Q4 2019 Earnings Call
Please standby.
Good afternoon, and welcome to 80, I group's fourth quarter and full year 2019 earnings call. My name is Cynthia and I will be your conference. Operator. This afternoon. At this time, all participants will be any listen only mode. Before we begin today's call I would like to remind everyone that this conference call is being recorded and will be.
Mobile for replay through April 15, 2020, starting later this evening.
The call is also being broadcast live via webcast and available via webcast replay until June 5th 2020 on the Investor information section of a T.I. groups website at Www Dot H.C.I. group Dot Com I would now like to turn the call over to Rachel Swan Sigur invest.
Relations for H.T.I. Rachel Please proceed.
Thank you and good afternoon, welcome to easy I groups fourth quarter and full year 2019 earnings call with me today, our pairs Patel, our chairman and Chief Executive Officer, and more comes where our Chief Financial Officer.
Following pareshs opening remarks, Mark will review, our financial performance for the quarter and full year 2019, and then turn the call back to parish porn operational update and business outlook. Finally, we will take your question.
Sorry, today's webcast. Please visit the Investor information section of our corporate website at Www Dot H.C. I group Dot com.
Well, we begin I'd like to take the opportunity to remind our listeners about today's presentation and responses to questions may contain forward looking statements made pursuant to the private Securities Litigation Reform Act of 1995 words, such as anticipate estimate expect intend plan amberjack and.
Other similar words, an expression earn kinda to signify forward looking statement.
Forward looking statements are not guarantees of future results and condition, but rather are subject to various risks and uncertainties.
Some of these risks and uncertainties are identified in the company's filings with the Securities and Exchange Commission.
Any risks or uncertainties developed in actual events. These volumes could have material adverse effects on the company's business financial condition and results of operation.
You see I agree disclaims all the obligations to update any forward looking statement now with that I would like to turn the call over to Paris Patel, our chairman and CEO perish.
Thank you Rachel.
Welcome everyone.
Today I'd like to start with a brief overview of our company.
They T.I.s principal operations are an insurance software development and real estate.
We have to insurance companies Typtap insurance company, and homeowners choice property and casualty insurance company.
Both of which provide homeowners implementing choice primarily here in Florida.
We also have an information technology subsidiary called axiom that develops.
Well insulated products and services.
Several of which we use it on day to day operations.
And lastly, we have greenleaf capital, which owns and manages a growing portfolio.
Right in Florida.
Recently, we began describing age <unk> at any short term insurance company.
While insurance is a primary business.
Our focus is on developing and using insurance related technologies.
We have developed a full suite of technologies to speed up and lower the cost of producing underwriting and servicing our insurance products.
We used to also help improve our operating results.
For example.
Sometimes an online quoting and buying platform that can deliver a policy a minute and minutes.
Underwriting decisions on these platforms.
Julien I guess.
Platforms exemplify the policy production experience for both consumers and agents and when combined with our data analytics they deliver superior operating results.
As evidence by our industry leading.
But margins.
I will speak more about unrealistic and what it means to us in a moment.
No for some highlights for the fourth quarter.
The fourth quarter marked a 47 out of 49 quarters at H.T.I.s been profitable.
The exception is making the quarters in which hurricanes RMR and Mike go ahead.
In December of this year, we also paid off 37th consecutive quarterly dividend at 40 cents per common share.
I didn't know at a common share price, that's a yield of about 3.7%.
Compares after the deal over 10 year Treasury note today.
And finally I'd be ended the quarter, Tim traps premiums enforce quadrupled in size from the year end of last year. This growth was organic without any acquisitions Andorra citizens assumptions.
Fantastic year for stepped up.
Before I talk about a business outlook, though I'll turn it over to our CFO, Mark Commodore who will walk us through all financial performance for the fourth quarter and full year Mark.
Thanks parish.
Net income for the fourth quarter was $6.4 million and diluted earnings per share, where 82 cents on a GAAP basis and 76 cents on an adjusted basis for the full year net income of $26.6 million with up from $17.7 million last year and diluted earnings per share were $3.31.
On a GAAP basis and $2.57 on an adjusted basis.
On the last few earnings calls we've been talking we've been discussing.
The company's began to grow again in the second quarter gross written premiums were up year over year that trend continued in the third quarter and now again in the fourth quarter.
In Q4 gross written premiums were up by 53% driven by the growth of Typtap.
Typtap wrote $24 million it premium this quarter compared to 4 million in the fourth quarter last year for the full year Tiptop wrote over $60 million, a premium compared to 14.5 in 2018.
Well gross written premiums have been up since Q2. It takes some time of course, but those increases to work their way through to increases in earned premium and that started this quarter. In Q4 gross earned premiums were up 6% from the same quarter last year and net earned premiums were up 11% for the quarter.
And 1% for the year.
At the end of 2019 premiums imports were almost 10% higher than they were at the end of last year.
Now looking at expenses for a minute total expenses for in the fourth quarter were 15% lower than the same quarter last year, largely due to lower loss expenses.
For the full year expenses were up less than 1% and were more than offset by 5% increase in total revenue and as a result that income it was up for the year.
Now, let's turn to the balance sheet.
As you know in 2019, we bought or debt level down considerably when we paid out in cash the $90 million and convertible bonds that came due in March this reduced our debt to cap ratio from 58% at the end of last year do 48% this year.
Despite paying down the that we still maintain a very strong cash and investment decision, we have $495 million in cash and financial investments on a consolidated basis and at the holding company level, we have $46 million in cash and investment as well as 55 million in additional liquidity from our revolving credit facility.
The individual insurance companies are also in a very strong financial position the surplus in both insurance companies is up from the end of last year and RBC ratios are well above target. We have just under $160 million in surplus in homeowners choice and just over 27 million and Typtap.
There is plenty of surplus in insurance companies to support future growth.
Cash flow remain strong we drive <unk>, we generated over $54 million in consolidated cash flow from operation. This year, we use those funds to buy back stock increased dividends and strengthen the balance sheet.
In 2019, the board authorized the 20 million dollar buyback program through the end of December we had purchased 454000 shares using about 18.8 million of the $20 million authorized in December the board authorized an extension of the 2019 program into 2020.
And then the first two month, we have purchased an additional 25840 shares. This brings the total number of shares purchased under the plan to 479850 at an average purchase price of $41.68 and is now fully utilizes the $20 million authorized.
And the last three years, we have reduced the flow by almost 1.9 million share there were about 20% as a result, each shareholder owns 20% more of the company even if they haven't bought anymore stop.
As I mentioned before I want to be additional benefits of reducing share count is that we can pay higher dividends per share without increasing the total cash outflow total cash dividends in the second half of this year, where is the same as last year, Despite an increase of 7% for sure.
2019, with a great year for us.
Revenue grew earnings are up dividends per share up debt is down share count is down and book value per share it up but maybe more important return on equity this year with 14.3% and total shareholder return over the last three years is just over 28% despite hurricanes herb.
And Michael.
This may well be the best measure of performance.
Looking to the future as you know we have recently taken on a significant book of business and we have the surplus and liquidity to take on more should the opportunity arise.
With that I'll turn it back to Paris.
Thanks Mark.
As Mark indicated.
2019 was another successful year for us.
Florida experienced a good weather year.
With the exceptions, all basically hailstorm in March and a glancing blow by Hurricane Dorian in September.
Following on from that on February 13th of this year, we announced the under a plan approved by the far regulators.
Florida based anchored property and casualty insurance company would transition all of his policyholders to us by April one.
Anchor has approximately 43000 policies, representing close to $69 million an annualized premium.
Which compares to our own book of business of over 131000 policies and approximately 370 million of pre of annualized premium.
Under the deal anchor policyholders, we're under no obligation to participate in the trends in the transition.
However, we expect to stay a to retain most of the business.
Let it will take some time for us to optimize the book and we're very optimistic that this transaction will soon be accretive to earnings.
Well I could we do this transaction.
We could pursue this transaction because we have adequate capital and most importantly, we have the technology and systems in place that enable us to swiftly and take integrate anchors policyholder data and begin servicing the policies.
For example.
Within days of receiving regulatory approval, we produced and mailed over 43000 notice is good policyholders and beginning April one who will begin servicing boost transition policies.
All this without a need for additional personnel.
Powerbar technology is such that allows us to scale operationally without significant additional costs.
In this case, we expect to I had a a business that is about the size of tiptop.
Without harming dozens of new employees.
That's performance and would that we're ready to open the call to your questions.
Operator, please provide the appropriate instructions thank you Sir.
The floor is now open for questions. If you do have a question. Please press star one of your telephone keypad at this time questions will be taken an order. They were received if you are using a speaker phone. We also will posing your question you pick up your hands such provides a real sound quality. If at any time. Your question has been answered you can remove yourself on the Q.
Our seen one again, ladies and gentlemen, if you do have a question or comment. Please press star one of your telephone keypad at this time, please hold while we pull for questions.
And our first question will come from Matt Carletti of JMP.
Please state your question. Thanks, good afternoon.
Good afternoon.
Oh I was hoping you could maybe follow on your comments and marks comments about having plenty of surplus liquidity I'm sure you dropped to needs arise and just talk a little bit about.
Broader landscape in Florida lots of headlines about.
Peers capital pressures and central rating agency actions.
What you see taking place at this year unfolds and as we move towards mid year and what opportunities.
That might create for right.
Okay. So im speaking about the general.
Florida marketplace I think.
Yearend numbers have just been coming out this week and what you see across the board is.
After multiple years of hurricanes and various other issues.
Most Florida carriers are financially challenged there underwrite their gross premium to surplus ratio is our.
The upper ends allowable limits and.
I think a lot of them had to add capital to bolster this hopeless would be at year end 2019.
So all of these things means that.
You have companies that have both.
Our balance sheet challenges and of course.
Core profitability challenges.
With their existing portfolios. So if you're in that kind of environment. If somebody leaves to take over a policy I take over Oh.
On an acquisition it becomes very difficult to do because how do you funded.
In that context. This is a T.I.s reality.
We could take away the anchor book of business.
And added to homeowners choice without needing to add anymore capital and Oh by the way the regulators did ask us about as to what this would do to our.
Balance sheet leverage and even if we had done the anchor deal before the end of last year, we would comfortably met all the RBC ratios that are required and.
Even add the anchor.
Our.
Premium to surplus.
Ratio basically goes through about you know.
Is one under three to one.
Right right that's really helpful.
No if I could shift gears, a little bit I mean to cap you put up some really nice growth.
In the quarter, you talk a little bit just about maybe how your production progressed across the border was it was it fairly stable that are really kind of continue to grow week after week and Andy where are we now in terms of or whether it's weaker your annualized see no production rate.
Oh, yes, so Matt.
The growth of Typtap and production really.
When.
Very well because obviously as we had talked in the previous calls because of Dorian things had such as sort of stopped.
When that was approaching that was mid September and then it it's sort of started picking out from that accelerated all the way through October and November and December and that's why we ended up in numbers. We did at some point, we do have to manage where we are growing how we are growing so we are.
Tempering.
Typtap scroll to little bit, but this is by design and out of an abundance of prudence, especially given that we're approaching hurricane season, and also we've done the anchor acquisition, but fundamentally.
We're in a very.
Controlled position with both companies.
Great and then just one numbers question for Mark the I guess when I asked every quarter you have net written premiums for Q4 Andy.
Yeah 35.1 million.
Wonderful all right. Thanks, very much for all the color and yeah. Congrats on nice year best of luck on board.
Thank you.
Once again, ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad at this time and our next question will come from Mark Hughes of Suntrust. Please proceed.
You talk about anchor the impact on a profitability you kind of the average.
Loss ratio across the book, perhaps even though one steps you can take two or.
Moved up the overtime, assuming it it a good needs to be moved.
Yes, Mark couple of things.
Really.
We are taking over a book from anchor that.
Had challenges because otherwise anchor wouldn't have had challenges.
But what we know we can do is overtime.
We will do a number of things, we will transitioning over to our rates and form who show much more comfortable with so that will alleviate some of the problem.
And secondly, as we talked about earlier, we really pick up some.
Improvement because we don't have the operating overhead.
The anchor had as a separate company. So we want to get that incrementally increase on our side, so that will improve profitability to some degree.
As far as their loss ratios go I don't want to know that the loss ratios you know themselves, though particularly bad I think they were trying to out run their previous.
Issues going back to 2015 2016, when they started and we're doing a lot of Takeouts and eventually the company can outrun those.
Those sins of the past if you like and the way we've constructed the deal we only gone risk. After April one so we don't have any of those sins of the past coming over to us.
Just have to operate the current portfolio, which.
I have to commend the managed the current management have done a good job of cleaning up.
So April one we'll see a is that book will that be entirely written or there will just be the older in premium that the.
Comes through the Uh Huh.
Okay. So in Britain technical answer Yeah. The technical answer to that is what we're doing is a.
Is a policy cancellation and a stub period rewrite. So for example, if somebody had a policy that was going to expire in October of this year.
Thank you are has issued a cancellation notice, saying that policies being canceled as of April one.
Homeowners choice has issued a stub policy covering April one two October.
To that same policyholder on anchors rates and forms. So there is all disruption the policy holder.
So that's how that rolls over and of course anchored will give us the on on premium April one two October 31st.
Less some.
Agreed hold backs et cetera.
Well I'll Cobra comes we will renew that policy on too.
H.C.P.C.I. paper at 80, PCIA rates and forms.
And that will then make that policy look just like all of our other policies.
That's the sequence in which all of this happens.
And then the.
The capital situation that Typtap I think it a it see how you described the being.
Just under three to warm I assume you're kind of limit is four to one.
Is that the case, and then where do you stand with it took them.
Okay. So that's.
Because we said a couple of the numbers, let's just go through them, but.
My three to one number with me being conservative.
Homeowners choice at the end of 29.
19 has just under 160 million in surplus.
And.
Roughly speaking if you add the.
Anchor book to it.
It's about 370 million in premium total between the two but when you add that anchor stuff in there. So you can sort of see it's a it's about two and I have to one even less than that.
Leaves you plenty of room for growth. If he went about four to one number 160 million a surplus.
You can basically right 640 million a premium.
At Threeseventy gives you an idea as to how much room for growth we have.
Typtap is now at a slightly different point. It ended at 30 said 27 million no surplus and it has about.
As of today, I'd say about 70 million of premium in force. So it's still has about 30 million to grow.
Before we get hits that 41 number you were talking about but against that side everyday going by at this point.
Typtap is earning money. So that's help us is going to start moving around.
Unless typtap thoughts growing very rapidly in which case.
Because the house that accounting works well have to maybe.
Add some more capital, but if you have to do that that's of course, while problem to have you.
Yep Yep.
Yes, just sort of curious any update so good luck the opportunity goodbye without oh fraud it'll be.
Update it isn't just in the context of that when we think about your.
Your loss ratio.
Last couple of years.
It's a this year it sort of hovered around a 49, 50%.
At the lower end about fourth quarter is that a that kind of a good run rate do you see any in changing in the book or the environment.
That a good moves it from that level.
I I don't think so mark I mean, I I tend to think of its mark I tend to think of it more.
No the core loss ratio as a percentage of gross premiums there and then we're always in that 25, 26 27 ish range.
I I don't see that really changing significantly you know as we said before at the little bit early to tell the impact today Ob.
Litigation generally has has slowed a little bit, but I don't I don't see any.
I don't see any major changes in that in that environment.
Thank you.
At this time. This concludes our question and answer session I would now like to turn the call back over to retro Swans trigger who has a few closing remarks.
On behalf of the entire management team I would like to thank our shareholders employees aging and most importantly, our policyholders for their continued support we are forced to updating you on our progress in the near future.
Thank you for joining us today for our presentation. This concludes today's call you may now disconnect.
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