FNHC - Earnings call transcript Q1 2021

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Operator

Good Morning and welcome to FedNat Holding Company’s First Quarter 2021 Conference Call. My name is Josh and I'll be your conference operator this morning. At this time all participants will be in a listen-only mode.

Before we begin today's call, I'd like to remind everyone that this conference call is being recorded, as well as broadcast live via webcast.

Additionally, today's call will be available via webcast replay later this afternoon and accessible by visiting the Investor Relations section of FedNat’s website at www.fednat.com.

turn over to FedNat Bernie like Relations. Investor I'd the to call Kilkelly, Now, Bernie?

Bernie Kilkelly

morning. to Welcome for Good you. Thank again quarter XXXX FedNat’s the of earnings. first call conference

non-GAAP We use year’s non-GAAP and include prepared a Our transparency provide results. these as comparison more earnings income. references meaningful, measures release efficient to operating adjusted measures greater remarks and to such prior to

SEC conference estimate, non-GAAP risks similar in materially this and matters may and may is expressed expectations release. intended including and time the discussed result predict, by uncertainties in uncertainties anticipate, measures uncertainties the Words conference and current forward-looking or these forecasted to The that to this call are results this phrases this the Statements in in filings release risks with from on statements GAAP being and our realized. outcomes numerous statements. to Our that press are that company reconciliations historical expect, the the are non-GAAP but not and earnings available other our on from statements in forward-looking facts described statements. risks what involving due identify events, call, issued expectations call time. forward-looking based words to made and forward-looking to yesterday, not Actual made limited other from are differ management measures not are or as such call, on

any to new conference otherwise. or any to today's and events disclaims date, made statements circumstances obligation during of reflect this revise or FedNat Forward-looking speak call future or as only statements information, update specifically forward-looking

turn over Officer Mike will Executive Chief to I FedNat’s call Braun. the Now

Mike Braun

results. Erick conference more today. will the to call our open will our quarter me morning, Fernandez, And with the up on Financial Good Chief After and questions. call. Officer detail and XXXX call Ron go my you. Thank into Officer then Accounting on our we Jordan, to Chief are Ron first quarter first welcome remarks,

by were storm Uri, XXXX which Our from results quarter impacted in catastrophe the Texas primarily during losses, in of significantly residential higher-than-expected caused damage heavy February. first winter

We policyholders service agents team URI other dedicated partner committed affected highest our and are the to our who weather to providing and quality the past by the over proud of year. events multiple are

expense Our extra the also quarter. second season during first after a quarter a was multiple by encountered higher from will XXXX. of late premium reinsurance reinsurance much the half in seated we our five impacted This record continue expense purchases hurricanes second

have X other plus pretax, The is and more provide first of we URI cat policyholder our of so, to an expense have to from will and $XX.X FedNat claims and from that reinsurance weather third sixth hurricanes. elevated events company reinsurance been purchased in contributed future and experience to very impact severe weather reduce major to the we have quarter, weather that potential the since additional These so catastrophe the frequency was reinsurance excess million. smaller July renewal Ron events. we event the loss our of their significantly program. approximately five challenging on This total $XX.X events including storm unusual financially. the the times And severity, from net exposure weather the details impact quarter large in million Uri

capital insurance three at by taken our appropriate maintain ensuring positions proactively our within companies. that sheet balance liquidity to and the holding protect company have We we action ample

offering our financial conference including Company of strategic as Board in November, million. oversee million. alternatives, last a raised a know exploring As committee offering March, capital of board quarterly Piper in in strengthen Sandler, million proceeds Sandler you may $XX.X together special the April, common which which last note raised company's and Since through These of transactions call raising $XX March gross advisor. Piper stock which April, early to convertible two options company & capital review Directors completed and included its we $XX retained position. formed to The have a a our

result increased million liquidity. million company have and our ensure insurance continuously our of ongoing, holding infusion currently approximately of position strategic a the of adequacy appropriate capital March liquidity companies company Company committee capital is capital the as these XX. is transactions, effective following a of As capital after we The $XX liquidity. to our into raises, is the $XX and review evaluating Board's work and Holding

continued to growth and FedNat first particular, pricing the execute earnings quarter, improve Florida are business, the and have to new non-Florida within and rates including future of more we company profitability Florida book improve business position our for operations, In rates and our book in in our shrinking During restricting and homeowners our continued to raising the until markets, to our strategies book initiatives value. business on adequate.

the market, at environment Looking to be continues homeowners challenging. the

lawsuits to was by companies our the overall will go insurance into levels rest legislation by sharply, AOB July litigation Florida passed at against property continues above continues are in Florida week governor far Legislature last the signed that While the is Insurance decline country. effect of the the on X. number of that

issues driving encouraged We have fully increases do addressed. of are believe the portions rate legislation by not but been the

in to the state. Florida, remain reduce We our we initiatives cautious continue our exposures current in will therefore

and potential of XXXX half of evidence benefits see in we the beyond. second so, And

We litigation accurately will see higher continue great costs. costs as reflect increases reinsurance the as stemming well excessive to from more increased to

rate XXXX flat in the goal increases. in in premiums is while reducing that environment near-term of to Our number continue policies this relatively have, in-force we Florida through keeping

Florida Our includes rate X% April. in in and implemented X.X% that March was in effect that took increases

in-force a XXXX continued from XX.X% XXX,XXX December decrease to XX. since policies shown when to policies we the as This had a X.X% XXX,XXX policies policies at decline, of March XX, significant Florida over by of Our at XXX,XXX reduction XXXX, in-force. book represents

do not continue meet our that existing policies in new our We new to limiting risk with identify based information targets, on reevaluate along business statewide. book, to

in compared policy of actions, first premiums are compared per the homeowners’ translates last also first premium per to risk. first almost in to our continuing the these This of increased to quarter profitable decreased result into increased the increase with average costs. and non-Florida XXXX. of our million increase in include $XXX increased targeting from and through compared by activity by business XX weather more reinsurance quarter book, higher costs, year a policy XXXX quarter, In we over the fourth to $XXX which XXXX quarter pass As of our claims

that XXXX. effect a SageSure May, similar business expect increases XXXX. takes we later in effect increase X% January. in in also later through For SageSure, rate Texas, in a increase written to non-Florida range rate increase in is Louisiana planning had for X.X% for And additional took in in of our a and that file

file a and of February increase to we in Maison, expect rate effect in in effect an For increase took in XX.X% Louisiana rate took later XXXX. Texas, increase additional December, in XX.X% for and

Our non-Florida markets including more continue favorable to litigation on environment, more rates. have setting operating less flexibility a and

the weather the underlying events, continue to very business. impact our of profitability Excluding we performance of be severe homeowners and non-Florida pleased with

or to in excluding catastrophes points loss approximately attritional XX from mid-XXs, compared the about generally ratio, non-Florida XX% Florida better. is Our

in exposure XX% just more expansion the is result of total on non-Florida total insured our under non-Florida of favorable now a basis of As markets, our our insurance value.

incremental XXXX as non-Florida $XX business. million on and increases on rate XXXX quarter earned Florida book generate of our to track compared gross over are to in in overall Our premiums XXXX fourth based and

premium thereafter cumulative As fully $XXX incremental delineated of will compared increases when we to XXXX million $XXX our of over of book quarter quarter, first as last that annually, quarter in the premium anticipate XXXX and million and in on fourth incremental contribute out based earned these of business. XXXX XXXX, XXXX

and new to of business. our existing We policies to are reduce non-renew continuing optimize book business

turn XXXX. I reinsurance renewal the want call to of the on Ron, comment status I Before XXXX, over programs for to the

our with and to their to their capitalized appreciate We number non-Florida reinsurance is very make of The partners. programs large anticipate large two our high-quality and out We reinsurance of industry book we are work the support long-term with business separating partners. well partnership. a continue a continued will SageSure expect and and of reinsurance with reinsurance number program

Our majority reinsurance underway is of our renewal the well and process limits secured.

reduction total program, but with the ended was reinsurance drove cost our expense XXXX up the which million, events July a of with $XX XXXX associated beginning in multiple XXXX, cost compared of for that the $XXX with expect approximately purchases. X, additional reinsurance program cat catastrophe subsequent We million our

the and the for XXXX-XXXX total management of as reduction our size expected continued book. overall Our efforts value our result reduce of to exposure insured year our a

into In expense associated by quarter. will addition, carry year second XXXX-XXXX purchase will the end have this for quarter. the subsequent of None expense over our recognized with been third of this the reinsurance the

on details more I'll over financial turn Ron quarter for the results. to call first Now, our

Ron Jordan

everyone. Mike. Thanks, morning, And good

higher-than-expected results winter $X.XX of per Uri. cat $X.XX were As mostly earnings versus expense, first share losses loss earnings few year's first last quarter XXXX. to the in our operating in Mike by our operating year's first share moments. $X.XX which of pertains mentioned this reinsurance reported in per per compared remaining first after-tax quarter share from a factoring catastrophe The of per to cat share in handling claims storm was impact quarter the will in $X.XX losses related discuss I adjusted impacted of We delta revenues of quarter. in Most

retention was approximately FedNat’s million Going this deeper on Uri, winter reinsurance $XX storm event. aggregate for

co-participation a reinstatement $XX approximately includes of of premiums million, had which million by We triggered also Uri. $X

million Anchor Excluding from policyholder approximately million, is $XX.X Of to be URI that estimated Re. of we exposure these to claims our premiums, retained net losses $XX reinstatement million. to total seeded $XX

impact million FedNat net the to pretax. was quarter first approximately in So Uri the $XX.X from

offsetting also brings in impact filing in quarter expect the the revenues total As be to catastrophe last related $XX.X other first losses and are losses this that generated X-K million $X.X quarter we an other in quarter. catastrophe partially had we $X.X events. claims pretax these first million during This million catastrophe to we of pretax week, handling the amount of announced to

million I'd in impact call an regarding of the reinsurance the line or such, was extra deeper the seeded I'll impact quarter, what after-tax which is also to share. like or our $X.XX program. As meaningful $XX.X million net go related catastrophe pretax for approximately to impact other $XX.X bottom premium per

in and events replace treaty to XXXX-XXXX made our numerous or result reinsurance which the limit. far under we so, the purchases the months of year, of combined past number eight with record retention was thus utilized in the a terms placed, backup conditions catastrophe over As order program

amounting Uri, portions we In extending top were Inception of in $X.XX coverage rate co-participations triggered nearly premium is just pretax. quarter per of expenses of of of on portion help share $XX total In increases to way That will earned for example by from million of the the backup recent on costs million the that extra the costs premium a unfolded. normalizing and would excess as we $XX of These the And the base had the implemented premium the already a through these million most the being the impact of recognized will of backup mentioned impact million extra million. higher of these over even The period gross larger winter quarter purchases, $XX premium as addition, in $XX from to cumulative earnout We a of reinstatement purchases of for are to $XX.X these offset of premium purchase Incremental expense. these quarter, is costs storm total seeded million a $X the costs. at on disclosed after spend last tower. reinstatement this $XX almost loss impact first $XXX due worth tax, anticipate adjustment backup premium be along large they reinstatement July. purchases second costs the million various quarter. the and in second or the the added be of related as approximately I cat The seeded loss discussed. tower million Uri,

in costs reinsurance a to reset of FedNat with third X, us clean and seeded we begin excluding beginning expect growth the we average Combined that to beginning increases, rates we forward. will will our XXXX a which $XXX.X decreasing the exposure. the and flat. compared at written effective growth course, quarter. July grew anticipate desire trend profitable our markets generated which both way gross reinsurance on a impact to overall written Florida our a XX, in year-over-year Of limit to in per give toward States the Non-Florida program in-force remaining at written our to gain the we while increase gross XXXX. estimate reflects at XX, million the going in we mid-single the an more filed count XXX,XXX premiums gross expect earnings much policy, and as slate results, premium Consolidated policy Returning first premiums second extra quarter our essentially that X% rate XoL cash with quarter, first half reduce roughly ROE we in time. ex-cat reflecting March This the quarter premiums, digits our realize of additional from raise to were will to in the property will XXX,XXX premium policies December in this non-Florida

almost in million first Our $XX.X catastrophe $XXX.X was compared acquisition into both the approximately that in count to premiums backup in that split the half XXXX. was the December due costs an a with $XX from XX% premium and XXXX. roughly of the quota seeded non-Florida from have XXXX. was declined earned XX% by we the driven on Maison in Florida in to remainder share at which XX coming including sessions policy non-Florida, of net quarter over basis, geographic million I March the to to purchases described. million entered and quarter first increase reinsurance, mix of The of seeded Florida additional premiums XX-XX increase second $XX in Consolidated million extra from already of prior a This

the XX% from second XX% day course effect the additional of on XXXX, percentage to the increased Florida FNIC's in quarter the we Over share last year. the taking an of of half with book XX%

a seeded of XX% in quarter million quarter effect of the of share XXXX just of first representing last to As quota was all million $X.X compared result, $XX.X year. the for premium first in

compared million quota our effective FNIC's the markets, XX% non-Florida $XX.X December zero with premium in on first of year. XXXX treaty Anchor in driving X, increased seeded For quarter the to quarter share non-Florida of to was Re first book last

reinsurance quarter with in loss premium coverage figures XX% the and we the the of last aggregate net one treaty previously disclosed was certain share these quota Re event disclosed Anchor and provides treaties. excess having aggregate expenses XXXX. calendar protection a cap is of or course, treaty. as of the on losses we and corresponding continues at an that book middle-sized that share pursuant incur current are a comment treaties which event events purchased the reinsurance Note contains also highlight lower various limits. on during into this result to over moved recoveries business, Our these previously that quotas built the session operating number of of first course as are rate, loss of sessions My year allowances and are seeded our allowances Maison closer to Winter Maison of such under storm and sideways event to Uri

from cat Our net loss including was ratio XX in points XXX.X%, losses. the quarter

expense loss driven cost earlier ratio upward the by including remarks. Excluding our net higher This underlying of XX%. and the reinsurance both would effect my XoL extra are costs, excess of approximately of our cats, I spoke be loss the ratio in ratio being

important at in at improvement. the the gross It And room excluding As ratio gross net that the The ratio ratio gross expense combined though total an ex-cat a expense ratio understand catastrophe a continued was result, in XX.X% loss to losses expense are in XX.X%. gross quarter. meeting XX.X% came approximately came of with loss expectations XX.X%. for our ratio for our and is

Turning balance and sheet capital now to position. our

help maintain liquidity in and company. the capital raising As insurance our we two Mike capital executed holding appropriate as transactions discussed, recently to statutory companies

XX, liquidity March offering million, insurance the million currently of April from XXX%. raised RBC common we as following companies included excess holding related carriers in effective $XX approximately We expenses our ended net $XX notes our a offering. infusion estimate $XX those of liquidity is million to stock in $XX our million capital of XX. ratios maintained $XX holding March company in levels by approximately raised of companies insurance XXXX All our million, and net March of was RBC the company the offset with At of approximately expenses which that

in ratio of from when us outstanding periods, our the our debt disclosed exceeds debt-to-capital terms As earlier dividend thresholds. prescribed preclude a declaring

As cash future. the dividends of declaring anticipate a total result, the quarter, and in investments the foreseeable do end $XXX we not our million. At first were

invest We continue and to exposure securities, handful with in our stock portfolio. to in high a liquid common quality of bonds preferred no

a income on will yield $X primarily call back the higher quarter the I of long to helpful fixed first Mike. turn over declined gains our restoring of as rising the now, rates, During Treasury portfolio. million, will book term a XXXX, a unrealized that be to trend result And over

Mike Braun

Thanks, to with up open and that questions call if Ron. Operator we'll the ahead could. you go

Operator

Thank you. Instructions]. [Operator

question. Sandler. question proceed with Piper comes Newsome first from with Our Paul Please your

Paul Newsome

Good Maybe you that bit through the off going of give thanks an give of start call. And possibly that note Florida the how reform, are help make the that's us optimistic Legislature? litigation. there necessarily on the what us a morning, you litigation details about your of would respectively? claims and can for sense fall thoughts And we Can can respectively? a little exactly the kind claims might

Mike Braun

Yeah, the to incentives are I control think of They passed well, the drivers recently Paul. some pushing good did legislation; that on morning, premiums.

seen been adapting. mitigated we've in that But by some past in Florida, progress. some behavior, it's the think I progress the that's

cautious. adjusters, So, roofers, incentive in some the the we're people and signing to well litigation some regard, to little these as up, with public how as we're there's they're of that contain concerned But control And regard. to remain a going attempts contractors that. the trying

cautious. we're But hopeful. So, we're

but we're to we charging comfort line our that in adequate. still that policies our rate as as exposure, of we're is time, hold value. in-force some expenses take concerns an to until not opportunity less terms increase can what our continuing find rate Until with policy have less as only that our count, to going in drop we So, total Florida, premium, really well these these on it insured call a having increases we

Paul Newsome

is heard sort Do the One lot equation reform and costs costs complicated. more might part at is causing organizational in criticisms there not of all, of it at conflict the that about end that, related it and to detail I've adjustment more the I a just up have reform? see the for in and looked here you of it

Mike Braun

Yeah, are need There's the And data documented just be side. Paul, that good to state. the those continuing increase. contain certain to more welcome absolutely it's submission long to behaviors we a that to investment are there's the expenses on adjusting as as

really because are our Litigation it partners. they're reinsurance litigation well, spend, attritional driving driven as expenses driving by our the So, is our reinsurance ratio, and litigation. loss is feeling

needed, to welcome more we it the if opportunities market data build of So, state so more of to predictable expenses expenses. infrastructure so to those achieves to or out supply ever versus returning the objectives the needed, increasing

Paul Newsome

figure Or the Great. but pieces think that, additional to company's run also that the be both we the pencils earnings I rate an thinking quarter? about bit of on is a we $XX the to of the the maybe top other in think other is should about to run premiums And then sort out second thinking the for on rate quarter we trying prospectively? the sharpen add-on we to of Should have kind million our total, whatever be turn the of are wanted there in when of second side more. little just reinstatement to pretax

Ron Jordan

that $XX.X has, costs to extra add million jump in such $XX.X Mike Yeah, in $XX compares of he costs guess million I'll -- the of and but XoL in I QX. thoughts any and QX

there million. Delta around the So, $X is

rate Well, up normalized QX typically, about on a that an if online incremental ratio has million thing $X a QX, with wise, flat comments versus exist XoL and normalized QX. for of million, that is of that a in there's ticks QX, QX loss these not the the a Other help did $XX the I that to in remark in costs the with it's in But increases a would Florida would increases earlier written then the just premium million seasonality my side was full $X ratio that with $X it, starting you're QX. and that a $X if some million. $XX.X gross QX quarter. starting in you're is rate comes incremental non-Florida that there's probably bit So, loss QX I'm again, respect sorry, second assuming an incremental offset million the And headwind. or make leaving that positive book, million other of so

Mike Braun

and end Paul will This that. to Yeah, of end on elevated the reinsurance we just add at expense, QX. believe,

$XXX We was year So then XoL comes nowhere spend, million. near $XX $XXX and program will new our approximately million reinsurance be to number. million. last additional XoL a that believe That an out approximately

lots me keep we that. We ample So, FHC business, pricing. there's significantly And reinsurance. in and smaller capital, capital, no a of appreciate have let of believe book there. There's respect the that layers But some reinsurance we clarify discipline on below business. and has book it. about on smaller market of lower a working And pressure mind, on layers, the doubt the

think we [ph] to there'll point, So, elevated time. will July significant or we be then through as premium and seeded X, a yes, be reset QX your reinsurance

Paul Newsome

only show both as debt the in second diluted in will interest and piece will that? else up The new other the be the quarter convertible expense Anything shares. the added besides well, like

Mike Braun

a record But to holding create that Unfortunately, on Ron there. in of year. we hurricanes think dilution But math we the capital can shares, to five of a last terms capacity at more paramount for dilution. and it's you the very we our Well, us difficult raise look give capital it's in ample we little company. the bit had have that and of those

very have Uri, big we events. Now six with had

in ample again, We So, that we once really our company, we in our lightly. appropriate that paramount capital have don't. insurance But don't take it's liquidity holding companies.

just in, rolling that's in weather non-Florida because because rolling that litigation, of in, more Florida, primarily, a lot the been of is experiencing. this of until massive its rate we've So, rate

the the sure sufficient any feel of experienced optimistic we we in have want But yes, for type to So, on meantime. we that future. capital we make challenges

Paul Newsome

I'm sorry, little no incur bit, debt the little of just question. conversion. least outstanding the At No, up have will go quarter about as piece will about that’s my so expense shares the meant bit, diluted to because the that's line the that that new interest a only think convertible prospectively, we I a you rise other result, we think same and

Ron Jordan

on interest notes that's And on our coupon went expense, Paul, million fair. also, the X.XX%. I'll rate just point $XXX from outstanding, out to are up that X.X% that that

slight expense interest well. a the notes there's on So, million in uptick $XXX as

Paul Newsome

Great. some very Thank questions. ask other you. But I’ll that's folks helpful. let

Mike Braun

Thank Paul. you,

Operator

Thank you. [Operator Instructions].

with from comes question Financial. next Our Doug Ruth Lenox

may with question. your proceed You

Doug Ruth

Good morning, book the XXXX and Ron. in you strategy here of for Could business some talk the Mike now? about

Mike Braun

good Doug. Yeah, morning,

until three that's book of years, in years. the the We're exposures, down four last that during in to value within to stability feel the insured of our over And in down Florida, more terms business of have terms relative In significantly going XXXX we're them, terms we costs. policies. significantly rates of continue

is once Florida So, opportunity in-force an because our to to with book, count. both the challenges of take about rate our increases that's lot stay and those We’ll again, we [ph] Florida, a somewhat which we're been And $XXX going just within flattened there's portion think million. ever-increasing policy costs. the reduce as

before very costs to permanent once some seeing we But as these because are those for sustainable that. clarify, that weather really And that just rate sure that to strategy, paid change have of make that. are lots stabilizing. sure non-Florida, similar action. And as want appropriately for we of of want that the the again, we we've do to course good and to be rain, want endured, we So, making just well our we're of make reinsurers

non-Florida, it's of really matter. by hurricanes litigation, and tornadoes hail, it's a just been and for that not driven So lot

reasons. maintaining intent to Florida is that very of for to But close priced lowering both the outside two we're the and in in-force make different is premium, our where adequately and exposures it So, sure currently. somewhat

Doug Ruth

question. Okay, looking working tough to you in and news second the third the answering my forward thank for looking better We're for quarter quarter. through

Mike Braun

right. Doug. you, All Thank

Operator

showing any And any I'm Mr. at time. not questions Thank remarks. to for further further over to call I back the would now you. turn Braun like this

Mike Braun

Great, thank participating you call. all on for today's of you

our agents. to now meet we our and want FedNat will to help long close, quality, priority. top dedication transitioned at health as team Before our more continues testament our the company. smoothly, for be service. have building a that a including year coming to partner to our and and team, office. dedication environment, reputation a to the run recognize Roughly operations gradually our continued remote quality team continue It are standards work FedNat of term we approach returns safety maintain of to and our FedNat, hybrid continue working we back is our The and to value the and our months I and highest our converting in hard to ago, policyholders staff customer of and to staff efforts again a Their

a you thank much, great everyone. very day. So, Have

Operator

conference Ladies you Thank and participating. call. Thank this today's concludes gentlemen, for you.

now may disconnect. You

FedNat Holding (FNHCQ) 9 May 212021 Q1 Earnings call transcript