Q3 2019 Earnings Call
Good morning, and welcome to the fed Nat <unk> holding company's third quarter 2019 financial results Conference call.
My name is Richter and I'll be your conference operator this morning.
At this time, all participants will be and they listen only mode.
What we begin today's call I like to remind everyone that this conference call is recorded as well as broadcast live via webcast.
Additionally, today's call will be available via webcast replay later this afternoon.
And accessible by visiting the Investor Relations section of fed and that's website at www Dot fed Nat Dot com.
Now, let's turn the call over to burning coal Kelly for Fed Nat Investor Relations Bernie.
Thank you.
Good morning, and welcome again, too, but not third quarter 2019.
Financial results conference call.
Our earnings release and prepared remarks include references to non-GAAP measures such as adjusted operating income.
We use these non-GAAP measures to provide greater transparency and a more meaningful efficient comparison to prior years results.
Our non-GAAP definitions can be found on page four of our earnings release and reconciliations from the GAAP measures to the non-GAAP measures begin on page 13.
Statements in this conference call that are not historical facts are forward looking statements.
Words, such as anticipate believe contemplate could envision estimate expect guidance indicate intend may might play and potential predict probably project seek should target or will and other similar.
Her words or phrases are intended to identify forward looking statements.
The matters discussed on this call that are forward looking statements are based on current management expectations involving risks and uncertainties that may result in these expectations not being realized.
Actual events outcomes and results may differ materially from what is expressed or forecasted in forward looking statements made on this call due to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in this conference call our press release issued.
Yesterday and other filings made by the company with the CCGT from time to time.
Forward looking statements made during this conference call speak only as of today's date and fed Nat holding company, specifically disclaims any obligation to update or revise any forward looking statements to reflect new information, you true events or circumstances or otherwise.
Now I'll turn the call over to Mike Braun Fed Nat CEO .
Thank you good morning, and welcome to our third quarter 2019 Conference call, Ron Jordan, Our Chief Financial Officer, and Air Fernandez, Our Chief Accounting Officer are here with me. This morning, I'm going to give an overview of the quarter then Ron will provide a deeper dive into the financial results and then we will have time for questions.
That had solid performance in the third quarter and made significant progress on our strategy is to position the company for future growth and shareholder value.
Book value per share rose to $18.45 at September 30, which represents an increase of 10% year to date earnings per share were 36 cents compared to 62 cents in the prior years quarter, primarily due to the impact of 7 million of pretax catastrophe losses in the quarter Arthur.
Third quarter net income was also impacted by higher reinsurance costs, which Ron will detail in his remarks, the performance of our core homeowners business was solid with profitable growth and we continue to make progress in winding down our non core auto and see GL business, including a 39% reduction.
And open auto claims compared to this years second quarter.
Our exit from these businesses will enable us to improve fed that overall profitability as we focus solely on our core homeowners insurance business.
While higher reinsurance costs impacted the quarter a portion of the increased costs was driven by recent growth in our core homeowners book of business, primarily in Texas, along with the stabilization of our book in Florida.
As our product offerings have become more competitive in the marketplace.
This bode well bodes well for the future due to a larger go forward earnings engine, we have in place even before factoring in the addition of the Mason acquisition.
Turning to mace on the acquisition continues to be on track to close in early December with all necessary regulatory approvals in place. We are excited about the strategic and financial benefits. This transaction will bring to fed Nat.
As I've said in the past May sign is a perfect fit for fed Nat as the book increases our market share in Texas, and Louisiana, two states that have attractive potential for profitable growth.
The acquisition of Mace on accelerates our strategy to profitably grow our non Florida homeowners book.
We expect Mason to be accretive to earnings per share based on 3 million, an operating synergies and 7 million in savings from our combined 2019, 2020 reinsurance program, which is already reflected in the combined reinsurance tower that took effect on July one.
In the third quarter gross written premiums increased 14.5% driven by 75% growth in our non Florida book of business.
It is also worth noting that Effient Icees, Florida gross written premiums grew in Q3.
19, as compared to Q3 18, representing the first instance of year over year quarterly growth in our Florida book in over two years driven by rate increases.
Net premiums earned were 87.4 million.
11% decrease from the prior years quarter. This was primarily due to the impact of the higher catastrophe reinsurance ceded premiums in the quarter, which as a results of our new reinsurance coverage that started in July are also a byproduct of our growing book of business.
Our 11 million of gross catastrophe losses in the quarter included 8 million from our non Florida property book, which is subject to a 50% profit sharing agreement with Sage shore.
Our independent managing general underwriter for our non Florida business.
The catastrophe losses arose primarily from Hurricane Dorian Hurricane Barry and tropical storm, Imelda, which impacted South Carolina, Florida, and Louisiana and Texas.
I'm proud to say that fed Nat dedicated staff once again provided quality service to our policyholders and our trusted agents and their time of Nene, which is our own is our number one priority.
We remain encouraged by the reputation this level of service affords fed net as we continue to be a destination for our 2500 plus industry leading partner agents.
In the Florida market assignment of benefits reform went into a fell effect in July as you know a ob has been a major disruptive force in the Florida homeowners market and one of this one other one main reasons for increases in Attritional losses over the past several years.
We have been ahead of the curve offsetting higher Florida claim costs with rate increases, which compounded at a rate of 21% over the past three years.
We believe the new legislation is a big win for Florida homeowners and should eventually lead to reduce premiums for policy holders as well as lower cost to us the insurers and our reinsurance partners.
It is still early days, but we're already seeing early benefits of this reform, including a declining.
Of it'll be related lawsuits, we look forward to providing an update in future quarters as the full picture of the impact of a it will be reform comes into focus this improved operating environment in our core market paired with our proactive approach two rate increases because this positions us to profit.
Only grow afford a book of business and capture greater share of the fragmented $9 billion plus homeowners market.
Additionally, as we bring makes on into the fold, we have more opportunity to expand our presence in the large middle market segment of the Florida homeowners market, where we are currently underway.
In our non Florida business, we're continuing to profitably grow our home Moaners book in Texas, Louisiana, Alabama in South Carolina, We believe we have a long runway for continued growth in new states, particularly upon the completion of the Mason acquisition.
In the third quarter non Florida gross premiums grew to 28.4 million of 58% year over year increase this growth was led by strong growth in Texas, Our biggest book of business outside of Florida, which almost triple gross premiums earned in and around the Houston area and other costs.
Total regions.
Well not quite yet part of the fed Nat family. It is also worth mentioning that multiple rate increases are taking hold that may soften may signs underwriting results improve every day as a result of these rate increases that were and are still being implemented upon the renewal of each policy and includes a 40% state wide enough.
Greece and the state of Texas.
Said, that's improved operating efficiency, resulting from the initiatives we implemented in 2018 that produced 6 million an annual savings.
And our exit of non core lines is contributing to improvement in our gross expense ratio, which Ron will discuss in more detail.
Our capital structure remains strong with ample capital and flexibility following the close of the Mason acquisition, we anticipate that we will be able to use some of the capital to resume our share repurchase program, which we believe is a strong opportunity to deliver value and capital to our shareholders. In addition to our quarterly cash.
Cash dividends to that and in addition in tandem with our earnings announcement, we announced that our board approved a 12.5% increase in the company's quarterly cash dividend to nine cents.
Net values its shareholders and management stands with the board and seeing value in returning capital to shareholders.
Before I turn the call over to Ron I want to highlight important governments corporate government enhancements that we recently put in place.
At our annual shareholders meeting on October 17, two additional independent directors were elected to the board. This expands the total number of directors to nine with eight independent directors. We are thrilled to have Dave Michelson and Dave Patterson on our board.
Both bring deep insurance industry experience and backgrounds.
The sweet leaders. Additionally, in recent years, we've strengthened our shareholders rights by amending our corporate government documents to eliminate Super majority voting requirements and reduce the percentage of shares outstanding needed to call a special meeting.
We're pleased to report that these efforts have been recognized by the leading proxy advisor ISS, which recently gave fed Nat it's top governance score.
Now I'll turn the call over to Ron to go over the numbers.
Thanks, Mike and good morning, everyone. We were pleased with the performance of our core homeowners business in the third quarter with improvement in underlying pricing and combined ratio trends at the same time, our results continued to be impacted by catastrophe losses from severe weather events.
In 2019, as Mike discussed third quarter pretax income was reduced by 7 million due to cat losses, as compared to 4 million pre tax impact in last year's third quarter on a year to date basis. The comparable figures are pre tax impacts from weather related events of 35 million in 2019.
As compared to 5.4 million in 2018.
Our third quarter results were also impacted by higher reinsurance costs, which I'll comment on in a moment.
Net income in the quarter was 4.7 million or 36 cents per share adjusted operating income was 4.3 million or 33 cents per share. The primary non-GAAP adjustment. This quarter was the exclusion of roughly $800000 a pretax investment gains.
Mike has already covered the details of our Threeq you cat losses, So I will share some remarks on the other notable impact in the quarter, the higher reinsurance costs, which shows up as an increase in ceded premiums in our income statement.
The increase was driven by two factors first the fact that our Florida quota share Treaty was set at 10% in Threeq, you 19, as compared to 2% in Threeq you 18.
And second the true up of the loss exposure characteristics of our homeowners book of business from projected information as of last March to actual information as of September .
30, this true up occurs each year in the normal course of our catastrophe coverages, both with respect to the Florida Hurricane Cat fund as well as in terms of our private reinsurance spend and spans our total book of business across all the states we operate in.
As you know we have been laser focused on the profitability of our enforce book, especially Florida, which is reflected first through our industry, leading rate increases, including 4.6%, Florida increase that took effect in April this year and second through our rigorous exposure management.
These factors have driven a steady and deliberate decrease in the size of our Florida book over the past couple of years as a result, the catastrophe program true ups in recent years have tended to be small and in a favorable direction. However, as already mentioned that insurance companies, Florida book grew in the third quarter.
With Three Q1 9, gross written premiums up 2% from Threeq to 18. This was driven by rate increases an increase in our renewal retention percentage and an uptick in new business production with improved retention and new business dynamics emerging over the course of the third quarter.
Contributing to this inflection point back to growth in our Florida book has been an increase in the price competitiveness of our product offerings. As a result of sizable rate increases brought to market by numerous carriers in the middle part of 2018.
As a result of these positive trends are enforce book of business and the underlying loss exposures are larger at September 30, then the earlier projection that drove the 165 million treaty year cost estimate previously disclosed.
The 1920 Treaty year cost now stands at 179 million an increase of 14 million over the course of the full treaty year as a point of comparison. The 18 19 treaty year costs was approximately 149 million for clarity the figures and exciting here pertain to our two existing carriers.
And do not include Mason.
Without going into proprietary specifics on the related offsets the net impact over the full treaty year is expected to be approximately $15 million pretax or 11 million after tax.
In terms of our third quarter earnings catastrophe reinsurance costs increased 8.1 million as compared to the third quarter of 2018, and 8.8 million as compared to the second quarter of 2019.
The after tax impact on the quarter of these higher reinsurance costs was approximately $3.2 million or 25 cents per diluted share.
The increase in ceded premiums, resulting from the September 30 exposure adjustments, specifically accounted for just under half of the overall impact or 11 cents per share.
However, going forward, our profitability will benefit from our well proven Florida book of business returning to growth mode.
Note that the combination of a growing book the September 30 point in time adjustment and the accounting conventions that spreads the annualized cost of the cat treaty evenly over four quarters results in the third quarter bearing a somewhat oversized portion of the annual treaty cost relative to the actual level.
Gross earned premiums in the quarter to put a finer point on it consider new business written at the very ended the quarter. Despite the fact that the quarter includes essentially no gross earned premium on such policies. It bears 25% of the annual cost of catastrophe coverage for those policies. This punitive dynamic is unique.
The third quarter and will not recur over the remainder of the treaty year.
Also worth noting is the fact that the increased ceded premiums have on net loss expense and combined ratios. The additional 8.1 million of ceded cat premium in the quarter reduced net earned premiums by over 8% from what they would have been absent the increase as a result.
All the combined ratio and each component there of our elevated by 8% on a relative basis subject to related numerator impacts.
This added six points to our net loss ratio and 0.8 points to the net expense ratio in the third quarter.
While stating the obvious it's important to note that the denominator impact portion of the increase in these metrics is strictly a function of lower net earned premiums and is not indicative of an increase in losses or expenses.
Well now, let's turn to the gross expense ratio. This is an important measure of our expense efficiency and compared to the net expense ratio has the advantage of excluding noise associated with fluctuations in ceded premiums.
This ratio improved by 270 basis points to 22.9% in third quarter from 25.6% in the prior year quarter.
Excluding the impact that non Florida cat losses had on the Sage share profit share expense in each period that improvement is still a healthy 140 basis points demonstrating the benefits of the staff reductions and technology initiatives, we implemented in 2018, which resulted in 6 million of.
Annualized savings and the efficiencies of the increasing scale of our homeowners business.
Now, let's look at our lines of business, starting with our core business homeowners, which made 3.4 million in the quarter with cat losses, representing 5.3 million of after tax headwind in this line of business.
Gross written premiums grew 17.6 million or 13% compared to the third quarter of 2018 in our non Florida business gross written premiums increased 16.7 million or 76% as our brand continues to gain increased recognition and broader distribution in these growing markets.
Importantly, fscs gross written premiums in Florida increased by 2.2 million or 2%, which was the first time, we've had quarter over quarter growth in our Florida book in over two years as Mike mentioned.
We believe this inflection point back to growth reflects a hardening of the market in Florida as competitors are increasing rates such that fed natch rates, which in body over 21% of compound it increases over the past three years have become more competitive.
An important point that I want to clarify is that we remain laser focused on our underwriting profitability and did not loosen our underwriting standards.
To capture this additional market share.
Our homeowners combined ratio was 102.3% in the third quarter compared to 93.6% in the third quarter last year due to the higher cat losses, and higher ceded premiums that we have already discussed together. These two drivers added almost 15 points to the combined ratio.
I would have otherwise come in at around 87.5%.
Two and a half points lower than Three Q1 8, homeowners combined ratio of 90%, excluding four points of cat impact in that quarter, demonstrating the positive trajectory. Our core business is on in terms of pricing and efficiencies of scale.
Turning to our noncore operations. The main takeaway is that headwinds from these discontinued lines continue to diminish auto is purely and claims runoff mode and CGM is now there as well with policies in force having reached a zero as of September 32019, an important milestone in the.
Yes it.
Open claim count in auto declined by 39% during the quarter to less than 300 claims and we recorded 600000 of reserve development in the quarter compared to almost 1 million in the third quarter, a year ago contributing to a 771000 improvement.
And adjusted operating earnings in the quarter compared to Threeq you 18.
Commercial general liability is included in our other line of business.
CDL gross earned premiums were 157000 in the third quarter compared with 2.1 million in the third quarter last year. We recorded 300000 of CCL reserve strengthening in the quarter as compared to 900000 in the third quarter of 2018 overall, our other line of business generated one point.
3 million of adjusted operating income and improvement of 1.3 million compared to last year's third quarter, which came in at breakeven.
This was driven by net investment income of 4.1 million, which increased 930000 over last year's third quarter as a result of growth in our investment portfolio and improved fixed income yields.
Along with a lower effective tax rate in the quarter investment gains, which we excluded from our non-GAAP measures were 794000 in the third quarter compared to 1.8 million in last year's third quarter.
Turning to our capital structure, we continue to be in a strong position as shown by book value per share rising to $18.45 as of September 30. This represents an increase of 10% year to date aided by unrealized gains in our bond portfolio. As you know, we strengthened our balance sheet and raised long term.
Capital earlier this year in conjunction with the announcement of the mace on transaction.
We currently have over $115 million of liquidity, among our holdco and non regulated subsidiaries, which includes 41 million of funds that will be used to close the mace on acquisition in December .
The roughly 75 million of liquidity that will remain after closing on mace on puts us in a strong position to execute on our existing share buyback program, which has 10 million remaining in the authorization from December of 2018, we look forward to having the opportunity to re enter the repurchases market as an.
Active way to return capital to shareholders.
Our fixed income portfolio remain short term with an average duration of just under 4.0 and a high quality composite S&P rating of a minus with a total carrying value of 472 million. We ended the third quarter with 121 million in cash and cash equivalents, which of course includes the undeployed mace on.
Ending.
To wrap up we're confident that our core homeowners business is growing stronger and stronger we have an increased opportunity for profitable growth in Florida to complement our strongest steady non Florida growth as a result of the increased competitive competitiveness of our product offerings and because aveo be reform.
The upcoming closing of the Mace on acquisition will further expand our footprint outside of Florida and adds proprietary non Florida distribution, we are making substantial progress in winding down our noncore businesses and expect minimal impact on earnings from these runoff lines in 2020, we are well positioned to scale our business.
And capitalize on efficiencies from our initiatives to reduce staff and increase our use of technology with that I'll turn the call back over to Mike.
All right. Thank you Ron operator with that we'll go ahead and open up for questions. If you could.
Open the Q.
Thank you as a reminder to ask the question you any to press star one on your telephone.
To address your question press, the pound ski pre semiannually compared to Q and a roster.
And our first question will come from line, Greg Peters from Raymond James You May begin.
Good morning, everyone. I wanted to just go circle back sort of unpack the comments around your reinsurance costs in the third quarter.
And.
For the increased costs, it seems like you're suggesting that.
Wherever our ceded premium estimate was before that we're going to have an incremental three year, three and a half million of additional costs because of this true up estimate on a go forward basis for the next three quarters has had an accurate read or would you how how else would you recommend.
I look at that.
Yes, that's an accurate Reid.
With respect to the September 30 adjustment.
On the ceded premiums line as I alluded to there are a couple of offsets that that bring the the net pre tax impact of that down.
That has to do with the fact that a portion of that growth.
In exposures relates to our non Florida business. So there is a sad share profit share impact on that and then of course as you know we earned brokerage income.
From our internal.
Catastrophe brokers are reinsurance broker firm so as our spend goes up the brokerage income goes up so the as I mentioned in my remarks that the combination of those two impacts.
Roughly roughly have the impact that at the gross impact on the ceded premiums.
So just carrying forward to discussion because one reason that you cited for the increased costs was that the business is growing again, if if youre market position continues to become more favorable because the rating actions of your competitors.
Would that suggest there's going to be another reset in the fourth quarter or in the first quarter or is this reset you just did or true I should call. It.
Does that carry forward through the end to that.
True year.
That's a great question, Greg and the answer is the latter. This this is though this is the one and only.
True up point during the.
Treaty year for the private portion of our spend which of course is the lions share of our $179 million spent it's a 930 true up that happens halfway through the wind season and that is the only exposure adjustment.
All the way through the June 30 end of the Treaty year. So no. There is there is no potential for further adjustments up or down related to the private portion of our spend with respect to the FH CF portion of the program.
The the state.
Is in the process right now im sure of compiling and getting ready to send out a adjustments those our best estimate including those in the input of our reinsurance brokers inside and outside brokers.
Has already been reflected in the adjustment that we recorded at 930, we'll get the actual notice from from the state sometime in the next few weeks here, we would expect that to be very modest.
But there could be there could be another adjustment from that when you get the notice is that right.
Yes, just the FH CF portion again, we'd expect that to be.
Zero I mean, we've we've updated our best estimate in these 930 numbers.
Got it Theres a lot of dynamics, there, though because it does it is impacted by every other carrier in the state what what did the size of their books do what did their election percentages do right. So it's a it's a theres a lot of moving parts on the FHC item.
Got it.
I'm sure there's last questions about this can I give it to.
Reserves and.
Some of your peers reported.
Claims surge leading up to the effective great aveo be reform and I'm wondering if you could provide an update on your perspective of if that happened within your book.
And how those reserves have held up through.
Through the end of the third quarter.
Yes, Greg.
This is Mike I'll give you a little.
Commentary and then rising go deeper on the math, but as you stated it would be reform occurred at the end of Q2 July one we absolutely saw a spike in Q2 activity.
Since then.
It will be reform has taken place.
And the will be.
I think it's been extremely effective.
We've seen less AOL be contracts come in.
And to clarify some have come in and they were not executed correctly. Therefore, they were not valid but also in terms of less suits as it relates to Ob those have really dropped significantly.
Now, it's still early days, but let me clarify.
There is there's ways to get suits more than just say ob.
And those avenues include public adjusters as well as Insureds. The route of the insured contacting the attorney directly. So there are three legs to that table.
Where the ramp it abuse and the rapid growth occurred over the last four years was really more central too.
It will be so that I think has really been muted quite a bit.
The other avenues are still open the plane as far as very strong in the state of Florida, as well as well as a public adjusters, but but I think the will be was a big challenge that with this reforms are real win for all all policyholders across the whole state.
Yes, thats the only thing that I would add is I think a year ago on this call.
From my perspective was was the first time that we really talked about seasonality that happens in the normal course of our quarterly operations and I guess I just want to make sure everyone remembers that the third quarter is typically our worst quarter of the year in terms of seasonality in our losses. So.
We severity or frequency does go up in the summer months, we get more fires more lightning those sorts of claims.
So I think.
I don't I don't know that Theres anything terribly atypical about our third quarter.
This year.
Okay.
The last question I'll ask is more but longer term strategy.
Question and.
And it deals with reinsurance costs, the tone of the reinsurance markets seems to be.
Definitely changed and focused on.
More rates and it feels like.
You had to adjust to reinsurance program this year.
I had a.
Read the tea leaves I would think that your reinsurance costs are going to go off again next year.
And.
Im just curious how from a strategies perspective your positioning the company.
To limit any sort of headwind you may face in next formal higher reinsurance costs next year.
Yes, Greg.
Good point.
The reinsurers in terms of Florida, obviously, this year theres been no losses, but obviously over the last.
Three four years has been multiple events, primarily Michael and aroma.
And they really took it on the Chen with US we had about 1 billion to of of gross losses of weather over the last three four years and about 100 million net so so thats about 1.1 that they felt we think that rates have moved significantly this prior renewal.
Based on historical pricing, what the reinsurers are saying is that pricing is still low.
So I don't know that answer Greg where pricing is going next year, but I'll tell you. We've got a robust panel 75 reinsurers on the program and I'll tell you. We lost about 10 of them at the renewal and we actually added new markets at the renewal of about 10, and we had some that really had a big big.
Increasing appetite and some that had a big decrease in appetite some that moved within the program, but but I'll tell you Greg we're under the assumption that.
The pricing that occurred last year is sticking and and there's pressure on that we'll find a lot more find out a lot more over the next six months, but we're going to be prudent with our underwriting to make sure that we are prepared for it.
Got it thank you for your answers.
Thanks, Greg have a great day.
Thank you and our next question will come from the line there for Christopher Campbell from KBW you may begin.
Hi, good morning, gentlemen.
Good morning.
A few numbers question just to start off I mean did you guys have any gross loss development on Michael or pharma in the quarter.
Yes, Hey, Chris Yes, we did.
40 million for aroma.
50 million for Michael.
Okay and Thats incremental from your from your last latest disclosed last act.
Correct.
Okay great.
And then a question kind of on on capital management I know you guys are.
You guys are kind of locked out from buybacks until they saw on closes, but I guess just going forward as you know that you'll probably close early December I guess, just how much excess capital do you have and what is your thought on the quarterly pace. The buybacks once you come out of the.
The prohibition period.
Well theres. The so you got two questions there Chris I mean, you asked about aroma and Michael and those continue to move as Youve well well have.
Well, no and Youve documented the industry's movement.
So I'll tell you in terms of remote it's unfortunate two years out we still good about 50.
First notices of loss per week, so so thats a bit frustrating.
It's really kind of difficult to get our hands on.
On some of that why why those continue to come in at such a lay date.
Statutorily, they do have three years to report a claim.
And thermal really did impact a significant amount of the state from a geographic perspective in terms of Michael.
Those were those were massive claims I think you know we're very big in the Panhandle I believe we're a top three writer in the Panhandle wind up with nearly 10% market share and its complete devastation.
And what we're seeing as.
A year after the event a lot of those folks are still out of their home.
And quite honestly I think it's going be a long time for that area to rebuild.
So there's.
In terms of our most of those claims have been closed.
About 97% in terms of Michael we're at about 85% and a lot of those are just.
Continue to evolve as more information becomes available, including what's called a Ali additional living expense with these folks are out of the house and also as people have to rebuild when they rebuild after full permits and you have something called lawn ordinance. So those are two tough situations switching to your second question about capital management, we have a lot of cap.
On the holding company based on Yesterdays close.
At.
14, 26, and our updated book value here at 18 45.
At 77% of book that's extremely.
It's a low number it's extremely accretive for us if we can buy back shares at that price. Our intention is to close on the base on deal.
In early December we're excited for that to happen.
And the intention is to be back in the market.
To be buying back shares and I think thats, an easy decision buying back to stock at 77% I can't speak for the entire board will be deciding on the math here shortly.
In terms of one will be back in the market, but it would be after the after we close on the acquisition and how much but but I think that rock and go much deeper into the numbers.
We've got a lot of capital on holding company a lot of non statutory capital that's available.
After the acquisition and at this price at 77% of book, it's very compelling.
I'm curious to see where that price goes and obviously.
If it goes up it's still compelling, but but this is very compelling for us.
Got it so I guess, just you know I mean, okay. So like how much excess capital is there.
Well, we have 10 million authorized from the board from last December and Thats, all dry powder.
So I would anticipate that the board will review that again this December .
I think 10 million as an easy number we're not putting a number out there specifically what would be buying back but the 10 million is authorized and will be asking the board for that approval again, which I would anticipate we'll be getting here.
And we'll announce that as soon as soon as we.
We decided what we have and we've talked in the past Chris about some rules of thumb that we have in terms of liquidity that we like to view as a.
Threshold kind of minimum liquidity in the whole coal and the like so as I mentioned was 75 million of liquidity after closing on based on.
And there's there's definitely a room to exhaust that that full 10 million authorization and more.
In the in the coming months.
Okay, Great that's helpful.
Then I think one of your peers had talked about like corporate tax rates declining in Florida, I mean should we be modeling any impact from that.
Yes, there is a a change.
In.
The state of Florida tax rate Thats retroactive to January one.
It's 1% benefit.
So that there is an impact a benefit of that reflected in our third quarter and it will go forward.
Eric is or.
Further specifics, we know on that 1% rollback in how long that's in place and yes. It will be more than just this year I think it's a couple of years it'll be in effect until the reset it.
Okay got it so I've got a 26% in my model. So should we be taking that down to 25% is the way to think about that or.
Are you factoring the fact that well do factor in that there is a federal tax deduction on the state taxes you pay so you know so the state goes down then your federal deduction goes down so it's not quite the full on percent benefit on the effective tax rate.
Okay.
Got it and then just when I understand I know you Hey, Ron you provided great color on just kind of the impact of the reinsurance costs and I really just want to focus on the core loss ratio piece of that because I think Mike was saying that you started to see like benefited from the declining lawsuits and then obviously you're getting a little bit.
Hey.
You're getting a little bit of a headwind from higher reinsurance costs. So core loss ratio was up I think 900 980 bips year over year. So is there a way we can decompose that into how much was from the reinsurance cost how much was in treasury at all and then how much was the benefit.
From a it'd be reform.
Yes so.
So mikes comments are with respect to what I would call the underlying data right and claims activity to be clear we have not booked.
In our in terms of our accounting and are recorded reserves, we have not booked a nickel of benefit from a ob.
I want to be make sure everyone understands that that that needs time to prove itself out through the last triangles and that that will take some period of time.
To the extent that the positive things were seeing continue to factor through.
Whether that's in reduce frequency, which is perhaps less likely but rather through lower severity, which we think is more likely.
As that continues to play through yes in the future. We expect it will be reform will benefit our reserves and our record are recorded results.
In terms of getting back to your your core question I think I think the key thing to zero in on perhaps is on the gross side and our gross.
Loss pick in our Florida book is.
39, a half 40%, okay. So that that is our pick right now call. It 40.
If you will be benefit comes through in the future than then that will help bring that back down future rate increases should bring that back down but that's that's how I would think about our Florida book.
Okay, great well, thanks for all the answers back to lock in the fourth quarter.
Thank you Chris.
Thank you.
As a reminder that start one for questions.
Our next question on the line of Doug Ruth.
The next financial you may begin.
Thank you.
Mike now that you're more optimistic about.
What's happening in Florida.
Due on the sales front.
Yes, good morning, Doug.
Well, what we're seeing is that our you know our underwriting discipline hasnt changed what we're looking at in terms of the marketplace.
We continue to have the same lens in the same appetite, but clearly.
In Q3, we absolutely saw change where the competition has caught up to our prices I think we've been a leader in the in the in the.
Pricing of eight will be over the last three to four years. Some people have been reluctant to take that rate and or.
I had been more aggressive in the underwriting side.
We would like to grow Florida, Doug.
However, we're going to keep same discipline to it I think the runway as long I think people have to take more rates in the market.
Fully reflect a ob and let me clarify.
With what we've seen on AOL be reform.
You know that we've we've taken pre it'll be reform about 21 point and rate I don't think the market as a whole has been as aggressive. So so therefore I think theres. Some disconnect still so we'll be as aggressive as we kept in the marketplace.
To keep our products competitive edge or write the business that we believe we can.
In a manner, that's sustainable to our capital.
And worried about.
Some of that come from the from your monarch label.
Yes monarch has been relaunched as of July we've had some tweaks on it and effective in October .
We're seeing some some promising trends in that however, it's very small and that's not going to have material impact on our business in Florida, Our Florida books, approximately 440 million for Nic M&A sees a roughly 10 million. So I really don't see a lot of movement and I see here in calendar.
Year, 2019, and gradually you'll see some trends and 2020 with that but we're being very prudent with that that's opened or very select.
Population of agents at this point and as we continue to see results, we'll tweak it and then bring it out more aggressively at the appropriate time.
And how do you explain the success that you're having in the Houston area.
Well I think we've got a big appetite for policies.
In Texas, we see it isn't there is an opportunity there.
And with that opportunity we've been writing there for a number of years.
And it's similar risk similar risk profile that we experienced in these other coastal states. These other Gulf States really Florida.
Texas, Louisiana are very similar in that nature, but we also believe that the product that we have as competitive out there within the marketplace. Clearly there is some synergies with our reinsurance program being a Florida rider that we can bring that reinsurance coverage with us to these other states.
Okay and my last question has to do with him a fine is what what are our whether our biggest concerns were cutting the acquisition that closed in early December .
Well, we're excited about it Doug we think it's a great opportunity to improve our distribution non Florida and.
Like to be back in the marketplace as well for from a buyback perspective.
But from from a operational perspective, I think that Dougs got a solid business over there dug rousey as well as as underwriter Dean's trout.
And we're happy to to move forward on that front to go ahead, and and you know get data acquisition behind us So that should be in early December and you said that your last question I'm surprised you haven't brought up the dividend because I know that's been an important topic for Ya.
I want to think think.
Everybody at fat dad for increasing the dividend.
That was a nice early Thanksgiving slash a holiday I guess, so thank you for that.
Yeah, no absolutely, Doug <unk> and you've been consistent with your messaging on that and once again, we think there's opportunities to once again recognize our shareholders with devalue both into buyback, but also the dividend. So we're we're happy to have that out there for the benefit of all of our shareholders.
Okay, well past to walk into fourth quarter here Mike.
Alright, Thank you done.
Thank you and the next question would be from the line of Ron Bartman from Capitol returns maybe again.
Hi, I had a question about homeowners rates in Florida I was wondering in light of reinsurance cost increases that that we've incurred.
Are you working on it were planning on a Florida rate increase.
Yeah. Good morning, <unk>, Yes, we are actually.
Working on our rate filing as we speak we're not ready to make that public, but I think that you'll see a rape filing in the fourth quarter from us to reflect the reinsurance cost that we've experienced that mid year.
Okay, and just sort of jumping around do you have a a clean count number for the G.L. book.
Open claims on C.G., yeah, exactly the way yeah round I apologize and we don't have that I don't have that figure handy in the room here, but I I feel fine getting back with you or or putting that in up in you know a future you know public document so great.
I'd be interested in the clean counts for both of the run off books as well as the reserves case versus <unk> that remain outstanding for each of those books separately.
And.
Do you foresee any loss activity in the fourth quarter from the Texas weather that I think happened earlier I think it was mostly Dallas centric, but as relates to the fed net book do you see that whether having any any know where the impact.
So good question and on that obviously Dallas had a big of three go through there. We're currently not in Dallas with our existing Boca business <unk>, what our practice a as really on a go forward basis has to go ahead and and when we have meaningful whether to pre announcing that quarter end, but from a book perspective are both.
Current book is down in Houston, Okay, Alright, and my last question I'm, There's a lot of talk about Florida growth in Florida.
Somewhat attributable to rate action amongst competitors.
On a relative basis, making fed net.
More competitive.
What I don't understand sort of all that commentary about Florida growth while at the same time, Florida. If homeowners PPIF is actually gone down from June 30 to 930, a little bit down so I don't understand.
Oh, why there's so much discussion about Florida gross homeowners when in fact, if went down.
Yeah, It's it's total premium where we've seen the the premium decrease over the last three four years someone in a small manner, but you're you're you're correct. The <unk> has decreased significantly quarter after quarter after quarter and that's what we had baked into our projections for Q3.
Count stabilize more than we anticipated in Q3.
And we're still seeing that as we speak today, we're seeing the the desire for new business to come in to pick up. So so we're continuing to monitor that it's been a bit frustrating because once again.
We we've heard our competitiveness by being on the front end of taking rate in the market, but what what we're seeing now is is the market catching up to the to the moves that we've made.
Thanks.
Yeah, just to get just to get back to you on your auto question around claims.
As of 930 or open clean count is 264, and then or total reserves gross it's $4 million.
Thanks, or could you split that of the the four between I'd be in our in in case.
I I apologize I only have you know total you know to combine number casing okay.
Okay.
Thanks.
Alright, thank you.
Thank you.
And I'm not showing any further questions at this time on Alec kind of call back over to my <unk> closing remarks.
Alright. Thank you in summary, we are pleased with the progress we made in the third quarter to position sat NAV for profitable growth in the fourth quarter and heading into 2020.
May sound acquisition will be a major contributor to contribute to our long term road map accelerating our presence in markets, where we believe we can utilize or underwriting ability to profitably grow market share.
Well as offering earnings accretion lastly, the cost reductions.
Measures, we've implemented over the past year have given us a lien inefficient operating structure to profitably scale or business fed now to set up for continued improve performance and 2020 and we are excited about the future for the company and our shareholders. So with that thank you very much and if there's follow up questions or feel free to reach out to us having a great day.
<unk> <unk> conference call. Thank you for participating you mean our disconnect.