FNHC - Earnings call transcript Q3 2021

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Operator

Good morning, and welcome to the FedNat Holding Company’s Third Quarter 2021 Conference Call. My name is Kim, and I’ll be your conference operator this morning. [Operator Instructions] 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.fednet.com.

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

Bernie Kilkelly

and conference all call. morning, third joining Good XXXX quarter you. thank for you FedNat’s Thank

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

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

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

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

Michael Braun

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

weather I the We results, strategy our homeowners I want which Florida XXXX our coastal Before discuss announced Maison quarter poorly in yesterday. of our the market, given review lesser accelerated strain Texas announced of of The of challenges to of the FNIC’s facing in that in Florida FedNat’s to XXXX. markets unprecedented The to company's write the FedNat’s extent, Florida, have that expansion the non-Florida were in necessary. refocus timed and property our we well losses Insurance to been due on was homeowners has strategy catastrophe events in shift since number affected and a on being up put we focus weather intent impact catastrophic ended launched further market. the third our and a that action insurance of was and position books intended historical outside geographic business. to was the XXXX founding capital operations Louisiana acquisition these then book, The expansion

plan, filing and Texas, run to We homeowners pricing FedNat to and review. increase will the most Florida a number on costs orderly a regulatory Louisiana, in with where which to non-Florida Maison of market on an are exiting with in subject refocusing elected appropriate Maison's regulators relative efforts therefore we Insurance focus we the decision off of believe in our is insurance operations. has to Florida commence appropriate the the seen its is conjunction have that be concerning markets Florida. years, improving withdrawal documentation

partners Carolina, policies After SageSure careful the XXXX third-party Alabama in to Louisiana states, on in policies second renewed managing expect and until owns and are in underwriter the collaboration the SageSure these be of to general SageSure, non-renewal is policies in expiration will renewing Maison’s carrier policies and time, XXXX, our by were renewal non is and Maison’s SageSure Texas February The Texas through begin South SageSure quarter begin appropriate begin Mississippi expected in written Maison’s in dates coordination of XXXX, Louisiana December SageSure policies. that making to offers with with of that Florida through June FNIC necessary will written the XXXX. licensing expect policyholders has to such not coverage on been book affiliated beginning FNIC in that and We beginning obtain SageSure policy rights each company. the of as those continue January insurance affiliates FNIC alternative we policies possibly non-Florida to XXXX. FNIC in to renew

expect transition approvals. obviously smooth, be to to that’ll regulatory subject We the appropriate

the book expect approximately Maison to off transferring process take the of policies SageSure complete. the XX and months running to We

to Our FedNat the commitment sized to therefore always service financially company. anticipate right we in-force professional they've will million honoring receive results. therefore approximately be expect, transition, Florida, exposure existing and in position, to policies capital FedNat. stronger and and agents frequency, with volatility current less to our underwriting We same weather our policyholders completion exclusively Upon less and all have the of of remains $XXX same that the we premiums all will from and received

form to requirements, transition catastrophe weather materialize We capital to lower benefits begin immediately to lower and the expect of the of exposure losses. the in

book taken increase events, weather have costs. to Over our and higher rates dramatic business, until attritional shrink reflect doing we of Florida homeowners losses, years, accurately reinsurance the five more including past the action

AOB At into Insurance legislation, time, rate also by recent time by third efforts that increased SBXX XXX,XXX XX% FNICs management human improving In reform an attritional the in in loss book rates reduced of over some at from period, have that XXXX ratios. reform Florida our exposure in-force almost a Our legislation alone. including years, provided policies and adequacy effect book. have third in July passed XXXX restoring in our health went in our we the XXX,XXX end same to have quarter. the

our market share and time significant have underwriting continues now on strong agent processing So while and capabilities, the strong is historical on FedNat believe in claims we to to relationships. Florida, refocus right roots

of reported share our million Turning impacted million to This last million quarter approximately storms by $X.XX quarter $X.XX year. were catastrophe in $XX.X and that $XX Ida weather influx basis. including a year's impacted will now compared we $XX.X or smaller loss Ron generated blow storms to and soften place, third XXXX the The of the Florida. third details on results, results in per quarterly quarter have net from other claims to the the of to organic performed hurricane or in handling that third catastrophe Ida a events has Texas we more Louisiana, in and massive of other the remarks. claims helps the events, infrastructure also provide the handle and liquidity admirably of capital impact his consolidated FedNat events on named have

in are at though trends seeing Looking Florida the they market. that April. in with in new increases we at These attritional increase a its X% increased March have as both a homeowners are in took X.X% include was implemented rates. we renew pleased increase environment that business and our challenges, the losses The continues improved and to renewal effect

is X.X% expected a November. to effect in have that increase take We pending

second $XXX in increase premiums translated policies by to XXXX. the FNIC million XXXX compared of with $XXX, these than and third policy approximately the more FNICs quarter higher the in-force the quarter average to the into $XX of increased initiatives result This risk. last and a quarter, third XXXX in quarter per of $XXX,XXX premium in As compared of year, third decreased

approximately are year dropped ratio, XX% the portions to legislation why FNICs attritional a the we of quarters much July became We XX% for XXXX of were this SBXX of potential reform demonstrating to quarter ago, the now loss that comfortable increase effective a end remain Florida and just as on from market Importantly, result book ago. optimistic more cautiously is than benefits the third about got with X. compared Florida we few

rolled costs. these increases issues At such us We plan reduce significant achieve with into measures to the driving increased attorney same filing significant rate claims an enable and which to of fees, loss are years portions reflect book pleased costs the our better two legislation, to to and limits attritional believe for control of from ratio. increased time we years, three are improved have that time, have the the as

in appropriate elected needing quarter, to FedNat the company capital National FNIC Monarch and Company any into with have September Insurance any infuse of and positions maintained anticipate infusion a capital surplus insurance XX. capital the as not do at future. into third FedNat to make infusions not of We in additional $XX million, Maison we

approximately the quarter. fourth continue company heading $XX and million into level holding the maintain to at liquidity We

the to Sandler to As committee board November, oversee financial continues work you company's know, to special as capital of options strengthen ongoing, its a with our alternatives, a Directors Piper including the formed position. The and Board of advisor. work committee review committee of the is strategic last exploring

details for I'll Now quarter turn more results. on Ron call the the over to third

Ronald Jordan

Mike. morning, Thanks, everyone. And good

the offset would Because the at driven FedNat’s revenues consisting or here As entities XXXX storms, federal reduced subsidiaries Aggregate the combined size which and Mike quarter. of and affiliated apply Fred Net indicates in income ratio million $XXX per of approximately approved affiliated our share our losses events catastrophe rate $XXX the expect cat These on been rate, we the losses fees, are book, under XX change in million earnings, tax third cat pretax increases In million by FedNat $X to in related several our of reinsurance benefits losses and events was tax gross both the XXXX. not per treaties the of strategy improvement our to the in refocus points I treaties. of $X.XX quarter our our the illustrate cat quota tax impacted loss out of premium. approximately by approximately hurricane hurricane net and in assets with mentioned $XX to Ida. shift, beginning affiliated operating Mike seeded of markets. basis. any If our catastrophe third $XX achieve of tax the related $XXX approximately have by non-Florida in by almost XX% fee into partially the reduced million, estimated it quarter has Ida. named and handling by fees. were significant in-force these despite including recognizing just to offsets, business from million insurance claims cat XXXX, quarter an to attributable loss third quarter accrual XXXX, our The impact and that since the the were after the $X.XX benefits the under these our and significant family would ratio recoveries we foreign of were quarter including handling million, adjust from third strategy in losses added or on $XXX within earnings Elsa, adjusted share our was than our loss losses all And $X.X rolling results to are our deferred third events, share operating the smaller of the access contributed before point the in described retained of from $XX of impact same for is one representing and net losses pending that with Nicholas. gross other our the reinsurance events, quarter net Ida, million, total, million of To was claims XX% are future losses of less then of other loss approximately Xcat the resulting

losses we years to favorably models with the as low losses achieve forward, compared where catastrophe the attainable in double higher in cat ROEs come models. to ROEs when approximate work will Going continue to digit

book for progress costs insured catastrophe year. continue make total in the 'XX total us to our which related of enabled reduce the We treaty 'XX, to value, and size our the strong reducing reinsurance

year Florida down Our total XX is count of is September June XX September of Florida The XX% ago. from insured XX our at down book over policy a almost at sequentially from value XXXX. X% XX XX% almost down and from September

our until in the rates of reflected adequately exposure have our business. to continued Florida We years doing past cost few manage over

less our quotes we level count accomplished funding increases perhaps add management largely increase and Importantly, than that of premium, than normal our our our declined earned than ongoing grocer intentional quarter premiums expect to policy the initiatives, approach. from of exposure in growth X% in to Florida from driven shrinking premium rate to in last year, disciplined fruit the think as we policy quarter. Other $XX have expect gross in recent percentages coming will from and prior in average objective, million quota in a third pruning, quarters resulting now out begin such increase the in rather years. we begin rate by increases. air count, third entirely policy the to per management slightly, Despite our have the Due declined Net $XX done premiums in year written million to strong effect. the the in increases in that share exposure they to reinsurance bearing $XX to due million of seated premiums,

communicated LAE previous in reduction offset largely in this earned expense. is and corresponding As reductions calls, net in earnings by commission in premiums loss

of ratio, Our ratio combined loss higher net expense elevated the and premiums. are net course by level ratio of seated

ratio well So continues to less gross XX%. perform than it's worth our pointing at out expense that

Company position, RBC National, capital XXX% approximately FNIC above. or and Insurance XX to now Turning infusion surplus of FedNat we of a ratios September as to XX. balance continue capital of to and in We with million effective Monarch maintain consistent sheet our made

having our $XX And at into fourth holding million We we heading also maintained the commitment liquidity appropriate the estimate to is liquidity approximately holding company. company quarter. that currently

make and not anticipate the group Maison. we quarter, to with we course approximately be our the in equivalents investments remains capital the not quarter to regulatory needing capital redeployed consolidated make into structure time end million. in and held total the approximately and quarter, third the future of of of part will As we appropriate infusion any of to third subject of we Mike cash the approval. within discussed, At do contributions $XXX Capital $XXX elected addition total FedNat Maison’s million Maison at ended to

and over Overall, credit to X.X And has composite preferred securities of minus. handful duration A with no continue turn discipline rating bonds, the We a invest I'll portfolio a to to Mike. portfolio. our the higher the liquid maintain with back of stock exposure in common quality that, and a of in call

Michael Braun

Operator, and question with Great. a an Thank questions Ron. any go there's that you, take us. has ahead that analyst that we'll for

Operator

question first from of Our comes with line Sandler. Instructions] Piper [Operator the Paul Newsome

Your line is open.

Paul Newsome

was morning. with that given levels to expense help incur expenses be me the I runoff some we the there runoff. questions hoping related Good related itself? are prospectively Are the you modeling elevated that That could could to the will in the things expenses about type business? longer if where sort term, you run like administrative given of focus your in Florida in to run And term? the general think do level expect expenses off short we and the in commission prospectively

Michael Braun

deeper morning, don't Paul. little Mike, go the is Yes, any I the hey, This going good Ron exit can costs to there's market. But a be significant think math. on to

are in As our expenses. of our variable vast you the expenses majority business, know,

attritional the agents acquisition as company well So and an our that's as commissions overhead, run to to to managing business. There's loss. commissions

The a So would weather be in attritional line. as And those net obviously be would fixed only call expense, would proportionately. kind we for is say expense. the did books of those And loss. time. weather, a decreases, it's the decrease excess there's of is that means retained. period losses lock-in once but XX again, I also September we And what XOL would then what That variable reinsurance costs that of that that locked-in reinsurance

it ceded Maison book So staffing, employees, IT, any any support MNIC. Maison, see And is premium. specifically with same And I'll all we But handled addition, to to company, other our And have much in FNIC so of put that levels. affect the in been the departments our what don't our well we're organically. with have by for easily about all the we mean that have is And as XXX is, folks not just transition really claims. we is gradually that true XXXX. way. I staffing, and business could within clarify, functions, it And mean lean that business the as and of And on on. in do folks obviously business I to and think shrink staffing change expense other of do our pretty the accounting that committed the in HR, the ratio with over that for the both beginning book anticipate will then terms significantly will of

Ron not expenses But really math the there. the our most So expenses. you to on sure if of are deeper want go variable

Ronald Jordon

I to guess, a add. things couple just

the of an MGA terms course, In I to with costs, that SageSure. given of commission and we, one acquisition over thing fee the been acquisition will is SageSure there that book, say have higher pay costs

do I our in think just weighted to the and commission more down marketplace. line trend overall that other smaller percentage So total, becomes as be Florida average book expenses a underwriting our with would of

probably comment. additive that's only think the I

Paul Newsome

the $XX prospectively? year. million running have sort general a that been Is a and With of administrative rate expenses $XX run good million

Michael Braun

it did we really is. really to as with costs don't up bit go Yes, just contract down size outside the at Mike those made. in Those, increased a much of all. consistent remarks as not really come I much little very we too Florida, expect them that And

Paul Newsome

I’ll Appreciate insights. the question. let else somebody the their and help asked

Michael Braun

no, absolutely that. Yes, appreciate

Operator

Instructions] [Operator

Michael Braun

operator. Yes,

on we're from to the Doug did see get Ruth queue. if is share waiting long-term the just anyone email the for any to was on call. want just I able analysts not else While who asking joins Florida shareholder, He joining the to an marketplace. an other update

the to the our I four have write just three, I of said that cost desire until want business Florida business. doing have last accurately Florida the elaborate increased years business So we bit rule our reflect repeatedly to more a over no little rates

rates a think that don't I policyholders because of are but people the thing the don't XX%. working is, in And to say go of answer in why state up Florida, which So Florida? the our operating heart we that's that, to I up of good change the to costs in. all it's a throughout their are operating the environment had hard reality our

hard elevated of a service we're unfortunate with is that had our feel writing. reforms costs, feel in we're that a do those Hopefully correct at like the policyholders. now the we difficult down. that. costs Its a that And accurate have rates are state up bring that we seeing go it's more years. lot But been So a to are number Florida those of rates non-carriers they level there'll be to market doing than to more market,

we're the However, going how Senate, and Property Barry look Florida the Senate. And XX,XXX runs take into a be Corporation. policies tried banking I he at changing XX,XXX near to seeing encourage at future. about investors. that of he and in signs numerous people talks things commission into only insurance And one are get particular, Gilway, did to the those. Florida, He Insurance the investors Citizens to company citizens in got about trying about numerous to on presentation

market is Florida So changing. I think the

I more think rates the are accurate.

reform truth bite SBXX, I think small has really to AOB greats is these taken a apple. the think apple, taken the costs. have of bite increased I has of changed a the reflect But materially small

the to thoughts then just Florida question places that. via that want separate the I stress our other market So the sent email market, And from non-Florida market. Doug non-Florida the had on than over was

same increased and costs. the attack with other think time, the with our same the Florida appropriate at I market expansion risks really lines under of was was the into states business,

a absolutely saw. was been still exposed last coastal we the I've to what And in years. states. So brutal. XX we has doing plus policies homeowner this that charts, been for And XX months were off again, type once the

do to So position, have we need capital we respond and appropriately. new do

the very been Florida a the weather So book, has also And very shrinking have once unkind, book. non to But unkind Maison, weather and that that the I good that of has we partner. very with been respond. been think book, they've again, SageSure

base. to for approximately those of So down much premium. million, represent two the appropriate business $XXX that And books of million our reduce would more $XXX capital us

the we if I see with analyst back it return that operator, questions. to have So an

Operator

from line have the Piper Yes, with we question another Paul of Sandler. do Newsome

now Your line is open.

Paul Newsome

little an for important bit other I for But it about what you of your and has be outsiders difficult is continue modeling to component apologize think, of for to revenue, income another will Can that, profitability? I your sort been and model. of is the component more important question. talk outlook a

Michael Braun

Yes, absolutely, Paul.

MCA create these [ph], post-pandro State Florida work. an that you state. only MGA Florida do was perform this carrier, and of have is affiliates And model, to and the attracted a where where So have is the what means way you this not capital regulators affiliates,

So much these we MGA had we when since property. an that our can you I have as have have claims, we've found service, policyholders And possible. tell within is business are folks doing our our model, been that and what always writing handling best we as

I and benefit would a charge obviously of they're significant with market truly So do do what our do so a our I off possible. consolidated there's and these sure others as on those that hand as little we quickly based handle we claims on that possible is benefit as as we make fortunately, it to some to for fees pricing, the policyholders, partners get, all see being services financial we believe believe, there's what But goal can basis. to

process One policyholder, weather trying claim, to with Ida, move there's when handling claim, try whole our doing of claim, position. remediating back to after the of quick possible when original an claim we're then so policyholder, to have help smaller out when done that a have their challenges get they amount as and a as multiple get Florida, and that you primarily incredible as to possible people through can tarping that the in we've companies as to we a as whatever quick

intent. that's So the

it's but really on to I defer on communicate to ways Ron best because terms obviously, that. it's In modeling dependent specifics on that, of tough weather,

Ronald Jordon

few just there. And I'll remarks add on a

to our placement over fall of that. the become we as certainly internal specifically down XOL contributors year, XOL earn brokerage a be continue our will Certainly Florida from centric, each line that the with the income the income particularly stream. other year during come that income was first to of the would we because half spend brokerage time, tower one through reinsurance seated lot brokerage XXXX. It our a come and will is with reset income, meaningful income Broker's and XX, treaty you'll income of Another down reinsurance XOL so premium ended purchases, that involved broker notable that's July and kind recall, of X and elevated that we of June the in had with of backup contributed elevated, as new tower. additional particularly as along

And so QX is certainly we're much more indicative of current the run rate year treaty currently, based on that the in.

Michael Braun

there's Paul income table XX-Q, also other in I'll that at, look little with just, to that detail to get be our you'll a respect able into to number.

Paul Newsome

much. very you Thank

Michael Braun

Thank you, Paul.

Operator

questions the to no I like at time. Braun. this showing I'm back to would Mike now conference further turn

Michael Braun

Thank call. today's much. you for on you Thank all participating very

forward team to exceptional our historical their service who close, continuing reputation to to to I of in agents, maintain and customer quality want Before The for has as meet times team our hard standards refocus to and service, provide the our dedication to partner recognize XX high our our of look FedNat Florida. on we and close policyholders home work need. continue of FedNat market to enabled years, particularly we we highest in

everyone, or there’s I myself, just thank want that, reach a again, Ron great you. questions, have day. if everyone Thank follow-up with to So Bernie. And please and once out to

Operator

conference today's concludes Thank you call. for This participating.

You disconnect. may now

FedNat Holding (FNHCQ) 9 Nov 212021 Q3 Earnings call transcript