American Coastal Insurance Corp (ACIC) 2015 Q3 法說會逐字稿

Greetings, and welcome to the UPC Insurance third-quarter 2015 financial results. 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 is being recorded.

It is now my pleasure to introduce your host, Adam Prior, of The Equity Group. Thank you. Mr. Prior, you may begin.

Thank you, and 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 are 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 would 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 would now like to turn the call over to Mr. John Forney, UPC's Chief Executive Officer. Please go ahead, John.

Thank you, Adam. Good morning, everybody. This is John Forney, President and CEO of UPC Insurance. And with me today is Brad Martz, our Chief Financial Officer. On behalf of everybody at UPC Insurance, I want to thank all the participants on the call for your interest in our Company.

This was a quarter of growth and achievement for UPC Insurance. During the quarter, we wrote over 34,000 new policies while setting record new business levels every month of the quarter. During the quarter, we announced the completion of a definitive agreement to purchase Interboro Insurance Company, which will give us a significant strategic head start on building our business in New York.

During the quarter, we opened our ninth state, Georgia, which also became the first state to write business using our new policy processing system. During the quarter, we went over the 300,000 policies-in-force, and 500 million premium-in-force thresholds for the first time in Company history. During the quarter, we improved our non-CAT loss ratio, compared to the first two quarters of 2015, and compared to last year's third quarter. And we ended the quarter with over 47% of our policies outside the state of Florida. I could go on, but hopefully you get the point.

UPC Insurance has built a powerful growth infrastructure that is based on strong, indigenous core insurance operating capabilities. The investments we have made in people, systems, and processes are paying off for our Company. Yes, we have challenges, and plenty of room for improvement. But we also have a very strong and dedicated team of people that has laid the groundwork and smoothed the path for us to complete the buildout of our model in the upcoming months and years. I have never been more proud of their contributions, nor have I ever been more optimistic about our ability to capitalize on the opportunities we have in front of us.

I look forward to answering any questions you may have at the end of our presentation.

But, for now, I will turn it over to Brad Martz to discuss our results in more detail.

Brad?

Thank you, John, and good morning. Before we get to the financial highlights, I would like to encourage everyone to review our press release from October 28, and Form 10-Q that we plan to file next Thursday, November 5.

The highlights of UPC's great third quarter include: gross premium written of $156 million, representing 48% growth year-over-year; gross premiums earned of $129 million, 28% growth year-over-year; net income of $8.1 million, or $0.38 a share; an underlying combined ratio of 88.3%. And our book value per share increased to $10.55 per share, up 15% from the same period a year ago.

The headline for UPC's third quarter remains solid organic premium growth. Total revenues grew 30% from $69 million last year to approximately $90 million this quarter. Direct premiums written for the quarter were almost perfectly balanced, inside and outside of Florida. 50% came from Florida, about 14% from Texas, 14% from the Carolinas, 12% from the Northeast, and 8% from Louisiana. Florida was approximately 14% of our year-over-year growth. But Louisiana, Texas, and North Carolina continue to drive overall growth in direct writings year-over-year.

UPC added approximately 8,700 new policies in Florida during the third quarter. About 5,300 of those represent direct growth; about 9% growth in direct premiums written year-over-year, which was consistent with our expectations. Total policies in force at September 30, 2015, grew to 307,828, up 37% year-over-year, with a mix of 55% Florida, 45% non-Florida; versus 70% Florida, 30% non-Florida last year.

UPC is currently in the final stages of programming and testing our new homeowner products for Hawaii and Connecticut, which are both expected to launch during the fourth quarter 2015. This would make us operational in 11 of the 18 states where the Company is licensed by the end of the year.

UPC's loss results for the third quarter were also very good, as evidenced by a gross loss and LAE ratio of 31.4% versus 29.9% a year ago. Roughly 3.4 points of the increase for the quarter related to CAT losses described in our earnings release. Removing the non-recurring effects of the catastrophe losses and reserve development, our underlying gross loss and LAE ratio was 29.3%, representing a 1.4 point improvement over the same period a year ago. This improvement was nearly 3 points, measured against net premium terms.

The primary drivers of the improvement in UPC is underlying loss ratios, with the continued improvement in loss severity, coupled with lower frequency of water and fire losses compared to the third quarter in 2014. During the quarter, the Company saw its non-loss operating expenses increase approximately $11.3 million or 45% year-over-year. Approximately $1.6 million of the year-over-year change is related to our acquisition of Family Security Holdings. $7.7 million, or about 68% of that total, was driven by policy acquisition costs and operating and underwriting costs which mostly vary directly with premiums and policies, which also grew at similar rates during Q3.

The remaining $3.6 million increase year-over-year related to general and administrative expense was driven by approximately $1 million of personnel costs, about 26% of the total increase; $1.6 million or 45% total increase, driven by legal and professional costs, of which approximately $1.1 million is non-recurring, about $0.03 a share; and $1 million or 29% of the total related to depreciation and amortization of IP investments, and intangible assets related to the Family Security acquisition.

The results in gross expense ratio of 28.3% was 3.4 points higher than Q3 last year. Adjusting for depreciation, amortization, and non-recurring expenses, our growth gross expense ratio was approximately 26.8%, and the net expense ratio approximately 41%.

An interesting fact I would also like to illustrate, related to expenses, is if you measure total operating expenses of $36.4 million for the quarter against our gross written premium of $156 million, our expense ratio on a stat basis, using gross written premiums, is only 23.3% compared to the same period last year of 23.9%. So our expense ratio on a written basis actually went down, which is somewhat indicative of our ability to grow into the operating structure we've built.

The migration of policies from our legacy systems to the new policy administration platform will begin as scheduled in the first quarter of 2016. And we remain very optimistic about the prospect of improving our service capabilities while concurrently reducing operating costs over time, as we reduce and eventually eliminate the significant outsource service fees currently being incurred.

The Company also sees meaningful operating expense synergies related to the acquisition of Interboro Insurance Company, which we expect to be highly accretive to our results, once the deal closes. We are working very hard on obtaining the necessary regulatory approvals, and have developed a sound integration plan that is also expected to facilitate improvement in our expense ratio as we leverage the benefits of this additional scaling.

Finally, our balance sheet remains very healthy, as UPC ended the quarter with just over $227 million in shareholders' equity, lower financial leverage, and a $2.8 million net unrealized gain in the investment portfolio. Our liquidity remains strong, with cash and investment holdings increasing $95 million or 22% year-over-year to roughly $530 million. Unrestricted cash available to the holding company was roughly $55 million. And the combined statutory surplus [level] at September 30 was approximately $136.3 million, with UPC being $126.6 million, and Family Security being just under $10 million.

I would now like to turn it back to John Forney for some closing remarks.

Thank you, Brad. The $500 million premium-in-force threshold that we hit this month was significant for our Company. Many of you know that we have talked about building a $1 billion business, based in coastal states from Texas to Maine. So it feels like we are halfway there, and gaining momentum. We are pleased with the progress we made, but not satisfied. And we look forward to the rest of the journey in the coming months and years.

Once again, we appreciate all of your interest and support for our Company.

And, at this point, we would be happy to answer any questions you may have.

(Operator Instructions). Greg Peters, Raymond James.

Congratulations on the quarter.

Thank you, Greg.

I was wondering if you could provide some commentary on the Florida market conditions, both for assumed business and direct. And then broaden the discussion out to other important markets -- I suppose Texas would be another important market -- if you could provide some context of what is going on there. And then, finally, New York, Interboro, could you -- do you have a perspective on how their third-quarter results look?

Greg, this is John Forney. I will start on that, and Brad can augment as he sees fit. First of all, with regard to Florida market conditions, I think we see more of the same, which means a highly competitive market with lots of competitors and people competing aggressively for business. So it is a difficult market to grow a quality book of business in. We have been content to grow very slowly, and in spots where we feel like we want to augment our existing book of business and diversify further within the state of Florida.

So we expect continued slow growth in Florida on the written side. And on the assumed side, as you know, assumptions have never been a huge part of our business model, but we have done them selectively and we have had good success in getting policies that have been profitable, and we have been able to keep, for the large part. It is getting increasingly more difficult to find those kind of policies in citizens. And so we expect [take on] activities -- certainly for us; I can't speak for anyone else -- to be even more modest than it has been in the past.

The good news for us, as evidenced by our results during the quarter, is that we are finding lots of opportunity outside the state of Florida. In two of the three months of the quarter, we wrote over $17 million of new premium. And $15 million of that, in those months, was outside the state of Florida. We are finding much less competition, although not no competition, and a hungry appetite for new, solid, well-capitalized entrants like ourselves. And so we are trying to take advantage of that and put business on the books as quickly as possible.

There is maybe one stat that illustrates the difference between Florida and outside of Florida that I will leave you with. And that is what we refer to as the hit ratio, which is the number of policies that we write divided by the number of quotes that we get.

So it is a measure of your success and competing with how many you are writing and how many you are quoting. In Florida, that number for us -- and I think for most folks -- is under 10%. Outside of Florida, for us, it is north of 30% and sometimes north of 40%. So that summarizes the difference between those markets. Finally, with regard to Interboro, I do not have any insight into their third-quarter results at this point.

If you could just go back to the comment about the 10% hit ratio versus the 30% outside of Florida, some could infer that with the higher success rate outside of Florida, there could be some pricing disconnect between what you are doing and what the rest of the market is doing. Maybe you could just speak to what you are doing on the underwriting side and the pricing side to prevent any adverse selection.

Sure. That would be an incorrect difference for anyone to make. The primary reason the hit ratio is so much higher outside the state of Florida is agents outside the state of Florida might be quoting to a small handful of companies -- 4 or 5 companies, perhaps. Inside the state of Florida, an agent might be quoting 10 or 15 companies because there are just so much -- so many more people writing homeowners business in the state of Florida than are writing in those other states. So that is the primary reason for the difference.

But we take a very conservative underwriting posture in all of our states. We have very strict guidelines. As you know, we have developed a product that uses proprietary CAT banding to get the right rate for the right risk from a win standpoint and we have very conservative AOP guidelines in terms of underwriting as well.

We are very happy with the way our book is building outside the state of Florida, but one of our reinsurers showed us some statistics from the winter storms that, as you know, took a toll on us in the first quarter. And the statistics they showed us suggested that our book performed better than any of their other clients in the Northeast on those winter storms.

So we had a great third quarter in terms of our gross loss ratio outside of Florida. It was actually lower outside of Florida than it was inside of Florida, which is not what you would expect. You would expect to have a higher gross loss ratio outside the state of Florida.

So all signs are we are building a quality book of business. We just have a financially stable company with good products, great claim service, we're easy to do business with, and we have a fair price. And that is why we win business.

Can I add one more comment to that commentary about the difference in hit ratio inside Florida and outside of Florida is the use of comparative raters. That has a big impact on the Florida ratio.

Clarify that further, Brad. What do you mean by that?

I am going to allow Deepak Menon, our VP of Operations and Business Development, to answer that question for you.

As John stated, outside of Florida, where everybody understands our niches, as John stated, there are three or four companies that they know that they're quality writers. And that is one of the main reasons our hit ratio is high on the outside of Florida, but inside of Florida, there is a lot of comparative raters like some CAD, QuoteRush.

And so a lot of the -- we are quoted against multiple companies every single time. So that really drives a comparative -- the conversion ratio, the hit ratio, as John stated. It's the same in auto and homes.

And so what you're saying is that the use of comparative raters outside of the state of Florida is not prevalent or less prevalent?

Less prevalent.

Okay. Just a final area -- and you brought it up in one of your answers, John -- was just about the catastrophe experience. Clearly, the first quarter and the second quarter to some degree were a disappointment in that regard for catastrophes. When we look out to 2016, how should we be thinking about catastrophe losses in terms of earned premium, in terms of a percentage?

I don't know that I can give you specific guidance on CAT losses as a percentage of our earned premium. Now, this quarter they were 3 points. They were a lot more than that in the second quarter and the first quarter. But last year, they were almost 0.

Now, the answer is going to be on a normalized basis, somewhere in between those numbers. So we expect to have CAT losses that occur in our various markets just about every quarter. If they don't, that's great. If they do, we have the appropriate financial backing to be able to withstand those.

And as we have noted all along, our model suggests and will produce in non-CAT years ROEs north of 20%, but we when we have significant CAT activity like we've had this year, it is going to be between 10% and 15%. And that is still a solid return in this business. So we feel good about the way we have been able to weather the storm, pun intended, this year and learned a lot and gained experience that is going to be very helpful to us going forward.

Great. Thanks for the answers and congratulations.

John Hall, Wells Fargo.

John, there was a return to growth in Florida, but in your answer to Greg's question about Florida growth, you seem to point towards slow growth on written side. How should we be thinking about growth in Florida on a go-forward basis? Is 9% sort of on the high side or is that a more normalized type of number for you guys now?

My opinion is it is not on the high side, given a lot of different things that we have been doing in Florida. We have a new leader for our Florida sales efforts that has been on board for our Company for not all that long a time. It's has made some significant changes in the way that we are marketing our business in Florida with some new reps and new approaches. And it's a very professional sales approach that I think is going to bear dividends.

And the second point is we did implement in the quarter a new rate structure in Florida that was approved by OIR and was implemented part way through the quarter that overall was a 0% rate change for us, but was targeted to markets where we had a need or desire to grow. And in those markets, we had fairly significant rate decreases to put us in line with the market.

And so we think we are going to be able to grow in markets where we historically have not had significant presence. So based on those two factors, I think we will continue to see reasonable growth in our Florida book.

Great. Thank you. And then there was a notable uptick in Texas as well. I just was hoping you could comment a little bit more on where that business is coming from and perhaps whether TWIA contributed in part or in ultimate.

Sure. TWIA is an immaterial part of that number. The new business that we are writing in Texas has come largely from UPC 1.0 products and our organic agency force. The TWIA depop initiative has been hampered by the way that the state chose to structure it. It makes it very cumbersome on agents to do it and it is opt in versus opt out, which makes a huge difference. So we continue to get dribs and drabs from that and expect that it will add up to something significant over time, but in any given month, it is a very small part of the business set that we bring in.

So Texas is very simple in my mind that we have been there now almost 2 years. The first year we had very little traction in Texas. We implemented our UPC 1.0 product in the spring of this year. And we also took almost our entire executive team out to Texas.

We spent a week on the road, meeting with agents in one-on-one and group sessions. We had probably 1,000 agents that we made contact with that we gave presentations to. And our new business before that implementation of 1.0 and the promise tour, as we called it, was a couple million a month. And since then, it has been $5 million to $7 million a month.

We got great feedback from the agents about the trip, about gaining familiarity with our Company, and the comfort they have with us. And we have a superstar on the ground there in Texas who has been in the market for a long time and has very high credibility with agents. Those are the reasons for our success there and we expect that to continue.

Great. Thank you. And then the CAT losses in the quarter, you called them out as being in the Northeast. I was just wondering if you could offer a little bit more precision on what the event was and what particular state.

Sure. You may remember on our last earnings call, which I forget the exact date -- August 4th or 5th I think -- I was asked the question: are you going to have CAT losses this quarter? And I said well, when I woke up this morning and looked at the Weather Channel, it looked like there was severe thunderstorm activity going to occur in Rhode Island and it looked like it was going to be pretty bad.

And so it was. And those the storms that caused our CAT losses this quarter. They were in early August in Rhode Island.

John, that was PCS was that number 90.

Great. And then Brad, you called out $0.03 a share of nonrecurring costs in the quarter. Were those costs associated with Interboro or something else?

Something else. And unfortunately, that matter is protected by a confidentiality agreement, so I really can't elaborate.

Fair enough. Okay. And then Interboro was flying below our radar screen as far as an opportunity out there. I was just wondering if you could point us in the direction of -- I mean, are there other smaller single state homeowners companies out there that are on your radar screen?

When we look for acquisition targets and we have always said that it is one of our four levers of growth, with the first being organic agency growth. The second being partnerships with other carriers, like Allstate and Arbella and Geico, et cetera. The third being selective take-outs and the fourth being M&A.

So when we look for M&A, we always want to make sure that it is strategically consistent. That they're property writers in coastal areas so that it fits what we are trying to build. And there is not a long list of companies out there like that, but there are a few others that are potential targets.

We initiated our first conversation with Interboro in December of 2013. So it was a long time in the making. We got to know them very well and got comfortable with the book of business they were building and had built on the homeowners side. And it is a 100-year-old company up there. They have just a lot of credibility in the Long Island market.

So it was a good opportunity for us strategically. And financially, as Brad said, we expect it to be accretive and we think we paid a fair price for it.

Great. And John, as you have watched the weather Channel so far at the beginning part of the fourth quarter, has there been anything that has caused you some concern as far as CAT losses in the fourth quarter?

The only thing I will point to was really extraordinary rain that occurred in the Carolinas that I don't know if it was spun off by Hurricane Joaquin, but it was coincidentally or not happening while Hurricane Joaquin was lingering off the Atlantic Seaboard. And while that was primarily a rain and flooding event, when you have that much rain -- they had just extraordinary amounts of rain in South Carolina -- it is going to expose problems in roofs, et cetera. So there definitely will be some losses from that.

Arash Soleimani, KBW.

Congrats on the quarter. Couple questions. Was there any impact whatsoever from Patricia causing any rain in any of its territories you guys are exposed to?

We haven't seen any significant claims activity in Texas or Louisiana related to Patricia.

Okay. And can you talk about actually rain within Florida? Was that an issue in the quarter? And if so -- and I am talking particularly in the Tampa area. To what extent did that impact UIHC?

We do not have a significant concentration of policies in the Tampa Bay area. So we did not see material impact from those events.

Okay. And I know you said you can't talk about the legal and professional expense. Can I ask if that will continue? Because I know we had about $1 million last quarter; $1 million in the third quarter. Just for modeling purposes, should we continue to have about $1 million going forward per quarter?

I certainly hope not. I wouldn't model that. They were separate issues related to things that occurred prior to 2012 and there are no others like that that I am aware of.

Okay. And I think Brad, you had mentioned the policy administration systems, the new ones. Did you say those go online in Q1 2016?

The migration starts in Q1 of 2016. But the system is already online. It is supporting our Georgia writings today. It will support our Hawaii and Connecticut writings in Q4. And so as we stand up new states, all new states will go directly onto the new system. But the key driver of expense reduction going forward will be the migration of the existing in-force business to the new system.

So we're going to start with Texas in January, followed quickly by Florida. We are starting with Texas because it is slightly smaller, but it is a big driver of new business growth and the fees we are incurring for new business are significantly higher than renewal business. And then obviously, we want to address Florida because that is where the bulk of our policies in-force are. So a lot of those rates are lower for renewal processing regular business.

It is still going to lead to substantial savings over time, but we are doing it one policy at a time. And that is why I keep giving the guidance I am giving regarding the fact that there is no quick fix here. So yes, we will see some expense ratio improvement in the second half of 2016, but we really won't be -- have everything migrated onto the new system until 2017. And we believe there is about 2 points of growth expense ratio savings once everything is fully migrated and running on the new platform.

So with that said, at some point in 2017, that is when you will start paying the fees for the third-party providers. I am assuming, right? Will that be a gradual process between Q1 2016 and Q1 2017?

Exactly. Gradual process.

And the assumed written premium you had in the quarter -- I think you had about $4 million. Have you mentioned what that was earlier in your comments?

I did not -- no, at the assumption date, which was September 22, we assumed approximately 2,600 policies. We've subsequently received more opt outs and I think today that policy count is about 2,100 policies net of those opt outs received since the assumption date. So there will be some return premium related to that assumption in Q4, but the opt out rates make it very, very difficult to project what the impact of assumed business is going to be for Q4.

So we are hesitant to give much guidance on our take-out activity. We will be doing a small take-out in October. That assumption did occur on Wednesday. And as well as a slightly larger assumption in November, which has not occurred yet. That will occur on November 24. So there will be some assumed written and assumed earned impact in Q4 in a favorable manner, but we don't deem the numbers right now to be material.

Okay. And these are all personal residential that you were talking about?

That is correct. We are still working with some agents and evaluating some potential risks on the commercial side, but I really don't want to give any guidance related to commercial. But we are doing a fantastic job on the voluntary side with our commercial residential writings and that is where the focus needs to remain.

But can you talk, just in that regard, about the organic growth within commercial residential and what your outlook is for having it on the voluntary side?

We are doing that -- growing that the same way we are growing everything: in a very measured way; in a very disciplined way. As you know, that market in Florida is only about $1 billion in total and Citizens has about $400 million of it. Very middle of that Citizens book of business is attractive for private companies in our view. So there is only about $600 million of business that's at play.

We said before that we think we can build that business to be something like a $50 million business over an extended period of time, and we are tracking well on our way to that. I think we are up in the north of $10 million in premium in that. And we continue to add policies every month ahead of the plan that we had set for ourselves. So we feel good about that business.

In terms of commercial residential in other states, is that an opportunity or is that a more -- is that more challenging without an A invest rating?

It is an opportunity and we will be rolling that out in other states. We're going to have our very first filing here in another state very soon. And we will be writing that business in all of our states eventually.

And lastly, do you guys have any updates in terms of your partnerships that you are doing? And obviously Allstate is the big one in Florida, but just in terms of Arbella, Geico, what is the progress has been there?

Progress has been very good on all fronts. Deepak Menon leads the chart on those national accounts and our business with our partners is stronger than it has ever been.

As you know, the Geico relationship is relatively new one. And they like to start slow and work their way into it. They are very rigorous in their screening of partners and we have formed a very good relationship with them and expect it will be able to grow that over time.

I can't give you any guidance on how big that is going to get, other than to say we feel very good about the relationship. We are pleased that Geico got comfortable with us and we look forward to growing with them in all of our states. And they are writing right now in most of the states that we do business. They are writing with us already.

Okay, great. Thanks for the answers and congrats again.

Ben Harvey, The Southeast Companies.

We had a little difficulty getting on the call; we had to go through the international number. So when Julie and I got on the call, John, we didn't hear your opening comments. So I don't know if any other callers had that difficulty, but there was a problem there.

Sorry about that, Ben.

Yes. So we are on a scratchy international call. The assignment of benefits, the strict underwriting that you spoke about, how much of a problem is that in Florida? And how -- is it impacting our business or did the way you are writing the policies now, did you remove that risk or can you expound on that?

Assignment of benefits is an ongoing issue in Florida. Certainly for us and I think for most companies that are operating in the state. Sears has actually tried to quantify it in their recent rate filings the costs that they are occurring as a result of that. And it was significant. And everybody is seeing that issue come to the fore.

So yes, there are numerous issues in Florida; daily claims that you have to deal with. Florida claims is a war and you got to be ready to go to battle every day to make sure that you are paying claims fairly, but not being taken advantage of. And it is a contact sport.

And we have been doing pretty well at it. We certainly would hope that there can be some legislative or regulatory relief to alleviate the issue, but we are not waiting around for that. We are trying to aggressively work through it and we are doing a pretty good job at it.

Okay. On the Interboro deal, when they had their customers write with their homeowners policy and say their car insurance, which they kept, was there a bundling there that they will have to divide when we take the homeowners portion of their business? Will you that up with Arbella or how does that -- where does that flow into the risk we have for that?

The Interboro deal has not closed yet and I am not comfortable disclosing details of their business model to folks, just out of courtesy to them because they are still operating the business right now. So I would rather not comment on that, other than to say we will not be assuming any of the auto business.

Okay. Because you're saying we are paying a fair price for that and the earnings should be accretive here. But we are paying a dollar for dollar for premium basically: $55 million for $55 million of gross written premium. Is there any significance in that number and is there a value we can place on our Company on gross written premiums?

I don't think you can do that simplistic an analysis. Here is one way to think about the Interboro transaction. We are paying $57 million for a $55 million book of business and $40 million of GAAP book value. So we are paying $17 million in excess of the GAAP book value for a $55 million book of business.

And a portion of that $17 million that we are going to pay will end up in non-amortizable goodwill. Let's just say it is half of it. So that leaves $8 million of expensable acquisition costs for a $55 million book of business, which is about 15% or 16% acquisition costs for a seasoned well-performing book of business with a great distribution channel. That is a pretty reasonable acquisition cost in the Northeast for that and we get the Interboro franchise as well. So that is why I say I think it is a fair price for them and for us and that is why it will be accretive to us.

Okay. Can you explain -- when I went to the office yesterday, I got the sheet you have on keeping the promise. And you break down now the -- our reinsurance coverage. Can you explain how we will fare in the Northeast if we have one of those freaky storms, one out of 26,000, maybe? How would we fare this year with how we are writing that reinsurance as opposed to last year?

By freaky storm, are you saying -- you mean hurricane or something else?

No. The winter storms used to be called by one meteorologist that it was the biggest winter storm in 26,000 years. I was referring to that winter storm that our reinsurance coverage on that storm, you might have modeled it different this year. Can you explain how you modeled it this year versus last year and what would the impact be if we had that same storm?

The reinsurance treaty that covered that storm loss is a January 1 treaty, January 1 through December 31. So we are in the process -- we are in the market right now, talking to reinsurers about renewing that coverage and making some modifications to it. So stay tuned. We will be putting a new cover in place January 1 to protect against those kind of events.

So we would not have the similar amount of cat losses we experienced in the first quarter if we have this new policy, are you saying?

We don't have it structured yet, so it would be premature to say that.

Well, hopefully we won't get nailed as bad as last year. The State of Florida came out with an article in the paper yesterday -- the Times -- saying -- talking about the strength of the 67 companies in Florida. And there was a rating system, and they all came in with anywhere from 10% to 400% of their ability to cover their liabilities after they pay off claims. And did you happen to see that, and can you say where does United stand in that strength, of --

I did see the summary of the report. I don't think they disclosed individual company results. And I don't think we have been told what our individual company results were, based on the methodology that they incurred. But, as you know, we feel very good about our reinsurance program. The program we've put in place on June 1 this year is the best program we have ever had, over $1.3 billion in coverage. And there is no event in the history of the United States that would go even halfway up our reinsurance tower. So we have a very strong program.

Okay. Going forward on modeling, can you model, like, what do you think our income, or what will our -- how much will we make on our investment portfolio on a per-share basis? Is it like $0.50 a share, $10 million? $500 million we have in investments, cash?

I think the best way to look at investments is yield. We're going to have to live in the interest rate environment we are given. We don't control rates, and our investment strategy is to minimize asset risk. We don't want to take risk on the asset side of the balance sheet, as we are taking already enough risk on the liability side with our underwriting.

So we keep a high-credit-quality, short-duration portfolio, and right now you have got short-term treasuries, most of which are below 1%, the 10-year around 2%. So our investment yield outlook is going to be consistent with what we've produced historically.

Will that come into the $10 million annual basis?

I am not sure where you are getting $10 million from.

$500 million times 2%.

Well, that is written premium. That is not invested -- well, okay. The $530 million cash and invested assets, theoretically if everything was invested in earning a book yield of 2%, yes, that would be an accurate calculation. Obviously not all cash and invested assets are fully invested earning that yield.

You were going to say something, John?

The income statement shows $6.7 million of investment income through September 30. So you can annualize that and see that it is close to $10 million -- not quite.

That is where I was getting. And I would just like to go on the record as saying that United was formed by doing take-out policies. And we took out policies like crazy back in the day, and that is what formed this Company. And we received a good take-out bonus to take those policies out. And by us getting on board doing that early, that gave us the ability to establish the platform where we are right now. So takeouts have been a very important part of United's business through the history of it.

That was 1999. It was a very different era. That is not who we are today.

I just want people to know that we did play those games.

It was 1999. It was a very different era. That is not who we are today.

That's who we were. That is what I am trying to say.

That is not who we are.

Thank you. That's enough.

(Operator Instructions) Samir Khare, Capital Returns Management.

Congratulations on the quarter. I had a couple of questions. And I may have missed this in your previous statements. But healthy growth in the quarter, I was just curious about what your retention was.

Brad, do you have that?

Yes, I do. So we measure retention two different ways, right, retention at renewal and then throughout the entire term of the policy. At renewal, July was 92%, August was 91%, September was 92%. But what we call the survival rate, which is through the entire term of the policy after renewal, August was 82% -- or July was 82%, August was 83%, and September was 83%. So, very, very consistent with our historical performance on retention.

We monitor it very, very carefully.

All right. Perfect. And can you give us the dollars of new premiums you wrote inside and outside Florida for the quarter, and how much of that was from commercial and residential?

Sure. New business gross written premium -- I have got this all monthly. I have got to do a little bit of math here for you. Hang on. So almost $44 million of new business written during the quarter. Florida was almost $7 million of that. So the balance would be non-Florida. Commercial was almost $3 million for the quarter. And year to date, in force $10.9 million.

Okay. And I was hoping you guys could talk about the competitive landscape, both inside and outside Florida. Maybe outside Florida you can talk about some of your larger markets. And then, what your rate change -- what rate changes do you have in the pipeline for Massachusetts?

That was one of the very first that Greg Peters asked, and we have answered that competitive landscape question already. So I don't want to --

I missed that. That's fine.

That'll be in the transcript.

Sure. And then the favorable developments -- actually, did you guys talk about Massachusetts rate changes at all?

No. We are analyzing our rates -- needed rates in Massachusetts. And we will be doing a filing, but we have not finalized that yet. We're close.

Okay. And did you guys talk about the favorable development, what actions that was from, and the cause of it?

We did not talk about that. Brad?

We did not. It was mainly 2014.

Okay. And the ceded premium for the quarter, did that have any reinstatement premium associated with it?

Immaterial amount, yes. But we did have some ceded losses. Any time we have got ceded losses, there is a very small reinstatement premium associated with that.

Okay. And, in terms of when you guys combine companies with Interboro, I guess in the first quarter of next year, do you have an idea of what the ceded premium run rate might be for the first couple of quarters?

I would hesitate to speculate on that at this time. Interboro is handling their own reinsurance renewal. They are a one-to-one renewal cycle. We do not know what type of program is going to be put in place other than the fact that it will have to be consistent with what they have placed historically to meet all regulatory and rating agency requirements. But it is premature to speculate about reinsurance costs with Interboro.

Okay. And there has been some coverage around reinsurance coverage on the winter storms. Should we think United's reinsurance recoverables as final and uncontested or is there some provision for uncollectible reinsurance in your financial results?

We have a very strong relationship with our reinsurance partner on that treaty. It was Swiss Re. They came in and spent nearly a week at our offices, reviewing all of our claims and methodologies. And they told us that we were the first company that they wrote a check to because we had dealt in such a straightforward and open and transparent way with the issues on the table. And so we don't -- we are not sideways with our reinsurance partner at all.

Good to hear. And what is the current amount of cash at the holding company?

Approximately $55 million of unrestricted cash available to the holding company.

Okay. And then after the Interboro transaction, will you guys be at a point where capital generation can support the near- to medium-term growth prospects?

Yes.

Okay. All right, great. Congratulations, guys. Thanks.

We have no further questions. With that, we would like to turn the call back to management for closing remarks.

Thank you very much. And, once again, we would like to express our appreciation to all of the investors and other participants on the call for your interest in our Company. At this point, we will conclude the call.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.