A Dividend With Less Risk Than Assumed

The Risk Perception Universal Insurance Holdings (UVE) is a property and casualty insurance company offering primarily property insurance coverage in states along the U. S. East Coast and the Gulf Coast but also in the upper Midwest and Mid-Atlantic regions. The company is based in Florida and is the third largest insurer of homes in that state.
The perception is that the company has too much exposure to hurricanes in Florida and that one major storm will wipe out its entire value. Another theme is that the CEO is a hooligan with a criminal record and will make poor decisions for the company just like he did when he was much younger. The short interest is relatively high on this stock at about 17.7 percent of float. We need to understand the reality to put these myths into proper perspective.
The first myth may have had more merit before the company began its broad geographical diversification. Yes, it may remain exposed to some costal states (Florida, Georgia, South Carolina, North Carolina, Virginia, Maryland, Delaware, Massachusetts and Alabama) where the threat of hurricane activity is higher, but the flip side to that argument is that underwriters of the company have developed a strong understanding of the risks inherent to this type of business. With diversification across the Upper Midwest (Michigan, Indiana and Minnesota) and Pennsylvania (not to mention Hawaii) the company has spread the risk of loss across a much broader base of homeowners and reduced its reliance on... Read more

Older articles featuring UVE: