Fednat Holding Co (FNHC) 2020 Q3 法說會逐字稿

Good afternoon, and welcome to FedNat Holding Company's Third Quarter 2020 Conference Call. My name is Christian, and I'll be your conference operator this morning. (Operator Instructions)

Before we begin today's call, I'd like to remind everyone that this conference call is being recorded as well as broadcast live via webcast. Additionally, today's call will be available via webcast replay this afternoon and accessible by visiting the Investor Relations section of FedNat's website at www.fednat.com.

Now I would like to turn the call over to Bernie Kilkelly for FedNat Investor Relations. Bernie?

Thank you, Christian. Good afternoon, and welcome again to FedNat's Third Quarter 2020 Conference Call.

Our earnings release and prepared remarks include references to non-GAAP measures, such as adjusted operating income. We use these non-GAAP measures to provide greater transparency and a more meaningful, efficient comparison to prior year results. Our non-GAAP and reconciliations from the GAAP measures to the non-GAAP measures are available in our earnings release.

Statements in this conference call that are not historical facts are forward-looking statements. Words such as anticipate, estimate, expect, predict, project 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 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 -- today 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 FedNat specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, future events or circumstances or otherwise.

Now I will turn the call over to FedNat's Chief Executive Officer, Mike Braun.

Thank you. Good afternoon, and welcome to our third quarter 2020 conference call. Ron Jordan, our Chief Financial Officer; and Erick Fernandez, our Chief Accounting Officer, are on the call with me today. After my remarks, Ron will go into more detail on third quarter results, and then we will be glad to take your questions.

As you know, our third quarter results were impacted by an unusually high number of severe weather events. The 2020 Atlantic hurricane season has not -- has been the most active since 2005, with 27 named storms. Hurricane Zeta, which hit Louisiana last week, set a record as the 11th named storm to make U.S. landfall during the 2020 season. In the quarter, we had net initial pretax weather-related catastrophic losses of $44.9 million, with the majority of that coming from Hurricane Laura and Hurricane Sally. Severe weather impacted all of our states, with the majority of losses being in Florida and Louisiana. I want to commend our staff, over 95% of which continues to be effectively working remote, for their dedication and commitment to providing the highest quality service to our policyholders and partner agents in their time of need.

On today's call, I'm going to discuss the actions we've taken in response to this record cat activity to maintain an appropriate capital position at our insurance company while conserving liquidity at the holding company. I'll also discuss our initiatives to improve the profitability of our homeowners business and build long-term value. These actions include raising rates in Florida and non-Florida markets and restricting new business and shrinking our book of business within Florida until our rates more adequately reflect our increased cost of doing business.

We remain focused on improving our operational efficiency, including strengthening our team with the addition of a new Chief Operating Officer and a new Senior Vice President of Claims. In addition to the ongoing initiatives that our management team is pursuing, FedNat announced today that our Board of Directors has formed a Special Board Committee to oversee a review of strategic alternatives to enhance shareholder value. The committee has retained Piper Sandler & Company as its financial adviser to assess potential strategic alternatives. Throughout the process that this committee will conduct, our management team and employees will remain focused on providing exceptional value to all of our stakeholders. As stated in the press release announcing the formation of the committee, our Board and the committee has not set a timetable for conclusion of their strategic review.

Turning now to the third quarter. The cat losses we incurred in the quarter resulted in adjusted operating loss for the quarter of $21.5 million or $1.57 per share. Book value per share declined to $14.69 at September 30 compared to $16.18 at June 30.

We took steps during the quarter to manage the capital position of our insurance companies and to ensure liquidity on the balance sheet of the holding company. Our comprehensive 2020-2021 reinsurance program that we renewed in July is an essential part of our -- maintaining our capital position, and we benefit from having partnered with high-quality, long-term reinsurance partners. Other than co-participation, the program included reinstatement premium protection, which is serving us well in the wake of the multiple events experienced this hurricane season.

In addition to the coverage, we purchased additional quota share reinsurance to help provide more protection and statutory surplus for our insurance companies. In July, we entered into a new quota share reinsurance treaty with Anchor Re, an affiliate of SageSure, our long-term MGU partner, to provide 50% quota share reinsurance on all non-Florida business written through SageSure. This treaty applies to in-force, new and renewal business written from July 1, 2020 forward and has increased our capital efficiency as compared to the profit-sharing arrangement we have historically had in place on this book. We also purchased third and subsequent event reinsurance coverage following Hurricane Laura, consisting of an additional $39 million of reinsurance limit which -- to help reduce the impact of our losses from Hurricane Delta. In October, following Hurricane Delta, we purchased $5 million of additional underlying non-Florida coverage, which will serve to reduce our net losses on Hurricane Zeta.

On October 1, we increased the session percentage on our quota share program for FNIC's Florida business from 10% to 20%. In addition, with respect to the quota share treaty we have in place with SageSure, we have bound an increase in the session percentage from 50% to 80% effective December 1. We are also exploring additional solutions, including more quota share for FNIC Florida and new reinsurance coverage for Maison. These coverages -- these actions will enable us to retain additional liquidity at the holding company heading into 2021 and also provide additional coverage for catastrophe losses subsequent to their respective effective dates. Importantly, we currently project that each of the carriers will finish 2020 with RBC ratios above 300% with holding company liquidity at approximately $50 million. These projections factor in Hurricane Delta and Zeta, both of which hit Louisiana in October.

I want to now turn to the actions we have taken to improve the profitability of our homeowners business and build long-term value. Looking at the Florida homeowners market, the environment continues to be very challenging. While the number of AOB lawsuits continue to decline sharply, the plaintiffs bar in Florida continues to find ways to bring litigation against insurers. We are continuing to raise rates while taking actions to further shrink our book of business within Florida until rates more accurately reflect the increased cost of claims and higher reinsurance costs in this environment. The rate increases in Florida include a 7.4% increase that took effect in June and an additional 5.6% increase that took effect in October. We have also filed for an additional 8.1% increase and, if approved, as anticipated, will take effect in January 2021. We are continuing to reduce our overall book of business within parts of Florida, as shown in the 8.4% decline in our homeowners policies in-force since last year's third quarter to approximately 217,000 at September 30. This represents a significant reduction of the book since 2017 when we had 272,000 policies in-force. We continue to limit new business throughout Florida plus the hotspots such as Tri-County and Orlando areas until rates more fully reflect our operating costs. We are also not renewing policies statewide that do not meet our profitability targets.

In our non-Florida homeowners business, we are also focused on passing through our increased costs, including reinsurance pricing, by raising rates to ensure that the growth that we are targeting is profitable. Excluding the impact of the severe weather events in the third quarter and the second quarter, attritional losses in our non-Florida homeowners business continue to meet our expectations. Our non-Florida markets currently have a more favorable operating environment, including less litigation and more flexibility in terms of setting rates. Non-Florida policies in-force were 152,000 at September 30, compared to 149,000 at June 30, reflecting our desire to limit our growth in these states at this time.

The geographic mix of our policies at September 30 was 59% in Florida versus 41% in non-Florida. This compares to roughly 70% in Florida and 30% in non-Florida prior to the Maison acquisition less than a year ago. For our non-Florida business written through SageSure, we have filed for an increase of over 9.5% in Texas taking effect in November and 9.9% in Louisiana to take effect in December, if approved. Maison has filed for a 15.9% increase in Louisiana to take effect in November and have filed for a 12.3% increase in Texas to take effect in December, if approved.

Our overall rate increases in Florida and non-Florida are on track to generate over $65 million of incremental premium in 2021 as compared to 2020. We estimate, when fully earned out in the fourth quarter of 2021, these increases will contribute over $70 million of go-forward annual incremental premium as compared to 2020. We remain committed to the prudent capital management while also maintaining our commitment to returning value to shareholders, including through our dividend, which was announced today. As we said on our second quarter conference call, we typically do not repurchase shares during one season and, given recent storm activity, do not anticipate executing share repurchases at this time. Our Board will continue to make decisions on repurchases and the level of our dividend based on the capital needs of the company.

I will now turn over the call to Ron for more details on our third quarter financials. Ron?

Thanks, Mike, and good evening, everyone. As Mike mentioned, our results in the third quarter were impacted by 2 full retention events along with several smaller events throughout the quarter. Our pretax net income was reduced by approximately $38 million net of all recoveries and after factoring in incremental catastrophe claims handling revenue that arose due to the storms. Over 80% of the initial net cat losses stemmed from Hurricanes Sally and Laura, which together impacted Louisiana, Texas, Alabama and the Florida Panhandle. We also incurred relatively minor losses from Hurricanes Hanna and Isaias. In aggregate, gross losses from all cat weather events totaled just over $246 million during the quarter, over 90% of which related to Louisiana and Florida. These gross losses were reduced by approximately $201 million of offsets primarily under our excess of loss reinsurance treaties though also through quota share coverages.

Net of the additional cat claims handling revenues mentioned a moment ago, these cat losses added approximately 46 points to our loss ratio and combined ratio in the quarter and reduced our after-tax earnings by over $24 million or $1.79 per share. Consequently, our net loss in the quarter was $20.7 million or $1.51 per share compared to net income in last year's third quarter of $4.7 million or $0.36 per share, which included only $7 million of pretax catastrophe losses. Adjusted operating loss for the third quarter was $21.5 million or $1.57 per share. The primary adjustment between net income and adjusted operating income in the third quarter was $1.3 million of pretax investment gains.

On a year-over-year basis, gross premiums written increased by 13% to $180 million due to the Maison acquisition but were down 12% sequentially primarily due to the shrinking of our Florida homeowners book until our rates adequately reflect higher claims and reinsurance costs as well as the slowing of growth in our non-Florida book as we implemented rate increases at both Maison and SageSure. As Mike has already mentioned, our mix of gross written premiums continued to shift towards non-Florida in the quarter with an approximate 60-40 split of Florida versus non-Florida. Non-Florida gross written premiums increased 76% from the third quarter of last year, spurred by a $23 million contribution from Maison.

With respect to growth in net earned premiums, please refer to the tables provided on Page 7 of our release for the numbers. Gross earned premiums increased $38 million or 26% as compared to 3Q '19, including $24 million from Maison. However, ceded premiums earned grew by almost $42 million or 72%, resulting in a $4 million or 4% decline in net earned premiums despite $13 million of NEP from Maison, NEP being net earned premium. The major components of the increase in ceded earned premiums included $16 million of higher excess of loss reinsurance premium expense, and that's on a same-store basis $10 million of additional excess of loss premium expense from the addition of Maison and $15 million of ceded premium from the FNIC non-Florida quota share treaty with SageSure that took effect on July 1, 2020.

Note that the higher excess of loss reinsurance premiums on a same-store basis, all else being equal, have the effect of driving up our net loss ratio, net expense ratio and combined ratio by approximately 19% on a relative basis as a result of the reduction to the net earned premium denominator in those calculations. As such, the gross loss ratio and gross expense ratio are certainly better points of comparison on both a year-over-year and sequential-quarter basis.

With respect to the new quota share treaty in place on our SageSure business, because the treaty mirrors the 50% profit share arrangement that was already in place, it had no impact on our net income. Rather, it impacts income statement classifications and delivers RBC relief as a result of being able to cede premiums and losses, whereas under the profit share, all the net activity was reflected in a single line item, commissions. To be specific, in the quarter, as a result of the new quota share treaty, ceded premiums increased by $15 million, ceded losses increased by $19 million and commissions went up by $4 million, all of which nets to a bottom line impact of 0.

Mike discussed the multiple rate increases we have taken this year in all our markets, including the main ones that we anticipate being approved in the coming months, but I think the overall point is worth reiterating. Based on these increases, we are on track to generate over $65 million of incremental premium in 2021 compared to 2020. These rate increases will enable us to either drive earned premium growth on flat policy counts if circumstances indicate or, more likely, will enable us to continue reducing our policy counts without reducing earned premiums. Either way, we expect these rate increases to help improve our projected margins, and we expect to file additional rate requests in 2021, driven by the elevated cat and attritional loss trends experienced this past year.

Turning to the investment portfolio. Now during the quarter, we recognized $1.3 million in investment gains, which arose from both fixed income and equity securities. We've maintained our rigorous commitment to high-quality, liquid fixed income securities, which are also RBC-efficient. Our September 30 portfolio consisted mainly of fixed income instruments, all of which were investment-grade with a composite rating of A. Portfolio duration at September 30 stood at 3.0 compared to 3.5 as of December 31. We were pleased with our demonstrated ability to execute our investment thesis, preserving capital and maintaining liquidity as we look to mitigate risk across any economic scenario. In that same spirit, in roughly mid-October, we closed out our equity securities portfolio such that our investment portfolio as of today is 100% investment-grade fixed income securities. This action took potential equity market volatility in the weeks and months ahead off the table for us as we plan for year-end capital and liquidity.

Continuing with our balance sheet. We ended the quarter with cash and cash equivalents of $49 million, backstopped by our $550 million high-quality, highly liquid bond portfolio. As Mike mentioned, factoring in fourth quarter storms that have already occurred as well as quota share treaties that have already been bound with fourth quarter effective dates, we expect to finish the year with risk-based capital ratios of 300% or more in all our insurance carriers and with approximately $50 million of holdco liquidity. We are continuing to explore the purchase of additional quota share reinsurance, which may further enhance our year-end liquidity position.

In conclusion, in the third quarter, FedNat and our entire industry have had to manage our way through the most active hurricane season since 2005. Through it all, we continue to work hard to provide the highest quality service to our policyholders and agents in their time of need while also using all the tools at our disposal to maintain appropriate capital levels and liquidity. At the same time, we remain focused on increasing the profitability of our homeowners business through aggressively taking rate and shrinking our book in Florida.

With that, I'll turn the call back over to Mike.

Thank you, Ron. Operator, if you can go open the line. We'll take some questions, please.

(Operator Instructions) Our first question is from Greg Peters from Raymond James.

Tough quarter, tough year. Can you help us with the RBC calculation? And specifically, if we -- given the experience that you're having in the fourth quarter, what Demotech is saying about their rating on your company is your projected RBC satisfactory for their A rating of your company.

Greg, just real quick before Ron goes into the details on the math. It's been a tough year. It's been a very tough year both in terms of the amount of weather that we've incurred in Q2, amount of weather in Q3, and then also the reinsurance spend went up significantly. To that, there's a lot of math there. We do have ongoing conversations with Demotech, and you need to be able to maintain 300% RBC to secure their rating. There's other criteria, of course, that they look at, but that's something -- and we're confident that all 3 of our carriers will be at that place at year-end, as Ron stated. Ron can explain the math far deeper than I. I'm not sure how deep you want to go.

So Ron, did you have some comments for me?

I think Mike covered it pretty well. We will be at or above 300% in all our carriers and with $50 million approximately of additional liquidity at the holdco as we head into 2021.

And so -- okay. Let's pivot then. As we think about next year -- this is obviously a tragic year. What kind of reinsurance costs should we factor in for next year? Because it would definitely seem like the reinsurers are also getting nailed with frequency and lower interest rates. So it feels like next year is going to be another year where you're going to have really steep reinsurance increases but maybe you're talking with your partners and maybe you have a different view.

A couple of things. In terms of what Ron stated, in terms of the RBC, that includes the 2 weather events that have already occurred in Q4. So just to clarify, that includes Delta and Zeta. And then in terms of reinsurance, there's pressure on pricing. Our pricing went up over 20% in 2019. Our pricing went up over 20% in 2020. I think there's continued pressure on pricing I don't think anywhere to that magnitude. So if reinsurance is about 1/3 of our premium, 33%, a 10% increase is about 3 points. So we have passed through -- specifically Florida core market, we've passed through that rate increase from 2019 to our policyholders via rate filings. But those policies renew very slowly, one policy at a time. So it takes a full calendar after filing, after approving and so on. It takes 18 to 24 months before you earn it out correctly. So reinsurance pricing, there is pressure on it. And we do pass that through the policyholders, but the recovery on that's a bit slow. I don't believe that we'll have the same type of significant increase on reinsurance costs going into 2021 from 2020, but it's very early. That's speculative at this point. And we're managing our portfolio assuming there is some pressure on that pricing. We do have a very robust panel of 75 reinsurers, and they all have different spots within our program and we think that we're well situated on a go-forward basis with those partners.

Okay. I guess my final question comes in 2 parts. It's just the loss ratios. You did call out adverse loss experience in FNIC. I was wondering if you could put some color around that. And then more broadly, just talk about the underlying loss ratio performance ex the cats, ex the reserves. Where is that? And when are we going to see some further improvement there?

Sure. I can talk about that. So obviously, we had initial cat loss estimate of around $45 million, which we gave that figure in an 8-K earlier in the month of October. The update to that, I would say, is that with -- factoring in claims handling of cats, that reduced the net effect down to about $38 million in the quarter. And so that's the major out-of-period items, so to speak, or that you would adjust for in the sense of an underlying. So speaking in terms of the overall underlying loss ratio on net earned premium, it was about 58%. And so factoring in the ceded, as I said, the increase in XOL costs as well as the other quota shares that we entered in the period, of course, are reducing net earned and driving all of our net ratios a bit higher. But in terms of the underlying kind of attritional ratio that we think of in the Florida book, Greg, here in 2020, that's been about 42%.

Greg, to give you more context, the 42% -- and we were at 30% for multiple years. And then about 4 years ago, it started picking up significantly within Florida on FNIC book. And here we are having taken about 40 points in rate yet the attritional rate -- attritional loss ratio continues to climb. So it's a challenging situation.

The next question is from Doug Ruth from Lenox Financial.

When exactly did you retain the Piper company?

Doug, that's just been in the second -- I'm sorry, the third quarter here just recently. And that was done by the Board to evaluate our operations, the marketplace that we perform in both within Florida and non-Florida. And obviously, our Florida market has been very challenging for us. We've diversified into other coastal states. And unfortunately, we really got hard on our non-Florida states with weather. So that's all occurred during the third quarter.

Okay. And can you comment some about what you're seeing happen with the state-run carrier, Citizens?

Citizens is out there. They're competitive in the marketplace. They are starting to grow and it appears to be significantly. There is some concern at the state level about that, but right now, what we're finding is the Florida market is very hard, not a lot of capacity. And that's more true in certain parts of the state, including Tri-County and SOLO, which is Seminole, Orange, Lake and Osceola, which is Metro Orlando. And I think you're going to see continued growth by Citizens.

Okay. And what about the litigation environment? What is that like at this point?

Litigation is challenging within Florida. We see a remarkable difference between Florida and non-Florida claims. And while AOB reform was meaningful and that really addressed the third-party suits, the litigation on first-party suits is growing. And it's expensive. And once again, when I say expensive, it really impacts our results because of the amount of fees that are paid to the plaintiffs' attorneys. It's a tough situation. Additional rate is needed until there's some type of reform.

And you had told us in your 8-K that you have that 8.1% filing, which you thought might happen in January. Do you have any number in mind as far as how much the next rate increase might be?

Well, there will be another rate filing right behind it. As we update our assumptions based on actual losses and trends, we need more rate. It's really unfortunate the Florida property market is under significant stress. We're feeling it as well as others. Our plan was to diversify into other similar states, which has not been successful here in 2020, but -- and so there's reform. You're going to see continued pressure, and we will be filing more rates beyond that 8.1% within Florida. I'm certain of it. I really can't quantify it. But I would anticipate that 8.1% that's pending with the regulators. We're hoping that becomes approved and effective in January. It's sad to see. It really is. Obviously, it hurts our shareholders. That's very clear. It's sad to see what's happening to the policyholders of our company but all companies.

As far as some sort of update from Sandler, do we -- do you have -- would you expect to give us an update at the next earnings call? Would you think that something might come out sooner than that? Is there any kind of time frame that the Board has targeted?

Doug, there's no time frame. The Board is well aware that our stock is trading at such a discount to book. The market's not pleased with the performance, and we understand that and the Board understands that. The Board is well aware of the challenges in our primary market, and the Board is also aware of our diversification efforts and the challenges that we've had with weather as well as increased reinsurance. They're aware. They are looking at everything and anything to assist in the process, to assist in evaluating what can be done to create shareholder value. I would not say that there's anything, one specific item that would come from it. And there's no specific time frame. It's a public acknowledgment of the challenges that we face and that the Board is looking into the situation with the assistance of a banker.

Okay. And my final point is I would like to ask the Board to consider buying some stock with their own money or the officers or directors of the company. The last time there was an insider purchase was over 5 years ago. And I think that, that would really send a strong message to the investment community that the company and the Board members believe in the future of FedNat, and I'm grateful for your folks hosting the call today.

So noted, Doug. Thank you very much. Thank you for your questions.

The next question is from Matt Carletti from JMP Securities.

Maybe could we start with -- Mike, you spent some time talking about the XOL reinsurance in response to a prior question. Could you talk about the quota share a bit, in particular both the increased quota share for FNIC as well as the -- ex Florida, going from 50% to 80% with SageSure. I mean given the environment, I wouldn't think that reinsurers are kind of tripping all over themselves to get more cat-exposed homeowners market share right now. What -- kind of where are the feeding commissions on this stuff versus your cost of customer acquisition, things like that? Like is it -- is there any spread? Is it negative spread? Just trying to get a feel for -- as you up these ratios and cede more, what -- where the impacts go.

Ron can give you more details in a moment, but let me give you the overview. So obviously, SageSure is a partner of ours as they've been in multiple roles for more than a decade but as an MGU for about 7-plus years. And they stepped up and took 50% quota share and now stepping up yet again to 80%. So it does multiple things. It aligns the risks, of course, and that's the objective, but it also gives us some RBC relief. So I'll defer to Ron in terms of the economics there. In terms of our Florida book of business, we have Swiss Re that's been a reinsurer on a quota share level for multiple years, and they've stepped up as well. And once again, providing RBC relief is a big part of that so we can keep that capital within the holding company. And then with Maison, we're looking at possibilities there as well. But once again, what we're looking for is not only for the relief on the RBC but ensuring that the economics work. Ron?

Yes. I guess I would just add a couple of comments there. First of all, with the SageSure, as you know, we've had a profit share arrangement in place for quite a long time. So you can really think of the profit share as fully encompassing any reinsurer's margin related to that treaty. So in that sense, the quota share overlaying the profit share is costless frankly if you -- because the profit share already encompassed the economics of the underlying relationship, if that makes sense. And on Swiss Re, just what I would say there is they're a long-term partner. It's a great relationship. We really appreciate them. They have been committed to FedNat, and we enjoy their partnership and the like. So I think you're right. In a challenging environment, of course, they would be looking for additional margin. And we did renew the treaty back on July 1 on terms that were certainly modified from the year before but I would say not materially so. And beyond that, we probably will refrain from giving any specifics on the terms. But hopefully, that's a response to your question.

Yes, yes, absolutely. A couple more numbers questions. You mentioned in the press release about -- I think it was $65 million of additional premium that would come in the door over '20 and '21 from filed rate changes. Can you help us understand how much of that goes towards either current -- increased cost of reinsurance you've already absorbed or will likely absorb and how much of that might be left over for -- going towards loss cost trend and margin improvement?

Well, certainly -- and Mike, I'll jump in first on this one, and Mike can add on or redirect. But as you know, our costs went up 20% at renewal in '19 and 20% at renewal in '20 -- here in '20. So certainly, a meaningful portion of the rate increases are us getting to catch up. This inherent lag is tough in this business with the regulated environment that we're in. But our reinsurance costs have gone up roughly $10 million a quarter in this latest renewal from the prior. So that's $40 million a year, and I think that's a reasonable way to think of it vis-à-vis the $65 million.

Yes. And Matt, I would add a little color on that in the sense that once again, we're trying to catch up, trying to catch up to our elevated costs. So primarily in Florida, the attritional losses, it's been, unfortunately, just an endless staircase over the last 4 or 5 years with the industry, with the industry obviously with us and obviously the reinsurance going up in '19 and '20 and for the record, appropriately so, based on the losses that they saw come out of Florida primarily as it relates to Irma. Irma was an event that was baked. And I think it exceeded many people's expectations. So I think -- hopefully, we're getting closer to actual pricing where we need to be with the reinsurers on XOL for next year, but it's -- these rate increases are with the attempts to get our -- I would say our -- primarily in Florida are attritional plus our reinsurance expense really at the 70% range.

Okay. A quick cats question. If I plug in the -- I think it's $27 million that you said for Delta and Zeta, it brings the year to, let's call it round numbers, $129 million of weather and cat. Can you split that out what's from Florida, non-Florida? Or even more specifically, what was the non-Florida stem from Maison versus legacy FedNat?

Ron can probably give you the detail on that, but let me just say this. That number is a massive number in terms of net retained weather, and it far exceeded our expectations. So once again, what we're trying to do is incorporate those new assumptions, these new trends. I don't know that 2020 is going to repeat itself in 2021. It's been such an unusual year. But...

Hopefully not.

Rate in both Florida and non-Florida will help towards that cause. Ron, I don't know if you've got more of a breakdown.

Well, the $45 million this quarter -- let me just say that the $45 million this quarter was roughly $25 million from Florida and roughly $20 million from the other states which was by -- the vast majority of which was Louisiana, obviously, and our hearts go out to the folks there in Louisiana for the repeated hits that they took. Earlier in the year, there was kind of a good mix of -- if you want to call it that, of Florida versus non-Florida. It was, I would say, roughly 50-50 in terms of the first 6 months of the year.

Okay. Great. And then just my last question, Mike, just kind of want to -- speaking to your investors on this call and understanding that you guys have been operating in a really tough neighborhood for a long time now, and a lot of this is -- there's a lot of companies much worse off than you and some have fared better, but this is surely not just a FedNat issue. When I look back over, say, the past 5 years, we've got -- you've doubled the size of the company on a net premium basis. Book value is down 9% and aggregate EPS is a loss of almost $1.50. The story had been a rate increase story for at least a couple of years now. And then so my question is, what would you say to investors at this point that you could help them understand that there's light around the corner and that we're not on a hamster wheel of an environment that we're not going to be able to get out, kind of escape?

Yes. Matt, good question. And (inaudible) are not good numbers. So I'll add a couple of things. Florida have been taking -- we've been taking rates. And honestly, we're going to continue rate until (inaudible) and I don't know that change [anytime]. There are [a few] -- there's new legislation. So I do think we're catching up to the rate that's needed, but I just want to clarify every time we catch, up, does tend to move from (inaudible) of the entire market. Then Florida and [closing] appropriately by (inaudible) we have [gotten the] business in Florida over the last 4 years, again, TIV of roughly $20 billion-plus to 50,000-plus policies. And it's really unfortunate because this is our home state. We've been here for 20 years. That's not what we wanted to do. But with the rate increases, that's what -- that has been our response as well as re-underwriting the book continuously with new information.

Non-Florida, we're very hopeful, very much more positive. The attritional loss is non-Florida both with SageSure -- they're a great partner, and Maison. We're very happy. Both of those books are performing on the attritional loss perspective. Our claims environment, non-Florida, is remarkably different than Florida. It's incredible. But let's be real clear, 2020 has been terrible from a weather perspective both for us, gross and net. So I am very hopeful in that sense. I hate to use the word hopeful but I feel good about what we're doing in non-Florida, but this weather has been a challenge. It's absolutely been a challenge. And until rates catch up in Florida or there's action in Tallahassee, I don't see our exposures growing much. So sorry to give us such a long answer, but in summary, I think our premiums will stay relatively flat and could increase on our total books of business. However, I do anticipate that our policy count and insured value will continue to decrease. Sorry for the wordy answer.

The next question is from Bill Broomall from Dowling & Partners.

Maybe just a number question real quick. What was the surplus at 9/30?

Statutory surplus in the carriers is approximately $140 million at 9/30.

Okay. All right. That's the $40 million in the press release. Okay. And when you see the $60 million of liquidity at the holdco, that's kind of cash and short-term investments. I'm just trying to get an understanding of the mix. What's in that particular number?

Yes. It's predominantly cash and short-term investments. We include, if they've got intercompany receivables or something that are liquid, a tax receivable that is collectible within a certain period of time. Those are -- types of items are in there as well.

Okay. Perfect. And when you talk about the -- so you have the 2 storms in Q4. Can you just -- Delta and Zeta. Can you just maybe remind us what is your retention for the next event? So now what does that look like if you were to have anything else in Q4?

Yes. We have -- our core program in Florida is a ballpark of maybe $1.2 billion; non-Florida, about $550 million. The retention is approximately -- is 25 [both] programs. And we've used a lot of the limits throughout the year on all these different events. So we had -- after Laura, we had re-upped on some limits. And after Sally and -- or I believe it was Delta, we re-upped on some limits. So we've got some holes in the reinsurance program that we're looking to fill, but really, the majority of the limit is there. And some of the big holes that we have is on top of the program, which is obviously of less concern.

So on that comment, would you say the lower layers -- I think when you announced your reinsurance program, you had -- you said a lot of it was cascading. Or the bottom of your tower, is that all cascading?

The -- all the limits, not cascading. So that's why we've had to re-up some limits throughout the season. And we're looking at that as we speak as well right now.

Got it. Got it. So with, I think, Eta in the water, it's -- I know it's down in Nicaragua, but the NOAA path has it coming towards Florida. It doesn't look like it's a hurricane, but given social inflation in Florida, anything that comes near, maybe where there's losses. So for that type of event, hypothetical event, let's call it right now, it would be -- the $25 million would be how we should think about the retention or...

The retention was $25 million. There could be some holes exposed if it goes above $25 million. Once again, those numbers are hard to quantify based on the storms that we have. So with part of our program, it's a bit complicated, Bill. Some of our program is cascading. Other parts of the program is not cascading. Some of the program has single carrier group retention. Some have separate carrier retention. So there's some additional exposure out there, correct, which we're trying to mitigate, but it's hard to quantify at this time or at least not really quantify with you today.

The one thing I might add, Bill, is $25 million would be a non-hurricane. If it was a hurricane, actually, our retention in Florida would be $15 million on a next event. And we're certainly not hoping for a hurricane to hit Florida, so not implying that.

Yes. No, that's great. Thank you for that distinction. That's helpful. And sticking with the storm, when you -- in your comment about the 300% RBC ratio, the liquidity at the holding company at year-end, can you just help us frame out what are in that assumption? Is it -- we don't have any events after Delta and Zeta, and it's kind of a clean Q4. I was just trying to make sure how much kind of...

Once again, we're not going to go deeper. I don't think he can give you all the numbers that we're using. He's got expectations on weather and obviously seasonal weather during Q3, Q4 and so on. So he's got some expectations in there for weather. But in terms of Delta and Zeta, those are a fact and they have occurred, and he has that included in his assumptions.

Yes, just absolutely. No -- Bill, we did not say, "Well, 2 storms have happened. So let's just assume that we're going to have no cats for the rest of the quarter." I don't think that would be a reasonable view to take when I'm trying to project RBCs and playing capital. So we do have an assumption for additional weather over the course of the quarter.

Got it. Would it be an assumption big enough to absorb Eta if it does come near? And does...

I don't think Ron is going to -- wants to go that deep in the math. Once again, we understand your question, but there's weather that we know occurs in Q4, and you can have actual weather that comes in less or higher than that. But we try to have reasonable expectations.

No problem. Okay. Understood. If I could just move on to a different subject. There's been some press reports about the Florida OIR looking at MGA fees. And I wondered if you had any thoughts on what they might be looking at and how it might impact the Florida market in general.

Well, all fees that our MGAs have approved -- reviewed and approved by the regulators. So we have no concerns on our fee structure. We think it's fair. And so I don't think it's really going to impact us in any way.

Okay. And the 3-year statute of limitation on the Irma claims passed in Q3. And I was just wondering how -- what your experience was in that run-up.

Well, we had brand-new claims reported right up until the end. I would not say that it was massive at the end, but it ticked up, no doubt about it. But it was steady throughout the entire 3 years.

But you feel the IBNR that you have set aside should be sufficient to absorb the...

Irma has been tough. We put out IBNR that we believe to be correct. But unfortunately, we've gotten that long over the last 3 years as well as, I think, most within the Florida industry. So we're happy to be past the 3 years. We think most of that should be behind us on a gross basis. Obviously, on a net basis, we're well into our reinsurance program. But we try to reserve those correctly and we try to handle those claims as best we can. But once again, Bill, as you know, Florida is a tough environment.

Right. Okay. And then last one from me. Just at the holdco, when you think about servicing, what -- the uses of kind of your liquidity at the holdco, are the big items -- just for my understanding, to service your debt, pay for the dividend and any type of possible capital that needs to be contributed to the -- to support kind of the RBC ratio, are those the big items to think about?

It's a combination of things, Bill, absolutely. I mean, yes, 3 different insurance companies. And we've got other companies as well, other affiliates, and that liquidity of the holding company is there for those purposes. We hate to be downstreaming it when we have these weather events and when bad things occur, but we'd much rather be downstreaming it for growth initiatives. But that's the reality of the situation right now. It's that we've got challenges in our attritional market within Florida, our home market. And as we've expanded outside of Florida, we've really gotten hit in terms of our -- this weather. And we, like everyone else, hope we can get this weather season behind us pretty quick.

Understood. Sorry, if I could just sneak in one. On the strategic review, the timing of it, you did a lot of different reinsurance transactions with this strategic review on the table when you're negotiating the changes in the reinsurance? Or did it kind of happen afterwards?

Everything that we talked about with the strategic review, this is a Board initiative during the third quarter.

I'm showing no further questions at this time. I would like to turn the conference back to you, FedNat Holding Company CEO, Mr. Michael Braun.

Thank you. In conclusion, in the third quarter, FedNat and our entire industry have had to manage our way through the most active hurricane season since 2005. Through it all, we continue to work hard to provide the highest quality service to our policyholders and agents in their time of need while also using all the tools at our disposal to maintain appropriate capital levels and liquidity. At the same time, we remain focused on increasing the profitability of our homeowners business through taking rate and shrinking our book of business within Florida unless and -- until our rates more adequately are reflective of our costs.

With that, we'll go ahead and end the call, and thank you very much.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation, and have a wonderful day. You may disconnect.