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| 8-K - 8-K - FedNat Holding Co | fnhc226208k.htm |
FEDNAT HOLDING COMPANY REPORTS
FOURTH QUARTER AND FULL YEAR 2019 RESULTS
Sunrise, Florida, February 26, 2019 - FedNat Holding Company (the “Company”) (Nasdaq: FNHC) today reported results for the three and twelve months ended December 31, 2019.
Q4 2019 highlights (as measured against the same three-month period last year, except where noted):
•Net loss of $6.9 million or $0.51 per diluted share
•Adjusted operating loss of $7.9 million of $0.59 per diluted share.
•$4.5 million of claims, net of recoveries, pre-tax, from Tropical Storms Olga and Nestor as well as other severe weather events impacting Texas, Florida and other states, as previously communicated.
•$12.0 million of claims, net of recoveries, pre-tax for adverse prior year reserve development, including $8.0 million of non-core losses, as previously communicated.
•$5.0 million of claims, net of recoveries, pre-tax, for current year strengthening in homeowners Florida, as a result of continued impact from assignment of benefits and related litigation costs, as previously communicated.
•Gross written premiums of $150.1 million, including $6.6 million from Maison.
•Net premiums earned increased 4.5% to $95.2 million, including $4.1 million from Maison.
•Combined ratio of 122.1%, up 3.8 points, representing 4.7 points of net catastrophe losses in the period, 12.6 points of adverse development and 5.3 points from current accident year reserve strengthening.
•Quarter-end Florida homeowners in-force policies of approximately 241,000.
•202.3% increase in non-Florida homeowners in-force policies to approximately 133,000.
•Book value per share increased 2.4% to $17.25 as compared to $16.84 as of December 31, 2018, due primarily to unrealized gains on our bond portfolio, partially offset by the acquisition of Maison and dividends declared.
•Repurchased 238,000 shares of common stock at a total of $3.9 million during the fourth quarter of 2019.
“The claims environment in the Florida homeowners market remains challenging, even despite the enactment of AOB reform on July 1, 2019,” said Mr. Michael H. Braun, the Company’s Chief Executive Officer. "Increased litigation costs were a major factor in the reserve strengthening in our Florida homeowners line and also contributed to the adverse development in our non-core lines, which continue to be in run-off. While FedNat has been a leader in taking rate in Florida homeowners and ensuring stringent underwriting practices, nonetheless at this time we have a cautious near-term outlook in this market and do not expect our Florida policy count to grow in 2020."
Mr. Braun added, "Following the successful acquisition of Maison in 2019, we have expanded our presence in more stable and profitable coastal homeowners markets outside of Florida. Our non-Florida book of business was profitable in the fourth quarter, including Maison's contribution for the month of December. We believe our non-Florida growth opportunities position FedNat for improved financial performance in 2020, and long-term profitable growth. FedNat's balance sheet remains strong and will enable us to continue our commitment to returning value to shareholders through growth, as appropriate, and our dividend and share repurchases.”
Consolidated
•Net loss of $6.9 million or $0.51 per diluted share during the fourth quarter of 2019, as compared to net loss of $9.3 million or $0.73 per diluted share during the fourth quarter of 2018. The fourth quarter was significantly impacted by (all amounts on a pre-tax basis) $4.5 million of claims, net of recoveries from catastrophe severe weather events, $12.0 million of claims, net of recoveries, for adverse prior year reserve development, including $8.0 million of non-core losses, and $5.0 million of claims, net of recoveries, for current year strengthening, as previously communicated.
•Compared to September 30, 2019, book value per share decreased $1.20 to $17.25 at December 31, 2019. The decrease was predominantly driven by the acquisition of Maison of $0.57 per share, a net loss of $0.51 per share, as noted above, and dividends declared of $0.09 per share.
Revenues
•Total revenue increased $12.6 million or 13.0%, to $109.0 million for the three months ended December 31, 2019, compared with $96.4 million for the three months ended December 31, 2018. The increase was primarily driven by $4.1 million of higher net premiums earned (as discussed further below) $7.1 million of additional investment gains in the current period as compared to the prior year as well as higher other income.
•Gross written premiums increased $22.5 million, or 17.6%, to $150.1 million in the quarter, compared with $127.6 million for the same three-month period last year. Gross premiums written increased due to the growth in homeowners non-
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Florida, including $6.6 million from Maison. Our non-Florida business continues to show exceptional growth year over year, especially in the state of Texas, and now with Maison’s book of business, will allow us to leverage our infrastructure and diversify insurance risk.
•Gross premiums earned increased $15.4 million, or 10.9%, to $157.2 million for the three months ended December 31, 2019, as compared to $141.8 million for the three months ended December 31, 2018. The higher gross premiums earned was driven by a 12.5% increase in earned premiums in Homeowners, which includes $7.9 million from Maison, partially offset by the results of our decision to exit the Automobile and commercial general liability lines.
•Ceded premiums increased $11.3 million, or 22.4%, to $62.0 million in the quarter, compared to $50.7 million the same three-month period last year. The increase was driven by $7.5 million higher excess of loss reinsurance spend in Homeowners, as this years’ program became effective July 1, 2019 at a higher rate on-line than the program in the previous year and $3.8 million from Maison. These items were slightly offset by lower ceded premiums in Automobile as we have exited that line of business.
Expenses
•Losses and loss adjustment expenses (“LAE”) increased $6.5 million, or 9.0%, to $78.8 million for the three months ended December 31, 2019, compared with $72.3 million for the same three-month period last year. The net loss ratio increased 3.4 percentage points, to 82.8% in the current quarter, compared to 79.4% in the fourth quarter of 2018. The higher ratio was primarily the result of the increase in reinsurance spend, which reduces the net earned premium denominator of the loss ratio calculation. The fourth quarter of 2019 included $12.0 million of adverse prior year reserve development, including $8.0 million from non-core lines, as we exit these lines, as well as $6.0 million of catastrophe net losses from Tropical Storms Olga and Nestor and other catastrophe weather events ($3.0 million of these losses relate to non-Florida, which is subject to a 50% profit-sharing agreement) and $5.0 million of reserve strengthening in the current accident year. After a complete analysis of recent emerging trends, we recorded additional losses in current and prior accident years as a result of higher than expected tail trends in weather-related claims and higher litigation claims driving higher than expected severity in homeowners Florida. The adverse experience in our non-core lines was driven by claim reopenings across the remaining active claims in Automobile and high severity claims as well as late reported new claims across several accident years in our commercial general liability line of business. Additionally, higher homeowners gross premiums earned across periods drove additional losses of approximately $7.0 million. These items were offset by $23.7 million of net loss from Hurricane Michael and $6.5 million of non-core losses in the fourth quarter of 2018.
•The net expense ratio increased 0.4 percentage points, to 39.3% in the current quarter, as compared to 38.9% in the fourth quarter of 2018. Commissions and other underwriting expenses increased $1.9 million, or 6.4%, to $31.5 million for the three months ended December 31, 2019, compared with $29.6 million for the three months ended December 31, 2018. The slight increase is made up of higher acquisition costs from overall higher premiums, which were partially offset by lower profit share costs because of higher catastrophe losses in FNIC’s non-Florida book of business, as referenced above.
•General and administrative expenses increased $0.1 million, or 0.5%, to $5.9 million for the three months ended December 31, 2019, compared with $5.8 million for the three months ended December 31, 2018. However, excluding deal costs, general and administrative expenses decreased $0.3 million to $5.2 million in the fourth quarter of 2019, compared with $5.5 million for the fourth quarter of 2018. The current quarter includes $0.7 million due diligence related costs related to the Maison acquisition, which was finalized in the quarter.
•Interest expense increased $0.9 million to $1.9 million for the three months ended December 31, 2019, compared with $1.0 million in the prior year period, due to the Company having a higher outstanding debt in the current quarter as compared to the same quarter in the prior year.
Line of Business Results
•Homeowners net loss for the current quarter was $2.3 million, which included 6.5% growth in net premiums earned compared to the fourth quarter of 2018. The combined ratio for the current quarter was 111.4%, which includes (all amounts on a pre-tax basis) $4.0 million, net, of prior year development, $5.0 million, net, of current year strengthening and $4.5 million of catastrophe losses, net of reinsurance and profit share recoveries.
•Automobile's net loss for the fourth quarter of 2019 was $1.8 million, as compared with a loss of $4.0 million in the prior year quarter, primarily driven by lower adverse prior year development, as we exit this line of business.
•Other’s net loss of $2.8 million in the fourth quarter of 2019, was driven by (all amounts on a pre-tax basis) $5.4 million of prior year adverse development in our commercial general liability book of business, and $1.9 million of interest expense, partially offset by net investment income of $3.9 million and investment gains of $2.0 million.
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2019 vs. 2018 Full Year Results
•The Company reported net income of $1.0 million, or $0.08 per diluted share, for 2019 as compared to net income of $14.9 million, or $1.16 per diluted share, for 2018. The performance in 2019 is the result of higher losses from catastrophe events, adverse loss experience and higher reinsurance costs in the second half of 2019.
•The Company's adjusted operating income (loss) was $(0.4) million or $(0.03) per diluted share in 2019, as compared to adjusted operating income of $20.0 million or $1.55 per diluted share in 2018.
Stock Repurchase Program
•During the fourth quarter of 2019, the Company repurchased 238,000 shares of common stock for $3.9 million at an average price per share of $16.27. As of February 25, 2020, in the first quarter of 2020, the Company has repurchased 188,111 shares of common stock for $3.0 million at an average price per share of $15.74.
Subsequent Event/Premium Rate Activity
•The Company applied for and was approved by the Florida Office of Insurance regulation (“OIR”) for a state-wide average rate increase of 2.8% for Florida homeowners multiple-peril insurance policies, which is expected to become effective for new and renewal policies on March 15, 2020.
•The Company applied for and is awaiting approval by the Florida OIR for a state-wide average rate increase of 7.4% for Florida homeowners multiple-peril insurance policies, which, subject to approval, would be expected to become effective for new and renewal policies on June 15, 2020.
•There are other rate actions being taken across our books of business. For further detail and information related to these rate actions, please refer to the Form 8-K published with the U.S. Securities and Exchange Commission on February 19, 2020.
Conference Call Information
The Company will hold an investor conference call at 9:00 AM (ET) Thursday, February 27, 2020. The Company’s CEO, Michael Braun and its CFO, Ronald Jordan will discuss the financial results and review the outlook for the Company. Messrs. Braun and Jordan invite interested parties to participate in the conference call.
Listeners interested in participating in the Q&A session may access the conference call as follows:
Toll-Free Dial-in: (877) 303-6913
Conference ID: 4880838
A live webcast of the call will be available online via the “Presentations and Events” section of the Company’s website at FedNat.com or interested parties can click on the following link:
http://www.fednat.com/investor-relations/investor-presentations/
Please call at least five minutes in advance to ensure that you are connected prior to the presentation. A webcast replay of the conference call will be available shortly after the live webcast is completed and may be accessed via the Company’s website.
About the Company
FedNat is a regional, insurance holding company that controls substantially all aspects of the insurance underwriting, distribution and claims processes through our subsidiaries and contractual relationships with independent agents and general agents. The Company, through our wholly owned subsidiaries, is authorized to underwrite, and/or place homeowners multi-peril, federal flood and other lines of insurance in Florida and other states. We market, distribute and service our own and third-party insurers’ products and other services through a network of independent and general agents.
The Company’s supplemental line of business information is designed to afford users greater transparency into our results. The “Homeowners” line of business consists of our homeowners and fire property and casualty insurance business, which currently operates in Florida, Alabama, Texas, Louisiana and South Carolina. The “Automobile” line of business consists of our nonstandard personal automobile insurance business which operated in Georgia, Texas, Alabama, and Florida. The “Other” line of business primarily consists of our commercial general liability and federal flood businesses, along with corporate and investment operations.
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Forward-Looking Statements /Safe Harbor Statements
Safe harbor statement under the Private Securities Litigation Reform Act of 1995:
Statements that are not historical fact are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “guidance,” “indicate,” “intend,” “may,” “might,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” or “will” or the negative or other variations thereof, and similar words or phrases or comparable terminology, are intended to identify forward-looking statements.
Forward-looking statements might also include, but are not limited to, one or more of the following:
•Projections of revenues, income, earnings per share, dividends, capital structure or other financial items or measures;
•Descriptions of plans or objectives of management for future operations, insurance products or services;
•Forecasts of future insurable events, economic performance, liquidity, need for funding and income; and
•Descriptions of assumptions or estimates underlying or relating to any of the foregoing.
The risks and uncertainties include, without limitation, risks and uncertainties related to estimates, assumptions and projections generally; the nature of the Company’s business; the adequacy of its reserves for losses and loss adjustment expense; claims experience; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail) and other catastrophic losses; reinsurance costs and the ability of reinsurers to indemnify the Company; raising additional capital and our compliance with minimum capital and surplus requirements; potential assessments that support property and casualty insurance pools and associations; the effectiveness of internal financial controls; the effectiveness of our underwriting, pricing and related loss limitation methods; changes in loss trends, including as a result of insureds’ assignment of benefits; court decisions and trends in litigation; our potential failure to pay claims accurately; ability to obtain regulatory approval applications for requested rate increases, or to underwrite in additional jurisdictions, and the timing thereof; the impact that the results of our subsidiaries’ operations may have on our results of operations; inflation and other changes in economic conditions (including changes in interest rates and financial markets); pricing competition and other initiatives by competitors; legislative and regulatory developments; the outcome of litigation pending against the Company, and any settlement thereof; dependence on investment income and the composition of the Company’s investment portfolio; insurance agents; ratings by industry services; the reliability and security of our information technology systems; reliance on key personnel; acts of war and terrorist activities; and other matters described from time to time by the Company in releases and publications, and in periodic reports and other documents filed with the United States Securities and Exchange Commission.
In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including claims and litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a contingency. Reported results may therefore appear to be volatile in certain accounting periods.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. We do not undertake any obligation to update publicly or revise any forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.
Contacts
Michael H. Braun, CEO (954) 308-1322,
Ronald Jordan, CFO (954) 308-1363,
Bernard Kilkelly, Investor Relations (954) 308-1409,
or investorrelations@fednat.com
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FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Selected Financial Highlights
(Dollars in thousands, except per share data)
(Unaudited)
| As of or For the | ||||||||||||||||||||||||||||||||||||||
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | % Change | 2019 | 2018 | % Change | |||||||||||||||||||||||||||||||||
Net Income (Loss) Attributable to Common Shareholders | ||||||||||||||||||||||||||||||||||||||
| Net income (loss): | ||||||||||||||||||||||||||||||||||||||
| Homeowners | $ | (2,316) | $ | (1,354) | 71.0 | % | $ | 5,665 | $ | 22,175 | (74.5) | % | ||||||||||||||||||||||||||
| Automobile | (1,799) | (3,980) | (54.8) | % | (4,040) | (5,648) | (28.5) | % | ||||||||||||||||||||||||||||||
| Other | (2,778) | (3,971) | (30.0) | % | (614) | (1,599) | (61.6) | % | ||||||||||||||||||||||||||||||
| Consolidated | $ | (6,893) | $ | (9,305) | (25.9) | % | $ | 1,011 | $ | 14,928 | (93.2) | % | ||||||||||||||||||||||||||
| Adjusted operating income (loss): | ||||||||||||||||||||||||||||||||||||||
| Homeowners | $ | (2,306) | $ | (1,049) | 119.8 | % | $ | 5,912 | $ | 23,663 | (75.0) | % | ||||||||||||||||||||||||||
| Automobile | (1,799) | (3,979) | (54.8) | % | (4,035) | (5,578) | (27.7) | % | ||||||||||||||||||||||||||||||
| Other | (3,820) | 91 | NCM | (2,238) | 1,905 | (217.5) | % | |||||||||||||||||||||||||||||||
| Consolidated | $ | (7,925) | $ | (4,937) | 60.5 | % | $ | (361) | $ | 19,990 | (101.8) | % | ||||||||||||||||||||||||||
| Per Common Share | ||||||||||||||||||||||||||||||||||||||
| Net income (loss) - diluted | $ | (0.51) | $ | (0.73) | (29.4) | % | $ | 0.08 | $ | 1.16 | (93.3) | % | ||||||||||||||||||||||||||
| Adjusted operating income (loss) - diluted | (0.59) | (0.39) | 53.0 | % | (0.03) | 1.55 | (101.8) | % | ||||||||||||||||||||||||||||||
| Dividends declared | 0.09 | 0.08 | 12.5 | % | 0.33 | 0.24 | 37.5 | % | ||||||||||||||||||||||||||||||
| Book value | 17.25 | 16.84 | 2.4 | % | 17.25 | 16.84 | 2.4 | % | ||||||||||||||||||||||||||||||
| Book value, excluding AOCI | 16.54 | 17.13 | (3.5) | % | 16.54 | 17.13 | (3.5) | % | ||||||||||||||||||||||||||||||
| Return to Shareholders | ||||||||||||||||||||||||||||||||||||||
| Repurchases of common stock | $ | 3,867 | $ | — | NCM | $ | 3,867 | $ | 5,061 | (23.6) | % | |||||||||||||||||||||||||||
| Dividends declared | 1,176 | 1,043 | 12.8 | % | 4,309 | 3,120 | 38.1 | % | ||||||||||||||||||||||||||||||
| $ | 5,043 | $ | 1,043 | 383.5 | % | $ | 8,176 | $ | 8,181 | (0.1) | % | |||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 108,987 | $ | 96,442 | 13.0 | % | $ | 414,961 | $ | 396,093 | 4.8 | % | ||||||||||||||||||||||||||
| Adjusted operating revenues | 106,953 | 101,502 | 5.4 | % | 407,877 | 400,237 | 1.9 | % | ||||||||||||||||||||||||||||||
| Gross premiums written | 150,074 | 127,613 | 17.6 | % | 610,608 | 567,764 | 7.5 | % | ||||||||||||||||||||||||||||||
| Gross premiums earned | 157,201 | 141,781 | 10.9 | % | 582,334 | 580,020 | 0.4 | % | ||||||||||||||||||||||||||||||
| Net premiums earned | 95,188 | 91,098 | 4.5 | % | 363,652 | 355,257 | 2.4 | % | ||||||||||||||||||||||||||||||
| Ratios to Net Premiums Earned | ||||||||||||||||||||||||||||||||||||||
| Net loss ratio | 82.8 | % | 79.4 | % | 75.1 | % | 64.3 | % | ||||||||||||||||||||||||||||||
| Net expense ratio | 39.3 | % | 38.9 | % | 35.9 | % | 40.3 | % | ||||||||||||||||||||||||||||||
| Combined ratio | 122.1 | % | 118.3 | % | 111.0 | % | 104.6 | % | ||||||||||||||||||||||||||||||
| In-Force Homeowners Policies | ||||||||||||||||||||||||||||||||||||||
| Florida | 241,000 | 247,000 | (2.4) | % | 241,000 | 247,000 | (2.4) | % | ||||||||||||||||||||||||||||||
| Non-Florida | 133,000 | 44,000 | 202.3 | % | 133,000 | 44,000 | 202.3 | % | ||||||||||||||||||||||||||||||
| 374,000 | 291,000 | 28.5 | % | 374,000 | 291,000 | 28.5 | % | |||||||||||||||||||||||||||||||
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FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)
| Three Months Ended | Twelve Months Ended | |||||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||||
| Net premiums earned | $ | 95,188 | $ | 91,098 | $ | 363,652 | $ | 355,257 | ||||||||||||||||||
| Net investment income | 3,864 | 3,402 | 15,901 | 12,460 | ||||||||||||||||||||||
| Net realized and unrealized investment gains (losses) | 2,034 | (5,060) | 7,084 | (4,144) | ||||||||||||||||||||||
| Direct written policy fees | 2,892 | 2,681 | 10,200 | 13,366 | ||||||||||||||||||||||
| Other income | 5,009 | 4,321 | 18,124 | 19,154 | ||||||||||||||||||||||
| Total revenues | 108,987 | 96,442 | 414,961 | 396,093 | ||||||||||||||||||||||
| | ||||||||||||||||||||||||||
| Costs and expenses: | ||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 78,796 | 72,318 | 273,080 | 228,416 | ||||||||||||||||||||||
| Commissions and other underwriting expenses | 31,539 | 29,642 | 107,189 | 121,109 | ||||||||||||||||||||||
| General and administrative expenses | 5,867 | 5,838 | 23,203 | 22,183 | ||||||||||||||||||||||
| Interest expense | 1,916 | 1,038 | 10,776 | 4,177 | ||||||||||||||||||||||
| Total costs and expenses | 118,118 | 108,836 | 414,248 | 375,885 | ||||||||||||||||||||||
| | ||||||||||||||||||||||||||
| Income (loss) before income taxes | (9,131) | (12,394) | 713 | 20,208 | ||||||||||||||||||||||
| Income tax expense (benefit) | (2,238) | (3,089) | (298) | 5,498 | ||||||||||||||||||||||
| Net income (loss) | (6,893) | (9,305) | 1,011 | 14,710 | ||||||||||||||||||||||
| Net income (loss) attributable to non-controlling interest | — | — | — | (218) | ||||||||||||||||||||||
| Net income (loss) attributable to FedNat Holding Company shareholders | $ | (6,893) | $ | (9,305) | $ | 1,011 | $ | 14,928 | ||||||||||||||||||
| | ||||||||||||||||||||||||||
Net Income (Loss) Per Common Share | ||||||||||||||||||||||||||
| Basic | $ | (0.51) | $ | (0.73) | $ | 0.08 | $ | 1.17 | ||||||||||||||||||
| Diluted | $ | (0.51) | $ | (0.73) | $ | 0.08 | $ | 1.16 | ||||||||||||||||||
| | ||||||||||||||||||||||||||
Weighted Average Number of Shares of Common Stock Outstanding | ||||||||||||||||||||||||||
| Basic | 13,409 | 12,777 | 12,977 | 12,775 | ||||||||||||||||||||||
| Diluted | 13,409 | 12,777 | 13,023 | 12,867 | ||||||||||||||||||||||
| | ||||||||||||||||||||||||||
| Dividends Declared Per Common Share | $ | 0.09 | $ | 0.08 | $ | 0.33 | $ | 0.24 | ||||||||||||||||||
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FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics
(Unaudited)
| | Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| | December 31, | December 31, | ||||||||||||||||||||||||
| | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||
| | (In thousands) | |||||||||||||||||||||||||
| Gross premiums written: | ||||||||||||||||||||||||||
| Homeowners Florida | $ | 104,536 | $ | 102,834 | $ | 451,856 | $ | 458,652 | ||||||||||||||||||
| Homeowners non-Florida | 42,163 | 21,941 | 142,485 | 81,037 | ||||||||||||||||||||||
| Automobile | — | (25) | (1) | 8,603 | ||||||||||||||||||||||
| Commercial general liability | (24) | (135) | (145) | 5,384 | ||||||||||||||||||||||
| Federal flood | 3,399 | 2,998 | 16,413 | 14,088 | ||||||||||||||||||||||
| Total gross premiums written | $ | 150,074 | $ | 127,613 | $ | 610,608 | $ | 567,764 | ||||||||||||||||||
| | Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| | December 31, | December 31, | ||||||||||||||||||||||||
| | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||
| | (In thousands) | |||||||||||||||||||||||||
| Gross premiums earned: | ||||||||||||||||||||||||||
| Homeowners Florida | $ | 114,249 | $ | 116,614 | $ | 452,730 | $ | 473,121 | ||||||||||||||||||
| Homeowners non-Florida | 38,908 | 19,499 | 112,836 | 66,571 | ||||||||||||||||||||||
| Automobile | — | 526 | 26 | 18,402 | ||||||||||||||||||||||
| Commercial general liability | (24) | 1,650 | 1,669 | 8,794 | ||||||||||||||||||||||
| Federal flood | 4,068 | 3,492 | 15,073 | 13,132 | ||||||||||||||||||||||
| Total gross premiums earned | $ | 157,201 | $ | 141,781 | $ | 582,334 | $ | 580,020 | ||||||||||||||||||
| | Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| | December 31, | December 31, | ||||||||||||||||||||||||
| | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||
| | (In thousands) | |||||||||||||||||||||||||
| Net premiums earned: | ||||||||||||||||||||||||||
| Homeowners | $ | 95,212 | $ | 89,390 | $ | 362,183 | $ | 342,247 | ||||||||||||||||||
| Automobile | — | 132 | 6 | 4,658 | ||||||||||||||||||||||
| Commercial general liability | (24) | 1,576 | 1,463 | 8,352 | ||||||||||||||||||||||
| Total net premiums earned | $ | 95,188 | $ | 91,098 | $ | 363,652 | $ | 355,257 | ||||||||||||||||||
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FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics (continued)
(Unaudited)
| | Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| | December 31, | December 31, | ||||||||||||||||||||||||
| | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||
| | (In thousands) | |||||||||||||||||||||||||
| Commissions and other underwriting expenses: | ||||||||||||||||||||||||||
| Homeowners Florida | $ | 13,152 | $ | 13,897 | $ | 52,962 | $ | 56,693 | ||||||||||||||||||
| All others | 7,695 | 5,460 | 25,491 | 19,948 | ||||||||||||||||||||||
| Ceding commissions | (3,235) | (3,966) | (12,128) | (12,743) | ||||||||||||||||||||||
| Total commissions | 17,612 | 15,391 | 66,325 | 63,898 | ||||||||||||||||||||||
| Automobile | — | 93 | 3 | 4,322 | ||||||||||||||||||||||
| Homeowners non-Florida | 1,028 | 793 | 3,365 | 2,147 | ||||||||||||||||||||||
| Total fees | 1,028 | 886 | 3,368 | 6,469 | ||||||||||||||||||||||
| Salaries and wages | 3,024 | 2,997 | 12,114 | 14,279 | ||||||||||||||||||||||
| Other underwriting expenses | 9,875 | 10,368 | 25,382 | 36,463 | ||||||||||||||||||||||
| Total commissions and other underwriting expenses | $ | 31,539 | $ | 29,642 | $ | 107,189 | $ | 121,109 | ||||||||||||||||||
| | Three Months Ended | Twelve Months Ended | ||||||||||||||||||||||||
| | December 31, | December 31, | ||||||||||||||||||||||||
| | 2019 | 2018 | 2019 | 2018 | ||||||||||||||||||||||
| Net loss ratio | 82.8 | % | 79.4 | % | 75.1 | % | 64.3 | % | ||||||||||||||||||
| Net expense ratio | 39.3 | % | 38.9 | % | 35.9 | % | 40.3 | % | ||||||||||||||||||
| Combined ratio | 122.1 | % | 118.3 | % | 111.0 | % | 104.6 | % | ||||||||||||||||||
| Gross loss ratio | 100.8 | % | 277.6 | % | 120.5 | % | 149.8 | % | ||||||||||||||||||
| Gross expense ratio | 25.9 | % | 27.8 | % | 24.5 | % | 26.9 | % | ||||||||||||||||||
8
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)
| | December 31, | |||||||||||||
| | 2019 | 2018 | ||||||||||||
| ASSETS | (In thousands) | |||||||||||||
| Investments: | ||||||||||||||
| Debt securities, available-for-sale, at fair value (amortized cost of $512,645 and $433,664, respectively) | $ | 526,265 | $ | 428,641 | ||||||||||
| Debt securities, held-to-maturity, at amortized cost | 4,337 | 5,126 | ||||||||||||
| Equity securities, at fair value | 20,039 | 17,758 | ||||||||||||
| Total investments | 550,641 | 451,525 | ||||||||||||
| Cash and cash equivalents | 133,361 | 64,423 | ||||||||||||
| Prepaid reinsurance premiums | 145,659 | 108,577 | ||||||||||||
| Premiums receivable, net of allowance of $159 and $77, respectively | 41,422 | 29,791 | ||||||||||||
| Reinsurance recoverable, net | 209,615 | 211,424 | ||||||||||||
| Deferred acquisition costs and value of business acquired, net | 56,136 | 39,436 | ||||||||||||
| Income taxes, net | 2,552 | 5,220 | ||||||||||||
| Goodwill | 10,997 | — | ||||||||||||
| Other assets | 28,633 | 14,975 | ||||||||||||
| Total assets | $ | 1,179,016 | $ | 925,371 | ||||||||||
| | ||||||||||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||
| Liabilities | ||||||||||||||
| Loss and loss adjustment expense reserves | $ | 324,362 | $ | 296,230 | ||||||||||
| Unearned premiums | 360,870 | 281,992 | ||||||||||||
| Reinsurance payable | 102,467 | 63,599 | ||||||||||||
| Long-term debt, net of deferred financing costs of $1,478 and $596, respectively | 98,522 | 44,404 | ||||||||||||
| Deferred revenue | 6,856 | 4,585 | ||||||||||||
| Other liabilities | 37,246 | 19,302 | ||||||||||||
| Total liabilities | 930,323 | 710,112 | ||||||||||||
| Shareholders' Equity | ||||||||||||||
| Preferred stock, $0.01 par value: 1,000,000 shares authorized | — | — | ||||||||||||
| Common stock, $0.01 par value: 25,000,000 shares authorized; 14,414,821 and 12,784,444 shares issued and outstanding, respectively | 144 | 128 | ||||||||||||
| Additional paid-in capital | 167,677 | 141,128 | ||||||||||||
| Accumulated other comprehensive income (loss) | 10,281 | (3,750) | ||||||||||||
| Retained earnings | 70,591 | 77,753 | ||||||||||||
| Total shareholders’ equity attributable to FedNat Holding Company shareholders | 248,693 | 215,259 | ||||||||||||
| Non-controlling interest | — | — | ||||||||||||
| Total shareholders’ equity | 248,693 | 215,259 | ||||||||||||
| Total liabilities and shareholders' equity | $ | 1,179,016 | $ | 925,371 | ||||||||||
9
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Statements of Operations and Operating Metrics by Line of Business
(Unaudited)
| | Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||
| | Homeowners | Automobile | Other | Consolidated | Homeowners | Automobile | Other | Consolidated | |||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Gross premiums written | $ | 146,699 | $ | — | $ | 3,375 | $ | 150,074 | $ | 124,775 | $ | (25) | $ | 2,863 | $ | 127,613 | |||||||||||||||||||||||||||||||
| Gross premiums earned | 153,157 | — | 4,044 | 157,201 | 136,113 | 526 | 5,142 | 141,781 | |||||||||||||||||||||||||||||||||||||||
| Ceded premiums | (57,945) | — | (4,068) | (62,013) | (46,723) | (394) | (3,566) | (50,683) | |||||||||||||||||||||||||||||||||||||||
| Net premiums earned | 95,212 | — | (24) | 95,188 | 89,390 | 132 | 1,576 | 91,098 | |||||||||||||||||||||||||||||||||||||||
| Net investment income | — | — | 3,864 | 3,864 | — | — | 3,402 | 3,402 | |||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized investment gains (losses) | — | — | 2,034 | 2,034 | — | — | (5,060) | (5,060) | |||||||||||||||||||||||||||||||||||||||
| Direct written policy fees | 2,833 | — | 59 | 2,892 | 2,506 | 93 | 82 | 2,681 | |||||||||||||||||||||||||||||||||||||||
| Other income | 4,570 | 1 | 438 | 5,009 | 3,461 | 64 | 796 | 4,321 | |||||||||||||||||||||||||||||||||||||||
| Total revenues | 102,615 | 1 | 6,371 | 108,987 | 95,357 | 289 | 796 | 96,442 | |||||||||||||||||||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 70,777 | 2,334 | 5,685 | 78,796 | 64,634 | 4,840 | 2,844 | 72,318 | |||||||||||||||||||||||||||||||||||||||
| Commissions and other underwriting expenses | 30,799 | — | 740 | 31,539 | 27,819 | 730 | 1,093 | 29,642 | |||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 4,498 | 50 | 1,319 | 5,867 | 4,718 | 50 | 1,070 | 5,838 | |||||||||||||||||||||||||||||||||||||||
| Interest expense | — | — | 1,916 | 1,916 | — | — | 1,038 | 1,038 | |||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | 106,074 | 2,384 | 9,660 | 118,118 | 97,171 | 5,620 | 6,045 | 108,836 | |||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | (3,459) | (2,383) | (3,289) | (9,131) | (1,814) | (5,331) | (5,249) | (12,394) | |||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | (1,143) | (584) | (511) | (2,238) | (460) | (1,351) | (1,278) | (3,089) | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (2,316) | $ | (1,799) | $ | (2,778) | $ | (6,893) | $ | (1,354) | $ | (3,980) | $ | (3,971) | $ | (9,305) | |||||||||||||||||||||||||||||||
| Ratios to net premiums earned: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss ratio | 74.3 | % | NCM | NCM | 82.8 | % | 72.3 | % | NCM | 180.5 | % | 79.4 | % | ||||||||||||||||||||||||||||||||||
| Net expense ratio | 37.1 | % | 39.3 | % | 36.4 | % | 38.9 | % | |||||||||||||||||||||||||||||||||||||||
| Combined ratio | 111.4 | % | 122.1 | % | 108.7 | % | 118.3 | % | |||||||||||||||||||||||||||||||||||||||
10
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Statements of Operations and Operating Metrics by Line of Business (continued)
(Unaudited)
| | Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||
| | 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||
| | Homeowners | Automobile | Other | Consolidated | Homeowners | Automobile | Other | Consolidated | |||||||||||||||||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Gross premiums written | $ | 594,341 | $ | (1) | $ | 16,268 | $ | 610,608 | $ | 539,689 | $ | 8,603 | $ | 19,472 | $ | 567,764 | |||||||||||||||||||||||||||||||
| Gross premiums earned | 565,566 | 26 | 16,742 | 582,334 | 539,692 | 18,402 | 21,926 | 580,020 | |||||||||||||||||||||||||||||||||||||||
| Ceded premiums | (203,383) | (20) | (15,279) | (218,682) | (197,445) | (13,744) | (13,574) | (224,763) | |||||||||||||||||||||||||||||||||||||||
| Net premiums earned | 362,183 | 6 | 1,463 | 363,652 | 342,247 | 4,658 | 8,352 | 355,257 | |||||||||||||||||||||||||||||||||||||||
| Net investment income | — | — | 15,901 | 15,901 | — | — | 12,460 | 12,460 | |||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized investment gains (losses) | — | — | 7,084 | 7,084 | — | — | (4,144) | (4,144) | |||||||||||||||||||||||||||||||||||||||
| Direct written policy fees | 9,915 | 3 | 282 | 10,200 | 8,484 | 4,322 | 560 | 13,366 | |||||||||||||||||||||||||||||||||||||||
| Other income | 15,202 | 19 | 2,903 | 18,124 | 14,021 | 1,148 | 3,985 | 19,154 | |||||||||||||||||||||||||||||||||||||||
| Total revenues | 387,300 | 28 | 27,633 | 414,961 | 364,752 | 10,128 | 21,213 | 396,093 | |||||||||||||||||||||||||||||||||||||||
| Costs and expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Losses and loss adjustment expenses | 257,297 | 5,128 | 10,655 | 273,080 | 206,062 | 11,617 | 10,737 | 228,416 | |||||||||||||||||||||||||||||||||||||||
| Commissions and other underwriting expenses | 104,071 | 51 | 3,067 | 107,189 | 111,103 | 5,751 | 4,255 | 121,109 | |||||||||||||||||||||||||||||||||||||||
| General and administrative expenses | 18,818 | 200 | 4,185 | 23,203 | 18,079 | 325 | 3,779 | 22,183 | |||||||||||||||||||||||||||||||||||||||
| Interest expense | — | — | 10,776 | 10,776 | 100 | — | 4,077 | 4,177 | |||||||||||||||||||||||||||||||||||||||
| Total costs and expenses | 380,186 | 5,379 | 28,683 | 414,248 | 335,344 | 17,693 | 22,848 | 375,885 | |||||||||||||||||||||||||||||||||||||||
| Income (loss) before income taxes | 7,114 | (5,351) | (1,050) | 713 | 29,408 | (7,565) | (1,635) | 20,208 | |||||||||||||||||||||||||||||||||||||||
| Income tax expense (benefit) | 1,449 | (1,311) | (436) | (298) | 7,451 | (1,917) | (36) | 5,498 | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) | 5,665 | (4,040) | (614) | 1,011 | 21,957 | (5,648) | (1,599) | 14,710 | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to non-controlling interest | — | — | — | — | (218) | — | — | (218) | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to FNHC shareholders | $ | 5,665 | $ | (4,040) | $ | (614) | $ | 1,011 | $ | 22,175 | $ | (5,648) | $ | (1,599) | $ | 14,928 | |||||||||||||||||||||||||||||||
| Ratios to net premiums earned: | |||||||||||||||||||||||||||||||||||||||||||||||
| Net loss ratio | 71.0 | % | NCM | NCM | 75.1 | % | 60.2 | % | 249.4 | % | 128.6 | % | 64.3 | % | |||||||||||||||||||||||||||||||||
| Net expense ratio | 34.0 | % | 35.9 | % | 37.8 | % | 40.3 | % | |||||||||||||||||||||||||||||||||||||||
| Combined ratio | 105.0 | % | 111.0 | % | 98.0 | % | 104.6 | % | |||||||||||||||||||||||||||||||||||||||
11
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
GAAP to Non-GAAP Reconciliations
(Dollars in thousands)
(Unaudited)
| As of or For the Three Months Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Homeowners | Automobile | Other | Consolidated | Homeowners | Automobile | Other | Consolidated | |||||||||||||||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 102,615 | $ | 1 | $ | 6,371 | $ | 108,987 | $ | 95,357 | $ | 289 | $ | 796 | $ | 96,442 | ||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized investment gains (losses) | — | — | 2,034 | 2,034 | — | — | (5,060) | (5,060) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating revenues | $ | 102,615 | $ | 1 | $ | 4,337 | $ | 106,953 | $ | 95,357 | $ | 289 | $ | 5,856 | $ | 101,502 | ||||||||||||||||||||||||||||||||||
| Net Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | (2,316) | $ | (1,799) | $ | (2,778) | $ | (6,893) | $ | (1,354) | $ | (3,980) | $ | (3,971) | $ | (9,305) | ||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized investment gains (losses) | — | — | 1,535 | 1,535 | — | — | (3,778) | (3,778) | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition and other costs | — | — | (493) | (493) | (305) | (1) | (284) | (590) | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of identifiable intangibles | (10) | — | — | (10) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on early extinguishment of debt | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating income (loss) | $ | (2,306) | $ | (1,799) | $ | (3,820) | $ | (7,925) | $ | (1,049) | $ | (3,979) | $ | 91 | $ | (4,937) | ||||||||||||||||||||||||||||||||||
| Income tax rate assumed for reconciling items above | 24.52 | % | 24.52 | % | 24.52 | % | 24.52 | % | 25.35 | % | 25.35 | % | 25.35 | % | 25.35 | % | ||||||||||||||||||||||||||||||||||
| Per Common Share | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Book value | $ | 17.25 | $ | 16.84 | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| AOCI | 0.71 | (0.29) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Book value, excluding AOCI | $ | 16.54 | $ | 17.13 | ||||||||||||||||||||||||||||||||||||||||||||||
12
FEDNAT HOLDING COMPANY AND SUBSIDIARIES
GAAP to Non-GAAP Reconciliations (continued)
(Dollars in thousands)
(Unaudited)
| As of or For the Year Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||
| 2019 | 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Homeowners | Automobile | Other | Consolidated | Homeowners | Automobile | Other | Consolidated | |||||||||||||||||||||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 387,300 | $ | 28 | $ | 27,633 | $ | 414,961 | $ | 364,752 | $ | 10,128 | $ | 21,213 | $ | 396,093 | ||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized investment gains (losses) | — | — | 7,084 | 7,084 | — | — | (4,144) | (4,144) | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating revenues | $ | 387,300 | $ | 28 | $ | 20,549 | $ | 407,877 | $ | 364,752 | $ | 10,128 | $ | 25,357 | $ | 400,237 | ||||||||||||||||||||||||||||||||||
| Net Income (Loss) | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | $ | 5,665 | $ | (4,040) | $ | (614) | $ | 1,011 | $ | 22,175 | $ | (5,648) | $ | (1,599) | $ | 14,928 | ||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Net realized and unrealized investment gains (losses) | — | — | 5,347 | 5,347 | — | — | (3,094) | (3,094) | ||||||||||||||||||||||||||||||||||||||||||
| Acquisition and other costs | (237) | (5) | (1,025) | (1,267) | (1,488) | (70) | (410) | (1,968) | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of identifiable intangibles | (10) | — | — | (10) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Gain (loss) on early extinguishment of debt | — | — | (2,698) | (2,698) | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
| Adjusted operating income (loss) | $ | 5,912 | $ | (4,035) | $ | (2,238) | $ | (361) | $ | 23,663 | $ | (5,578) | $ | 1,905 | $ | 19,990 | ||||||||||||||||||||||||||||||||||
| Income tax rate assumed for reconciling items above | 24.52 | % | 24.52 | % | 24.52 | % | 24.52 | % | 25.35 | % | 25.35 | % | 25.35 | % | 25.35 | % | ||||||||||||||||||||||||||||||||||
| Per Common Share | ||||||||||||||||||||||||||||||||||||||||||||||||||
| Book value | $ | 17.25 | $ | 16.84 | ||||||||||||||||||||||||||||||||||||||||||||||
| Less: | ||||||||||||||||||||||||||||||||||||||||||||||||||
| AOCI | 0.71 | (0.29) | ||||||||||||||||||||||||||||||||||||||||||||||||
| Book value, excluding AOCI | $ | 16.54 | $ | 17.13 | ||||||||||||||||||||||||||||||||||||||||||||||
13