Good morning, ladies and gentlemen, and welcome to the UVE Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later there will be 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 second quarter 2019 earnings results which we reported yesterday. On the call with me today is Steve Donaghy Chief Executive Officer; Jon Springer, President and Chief Risk 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, our earnings presentation and UVE's SEC 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 release.With that, Steve, I'll turn it over to you.

Thank you, Rob, and good morning, everyone. Thank you for joining us today. I want to begin by thanking our board for their vote of confidence in being named the new Chief Executive Officer, which was announced in mid-July. I am fortunate to have assisted Universal in arriving at this juncture and I'm excited to continue our growth by executing against our strategic priorities. Further, I would like to congratulate Sean Downes on his appointment as Executive Chairman. He along with our seasoned management team have enabled a seamless transition.Sean's service over the past 20 years is marked by strong growth and creating a culture of success. I look forward to his support and that of our board as we work together to continue to elevate ways in which we can better serve our consumers and create value for our shareholders.Moving to our results. Yesterday, we reported our second quarter 2019 results, extending a strong first quarter into a solid second quarter and first half of 2019. For the first half of 2019, total revenue was up 17.2% to $470.3 million. Direct premiums written were up 5.6% doing large part to strong growth outside of Florida.EPS was $2.22 on a GAAP basis and $2.05 on a non-GAAP adjusted basis for the first half of 2019. Our first half annualized return on average equity was 28.7%. Book value per share grew 17.4% and our pretax income margin was a strong 22.3% in the first half -- all supported by premium volume, pricing, integrated services and our investment portfolio performance.Turning to our continued progress on our strategic initiatives. We finalized our 2019 and 2020 reinsurance programs and were able to secure more catastrophe coverage than in any other point in the history of the company. We continued to proactively expand our addressable in the second quarter with Universal Property becoming licensed in Wisconsin. And Universal Property and its direct-to-consumer distribution channel, Universal Direct off to a good start in Illinois where we began writing in the first quarter of this year.Lastly, our digital insurance distribution channel Clovered continue the expansion becoming licensed in more than 15 states and added five additional carrier appointments across home owners, auto, flood and E&S lines. So overall, we continue to see positive momentum in the first half of 2019 across the company on our initiatives. In a moment, Jon will provide an update on our risk management initiatives, but first let me now turn it over to Frank to walk through our financial results.Frank?

Thank you, Steve, and good morning, everyone. As a reminder, discussions today on adjusted operating income and adjusted EPS are on a non-GAAP basis and exclude impacts from unrealized and realized gains and losses on investments and extraordinary reinstatement premiums and related commissions. Adjusted operating income also excludes interest expense.Total revenue grew 11.4% for the quarter and 17.2% for the first half of 2019 driven primarily by higher organic premium volume, pricing in our investment portfolio performance, partially offset by realized losses in our investment portfolio.Pretax income margin was 21.8% for the quarter and 22.3% for the first half of 2019, bolstered by our investment portfolio and integrated service businesses. EPS for the quarter was $1.08 on a GAAP basis and $1.05 on a non-GAAP adjusted EPS basis and $2.22 and $2.05 for the first half of 2019 respectively. These results reflect the positive momentum from premium growth and investment performance, but also include an increased core booked loss ratio in 2019 when compared to 2018 to bolster our reserved position. A lower benefit from the integrated service as prior years' claims conclude in a higher effective tax rate.In addition, the EPS decline related to 2018 was also driven by pretax $6.5 million non-recurring benefit and policy acquisition cost in the second quarter of 2018 which accounted for approximately $0.13 of GAAP and non-GAAP adjusted EPS for the second quarter of 2018 and the first half of 2018. Annualized return on average equity was 28.7% for the first half of 2019 while book value per share grew 17.4% year-over-year.Turning to our underwriting results. Premiums enforce grew to approximately $1.2 billion, an increase of 9.2% from the prior year. Direct premiums earned were up 10.6% for the quarter led by growth of 33.2% in other states and 7.1% in Florida. For…

Thank you, Frank, and good morning, everyone. I would like to start with some additional color on prior years development and first and second quarter weather events and I'll touch on our reinsurance programs placed at June 1, and we'll conclude with some parting thoughts on our risk management initiative and associated market dynamics.On prior year developments, we continue to experience new claims reported in the second quarter on hurricane Irma, albeit at a slower clip than prior quarters. As of June 30, we have received over 92,000 Irma claims in total with approximately 5,500 remaining open. In evaluating Irma as of June 30, we elected to increase hurricane Irma's total gross loss to a total of $1.055 billion. On a net basis, there are zero impact to Universal from a loss perspective and minimal impact from a reinstatement premium standpoint. At this point in the life cycle of hurricane Irma, the vast majority of any loss development will be recovered from the Florida Hurricane Catastrophe Fund.For clarity purposes, we began the 2017 hurricane season, the year Irma occurred with $1.87 billion of limit available to UPCIC from the FHCF and we have only build $104 million to date, leaving approximately $1.760 million of limit still available.In regard to hurricanes Matthew and Florence, we elected to slighted increase the total gross losses to $46.5 million and $50 million respectively. Hurricane Michael remains unchanged at $350 million. On a net basis, hurricane Matthew was the primary driver of the $670,000 or 30 basis points impact in the quarter with Florence and Michael resulting in no impact.In regards to first and second quarter weather event, for the hailstorm in Brevard County Florida in Q1 as expected, we received additional claims related to this event since the end of Q1, of which approximately…

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 open.

Hi. Good morning, gentlemen. Congrats on the quarter.

Thanks, Chris.

I'll start off with a few reinsurance questions. I guess out of the $98 million, you look like there was lots in a million net, I guess, and it sounds like most of that is going to the Cat fund. How much private market capacity do you still have remaining in the 2017 tower? And then within that, how much cover do you have that can cover like loss adjustment expenses?

Thanks, Chris. This is Jon. We have enough available open market capacity available for this loss to develop the several hundred more million before we would ever be exposed to any additional dollar of net loss. I'm sorry, what was the second part of that question?

How much coverage? Because they have the LAE cap within the Cat fund. So that spills over to the private market. I guess much more theoretical LAE coverage would you have in the private market layer?

That's a difficult one to answer, but one of the things that we've talked about on prior calls is our strategy in handling Irma claims and the way we went about structuring the loss adjustment expense by front-loading a lot of those cost and setting up counsel at flat fees. So we're in a position now where a lot of those claims are finally reaching settlement and the incremental increase is only indemnity, there is no additional loss adjustment expenses associated with bringing these claims to closure. So that puts us in a good position based upon the initial strategy of front-loading the LAE.

Got it. And that's what you have mentioned in your script about having like -- so the indemnity would be covered under that $1.76 billion of limit you guys still have in the 2017 tower for the Cat fund. Right?

That's correct. The FHCF will reimburse us for the vast majority of the indemnity and then of course an additional 5% of any indemnity that they pay.

Okay, great. And then could you give us a little color? What were the rates up? A lot of program changes. What were rates up on a risk adjusted basis for the program and then how do you think reinsurers are going to react to the ongoing creep for like your multi-year pricing?

Well, I'll start with the second part. I think in terms of the ongoing creep as we just talked about, the majority of this portion of the event is going to be borne by the Florida Hurricane Catastrophe Fund. So not a lot of this additional development is going to be paid by open market reinsurers. And I think as I'm sure, most companies have had some very open and honest discussions with their reinsurance partners. So they're well aware of what it's going to take to bring hurricane Irma to final closure. I'm not too concerned with our reinsurance partners' reaction from that standpoint.In terms of risk adjusted rate, we're not going to get into specifics from one layer to another. I mentioned in my opening remarks, what's most important we believe is what percent of our gross earn premium are we spending to buy the reinsurance tower that we purchased and that's right at 33.3% this year, which is up from just a little over 31% at this time last year.

Okay, got it. That's very helpful. Thanks, Jon. I noticed the reserves, not a lot of development, but you do have the higher loss picks. Did you guys see any uptick in accelerated AOB litigation activity? Looking at one of your peers, they told like [ph] $7 million reserved charge for that. So just wondering -- and every company's experience is different, obviously. I'm not asking you to comment on their experience. But did you guys see like an elevated increase in claims?

Yes, Chris. This is Steve. We have seen an increase in the AOB's file to-date. We are optimistic about the AOB legislation and the future impact that is going to have on our operations and cost. And I think another key point for us is that with the size and structure of our claims organization that's been built over the years, we very quickly can respond to increases and influxes of various types of claims and request from our insurers. So it puts us in a position to deal with things in a quicker fashion, I feel. So we're positioned well, we've taken no charge as a result of the uptick and we will deal with each claim on a one-by-one basis.

Got it. And then just with the reinsurance rate increases. I know you're not going to factor in AOB reform. What are your plans in terms of like a Florida rate filing? I know Florida lets you do like an accelerated rate filing once you get all the reinsurance paperwork completed. Do you guys have a plan to take to accelerate your annual review and try to take rates earlier?

No. As we mentioned in the opening remarks, our most recent Florida rate filing just went into effect here a couple of months ago, so we're going to let that one play out along with letting some water pass under the bridge on this new AOB law and put ourselves in a position to make a filing with some actual data towards the end of 2019.

Got it. And then a question on the balance sheet. The reinsurance recoverable is $331 million, but the loss reserves are only $288 million. So that would imply a net negative reserves. I guess how should we think about that?

The recoverable includes both recoverables on paid and unpaid losses. When you look at our 10-Q filing and you look at our insurance operations footnote, you'll see a roll forward there and you'll see the amount of recoverable that is for unpaid balances. And there's also a footnote for reinsurance which has the components of that recoverable. You'll get your answer by looking at that footnote.

Okay. So I can get that from the 10-Q? Awesome.

Yes.

Okay. And then a few questions for Steve. I guess just given the reserve challenges you guys have last year, will your appointment, is that going to change the cadence to that reserve review process? Would you do that earlier than in Q4 2019?

No, Chris. We are going to begin our reserve analysis as we typically have in past years with the review at the end of Q3 and then a follow up review at the end of the year. It is a very thoughtful process that has served us well and we will continue on that same vain. I don't think there would have been an appropriate amount of time to rush something and as we typically are, we try and be very thoughtful about these. As you know, with the way we've built on a few different levels of conservatism into our reserves this year. We feel optimistic as we go into the rest of the year.

Okay, great. And then just last one for you, Steve. Should we expect any changes in your approach versus Sean's going forward?

It's a good question, Chris. I think there are going to be some variations in the approach, but I would expect the pillars of how we've gotten this company into such a great position. No debt on our balance sheet, organic growth really conservative reinsurance with a lot of partners we've been doing business with for 20 plus years. I expect the big things to stay the same, but I do expect there will be some philosophical difference between Sean and I as there would between any two people probably in the universe. Mostly the same, but there will be some new ones.

Okay, great. Thanks for all the answers. Best of luck in the third quarter.

Thanks, Chris. Have a great day.

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

Hi, good morning. Sorry if you guys covered this year, but what was the premiums through the directional inside and outside of Florida?

Hey, Samir. Good morning. Last quarter, we brought on over 2,000 policies and $2.7 million in premium. We also expanded a lot of our additional carrier relationships. In those numbers are some portion of non-risk bearing premium that has come into the gate as well.

Got it. Okay. And then do you want to talk about some of the partnerships or initiatives on the platform new to the quarter?

Not specifically, no. We have a lot of partners or people that are reaching out to us now based on the volume we've been writing. And our goal is to continue to execute against sales to consumers that come into our net. If Universal is the right solution, we'll push them. If another carrier is the right solution, we'll quickly move to them and sell somebody else's policy.

Okay, great. The 2,000 policy you just cited, that was policies Universal wrote?

That would be a combination of Universal and our partners.

Okay, got it. All right. And then I know that you guys talked about the E&S business that you're writing there. I'm just wondering whether any of that ends up on your balance sheet?

No. None of that ends up on our balance sheet and it is a policy that we write when a consumer cannot get into an admitted carrier's bucket, so to say.

Okay. Is that usually commercial or is that personal lines as well?

No. All of our business in that platform so far, Samir has been personal lines.

I was just going to say my name is Samir. Yes. And then hurricane Matthew. I'm surprised to hear that it has developed so much, nearly three years later. Can you tell us what's going on there?

It hasn't really developed all that much. As we disclosed I guess probably two years ago and now we have made a decision in exchange for negotiating something in the future, we commuted a very small portion of our catastrophe program. So what has transpired is the development has slightly crept into the commuted reinsurance which we're now retaining net.

All right. I see. Okay. And then just the growth runway in Florida. You talked about being a bit more disciplined. Is that resulting in lower new business or lower retentions on your renewal business or both?

It's a great question, Samir. Our retention has remained fairly consistent so we feel really good about the retention. With the organic business that we've always brought on traditionally, our agency force has responded very well to the changes we've made and our goal is to continue to achieve more of a distributed growth within the state of Florida. As we made those underwriting changes, pursuant to that and then after a lot of thoughtful consideration on where we were adjusting those underwriting guidelines, we then went into the marketing department and insured that we would be able to continue the growth that we've committed to in the past. And we feel pretty good as we said here in August 1 in that regard.

Okay, I guess the more disciplined approach that you're taking that you referred to earlier is really more about a more balanced portfolio within Florida?

I think it's a combination of things that are actuaries. It seems by annualizing our internal profitability model, various things that are claims, adjusters and management have brought to the table. So as we gather and talk about underwriting, it's not one particular pillar of the company, it's a group conversation about what we should be bringing on, where we should be bringing that business on from and how can we increase the balance across the states. It's a multi-pronged conversation that we feel pretty good about as we sit here right now.

Okay. In any way, do you guys feel that you're reaching a saturation point in any of your subsidiaries in Florida? You guys are the largest market share in Florida by far.

Samir, I think there's a tremendous opportunity that continues in Florida. A lot of various people from across the country are moving quickly to Florida and other states due to tax basis and other positive things that we have here in Florida. If we just continue at the penetration we have, we'll continue growth in the state of Florida.

Okay, great. Thank you. Congratulations on the quarter.

Have a great day.

Thank you. I'm currently showing no further questions at this time. I'd lie to turn the call back over to Steve Donaghy for closing remarks.

Thank you. In closing, I would like to thank our associates, consumers, agents and our stakeholders for their continued support of Universal. Have a great day.

Ladies and gentlemen, this conclude today's conference. Thank you for joining and have a wonderful day.