American Coastal Insurance Corp (ACIC) 2015 Q1 法說會逐字稿

Greetings and welcome to the UPC Insurance first-quarter 2015 financial results conference call.

(Operator Instructions)

As a reminder this conference is being recorded. I would now like to turn the conference over to Adam Prior of The Equity Group. Thank you, please go ahead.

Thank you, operator. Good morning everyone. Thank you for joining us.

You can find copies of UPC's earnings release today at www.UPCInsurance.com in the Investor Relations section. You're also welcome to contact our office at 212-836-9606 and we'd be happy to send you a copy. In addition UPC Insurance has made this broadcast available on its website.

Before we get started I'd like to read the following statement on behalf of the Company. Except with respect to historical information, statements made in this conference call constitute forward-looking statements within the meaning of the federal securities laws including statements relating to trends and the Company's operations and financial results and the business and the products of the Company and its subsidiaries.

Actual results from UPC may differ materially from the results anticipated in those forward-looking statements as a result of risks and uncertainties including those described from time to time in UPC's filings with the US Securities and Exchange Commission. UPC specifically disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise.

With that I'd now like to turn the call over to Mr. John Forney, UPC's Chief Executive Officer. Please go ahead, John.

Thank you, Adam, and good morning to everyone participating in the call. This is John Forney, President and CEO of UPC insurance and with me today is Brad Martz, Chief Financial Officer.

On behalf of everyone at UPC Insurance I want to thank you for your interest in our Company. Brad and I look forward to answering any questions you may have at the completion of our remarks.

You may be surprised to hear me say this but we were generally pleased with the progress we made in Q1 towards achieving our vision of becoming the premier provider of property insurance in catastrophe-exposed areas. Yes, we had significant cat losses that depleted almost all of our earnings for the quarter but those losses were due to a series of extreme events in the Northeast that according to one meteorological estimate we saw might occur once every 26,000 years.

In addition we purchased reinsurance on January 1 that we believe should help to defray some of those cost beyond what is reflected in the earnings we released yesterday. Finally those cat losses gave our claims team a chance to hone its skills in cat events and show agents and policyholders what we can do in response to those events. Their performance was excellent and I believe that will only strengthen our franchise in those areas affected by the winter storms.

There were many other positives for the quarter. We hit all-time quarterly highs in gross premiums earned, revenue and book value per share. For the third straight quarter we earned over $100 million in premium and our book value per share topped $10 for the first time.

On the production side, we saw a robust growth in all states outside of Florida and in Florida we saw March come in as our biggest new business month since last July. We believe the measures we have put in place in Florida to strengthen our competitive position and grow our book north by four are beginning to work.

In other states we also continue to gain momentum as South Carolina, North Carolina, New Jersey, Texas and Louisiana all turned in March new business performances that exceeded any previous month in our history in those states. We ended the quarter with over 36% of our in-force policies outside the state of Florida. Our sales team now led by Deepak Menon who has great experience in multistate expansion is doing a terrific job in telling the UPC story and building sound books of business throughout our geographic footprint.

Finally, during the quarter we closed the Family Security acquisition and initiated the first-ever depopulation program with the Texas Windstorm Insurance Association. Both are off to promising starts.

Family Security earned solid profits in both of its first two months under UPC ownership and Texas agents are responding favorably to our depopulation program which will unfold over the remainder of the year. For all those reasons and many others I'm pleased with the progress we made this quarter and look forward to the journey ahead.

At this point I'd like to turn the call over to Brad Martz for a more detailed discussion of our financial results. Brad?

Thank you, John. Good morning everyone. Before we get to the financial highlights I would also like to encourage everyone to review our press release filed yesterday as well as our Form 10-Q that we plan to file on Tuesday, May 5.

Highlights of UPC's first quarter include gross premiums earned of $115.2 million, 21.1% year-over-year growth, net income of just under $200,000 or $0.01 a share despite significant cat losses, an underlying combined ratio of 84.4% which is consistent with our long-term targets, book value per share increasing to $10.14, up 22% from the same period a year ago and the successful integration of the consolidated results of Family Security Holdings.

The headline for UPC's first quarter remained solid organic premium growth. Total revenues grew 22% from $67.5 million last year to $82.4 million this quarter.

For direct written premiums they increased 17.6% from the same quarter a year ago. Florida was two-thirds of the total with all other states being one-third of our mix. The non-Florida growth or total direct written premiums was $35.6 million versus $17.9 million a year ago, 98% year-over-year growth.

Louisiana was 26% of that year-over-year growth with most of that direct written coming from Family Security. Fourth quarter all of our direct written premium growth was outside of Florida but we are seeing many positive signs in Florida as well. Combining the direct and assumed written Florida was basically flat year over year which we view favorably considering the 5% rate decrease implemented in December and the increased competition in the Florida marketplace.

Our retention rate also improved from roughly 82% in 2014 to 85% in the current quarter. While Florida remains very important and is clearly a source of profitable growth it's no secret a huge amount of our resources have been focused on building the risk portfolio outside of Florida.

Our goal is to launch five new states this year, Georgia, Hawaii, Connecticut, New York, Mississippi and the remaining five in 2016. This means we should have all 18 states fully operational by the end of next year. So our runway for growth remains very long and full of opportunity.

Moving on to UPC's loss results for the quarter our gross loss and LAE ratio was 45.1% versus 29.1% last year, an increase of 16 points. Over 13 points of the year-over-year change was related to cat losses described in our earnings release.

We're moving the non-recurring effects of cat losses and reserve development. Our underlying gross and LAE ratio was 31.1%, up only 1.8 points from a very good quarter a year ago.

The first-quarter 2015 underlying loss ratio is consistent with our expectations for long-term profitability given the continued diversification of our property exposures outside of Florida. As discussed in our earnings release the Company did see unusually high frequency and severity in the Florida Tri-County segment of our books during Q1 which explains a fair amount of the change in our underlying results as well as the reserve development.

It's important to note that Tri-County is a small isolated segment representing approximately 15% of our policies in force and challenges with issues such as assignment of benefits in this territory is something the entire industry is dealing with, not just UPC. UPC's underlying loss experience in most other territories inside and outside of Florida continues to perform within our allowable pricing targets.

On the expense side the Company saw its non-loss operating expense increase approximately $8.1 million or 37% year over year. Half of this was driven by policy acquisition cost, the other half by operating and general and administrative expense. The gross expense ratio increase of 3 points for the quarter to 26.2% was driven by higher acquisition cost outside of Florida as well as revived marketing efforts inside of Florida, the consolidating impact of Family Security Holdings including the amortization of intangibles related to the purchase accounting, legal and professional fees that were mostly non-recurring and once again cost redundancies from our continued insourcing of system and service capabilities.

Our balance sheet remains solid. UPC ended the quarter with just under $218 million of shareholder equity, lower financial leverage and a $5.5 million net unrealized gain on the investment portfolio. Our liquidity remains strong with cash and investment holdings increasing by $154 million or 48% year over year to roughly $478 million.

I'd now like to reintroduce John Forney for some closing remarks.

Thank you, Brad. Once again we appreciate everyone's time on the call and your interest in our Company. At this point we'd like to open it up for any questions you may have.

(Operator Instructions) Arash Soleimani, KBW.

Hi, thanks, good morning. Just a couple of questions here.

So you mentioned that it looks like the rate decreases in Florida that you took at 1/1 are working and are starting to show in March. So should we expect positive growth for the balance of the year from what you're expecting now? (multiple speakers)

Yes, that's our expectation as our growth rate kind of stepped down throughout 2014 we expected to follow a similar trend back up in 2015. That is our outlook.

Okay and I guess water losses in the Tri-County, is that something that just seems random this past quarter or is that something that you're seeing continuing quarter to date in the second quarter as well?

It's a cost of doing business everywhere in Florida, Tri-County no exception. The only thing that stood out to us was looking at frequency and severity compared to a rolling eight-quarter view.

When you look at year over year the severity was up but not the frequency but when you look at the longer-term trend this quarter was somewhat unusual. So I don't think one quarter is indicative of a trend so we're not going to overreact to it. We've got lots of underwriting tools in our arsenal to combat some of the challenges in virtually every territory within Florida.

So Tri-County is an area where we've got a lot of premium and rate adequacy. It's not impacting the loss ratio so much so frequency and severity is just one side of the equation.

Okay. And I was surprised that there was it looked like some reopened there. What do think was causing some of the reopen, was that public adjusters do you think that are causing that or is there something else at play on that side?

I don't know that you can pinpoint it to one specific cause and as Brad pointed out the occurrences in this quarter appeared very unusual by historical standards. So I don't think it's indicative of a trend.

Okay. And the third question I had is you sort of mentioned it in the earnings release, do you think there's a realistic probability of further recoveries on the Northeast storms from the reinsurance treaty?

We do.

Okay, that's it for me. Thank you.

John Hall, Wells Fargo.

Thank you and good morning. To follow-up on the prior question, can you frame the order of magnitude of recoveries that were or you're thinking about?

I don't know that we want to give a number at this point John. We're in the midst of discussions with our reinsurance partners on the losses and exchanging information. And we will have clarity on that soon but I don't know that I can -- we can commit to any sort of range right now.

That's fair. I guess what's the trigger point? What causes them to happen or not happen?

Well we have coverage in excess of $3 million retention per occurrence. And there was a series of events that occurred in the Northeast back to back to back to back and so determining -- assigning losses to which occurrence caused them is not as crystal clear as if there were one occurrence or if the occurrences were separated by a long period of time.

And so we're trying to make sure that we're properly allocating the losses to the correct occurrence and submitting the information to our reinsurers. And we're on both sides trying to make sure we're doing it the right way but it's a complicated situation because of the number of events that occurred in such a short period of time.

Got you. Is there I guess the lesson learned or a different tack that you might be taking on the next go around for your cat reinsurance program?

We're evaluating lots of different reinsurance covers. This one is very effective for us and we're happy that we put it in place.

So yes we're looking at other potential structures in the future. But as I mentioned earlier you can't protect against everything and this seasonal total of snow in the Northeast in this area was over five standard deviations from the mean historically. So it's an outlier event and we want to look at it in that context but yes we are definitely looking at all sorts of structures as we put our reinsurance program in place.

Okay, that's fair. And just for a little clarity, in the Tri-County when you're saying water-related claims, what exactly are we talking about?

Mainly pipes, roofs, overflow, sewer backed up, those types of things.

Okay. And then can you offer something just give us a way to frame the potential build or the potential opportunity that you're seeing with TWIA?

Sure. As we previously reported the TWIA opportunity was potentially as much as $100 million in premium. It's a different process entirely than the Florida depopulation where you just take a group of policies midterm and get the unearned premium and you have a big financial impact at that point.

Texas does not do it that way. This is a new program. We're the first participant in it and it will be played out at renewal of the policies over time.

So the impact of it will come home through our book as policies renew and come onto UPC paper and the policies are pretty evenly distributed throughout the year. So even if we got all $100 million that would play out over a period of time. You first have to solicit the agents who are new to this program and since the program has never existed before most of these agents do not have a contractual relationship with UPC because they are new to our Company.

So there's a getting to know each other process that takes place. We've done extensive marketing direct mail, email, webinars, lots of outreach to the agents to let them know what's going on and to solicit their interest. So far, agents representing $35 million of the premium have signed up to send us their policy listing detail and consider this opportunity.

So we view that is a very good sign. We're working on the other two-thirds to make sure that they are going to take a look at participating in the program as well. And as I said we will have additional clarity as all those agents come on and once we get everyone signed up we'll give some sort of indication to the market of what that's going to mean in terms of premium coming on over the remainder of the year.

Okay, great. And then I just had one final number, housekeeping type of question.

In the press release you mentioned some cost redundancies in terms of D&A. I was just wondering what that level or what that number is.

That one's sort of difficult to pinpoint but we've got most of the system expenditures we've incurred thus far have been capitalized. There is some depreciation and amortization starting to roll through in the quarter. That was probably a couple hundred thousand dollars related to those fixed assets but professional services, consulting work related to the install configuration as well as maintenance hosting was at least another $0.5 million.

Okay, so I guess on a go-forward basis you're looking to see about $600,000, $700,000 roll off out of G&A?

Yes not necessarily out of G&A because I do think the amortization of the software will pick up as the systems go live this year. The offset will come out of policy acquisition costs where and when we can transition business being processed by CSC to our new systems. So we're paying policy administrative costs that are included in policy acquisition cost, not G&A, to a third-party service provider today that in the future with most of that reduction coming next year, not this year, being fairly significant.

We're paying them a very healthy sum of money, so our future operating cost model is going to look very different. But in the interim obviously we've got the cost associated, some of the costs associated with building out our infrastructure cannot all be capitalized and we're still paying CSC to process business for us in all eight states in which we had written premium for this quarter.

Great, fair enough. Thanks very much.

Greg Peters, Raymond James.

Good morning, John and Brad. Thanks for the call. Just one minor clarification point on the reinsurance recoverables.

I presume that once there is some sort of resolution that it will just flow-through in the quarter that there's a resolution. You won't actually go back and restate the first-quarter results.

That's correct.

On the water claims in Florida curious if it is skewed more towards some of your take-out business or if there's any additional color on the composite of where the claims are coming from that you can provide?

Sure. I wouldn't say it's necessarily more skewed towards our take-out business.

That being said a lot of our exposure in Broward and Miami-Dade counties did come from citizens. We haven't been an active voluntary underwriter in those territories.

So to that end our mix is more bent towards assumed business versus direct business. But on a statewide basis no, I don't think that there is any indication that our assumed loss ratio is performing out of line with our direct loss ratio assumptions.

In fact it's not. Our inception to date loss ratio and the take-outs we've done the last couple of years is consistent with that on the rest of our book.

I see. Have you seen any change in retention rates for the assumed versus the direct or is that all still running at normal levels?

Well, as I mentioned earlier the direct business our retention rates improved from 82% to 85%. And our inception to date retention on the last three personal lines take-outs we've done remains right around 60%.

So there's no change there. I don't think you really commented on the upcoming reinsurance renewal.

Market commentary suggests there is another rate cut in the future. I'm curious what you guys are seeing.

We're seeing strong interest in our program as in previous years and we are -- we have been the beneficiary of significant rate reductions in each of the last two years. We don't expect it to continue at those double-digit-plus kind of rates that we've seen in the past couple of years. But there's obviously still continued pressure on pricing and there's no shortage of capital available so we expect we will be able to put together a very robust and cost effective program.

John, are you going to change the structure materially in this upcoming year or is the structure going to remain largely as it was say in the preceding year?

As you know we have a somewhat unique and innovative structure that is more or less a large aggregate program that cascades down, doesn't have trap limit, very tall tower that last year went up almost to the 100- and 200-year level and also can function for second and third in events. We like that structure a lot and the market seems to have embraced it, at least certain markets have. So unless there is a clear advantage from a price standpoint or some other standpoint to changing that structure we're going to lead with that.

I see. Any thoughts and I know this is in front of what you ultimately may elect to do but are there any thoughts on how you might adjust your deductible?

On the reinsurance program, Greg, is that what you're asking about.

Yes, yes, that's right.

The retention.

Yes, we've got several quotes right now we're evaluating. We haven't made any formal decisions yet but the layer we like a lot is a [20 X of 5] that would be a named storm cover to fill in the gap outside of Florida.

So we've got coverage from Swiss Re for the [22 X of 3] on and all perils except named storms, the second treaty that was we're targeting a sort of 20 X of 5 right now. That could change, I'm just using it as an illustrative example outside of Florida that would be hurricane tropical storm or named storms only to supplement that underlying cat treaty we already have.

I think those two in conjunction with we're okay with the retention being unchanged year over year in Florida. We do expect to maintain a $25 million retention overall on the program. But there is probably going to be some opportunity to do some other underlying buydowns of retention outside of Florida.

Thanks for the color on that one. Finally, John you've commented in the past about you made vague reference to M&A opportunities, discussions with other parties about new partnerships, etc. I'm wondering if you can provide an update on that area?

Well I think I'll probably remain definitively vague in that area. Obviously we closed the Family Security acquisition this quarter and have been very pleased with how we've been able to integrate that. We learned a lot in that transaction leading up to it and executing it that we think gives us excellent ability to acquire and integrate other companies should they be available and we're open to that possibility and actively pursuing it.

All right, thanks for your interest.

Dan Harvey, Southeast Company.

Good morning, gentlemen. Dan Harvey here.

Hey guys, can you expound on how -- what kind of -- was it roofs collapsing or pipes busting up there in the Northeast with all this five feet of snow and how did you do take a look at those losses? Were you working with the people up there to review them or was it your -- were you working out of the downtown office? Can you get into that a little bit?

Well first of all there was a lot more than five feet of snow. In one 30-day period there was 94 inches of snow which broke the previous record for a 30-day period by over three feet.

So there was an extreme amount of snow and extreme amount of cold temperatures as well, one of the coldest 30 day periods on record in combination with that. So you have all sorts of problems that come from that with regard to your water intrusion and roof collapse, pipes freezing that pretty much runs the gamut of different types of causes.

Ice dams were probably the leading cause of loss. You get good straight-line gale force winds with some of these blizzards that knock down trees which knock down roofs. So it's not just the accumulation of snow but collapse, ice freeze, pipes, all that fun stuff, water intrusion as a result of thaw plays a part.

Okay. And how do you research those claims up there in the Northeast?

We have relationships with independent adjusters, large national firms that do work for us. Obviously we have a big book of business in the Northeast so we have existing relationships that go out and do the field inspection, document the damage, take photos of it, send it back here. And all of our claims are adjusted by UPC personnel from this office but based on input from inspections done in the field and photographic evidence that send back to us.

Okay. And let me switch over to the reinsurance program. Have you noticed that with the Florida cat fund going out and buying a couple billion dollars worth of reinsurance has that had any impact on our market and what is the cat fund coming in with their cost of reinsurance to us?

We have not seen any impact in terms of pricing or availability as a result of the cat fund's participation in the market.

Okay.

They did provide guidance during the March 24 meeting that the expected write-down line could increase for this current year which will make it easier to potentially replace a portion of the cat fund in the private market. We're considering that as well. But ultimately most reinsurers are going to view our program with a 90% cat fund with all the cascading limit inuring or the cat fund being inuring.

Well that's good news if we go out to the private market and get off of the state cat fund a little bit. Can you expound on that $5 million gain we took on the sale of assets in the first quarter and how typical is that going to be going forward?

There was no gain. I mentioned a $5.5 million unrealized gain.

That's the other comprehensive income currently embedded in shareholders' equity at March 31. There was nothing flowing through the P&L for the quarter.

Oh, that's good news. Good news. Okay, then on the annual meeting I guess it's coming up May 5, will there be a robust Q&A portion available there for the stockholders that are showing up?

One correction on the date, that's May 6.

May 6. Okay.

Yes sir.

And yes there will be Q&A.

Okay, good. Great top-line sales growth and I think that's going to really shows how well your plan of expanding has been working. So congratulations on the top-line growth.

Thank you, Dan.

[Adam James], private investor.

Hi, good morning, John. Thanks for taking my call.

First just generally it looks like (technical difficulty) has gone up significantly year over year which is to be expected with the kind of growth you guys are seeing outside of Florida. Broadly what's management's plan to keep down expenses as you continue to grow in the future?

Well as we mentioned earlier a large part of the expense growth is because we are moving towards the insourcing of the functions that have been previously outsourced and changing both our policy processing and our claims management systems, that will involve a lot of investment and running parallel systems for a period of time. So as we roll that, as we complete that implementation here later this year or next year the expenses as a percentage of our premium will go down.

I think it's also worth mentioning that Family Security -- the consolidation of Family Security did add about $850,000 worth of operating expense excluding losses, just talking about policy acquisition cost, operating underwriting and general administrative. That does create a little bit of comparability challenge with the prior year.

All right. Thanks very much.

The second question is again pretty general here but it looks like around 35% of your gross written premium was outside of Florida. A year from now what you would you expect that percentage to be?

We expect it to continue to grow. We don't have a prediction for you what it will be a year from now.

We're on record as saying that we'd like to get to a 50/50 mix inside and outside of Florida over time and we expect that we will be able to achieve that goal. I don't have a time frame to give you on that.

All right. Thanks very much.

Edward Hemmelgarn, Shaker Investments.

Yes, just as a follow-up to that question because you talked about your desire to get to a point of having a small amount of the insureds in all of these states and how that will diversify your risk. So to that extent, ultimately wouldn't you want more outside of Florida than 50/50?

I think that's definitely possible based on the market opportunity. We see the total insured value opportunity from Texas to Maine inclusive of Florida, 80% is outside of Florida. Florida is a small component of the overall opportunity.

So yes I think we would strive for that but we've been guiding towards the 50/50 balance just using a three- to five-year time frame but absolutely longer term I think you're exactly right. And I think we will see once we build a much larger more profitable book of business outside of Florida it will be diversifying for us.

So when the wind blows here in Florida and there are cat losses we will have a earnings streams to help offset that. This quarter was the inverse of that but I think our non-Florida growth is going to provide some stability of earnings long term.

Okay. And then the other question is regarding catastrophic losses and reinsurance, will there always be a lag or do you think that in most quarters you should have a pretty good idea of what your recoveries will be under catastrophic under the reinsurance? I know this time because you just put the reinsurance on effective January 1 there could be a question of just how much you get out of it but ordinarily is there going to be a lag or will you know for the most part what your recoveries are during the quarter itself?

A lot could depend on when in the quarter an event takes place. If an event takes place the last week in the quarter it's probably going to be difficult for us to know what our recoveries are.

And as I said earlier, the complication on this series of events was that it was a series of events that took place in a short period of time. And we have a per-occurrence reinsurance treaty and making sure the costs get allocated correctly when in many cases the homeowners themselves don't know what the date of loss was because there were just so many instances of snow and wind.

So that's a complicating factor. So we could know in certain cases and others it may be less clear in the quarter.

Yes, I mean I would think having also having a house here in the north and having had ice being back up one never knows what storm it's from. So wouldn't your reinsurance have to cover for something like that an entire season?

We like that argument.

No, I'm just trying to say having suffered it numerous times myself you never know. Because the snow builds up over time.

We're thinking about it the same exact way.

But wouldn't you write the treaty that way? My question is wouldn't you write the treaty that way, so as opposed to being a per-occurrence for something like that I mean since you can't identify what the occurrence is wouldn't you have to write the reinsurance to cover it over a season as opposed to --

You could, you could do that. An aggregate treaty with a much higher retention you could do that. An aggregate treaty with a lower retention is going to be extremely expensive, so yes you could do a cumulative aggregate cover but depending on what level it attached at it could be prohibitively expensive.

Right. It's a tricky cost-benefit analysis.

All right. Thanks.

Samir Khare, Capital Returns.

Good morning guys, how are you? I just had some questions about top line. On the commercial residential take-out that you guys had I think in January can you tell us about the success, both premium and the number of policies that stuck?

Well our commercial residential is a combination of voluntary and take-out. I think our book is up to $6 million or $7 million which is just about evenly split between stuff that we have taken out and organic growth. Organic growth is the name of the game for us in all of our business but especially in the commercial residential take-out area.

I don't think we'll be doing a lot if any more take-outs from Citizens on that. But we feel great about the pace of quoting and binding that we're seeing now from our commercial department.

Okay, just on that then how many voluntary commercial residential policies did you guys write and then how much GWP did that represent in the quarter?

I'll just mention the in-force premium if you don't mind. We've got $4 million of in-force premium on a voluntary basis.

The assumed in-force is about $3.1 million, so John's right a little bit even split. But again the assumed gave us a nice baseline to work with and cover some of the upfront start-up costs regarding this line but the voluntary side is really gaining some good momentum. We'll get a good pipeline and we expect to have a very good year on the commercial side.

Okay. I'm just trying to figure out what the ramp up could be for that group. So is there any way you can help us figure out in the second quarter how much they could possibly write and going forward?

First-quarter voluntary premiums were roughly $1.8 million.

Okay. And then can you give us -- I think you gave us the retention for Florida went up to 85%. Can you give us the retentions for outside Florida and then the new business volume for inside and outside Florida?

South Carolina retention rate this year is 87.5%, Mass 86%, Rhode Island 84.8%. Those are the big states.

I could give it to you state-by-state. I don't have it broken down total non-Florida but it's performing very well. We don't have any retention issues in any state.

Okay. And then just the competitive environment in Florida you talked about you mentioned that March was the best new business month since I think you said last July.

Has something changed say from January and February into March and if so what has changed? Have you continued to see that new business momentum in April thus far?

The answer to the last question is yes we have continued to see building momentum. And what changed was we did what we are referring to as the promise tour. As you know our Company's motto is keep the promise and we took basically the entire executive team on a roadshow around Florida.

We went to nine different locations. We had groups of 50 or more agents at each location. We talked about our Company, we talked about our products, we talked about our claims service, we talked about the repositioning that we did and we asked for them to write more business with us and they are responding.

Great, okay. Then for Family Securities you gave us some metrics. Would you give us the unearned premium that you guys got from Family Securities in Q1?

The unearned premium on their books as of March 31 was $10.2 million.

Okay suffice to say that would probably have been what came on to your books in January? Approximately the same amount?

Yes, early February it would be close to that, right around $10 million.

Okay. And were there any cat losses outside the five winter losses that caused the $15.3 million?

No.

Okay. And just on the Tri-County, how many reopened claims and how many new claims contributed to the water claims that you guys outlined?

We'll get you that information. We don't have that right at the tip of our tongue.

Yes, the claim counts aren't really what's important, it's the relativity to the in-force because our book has changed year over year in terms of its size in Tri-County. So that's why frequencies are a better measure than just absolute claim count.

Understood, okay. And just three quick metrics. Cash in holdco, stat surplus and PIF inside and outside Florida.

Did you say PIF inside and outside Florida?

Yes, policies in force, yes.

Okay, I will give you that one. The policies in force outside of Florida 98,347, so we now since the end of the quarter we've gone over 100,000 and inside Florida, 171,000. So total 270,000.

Okay. And the stat surplus and the cash in the holding company?

Okay, cash outside of the insurance company roughly oops that includes Family Securities Insurance Company. Let's not do that.

Sorry, wrong math, doing math on the fly. (multiple speakers) statutory surplus was $123 million roughly. Let me get back to you on the cash outside of the holding company.

All right, great, guys, thanks for all the answers.

Wesley Odom, Armada Advisors.

Good morning, gentlemen. When you market to people in state insurance pools typically what percentage of customers do you obtain versus other carriers?

I'm not sure I understand that question. Are you talking about the take-outs from Citizens in Florida?

Right. Citizens and going after the Texas thing I know that other states like Louisiana has state insurance pools that eventually will be liquidated.

Well I don't know that anything will eventually be liquidated. They always have some policies in them. They may be smaller.

The only thing that has take-outs is Florida, Florida Citizens. The Texas program is very different and no one has ever done it before so there is no historical benchmark on how many policies you actually get. In Florida as Brad said our retention rate on the take-outs that we've done is about 60%.

Okay. And you mentioned that you were interested in other M&A deals. Could you comment about what kind of size you're looking at?

No, we're just looking for companies that are geographically compatible and strategically consistent with what we're trying to accomplish.

Okay, thank you very much.

Arash Soleimani, KBW.

Just a couple of follow-ups. Can you talk about the severity of the water losses? Just in terms of driving the losses were they pretty large dollar amount losses?

Sure. If I could take a moment before I answer that question to follow-up on a previously asked question about cash at the holding company, it was $61.5 million, net cash and short-term investments outside the insurance company.

The average severity of water loss in Florida was $15,640 for the quarter. In Tri-County that was $18,800. So significantly higher in Tri-County than the state as a whole.

And are roof losses, like what's the most common type that you were seeing this quarter, was it roofs was it pipes?

It was pipes.

Okay. And I was sort of asking this before but looking did the core growth loss ratio increase it looks like obviously it came from those water losses. Should we expect from what you're seeing in April so far this year similar increase in the core gross loss ratio due to those issues or is that really not really isolated just 1Q?

The core gross loss ratio it's at 31% consistent with our expectations to be right around 30%, could be a little below, could be a little above. But we don't see anything in that that indicates that our underlying loss ratio trends are going up.

Okay. But I'm saying with those water losses you're not seeing in April that trend continue that you were seeing in Q1? I'm just trying to see if you're seeing if April is (multiple speakers)

Right, no, if frequency is definitely not a concern for water. But severity is something we're wrestling with a little bit. But no, the answer overall is we feel fine with the loss trends.

Okay. And when do you get a better handle in terms of Texas in terms of when you will actually know hey, okay, we're getting these policies from the agents, when do have more clarity over that? I know you said you've been getting good traction with the agents but in terms of actually signing and moving forward to taking those policies into UIHC?

I think by the end of the second quarter we will have good clarity.

Okay. But the general I guess thought is you feel pretty optimistic still that you will get good traction there in terms of the policy pickup?

We're doing all the right things to make that happen and it's a compelling value proposition for agents and policyholders.

Okay. And I guess the other question with the reinsurance environment obviously that's going to help you guys.

To what extent do you see -- are you seeing a lot more pressure going forward in terms of the primary rates in Florida? I know you said the rate decrease at January 1 of this year but just looking at the competitive environment is that something where you expect your competitors to pressure that even further?

Yes, there is competitive pressure in Florida. As you know there are a number of large companies that only have Florida as their growth opportunity and they don't have any other way to grow then to reduce their prices.

So you're seeing that happen by folks that need to grow top line to show investors they are growing and only have Florida as an outlet. So there is very -- it's very competitive in Florida which is and we have no interest in participating in a race to the bottom which is why you see us treading water for now in Florida and aggressively growing our book of business outside the state.

And so long as the cost of reinsurance capital continues to decline there will be opportunities to pass some of that on to consumers without negatively impacting our margins. But it is being offset by slightly upward trending AOP log trends. So you have to look at wind indications separate from all other perils and it just depends on the dynamic how those two interact with each other going forward.

Sorry, in terms of the expense ratio, so that's something where you say 2016 is when that starts when the cost redundancies go away and you start to see improvement there?

Yes, that's correct. We're bringing our first state live on our new system this quarter.

And as I mentioned in my comments we've got five new states to rollout this year, all of which will be launched on our new system. And the next five is next year as well and in between those new state launches we'll be converting some of the existing states and the timing of that is still a little bit uncertain.

We've got a project plan but it's highly dynamic as you might imagine as our priorities are constantly shifting. But we've got a long-term outlook that says yes, the second half of 2016 we sort of set about being fully converted to our new platform.

Okay, perfect. Thank you so much.

Ladies and gentlemen, I would now like to turn the floor back over to management for closing remarks.

This is John Forney. I want to thank everybody for all the questions which demonstrate strong interest in the Company and a strong understanding of what we're trying to do.

We continue to be optimistic as we diversify and grow our book of business both in Florida and outside of Florida. And we look forward to taking the journey forward with all of you. Thanks again for your time today.

Thank you. This does conclude today's teleconference.

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