Fednat Holding Co (FNHC) 2017 Q4 法說會逐字稿

Good morning, and welcome to the Federated National Holding Company's Fourth Quarter and Year-End 2017 Financial Results Conference Call. My name is Taquia, and I will be your operator today. Please note that today's call is being recorded. (Operator Instructions)

Statements in this conference call that are not historical fact are forward-looking statements. Words such as anticipate, believe, budget, contemplate, continue, could, envision, estimate, expect, guidance, indicate, intend, may, might, plan, possibly, potential, predict, probably, pro forma, project, seek, should, target or will and other similar words or phrases are intended to identify forward-looking statements.

The matters discussed on this call that are forward-looking statements are based on current management expectations involving risks and uncertainties that may result in these expectations not being realized. Actual events, outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements made on this call due to numerous risks and uncertainties including, but not limited to, the risks and uncertainties described in this conference call, our press release issued yesterday and other filings made by the company with the SEC from time to time.

Forward-looking statements made during this conference call speak only as of today's date, and Federated National Holding Company specifically disclaims any obligation to update or revise any forward-looking statement to reflect new information, future events or circumstances or otherwise.

Now at this time, I would like to turn the conference over to Mr. Michael Braun, Chief Executive Officer and President of Federated National Holding Company. Please go ahead, sir.

Good morning. Welcome to our fourth quarter and full year 2017 conference call. I will start off by discussing our 2017 highlights, including a few comments on our fourth quarter results, and then update you on a number of strategic and operational initiatives underway as we position the company for improved performance and continued value creation moving forward. Ron will then provide a more detailed review of our financial results for the quarter.

Overall, 2017 had some challenges, including the fact that we faced 2 major hurricanes, Irma and Harvey, and experienced multiple smaller storms throughout the year. Clients from Irma, which was the largest Category 5 storm in the Atlantic Ocean in more than a decade, continue to come in with a total claim count, having passed the 31,000 mark this past week.

Overall, as I've said last quarter, I'm very pleased with how our team performed in handling such an event for the benefit of our policyholders. For the full year, we reported earnings of $8 million or $0.60 per share on revenue of $392 million. Fourth quarter earnings were $6.3 million or $0.48 per share on $102 million revenue. We, once again, demonstrated the strength of our reinsurance program and, to date, have utilized less than 25% of our $1.5 billion single event reinsurance limit.

For the full year, total revenue from homeowners grew 28% to $321 million. We continue to focus on controlling expenses with our gross and net expense ratios coming in at 25.5% and 40.4%, respectively, for the year. Book value per share, excluding noncontrolling interest, grew to $16.29 from last year's $16.01.

In looking at our fourth quarter results, total revenue, excluding realized investment gains, grew 14% over last year's fourth quarter and 10% from the third quarter. The strong year-over-year increase was driven by a 21% improvement in Homeowners. Auto was a headwind, and I'll talk more about our strategic exit from that business in a moment. The expense control was solid in the quarter with the gross revenue ratio at 25%.

We have taken significant action to manage growth, improve our underwriting and profitability and position the company for continued opportunities in the years to come. We have focused our resources and attention on where our strength lies, building and managing a quality organic Homeowners book, leveraging our long-term market presence in Florida, our broad agent network and partnership ecosystem, and our strong underwriting and claims capabilities. This strategy has resulted in a couple of important puts and takes at the company.

First, we're exiting the auto insurance space, as previously reported. And as newly announced in last night's release, we will also be exiting the commercial general liability market. Each of these actions is subject to obtaining the appropriate regulatory approvals. Auto was a significant drag on earnings, and has required a disproportionate share of the company's staff and resources. We have already reduced exposures in the business, and anticipate it being a much smaller part of our results on a go-forward basis.

We currently have 2 active auto programs, both of which are performing reasonably well. And commercial general liability was a small market for us, representing less than 2% of our gross written premiums for 2017, and one we believe offers limited value creation opportunity.

As we continue to build our Homeowners property business, we are focused on creating runway for additional, sustainable, profitable growth over the next couple of years. We are long on Florida property, and we think it's a good time to be so. It's a growing market. It's fragmented, and we're well positioned with a strong agent network, solid underwriting and claims and 80-plus reinsurance partners who want to work with us.

Additionally, we have mitigated the AOB issue, both in the ways we address it proactively and in terms of our pricing. This year, we'll benefit from the first full year of our initial rate increase related to AOB from 2016, and as a further earn-out from our 2017 increase. On a combined basis, our 2016 and 2017 rate increases address the estimated aggregate impact of AOB, and we're setting the stage for expanding our share of the Florida market in the coming years.

In the first quarter, we closed on the acquisition of the minority interest of Monarch, including Monarch National Insurance Co., which continues to operate as a subsidiary in the Federated National group. We are excited about the opportunity with respect to the long-term strategy for this company, which is to build a presence in the risk-adjusted class of the Florida Homeowners market, where we are currently underweight, and is the largest segment of the $9 billion plus Florida homeowner market.

We'll also be executing on opportunities to build out our book through geographic diversification within Florida and, selectively, in neighboring markets.

Internally, we have continued to strengthen our team. We have added experienced insurance industry talent to our exposure management and financial team, and improved our financial reporting and investor transparency. We have also increased investments in technology solutions that streamline and improve key processes in underwriting and claims, which has in part enabled us to reduce our staff from a high of 431 people to the current 381 people, which has been achieved mostly through attrition.

Overall, we feel great about our economic strategic focus, which centers on our core strengths, namely quality underwriting and servicing homeowners insurance. Now as we turn to 2018, we're focused on continued blocking and tackling. We're focused on our 2018, 2019 catastrophe reinsurance program in particular. We had a strong program in place for 2017 and, to date, have utilized less than 25% of that program despite having experienced multiple storms.

Additionally, we have entered contracts for coverage under the Florida hurricane cat fund for the upcoming wind season. Efforts to (technical difficulty) the remainder of our '18, '19 program are in the early stages, and we are confident that the long-term partnership approach that we take with our traditional reinsurance partners will continue to serve the company and our shareholders well.

While it's too early to forecast where pricing will come in, it appears that there's plenty of capital vying for shelf space in the reinsurance market. Lastly, let me talk about our reinsurance program. Our stock has traded below our book value, and below the multiple in the valuations of our peers. Therefore, in the fourth quarter, we repurchased 76,000 shares at a cost of $1.2 million.

For the full calendar year, we purchased 654,000 shares, deploying $10.6 million of capital. Combined with the $4.3 million in dividends paid to shareholders, total capital returned to shareholders was approximately $15 million for calendar 2017.

We've also had a strong presence in the market thus far in 2018, having purchased an additional 280,000 shares at a total cost of $4.3 million on a quarter-to-date basis. We remain committed to being opportunistic with our share repurchase program, and we'll continue to utilize it where there is disconnect between the market price and the price that we feel represent an accretive transaction for our shareholders.

Wrapping up, we're moving into 2018 with strong strategic focus on homeowners and a commitment to increasing our operational proficiency. I'm excited about the opportunities for the company in the coming years. I would now turn the call over to Ron.

Thanks, Mike. As Mike mentioned, we've taken a number of strategic steps to improve our financial results in 2018 and beyond. I'd like to take you through the 4Q '17 numbers in a bit more detail, provide some color on our 10-K filing last night and comment on our balance sheet, including our capital and liquidity.

So turning to 4Q '17. As Mike mentioned, our net income was $6.3 million or $0.48 per diluted share, a significant improvement over the $8.8 million loss, which was $0.65 per share in 4Q '16, which, of course, included the impact of Hurricane Matthew. Our full year earnings increased to $8 million or $0.60 per diluted share compared to $1 million or $0.07 per share in 2016.

Investment gains and losses were essentially 0 in the quarter and $5.6 million after tax for the full year 2017. Full year earnings, excluding realized gains, was $2.4 million or $0.18 per diluted share compared to a loss, excluding realized gains, of $1 million or $0.07 last year. While, in total, that is modest year-over-year growth, it's worth noting that Homeowners earnings increased almost $7 million between those 2 periods, with Automobile dragging our consolidated earnings back down to a smaller overall increase. We will not experience headwinds like this from auto in 2018.

Delving further into our earnings for the quarter, Homeowners recorded a profit of $7.4 million, a favorable swing of $15.2 million from 4Q '16 and $15.7 million from 3Q '17, with both historical periods being impacted by hurricanes. The fourth quarter was pretty quiet from a weather standpoint, with incurred losses of $1.5 million pretax from Hurricane Nate and other storms. The Homeowners net loss ratio was 59% compared to 55% for 4Q '16 and 60% for 3Q '17, respectively, when adjusting each period for the impact of our retentions on Hurricanes Matthew and Irma.

Gross losses in the quarter were impacted by $40 million of an increase to our estimated ultimate loss from Hurricane Irma, which now stands at $350 million as of year-end, with the increase being fully ceded under our reinsurance program. So this increase had no impact on the company's 4Q earnings, given that we had recorded our full per event retention during the third quarter.

However, these additional cat losses added 30 points to our Homeowners gross loss ratio for the quarter. Matthew, last year in the fourth quarter, added 37 points to that gross loss ratio. And in the third quarter of '17, Irma added 236 points to our third quarter gross loss ratio.

In the fourth quarter of '17, we earned $1.6 million of incremental claims handling revenue pretax from handling of catastrophe claims, which appears in our consolidated financial statements as a reduction to net losses and LAE.

As I move on from Homeowners, a quick side comment, and almost a statement of the obvious. But with our ongoing withdrawal from auto and last night's announcement that we will be exiting CGL, the Homeowners line of business, along with investment income and corporate expenses in the other line of business really represent the future of FedNat, both in terms of earnings and growth opportunities.

With that said, let me go ahead and touch briefly on 4Q results in auto and the other lines of business. In auto, gross written premium was down 52% from 4Q '16 and 11% from 3Q '17, reflecting management's decision to exit from this business. We lost $2.2 million in auto in the quarter compared to a loss of $1.2 million in both 4Q '16 and 3Q '17. The quarter's results for auto were impacted by reinsurance session adjustments netting to about $600,000 unfavorable after tax. I'll come back to these adjustments in a moment.

4Q '17 auto results also included $1.5 million of reserve strengthening pretax related to prior periods, which puts us in a better reserve position for auto for the coming quarters as the business runs off. Auto has been a significant drag on our earnings over the past 2 years, and we believe that drag is largely behind us moving into 2018.

Our other line of business, which includes CGL, flood, investment results and corporate and support expenses, contributed net income of $1.1 million to the quarter, excluding realized gain/loss as compared to a loss of $400,000 for 4Q '16 and net income of $800,000 for 3Q '17.

CGL, commercial general liability, experienced a large loss in the fourth quarter of '17 of $1 million pretax, net of per-risk reinsurance protection. The other line of business also includes $1 million after tax of income in a catastrophe claims handling company, that is an equity method investee of ours, of which we own 33%.

Elevating back to a company-wide view, expenses behaved well in the quarter, with our gross and net expense ratios coming in at some of their lowest levels in the past 5 quarters at 25% and 38%, respectively.

Now for some color on our 10-K filed last night. You will have noticed that the historical periods on our earnings release and 10-K have been adjusted from previously reported figures. Footnote 1 of our 10-K provides background and details related to these adjustments. But in the course of preparing for and completing our year-end closing process, we updated a couple of our accounting policies, most notably on the timing of revenue recognition of direct written policy fees and, while less material, also on admin fee revenue recognition in auto.

Under our new policies, such revenues are recognized over the term of the underlying reinsurance policies in a manner similar to the way written premiums earn out, whereas they were previously recognized upfront at policy issuance. This change has a modest impact on any particular accounting period, both past and future, because of the offsetting impact from the beginning and end of each accounting period, but also resulted in a cumulative deferral of revenue into 2018.

Other items included in the historical adjustments are detailed in Note 1 in our 10-K, and include a change to our deferred acquisition cost amortization, historical corrections related to reinsurance coverages in our auto line of business and other items that had already been corrected and disclosed in previous public filings.

In assessing these items, the company came to a conclusion that no historical reporting periods were materially misstated. And as such, no amendment to any previously -- previous SEC filings is required. In this circumstance, the proper treatment is to restate the historical periods in the go-forward filings in which they need to appear as prior period information. With that said, I would point out that in our -- our 10-K includes all 8 quarters of 2016 and '17 on the adjusted basis. And between Footnote 1 and Footnote 16 in that document, you can see those quarterly numbers.

I would also like to point out that the deferred revenue and the DAC changes are a matter of timing of accounting recognition, with no economic impact on our earnings power or on our cash flows. Similarly, the corrections related to auto have no notable implications for our go-forward earnings, as virtually no unearned premiums remain under the impacted programs, and loss reserves have been fully adjusted to the resulting quota-share percentages.

It's important to recognize that earnings in our Homeowners line of business, which, again, is the future of FedNat, were not impacted by more than $300,000 or so in any quarter of 2017 or 2016 by any of these adjustments.

Lastly, on this topic, let me just say that the interim period results for 2017, both quarterly and year-to-date, on a line of business basis will be included as prior year comparative information as we file our 2018 quarterly earnings releases and 10-Qs in the coming months.

Turning to the balance sheet. As you know, the company accessed the capital markets in the fourth quarter, completing a placement of $45 million of senior notes. Our 12/31 balance sheet reflects $49 million of debt. That figure includes $5 million associated with the Monarch JV, which was paid off upon the purchase of the minority interest in mid-February. And that $5 million was paid off with assets that were resident inside Monarch, really did not come from the proceeds of the senior note offering.

As such, our go-forward debt consists of $45 million; $20 million of which is fixed rate and due in 5 years, with the other $25 million floating on 3-month LIBOR with a 10-year maturity. We do not currently intend to hedge our exposure to 3-month LIBOR with derivative instruments. However, we are taking positions in floating rate assets in our investment portfolio, with the stated intent to economically offset a portion of future increases in interest expense from rising interest rates.

Speaking of investments, our investment portfolio is conservatively positioned and performing well with a carrying value of $444 million as of year-end. Over 96% of that amount is invested in fixed income securities that have a composite S&P rating of A-. Combined with our $86 million cash position on a consolidated basis at year-end, we have $530 million of cash and investments on our balance sheet.

Turning to statutory surplus and liquidity. Note that as of February 21, Federated National Insurance Company now owns 100% of Monarch National Insurance Co., and this stacking structure enables a more efficient use of capital and surplus inside of MNIC.

Shortly before year-end, FNHC contributed its existing 42.4% ownership of Monarch to FNIC, and then it was FNIC that purchased on February 21 the remaining minority interest in Monarch for $17 million in cash. FNIC's ending surplus position benefited from a year-end capital infusion of $30 million in cash and securities, $17 million of which effectively reimburses FNIC for that purchase of the minority interest that I just mentioned.

Anticipation of this transaction was one of the reasons for the holding company's borrowing activity in 4Q and the sizing thereof. In terms of noninsurance liquidity, after that year-end capital infusion into FNIC, our holdco and other noninsurance entities together have liquidity of approximately $50 million heading into 2018.

As I wrap up, one hot topic that I haven't mentioned yet is tax reform. Tax reform actually had a minimal impact on our 4Q and full year 2017 results. Our net deferred tax position at year-end was an asset of less than $500,000. So revaluing deferreds to the 21% prospective federal rate had a negligible impact on net income in these periods.

The bigger story from tax reform, of course, is that our 2018 effective tax rate will drop by 14 points to the 24% to 25% range. That's down from 38% to 39% range before. So that will have a notable beneficial impact on our go-forward earnings.

With that, let me turn the call back over to Mike.

So to wrap up our prepared remarks, we've entered 2018 in a great position with our strategic vision, a strong dedicated team and a focus on further improving our operating performance. Operator, we are ready to begin the question and answer, after which I will make a few closing remarks.

(Operator Instructions) Our first question comes from the line of Samir Khare with Capital Returns.

This is Ed on asking questions for Samir this morning. On adverse development in the quarter, how much of the $4.7 million was related to Homeowners?

Yes. About $2.1 million of that -- of the $4.7 million pertains to Homeowners.

Okay, great. And then on buybacks in the quarter, was there anything that limited you from buying additional shares in the quarter? Like did you guys bump up against an ADV cap or something?

No. We had a 10b-5 plan, and we were just slow and methodical in it. And we'll continue to do so. Obviously, the stock has been very low, and we've been opportunistic and just being disciplined to spread that out slowly.

Okay. And then just on loss picks for Homeowners, what are you guys thinking about in terms of 2018 initial picks, both on a gross and net basis?

Yes. Ed, yes. So right now, we're sitting at 36.5% on a gross perspective. As we look into 2018, obviously, the rate earning in is a big kind of key piece of that.

At times, on a quarterly basis, we'll look at that. Obviously, as we move ahead in 2018, it will earn -- the 9.9% new rate, right, that kicked in on August 1, 2017 will continue to earn in, right, in our results. And obviously, our loss ratio will adjust accordingly.

And then on a net basis, that tends to translate to about the 59%, 60% range.

Okay, cool. And then just thinking about the auto exit and thinking about the impact on gross earned premiums. When should we be thinking about that no longer being reflected in the financials? When would you guys be fully exited?

Yes. We will -- by the end of 2018, we will be fully exited from auto from an earned premium perspective.

Ed, as you know, we had about a half a dozen programs. We're down to 2 programs, and these are our best 2 programs. The challenge is that we just can't achieve the operational efficiency that we need.

So we think that the noise in the income statement, the bad noise, I should say at that, should come to an end. We should be able to exit it gradually throughout 2018. The book is getting smaller pretty quick as it is.

Yes, absolutely. Just it was a modeling question definitely. And then just for Homeowners in the quarter, just wondering, how much did you guys cede to the quota share versus the XOL this quarter? Like was there any residual effect of like a legacy homeowner quota share affecting the numbers like in an experienced account unwind or something?

Yes. We continue to have -- we have our 10% and 30% treaties that were effective in the '14 through '17 range. And those treaties, while they've ended, there are ongoing effects until we actually recapture and close those out.

And then, of course, we have the new quota share that we entered 7/1 of '17. Net-net, amongst all of those, I think it was $9 million lower sessions across all of those treaties from a quota share perspective. Erick, did you want to add anything to that?

Yes. I was just going to say, from the legacy quota shares, the impact on ceded premiums in the quarter was $1.4 million.

Our next question comes from the line of Douglas Ruth of Lenox.

Congratulations on the improved results. Could you offer some commentary about what you think is -- what might happen with the reinsurance buy for this year?

Yes. We're currently in the market. And obviously, this is a big time of year for us in that regard. We just renewed our FHCF, obviously, which is through the state, but we also renewed a sliver alongside of that.

So the FHCF, we didn't choose 90%. We chose 75%. And that 75%, that enabled us to do 15% in the private market. And long story short, the pricing was flat. So very encouraged on reinsurance pricing. Don't know where it's going to be as we renew it, but there's clearly a lot of capital.

We clearly have a big panel of 80 reinsurers. Our book has been flat in '16 and '17. And now, in '18, we're actually maintaining our premiums with rate increases. However, our exposures are decreasing. So how we purchase the reinsurance.

So we'll be actually purchasing less reinsurance, and we think we're well positioned for a good renewal. We'll find out more in the next 90 days in terms of the actual pricing.

Okay, that's very helpful. And as far as what kind of rate increase do you think you might ask for, for the FedNat segment in this year?

Yes. That's something that we're evaluating as we speak. As you know, we took 5.6% in '16, 10% in '17. That's about 16% plus. The driver has been AOB, and that was about 7 points. And you gross that up a few points, and I think we're in a pretty good position.

We're still competitive in the marketplace, so it's too early to say how much rates will be impacted. We've updated, obviously, a new tax code. We've got updated exposures in the book where we've contracted. We've had some nonrenewals in place. We've updated some of our underwriting. We have a new algorithm out there with the GLM. So there's a lot of moving pieces. It's early to say.

But I'll say this, I believe the majority of the impact of AOB is behind us, where it's primarily priced in. We've obviously improved our claims handling, communicating with the insureds quickly and proactively.

AOB, the legislative session, just ended. It's not going away. And the consumers are paying for it, unfortunately, in the state here, and that's the situation at hand. So I think it's in the rearview mirror how it's impacting us in terms of our financial results. But from an operations perspective, it's ongoing, and we have it priced accordingly.

Okay. And could you offer some more commentary on what you think the state is of the Florida market at this point?

Yes. We're about 5% of the Florida market. I think we have great partnerships with our partner agents. Clearly, they want to place the business with us, and we're competitive. Our underwriting is strict in the sense that we want to make sure we can write business that's sustainable.

I don't see anything changing in the market in the last year or right now that's coming at us. There's just a lot of people vying for business, and we're very comfortable with our business plan.

Non-Florida, we continue to grow. We did about $50 million of premium outside of Florida in '17. Right now, we're anticipating that it will go up to about $75 million. So that's a 50% increase, which sounds robust, but it's only a $25 million increase. So it's slow and methodical is really our continued business plan.

And what do you need to have happen in order to start ramping up the Monarch segment of the business?

Well, we just obviously closed on that in the last month or so, where we've got control over that. So I think there's a great opportunity for us to expand in what I call the traditional market.

And what I mean by that is there's well-mitigated homes that Federated National does well with. There's the depop business, which is a whole other story, which we really -- we're not in that space, but a typical home that was built before the mitigation credits came about. We're underweight in that space, and I still stand by the statement that we can do more to be bigger in that space. And that's the largest part of the Florida market.

So we've got a few initiatives underway with Monarch that we'll roll out in '18, but I think there's a long runway ahead for Monarch for growth. We just have to tweak a few things as we go through in the underwriting and the pricing.

And can you give us an idea of how much insurance you're selling with Monarch per week at this point?

Yes. It's still slow. It's about a $13 million book. It's under $100,000 a week of new business. We have some nonrenewals in there as well. Once again, I'm happy with the structure of the program, but there's -- it does need some further work in the sense that, that space, the pricing's soft. And I'm surprised how soft it is, but I think we'll have a lot more improvement on that throughout 2018.

Right. And what's the status of your relationship with Allstate and with SageSure?

Yes. So Allstate's a fantastic partner. They're our largest producer in Florida, obviously. I think everything just -- been going well with them since we've been partnered with them for the last 4 or 5 years. They're a great partner to have.

SageSure's our partner in non-Florida, and we're thrilled with them as well. They continue to grow their book of business with us as well as they have other partners that they work with. They're a fast-growing company, and they do a great job.

Okay. Is there any way to quantify what the loss might be from the auto for 2018?

It's difficult. We think that we've got most of that behind us. It's a short tail product that we sell. We think it's behind us. Impossible to say what it will be in the future exactly, but I don't think you're going to see much impact in any of our future quarters as it relates to auto.

Okay. And will there be any cost to exit the commercial general liability insurance?

Same thing. I think we're in great shape there as well. Both these programs, the auto and the CGL, we've got adequate reserves on both programs. I don't think you're going to see much, if anything, on either auto or CGL on a go-forward basis in the income statement in terms of, obviously, profitability.

But to your point, I don't see losses coming through anything meaningful in the future quarters. And hopefully, that's the case.

Doug, from a claims handling perspective, unlike auto, in CGL, there was not any separate claims handling team. It's common -- it's a common team with Homeowners. So there's synergies there and no sizable team that's impacted by that CGL exit.

Okay. I want to thank you, folks. We asked you to make changes, and you made the changes. We asked you to consider exiting the auto, and you did. You exited the auto. We asked you to buy back stock, and you bought back stock. And I think the buyout of Monarch will prove, over a period of time, to be a very smart decision.

So I feel like you're -- I concur with what you said that the company is positioned to do well in 2018, and we're looking forward to a much better year. So thank you for what you've done.

Yes. We're very excited about 2018, Doug. Thank you very much.

Our next question comes from the line of Jay Kumar of Midsouth Fund.

I have a question. Any reason why you guys are completely getting out of the auto business?

Say again?

Any reason why you're completely getting out of the auto business?

Oh, why we're exiting the auto business?

Yes.

Yes. We saw an opportunity in the auto business going back 3, 4 years ago. And basically, when we entered it, we saw a great opportunity. But in the process of ramping it up, a lot of the assumptions that we had, we were not seeing the results, the corresponding results that we anticipated seeing.

So therefore, when we grew the book -- we had an auto book for many years. And when we went from about $10 million up to $70 million, we anticipated it going a lot smoother. And we had challenges, not only on the indemnity side, but on the adjusting side as well.

So rather than continue growing it, I thought we could get it up to a couple $100 million. We held it there for a period of time. But to continue growing it, it's going to require a lot more investment of time, of dollars, into technology and so on. And we just didn't see the opportunity there that it would be generating the results for our shareholders.

Got it. One other question was, what's a typical raise in insurance pricing in the Florida market year-on-year? What's the rate?

You're saying, how much did the pricing go up?

Yes.

Well, we're seeing pricing increase go up single digit 2%, 3%. We're seeing people go up 10%, 15%. So there's clearly pricing pressure on the consumer in Florida. And I would say the driver, without a doubt, is AOB. It's inflating the cost of claims. And therefore, you're seeing premiums increase.

Next, we have a follow-up question from the line of Samir Khare of Capital Returns.

Just a quick one on upcoming reinsurance purchasing decisions. How are you guys thinking about the quota share? Should we expect that to be renewed?

We're evaluating our entire reinsurance program in terms of excess of loss, in terms of the quota share as well. So no decision has been made yet. That quota share does renew on July 1, and we're evaluating it at this time.

And I'm showing no further questions in queue at this time. I would like to turn the conference back over to Mr. Michael Braun for closing remarks.

Yes. In conclusion, I want to thank our team across the organization for their hard work to provide excellent products and services to our policyholders in their time of need, and to our partner agents and policyholders for the trust they place in us. I'm proud of our people, and I'm excited about the opportunities ahead for the company in 2018.

Thanks to each of you for your time this morning and your interest in Federated National. Feel free to reach out to Ron, Erick or myself with any follow-up questions that you may have. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.