Q4 2020 Fednat Holding Co Earnings Call
Good morning, and welcome to that sat and Mat holding company's fourth quarter 2020 conference call.
My name is Victoria, and I'll be your conference operator and marine.
At this time.
Vince will be in listen only mode. Before we begin today's call I'd like to remind everyone that this conference call. It will be reported as well and broadcast live via webcast and this.
Today's call will be available via webcast and replay later this afternoon and accessible by visiting the Investor Relations section and said.
Net website at Www Dot net dot.
Dot Com now I would like to turn the call over to Bernie Co Kelly.
And my Investor Relations Bernie.
Thank you Victor and good morning, everyone.
And welcome again to fed not fourth 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's results are non-GAAP and reconciliations from the GAAP measures to the non-GAAP measures are available in our earnings release statements and this conference call that are not historical facts are for.
<unk> looking statements.
Words, such as anticipate estimate expect predict project 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, and these expectations not being realized actual events outcomes and results may differ materially from what is expressed or forecasted and forward looking statements made on this call due to numerous risks and uncertainties, including but not limited to the risks and uncertainties described in.
This conference call our press release issued yesterday and other filings made by the company with the SEC from time to time for.
And we're looking statements made during this conference call speak only as of today's date and.
<unk>, specifically disclaims any obligation to update or revise any forward looking statements to reflect new information future events or circumstances otherwise.
Now I will turn the call over deferred and that's Chief Executive Officer, Mike Braun.
Thank you good morning, and welcome to our fourth quarter 2020, and conference call, Ron Jordan, Our Chief Financial Officer, and Erick Fernandez, Our Chief Accounting officer are on the call with me today. After my remarks, Ron will go into more detail on fourth quarter results and then we will take your questions.
As you know our quest, our results and our fourth quarter and full year 2020 were impacted by an unprecedented number of severe weather events for 2020 Atlantic Hurricane season has 30 named storms the highest on record and 12 named storms that made landfall on the U S.
So that and that remains committed to providing the highest quality service to our policyholders and partner agents and their time of need.
I want to commend our staff over 95% of which continues to work remotely for their dedication to meeting that commitment.
And the fourth quarter got a pretax catastrophe losses of $31 million, driven primarily by Hurricanes Delta Zeta and as.
The majority of these losses were in Louisiana and Florida.
Our fourth quarter results were also impacted by reserve strengthening and American discontinued commercial general liability book of business, we strengthened prior year reserves by $12 million after tax due to recent trends that emerged during 2020 relating to construction defect claims that have resulted in higher than.
Expected claims and litigation costs.
As we discussed on our earnings release yesterday that Knight expects to incur claims from winter storm, Yuri and February which caused heavy residential damage and taxes. We again commend our employees are working diligently to provide the highest quality of service to our policyholders and partner agents, who were affected by the storm.
So I would not expect to incur claims and access of our aggregate reinsurance retention of approximately 23 million for this event.
Along with our co participation of approximately $18 million as a result, our total exposure to Europe is expected to be $40 million pretax.
The company has a 80% quota share treaty in place with anchor re and affiliate of our managing general underwriter shade shore, which extends from July one 2020 to June 30, 'twenty 'twenty, one depending on the profitability of the business seat and enter this treaty over the remainder of its term.
We may be able to recover a portion of the Erie losses, So no not necessarily and the same quarter and which occurred we are continuing discussions with <unk> and anchor re <unk> to increase the reinsurance limit and the treaty or to add additional reinsurance.
As you know and.
November and sad and Mad announced on our board of Directors formed a special Board Committee to oversee a review of strategic alternatives to enhance shareholder value.
The committee retained Piper Sandler as its financial advisor to assess potential strategic alternatives. The work of the committee is ongoing and as part of its ongoing work. The committee is actively exploring options to strengthen the company's capital position any such potential financing would be subject to market and other conditions.
And there can be no assurances about the timing or certainty of such a transaction.
During the process our management team continues to focus on executing our strategies to improve our operations and improve the company for future growth and earnings and book value.
In particular, we have taken action on three main areas for.
During 2020, and we maintain an appropriate capital position.
And our insurance companies, while working to conserve liquidity at the holding company.
As a result, we ended the year with RBC ratios and in excess of 300% at Orange and all three insurance companies and $59 million and capital at the holding company.
Second we purchased additional reinsurance coverage to help provide more protection and statutory surplus relief from insurance companies and Ron will discuss the additional quota share reinsurance, we purchased and more detail on just remarks.
Third we have continued our initiatives to improve the profitability of our homeowners business and build long term value. This includes raising rates in Florida, and non Florida markets and restricting business and shrinking our book of business within Florida until rates are more adequate.
Looking at the Florida homeowners market the environment continues to be challenging while the number of B C. E O be lawsuits continuous decline sharply the plaintiffs' bar and for them and continues to find ways to bring litigation against insurers. So we are continuing to raise rates to more accurately reflect the increased cost of claims and <unk>.
Reinsurance costs and this environment.
The rate increases and Florida include seven 4% that took effect in June and an additional five 6% that took effect in October we have also filed for another six 7% on our homeowners book and if approved will take effect in March and 7% on our dwelling fire that income.
Approved would take effect in April.
We are continuing to reduce our book of business and Florida as shown by a 14, 1% decline and homeowner policies in force since the end of 2019 to roughly 207000 at December 31 2020.
This represents a significant reduction of the books since 2017, one we had 272000 policies and force we continue to limit new business throughout Florida.
Plus the hotspots, such as Tri County, and Metro Orlando areas and we are also on non renewing certain policy statewide and that you need do not meet our targets and.
And our non Florida homeowners business, we are focused on passing through our increased.
Costs, including reinsurance pricing by raising rates to target profitable growth.
For our non Florida business written through same store a rate increase of nine 5% took effect in Texas in November and nine 9% increase took effect in Louisiana and January from Ace on a rate increase of 15, 9% that took effect in Louisiana and December and a 12, 3% increase took effect and Texas and fab.
Sure.
Our non Florida markets currently have a more favorable operating environment, including less litigation and more flexibility in terms of setting rates, excluding the impact of severe weather events. We are pleased with the underlying performance and profitability of our non Florida homeowners business.
Our non Florida, Attritional loss ratio, excluding severe weather it was about 25% compared to approximately 40% in Florida for about 15 points better.
As a result of our expansion into more favorable non Florida markets.
Our non Florida exposure is now nearing 50% of the company's total.
And overall rate increase and Florida, and non Florida are on track to generate over $90 million and incremental gross premiums in 2020, one as compared to 2020, assuming a flat book.
And we anticipate that when fully earned out and first quarter of 2022. These increases will contribute over $230 million.
Cumulative incremental premium in 'twenty, and 'twenty, one and 2022 with $140 million of incremental treaty premium annually thereafter, as compared to 2020 based on our current book of business now with that I'll turn it over the call to Ron for more details on the fourth quarter's financials.
Thanks, Mike and good morning, everyone.
As Mike mentioned, our fourth quarter and full year 2020 financial results were impacted by a record number of severe weather events, primarily due to this impact and the fourth quarter of 2020, we reported and adjusted operating loss of $1 96 per share compared to a loss of 59.
And last year's fourth quarter for the full year, we reported and adjusted operating loss of $5.21 compared to a loss of three cents in 2019.
In the fourth quarter, our pre tax losses from cat events were $102 million on a gross basis and $31 million net of recoveries.
Recoveries for the full year 2020, our pretax losses from severe weather events were just over $450 million gross and $139 million net of recoveries.
It was clearly an unprecedented year in terms of catastrophe losses.
As Mike mentioned, our fourth quarter results were also impacted by reserve strengthening in our discontinued commercial general liability line, which had a pre tax impact of just over $16 million overall net prior year reserve strengthening in the quarter was approximately 11 and a half million.
Pre tax.
Excluding cat losses, and the net reserve strengthening our fourth quarter adjusted operating measure would have been approximately $2 million of income representing a low single digit ROE based on our December 31 stockholders' equity.
As already discussed rate increases are on the way to restore greater profitability to the book and I'll come back to this topic at the conclusion of my remarks.
Consolidated gross written premiums and the fourth quarter grew 12% year over year to $168 million. This increase was due primarily to the acquisition and May saw on completed last December when it contributed only one month of premium to last year's fourth quarter. The.
And the percentage of gross written premiums coming from non Florida markets increased to 35% and the fourth quarter of 2020 compared to 28% in the prior year quarter.
Non Florida policies and force were 154000 at December 31, compared to 152000 and at September 30 of this year, our smallest sequential quarter increase and quite some time, reflecting our desire to limit our growth in the states at this time.
And the geographic mix of our policy Count at December 31 was approximately 57%, Florida and 43% on Florida. This compares to roughly 75%, Florida, 25% non Florida prior to the Mesa on acquisition, just a bit more than a year ago.
Gross premiums written and our Florida homeowners business were flat and the fourth quarter compared to the same quarter in 2019.
And gross premiums earned declined just 2% despite the 14% decline and the number of Florida policies and force as we continue to increase rates, while reducing our exposure.
Average premium per policy rose, 12% and our Florida book over that same period with 8% growth across all our states of operation.
Net premiums earned and the fourth quarter declined to six 3 million from 95 million and the same quarter last year due primarily to large increases and ceded premiums from new quota share reinsurance treaties and both Florida and outside Florida, as well as higher cost of excess of loss.
Reinsurance.
Effective October one we increase the session percentage on our legacy, Florida quota share treaty from 10% to 20%.
And then entered and additional treaty for 10% on November 15.
Inclusive of it another 10% layer and entered effective December 31, we now have 40% quota share in place on our Florida book through June 30 of this coming of this year.
Effective December one we increased the session percentage for our quota share treaty with anchor re from a 50% to 80% on our non Florida business written through Sage for.
Effective January one we entered into a new aggregate excess of loss program on our Mesa and book of business, which provides sideways protection and the event weaker and.
And we incur a number of middle sized events.
Our net loss ratio and the quarter was 127%, including 44 points from cats, and 18 points from net prior year reserve strengthening.
Excluding the effect of cats and reserve strengthening the underlying loss ratio would be approximately 65%.
This ratio and our expense ratio are both being driven upward in part by our higher excess of loss reinsurance costs compared to the fourth quarter of 2019 higher ex oil costs and the fourth quarter of 2020 have caused our net loss and expense ratios to be 30% higher on a relative basis.
And versus they would have where they would have landed absent the increased and XO all costs. So clearly the denominator impacts on these ratios are a real factor.
Turning now to our balance sheet and capital position, we took action and the fourth quarter to maintain appropriate statutory capital and our insurance companies and to maintain liquidity at the holding company all of our insurance carriers ended the year with RBC ratios in excess of 300% and we had 59 million.
Cash and non insurance.
Liquidity at the holding company at December 31.
As for as long been disclosed in our public filings the terms of our outstanding debt preclude us from declaring a dividend when our debt to capital ratio exceeds 35% cat.
Cat losses over the second half of 2020 have pushed us over that threshold as a result, we do not anticipate declaring dividends in the foreseeable future.
At year end 2020, our total investments were 491 million.
And to 500.
2019.
The decrease was primarily due to the need to fund our net retentions over the course of the year from the unprecedented year of cat losses that we endured in 2020.
We ended the year with $103 million and cash and cash equivalents on a consolidated basis.
I'll wrap up by returning to the topic of rate increases like as already mentioned the gross premium benefits that are on the way from rate increases over $90 million.
In 2021 and $140 million in 2022.
As compared to calendar 2020 as a baseline.
In order to frame these impacts from and even more cash.
<unk> or immediate perspective.
One could use the fourth quarter of 2020 as a baseline instead of the full year 2020.
Compared to fourth quarter 2020, the first quarter of 'twenty 'twenty, one will benefit from almost 7 million of higher gross earned premium.
That figure increases to $15 million in $2 million to $21 million and the third quarter and 26 million and the fourth quarter again, all as compared to the fourth quarter of 2020, just and it suffice to say that very real earnings benefits are on the way related to these rate increases.
Beginning here and the first quarter of 2021.
Now I'll turn the call back over to Mike.
Alright, Ron Thank you for that operator, we can go ahead and open it up.
And for questions. Please.
Thank you as a reminder, ladies and gentlemen to ask a question you will need to press star one on your telephone and two and draw. Your question press. The pound key once again that started on for questions one moment for questions.
Our first question on comes from the line of Greg Peters from Raymond James You May begin.
Good morning.
So I would like to spend a minute and I know you talked about it and your comments, but spend a minute on the.
The reinsurance purchases you've made and.
And on how we should be thinking about.
Events that might happen from this point going forward in when you think about the first and second quarter.
Things like Hailstorms tornado events.
And whether like that is pretty commonplace, and Texas and other states and the south and it will generate industry losses.
Think about fed net what should I think about your retention if say for example.
We're sitting here in April and there's a huge hailstorm that goes through Houston.
What would what would we think about your retention being on a per event basis based on.
The reinsurance that you've now put in place.
Yes, good morning, Greg and the short answer is $10 million.
Generally speaking for events for the we have cover and excess of $10 million for that event.
So what we have done on this.
And we've tried to be prudent to buy additional reinsurance by the loss of cascading reinsurance with so many events five events and now you're being the six.
As created challenges and the significant spend on our part to buy replacement coverage.
So we would have coverage above $10 million.
Through the end of May.
For for an event.
Got it and then.
Sticking on the topic of reinsurance.
Obviously, a lot of moving pieces here, but.
Is there any perspective, you can provide regarding your big cats annual renewal.
And what we should be thinking about in terms of costs, there and more importantly, I mean, given the frequency and severity I imagine youre going to do more to protect.
The balance sheet from a fee.
A recurrence of this frequency that we had last year. So any any perspective, you could provide on that would be helpful.
Yeah, absolutely. So one of the challenges as we've grown from a Florida carrier through and non Florida carrier.
And some of the reinsurers that were specific to Florida.
It had been less interested and the lower layers. So effective this year with our July one renewal, we will be splitting the cat tower. So our sales sure book will have a separate cat tower and that's been in the market for I believe two or three months and most of that program has been completed so.
July one forward our sales for our reinsurance program will be a separate tower and then our non <unk> business, which was primarily Florida, which is all three carriers F&I C Myc and M and IC as.
And as well as M&A and Nick.
Non Florida would be and the other tower so.
In terms of.
The total spend last year before buying additional limit we spent approximately $265 million.
And we bought additional cover to replace.
Some of those holes from the lack of Cascade them. So in terms of total spend.
I think it will be.
A decrease and our total spend.
Based on the optimization that we're doing with our portfolio and how we're non renewing policies and where we're writing policies and so on so.
It's too early to say, where the reinsurance pricing is clearly on January.
On the renewals for the reinsurance.
Were less than expected because more capital has come in but clearly, Florida is a peak zone clearly coastal states are our peak zone, and we recognize that and so on a total spend I think we're in pretty good shape there.
I'm, not saying that rates are going down and I recognize that rates may increase, but our book is smaller and with us splitting our non Florida states or book off and I think we'll benefit there.
And once again to pay for this reinsurance.
Which once again and on an absolute spend I think should go down.
And have massive rate increases massive rate increases these rate increases.
And Florida.
Statewide are nearing 50% over the last four years and Ron said, we have over $90 million that will gross earn out in 2021, including 7 million and Q1 versus Q4.
So we find that challenge to be the weather.
In terms of non Florida and and.
And we find the challenge and support it would be the attritional loss ratio.
But that attritional loss ratio, we find stabilizing and Florida as well.
And I'm throwing a lot out there Gregg on your question I'm happy to go deeper on any of that.
No I appreciate the commentary.
And as I'm thinking about this and looking at your results and not on the year results, let's be honest.
The industry has been clobbered last year as a result of everything that's happened and Texas is clearly an issue for a lot of different carriers I'm just.
One final question I'd have for you just on this is.
Do you find any.
Change in tone with the regulators do they recognize the pain that you're going through and do dissect a little bit more sympathetic to try and make it right for you and being more sensitive to rate filings or are they just agnostic and just plowing through business as usual.
Yes.
In terms of Florida in terms of the regulator, the Florida, <unk> I think they've done an incredible job and a very good job I think they are and a very difficult situation.
And I commend, the OE or for being in a tough spot by trying to protect everyone who's a resident and the state of Florida.
And helped contain price increases.
However, unless there is reform by the legislators.
Their job is that much more difficult and I would say, they're forced to therefore give rate increases we find the Florida <unk> to be fair and reasonable we find them to be accommodating with.
Uh huh.
B the reality of the situation I think they've been very proactive trying to inform the state legislators on the abuses that we see in Florida and the abuses that we see are primarily related with litigation.
So im hopeful there is some type of litigation reform in 2020, one, but the truth is Greg I don't anticipate that happening this year I don't.
Therefore, we will continue with.
We're limiting our business and Florida, where we're continuing to write new business and Florida, not a lot, but the business that we're writing.
Looks looks good and we're continuing to shed policies that was non renewals, which absolutely improves the profitability of our existing book of business, We're happy with those moves on.
Unfortunately, these rate increases that we talk about our good for our stakeholders that is our shareholders, but they are bad for our policyholders, they're bad for all residents and the state of Florida and.
And I hate to say it if the situation could be improved would not be necessary.
It's an unfortunate situation, we're going to continue to take rate and limit our new business and <unk>.
Childers either reform.
Or once again as our rates catch up with these inflated costs, but in terms of the attritional loss ratio and Florida that increase which was pretty steady over the last for years I believe it's lumpy.
And it's not that the abuses are slowing or stopping but we've got so much premium working through the book to offset those abuses.
Got it and and I guess the final question you know given your pre announcement or preview of.
The Texas losses.
I know you commented on your RBC ratios at year end and the capital liquidity sitting at the holding company do you have any view on how things might change.
You know when you report first quarter results.
Yeah. So there's a couple of things there so and.
In terms of the amount of weather that we incurred in 2020, it's truly amazing amount of weather that we've experienced and.
And now with Texas once again.
On the loss would have been.
Tiny fraction had it not been for the lack of power.
With the grid going down and that really created a problem, where you had homes that were not able to stay warm and and and then you have all these water losses.
In terms of where we're at on capital we are committed to support our carriers with the appropriate levels of capital.
We have affiliated companies that generate significant fees.
To support our business to support our carriers to support our policies.
Our policy holders and and facilitate with claims.
So theres a lot of fees being generated on.
Fortunately the underwriting losses have exceeded that with when you get these big weather events.
So I feel that the second half of 2021.
Greg West.
Less of our spend on reinsurance once again, I'm not stating the rate online, but the absolute spend so with a with that plus all these rate increases taking effect.
The second half of 'twenty, one really improves.
And as those rate increases take hold.
But once again, it's just been the amount of weather that we've endured wildfire and our costs have increased so much our costs related to the attritional losses, and our costs associated with reinsurance.
Got it alright, thank you for your answers.
Alright, Thank you Greg.
And.
And you can.
And once again that is still on for questions. Our next question will come from the line of.
And Steve Hale from Hale partnership you may begin.
Hey, Mike Hey, Ron How's it going Hey, good morning, Good morning, Steve.
Good morning. Good morning quick question for you guys on the disclosure regarding the special committee about them reviewing options to strengthen the capital position.
Two questions on that.
Is that the past and they've decided after reviewing all options available.
The committee was formed in November.
Formally I should say, when we announced it but honestly it was something and the work and cross process before and then to see what we could do to create value, but clearly the committee.
Their lens.
Has it been impacted by the amount of weather that we've been experiencing so with Q Q2 last year, we're having a lot of weather and then Q3 being our Lora L. A cue for Delta's Ada Ada. These these impacts on their analysis and then now with urea and Q1, so the special.
Committee that we have formed is continuing to do their work to try to create value for our shareholders and.
And I would say that it with creating value.
A portion of that is ensuring we have adequate capital.
Based on recent events Yeah, you have to you have to assume that's part of the analysis absolutely.
More so now than it was before all these weather events occurred.
Yes, I guess I guess I'm trying to.
Theres a strategy wheel of things that that can happen right and if youre going to position of strengthening our capital position as opposed to a complete sale of the company as a strategic alternative or M&A.
It's a little bit indistinct as the strengthening capital position could be selling assets accretively it could be raising capital and I'm. Just curious if you guys are going to get.
More specific and and and I guess the reason the question comes up is the concern for existing shareholders.
Who has literally been through the storms with you would be that you go to a third party capital source as opposed to the to the folks who are sitting here that.
Could be supportive right and not diluted I'm, just trying to make sure that.
Shareholder voice is heard.
And as those alternatives are assessed and that it's fair.
From a shareholders' perspective.
Hey, Steve I hear you loud and clear you are a very large shareholder you've been through the tough times with US absolutely. The committee is their focus is to look out for our shareholders. That's what they're looking to do.
And whatever is the best.
Come for our shareholders is what they're evaluating I cannot get more granular than that.
But once again they are also looking at the capital on the company once we as we sit here today, we have sufficient capital to support our business we.
We have the latter half of 'twenty, one really a lot of premium rolling in but we want and make sure we're well positioned if theres additional headwind.
<unk> b before those rate increases roll in and a more meaningful manner. So I hear you Steve I can't give you anything specific other than to say the committee is working diligently.
And to try to create value for our shareholders.
Yes, Mike I appreciate that you've got a bridge period to get to that.
And Grail and and we don't know what happens with weather it's just.
Hopefully that normal preemptive right of.
Shareholders to be able to provide that bridge becomes part of the conversation.
So with that I'll drop off thank you guys.
No I appreciate that Dave and if you have follow up obviously, please do not hesitate. Thank you.
Yes, Thanks, Mike.
Thank you.
Once again.
Next question will be from the line.
Bill Bill boom and Rommel from Dowling you may begin.
Great. Thank you just quick follow up on the Texas and Mike can you just maybe help us understand what types of claims you're getting and Texas was it and I'm guessing a lot of pipe burst, but.
Is that actually what happened.
Texas is kind of unique.
And it's and it's.
Zero losses, and and maybe what's the average size of some of these losses day, Youre seeing and Texas.
Yeah. So if you look at the insurance Journal yesterday, I believe theyre, putting numbers out there.
And the.
15% to 18 billion and to $20 billion range. The losses, we're seeing as water it's water on.
And all day and once again had it not been for the loss of power.
Think these losses would be.
Far less and what we're experiencing the majority of the losses that we're seeing on.
Our.
And and the Houston area, and we have a sizeable book and <unk>.
Houston with our stage for partners.
So it's it's a sizable event.
It is being compared to a hurricane.
But we're seeing some big losses, specifically when do you get pipes.
That one on the if you have a second floor bathroom and those come down they can get pricing. So so we're seeing the gamut of it some more than others.
But I I think the comparison of a hurricane is fair in terms of a co.
$20 billion event and.
And in terms of the average severity I think it's it's comparable to what youre seeing out there and the media.
Got it is it you have kind of a unique perspective, I think and maybe some and Texas, because you've experienced hurricanes and Florida is the demand surge for contractors and everything.
Match prior events that you've seen.
Yes, so demand surge as a part of our business and.
Once again, when you need a plumber.
A price when you need to dry out guy Theres, a price when when all your neighbors need a plumber and they all need to dry out guy.
There is and increased price absolutely. So after a hurricane and we do see demand and search for labor and for material and I think that's happening right now and taxes as well.
And typically that spike diminishes with time.
In other words, the demands for these plumbers and and dry out remediation services will decrease with time and some of that spiking, we'll dip down.
Yeah.
Got it and.
Your claims handling services business debt will.
Participate and we'll react to this event correct. Just I think you said, so but I wanted to confirm that so so we have multiple claims organizations, we have our desk adjusting and our cat adjusting and our field adjusting we've got a lot of.
Resources, though we do utilize ex external vendors as well just because you can't be ready for every.
Residents, perhaps it's located and a distant location or just because there is such a spike and claim activity. So the majority of what we're doing we're able to do and house. However, we absolutely utilize our third party contractors that have partner with us over the years and they are a big part of our of our.
Of our process.
Got it okay. Thanks and.
I appreciate the.
The conversation about the rate increase and I Wonder if you could talk about the other side.
You're pushing through rate and for <unk>.
How have your Retentions held up I guess.
I'm guessing a lot of people are increasing rates. So I, just wondering how youre doing and that environment.
And now from us.
Shareholder perspective, it's very frustrating that we're seeing elevated increasing increases and our costs.
It's litigation from a shareholder perspective from a policyholder perspective.
It's very frustrating as well.
And we are seeing 50% increases these are working people and it doesn't need to happen.
The the policyholder.
Is not getting the big upside and it's the litigation.
Getting the big upside it's very unfortunate.
And it doesn't need to happen, we need reform and Florida.
We're seeing our prices have doubles and Orlando over the last for five years.
It's driven by litigation and <unk>.
50% relative to two Florida.
No.
Right.
It's unfortunate that the regulators doing an admirable job trying to inform and educate people.
And there's multiple things that are being proposed in the.
On the legislative body, which means really for the month of March and April I, Unfortunately don't see something big happening.
Which is too bad so therefore rates continue to increase and and at some point I would assume that it would it be addressed and I am hopeful.
Theres, some reform and 'twenty, one, but I don't think it will happen and and hopefully there'll be more opportunities and 22 for it to reform, but until then we have no choice, but to pass through the rate increase and let me say it again.
Without rates when they go up we have to incur the expense then when we file for the rate, which takes time to review takes time and then we have renewal offers and then policies gradually renew over 12 months Youre talking 18 to 24 months. So we're in that period, where we've had huge.
Increases in expense and we haven't seen the increase and premiums earned premiums and then while were most vulnerable because of these.
Increased costs, but yet not realizing the increased premiums we get hit by six weather events.
The timing is unfortunate and it really is and things look very much better on the latter half of 'twenty one.
But once again, hopefully we can get there with Florida and the legislators I think the tort reform UC and taxes for 2017, I think that was great and accretive and created value for the for this.
For the for the residents and the state of Texas, and and I Hope, Florida can do something like that as well.
Perfect. Thank you for those expanded comments.
And when you're talking to the reinsurers for.
<unk>.
Quota share and.
Different trucks have you seen their view change on how much cat there.
Willing to put into the quota shares of caps at all has that changed.
I don't know if there's there's always been the reinsurers have always kind of been divided into two buckets, either non cat and cat.
And it really is.
You you don't find a lot that like to go into both buckets for variety of reasons.
And so there's only so much cat that goes into quota share.
And some quota share doesn't want cat others want minimal cat and then you had your cat writers that are on and extra well primarily on an actual basis. So it's there's different types and that's why we have such a big relationship with 75 reinsurers is to try to find that matching point with all of them.
Got it okay. Thanks, and just one number one real quick what was the your surplus at year end 'twenty and then.
All of that and think.
You know and and with that I got to cut you off Bill Ryan do you have it handy because we got a couple more calls we're trying to get to do you have and Andy Ron Yes.
Yes.
And I F N I C.
$106 million based on $39 million and the F and I see is inclusive of monarch since it stacked under there so the sum of the $245 million stat surplus.
Alright, Hey, Bill I appreciate it and we can follow up yeah. Thanks, so much.
Thank you.
Our next question will come from the line of Doug Ruth from Lenox Financial you may begin.
Good morning to.
So everybody there could.
Could you talk a little bit about the status of citizens and what you think is happening with them now.
Yeah, Good morning, Doug citizens and Florida continues to grow.
Everyone May recall, they were at about 1 million five policies back about 678 years ago.
And then they got down to the low 400 thousands.
My understanding is there are approximately 600000 right now and.
And there.
It's speculation they may end up at 800002 1 million policies at the end of this year subject to a lot of variables.
Citizens is competitive and the marketplace.
They they are obviously has some tax benefits being a being a.
A state entity and.
Also debt.
They don't have to purchase certain reinsurance to protect their balance sheet, so they're a competitor and their competitors.
And do you think that.
And that there's something that there's something that maybe the Florida legislature could do too.
I'll make it for that.
Citizens is less competitive against fed Nat and other carriers.
You know Doug there was a lot of things. They can do do I think anything is going to change the answer's no.
Once again right now just stay with a carrier basically.
If you have a private market that's willing to take you.
You know you're you're supposed to go to the private market, but that doesn't always happen number one number two.
And before you go into citizens and the private market will take you at not more than a 15% premiums you're not supposed to go into citizens.
Really.
You know in terms of.
Policies, most people are staying put and their private carriers, if they get a renewal offer and and others.
We will move if they are.
If the private market won't take them and citizens as a competitive on.
Option so.
They are out there I don't see anything changes and the near future.
Okay well.
I appreciate the candor and we're looking forward to some better day to come. Thank you for amps for my questions.
Thank you, Doug and have a good day.
Yes.
And our next question will come from the line.
Matt <unk> from JMP you may begin.
Hey, Thanks, good morning.
Mike I was hoping you could talk briefly about.
It's very early days and the Texas event.
And how you how you came to your estimate and it.
Did you just get there because thats the Max net exposure you can take and if there is a bigger number than you think it all goes to reinsurance or is there additional potential additional net exposure should velocity bigger than you think.
Yeah, So Matt good question and good morning.
On to that what we're saying is we're going to go over our retention.
So we're stating that and then unfortunately, we have a hole in the program the cats our.
And because we did a lot and a strengthening at year end. So we really took reserves up at year end and as we finalize those numbers.
You know not notch much after that.
Do we go and get hit with Fury.
And to clarify the.
The $18 million co participation there, it's basically where we think we've got a whole from really.
Relating to Delta Zeta and Ada.
And so the 18 million and could increase or decrease.
I don't anticipate shifting with all information that we have right now, we think eighteens and the right number but.
But that's that's once again.
<unk> was our first event, which was very big and Sally was our second debt, which was the second biggest but urea is coming and I think I think youre going to see a big event with here.
We're not putting on a gross number out at this point, but but it's it's well above our retention.
Alright, so if I'm hearing you right. If there were to be movement on the net number for Yuri it would more likely come from.
And then on <unk>.
Last year's storms that move kind of where the GAAP in your program might be as opposed to.
Where where urea itself falls on a gross basis is that is that right.
You are correct you are correct, so any GAAP from Yuriy and layer one would be based on movement from Delta Zeta and data. We've got a lot of bulk reserves. We believe on all three of those so so we're comfortable with our reserves on those events.
With all best available information, we were comfortable with the $18 million.
Okay, Great and then my other question relates to.
On kind of expenses and how we should think about that.
Mostly because of the moving pieces with the additional layers of quota share that are getting added on and.
I could be wrong, but I presume that those are at not as good terms to you as and kind of a lot of the stuff plate placed earlier when there wasn't storm pressure.
How should we think about.
Where expenses fall our expense ratios fall.
And with all those new programs in place.
Yeah.
And I'm sure Ron and didn't go deeper on that but let me just give an overview of the quota share we feel to be reasonable terms based on an historical perspective as well as today perspective of course, we always on better terms, but I think they could be categorized as reasonable Ron you on a go deeper.
Yes, I guess my my main comment.
With respect to the quota shares.
I talked about how and when our ex ol costs go up that drives our net expense ratio up and our net loss ratio up the same phenomenon and really does not exist on the quota shares because you've got pro radar.
Types of reductions happening on the premium line and the loss line and the expense line. So I would not expect quota shares too.
And it significantly move our net ratios with that said, Matt I'm sure what getting and is.
It's not free right.
And the writers of quota share doing it because they do expect to make some money.
Is there a bottom line cost for those additional treaties sure. It doesn't it's not going to evidence itself in the form of higher expenses or a higher expense ratio.
Okay. Thank you good luck going forward.
Thanks, Dan.
Yeah.
Thank you.
And nationally for the questions and NICU and I'd like to turn the call back over to Mike Braun for any closing remarks.
Alright, well. Thank Neal. Thank you everyone for participating on today's call before we close and I wanted to again recognize and I've said and that team our team, including our staff and partner agents continue to provide the highest quality service to our policyholders and their time of need and are doing this in the midst of and ongoing pandemic their efforts and dedication.
Will help that and that maintain our quality reputation and continue to build value for our company. So appreciate.
The question and answer and participation today and I don't have a very good day. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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