Universal Insurance Holdings, Inc.
Q1 2016 Earnings Call Transcript

Published: 3 May 2016

[Operator:]

Good day ladies and gentlemen and welcome to the Universal Insurance Holdings, UVEs Q1 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we’ll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host of today’s call, Mr. Matt Palmieri. You may begin.

[Matt Palmieri:]

Thank you, and good morning, everyone. Welcome to the first quarter 2016 earnings conference call for Universal Insurance Holdings Inc. With me today are Sean Downes, Chairman and Chief Executive Officer; Jon Springer, our Director, President and Chief Risk Officer, and Frank Wilcox, Chief Financial Officer. Following Sean’s opening remarks, Jon will provide an operational update and Frank will review financial results for the first quarter of 2016. The call will then be reopened for questions. Before we begin, please note that this presentation may contain forward-looking statements about our business and financial results. Forward-looking statements reflect our current view of future events and are typically associated with the words such as believe, expect, anticipate and similar expressions. We caution those listening including investors not to rely solely on forward-looking statements as they imply risks and uncertainties, some of which cannot be predicted or quantified and future results can differ materially from our expectations. We encourage you to carefully consider the risks described in our SEC filings with the SEC, which are available on SECs website or the SEC filing section of our website. We do not undertake any obligation to update or correct any forward-looking statements. With that said, I’d like to turn the presentation over to Sean Downes. Sean?

[Sean Downes:]

Thank you, Matt. Before I begin reviewing the quarter, I’d like to tell everyone with a heavy heart that we lost a member of the Universal family last week, Mr. Norman Meier. Norman was a Board of Director of Universal for many years before his retirement in 2013. He was a great mentor to all of us and will be greatly missed. Our heartfelt sympathies go out to his wife and family. I’d like to thank all of you today for joining us as we review our results for the first quarter of 2016. I’d like to begin by providing some highlights from the quarter and then take a moment to review our strategy and growth initiatives. Jon will then discuss our operational highlights and Frank will conclude by discussing our financial results. We are pleased to have delivered another record quarter in the first quarter, which we achieved without withstanding the severe weather events in Florida during the quarter. For the first quarter net income was 25.2 million, an increase of 13% over the first quarter of 2015 and diluted EPS was $0.71, an increase of 14.5% over the first quarter of 2015. These outstanding results which follow on a record year in 2015 highlight the consistent execution of our growth strategy across all aspects of our business and the hard work our employees and our network of approximately 7,800 independent agents, thanks to their efforts. Our subsidiary UPCIC is a largest private homeowners insurance provider in Florida, with an expanding presence in 17 states outside of Florida. In the first quarter of 2016, we wrote our first homeowners policy in Michigan and received certificates of authority booked in New York and in New Jersey, supporting our success is our consistent focus on maintaining disciplined underwriting standards as we seek to grow our business on an entirely organic basis. We have seen a consistent increase in policy count and premium in all states in which we operate over the past two years. A key factor on our success has been our commitment to providing high quality service to our policyholders and independent agency force through our vertically integrated structure. We have continued to invest in our business and areas including underwriting, policy issuance, general administration and claims processing. I’d now like to take a moment to showcase our new Direct-to-Consumer online platform for homeowners insurance which we began beta testing in April. It is now available to consumers in Pennsylvania and we anticipate adding other states in the coming months. Universal Direct is a culmination of many years of work with our great Universal IT professionals who with their help are now letting us tap into the power of the internet to reach customers directly. Customers who have the ability to manage our policies bind, select payment plans and make payments online were also having access to live customer support agents by phone or online for additional assistance as needed. I’m very happy to report today that we have written our first policy using Universal Direct and we anticipate many more to come in the future. Our consistent execution in operational performance has resulted in a robust financial position, allowing the company to continue returning capital to shareholders. In April, the Board declared a dividend of $0.14 per share of common stock. This is in addition to the $0.14 per share dividend announced in January. Our ongoing share repurchase program and dividend payments highlight our continuing track record of prudent capital deployment and commitment to returning value to our shareholders. As we look ahead, we remain focused executing on our core strategy to drive profitable growth. First, we continue to drive high quality service through our vertically integrated structure. Second, we will continue to increase our policies in-force in Florida by seeking profitable and rate adequate and 100% organic growth. Third, we will continue to diversify our revenue base and risk by increasing our policies in-force in states outside of Florida through our geographic expansion strategy and fourth, we will continue to optimize our reinsurance program as our risk profile changes. Our record results for the first quarter of 2016 highlight the merits of our strategy, we remain committed to executing on our plans to drive profitable growth and enhance a value for our shareholders. Finally, since the shorter tack on our common stock last November, we have now reported two full quarters of record results. We’ve had a clean audit of our 2015 financial statements in internal control by our independent auditor and our independent appointing actuary, Towers Watson has completed its most recent review, which included company data through 12/31/2015 and has concluded that the Company’s carried reserves make a reasonable provisions for losses and are within the Actuary’s range of estimates and booked at the Actuary’s best election [ph]. I’m proud of our performance in 2015 and continuing into 2016, everyone at the company more than ever is focused on our goal of driving profitable growth and increasing shareholder value. With that, I’ll now turn it over to Jon.

[Jon Springer:]

Thank you, Sean. I’d like to share a few specifics regarding the first quarter changes in exposures, and also touch on where we are in June 01, 2016 reinsurance renewal process. First, from a growth perspective, before I start I’d like to point out that we expressed our growth numbers as true net growth, new policies written, less policies that are left us for one reason or another. In the first quarter of 2016, we continued to successfully add profitable, organically grown policies in each and every state. Overall, during the first quarter, UPCIC Group policies in-force by 2.1% to now ensuring over 637,000 policies and in-force premium grew by 1.8% to total now of nearly $900 million. This successful first quarter brings the UPCIC growth rate over the past 12 months, 1Q ‘15 to 1Q ‘16 to 11.65% for policy count and 11.5% for in-force premium, all organically written one policy at a time. During the first quarter, we were again successful in growing policy count organically in Florida by over 1% and in-force premium by 1.25%. The corresponding growth rate for Florida over the past 12 months was 7.6% for policy count and 9.2% for in-force premium. In addition, the portfolio business outside of Florida continues to develop nicely, experiencing first quarter policy count growth of over 10% and in-force premium growth of 9%. The corresponding growth rate for business outside of Florida over the past 12 months was 51% for policy count and 47% for in-force premium. Lastly, from our reinsurance perspective, we are currently deep into the process of renewing our catastrophe reinsurance coverage to be effective June 01, 2016. We are pleased to report that as of today, we have secured authorizations to complete over 90% of our core all states catastrophe excess or loss tower. In addition, as part of this tower, we have secured some additional multi-year capacity below the attachment level of the Florida Hurricane Catastrophe fund bringing the total of our program below the Florida Hurricane Catastrophe fund that has truly multi-year to just over 50%. As we have in the past, we will release additional details when all of our placement efforts are complete and coverage is bound. With that, I’ll now turn it over to Frank Wilcox for our financial highlights.

[Frank Wilcox:]

Thank you, Jon and good morning everyone. Net income for the first quarter of 2016 totaled 25.2 million which is an increase of 13%, compared to 22.3 million in the same period of 2015. As our earnings release states, our results for the quarter include 8.5 million in pre-tax losses and LAE related to severe weather events occurring during the first quarter of 2016. These losses and LAE were incremental to amounts provided for in the underlying loss ratio based on historical experience for such events. Notwithstanding these charges, our results reflect improvements in multiple measures driven by our efforts to increase profitability to re-adequate organic growth. Earned premiums, total revenues, net income and diluted EPS were higher than any other first quarter in the Company’s history. Diluted EPS for the first quarter was $0.71, which was up $0.09 or 14.5% from the same quarter in 2015. We increased net earned premiums by 58.1 million or 61.2% for the first quarter compared to the same period in 2015. This stands from both an increase from direct earned premiums of 24.6 million and a decrease in ceded earned premiums of 33.5 million. The increase in direct earned premiums reflects our ability to drive organic growth both inside and outside of Florida as previously discussed. The elimination of quota share reinsurance contracts was the driver behind the decrease in ceded earned premiums. Net investment income for the quarter of 1.6 million was 743,000 greater than the first quarter of 2015. This reflects both an increase in our invested assets and actions taken to maximize the yield as securities mature. Total invested assets reached 704.4 million as of March 31, 2016 compared to 591 million one year prior, a 19% increase. We generated 667,000 of realized gains in the first quarter of 2016 compared to 171,000 for the same period in 2015. We realize gains from time to time when opportunities arise. Commission revenue of 4.1 million for the quarter was up by 940,000 as a result of overall changes in the structure of our reinsurance programs, including the amount of premiums paid for reinsurance, and the types of reinsurance contracts used in each program. Policy fees of 4.1 million for the quarter were up 282,000 or 7.3% year-over-year as a result of the increase in the number of policies written. Losses in LAE were 66.1 million for the three months ended March 31, 2016 compared to 33.6 million during the same period in 2015. The largest portion of the increase in net losses in LAE of 32.5 million was driven by the absence of losses in LAE ceded to reinsurers during the quarter as a result of the elimination of our quota share reinsurance arrangement in June 2015. During the three months ended March 31, 2016, we ceded 15.4 million, none in the current quarter. Direct losses in LAE also improved by 8.6 million due to organic growth and by the 8.5 million previously mentioned. Our net loss ratio for the first quarter of 2016 was 43.4% for the first quarter, compared to 35.6% for the same period in 2015. The key driver behind the increase in the net loss ratio was the severe weather events. General and administrative expenses were 57.2 million for the first quarter of 2016, compared to 32.2 million for the same quarter in 2015, an increase of $25 million. The majority of the increase resulted from additional amortization of net preferred acquisition cost of 19.2 million, 16.6 million of which represents the absence of seeding commission from the elimination of quarter share reinsurance arrangements effective June 2015. The remaining increases in amortization of 2.6 were driven by organic growth. Our expense ratio which is G&A as a percentage of net income premiums for the first quarter of 2016 was 37.5%, compared to 34.1% for the same period in 2015. This was caused mostly by the increase in the amortization of net preferred acquisition cost, which increased the expense ratio by 8.4 percentage points and that was mostly offset by economies of scale. The effective income tax rate decreased to 38.6% in the first quarter of 2006, compared to 41.3% for the same period in 2015. Our effective tax rate has been decreasing from reductions in the amount of non-deductible executive compensation and lower seeding contracts as we diversify outside of Florida. Stockholders’ equity and book value per common share reached all-time highs of 314.3 million, $9.03 respectively as of March 31 of 2016. At this point I would like to turn the call back to the operator.

[Operator:]

[Operator Instructions] And our first question comes from Arash Soleimani [ph]. You’re line is open.

[Unidentified Analyst:]

Hi. Thanks and good morning. Had a few questions here, just to start off, can you talk about how you’re achieving strong organic growth numbers within Florida just given that you’re the largest insurer in the state already, given the level of price competition we’re seeing?

[Sean Downes:]

Arash, we’ve had over a decade to cultivate relationships we have - agency force and we take that very seriously. And also we’ve approved the efficiencies in our underwriting department and claims department over that same time frame. So the transaction process between the agent and us, we think is very favorable for the agent, so again we put a lot of time and effort in cultivating that relationship and we think that’s the key driver behind our success in writing organic business.

[Unidentified Analyst:]

Thank you. And how does the rate environment look from your perspective, I know you had a 2.2% rate increase in 2015, what is 2016 looking like, have you filed anything or what do you see?

[Sean Downes:]

We haven’t filed any yet Arash, we are in the process currently right now, we’re currently determining our rate indication. We have seen obviously some - our competitors that are coming with some pretty higher rates but as we like to say everybody had their different starting point. Currently right now we don’t believe that organic would really have any real material change currently either direction. But again we’ll be fighting that within the next two weeks.

[Unidentified Analyst:]

Okay. Thanks. And then moving to outside Florida, how you’re achieving growths in those states? Given that you’re new in those markets, as you said in Florida you’ve had the relationships for years, so outside Florida how are you getting those relationships going and what confidence do you have, that you’re not being adversely selective again?

[Sean Downes:]

That’s a good question. What we’ve been able to do is, leverage our relationships that we currently have in place and a lot of the agencies we have in place in Florida have agencies in other states as well as relationships. So that’s the first thing we’ve done to cultivate that relationship in other states, and then it really becomes a grass roots movement, where we’re putting our marketing reps on the ground, visiting agencies, to get appointed with Universal. So that’s really how that process starts off. As far as being adversely selected against, we use our own internal profitability measure to underwrite all of our business before even selecting rates. So we have a clear understanding of what type of policies, screening and binding guidelines et cetera, we believe will prohibit that adverse selection happening.

[Unidentified Analyst:]

Okay. Thanks. Some of your Florida peers have also be now expecting outside of Florida as you know, but they focused exclusively on coastal state, so UVE is a little bit different in that, in addition to the coastal states, you’re also ruling in some internal [ph] states as well. Can you just talk about, what competitive advantage you think you have in those states and why you’ll be able to compete in those types of states, where some of your competitors don’t seem to think they can?

[Jon Springer:]

Thanks, Arash . Good morning, this is Jon Springer. We go through our fairly detailed process of evaluating which states might make sense for us, looking at things like recent catalogues, history in those states. The overall regulatory environment from a rate and a form perspective, also taking into account the overall size of the state and the potential contiguous nature to other states that we’re already active in. After we’ve analyzed all of that, we make our decisions in terms of which states we want to file for our Certificate of Authority. And then as Sean alluded to a moment ago, the process is rather detailed for us to get up and running within a state as we’re going in and meeting with agents and understanding the overall need for a monocline carrier. and the specifics of that state, long before we ever write that first policy we have done a fair amount of homework within those states.

[Unidentified Analyst:]

Thanks. And what about you’re underwriting ratios for Florida versus outside Florida? How do those differ?

[Sean Downes:]

Bottom line is obviously the other states have a slight incremental increase in loss ratio, but the way in which we have our reinsurance structured, we’re kind of getting that reinsurance savings in those other states. So it’s running relatively flat, our combined ratio Florida as well as the other states.

[Unidentified Analyst:]

Thanks, that makes sense. And how about an A.M. Best rating, do you think, do you need one in the near future or do you think it’s unnecessary that you’re able to grow given that you’re able to grow without it?

[Sean Downes:]

Not having an A.M. Best rating has not prohibited us form growing, but I think like any company when you want to become more of a well-respected national firm, you seek to get an A.M. Best rating. A.M. Best is going through a criteria change now. We’ve seen some of the methodology that they’ve been coming out with, but it hasn’t been finalized yet. Once that is completed then we will analyze how that will compare to our capital base et cetera, and move forward with it. But I think long term Arash, it’s the goal of any company to get an A.M. Best rating.

[Unidentified Analyst:]

Thanks. And hopping back to the underwriting margins, how should we think about your loss and expense ratio trajectory in 2016? Do you think you can maintain 2015’s margins?

[Sean Downes:]

Yes, I do. There isn’t anything to make us think right now that everything won’t remain constant. With the efficiencies and everything we put in place and we spoke and released earlier with our Fast Track, et cetera, we believe that we’re confident in the way in which our claims process has progressed since mid of last year. And the expenses really we believe too will be on the same line parallel.

[Unidentified Analyst:]

Okay. And I had a question on, so actually in your 2014’s initial loss pick, on a gross direct basis had gone from 28.2% initially to 30% a year later. Can you just talk about what caused that uptick? And then given that actually year 2015’s initial loss pick 20.8%. What gives you confidence that it won’t develop closer to 30%?

[Sean Downes:]

Yeah, we’ve really noticed a big spike in 2014 as it related to the AOB/EMS situation that all Florida carriers are experiencing. So because of that, we had a whole complete methodology change in how we are going to be treating those AOB claims. We created a Fast Track division as you are fully aware of and then we took our internal and external adjusters and got them WRT-certified. So that through the IIRC which basically makes them professionals in the water extraction environment. So that we’re treating the claim now almost as two claims, where we have an expert who works for us, who can speak the speak if you will of an expert water extraction company and look at the individual AOB loss and say, okay, why had this loss adversely developed. And normally there’s a lot of fraud embedded in the loss and our experts were able to determine where that fraud lays out within the claim and reduce it. Second, we take our Fast Tracking and we then go ahead and have them handle the damage that is the result of the [indiscernible]. So by handling both of these at the same time simultaneously we are noticing a significant discount for us from a loss adjustment expense as well as [indiscernible] expense and ATMF expense. So, I think the answer to your question simply use that change that we made in mid ‘15 is a key driver why we’re confident and ‘15 loss book and the adverse development on ‘14 high is because of AOB situation.

[Unidentified Analyst:]

Okay thanks and can you talk a little bit more about the direct insurance platform that you launched. Obviously consumers are going to be familiar with international names such as Geico or Progressive, but how will you get the word out about your direct platform?

[Sean Downes:]

Well, obviously we are going to be using a lot of Google/Yahoo analytics to drive leads to our website. But number one, just so that you understand, this really is an evolution of our internal platform that we use as a company and that we are going to be sending our agency force. So that really we’ve just created a new backend and we are creating two new user interfaces one for the consumer, from a direct perspective and then one for the agent and one/the underwriter inside our office. So it’s been an evolution that we have tried to figure out how we can combine both from one platform just by changing two user interfaces. And it has been a long arduous task, but we are pretty pleased with the results. And we will continue as I said to look at the best ways to drive traffic to this new website. We are in the infantile stages of it. We just ended the beta testing process and we have actually started to write a few policies. So we are excited about the potential for this it is new obviously and we are eager to see what the results are going to be.

[Unidentified Analyst:]

Thanks and you talked a little bit about your reinsurance renewals coming up and that you’re putting about 50% of your program on a multi-year basis. Can you talk - is the pricing looking any different this year versus last year and just kind of going forward even looking at a little more, should the multi-year portion of your programs continue to increase given where we are in the pricing cycle?

[Jon Springer:]

Just to clarify what I said in the opening remarks. We are adding to the multi-year capacity that we are already had purchased some of last year. So in our disclosure last year you will have noted that we have purchased some below the cap funds on a three-year basis and now we have added some new three-year capacity. So we are facing in some multi-year capacity. We think it makes sense to do that and gives us additional stability, especially when you’re talking about the property cap - cost below the floor to working cap fund, it ends up being a meaningful portion of what we buy.

[Unidentified Analyst:]

Thanks and just touching back on assignment of benefits, you mentioned how you manage that. Do you expect that issue from what you’re saying to improve or get worse over the next year or so?

[Sean Downes:]

Repeat that Arash, you kind of broke off at the end a little bit

[Unidentified Analyst:]

Just touching back to assignment of benefits you talked about, how you manage it universal just a quick follow-up on that one. Do you expect issue with assignment of benefits to improve or get worse over the next year or so?

[Sean Downes:]

What we already are seeing a decrease in frequency as far as our AOB is concerned and as well as the severity metric. Obviously with the new change to citizens language obviously we are going to be looking to adopt 16 - 02737 and me to. So I think that will obviously help us out as it relates to the beginning stages if you will they would be the minor limits, $3000 limit before the insured and or the AOB independent can go ahead and make the EMS portion of the loss greater plus the provision were the notification of timing is a 72 hours now. So I think those things right now will help and we are just going to keep trying to run our department as efficient as we can. And with some of these changes hopefully it will continue to progress in the positive light.

[Unidentified Analyst:]

Thanks and a quick numbers question for Frank. Did you have the number for direct premiums earned?

[Frank Wilcox:]

Yes, direct premiums earned 221 million and 252,000.

[Unidentified Analyst:]

Okay thanks, thanks very much and congrats on the quarter.

[Frank Wilcox:]

Thanks.

[Sean Downes:]

Thanks.

[Operator:]

And our next question comes from Bimal Gupta [ph] private investor. Your line is open.

[Unidentified Analyst:]

Frank, this is Bimal. My question is regarding the tax rate which is being feed by UVE versus other companies in Florida. Could you compare what is that tax rate with other companies in Florida and going forward, what tax rate you are looking forward will be effective for 2016 and ‘17?

[Frank Wilcox:]

Appreciate the question Bimal and just before I answer the question I think I would like to point out the company along with its compensation committee has been taking very active measures in restructuring its executive compensation beginning in 2015 where the company began awarding restricted stock with attached performance measures. And when you compare year-over-year what you’re seeing is last year’s run-off of amortization of older awards whereas this year we’re amortizing these awards with performance measures. So when you look at our effective tax rate year-over-year and the change, which is about 269 basis points, about 190 of that relates to those actions that we have taken. In addition to that as we expand awarding to other states you’ve got different tax structures in the different jurisdictions. For instance in Florida, you have both income taxes and premium taxes. Now to the extent that you’re paying Florida State income taxes as you get the credit on your premium taxes, but the income tax survives and shows up in your effective rate. In other states you may pay premium taxes in lieu of income taxes. So as we expand outward we are reducing the state income tax burden and that accounts for about 50 basis points. And then of course we have got some other items and really those are economies of scale, when you think about what is happening is our taxable income is growing as we grow our net income and so those amounts that are non-deductible become less as a percentage of the overall tax burden. Now, as far as the other companies are concerned, I see them some below us, some above us and to be honest with you I just don’t know enough about what their tax strategies are to really talk to them.

[Unidentified Analyst:]

Okay, thank you.

[Operator:]

And our next question is coming from Samir Khare of Capital Returns. Your line is open Samir.

[Samir Khare:]

Good morning thank you. Just wondering on the stock sale to RenRe what will the proceeds be used for.

[Jon Springer:]

Well we’re - I’m sorry I will take that one. Jon Springer here, Samir, good morning. So as you know with transaction like this the board, the management team we are looking at these transactions as opportunities present themselves. So this opportunity presented itself to us as a means to entering to this transaction with RenaissanceRe and we felt comfortable doing it at the time than we did it. We have not yet disclosed and we are not going to at this moment what the proceeds will be used for.

[Samir Khare:]

Okay and are there any additional terms and conditions afforded to RenRe and if you could comment on what the - after this transaction, what the total ownership of the company is?

[Jon Springer:]

I can’t comment on their total ownership after this transaction. What was the first part?

[Samir Khare:]

Is there any additional terms and conditions are put to RenRe.

[Jon Springer:]

Nothing additional has been disclosed related to this transaction.

[Samir Khare:]

Okay and just regarding the cats in the quarter how many events where there in total or I guess with the severe storms and were they all in Florida?

[Jon Springer:]

Yeah we did have seven events that we log as small to medium sized cat events, four of which where our client count exceeded 150 impacted policy holders.

[Samir Khare:]

Okay and anything in due to thus far?

[Jon Springer:]

No.

[Samir Khare:]

Okay. And I think you guys said something earlier about adverse development in 2014 but an emerge in shift that was about this - regarding this quarter and was there any reserve development in this quarter and if so from what and what that compares?

[Jon Springer:]

There was not.

[Samir Khare:]

There was not, okay.

[Jon Springer:]

There was not, I’m sorry, excuse me.

[Samir Khare:]

Okay. And then Frank was talking about the repositioning or re-risking of the investment portfolio to enhance yields. I noticed that your equities have decreased by about 25%. Can you just give us the progress on that and where you guys are - first quarter?

[Sean Downes:]

See, we in the first quarter, we sold few investments. We sold GE, Facebook, Apple, Berkshire Hathaway, we realized about 67,000 gain I believe. The base of those securities were somewhere in the $20 million range and that represented a significant portion of our equity portfolio. Given the volatility in the market right now, we are kind of sitting on the sidelines to wait and see what happens, and I guess in the future we will decide when we want to get in and to what extent. But I don’t see that the equity portfolio is going to grow as a significant percent of the overall portfolio.

[Samir Khare:]

Okay. And the receivables - the other receivable in the bucket went up considerably in the quarter. What’s in that bucket?

[Sean Downes:]

See you have a trade day before the end of the period, and they settled after the end of the period - in the New Year. So it’s really nothing more than receivables for security sold.

[Samir Khare:]

Okay. And on the AOB conversation, you guys said, you guys are seeing a decrease in frequency. Do you think that’s an industry-wide phenomenon or do you think that’s universal specific given your initiatives?

[Jon Springer:]

Samir, I really couldn’t expound upon our competitors and what they are doing as it related to AOB, but I think again, we have lot of efficiencies in place. I have seen a lot of people talk about this being a tri-county issue. Really in 2015, more than 50% of our overall frequency was outside of Dade, Broward and Palm Beach. So I think each company has different structures, obviously has different portfolios, so it’s hard to really figure out why some companies may have more losses in other areas than others but I couldn’t really expound upon how - if it’s industry wide all I could really speak to is that I think with time and effort that we have spent in training personnel to handle these claims has really been a strong driver of our success so far.

[Samir Khare:]

Okay. And you guys talked about how you guys treat AOB claims kind of as two equations, one is the attritional and one is the quarter part of the claim. Purposes of your reports in the annual statement, do you guys count that as one or two claims?

[Jon Springer:]

It will be counted as one claim.

[Samir Khare:]

One claim, okay.

[Jon Springer:]

We will look at it as if there is two experts in their field handling the claim at the same time, being as efficient as they can in what their expertise is.

[Samir Khare:]

Okay, perfect.

[Jon Springer:]

It’s not driving the LAE concept at all but it is helping us in keeping these claims out of the litigious environment, which would obviously have had worst development down the road.

[Samir Khare:]

Got it and on the Fast Track initiative, how many claims have you guys processed through that system since the beginning of the program?

[Jon Springer:]

Approximately, 7000 claims have been processed through Fast Track traditionally. See - what we like to say is Fast Track or claims are actually being closed within a five day period, so that number would be that. But some of the claims, sometimes just because the evolution of the claim go outside, that’s five day range. So it’s not considered Fast Track but more claims are being touched if you will by Fast Track ends than independents and/or other departments that we have currently.

[Samir Khare:]

Okay. And do you guys have metric as to the - I guess the magnitude of the severity improvement for Fast Track claims?

[Jon Springer:]

Yes. We look at it about $1800 per claim severity improvement with our own internal Fast Track folks handling claims force compared to outside independents.

[Samir Khare:]

Okay. And then given this favorable results, have you been reserving differently for these claims?

[Jon Springer:]

No, we have been reserving the same, because it’s still green yet. But we are seeing a lot of favorable results and we are going to wait until our mid-year actuarial review because we have two actuarial reviews per year, and we will see exactly how well they place out with comparing the numbers from our 2015 recent actuarial review.

[Samir Khare:]

Okay. And so you had a mid-year actuarial review and when is the other one, at year end?

[Jon Springer:]

We have two per year. The state requires you to do one year, we do two per year. We just recently did obviously end of 2015 actuarial review with Towers Watson and we will be doing another one at mid-year 2016.

[Samir Khare:]

Okay. And then Rash asked about the [indiscernible] environment in Florida, what you guys seeing in terms of change in average commissions or other acquisition cost paid to agents?

[Jon Springer:]

Samir, we really haven’t seen anything. I mean obviously, you know we have been doing this for a long time. So we consistently see new players that come in to the market. Sometimes you see some people that are chasing policies and with low rate in certain areas. We have just been consistent using our internal profitability model to determine what’s rate adequate for this company and that’s the business that we seek and because of our agency relationships, we have been able to attain that business and continue to see some positive growth.

[Samir Khare:]

Alright. And some of your competitors they have sought out partnerships with other carriers or auto carriers to augment their growth. Is that something that you guys are looking to do inside or outside Florida?

[Jon Springer:]

We’ve had opportunities to do that with some folks. We’ve actually had relationship with GEICO in some other states. But I think right now we are just kind of trying to get our hands around our Direct-to-Consumer platform, and with that be able to really pair up with the right folks around the country using that platform. And I think once we do that, I think that’s going to give us the competitive advantage.

[Samir Khare:]

Okay. And then how about M&A, is that something you guys have an abstract for inside or outside Florida and are there any dynamics that are giving way too opportunity for properties that you would like?

[Jon Springer:]

There has been a few M&A deals that we have looked at. Nothing has materialized, past stage one or two. But we are always open to anything that will create an increase in shareholder value, and if it makes sense for us in the Board, it’s something that we will definitely pursue.

[Samir Khare:]

Okay and then just on the reinsurance progress, if you guys, if there is any savings come 61, is it your intention to - that’s all savings on to the bottom-line or would you guys look to buy more limit?

[Sean Downes:]

Well, as you know Samir, we have a 14-member reinsurance professional for - we have constantly - most efficient way to spend our reinsurance dollars. The first thing we do - in my opening remarks is to establish that core catastrophe tower and after we - I have determined the cost of that along with the cost of the Florida Hurricane Catastrophe fund protection, then we look at those remaining dollars within our budget and decide it would make sense to make other efficient purchases. So no final decisions have been made, quite frankly nor will be any made until we devaluate and exhausted the different types of reinsurance products that are available at different cost levels.

[Samir Khare:]

Okay. And as you guys continue to grow significantly at the state, does it make sense to - given the aggregate that helps with Cats in other states other than Florida?

[Sean Downes:]

Yes. The aggregate products where they are structured as excess or loss or aggregate stop loss, they can make a lot of sense. I think what’s very important though is you need to understand the cost of those, if you are spending $0.80 to buy $1 worth of coverage then the aggregate doesn’t make a whole lot of sense. So it’s all about the efficient use of those dollars. So we have looked at aggregate products, actually each in the last two years, when the other states’ portfolio was much smaller than it is now, and came to the conclusion that it didn’t make sense at least the opportunities that were available at that time, and we will be looking at those type of products between now and June 1.

[Samir Khare:]

Great and just on the Direct initiative, I just wanted to go with the economics of the product. Should we just basically think about the combined ratio as being similar to other business, less commissions or other acquisition costs.

[Jon Springer:]

No, I think you can look at it as being relatively same. Obviously we’ve said in the past that the backbone of our business is our agency force and we’re going to be pulling the initial less marketing expenses through our direct consumer platform and then we’ll be dispersing those commissions as a level of - [Audio Gap] and we would still be looking at just our retention as our responsibility. Just to put a little bit around in terms of what those numbers mean, a repeat of Hurricane Andrew modeled through RMS using our 331 data produces a loss of approximately 800 million. So in those examples I gave, all of those loss scenarios would have to be something greater than a repeat of Hurricane Andrew.

[Unidentified Analyst:]

Okay and you might have answered this already, but can you give a sense of what your estimated losses would be if we had - with a repeat of the major storms in ‘04 and ‘05?

[Jon Springer:]

Yes, thanks. I mentioned Andrew, if we had a Hurricane Wilma again using RMS modeling and our most recent data as of 3/31/16, a repeat of Hurricane Wilma would be 345 million. The 2004 storms Gene 263 million, Charlie 220 million, Ivan 147 million and Francis 134 million. So those should help you in terms of evaluating the amount of reinsurance that we have available from a property cat standpoint, given that none of the ‘04 or ‘05 storms would get anywhere near exhausting the amount of coverage that we have available.

[Unidentified Analyst:]

Okay, thanks a lot. Congrats on a great quarter.

[Jon Springer:]

Thank you, Michael.

[Operator:]

And I’m showing no further questions at this time. I would now like to turn the conference back over to Sean Downes, Chairman and CEO for closing remarks.

[Sean Downes:]

Thank you. We are pleased with our performance in the first quarter of 2016 and believe we have the right strategy in place to drive continued profitable growth and shareholder value creation. Our experience and dedicated team, focused underwriting discipline, robust internal capabilities, superior claims operations and strong independent agent distribution network are all competitive advantages that we believe will allow to capitalize on the future growth prospects. We hope you’ve found this information useful and as always we welcome feedback from our shareholders. In closing, I’d like to thank our independent agents and employees for their hard work and dedication, as well as our Board of Directors and Management Team. Thank you for your time today.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day.