21st Century Holding Company Q3 2009 Earnings Call Transcript

Nov. 6.09 | About: Federated National (FNHC)

21st Century Holding Company (TCHC) Q3 2009 Earnings Call November 5, 2009 4:30 PM ET

Executives

Michael Braun – President and CEO

Analysts

Mark Vidal [ph]

Operator

Good afternoon and welcome to 21st Century Holding Company's third quarter 2009 financial results conference call. My name is John and I'll be your operator today. Please note that today's call is being recorded. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and the instructions on how to do so will be given at that time.

Statements in this conference call or in documents incorporated by reference that are not historical facts are forward-looking statements. Forward-looking statements 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 may, will, expect, believe, anticipate, intend, could, would, estimate or continue, or the negative other variations thereof, or comparable terminology are intended to identify forward-looking statements.

The risks and uncertainties include, but are not limited, to the risks and uncertainties described in this conference call, our press release issued today and other filings made by the company with the SEC from time to time.

Furthermore, the unaudited consolidated financial statements of 21st Century Holding Company for the quarter ending September 30, 2009 have been prepared in accordance with Generally Accepted Accounting Principles for interim financial information and with the instructions from Form 10-Q and Rule 10-1 of Regulation S-X.

These financial statements do not include all information and notes required by GAAP for a complete financial statement and should be read in conjunction with the audited consolidated financial statements and notes thereto included in the company’s Annual Report on Form 10-K for the year ending December 31, 2008.

Now, at this time, I would like to turn the conference over to Michael Braun, Chief Executive Officer of 21st Century Holding Company. Please go ahead, sir.

Michael Braun

Thank you. Our results and profitability were affected this quarter by high reinsurance costs, less earned premium from wind mitigation credits and lower total revenues as a result of the company's decision not to write homeowner policies during the wind season. These factors will continue to have an effect on the fourth quarter of 2009 and as we have told you before, we will not report a profit in the fourth quarter. We believe the significant steps we have taken to improve revenue growth and profitability will result in an improved earnings in 2010.

We have reported improved gross written premium so far this year which will result in higher earned premiums over the coming 12 months. We are making progress on a number of growth initiatives to improve premium growth and profitability. We received approvals from the Florida Office of Insurance Regulation for a 19% rate increase state-wide and the ability to assume up to 45,000 additional policies from Citizens Property Insurance Corporation.

We also continue to diversify our business model by expanding into addition lines of insurance such as commercial/residential and growing our automobile lines. We expect an improvement in operating margins as a result of our return to writing homeowners insurance as the wind season comes to a close and the implementation of our new homeowner rates.

We are seeing yield improvements in our investment portfolio, now managed by a team of professional and independent advisers and asset managers, which we expect will result in sustainable future profits.

As you are probably aware, we received an unsolicited nonbinding proposal of interest to acquire our company from Homeowners Choice Inc. last month. Our Board of Directors, after careful consideration with its financial advisors and legal counsel, unanimously rejected the proposal as inadequate, undervaluing the assets and future earnings potential of 21st Century and not in the best interest of our shareholders for a number of additional reasons. We strongly believe that pursuing 21st Century's existing strategic growth plan is the best way to enable our shareholders to realize the inherent value of the company.

A copy of our press release (inaudible) to shareholders can be found in our Web site for more information. We believe that we are on the right track to overcome the economic hurdles facing our industry. We have high valuable assets and licenses, and a diversified business model, and a solid business plan for sustained long-term premium growth.

I want to remind you that generating an attractive return for our shareholders is the top priority for our Board and management team. Our Board recently announced a stock repurchase plan of up to $4 million which will provide increased value directly to our shareholders.

As a reminder, the Q&A portion of this call is intended to address our quarterly earning results. With that, I would like to open up the lines for questions on our quarterly earnings only. Thank you.

Question-and-Answer Session

Operator

(Operator instructions) Okay, it appears we have one question in queue, coming from Mark Vidal [ph].

Mark Vidal

Good afternoon, gentlemen.

Michael Braun

Hi, Mark. How are you?

Mark Vidal

Fine. Thank you. I haven't been associated with your company a couple of years but I remember when the State of Florida intervened in the market and basically told you, you couldn't raise the premiums to the – what the market would bear. And as a result, a lot of customers went to the State of Florida's agency. I take it from your press release, this has reversed. But, I was just wondering what the overall legal framework in Florida is now, such that in case there was a very bad year and every one is raising premiums, would the state do what it did last time which crippled you guys?

Michael Braun

Well, after these 2004 and 2005 seasons, rates went up considerably because of the high reinsurance cost. The state did a couple of different things to provide relief to the people of the State of Florida and that meant that they brought Citizens rates to an artificially low level and not being the insurer of last resort but rather really competing with us directly. They also provided an additional capacity with the Florida Hurricane Cash Fund which is where we buy reinsurance from. Those two have turned out to be problematic.

When you have things that aren't necessarily economically – have limitations to them, the FHCF did not have the liquidity and really didn't have the ability to pay, if all capacity was needed. So where they expanded dramatically up to $28 billion, now they are contracting it by $2 billion a year and they are increasing their rates on a certain layer. I think the state understands that private reinsurance was there for companies in '04 and '05 and is available in the future. So, I think that the state had very good intentions, but I think that they understand the meaning for a healthy reinsurance market.

Competing with Citizens clearly benefits certain people within the State of Florida. And now, what they are on is a glide path. A glide path is some areas the rates mainly to go up 40%, 50%, 60%, 70%, 80%; other areas, they are actually reducing the rates. No area and/or no policyholder will be going up by more than 10%. There are certain caveats with that that the state has. But, generally speaking, the glide path will bring people up about 10%. So in areas that has to go up 50%, just in rough math, it would take about five years for them to really get to the correct level.

I think the state had a lot of initiatives to benefit people within the State of Florida but a lot of shortcomings has been exposed by that and I think the pendulum is swinging back to entice healthy private reinsurance market. But, now, even more to help stabilize the primary writers as well. So, I don't know what the state would do in the future but I think that there is opportunities in the State of Florida.

Mark Vidal

Thank you.

Michael Braun

Thank you.

Operator

Okay. (Operator instructions) At this moment, I am still showing no questions.

Michael Braun

Okay. Well, we just wanted to thank you, everyone who did dial-in or who listens to this at a later time. The management team here and the employees we have are committed to the company. As we go through some challenging times, we are clearly addressing those challenging items and working through them and we feel that our plan of action is solid and we anticipate good things, very good things for the company in the future. So unless, operator, there is any other calls, I just wanted to thank everyone for calling in.

Operator

Okay. I still show no questions. So on that note, ladies and gentlemen, this does conclude your conference for today. Everyone have a great day. You may now disconnect.

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