Good morning, ladies and gentlemen, and welcome to UVE Fourth Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Rob Luther, Vice President of Corporate Strategy and Investor Relations.

Thank you. And good morning, everyone. Welcome to our discussion on our fourth quarter 2018 earnings conference results which we reported yesterday. On the call wit me today is Sean Downes, Chairman and Chief Executive Officer, Jon Springer, President and Chief Risk Officer, Steve Donaghy, Chief Operating Officer and Frank Wilcox, Chief Financial Officer. Before we begin please note today's discussion may contain forward-looking statements and non-GAAP financial measures. Forward-looking statements involve assumptions, risks and uncertainties that could cause actual results to differ materially from those statements. For more information please see the press release, the all new earnings presentation and UVEs FEC filings all of which are available on the Investor section of our website at UniversalInsuranceHoldings.com and on the SECs website. A reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the quarterly press releases. With that, Sean I'll turn it over to you.

Thank you, Rob, and good morning, everyone. Thank you for joining us today. Let me start by touching at a high level on our financial results, and then I'll go into some of the exciting new strategic initiatives we've been working on. We ended 2018 with fourth quarter direct written premium up 12.3%, due to strong growth in Florida and others states. GAAP EPS of an $0.18 loss was primarily impacted by Hurricane Irma companion claims, which propagated into non-cat systemic claims representation in Florida, resulting an increase in prior year development. This strengthening resulted from an increase in the frequency and severity of non-cat claims spanning several prior accident years, including reopen claims, newly reported claims, increased litigation and increased loss settlements of claims above carried values. This reflects the trends and dynamics in the Florida marketplace attributable to assignment of benefits and the increased solicitation of prior year's claims in the post-Irma environment. On a non-GAAP adjusted EPS base, excluding net realized and unrealized gains and losses on investments, which are not core operations of our business, as well as extraordinary reinstatement premiums and associated commissions, we report a quarterly adjusted EPS of $0.13. We continue to monitor assignment of benefits AOB legislation in Florida and continue to take steps to address the Florida market dynamics. Over the past year, particularly in the fourth quarter, we have accelerated our operational focus on claims resolutions, including increasing our litigation talent pool, appointing a new Chief Legal Officer from our Board, Darryl Lewis and most importantly resolving outstanding claims in a timely, fair and equitable manner. Enabled going forward with our digital claims structure to improve the customer's experience. These efforts have resulted in a reduction in our outstanding non-cat, as well as reduction in our new inbound litigated claims,…

Thank you, Sean, and good morning everyone. As a reminder, discussions today on adjusted operating income and adjusted EPS are on a non-GAAP basis and exclude the impacts from unrealized and realized gains and losses on investments and reinstatement premiums and related commissions. Adjusted operating income also excludes interest expense. Total revenue grew 7.5% for the quarter, a 9.6% for the year, driven primarily by higher organic premium volume and rate increases, partially offset by unrealized losses. Pretax income margin was 18.6% for the year bolstered by our integrated service businesses. EPS for the quarter was an $0.18 loss on a GAAP basis and a $0.13 gain on a non-GAAP adjusted EPS basis and $3.27 and $4.11 for the full year respectively. Return - on average equity was 24.1% and book value per share grew 13.8% for the year. Turning to our underwriting results. In-force premium grew to approximately $1.2 billion, an increase of 12.8% from the prior year. Direct premiums written were up 12.3% for the quarter, led by growth of 8.7% in Florida, and 33.9% in other states. For the year, direct premiums written were also up double digits, led by 9.7% in Florida and 34.6% in other states. Underlying growth in Florida was strengthened by the state wide average rate increase of 3.4% approved in late 2017 and policy mix, while our other states geographic expansion continues to be strong. Ceded premium, excluding reinstatement premium as a percent of direct premium earned declined 1.5 points to 28.8% for the quarter and was down 1.4 points to 29.7% for the year. On the expense side, the combined ratio increased 33.6 points for the quarter to 111.2% and 2.9 points for the year to 87.3%, driven by an increase in prior year development, partially offset by our adjusting business…

Thank you, Frank. And good morning everyone. I would like to start with some additional color surrounding the continued impact from Hurricane Irma, then give an update on the third quarter event of Hurricane Florence and the fourth quarter event of Hurricane Michael. I will also discuss our reserve position, and lastly, touch briefly on the upcoming June 1 reinsurance renewal. On Hurricane Irma. We continue to experience new claims reported in the fourth quarter. Specifically, we received 2,200 new Irma claims. As of 12/31/18, we had received just over 88,000 Irma claims in total with less than 6,000 remaining open at that time. In evaluating this loss with our outside actuaries, we elected to book Hurricane Irma to a total gross loss and LAE of $956 million for UPCIC and $4.3 million for APPCIC. Looking at where the loss stood on 12/31/18 from an incurred loss in LAE basis, this new total ultimate number of $960 million included over $100 million of remaining IBNR. On Hurricane Florence, as of 12/31/18, we had just under 5,000 claims reported and less than 50 remained open at that time. The total gross loss and LAE was booked at $45 million for UPCIC. Again looking at where the loss stood on 12/31/18 from an incurred loss in LAE basis, this total ultimate number of $45 million, which is unchanged from our original estimate included nearly $8 million of remaining IBNR. On Hurricane Michael. As of 12/31/18, we had 8,300 claims reported and approximately 600 remained open. The total loss and LAE was booked at $350 million for UPCIC. Again looking at where the loss stood on 12/31/18 from an incurred loss and LAE basis, this total ultimate number of $350 million, which is also unchanged from our original estimate, included nearly $200 million…

Thanks, Jon. I'd like to ask the operator to now open the line for questions.

Thank you. [Operator Instructions] Our first question comes from Christopher Campbell with KBW. Your line is now open.

Yes. Hi, good morning gentlemen.

Good morning, Chris.

Good morning.

Yeah. First question reserve charge, I guess is there a way to break down, like the $97 million by accident year and maybe like geography of where you're seeing that?

This is Sean, Chris, first of all, good morning. It's state-wide, but obviously there is a predominance of it, as it relates to the areas that Irma affected. We can get you the breakdown, I think we have exact breakdown right now per year. But I think, we can look it up and give us a couple of minutes to get you that. The adverse development is directly correlated to the massive solicitation of the claims from plaintiffs firms post Hurricane Irma, as Jon mentioned previously in his remarks. In the middle of Q3, we started to see our litigation increasing for both cat and non-cat claims. The non-cat claims being the companion claims that Jon mentioned, being claims that were either previously are claim of ours that was reopened by the plaintiffs firm or AOB vendor and/or new claims that were opened for year ‘17 and prior. Around the middle of the third quarter, we started to see this increase in our litigation get to a point where we decided that we needed to make a few changes. As Jon alluded to earlier, and as I did, we hired Darryl Lewis to be our CLO, who is one of the leading litigators in the country and was a member of our Board of Directors. And the three things, we ask Darryl to do was to assess our personnel and our law firm, which consists of more than 165 people. Assess our processes the way in which our law firm communicates then discusses the individual claims with the insurance company, the claims company, as well as outside counsel, and then most importantly to assess our litigation inventory. Darryl was a very important part of the decision process going forward, and some changes that we implemented after that, specifically, we made…

Chris, this is Jon, Sean gave me time to dig out some numbers. The breakdown of the charge would be roughly at third of it into accident year 2017, roughly a third into accident year 2016, and then the remaining third would be spread across prior accident years '15 and prior.

Got it. And then how does that all feed into you. I guess that kind of goes into my next question is just given you had the adverse development and it looks like it's ‘17 and before. How is that feeling, I mean are you - could you expect something similar in accident year ‘18? And then how is - this increased solicitation of litigation? How is that feeding in your current year loss picks?

This is Sean, Chris. Number one, our ‘18 is performing well at this time per our actuarial review. Obviously, we increased our loss ratio in ‘18, compared to ‘17. And I think, going back to some things that I mentioned earlier with the way in which we have changed the communication or the relationship and dialog with our outside vendors in opposing counsel, we believe that our ‘18 is looking good. From a ‘19 perspective, we are going to increase our loss pick to 37, and I'll break that down for you, the reason for that is because of our increased portfolio spread in other states, that's kind of, is basically about a point we're looking at, and then we're going to increase two more points for our Florida making sure that we are sitting in a conservative position case anything arises for the future.

Got it. And that 37, that is a net core loss ratio or is that a gross one?

Direct...

Direct.

And that 37 basically is the three-year average of our last three years.

Okay. Got it. But then the trend would have 100 bps for other states just expanding into there, and then, you know, an additional 2% to be more conservative in Florida. Is that the right way to think about it? That's embedded in the 37, correct?

That's right. Both of those things are embedded in the 37.

Okay. Got it. And then just, you know, I don't know where you guys are out in terms of the rate filing process. So I guess just given you've had the adverse development and you are raising your loss picks. What's the opportunity to increase, you know, or to take more rate in terms of, you know, maybe helping to counteract that loss ratio increase?

Well, rate is definitely part of the answer, we do have a pending rate filing in Florida right now. So - and we did of course have a rate filing that included some meaningful increases in some of the most accident prone areas, our claim prone areas of the state last year. So we'll have something to report on this rate filing we expect within the next 30 days or so.

And we also - this is Sean, again. We also had some rate increases that are flowing through and started the process in some other states outside of Florida, Pennsylvania, Indiana, Minnesota, Virginia and Georgia.

Great. And then probably for you, Jon, just a question on the reinsurance renewals, I get it still early. Why don't you guys renew your cat fund participation at?

90%.

Okay. And that was the same year-over-year, correct?

Yes.

Okay. Now, I'm just wondering, you know, competitor was able to get like 15% sliver alongside, there is 75% participation. Just at like the same price as the cat fund. So I guess, if you would have that opportunity to buy more private market cover as the same price is what the state fund is giving, which you know my impression is that it's a little bit better coverage, all-in. Like, why wouldn't you guys go down to the 75% versus staying at 90%. I guess, could you just walk us through the calculus on your thinking there?

Yeah, I don't know if we have enough time on this call, but it's something that we evaluate every year and everybody's cat fund fits slightly differently within their reinsurance tower. I think that's a big misnomer. I think a lot of people, who don't spend every day on reinsurance thinks that everybody's cat fund attaches at the same return time and exits at the same return time and that's not the case. Everybody's fits a little bit different. So, some people will inevitably view the cat funds rates as more attractive than the open market, and some the other way. So it's something that each company has to evaluate individually. The amount of capacity can come into play. We're projecting to receive over $2 billion of limit from the cat fund. So for us to think about changing our percentage from 90% to 75% or to 45% you're talking about a rather meaningful open market purchase to replace that. It's not as simple as potentially some of the other smaller companies.

Okay. Got it. And that layer for this particular company what was impacted by Irma clearly, and they were able to get flat pricing. I guess, just what are your thoughts on just seeing a data point like that in the market, as an early read through into mid year or is it something you can't read through, because every company is different.

Every company is different, Chris, and I wouldn't read anything into that one data point.

Okay, wonderful. Thanks for all the answers. Best of luck in 2019.

Thanks, Chris.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Samir Khare with Capital Returns Management. Your line is now open.

Hi, good morning.

Good morning, Samir.

I was wondering how much the loss ratio did benefit from the claims adjusting reserves, and if you can break those - sorry not reserves, revenues and if you can break those revenues out by on the catastrophe that contributed to it?

Well, Frank is getting the numbers, we don't have the exact number is broken down for our catastrophe, but as you're fully aware our revenues directly correlated to UAC were from Hurricane Florence large event Hurricane Michael, as well as Jon mentioned, the continued claims that we received in Q4 of approximately 2,400 from Irma, plus our non-cat claims that were handled in quarter four. But we can get you that breakdown some around -- at least somehow that in front of us right now.

So Samir, in the aggregate for the fourth quarter of ‘18 UAC generated $36.6 million versus $33 million last year and as a percent that's pretty much flat. So the contribution is relative flowing through each loss year’s ratios.

Okay. And how do you envision these revenues coming in for the next few quarters? I know last quarter you said, you know, from Irma it could be de minimis, but going forward, seems like it could be quite a benefit?

I just think, obviously the cat claims are slowing down specifically as it relates to Michael and Florence. We're going to continue obviously still getting some Irma claims in, but that is trending down quarter-over-quarter. So I would expect it right now. Just to look at it from a flat perspective going forward, because I don't think we're going to be seeing that much that many claims that are coming from the cat environment.

Okay. And just on Michael, if you can break that down, I think, you said $9.8 million on that, and clearly is that benefiting from some claims revenues, but also probably in the out of states program. Could you break it down $35 million retention initially last quarter, and then -- and from there?

Yes, sure. So you're exactly right, that the difference between the $35 and the $9.8 is primarily attributable to the recovery from the other states, part of the Michael loss. So not to mention, we did have a drop down retention for second event outside of Florida, so that came into play. We recovered a little bit from that program as well. So that's the answer.

Okay, got it. So that $9.8 million doesn't reflect any benefit from the claims revenues attributed to Michael?

No. That has nothing to do with that. That's just the net retention after the coordination of all the reinsurance programs.

Got it, okay. And the subrogation receivables, has that change at all, if you talk about, what we can expect see from the yellow books, and if that contributed to any of the reserve strengthening?

The subro reserves, it's a unique relationship obviously, with the losses, so as we increase our predicted losses is -- as our outside actuary increases are predicted losses and then universe for subro opportunity becomes greater. So subro that you'll see in the yellow book will be up slightly, the ratio of that anticipated subro to the predicted losses will stay the same.

Okay. And how much capital do you guys have it in the unregulated entities, and that would be available for buybacks?

Let me just pull that for a second here.

Well, Frank is pulling that out. I just would add one thing related to subro, I know, you're always interested in it Samir, while we did bring in an increase of 40% year-over-year in subro recoveries.

Samir, we had $91 million in cash available at the holding company level.

Okay. I appreciate the detail on the Michael and Irma that you had before. Could you give me the same detail on Florence, since where the gross loss is there, how many claims?

Yes, sure. So booked the gross loss at $45 million, which is the same as our original number, as of year end we had just under 5,000 claims reported and less than 50 remained opened at that time.

Okay. Great. And just on the reinstatement premium in the quarter. Any other reinstatement amount left in the 2017 cat tower, if Irma develops from here?

Yeah, so the total limit is $23 million and through 2018 we incurred $20.7. So, just around $3 million left on that.

Okay. And that - would that developed, if the gross Irma loss developed from here or would that it - would have a, kind of - would it developed kind of a much higher point in the tower?

It will develop beyond the 960 ultimate that we booked, but it will develop very slowly because we're at a point in this loss where we're collecting the majority of the money from the Florida Hurricane cat fund, which obviously there's no reinstatement there. So we're collecting just a little bit along the side from the open market. So, that amount will stretch for a long time.

Okay. And then a similar question. Are there any reinstatement premiums that would have to be paid at either Florence or Michael developed adversely from here and at what levels?

Definitely none from Florence and we booked Michael at 350, which includes nearly $200 million of IBNR as of year end. And it would need to probably close to double from the 350 before we would incur any reinstatement.

Okay, great. Thank you very much.

All right. Thank you, Samir.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Sean Downes, Chairman and Chief Executive Officer for any closing remarks.

Thank you. As always in closing, I would personally like to thank all of our insurers, our employees, our agents and our stakeholders for their continued support at Universal. This concludes the conference. Thank you and have a nice day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.