Heritage Insurance Holdings Inc (HRTG) 2015 Q1 法說會逐字稿

Good morning and welcome to Heritage Insurance Holdings first-quarter 2015 financial results conference call. My name is Anita and I will be your operator today. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference call is being recorded.

The matters discussed on this call that are forward-looking statements 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 or press release issued yesterday and other filings made by the Company from the SEC from time to time.

Forward-looking statements made during this presentation speak only as of the date on which they are made and Heritage Insurance Holdings specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, future events or circumstances or otherwise.

Now at this time I would now like to turn the conference over to Mr. Bruce Lucas, Chairman and Chief Executive Officer of Heritage Insurance Holdings. Please go ahead, sir.

Good morning to everyone joining us for the call. This is Bruce Lucas, Chairman and CEO of Heritage Insurance, and with me is Steve Rohde, our CFO. I would like to welcome all of you to our first-quarter earnings call.

Before we begin the discussion of our quarter, I would like to take a moment to thank all of our employees for their commitment to our Company.

We had the best quarter in the Company's history and reported a record profit of $30.1 million. We have a strong business plan and our quarterly results reflect our ability to execute on that plan and once again outperform shareholder expectations. From a financial perspective, we had an incredible quarter.

Our gross written premium and net operating income increased significantly. Our personal lines voluntary production increased by 56% versus the fourth quarter of 2014 and our commercial residential production continues to outpace our expectations. We continue to have tremendous success in growing the Company as evidenced by a 94% increase in gross premiums written for the first quarter of 2015 as compared to the first quarter of 2014. A 140% increase in net premiums earned for the first quarter of 2015 versus the first quarter of 2014. We also had a 57% increase in policy count compared to the first quarter of 2014.

Net income of $30.1 million for the first quarter of 2015 represents an increase of 281% compared to the first quarter of 2014. We had a combined ratio of 64.6% for the quarter and our shareholder equity increased 161% compared to the first quarter of 2014.

Additionally, Heritage was once again named the fastest-growing property and casualty insurer in the United States in 2014 by S&L. This is the second year in a row in which Heritage was named the top growth insurer in the United States. This is an incredible accomplishment in and of itself but it is even more impressive given the financial performance of the Company to date. It is a real testament to the strength and vision of the Company and our ability to identify market conditions before they arise and execute on them when the timing is right.

We are very pleased with our growth to date and have exciting plans for the Company in the near future.

Now for more information on the financial results, I will turn the call over to Steve Rohde, our Chief Financial Officer. Steve?

Thank you, Bruce, and good morning. Our policy count reached 220,000 policies at March 31, which included approximately 2750 commercial residential policies. Our total in-force premium at March 31 was $533 million, an increase of 104% over March 31 of 2014. During the quarter, we participated in Citizen depopulations each month resulting in approximately $35.1 million of personal residential in-force premium and $11.8 million of commercial residential in-force premium.

Gross premiums earned for the first quarter were $126 million compared to $60.9 million for the first quarter of 2014. Commercial residential represented $25.7 million in personal residential $100.3 million. The significant growth in gross premiums earned was a big reason for our growth and net income for the quarter. Additionally, our results were favorably impacted by significantly lower reinsurance cost as measured against gross premiums earned.

As a reminder, our reinsurance treaties renew on June 1 and run through May 31. Ceded premiums in the first quarter relate to the reinsurance treaty that was put in place in the previous June. Our ceded premium ratio was 19.5% for the first quarter of 2015 compared to 30.6% for the first quarter of 2014.

This decrease was twofold. First, was last year's favorable reinsurance market conditions and the lower cost of reinsurance associated with the issuance of $200 million of catastrophe bonds by Citrus Re as well as improved geographic spread of risk resulting from the Sunshine State policy acquisition.

Second, our fourth quarter of 2014 and first quarter of 2015 Citizens depopulation activity had a positive impact on the ceded premium ratio. These key populations increased gross premiums earned for the first quarter, while there is no corresponding increase in ceded premiums. The first quarter of 2014 was also favorably impacted by growth but not as significantly as this year. An increase in ceded premiums will not occur until June 1 of 2015 when our reinsurance contracts renew.

Our loss ratio as measured against gross premiums earned was 25.8% for the quarter compared to 33.8% for the first quarter of 2014. Factors driving the improvement were, one, favorable development of prior year losses was approximately $4.5 million with most of the favorable development coming from the third and fourth quarters of 2014. As we have discussed in past calls, as a new company with limited loss experience, we felt it was prudent to set our IBNR near the high-end of the range as determined by our actuaries.

More than 60% of our IBNR at December 31, related to the last two quarters of 2014. Those two quarters in particular had favorable development during the first quarter of 2015. Despite the favorable development, we still increased IBNR by $4.2 million during the quarter. IBNR represented approximately 56% of our total loss reserves at March 31, a level consistent with previous quarters and accounted for 3.3 points of the loss ratio.

In other words, it was not a change in reserving philosophy that caused the favorable development, it was our actual development being better than expected by the actuarial methods used in setting loss reserves.

In addition to the favorable development, our introduction into commercial residential favorably impacted our loss ratio, as this line of business historically for the industry has a very low non-catastrophe loss ratio. Our experience to date has been excellent. Through two quarters, our reported loss ratio for commercial residential is in the low single digits.

Lastly, in the first quarter of 2014, we strengthened our loss reserves. This had about a 3.5 point negative impact on the first quarter 2014 loss ratio. Our expense ratio as a percentage of gross earned premiums was 19.3% for the quarter compared to 18.8% for the first quarter of 2014. The amortization of Sunshine State policy acquisition costs accounted for 1.5 points during the quarter. The remaining unamortized balance of SSIC costs is $550,000 which will be expensed in the second quarter.

Our expense ratios for the first quarters of both 2015 and 2014 were favorably impacted by the assumed earned premium from the Citizens takeouts in which there are no acquisition expenses. This improved the Q1 expense ratios for 2015 and 2014 by approximately 5.0 points and 5.8 points respectively. Our combined ratio as a percentage of gross premiums earned was 64.6% for the quarter compared to 83.3% for the first quarter of 2014.

We are very pleased with these results. It was a tremendous quarter for us, especially when considering each component of our combined ratio, reinsurance, losses and expenses were in line or better than our expectations. We believe this underlying base of profitable business representing $533 million of in-force premium should position us well for the coming quarters.

On the balance sheet side, stockholders equity increased to $287.8 million compared to $255.1 million at December 31, 2014. Statutory surplus in our insurance company subsidiary at March 31 was $194.1 million, an increase of $21.4 million for the quarter.

Our invested assets at March 31 were $403 million with approximately $361 million invested in bonds with an average credit quality of A and a duration of 4.2. Our cash position was $161 million and our total assets were $669 million at March 31. Overall we had an excellent quarter, one we are very proud of.

With that, I will now turn it back to Bruce.

Thank you, Steve. We will now take questions from our analysts.

(Operator Instructions). Mark Hughes, SunTrust.

Could you talk about your voluntary production in both residential and commercial residential? How did you do in the quarter? How do you expect that to trend over time?

Sure. Well, our personal residential production versus fourth quarter was up about 56%. I'll let Steve walk you through the actual PIF count in terms of line of business and we are seeing a nice upward trend that's ahead of our expectations.

On the voluntary, we had 7900 new policies bound of which 65 -- almost 6600 were HO3s so I think that was about 83% was HO3s of the new business bound for the first quarter. And so we are averaging a little over 100 policies a day now. In the month of April, we were at 109 policies of production.

And on the commercial residential side, we continue to run an average premium run rate of about $2 million a month I would say give or take a few hundred thousand dollars and that seems to be holding fairly steady. We are selective on where we are taking those new policies given our tremendous success on the Citizens assumptions. So we are tracking well ahead of our internal expectations on both the personal lines production and the commercial residential as well.

Can you talk about the rate or pricing, how your latest filings have looked, what do you think the competitive environment dollars like in the state in terms of pricing?

Pricing is -- this is no new story. Pricing continues to go down with reinsurance price declines and you have to pass on some of those reinsurance savings to the end policy holder and that's the prudent thing to do. Rates are, I think, fairly stable. We have not seen a big erosion in rates lately. We saw it more kind of last say fourth quarter or third quarter timeframe which makes sense because it was following the 6-1 reinsurance renewable treaties.

So we think that the market right now is fairly stable from what we are seeing. Our production has been increasing steadily since the fourth quarter which reflects some of the rate savings that we've passed on to our customers and we think it's overall pretty solid market right now.

Where do you think reinsurance costs kind of rate online are going to come in for this renewal?

Yes, we are still in negotiations on that, Mark, so I don't know that it would be proper to really comment on that right now given that our program is with various reinsurers. I can tell you that the only pricing that we have announced was the pricing on our Citrus Re 2015 catastrophe bonds that we placed and those are out there very public. We were happy with the pricing that we received on those layers.

How about on that front, Steve, any guidance you can give in terms of ceded premium ratio in Q2 and Q3 as kind of you see it now given the mix of business you've got at least as far as you can understand pricing at this point? What do you think those percentages will be like?

Sure. So in the second quarter, the first two months, April and May will have the same variable impact we had for the first quarter. I would expect that the second quarter ratio would be around in the 24% to 25% range and I think that the third quarter will be --.

Hard to say.

Hard to say. It will be in the low 30s I would say but again, there is a range there.

And then with the stock trading where it is at, would you think a share buyback is appropriate? How are you looking at the stock now with this kind of valuation?

Yes, I think that is a really good question, Mark, because we look at where we are right now. For the quarter, we produced about a 44% annualized ROE which I am pretty confident would probably be tops of all of the Florida companies. We look at the average of where our peers trade on a PE basis and that averages about 9.5 and we are trading at about 6.5 so we do think the stock is incredibly cheap at this price. We are going to look at all the options that are on the table in terms of increasing shareholder value. Certainly when your stock is in our opinion, undervalued to the extent that it is, it is something that you have to consider but we are also in growth mode.

We are sitting on quite a bit of cash right now. We are looking at some M&A opportunities and we are in some due diligence processes as we speak.

So we are going to wait and see how those processes kind of filter out and see how the share price performs during the next couple of quarters and then we will make a decision as to whether or not a share buyback would be a prudent use of capital.

Thank you.

Matt Carletti, JMP Securities.

Thanks, good morning. Just had two questions. The first one relates to personal residential depopulations, takeouts from Citizens. Has your appetite for that changed at all going forward based on the past several months of takeouts whether it be on the hit rates you have seen and kind of the population of what's left in Citizens? Whether that be for the better or for the worst?

Matt, this is Bruce. No, I don't think our appetite has changed. I mean, we have announced that our intent is to do smaller scale de-pops on a more frequent basis as we go through the year just to replace some of the attrition that we have, it is also a nice source of growth that the policies are there. We do tend to reduce the amount of policies we take as we head into wind season. That is just simply controlling your reinsurance cost.

We are at a pretty good level where we are right now in terms of year-over-year growth being north of 100%. So we like our current situation. We are looking at reinsurance season now, buying our cat cover. So typically right now is the time when we would slow down in terms of depopulation activity and look to pick it up again more in the call it third and fourth quarter.

Okay. And then my only other question relates to the loss ratio on the personal residential side. Can you give us any color, I mean where you maybe have the numbers or just some qualitative color around how the loss ratio might differ between your takeouts, your voluntary book and say M&A so maybe Sunshine state? Is it a pretty tight range or are there some big variations in there?

On the HO3, it is a pretty tight range and actually I think the takeout book has a slightly better loss ratio than the voluntary, but it's mainly because our premiums are higher on the takeout business. So on a loss cost basis, the range is very tight and all our business, particularly the ones where we have significant concentrations of business either in regions or particularly HO3 product are running all very acceptable loss ratios for us.

Great. Thank you for the answers and congrats on a nice start to the year.

Arash Soleimani, KBW.

Thanks, good morning. A couple of questions. What was the rate online on the cap bonds for the portion that replaced -- (inaudible) 75?

Yes, I think our fully loaded cost structure there was around 7.11%.

Exactly, with all the expenses associated with issuing a cat bond.

Okay. And what were direct premiums written and assumed premiums written in the quarter?

Direct written premium, I'm getting my thoughts here, the direct written premium for the quarter was $30 million-some for the assumed business and then the direct business then would have been a little over $100 million.

Okay, thanks.

We can circle back with an exact number for you.

I appreciate that. And I think were annualized premiums in the quarter, annualized premiums assumed, was that around -- I think you said 47 in the press release. I was just wondering what is the difference between that was and the $60 million that you had mentioned before, I think on the last call you had mentioned --.

Yes. The last call the opt out rate, it was higher in the first quarter takeouts particularly the February and March takeouts had a higher opt out rate than we had ever experienced before and that is what caused the lower premium being assumed from what we had unannounced on the prior call.

On a month-to-month basis, you kind of look at what you get in terms of a take-up rate on these Citizens process. Some months you have a pretty large number of opt outs, other months it is pretty light and so you just kind of have to look at it on an annualized basis. That is what we do. We kind of average all the takeouts and the take-up rates on call it a 12-month basis. And so we had -- we did some smaller takeouts in the first quarter and the smaller takeouts they had a little bit of a higher opt-out rate than what we were projecting but overall we still came in ahead of our projections in terms of topline revenue.

Okay. What is your retention currently?

Policies that come up for renewal we are renewing about 86% on our voluntary business and slightly higher on our takeout business and then we also have midterm cancels that result in about roughly 9% to 10% of our policies on an annual basis leaving us.

Okay. And then you said favorable development, that was a third and fourth quarter of 2014 if I heard correctly?

That was the primary quarters that had most of the favorable development. The first quarter of 2014 also had some significant favorable development and a couple of the other quarters did too but it was primarily third and fourth quarters.

And on that point, I mean we have always kind of taken the position that management's best expectation and best estimate is to take a conservative approach to the reserves and it is always a great thing when you see that type of favorable development take place on the book of business and we still increased reserves for the quarter.

So we like where we are from a reserves standpoint and favorable development is a real testament to the way that we are running the claims side of the model and that's always a good thing to see.

Thank you. I completely agree. Are you guys seeing or continuing to be more conservative let's say in terms of Tri-County water losses -- I guess are there any trends there that you are seeing?

Well, I mean trends, take the last 12 months, no. You have some months that are really high claim activity and higher severity and other months that are lower and you've just got to kind of look at it going back to call it on a rolling 12 month basis, no.

But I would say that the month of March for example, was a little higher compared to January and February which were kind of right in line. So you do see months that have a little bit of uptick and months that have a downtick but overall I think that we are handling the water pretty well. Assignment of benefits is an issue down there. There is a tremendous amount of let's just say claim inflation that takes place in the Tri-County. That's one of the reasons why we have been pretty good at limiting our personal line production in terms of policy count to a number that is in the call it mid to upper 20% of our personal lines policy base.

So we do manage things pretty well. We are taking good risks, having an integrated water program which is a real separator compared to everyone else in this business, it does help us to manage those loss costs and produce a better result for the customer.

Okay, okay. And in terms of other states, I know you said you were looking at some M&A opportunities now. I guess is the other states more like a 2016 story?

Yes, I would say so. We are waiting on one thing from our in-state regulators that will complete our applications in other states so we can get those new business apps or new licenses filed. So we are in a process of filing in four or five states. That should happen relatively soon. And by the time you get approved in those states and ramp up production, etc,. it is really a 2016 growth story.

Okay. And I think you may have mentioned this before, but for the rest of the year to what extent, I guess, will Citizens play a role? I mean how much activity is sort of still possible to get out of Citizens?

Well, they still have over 600,000 policies at Citizens, and you typically do see an increase in policy count at Citizens during hurricane season as private carriers tend to scale back the amount of business that they put on their books. So we think that there are still some great policies there and we are going to continue to explore those potential acquisitions.

It's the same question that we've been hearing for three years, and we continue to outperform and beat estimates along the way. And we are certainly bullish on the way 2015 is shaping up for us compared to the estimates that are out there for us.

Okay, I guess what I'm trying to ask, is there a certain policy count? Like let's say Citizens is around 600. Is there a certain policy count where you say to yourself, okay, this is probably where Citizens should be? You have probably policies now that won't go to the private market. Is there a certain point where you feel that way?

It depends on what is there. If they had 600,000 policies that had massively outdated or outsized claim history to them, then I would say the number is 600,000. If there are 600,000 policies that are really good policies and would fit our underwriting criteria, then it's a different equation.

But I would say in general, kind of looking at the types of exposures that we are seeing and our current portfolio and how those policies sit in, there is probably several hundred thousand policies that are still there that are worth considering. And that's just on the personal lines and there may be some further opportunities on the commercial residential side as well.

Okay, okay. And just one other question I had. In terms of the cat bonds that you had put a press release out on, is that the right coverage? So if you expand outside Florida, will those cover perils outside Florida?

Yes.

Yes, they will.

Okay, okay. So just on that front, it could be I guess more valuable, so relative to the FHCF?

Yes, it was particularly valuable versus the FHCF for sure. Given where the rate online is at FHCF this year, our ability to identify once again the market trend before it happened and execute on it is there. And to place the bonds where we placed them with a fully loaded cost of 7.11% and then look at where the FHCF rate online is at around 8.2%, it is pretty good.

We definitely led the market. It was an innovative bond. We worked closely with our ILS partners and had a favorable placement there, and it turned out to be the right decision for our policyholders.

The 8.2% for the FHCF, because I know 7.6% was a number we had gotten before. So are they actually now charging 8.2% for the 2015/2016 coverage?

Yes. We have been informed by our reinsurance broker which is Willis that given the purchase of private reinsurance by the FHCF, that cost is being passed through and that cost resulted in a higher rate online at the FHCF. But they are also mitigating the risk of assessments to policyholders.

So you have to look at it from both sides. There is no right or wrong answer there. I think that the FHCF went and did something that they thought was in the best interest of Florida and Florida policyholders, and we certainly commend efforts for risk mitigation.

But if we can also help to pass on a few savings to our policyholders and make our product a little more competitive in the market, we are also happy to do that.

Great, thank you. Final question, I know you said 6,600 policies or HO3. In terms of I guess the new policies, were the rest just condos or dwelling fire policies?

Mainly DPs and a little bit of HO6.

Did you have a policy count for the commercial residential? I know you said 7,900 was the personal residential, and then you said 2 million a month on the commercial residential voluntary. So I wanted to know maybe a policy count I could attach to new voluntary production there this quarter.

I do not have the policy count in front of me. We just go by premium because it is not like personal lines where you see a lot of the premium per policy. It kind of attach and a band based on ratings. The way you rate a commercial policy is starkly different from the way you would rate a personal lines policy. So policy count, no, I don't have that in front of me. We could always get that to you, but I think that $2 million a month kind of premium number is the run rate that we have been experiencing, and that again is ahead of our projections.

I must apologize here, the 7,900 I gave you, that is through April. That includes April production.

Okay, okay, perfect. Thank you for the answers and congrats on the quarter.

Ron Bobman, Capital Returns.

Great quarter. Your describing it as an acceptable loss ratio is sort of a meaningful understatement. I have a variety of questions, so if you don't mind being patient. One number I think you said -- I didn't hear it. I didn't get it down quickly enough or clearly. Stats surplus at quarter end, did you say $144 million or $134 million, or something close to that?

Not even close.

194. $194.1 million.

All right. I tried to short-sell you by $50 million. Sorry about that. How about cash at holdco?

We have roughly $60 million at the holdco.

Okay, okay. Does the growth trajectory suggest that you will downstream some portion of that in the next quarter or two, or at least not foreseen over that horizon?

I think our ratios are pretty solid where they are. We have about, call it, $530 million or so of in-force premium at the end of the quarter, and roughly $200 million in surplus. I would challenge anyone to find another of our publicly-traded peers that maintain that type of ratio.

So it is a very conservative ratio that has a lot of growth still yet to come from existing statutory surplus. And the fact that we are where we are in terms of our earnings means that statutory surplus by 6-1 will be well north of $200 million.

And our statutory earnings for the first quarter were $21 million, so it supports what Bruce just as far as the growth in surplus we expect to continue to see.

Thanks. Okay, moving along with some other questions. G&A I think was at about $11 million for the quarter. You mentioned the sunshine state, I think, DAC amortization. Are those two --basically, my question is just sort of the $11 million quarterly run rate for the G&A, is that sort of a good indicator for the second quarter? Or is there anything that is particularly unusual that happened in the first -quarter?

There was $1.5 million of stock-based compensation that was related to the options we issued last year. In the second quarter, that will be virtually a very small number. So we should see an improvement in the G&A expenses in the second quarter, I would think.

Will there be -- candidly, will there be a reloading of stock-based comp that will in some respects replace that dropoff of the 14 award, or no? You are suggesting not, I guess?

That is something that is really up to our compensation committee, and we do have an OMNI business (inaudible) plan that is in place, and stock-based compensation is a way that we use not only to compensate the executives but also to increase retention, because it is really a retention-focused exercise. You heard comments before about share buybacks and kind of how we view valuation. So I mean, just given a valuation that we think on a peer group basis is trading at, I don't know, maybe a 50% discount to the average PE in our sector.

Stock-based compensation is something that is definitely happy at the tip of our tongue. So we are bullish on where we are and we are bullish on the rest of this year. So I'm not going to preclude additional stock-based compensation awards as a way to compensate and retain key executives, but I'd just say that that is something that is being discussed internally.

Okay. The takeouts during Q1, could you break that out by individual takeout? In essence, the number of policies you got from each of the takeouts, the premium that you got, and split it also by personal residential versus commercial residential? Or if not, can we get that otherwise?

I guess I would just sort of -- everyone is asking a variety of statistical questions. Would you think about adding some more disclosure next quarter or thereafter, maybe a supplement that would just sort of tackle some of these fairly straightforward backward figure? Maybe not the takeouts stats, but things like surplus, cash at holding company, things like that; maybe just more productive to include in the supplement?

Okay, we can do that. The first quarter takeout, January personal lines was about 8,000 policies, representing about $17.7 million of premium -- this is annualized premium. And then the February one was about 4,200 policies which represented about $8.6 million of premium. And March was about 4,200 policies representing $8.7 million of premium.

And then on the commercial side, January was 244 policies representing $9.0 million premium, and February was 47 policies representing $2.2 million, and March was 26 policies representing about $500,000 a premium.

Got you. From your voluntary production in the second quarter or, for that matter, really may be in the heart of the summer in the storm season, will you do anything differently that you will be motivated to slow that down? Or you have no intention to sort of do anything differently to slow down the voluntary production during wind season, basically? Short of a storm being on the horizon which I'm sure you'd take action, but outside of that is what I am asking.

No, I think we like where we are. We are getting a really, really good mix of business throughout the state, and that's just kind of a focus of the underwriting guidelines we have in place. And as you get good diversification throughout Florida, it means that you are not overly loading in one particular area and driving your probable maximum loss up during wind season.

So given that you have natural attrition and then you add additional policies on a monthly basis, right now we are not planning on taking any underwriting actions that would impact the voluntary production. But generally speaking, we will be taking out less policies from Citizens, of course, because that's more of a larger scale of depopulation activity, and has more of a meaningful impact on the PMLs during wind season.

Right now, we just have to manage things to current expectations, and that includes kind of keeping voluntary production where it is. We're seeing consistently better results every month, well ahead of internal projections. We are happy with that. And if we are going to manage the PMLs during cat season, it is going to be managing it from the takeout activity.

And then what visibility do you have for, I presume, just the second quarter as far as takeouts? Have you indicated to the state or have you signed up for any particular takeouts on the personal side or the commercial residential side?

Well, the takeouts in the second quarter are more limited than the first quarter because we are heading into reinsurance season and hurricane season. So I mean, we do have a takeout that's in place right now for April and May. We did not do one in June. And they are of a smaller scale.

Order of magnitude, like your February or March, or even smaller than that?

A little smaller than that. I think we will net between the two maybe 4,500 policies, something of that nature.

We have got to set the PMLs now and buy our reinsurance, so we have to be careful on what we are doing there.

Okay. What would the premium correspond to those 4,500, because obviously it depends how much is commercial and how much is (multiple speakers)?

It is all personal.

It's all personal lines.

Represents a little over $10 million of premium.

Okay, thanks for that color. That is adequate My last question -- thanks for being patient -- is any change in the first quarter of 2015 for how you were picking the initial accident year loss ratios, as compared to -- and I know there was some favorable development that you booked.

But putting that aside from an accident year basis, any change in the accident year loss picks for either the personal lines of the commercial residential business that you wrote in Q1, as compared to either the average for all of 2014, or what the booking was in Q4 of 2014 without the favorable development?

Are you asking did we change our loss development factor?

Yes, that is a simple question? Did change your loss picks in Q1 of 2015?

No, we did not change our loss development factors in Q1 for the first quarter. We did a little -- as every quarter when you get additional experience, we you adjust some modestly, the development factors, but it's really out in the further quarters. But the Q1 to Q2, there was no change in the factor this quarter compared to last quarter.

Thanks, gentlemen, best of luck. Hope it continues.

(Operator Instructions) John Barnidge, Sandler O'Neill.

Good morning and congrats on the results. Most of my questions have been answered; just have a quick one. As you look at investment income, how would you see that as a run rate going forward? I know it's going to be growing, but any directionality you could give us would be great.

Our yield is running about 1.7%, and our assets -- invested assets continue to expect to grow as our premium base grows. I would -- let me think about that for a second, John. I think invested assets growing 10% for the rest of the year would not be unreasonable.

I think investment income for the year, I would suggest that we should be seeing -- again, in relation to revenue it's so very small, but kind of a -- I wouldn't call it quite a doubling every month -- or every quarter, I would say. I would say it's more modest than that.

But in terms of the overall return, I think that we are still targeting the same type of return because we are employing the same diversification across the investment portfolio. So I don't think we are running a 2% return on our invested assets at this point, and that just reflects the conservative nature of the investment portfolio.

We are fairly short duration on the bonds. We do have a lot of cash that still needs to be deployed. We are a very cash-rich company, and our exposures to equities and MLPs that you have to adjust from a mark-to-market basis remains very fairly low.

All right, great. Thanks a lot.

Casey Alexander, Gilford Securities.

My questions were all answered. Thank you.

That does conclude the question-and-answer session. I would like to turn the conference over to Mr. Bruce Lucas for any closing remarks.

I would just like to thank everyone for participating in the first-quarter earnings call, and thank you again for your time.

The conference has now concluded. Thank you for your attendance. You may now disconnect your line.