United Insurance's (UIHC) CEO John Forney on Q2 2014 Results - Earnings Call Transcript

Jul.29.14 | About: United Insurance (UIHC)

United Insurance Holdings Corp. (NASDAQ:UIHC)

Q2 2014 Results Earnings Conference Call

July 29, 2014, 05:00 PM ET

Executives

Adam Prior - IR

John Forney - President and CEO

Brad Martz - CFO

Analysts

Dan Farrell - Sterne Agee

Samir Khare - Capital Returns Management

John Hall - Wells Fargo Advisers

Dan Harvey - The Southeast Company

Operator

Greetings ladies and gentlemen, and welcome to the UPC Insurance Second Quarter 2014 Financial Results. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host Mr. Adam Prior of The Equity Group. Please go ahead sir.

Adam Prior

Thank you, operator. Good morning everyone and thank you for joining us. You can find copies of UPC’s earnings release today at www.upcinsurance.com, in the Investor Relations section. You’re also welcome to contact our office at 212-836-9606 and we’ll be happy to send you a copy. In addition UPC insurance has made this broadcast available on it's website.

Before we get started, I would like to read the following statement on behalf of the company. Except with respect to historical information statements made in this conference call constitute forward-looking statements within the meaning of the Federal Securities Laws including statements relating to trends and the company’s operations and financial results and the business and the products of the company and subsidiaries. UPC’s actual results may differ materially from the results anticipated in those forward-looking statements as a result of risks and uncertainties including those described from time to time in UPC’s filings with the U.S. Securities and Exchange Commission. UPC specifically disclaims any obligation to update or revise any forward-looking statements whether as a result of new information, future developments or otherwise.

With that I would now like to turn the call over to Mr. John Forney, UPC’s Chief Executive officer; please go ahead John.

John Forney

Thank you Adam and good morning to everyone participating in the call.

This is John Forney, President and CEO of UPC Insurance, and with me today is Brad Martz, Chief Financial Officer. We both want to thank you for all your interest in UPC Insurance and we look forward to answering any questions you may have at the completion of our remarks.

This was a quarter of significant activity and accomplishment at UPC Insurance as we move forward on our growth strategy to build the diversified book of property insurance and coastal states from Texas to Maine.

We continue to invest to build the team and systems needed to compete on a much larger scale. Yet amidst this ongoing investment, we produced diversified growth, strong profitability and excellent returns on equity.

Milestones have bounded during this quarter. They included writing the largest amount of premium in the company’s history, almost $129 million, which bested the previous high quarter by over 20%.

Gaining licenses in two additional states Connecticut and Louisiana, which brought the total number of states in which we are licensed to 11. Entering a complementary line of business, the commercial residential segment for which we see great promise in Florida and elsewhere.

Hiring several key new members of the management team including the company’s first chief actuary, putting in place the largest reinsurance program in company history, which provides more than $1 billion of protection for our policyholders, passing the $100 billion total insured value threshold and writing more than 60% of the company’s new business outside the State of Florida.

That’s quite a list and I could go on but hopefully you get the point. UPC’s vision is focused and our aim is high and we have assembled a world-class team that works hard every day in our quest to deliver results for building and enduring national franchise.

Financially, our results were strong up and down the income statement and balance sheet. Topline growth was robust. Our relative reinsurance spend decreased even as we bolstered the strength of our program. Our loss ratios stayed within acceptable balance while we maintained a conservative reserving philosophy and expenses were in check despite rapid growth in our employee base as we invest for the future.

While we are pleased with the results, we are by no means satisfied and that’s the best of news of all since we are confident that our peak performance is ahead of us.

At this point, I would like to turn the call over to Brad Martz for a more detailed discussion of our financial results. Brad?

Brad Martz

Thank you, John. Good afternoon everyone. Before we get to the financial highlights, I need to encourage everyone to review our press release and Form 10-Q that we plan to file on or before Monday, August 4.

The financial highlights of UPC’s strong second quarter include net income $9.6 million, a 113% increase from the second quarter a year ago, return on average equity of over 26%, book value per share increased to $8.85 per share, up 48% from June 30, 2013, favorable reserve development, improvements in our loss, expense and combined ratios as well as solid organic growth in direct written premiums.

UPC’s revenue growth continued to meet our lofty expectations. In the second quarter, total revenues grew 39% from $48.7 million last year to $67.7 million in the current quarter. Of the roughly $129.5 million of direct written for the quarter, Florida was $100.7 million or roughly 79% of the total; outside of Florida equaled to $20.8 million for the remaining 22%.

Overall the growth in direct written business increased 25% year-over-year. Growth outside of Florida is clearly helping our results evidenced by Florida being about 43% of the year-over-year growth in direct written premium and non-Florida representing 57%.

North Carolina, New Jersey and Texas contributed nearly $7 million in 2014 compared to only $340,000 last year. UPC was also very excited to write its first commercial residential condo association policy in June and this line of business gives us yet another path for growth and diversification.

The next significant achievement for the second quarter was the strengthening of our catastrophe reinsurance program. At disclosed previously in our 8-K filing on June 5, UPC secured roughly $1.1 billion of total coverage effective June 1, 2014, a significant increase from the $788 million purchased last year.

I don’t want to rehash the details for prior disclosures but here is some additional interesting facts regarding our new program. While UPC ceded earn declined as a percentage of gross earned premium from 38.6% last year to 34% in the current quarter the additional amount of limit purchased makes it difficult to truly appreciate the efficiency of our new placement.

We like to look at other metrics like reinsurance costs as a percentage of TIV and the ceded expected loss. On this basis, UPC’s effective cost savings average roughly 20% year-over-year. These significant costs savings were achieved despite declines in the Florida hurricane catastrophe fund coverage as percentage of UPC’s overall program.

In 2014, the cap fund represented roughly 51% of UPC’s overall program, which is down from 56% in the prior trade year as we buy open -- more open market coverage for our exposure growth outside of Florida. We also achieved these savings without disproportionately retaining more catastrophe risk.

Our retention was set at $25 million for the first event and dropped down to $10 million for a second event. Costs if you look at -- up $35 million in retained losses from two major events that don’t exhaust our program that represents 19% of shareholders’ equity as of June 30, 2014.

Last year our retained losses from two events of lesser severity would have been approximately $30 million per 31% of shareholders’ equity. Further UPC is almost fully funded its anticipated retention from two events in 2014 given it’s year-to-date pretax profits of $33.1 million.

The next significant item I would like to discuss is UPC’s loss results. For the quarter net loss and loss adjustment expense increased $5.8 million or 25% year-over-year due primarily to exposure growth and higher severity of water related losses in Florida as well as fire losses in New England compared to the same period a year ago.

Our gross loss and LAE ratio was 29.6% versus 30.7% last year. Reserve development was favorable for the quarter and although 2013 -- 2014, excuse me, is performing as performing as expected, we continue to watch all exiting year's very carefully. On the expense side, the company saw its non-loss operating expenses increase approximately $1 million or 17% year-over-year.

On the balance sheet, UPC ended the quarter with a $184.4 million in shareholders’ equity and increase of $87.5 million or 90% from the same period a year ago. Our liquidity also improved with cash investment holdings increasing by $134 million or 46% to over $427 million at quarter end.

I would like to now turn it back to John Forney for some closing remarks.

John Forney

Thank you Brad. We appreciate your time today everybody. At this point, we’ll be happy to answer any question you may have.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of [indiscernible]. Please proceed with your question.

Unidentified Analyst

Hi thanks. A couple of quick questions and congrats on the quarter as well. So starting off, in terms of the decline in the ceded premiums, the ceded premiums as a percentage of earned, you were trying to mention on a bit in your remarks, is that mostly a function of just going into other states, which require lower reinsurance spend or…

Brad Martz

I think the geographic diversification benefit we are receiving is part of the story to reconcile that more precisely would probably have to be done offline but yeah, that’s obviously an expected result we have going forward.

But that’s one of the reason I mentioned the change with the Cap fund because obviously the Cap fund here in Florida is a coverage just for Florida and its cheaper reinsurance than you could buy in the open markets.

So as we -- the cap fund becomes less significant in our overall program that does undo some of the diversification benefit we’re receiving. So the biggest factor I think was the continued declining in cost of our insurance capital.

Unidentified Analyst

Okay, so for the Florida program the decline in capital or the decline in prices there that kicks in starting 3Q because July 1 is your new program obviously, so starting next quarter through the second quarter of 2015 should we see that sort of go down even further since the new cheaper program kicks in or does the Florida hurricane catastrophe piece of it offset a lot of that.

Brad Martz

No the cost is fixed. So the cost of the contracts we entered into on June 1 is a fixed cost and will be amortized over the next 12 months. So if we’re successful in continuing to grow our premium obviously the -- that cost as a percentage of gross earned premium will continue to decline.

Unidentified Analyst

Okay and then in terms of the opportunities with -- I know you guys kind of opportunistically approach Citizens takeouts. There are at about 900,000 or so policies right now. Do you think you could still see opportunities or are you guys done with that as a growth option?

John Forney

This is John Forney. I will answer that. As we’ve said consistently organic growth to our independent agency distribution channel is our rock, our number one source of growth and it will be for the foreseeable future. We have other avenues of growth available to us including takeouts from Citizens, including potential M&A activity, including strategic partnerships with other carriers.

We’ve explored all of those and will continue to explore all of those so that we won’t take any of those options off the table but we are fortunate to have a very strong agent network, which this quarter produced 20,000 new policies for us in the quarter between Florida and non-Florida. So we don’t have to do takeouts but we won’t rule our looking to see what might be there to augment our organic growth.

Unidentified Analyst

Thank you and can I get your duration for your fixed income portfolio at 2Q ’14?

Brad Martz

It's approximately three and half years so it think it’s just under three and half years.

Unidentified Analyst

Okay. All right. Perfect. Thanks for the answers.

John Forney

Thank you.

Brad Martz

Welcome.

Operator

Thank you. Our next question comes from the line of Dan Farrell with Sterne Agee. Please proceed with your question.

Dan Farrell - Sterne Agee

Hi and good afternoon. A couple of questions. I apologize that I missed this in your prepared remarks but can you comment on what you’re seeing for current pricing trend both in Florida but also outside of Florida. Hello?

John Forney

Yes, this is John Forney. I’ll answer that. It’s a competitive market everywhere that we are. It’s actually a series of different micro markets if you will. In Florida there are different competitors that are strong in various parts of the state. There are different competitors that have lower pricing algorithms in certain parts of the state.

We have lower algorithms in certain parts of the state and so it’s hard to make general statements about the pricing environment for a company like ours, it’s competing in so many different markets where the competitive pressures are different.

I’ll just say that we try never to lead with pricing. That’s not how we earn business. We want to have fair pricing but we are trying to build a company that’s based on being financially stable with good products, good claim service, is easy to do business with and also has fair pricing.

So it’s not like we ignore what other people are doing in terms of pricing but we try to stay disciplined and as a general statement I don’t think I would say that we’ve seen a dramatic move in general in the market.

We see competitive pressures in different parts of the state and in different parts of our geographic markets where sometimes there is an outlier low-priced competitor, sometimes there’s a couple, sometimes there is not.

So it’s really hard to generalize even with the -- you hear a lot about the competitive pressures and downward pressure on rates due to the lower reinsurance cost and certainly that’s played out in some filings that we’ve seen but I would hesitate to say that it’s altered the competitive balance in any blanket way.

Dan Farrell - Sterne Agee

Okay. Okay that’s helpful and then could you comment a little more on your efforts on the starting up on the commercial residential side and how you’re going to approach that strategically and maybe just put kind of try and frame for us the potential size of the opportunity there.

John Forney

That opportunity was a terrific byproduct of the -- our discussions with Sunshine State Insurance Company, which occurred during the quarter where we had that LOI that unfortunately was terminated before that deal was consummated but we got to know some people there during that process and learn more about the commercial residential side of the business that they were running, which is a business that we’ve been considering for some time and we ended up hiring one of the people there who ran their commercial residential business Carol Curry who has done a terrific job at Sunshine State.

Their growth in that business was constrained by capital. Ours will not be so much constrained by capital, it’ll be rather constrained by discipline and strategy and so we’ve gotten off to a good start in that business.

We see a potentially excellent opportunity in the market. The premium opportunity in Florida alone is the $1 billion plus overall not for us and it’s a market that’s fairly fragmented with the exception of Citizens, which has the significant portion of it. So we see great opportunity to build a book of business that compliments what we have to re-ensure it appropriately and conservatively.

We also see opportunity in other states where we’re currently writing business and are working on filings to take advantage of that opportunity.

Dan Farrell - Sterne Agee

Okay great. Thank you very much.

Operator

Thank you. Our next question comes from the line of Samir Khare with Capital Returns Management. Please proceed with your question.

Samir Khare - Capital Returns Management

Good afternoon guys, how are you?

John Forney

Great Samir, how are you doing?

Samir Khare - Capital Returns Management

Good, thanks. TWIA a few questions. If you can give us an update on the TWIA initiative and just tell us what’s going on there?

John Forney

Sure. Well as you know we presented at [depop] (ph) at TWIA. They did not have a formal depop program in place and so they have been working to put one in place so that there is a structure and the infrastructure for companies like ours to analyze doing takeouts.

They are still in the process of doing that. The last time I talked to them and there have been some actual recent press coverage as well they said they are on track to get whatever structure they are going to put in place this fall and we’re continuing to help them however we can to put that in place.

TWIA is also doing their own version of a clearing house that operates differently than the Florida clearing house and I think they expect to have that in operation also sometime this fall.

So we anticipate there will be opportunities to look at policies from TWIA either via their clearing house method or via the bulk takeout that we proposed to them sometime later this year.

Samir Khare - Capital Returns Management

Great and can you just go over what the use of the captive is in your reinsurance program and then let me know how much surplus you guys have in your insurance subs as well as your captive.

Brad Martz

Sure. The reinsurance participation of our -- of UPC REIT, which is our captive is unchanged year-over-year. It has a 30% quota share with an occurrence cap and an aggregate cap that stopped its losses and basically within our retentions.

Okay so for example, we’ve $25 million retention in our catastrophe reinsurance program, UPC participates on 30% of that or $7.5 million for first event our retention, our retention second event’s $10 million. Its max loss on second event catastrophe is $3 million.

Everything else is pro rata on premiums and losses. So it aligns all parallels, all states. The capital in the insurance entity -- we haven’t filed our statutory report yet but the statutory capital at the end of the quarter was just over $91 million and thus the GAAP equity of UPC REIT was just under $17 million.

Samir Khare - Capital Returns Management

Okay. Great, and I just want to know you guys write a little bit of business in North Carolina. Any losses speak of some hurricane out there? You may have covered this at the beginning. I missed a little bit of the beginning comments.

Brad Martz

No. I don’t think we covered that. It was obviously a July event. So it wasn’t part of the quarter but as far as the subsequent event is concerned, it’s really a nonevent for us. We’ve had a total of 18 claims reported with an incurrent loss to date under $80,000. So fortunately for us most of the business we write out in the area that was impacted by hurricane Arthur is ex wind.

The beach plan in North Carolina on the JUA has most of that wind exposure and it was a pretty benign event overall and I’ll say that in all seriousness because obviously any major hurricane is a significant event and we were hoping there was going to be an opportunity there to go out and impress the agents and show them what we’re capable of on the claim side, but it was not meant to be in North Caroline this go around.

Samir Khare - Capital Returns Management

Great and respectively commercial residential opportunity, can you just tell us a little bit about the loss ratio profile and the reinsurance load for those types of exposures? And is it lower loss rate -- attrition loss ratio, is it…

Brad Martz

Sure. Well, I'll give you an example. Yeah, I'll just give you some facts from the policy we wrote in June, okay, our very first policy and this may or may not be a typical policy, but this -- it was a single policy, the premium was $184,000. It had 19 individual risk counts, so individual buildings or properties within the policy.

The expected loss ratio or the AAL to premium as measured by AAR version 15 on an aggregate basis with demand surges about 7.8%. And that compares very favorably to UPC's overall home owners portfolio of about 15.3%.

So we see opportunities to inject some TIV from commercial residential, which is really just a different form of home owners. It's all personal property. The size of the market is huge and if done appropriately with discipline underwriting I think it can help lower our risk metrics and enhance our overall profitability.

Samir Khare - Capital Returns Management

Okay. And the…

John Forney

The reinsurance cost.

Samir Khare - Capital Returns Management

Sorry, go.

John Forney

The one part of your question that Brad didn't just didn't adjust with the attritional loss ratios, which have been very low in that business; high-single-digits, maybe low-double-digits has been typical for that line of business in the state.

Brad Martz

Right. And with the small portfolio that's going to be tested right because your -- its very, very low frequency, high severity business. So we are -- we have augmented our reinsurance program buying some additional excessive loss per risk coverage.

We are looking at putting in place facultative coverage, risk-by-risk as well. And once the portfolio gets to a certain size, we will probably move away from facultative and build a different type of treaty-based program that is a better occurrence protection for our balance sheet.

Samir Khare - Capital Returns Management

Great. That was the detail I was looking for. And how about on the expense side, is there some -- is there a lower expense ratio given your large average premium amounts?

Brad Martz

Well, it totally depends on volume, right? This is a business that does require some scale. But I can tell you we've only got two people that will be working on it pretty much full time. And there are no business policy processing outsourced cost like we have with home owners. Everything is done in-house.

So I think it is more efficient from a cost perspective, but we need to build the premium volume. And the average premium on these types of policies is probably going to be somewhere between $30,000 and $40,000. The risk count is going to be somewhere between two and four buildings.

So that’s probably more typical, what you'll see in the future, but there are some nice policies out there with higher premiums and, of course, more risk that really work well with our portfolio.

Samir Khare - Capital Returns Management

Well, thanks for the answer. Congrats on the quarter.

Brad Martz

Thank you.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of John Hall with Wells Fargo Advisers. Please proceed with your question.

John Hall - Wells Fargo Advisers

Hello everybody.

Brad Martz

Hi john.

John Forney

Hi john.

John Hall - Wells Fargo Advisers

I've just got a couple of clean up numbers questions and some bigger picture questions to follow. The reserve development in the quarter, I guess where was that coming from?

Brad Martz

Well, it's all favorable on 2013. There was very minor adverse development on 2012, 2011 and 2010, some of those troubling accident years that we inherited. Here's the management team, those case reserves continue to shrink every period for working that stuff off as we speak. But 2013 is really the driver of the favorable development. The reserving practices we said we were implementing last year are working as anticipated.

John Hall - Wells Fargo Advisers

Great. And then was there anything unusual or little out of culture with the tax rate this quarter?

Brad Martz

No. It's obviously going to move around given the timing differences associated with movements on unearned premium and loss reserves. So I would still continue to guide you towards sort of a 38.5% overall effective rate.

John Hall - Wells Fargo Advisers

Okay. Following on Samir and Dan's question about the commercial residential opportunity, is there a size of market here that $0.5 billion market in Florida. Well, just can you frame it in some sense?

Brad Martz

Yeah. We pulled down loads and loads of data and the best source in Florida is the Quasar database. And there is roughly $1 billion worth of premium in the marketplace with citizens having market share in the mid-40s.

There are not a lot of carriers actively writing in this niche. It is unique and poses some challenges to those that are equipped or inexperienced in this line.

But we like our team, we like the resources we've identified and put together. We're addressing the reinsurance needs because there are new exposures that we want to obviously make sure we're protected from, but it's a great market.

John Hall - Wells Fargo Advisers

What's the biggest challenge in getting it right?

Brad Martz

First, selection. Got to have the right rate for each risk. Our rates vary anywhere from $0.20 per 100 of insured value up to $0.90. And it's complicated done to write. So it requires a lot of manual touch. It's not highly automated like the rest of our business. It can be done in bulk, but you have to have good processes and people and we're looking forward to building those out.

John Hall - Wells Fargo Advisers

Got you. There were a couple of M&A transactions during the quarter in Florida. I'm just wondering if you characterize the pipeline or the activity or whether there are still things on the shelf and what your interest is.

John Forney

We remained interested in opportunities to grow through M&A in Florida and in other states and we actively consider opportunities as we see them. We sometimes pursue opportunities to try to gage the interest of other parties and we have an active list that we look at constantly.

So we are definitely in that market, but we are not dependent on it. So as you know in that area there's a lot of things that can go wrong, there are a lot of things that can make deals not happen. And there's a lot of reasons why you shouldn't do deals. The thing that someone said to me after our Sunshine State LOI was terminated was sometimes the best deals you do or the ones you don't do and we're happy to feel that way.

John Hall - Wells Fargo Advisers

No, that's great. I was wondering is there an update on the status of where you stand in terms of establishing a company for more effectively writing business outside of Florida or a non-Florida company.

John Forney

Well, I would say we are effectively writing business outside the State of Florida. This time last year we were doing 3,000 or 4,000 policies a quarter outside of Florida. We did 12,000 policies this quarter outside the state of Florida. And we've gained momentum in every state as we've gotten traction. So our legal entity and our structure are not holding us back from writing business outside the State of Florida.

As we evolve, we may consider alternative structures to take us to the proverbial next level, but we don't need that right now and our business is healthy and growing and robust in all of the states that we're operating in outside the State of Florida.

John Hall - Wells Fargo Advisers

No that's clear, are the wheels turning on that or not?

John Forney

They are. John, we have a long term plan in place. Obviously our preference would be to acquire another entity that came with a book of business and some good people and agency plan, etcetera that facilitated our growth.

So we want to -- we don't want to hasty in terms of just taking the capital we have and going and standing up a new company assuming that won’t happen because where evaluations are across the Board right now I think there is increased interest in M&A from potential counterparties so we’re -- that would be our first preference but obviously if we come to the conclusion we can’t wait any longer. We’ll go ahead and capitalize and form a new company to help move down that two-company strategy.

John Hall - Wells Fargo Advisers

Got you. Great. Thanks very much.

John Forney

Thank you, John.

Operator

Thank you. Our next question comes from the line of Dan Harvey with The Southeast Company. Please proceed with your question.

Dan Harvey - The Southeast Company

Good afternoon guys. My question is maybe it's mentioned but I didn’t hear on the total number of policies we have and I want to delve into it a little bit more, the total number of policies we have in Florida, what number do you think we want to get to as a percentage of the overall policies in Florida and what percentage of it is coming from that all state channel of agents? Those questions there for the first go around.

John Forney

Sure. We’ve got about 215,000 total policies, about a 160 in Florida and 55 outside the State of Florida roughly speaking that’s what our policy count is in overall. So we I’ve said consistently that we see ourselves growing in Florida to get to potentially a $500 million book of business. We’re a little over $300 million right now in terms of our premium and force in Florida.

So we still have a significant runway of growth. We are trying to do it in the smart way and get a spread of risk in Florida and diversify that book to areas of the state where we don’t have as much concentration as in other areas.

So that’s taken some retooling in our marketing efforts and we’re successfully -- in the process successfully doing that, but we expect to grow in Florida for some period of time until we get up to something like the $500 million or so level, maybe a little less, maybe a little more depending on how things develop in the market.

So we’ve got significant growth for the next couple years anyway ahead of us in Florida. Outside the state…

Dan Harvey - The Southeast Company

…portion of their business coming from those agents.

John Forney

Continues to be a very strong source of our business in Florida, even of our total book in Florida that was over $300 million something like $70 million of that was premium in force from all states. So it’s not a quarter of our business but it’s something like 20% -- between 20% and 25% of our in force book in Florida coming from that all state channel and we value that relationship very much and I think they do too.

Dan Harvey - The Southeast Company

Do you see the big boys getting back in Florida and that’s my last question.

John Forney

Read about it. Haven’t seen it really.

Dan Harvey - The Southeast Company

All right. Thank you, John.

Operator

Thank you. Our next question comes from the line of [Raj] (ph). Please proceed with your question.

Unidentified Analyst

Hey thanks. Just had a follow-up. Obviously your loss ratios are pretty good. I just had a question because you’ve mentioned in the release also that for the first half of the year the core loss ratio ticked up a bit and I think I’ve seen that for the last four quarters or so and is that simply a factor of moving into other states and is that because the other states have -- outside Florida have higher AOP loss ratios. Is that an accurate way to think of it?

Brad Martz

Yeah no, that’s a good observation. That was if there was one number I was not happy about in the current quarter, it is the underlying gross loss ratio, which was 30.4% versus 26% last year and I think you’re exactly right. It is part of the diversification, the models that we built out long term show as our mix changes and the non-Cap loss ratios in some of these other states are higher.

Obviously we’re seeing most of that offset by the lower reinsurance cost. We’ve got more modeling work to do in that regard but yes, we would continue to -- expect to continue to see that trend as -- so long as we’re successful in increasing our non-Florida exposures.

Unidentified Analyst

Thought of idea there basically that those other states have higher non-Cap loss ratios but if you are looking over like a 10-year period they will have lower Cap ratios to kind of offset that in addition for the…

Brad Martz

That’s right. They don’t typically have different frequency or severity of major perils than Florida but obviously you’re dealing with last [pregnant] (ph).

Unidentified Analyst

Okay and did you say in North Carolina you’re doing excellent policies, just wanted to make sure I heard that right.

Brad Martz

We have -- we write on ex-win basis in every state. It’s a very, very small percentage of our overall portfolio but we do have that capability.

Unidentified Analyst

Okay. Thanks and I know you mentioned also you have a chief actuary now that you’ve hired. So I guess one question is what sort of capabilities do you think you’ll have now that using him before like what should we expect to sort of change in your underwriting going forward as a result of that.

Brad Martz

Well [Lee] (ph) who joined us from our independent actuarial firm Pinnacle was integral there in their predictive analytics group and obviously has some experience with our company so we’re looking at first the big things from Lee using predictive analytics to help us with pricing and underwriting rules that can help drive portfolio enhancement.

He is also going to take the lead on the exposure management side and running the AIR model in-house and as well as evaluating some other deterministic loss modeling tools on the catastrophe side. So his knowledge of our products and his ability to really think -- help us think through some of the issues with our 1.0 product, which is that cap banding idea, which is really a lot of the pricing for the win side of our premium is all model driven and it’s a pretty complex exercise to develop the grids and the territories and the rates and apply them consistently and work side of Lee's expertise both for -- not only pricing but reserving as well.

He is going to help us on multiple fronts.

Unidentified Analyst

Okay great. Thank you so much for the answers.

John Forney

Thank you.

Operator

Thank you. Our next question comes from the line of Edward (ph) with Investments. Please proceed with your question.

Unidentified Analyst

Sure. Just had one quick question. It’s about when -- in terms of thinking of your ceded premiums for the rest of the year until May of next year, is it [indiscernible] fixed amount per quarter?

Brad Martz

It is. We reserve the right as always to go back to the market and buy additional reinsurance if catastrophe losses warn us doing so or changes in our portfolio like doing a large assumption of risk or something else prompts us to suggest we need to buy more but the contracts we have in place are of fixed cost and obviously if we enter into any further material agreements like those, they will be filed and be accompanied by disclosures that provide that information for you.

Unidentified Analyst

I didn’t pick up on that but just -- do you have what the quarterly number’s going to be, the cost?

Brad Martz

The total cost -- the gross cost meeting the deposit premiums we’ve agreed to pay for the private program and the Florida hurricane catastrophe fund. We’re just under $133 million.

Unidentified Analyst

$133 million. So just prorate, okay. All right, great. Thanks.

Operator

Thank you. Ladies and gentleman, at this time there are no further questions. I would like to turn the conference back to management for any closing comments.

John Forney

Thank you very much. We appreciate everyone’s interest in UPC insurance and your time today on the call.

Operator

Thank you. Ladies and gentleman, this concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation.

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