SUNRISE, Fla., Aug. 06, 2018 (GLOBE NEWSWIRE) -- FedNat Holding Company (the “Company”) (Nasdaq: FNHC) today reported results for the three and six months ended June 30, 2018.

Q2 2018 highlights (as measured against the same three-month period last year, except where noted):

  • Net income of $8.8 million or $0.69 per diluted share.
  • Annualized return on equity of 16.4%, excluding investment gains.
  • Gross written premiums of $166.7 million.
  • Quarter-end Florida homeowners’ in-force policies of approximately 257,000.
  • 54.7% increase in non-Florida homeowners’ in-force policies to approximately 38,000.
  • 15.7% decrease in loss and loss adjustment expenses to $47.6 million.
  • $1.6 million of claims, net of reinsurance, from severe weather events in Florida and other states.
  • Reduced staffing by 20 positions during the quarter, representing approximately $1.2 million in annual savings as a result of exiting non-core lines of business and improved operational efficiencies within our Homeowners operations.  Year-to-date decreased 70 positions representing approximately $4.2 million in annual savings.
  • Book value per share increased 3.2% to $16.89 as compared to $16.36, excluding non-controlling interest, as of March 31, 2018. Excluding accumulated other comprehensive income, book value per share increased 3.9% to $17.31 as of June 30, 2018 from $16.66 as of March 31, 2018.

Mr. Michael H. Braun, the Company’s Chief Executive Officer, said regarding the quarter’s results, “Solid strategic execution has produced significant earnings growth with improved underwriting profitability in the first half of 2018 that positions FedNat for continued earnings growth over the second half of this year and beyond. Earnings per share more than doubled to $0.69 cents over last year’s second quarter, driven by solid performance in our core homeowners Florida market plus earned premium growth in our coastal markets outside of Florida. Our improved operating efficiencies across the company reduced operating expenses while maintaining the same high quality of service that we are known for to our policyholders and partner agents. We also reduced our net loss ratio and our combined ratio was the lowest that we have recorded in over two years. Also, we have finalized our reinsurance panel for 2018-2019 at favorable terms resulting in approximately $30 million in annual savings that will be realized over the next four quarters.”

Mr. Braun added, “We are well positioned to continue to produce strong financial results as we enter the second half of the year. Our exposure management has helped generate savings in our new reinsurance program which, combined with the prior rate increases continuing to earn out, are expected to benefit financial results in the third quarter and beyond. Our focus remains on building our homeowners book in Florida and other coastal states and continuing to improve our operating efficiencies to drive earnings growth and shareholder value.”

Consolidated

  • Net income of $8.8 million or $0.69 per diluted share during the second quarter of 2018, as compared to net income of $4.0 million or $0.30 per diluted share during the second quarter of 2017.
  • Comparing to March 31, 2018, book value per share increased $0.53 in the second quarter of 2018, to $16.89 at June 30, 2018.  The increase was driven by income of $0.69 per share, as noted above, offset by the decrease in unrealized gains (losses) within other comprehensive income of $0.12 per share, as a result of the impact of rising interest rates on bond valuations, and a decrease of $0.08 per share from dividends.

Revenues

  • Total revenue decreased $2.5 million or 2.5%, to $95.7 million for the three months ended June 30, 2018, compared with $98.2 million for the three months ended June 30, 2017.  The decrease was primarily driven by lower net realized investment gains for the three months ended June 30, 2018 as compared to the same period in 2017.
  • With focus on profitability and managing our underwriting exposure, gross written premiums decreased $2.0 million, or 1.2%, to $166.7 million in the quarter, compared with $168.7 million for the same three-month period last year.  The decrease in premiums written is the result of declining premiums in the non-core businesses we are exiting, Automobile and commercial general liability, outpacing premium growth in Homeowners.  Our homeowners non-Florida business continues to show impressive growth year over year, especially in the states of Texas and Louisiana.
  • Gross premiums earned decreased $3.7 million, or 2.4%, to $146.9 million for the three months ended June 30, 2018, as compared to $150.6 million for the three months ended June 30, 2017.  The results are a reflection of our decision to exit the Automobile and commercial general liability lines and were partially offset by a 3.4% increase in earned premiums in Homeowners.  Additionally, in homeowners Florida, our 10.0% rate increase, effective August 1, 2017, continues to earn out and our homeowners non-Florida continues to grow on an earned basis.
  • Ceded premiums decreased $3.7 million, or 5.5%, to $63.3 million in the quarter, compared to $67.0 million the same three-month period last year.  The decrease is primarily made up of lower ceded premiums in Automobile due to lower gross premiums earned during the periods.  Starting in the third quarter of 2018, our 2018-2019 reinsurance program will become effective and will lower our ceded premiums by approximately $7.5 million on a quarterly basis.
  • Direct written policy fees decreased by $1.5 million, or 31.1%, to $3.3 million for the three months ended June 30, 2018, compared with $4.8 million in the same period in 2017. The decrease in direct written policy fees was primarily due to our withdrawal from Automobile.
  • Other income increased $1.1 million, or 23.9%, to $5.7 million in the quarter, compared with $4.6 million in the same three-month period last year.  We recorded in the second quarter of 2018 $0.8 million of additional brokerage income from reinstating layer 1 and 2 in our excess-of-loss reinsurance tower as a result of Hurricane Irma losses.  With the new reinsurance program becoming effective next quarter, as noted above, the related brokerage revenue will decrease by $1.4 million on a quarterly basis due to the Company's decreased reinsurance spend and elimination of the brokerage income related to reinstatement, as noted above.

Expenses

  • Losses and loss adjustment expenses (“LAE”) decreased $8.8 million, or 15.7%, to $47.6 million for the three months ended June 30, 2018, compared with $56.4 million for the same three-month period last year.  The net loss ratio decreased 10.6 percentage points, to 56.9% in the current quarter, as compared to 67.5% in the second quarter of 2017.  The lower ratio was the result of the decrease in the size of Automobile ($6.6 million lower losses, including adverse development) driven by the closure of poor performing programs, and better loss experience in Homeowners and Automobile in 2018 due to our exposure management efforts, the continued earn-out of our homeowners Florida August 1, 2017 10% rate increase and lower net losses from severe weather ($1.6 million in the second quarter of 2018 as compared to $2.8 million in the prior year quarter). These decreases were partially offset by $1.4 million of lower ceded losses related to Homeowners quota share treaties in the second quarter of 2018 as compared to the second quarter of 2017.
  • The net expense ratio decreased 1.0 percentage points, to 42.1% in the current quarter, as compared to 43.1% in the second quarter of 2017.  Commissions and other underwriting expenses decreased $1.0 million, or 3.4%, to $29.9 million for the three months ended June 30, 2018, compared with $30.9 million for the three months ended June 30, 2017.  The decrease is made up of lower acquisition related costs from Automobile driven by the lower gross premiums earned, partially offset by higher salaries and wages as a result of $0.5 million of severance related costs from our headcount reduction initiatives.
  • Interest expense increased $0.9 million to $1.0 million for the three months ended June 30, 2018, compared with $0.1 million in the prior year period. The increase in interest expense is the result of the Company issuing $45.0 million of senior notes, late in December 2017.  During the second quarter of 2017, the Company only had $5.0 million of debt on its balance sheet.

Stock Repurchase Program

  • During the second quarter of 2018, the Company repurchased 3,843 shares of common stock for $0.1 million at an average price per share of $15.87.

Line of Business Results

  • Homeowners’ net income for the current quarter was $8.4 million, which included 6.3% growth in net premiums earned compared to the second quarter of 2017, the combined ratio for the current quarter was 93.1%, which is the result of better loss experience and cost reductions since last year.
  • Automobile's net loss for the second quarter of 2018 was $0.2 million, down substantially from the prior year quarter, as we wind down our operations in this line of business.
  • Other’s net income of $0.6 million in the second quarter of 2018, includes $3.0 million of net investment income, $0.2 million of investment gains and $1.0 million of interest expense.

Conference Call Information

The Company will hold an investor conference call at 9:00 AM (ET) Tuesday, August 7, 2018. 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: 2775258

A live webcast of the call will be available online via the “Conference Calls” section of the Company’s website at FedNat.com or interested parties can click on the following link:

http://www.fednat.com/investors/conference-calls/ 

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

The Company is an 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, are authorized to underwrite, and/or place homeowners multi-peril, personal automobile, commercial general liability, 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 currently operates in Georgia, Texas, Alabama, and Florida, pending our withdrawal. The “Other” line of business primarily consists of our commercial general liability (pending our withdrawal) and federal flood businesses, along with corporate and investment operations.

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.


FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Consolidated Statement of Operations
(In thousands, except per share data)
(Unaudited)

  Three Months Ended Six Months Ended
  June 30, June 30,
  2018 2017 2018 2017
Revenues:        
Net premiums earned $83,557  $83,554  $165,666  $165,214 
Net investment income 2,978  2,560  5,921  4,878 
Net realized and unrealized investment gains (losses) 208  2,648  (844) 2,543 
Direct written policy fees 3,313  4,807  6,889  9,519 
Other income 5,686  4,590  11,187  9,059 
Total revenues 95,742  98,159  188,819  191,213 
        
Costs and expenses:        
Losses and loss adjustment expenses 47,570  56,417  93,641  113,316 
Commissions and other underwriting expenses 29,873  30,929  60,094  58,497 
General and administrative expenses 5,260  5,076  11,345  9,695 
Interest expense 1,023  82  2,107  166 
Total costs and expenses 83,726  92,504  167,187  181,674 
        
Income (loss) before income taxes 12,016  5,655  21,632  9,539 
Income tax expense (benefit) 3,196  1,988  5,567  3,423 
Net income (loss) 8,820  3,667  16,065  6,116 
Net income (loss) attributable to non-controlling interest —  (328) (218) (301)
Net income (loss) attributable to FedNat Holding Company shareholders $8,820  $3,995  $16,283  $6,417 
        
Net Income (Loss) Per Common Share        
Basic $0.69  $0.30  $1.27  $0.48 
Diluted $0.69  $0.30  $1.26  $0.48 
        
Weighted Average Number of Shares of Common Stock Outstanding        
Basic 12,726  13,171  12,788  13,305 
Diluted 12,846  13,256  12,889  13,405 
        
Dividends Declared Per Common Share $0.08  $0.08  $0.16  $0.16 
                 


FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics
(Unaudited)

 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
                 
 (In thousands)
Gross premiums written:        
Homeowners Florida $133,006  $136,811  $241,377  $247,664 
Homeowners non-Florida 22,590  14,815  37,034  25,183 
Automobile 5,322  10,622  11,669  29,913 
Commercial general liability 1,570  2,926  4,084  6,222 
Federal flood 4,246  3,518  6,965  5,761 
Total gross premiums written $166,734  $168,692  $301,129  $314,743 


     
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
                 
 (In thousands)
Gross premiums earned:        
Homeowners Florida $119,080  $119,832  $237,904  $237,376 
Homeowners non-Florida 15,449  10,230  29,088  19,330 
Automobile 6,782  14,760  15,110  30,407 
Commercial general liability 2,393  3,140  5,022  6,334 
Federal flood 3,186  2,601  6,208  5,094 
Total gross premiums earned $146,890  $150,563  $293,332  $298,541 


     
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
                 
 (In thousands)
Net premiums earned:        
Homeowners $79,647  $74,958  $157,052  $145,554 
Automobile 1,640  5,619  3,851  13,655 
Commercial general liability  2,270   2,977   4,763   6,005 
Total net premiums earned $83,557  $83,554  $165,666  $165,214 
 


FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Selected Operating Metrics (continued)
(Unaudited)

 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
                 
 (In thousands)
Commissions and other underwriting expenses:        
Homeowners Florida $14,175  $14,407  $28,538  $28,464 
All others 4,987  5,787  9,643  11,298 
Ceding commissions (4,373) (4,672) (8,088) (9,054)
Total commissions 14,789  15,522  30,093  30,708 
         
Automobile 1,296  2,480  2,763  4,910 
Homeowners non-Florida 432  327  762  612 
Total fees 1,728  2,807  3,525  5,522 
         
Salaries and wages 4,369  3,728  8,135  7,403 
Other underwriting expenses 8,987  8,872  18,341  14,864 
Total commissions and other underwriting expenses $29,873  $30,929  $60,094  $58,497 


     
 Three Months Ended Six Months Ended
 June 30, June 30,
 2018 2017 2018 2017
         
Net loss ratio 56.9% 67.5% 56.5% 68.6%
Net expense ratio 42.1% 43.1% 43.1% 41.3%
Combined ratio 99.0% 110.6% 99.6% 109.9%
Gross loss ratio 151.1% 48.5% 137.3% 49.3%
Gross expense ratio 26.9% 27.0% 27.1% 25.9%
Book value per share excluding non-controlling interest $16.89  $16.65  $16.89  $16.65 
                 


FEDNAT HOLDING COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited)

 June 30, December 31,
 2018 2017
ASSETS (In thousands)
Investments:    
Debt securities, available-for-sale, at fair value $425,489  $423,238 
Debt securities, held-to-maturity, at amortized cost 5,288  5,349 
Equity securities, at fair value 17,383  15,434 
Total investments 448,160  444,021 
Cash and cash equivalents 83,924  86,228 
Prepaid reinsurance premiums 101,107  135,492 
Premiums receivable, net of allowance 43,032  46,393 
Reinsurance recoverable, net 208,287  124,601 
Deferred acquisition costs 42,920  40,893 
Income taxes, net 8,774  9,817 
Property and equipment, net 3,722  4,025 
Other assets 11,917  13,403 
Total assets $951,843  $904,873 
    
LIABILITIES AND SHAREHOLDERS’ EQUITY    
Liabilities    
Loss and loss adjustment expense reserves $291,675  $230,515 
Unearned premiums 302,295  294,423 
Reinsurance payable 64,220  71,944 
Long-term debt, net of deferred financing costs 44,353  49,251 
Deferred revenue 6,282  6,222 
Other liabilities 27,990  25,059 
Total liabilities 736,815  677,414 
Shareholders' Equity    
Preferred stock, $0.01 par value: 1,000,000 shares authorized —  — 
Common stock, $0.01 par value: 25,000,000 shares authorized; 12,731,777 and 12,988,247 shares issued and outstanding, respectively 127  130 
Additional paid-in capital 140,102  139,728 
Accumulated other comprehensive income (loss) (5,350) 1,770 
Retained earnings 80,149  70,009 
Total shareholders’ equity attributable to FedNat Holding Company shareholders 215,028  211,637 
Non-controlling interest —  15,822 
Total shareholders’ equity 215,028  227,459 
Total liabilities and shareholders' equity $951,843  $904,873 
 


FEDNAT HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Statements of Operations and Operating Metrics by Line of Business
(Unaudited)

Three Months Ended June 30,
2018 2017
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
                                
(Dollars in thousands)
Revenues:               
Gross premiums written$155,596  $5,322  $5,816  $166,734  $151,626  $10,622  $6,444  $168,692 
Gross premiums earned134,529  6,782  5,579  146,890  130,062  14,760  5,741  150,563 
Ceded premiums(54,882) (5,142) (3,309) (63,333) (55,104) (9,141) (2,764) (67,009)
Net premiums earned79,647  1,640  2,270  83,557  74,958  5,619  2,977  83,554 
Net investment income—  —  2,978  2,978  —  —  2,560  2,560 
Net realized and unrealized investment gains (losses)—  —  208  208  —  —  2,648  2,648 
Direct written policy fees1,857  1,296  160  3,313  2,173  2,480  154  4,807 
Other income3,970  405  1,311  5,686  2,731  850  1,009  4,590 
Total revenues85,474  3,341  6,927  95,742  79,862  8,949  9,348  98,159 
                
Costs and expenses:               
Losses and loss adjustment expenses42,617  1,932  3,021  47,570  49,095  8,547  (1,225) 56,417 
Commissions and other underwriting expenses27,281  1,616  976  29,873  25,843  3,847  1,239  30,929 
General and administrative expenses4,285  75  900  5,260  3,883  175  1,018  5,076 
Interest expense—  —  1,023  1,023  82  —  —  82 
Total costs and expenses74,183  3,623  5,920  83,726  78,903  12,569  1,032  92,504 
                
Income (loss) before income taxes11,291  (282) 1,007  12,016  959  (3,620) 8,316  5,655 
Income tax expense (benefit)2,861  (71) 406  3,196  371  (1,396) 3,013  1,988 
Net income (loss)8,430  (211) 601  8,820  588  (2,224) 5,303  3,667 
Net income (loss) attributable to non-controlling interest—  —  —  —  (328) —  —  (328)
Net income (loss) attributable to FNHC shareholders$8,430  $(211) $601  $8,820  $916  $(2,224) $5,303  $3,995 
                
Ratios to net premiums earned:               
Net loss ratio53.5% 117.8% 133.1% 56.9% 65.5% 152.1% (41.1)% 67.5%
Net expense ratio39.6%     42.1% 39.7%     43.1%
Combined ratio93.1%     99.0% 105.2%     110.6%
                    


FEDNAT HOLDING COMPANY AND SUBSIDIARIES
SUPPLEMENTAL INFORMATION
Statements of Operations and Operating Metrics by Line of Business
(Unaudited)

Six Months Ended June 30,
2018 2017
Homeowners Automobile Other Consolidated Homeowners Automobile Other Consolidated
                                
(Dollars in thousands)
Revenues:               
Gross premiums written$278,411  $11,669  $11,049  $301,129  $272,847  $29,913  $11,983  $314,743 
Gross premiums earned266,992  15,110  11,230  293,332  256,706  30,407  11,428  298,541 
Ceded premiums(109,940) (11,259) (6,467) (127,666) (111,152) (16,752) (5,423) (133,327)
Net premiums earned157,052  3,851  4,763  165,666  145,554  13,655  6,005  165,214 
Net investment income—  —  5,921  5,921  —  —  4,878  4,878 
Net realized and unrealized investment gains (losses)—  —  (844) (844) —  —  2,543  2,543 
Direct written policy fees3,780  2,763  346  6,889  4,297  4,910  312  9,519 
Other income7,947  893  2,347  11,187  5,522  1,909  1,628  9,059 
Total revenues168,779  7,507  12,533  188,819  155,373  20,474  15,366  191,213 
                
Costs and expenses:               
Losses and loss adjustment expenses84,572  4,168  4,901  93,641  93,897  18,106  1,313  113,316 
Commissions and other underwriting expenses54,637  3,476  1,981  60,094  47,889  8,113  2,495  58,497 
General and administrative expenses9,174  200  1,971  11,345  7,373  350  1,972  9,695 
Interest expense100  —  2,007  2,107  166  —  —  166 
Total costs and expenses148,483  7,844  10,860  167,187  149,325  26,569  5,780  181,674 
                
Income (loss) before income taxes20,296  (337) 1,673  21,632  6,048  (6,095) 9,586  9,539 
Income tax expense (benefit)5,143  (85) 509  5,567  2,335  (2,352) 3,440  3,423 
Net income (loss)15,153  (252) 1,164  16,065  3,713  (3,743) 6,146  6,116 
Net income (loss) attributable to non-controlling interest(218) —  —  (218) (301) —  —  (301)
Net income (loss) attributable to FNHC shareholders$15,371  $(252) $1,164  $16,283  $4,014  $(3,743) $6,146  $6,417 
                
Ratios to net premiums earned:               
Net loss ratio53.8% 108.2% 102.9% 56.5% 64.5% 132.6% 21.9% 68.6%
Net expense ratio40.7%     43.1% 38.0%     41.3%
Combined ratio94.5%     99.6% 102.5%     109.9%
                    


FOR IMMEDIATE RELEASE CONTACT:
Michael H. Braun, CEO (954) 308-1322,
Ronald Jordan, CFO (954) 308-1363,
or Erick A. Fernandez, CAO (954) 308-1341
FedNat Holding Company


 

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