Good day, ladies and gentlemen and welcome to Universal Insurance Holdings Inc. Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session and instruction will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to welcome and turn the conference over to your host Vice President of Investor Relations, Mr. Dean Evans. Sir, you may begin.

Thank you. Good morning everyone. Welcome to the fourth quarter 2017 earnings conference call for Universal Insurance Holdings Inc. My name is Dean Evans and I’m the Vice President of Investor Relations here at Universal. With me in the room today are Chairman and Chief Executive Officer, Sean Downes; President and Chief Risk Officer, Jon Springer; and Chief Financial Officer, Frank Wilcox. Following Sean’s opening remarks, Jon will provide an update on several important current topics and Frank will review financial results. The call will then be reopened for questions. Yesterday afternoon we issued our earnings press release, which is available under the press release’s section of our website at www.universalinsurancehodlings.com. A replay of this presentation will be available on the homepage of our website until March 8, 2018. Before we begin, please note that this presentation may contain forward-looking statements about our business and financial results. Forward-looking statements reflect our current view of future events and are typically associated with words such as believe, expect and anticipate or similar expressions. We caution those listening, including investors, not to rely solely on forward-looking statements as they imply risks and uncertainties, some of which cannot be predicted or quantified and future results can differ materially from our expectations. We encourage you to carefully consider the risks described in our filings with the Securities and Exchange Commission, which are available on the SEC's website or SEC filing section of our website. We do not undertake any obligation to update or correct any forward-looking statements. With that, I would like to turn the presentation over to our Chairman and Chief Executive Officer, Sean Downes.

Thank you Dean, and thank you everyone for joining us today. before we begin, all of us at Universal would like to send our heartfelt condolences to the victims and families of the Marjory Stoneman Douglas High School shooting. Parkland is part of our community, where our employees and families reside and we are all deeply saddened by this tragedy. We ask that all of you keep the great people of this community in your prayers. I will begin by providing some highlights in the quarter and we will then review our growth initiatives and strategy. Jon will cover several important current topics and Frank will conclude by discussing financial results. We were pleased with our results for the fourth quarter and for that matter for the full-year of 2017. Overall, we reported net income of 36.4 million and diluted EPS of $1.03 for the fourth quarter of 2017, which equates to an ROE of 33% for the quarter. For the full-year, we generated net income of $106.9 million diluted EPS of $2.99 and 25.7% ROE. Although Hurricane Irma made landfall during the third quarter, there are numerous moving parts in the fourth quarter related to the storm, which Jon and Frank will discuss in more detail later in the call. However, I would like to briefly tough on a few high level thoughts related to the event. In the months since Hurricane Irma made landfall, Universal has demonstrated the true value of our business model. Our Comprehensive Reinsurance program substantially limited net losses incurred from one of Florida’s largest hurricanes in over a decade. Our vertically integrated structure produced various income streams in the months following the storm, and our superior claims handling and catastrophe response teams delivered excellent service to our policyholders in the aftermath of the devastating…

Thank you, Sean. I would like to start with some additional color surrounding the impact from Hurricane Irma, then talk a little bit about our reserve position and lastly touch on the reinsurance pricing environment. Hurricane Irma made land fall in Florida on September 10th as a category force form and with a devastating event throughout the state despite Irma causing substantial losses, the ultimate net financial impact to Universal was substantially limited by both our comprehensive reinsurance program and benefits received as a result of our vertically integrated structure. We currently estimate $447 million of gross loss in LAE from Hurricane Irma including $445 million from Universal property in casualty and $2 million from American Platinum property and casualty. Our all states reinsurance program performed as expected limiting net losses and loss adjustment expenses from Hurricane Irma to $37 million of maximum retention. In addition because growth losses in LAE in states outside of Florida, are projected to be $12.8 million or 7.8 million above our $5 million retention. Additional recoveries from our other states reinsurance program during the fourth quarter served to reduce Universal’s aggregate retention from $35 million to $27.2 million or an overall retention of $29.2 million when you include American Platinum’s retention of $2 million. Further because Hurricane Irma satisfied and otherwise recoverable provision of our other states reinsurance program, our retention in states outside of Florida was reduced from $5 million to $1 million from non-Irma events. This change resulted in an effective savings of $1.4 million recorded in the fourth quarter of 2017 due to the Minnesota hailstorm, which had occurred in June of 2017. Our other states reinsurance program will continue to have a net retention of $1 million for events through May 31, 2018 as a result of this otherwise recoverable…

Thank you, Jon. For the fourth quarter of 2017, net income totaled $36.4 million, an increase of 166.5% compared to the fourth quarter of 2016 in large part as the prior year’s quarters’ results included the impact of Hurricane Matthew. Diluted EPS was $1.03 up from $0.38 for the fourth quarter of 2016. We reported strong total revenue growth 12.4% for the quarter with increases in every major category of revenue compared to the prior year’s quarter. Direct premiums earned of $263.4 million offset by ceded premiums earned of $79.7 million generated $183.7 million of net earned premiums for the fourth quarter of 2017 compared to $164 million in the fourth quarter of 2016. The increase was the result of organic growth from both Florida and other state growth initiatives as well as increase new and renewal premiums in both in the third quarter and fourth quarter in our Florida book surrounding Hurricane Irma. Ceded premiums earned as a percent of direct premiums earned was 30.3% during the fourth quarter of 2017, compared to 31.3% in the fourth quarter of 2016. Commission revenue of $6.7 million for the quarter grew $1.9 million or 39.5% compared to the same quarter in 2016, driven by the benefit of $2 million of fee income related to reinstatement commissions receive by Blue Atlantic during the fourth quarter of 2017. Policy fees of $4.2 million for the quarter grew 12.1% year-over-year reflecting an increase in the number policies written compared to the prior year’s quarter. Other revenues were $2.1 million growth of 30% or $0.5 million from the prior year’s quarter. Net investment income for the quarter was $4.4 million, growth of 27.5% from the fourth quarter of 2016. This increase reflects actions taken to maximize yield, while maintaining high credit quality as securities mature,…

Thank you. [Operator Instructions]. Our first question is from Arash Soleimani with KBW. Your line is now open.

Thanks. Just first question, in terms of the $35 million, I know $2 million of it come Blue Atlantic. From that $33 million, can you just breakout exactly how much was in the loss and LAE line how much was in the other operating expense line?

Yes. Arash, this is Frank. The vast majority if not all it was generated by our subsidiary Universal Adjusting Corporation, which generated $33 million. There was some moving parts in G&A, but they were very largely offset.

So, it’s fair to just assume all of the 33 just goes to loss now even?

Correct.

And then finally, I do that – if I back out that entire amount of $33 million from loss if I back out the development both from the current accident year and prior accident years, and I backed out the $9.2 million recovery. I think I get to a 29.5% core or underlying direct loss ratio for the quarter, which seems better than that kind of like 30% to 32% range that I think you guys have guided to in the past. So, I guess two questions there, is one given that you had this adverse development and you are saying there is like some heightened litigation and so forth. What’s the new run rate kind of on a direct basis? Does that 30% to 32% still hold or do you think it will be a bit higher than that going forward? What’s the right way to look at that?

Arash, this is Sean. Number one, obviously after a large catastrophic event, the attritional loss ratio was historically always lower, that’s why you are seeing at 29-ish number I believe Q4 or going forward, we will be running at 33 that’s one and a quarter point higher than we have been running. That takes us in line basically to where we looked at our past years that are fully baked in and we believe that’s the current loss ratio we will be using for 2018.

Okay, thanks. And I think you may have touched on this last quarter a bit also but when we think about Irma I mean are you seeing AOB play a part in those claims or not really?

Yes. We are looking at roughly right now about 12% of the 69 odd thousand claims so far have some sort of AOB connotation connected to them. So, if you guys are right a little bit over 8,000 claims either has some sort of rep on it, contractor or public adjustment.

Okay. And I think Jon mentioned the average amount per claims something in the – I think in the 400 range. What’s the average if we are looking for the average for claims closed with payment rather than all claims?

How about going ahead for the next question, I can take that out from here quickly, Arash.

Sure, sure. So, one of the questions I think a lot people have been asking with a storm like Irma, obviously, Irma could have been worse and if it hit Miami and maintaining that kind of Cat 4, Cat 5 speed. Does that change how you look at your reinsurance spend? Does it make you say hey if it did hit there is a possibility could have exhausted the tower or so. So, going forward we might want to buy to a higher return period, is that something that you look at differently now?

You are supposed to ask your question for somebody else, and you were back in there. No, I’m sorry. That’s fine. Does it change how we look at it, no probably not. I mean obviously, we license both catastrophe models, so we are analyzing things. I mean when you look at Hurricane Irma, that Hurricane Irma was a very significant storm and we are talking about utilizing approximately 15% of our catastrophe tower. So, that’s a long way from the top, obviously the direction can change that once we could change that, but we will continue to do a similar type of evaluation and we will look at the efficiency of the spend at the top-end. If pricing levels are such that somebody offers us capacity at a level that makes sense, we may purchase some additional at the top. But we are pretty comfortable, I know we were comfortable as Irma was out there and we are pretty comfortable about the decisions we have made in the past.

And I will give you a break in both Frank real quick. I just wanted to touch based on the tax again; I know you said that you guys are necessarily comfortable giving a hard and fast number for the tax rate going forward. But I mean is there like ballpark range. You could give us how we should be thinking about the impact of tax reforms?

I will tell you what I can tell you and tell you what I can’t, why I can’t. So, let’s just start out with the blended statutory federal and tax rate. So we know that the federal rate went down 14 percentage points. The benefit that on your federal income tax from your deduction of state income taxes goes the other direction a little bit. So the net benefit from the statutory rate is 13.3%, now what I can’t tell you are a lot of the unknowns, and those unknowns include continued guidance that might come from the IRS and how to interpret this new law, and the effective that might have on our transactions as well as guidance that may come out from the FASB that could change how we account for certain elements of taxes going forward. In addition to certain unknowns about our transactions, which are affected by these changes in tax laws? As far as the rate going forward, what we did has been exercised using 2017 as a proxy and while I wouldn’t hang your head on this. If we were to take the tax law structure and apply that to 2017, we saw that there was a net reduction in the effective tax rate of around 10%. But I would put a wide range around that.

Okay. And obviously, I know you guys can’t speak for the OIR per se. But obviously in California, there is talk of the regulators sort of pressuring or potentially pressuring insurers to share tax reform with the policyholders. Do you think there is a risk of that in Florida or based on the AOB environment and how everyone’s kind of raising rates now. Does it look like regardless of tax reform? AOB will continue to result in the OIR being kind of lenient in the sense of allowing rate increases to continue?

I think it’s too early really to determine that. Obviously, we are in the middle of the legislative session currently right now, Arash. We are not in the predictive business, but what I would tell you that obviously, right now there doesn’t seem anything to be solid right now that is gaining any ground as it relates to any type of AOB reform. That’s really all I could give you as it relates to that.

Okay. That’s fair. Yes. Go ahead.

To answer your earlier question, we have closed 34,500 claims with payment for an average loss and LAE of just over 7,400 per claim.

That’s helpful. And I just remembered one other thing. I wanted to ask in terms of your reinsurance spend that what you are looking at for June 1. You mentioned on the last call that, a lot of your program is on a multi-year basis, so a lot of that won’t be exposed to any potential rate increases. Obviously, the kind of momentum that the reinsurers have had has kind of died down lately. I mean, do you even expect to get a rate increase on the portion of your program that is subject to market rate?

It really is too early to tell. I mean, as I said in my pre-prepared remarks is what we know for certain and that said a little less than a third of our reinsurance spend is all that would be subject to any upward adjustment. We also know that reinsurers are looking closely at how companies handle this past event. And obviously, we feel very confident and our response to Hurricane Irma. So we feel like, we will do as well as anybody will in this upcoming renewal.

And how likely is the FHCF to raise rates or is that something that would be probably stay flat, because it’s not really subject to market forces?

We wouldn’t expect any changes in the FHCF rates for this upcoming year.

Okay, awesome. Thanks for the answers, guys.

Thank you.

Our next question comes from Ron Bobman with Capital Returns. Your line is now open.

Hi. Thanks a lot. Congrats on a strength at a great result.

Thanks, Ron.

I had a question on the – I guess this is sort driven by the AOB reserving action that you took. Is that going to drive your rate need indications, I guess particularly in Tri-County and drive you to put in for additional rate increase by request with the state?

Well, certainly additional losses go into the rate making formula. As Sean alluded to, we did just secure a rate increase that we just started charging on your business in December and renewals in January that included a meaningful increase in the Tri-County. So, we will have to play through the next set of data to know for sure. But obviously, increased losses can drive additional rating.

Okay. I will sort of jump around a little bit. What’s the holdco cash balance, cash invested?

Ron, I will be back. Hang on a moment here.

I can move on and try to ask someone else a question while you do that.

Yes please.

The subrogation reserving process, I’m just wondering is there any changes to your assumptions there as that program is sort of rolled out and developed and progressed?

No. This was our second full-year of analyzing that our outside actuaries analyzing that. So although some minor adjustments here and there, but we are very encouraged with our subro collection process, we were able to secure 20% more recoveries in 2017 and 2016, and we have an expectation that that percentage will be even higher in 2018.

Just for some clarity, Ron. We brought and closed roughly $24 million so far the last two years and we feel that number again as Jon said, we will continue to trend positively, because of the work we have done early in the last couple of years. And we will start to see that work and actually, the final number baked in, so that we are pleased with the results.

Okay. Yes. I’m sorry.

I’m sorry to interrupt. I just wanted to give you the answer to your question. It was $67.5 million of cash at the holding company.

Okay. Sean, the 24, is that a two year number or 24 each year?

24 is a two year number as, basically as of the end of 2017.

Got you. Okay. In the press release, there is a reference to the reserves being set above the actuarial best estimate. I assume for you making a noteworthy comment that it’s not just a hair over the, a hair above the best estimate. Would you quantify or get some indication of the magnitude of conservatism above the best estimate?

$5 million.

Okay. Thanks. Sean do you mentioned that sort of the AOB, the incident of AOB in the Irma claim population was about 12% currently. In the ordinary course or sort of typical attrition losses non-cat losses. What’s that sort of comparable incident percentage.

20%.

20%, so it’s higher in a non-cat scenario. Okay.

Yes. The large deductable plays a role in that on the cat side. The, whoever it may be is not as eager to participate in that claim due to the large size of the deductible.

Oh I see. Okay. That makes sense. Thanks. And my last question is, could you talk about the direct initiatives this states where you are forecasting or experiencing the greatest amount of growth and traction. And obviously there is been some losses for example California is going through a brutal year with the wildfires, and I’m sure there is sort of some degree of dislocation there. As well as in other states where there is been cat events, Texas, I presume, with Harvey. Are those geographies or others I’m not thinking of that are particularly sort of fertile ground for 2018 and 2019 as a result? Thanks. And I’m done.

Yes. Obviously from a direct perspective, Florida is our biggest market, obviously then Georgia, Pennsylvania and South Carolina falling behind there. We haven’t really come to a final conclusion and how we are really going to pursue Universal Direct, we have had a lot of different potential offers with Universal Direct to figure out the best way to fully implement that and the best way obviously that we feel that it will be benefit the parent company. So moving forward, we are open to many different avenues and cross-selling different products, as well as products that are the same as ours from competitors. So to give you exact answer that we have a lot of things that we are working on, but nothing I can give it to you right now concrete.

And I’m sorry, there was, I just had one more question. You mentioned in the press release, the impact on premium volume in Q4 by virtue of the DFS order of non, prohibiting non-cancellations. Do you think there is a sort of the secondary adverse impact on the business that you were force to renew or maintain that would have otherwise cancelled. Is there any sort of adverse underwriting margin that we should be thinking about, you are thinking about you already experience in the fourth quarter as a result of that? And then somewhat related, what would your estimate to be on premium growth, if that order had not been put in place? Thanks a lot.

I don’t think that the order necessarily drove material increase. I mean, if you look at how we are growing the first three quarters. The fourth quarter was marginally larger in terms of any adverse impact on that type of business that remains to be seen. You have to ask that question in another year or so. I don’t think given the size of our book of business and the number of policies that we are talking about. I don’t think it would ever be anything that would be material to our results.

Okay. Thank you again and a great result in the past year. Good bye.

Thanks, Ron.

And that does conclude our Q&A session for today. I would now like to turn the call back to Mr. Sean Downes for any further remarks.

As always in closing, I would personally like to thank all of our shareholders, employees, board of directors, policyholders and my management team for their hard work and loyalty to Universal. This concludes the call. Thank you.

Ladies and gentleman, thank you for your participation in today’s conference. This concludes the program. You may all disconnect. Everyone, have a great day.