Heritage Insurance Holdings, Inc.
Q1 2015 Earnings Call Transcript

Published: 10 May 2015

[Operator:]

Good morning, and welcome to Heritage Insurance Holdings First Quarter 2015 Financial Results Conference Call. My name is Anita and I will be your operator today. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions]. As a reminder, this conference call is being recorded. The matters discussed on this call that are forward-looking statements 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 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 specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, future events, or circumstances or otherwise. Now at this time, I would now 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:]

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 first 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. We had the best quarter in the company’s history and reported a record profit of $30.1 million. We have a strong business plan and our quarterly results reflect our ability to execute on that plan and once again outperformed shareholder expectations. From a financial perspective, we had an incredible quarter. Our gross written premium and net operating income increased significantly. Our personal lines voluntary production increased by 56% versus the fourth quarter of 2014 and our commercial residential production continues to outpace our expectations. We continue to have tremendous success in growing the company as evidenced by a 94% increase in gross premiums written for the first quarter of 2015 as compared to the first quarter of 2014. A 140% increase in net premiums earned for the first quarter of 2015 versus the first quarter of 2014. We also had a 57% increase in policy count compared to the first quarter of 2014. Net income of $30.1 million for the first quarter of 2015 represents an increase of 281% compared to the first quarter of 2014. We had a combined ratio of 64.6% for the quarter and our shareholder equity increased 161% compared to the first quarter of 2014. Additionally, Heritage was once again named the fastest growing property and casualty insurer in the United States in 2014 by SNL. This is the second year in a row in which Heritage was named the top growth insurer in the United States. This is an incredible accomplishment in and of itself, but it is even more impressive given the financial performance of the company to-date. It is a real testament to the strength and vision of the company and our ability to identify market conditions before they arise and execute on them when the timing is right. We’re very pleased with our growth today, 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?

[Steve Rohde:]

Thank you, Bruce, and good morning. Our policy count reached 220,000 policies at March 31, which included approximately 2750 commercial residential policies. Our total in-force premium at March 31 was $533 million, an increase of 104% over March 31 of 2014. During the quarter, we participated in Citizens depopulations each month resulting in approximately $35.1 million of personal residential in-force premium and $11.8 million of commercial residential in-force premium. Gross premiums earned for the first quarter were $126 million compared to $60.9 million for the first quarter of 2014. Commercial residential represented $25.7 million and personal residential $100.3 million. The significant growth in gross premiums earned was a big reason for our growth in net income for the quarter. Additionally, our results were favorably impacted by significantly lower reinsurance cost as measured against gross premiums earned. As a reminder, our reinsurance treaties renew on June 1 and run through May 31. Ceded premiums in the first quarter relate to the reinsurance treaty that was put in place in the previous June. Our ceded premium ratio was 19.5% for the first quarter of 2015 compared to 30.6% for the first quarter of 2014. This decrease was two-fold. First, was last year’s favorable reinsurance market conditions and the lower cost of reinsurance associated with the issuance of $200 million of catastrophe bonds by Citrus Re, as well as improved geographic spread of risk resulting from the Sunshine State policy acquisition. Second, our fourth quarter of 2014 and first quarter of 2015, Citizens depopulation activity had a positive impact on the ceded premium ratio. These depopulations increased gross premiums earned for the first quarter, while there is no corresponding increase in ceded premiums. The first quarter of 2014 was also favorably impacted by growth, but not as significantly as this year. An increase in ceded premiums will not occur until June 1 of 2015, when our reinsurance contracts renew. Our loss ratio as measured against gross premiums earned was 25.8% for the quarter compared to 33.8% for the first quarter of 2014. Factors driving the improvement were, one, favorable development on prior year losses was approximately $4.5 million, with most of the favorable development coming from the third and fourth quarters of 2014. As we’ve discussed in past calls, as a new company with limited loss experience, we felt it was prudent to set our IBNR near the high-end of the range as determined by our actuaries. More than 60% of our IBNR at December 31 related to the last two quarters of 2014. Those two quarters in particular had favorable development during the first quarter of 2015. Despite the favorable development, we still increased IBNR by $4.2 million during the quarter. IBNR represented approximately 56% of our total loss reserves at March 31, a level consistent with previous quarters and accounted for 3.3 points of the loss ratio. In other words, it was not a change in reserving philosophy caused a favorable development; it was our actual development being better than expected by the accrual methods used in setting loss reserves. In addition to the favorable development, our introduction into commercial residential favorably impacted our loss ratio, as this line of business historically for the industry has a very low non-catastrophe loss ratio. Our experience to-date has been excellent. Through two quarters our reported loss ratio for commercial residential is in the low single digits. Lastly, in the first quarter of 2014, we strengthened our loss reserves. This had about a 3.5 point negative impact on the first quarter of 2014 loss ratio. Our expense ratio, as a percentage of gross earned premiums was 19.3% for the quarter compared to 18.8% for the first quarter of 2014. The amortization of Sunshine State policy acquisition cost accounted for 1.5 points during the quarter. The remaining unamortized balance of SSIC cost is $550,000, which will be expensed in the second quarter. Our expense ratios for the first quarters of both 2015 and 2014 were favorably impacted by the assumed earned premium from the Citizens takeouts in which there are no acquisition expenses. This improved the Q1 expense ratios for 2015 and 2014 by approximately 5.0 points and 5.8 points respectfully. Our combined ratio as a percentage of gross premiums earned was 64.6% for the quarter compared to 83.3% for the first quarter of 2014. We are very pleased with these results. It was a tremendous quarter for us, 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 profitable business representing $533 million of in-force premium should position us well for the coming quarters. On the balance sheet side, stockholders equity increased to $287.8 million compared to $255.1 million at December 31, 2014. Statutory surplus in our insurance company subsidiary at March 31 was $194.1 million an increase of $21.4 million for the quarter. Our invested assets at March 31 were $403 million with approximately $361 million invested in bonds with an average credit quality of A and a duration of 4.2. Our cash position was $161 million and our total assets were $669 million at March 31. Overall, we had an excellent quarter one we’re very proud of. With that, I will now turn it back to Bruce.

[Bruce Lucas:]

Thank you, Steve. And we will now take questions from our analysts.

[Operator:]

Thank you. At this time, we will now take questions. [Operator instructions]. At this time, we will post momentarily to assemble the roster. The first question comes from Mark Hughes with SunTrust. Please go ahead.

[Mark Hughes:]

Thank you. Good morning.

[Bruce Lucas:]

Good morning, Mark.

[Mark Hughes:]

Could you talk about your voluntary production in both residential and commercial residential, how did you do in the quarter, how do you expect that to trend over time?

[Bruce Lucas:]

Sure. Well, our personal residential production versus fourth quarter was up about 56%. I’ll let Steve walk you through the actual PIF count in terms of line of business and we are seeing a nice upward trend that’s ahead of our expectations.

[Steve Rohde:]

On the voluntary, we had 7900 new policies bound, of which 65 – almost 6600 were HO3s. So I think about 83% was HO3s of the new business bound for the first quarter and so we’re averaging a little over 100 policies a day now in the month of April we were at 109 policies with production.

[Bruce Lucas:]

And on the commercial residential side, we continued to run an average premium run rate of about $2 million a month I’d say give or take a few hundred thousand dollars and that seems to be holding fairly steady. We are selective on where we are taking those new policies given our tremendous success on the Citizens assumptions. So we are tracking well ahead of our internal expectations on both the personal lines production and the commercial residential as well.

[Mark Hughes:]

Just talk about the rate of pricing, how your latest filings have looked, what do you think the competitive environment is like in the State in terms of pricing?

[Bruce Lucas:]

Well, pricing is – this is a no new story. Pricing continues to go down with reinsurance price declines and you have to pass on some of those reinsurance savings to the end policyholder and that’s the prudent thing to do. Rates are, I think, fairly stable. We have not seen a big erosion in rates lately. We saw it more, kind of, last, say, fourth quarter or third quarter timeframe, which makes sense because it was following the 61 reinsurance renewal treaties. So we think that the market right now is fairly stable from what we’re seeing. Our production has been increasing steadily since the fourth quarter, which reflects some of the rate savings that we’ve passed on to our customers and we think it’s a overall, a pretty solid market right now.

[Mark Hughes:]

Where do you think reinsurance costs, kind of, rate online are going to come in for this renewal?

[Bruce Lucas:]

Yes. We’re still in negotiations on that Mark. So I don’t know that it would be proper to really comment on that right now given that our program is with the various reinsurers. I can tell you that the only pricing that we have announced was the pricing on our Citrus Re 2015 catastrophe bonds that we placed and those are out there very public. We were happy with the pricing that we received on those layers.

[Mark Hughes:]

How about on that front Steve? Any guidance you can give in terms of ceded premium ratio in Q2 and Q3 as, kind of, you see it now given the mix of business you’ve got, at least, as far as you can understand pricing at this point? What do you think that those percentages will be like?

[Steve Rohde:]

Sure. So the second quarter the first two months, April and May will be – will have the same favorable impact we had for the first quarter. I would expect that the second quarter ratio would be around 24% to 25% range and I think that the third quarter will be…

[Mark Hughes:]

It is hard to say.

[Steve Rohde:]

Hard to say, it will be in the low 30s, I would say, but, again, there’s a range there.

[Mark Hughes:]

Yes. And then with the stock trading where it’s at, would you think a share buyback is appropriate? How are looking at the stock now with this kind of valuation?

[Bruce Lucas:]

Yes. I think that’s a really good question, Mark because, we look at where we are right now. For the quarter, we produced about a 44% annualized ROE, which I’m pretty confident would probably talks of all the Florida companies. We look at the average of where our peers trade on a PE basis and that average is about 9.5 and we are trading at about 6.5, so we do think the stock is incredibly cheap at this price. We are going to look at all the options that are on the table in terms of increasing shareholder value. Certainly when your stock is, in our opinion, undervalued to the extent that it is that it’s something that you have to consider, but we are also in growth mode. We are sitting on quite a bit of cash right now. We are looking at some M&A opportunities and we’re in some due diligence processes as we speak. So we’re going to wait and see how those processes kind of filter out and see how the share price performs during the next couple of quarters and then we’ll make a decision as to whether or not a share buyback would be prudent use of capital.

[Mark Hughes:]

Thank you.

[Bruce Lucas:]

Thank you.

[Operator:]

The next question comes from Matt Carletti with JMP Securities. Please go ahead.

[Matt Carletti:]

Hey, thanks. Good morning.

[Bruce Lucas:]

Good morning.

[Matt Carletti:]

I just had two questions. The first one relates to personal residential de-pops takeouts from Citizens. Has your appetite for that changed at all going forward based on, the past several months of takeouts whether it’d be on the hit rate you’ve seen and kind of the population of what’s left in Citizens, whether that would be for the better or for the worse?

[Bruce Lucas:]

Matt, this is Bruce. No, I don’t think our appetite has changed. I mean, we have announced that our intent is to do smaller scale de-pops on a more frequent basis as we go through the year just to replace some of the attrition that we have is also a nice source of growth that the policies are there. We do tend to reduce the amount of policies we take as we head into winter season. That’s just simply controlling your reinsurance costs. We are at a pretty good level where we are right now in terms of year-over-year growth, be north of 100%. So we like our current situation. We’re looking at reinsurances and now buying our Cat cover. So typically, right now, is the time when we would slow down in terms of depopulation activity and look to pick it up again more and call it the end of third and fourth quarter.

[Matt Carletti:]

Okay. And then my only other question relates to the loss ratio on the personal residential side. Can you give us any color – I mean, maybe you have the numbers or just some qualitative color around, how the loss ratio might differ between your takeouts, your voluntary book, and say, M&A; so, maybe Sunshine State. Are there – is it a pretty tight range or are there some big variations in there?

[Steve Rohde:]

On the HO3 it’s a pretty tight range and actually, I think, the takeout look as a slightly better loss ratio than the voluntary, but it’s mainly because our premiums are higher on the takeout business. So on the loss cost basis there the range is very tight and all our business – because the ones we have significant concentrations of business either in regions or typically HO3 product are running all very acceptable loss ratios for us.

[Matt Carletti:]

Great. Well, thank you for the answers and congrats on a nice start to the year.

[Bruce Lucas:]

Thanks Matt.

[Operator:]

The next question comes from Arash Soleimani with KBW. Please go ahead.

[Arash Soleimani:]

Thanks. Good morning.

[Bruce Lucas:]

Good morning, Arash.

[Arash Soleimani:]

A couple of questions. What was the rate online on the cap-ons for the portion that, placed to put your efforts up till 75?

[Bruce Lucas:]

Yes, I think our fully loaded cost structure there was around 7.11%.

[Steve Rohde:]

Exactly with all the expenses associated with issuing a cap-on.

[Arash Soleimani:]

Okay. And what were direct premiums written and assume premiums written in the quarter?

[Steve Rohde:]

Direct written premiums I’m getting my thoughts here Arash, the direct written premium for the quarter was $37 million for the assumed business and then the direct business spend would have been about little over $100 million.

[Arash Soleimani:]

Okay thanks.

[Bruce Lucas:]

We can still back with an exact number for you.

[Arash Soleimani:]

Okay. Thank you. I appreciate that. And I think for annualized premiums in the quarter, annualized premiums we’re seeing was that around, I think you said 47 in the press release, I was just wondering what is the difference between that one and the $60 million that you had mentioned before, I think on the last call you mentioned.

[SteveRohde:]

Yes. At last call the opt out rate, it was higher in first quarter take outs particularly the February and March take outs had a higher opt out rates than we had ever experienced before and that’s what caused the lower premium being assumed from what we had done opposite to – on the call.

[BruceLucas:]

On a month-to-month basis you kind of look at what you get in terms of a take up rate on the Citizens process, some months you have pretty large number of opt outs, other months it’s pretty light and so it’s kind of you got to look at it on an annualized basis that’s what we do, we kind of average all the take outs and the take up rates on a – just call it a 12 months basis and so we had, so we did some smaller take outs in the first quarter and the smaller take outs they had a little bit of a higher opt out rate than what we were projecting, but overall we still came in ahead of our projections in terms of top line revenue.

[Arash Soleimani:]

Okay. And what is your retention currently?

[Steve Rohde:]

Obviously, they come up for renewal, we are renewing about 86% on our voluntary business and slightly higher on our take out business and then we also have mid-term cancels that result in about roughly 9% to 10% of our policies on an annual basis leaving us.

[Arash Soleimani:]

Okay. And on – you said that favourable development that was the third and fourth quarter if I assume correctly?

[Steve Rohde:]

That was primary quarters ahead mostly in the favourable development, the first quarter of 2014 also had significant favourable development and the couple other quarters did two. But it was primarily third and fourth quarters.

[Bruce Lucas:]

And Arash on that point, I mean we’ve always kind of taken the position that management’s best expectation and best estimate is to take a conservative approach to the reserves and it is always a great thing when you see that type of favourable development take place on the book of business and we still increased reserves for the quarter. So we’d like where we are from a reserve standpoint and favorable development is a real testament to the way that we’re running the claims side of the model and that’s always a good thing to see.

[Arash Soleimani:]

I think I completely agree, are you guys seeing or continuing wherever you have been more conservative let’s say on in terms of Tri-County water losses, I guess are there any trends there that you’re seeing?

[Bruce Lucas:]

Well, I mean trends take a lot 12 months, no, you have some months that are really high claim activity and higher severity and other months that are lower and you just got to kind of look at it, going back to caught on a rolling 12 month basis. No, but, I would say that the month of March for example was a little higher compared to January and February which were kind of right in line. So you do see months that have a little bit of up tick and months that have downtick, but overall I think that we’re handling the water pretty well, assignment benefits is an issue down there. There is a tremendous amount of let’s just say claim inflation that takes place in the Tri-Country that’s one of the reasons that why we’ve been pretty good of limiting our personal line production in terms of policy count to a number of that’s in call it mid to upper 20% of our personal lines policy base. So we do manage things pretty well, we’re taking good risks having a integrated water program which is a real separator compared to everyone else in this business, it does help us to manage those loss cost and produce a better result for the customer.

[Arash Soleimani:]

Okay. Okay. And in terms of other states, I mean you said you’re looking at M&A opportunities now I guess is the other states more of a 2016 story?

[Bruce Lucas:]

Yes. I would say so. We are waiting on one thing from our in state regulators that we’ll complete our applications in other states that we can get those new business apps or new licenses filed. So we are in a process of finagling in four or five states. That should happen relatively soon and by the time, you get approved in those states and ramp up productions et cetera it’s really a 2016 growth story.

[Arash Soleimani:]

Okay. And I think you may have mentioned this before, but for the rest of the year, to what extent should I guess will Citizens play a role, I mean how much activity is sort of still possible to get out of Citizens?

[Bruce Lucas:]

Well, they still have over 600,000 policies at Citizens and you typically do see an increase in policy count Citizens during hurricane season as private carriers tend to scale back the amount of business that they put on their books. So we think that there is still some great policies there and we’re going to continue to explore those potential acquisitions, it’s the same question that we’ve been hearing for three years and we continue to outperform and beat estimates along the way and we’re certainly bullish on the way 2015 is shaping up for us compared to the estimates that are out there for us.

[Arash Soleimani:]

Okay. And I think and I guess what I’m trying to – is there certain policy counts that they say Citizens is around 600 is there certain policy count where you said yourself okay this is probably where it sort of should be, these are probably policies not that [indiscernible] private market, is there a certain point where do you feel that way?

[Bruce Lucas:]

Depends on what is there, I mean they had 600,000 policies that had massively outdated our outsized claim history to them then I would say the number 600,000, if there are 600,000 policies that are really good policies and which did our underwriting criteria then it’s a different equation, but I would say in general kind of looking at the types of exposures that we’re seeing and our current portfolio and how those policies fit in. There is probably several hundred thousand policies that are still there that are worth considering and that is on the personal lines and there may be some further opportunities on the commercial residential side as well.

[Arash Soleimani:]

Okay. Okay. And just one other question I had, and generally your cap-on that you had put a press release, is that the high coverage so if you expand outside Florida, will those cover trials outside Florida?

[Steve Rohde:]

Yes.

[Bruce Lucas:]

Yes they will.

[Arash Soleimani:]

Okay. Okay. So just on that front, could be I guess more valuable so relative to the average there and…

[Bruce Lucas:]

Yes. It was particularly variable versus the FHCF for sure, given where the rate online is at FHCF this year, our ability to identify once again the market trend before happened and execute on it is there and to place the bonds where we place them with the fully loaded cost of 7.11 and then look at where the FHCF rate online is that are on the 8.2, it’s pretty good. I mean we definitely led the market, it was an innovative bond, we work closely with our ILS partners and had a favourable placement there and it turned out to be the right decision for our policy holders.

[Arash Soleimani:]

The 8.2 for the FHCF is that, I know 7.6 was the number we’ve gotten before. So they are actually now charging 8.2 for the 2015/2016 timeframe?

[Bruce Lucas:]

Yes. We’ve been informed by our reinsurance broker which is well as that given the purchase of private reinsurance by the FHCF that that cost is being passed through and that cost resulted in a higher rate online at the FHCF, but they’re also mitigating the risk of assessments to policy holders right. So we have to look at it from both sides, there is no right or wrong answer there, I think that the FHCF went and did something that they thought was in the best interest of Florida and Florida policyholders and we certainly commend efforts for risk mitigation, but if we can also help to pass on a few savings to our policyholders and make our product look more competitive in the market we’re also happy to do that.

[Arash Soleimani:]

Okay. Thank you. And final question I know its 6600 policies or HO3, in terms I guess for new policies further, whether the rest are just Condos or Dwelling/Fire policies?

[Bruce Lucas:]

Mainly DPs and a little bit HO6.

[Arash Soleimani:]

And do you have a policy count for the commercial residential I know you said 66 – 7900 was personal residential and then you said two million a month on the commercial residential voluntary, so it is a significant policy count it could touch to new voluntary production there this quarter?

[Bruce Lucas:]

I do not have the policy count in front of me. We just go by premium because it’s not like personal lines where you see a lot of the premium per policy is kind of attached in the band is on the ratings I mean the way you rate a commercial policy is historically different from the way you rate a personal lines policy. So policy count I don’t have that in front of me. We probably would get that to you, but I think that $2 million a month is kind of premium number is the run rate that we’ve been experiencing and that again is ahead of our projections.

[Steve Rohde:]

Arash, I must apologies here, 7900 I gave you that’s through April that includes April production as well.

[Arash Soleimani:]

Okay. Okay. Perfect. Thank you for the answer. And congrats on the quarter.

[BruceLucas:]

Thank you, Arash.

[Operator:]

The next question comes from Ron Bobman with Capital Returns. Please go ahead.

[Ron Bobman:]

Hi, gentlemen great quarter.

[BruceLucas:]

Thank you.

[Ron Bobman:]

You are describing it an acceptable loss ratio sort of a meaningful understatement. I have a variety of questions so if you don’t mind being patient, one number I think you said right, I didn’t hear it – I didn’t get it down quick enough for clearly, stats there plus at quarter end did you see 144 or 134 or something close to that?

[BruceLucas:]

Not even close.

[SteveRohde:]

$194.1 million.

[Ron Bobman:]

All right. I tried to show it’s only about 50 sorry about that, what about cash at HoldCo?

[Steve Rohde:]

We have roughly $60 million at the HoldCo.

[Ron Bobman:]

Okay. Okay. Does the growth trajectory suggest that you’re down streaming some portion of that in the next quarter or two or at least not for seeing over that horizon?

[BruceLucas:]

I think our ratios are pretty solid where they are, I mean we have about $530 million or so of in force premium at the end of the quarter and roughly $200 million in surplus. I would challenge anyone to find another of our publicly traded peers that maintain that type of ratio. And so it’s a very conservative ratio that has a lot of growth still yet to come from existing statutory surplus and the fact that where we are in terms of our earnings means that statutory surplus by 61 will be well north of $200 million.

[SteveRohde:]

And our statutory earnings for the first quarter were $21 million so it supports what Bruce just said as far as the growth in surplus we expect to continue to see.

[Ron Bobman:]

Thanks. Okay. Moving along to some other questions. G&A I think it was about $11 million for the quarter, you mentioned the Sunshine State, I think the DAC amortization is that – are those two basically my question is just sort of the $11 million quarterly run rate for G&A is that a sort of a good indicator for let’s say the second quarter or is there anything that is particularly unusual that happened in the first quarter?

[SteveRohde:]

There was $1.5 million of stock-based compensation related to the options we issued last year and the second quarter that will be virtually very small numbers. So we should see an improvement in the G&A expenses in the second quarter I would think.

[Ron Bobman:]

Will it be – candidly will it be a reloading of stock-based comp that will sort of in some respects replace that drop off from the 14 award or no, you’re suggesting not I guess.

[Bruce Lucas:]

I guess that’s really something that is up to our compensation committee and we do have a normal business on the plan that is in place and stock-based compensation is a way that we use not only there to compensate the executives, but also to increase retention because it is really a retention focused exercise. You heard comments before about share buybacks and kind of how we view valuation. So I mean just given the valuation that we think on a peer group basis is trading at I don’t know maybe a 50% discount to the average PE in our sector. Stock-based compensation is something that is definitely at the tip of our tongue, so we’re bullish on where we are and we’re bullish on the rest of this year. So I’m not going to preclude additional stock-based compensation awards as way to compensate and retain key executives, but I just say that that is something that is being discussed internally.

[Ron Bobman:]

Okay. The takeouts during Q1 could you break that out by individual takeout in essence the number of policies you got from each of the take outs, the premium that you got and split it also by personal residential versus commercial residential or is that -- not we – get that ever once? I would just sort of broad it, everyone is asking sort of variety of sort of statistical questions. Would you think about adding some more disclosure next quarter or thereafter where you have supplement would just sort of tackle some of these fairly straight forward backward figure maybe not the take out stats, but things like surplus, cash and holding company things like that maybe just more productive to include in the supplement.

[Steve Rohde:]

Okay. We can do that.

[Ron Bobman:]

Okay. I’m ready.

[Steve Rohde:]

First quarter take out January was personal lines was about 8000 policies representing about $17.7 million of premium and this is annualized premium and the February 1 was about 4200 policies which represented about $8.6 million of premium and March was about 4200 policies representing $8.7 million of premium and then on the commercial side, January was 244 policies representing $9.0 million premium and February was 47 policies representing $2.2 million and March was 26 policies representing about $500,000 of premium.

[Ron Bobman:]

Got you. From your voluntary production in the second quarter or for that matter really maybe in the heart of the summer in the storm season, would you do anything differently that you will be motivated to slow that down, or you have no intention to sort of do anything differently to slowdown the voluntary production during wind season basically, I’m sure this one being – service storm being on the horizon, which I’m sure you take action but outside of that is what I’m asking?

[BruceLucas:]

No. I think we like where we’re, I mean we’re getting a really, really good mix of business throughout the state and that’s just a kind of focus for the underwriting guidelines that we have them in place as you get good diversification throughout Florida, it means that you’re not overly loading in one particular area and driving your probable maximum loss during wind season. So given that you have natural attrition and then you add additional policies on a monthly basis. Right now we’re not planning on taking any underwriting actions that would impact the voluntary production, but generally speaking we will be taking out less policies from Citizens of course because that’s a more of a larger scale a depopulation activity and has more of a meaningful impact on the PML during wind season. So right now, we just have to manage thing to current expectations and that includes kind of keeping voluntary production where it is or seeing consistently better results every month well ahead of internal projections. We’re happy with that and if we’re going to manage the PMLs during cash season it’s going to be managing it from the take out activity.

[Ron Bobman:]

And then what visibility do you have for the -- I guess I presume just a second quarter as far as take outs have you indicated to the state or have you signed up for any particular take outs on the personal side or the commercial residential side?

[BruceLucas:]

Well, the take outs in the second quarter are more limited than the first quarter because we’re heading into reinsurance season and hurricane season. So I mean we do have a take out, that’s in place right now for our April and May, we did not do one in June. And they are very smaller scale.

[Ron Bobman:]

Order of magnitude like your February or March even smaller than that?

[Steve Rohde:]

No. I think we will net between the two maybe 4500 policies it’s something of that unit.

[Bruce Lucas:]

Yes. We have got set the PMLs now and by our reinsurance so we have to be careful on what we’re doing there.

[Ron Bobman:]

Okay. How about over the premium correspondence fully focused obviously it depends how much is commercial and how much is residential?

[SteveRohde:]

It is all personal lines.

[BruceLucas:]

It is all personal lines.

[SteveRohde:]

Represents little over $10 million, little over $10 million of premium.

[Ron Bobman:]

Okay. Thanks for that color, that’s adequate, my last question thanks for being patient, is any change in the first quarter of 2015 for how you are picking the initial accident year loss ratios as compared to and I know there were some favourable development that you booked, but putting that aside from an accident year basis any change in the accident year loss picks or personal lines or the commercial residential business that you wrote in Q1 as compared to either the average for all of 2014 or what the booking was in Q4 of 2014 is out the favourable development?

[SteveRohde:]

Are you asking did we change our development ?

[Ron Bobman:]

That is a simple question, did you change your loss picks in Q1 of 2015?

[SteveRohde:]

No. We did not change our loss development factors in Q1 for the first quarter, we did a little as every quarter when you get additional experience we adjust some modestly the development factors, but it’s really out in the further quarters, but the Q1 to Q2 there was no change in the factor this quarter compared to last quarter?

[Ron Bobman:]

Thanks gentlemen. Best of luck, hope it continues.

[Bruce Lucas:]

Thank you.

[Operator:]

[Operator instructions]. The next question comes from John Barnidge with Sandler O’Neill. Please go ahead.

[John Barnidge:]

Good morning and congrats on the results, most of my questions have been answered so quick one, as you look at investment income, how would you see that as a run rate going forward, I know it’s going to be growing, but any directionality you give us would be great?

[SteveRohde:]

Yes. Our yield is running about 1.7% and our best asset continue to expect to grow as our premium base grows. I would – let me think about that for a second John. I think invested assets growing 10% for the rest of the year would not be unreasonable. I think investment income for the year, I would suggest that we should be seeing again in relation to revenue it’s still very small, but kind of I wouldn’t call quite a doubling every month or every quarter, I would say, I would say it’s more modest than that.

[BruceLucas:]

But in terms of the overall return I think that we are still targeting the same type of return because we are employing the same diversification across the investment portfolio. So I don’t think we’re running a 2% return on our invested assets at this point and that just reflects the conservative nature of the investment portfolio. We are fairly short duration on the bonds, we do have a lot of cash that still needs to be deployed, we are very cash rich company and our exposures to equities and MLPs is that you have to adjust from a mark-to-market basis remains fairly low.

[John Barnidge:]

All right, great. Thanks a lot.

[BruceLucas:]

Thank you.

[Operator:]

The next question comes from Casey Alexander with Gilford Securities. Please go ahead.

[Casey Alexander:]

My question is all answered. Thank you.

[BruceLucas:]

Thank you, Casey.

[Operator:]

That does conclude the question-and-answer session. I would like to turn the conference over to Mr. Bruce Lucas for any closing remarks.

[Bruce Lucas:]

I would just like to thank everyone for participating in the first quarter earnings call and thank you again for your time.

[Operator:]

The conference has now concluded. Thank you for your attendance. You may now disconnect your lines.