Fednat Holding Co (FNHC) 2010 Q2 法說會逐字稿

Good afternoon and welcome to 21st Century Holding Company's second quarter financial results conference call. My name is Tyrone, and I will be your operator today. Please note today's call is being recorded. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). Also be advised to limit your questions so that others may be allowed time for questions as well. You may re-enter the queue for any follow-up questions by pressing star then one again.

Now I would read the following Safe Harbor statement. 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 could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing words, such as may, will, expect, believe, anticipate, intend, could, would, estimate, or continue, or the negative other variations there of comparable terminology and are intended to identify forward-looking statements.

The risks and uncertainties include but are not limited, to the risks 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 June 30th, 2010 have been prepared in accordance with Generally Accepted Accounting Principles for internal financial accepted accounting principles. For the interim financial information with the instructions for Form 10-Q and Rule 10-01 Regulation S-X. These financial statements do not include all information in those required by GAAP for complete financial statements, and should be read in conjunction with the audited consolidated financial statements and notes there to, included in the Company's Annual Report Form 10-K for the year ended December 31st 2009.

21st Century Holding Company specifically disclaims any obligation to update or revise any forward-looking statements, as whether as a result of new information, future developments, or otherwise. Now at this time I would like to turn the conference over to MR. Michael Braun, Chief Executive Officer and President of 21st Century Holding Company. Please go ahead, sir.

Thank you. Good afternoon. Pete and I would like to thank everyone for joining us today to discuss 21st Century Holding Company's second quarter 2010 earnings results. I would like to review the highlights of our financial results, as well as provide our outlook on the second half of the year. Following my remarks we will open up the call to your questions.

Our second quarter continue to reflect the challenging rate environment quota, not just for 21st Century but for the entire industry. However, we expect our performance to improve in the second half of this year, as a result of both improved conditions, and the actions that we have taken to position the Company for success. Let me begin with the financial highlights of the quarter. For the three months ending June 30, 2010 the Company reported a net loss of $2.3 million, or $0.30 per share on 7.9 million average undiluted and diluted shares outstanding, compared with net income of $0.8 million, or $0.10 per share on 8.01 million undiluted and diluted shares outstanding in the same three month period last year.

For the six months ending June 30 the Company reported a net loss of $3.3 million,or $0.42 per share, or 7.95 million average undiluted and diluted shares outstanding, compared with a net income of $1.1 million,or $0.14 per share on 8.01 million average undiluted and diluted.

Net premiums earned decreased $3.4 million,or 23.7% to $10.9 million for the three months ending June 30, compared with $14.3 million for the same three month period last year. Net premiums earned decreased $6.3 million, or 22.2% to $21.9 million for the six months ending June 30, 2010, compared with $28.2 million for the same six month period last year.

Total revenues decreased $2.3 million,or 13.2% to $15 million for the three months evening June 30, 2010, compared with $17.3 million for the same three month period last year. Total revenues decreased $2.2 million, or 6.6% to $30.8 million for the six months ending June 30, 2010, as compared to $33 million for the same six month period last year.

As I mentioned we continue to operate in a challenging rate environment. As a result we have maintained a disciplined approach to our underwriting in the quarter, by writing and renewing only those policies that match our underwriting guidelines, and turning down business that is not profitable. This discipline while appropriate in building long term value for our shareholders has had and impact on our revenues and net premiums earned in this quarter. During the last 12 months, we have taken steps to position the Company to return to profitable growth as the environment improves. And we are confident about our outlook, as we head into the second half of the year.

The reinsurance costs have decreased as expected, due to better exposure management and more favorable terms on our private reinsurance program versus the prior year. The total cost of our property reinsurance program has dropped from about $52 million to $43 million. We will see the benefit of this savings flow through our financials starting with the third quarter. The rate increases that we achieved both last year and this year, continue to work their way through our portfolio. In the second half of the year, we will enjoy more benefit from those rate increases. The rate increases also benefit our ability to write new policies, because it allows us to write more new policies on terms that are attractive to us. While we maintain our disciplined approach in our underwriting, we expect to be able to write more new business after the peak of the hurricane season passes.

Demand for our insurance products remain high in Florida, and we see no reason for that demand to decrease. We believe we are well-positioned to serve that demand, and capitalize on those opportunities as they present. With that, we are glad to open up the call to your questions.

Thank you. (Operator Instructions). We have a question from [William Meyers of Miller] Asset Management. Your line is open.

Hi. Yes. Thanks for taking my question. You included on your press release at the bottom loss ratios, and it looks to me like they are, the loss ratios are up. Could you just explain is that something that varies very much from quarter-to-quarter and year-to-year, and is there any kind of explanation for the changes? Thanks.

Yes. With that I think maybe Pete is better to answer that question, but obviously there can always be volatility from quarter to quarter.

If you are looking at the loss ratios from last year this time to and comparing it to this year, what happens is the loss ratio is based our earned premium. Our earned premium was a lot less this period compared to last period, because of the difference in reinsurance costs this period versus last period. So basically the denominator was a lot smaller this period as compared to last period. So that is what you are seeing. That plus as Mike said, there is some, there is no kind of rhyme or reason to it. Some quarters just get hit with bigger reported claims.

Okay. Then that is helpful. And would you tend to believe that it would then trend back towards normal, or whatever normal is in the second half of the year as you write more policies, or is that not a safe thing to say?

Well, it is safe to say that the denominator is going to be larger, because there will be more earned premium because there is less of the premium being ceded to reinsurance. So in a flat world all things being equal, no storms, no large claims reported, just all things being equal, yes, it will improve.

And William, I will add a little to that. Our book was significantly impacted by mitigation credits and high reinsurance costs. We now have a new reinsurance contract that started effective July 1, which is about $10 million less, and we also have less policies in force where we our disciplined underwriting has not taken in as much business, and we have actually shed risks that have been unprofitable.

So I think clearly we are headed in the right direction, and that we are going where we need to be. That being said it has been difficult to get rate in the state of Florida, and inadequate rate can really skew your percentages, and we have absolutely experienced that. I think the understanding of rate adequacy is much more respected and well known within the OIR, and legislators, and even the newspapers and the media within the state, that people understand you can't starve companies of capital.

So we are clearly headed in the right direction, but that being said we have reacted I think appropriately to the challenges of 2009, and we are clearly on the path with more rate it allows us to write more business. Unfortunately, when the rate is low it really does not allow us to write as much as we would want. There is clearly plenty of business to be written out, written in the market, and unfortunately, it is with an adequate rate we are just not writing as much as we could if we wanted to. So we are clearly headed in that direction.

Yes. And to add too, as Mike mentioned with the reinsurance costs war, that William, that is going to increase the earned premium, again if the world was flat and we wrote the same thing we wrote last quarter you are looking at almost $2.5 million more in earned premium, just by the reduction of the reinsurance costs.

Okay. Very good. And just one very general question. The hurricane season, you said you would tend to not write policies until after the hurricane season. So does that mean basically fourth quarter? How does that work? How do you think about that?

Yes. The hurricane season runs June 1 to December 1 and you will find that a lot of the carriers in the state do write less during those months, and the reason for that is just because our number one cost is reinsurance. So as the hurricane season, the peak of the hurricane season is really August/September, those two are clearly the peak, as we get into October and November, we definitely get more comfortable with the wind season that it does allow us to be more flexible in what we are willing to write, but I mean officially the hurricane season is June 1 to December 1.

Okay. Well, that is it for me. Thank you very much for answering those questions in such great detail.

Thank you for your call.

Thank you. I am showing no further questions or comments at this time. I would like to turn the call over to Mr. Braun for any closing remarks.

I just want thank everyone who has listened in on the call, and just to reiterate where we are going. I think that we have sound underwriting. We clearly have had challenges in the marketplace, but I think that we clearly have those understood and incorporated into our underwriting, and I think that we are heading in the right direction to create additional value for our shareholders. So thank you very much, and have a nice day.

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