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Executives

Michael Braun - Chief Executive Officer and President

Pete Prygelski - Chief Financial Officer

Analysts

William Meyers - Miller Asset Management

Jon Evans - JWest LLC

Doug Ruth - Lenox Financial

Lee Matheson - Broadview Capital Management

David Spier - Nitor Capital

Federated National Holding Company (FNHC) Q3 2013 Earnings Conference Call October 31, 2013 4:30 PM ET

Operator

Good day, ladies and gentlemen and welcome to the Federated National Holding Company’s Third Quarter 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note this conference is being recorded.

Statements in this conference call that are not historical facts are forward-looking statements. 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 thereof or other variations thereon and similar words or phrases or comparable terminology are intended to identify forward-looking statements.

The matters discussed on this call that are forward-looking statements are based on current management expectations involving risks and uncertainties that may result in those expectations not being reached. 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, our press release issued today and other filings made by the company with the SEC from time-to-time.

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

I will now turn the conference over to Mr. Michael Braun, CEO and President of Federated National Holding Company. Sir, please go ahead.

Michael Braun

Good afternoon and thank you for joining us today to discuss Federated National Holding Company’s third quarter 2013 financial results. I am joined on the call by Pete Prygelski, our Chief Financial Officer. Our financial results for the quarter can be found in our earnings press release. I will go over some brief highlights from the quarter and then Pete and I will open up the line for questions.

Highlights include 337% increase in net income Q3 2013 as compared with Q3 2012. 152% increase in year-to-date net income for 2013 as compared with 2012. 143% increase in gross premiums written for Q3 2013 as compared with Q3 2012. 86% increase in net premiums earned for Q3 2013 as compared with Q3 2012. 74% increase in homeowners policy count to approximately 100,300 as of September 30, 2013 compared with approximately 57,600 as of September 30, 2012. Book value increased to 917 at September 30, 2013 as compared with 826 at December 31, 2012.

Total expenses, excluding loss and loss adjusting expenses, as a percentage of total revenue totaled 40% during Q3 2013 as compared with 47% during Q3 2012. I am pleased to report another successful quarter, which included significant growth in policy count, premium and net income. I see opportunities for us to continue growing our business while remaining committed to the discipline and health generate our results during the third quarter and the first nine months of 2013. We believe that our business model capabilities and relationships are unique in our marketplace. While we will always face competition and challenges, I am very pleased with and proud of the position of the company today.

With that, we are glad to open up the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of William Meyers from Miller Asset Management.

William Meyers - Miller Asset Management

Hi, congratulations on the great quarter.

Michael Braun

Thank you, William.

William Meyers - Miller Asset Management

Okay. So just a very general question, that’s a great EPS number. Is this by any chance a one-time number for the quarter? Are we going to see, would you say this is something we are going to see going forward or can we – are we going to continue to grow that number? Any thoughts on that would be helpful.

Michael Braun

Well, we are obviously continuing to grow our business. And what we have said in the past is that we are writing approximately $3 million a week of new homeowners business and that’s continuing. We believe that business to be profitable and we believe the bigger we get with this line of business we become that much more efficient. So we think things have trended favorably and we are going to continue to grow the business.

William Meyers - Miller Asset Management

Okay, great. Could you fill me in on I believe, you were renegotiating reinsurance costs and sort of finalized that by now, can you – what is that how that went?

Michael Braun

Yes, the reinsurance has obviously been completed or mostly through the season, the wind season. The total cost was approximately $67.5 million. We did buy additional cover through the wind season as we were continuing to write. So we wound up with approximately $423 million of cover with about $7 million retention. It’s about like I said $67.5 million, which is about $17 million a quarter. So it’s exceeded premium, but we are just, for all intense purposes look at it as an expense. We will have that expense not only in the third quarter, but it will be the same expense during the fourth and the first two quarters of 2014.

William Meyers - Miller Asset Management

Okay. It sounds good. And one last question from me, you are doing a lot more business, how is your infrastructure holding up?

Michael Braun

Fantastic. We have a phenomenal team and we continue to add underwriters and adjusters. The management team is solid and deep and we can handle the volume.

William Meyers - Miller Asset Management

Okay, thank you so much. I will let someone else take – give you a question. Thanks.

Michael Braun

Thank you, William.

Operator

Thank you. And our next question comes from the line of Jon Evans from JWest LLC.

Michael Braun

Hi, Jon.

Jon Evans - JWest LLC

Hey, okay, so you blew out the quarter relative to kind of premiums written seasonally. This is a bad quarter and you are only down about $9 million sequentially from what you wrote in Q2 which was an all-time record. So can you talk a little bit about as you are in Q4, how you are trending on a weekly basis and kind of if you can give us any thoughts as you go into the busier renewal season etcetera about premiums written in Q4 and Q1? And then maybe update us on the Allstate business?

Michael Braun

Sure. In terms of the business that we are writing typically Q3 we do not write a lot of business, but because of the quality of our book and the quality of the reinsurance program that we have along with the price, we felt comfortable to write and we did. We wrote pretty steady from Q2 into Q3. So we were averaging ballpark $3 million a week of business. We are now in Q4. And let me clarify that $3 million a week is new business. Q4, where we are maintaining approximately that same number, we are seeing a slight uptick on that. In terms of renewal of homeowner business that tends to be around 90%. So I think you are going to see typical retention as Q4 as well as I have no reason to believe that $3 million a week of new is going to change as we go into Q4, Q1 and Q2 for that matter. The marketplace can change at anytime obviously, but no reason to believe that’s going to change. We have invested heavily on our voluntary business having quality agents. And we service the business in a very good manner for the benefit of our insureds, but also for the benefit of the agents because that too plays as a business with us. And we think we have no doubt a very distribution model.

In terms of Allstate, we have been with them. They were in the second and third quarter -and that this is going very well. They are treated just like all of our independent agents, the same underwriting and the same processing. And I believe they are very happy with us as well.

Jon Evans - JWest LLC

Okay. Can you talk just a little bit about from the standpoint of the infrastructure and kind of leveraging as the unearned premium comes through. So if I look at your salaries, salaries sequentially were up about 300,000 and then operating and underwriting expenses were also up sequentially too. So can you help us understand that better especially since you wrote a little bit less business this quarter on the…

Michael Braun

Sure. In terms of, I mean, if you want to drill deeper, Pete can answer those questions better than I, but generally speaking, we continue to add staff. We are at around 147 staff right now. That’s up around 40, 50 people from the year before. And the vast majority of those people are either underwriters or adjusters. And when I say underwriters, I would include customer service on that. In terms of the management team, I believe we have a very deep management team that’s been in place for 10 plus years. We have been writing property since 1998. So we have the systems in place. Periodically, we are adding another person here and there in other departments, but we don’t anticipate the infrastructure to change. And what I mean by that is we anticipated to become even more efficient as we grow with it. If you have a more specific question for Pete to drill down on.

Pete Prygelski

No, I think that Mike answered it well. I go back to this point that he made in his introductory remarks, where we – our target has been for our operating underwriting expenses and salaries everything, but loss in LAE to be around 40% of revenue. And we’ve – I think two, but now three quarters in a row, last year third quarter, we were at about 47%. So it’s come down quite a bit.

Jon Evans - JWest LLC

And the last question and then I will go back into the queue is did you write anything outside of Florida yet this or is this all Florida still?

Michael Braun

We wrote about a dozen policies in Louisiana year-to-date. And we think that will come online steady, but it’s going to be material for the next few quarters and really through 2014 that’s homeowners. In terms of GL, we have always primarily been Florida. We do have some in Texas, Louisiana and Georgia, Alabama, but that’s – those are very small. The vast majority of our businesses is Florida homeowners absolutely. We plan on bringing some other states online as well through 2014 for homeowners from Louisiana to include Alabama and then South Carolina. That can be a slow process in the rollout and also in the ramp up, but primarily it’s going to be Florida.

Jon Evans - JWest LLC

Okay, thanks.

Michael Braun

Thanks for the questions, Jon.

Operator

Thank you. And our next question comes from the line of Doug Ruth from Lenox Financial.

Doug Ruth - Lenox Financial

Mike and Pete, congratulations, you exceeded my expectations.

Michael Braun

Thank you, Doug.

Doug Ruth - Lenox Financial

Can you give us a current policy count I am not sure how close you can get to where we are today?

Michael Braun

Well, we ended the quarter at 100,300. We are adding about 3 million a week of premium, new premium homeowners, which is about 1,500. So being four weeks out, ballpark, you are going to add about 6,000 to that and then another 12 million for the month ballpark. And then obviously, policies are bound before they are actually effective and in force may really go out. We allow our agents to bind out to six weeks. So you could probably add another $5 million maybe as high as, let’s say, 8 million of another – of bound policies on top of that, that are of still working their way through the process.

Doug Ruth - Lenox Financial

Okay. And when you do the math, what is the – when you do the math, how many policies do you think you have?

Michael Braun

Well, right now, I would say we are at about, let’s say, around 112,000 policies in force right now, homeowner policies.

Doug Ruth - Lenox Financial

Okay, thank you for that. And then can you comment on your four prong business strategy and how you are being able to maintain that?

Michael Braun

Well, it’s the discipline of what has brought us here. Obviously, the Florida marketplace was very difficult three, four years ago. And what worked us through that is what we come back to all the time, which is disciplined underwriting, risk management to ensure that our exposure is correct, expense control, which we always remain committed on as well as the product distribution, which is to ensure that we have got that we are a preferred carrier in the marketplace. Years ago when we struggled, we weren’t always in that position and we learned a lot of things along the way and we worked very hard to get where we are at and it’s serving us well and we remain committed to what has really got us there.

Doug Ruth - Lenox Financial

Okay. Well, it’s just a beautiful report and we are grateful that you are there and thank you for doing what you are doing.

Michael Braun

Thank you, Doug.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of Lee Matheson from Broadview Capital Management.

Lee Matheson - Broadview Capital Management

Good afternoon guys.

Michael Braun

Hi Lee, how are you.

Lee Matheson - Broadview Capital Management

Good, thank you.

Michael Braun

Great.

Lee Matheson - Broadview Capital Management

Good. Solid results again just a couple net, so I guess other income was up $0.5 million what was that?

Michael Braun

Primarily, other income is our in-housed insurance agency as well as our MGA. We are brokering third-party products that’s something we have been working on for the last year or two. And I think you are going to see some more traction on that in 2014. We are trying to whatever our retail agents need. We are trying to have as many products with them as possible. So I think you are going to see that, that (indiscernible) with each successive quarter as well. But I don’t think it’s going to be material. But we sell liability third-party, we sell the workers comp actually, we have no risk in the program. But basically what we are doing is acting as a general agent to give our retail agent more products connecting them with risk-bearing entity that will write it.

Lee Matheson - Broadview Capital Management

Okay good. And in terms of the investment income I mean it’s been I think three consecutive quarters of $800,000 of investment income, but presumably the book, the portfolio is building given the premiums written. Have you guys just been shortening duration or is it – there just hasn’t been that net huge amount of move in rates or why are you not getting anymore investment income out of it?

Pete Prygelski

It’s Pete.

Lee Matheson - Broadview Capital Management

Hi Pete.

Pete Prygelski

We – couple of things. One recently we begun to shift out of taxable fixed income instruments into some tax exempt. So there was a period there where we have a large block of investable funds sitting in cash that we have now reinvested. Like what, also we have shortened the duration now to under-four years at about 3.6. So we lost a little yield there. We were in cash for a period going into tax exempts. So I think you will see in the next quarter or two maybe the yield not picking and the yield percentage is staying the same, but the income being greater because we have more investable funds.

Lee Matheson - Broadview Capital Management

Got you, okay and the – you guys have a decent sized equity book I think it was $30 million at the end of last quarter are you continuing to run with that sort of that weight in the equities?

Michael Braun

Actually no, we have recently begun to rebalance the portfolio, which if you look at the results you will see that there was realized gains of almost $800,000 and that was a result of the rebalancing. We are – because of rebalancing we sold equities that were in nice gain position. So it kicks off the table and purchased fixed income or tax exempt munis with that money. And going forward over the last several weeks any investable funds we have received that will be going into fixed income, so you are going to see equities as a percentage of the entire portfolio dropping, dropping below probably settling around 15%.

Lee Matheson - Broadview Capital Management

Okay great. And just couple of other things. In terms of geographic diversification of the policy growth where is Tri-County in terms of policy counts. And then can you give us an idea of are you writing how many excuse me are you in any new counties in Florida this quarter or this year versus last?

Michael Braun

We are in – we are – I mean the first question is Tri-County, we are at about 19% of our policy count is Tri-County. Tri-County being Miami-Dade, Broward and Palm Beach. And then in terms of 67 counties in the state, we are in every county but one Lafayette which is a small county of 8,000 people and the Panhandle still hadn’t written our first policy up there. Not sure when we will, but our book is really all over the state of 100,000. We look at it in different pockets. We call it South Florida, which is the Tri-County. West – Southwest Florida, Tampa, St. Pete is another zone for us. Inland which is the most competitive. Inland is the Orlando market, the Panhandle and Jacksonville. So Inland and Jacksonville are the most competitive markets. But really I mean we have got great exposure all over the state. I mean, I think we have done a very good job getting the distribution throughout the state.

Lee Matheson - Broadview Capital Management

Good, okay. And then last question is just on stat capital in the carrier, where were you at quarter end?

Michael Braun

We are right around $59 million of stat in that pocket.

Lee Matheson - Broadview Capital Management

Okay. And then you have the shelf filed, what’s obviously when you filed that the equity reacted pretty negatively, it seem to have recovered a fair amount of that now, what’s your thinking there?

Michael Braun

Well, there is not much we can say on that right now, but as additional information becomes available we are going to be releasing it.

Lee Matheson - Broadview Capital Management

Okay, great thanks guys.

Michael Braun

Thank you, Lee.

Operator

Thank you. And your next question comes from the line of David Spier from Nitor Capital.

David Spier - Nitor Capital

Hi, how are you?

Michael Braun

Hi David, how are you doing.

David Spier - Nitor Capital

Great, great. Great quarter very impressive.

Michael Braun

Thank you.

David Spier - Nitor Capital

So based on the $3 million a week in new business that you said earlier that you expect to continue for around the next three quarters that implies a potential of $100 million additional premium by around the middle of next year, is that correct?

Michael Braun

Well, right now we are writing $3 million a week I have no reason to believe that’s going to change. But if you do the math, sure you do 33 weeks, at $3 million that is something you know.

David Spier - Nitor Capital

I think it’s realistic, so…

Michael Braun

We are continuing to write the volume based on our underwriting criteria. So that’s the path we are on.

David Spier - Nitor Capital

That’s great the other – there is one other thing I just want to touch on is, so the increase in the reinsurance market. So it seems like it’s directly benefiting your reinsurance program. Do you expect pricing to remain around 40% in terms of out of your policy count, I mean, premiums?

Michael Braun

Yes, there are two separate things there. Reinsurance did come down this year and early indications are that there is the world is flushed with cash and there is still more money heading to Bermuda. So it appears that reinsurance may come down another 10% next year, that’s speculation, that’s what’s being the rumor in the market. The market hasn’t had losses in a couple of years in terms of from hurricane. So that’s one thing. In terms of our reinsurance, we have locked in our, like I said earlier, the $67.5 million. So that’s about $17 million a quarter. So you see that we have the reinsurance as a percentage for this quarter, but because we are growing significantly, you are going to see the reinsurance as a percentage of premium drop over the next three quarters only because we are growing. So on a long-term, I think the low 40s is really where we are going to be and that’s based on where we have been in the past. However, short-term with our rapid growth, you will see some additional benefit.

David Spier - Nitor Capital

Alright, great. Alright, congratulations again really impressive quarter.

Michael Braun

Thank you, David.

Operator

Thank you. And our next question comes from the line of (indiscernible) Company.

Unidentified Analyst

Yes. See of your revenue has been kind of from price increases, now most of that being this versus the last quarter or a year ago?

Michael Braun

Well, we – our last rate increase was about 4% and that was in 2012.

Unidentified Analyst

Okay. Now, you are regulated by the state on what you have to charge or?

Michael Braun

We are an admitted market, which means that we are regulated by the appropriate states, which is primarily Florida, which means Florida offers some insurance regulation. And we have actuaries, established rates rules forms that as approved by the Office of Insurance Regulation.

Unidentified Analyst

And since they are running a category three hurricanes this year, do you think you they are probably right to probably go down over the next 12 months?

Michael Braun

In terms of reinsurance, it’s possible, we don’t know but the speculation that they could go down. In terms of our rates, our rates are determined based on our expenses, which is the largest expense is reinsurance. And we have losses, which is non-hurricane losses that we call it (indiscernible) and our acquisition. So as our expenses decrease or increase that would be reflected in the rate, but we don’t have any rate increase or decrease set at this point.

Unidentified Analyst

Alright, let me ask this. The Florida market, real estate market was just in shambles a few years ago, now it’s really improved, has that helped to our analogs?

Michael Braun

Well, that I would agree with you that that the real estate market has improved. And we ensure to what’s called replacement cost, which is different than the retail value of a house. So there was some confusion from insurers as they bought policies when the market was depressed. And in other words, let’s say, they could buy the house for $100,000, but it would cost $150,000 to replace it. That disconnect, I would say, has been resolved for the most part, but sure healthy economy, it can help us absolutely.

Unidentified Analyst

And it hurts you before, wouldn’t it?

Michael Braun

It impacted us. Sure, absolutely.

Unidentified Analyst

Yes. Okay, now what about your bond portfolio, do you have like an average maturity on your bond portfolio?

Michael Braun

Yes, we do. It’s approximately, I am guessing it’s under 4, I would say it’s probably about 3.75 years.

Unidentified Analyst

Okay. And then how come you are doing munis versus per se preferred stocks?

Michael Braun

Well, we are restricted slightly on the preferred stocks. Statutorily, as Mike said, we are regulated by the Department of Insurance and just I don’t want to oversimplify it, but basically we need to be – we have 90% on a cost basis of our investments in fixed income instruments.

Unidentified Analyst

And I guess you maybe lost money in your portfolio last quarter?

Michael Braun

You are talking about bonds or?

Unidentified Analyst

Yes, bonds, yes.

Michael Braun

There was some someone realized losses as the price of bonds dropped slightly, but they have rebounded now as that back to Allstate.

Unidentified Analyst

It’s probably worst quarter before I am sure.

Michael Braun

Right, but….

Unidentified Analyst

It looks like your quarter is kind of by then and…

Michael Braun

Exactly. But since the Fed has backed off their statement there, we are going to end their easing and they are continuing to buy bonds and prices have rebounded somewhat.

Unidentified Analyst

Okay, then. And when – I mean, I am a stockholder, you said you had a filing, while most said you had a filing recently when was that?

Michael Braun

When you say a filing, clarify?

Unidentified Analyst

Proposed filing or something might be going to be even altering or something like that.

Michael Braun

Yes. Someone was asking about the shelf that we filed, but that’s we are in a quite period, so there is really nothing we can say on that. As more information becomes available, we are going to be releasing that.

Unidentified Analyst

Okay, I wouldn’t mind of getting in already if you add it, but I would hope you don’t – so you have done the deal.

Michael Braun

Well, what you can do if you like is our contact information is public, Pete or I. And if you send us your contact information, if we do a deal and if there is a broker involved, we will be glad to forward your contact information to them.

Unidentified Analyst

Thank you.

Michael Braun

Just like I said, this is not much we can say on it at this point.

Unidentified Analyst

Yes, I understand. Okay, you have done a great job. Thank you very much.

Michael Braun

Thank you so much.

Operator

Thank you. And our next question comes from the line of (Samir Khare) from Capital Returns Management.

Unidentified Analyst

Good afternoon guys. Good quarter.

Michael Braun

Thank you, Samir.

Unidentified Analyst

I just have two simple questions. One is do you guys have a sense of how much of the company is owned by employees and management of Federated?

Michael Braun

Well, that’s public information. It’s less than 10%.

Unidentified Analyst

Okay.

Michael Braun

Yes, but it’s out there.

Unidentified Analyst

Okay. And then is there any reason to believe that you guys could exceed the $3 million per week? I mean, are you still guys still appointing agents? Is there other things in the lyrics that you guys are doing to increase them?

Michael Braun

Well, we are not necessarily bringing on more agents, Samir. The fourth quarter tends to be higher volume traditionally than the third quarter. The third quarter is usually the slowest quarter for us. And I would say for the industry, the fourth, first and second tend to be higher. It could be higher than $3 million absolutely. Right now, we are averaging approximately $3 million. I believe it could go up, but I can’t say that with certainty. There is two new markets that had been approved and we will start writing voluntary. Really, there is about 40 domestic, so let’s say there is 50 people that are in the marketplace, anything can happen. I have no reason to believe it’s really going to change materially on a go-forward basis, but we remain disciplined so that we are going to write the business that we know works. If it increases, it increases. If it decreases, it decreases. We are most concerned with bottom line. We are not chasing any magical growth number.

Unidentified Analyst

Right, okay. Great, thanks.

Michael Braun

Thanks, Samir.

Operator

Thank you. And our next question is a follow-up from the line of Jon Evans from JWest LLC.

Jon Evans - JWest LLC

Hey, can you just talk a little bit, your tax sequentially or from the first quarter was a little bit less, because you are going to munis, is the tax rate going to change materially going forward or can you help us understand what you think is a good tax rate that we can kind of look at?

Michael Braun

I think the best tax rate if you guys are creating your own malls is about 35%. You will see in the first few quarters, it trended a little higher. We do our tax grew up as of September 30, so the tax – the effective tax rate in Q3 was less than Q1 and Q2, but for the year, it’s about 35%. With the munis, we are not jumping into the muni market full force. We are dipping our toe so to speak, maybe 10% of the portfolio. So maybe the rate comes down to 34.25%, 34.5% somewhere in that neighborhood, but if you are kind of just to develop a model, safe conservative tax rate would be 35%.

Jon Evans - JWest LLC

Okay. And then on the losses, they were down year-over-year and they were down sequentially, can you just talk a little bit about, I think that’s in your target right, I mean, the target is kind of 48% to 52% is that the range?

Michael Braun

Yes, we have discussed that before. I think that anywhere around that 50% number is what Mike and I – I don’t know if we target, but that’s what we expect. But every quarter is different, claims are just, you never know what you are going to get in the quarter, but we do target around that 48% to 52%. So we are pleased with where the number was this quarter for sure.

Jon Evans - JWest LLC

And then will you get a true up in the fourth quarter, because I mean the hurricane season was really like there wasn’t anything really to speak of, so would you expect Q4 to be better than or a true up?

Pete Prygelski

Well, what you are seeing in Q4, so statutorily we are required to have an actuarial exam at the end of the year and we get an actuarial opinion and the actuaries give us a range and Mike and I are committed to booking the actuaries central estimate. So he will look at the book, that the actuaries will look at the book not only from a cat perspective, but from an all other apparels, they will look at property to look at CGL. And then yes, there is a as you say true up and that could go, it could be light and it could be heavy. So there is always going to be volatility from quarter-to-quarter, but we, at year end we think we are right on where we need to be. And we have internal controls to make sure that we are on that trajectory throughout the year as well.

Michael Braun

Yes, we look at it – besides the annual review, we also look at it twice internally to make sure we are targeting the right loss ratio.

Jon Evans - JWest LLC

Okay. And then the last question the stat cap I think you said was 50, 51 at the end of the quarter, is that right?

Michael Braun

59, yes, it’s 50 change, but close to 59.

Jon Evans - JWest LLC

And then you can write five times that, is that right?

Michael Braun

Well, but generally speaking, you can right as high as five to one, but there is a lot of moving pieces to that. There is something called RBC that can impacted. And because of our rapid growth, RBC has a penalty in there. So during the short-term, it’s actually – it could be less than five to one, but it could be as high as five to one. There is a lot of moving pieces.

Jon Evans - JWest LLC

So where would you guys be comfortable, I mean, at least at four to one, is that a good sense?

Michael Braun

That’s a reasonable number. I would say depending on the marketplace once again, but I would say in an ideal situation, 3, 3.5 to 4, maybe even 4.5 at some cases depending on the situation of the marketplace ballpark.

Jon Evans - JWest LLC

And I do apologize, can you just give us your thoughts just kind of on the government insurance the lottery, the system down there everything, your thoughts about pricing everything just we picture?

Michael Braun

Sure. Well, I think you are talking about the clearinghouse, which is citizens, which is the insurer of the last resort in Florida. And there is something coming online in January, one, which is called the clearinghouse. And basically, before a policy can go into citizens, it’s going to be electronically shopped in the admitted market. And we are a member of the admitted market. And there is about 20 companies including ourselves that will participate in this. And if the risk is acceptable to us, then the risk would not be eligible for citizens. So that’s new business. So the admitted market could be priced as high as 15% more than citizens. And they would not still not be eligible to go into citizens as new policy. Separate from that, renewals will be shopped electronically in the admitted market as well. You don’t have that 15% variance, but you have a flat. So if it’s the same price or less, it would not be eligible to be renewed in citizens. And instead we go to the admitted market. What’s going to happen with it? We don’t know. I think it will impact the marketplace. I don’t think it will be a huge impact. And that’s why we are so committed on what we have been doing the last three, four, five years of investing so heavily into our voluntary distribution. We did not participate in the (indiscernible) or the assumption of risk from citizens. We have a lot invested in what we do to ensure that the business comes through, what I would call the front door in an orderly fashion and we look at each individual policy. We are not taking in policies on a wholesale fashion. So I don’t think the clearinghouse is really going to change the marketplace that much, but obviously we will learn more as the year progresses throughout 2014.

Jon Evans - JWest LLC

Okay, thanks.

Michael Braun

Thank you.

Operator

Thank you. And that concludes the question-and-answer session for today. I would like to turn the conference back over to management for any concluding remarks.

Michael Braun

Well, we would like to thank everyone for the time that they have had for the questions today for listening in obviously. We are very pleased with what we have done over the last three years and where we are at today and what we are working on for the future. And I appreciate the questions. And if anyone has follow-up questions, Pete and I, our contact information is out there. Thank you very much.

Operator

Ladies and gentlemen, thank you for your participation in today’s conference. This does conclude the program and you may now disconnect. Everyone have a great day.

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