Heritage Insurance Holdings, Inc.
Q4 2014 Earnings Call Transcript

Published: 5 Mar 2015

[Operator:]

Good morning and welcome to the Heritage Insurance Holdings Fourth Quarter 2014 Financial Results Conference Call. My name is Dan and I’ll be the operator today. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference call is being recorded. 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 within this conference call or press release issued yesterday and other filings made by the company with the SEC from time-to-time. Forward-looking statements made during this presentation speak only as of the date on which they are made and Heritage Insurance Holdings thus specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, further events or circumstances or otherwise. Now at this time, I’d like to turn the conference over to Mr. Bruce Lucas, Chairman and Chief Executive Officer of Heritage Insurance Holdings. Please go ahead sir.

[Bruce Lucas:]

Thank you, Dan, and good morning to everyone joining us for the call. This is Bruce Lucas, Chairman and CEO of Heritage Insurance and with me is Steve Rohde, our CFO. I would like to welcome all of you to our fourth quarter earnings call. Before we begin the discussion of our quarter, I would like to take a moment to thank all of our employees for their commitment to our company. I am pleased to report that we had our best fourth quarter in the company’s history. When we launched our IPO in May of 2014, we outlined a very focused business plan that would produce significant top and bottom line growth. Our business plan included tremendous growth and personal lines premium and the launch of our commercial residential division. I am happy to report that our fourth quarter significantly exceeded the projection set forth in our IPO. From a financial perspective, we had an excellent quarter. Our gross written premium increased significantly, attritional loss ratios remain stable and we generated an attractive return on equity for our shareholders. We continue driving our commercial residential program and help groom the division to 12 members which we believe is the deepest and most experienced commercial residential department in Florida. We are fully staffed and exceeding our projection to voluntary commercial residential production by approximately 50%. We continue to have tremendous success in growing the company as evidenced by a few key metrics. For example, we had a 116% increase in gross premiums written compared to the fourth quarter of 2013. We had a 157% increase in net premiums earned compared to the fourth quarter of 2013. We also had a 64% increase in policy count compared to the fourth quarter of 2013. During the quarter, we also assumed approximately $85 million in annualized commercial residential premium from Citizens Insurance and we assumed approximately $84 million in annualized personal lines premium from Citizens as well. Net operating income increased 1,220% compared to the fourth quarter of 2013 and finally shareholders equity increased 152% compared to the fourth quarter of 2013. We are very pleased with our growth to date and have exciting plans for the company in the near future. Now, for more information on the financial results, I will turn the call over to Steve Rohde, our Chief Financial Officer. Steve?

[Stephen Rohde:]

Thank you, Bruce, and good morning. First, I would like to give you a few financial highlights from the first quarter. Our gross premiums written were $181.5 million, net income was $19.7 million, our combined ratio as measured against gross earned premium was 74.3% and stockholders equity was $255.1 million. Our policy count reached 209,400 policies at December 31 which included approximately 2,400 commercial residential policies. Our total in force premium at December 31 was $494.6 million, an increase of 109% over the prior year and 53% over the third quarter. This significant growth was fueled by our entry into commercial residential which included three depopulation transactions during the fourth quarter totaling $85.4 million of in force premium and $5.8 million of premiums written through the voluntary market. As of December 31, approximately 81% of our in force premium is from personal residential and 19% from commercial residential business. In addition to the commercial residential depopulation activity, we also assumed approximately 39,000 additional personal lines policies accounting for approximately $84 million of in force premium from Citizens during the fourth quarter. This activity fuel the growth in our gross premium written and gross premiums earned. Gross premiums earned for the first quarter was $106.6 million compared to $50.1 million for the first quarter 2013 and $86.8 million for the quarter ended September 30 of 2014. In addition to an increase in force premium, our results were favorably impacted by significantly lower reinsurance cost as measured against gross premiums earned. Our ceded premium ratio was 23.5% for the fourth quarter of 2014 compared to 36.6% for the fourth quarter of 2013. This decrease was primarily the result of lower reinsurance cost on replacement of our reinsurance program on June 01 due to favorable reinsurance market conditions and the issuance of $200 million of cat bonds through Citrus Re, as well as the improved geographic spread of risk resulting from the SSIC policy acquisition. In addition, the significant increase in our gross premiums earned from the fourth quarter Citizens depopulation activity also had a positive impact. Our ceded premium ratio for the third quarter of 2014 was 30.5%. Reduction from 30.5% to 23.5% quarter-over-quarter was entirely the result of growth in gross premiums earned in the fourth quarter. So there was no corresponding increase in ceded premiums. An increase in ceded premiums will not occur until June 01 of 2015, when our reinsurance contracts renew. Our loss experience continues to be positive and well within our expectations. Our loss ratio as a percentage of gross earned premiums was 25.1% for the quarter and 22.5% year-to-date. Our loss ratio on a reported basis which does not include IBNR was 19.8% for the quarter and 22.6% for the year with IBNR increases making up 5.9 points of the loss ratio for the quarter and 6.1 points for the year. In total, our unpaid loss and LAE reserves at December 31, 2014 was $51.5 million which included $30.1 million of IBNR or 58% of the total loss in LAE reserves. We are still a new company with limited loss development experienced and as a result, we have to rely significantly on industry experience in establishing our reserves. Because of this, we have said IBNR using management’s current best estimate move to the top of the indicated range was developed by our independent actuary. Our expense ratio as a percentage of gross earned premiums was 25.1% for the quarter and 22.5% for the year. The $10 million acquisition payment for the SSIC policies was capitalized in June and it’s been amortized in relation to earning out of the unknown premium that we acquired. The amortization of the SSIC acquisition payment was approximately $3 million during the quarter and $7.5 million for the year which had a 2.8 percentage point impact on the expense ratio for the quarter and 2.4 point for the year. Our combined ratio as a percentage of gross premiums earned was 74.3% for the fourth quarter and 79.4% for the year. We are very pleased with these results, especially when considering each component of our combined ratio reinsurance, losses and expenses were in line or better than our expectations. We believe this underlying base of proper business which now includes approximately $95 million of commercial residential in gross premium should position us well for the coming quarters. On the balance sheet side, stockholders equity increased to $254 million compared to $100.9 million at December 31, 2013. Our May 2014 IPO increased equity by approximately $101.1 million with net income contributing $47.1 million. Our statutory surplus in our insurance company subsidiary at December 31 was $172.7 million, our gross written premium to surplus ratio was 2.5

[Bruce Lucas:]

Thank you, Steve. We will now open the forum and take questions from our analysts.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Mark Hughes of SunTrust. Please go ahead.

[Mark Hughes:]

Yes. Good morning, Bruce. Good morning, Steve. Pretty impressive.

[Bruce Lucas:]

Thank you, Mark.

[Mark Hughes:]

I did want to ask, what is your latest thinking about the peak out opportunities as we think about 2015? Have you looked at it now versus what you might have looked at it six months ago both in terms of the remaining policies within Citizens and then the level of competition?

[Bruce Lucas:]

Mark, this is Bruce. I’m going to say that obviously the policies enforced at Citizens has veined compared to where it was six months ago. You typically do see that naturally through fourth quarter take out activity which is the busiest time at Citizens. As you see declining policy count, that may create some declining opportunities to assume large blocks of policies. We choose to maintain a pretty disciplined underwriting approach and only pursue policies that make sense to us from an underwriting perspective. We have decided to continue with the take out process at Citizens and rather than focus on large scale assumptions more geared towards the fourth quarter, we are anticipating the risk out with smaller scale depopulation throughout the year or at least are still finding very good policy there. Citizens is the largest new business producer in the state of Florida so there is always plenty of new policies going in. So we are slightly shifting the focus in that, we’re just doing more major take outs on a monthly basis, rather than focusing exclusively on the fourth quarter.

[Stephen Rohde:]

And in the first quarter, we did anticipate in all three take out stream each month and we expect those to net us about 22,000 policies on the personal line side and approximately 300 commercial policies. Total premium and the premium from those should be in the $60 million all the take outs in the first quarter and we are approved to do an April takeout and that’s in process at this time.

[Mark Hughes:]

Right. How about – any thoughts on growth initiatives outside the state may be in Texas or other markets. So you are certainly doing well in Florida, how do you think about the geographic expansion.

[Bruce Lucas:]

Yes, Mark. That’s something that we’ve been working on for awhile and we have a short list of five or six days that were just finishing our due diligence on. We do intend to filing those new states this year and new business production would be geared more towards fourth quarter at the earliest. It’s more likely going to be more of 2016 issue I think. Once you get launched in the new state, your initial ramp up of voluntary production is although slow and so you kind of get out there and dig your name on the street in front of the agents and really kick off your marketing campaign. It’s something that we are actively working on.

[Mark Hughes:]

Steve, on the operating expenses, where should we think about those going forward, you had very good growth that were little bit higher in terms of the ratio that I might have assumed. How much of the step down from Sunshine State amortization that we look forward in Q1 and then who is generally speaking where should they be at?

[Bruce Lucas:]

We have about $2.5 million left to amortize on the acquisition cost of Sunshine State. So that will mostly go off and the first quarter is a little bit drilling in the second quarter. I see our policy acquisition cost as a percentage of earned premium against direct earned premium, that will be above 14%. Then we have no acquisition cost associated with the assumed premium you have from Citizens. Our general expenses are running about – I would say about 10% of gross written premium. Part of that is made up from the stock-based compensation as well as our bonus compensation. Those two components represent probably close to the 3 points of that, at 10.0 expense ratio on the general expenses to gross written premium. And then of course when we do the take outs, we get that benefit from not having acquisition cost. So the takeout has been reduced that expense ratio that’s trending in the low end of stock based compensation for about 24%, it brings it down couple of points. We will bring it down couple of points in 2015.

[Mark Hughes:]

Right. Okay, so low 20s perhaps.

[Bruce Lucas:]

Yes.

[Mark Hughes:]

Okay. But then on a question on losses, are you seeing in the commercial residential losses consistent with I think low double digits may be in the teens was with some of those policies were generating, how was your experience been?

[Stephen Rohde:]

For the first quarter, which was our first quarter, we had very low reported claims. Our loss ratio on a reported basis on commercial for the fourth quarter ran about 3%. We did set up significant IBNR in the first quarter because it’s brand line for us and limited experience. So we reserve to the mid-teens on that but the actual experience does not come to it at all at this point.

[Bruce Lucas:]

You know Mark and this is Bruce and I’ll add to that. We look at the line of business and obviously we are approaching a $100 million of in force premium there. The loss ratios have been surprisingly low on a reported basis, but as Steve mentioned we are very conservative in how we handle our claims. Overall for the company, we run our IBNR right at the top of the range, just a hair under it, that’s our management’s best estimate of where we think it should be for a company on our growth curve. So we kind of the [indiscernible] business and they were not seem to reported claims and it’s still early and it’s more prudent to be over reserve versus under reserve. So we are pretty happy with where we are right now in the cushion with respective to IBNR.

[Mark Hughes:]

Great. Thank you.

[Bruce Lucas:]

Thank you.

[Operator:]

Our next question comes from Arash Soleimani from KBW. Please go ahead.

[Arash Soleimani:]

Hi, thanks. Good morning everyone.

[Bruce Lucas:]

Good morning, Arash. How are you?

[Arash Soleimani:]

Good. How is everything going? Just wanted to quickly ask you guys, on the commercial residential, you mentioned a reported loss ratio around 3%, what was the actual I guess cat loss ratio on that business?

[Bruce Lucas:]

I mean that was the actual.

[Arash Soleimani:]

Was that excluding IBNR and everything?

[Bruce Lucas:]

That excludes IBNR. Including IBNR was about 14%.

[Arash Soleimani:]

14% okay. And that seems you – probably I know you said there is conservatism in there, so do you feel confident of that could potentially actually be lower than that of the true run rate going forward?

[Stephen Rohde:]

We have to be careful on how we see that but management’s best estimate is that we feel IBNR should be at where it is at 14%. However, when we looked at the policies that were at Citizens and we saw loss ratios that were consistently in the mid-to-upper single digits. And there is a lot of historical data there that you can mind through and if you’re going to understand it from an underwriting perspective as to how that book of business has performed. Obviously you would expect to see higher loss ratios on underpriced policies and since we weren’t taking those types of risks, we feel pretty confident in where we are right now. But that said, we just had a large depopulation in the fourth quarter and we want to be conservative on the IBNR side. We never want to have to go back and increase the IBNR.

[Arash Soleimani:]

Okay, that makes sense. And obviously the loss ratio went from commercial residential are lower than the personal residential loss ratios, but how should we think about the reinsurance aspect of that? How was the – I guess reinsurance ceded premiums on commercial residential stack up against reinsurance ceded premiums as a percentage of growth for personal residential?

[Bruce Lucas:]

Relative to combined ratio, they are looking pretty similar when you take everything into account.

[Stephen Rohde:]

Yes. Once you bring everything together, it bolster to run close to 80, 85 combined ratio on a go-forward basis. The reinsurance cost of commercial residential, we are expecting that to be in the low to mid-50% range.

[Arash Soleimani:]

Okay, okay. And the $5.8 million I think you guys said you did I guess on a voluntary basis in commercial residential, is that sort of a fair quarterly run rate for organic business?

[Bruce Lucas:]

Well, it’s hard to say because that was our first quarter of doing voluntary business and we did assume some commercial residential risks in June when we did the Sunshine State acquisition. But the voluntary program did not launch until the fourth quarter. We were very well received by market. Obviously we done more premium than we had originally forecast, so we are pretty happy with that. I don’t think it’s that far off of what we had to expect right now in terms of an average run rate but we won’t really know until we get a little bit further into the year.

[Stephen Rohde:]

Our first quarter numbers are very similar to those fourth quarter numbers.

[Arash Soleimani:]

Okay. And in general, are you guys seeing differences in ALT loss ratios between Citizens business and voluntary business?

[Stephen Rohde:]

Our loss ratio was around pretty similar between the two. So there is not a vast difference at all. Actually, no, I would say it’s very similar.

[Bruce Lucas:]

Yeah. We really do focus on the underwriting of those two different policies and the fact that we have done the number of transactions that we’ve accomplished over the past two years comparing the data that we get on the take out business, looking at the metrics to loss ratios overall combined ratios, comparing that to the voluntary line, the fact that we are almost in line between those two business segments. I think there is a real testament to the underwriting quality that we have at the company.

[Arash Soleimani:]

Definitely, definitely and was there any development in the quarter favorable?

[Stephen Rohde:]

We had about $200,000 of favorable development on the 2013 claims.

[Arash Soleimani:]

Okay. From I guess premium to surplus perspective, do you feel comfortable with where you are now, is that a range where there is still little room I guess continue riding organically with substantial magnitude.

[Bruce Lucas:]

Yeah. We have a very conservative gross written premium to surplus ratio and we have not been shy about telling that as it’s really a hallmark in the strength of the company versus some of the other companies that are down here in Florida. We currently write at 2.5

[Arash Soleimani:]

Okay, great. And my final question is, did you provide already a breakdown of voluntary versus Citizens or Sunshine State the policy breakdown?

[Stephen Rohde:]

The policy breakdown on a personal line side about 74% is take out business, 14% is SSIC business and about 12% is voluntary. And then commercial residential was so much - in the fourth quarter was the take out, that represents about 92% and SSIC is about 5% and voluntary is about 4%.

[Bruce Lucas:]

And Arash, when we originally gave out projections, let’s go back to the IPO time period because that’s relevant for most people on the call. We really wanted to end the fiscal year at roughly at 25% voluntary mix of business compared to Citizens were there. We are right at 26%, so we are right on target. We are seeing some nice increase in the voluntary production side of the business right now. That corresponds to a couple of what we thought were major rate decreases that we took in the fourth quarter. So we are happy to see production moving up, it’s in the right direction and we are building on the momentum that we have been laying the foundation for over the past 12 months.

[Arash Soleimani:]

Okay. And with those rate decreases you were mentioning, is that something where again absent Citizens business, would you still expect to expand underwriting margins in 2015 with those rate decreases in place after taking reinsurance into account, again absent Citizens?

[Bruce Lucas:]

Yes. I don’t really think that Citizens part of it is really relevant. We just kind of look at the in force book of business and look at where we are on a combined ratio basis, and then obviously reinsurance is a critical part of that. We had some pretty significant reinsurance savings last year and as a result, we took some rate decreases across the portfolio to reflect that, passed them in those savings on to the consumer, but still maintained a pretty healthy combined ratio of 79.4% for the fiscal year 2014.

[Arash Soleimani:]

Okay, great. Thanks for the answer and congrats on the quarter.

[Bruce Lucas:]

Thank you, Arash.

[Operator:]

Our next question comes from Matt Carletti of JMP Securities. Please go ahead.

[Matt Carletti:]

Thanks. Good morning. Few of my questions have answered but I do have one or two left. On your reinsurance contract, I know the majority of it is on a three year basis, but could you may be update us on as we head towards midyear obviously a part of it is renewable and what you expect in terms of pricing. And then secondly just if we should be thinking about lot of times in a very tough market, there is an opportunity to even renegotiate beyond just the piece of it that’s renewing in the first year and if you think that all possibility.

[Bruce Lucas:]

Yes, Matt. This is Bruce. I’ll take a shot at it and Steve Rohde to jump in. Last year at 61, we did place 88% of our private reinsurance cover on a multi-year basis with essentially alongside and below the cat was on a two year duration. And then we did do two Citrus Re transaction totaling $200 million in cat bonds and ahead of three year duration on it. We still feel like the pricing that we got on that three year bond is at or potentially better than what you may even see this year. So we feel pretty good about that purchase. Hindsight is always 20/20 but it certainly looks like we got an excellent deal on those two Citrus Re transactions. With respect to the portions alongside and below the capital one that were more collateralized markets, we did get some pretty good rates in terms of last year. We have not gone to market yet to see what pricing will fall for those layers. We would expect pricing to be flat or down 5 points or so would be my best guess for the market. I think one ones were down, we’re hearing about 10% overall depending on who you talk to you, but they have to catch up to the prior year 6, 1% decreases. So we feel like we are in a pretty good position now with our growth curve. We bought approximately $850 million of reinsurance last year and that’s between HCF and private. Staring with $99 because we had to add more after the Sunshine State acquisition. We would definitely be in that $1.5 billion plus P&L range now with the fourth quarter takeouts. This gives us a really good opportunity to go in and dollar cost average, secure additional hopefully multi-year cover at really favorable rates and take a lot of the volatility that you see post event out of the business plan entirely. And I think that’s just a good way to buy reinsurance. I mean you could take a lot of excessive risk and buy a 12 month contracts and hope it goes down a few points, but if you can lock in multiyear cover at very sustainable rates, run at 79 combined ratio and take a lot of the rate volatility out of the equation, I think that’s the prudent and best way from an enterprise risk management standpoint to run your company.

[Matt Carletti:]

Definitely I agree.

[Stephen Rohde:]

I just going to add Matt that because of our growth at HCF, they are moved up. So layer we bought down the road with the two year cover, so about half of that – a portion that we bought last year will cover about half of the need down below. So we will have an opportunity to buy additional reinsurance down low at hopefully better terms, but like Bruce said, the dollar cost averaging is working out very well for us.

[Bruce Lucas:]

Yes, one more kind of number. So that $990 million that we ended up buying last year post Sunshine State acquisition only $200 million of that was in the Citrus Re transaction. So there is still a lot of private reinsurance that we need to go out there and acquire, and with the growth that we’ve experienced year-over-year plus 100%, it’s a great opportunity for us to go across, turn to the market right now.

[Matt Carletti:]

Great. It’s really helpful. And just one other quick question if I can, just Bruce, on the M&A environment, do you see potential opportunities for further M&A whether it’s renewal rates or outright acquisitions and whether that might be in Florida or might help us it will take you getting into some of the newer states you are looking to get into.

[Bruce Lucas:]

Yes, I think that’s a great question and the answer is, yes. There are M&A opportunities that are out there. We are actively looking at several of them now. We are only going to do a deal or obviously if we think it’s the right debt both from a business standpoint, cultural standpoint where the organization that we’ve built on our end. But there are some opportunities that are potentially out there. We are continuing to work towards those. I think that that is something especially on a multistate basis that would be pretty attractive to us.

[Matt Carletti:]

Great. Thank you for the answers. Congrats on a nice year and best of luck in ’15.

[Bruce Lucas:]

Thanks, Matt. I appreciate it.

[Operator:]

Our next question comes from John Barnidge of Sandler O'Neill. Please go ahead.

[John Barnidge:]

Good morning. Congrats on the results. Most of my questions have been answered, but just one quick modeling question, your other revenue line item grew quite a bit throughout the year. I was one, wondering what are the sources of that and two, how should we think about a run rate for that.

[Bruce Lucas:]

Okay, there is two primarily items, one is the $25 a policy fee that we collect on every policy that we issue or renew. And that makes up about half of it and the other is the rental income that we get from the buildings that we own, of which about 88% is leased to other tenants. So the policy fees will continue to grow their policy, their rental income will be paying at levels right now.

[John Barnidge:]

Okay, great. Thanks. That’s it from me.

[Bruce Lucas:]

Thank you.

[Operator:]

Our next question is a follow-up from Mark Hughes of SunTrust. Please go ahead.

[Mark Hughes:]

Thank you. You had taken from selective rate decreases, it sounds like did you quantify what the average might be or average rate across all of your book and if you could distinguish between I guess commercial is a new venture but on the residential side what the rate has been?

[Stephen Rohde:]

Sure. Overall, on the take out homeowners eight of three business we took minus 1.4%. And then on our voluntary business reach, we took a statewide overall decrease of 12.5% and for our voluntary Ho6 filing we took an overall minus 8.9%.

[Mark Hughes:]

How do you think that compared to the overall pricing, where do you think you sit relative to your competition?

[Stephen Rohde:]

Yeah. I mean that’s a really good question and unfortunately there are so many different waiting algorithms out there. Every company has their own territories, some of them use windband [ph] some don’t. I would say that overall we are definitely in the ballpark with the lot of the other leading producers in the state. We have our sweet spots like other companies do. We are seeing great activity in the southwest, southeast and increasingly so in the northeast and central Florida. The rate decreases were targeted to help voluntary production in areas where we want to grow so that we can avoid risk concentration and they’ve been pretty effective in doing that. I think last month, we rote in 49 different counties. So I was pretty happy to see the spread of risk that we’re getting throughout the stage. That was very encouraging.

[Mark Hughes:]

Thank you.

[Stephen Rohde:]

Thank you.

[Operator:]

Our next question comes from Samir Khare of Capital Returns Management. Please go ahead.

[Samir Khare:]

Good morning guys and congrats on the year.

[Bruce Lucas:]

Thanks, Samir.

[Samir Khare:]

I think in the success rate of each of your [indiscernible] key floors, I was hoping you can tell us how many policies you guys tagged and how many policies actually stuck and the annualized premiums associated with each?

[Bruce Lucas:]

During the fourth quarter what we are talking about?

[Samir Khare:]

Yeah, that’s right.

[Stephen Rohde:]

Okay. The personal line side the October take out, we tagged 19,000 policies approximately and we netted after raps out about 11,000 policies, so funded about 58% success rate. In November, we tagged 38,000 and we netted about 21,000. In December, we tagged about 14,000 policies and netted about 7,500.

[Bruce Lucas:]

I think Samir if you want to look at kind of a good run rate net of both opt out windows, the first 30 days and the second 30 days, it’s probably that mid-50 number 50% to 55%, that’s historically on par with what we’ve done in the past. So we are seeing that take up rates are pretty much an even queue at this point in time.

[Samir Khare:]

Okay. And what about for the commercial residential take outs, it sounds like you – looks like you guys have a really good success there.

[Stephen Rohde:]

Yeah. There we tagged and mailed 2,300 policies in October and received 1,877 of those dropped out and November we tagged 175 and after dropped outs we had a 100 policies and then December 390 policies, which we received 239 policies.

[Bruce Lucas:]

And a little bit higher take-up there Samir and I think a large part of that is a real testament to the team that we built downstairs on the first quarter. I mean we brought over Randy and Arlene and some other people from ASI, they have done a great job of building out that underwriting departments to all people now that to our knowledge is the deepest commercial res department in the State of Florida. They have an excellent reputation and then the financial strength of the company that really matters for these kind of higher TIV dwellings and the way that we seed out the risk on those, I think it has been another important factor in terms of our take up rate. We are only retaining about $1 million of risk on any building and we are seeding out everything else above that. So it is a very conservative risk profile for the company, you kind of combine those together with the capital base that we have at the company and that’s a big reason why I think our take-up rate was higher for commercial residential.

[Samir Khare:]

Okay great. And then on the residential side per takeouts what’s the retention rate for those policies?

[Stephen Rohde:]

The policies that make it to renewal, we are renewing on average about 84% for the year and then we have about another 5% to 6% cancel mid-term.

[Samir Khare:]

Okay and if you can give me some metrics on the progress of your voluntary homeowners business. In Q1 how many policies you are making per month and what’s your average premium there?

[Stephen Rohde:]

For the month of January, we wrote about 1,500 policies and February we exceeded that. So we are starting to average more like 80 policy or sales a day on the voluntary side in the last few weeks.

[Bruce Lucas:]

Yeah, I’d say that’s right. The premiums vary a lot from geographic area to area and if we are going to load up on Tri County business, obviously the average premium size will be significantly higher. We are really focused more not on the average premium size, but on the spread of risk and the profitability of those policies and when you kind of look at voluntary ACO-3s you are looking at something in the $1,700 range that’s kind of reflective of a really good spread of business throughout the state. And then on HO-6 is obviously much smaller risk, lower premiums there call it upper $600 to $700 in premium. And if you wanted to solely focus on the average premium size, we could just go and turn the flood gates on in Southeast Florida and write $3,000 premiums all day, but I don’t think that will be the right move for the company and what we really focus on is the overall combined ratio that’s best a more telling number.

[Samir Khare:]

Sure and as you guys focus on your new business, you ramp that up, what is the proportion of HO-6 versus HO-3?

[Bruce Lucas:]

HO-6 is not a particularly large part. I’d have to look out where we are for the in force, do you have that number?

[Stephen Rohde:]

We’ve written our in force voluntary 18000 HO-3’s and about 1700 HO-6’s and about 4300 DP3, so it is less than 10% of our voluntary production.

[Samir Khare:]

Okay perfect. And there was an increase in G&A in Q4, [indiscernible] and if that will continue to be a seasonally high quarter for G&A or is it just the new run rate for ‘15?

[Stephen Rohde:]

3.3 million of that was related to stock-based compensation, some options that were granted in the fourth quarter. That was the primary [indiscernible].

[Samir Khare:]

Okay, that’s it from me. Thank you guys.

[Stephen Rohde:]

Thank you.

[Operator:]

This concludes our question-and-answer session. I would like to turn the conference over to Bruce Lucas for any closing remarks

[Bruce Lucas:]

Thank you. Just wanted to thank everybody for your support of the company participation in our fourth quarter call. We look forward to speaking with you in the next quarter and thank you again for all of your metered questions and we will follow-up with some additional information as things progress on our side.

[Operator:]

The conference has now concluded. Thank you for attending today’s presentation, you may now disconnect.