Universal Insurance: Filling a Need in Florida

Includes: FNHC, HCI, UVE
by: John Donovan

Universal Insurance (NYSEMKT:UVE) is getting more interesting by the day. On Tuesday, November 3 they declared their typical quarterly dividend and a special dividend which amounts to an annual yield in the 9% range.

The stock is close to breaking out to new highs with a good looking sweep of MACD to support any move. See a weekly chart here.

Filling a need has always been a winning business model for companies in all industries. The background story is Florida has had a dysfunctional homeowners insurance marketplace since four hurricanes of significant intensity struck the state in 2004.

My homeowners insurance policy, like hundreds of thousands of others in Florida, is issued directly by the state of Florida. Most of us had no prior claims history but commercial insurance companies dropped our policies because requests for rate hikes were denied by state regulators.

Check recent news stories on UVE, HCII and TCHC and you will find the state of Florida is offering these firms tens of thousands of new customers (policies). All 3 are small cap publicly traded insurers based in Florida. HCII recently made an unsolicited buyout offer for TCHC. It was declined but TCHC floated a stock buyback plan to support their stock price.

Big dividends, substantial profitability, buyout offers, buyback offers and tens of thousands of new customers. This is a business niche with unique potential catalysts. All three are thinly traded so be careful with market orders.

Disclosure: Long UVE