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Universal Insurance Holdings Inc Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 9, 2012 04:30PM

Universal Insurance Holdings Inc (UVE) filed Quarterly Report for the period ended 2012-03-31. Univl Insur Hld has a market cap of $161.3 million; its shares were traded at around $3.97 with a P/E ratio of 6.7 and P/S ratio of 0.7. The dividend yield of Univl Insur Hld stocks is 10%. Univl Insur Hld had an annual average earning growth of 0.3% over the past 5 years.



Highlight of Business Operations:

In September 2010, the FASB issued guidance related to accounting for costs associated with acquiring or renewing insurance contracts. This guidance defines allowable deferred acquisition costs as costs incurred by insurance entities for the successful acquisition of new and renewal contracts. Such costs result directly from and are essential to the contract transaction(s) and would not have been incurred by the insurance entity had the contract(s) not occurred. This guidance is effective for periods beginning after December 15, 2011, with early adoption permitted. The Company adopted this guidance prospectively effective January 1, 2012. Under the new guidance, the Company’s net deferred policy acquisition costs were reduced from $13.0 million to $11.4 million, a difference of 13%. The resulting $1.6 million difference was charged directly to earnings during the three months ended March 31, 2012. This charge represents a charge-off of capitalized costs existing at December 31, 2011, which would have been amortized to earnings within a twelve-month period under the old guidance.

As discussed in Note 2 – Significant Accounting Policies, the Company prospectively adopted new accounting guidance effective January 1, 2012 related to accounting for costs associated with acquiring or renewing insurance contracts. This guidance resulted in a reduction of our net deferred policy acquisition costs as of December 31, 2011 by 13%, and a corresponding charge of $1.6 million, before taxes of $617 thousand, against earnings during the first quarter of 2012. This charge represents an acceleration of capitalized costs existing at December 31, 2011, which would have been amortized to earnings within a twelve-month period under the old guidance. Approximately $9 million of net costs would have been deferred during the three months ended March 31, 2012 under the old guidance compared to the $5.6 million under the new guidance. Future expenses will be higher with the adoption of this guidance, as the amounts being deferred have decreased, partially offset by less amortization. The effect of this change in future periods on income and per share amounts is not determinable as the historical methodology will have been discontinued after adoption.

We prospectively adopted new accounting guidance related to accounting for costs associated with acquiring or renewing insurance contracts effective January 1, 2012. The overall impact under the new guidance, which was adopted on January 1, 2012, was a reduction in earnings of $2.7 million ($1.7 million after tax or $0.04 per diluted share). The $2.7 million pre-tax reduction in earnings during the three months ended March 31, 2012, includes an acceleration of capitalized costs existing as of December 31, 2011, which would have been amortized to earnings within a twelve-month period, and the immediate recognition of costs which otherwise would have been deferred, partially offset by a lesser amount of amortization expense due to the reduction in capitalized costs. The new guidance does not result in incremental charges to earnings, but rather affects the timing of the recognition of those charges in the income statement.

General and administrative expenses increased by $2.8 million due primarily to the adoption of new accounting guidance related to deferred acquisition costs. The overall impact under the new guidance, which was adopted on January 1, 2012, was a reduction in earnings of $2.7 million ($1.7 million after tax or $0.04 per diluted share). The $2.7 million pre-tax reduction in earnings during the three months ended March 31, 2012, includes an acceleration of capitalized costs existing as of December 31, 2011, which would have been amortized to earnings within a twelve-month period, and the immediate recognition of costs which otherwise would have been deferred, partially offset by a lesser amount of amortization expense due to the reduction in capitalized costs. The new guidance does not result in incremental charges to earnings, but rather affects the timing of the recognition of those charges in the income statement. There were also increases in stock-based compensation of $614 thousand for the three months ended March 31, 2012 compared to the same period in 2011, and non-recurring credits in the amount of $469 thousand from the recovery of Florida Insurance Guaranty Association (“FIGA”) assessments recorded during the three months ended March 31, 2011. FIGA assessments are ultimately passed down to policyholders. Amounts charged or credited to our earnings represent timing differences between the time assessments are made by FIGA to us, and the collection of those assessments from policyholders. These increases were partially offset by a decrease in performance-based bonus accruals of $418 thousand and a decrease of $242 thousand in legal fees related to corporate matters. Performance-based bonuses are based on either net income before taxes or net income.

Effective July 1, 2010, we elected to classify our securities investment portfolio as trading. Accordingly, purchases and sales of investment securities are included in cash flows from operations beginning July 1, 2010. We generated $95.3 million in cash from operations during the three months ended March 31, 2012, compared to $ 119.8 million of cash generated by operating activities for the three months ended March 31, 2011. The generation of cash during the three months ended March 31, 2012 reflects proceeds from sales of investment securities, net of purchases, of $12.4 million, compared to $71.2 million during the three months ended March 31, 2011.

Read the The complete Report



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