Fednat Holding Co (FNHC) 2010 Q1 法說會逐字稿

Good day ladies and gentlemen, welcome to the 21st Century Holding Company first quarter 2010 conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions).

Statements in this conference call or in documents incorporated by reference that are not historical fact are forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties that can cause actual events and results to differ materially from those discussed here-in. Without limiting the generality of the foregoing words such as may, will, expect, believe, anticipate, intend, could, would, estimate, or continue, or negative other variations there of, or comparable terminology are intended to identify forward-looking statements. The risks and uncertainties include but are not limited to the risk and uncertainties described in this conference call or from time to time in our filings with the SEC. Furthermore, the unaudited consolidated financial statements of 21st Century Holding Company for the quarter ended March 31, 2010 have been prepared in accordance with the Generally Accepted Accounting Principles for in term financial information and with the instructions for Form 10-Q and rule 1001 of Regulation SX. These financial statements do not include all the information and notes required by the GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for th year ended December 31, 2009. 21st Century Holding Company specifically disclaims any obligation to update or revise any forward-looking statement whether as a result of new information, future developments or otherwise.

As a reminder this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Michael Braun, Chief Executive Office and President of 21st Century Holding Company. Sir, you may begin.

Good afternoon and thank you for joining us today to discuss our first quarter results. I will review some of the highlights from the quarter and then open up the call to your questions. For the three months ending March 31, the Company reported a net loss of $900,000, or $0.12 per share compared to a net income of $300,000, or $0.04 per share during the same three-month period last year. First quarter results decrease year-over-year primarily as a result of higher reinsurance cost in connection with the Company's property line of business. These costs were partially offset by the effects of a 19% rate increase that went into effect in November and also the impact of the new policies written during the fourth quarter of 2009.

Gross premiums decreased $1.4 million or 5% to $27 million compared to $28.4 million for the same three month period last year. Voluntary homeowners gross written premium increase $6.9 million or 44% to $22.7 million compared with $15.8 million for the same three-month period last year. The decrease in gross written premium can be attributed to higher reinsurance costs in the first quarter of 2010 as compared with the first quarter of 2009. Net premiums earned decreased $2.9 million or 20.8% to $11 million compared to $13.9 million for the same three-month period last year.

Our first quarter results show a decrease in the same period of 2009, primarily because of higher reinsurance cost. Which is by far our largest expense, and the continued effect of the mitigation credits. However, our results improved significantly over the fourth quarter of 2009, due to a number of favorable trends including that it was the first full quarter to benefit from the 19% rate increase, which has been in effect since last November on our homeowners voluntary business. We expect to build on this momentum for the rest 2010, and capacity has returned to the reinsurance markets which we believe will push down reinsurance costs. In addition we continue to focus on writing voluntary policies based on our underwriting standards, which leads to more profitable business.

We anticipate that the combination of improving industry conditions, decreasing reinsurance rates disciplined exposure management and the impact of the previously announced rate increases both on our voluntary homeowners book and those assumed from citizens, will create a strong foundation for future revenue growth.

We expect operating margin improvement for the next several quarters, which is anticipated to contribute to growth in the Company's book value, for the benefit of our share holders. And the main thing that -- as we look at on a go-forward braise basis is our reinsurance cost. This is last year's reinsurance cost came in at about $52 million for the year. We're anticipating insurance costs to come down significantly for us, based on different exposure, based on our management of exposure as well as we are anticipating a softening in the pricing. Thank you. If I could go ahead and open up the lines for questions for Pete Prygelski and myself. Hello? Operator?

(Operator Instructions). Our first question comes from the line of William Myers from Miller Asset Management.

Hi, Michael, Peter, thank you for being available for questions. If -- could you say -- are you saying that reinsurance premiums started heading down in the first quarter, or are you saying that they -- they weren't heading down but you have reasons to anticipate that they are going to go down later in the year?

No, what we do is, we have annual contracts that we sign. Those are both with the state, which is the Florida Hurricane Catastrophe Fund and also private markets. The private markets we believe there is ample capacity out there. Which will lead, we believe, to more favorable pricing. So the reinsurance costs from last year's contracts, that is July 1, approximately, of '09, through the second quarter. So that will be through June of 2010, those costs are fairly consistent. We're anticipating costs effective July 1 of 2010 to go down and for two reasons. Like I said the availability of reinsurance, so just the law of supply and demand. But really just our exposure management is different as well. So we're anticipating that that exposure will impact the total cost of our reinsurance.

Okay, great. So, so when the contracts renew we may see some downward costs. And could you explain a little bit about what is changing in your exposure management?

Traditionally we have been a tri-county company. That is Dade, Broward and Palm Beach. Over the years we have diversified through out other parts of the state and we're continuing to do so. Traditionally reinsurance is more costly as a percentage of premium in the tri-county area. So as you diversify to other parts, you have other parts of the state have a less percentage of their premium exposed to that type of expense. So that is definitely benefiting us in that regard. But, just exposure management, the -- our -- just careful underwriting at the risks that we have, we think that is going to have a significant improvement on our financials on a go-forward basis.

Okay and one last question. You say there is going to be more reinsurance available. Do you anticipate using that to write more policies? Or is that just going to affect pricing.

Well, it -- July 1 is when we will have our new reinsurance in place. There is a lot that is to be determined. As the market pricing comes to us, we may be able to shift some of what we're doing, and be more aggressive in our writings, or the opposite may be true as well. If it is costly we may be more restrictive in our writing. At this point early indications are there is ample capacity. Ample capacity would lead you to believe that rates should be coming down and we -- and that's exactly what we believe.

Okay. That was very helpful. Thank you very much.

Thank you.

(Operator Instructions). I'm showing no further questions at this time, sir. I hand the call back over to you.

All right. Well, thank you very much, operator. Thank you everyone who dialed in. We appreciate that. If anyone has further questions, they can always reach out to the Company. There has been challenging times in the Florida property market. We have made a lot of corrective action in our writings and our underwriting and also our exposure management. We feel that there is favorable trends that will be coming through the book of business, as I have indicated earlier primarily with our reinsurance expense on July 1. So thank you very much. And have a nice day.

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