ISSUE
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UVE
RESPONSE
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The company was a
penny stock in many different failed businesses before becoming a
Florida property insurer
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The company was
reorganized in 1997 to focus on an opportunity to write personal
residential (homeowners) insurance in the Florida market. The
company hired experienced insurance personnel and retained
well-known, reputable vendors in the development of its insurance
business. Over the following 17 years, UVE has continually
grown and enhanced its in-house capacity to service its insurance
business. The combined group now has nearly 400 employees and
70,000 square feet of operational offices.
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The stock has
risen 216x in the past decade, by far the best performing stock
with $1+ billion market cap or more
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Although the price of
a stock can be influenced by many factors, the predominant reasons
for the growth in UVE's stock over the last decade have been the
growth in surplus in its insurance subsidiaries and the earnings
from its insurance operations. UVE's results have been
achieved due to the hard work of nearly 400 employees who are
committed to sound underwriting, prompt claims handling, and
effective customer service. The statutory surplus in UVE's
primary insurance subsidiary, Universal Property & Casualty
Insurance Company, has grown from $5 million as of 12/31/04 to $233
million as of 9/30/15.
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Florida is a very
dangerous place to write property insurance because of the high
value of properties combined with the hurricane risk – it has 27%
of U.S. insured coastal property value and is the site of 7 of the
10 largest U.S. hurricanes
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It is well-known in
the residential property insurance industry that Florida makes up a
significant portion of the United States' hurricane exposure.
This is why a company like UVE, which is dedicated to understanding
coastal risks and writing personal residential insurance, is able
to compete effectively in Florida and other markets. UVE
understands the Florida market. UVE has in-house and
contracted third party expertise in designing and purchasing
reinsurance programs to protect against the risk of
hurricanes. Throughout its history, UVE's insurance
subsidiaries have purchased more reinsurance than required under
regulatory and rating agency guidelines, both in terms of the
magnitude of a single large event that would be covered and the
possibility of multiple events in a single season.
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Three huge
hurricanes hit Florida in 2004-05 – in the wake of those, national
insurers exited the Florida market because risks were too great –
in their place, state run insurer filled the void
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This statement is
partially correct, but also contains mistruths. First, it was
Hurricane Andrew in 1992, and not the storms of 2004-05, that
primarily caused national multiline carriers to reassess the
allocation of their capital between the Florida residential market
and other insurance markets. Second, after 2004-05 and
continuing today, several large, prominent national insurance
groups write significant residential insurance business in
Florida. It is patently incorrect to suggest that national
insurers "exited" the Florida market when they have been, and
remain, a significant part of the Florida property insurance
market. Finally, it is critical to point out that the short
sellers are referring to events that took place a decade ago as if
the 2004-05 hurricanes are somehow news today. The fact is,
UVE actually experienced the 2004-05 hurricanes and was there for
its policyholders. By having a strong reinsurance program and
a dedicated claims team, UVE paid its insureds over $171M (11,819
claims) in 2004 and another $81M (12,055 claims) in
2005.
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In 2011, Citizens
customers were handed over to a bunch of small, thinly capitalized
Florida insurers – the Florida market became the wild
west
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We are uncertain what
any statement relating to recent assumptions from Citizens Property
Insurance Corporation in 2011 has to do with UVE or its subsidiary
insurers. The UVE insurers did not assume any policies from
Citizens in 2011, nor have they assumed any policies from Citizens
since then. In fact, other than one small transaction 17
years ago in 1998, the UVE companies have not taken any policies
from any state-sponsored insurer. The UVE companies produce
their business organically, one policy at a time, with the
assistance of local independent insurance agents servicing
policyholders in the communities where they live and
work.
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Universal and its
peers have gotten lucky, as there hasn't been a major hurricane in
Florida in the past 10 years, which has resulted in low losses and
low reinsurance pricing, which has led to explosive growth in
Universal's reported earnings
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All insurers
operating in Florida, and especially those of us who live and work
here, are pleased to have been "lucky" enough over the last ten
years to have not seen significant storm activity. However,
it is important to keep important facts in mind. First, any
residential property insurer should expect to make more money in
hurricane-free years than in years with hurricanes— this is
obvious. The key is that an insurer hopefully is adding to
its surplus during the storm-free years so it is better positioned
to handle future storms whenever they inevitably do occur.
This has been exactly the case with UVE. Our primary
insurance subsidiary ended 2005 with $5 million in surplus.
In its most recently filed financial statements (9/30/15), it
reported more than $233 million in surplus. The recent run of
storm-free years therefore is benefitting our
policyholders.
In addition, UVE
experienced the hurricanes of 2004 and 2005. We fully met our
obligations to policyholders and were in a strong enough position
to continue developing our business in the years that
followed. With that experience still in our memories, UVE
prepares each year as if this will be the year that one or more
hurricanes strike Florida. Our reinsurance program exceeds
regulatory and rating agency requirements for single and multiple
events. Our reinsurance program is "stress tested" by state
insurance regulators and our rating agency. We review and
test our catastrophe response plan each year. There might
have been luck involved with Florida's weather over the last ten
years, but our catastrophe preparedness relies on experience and
planning.
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Universal has
grown its book of business rapidly, especially in the most
hurricane prone areas of Palm, Broward and Dade counties, where
Universal has 10.9% share
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It is false and
misleading to suggest that has been growing its business rapidly in
Miami-Dade, Broward and Palm Beach Counties. For example, a
simple review shows that in 2010 about 31% of our Florida business
was located in these counties. This percentage remains about
the same in 2015. During this period, however, we have
expanded into other states, and our writings in the other states
have gradually reduced the percentage of our overall business that
is located in Florida from more than 98% five years ago to
approximately 85% today.
As with any
residential insurer operating in Florida, continually monitoring
our business and managing our exposures is an important discipline
for UVE. We license both of the most widely recognized
hurricane catastrophe models (RMS and AIR) to assist it in
analyzing our exposure to hurricane events both stochastically and
deterministically. We use this information to assist in
negotiating and purchasing reinsurance covering not only our
Florida policies but also our policies in the other states where we
operate.
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We estimate a
Category 4 storm would blow the company up
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This statement is
patently false, irresponsible and defamatory. UVE's
reinsurance program exceeds regulatory requirements for both a
single large event and for multiple events occurring in the same
hurricane season. Based on UVE's September 30, 2015
portfolio, no single hurricane event in recorded history is
projected to cause losses exceeding the limits of our 2015
reinsurance program, regardless of the storm category.
Modeling performed using the RMS model, which has been declared
accurate and reliable by the statutorily-created Florida Commission
on Hurricane Loss Projection Methodology, shows that UVE's
reinsurance program is sufficient to cover an event such as
Category 5 Hurricane Andrew, Category 4 Great Fort Lauderdale
Hurricane, or Category 3 Hurricane Wilma, among others. In
fact, given its current financial position and reinsurance program,
UVE would remain profitable even if Florida were to face three
storms in one season on the scale of Hurricane Andrew, which was
one of the most destructive hurricanes in U.S. history. Any
suggestion to the contrary is incorrect and clearly must be
intended to mislead.
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Universal's stock
(at 4x book before its recent decline; 2.9x book now) is overvalued
relative to national insurers (1.1x book on average) and the other
local insurers (2x book)
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The value of UVE's
stock relative to other investment opportunities is a subjective
determination that each investor can, and should, make for himself
or herself. Without regard to how any particular investor
perceives the value of UVE's stock, UVE and its employees have
worked hard to build a strong insurance organization that has
delivered favorable results not only for shareholders but also for
policyholders. UVE's primary insurance subsidiary has
significantly increased its surplus through retained
earnings. At the same time, UVE has produced record results
and has paid a consistent but growing dividend. UVE also has
repurchased a substantial number of shares, increasing earnings per
share and reflecting management's view of the company's favorable
position.
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In 2013, Florida
regulators found the Company was not honoring many of its
underwritten claims, which culminated in fines
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It is a gross
overstatement and distortion of the facts to suggest that the
company was not honoring many of its claims. The regulatory
review relating to this issue covered a 15-month period that began
in 2011. The regulator questioned the decisions UVE reached
in 262 claims out of more than 25,000 claims handled by the company
during the review period.
As was publicly
reported in 2013, the company did not agree with some of the
regulators' interpretations and the company provided its
explanations to the regulators. Ultimately, however, the
company decided to settle the issue to avoid protracted
proceedings. The Company had, by time of the settlement, made
operational changes to address the cited concerns. Since
then, the company has gone further to expand its in-house claims
process functions. This has delivered demonstrable results,
including increases in the efficiency and speed of the Company's
claims handling and the processing of claims payments, which now
represents a key competitive advantage.
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Former CEO
resigned due to Florida regulators review and fine
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This is not
correct. UVE's founder and former Chief Executive Officer
resigned on amicable terms to pursue other business and personal
interest. Mr. Meier had been with the organization since its
inception. Over its 18 years in the insurance business, UVE,
like many other companies, has had changes at the senior executive
level.
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Universal runs a
shoddy operation, denying claims at every opportunity and engaging
in "reunderwriting", as demonstrated by a complaint rate 55% higher
than its peers
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These statements are
false and reflect great distortions of facts. It is
irresponsible, and flat wrong, to suggest that UVE denies claims at
every opportunity when it typically handles more than 20,000
insurance claims in a given year, paying tens of millions of
dollars to policyholders. This statement appears to be
nothing more than a highly exaggerated, intentionally inflammatory
reference to UVE's settlement of an issue raised in a regulatory
examination several years ago affecting fewer than one percent of
all claims.
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By denying so many
claims, Universal has much lower loss ratios (and hence higher
profits) than its peers
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This is nonsensical
and shows a fundamental lack of understanding of the insurance
business. Simply put, an insurer's claims process seeks to
pay meritorious claims as promptly and cost-effectively as possible
while attempting to detect and review claims that are inflated,
suspicious or fraudulent. It is bad business, and actually
detrimental to profits, to deny claims absent an established reason
to do so. An insurer's costs of administering a claim go up
dramatically when an insured challenges a denial, especially if the
claim ultimately is determined to have been covered. It makes
no sense to suggest that any insurer improves its loss ratios or
increases profitability by denying any claims other than those that
should be denied on the merits.
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Universal lied to
its regulators, claiming it was losing money or making much less
than it was, in order to get big rate increases approved, but these
days appear to be over as pricing has leveled off and peers warn of
rate pressure
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This statement is
false, constitutes actionable defamation, and shows how little its
source knows about the insurance business. Any insurer's rate
filings, including UVE's, are predicated on detailed financial data
relating to several years of operations and experience. A
regulator reviewing a rate filing has the benefit of not only the
data in the current filing, but also the data set forth in prior
filings, competitor's data, and the regulators' own analyses.
The regulator performs its own calculations regarding the insurer's
indicated rate needs, and the regulator will not approve an
insurer's proposed rate changes if they are not reasonably aligned
with the regulator's own analysis.
To further illustrate
the ignorance underlying this statement, the source apparently does
not understand several other aspects of rate analysis and
ratemaking. First, both the regulator and the insurer can
benchmark an insurer's rates against those of competitors.
UVE's rates being within the range of competitors' rates undermines
the source's suggestion. In addition, the source fails to
understand that throughout its history, UVE has filed proposed
rates that have been less than its full actuarially indicated
rates. An insurer often will take competitive considerations
into account, such as moderating the rate impact to consumers to
avoid adverse impacts on customer retention. It makes no
sense to suggest that UVE somehow was trying to inflate its rate
requests when UVE was making requests that were less than its
indications.
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Despite insuring
10% of Florida, the Company has a tiny litigation claims
staff
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UVE has over 160
full-time employees in its claims company, including 30 focused on
litigation.
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Former CEO traded
gold ETF 278x in company account
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The Florida Insurance
Code contains specific, conservative requirements for an insurer's
investments. UVE's investment policies adhere to these
guidelines. In addition, anyone citing this issue as a basis
for short selling UVE's stock is misleading the public. In
early 2013 when Mr. Downes became the company's CEO, UVE engaged
Deutsche Bank to manage the company's investment portfolio.
UVE chose Deutsche Bank because it is one of the leading firms in
the world managing insurer investment portfolios.
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Universal is not
rated by AM Best; it receives a D- from Weiss; it receives an A
only from Demotech, a joke of a firm
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This disparaging
comment lacks merit. According to the Fannie Mae Selling
Guide, the ratings of only three firms may be considered in
determining whether a property insurer's policy meets the
requirements of the secondary mortgage market— A.M. Best
& Co., Standard & Poors, and Demotech, Inc. While the
source of this comment appears to have negative subjective feelings
about Demotech, he misleads the public when he takes a position
that is so out of step with Fannie Mae and the secondary mortgage
market, which is where the ratings are most prominently
used.
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Universal
consistently incurs losses higher than it reserves for, which
inflates earnings and book value every year
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This is wrong.
An insurer is required to have its reserves reviewed by an
independent opining actuary once each year. UVE's management
chooses to have an independent reserve review twice each
year. UVE's independent actuarial firm is Towers Watson,
which is one of the largest and most respected actuarial firms in
the world. The actuaries have concluded that the Company's
carried reserves make a reasonable provision for losses and within
their range of estimates. The actuaries recently completed
their most recent review, which included company data through June
30, 2015.
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They are on their
third CFO in five years
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This statement shows
a lack of awareness of the underlying facts on the part of the
person making it. UVE's initial Chief Financial Officer
served since inception and provided many years of service. He
left for personal reasons in 2010. The company retained him
to provide financial analysis under a contract that is still in
effect today. His successor served until 2013, when he
resigned for personal reasons (for which he has not re-entered the
workforce). He provided consulting services to the company as
his duties were transitioned to our current CFO, and UVE maintains
a good relationship with both former CFOs. In addition, under the
direction of our current CFO, UVE has added personnel to complement
the finance department that was already in place.
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Deloitte and
Touche resigned as Universal's auditors in 2002
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Deloitte and Touche
did not resign. They were terminated following a proposed
substantial fee increase demanded in the wake of Enron and other
financial and accounting scandals. Universal's financial
statements are audited annually and reviewed quarterly by Plante
Moran, independent auditors originally selected thirteen years ago
because of their expertise in the insurance
industry.
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Universal is
audited by Plante & Moran, a joke of a firm; the median market
cap of public companies it audits is $33 million
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The company selected
Blackman Kallick as its auditors in 2002 due to that firm's
recognized expertise in the insurance industry. Blackman
Kallick was subsequently acquired by Plante Moran. The
company's audit committee, independent of management, evaluates the
services and capabilities of the audit firm each year.
Also, while this
statement disparaging Plante Moran is made without any facts to
support it, UVE points out that in addition to its audit by Plante
Moran, both of its insurance entities are subject to periodic
financial examinations conducted by the Florida Office of Insurance
Regulation. The most recent examination for each insurance
subsidiary was completed earlier this year for the five-year period
ended December 31, 2013. The regulatory examination concurred
with the result of Plante Moran's audit and found no adjustments to
surplus.
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Universal's CEO,
Sean Downes, earned $14.1 million in 2014, making him the
3rd highest paid CEO of all public companies based
in Florida
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This total amount was
largely driven by the increased value of stock awards in Mr.
Downes' initial employment contract he received when assuming the
CEO responsibilities in February 2013.
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CEO was paid over
200k in claims (5.6% of total claim) after Hurricane Wilma, while
other customers weren't paid on time
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UVE paid a total of
$81M arising from 12,055 claims in the 2005 catastrophes.
This included $72M from 10,672 claims caused by Hurricane
Wilma. Mr. Downes, who was the Chief Operating Officer at the
time, had a policy with the company and his home was damaged during
the hurricane. His claim represented 0.28% of the claims the
company paid due to Hurricane Wilma.
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Sean Downes has
been arrested
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Mr. Downes has
reviewed each of the incidents with the independent Directors,
responded to their questions, explained the circumstances, some of
which go back to youthful indiscretions, and fully satisfied the
independent directors regarding his ability to lead the
Company. None of the incidents, they noted, implicate or
speak to Mr. Downes' integrity, honesty, leadership, or ability to
manage and grow the Company.
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