Q4 2019 Earnings Call
[music].
Good morning, and welcome to fit in that 40.
Company's fourth quarter and for year 2019 Conference call. My name is there and I'll be your conference operator this morning.
Time, all participants will be in listen only mode. Before we begin today's call I like to remind everyone that this call is being recorded as well as broadcast live via the webcast.
Additionally, today's call will be available via webcast replay later this afternoon.
An accessible by visiting the Investor Relations section of fitness website at Www Dot Fednat dotcom.
Now I'd like to turn the conference over to Barney kill Kelly.
Investors relations Barney.
Thank you.
Good morning, and welcome again, too, but not fourth quarter and full year 2019 conference call.
Our earnings release and prepared remarks include references to non-GAAP measures.
<unk> adjusted operating income.
We use these non-GAAP measures to provide greater transparency and a more meaningful opinions comparison to prior years results.
Our non-GAAP reconciliations from GAAP measures to the non-GAAP measures are available in our earnings release.
Statements in this conference call that are not historical facts are forward looking statements.
Words, such as anticipated the leap budget.
Contemplate continue could envision estimate expect guidance indicate in 10, maybe might plan.
Possibly potential predict probably pro forma project. She should target will will and other similar 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 so.
<unk> 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 FCC from time to time.
Forward looking statements made during this conference call speak only as of today's date, and but not specifically disclaims any obligation to update or revise any forward looking statements to reflect new information future events or circumstances or otherwise.
Now I'll turn the Colbert, but not as Chief Executive Officer, Mike abroad.
Thank you good morning, and welcome to our fourth quarter and full year 2019 conference call well in Jordan, Our Chief Financial Officer, an air Fernandez, Our Chief Accounting officer or here with me. This morning as you know we issued a press release last week that we pre announced several significant items that impacted fourth quarter results.
On today's call I'm going to review those items and provide more detail then I'll discuss the current environment in fed that's markets and our strategies for dealing with near term challenges in some of those markets.
After that Ron will provide a deeper dive into the fourth quarter financial results in our balance sheet and then we'll have time for questions.
Before diving deep until last weeks announcement I want to provide a high level outlook as we enter 2020.
There was no question that there are challenges in the Florida homeowners space, but we're confident in our market position, we're taking the right steps in the near term to take additional rate and follow our stringent underwriting practices in Florida to combat higher levels of frequency and severity from increased litigation costs.
We will continue to restrict new business in Florida until our rate actions implemented and more accurately reflect our increased cost of doing business.
The rate increases we detail than last week's release, which will run will address further our expected at over 25 million of incremental premium at 2020 as compared to 29 team, which net of related acquisition costs will be available to help alleviate the impact of adverse claims trends, we believe the A.O.
I'll be reform legislation enacted in 29 team is a long term positive for Florida homeowners, but it is only the beginning.
We remain very supportive of tort reform efforts that continue to be introduced by the Florida legislator.
More on that to calm, but we're entering this year with our eyes wide open and believe we are taking the actions necessary to improve our financial performance with 2020 and build shareholder value for the long term.
In particular over the last year, we have implemented our strategy of expanding into more profitable coastal homeowner markets outside of Florida.
Organic growth as well as the makes on acquisition positions us to profitably expand our presence in coastal markets like Texas, Louisiana, South Carolina, Alabama, and today, we announced our entrance into Mississippi.
To illustrate just how significant are non Florida strategy is and the momentum that we're carrying into 2020 note that compared to fourth quarter 2018, non Florida gross written in gross written premiums doubled.
And our policies in force tripled aided by the addition of makes on in December.
More importantly, our non Florida book was profitable in the fourth quarter, including Mesabi. So all of this growth represented profitable growth.
Oh on approved provide more feel some update on the items, we announced last week.
In the press release, we detailed for significant items that impacted fourth quarter results first we had catastrophe claims a 4.5 million pretax net of reinsurance and profit share which was roughly in line with our expectations gross catastrophe claims were 6 million, including 3 million in Florida, and 3 million from non Florida.
<unk>, which are subject to a 50% profit sharing agreement with our managing general underwriter.
The catastrophe claims in the fourth quarter were related to tropical storms, Olga investor as well as other piece, yes events, which impacted Texas, Florida and other states.
I'm proud to say that fed Nat dedicated staff once again, providing quality service to our policyholders and our trusted agents and their time, indeed, which is always our number one priority.
The other items, we announced last week all share one common theme, which is the macro headwinds we faced with the look litigious operating environment in our Florida market.
Other than homeowners and in our non core lines that are in run off.
And our non core lines auto and CG L., we recorded 8 million in pre tax reserve strengthening on prior years, including 2.5 million in auto and 5.5 million in CGM.
Both of these lines are in run off and we continue to work our way through the remaining inventory of claims.
Adverse development in auto resulted from some claim reopens and adjustments to the overall tell but we're confident our reserve position and the remaining core claims well run off within a year.
And our seed yellow line, we have no policies in force, but are experiencing the impact of aggressive litigation environment, which is impacting frequency of claims from prior years.
We have updated the anticipated trends and have made the appropriate adjustments to our bulk reserves to reflect what we're seeing in the claims environment.
In the Florida homeowners business, we recorded 4 million pre tax of adverse prior development. This was primarily due to higher than expected lost hell trends on weather related claims primarily from hail and wind storm events and accident year 2018, including me adverse impacts of AOL be activity related to.
These pre reform accident years.
Additionally, we took the necessary steps to strengthen reserves in our Florida homeowners business for the first nine months of 2019 recording 5 million of additional loss reserves strengthening was related to elevated water claims and to a higher than expected influx of claims and really really related litigation costs that occurred prior.
The in enactment of eight will be reform on July one 2019.
As I mentioned that the top of the call. We continue to believe that it'll be reform legislation will be a big win for Florida homeowners in the long term by helping to limit premium increases for policy holders as a result of lower cost to insurers.
While the volume of eight will be lawsuits has continued in the second half from 29 team. It is important to clarify the substantially all of the law suits pertain to dates of was prior to July 120, 19, the date of the full effectiveness or they will be reform.
To put in even sharper point on it from July one through last week. We've only had six eight will be lawsuits on claims with post reform dates of loss.
This compares with the second half of 2018, when we had approximately 88 will be lawsuits over the comparable timeframe.
This reduction over 90% and the number eight will be claims going to sue will unquestionably have a favorable impact on overall it'll be claim severity on a go forward basis.
With that said our view in the short term market opportunity in Florida has become more muted in the past few months the powerful plainness bar in Florida has many avenues, there, which it continues to bring litigation against insurers since 27, two I'm, sorry, 2017, the percentage of our Florida homeowner claims.
I have involved either a public adjuster weren't attorney.
Or contractor has doubled we feel at this was a strong indicator of the larger trend. We are operating in our environment. As we stated we are supportive of tort reform efforts that are being sponsored in the Florida legislator.
Which we believe can get to the route of this issue and help prevent abuses that lead to higher rates were all policyholders in Florida.
Well, we're not hopeful that anything will be passed in the short term. So we're taking the right steps to mitigate this proactively taking additional <unk> rate and remaining vigilant and our underwriting as a result, we do not currently planned to grow our Florida book, though we will continue to reevaluate our appetite as a year unfolds.
Yes.
While the Florida market has become more challenging setting that has successfully implementing our strategy of expanding our presence in more profitable non Florida markets, including the successful acquisition of makes on at the beginning of December.
Following the May sound acquisition, the percentage of Fednat enforce homeowner policies outside of Florida.
Increase from 25% to 36%.
We expect that percentage to increase in 2020, as our Florida book stays flat to slightly down and we take advantage of opportunities to profitably grow and non Florida markets.
Additionally, we are pleased to have expanded into the state of Mississippi.
We will be underwriting homeowner business in that state through our non Florida third party, managing general and general aid underwriter, which remains a valuable partner in our non Florida markets. We are continuing to write non Florida business through our energy you and also directly through May soften both channels are part of our growth plans.
To expand profitably in these markets.
During 2019 May sounds attritional loss and combined ratios improved significantly as a result of rate increases implemented throughout the year.
As a result during the period of our ownership, which was basically the month of December makes on made a positive contribution to our non Florida profits and we continue to expect makes on to be accretive to earnings per share in 2020.
Over the course of the next 12 months or so we expect to harvest 3 million and ongoing operating synergies largely by insourcing underwriting and customer service operations for Mason.
And have those functions handled by our fed Nat staff.
The inner gate the integration process has been smoothed since the closing of this transaction.
Together with our legacy book of business, we enter 2020 with an excellent reputation in the market that continues to attract strong partner agents through the broader insurance network.
And then also continues to benefit from 8 million in savings from our combined 2019 2020 reinsurance program.
Which is in effect through the end of June.
We are currently working on our 2020 2021 reinsurance program.
And we are pleased with the large number reinsurers, who are participating in an or program, including those that are looking to increase their current participation level.
In addition, we see encouraging signs in the alternative markets that afford additional options for our reinsurance needs. It is still too early to comment on what we expect the pricing to be on our upcoming reinsurance program, but we are confident that the approved and planned rate increases we detailed in our press release.
Released last week, which Ron will discuss later will enable us to maintain the combined ratio targets that we are aiming for.
Now I'll turn the call over Iran to go over fourth quarter numbers in more detail.
Thanks, Mike and good morning, everyone.
As Mike mentioned, we're facing challenges given the current claims environment and the Florida market, but we're encouraged by the profitable growth and strong performance, we're generating in our non Florida book, including the recently acquired May sound business.
In the fourth quarter, we reported a loss of 51 cents per share compared to a loss of 73 cents per share in last years fourth quarter, which was impacted by hurricane Michael.
On an adjusted operating income basis for Q 19 generated a loss of 7.9 million or 59 cents as compared to a loss of 4.9 million or 39 cents per diluted share in Fourq you 18.
As Mike delineated. These results include a catastrophe losses from severe weather events as well as the impact of adverse development in our core and non core lives I'll speak to several of these items as offer comments on each of our lines of business.
Our homeowners business accounted for an adjusted operating loss of 2.3 million in the fourth quarter compared to an adjusted operating loss of 1 million in the prior years fourth quarter.
Quarter over quarter favorability from lower catastrophe losses. This year was more than offset by higher reinsurance costs that took effect on July one and by reserve strengthening related to both the first nine months of 2019 and prior accident years totaling 9 million.
It is worth pointing out that within homeowners all of the fourth quarter and full year adverse loss experience pertain to our Florida book of business, we experienced zero adverse loss development in our non Florida book of business for the quarter or for the full year.
That is a revealing data point that underscores just one element of the importance. We have placed on our strategy for expansion and more profitable and stable non Florida markets.
Excluding the impact of weather and reserve strengthening our underlying homeowners gross loss ratio in the quarter was approximately 36.5%.
Which is generally in line with our near term expectations.
Gross written premiums in our homeowners line grew 17.6% to 147 million in the fourth quarter, our Florida premiums were basically flat, reflecting our continued underwriting prudence, while our non Florida premiums, which included one month of May sawn essentially doubled with growth of.
92%.
Even without the contribution from based on our non Florida gross written premiums grew by 67%.
We're continuing to capitalize on opportunities to write profitable business in these markets with Texas, South Carolina, Louisiana, and Alabama, each growing by at least 15% led by Texas, which grew by 151%.
Note that we expect our seed sure non Florida book to grow meaningfully again in 2020 somewhere in the vicinity of $40 million over and above 2019 in terms of gross written premium.
Continuing on the topic of homeowners' premiums as we announced in our press release last week, we are proactively taking rate in the Florida homeowners market.
Our new expedited reinsurance rate increase of 2.8% was approved and will be effective for renewal business beginning March 15.
Additionally, we anticipate a 7.4% annual rate increase for our homeowners business in Florida to be effective beginning with June 15 renewals subject to regulatory approval.
In parallel with taking rate in Florida. We've also taken increases in our non Florida book in Texas, We anticipate a 5% rate increased to go into effect in April for our legacy, Texas book and are already in the process of earning out the benefit of a 31%, Texas rate increase that went into a.
Back in August of 2019 in the May soften operations.
Mike already mentioned that these and other rate increases will generate over 25 million of incremental premium in 2020.
Ultimately when fully earned out in the third quarter of 2021. It is estimated that these increases will contribute over 50 million of incremental annual premium as compared to 2019.
And note that if pricing on the upcoming renewal of our catastrophe reinsurance program changes, we will quickly avail ourselves of Florida as fast track process to request additional rate as appropriate.
Our non core lines of business generated adjusted operating losses of $5.6 million this quarter as compared to 3.9 million in last year's quarter.
This variance was largely driven by adverse reserve development of 8 million in Fourq, you 19, as compared to roughly 6 million in Fourq you 18.
We strengthened bulk reserves in both these lines of business during the fourth quarter and are in good shape heading into 2020.
Before I conclude I want to update you on our financial position capital structure and investment portfolio.
Our balance sheet and capital position remains strong with ample capital and flexibility book value per share was $17.25 at the end of 2019, an increase of 240 basis points from 16 84 at the end of 2018.
We had 133 million in cash on hand at the end of the fourth quarter.
And our Holdco and non regulated subsidiaries had liquidity of over 65 million or or roughly half of the total.
Which will enable us to continue our commitment to returning value to shareholders through our dividend and share repurchase programs.
Regarding share repurchases, we resumed buybacks immediately following the closing of the base on transaction.
In the month of December we repurchased 238000 shares at a total cost of 3.9 million.
We have continued to be active in 2020 through Tuesday of this week, we have repurchased an additional 188000 shares at a cost of approximately 3 million, leaving roughly 7 million available on the 10 million repurchase authorization announced by the company back in December.
Our board will continue to make decisions on repurchases based on market conditions, but overall, we continue to view repurchases of our shares at a price below book value as an attractive use of our capital.
Turning to our investments we continue to manage the portfolio conservatively.
Since September 30, we reduced our duration and further increased our credit quality.
Our fixed income investments have an average duration of just under 3.5 and a high quality composite S&P rating of a minus with a total carrying value of just over 530 million.
Our reinsurance subsidiaries all finished the year in good shape with respect to capital liquidity and RBC ratios.
In December Demotech reaffirmed the a ratings that has assigned to each of our carriers.
To close the Florida homeowners market will present continued challenges in 2020, but we believe we have the right strategy in place to navigate these challenges, while putting the company and a stronger position for the future. Both in terms of claims reserves and go forward rate filings, we are conservatively managing our presence in Florida.
And remaining focused on increasing the breadth and depth of our non Florida book as such we have entered the new year with great confidence in the actions, we have taken to position ourselves for improved financial performance.
And with that I'll turn the call back over to Mike.
Thank you Ron.
With that will go and open up the call. So operator, if you could.
Go and take the calls from the Q that'd be great.
Thank you.
The question you need to press Star then one on your telephone to withdraw your question. Please press the pound.
That is lower than one if you would like to ask the question. Please standby, we compiled the Q and a roster.
Our first question comes from the line of Doug.
Lenox financial services. Your line is now open.
Hi, good morning, everybody.
Could you be hiring some of these all lawyers that are still wanting you to be defending you.
Is that a strategy that would be worth pursuing.
Well good morning, Doug.
You know the the legal environment in Florida is very difficult.
And actually.
The reality is is that many attorneys on the defense I'd go to the plane of side because they make such a good living it's a real challenge over the last three years, we've we've implemented our own in house legal team in at that approximately 10 people. So what from zero to 10 over the last three years. So we're comfortable with our strategy.
And how we're dealing with the with the litigious environment that we're operating in both with our in house legal resources.
The legal resources that we use outside the company.
Well lawsuits in Florida.
It's a real challenge it really is a Ob reform was a great.
First step, but more steps are needed there is there's lots of information out there about.
The challenges and fee multiplier as and there's some good.
Ideas being passed around in Tallahassee, which is in session as we speak.
It'd be great to see some of those items implemented, but but I just don't see it. Unfortunately at this point Doug.
Yeah, I think it's going to continue challenge and the policyholders lose the policyholders lose we have capital.
We have competitive rates.
And we cannot right the amount of business that we would like to right.
Until our premiums catch up with our costs. So it's really unfortunate.
But that's the reality of the situation.
I understand is when you look at the other.
Industry participants is or anybody that you think is doing better than.
And you are as follows handling these claims.
Well the entire market the Florida homeowners market is really being challenged.
So certain people can.
You know have better short term.
Scenarios at different times, and we're all about learning from others in the marketplace, both from our vendors and if we see our competitors do things.
But I do believe we're handling the situation appropriately I believe we have the appropriate resources on the appropriate folks both inside this building as well as.
The vendors that we utilize both from a legal perspective as well as other resources.
It's a challenge does not unique to fed Nat it's a challenge to the entire Florida homeowners market and it's it's getting you know unfortunately, the frequency and severity of it is ongoing it's ongoing and next time here in Florida and you look at the Billboard you look at the TV spots.
There's no shortage of it so.
So we have to adjust our pricing.
For these inflated costs.
And we'll increase our appetite to write more business.
As our premiums catch up to those costs.
Okay, maybe talk about two positive things could you tell us what's happening with feature.
And your seem very optimistic about 2020 with the relationship there.
I will say towards a fantastic partner.
There are quite an organization that is very successful they right, our Florida, our I'm, sorry, non Florida business for our insurance company Fed Nat insurance company, and they're doing a fantastic job, they're writing, Texas and growing significantly there, Louisiana, Alabama.
And as well as now Mississippi. So we really appreciate that partnership they do a great job and we're where we have continued expectations of of growth, but more importantly profitable growth with that with that partner for 2020 and beyond where we're very excited and incur.
Urge with what we have enough partner.
Okay and my final question is.
And the sign agent.
Have you seen some expansion.
The of your products that was one of the synergies we had talked about are they.
There are always have helpouts.
So so we're real pleased with the folks that makes on its a small group of folks. It's about 30 staff that we have integrated well in terms of the operations there will be switching over to our computer system gradually upon renewal and that takes into an extended period of time in terms of the agents theres choose to different.
Ways to look at it within the state of Florida, We anticipate putting may sons' product through our distribution.
We're excited about that but we're cautious about that for the exact same reason because of the litigious environment. So we're it's a go slow approach within Florida outside of Florida, I think the folks there.
Doug and his team are doing a very good job with makes on.
They're continuing to remain focused primarily on their two big stage, which is Louisiana, and Texas and we're pleased with them.
Okay.
I think you're doing the best fit you can under the circumstances and I'm grateful for for what you folks are trying to do for the shareholders. So thank you. Thank you Doug my questions.
I have a good day.
Our next question comes from the line of Greg Peters with Raymond James Your line is now open.
Hi, good morning.
I was listening.
To your comments about claim inventory I think you said the number of claims.
With the attorney involvement.
Doubled from 2017, so today.
Can you give us an idea all of what the claim inventory looks like.
At this point.
And how that might compare.
With where it was at this point last year I guess.
You know.
During the day I'll be has been the performance has been implemented it still seems like you're the pipeline the claim activity with.
Legal representation continues to be robust and so just wondering.
On a macro basis, if there's any improvement at all or it's still relatively high.
Yeah very good question, Greg and basically are represented claims.
Has doubled from approximately 9%, 18% in the last few years, so nearly 20% of those claims and those folks will tout.
Paul loss before you called the insurance company. These commercials run endlessly on the television and radio elsewhere.
And they're inferring a substantial payout and there's a term in Florida called the lawsuit lottery, but really the lawsuit lottery I would say is disproportionately benefiting.
The firms that are representing the climates.
So we've always treated our claimants fair, we've always communicated with them, we've always had intentions of working with them and resolving their unfortunate situation no one likes when a claim happens and we've always done that we're working with them and their unusual situation trying to get them back to where they were before the claim.
Game.
But these ads and think of the money the industry is spending.
On these billboards in these commercials and there was a farm that was getting the name naming rights to two colleges.
Our football stadiums the numbers are staggering absolutely staggering the policyholders, a florida are paying all of it and its unfortunate so Greg the trends are not improving.
As we anticipated to clarify it'll be reform.
As reduced.
Our third party suits, However, first party suits.
Well.
Have ticked up because of the changing environment and once again, it's unfortunate.
Our costs have increased we're taking rate.
The policyholders have to pay it.
And one we have rate that reflects our costs.
We will increase our appetite within the state of Florida until then we will be prudent in what we write in Florida we.
We don't see these challenges and headwinds in our non Florida States.
And you see that we've grown rapidly non Florida.
Over the last four years, we've shed nearly 50000 policies in Florida, It's really sad.
And we've ramped up non Florida by the same amount of a business actually even more with with the acquisition. So we're responding to the situation as we see appropriate.
So.
Your homeowners business and the loss ratio.
And I take out the prior year reserve, because I'll take out cat losses to try and.
Yeah, just sort of what the underlying loss ratio for homeowners business looks like.
Can you give us some perspective on what that number because there's a lot of moving parts, obviously from the develop and et cetera can you give an aside deal.
What that number looks like for 19.
And then you know is it.
Your expectation that that number again ex cats expiry are developed that.
He is going to improve and 20 or deteriorate.
Sure Greg.
Just using the fourth quarter or as a basis to talk from.
That that underlying was right around 36, and a half and that is a I think a reasonable expectation and our from our perspective as we head forward into 2020, we're obviously hopeful that all the rate increase actions that we've talked about.
Should help.
Lower that to at least some degree of course, our recent experience has been that we're we're kind of on a down escalator right in terms of emerging loss trends in so rate increases our AR.
Recently have have done have been more about keeping pace with loss trends as opposed to lowering.
Our loss ratios. So we're hopeful though that with it'll be reform and these this round of rate increases that's coming in 2020, we will see that ticked down overtime that 36, five that I mentioned of course, that's overall homeowners so its higher in Florida as this lower in non.
Florida also of course, the blend between Florida, non Florida is continuing to shift towards non Florida.
With me just on you know well have 12 months of based on the in 2020 as opposed to just one month in 2019.
Okay.
I know you said on the you had comments about reinsurance costs.
And Ah you said, it's too early to comment, but you know.
It feels like.
There is rhetoric in the marketplace, so very robust pricing environment from a reinsurance perspective.
And that might suggest to the casual observer, there's going to be some headwinds in terms of margins from reinsurance and I was wondering if you could just comment on that and that's my last question.
Yeah, Greg.
The reinsurers have really stepped up for us a with these storms, primarily aroma and Michael and they paid a lot of losses I do believe they got a substantial rate increase in the market both from Austin from others. In 2019. We're currently working through an 8 million dollar per quarter increase in our reinsurance bad So I bet.
Pricing to be more reasonable and the reinsurance space I.
I understand the rhetoric I understand the the comments and and the environment for reinsurance pricing.
But yeah, I don't know where the pricing is going to go but I think we're well equipped regardless.
And I think the majority of that pain is as we've already taken it with the last renewal where pricing was up approximately 20%.
Okay.
Great. Thanks for your answers.
Thanks, Greg.
Thank you.
Reminder, to ask a question you would need to press Star then one on your telephone.
Our next question comes from the line of Matt.
<unk>.
Hey, MP your line is now.
All right. Thanks, good morning.
Good morning, Matt.
First one is a quick one I'm just a it was there any change in Q4 to your your gross or Michael loss estimates.
Yeah, So for Irma FX C., we moved it up to 820 million.
And then I see it's now at 47.
Millionth 47.5 million.
And then Michael a went up 25 million to for 75.
Okay great.
And then the other question I had just relates to the prior period development I know you gave some color.
I would just hoping you know you could maybe dive a little deeper in that you know you guys took a pretty big swing it things here in Q4, but we've had other swings that things over the past couple of years that.
I've been very hopeful that it takes care of the issue you both I'd say for Florida homeowners as well as some of the run off lines can you what confidence can you give the investing public that you. This was a bigger swing or this was more conservative I don't know if that's you know some perspective you can give on you know what was.
Case versus I'd be NR, where you are versus.
Maybe kind of year your external actuarial range, but anything you can you discuss to kind of help give more perspective on that I think would be helpful. Thank you.
Yes, Matt that's a great question and we have taken development Unfortunately multiple times and.
And I don't think that's anything unique just to fed Nat and you asked about the numbers on a remote and Michael and the whole industry has taken development on those as well. So so let me break that up so there's three separate lines of business.
The first being homeowners and what we're seeing is the litigation of pre I'll, Let me clarify, Florida homeowners pre Hey, Ob reform and the folks are tenacious with what they're doing on those claims.
The way they are coming in and with the way that represented and the activity.
That's occurring therefore pre IPO be reform.
We absolutely have to go head up the reserves on those.
Instances post day Ob reform as we spoke about AOL be reform has been very successful in part it'll be.
Contracts are down a massively I believe it to be 90% is.
90% plus in that range, a ob suits down 90% plus in that range, but first party suits that that's where it remains a challenge. So so we're increasing our reserves pre itll be reform Jose Ob reform, we're keeping our expectations or I should say, our attritional loss ratio high where we were hoping for some good.
Yes, some some some diminishing pressure on those those ratios and these attorneys that are pursuing these instances.
Our agnostic to the line of business. So we're seeing the some some of the same trends in our C.G. all business as well and when you go ahead. Your you get a claim on on a coin.
On a policy from multiple years back that that impacts you not only from a case perspective, but you also have to make the corresponding bulk for a further anticipation.
So and then the last item as auto auto as you know is a fairly short tail product. We're at three years I'm sort of clarify in summary on all three of those CG. All we took a really big increase on bulk reserves, we think it's appropriate we're comfortable with our position.
Auto once again, we've had some development. It's a short tail were right at statistically the end of that tail where there.
So we feel good on that as well and it'll be reform pre IPO be once again, we've taken a big big increase in those reserves.
Post day Ob.
We're taking it there as well so unfortunately multiple areas in Q4, we feel it appropriate we're comfortable with the reserves that we have with all best available information and we continue to monitor trends and therefore, that's why it's decreasing around.
Appetite to write new business.
So hopefully I answered your question there Yeah. You know that's very helpful. I guess, just one follow up specific to the Florida homeowners book the free reform you know claims what in your book of business. What do you generally view as you know kind of the tail. There are asked another way you know what kind of eight.
Page Kinda, if we go back to the July implementation and whats before that how much time, you really need to see kind of how that sorts out you know from an attorney involvement perspective, and so forth.
Yeah.
The challenge is.
Homeowners tends to be short tail like auto so let's call it approximately three years.
You've asked once again about Michael and aroma.
Or ethanol well you have to report it within three years. So we're at approximately two and a half years on that yet we continue to get 40 to 51st notices of loss.
[laughter] excuse me per week.
So those are short tail products.
And I think you know in terms of the though the pre IPO B, we took a sizable increase on reserves, Matt I I think I think we did what was appropriate.
Okay. Thank you for the color and best of luck important.
Thank you.
Our next question.
Yeah.
With that.
Your line is now.
Great. Thank you good morning, billionaire Hey, Hey, I'm here can you hear me.
Yes, we in the area. So I'm not used to be on costs I was on mute, but just following up on your last statement about.
40 to 55 wells per week.
As we head into.
This year, where aroma will be that three year anniversary event.
What kind of expectations do you have leading up to that.
Anniversary date for claims for Irma.
Yeah Bill.
You see.
I anticipate a spike I'm going back to Walmart no five the last 90 days and that was a five year statute back then we saw spike and I can tell you the marketing efforts that we see out there from the vendors and so on their ongoing so I think as people see that.
Three year statute coming on the horizon I anticipate their marketing efforts to maintain if not increase.
Perfect. Thank you.
And then.
On your comments about.
I know Theres a couple.
Out there, whether it's a contingency fee multiplier build the.
Bill a theirs.
Bad Faith, Bill I think all from Senator branded from your perspective is there one build versus another that might have a.
A bigger impact on.
Helping control.
I'm of the cost that you've talked about.
There's multiple pieces to it Bill you know obviously the contingency multiplier is big and Mac is massive leverage and massive reward or to the plane upside that can distort behavior in the marketplace. So there's a there's a lot of good things bill that.
They are being proposed.
And I hope, we can see some of that implemented but honestly, we're not operating the business under that premise, we're going to be prudent until we see a new trends and that goes back to our capital position as as you know one said in his opening comments here, we are continuing to buyback our stock. It's unfortunate are sure.
Errors are so depressed the but below book, it's kind of an easy analysis for us to do we don't have shareholder capital.
Before that intense I'm doing a buyback, but for the inability for us to want to growth in Florida we.
We think that's most appropriate use of company proceeds and that's what we're going to continue doing so there's multiple statements in the market there.
That that could have occur in Tallahassee in terms of these bills, but but until something is past, we're just going to operate with the fact that we do have.
Perfect. Thank you.
For that.
On your comments about rate.
The state wide, 10.4% increase.
But it's for other peers in Florida in their recent rate filings Weve also seen.
Companies talk about not renewing policy support non renewing agencies as a way.
Certain degree axis kind of rate for you're cutting out some and maybe the underperforming book I know you commented a few minutes ago about.
50000 policies, they cut out, but what do you think about right.
Going forward.
But also other actions that you can take beyond rate, whether that's again further calling some agencies or policies can you just talked about how you see that playing out for your book specifically sure.
Clean up.
Or.
Take some action.
Yeah, there's a couple of things there.
So what we're filing for our rate indication and you know you Bill your your dialed into floored and there's a lot of public information you. There's carriers with indications of 2030, 40, 50 points and there's carriers asking for a good portion of that so so we did ask for 100% of.
Our indication and seven four is a much more manageable number than 20 or 30% in terms of where we're seeing challenge is its water. It's water related claims which is the highest frequency.
And those are the most expensive claims so.
You try to underwrite around that as best you can and charged appropriate rate as best you can and in terms of geographic you you know everyone's well aware that south Florida is it's been a challenge for many decades.
And unfortunately, the last few years or in the last three four years, we've seen a material change and how claims are occurring within Orlando and those prices or you know we do.
Based on those trends, we see pricing needs to increase my upwards of 50% in some of those cases in Orlando.
So.
You just pull back you pull back if you can't get the rates for your costs and that's what we're doing so so we're taking rate.
Were strictly new business were non renewing policies as appropriate.
Until the costs better we are better reflected in our premiums.
Perfect. Thank you for that and last one for me is we saw a.
Now that you're growing a little.
Outside of Florida, We did see a storm in early January kind of pass through the southeast and I was wondering if you've seen any pick up in claims related to those early January events.
That's it for me thank you.
Yeah.
Well, we definitely have some claims in January.
In those states up along.
Louisiana, Texas et cetera, I would say, it's it's modest at this playing in and nothing outside of what we would consider normal expectation.
Great. Thank you.
Thanks Bill.
This concludes today's question and answer session I would now let's turn the call back Mike Rahm for closing remarks.
Thank you all for your interest in fed that we remain committed to building value to our shareholders through improved financial performance and through our capital management, which includes a healthy dividend and the share repurchase program.
Which are supported by both our strong balance sheet and cash position.
The Florida homeowners market remains challenging we are poor weather underwriting and therefore limiting new business until additional rate has been approved and improves our economics within Florida. We also remain committed to expanding our existing homeowners business and more profitable homeowners markets outside of Florida and are pleased both with the performance of our.
Long term partnership with same store and our recent acquisition of makes on which is helping to accelerate our profitable non Florida growth.
We thank you all once again for your interest and encourage investors to reach out to either me or Ron with any additional comments or questions. Thank you won't have a great day.
Ladies and gentlemen.
This conference call. Thank you for participating.
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