Q3 2020 Fednat Holding Co Earnings Call
Good afternoon, and welcome to fed Nat holding company's third quarter 2020 conference call.
Our next question I will be your conference operator. This morning at this time, all participants will be on listen only mode.
Let me begin today's call I'd like to remind everyone that this conference call is being recorded that's what that's broadcast live audio webcast. Additionally, today's call will be available via webcast replay this afternoon and.
Accessible by visiting the Investor Relations section well fed that's big side.
People W. dot button that dot com.
Now I'd like to turn the call over to Burton you kill Kelly corporate not Investor relations for any.
Thank you Christian good afternoon, and welcome again to set that third quarter 2020 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 year results.
Our non-GAAP in reconciliation from the GAAP measures to the non-GAAP measures are available in our earnings release state.
Statements in this conference call that are not historical facts are forward looking statements words, such as anticipate estimate expect predict project and other similar words or phrases are intended to identify forward looking statements.
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 statement.
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 today 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 fed 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 will turn the call over to fed Nat Chief Executive Officer, Mike Braun.
Thank you good afternoon, and welcome to our third quarter 2020 conference call.
And Jordan, our Chief Financial Officer, and Air Fernandez, Our Chief Accounting Officer on the call with me today. After my remarks, Brian will go into more detail on third quarter results and then we will be glad to take your questions. As you know our third quarter results were impacted by an unusually high number of severe weather events.
The 2020 Atlantic Hurricane season has now has been the most active since 2005 with 27 name storms Hurricanes, Zito, which had Louisiana last week set a record of the 11th named storm to make U.S. landfall during the 2020 season.
In the quarter, we had net initial pre tax weather related catastrophic losses of 44.9 million with the majority of that coming from Hurricane Laura and Hurricane Sally severe weather impacted all of our states with the majority of losses being in Florida and Louisiana.
I want to commend our staff over 95% of which continues to be effectively working remote for their dedication and commitment to providing the highest quality service to our policyholders and partner agents in their time of need.
On today's call I'm going to discuss the actions weve taken in response to this record cat activity to maintain an appropriate capital position that our insurance company.
While conserving liquidity at the holding company along.
I'll also discuss our initiatives to improve the profitability of our homeowners business and build long term value here.
These actions include raising rates in Florida, and non Florida markets, and restricting new business and shrinking our book of business within Florida until our rates more adequately reflect our increased cost of doing business.
We remain focused on improving our operational efficiency, including strengthening our team with the addition of a new Chief operating officer, and a new senior Vice President of those claims.
In addition to the ongoing initiatives that our management team is pursuing setting that announced today that our board of directors has formed a special Board committee to oversee a review of strategic alternatives to enhance shareholder value.
The committee has retained Piper Sandler and company as its financial advisor to assess potential strategic alternatives throughout the process that this committee will conduct our management team and employees will remain focused on providing exceptional value to all of our stakeholders as stated in the press release announcing the formation of the committee.
Our board and the committee has not set a timetable for conclusion other strategic review.
Turning now to the third quarter, the cat losses, we incurred in the quarter, resulting in an adjusted operating loss for the quarter of 21.5 million or $1.57 per share.
Book value per share declined to $14.69 at September 30, compared to $16, an 18 cents at June 30.
We took steps during the quarter to manage the capital position of our insurance companies and to ensure liquidity on the balance sheet of the holding company.
Our comprehensive 2020 2021 reinsurance program that we renewed in July, but then essential part of our maintaining our capital position and we benefit from having partnered with high quality long term reinsurance partners.
Well the co participation. The program included reinstatement premium protection, which is serving us well in the wake of the multiple events experiences hurricane season and.
In addition to the coverage we purchase additional quota share reinsurance to help provide more protection and statutory surplus for our insurance companies.
In July we entered into a new quota share reinsurance treaty with anchor re and affiliate in sales for our long term energy you partner to provide 50% quota share reinsurance and all non Florida business written through sales for this tried treaty applies to enforce new and renewal business written from July.
Why 120, 24 and has increased our capital efficiency as compared to the profit sharing arrangement. We have historically had in place on this book.
We also purchased third and subsequent event reinsurance coverage following hurricane Laura consisting of an additional $39 million of reinsurance limit, which to help reduce the impact of our losses from hurricane Delta.
In October following Hurricane Delta, we purchased 5 million of additional underlying non Florida coverage, which will serve to reduce our net losses on hurricanes data.
Oh.
On October one we increase the session percentage on our quota share program for.
Fun Icees, Florida business from 10% to 20%. In addition, with respect to the quota share Treaty, we haven't placed with sales sure we're bound and increase in the session percentage from 50% to 80% effective December 1st.
We are also exploring additional solutions, including more quota share for us and I see Florida, and new reinsurance coverage for me sorry.
These coverages these actions will enable us to retain additional liquidity at the holding company heading into 2021 and also provide additional coverage for kids to say good catastrophe.
Catastrophe losses subsequent to the respective affected dates imply.
Importantly, we currently project that each of the carriers will finish 2020 with RBC ratios above 300% with holding company liquidity at approximately $50 million. These projections factor in hurricane Delta and data both of which hit Louisiana in October.
I wanted to now turn to the actions we have taken to improve the profitability of our homeowners business and build long term value.
Looking at the Florida homeowners market the environment continues to be very challenging while the number of it'll be lawsuits continue to declining sharply the plaintiffs bar in Florida continues to find ways to bring litigation against insurers.
We are continuing to raise rates, while taking actions to further shrink our book of business within Florida until rates more accurately reflect the increased cost of claims and higher reinsurance costs in this environment.
The rate increases in Florida include 7.4% increase that took effect in June and an additional 5.6% increase that took effect in October. We have also filed for an additional 8.1% increase that if approved as anticipated it will take effect in January 2021.
We are continuing to reduce our overall book of business within parts of Florida as shown in the 8.4% decline in our homeowners policies in force since last year's third quarter to approximately 217000 at September 30. This represents a significant reduction of the book since two.
On T. 17, when we had 272000 policies in force, we continue to limit new business throughout Florida, plus the hot spots is Tri County, and Orlando areas until rates more fully reflect our operating costs.
We're also nonrecurring policy statewide that do not meet our profitability targets.
In our non Florida homeowners business. We are also focused on passing through our increased costs, including reinsurance pricing by raising rates to ensure that the growth that we are targeting is profitable.
Excluding the impact of the severe weather events in the third quarter and the second quarter Attritional losses in our non Florida homeowners business continue to meet our expectations. Our non Florida markets currently have a more favorable operating environment, including less litigation and more flexibility in terms of setting rates.
Non Florida policies in force were 152000 at September 30, compared to 149 30 149000 at June 30, reflecting our desire to limit our growth in these states at this time.
The geographic mix of our policies at September 30 was 59% in Florida.
This is 41% in non Florida. This compares to roughly 70% in Florida, and 30% and non Florida prior to the Mason acquisition less than a year ago.
For our non Florida business written through sales for we have filed for an increase of over 9.5% in Texas, taking effect in November and 9.9% in Louisiana to take effect in December if approved May sign has filed for 15.9% increase in Louisiana to take effect in November.
Bert and filed for a 12.3% increase in Texas to take effect in the summer if approved.
Our overall rate increases on Florida, non Florida are on track to generate over $65 million of incremental premium in 2021 as compared to 2020.
We estimate when fully earned out in the fourth quarter of 2021. These increases will contribute over 70 million of go forward annual incremental premiums as compared to 2020.
We remain committed to the prudent capital management, while also maintaining our commitment to returning value to shareholders, including through our dividend, which was announced today.
As we said on our second quarter conference call. We typically do not repurchase shares during wind season, and given recent storm activity do not anticipate executing share repurchases at this time.
Our board will continue to make decisions on repurchases and the level of our dividend based on the capital needs of the company.
I will now turn over the call to Ron for more details on our third quarter financials Brian.
Thanks, Mike and good.
Good evening everyone.
As Mike mentioned, our results in the third quarter were impacted by two full retention events, along with several smaller events throughout the quarter.
Our pre tax net income was reduced by approximately 38 million net of all recoveries and after factoring in intra incremental catastrophe claims handling revenue that arose due to the storms over 80% of the initial net cat losses stem from Hurricane Sally and Laura which together impact.
In Louisiana, Texas, Alabama, and the Florida Panhandle, we also incurred relatively minor losses from Hurricane Hanna and you say, yes.
In aggregate gross losses from all cat weather events totaled just over $246 million.
During the quarter over 90% of which related to Louisiana and Florida.
These gross losses were reduced by approximately 201 million of offsets primarily under our excess of loss reinsurance treaties. So also through quota share coverages.
Net of the additional cat claims handling revenues mentioned a moment ago. These cat losses added approximately 46 points to our loss ratio and combined ratio in the quarter and reduced our after tax earnings by over 24 million or $1.79 per share. Consequently, our.
Net loss in the quarter was $20.7 million or $1.51 per share compared to net income in last year's third quarter, a $4.7 million or 36 cents per share, which included only $7 million of pretax catastrophe losses.
Adjusted operating loss for the third quarter was 21, and a half million or $1.57 per share.
The primary adjustment between net income and adjusted operating income in the third quarter was $1.3 million of pre tax investment gains.
On a year over year basis gross premiums written increased by 13% to 180 million due to the makes on acquisition, but were down 12% sequentially, primarily due to the shrinking of our Florida homeowners book until our rates adequately reflect higher.
Claims and reinsurance costs as well as the slowing of growth in our non Florida book as we implemented rate increases at both may soften and seizure.
As Mike has already mentioned our mix of gross written premiums continued to shift towards non Florida in the quarter with an approximate 60 40 split of Florida versus non Florida.
Non Florida gross written premiums increased 76% from the third quarter of last year spurred by a 23 million contribution from May saw.
With respect to gross and net earned premiums.
Please refer to the tables provided on page seven of our release for the numbers gross written premiums increased 38 million or 26% as compared to Threeq <unk> 19, including 24 million from May saw however, ceded premiums earned grew by almost $42 million or 72.
<unk> percent, resulting in a $4 million or 4% decline in net earned premiums despite $13 million of any ti.
Some may soften any p. being net earned premium.
The major components of the increase in ceded earned premiums included $16 million of higher excess of loss reinsurance premium expense and that's on a same store basis 10.
$10 million of additional excess of loss premium expense from the addition of May song.
And 15 million of ceded premium from the F. and I see non Florida quota share treaty with sales sure that took effect on July one 2020.
Note that the.
Higher excess of loss reinsurance premiums on a same store basis, all else being equal have the effect of driving up our net loss ratio net expense ratio and combined ratio by approximately 19% on a relative basis as a result of the reduction to the net earned premiums.
Denominator in those calculations as such the gross loss ratio and gross expense ratio are certainly better points of comparison on both a year over year and sequential quarter basis.
With respect to the new quota share treaty in place on our sales for business because the treaty mirrors, the 50% profit share arrangement that was already in place. It had no impact on our net income rather it impacts income statement classifications and delivers RBC relief as a result of being able to see.
He premiums and losses, whereas under the profit share all the net activity was reflected in a single line item commissions to be specific in the quarter. As a result of the new quota share treaty ceded premiums increased by 15 million.
Ceded losses increased by $19 million and.
And commissions went up by 4 million all of which nets to a bottom line impact of zero.
Mike discussed the multiple rate increases we've taken this year in all our markets, including the main ones that we anticipate being approved in the coming months, but I think the overall point is worth reiterating.
Based on these increases.
We're on track to generate over 65 million of incremental premium in 2021 compared to 2020.
These rate increases will enable us to either drive earned premium growth on flat policy counts, if circumstances indicate or more likely you will enable us to continue reducing our policy counts without reducing earned premiums.
Either way, we expect these rate increases to help improve our projected margins and we expect to file additional rate request in 2021, driven by the elevated cat and Attritional loss trends experienced this past year.
Turning to the investment portfolio now during the quarter, we recognized 1.3 million in investment gains, which arose from both fixed income and equity securities Weve maintained our rigorous commitment to high quality liquid fixed income securities, which are also RBC efficient.
Our September 30 portfolio consisted mainly of fixed income instruments, all of which were investment grade with a composite rating of a.
Portfolio duration at September Thirtyth stood at 3.0 compared to 3.5 as of December 31.
We were pleased with our demonstrated ability to execute our investment thesis preserving capital and maintaining liquidity as we look to mitigate risk across any economic scenario.
In that same spirit in roughly mid October we closed out our equity securities portfolio, such that our investment portfolio as of today is 100% investment grade fixed income securities. This action took potential equity market volatility.
In the weeks and months ahead off the table for us as we plan for year end capital and liquidity.
Continuing with our balance sheet, we ended the quarter with cash and cash equivalents of 49 million Backstopped by our 550 million high quality highly liquid bond portfolio as Mike mentioned factoring in fourth quarter storms that have already occurred as well as quota share treaty.
<unk> that have already been bound with fourth quarter effective date, we expect to finish the year with risk based capital ratios, a 300% or more in all our insurance carriers and with approximately $50 million of Holdco liquidity.
We are continuing to explore the purchase of additional quota share reinsurance, which may further enhance our year end liquidity position.
In conclusion in the third quarter fed Nat and our entire industry have had to manage our way through the most active hurricane season since 2005 through it all we continue to work hard to provide the highest quality service to our policyholders and agents in their time of need while also using all the tools at our disposal to maintain it.
Appropriate capital levels and liquidity.
At the same time, we remain focused on increasing the profitability of our homeowners business through aggressively taking rate and shrinking our book in Florida with that I'll turn the call back over to Mike.
Thank you Ron.
Operator, if you can go open the line, we'll take some questions. Please.
Ladies and gentlemen, if you have a question at this time.
Please press Star then the number one on your telephone keypad.
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Yes.
Our first question is from Greg Peters from Raymond James.
[laughter].
Good afternoon, a couple quarter are tough year.
Can you.
Help us with the RBC calculations.
And specifically.
You know if we if you know given the experience that you're having in the fourth quarter.
What demotech is saying about their rating on your company is the your projected RBC satisfactory forward there, they're a rating of your company.
Yes, good afternoon, Greg just real quick before Ryan goes into the details on the math, it's been a tough year, it's been a very tough year. Both in terms of the amount of weather that we've incurred in Q2 amount of weather in Q3, and then also the reinsurance spend went up significantly.
That there's a lot of math there, we do have ongoing conversations with demotech.
And you need to be able to maintain 300 RBC to secure their rate and there's there's other criteria of course that they look at but but that's something and we're confident that all three of our carriers will be at that.
Plates at year end as Ron stated Rod can be explained the math far deeper then I'm not sure how deep you want to go.
Well, yes, we have some comments to make.
I think Mike covered it pretty well we will be.
At or above 300, and all our carriers and with with remain with 50 million approximately of additional liquidity at the Holdco.
As we head into 2021.
And so okay, let's hibbett, Dan as we think about next year. This is this is obviously a try.
Heidrick year.
What what.
What kind of.
Reinsurance costs you know.
Should we factor in for next year, because it would definitely seem like the reinsurers are also getting nailed.
With you know.
Frequency.
And at lower interest rates.
So.
It feels like you know next year is going to be another year, where you're going to have really steep rate reinsurance increases, but maybe maybe you're talking with your partners and maybe have a different view.
Hi, a couple of things in terms of what lines stated in terms of the RBC that includes the two weather events that have already occurred in Q4. So just to clarify that includes data.
And then in terms of reinsurance there's pressure on pricing our pricing went up a product over 20% in 2019, our pricing went up to over 20% and 2020 I think there is continued pressure on pricing I don't think anywhere to that magnitude.
So reinsurance is about a third of our premium they're pretty.
3%, a 10% increase it was about three points.
So so we have pass through specifically, Florida is our core market. We've passed through that rate increase from 20, 1912 policyholders via rate filings, but but those policies renew very slowly one policy at a time. So it takes a full calendar after.
After filing after approving and and so on it takes 18 to 24 months, we'll be earn it out correctly.
So so reinsurance pricing there is pressure on it.
And we do pass that through to the policyholders, but but the recovery on that's a bit slow I don't believe that we'll have the same type of significant increase on reinsurance costs going into 2021 and 2020, but it's very early that's speculative at this point and we're managing our portfolio assuming there is some pressure on that pricing.
We do have a very robust panel over 75, reinsurers and they all have different spot within our program and we think that worldwide.
We're well situated on a go forward basis with those partners.
Okay. I guess my my final question comes in two parts. It's just you know the loss ratios you did call out adverse loss experience enough and I see.
I was wondering if you could put some color around that and then more broadly just talk about the underlying loss ratio performance acts the cats acts the reserves where is that and you know what when are we going to see some further improvement there.
Sure I can talk about that so obviously, we had initial cat loss estimate of around $45 million, which we gave that figure in the 8-K earlier in the month of October.
The update to that I would say is that.
With factoring in claims handling of Cat cat that you reduced the net effect you know down to about 38 million.
In the quarter and so that's the that's the major.
Out of period items, so to speak or that you would you would adjust for in the sense of an underlying so speaking in terms of.
Huh.
The overall underlying loss.
The loss ratio on an on net earned premium it was about.
58%.
And you know.
So.
Factoring in the ceded.
As I said the increase in xol costs as well as the other.
Quota shares that we entered in the period of course are reducing net earned and driving all of our net ratios a bit higher but in terms of the underlying kind of attritional ratio that we think of in the Florida book Craig.
Here in 2020, that's been about 42%.
Greg Greg do you got any more context to 42% and we were at 30% for for multiple years, and then about four years ago. It started picking up significantly within Florida on upper Ninetys book and here, we are having taken about 40 points and rate if the attritional rate.
The Attritional loss ratio continues to climb.
So it's a challenging situation.
Got it all right well I'll, let some others ask some questions. Thanks for the answers.
Okay.
Thank you. The next question is from the free from Lenox financial.
Hi, Good afternoon, what exactly did you retain up <unk> the Piper company.
Doug Good afternoon to you that this has been in the second I'm, sorry third quarter here just recently.
And that was done by the board to evaluate our operations the marketplace that we perform in both within Florida, and non Florida, and obviously, our Florida markets been very challenging for us we've diversified into other coastal states and unfortunately, we really hard.
Hard on our non for the states with weather. So that's all occurred during the third quarter.
Okay and can you comment Tom about what you're seeing happen with the state run a carrier citizens.
Citizens is out there they are competitive in the marketplace.
They are starting to grow and it appears to be significantly.
There is some concern at the state level about that.
Right now what we're finding is the Florida market is very hard.
Not a lot of capacity and that's more true in certain parts of the state, including Tri County, and solo which is a seminal orange lake enough yellow, which is metro Orlando and I think you're going to see continued growth by citizens.
Okay, and what about the litigation environment, what does that like at this point.
Litigation is challenging within Florida, we see a remarkable difference between Florida and non Florida claims.
And while it'll be reform was meaningful and that really address the third party suits. The litigation on first party suits is growing and it's it's expensive.
And once again, when I say expensive it really impacts our results because of the amount of fees that are paid to the plaintiffs attorneys. It's it's a tough situation additional rates. It is needed until there is some type of reform.
And are you you had told US saw in your 8-K that you you have to add 8.1% filing which you thought might happen in January.
Do you have any idea.
Number in mind as far as how how much the next rate increase might be.
Well, there will be another rate filing right behind it as we update our assumptions based on actual losses and trends we.
We need more rate, it's really unfortunate the Florida property market is under significant stress were feeling it as well as others are our plan was to diversify into other similar states, which is not been successful here in 2020.
But.
And so there's reform you're going to see continued pressure and we will be filing more rates beyond that 8.1% within Florida I'm certain of it I really can't quantify it.
But I would anticipate that 8.1, that's pending with the regulators, we're hoping that becomes a proved effective in January it's sad to see it really is obviously it hurts our shareholders. There that's very clear, it's sad to see what's happening to the policy holders of our company, but all companies.
<unk> as far as some sort of update from from Sandler do we have do you have.
Which you expect to.
Give us an update at the next earnings call, where do you think that something might come out sooner than that is there any kind of timeframe that the board is targeted.
Doug there's no timeframe.
The board is well aware that our stock is trading at such a discount to book.
The market's not pleased with the performance.
And we understand that and the board understands that the Mark the board is well aware of the challenges in our primary markets.
And the board is also aware of our diversification efforts and the challenges that we've had with reinsure with weather as well as increased reinsurance there where they they are looking at everything and anything to assist in the process to assist in evaluating what can be done.
Great shareholder value I would not say that there's anything one specific item that would come from it and there is no specific timeframe. It's a public acknowledgement of the challenges that we face and that the board is looking into the situation with the assistance of a banker.
Okay and my final point is I would like to ask the board to consider buying some stock with their own money Oh.
Or the officers and directors of the company. The last time there was the insider purchase was over five years, our goal and I think that that would really found a strong message to the investment community that the company and the board members.
So even the future of fat math and I'm grateful for you folks hosting the call today.
So noted Doug. Thank you were very much. Thank you for your questions.
The next question is from my kind of letting from JMP Securities.
Hey, Thanks, good afternoon.
Maybe could we start when might you spent some time talking about the exact while reinsurance in.
In response to a prior question could you talk about the quota share a bit in particular, both the increased quota share for.
I see as well as.
Florida is going from 50 to 80, we stayed sure I mean, given the environment.
I wouldn't think that reinsurers are kind of tripping over themselves to get more.
Cat exposed homeowners market share right now what.
Hi, where the ceding commissions on this stuff versus you know youre your cost of.
Mhm acquisition things like that like is that is there any spread is it negative spread just trying to get a feel for as you up fees.
You know ratios and feed more what were the impacts go.
Ron can give you more details in a moment, but let me give you the overview so.
So obviously, a states or as a partner of ours as they've been in multiple roles for more than a decade, but doesn't M. You for about seven plus years and they stepped up and took 50% quota share and not jumping up yet again to 80%. So does multiple things it aligns the risks of course.
And that's the objective, but it also gives us some RBC relief.
So I'll defer to Ron in terms of the the economics there.
In terms of our Florida book of business, we have split three that's been a reinsurer on the quota share level for for multiple years, and they've stepped up as well and once again, providing RBC relief.
<unk> is a big part of that.
So we can keep that capital within the holding company.
And then with Mace on where we're looking at possibilities there as well, but once again, what we're looking for is is not only for the for the relief on the RBC, but ensuring that the economics work.
Brian.
Yeah, I guess I would just add a couple of comments there first of all with the with the sales sure. As you know we've had a profit share arrangement in place for quite a long time. So you can really think of the profit share as fully encompassing any reinsurer.
As margin right.
Related to that treaty, so in that sense, the the DEA quota share overlaying the profit share.
His costless frankly, if you.
Because the profit share already encompassed the economics of the underlying relationship if that makes sense.
And the balance history.
Honestly, Sri just what I would say there is there are there a long term partner to.
Great relationship, we really appreciate them.
They have been committed to fed Nat and and we enjoy their partnership.
And the like so so I think you're I think you're right and then in a challenging environment of course, they would be looking for additional margin and and we did renew the the tree back on July one.
On terms that we're certainly modified from the year before but I would say not materially so and beyond that we probably will refrain from giving any specifics on the terms, but hopefully that's responsive to your question.
Yeah, Yeah absolutely.
You know a couple of more numbers questions Ian.
You mentioned in the press release about I think it was 65 million of additional premium that will come in the door over 20 and 21 from from.
Filed rate changes can you help us understand how much of that goes towards.
Their current and increased cost of reinsurance, you've already absorbed or or will likely absorb and how much of that might be left over for going towards loss cost trend of margin improvement.
Well, certainly and Mike I'll jump in first on this one and Mike Ken can add on or or redirect, but you know as you know our cost went up.
20%.
Renewal in 19, and 20% at renewal in 20 in hearing 20, so certainly.
A meaningful portion of the rate increases are our us getting to catch up there's this inherent lag is.
It's tough you know in this business with the regulated environment that we're in but.
Our our reinsurance costs have gone up you know roughly $10 million a quarter.
In this latest renewal from the prior so thats $40 million, a year and I think thats, a reasonable way to think of it.
So be the 65 million.
Yeah, and Matt I would add a little color on that in the sense that once again, we're trying to catch up trying to catch up to our elevated costs. So primarily in Florida, the attritional losses.
It's it's been unfortunately, just and then lets staircase over the last four or five years with the industry with the industry, obviously with us and obviously the reinsurance going up in 19, and 20 and for the record appropriately. So based on the losses that they saw come out of Florida, primarily as it relates to relates to Rumble or amount was that was it was.
An event that was big and I think it exceeded many people's expectations.
So I think hopefully we're getting closer to actual pricing, where we need to be with the reinsurers on extra well for next year.
It's just these rate increases are would you attempt to get our I would say are in primarily in Florida, our attritional plus our reinsurance expense really.
The 70% range.
Okay.
A quick question.
If I plug in there I think its 27 million that you said for.
Delta data brings the year to to let's call. It round numbers 129 million of weather and caps.
Do you know can you split that out what what's from Florida, not Florida or even more specifically what was the non Florida stem from May spawn versus.
You know like if he had that.
Yeah right.
Detail on that but let me just say this that that number is a massive number in terms of not retained weather and it's far exceeded our expectations. So so once again, what we're trying to do is incorporate those.
Those new assumptions these new trends you.
You know I don't know that 2020 is going to repeat itself in 2021. It was it's been such an unusual year, but but hopefully not rate.
In both Florida, and non Florida will help towards that cause right I don't know if you've got more of a breakdown.
Well the 45 million this quarter.
Well, let me just say that the 45 million. This quarter was roughly 25 million from Florida, and roughly 20 million from the other states which was.
But the vast majority of which was Louisiana, obviously in our Hearts go out to the folks there in Louisiana for the repeated hits.
That they took.
Earlier in the year, there was kind of a good mix of if you will if you want to call it that of Florida versus non Florida.
It was I would say roughly 50 50.
In terms of the first six months here.
Okay, Great and then just my last question Mike.
Just kind of want to heel speaking to your investors on this call you know and understanding that you know.
You guys have been operating in a really tough neighborhood for a long time now and it's a lot of this is there's a lot of companies much worse off than you and and some not fared better but this is surely not justify that issue.
When I look back over say the past five years.
We got you doubled the size of the company on a net premiums basis book value is down 9%, an aggregate EPS to a loss of almost $1.50.
You know the story had been a rate increase story for at least a couple of years now and so my question is what would you say to investors at this point that that you could help them understand that there there's light around the corner and that is we're not on a hamster wheel hubs of you know an environment that we're not going to be able to get out.
Kind of escape.
Yes, Matt Great question and you know.
You know are not good numbers.
Numbers, so I'll add a couple of things, Florida is I've been here, we've been taking worried and honestly, we're going to continue to re sales.
And I don't know that that's true it's huh.
There's new legislation. So I do think we are.
Be catching up to the right it's needed, but but I just want to clarify every time, but catch up does tend to move from a couple of the entire market then Florida.
I think we're being appropriately by fine but tight.
I yeah. So.
So.
Business.
And for the last four years.
Yes, you know.
[noise] T.I.V. of roughly 20 billion plus.
To 50000, plus policies and it's really unfortunate because this is our home state. We've been here for 20 years, that's not what we wanted to do but but with the rate increases. That's what that's that was has been our response as well as re underwriting the book continuously with new information non Florida, We're we're very hopeful hopeful or very much more positive.
To the Attritional losses, non Florida, both with sales shore, they're a great partner and makes on we're very happy most of those books are performing on the Attritional loss perspective, our claims environment non Florida is remarkably different than Florida.
It's incredible, but let's be real clear.
2020 has been terrible from from me.
Whether perspective growth for us grossing up you. So I am I am very hopeful in that sense I hate to use the word hopeful but I feel good about what we're doing non Florida.
But this weather's because it's been a challenge it's absolutely been a challenge and in fill rates catch up in Florida, or there's action in Tallahassee I don't see our exposure is growing much so sorry to give us it's a long answer but in summary, I think our premiums will stay relatively flat and could increase.
Based on our total books of business. However, I do anticipate that our policy count and insured value will continue to decrease sorry for the wordy answer.
Oh it now that's quite all right I appreciate all the color on all my question and I wish you best of luck on board.
Thank you Matt.
The next question is from build grew along from building in.
Yeah.
Great. Thank you maybe just.
Numbered question real quick what was the surplus at 930.
Statutory surplus in the carriers is approximately 140 million at 930, Okay. All right. That's the 40 in their press release, Okay. Thanks, and when you see the 16.
60 million of liquidity at the Holdco that kind of cash and short term investments I'm, just trying to get an understanding of the mix.
With that yeah.
Predominantly cash and short term investments. We include you know if they've got intercompany receivables or something.
You know that our liquid.
And a tax receivable that is collectable within you know certain period of time those are types of items are in there as well.
Okay perfect.
And when you talk about the.
So you have the two storms in Q4 can you just dealt in feed it can you maybe remind us what.
Please your retention for the next event. So now you know what does that look like if you were to have anything else in Q4.
Yeah, we have our core program.
In Florida is a ballpark, maybe a million a 1.2 billion nine non Florida about $550 million the retention is approximately.
25.
Both programs.
And we've used a lot of the limits throughout the year on all these different events.
So we had after Laura we had re upped on some limits.
And aster.
Sally and or we believe it was delta we re upped on some limits so.
So we've got them some holes in the reinsurance program that we're looking to Phil, but but really the majority of the limit is there and some of the big holes that we have is on top of the program, which is which is obviously have less concerned.
Yeah. So on that comment would you say the lower layers thick.
Would you announce your reinsurance program you had you said a lot of it was cascading or.
Or the you know.
The bottom of your tower is that all cascading.
The all the limits not cascading. So that's why we've we've had to re up some limits throughout the season and we're looking at that as we speak as well right now.
Got it.
Got it so.
With I think.
Eat it in the water you know, it's I know, it's down in Nicaragua, but you know the Noah Pat has it coming towards Florida, Doesnt look like its a hurricane.
Yeah.
But given social inflation in Florida, you know anything that comes there, maybe where there's losses so.
For that for that.
Type of event hypothetical event and it's called right now it would be the $25 million would be how we should think about the retention.
Or the Retractions 25 million there could be some holes exposed if it goes above 25 million.
Once again those.
Those numbers are hard to quantify based on the storms that we have so with part of a program. It's.
It's a bit complicated fill some of our program is cascading others parts of the program is not cascading or.
Some of the program has single carrier.
As a group retention somehow separate carrier retentions.
So there's some there's some additional disclosure out there correct.
Which we're trying to mitigate but it's hard to quantify at this time or at least not really quantify with you today.
Okay.
The wondering what the one thing I might add bill is.
25 million would be it a non hurricane if it was a hurricane actually our attention in Florida would be 15 on an accident and we're certainly not hoping for hurricane to hit Florida, So not implying that yeah. No. That's a great. Thank you for that distinction that's helpful.
And sticking with.
The storm when you.
And your comments about the 300 RBC ratio the liquidity at the holding company at year end can you just help us frame out what are in that assumption is that we don't have any event after a delta in data and it's kind of a clean Q.
For I'm, just trying to make sure.
How much kind of what were once again sure go deeper I I don't think you can give you all the numbers that were using he's got expectations on weather and obviously.
Seasonal weather during Q3 Q4, and so on so we've got some expectations in there for weather.
But in terms of Delta and data those those are a fact that may have occurred and he has that included them as assumptions.
Yeah, just absolutely no.
Bill we did not say well two stars have happened. So let's just let's just assume that we're going to have no cats, the rest of the quarter.
I don't think that would be a reasonable view to take when I'm trying to project you know RV season and planned capital. So we do have an assumption for additional weather over the course of the quarter.
Got it.
Would it be.
An assumption big enough to.
Absorb eight if it does come near and does I don't think I don't think ron's going to you know wants to go that deep in the math. Okay. You know once again, we we understand your question, but there's.
You know, there's there's weather that we know occurs in Q4 and you know you can have actual water that comes in loss or higher than that you know about but we try to have reasonable expectations no problem. Okay understood.
Let's move on to a different subject.
There's been some press reports about the quota away are looking at MGH fees and I Wonder if you had any thoughts on [noise].
What what they might be looking at.
And how it might imply that impact the Florida market in general.
Oh, well all all sees that RMG A's are approved are reviewed and approved by the regulators. So we have no concerns on our fee structure. We think it's fair and so I don't think its really going to impact us in anyway.
Okay.
And the three year statute of limitation on the aroma claims.
Pat in Q3, and I was just wondering how what your experience was in that run up.
Well.
We had two brand new claims reported right up until the end I would not say that it was.
Massive at the end, but it ticked up no doubt about it.
But it was steady throughout the entire three years.
But you feel I mean are they you have set aside should be sufficient to.
Has been so.
Herman has been tough we put out in our that we believe to be correct.
But unfortunately, we've gotten that long over the last three years as well as I think most within the Florida industry.
So we're happy to be passed the three years, we think.
You know most of that should be behind us on a on a gross basis, obviously on a net basis, we're well into our reinsurance program, but we try to reserve those correctly and we try to.
Handle those claims as best we can but but once again.
Bill as you know, Florida is tough environment.
Right, Okay, and then last one for me just at the Holdco, what do you think about servicing you know what.
The uses of kind of your liquidity at the Holdco or the big names just for my understanding you know to service your debt.
Pay for the dividend and.
Any type of Pos.
Possible capital that needs to be contributed to this up to support kind of the RBC ratio or there was the big items to think about it. There's a combination of things Bill absolutely. I mean, you have three different insurance companies and we've got other companies as well other affiliates and ER and that and that liquidity at the holding company.
Is there for for those purposes, we hate to be Downstreaming. It when we have these weather events in one on one bad things occur but.
But we'd much rather be downstream you get for growth initiatives, but that's the reality of the situation right. Now is that we've got challenges and in our Attritional market within Florida, our home market and as we've expanded outside of Florida, We've really gotten hit.
In terms of our this weather and you.
You know, we like everyone else hope or we could get this weather season behind us pretty quick.
Understood sorry, if I could just sneak in one on the strategic review.
The timing of it.
Did a lot of different reinsurance transactions.
With this strategic review on.
On the table when you're negotiating the change in the reinsurance.
Do the kind of happen afterwards ever.
Everything that we talked about what the strategic review. This is a board initiative during the third quarter.
Okay great.
Thank you.
Thank you I'm showing no further questions at this time I would like to turn the conference back to you find that holding company CFO Mr. Michael It Brian.
Thank you in conclusion in the third quarter guidance and our entire industry have had to manage our way through the most active hurricane season since 2005.
Through it all we continue to work hard to provide the highest quality service to our policyholders and agents in their time of need.
I'll also using all the tools at our disposal to maintain appropriate capital levels and liquidity.
At the same time, we remain focused on increasing the profitability of our homeowners business through taking rate and shrinking our book of business within Florida.
Unless and until our rates more adequately risks are reflective of our costs with that we'll go ahead and the call and thank you very much.
Ladies and gentlemen, this conclude today's conference call. Thank you for your participation and have a wonderful day you may disconnect.
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