Hci Group Inc (HCI) 2016 Q2 法說會逐字稿

Good afternoon. Welcome to HCI Group's Second Quarter 2016 Earnings Call. My name is Ben and I'll be your conference operator this afternoon. At this time, all participants are in listen-only mode.

Before we begin today's call, I'd like to remind everyone that this conference call is being recorded and will be available for replay through September 2, starting later this evening. This call is also being broadcast live via webcast and available via webcast replay until September 2 on the Investor Information section of the HCI Group website at www.hcigroup.com.

I would now like to turn the call over to Kevin Mitchell, the Vice President of Investor Relations for HCI Group. Sir, please proceed.

Thank you, and good afternoon. Welcome to HCI Group's second quarter 2016 earnings call. With me today are Paresh Patel, our Chairman and Chief Executive Officer; and Richard Allen, our Chief Financial Officer.

Following Paresh's opening remarks, Richard will review our financial performance for the quarter, and then turn the call back to Paresh for an operational update and business outlook. Finally, we will answer questions. To access today's webcast, please visit the Investor Relations section of our corporate website at hcigroup.com.

Before we begin, I would like to take the opportunity to remind our listeners that today's presentation and responses to questions may contain forward-looking statements made pursuant to our Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward-looking statements. Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the Company's filings with the Securities and Exchange Commission. Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the Company's business, financial conditions and results of operations. HCI Group, Inc. disclaims all the obligations to update any forward-looking statements.

I would like to turn the call over to Paresh Patel, our Chairman and CEO. Paresh?

Thank you, Kevin and welcome, everyone. As most of you know, HCI Group is a holding company with subsidiaries engaged in diverse yet complementary business activities. Our principal operating subsidiary is Homeowners Choice Property & Casualty Insurance Company, which provides homeowners and flood insurance in Florida.

The newest addition to our Company is TypTap Insurance Company, featuring typtap.com, an online platform for quoting and binding policies. TypTap currently offers flood insurance to Florida homeowners. We encourage our listeners to visit the TypTap website at www.typtap.com to experience the platform. Accessible from any Internet capable device, it provides a quote in second and a policy in minutes, it's the mobile future of insurance.

Additionally, we have a Bermuda-based reinsurance subsidiary called Claddaugh Casualty Insurance Company which participates in our homeowners' choice insurance programs. We also have an information technology operation called Exzeo, which develops innovative products and services for our insurance subsidiaries, including the technology powering typtap.com. We expect to find other means to leverage Exzeo technologies in the future.

Finally, we have Greenleaf Capital, which owns and manages our diverse and growing portfolio of real estate investments. As we've done throughout the Company's history, we continue to investigate strategic opportunities to add to and further diversify our operations.

As Richard will expand on shortly, we reported our solid results for the second quarter of 2016, which represents our 35th consecutive profitable quarter. Here are few highlights from the quarter.

One, we paid a $0.30 per share dividend marking our 23rd consecutive quarterly dividend. Our cumulative dividends paid since inception now total $5.55 per common share. In addition to the dividend, we repurchased a total of 189,938 shares of common stock at an average price of $31.59 for a total cost of approximately $6 million. At June 30, we had approximately $8 million remaining on the $20 million repurchase plan we had announced at the end of 2015. These repurchases demonstrate the Board's confidence in HCI's value and prospects going forward. Even with these share repurchases, book value per share increased to $24.37 from $23.87 at the end of Q1.

Also during the quarter, we finalized our reinsurance program for the 2016-2017 reinsurance year. The current program provides coverage up to $972 million for the catastrophic loss in a single event, which is sufficient to cover a one-in-165-year storm based on the approved models from the Florida Office of Insurance Regulation, we are very well reinsured.

Lastly, the second quarter marked the first full quarter of operations for our online insurance company TypTap. We are very pleased with the results to date and we'll be ramping up activity over the coming quarters. We expect TypTap and its associated technology will play a significant role in creating long-term growth.

Now, before I go further, I would like to invite our CFO, Richard Allen to take us through the financial performance for the second quarter. Richard?

Thank you, Paresh, and good afternoon, everyone. For the second quarter of 2016, net income totaled approximately $7 million or $0.71 diluted earnings per share as compared with $22 million or $1.93 diluted earnings per share for the second quarter of 2015. For the six-month period ended June 30, 2016, net income was $13.1 million or $1.31 diluted earnings per share. This compares to net income of $47.4 million or $4.14 diluted earnings per share for the six months ended June 30, 2015.

Net premiums earned for the second quarter of 2016 were $58.5 million compared with $76.4 million for the same period of 2015. Net premiums earned for the six-month period reflect $117 million compared with $158 million for the same period of 2015. This decrease is primarily due to the policy attrition and the impact of the 5% rate decrease that was effective January 1, 2016 for new and renewal business. Direct and gross premiums written for the quarter were $139.8 million and $139.5 million respectively. For the six-month period, corresponding amounts were $215.4 million and $215 million. For the second quarter of 2016, reinsurance cost of $36.4 million were 38.3% of gross premiums earned as compared with 29.1% in the same quarter a year-ago. Year-to-date ceded premiums of $76.8 million are 39.6% of gross premiums earned compared with 27.2% for the same period of 2015.

We anticipate ceded premiums of approximately $28 million per quarter for each four quarter remaining into 2016 and 2017 treaty year. During the three months and six months ended June 30, 2016, and as a result of our multi-year reinsurance treaties as previous -- as discussed on prior earnings calls, we accrued benefits of approximately $3.9 million and $8.6 million respectively.

During June of 2016, we received cash totaling $37.8 million from the benefits accrued under the multi-year agreements that began June 1 of 2013 and terminated on May 31 of 2016. As of June 30, 2016, we had a total of $830,000 of accrued benefits and $277,000 of ceded premium deferred related to the new multi-year agreement that began June 1.

Our loss ratio applicable to the second quarter of 2016, which we define as losses and loss adjustment expenses related to net premiums earned was 44.9% compared with 26.9% in the second quarter of 2015.

For the six-month period ended June 30, 2016, our loss ratio was 45.6% compared with 25% for the six months ended June 30, 2015. These increases in our loss ratio are a result of the decrease in net earned premiums as identified earlier and the impact of weather events and reserve strengthening.

The expense ratio applicable to second quarter of 2016, which we define as underwriting expenses, interest, salaries and wages and other operating expenses related to net premiums earned totaled 41% compared with 30% in the second quarter of 2015.

The expense ratio for the six months ended June 30, 2016 was 41% compared with 28.5% for the six months ended June 30, 2015. These year-over-year increases are primarily due to the decrease in the net premiums earned. For us, as a total of all expenses related to net premiums earned, the combined loss and expense ratio for the second quarter of 2016 was 85.9% compared with 56.9% in the same quarter of 2015.

For the six-month period ended June 30, 2016, the combined loss and expense ratio was 86.6% compared with 53.5% in the same period in 2015. As a percentage of gross premiums earned, our combined loss ratios are 52.3% compared to 38.9% for the respective six-month period. Investment related income improved by approximately $400,000 during the second quarter of 2016 as compared with the same period in 2015.

Other than temporary impairment losses in the second quarter, $500,000 for 2016, compared with $300,000 in 2015. With the current market volatility and the size of our investment portfolio, impairments may develop. Year-over-year for the six-month period investment related income reflects an increase of approximately $600,000. Other than temporary impairment charges of $1.2 million in the six months ended June 30, 2016 compared with $2 million in the same period of 2015.

Investments on fixed maturity and equity securities totaled $185.4 million at June 30 compared with $173.2 million at December 31, 2015. Book value per share has increased to $24.37 at June 30, 2016 from $23.10 at December 31. Our June 30 book value is based on approximately 9,838,000 shares outstanding at June 30.

Now I'd like to turn the call back over to Paresh.

Thank you, Richard. We are pleased with our results for the second quarter of 2016, which were an improvement over the first quarter. As I touched on earlier, we completed on our 2016-2017 reinsurance program during the quarter. We expect to recognize net reinsurance cost of $113 million for the 2016-2017 reinsurance year, or approximately 32% of the Company's estimated gross premium for the coming year. This compares with about $161 million or 40% of gross earned in the 2015-2016 reinsurance year. In addition to significant savings, we secured coverage improvements and reduced our overall exposure.

The renewal highlights are as follows. We reduced our Florida Hurricane Cat fund election from 90% to 45%. We repurchased additional private market limit with improved terms and conditions at a small additional cost. We reduced our net exposure within Claddaugh, our insurance subsidiary, by over $18 million from the prior year. And we reduced our expected net spend by approximately $48 million compared to the prior contract year.

Turning to claims. The growth of the so-called be AOB lawsuits appears to be leveling off. It is a little bit early to be sure, but we continue to address the AOB issue through policy language changes, book optimization and reserve strengthening. Additionally, we are very encouraged by the March 1 launch of our newest division, TypTap. The product and service have been well received by our agents and policyholders.

During the second quarter, we rolled over almost 400 new policies and the growth has continued into the current quarter. We are confident that our superior technology will provide us a continued strategic advantage over any competitors.

In summary, we keep adding book value quarter-after-quarter, even as we pay dividends and buy back stock. I have often said that we focus more on the bottom line than the topline. We have done that by managing our book of business and our reinsurance cost. We believe long term growth will come from our flood product and the application of our technology that allows us to connect easily with our customers.

In addition, our strong balance sheet provide us the flexibility and security to take advantage of any accretive opportunities as they may arise.

With that, we're ready to open the call for questions. Operator, please provide the appropriate instructions.

(Operator Instructions) Matt Carletti, JMP Securities.

Just had a few questions. First, I guess first question is just kind of some of the numbers. So 45% loss ratio and you mentioned that there was some cat impact as well as some PPD related to AOB, are you able to break those two numbers out so I can get more of kind of underlying level to work off of?

Matt, it's Paresh. I don't think we've said there was any cat, but there was Tropical Storm Colin, which is what you maybe referring to.

Yes, the press release referenced weather related events.

Yes, we had -- if you remember, in the first quarter, there were several severe weather related events. Tropical Storm Colin was basically insignificant in our (inaudible).

So Q2 really didn't have weather, it's more the AOB development that pushes up, is that right?

Yes. Richard did mention Tropical Storm Colin, which I think other people are talking about as well. To us, it was business as usual. We did have about 120 claims from Tropical Storm Colin. But we're a Florida insurance company and occasional tropical storm going through in during hurricane season should not be an unexpected event. Yes?

How much was the PPD in the quarter related to AOB?

I think we spent some reserves by about $3 million. Now -- and I think we should stress, as was said during the initial commentary that we see this thing leveling off at this point, but out of an abundance of caution, we are strengthening reserves.

That was my next question, was I caught your comment and should we expect absent some new development, things to trend in a better direction on the loss ratio and it sounds like that wouldn't be a bad assumption.

Matt, we are seeing a low in the increase of AOB, maybe even a slight decrease, but we don't know -- it's too early to tell whether it's a permanent trend or whether it's a temporary respite, yes?

And then my other question just related to, you mentioned a little bit about TypTap, but I was hoping you can in (inaudible) high road, I think you mentioned, I think 400 policies during the quarter, can you update us on what your plans are moving forward? Do you have an idea of when it might move beyond flood and into broader homeowners and have you kind of looked anymore using it as a vehicle to potentially enter neighboring states?

Yes, to all of the above. It's work in progress and we are moving down that path, clearly doing this as an admitted company with filed rates et cetera takes a little bit of time, plus not to mention, we are doing two things at the same time; we're developing for that expansion, at the same time, we were actually marketing and getting the world more familiar with TypTap. So we are stretching in both directions, as we speak, yes?

Casey Alexander, Compass Point Research and Trading.

I actually have gone through the Florida Financial Services, going back over the last couple years and from what I see, the lawsuits filed that the Tri-County area for HCI have declined in the last two quarters by 16% and 23%. Now, I don't see one peer-competitor saw declines anywhere near that magnitude, some have continued to see increases. What is the lag between the filing of a suit and when you actually either settle it or bump reserves and it appears to me as though HCI's had some success turning the quarter on AOB that the competitors haven't. So how do you explain that? Is it indicative of a trend that has legs or is it more of an anomaly, I'd really like some more color on that please?

Okay. So I think there was about four questions in this (multiple speakers) answers, yes? So first of all, in terms of how long it takes to figure out what the lawsuits going to cost et cetera, well, the trouble with these thing is, they have fairly long tails, it could take quite a while. The other trouble with the lawsuits also is that it might pertain to a claim that was settled and closed several years ago. So you end up with prior-year reserve development, all kinds of other things. So that's of course a little bit all over the map.

I think in terms of what you're seeing in the number of lawsuits, as you rightly pointed out that we are seeing versus, say, some of our other publicly traded brethren are seeing, and yes, we are aware of the same numbers, but I think all of this goes back to some of the things and some of the moves we've been talking about for the last two years. What tends to happen is, once you have established book, it takes about -- there's about an 18-month lag to feel the full brunt of newly filed lawsuits and everything else for it to get to that point, at least that's our experience. So if you look back over the last two years, we've been taking our foot off the accelerator in terms of growth, especially in Tri-County, we've talked about this in previous quarters and previous calls, whereas everybody else was still expanding rapidly in Tri-County.

So I think at this point, at this juncture, what you're seeing is everybody who expanded rapidly in Tri-County in the last 18 months, shall we say, are seeing the penalties and the catch-up for that stuff. On our own part, for the last 18 months, we've been steady and/or slowly decreasing our policy exposure in Tri-County.

Hopefully, that's the trend you're seeing in the numbers. Time will tell, but that's as close to an explanation as we've managed to rationalize this thing at this point, yes?

I mean, HCI has been a Company that for years was characterized as having lower loss ratios than the peer group. But since 2015, it's been kind of creeping up towards peer group multiples. Should we expect it to kind of settle in here at peer group multiples or do you think it can be managed to back down? And how do you expect the TypTap to factor into your loss ratios as it grows?

Okay. So the last part of the question, TypTap loss ratio factoring into this, TypTap at this point, on a weighted basis, that's a small part of the business. The TypTap loss ratio doesn't really move the needle one way or the other at all. Down the road it might, but we're still several quarters from it becoming material.

As far as the loss ratios creeping back to industry multiples, et cetera. Yes, we are aware that the loss ratio is going up, and we see that, but some of that I think I would characterize that we play to our own to what we actually see on the ground as opposed to what the fashionable thing to do is. So what (inaudible) in this situation, as Richard said earlier, despite the fact that we're seeing leveling off and/or even slight decrease in lawsuits and AOB claims, et cetera, we chose to take the conservative path of strengthening reserves that we've put aside for those things.

So we've been trying to cash this thing early and ahead of the curve, I think there may be people who are slightly lagging in catching up to getting the reserves adequate. So I think you will see that as we go forward as to whether that statement is correct or not. But I think we will continue over time to have loss ratios that are better than the bulk of the industry on a measured and a long-term basis, yes? Any given quarter, it can move up or down, because everybody can move things around shortly, but that's what we're going to see over the long term, yes?

That last quarter, there was some discussion that perhaps by the end of the year, TypTap might be absorbing the premium attrition from the homeowner's book. When I reverse engineer the numbers from the reinsurance contract, I come up with $350 million plus gross premiums expected for the coming reinsurance contract year versus about $400 in the most recent one. Now, if I use that as a guideline, is this a safer bet that TypTap won't be absorbing the premium attrition until sometime in 2017? I mean are you guys taking a more conservative approach to how you're letting that grow?

Yes, Casey, two items. I think when I talked about this in the last call, I was hoping to do it more in terms of PIF count as opposed to premium count, yes? I think if you read back to that transcript, that was what the question was about, is that you are losing X number of policies, will you replace some kind of it, yes? So that's partly a different thing.

The second part of this is that, as you are aware that as we add these policies on, it takes a while for it to become earned premium and offset the depression that we're seeing currently, yes? So even though you succeed at that replacement thing is going to take a while and in the next fiscal year, the number, we're conservatively projecting it to be down.

And as -- another thing that you've known about us over the years, we project these numbers based on the current book, we don't project the numbers based on current book and [hopes of] what we expect to grow et cetera, yes? So we didn't want to sort of say when you're putting these numbers out, 32% was a number that we wanted to put out to give market some yardstick by which to go through this, but when you -- because the item of that is we don't want to -- we could have, I said it was 30% and your numbers would have worked out beautifully, right? I'd rather that you keep the lower premium number and make 32% then have somebody back into a higher premium number that may or may not happen, yes?

My last question is, is the TypTap premium in risk covered by the current reinsurance contract or does it grow to a certain critical mass at which point in time it maybe separately reinsured or collectively, even if that's possible, I mean exactly how is that likely to work?

Okay. So I will answer part of the question, other part of question, I will invoke trade secret kind of stuff, okay?

Okay. So TypTap currently is or -- TypTap is already reinsured currently by a third party. And so we went to great lengths to get a reinsurance contract in place, not the numbers that we've talked about for Homeowners' Choice in those towers, because when you get into a flood tower, it's a very different beast. So we've already established one of them to place and it's there. Two items about it though is, one, at this point in size it is not a material contract, it is the concept and the items that are in place that are important.

And secondly, the nature and how it's done, and all of the minutiae that why it works is actually the subject of a lot of speculation, both in the insurance and the reinsurance industry as to how to do it. We are invoking trade secret because we don't want to give everybody else a blueprint as to how to do this, yes?

Arash Soleimani, KBW.

Could you, just a couple numbers questions, first, what were gross written premiums in the quarter?

Let me just look it up in the things in the press release.

We had it in the script. The gross written premiums for the quarter were $139.481 million.

And there was no assumed written, it was just all direct?

There was a very minimal negative written premium.

Remember we had a small take-out back in December -- November 2015, yes?

$280,000 written premium.

$280,000, okay. And just to hop back quickly onto math question on weather, I know that you have said weather is obviously a normal part of operations for a Florida carrier. And I completely agree, but just are you able to quantify it just because in the press release, it does call it out and it seems to have a $5.7 million uptick from last year's quarter. And if $3 million came from the strengthening that you mentioned, I mean does that imply that $2 million, $2.5 million comes from weather? I'm just trying to kind of -- accepting that it's a normal occurrence for Florida, just still to try to get some kind of quantification?

Hey, Arsh, I think what we're trying to say, and I'm presuming the $5 million you're talking about is quarter-over-quarter 2015 versus 2016, is that correct?

Correct. Yes.

Okay. So I think in terms of trying to rationalize that, you have three things that would explain this. One is strengthening, two is the actual issues that you have with AOB occurring, so there is loss ratio points increase because of AOB and lawsuits and everything else, yes? And the third item is weather, as in weather as in any unusual events, kitty cats that might have occurred during the quarter, yes?

The one kitty cat that occurred during the quarter was Tropical Storm Colin, which was like in early June, okay? And what we were saying to Matt and so let me say it even more clearly, hopefully, is if you just look at those three items, some of the increase, the $3 million or so was reserve strengthening. The bulk of the rest of the money would probably have more to do with just losses increasing because of the activity that's going on in development and everything else. And then there is a small component that will have come in from Tropical Storm Colin because as I said it was about 120 claims, but when you look at it across $26 million, we didn't want to mischaracterize it that, oh my God, because of Colin we're here, right? That would be a -- that's why we were trying to minimize the weather effects, yes?

Then in terms of the prior period developments, I know you said that you're trying to be cautious there, but I guess going back to your leveling off comment, can you just give a little bit more, I guess, clarity just maybe more detail around what you're seeing like if you're maybe confident that it's leveling off or just -- what's your thinking that way?

Two things, is because we manage -- not even manage, we have to acknowledge every lawsuit that comes our way. So we count how many lawsuits you've got year-over-year in Tri-County, et cetera and I think as Casey rightly pointed out, our lawsuit count year-over-year is down. So that's an interesting development in a world where everybody is talking about increasing AOB and increasing lawsuits. So that's -- as I also stated in response to that, whether that's a temporary respite or whether it's a trend that will continue on, it's just too early to tell, but that deviation is there and it's almost a public record.

So we have that going on, the other kinds of things that we also see a leveling off is in terms of claims coming in and how many AOB, lawsuits, et cetera that are coming in and AOB non-lawsuit claims that are coming in. It is sort of -- it's looking like it's leveling off now. I'm not saying it's going away, I'm not saying it's (inaudible) or anything else, I'm just telling you that whatever the elevated level is, it seems to be leveling off because we measure this week after week, month after month, yes?

And is this leveling off, is it just you think an industry dynamic, so to speak, or other specific actions that you're taking at HCI that you think are helping with that?

That's a nebulous question, I don't know what everybody else is or isn't doing, what I can tell you is because we monitor a number of lawsuits filed across a large cross section of the Florida insurance market, what we're seeing is this trend seems to be leveling off across the industry, if you look at it on a cumulative basis. Now, there are a few outliers, there is a handful of carriers, the only one I am willing to name is Citizens, who may still be seeing an increased claim and lawsuit activity, it seems to be there's a few places -- a few carries that seem to be still seeing increases month over month, but as an industry, at least for whatever reason the last couple of months, the lawsuit activity seems to have leveled off, it's still way too high, but it's leveled off, yes?

And I know there has been a lot of talk by Citizens about this, and the new policy language that they had put in place to help with AOB, I think they did that in July and I think some other carriers, aside from Citizens have started to (inaudible) that language, is that something you guys are doing or have you done it already or are you planning on doing it?

Very simple answer, Citizens new policy language went into effect July 1, obviously too early to see what effect it would have on it. Homeowners' Choice policy language went into effect on August 1, one month later and again it's too early to tell, but policy language is there and done.

And is that August 1, for both new and renewal business?

Yes.

And I mean are your expectations that it would be helpful based on the language, does that strike you as something that will make a difference, or do you think that it's nice to have it written down, but maybe not practically speaking, beneficial?

Arash, I am an optimistic person. I hope it will have the desired effect and lead to the improvements that we are seeking. We really want that to happen because we are trying desperately to not increase rates or charge any more premiums to people who have done nothing wrong in this situation. Having said that, it's just too early to tell whether my optimistic viewpoint will actually be met or whether somebody will discover a new loophole or something or the other around it, it's just too early to tell, yes?

And I guess you kind of touched on my next question, in terms of rates, obviously it seems across the industry, like we've almost turned from a soft market to a hard market, do you see the need for HCI to sort of follow on that bandwagon or are you happy with the rate increases you have in place? And you think that that adequate for the time being?

So I guess my answer is going to be slightly different than what most people would like to hear on this call. But we've tried to be straightforward and explain this, we are trying very, very hard not to raise rates at all on anybody. And from what we see, we see that a handful of people are gaming the system and passing the cost on to everybody else and we are trying to see what steps we can do and see if you can do the best that we can do for the vast majority of our customers who have -- basically are just trying to pay their bills, raise their kids, go through life and we are trying to do what we can to avoid have a rate increase, either file for a rate increase or have one approved. And to put this into perspective, it's been -- the last time we actually applied for a rate increase, it was 2012. So we'd like to keep that record going. And especially as we just reduced rates last year, we're always in this for the long-term, so we don't look at this that you go increase rates at the drop of a hat just because you can. And I think our policyholders appreciate that, yes?

Has retention changed at all, just given that lot of peers are raising rates and you guys have took them down last year, has that benefited retention?

Yes, absolutely. I think because of the sentiment that I just -- question, the last answer to the last question, what's happening out there is our high retention rates actually seem to be getting even higher. So we are looking at projections -- compared to the projections we had, we are seeing the retention be even higher than we had anticipated. The part above that is I think partly because this is going on, agents, people out there are talking to policyholders and saying, do you want to be with a company that looks for any reason to raise rates or be with Citizens who has raised rates every year for the last umpteen years or do you want to be with a company who is trying very hard not to raise rates? I'd note that about 15 companies or 16 companies may have filed for rate increases under this whole AOB thing, we are not one of them.

Are you able to quantify the retention at all? I think last call you said it was around 88% or 90%, if I remember correctly.

Okay. So I will tell you one other item. Yes, retention has probably gone up by a couple of points, because it -- from 88%, 90%, it can't go up much, because then it will be over 100%, so it can't go up by much, it's only a couple of points. But what we are also doing and to my earlier conversations about trying to manage the business in challenging times is that we are non-renewing and we are shedding business in -- on a very targeted basis of policies that we think are likely to develop over the next few years and past rate increases on all the other policyholders. So we are using the elevated retention rate to actually shrink the business a little bit, if you like.

And that shrinkage is mostly Tri-County, I assume?

Tri-County and the Orlando area.

Why Orlando?

Again, it just worked out that way. We're looking through the numbers and where we see these things, we're trying to hold down rates for the vast majority of customers requires us to take the actions that we have to take. And there are some AOB trends in the Orlando area, yes?

My next question is, I know this isn't your favorite question, but can you provide a policy count at quarter end?

Shoot. Yes, funny enough, we've been so busy doing other things (inaudible) I figured maybe around the 155,000 mark, give or take a couple of thousand.

Is it 355,000?

155,000.

And I guess the last question, in terms of flood, so TypTap, just to be clear, is TypTap the main vehicle for flood going forward rather than I guess the legacy flood business?

Yes, I think if you were to consider flood policies, TypTap already has more flood policies than Homeowners' Choice does, yes?

Can you quantify at all what the difference would be, kind of at a very high level, just the difference in rate, so to speak between what someone could get going through the NFIP versus going through HCI? I think how much more competitive do you view TypTap's flood rates relative to the NFIP?

It depends, right? And what it depends on is how great a deal or lack of a deal people are getting from the NFIP. And what we are doing is, we are taking advantage of dislocations in risk and what happens with it also is that we are doing, in terms of flood policy, the same thing that we did with wind policies in Citizens all those years ago, yes? So we are basically trying to take good risk and underwrite the matters out of NFIP. Some of the risks we take, you'd be amazed as to how much money they saves up, it can be as easy as 15%, sometimes it's high as 50%.

50% savings relative to NFIP?

Yes, some of those places, it gets as high as that, right? I don't want to put out a slogan, 13 seconds could save you 50% or something, but they'll have seen those kinds of savings, yes? Because as we have done -- in our entire history and we continue to do so, we charge a fair price for a great product and people look at the stuff and it comes out the -- and they make their choices as to whether they want come with us or they want to stay with the NFIP. All we're doing is we're depopulating in a profitable manner with a good spread of risk. Again, these are all things that we've done on the wind side for years and continue to do so. So we're applying the same basic business principles to the flood side.

And what's the average premium on your flood policies?

Really it consists of two books, the books those a set of policyholders who have to buy flood insurance and these are the ones that are in the A and the V zones and then there's a whole different set of people who don't have to buy -- the guys have to buy it because of mortgage issues, et cetera and as all the folks in the X zones who buy because they choose to buy. And basically, how this is working out, it's on average working out to be about $375 per policy in the X zones, about $1,400 to $1,500 in the A zones and about $33,000 or so in V zones.

How much was it in the A zone?

It's averaging at about $1,400 or so.

Are you targeting like a particular segment between the A, V and X or is it kind of just like an even spread, would you say what you're looking for to build?

I think we are doing what we do and trying pick what we can out of all three zones. What you have to keep in mind is that it's not like the three zones have equal numbers of the policyholders in them. So we are trying to make sure we build the balance book. (multiple speakers) people out there.

Is the X zone the batch of people that don't have to buy it, is that what that means?

What the X zone stuff is our people who are not required by their mortgage to buy flood insurance. That does not mean that he isn't imprudent buy flood insurance and that people shouldn't buy flood insurance or anything else of that nature, it just says, if you're in X zone, it is not a condition of your mortgage that you're required to buy a flood insurance, usually, yes?

And I know you said there's obviously different numbers of policyholders in each of these buckets, where -- I guess how would you rank them, like where are the most, second most and third most?

That we're seeing or that -- the NFIP?

I guess like when you look at TypTap's opportunity over the next, let's call it two years, three years, which of those three buckets between A, X and V do you think offers the largest opportunity, I guess is how would you rank those three opportunities?

Okay. So look, this is where -- you're going to love my answer, because if you think about Florida and the NFIP, Florida has about 2 million policies in NFIP, about 1.3 million of them are X zone policies, about 700,000 are A zone policies probably about 30,000, 40,000 are V zone policies, something in that -- those kinds of numbers.

So if you get an enamored with PIF counts, obviously the X zone is the biggest opportunity, right? As you know, we've never been always about PIF count, we look at where the opportunities lie and where there's good risk and where there isn't. What balance we're going to do, we are not exactly disclosing at this point because again I suspect lots of competitors are going to be listening to this call. We have gone to great lengths to figure out what would be a balanced book and how to get it and time will tell.

And what are you doing in terms of I guess advertising, obviously average person in Florida won't know about TypTap, so what I guess marketing, if you will, effort to get the word out there?

It's a mix of agents and policyholders and and neighbors telling each other. We are seeing quotes and people jumping on to TypTap all over the place and it's spreading virally.

At this time, this concludes our question-and-answer session. I would now like to turn the call back over to Kevin Mitchell for a few closing remarks.

On behalf of the entire management team, I would like to express our appreciation for the continued support we receive from our shareholders, employees, agents and most importantly, our policyholders. We look forward to updating you on progress in the near future.

Thank you for joining us for our presentation. This concludes today's call. You may now disconnect.