third-party industry data sources that monitor inflation factors.
The Insurance Entities manage their business by controlling changes in policy counts, premiums, insured value, and factors affecting the purchase of reinsurance. Policy rates are monitored and adjusted as needed and new business underwriting rules are reviewed and updated as needed in the states where we underwrite. Policy retention is also an important factor and impacts the level of new business written. This year we saw an increase in policies in force of 45,594, or 5.6%, an increase of $144.7 million or 7.5% in premiums in force and an increase of $35.1 billion or 10.8% in total insured value. See "Overview- Summary of Recent Rate Changes and Geographic Distribution". Direct premiums written continue to increase across the majority of states in which we conduct business. We have policies in force in 19 states on December 31, 2024. In 2024 UPCIC wrote its first policy in Wisconsin. In addition, we are authorized to do business in Tennessee and are in the process of submitting our rate filing. In 2023, UPCIC received approval from its regulators in Hawaii to withdraw from the state and non-renew all policies in Hawaii. At December 31, 2024, no policies are in force in Hawaii, and UPCIC is in the process of completing its remaining administrative tasks to finalize its withdrawal from the state.
Direct premium earned increased by $124.7 million, or 6.6%, for the year ended December 31, 2024. This change is attributed to the recognition of premiums written over the preceding twelve months, incorporating the effects of implemented rate filings and policy premium adjustments prompted by inflation-induced changes in insured values. See the discussion above for the "-Overview-Summary of Recent Rate Changes."
Reinsurance
Reinsurance allows our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Each year, the Insurance Entities enter into contracts with various third-party reinsurers and the Florida Hurricane Catastrophe Fund (FHCF) to obtain necessary reinsurance protection. Refer to "Item 7- Management's Discussion and Analysis- Reinsurance" for further details. Reinsurance costs associated with each year's reinsurance program are earned over the annual policy period, typically from June 1st to May 31st. Specific reinsurance policies require reinstatement premiums based on contractual triggering events. Ceded reinsurance premiums and ceded reinstatement premiums (collectively "ceded premiums") are recognized over the coverage period of the underlying contract. Ceded premiums represent amounts payable to reinsurers for reinsurance protection, and reduce both written and earned premiums. In 2024, reinstatement premiums for prior and current hurricanes were recorded, totaling $22.7 million compared to $2.2 million in 2023. Overall, ceded premium earned increased by $3.5 million, or 0.6%, for the year ended December 31, 2024, compared to the previous year. As a percentage of direct earned premiums, ceded earned premiums declined to 31.3% in 2024 from 33.2% in 2023. See the discussion above for the Insurance Entities' 2024-2025 reinsurance programs and "Part II-Item 8- Note 4 (Reinsurance)."
Investment Results
Net investment income was $59.1 million for the year ended December 31, 2024, compared to $48.4 million for the year ended December 31, 2023, an increase of $10.7 million, or 22.1%. Net investment income increased as a result of deploying excess cash and liquidity from maturities, principal repayments, sales, and interest payments received into higher yields throughout the year.
We look to optimize our investment portfolio on a rolling basis, which, from time-to-time, results in portfolio shaping opportunities. During the year ended December 31, 2024, sales of available-for-sale debt securities and sales of equity securities resulted in a net realized loss of $1.3 million, compared to a net loss of $1.2 million from our equity securities in the prior year. The turnover was driven in part by locking in longer duration yield where attractive as the Federal Reserve reduced rates throughout 2024, despite market yields reversing course and increasing in the fourth quarter of 2024 due to macro and geopolitical uncertainty.
There was a $9.9 million net unrealized gain on investments during the year ended December 31, 2024, largely driven by portfolio optimization efforts in the private and public equity markets, coupled with the overall domestic equity market appreciation tailwind during 2024, compared to a $12.0 million net unrealized gain on investments for the year ended
December 31, 2023. See"-Analysis of Financial Condition"for details on changes in total invested assets balances during 2024.
Commissions, Policy Fees and Other Revenue
Commission revenue is primarily derived from brokerage commissions earned from traditional open-market third-party reinsurers, excluding reinsurance provided by the Florida Hurricane Catastrophe Fund (FHCF). This revenue is recognized on a pro-rata basis over the reinsurance policy period which runs from June 1stto May 31stof the following year. For the year ended December 31, 2024, commission revenue amounted to $51.8 million, compared to $54.1 million for the year ended December 31, 2023. The $2.3 million decrease in commission revenue, or 4.2%, for the year ended December 31, 2024 was primarily due to the impact of Florida's Reinsurance to Assist Policyholders (RAP) program, which reduced reinsurance brokerage commissions expiring in 2024. Additionally, there were higher levels of commissions earned from the previous year's reinsurance program expiring in 2023.
Policy fees for the year ended December 31, 2024 were $19.5 million compared to $18.9 million for the year ended December 31, 2023. The increase of $0.6 million, or 3.2%, was the result of an increase in the combined total number of new and renewal policies written during the year ended December 31, 2024 compared to the year ended December 31, 2023 in states in which we are permitted to charge this fee.
Other revenue, representing revenue from policy installment fees, premium financing, and other miscellaneous income, was $8.4 million for the year ended December 31, 2024 compared to $7.4 million for the year ended December 31, 2023.
Operating Costs and Expenses
Losses and Loss Adjustment Expenses
Net losses and LAE, after reinsurance recoveries and subrogation recoveries, were $1.09 billion with a 79.2% net loss ratio for 2024, compared to $992.6 million, and 79.3% net loss ratio for the prior year. The increase in the net losses for the year ended December 31, 2024 was mainly due to the impact from Hurricanes Helene and Milton offset by lower year-to-date unfavorable prior year development. .
On September 26, 2024, Hurricane Helene made landfall as a Category 4 hurricane in the Big Bend area of the Florida Gulf Coast and continued northward, resulting in hurricane damage across several states in the Southeast region. After estimated reinsurance recoveries, net losses and LAE exposure to the Insurance Entities are estimated at $45.0 million. The Insurance Entities' reinsurance recoveries include losses and LAE recoveries of $66.0 million from UVE's pre-funded captive insurance arrangement. On October 9, 2024 Hurricane Milton made landfall near Siesta Key Florida as a category 3 hurricane. The retention on this storm was $45.0 million. In total, net losses from Hurricane Helene and Milton, including losses and LAE incurred under the funded captive insurance arrangement, were $156.0 million. Our 2024-2025 reinsurance program provides the Insurance Entities with adequate protection beyond our retention limit. During the year ended December 31, 2023, the Company incurred $45.6 million in losses from Hurricane Idalia.
We believe the legislation passed in late 2022 represents a positive step towards reducing claim costs in Florida and management is optimistic about its eventual benefits. The Company is beginning to realize some of those benefits in 2024 for policies fully subject to this legislation. However, the full transition to these new laws will take several years. Many of the reforms apply only to policies written or renewed after the effective date of the legislation and provide marginal benefit for claims filed on policies issued prior to the new laws' effective date. As for prior policy periods, with respect to some aspects of the reforms, insurers must continue to adjust claims under the prior laws that were subject to abuse while awaiting the expiration of claim reporting periods and statute of limitations periods applicable to those policies. Therefore, it will be several years until the abusive claim practices permitted under the prior laws are fully extinguished and the full benefit of the legislation can be realized.
Unfavorable prior-year development occurs when claims are settled for amounts higher than previously estimated or when the liabilities for prior-year claims increase. This is due to rising claims costs, inflation, and increased costs associated with litigated claims. Refer to "-Overview-Florida Trends" above for more details. During the year ended December 31, 2024, net prior year development was $29.1 million, compared to unfavorable prior year development of $110.6 million for 2023. We continue to see favorable claim trends on Florida losses that occurred after the effective date of the Florida reform legislation (December 16, 2022). However, claims under policies that pre-date the reforms have greater uncertainty. As such, those claims in the aggregate may potentially experience adverse development, as claims settlements vary from previously estimated amounts.
Net losses and LAE for the current accident year, excluding hurricanes and prior year development were $902.3 million for 2024, compared to $836.4 million in 2023.
Consolidated net losses and LAE also reflect the net results from activities performed by the adjusting company within our holding company system. These activities can provide potential savings when adjusting claims on behalf of our Insurance Entities and our reinsurers. When claims are adjusted by our claims team and files are handled by our legal group in this litigious environment in Florida, synergies are achieved by having these two functions within the same consolidated group that could not be achieved through third parties. This synergistic relationship results in more efficient handling and coordination of claims, including represented claims handled by our legal group. By choosing not to outsource these activities in most instances, we also save money for the consolidated group by generating a potential financial benefit outside of the Insurance Entities that reduces LAE at the consolidated level (contra LAE), particularly following catastrophes. During the year ended December 31, 2024, claims-related activities resulted in a financial benefit of $19.7 million, compared to a financial benefit of $50.4 million in the previous year. Alder's profits often lag as claims from hurricanes are settled and billed. The profits from 2023 were due to the settlement of Hurricane Ian claims, which occurred in 2022. In 2024, claims and billing for Hurricane Helene and Milton are still ongoing.
General and Administrative Expenses
For the year ended December 31, 2024, general and administrative expenses were $342.1 million, compared to $304.1 million during the year ended December 31, 2023, as follows (dollars in thousands):
For the Years Ended December 31, Change
2024 2023 $ %
$ Ratio $ Ratio
Premiums earned, net $ 1,373,073 $ 1,251,936 $ 121,137 9.7 %
General and administrative expenses:
Policy acquisition costs 233,444 17.0 % 208,011 16.6 % 25,433 12.2 %
Other operating costs 108,639 7.9 % 96,055 7.7 % 12,584 13.1 %
Total general and administrative expenses $ 342,083 24.9 % $ 304,066 24.3 % $ 38,017 12.5 %
For the year ended December 31, 2024 general and administrative expenses increased by $38.0 million, compared to the year ended December 31, 2023, which was the result of an increase in policy acquisition costs of $25.4 million and an increase in other operating costs of $12.6 million. The total general and administrative expense ratio was 24.9% for the year ended December 31, 2024 compared to 24.3% for the year ended December 31, 2023.
•The policy acquisition costs increased by $25.4 million due to higher commissions resulting from a 7.7% increase in direct written premiums compared to the previous year, as well as more writings outside of Florida which incur higher commissions. Additionally, the lower level of reinsurance commissions and an increased level of agent bonus commissions impacted 2024.
•The increase in other operating costs of $12.6 million was largely driven by employee related expenses including stock based compensation, and employee benefits. The other operating cost ratio was 7.9% for the year ended year ended December 31, 2024 compared to 7.7% for the year ended December 31, 2023.
As a result of the trends discussed above for losses and LAE and general and administrative expenses, the combined ratio for the year ended December 31, 2024 was 104.1% compared to 103.6% for the year ended December 31, 2023.
Interest and Amortization of Debt Issuance Costs
Interest and amortization of debt issuance costs were $6.5 million for each of the years ended December 31, 2024 and 2023.
Income Tax Expense (Benefit)
Income tax expense was $25.7 million for the year ended December 31, 2024, compared to an income tax expense of $21.5 million for the year ended December 31, 2023. Our effective tax rate ("ETR") increased to 30.4% for the year ended December 31, 2024, as compared to 24.4% for the year ended December 31, 2023. See "Part II-Item 8-Note 12 (Income Taxes)" for a table of items reconciling statutory rates to the effective rate for years ended December 31, 2024and 2023.
Other Comprehensive Income (Loss)
Other comprehensive income, net of taxes for the year ended December 31, 2024 was $11.0 million compared to other comprehensive income of $29.6 million for the year ended December 31, 2023, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income for available-for-sale debt securities sold. This years results reflects favorable shifts in market prices during 2024 compared to 2023. During 2024, maturing securities and investment returns were reinvested at market rates, reducing
unrealized losses on maturing securities. The maturity of the remaining securities in an unrealized loss position has also reduced during the year. Over time, unrealized losses on securities in an unrealized loss position lessen as the remaining maturity shortens and securities approach their maturity or par value. See the discussion above and "Part II-Item 8-Note 14 (Other Comprehensive Income (Loss))" for additional information about the amounts comprising other comprehensive income (loss), net of taxes for these periods and "Part II-Item 8-Note 3 (Investments)" for explanations on changes in investments.
Non-GAAP
Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, was $1.5 billion for the year ended December 31, 2024 compared to $1.4 billion for the the year ended December 31, 2023.
Adjusted operating income (loss) represents GAAP operating income (loss), excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments. Adjusted operating income was $82.5 million for the year ended December 31, 2024 compared to adjusted operating income of $84.1 million for the year ended December 31, 2023.
Adjusted operating income (loss) margin represents adjusted operating income (loss) divided by core revenue. Adjusted operating income margin was 5.5% for the year ended December 31, 2024 compared to adjusted operating income margin of 6.1% for the year ended December 31, 2023.
Adjusted net income (loss) attributable to common stockholders represents GAAP net income (loss) attributable to common stockholders, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, net of tax. Adjusted net income attributable to common stockholders was $52.4 million for the year ended December 31, 2024 compared to adjusted net income attributable to common stockholders of $58.7 million for the year ended December 31, 2023.
Diluted adjusted earnings (loss) per common share represents adjusted net income (loss) available to common stockholders divided by weighted average diluted common shares outstanding. Diluted adjusted income per common share was $1.79 for the year ended December 31, 2024 compared to diluted adjusted income per share of $1.95 for the year ended December 31, 2023.
YEAR ENDED DECEMBER 31, 2023 COMPARED TO YEAR ENDED DECEMBER 31, 2022
Net income was $66.8 million for the year ended December 31, 2023, compared to a net loss of $22.3 million for the year ended December 31, 2022. Benefiting the year ended December 31, 2023 were increases in premiums earned, net, an increase in net investment income, the change in unrealized gains in the current year compared to unrealized losses in the prior year, offset by an increase in losses and loss adjustment expenses, net. In 2023, direct premium earned and premiums earned, net were up 6.6% and 10.9%, respectively compared to direct premium earned and premiums earned in 2022, due to premium growth in the majority of states in which we are licensed and writing during the past 12 months as a result of rate increases implemented during 2022 and 2023, in addition to an increase in policies in force in 11 states. Premiums earned, net, were favorably impacted by a decrease in reinsurance expenses for the 2023-2024 contract year primarily due to the Insurance Entities' mandatory participation in Florida's RAP program, which allowed insurers to access a layer of reinsurance coverage below the FHCF industry retention at no cost to the insurers. The lower reinsurance costs, effective June 1, 2023, have a favorable effect on financial ratios which are based on net earned premium. For the year ended December 31, 2023, the loss ratio declined to 79.3% from 83.2% in 2022 due to the absence of major hurricane events in 2023 when compared to Hurricane Ian in 2022, offset by higher prior year development in 2023. See 2023 Reinsurance Ratio Benefit noted below. As a result of the above and as further explained below, the combined ratio for the year ended December 31, 2023 was 103.6% compared to 110.2% for the year ended December 31, 2022. See "Overview-Trends and Geographical Distribution-Florida Trends" regarding our response to the Florida market.
A detailed discussion of our results of operations follows the table below (in thousands, except per share data).
Years Ended December 31, Change
2023 2022 $ %
REVENUES
Direct premiums written $ 1,921,833 $ 1,845,786 $ 76,047 4.1 %
Change in unearned premium (46,704) (86,085) 39,381 (45.7) %
Direct premium earned 1,875,129 1,759,701 115,428 6.6 %
Ceded premium earned (623,193) (631,075) 7,882 (1.2) %
Premiums earned, net 1,251,936 1,128,626 123,310 10.9 %
Net investment income 48,449 25,785 22,664 87.9 %
Net realized gains (losses) on investments (1,229) 348 (1,577) NM
Net change in unrealized gains (losses) on investments
12,046 (13,145) 25,191 NM
Commission revenue 54,058 53,168 890 1.7 %
Policy fees 18,881 20,182 (1,301) (6.4) %
Other revenue 7,441 7,694 (253) (3.3) %
Total revenues 1,391,582 1,222,658 168,924 13.8 %
OPERATING COSTS AND EXPENSES
Losses and loss adjustment expenses 992,636 938,399 54,237 5.8 %
General and administrative expenses 304,066 304,897 (831) (0.3) %
Total operating costs and expenses 1,296,702 1,243,296 53,406 4.3 %
Interest and amortization of debt issuance costs 6,531 6,609 (78) (1.2) %
INCOME (LOSS) BEFORE INCOME TAX EXPENSE (BENEFIT)
88,349 (27,247) 115,596 NM
Income tax expense (benefit)
21,526 (4,990) 26,516 NM
NET INCOME (LOSS) $ 66,823 $ (22,257) $ 89,080 NM
Other comprehensive income (loss), net of taxes 29,610 (88,214) 117,824 NM
COMPREHENSIVE INCOME (LOSS) $ 96,433 $ (110,471) $ 206,904 NM
DILUTED EARNINGS PER SHARE DATA:
Diluted earnings per common share $ 2.22 $ (0.72) $ 2.94 NM
Weighted average diluted common shares outstanding 30,147 30,751 (604) (2.0) %
NM - Not Meaningful
Revenues
Direct premiums written increased by $76.0 million, or 4.1%, for the year ended December 31, 2023, driven by premium growth within our Florida business of $27.1 million, or 1.8%, and premium growth in our other states business of $49.0 million, or 15.9%, as compared to the prior year. Rate increases approved in 2022 and 2023 for Florida and for certain other states and policy inflation adjustments were the principal driver of higher written premiums, in addition to an increase in policies in force in 11 other states. In total, policies in force declined 38,924, or 4.6%, from 848,856 at December 31, 2022 to 809,932 at December 31, 2023. A summary of the recent rate increases which are driving increases in written premium is discussed above under "Overview-Trends and Geographical Distribution-Florida Trends."
Rate changes are applied on new business submissions and renewals from the effective date of their renewal, and then are earned subsequently over the policy period. The recent rate and inflation increases in Florida are in response to rising claim costs driven by higher costs of material and labor associated with claims, the cost of weather events, the rising cost of catastrophe and other reinsurance protecting policyholders and, more importantly, the impact of an increased cost and use of litigation by policyholders on claims as claim settlements increasingly have involved inflated demands, representation, and litigation. In addition, the Insurance Entities' policies provide for coverage limits to be adjusted at renewal to adjust insured value coverage limits for the impact of changes in inflation. This is based on third-party industry data sources that monitor inflation factors such as changes in costs for residential building materials and labor.
During 2023, management continued efforts to tactically manage policy counts and exposures intended to slow the growth of exposures relating to new business compared to prior years while filed rate increases are taking effect. The impact of policy reductions through attrition attributable to selective underwriting, together with selected policy non-renewals, have resulted in a decrease in policies in force of 38,924, or 4.6%, during 2023 from 848,856 at December 31, 2022 to 809,932 at December 31, 2023. Direct premiums written continue to increase across the majority of states in which we conduct business. As a result of our business strategy, rate changes and disciplined underwriting initiatives, we have seen an overall decrease in policies in force in the aggregate, but an increase in premium in force, and an increase in total insured value in a majority of states for the past two years. We actively wrote policies in 18 states during 2023 and 19 states during 2022. In addition, we are authorized to do business in Tennessee and Wisconsin. In 2023, UPCIC filed with its regulators in Hawaii to withdraw from the state, with the withdrawal and nonrenewal of policies expected to be completed within the next year. At December 31, 2023, policies in force decreased by 38,924 policies, or 4.6%, premium in force increased $78.0 million, or 4.2%, and total insured value increased $1.2 billion, or 0.4%, compared to December 31, 2022.
Direct premium earned increased by $115.4 million, or 6.6%, for the year ended December 31, 2023, reflecting the earning of premiums written over the past 12 months, including the benefit of rate changes due to primary rate filings, filings to cover increased reinsurance costs as well as policy premium adjustments due to increases in insured values caused by inflation.
Reinsurance
Reinsurance enables our Insurance Entities to limit potential exposures to catastrophic events and other covered events. Ceded premium represents premiums paid to reinsurers for this protection and is a cost which reduces net written and net earned premiums. Hurricane Ian triggered reinstatement premiums, increasing ceded premiums written by $24.6 million which were earned prospectively effective September 28, 2022 to May 31, 2023, increasing ceded premiums earned for the year ended December 31, 2023 by $15.0 million, in addition to $2.2 million of reinstatement premiums in December 2023 which were also attributable to Hurricane Ian, and which were earned immediately. In total, ceded premium earned decreased $7.9 million, or 1.2%, for the year ended December 31, 2023 as compared to the same period of the prior year. The decrease in reinsurance cost reflects several factors, including the Insurance Entities' mandatory participation in the RAP program for the 2023/2024 reinsurance program, which allowed insurers to access a layer of reinsurance coverage that is below the FHCF industry retention at no cost to the insurer. In exchange, the Insurance Entities adopted a 1.4% one-year rate reduction. Also benefiting the year were lower reinstatement premiums in the second half of the year. Reinsurance costs, as a percentage of direct premium earned, decreased from 35.9% in 2022 to 33.2% in 2023. Reinsurance costs associated with each year's reinsurance program are earned over the annual policy period which typically runs from June 1stto May 31st. See the discussion above for the Insurance Entities' 2022-2023 reinsurance programs and "Part II-Item 8- Note 4 (Reinsurance)."
2023 Reinsurance Ratio Benefit
Costs for the 2023 reinsurance was lower than 2022 because of Florida's RAP program in the 2023-2024 reinsurance program. This is a one time, no cost reinsurance benefit to the Insurance Entities which in exchange provided a rate decrease to policyholders of approximately 1.4%. The lower reinsurance costs, effective June 1 2023, have a favorable effect on financial ratios which are based on net earned premium.
Premiums earned, net of ceded premium earned, grew by 10.9%, or $123.3 million, to $1.25 billion for the year ended December 31, 2023, reflecting an increase in direct premium earned and decreased costs for reinsurance.
Investment Results
Net investment income was $48.4 million for the year ended December 31, 2023, compared to $25.8 million for the same period in 2022, an increase of $22.7 million, or 87.9%. Invested cash balances along with liquidity generated by our investment portfolio from maturities, principal repayments, and interest payments received were invested in higher rates, resulting in an increase in investment returns on our portfolio and cash balances.
We look to optimize our investment portfolio on a rolling basis, which, from time-to-time, results in portfolio shaping opportunities. During the year ended December 31, 2023, sales of available-for-sale debt securities and sales of equity securities resulted in a net realized loss of $1.2 million.
There was a $12.0 million net unrealized gain on investments during the year ended December 31, 2023, largely driven by our portfolio optimization efforts in the private and public equity markets, coupled with the overall domestic equity market appreciation tailwind during 2023, compared to a $13.1 million net unrealized loss on investments during the year ended December 31, 2022.
Total invested assets were $1.16 billion as of December 31, 2023 compared to $1.1 billion as of December 31, 2022. The increase is primarily attributable to unrealized gains on our fixed income and equity portfolio, and increases in net investment income. Cash and cash equivalents were $397.3 million at December 31, 2023 compared to $388.7 million at December 31, 2022, an increase of 2.2%. See below"-Analysis of Financial Condition"for more information. Cash and cash equivalents are invested short-term until needed to settle loss and LAE payments, reinsurance premium payments, and operating cash needs or until they are deployed by our investment advisors.
Commissions, Policy Fees and Other Revenue
Commission revenue is comprised principally of brokerage commissions we earn from traditional open market third-party reinsurers, which excludes reinsurance provided by the State of Florida as well as catastrophe bond participants. Commission revenue is earned pro-rata over the reinsurance policy period which runs from June 1stto May 31stof the following year. For the year ended December 31, 2023, commission revenue was $54.1 million, compared to $53.2 million for the year ended December 31, 2022. The increase in commission revenue of $0.9 million, or 1.7%, for the year ended December 31, 2023 was primarily due to reinstatement premiums attributable to Hurricane Ian which were earned through May 31, 2023, or the conclusion of the 2022-2023 reinsurance contract period.
Policy fees for the year ended December 31, 2023 were $18.9 million compared to $20.2 million for the same period in 2022. The decrease of $1.3 million, or 6.4%, was the result of a decrease in the combined total number of new and renewal policies written during the year ended December 31, 2023 compared to the same period in 2022 in states where we are permitted to charge this fee.
Other revenue, representing revenue from policy installment fees, premium financing, and other miscellaneous income, was $7.4 million for the year ended December 31, 2023 compared to $7.7 million for the same period in 2022.
Non-GAAP
Core revenue, representing total GAAP revenue, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, was $1.38 billion for the year ended December 31, 2023 compared to $1.24 billion for the same period in 2022.
Operating Costs and Expenses
Losses and Loss Adjustment Expenses
Losses and LAE experience over the past several years including both 2023 and 2022, reflects an adverse litigation environment and other market conditions in Florida that the Florida Legislature has been attempting to address with the passage of legislation spanning several years with the most significant changes made during a special session held in December 2022.
Losses and LAE, net of reinsurance recoveries was $992.6 million for the year ended December 31, 2023, resulting in a net loss ratio of 79.3%, compared to $938.4 million, and 83.2%, respectively, for the year ended December 31, 2022. For the year ended December 31, 2023, the decline in loss ratio was primarily due to the absence of major hurricane events in 2023, in contrast to 2022 which saw Hurricane Ian make landfall on Florida's gulf coast, offset by higher prior year development in 2023. See 2023 Reinsurance Ratio Benefit noted above.
Prior year development includes changes in previous estimates for unpaid Losses and LAE for all events occurring in prior years including hurricanes, other weather, and non-weather claims affected by pre-reform market conditions in Florida as well as changes in prior estimates resulting from the evaluation of claims in anticipation of the commutation of Hurricane Irma losses with the FHCF. In recent years, we have strengthened reserves as a result of adverse development due to Florida homeowners, tenants and condo owners coverages arising from non-weather and weather events. Similar to other carriers operating in the Florida homeowners marketplace, we have experienced deterioration in water and hurricane claims due to an unfavorable claims environment characterized by increases in policyholder demands related to roof repairs and significant attorney representation. In 2023, adverse development was due to represented and litigated claims, and Florida weather claims for accident years 2017 and later. One of management's objectives in 2023 was to strengthen reserves on those prior period claims which do not benefit from the new legislation signed in late 2022 that eliminated the one-way attorneys' fee statute and assignments of benefits and made other reforms intended to improve the Florida market. Prior year development was $110.6 million, or 8.8 net loss ratio points for the year ended December 31, 2023, compared to $25.0 million for 2022, or 2.2 net loss ratio points. We continue to see adverse claim trends on Florida losses which occurred prior to the effective date of recent legislation (December 16, 2022) introduced in Florida, which was intended to curtail the impact of certain abusive claims
We believe the legislation passed in late 2022 represents a positive step towards reducing claim costs in Florida and management is optimistic about its eventual benefits. However, the full transition to these new laws will take many years. Many of the reforms apply only prospectively and provide only marginal benefit for claims filed prior to the new laws' effective date. The transition to the new laws therefore involves first renewing policies during the year following the effective date, such that the policies, and subsequent claims under those policies, are governed by the new requirements. As for prior policy periods, insurers must continue to adjust claims under the prior laws that were subject to abuse while awaiting the expiration of claim reporting periods and statute of limitations periods applicable to those policies. Therefore, it will be several years until the abusive claim practices permitted under the prior laws, including those resulting from requiring insurance companies to pay claimants' litigation costs, are fully extinguished and the full benefit of the new legislation can be realized. See "Overview-Trends and Geographical Distribution-Florida Trends."
Excluding prior year development recorded in 2023, for prior accident years, all other losses and LAE, net for the current accident year are estimated to be $882.1 million or 70.5 net loss ratio points for the year ended December 31, 2023, compared to $802.4 million, or 71.1 net loss ratio points in 2022. See 2023 ratio benefit noted above. This category also reflects savings from activities performed by affiliates within our holding company system on behalf of our Insurance Entities and our reinsurers when losses and LAE are ceded under our reinsurance contracts. When claims are adjusted by our claims team and files handled by our legal group in this litigious environment in Florida, there are synergies achieved by having these two functions within the same consolidated group that could not be achieved through third parties. This synergistic relationship results in more efficient handling and coordination of claims including represented claims handled by our legal group of close to 500 employees. By choosing not to outsource these activities, we also save money for the consolidated group by generating a potential financial benefit outside of the Insurance Entities that serves to reduce LAE at the consolidated level (contra LAE). During 2023 these claims related activities generated a financial benefit of $50.4 million compared to $62.4 million during 2022.
General and Administrative Expenses
For the year ended December 31, 2023, general and administrative expenses were $304.1 million, compared to $304.9 million during the same period in 2022, as follows (dollars in thousands):
For the Years Ended December 31, Change
2023 2022 $ %
$ Ratio $ Ratio
Premiums earned, net $ 1,251,936 $ 1,128,626 $ 123,310 10.9 %
General and administrative expenses:
Policy acquisition costs 208,011 16.6 % 214,259 19.0 % (6,248) (2.9) %
Other operating costs 96,055 7.7 % 90,638 8.0 % 5,417 6.0 %
Total general and administrative expenses $ 304,066 24.3 % $ 304,897 27.0 % $ (831) (0.3) %
General and administrative expenses decreased by $0.8 million, which was the result of decreases in policy acquisition costs of $6.2 million offset by an increase in other operating costs of $5.4 million. The total general and administrative expense ratio was 24.3% for the year ended December 31, 2023 compared to 27.0% for the year ended December 31, 2022.
•The decrease in policy acquisition costs of $6.2 million was primarily attributable to an increase in reinsurance profit commissions which were received as a result of commutations with reinsurers concluded during the year and lower total commissions expense for the year offset by slightly higher premium taxes.
•The increase in other operating costs of $5.4 million primarily reflects an increase in salaries, performance bonuses, and stock based compensation and an increase in other miscellaneous operating expenses. The other operating cost ratio was 7.7% for the year ended December 31, 2023 compared to 8.0% in the year ended December 31, 2022. This reduction primarily reflects the increase in premiums earned, net for the year.
As a result of the above, the combined ratio for the year ended December 31, 2023 was 103.6% compared to 110.2%for the same period in 2022. The decrease was due to the absence of a hurricane in the current year compared to Hurricane Ian in 2022, in addition to an increase in premiums earned, net, offset by higher prior year development.
Interest and Amortization of Debt Issuance Costs
Interest and amortization of debt issuance costs for the year ended December 31, 2023was $6.5 millioncompared to $6.6 millionfor the same period in 2022.
Income Tax Expense (Benefit)
Income tax expense was $21.5 millionfor the year ended December 31, 2023, compared to income tax benefit of $5.0 million or the year ended December 31, 2022. Our effective tax rate ("ETR") increased to 24.4% for the year ended December 31,
2023, as compared to 18.3% for the year ended December 31, 2022. See "Part II-Item 8-Note 12 (Income Taxes)" for a table of items reconciling statutory rates to the effective rate for years 2023 and 2022.
Other Comprehensive Income (Loss)
Other comprehensive income, net of taxes for the year ended December 31, 2023 was $29.6 million compared to other comprehensive loss of $88.2 million for the same period in 2022, reflecting after-tax changes in fair value of available-for-sale debt securities held in our investment portfolio and reclassifications out of accumulated other comprehensive income for available-for-sale debt securities sold. The improvement in 2023 reflects investment actions and relative stability in market prices during 2023 compared to 2022. During 2023, maturing securities and investment returns were reinvested at market rates, reducing unrealized losses on maturing securities. The maturity of the remaining securities in an unrealized loss position has also reduced during the year. Over time, unrealized losses on securities in an unrealized loss position lessens as the remaining maturity shortens and securities approach their maturity or par value. See discussion above and "Part II-Item 8-Note 14 (Other Comprehensive Income (Loss))" for additional information about the amounts comprising other comprehensive income (loss), net of taxes for these periods.
Non-GAAP
Adjusted operating income (loss) represents GAAP operating income (loss), excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments. Adjusted operating income was $84.1 million for the year ended December 31, 2023 compared to adjusted operating income of $7.8 million for the same period in 2022.
Adjusted operating income (loss) margin represents adjusted operating income (loss) divided by core revenue. Adjusted operating income margin was 6.1% for the year ended December 31, 2023 compared to adjusted operating loss margin of 0.6% for the same period in 2022.
Adjusted net income (loss) attributable to common stockholders represents GAAP net income (loss) attributable to common stockholders, excluding net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, net of tax. Adjusted net income attributable to common stockholders was $58.7 million for the year ended December 31, 2023 compared to adjusted net loss attributable to common stockholders of $12.6 million for the same period in 2022.
Diluted adjusted earnings (loss) per common share represents adjusted net income (loss) available to common stockholders divided by weighted average diluted common shares outstanding. Diluted adjusted income per common share was $1.95 for the year ended December 31, 2023 compared to diluted adjusted loss per common share of $0.41 for the same period in 2022.
ANALYSIS OF FINANCIAL CONDITION AS OF DECEMBER 31, 2024 COMPARED TO DECEMBER 31, 2023
We believe that the cash flows generated from operations will be sufficient to meet our working capital requirements for at least the next twelve months. We invest amounts considered to be in excess of current working capital requirements.
The following table summarizes, by type, the carrying values of investments as of the dates presented (in thousands):
As of December 31,
Type of Investment 2024 2023
Available-for-sale debt securities $ 1,269,079 $ 1,064,330
Equity securities 77,752 80,495
Other investments, at fair value
16,123 10,434
Investment real estate, net 8,322 5,525
Total $ 1,371,276 $ 1,160,784
Total invested assets were $1.37 billion as of December 31, 2024 compared to $1.16 billion as of December 31, 2023. The increase is primarily attributable to investment of excess cash into the portfolio, unrealized gains on our debt securities and equity portfolios, and increases in net investment income. Cash and cash equivalents were $259.4 million at December 31, 2024 compared to $397.3 million at December 31, 2023, a decrease of 34.7%. See below"-Liquidity and Capital Resources"for more information. Cash and cash equivalents available for investment are invested short-term until needed to settle loss and LAE payments, reinsurance premium payments, and operating cash needs, or until they are deployed by our investment advisors.
See "Part II-Item 8-Consolidated Statements of Cash Flows" and "Item 8-Note 3 (Investments)" for explanations on changes in investments.
Prepaid reinsurance premiums represent the portion of unearned ceded written premium that will be earned pro-rata over the coverage period of our reinsurance program, which runs from June 1stto May 31stof the following year. The increase of $26.5 million to $262.7 million as of December 31, 2024 was primarily due to increased reinsurance costs relating to the placement of our 2024-2025 catastrophe reinsurance program beginning on June 1, 2024, less amortization of ceded written premium for the reinsurance costs earned since the beginning of the new program. See "Part II- Item 7- "Reinsurance Program" regarding the Company's reinsurance placement.
Reinsurance recoverable represents the estimated amount of paid and unpaid losses, LAE, and other expenses that are expected to be recovered from reinsurers. The increase of $408.5 million to $627.6 million as of December 31, 2024 was primarily due to ceded losses from Hurricanes Helene and Milton occurring in 2024, net of the settlement and collection of amounts recoverable from reinsurers relating to various other ceded events.
Premiums receivable, net represents amounts receivable from policyholders. The increase in premiums receivable, net of $0.9 million to $77.9 million as of December 31, 2024 is consistent with premium trends including seasonality and consumer payment behaviors.
Deferred policy acquisition costs ("DPAC") increased by $11.2 million to $121.2 million as of December 31, 2024, and is consistent with written premium trends and changes in commissions paid to agents. See "Item 1-Note 5 (Insurance Operations)" for a roll-forward in the balance of our DPAC.
Income taxes payable/recoverable represents the amounts due to/from taxing jurisdictions within one year. An income tax payable arises when current income tax liabilities exceed tax payments, and an income tax recoverable occurs when tax payments exceed current income tax liabilities. As of December 31, 2024, the balance of income taxes payable was $6.6 million, compared to a balance payable of $5.9 million as of December 31, 2023.
Deferred income taxes represent the estimated tax asset or tax liability caused by temporary differences between the tax return basis of certain assets and liabilities and amounts recorded in the financial statements. During the year ended December 31, 2024, deferred income tax assets, net decreased by $1.0 million to $42.2 million, primarily due to a decrease in unrealized losses on investments. Deferred income taxes reverse in future years as the temporary differences between book and tax reverse.
See "Part II-Item 8-Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)" for a roll-forward in the balance of our unpaid losses and LAE. Unpaid losses and LAE increased by $449.2 million to $959.3 million as of December 31, 2024. The majority of the increase in 2024 was a result of losses recorded in the third and fourth quarters of 2024 for Hurricanes Helene and Milton. Unpaid losses and LAE are net of estimated subrogation recoveries of $69.2 million as of December 31, 2024 compared to $144.1 million as of December 31, 2023.
Unearned premiums represent the portion of direct premiums written that will be earned pro-rata in the future. The increase of $69.9 million from December 31, 2023 to $1.06 billion as of December 31, 2024 reflects our increase in direct premiums written.
Advance premium represents premium payments made by policyholders ahead of the effective date of the policies. The decrease of $2.4 million from December 31, 2023 to $46.2 million as of December 31, 2024 reflects customer payment behavior and the payment behavior of mortgage escrow service providers as well as premium trends.
We exclude net negative cash balances, if any, from cash and cash equivalents that we have with any single financial institution based on aggregating the book balance of all accounts at the institution which have the right of offset. If the aggregation results in a net negative book balance, that balance is reclassified from cash and cash equivalents in our Consolidated Balance Sheet to book overdraft. These amounts represent outstanding checks or drafts not yet presented to the financial institution in excess of amounts on deposit at the financial institutions. We maintain a short-term cash investment strategy sweep to maximize investment returns on cash balances. Funds from these sweep accounts are used to meet obligations under outstanding checks and drafts and transferred to the respective financial institutions upon presentment. There were no book overdrafts as of December 31, 2024, compared to $14.6 million as of December 31, 2023. The decrease of $14.6 million is the result of higher cash balances available for offset as of December 31, 2024 compared to December 31, 2023. See "-Liquidity and Capital Resources" for more information.
Reinsurance payable, net, represents the unpaid reinsurance premium installments owed to reinsurers, unpaid reinstatement premiums due to reinsurers, and cash advances received from reinsurers, if any. On June 1stof each year, we renew our core catastrophe reinsurance program and record the estimated annual cost of our reinsurance program. These estimated annual costs are increased or decreased during the year based on premium adjustments or as a result of new placements during the year. The annual cost initially increases reinsurance payable, which is then reduced as installment payments are made over the policy period of the reinsurance, which typically runs from June 1stto May 31st. The balance increased by $28.5 million to $220.3 million as of December 31, 2024 as a result of the renewal of the 2024-2025 reinsurance program effective June 1, 2024. See "-Liquidity and Capital Resources" for more information about timing of reinsurance premium installment payments.
Other liabilities and accrued expenses decreased by $42.0 million to $48.6 million as of December 31, 2024, primarily driven by a decrease in amounts payable for securities resulting from trades executed that had not settled as of December 31, 2023.
See "-Liquidity and Capital Resources" for more information about the changes in additional paid-in capital during 2024.
Liquidity and Capital Resources
Liquidity
Liquidity is a measure of a company's ability to generate sufficient cash flows to meet its short- and long-term obligations. Funds generated from operations have been sufficient and we expect them to be sufficient to meet our current and long term liquidity requirements.
The balance of cash and cash equivalents, excluding restricted cash, as of December 31, 2024 was $259.4 million, compared to $397.3 million at December 31, 2023. See "Part II-Item 8-Consolidated Statements of Cash Flows" for a reconciliation of the balance of cash and cash equivalents between December 31, 2024 and 2023. This decrease is largely attributable to the investment of excess cash into long-term investments. Our cash investment strategy at times includes cash investments where the right of offset against other bank accounts does not exist. A book overdraft occurs when aggregating the book balance of all accounts at a financial institution for accounts which have the right of offset, and if the aggregation results in a net negative book balance, that balance is reclassified from cash and cash equivalents in our Consolidated Balance Sheet to book overdraft. Cash and cash equivalents balances are available to settle book overdrafts, and to pay reinsurance premiums, expenses and claims. Reinsurance premiums are paid in installments during the reinsurance policy period, which runs from June 1stto May 31stof the following year. The FHCF reimbursement premiums are paid in three installments on August 1st, October 1stand December 1st, and third-party reinsurance premiums are generally paid in four installments on July 1st, October 1st, January 1stand April 1st, resulting in significant payments at those times. See "Part II-Item 8-Note 15 (Commitments and Contingencies)" and additional discussion below under the caption "-Material Cash Requirements" for more information.
During 2024, there were two significant hurricanes, Hurricane Helene and Milton, which exceeded the Company's reinsurance attachment point. During 2023, there was one significant hurricane, Hurricane Idalia, which was below the Company's reinsurance attachment point. The Company's reinsurance program provides sufficient liquidity in the form of cash advances for paid losses ceded to the reinsurers in the case of weather events with losses above the Company's reinsurance attachment point. See "-Results of Operations" for more information.
The balance of restricted cash and cash equivalents as of December 31, 2024 and 2023 represents cash equivalents on deposit with certain regulatory agencies in the various states in which our Insurance Entities do business.
Liquidity is required at the holding company for us to cover the payment of holding company general operating expenses, provide for contingencies if needed, dividends to shareholders (if and when authorized and declared by our Board of Directors), payment for the possible repurchase of our common stock (if and when authorized by our Board of Directors), payment of our tax obligations to taxing authorities, settlement of taxes between subsidiaries in accordance with our tax sharing agreement, capital contributions to subsidiaries or surplus note contributions to the Insurance Entities, if needed, and interest and principal payments on outstanding debt obligations of the holding company. Effective in 2021 for UPCIC and 2022 for APPCIC, the holding company has put in place an ongoing surplus note arrangement with the Insurance Entities, which has been approved by the FLOIR as the Insurance Entities' domestic regulator. Surplus notes are unsecured debt issued by the Insurance Entities that are subordinated to all claims by policyholders and creditors, with interest and principal payments on the surplus notes to the holding company being made only upon the FLOIR's express approval. Surplus notes are considered bonds in function and
payout structure, but are accounted for as equity in the statutory reporting of the Insurance Entities. The holding company has outstanding with the Insurance Entities $134.0 million in surplus notes and accrued interest as of December 31, 2024. Under the terms of the surplus notes, interest accrues at a variable rate which resets annually (currently 10.70% for 2024) on the outstanding surplus note balances and, if approved by the FLOIR, is payable annually to the holding company. The declaration and payment of future dividends to our shareholders, and any future repurchases of our common stock, will be at the discretion of our Board of Directors and will depend upon many factors, including our operating results, financial condition, debt covenants and any regulatory constraints. New regulations or changes to existing regulations or their interpretations imposed on the Company and its affiliates may also impact the availability, amount and timing of future dividend payments to the parent. Principal sources of liquidity for the holding company include dividends paid by our service entities generated from income earned on fees paid by the Insurance Entities to affiliated companies for general agency, inspections and claims adjusting services. Dividends are also paid from income earned from brokerage commissions paid by third-party reinsurers earned on reinsurance contracts placed by our wholly-owned subsidiary, BARC and policy fees charged to policyholders. We also maintain high quality investments in our portfolio as a source of liquidity along with ongoing interest and dividend income from those investments. As discussed in "Part II-Item 8-Note 5 (Insurance Operations)," there are limitations on the dividends the Insurance Entities may pay to their immediate parent company, Protection Solutions, Inc. ("PSI," formerly known as Universal Insurance Holding Company of Florida).
The maximum amount of dividends that can be paid by Florida insurance companies without prior approval of the FLOIR is subject to restrictions as referenced below and in "Part II-Item 8-Note 5 (Insurance Operations)." Dividends from the Insurance Entities can only be paid from accumulated unassigned funds derived from net operating profits and net realized capital gains. Subject to such accumulated unassigned funds, the maximum dividend that may be paid by the Insurance Entities to PSI without prior approval (an "ordinary dividend") is further limited to the lesser of statutory net income from operations of the preceding calendar year or statutory unassigned surplus as of the preceding year end. During the years ended December 31, 2024 and 2023 the Insurance Entities did not pay dividends to PSI. As of December 31, 2024, the Insurance Entities did not have the capacity to pay ordinary dividends.
On November 23, 2021, we issued $100.0 millionof 5.625%Senior Unsecured Notes due 2026. We used the net proceeds to support the Insurance Entities' statutory capital requirements and for general corporate purposes. If necessary, the Company also has amounts available under our unsecured revolving loan as discussed in "Part II-Item 8-Note 7 (Long-term debt)."
Liquidity for the Insurance Entities is primarily required to cover payments for reinsurance premiums, claims payments including potential payments of catastrophe losses (offset by recovery of any reimbursement amounts under our reinsurance agreements), fees paid to affiliates for managing general agency services, inspections and claims adjusting services, agent commissions, premium and income taxes, regulatory assessments, general operating expenses, and interest and principal payments on debt obligations. The principal source of liquidity for the Insurance Entities consists of the revenue generated from the collection of premiums earned, net, interest and dividend income from the investment portfolio, the collection of reinsurance recoverable and financing fees.
Our insurance operations provide liquidity as premiums are generally received months or even years before potential losses are paid under the policies written. In the event of catastrophic events, many of our reinsurance agreements provide for "cash advance" whereby reinsurers advance or prepay amounts to us, thereby providing liquidity, which we utilize in the claim settlement process. In addition, the Insurance Entities maintain substantial investments in highly liquid, marketable securities, which would generate funds upon sale. The average credit rating on our available-for-sale securities was A+ as of December 31, 2024 and December 31, 2023. Credit ratings are a measure of collection risk on invested assets. Credit ratings are provided by third party nationally recognized rating agencies and are periodically updated. Management establishes guidelines for minimum credit rating and overall credit rating for all investments. The duration of our available-for-sale securities was 3.4 years as of December 31, 2024 compared to 3.7 years at December 31, 2023. Duration is a measure of a bond's sensitivity to interest rate changes and is used by management to limit the potential impact of longer-term investments.
The Insurance Entities are responsible for losses related to catastrophic events in excess of coverage provided by the Insurance Entities' reinsurance programs and retentions before our reinsurance protection commences. Also, the Insurance Entities are responsible for all other losses that otherwise may not be covered by the reinsurance programs and any amounts arising in the event of a reinsurer default. Losses or a default by reinsurers may have a material adverse effect on either of the Insurance Entities or on our business, financial condition, results of operations and liquidity. See "Part II-Item 8-Note 3 (Investments)" for more information.
Capital Resources
Capital resources provide protection for policyholders, furnish the financial strength to support the business of underwriting insurance risks and facilitate continued business growth. The following table provides our stockholders' equity, total long-term debt, total capital resources, debt-to-total capital ratio and debt-to-equity ratio as of the dates presented (dollars in thousands):
As of December 31,
2024 2023
Stockholders' equity $ 373,250 $ 341,297
Total long-term debt 101,243 102,006
Total capital resources $ 474,493 $ 443,303
Debt-to-total capital ratio 21.3 % 23.0 %
Debt-to-equity ratio 27.1 % 29.9 %
Capital resources, net increased by $31.2 million for the year ended December 31, 2024, reflecting a net increase in total stockholders' equity, partially offset by a decline in long-term debt. The change in stockholders' equity was the result of our 2024 net income offset by treasury share purchases and dividends to shareholders. See "Part II-Item 8-Consolidated Statements of Stockholders' Equity" and "Part II-Item 8-Note 8 (Stockholders' Equity)" for an explanation of changes in treasury stock. The reduction during 2024 in long-term debt was primarily the result of principal payments on long-term debt of $1.5 million offset by amortization of debt issuance costs of $0.7 million on our 5.625%Senior Unsecured Notes due 2026. See "-Liquidity and Capital Resources" for more information.
Additional paid-in-capital increased by $6.7 million primarily from increases in share-based compensation expense of $8.6 million for the year ended December 31, 2024. This was largely offset by common stock value acquired and cancelled through tax withholdings on the intrinsic value of restricted stock units vested for share-based payment transaction of $1.5 million and $0.5 million in connection with the settlement of certain restricted stock units.
The debt-to-total capital ratio is total long-term debt divided by total capital resources, whereas the debt-to-equity ratio is total long-term debt divided by stockholders' equity. These ratios help management measure the amount of financing leverage in place in relation to equity and future leverage capacity.
Risk-Based Capital Requirements
The Insurance Entities are required annually to comply with the NAIC 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, 2024, based on calculations using the appropriate NAIC RBC formula, the Insurance Entities reported respective total adjusted capital in excess of the requirements. Failure by the Insurance Entities to maintain the required level of statutory capital and surplus could result in the suspension of their authority to write new or renewal business, other regulatory actions, or ultimately, in the revocation of their certificate of authority by the FLOIR.
Non-GAAP
Adjusted common stockholders' equity, representing GAAP common stockholders' equity, excluding accumulated other comprehensive income (loss), was $436.3 million as of December 31, 2024 and $415.4 million as of December 31, 2023.
Adjusted book value per common share, representing adjusted common stockholders' equity divided by outstanding common shares at the end of the reporting period, was $15.53 as of December 31, 2024 and $14.34 as of December 31, 2023.
Adjusted return on common equity representing actual or annualized adjusted net income (loss) attributable to common stockholders divided by average adjusted common stockholders' equity, with the denominator excluding current period income statement after-tax net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments, net of tax, was 12.4% as of December 31, 2024 and 14.7% as of December 31, 2023.
Revolving Loan
As discussed in "Part II-Item 8-Note 7 (Long-term Debt)," the Company entered into a committed and unsecured $50.0 million revolving credit line with JP Morgan Chase Bank, N.A. This agreement succeeded the previous $40.0 million revolving credit line with J.P. Morgan Chase, N.A. As of December 31, 2024, the Company has not borrowed any amount under this revolving loan.The Company must pay an annual commitment of 0.50% of the unused portion of the commitment. Borrowings mature on May 30, 2025, 364 days after the inception date and carries an interest rate of prime rate plus a margin of 2.00% on borrowings. The credit line is subject to annual renewals. The credit line contains customary financial and other covenants, with which the Company is in compliance.
Long-term Debt
In November 2021, we issued and sold $100 million of 5.625% Senior Unsecured Notes due 2026 (the "Notes") to certain institutional accredited investors and qualified institutional buyers. The Notes mature on November 30, 2026, at which time the entire $100 million of principal is due and payable. At any time on or after November 30, 2023, the Company may redeem all or part of the Notes. See "Part II-Item 8-Note 7 (Long-term debt)" for additional details. As of December 31, 2024, we were in compliance with all applicable covenants.
We will also continue to evaluate opportunities to access the debt capital markets to raise additional capital. We anticipate any proceeds would be used for general corporate purposes, including investing in the capital and surplus of the Insurance Entities.
In addition to the funds liquidity generated from our operations, we maintain a prudent investment portfolio, mainly consisting of high-grade fixed income securities. Our primary goal is to safeguard capital and ensure sufficient liquidity for potential claims and other financial requirements. The portfolio also aims to achieve a comprehensive return, with a focus on investment income. Our operations have historically produced a steady flow of funds, contributing to the growth of our cash and investments. We have never needed to sell off investments to support our operations or finance activities.
In 2006, UPCIC entered into a $25.0 million surplus note with the State Board of Administration of Florida (the "SBA") under Florida's Insurance Capital Build-Up Incentive Program (the "ICBUI"). The surplus note has a twenty-year term, with quarterly payments of interest based on the 10-year Constant Maturity Treasury Index. As of December 31, 2024, UPCIC's net written premium to surplus ratio and gross written premium to surplus ratio were in excess of the required minimums and, therefore, UPCIC is not subject to increases in interest rates. See "Part II-Item 8-Note 7 (Long-term debt)" for additional details. At December 31, 2024, UPCIC was in compliance with the terms of the surplus note and with each of the loan's covenants as implemented by rules promulgated by the SBA. Total adjusted capital and surplus, which includes the surplus note, was in excess of regulatory requirements for both UPCIC and APPCIC.
Looking Forward
We continue to monitor a range of financial metrics related to our business. Although we have not experienced material adverse impacts on our business or liquidity, conditions are subject to change depending on the extent of the economic outcomes, and the pace and extent of an economic recovery. See "Overview-Trends and Geographical Distribution-Florida Trends" regarding our response to the Florida market.
Common Stock Repurchases
We may repurchase shares from time to time at our discretion, based on ongoing assessments of our capital needs, the market price of our common stock, and general market conditions. We will fund the share repurchase program with cash from operations. During 2024, there were two authorized repurchase plans in effect:
•On June 12, 2023, our Board of Directors authorized the repurchase of up to $20.0 million of our common stock through June 10, 2025 (the "June 2025 Share Repurchase Program") pursuant to which we repurchased 1,320,675 shares of our common stock at an aggregate cost of approximately $20.0 million. As of December 31, 2024, we have repurchased all authorized common stock under the June 2025 Share Repurchase Program.
•On March 11, 2024, our Board of Directors authorized the repurchase of up to $20.0 million of our common stock through March 11, 2026 (the "March 2026 Share Repurchase Program") pursuant to which we repurchased 871,427 shares of our common stock at an aggregate cost of approximately $17.4 million. As of December 31, 2024, we have the ability to purchase up to approximately $2.6 million of our common stock under the March 2026 Share Repurchase Program.
In total, during the year ended December 31, 2024, we repurchased an aggregate of 1,079,149 shares of our common stock in the open market at an aggregate purchase price of $21.5 million. Also see "Part II-Item 5-Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Registrant Purchases of Equity Securities" for share repurchase activity during the three months ended December 31, 2024.
Cash Dividends
The following table summarizes the dividends declared and paid by the Company during the year ended December 31, 2024:
Dividend Shareholders Dividend Cash Dividend
2024 Declared Date Record Date Payable Date Per Share Amount
First Quarter February 8, 2024 March 8, 2024 March 15, 2024 $ 0.16
Second Quarter April 10, 2024 May 10, 2024 May 17, 2024 $ 0.16
Third Quarter July 11, 2024 August 2, 2024 August 9, 2024 $ 0.16
Fourth Quarter November 6, 2024 December 6, 2024 December 13, 2024 $ 0.29
Reinsurance Recoverable
The following table provides total unpaid loss and LAE, net of related reinsurance recoverable for the dates presented (in thousands):
Years Ended December 31,
2024 2023
Unpaid loss and LAE, net $ 28,115 $ 44,508
IBNR loss and LAE, net 369,240 282,174
Total unpaid loss and LAE, net $ 397,355 $ 326,682
Reinsurance recoverable on unpaid loss and LAE $ 97,250 $ 49,250
Reinsurance recoverable on IBNR loss and LAE 464,686 134,185
Total reinsurance recoverable on unpaid loss and LAE $ 561,936 $ 183,435
Statutory Loss Ratios
Underwriting results of insurance companies are frequently measured by their combined ratios, which is the sum of the loss and expense ratios described in the following paragraph. However, investment income, federal income taxes and other non-underwriting income or expense are not reflected in the combined ratio. The profitability of property and casualty insurance companies depends on income from underwriting, investment and service operations. Underwriting results are considered profitable when the combined ratio is under 100% and unprofitable when the combined ratio is over 100%.
The following table provides the statutory loss ratios, expense ratios and combined ratios for the periods indicated for the Insurance Entities:
Years Ended December 31,
2024 2023
Loss and LAE Ratio (1)
UPCIC 78 % 86 %
APPCIC 60 % 58 %
Expense Ratio (1)
UPCIC 24 % 25 %
APPCIC 38 % 33 %
Combined Ratio (1)
UPCIC 102 % 111 %
APPCIC 98 % 91 %
(1)The ratios are net of ceded premiums and losses and LAE, including premiums ceded to our catastrophe reinsurers which comprise a significant cost, and losses and LAE ceded to reinsurers. The expense ratio includes management fees and commissions, which are based on market rates, paid to an affiliate of the Insurance Entities in the amount of $55.8 million and $86.8 million for UPCIC for the years ended December 31, 2024 and 2023, respectively, and $2.8 million for APPCIC for each of the years ended December 31, 2024 and 2023, respectively. The management fees and commissions paid to the affiliate are eliminated in consolidation.
Ratings
The Insurance Entities' financial strength and stability are rated by certain independent insurance rating agencies to measure the Insurance Entities' ability to meet their financial obligations to its policyholders. For the Insurance Entities' policies to be considered acceptable to the secondary mortgage market, the Insurance Entities must maintain a specified rating level with at least one independent insurance rating agency recognized by each of the Federal Home Loan Mortgage Corporation ("Freddie Mac") and the Federal National Mortgage Association ("Fannie Mae") or alternatively must qualify for an exception to the rating requirement. The Insurance Entities currently maintain acceptable ratings from two rating agencies recognized by Freddie Mac and Fannie Mae.
In 2024, Demotech, Inc. affirmed the Financial Stability Rating® of "A" for the Insurance Entities and Kroll affirmed its insurer financial strength ratings of "A-". According to Demotech, Inc., the assigned rating represents a company's continued positive surplus related to policyholders, liquidity of invested assets, an acceptable level of financial leverage, reasonable loss and LAE reserves, and realistic pricing. According to Kroll, its category of "A" ratings, inclusive of A+, A, and A- ratings, indicates an insurer's financial condition is strong and it is very likely to meet its policy obligations under difficult economic,
financial, and business conditions. The ratings of the Insurance Entities are subject to at least annual review by the respective rating agencies, and may be revised upward or downward or revoked at the sole discretion of the rating agencies. Insurer financial stability or financial strength ratings primarily directed towards policyholders, and are not evaluations directed toward the protection of investors in a company, including holders of a company's common stock, and are not recommendations to buy, sell, or hold securities.
The "A" rating on the 5.625% Senior Unsecured Notes due 2026 was reaffirmed by Egan-Jones Ratings Company in 2024. There are three notches in the rating categories assigned by Egan-Jones Ratings Company (e.g., A-, A, and A+), except for AAA and those deep into speculative grade, i.e., CC, C, and D, which do not have notches. According to Egan-Jones Ratings Company, the assigned rating pertains solely to their view of current and prospective credit quality. Their rating does not address pricing, liquidity, or other risks associated with holding investments in the issuer (UVE). Their rating is dependent on numerous factors including the reliability, accuracy, and quality of the data used in determining the credit rating.
Off-Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that are reasonably likely to have a material effect on the financial condition, results of operations, liquidity, or capital resources of the Company, except for multi-year reinsurance contract commitments for future years that will be recorded at the commencement of the coverage period. See "Part II-Item 8-Note 15 (Commitments and Contingencies)" for more information.
MATERIAL CASH REQUIREMENTS
The following table represents our material cash requirements for which cash flows are fixed or determinable as of December 31, 2024 (in thousands):
Total Next 12 months Beyond 12 months
Reinsurance payable and multi-year commitments (1) $ 475,438 $ 294,668 $ 180,770
Unpaid losses and LAE, direct (2) 959,291 579,412 379,879
Long-term debt (3) 113,934 7,182 106,752
Total material cash requirements $ 1,548,663 $ 881,262 $ 667,401
(1)The amount represents the payment of reinsurance premiums payable under multi-year commitments. See "Part II-Item 8-Note 15 (Commitments and Contingencies)."
(2)There are generally no notional or stated amounts related to unpaid losses and LAE. Both the amounts and timing of future loss and LAE payments are estimates and subject to the inherent variability of legal and market conditions affecting the obligations and make the timing of cash outflows uncertain. The ultimate amount and timing of unpaid losses and LAE could differ materially from the amounts in the table above. Further, the unpaid losses and LAE do not represent all the obligations that will arise under the contracts, but rather only the estimated liability incurred through December 31, 2024. Unpaid losses and LAE are net of estimated subrogation recoveries. In addition, these balances exclude amounts recoverable from our reinsurance program. See "Part II-Item 8-Note 4 (Reinsurance)." and Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)."
(3)Long-term debt consists of a Surplus note and 5.625% Senior Unsecured Notes. See "Part II-Item 8-Note 7 (Long-term debt)."
IMPACT OF INFLATION AND CHANGING PRICES
Our financial statements, prepared under GAAP report historical dollar values and do not adjust for inflation. Our performance is influenced by both interest rates and inflation. We try to anticipate inflation when setting insurance premiums, but there are competitive and regulatory limits. Interest rates impact our investment portfolio's market value and return rate. Significant and prolonged inflation could materially affect our future liabilities related to loss and LAE.
ARRANGEMENTS WITH VARIABLE INTEREST ENTITIES
We entered into a reinsurance captive arrangement with a VIE in the normal course of business, and consolidated the VIE since we are the primary beneficiary.
For a further discussion of our involvement with the VIE, see "Part II-Item 8-Note 2 (Summary of Significant Accounting Policies)" and "Item 8-Note 18 (Variable Interest Entities)."
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 periods.
Liability for Unpaid Losses and LAE
A liability, net of estimated subrogation, is established to provide for the estimated costs of paying losses and LAE under insurance policies the Insurance Entities have issued. Underwriting results are significantly influenced by an estimate of a liability for unpaid losses and LAE. The liability is an estimate of amounts necessary to settle all outstanding claims, including claims that have been incurred, but not yet reported as of the financial statement date. The process of estimating loss reserves requires significant judgment due to a number of variables, such as the type, severity and jurisdiction of loss, economic conditions including inflation, social attitudes, judicial decisions and legislative development, and changes in claims handling procedures. These variables will inherently result in an ultimate liability that will differ from initial estimates. We revise our reserve for unpaid losses as additional information becomes available, and reflect adjustments, if any, in our earnings in the periods in which we determine the adjustments are necessary. We estimate and accrue our right to subrogate reported or estimated claims against other parties. Subrogated claims are recorded at amounts estimated to be received from the subrogated parties, net of expenses and netted against unpaid losses and LAE.
See "Part II-Item 8-Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)" for a discussion of the Company's basis and methodologies used to establish its liability for unpaid losses and LAE along with the following quantitative disclosures:
•Five-year accident year table on incurred claim and allocated claim adjustment expenses, net of reinsurance including columns of:
◦IBNR-Total of Incurred-but-not-reported liabilities plus expected development (redundancy) on reported claims by accident year, and
◦Claim counts-cumulative number of reported claims by accident year.
•Five-year accident year table on cumulative paid claims and allocated claim adjustment expenses, net of reinsurance,
•Reconciliation of net incurred and paid claims development tables to the liability for unpaid losses and LAE in the consolidated balance sheet,
•Duration-a table of the average historical claims duration for the past five years, and
•Reconciliation of the change in liability for unpaid losses and LAE presented in the consolidated financial statements.
We utilize independent actuaries to help establish liabilities for unpaid losses, anticipated loss recoveries, and LAE. We do not discount the liability for unpaid losses and LAE for financial statement purposes. In establishing the liability for unpaid losses and LAE, actuarial judgment is relied upon in order to make appropriate assumptions to estimate a best estimate of ultimate losses. There are inherent uncertainties associated with this estimation process, especially when a company is undergoing changes in its claims settlement practices, when a company has limited experience in a certain area or when behaviors of policyholders are influenced by external factors and/or market dynamics. As an example, a dramatic change occurred during calendar year 2015 when we realigned our adjusting teams as well as launched our Fast Track initiative, reducing settlement costs and strengthening case reserve adequacy for claims reported during the year. These changes have had a meaningful influence on development pattern selections applied to 2013 through 2017 accident year claims in the reserving estimates for each of the methods described in "Part II-Item 8-Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)." More recently, since 2016 there has been a significant increase in efforts to pursue subrogation against third parties responsible for property damage losses to our insureds. As a result, anticipated subrogation recoveries are reviewed and estimated on a stand-alone basis in the Company's reserve analysis. Market dynamics in Florida include the use of assignments of benefits ("AOB") and the resulting increase in litigation against the Company. As a result of the use of AOBs, as well as the continued overall increase in represented claims and claims-related abuses in Florida, we have increased our estimates of ultimate losses for the most recent and prior accident years.
Factors Affecting Reserve Estimates
Reserve estimates are developed based on the processes and historical development trends discussed in "Part II-Item 8-Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)" to the consolidated financial statements. These estimates are considered in conjunction with known facts and interpretations of circumstances and factors including our experience with similar cases, actual claims paid, differing payment patterns and pending levels of unpaid claims, loss management programs, product mix and contractual terms, changes in law and regulation, judicial decisions, and economic conditions. When these types of changes are experienced, actuarial judgment is applied in the determination and selection of development factors in order to better reflect new trends or expectations. For example, if a change in law is expected to have a significant impact on the development of claim severity, actuarial judgment is applied to determine appropriate development factors that will most
accurately reflect the expected impact on that specific estimate. As an example, the Company considered and included the effects of the enacted legislation in developing its ultimate loss projections and reserve estimates as of December 31, 2023, as noted in "Part II-Item 8-Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)" to the consolidated financial statements. Another example would be when a change in economic conditions is expected to affect the cost of repairs to property; actuarial judgment is applied to determine appropriate development factors to use in the reserve estimate that will most accurately reflect the expected impacts on severity development.
Changes in homeowners current year claim severity are generally influenced by inflation in the cost of building materials, the cost of construction and property repair services, the cost of replacing home furnishings and other contents, the types of claims that qualify for coverage, the presence of third party representation, such as legal or repair contractors (which serve to inflate claim expenses), and other economic and environmental factors. We employ various loss management programs to mitigate the effects of these factors.
Key assumptions that may materially affect the estimate of the reserve for loss and LAE relate to the effects of emerging claim and coverage issues. As industry practices and legal, judicial, social and other environmental conditions change, unexpected and unintended issues related to claims and coverages may emerge. These issues may adversely affect our business by either extending coverage beyond our underwriting intent, lengthening the time to final settlement, or by increasing the number or size of claims. Key assumptions that are premised on future emergence that are inconsistent with historical loss reserve development patterns include but are not limited to:
•Adverse changes in loss cost trends, including inflationary pressures in home repair costs;
•Judicial expansion of policy coverage and the impact of new theories of liability; and
•Plaintiffs targeting property and casualty insurers in purported class action or other litigation related to claims-handling and other practices.
As loss experience for the current year develops for each type of loss, the reserves for loss and LAE are monitored relative to initial assumptions until they are judged to have sufficient statistical credibility. From that point in time and forward, reserves are re-estimated using statistical actuarial processes to reflect the impact loss trends have on development factors incorporated into the actuarial estimation processes.
Causes of Reserve Estimate Uncertainty
Since reserves are estimates of the unpaid portions of claims and claims expenses that have occurred, the establishment of appropriate reserves, including reserves for catastrophes, requires regular reevaluation and refinement of estimates to determine ultimate loss and LAE estimates.
At each reporting date, the highest degree of uncertainty in reserve estimates arises from claims remaining to be settled for the current accident year and the most recent preceding accident year, and claims that have occurred but have not been reported. The estimate for the current accident year contains the greatest degree of uncertainty because it contains the greatest proportion of losses that have not been reported or settled but must be estimated as of the current reporting date. During the first year after the end of an accident year, a large portion of the total losses for that accident year are settled. When accident year losses paid through the end of the first year following the initial accident year are incorporated into updated actuarial estimates, the trends inherent in the settlement of claims emerge more clearly. Consequently, this is the point in time at which the largest re-estimates of losses for an accident year can occur. After the second year, the losses paid for the accident year typically relate to claims that are more difficult to settle, such as those involving litigation.
Reserves for Catastrophe Losses
Loss and LAE reserves also include reserves for catastrophe losses. Catastrophe losses are an inherent risk of the property-casualty insurance industry that have contributed, and will continue to contribute, to potentially material year-to-year fluctuations in results of operations and financial position. A catastrophe is an event that produces significant insured losses before reinsurance and involves multiple first party policyholders, or an event that produces a number of claims in excess of a preset, per-event threshold of average claims in a specific area, occurring within a certain amount of time following the event. Catastrophes are commonly caused by various natural events including high winds, tornadoes, wildfires, winter storms, tropical storms and hurricanes.
The estimation of claims and claims expense reserves for catastrophes also comprises estimates of losses from reported and unreported claims, primarily for damage to property. In general, estimates for catastrophe reserves are based on claim adjuster inspections and the application of historical loss development factors as described previously and in "Part II-Item 8-Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)" to the consolidated financial statements. However, depending on the nature of the catastrophe, as noted above, the estimation process can be further complicated. For example, for hurricanes, complications could include the inability of insureds to be able to promptly report losses, a prevalence of solicited and late-reported claims creating or compounding challenges with determining the cause and amount of loss, limitations placed on claims adjusting staff affecting their ability to inspect losses, determining whether losses are covered by our homeowners policy (generally for damage caused by wind or wind driven rain) or are specifically excluded from coverage such as losses caused by flood, estimating additional living expenses or assessing the impact of demand surge and exposure to mold damage. The effects of numerous other considerations, include the timing of a catastrophe in relation to other events, such as at or near the end of a financial reporting period, which can affect the availability of information needed to estimate reserves for that reporting period.
In these situations, practices are adapted to accommodate these circumstances in order to determine a best estimate of losses from a catastrophe.
Key Actuarial Assumptions That Affect the Loss and LAE Estimate
The aggregation of estimates for reported losses and IBNR forms the reserve liability recorded in the Consolidated Balance Sheets.
At any given point in time, the recorded loss and LAE reserves represent our best estimate of the ultimate settlement and administration cost of insured claims incurred and unpaid. Since the process of estimating loss and LAE reserves requires significant judgment due to a number of variables, such as fluctuations in inflation, judicial decisions, legislative changes and changes in claims handling procedures, ultimate liability may exceed or be less than these estimates. Reserves for losses and LAE are revised as additional information becomes available, and adjustments, if any, are reflected in earnings in the periods in which they are determined.
In selecting development factors and averages described in "Part II-Item 8-Note 17 (Liability for Unpaid Losses and Loss Adjustment Expenses)" to the consolidated financial statements, due consideration is given to how the historical experience patterns change from one year to the next over the course of several consecutive years of recent history. Predictions surrounding these patterns drive the estimates that are produced by each method, and are based on statistical techniques that follow standard actuarial practices.
In compliance with annual statutory reporting requirements, our appointed independent actuary provides a Statement of Actuarial Opinion ("SAO") indicating that carried loss and LAE reserves recorded at each annual balance sheet date make a reasonable provision for all of the Insurance Entities' unpaid loss and LAE obligations under the terms of contracts and agreements with our policyholders. Recorded reserves are compared to the indicated range provided in the actuary's report accompanying the SAO. At December 31, 2024, the recorded amount for net loss and LAE falls within the range determined by the Company's appointed independent actuary.
Potential Reserve Estimate Variability
The methods employed by actuaries include a range of estimated unpaid losses, each reflecting a level of uncertainty. Projections of loss and LAE liabilities are subject to potentially large variability in the estimation process since the ultimate disposition of claims incurred prior to the financial statement date, whether reported or not, is subject to the outcome of events that have not yet occurred. Examples of these events include jury decisions, court interpretations, legislative changes, public attitudes, and social/economic conditions such as inflation. Any estimate of future costs is subject to the inherent limitation on one's ability to predict the aggregate course of future events. It should therefore be expected that the actual emergence of losses and LAE will vary, perhaps materially, from any estimate.
In selecting the range of reasonable estimates, the range of indications produced by the various methods is evaluated, the relative strengths and weaknesses of each method are considered, and from those inputs a range of estimates can be selected. For reasons cited above, this range of estimated ultimate losses is typically smaller for older, more mature accident periods and greater for more recent, less mature accident periods. The greatest level of uncertainty is associated with the most recent accident years, and particularly years during which catastrophe events occurred.
The inherent uncertainty associated with our loss and LAE liability is magnified due to our concentration of property business in catastrophe-exposed and litigious states, primarily Florida. In 2018, for example, loss and expense payments for Hurricane Irma claims exceeded initial liability estimates that were established at year-end 2017, which was shortly after the event occurred. This unexpected development was partially due to the influence of plaintiff attorneys in the claim filing process; both at initial contact prior to coverage validation or damage assessment, and after claims were settled and closed which resulted in a large number of claims being reopened during the year. In 2019, UPCIC continued to experience unanticipated unfavorable development on losses from claims being reopened and new claims being opened due to public adjusters encouraging policyholders to file new claims. Due to the relatively low frequency and inherent uncertainty of catastrophe events, the parameters utilized in loss estimation methodologies are updated whenever new information emerges.
The following table summarizes the effect on net loss and LAE reserves and net loss, net of tax in the event of reasonably likely changes in the severity of claims considered in establishing loss and LAE reserves. The range of reasonably likely changes in the severity of our claims was established based on a review of changes in loss year development and applied loss and LAE reserves as a whole. The selected range of changes does not indicate what could be the potential best or worst case or likely scenarios (dollars in thousands):
Year Ended December 31, 2024
Percent Change in
Change in Reserves Reserves Net Income
-20.0% $ 767,433 227 %
-15.0% 815,397 170 %
-10.0% 863,362 113 %
-5.0% 911,326 57 %
Base 959,291 -
5.0% 1,007,256 (57) %
10.0% 1,055,220 (113) %
15.0% 1,103,185 (170) %
20.0% 1,151,149 (227) %
Adequacy of Reserve Estimates
We believe our net loss and LAE reserves and estimated subrogation recoveries are appropriately established based on available methodology, facts, technology, laws, and regulations. We calculate and record a single best reserve estimate, in conformance with generally accepted actuarial standards, for reported and unreported losses, LAE losses and subrogation, and as a result we believe no other estimate is better than our recorded amount.
Due to the uncertainties involved, the ultimate cost of losses and LAE may vary materially from recorded amounts, which are based on our best estimates. The liability for unpaid losses and LAE, net of subrogation at December 31, 2024 is $959.3 million.
Recent Accounting Pronouncements Not Yet Adopted
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740), which will require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income [or loss] by the applicable statutory income tax rate). The impact to our consolidated financial statements, if any, will be dependent on the timing and terms of any future modifications related to a change in effective tax rate. The amendments in this ASU are effective for annual periods beginning after December 15, 2024.
In November 2024, the FASB issued ASU 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expense." This subtopic update requires public business entities to disclose additional information about certain expenses in the notes to the financial statements for both annual and interim periods. The guidance will become effective for the Company in the annual and interim financial statements for the 2027 fiscal year, with early adoption permitted. The Company is still evaluating the impact of this guidance update on the expense disclosures in the Notes to the Consolidated Financial Statements.
NON-GAAP FINANCIAL MEASURES
Non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, financial measures presented in accordance with GAAP. For more information regarding our key performance indicators, please refer to the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations - Key Performance Indicators."
The following table presents the reconciliation of GAAP revenue to core revenue, which is a non-GAAP measure (in thousands):
Years Ended December 31,
2024 2023 2022
GAAP revenue $ 1,520,536 $ 1,391,582 $ 1,222,658
less: Net realized gains (losses) on investments (1,315) (1,229) 348
less: Net change in unrealized gains (losses) on investments
9,936 12,046 (13,145)
Core Revenue $ 1,511,915 $ 1,380,765 $ 1,235,455
The following table presents the reconciliation of GAAP operating income (loss) to adjusted operating income (loss), which is a non-GAAP measure (in thousands):
Years Ended December 31,
2024 2023 2022
GAAP income (loss) before income tax expense (benefit) $ 84,611 $ 88,349 $ (27,247)
add: Interest and amortization of debt issuance costs 6,476 6,531 6,609
GAAP operating income (loss) 91,087 94,880 (20,638)
less: Net realized gains (losses) on investments (1,315) (1,229) 348
less: Net changes in unrealized gains (losses) on investments 9,936 12,046 (13,145)
Adjusted operating income (loss) $ 82,466 $ 84,063 $ (7,841)
The following table presents the reconciliation of operating income (loss) margin to adjusted operating income (loss) margin, which is a non-GAAP measure (in thousands):
Years Ended December 31,
2024 2023 2022
GAAP operating income (loss) $ 91,087 $ 94,880 $ (20,638)
GAAP revenue 1,520,536 1,391,582 1,222,658
GAAP operating income (loss) margin 6.0 % 6.8 % (1.7) %
Adjusted operating income (loss) 82,466 84,063 (7,841)
Core revenue 1,511,915 1,380,765 1,235,455
Adjusted operating income (loss) margin 5.5 % 6.1 % (0.6) %
The following table presents the reconciliation of GAAP net income (loss) available to common stockholders to adjusted net income (loss) available to common stockholders, which is a non-GAAP measure (in thousands):
Years Ended December 31,
2024 2023 2022
GAAP net income (loss) $ 58,928 $ 66,823 $ (22,257)
less: Preferred dividends 10 10 10
GAAP net income (loss) available to common stockholders 58,918 66,813 (22,267)
less: Net realized gains (losses) on investments (1,315) (1,229) 348
less: Net changes in unrealized gains (losses) on investments 9,936 12,046 (13,145)
add: Income tax effect on above adjustments 2,121 2,661 (3,148)
Adjusted net income (loss) available to common stockholders $ 52,418 $ 58,657 $ (12,618)
Weighted average common shares outstanding - Diluted 29,274 30,147 30,751
Diluted earnings (loss) per common share $ 2.01 $ 2.22 $ (0.72)
Diluted adjusted earnings (loss) per common share $ 1.79 $ 1.95 $ (0.41)
The following table presents the reconciliation of GAAP stockholders' equity to adjusted stockholders' equity and book value per common share to adjusted book value per common share, which is a non-GAAP measure (in thousands):
As of
December 31, December 31, December 31,
2024 2023 2022
GAAP Stockholders' equity $ 373,250 $ 341,297 $ 287,896
less: Preferred equity 100 100 100
Common stockholders' equity 373,150 341,197 287,796
less: Accumulated other comprehensive income (loss)
(63,166) (74,172) (103,782)
Adjusted common stockholders' equity $ 436,316 $ 415,369 $ 391,578
Common shares outstanding 28,096 28,966 30,389
Book value per common share $ 13.28 $ 11.78 $ 9.47
Adjusted book value per common share $ 15.53 $ 14.34 $ 12.89
The following table presents the reconciliation of GAAP ROCE to adjusted ROCE, which is a non-GAAP measure (in thousands):
Years Ended December 31,
2024 2023 2022
Actual net income (loss) available to common stockholders' $ 58,918 $ 66,813 $ (22,267)
Average common stockholders' equity $ 357,174 $ 314,497 $ 358,699
ROCE 16.5 % 21.2 % (6.2) %
Adjusted net income (loss) available to common stockholders $ 52,418 $ 58,657 $ (12,618)
Adjusted average common stockholders' equity* $ 422,593 $ 399,396 $ 423,199
Adjusted ROCE 12.4 % 14.7 % (3.0) %
*Adjusted average common stockholders' equity excludes current period after-tax net realized gains (losses) on investments and net changes in unrealized gains (losses) on investments.