FedNat Holding Company
Q1 2016 Earnings Call Transcript

Published: 9 May 2016

[Operator:]

Good day, ladies and gentlemen, and welcome to the Federated National Holding Company's First Quarter Financial Results. At this time all participants are in a listen-only mode. Later we will conduct the question-and-answer session. [Operator Instructions] This conference is being recorded. Statements in this conference call that are not historical facts are forward-looking statements. Without limiting the generality of the foregoing words, such as anticipate, believe, budget, contemplate, continue, could, envision, estimate, expect, guidance, indicate, intend, may, might, plan, possibly, potential, predict, probably, pro forma, project, seek, should, target or will, or the negative thereof or other variations thereon and similar words or phrases, or comparable terminology are intended to identify forward-looking statements. The matters discussed on this call that are forward-looking statements are based on current management expectations involving risks and uncertainties that may result in these expectations not being realized. Actual events, outcomes and results may differ materially from what is expressed or forecasted in forward-looking 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. Forward-looking statements made during this conference call speak only as of the date on which they are made and Federated National Holding Company specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, future events or circumstances or otherwise. I would now like to turn the call over to your host for today's conference, Mr. Michael Braun, CEO and President. Sir, you may begin.

[Michael Braun:]

Thank you. Good morning, and thank you for joining us to discuss Federated National Holding company's first quarter 2016 financial results. I'm joined on the call by Pete Prygelski, our Chief Financial Officer. Our financial results can be found in our earnings press release. I will go over some brief highlights and then we will open up the line for questions. Q1 2016 highlights as measured against the same three-month period last year except where noted. 27.5% increase in gross written premiums to $136.0 million, 25.5% increase in total revenue to 69 million; 23.1% increase in Florida homeowner policies to approximately 253,000; 3.9% increase in book value per share, including non controlling interest, to $18.89 per share as compared with 18.17 at December 31, 2015, and a 4.2% increase in book value per share, excluding non controlling interest, to $17.56 per share as compared with 16.86 at December 31, 2015. I am pleased to report another successful quarter in which our partner agents bound 56.8 million of new business with Federated National. The continued growth in our business in an increasingly competitive environment is a direct result of the investment made in our staff, partner agents, distribution channels, and products. Included in our quarterly results is 4.9 of gross, our pretax catastrophe losses as a result of severe weather that occurred during the quarter that 4.9 million. FedNat is committed to assisting our insured's in their time of need as they recover from these recent events. In March, the company announced a $10 million stock buyback. That, in addition to our dividend, signals our continued commitment to returning capital to our shareholders. With that, we are glad to open up the call to your questions.

[Operator:]

[Operator Instructions] Our first question comes from the line of Greg Peters of Raymond James. Your line is now open.

[Greg Peters:]

I have just a couple questions for you and then I'll re-queue with follow ups. To start off, the loss ratio came in, if you exclude catastrophes, I think in the mid 40s, 44.8 by my calculation. Is that sort of the run rate we should expect going forward? Or were there some anomalies in the first quarter, like a benefit from the quota share reinsurance contract that we should take out and think about for an underlying loss ratio?

[Pete Prygelski:]

Greg, it's Pete. So, the $4.9 million of storms, most of that was paid. So 2.1 million was ceded, or roughly 2.1 million was ceded, to our quota share partners. So you can't deduct the whole 4.9 from our loss and LAE. So if you back out the 2.1 that was ceded, you get to a loss ratio ex cat of about 48.6. And so that's kind of in line with what we've been saying, that the loss ratio is going to be on a net basis around 50. So, it was 48.6, but still we think it's going to be around 50 for the year.

[Greg Peters:]

Great color. Thank you for the clarification. And then on the expense ratio, that was up pretty meaningfully on a year over year basis. Perhaps, Mike or Pete, you want to talk a little bit about what was going on in those numbers.

[Michael Braun:]

Yes. So, Greg, I've been saying for a long time that I understand that the total combined ratio looks at expenses over net earned premiums, but what we've done as a company is we've launched programs which are generating commission, or other income so it's in the other income line. But those programs, such as the auto business where we're ceding roughly 80%, there's expenses associated with that business. But the income from that business is not showing up in premium, it's showing up in other income. So our loss ratio looks higher, because there's expenses associated with auto. But really, the benefit of the auto program is not in earned premium. So that's just the way it is. We're targeting about 34%, 35% of expenses to revenue, which is the way I look at it, because a lot of our revenue is in another income line with that auto program.

[Greg Peters:]

So just on that auto program, since you brought it up, very strong first quarter gross written premium result. Has there been a change in your and if you look at the last two quarters, really strong. Has there been a change in your attitude about that business? Because if you carry forward this current run rate, it's going to be a meaningful component of gross written premium going forward.

[Michael Braun:]

Yes, Greg, there's absolutely an opportunity there for us. What we do as we partner with local GAs in markets outside the State of Florida to write niche programs. And I think you're going to see continued growth on that, beyond what you're currently seeing.

[Operator:]

Thank you. Our next question comes from Ryan Byrnes of Janney. Your line is now open.

[Ryan Byrnes:]

Just want to dig a little deeper in these auto programs. Any kind of color? Is it nonstandard auto, standard? And maybe geographies as well would just be helpful for us.

[Michael Braun:]

Sure. It's auto outside of Florida. We do have a small bit in Florida, but there is some opportunities Texas, Louisiana, Georgia, and other states. It's primarily low limits. It's not a product that will accompany our homeowner's product. So it's low limit auto. And, once again, it's an opportunity where we partner with local general agents who have distribution, who have successful programs. And we handle the claims here. So there is a fee for the claims handling, as well as the fronting fee. And we cede the coverage off to some of our reinsurance partners. So we think it's got a lot of growth potential on it, and we think it can add continued value to our shareholders.

[Ryan Byrnes:]

Okay, great. Thanks for that. And then, obviously you guys initiated a buyback authorization in March. Just wanted to see if you have actually repurchased any shares in March, or I guess so far in April, May. And also maybe just get your thoughts on what type of parameters you guys look at for buying back stock. Is it price to book methodologies or price to earnings? Just trying to figure out how you think about your stock.

[Pete Prygelski:]

Right. I can answer your question on what we bought back in the first quarter. As, we announced it, I think it was the second week in March. And then because of our insider trading rules and with the close of the first quarter, we actually only had two days to be in the market. And we bought back the maximum we were allowed, which was 26,300 shares per day for a total of 52,600 shares at an average price of $20.44. So that will be reported in the 10-Q, but that's actually what we bought back.

[Michael Braun:]

In terms of the methodology, Ryan, that's something that the Board will continuously reevaluate. Obviously the share price in the market would influence that decision. But things like the intrinsic value, the book value, earnings, things like that are all part of the equation. But there's no one thing specific that would indicate how many shares would be purchased.

[Ryan Byrnes:]

Okay, great. Then my last one, just on obviously you announced the GEICO relationship earlier in the quarter as well. Just wanted to get your thoughts there as to what the run rate of that business has it started yet, and maybe where that could be ultimately. But could that turn into an Allstate type relationship from a volume standpoint?

[Michael Braun:]

Well, during the quarter they didn't have much time to produce because obviously it was authorized late. And there will be some ramp up that will occur. But in terms of the expectations, my expectations are very high. GEICO is the number one auto writer in Florida. They have about 20% of the market. I believe State Farm's second, and then Allstate and Progressive are in the top, I believe, four or five, and perhaps USAA. So I think there's a tremendous opportunity. And our intention is to service the business just like we do for our partners at Allstate and our partners at the independent agents and we think there's a tremendous opportunity for us to create value there. So I think it's got some legs on it and we'll keep you up to speed as more information is available.

[Ryan Byrnes:]

And how many other carriers does GEICO currently use for the homeowners?

[Michael Braun:]

In multiple states they use multiple carriers. Within Florida the group's pretty select. I'm not aware of but one other carrier. I can't say that's it. But I'm not sure if they're going to be adding others or not. But, once again, it's a tremendous opportunity.

[Operator:]

[Operator Instructions] Our next question comes from Doug Ruth of Lenox Financial. Your line is now open.

[Doug Ruth:]

Could you give us an update as far as what's happening with Monarch?

[Michael Braun:]

Yes. Monarch, we're about a year into it. And I know a lot of people have expectations for it to take off quickly. The rates, as we've indicated, through 2015 were a bit high and that production was varied between 50,000 to 75,000 a week of gross written premium. Those rates have come down about 11.9% in Florida on average. And we're seeing production go to around 200,000 a week. I think it's still early in the process. I would like to see it to get 1 million a week. I can't say that that will occur or when it will occur, but what we're going to do is make sure that it's relevant and that product is in front of all the agents, most of the agents I should say, that utilize Federated National. And it's a very competitive product now. The HO-6, which is a condo product, is very attractive in the marketplace and we're getting good feedback from the agents. So I think you're going to see continued growth on that. Where it goes from here, from the 150,000 to 200,000 a week, once again, I'd like to see it get to be 1 million a week of premium. That would be fantastic. I just can't tell you when or how that will occur. But it's promising.

[Doug Ruth:]

Okay. And is there any talk about Allstate selling the Monarch plan?

[Michael Braun:]

Monarch is currently not in Allstate. I think that we have a great relationship with Federated National and Allstate and we're hopeful that that may progress with Monarch as well.

[Doug Ruth:]

And when would you think there might be some sort of update with that relationship?

[Michael Braun:]

Nothing to report right now, Doug, we continuously revisit that. And I think as Monarch demonstrates its competitiveness in the market I think good things should happen with that and hopefully with Allstate as well.

[Doug Ruth:]

It appears that the Monarch business might have been profitable, that you had to -- is that correct in the first order?

[Pete Prygelski:]

Doug, it's Pete. Yes, it was. Monarch HoldCo reported its first quarterly profit. So if you're looking at our income statement you could see that we had to back out income instead of adding a loss back in. So, yes, it did make money in the first quarter.

[Doug Ruth:]

Congratulations on that. That's tremendous. And could you talk a little bit about the investment portfolio, any changes on the strategy as far as the duration of the bonds?

[Michael Braun:]

No, Doug. It's the same strategy as we've had I guess now for the last 2.5 years, which is roughly about 92% of the portfolio is in fixed income and cash and the duration is about 3.7 years. It only changed, like I mentioned in the last call I think, was we've allocated more of the fixed income portfolio to tax exempts. So that's really the only change.

[Doug Ruth:]

Okay. Thank you for that. And I just have two more questions. Were there any sales at all now so far now with GEICO?

[Michael Braun:]

GEICO? Yes, absolutely. They're a producer and they're writing business. Immaterial at this point; that's why we haven't broken anything out.

[Doug Ruth:]

Okay. And then, I want to give you congratulations. I think what we're seeing with this automotive is just fabulous. And thank you for doing what you're doing. We're looking forward to watching the Company as time passes. Thank you for answering my questions.

[Operator:]

Thank you. Our next question comes from the line of [indiscernible] of KBW. Your line is now open.

[Unidentified Analyst:]

This is Anthony sitting in for Arash. In your press release you note that your losses in LAE increases are attributable to tornadoes and increases in your Florida homeowners' ultimate loss ratio. Does the increase to your Florida homeowners' loss ratio mean that you had adverse development in the quarter? And if so, where did that development come from and which accident years?

[Michael Braun:]

No, it doesn't. So, in the fourth-quarter earnings call which was in the beginning of March we indicated that our ultimate loss ratio for our Florida homeowners book was moving to about 33%. So that's what we're referencing there, that's not development that's in accident year 2015 we reserved at 33% and we're using that same ultimate loss ratio for accident year 2016. But it's not development in any way.

[Pete Prygelski:]

Anthony, what you'll also see is that we've just recently had a rate increase at Federated National of 5.6% on average. And the number one driver behind that was our attritional loss ratio as a result of assignment of benefits. So that will go in effective August 1. So as that starts to earn out, what you'll see is the ratio hopefully will tick back down as the premium comes in for the inflated costs associated with those losses.

[Unidentified Analyst:]

Thanks. That was helpful. And just some housekeeping items other income saw an uptick of 5 million year-over-year. Is there anything unusual over there that you could point out to?

[Pete Prygelski:]

The other income is what I was mentioning with I think it was Greg's question, the first question. That is basically from the auto business we get paid, as Mike mentioned a minute ago, 10% for managing the claims and the administration of the policy. So as the auto business grows, the other income line is going to grow. And then the 60% increase is basically because of the auto business.

[Unidentified Analyst:]

Great. Perfect. And lastly, are you able to provide the individual dollar amounts for commissions, finance revenues and MGA fees?

[Pete Prygelski:]

I'm sorry; what was that?

[Unidentified Analyst:]

Can you provide the individual dollar amounts for commissions, finance revenues and MGA fees?

[Pete Prygelski:]

Yes, I can. You or Arash can call me offline. I don't have all the breakout of other income in front of me. But we could take that offline and I could provide that for you.

[Operator:]

Thank you. Our next question comes from Samir Khare of Capital Returns Management. Your line is now open.

[Samir Khare:]

Congratulations on the quarter. I was hoping and I may have missed this in the first set of questions. How big do you think auto can actually get for you guys? You had the significant increase quarter-over-quarter and year-over-year?

[Michael Braun:]

Well, it's something that we've been working on for a number of years and it just really kind of has come together in the last 18 months. A lot of the trajectory of that that we've been working on will come about this year, in 2016. I think there's an opportunity to write quite a bit of business there. I would say I hope that we could write 50 million this year, in 2016. We may be able to write more. And as we continue to monitor those results, the quality and the quantity of the business, hopeful that 2017 and beyond will have greater growth on top of that. So it's a bit early to say. We think that we've structured it well. We think that it can serve some niche markets. And we think it can be profitable for our shareholders.

[Samir Khare:]

Okay. And then, that business is largely quota share. Did the quota share have a cat limit to it?

[Michael Braun:]

There's a lot of different quota share, there is a lot of different contracts there. But generally speaking, we're taking 10% to 15% to 20% of the risk. And there's usually no limit on what we have on there in terms of the exposure with the quota share. Therefore, with us handling the claims, we believe we have a very good finger on the pulse to ensure that we understand the program and we can manage it with the partner general agent who is marketing and underwriting it. So we think between them having a vested interest in the program the general agent, that is us, and our reinsurance partners, I think we can keep very tight control of it to ensure it runs correctly. And out of the gate it looks good when I say out of the gate, over the last year or so that we've been doing it and I think there's a great opportunity.

[Samir Khare:]

Right. But the actual quota share contracts that you have, do they specify any cat limit that the reinsurer's on the hook for? Or are they just pure quota shares…

[Michael Braun:]

Did you say cap, meaning catastrophe, meaning…

[Samir Khare:]

Right.

[Michael Braun:]

Like, in storms? This is auto that's not in Florida, so it's non Florida auto mostly. We have a nominal book in Florida of about $1 million, and so there's really not a huge component of that. But if there was a loss that was a cat in Texas, that is part of the quota share agreement that those losses would be covered. Correct.

[Samir Khare:]

Great. Okay. And then, you spoke about Monarch briefly and I know you took a rate decrease, I think a 12% in the last few months. Is that on a level, price level, where you guys need it? Or do you think it requires further adjustments?

[Michael Braun:]

I think that it's at a good spot. I think it's competitive in today's market. As, Federated National so let me clarify. Monarch's rates were very high. That's why we took them down. They were intentionally launched high and we're bringing them down. As, Federated National recently went up 5.6%. I think pricing will continue to go up in the market, which will make Monarch even more competitive, which we will adjust accordingly as needed, as the data indicates. But I think you're going to see pricing pressure in Florida. The assignment of benefits is not something that's going away. It's making claims more expensive and ultimately that does get passed on to the policyholder.

[Samir Khare:]

Okay. And with all the storms in Florida, did you have any flood losses that you did in NFIC?

[Michael Braun:]

No numbers off the top of my head. Obviously we do have a $10 million flood book. It is NFIC, which means it's 100% ceded out. So we're not retaining risk on that. It is NFIC, which is basically the federal government paying out those claims.

[Samir Khare:]

Understood but that would contribute to your gross loss ratio that you reported, though. I'm just curious if that --

[Pete Prygelski:]

Yes, Samir, I think it's marginal because if you look at the gross loss ratio and you back out the storms from that gross loss ratio, all the storms from that gross ratio because we're talking about gross, the loss ratio comes down to 36.7 versus the 40. And if you look at 36.7 compared to prior year, which was, I don't know, 32 or something like that 32.5. So it's gone up to 36.7. But that's purely because we raised the homeowners' ultimate loss ratio from about 29 to 33. So if there's some flood, it's very minor.

[Samir Khare:]

Okay. And just on that, raising the ultimate loss ratio, is your I guess IBNR to ultimate loss year over year, how is that trending? Is that higher? Is it about the same as 2015? Can you talk to that?

[Michael Braun:]

Well, I'm not sure I understand your question. I will say that so in 2015 if we're booking to a 33% ultimate loss ratio on gross, you look at your incurred which is case and paid and the difference is IBNR. The breakout of those components I don't have in front of me.

[Samir Khare:]

Okay. I'll follow up offline on that. And can you actually just speak to where you're booking the different lines of business? You said 33 for homeowners and I think CGL and auto are considerably higher.

[Michael Braun:]

CGL is about 56% and I would say auto is around 80%. I don't have the auto number in front of me, but around 80%. I can get you that offline but CGL's 56%.

[Samir Khare:]

And is there a difference in commissions for all those lines?

[Michael Braun:]

Yes, absolutely. I mean, you're getting a bit granular there, so --

[Samir Khare:]

Follow up offline.

[Michael Braun:]

Maybe it's best to go with Pete offline. But, as you know, we sell homeowners direct in Florida so there's one commission rate. Non-Florida is a different commission rate, because it's through a different agent, as is the auto and so on. So to get to that level, perhaps it's best you give Pete a call.

[Samir Khare:]

Sure. And the buyback, it sounds like you guys didn't initiate a 10-b5 program. Is that something you'll consider going forward?

[Michael Braun:]

We did not initiate one. And it's something the Board will continue to evaluate.

[Samir Khare:]

Okay. And then, I'm just curious after the $19 million remaining on the buyback, how much excess capital do you think you guys have? I'm just curious if the stock stays at the currently depressed level if you have the ability to reload the buybacks.

[Michael Braun:]

Did you say 19 million?

[Samir Khare:]

9 million.

[Michael Braun:]

Did you up our buyback to 20 million?

[Samir Khare:]

Sorry; I meant 9 million.

[Michael Braun:]

The holding company has roughly $54 million in cash at the end of Q1. We've announced a $10 million buyback of which $9 million is left. If we run through that buyback I'm sure the Board will evaluate the capital needs of the Company once again.

[Samir Khare:]

Great, okay. And you increased the loss ratio, it sounds like, from AOB for homeowners. Can you speak to the trends that you're seeing in your book, whether it's higher frequency, the severity, or both and what claims initiatives you have in the Company that are underway?

[Michael Braun:]

Well, basically, Samir, what we're seeing is severity. We're definitely not seeing frequency. It's severity. So losses are coming in with a lot of parties on it, which are much more expensive. So we're managing those like we always have. AOB just didn't start recently. It's been out there for two, three years. It's just becoming a bigger issue. So we have strategies that we're working on there. There's some updated language that we filed with the State. There's a lot of moving pieces to it. But there's no one cure-all to it. At the end of the day, what we're trying to do is provide superior service to have resolution with the insured when they have a claim as quickly as possible. But it can get a lot more complicated with multiple parties involved. So it's not something that will be resolved in the near future. That's why we've adjusted our prices to adjust for the expense that it's incurring on Federated National.

[Samir Khare:]

Okay. And maybe the answer is AOB, but I'm just curious. With the benefit of another quarter that's gone by, can you tell us how the cohort of business that came in when the analytics was off, how that's trending?

[Michael Braun:]

Well, we're definitely seeing that when we had the analytics off last year for those five months that that business is coming in a bit higher. And once again, we're committed to working with the agents to make sure that we're servicing that business and there's not going to be a whole nonrenewal process in there. It's performing a little it's a little bit hotter than the rest of the book. But at this point it's a few points higher, about 2 points higher perhaps on the attritional.

[Samir Khare:]

Two points on the gross attritional?

[Michael Braun:]

Yes.

[Operator:]

Thank you. And I'm we have a follow up question from the line of Greg Peters of Raymond James. Your line is now open.

[Greg Peters:]

Mike, I know it's a little bit early to start thinking about hurricane season, but I was struck by the lack of commentary about how you're thinking about reinsurance for this upcoming season. And also I was wondering if you could use that as a platform your answer to dovetail into just an update on Southeast Catastrophe Adjusters. They haven't really been very active, but I know it's your backup adjusting pool of talent. Maybe you could give us some perspective on how that company is doing.

[Michael Braun:]

Sure. In terms of reinsurance, Greg, as you're well aware, the world is awash in capital. That has influenced reinsurance over the last five years and will continue to do so. Not certain on pricing. It appears it may be flat. It appears that it may be low mid-single digit rate decrease. We'll find out shortly. I anticipate we'll be purchasing about 1.5 billion on the first event. In terms of a retention, last year we had about 15.4. Anticipated about an $18 million retention this year, as we have more capital. The pricing will be determined. In terms of operationally and IT, we have invested a tremendous amount of money and effort to make sure the lessons learned of 2004 and 2005, those lessons are put to good use. So from a technology perspective we think we're in great shape in the event of a storm or storms. In terms of retention we think it's manageable. In terms of the adjusting component, as we do have ownership in that company. And we think we can deploy a significant amount of adjusters quickly to handle those losses wherever they may be. So I think we're well aware. Haven't been tested in over a decade, but very well aware that we could have storms this year. We want to make sure we handle them quickly.

[Greg Peters:]

Has the Company's Southeast Catastrophe Adjusters, have they been losing money because of the lack of storm activity? Or is it just been a sort of breakeven?

[Michael Braun:]

Yes, it's basically a breakeven with the clarification of the person that runs it is more a less our cat manager, I'll call it that. So really the number one expense there is just his salary, which is immaterial for the company as a whole, obviously. But basically it's an entity that's for the most part just immaterial. There's no it pays for itself for the most part. They do handle some claims, but not a significant amount. But the whole posture is to have those adjusters ready to go when a cat occurs.

[Operator:]

Thank you. And I'm also showing we have a follow up question from the line of Ryan Byrnes of Janney. Your line is now open.

[Ryan Byrnes:]

Greg took most of my question there, but any thoughts on the quota share reinsurance? I know that was kind of a two-year deal that you did almost two years ago. I realize it may be a little early, but maybe get your initial thoughts there.

[Michael Braun:]

Sure. We've got some great partners on that program. Obviously it's about 40% for the Florida book and 10% of it has another year to go. The 30% is up for renewal and we're in the market with those partners on that program to determine what their appetite is. So we will either renew it with them as a quota share, or it will convert to excess of loss, hopefully with those exact same partners or perhaps other people on our reinsurance panel. But those are some quality partners that we've got on the program that are on quota share. And it's just a matter of working out the pricing and the economics to determine if it's better to have that capital in quota share or excess of loss. And there's obviously certain pros and cons of doing the quota share versus the excess of loss. But the main thing to understand, Ryan, is we're not forced into quota share where there's need for capital or anything to that effect. So we'll know here in the next 45 days which avenue we go with of renewing the quota share or converting it to excess of loss.

[Operator:]

Thank you. Our next question comes from Ron Bobman of Capital Returns. Your line is now open.

[Ron Bobman:]

Congrats on a really fine quarter. Well done. I had a couple of hodgepodge questions. Mike, as the auto book grows do you think you'll come to a point anytime soon where you'll sort of split that out and you'll have a line of business sort of P&L?

[Michael Braun:]

Yes. That's obviously, Ron, we want to make sure we've got as much information out there to you as possible. Obviously it's just starting to make a bigger impact on our book. So as it grows, we'll definitely provide more information for you.

[Ron Bobman:]

Thanks. I believe you've got some initial filings in Texas for a homeowners' product. Could you describe that a little bit?

[Michael Braun:]

Yes. Good research there. Yes, we do and hope to go live in Texas soon, homeowners. And it will be later this year, hopefully but, yes, we're licensed. We're approved there. And we also have an application pending in New York and we think there's some opportunities to write out on Long Island, Nassau, and Suffolk. So you're going to continue to see us growing our homeowners book outside of Florida, but in a pretty slow and deliberate manner. There's some advantages that can be compelling, to chase after some premium. But obviously if you don't do it correctly it's pretty hard to undo. There's a lot of limitations once you have a book of business. And we want to make sure the promises that we make to our partner agents in those states and to the insureds are things our partners that we can keep those promises when there's claims and as that book develops. So it's going to be slow and methodical, which is how we do everything.

[Ron Bobman:]

Got you. So, as you think about sort of cat-exposed homeowners, would you describe it more as like a FedNat book or a Monarch book, or you're in a different geography and you can't really compare it to the different kinds of books that you're targeting in Florida?

[Michael Braun:]

Yes, non-Florida, it's got a credit score component to it. So it's a good book of business. Credit score is easier in some of these other states than it is in Florida. So I would compare it to a Federated National Florida book. To clarify, we do not credit score in Florida. In non-Florida we are credit scoring those policies. And we think it's an upscale book of business.

[Ron Bobman:]

Oh, I'm sorry; I had one more question, if I'm not cut off yet. The 4-point delta between the early 2015 loss [PIC] and the current loss PIC, I don't know if Pete said 29 to 33, but it was like a 4-point differential, should I think of that increase as all attributable to, or nearly all attributable to, AOB or not?

[Pete Prygelski:]

Ron, let me jump on that one. It's mostly AOB. As indicated earlier, the book that we wrote without the analytics for five months last year was running about 2 points higher. But generically speaking, it's mostly AOB that's driving the attritional loss ratio.

[Operator:]

Thank you. At this time, I'm showing there are no further participants in the queue. I would like to turn the call back to Management for any closing remarks.

[Michael Braun:]

Thank you very much for everyone's interest in today's call. If there's any follow-up questions, please don't hesitate to reach out to me or Pete. So thank you very much. Have a great day.

[Operator:]

Ladies and gentlemen, thank you for your participation on today's conference. This concludes your program. You may now disconnect. Everyone have a great day.