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FPIC Insurance Group Inc. (NASDAQ:FPIC)

Q4 2007 Earnings Call

February 28, 2008; 11:00 am ET

Executives

John Byers - Chief Executive Officer and President

Charles Divita III - Chief Financial Officer

William White Jr. - President, First Professionals Insurance Company, Inc.

Analysts

Amit Kumar – Fox-Pitt Kelton

Ron Bobman - Capital Returns

David Lewis – Raymond James

Mark Hughes – SunTrust Robinson Humphrey

Paul Newsome – A.G. Edwards

Operator

Good morning, everyone, and thank you for joining the FPIC Insurance Group quarterly conference call. This morning we will first make a brief presentation followed by an opportunity for questions-and-answers. Please be reminded that our call today is being recorded and a replay will be available at 1:00 this afternoon. A webcast replay will also be available.

Before we begin our presentation, I would like to make a brief statement about forward-looking statements and non-GAAP disclosures. Today’s presentation and the discussion that follows may include statements about expected future events and future financial results that are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Forward-looking statements are not guarantees of future performance and actual results may differ materially as a result of risks and uncertainties that we describe more fully in our earnings release and in documents that we file with the Securities and Exchange Commission.

Our earnings release can be found in the Investor Relations section of our website at www.fpic.com. We do not undertake to revise forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

Today's presentation may also include certain non-GAAP financial measures which we explain more fully in our earnings release, including a reconciliation of reported non-GAAP measures to the most directly comparable GAAP measure.

Now let me introduce our participants this morning. We have John Byers, President and Chief Executive Officer and Charles Divita, Chief Financial Officer. Also joining us this morning is William White Jr., President of our insurance subsidiary. We are now ready for our presentation. Here is John Byers.

John Byers

Thanks. Good morning, everyone. We're very happy with our fourth-quarter results, which top off another strong year for us. We achieved operating earnings per share for the quarter of $1.64, up 74% over fourth-quarter 2006 results. Our operating earnings per share for the year were also up substantially over 2006 results.

Our results for the quarter and year benefited from our continued underwriting and pricing discipline and the continuation of favorable claims, trends and results. At year-end, our book value per share reached its all-time high.

While our strong earnings continued to fuel significant capital growth, we once again achieved an attractive return on average equity, with the return on average equity from continuing operations of 14.5% for the year, excluding the gain from our first-quarter commutation of our assumed reinsurance treaties with the PRI. Including this gain, we achieved a return on average equity of almost 18%.

We took advantage of our strong capital position to make substantial share repurchases during the fourth quarter and year which we believe benefit our shareholders going forward. Our revenues for the year were down 11%, primarily driven by our moving our Florida premium rates down in response to several years of favorable claims experience.

This revenue decline was expected in light of the moderation in rate and the current market environment and then our case reflects our continued adherence to our underwriting and pricing standards and our commitment to sustainable long-term financial strength and shareholder value.

Our strong claims experience of the past several years continued throughout the fourth quarter and year. Overall, we certainly feel good about our organization’s achievements to-date and where things stand. These accomplishments are a tribute to the dedication and abilities of our management team, staff, and board and reflect the efficacy of our business strategies.

Looking ahead, we believe we are well positioned to continue to meet our objectives. In this regard, we have strong capital and market positions and remain committed to delivering attractive long-term results.

Operationally, we will continue to focus on our business strategies, which have served us well over the years, including; one, focusing on our core products and services; two, targeting markets where we have competitive advantages; and three, focusing on our core disciplines, including strict underwriting; reasoned pricing; aggressive, effective claims management; and efficient capital utilization.

We'll also continue to seek and take advantage of growth opportunities in our core markets, which our market position, expertise and relationships afford us, as well as assess and take advantage of growth opportunities in selected other markets.

With that overview, I will now turn the discussion over to Chuck to review our fourth-quarter and year-end 2007 financial results.

Charles Divita

Thanks, John and good morning, everyone. Our results again demonstrate our financial strength and the profitability of our business. I'll provide some highlights of the quarter and the year with comparisons to 2006.

Our underwriting results continue to be strong, driving a 74% increase in operating earnings per share for the quarter to $1.64. For the year, we reported operating earnings of $5.27, a 71% increase over 2006.

Direct premiums written declined 17% for the quarter and 16% for the year primarily due to lower premium rates in our Florida market and to a lesser extent changes in our overall business mix. These factors as well as lower net investment income contributed to 11% decline in total revenues for the quarter and the year.

The favorable claim trends we've experienced in recent years continue to have a moderating effect on rates. As such, we reduced our Florida rates in December 2007 by 11.7% and 11.4% and First Professionals and APAC respectively. Beginning March 1, 2008, the recoupment of prior guarantee fund assessments will bring these rate decreases to around 8.5%.

Our retention of existing policyholders remained very strong in the mid 90s for the year and our policyholder account at December 31, 2007 remained essentially level with the prior year.

We completed our year-end evaluation of reserves which continued to benefit from the decline in frequency in recent years and our efforts in the areas of underwriting, risk management and claims.

The results of our year-end study and the continuation of favorable loss trends led to a 2 percentage point reduction in our 2007 accident year loss ratio and the recognition of $7 million of favorable prior year reserve development during the fourth quarter. This resulted in a loss ratio for the quarter of 47.3%.

Excluding the positive impact of the PRI reinsurance commutation in the first quarter 2007, we've recognized $16 million of favorable prior year reserve development during 2007. All in, our loss ratio for the year was 52.2% and was 59.3% excluding the PRI commutation.

We continue to be an efficiently run organization with a stable underlying expense structure. Our expense ratio for the quarter was 21% with the level of net premiums earned being the main driver of the ratio.

We continue to be pleased with our claims metrics. Reported claims and incidents for 2007 were 1% lower than 2006 with reported claims 15% lower. When adjusted for the composition of our book, frequency remained at historically low levels in 2007. Severity continued to be essentially level and the percentage of claims with an indemnity payment remained within our expectation.

When adjusted for the impact of commuted reinsurance agreements, net paid losses and loss adjustment expenses for 2007 were 7% lower than 2006 and finally, our inventory of open claims and incidents at December 31, 2007 declined 14% from year-end 2006.

We have substantial financial strength with a high-quality investment portfolio, appropriately conservative reserves, and a strong capital position. Book value per common share grew 17% for the year to $33.03; as John said, the highest in our company's history.

The statutory surplus of our insurance subsidiaries at December 31, 2007 was $261.6 million and the ratio of net written premiums to surplus at year-end excluding the PRI commutation was only 0.7 to 1.

Given our strong capital position, we continued to view share repurchases as an attractive use of our capital during the quarter, repurchasing approximately 219,000 shares at an average price per share of $42.31.

For the year, repurchases totaled nearly 1.2 million shares at an average price per share of $41.11. Since year-end, we’ve continued to repurchase shares under our rule 10b5-1 trading plan.

Regarding our investment portfolio, our average quality continues to be very high at AA as of December 31, 2007. We closely monitor the performance of our investments and we remain comfortable with our holdings.

With that, we are now ready for questions.

Question-and–Answer Session

Operator

(Operator Instructions). Your first question comes from Paul Newsome – A.G. Edwards.

Paul Newsome – A.G. Edwards

Good morning. I was hoping you could give us just maybe some more details on the reserve release in the fourth quarter. It was wonderfully high and a pickup from prior quarters. Should we be reading something into that based upon claim counts in the fourth quarter or is that a normal true-up pattern in the fourth quarter, just whatever you can give us is great.

Charles Divita

Good morning, Paul. What we did in the fourth quarter obviously is complete our extensive year in reserve study. What we saw is really a reaffirmation of what we've seen in prior reserve analysis, frequency remaining at historically low levels, the severity measures being well within our expectations and so because of those results, it led us to lower our current year loss ratio because of the results we've seen and also recognize additional favorable prior year development.

In terms of the level and what we might see going forward, I think it is important to point out that we've seen dramatically improved claim results since 2003 and over 85% of our reserves sit in accident years 2004 through 2007.

So assuming the claims trends continue, we could see additional favorable development. I wouldn’t comment on what specifically that might be or read into the quarter how much that might be other than to say obviously we are very comfortable with the favorable development we recognized, the change in the 2007 loss ratio and where we stand with reserves.

Paul Newsome – A.G. Edwards

Great, thank you.

Operator

Next question comes from Mark Hughes – SunTrust Robinson Humphrey.

Mark Hughes – SunTrust Robinson Humphrey

Thank you very much. I just wanted to make sure I heard correctly that severity was level year-over-year in the fourth quarter?

Charles Divita

Yes, the severity measures that are underlying the reserves are level. In fact, they're probably stable and even down some. In terms of our (quip?) percentage overall, the paid losses, the severity trends, etcetera, so that's what we mean by that. The severity measures altogether continue to be very good.

Mark Hughes – SunTrust Robinson Humphrey

Right, how much of that is mix shift in favor of the lower risk specialties versus the broader market trends?

William White Jr.

Mark that’s really due to the fact that our policy limits are relatively low compared to other markets. 85% of our policyholders only carry limits of $500,000 per claim or less with the bulk of those, roughly 63% of our total policyholder account, at $250,000 per claim limit. That caps what severity can be in any given year.

Mark Hughes – SunTrust Robinson Humphrey

One would think going forward, severity, because of that cap, ought to be relatively stable.

Charles Divita

Certainly in Florida, I think severity is not the issues it is in most states, in the sense that most states the standard policy limit is at least $1 million. As Bob said, almost all of our policyholders have $500,000 or less and well in excess of half of our policyholders only have $250,000 or less and so we are shielded somewhat from our perspective as the insurer from severity that's not the case in other states but it’s true.

Mark Hughes – SunTrust Robinson Humphrey

Got you, then likewise the claims improvement, if you could put that among the change in your risk profile among your policyholders versus the broader market?

William White Jr.

I think it’s mostly due to the broader market. We do have the favorable impact of the fact that about 25% of our policyholders are (indemnit?) and may have lower claims frequency to begin with, plus this mix of business change that we have been talking about over the course of the last couple of years also has lower frequency associated with it. But I would say a good 80% of what we are experiencing is being experienced by everybody in the Florida market at least.

Mark Hughes – SunTrust Robinson Humphrey

Got you. How about any thoughts on net premium earned outlook for the Q1? You did quite well in this quarter relative to the gross premium. What should we anticipate for the first quarter?

Charles Divita

Obviously what we are earning in for 2007 is a combination of 2006 and 2007 written premium and what we earned in 2008 will be a combination of what we wrote in 2007 and what we do in 2008.

So really it is going to be a function of what we write in 2008 and when we write it. So it is hard for me to say specifically, although I'd tell you directionally obviously with the rate changes and the decline in premiums in 2007 versus 2006, I would suspect you will continue to see a moderation in 2008.

Mark Hughes – SunTrust Robinson Humphrey

Okay, and then finally, acquisitions, what's your appetite or what's the availability of potential opportunities?

John Byers

Certainly as you know from following the sector, there's been a lot more commentary and discussion about acquisitions and I would say relative to the past, there has certainly been more action and activity on that front.

In terms of the reason for that, I think there are a lot of companies particularly in the insurance sector that has excess capital; the medical professional liability line seems to be performing better than most other insurance sectors and so that’s why I think you're seeing the increased interest in it.

In terms of our appetite, we systematically look at acquisitions; we are very disciplined with it. But as we've said in the past, we certainly will assess any acquisitions that make sense for our company and our shareholders and we will continue to do that, so we will see.

There's always a good bit of talk in our sector about acquisitions. The thing is they are all opportunistic. I don't think you're going to see a rollup of med mal companies because the companies have their own unique characteristics and each one stands on its own, but there is more talk. There is more interest. I think there's more interest from sellers as well and we certainly have an interest in looking at companies that might make sense for us.

Mark Hughes – SunTrust Robinson Humphrey

Thank you, nice quarter.

Operator

The next question comes from David Lewis – Raymond James.

David Lewis – Raymond James

Just to follow-up on that M&A question, you said more interest. Do you get a sense that some of the multi line carriers would have an interest in this segment or is it primarily coming from the existing players?

John Byers

Certainly, I think it's both. The existing players I think continue to have an interest because the buildup in capital is something that other companies have seen, so the existing players have that interest. Beyond that, somewhat from a multi line but also the foreign companies have an interest right now; some of the Bermuda companies also tend to look at these companies as well. So it's really across the board.

David Lewis – Raymond James

I haven't seen any transactions other than existing players, have you?

John Byers

In terms of transactions, I think by and large that's right. That's what you have seen. I think the others have played in that market though and it just so happens that the transactions you've seen are through the existing players.

Really if you look at it over the last seven or eight years, as I calculate it, it only comes out to about one acquisition a year, up until a couple of years ago, (cross talk) people already in the sector that had the interest.

It’s been in the last couple of years that you have seen that outside interest come in and I would say it’s not a function that they're not interested. It is just so far, it’s a function that they have not been the ones that ultimately prevailed in acquiring the company.

David Lewis – Raymond James

That’s helpful and Bob, I don't think these have been asked, but can you maybe address any tort reform challenges in Florida if there are any cases working through the system that might come up as a challenge here in the next year or two?

Secondly, just talk about some of the competitive pressures out there that you're seeing in the Florida market in new business trends and whether the startups are starting to feel any pain that might provide some relief out there? And/or on that subject, if doctors are starting to go back to carriers versus being bare?

William White Jr.

David, first of all on the tort reform challenges, there were two trial court leveraging in the latter part of 2007. In other words, decisions by trial judges that the caps on non-economic damages were unconstitutional. One of those judges have since reversed himself in a case we're involved in and said the issue isn’t right until there's a verdict in excess of the amount of the cap.

So there is one trial court now that said the cap is unconstitutional and that’s just the law of that case. I want to emphasize that it means nothing as far as the state of Florida is concerned because that judge decided the cap does not apply in that case, and that ruling is subject to appellate court challenge if it were to continue in the case and there be an award in excess of the policy limits where he did not apply the cap to.

So that's all to be worked out and of course if there is a defense verdict, it is totally meaningless. So we are nowhere closer than we were a year ago to final appellate determinations about tort reform in Florida.

As far as the competitive pressures are concerned, things pretty much continue to be the way they were at midyear or so where we have a couple of legacy players in our market that are doing some things that cause us to shake our heads a little bit in terms of pricing. Of course we have several startups whose pricing is unexplainable as far as we are concerned.

But we have managed to hold our own because of our strong reputation for service and quality with our pricing and as you see from the retention numbers, they are quite strong in a very, very competitive marketplace.

We're seeing more opportunities for new business as we reported to you for the last couple of quarters. We're quoting more; we're winning more of those quotes. Some of the numbers we put out for the fourth quarter, while they are accurate, are a tad bit misleading because for example we wrote a policy on December 21 that had 123 doctors on it, but it only counted as one policy, and it represents $1.4 million of premium.

So the numbers make it appear as if we are holding our own in terms of policyholder count. The trend is actually upward from our opinion in terms of our ability to gain access to new accounts and our ability to win new business.

The startups aren’t feeling any pain yet. These are the best of times in Florida and everybody is feasting on those times. That is why we have folks out there who are charging some rates that are a bit unrealistic and if they are not careful and don't judge the turnaround appropriately, they can get hurt in the long run. But that time hasn’t come yet.

As far as doctors coming back into the marketplace, it just hasn’t happened yet. We are probably beginning to see the very start of that occurring, but it is not occurring in any numbers sufficient to say it is a trend at this point.

David Lewis – Raymond James

That's helpful. Bob, if we look at your policy counts versus doctor counts, would you say the doctor counts are clearly up on a year-over-year basis?

William White Jr.

If you look at the number of doctors we're servicing, which we don't really have an official number for, that is up. We quoted this policy in a way that would have counted as 123 doctors. They wanted it formed in a particular way that was good for them and good for us, so it counts as one policy in the policyholder count, but it is 123 doctors.

David Lewis – Raymond James

That's helpful and Chuck, a couple questions for you. If we look at the excess capital levels, you're writing 0.7 to 1.0. You can clearly write up to at least 1 to 1, maybe a little higher than that with your current ratings.

Can you give us an idea of what kind of cash you have at the holding company, if you have any thoughts on what dividend levels you might be able to upstream to the holding company?

Charles Divita

Sure. At the holding company we have over $20 million of cash currently, or at least as of 12/31, and our dividend capacity from the insurance subsidiaries without additional approval for 2008 is $48.2 million. So we have substantial resources available to us to do what we want to on the capital management front.

David Lewis – Raymond James

Okay. Now that dividend capacity really doesn't take into bear the very low level of net written to surplus, does it?

Charles Divita

No, it does not take that into account. It is really a function of what your profitability and surplus levels are at the end of 2007. If you do the math on the number that you quoted, the 1 to 1 versus where we are writing, about $80 million.

David Lewis – Raymond James

And that would be $80 million plus the dividend capacity plus the $20 million at the holding company though, correct?

Charles Divita

The $48.2 million is part of the $80 million.

David Lewis – Raymond James

Alright and Chuck, maybe give us an update on your immunity portfolio. What percentage of the total portfolio and what percent is maybe tied to the mono line insurers?

Charles Divita

In terms of our overall cash investment portfolio, it's around 44% of the total and municipal securities that have no underlying rating, that are wrapped by a mono line insurer, are less than 2% of the portfolio.

David Lewis – Raymond James

Less than 2% are not wrapped?

Charles Divita

Are wrapped that have no underlying rating.

David Lewis – Raymond James

Okay got you, thanks very much.

Operator

The next question comes from Amit Kumar – Fox-Pitt Kelton.

Amit Kumar – Fox-Pitt Kelton

Thanks. Just going back to the rate decrease number of 8.5%, if I look at 2008, I take that number, I look at the policy holders retention. Would it be fair to say that the top line might be down, I don’t know close to 11% to maybe 14%? Is that the right way to look at it?

John Byers

Let me just answer it and then I'll turn it over to Chuck to answer. If you assume the 95% retention and we don't pick up new business, and you look at that rate, I think that would give you a rough estimate of it. I think what it doesn't take into account is what we might do in terms of new business. Chuck, would you like to answer that?

Charles Divita

Yes, I would agree with that. Obviously, we have had excellent retention and we hope to sustain that. But as Bob said and John touched on as well, we feel good about where we are on the new business front and so we'll see where it goes, but we clearly like what we're seeing in that area.

Amit Kumar – Fox-Pitt Kelton

And then when you say new business, are you talking about expansion in Florida itself, or is it some other states?

John Byers

I think it's both. Certainly every time that we look for opportunities, we look at Florida and certainly we tend to see opportunities here pretty consistently because of our market position, our knowledge of the market and our strong relations we have here.

We certainly look at Florida as a place for opportunities and we continue to see opportunities here. We see opportunities in some of the other states that we are currently in. Arkansas is a good example of that and then we do look at selected new markets, so it is really all of the above.

Amit Kumar – Fox-Pitt Kelton

And what about insurance management?

John Byers

That initiative is progressing. We are very disciplined with it, as we are with everything. As we've reported, we have picked up some business there. We are still seeing opportunities there. The opportunities we see are currently in other programs. They roll off at different times.

I think you take that together with our inherent discipline and the fact that you put these programs together appropriately takes some time too. We've started to grow. We are still seeing opportunities and we are very comfortable where it is. So we will certainly work in 2008 to continue to grow that program.

Amit Kumar – Fox-Pitt Kelton

That's helpful and if I look at the expense ratio, I think as we go ahead, maybe a point or two perhaps of deterioration would be likely, right?

Charles Divita

I think that's reasonable. We were around 21% for the year excluding the final assessment for the quarter. I think it will have some pressure because of earned premiums but we are very efficient and for example at the end of 2007, we had 11% fewer employees than we had at the end of 2006, so we continue to focus on efficiencies and I think we will do well in that regard. But clearly the level of earned premiums is going to be a driver.

Amit Kumar – Fox-Pitt Kelton

Got it and going back and summing it up, combined ratio if you ex out the reserve releases, I think the underlying number was close to 82% and just looking at the numbers in the press release and reconciling it, would it be fair to say that perhaps the underlying number for 2008 might be closer to 84%? Is that a good number?

Charles Divita

I think the thing I would point out there is if you just look at the current year combined ratio, meaning taking out prior year reserve releases, the PRI gain, we are around 89% for the year. We were 87%, 88% the prior year. Obviously with what we've seen with reserves and the actions we’ve taken we feel very good about the pricing that we are achieving and where our margins are.

So I think heading into 2008 I feel comfortable that we're going to be able to achieve those very good margins on a current year basis. Beyond that in terms of the impact of favorable prior year development, as I said before, we will just have to see where that goes.

Amit Kumar – Fox-Pitt Kelton

That's helpful and then just final question, and obviously claims trends are what they are and I know and some other companies have talked about either reducing their staff or reassigning them. What should we expect in terms of 2008 for you?

John Byers

As Chuck said, we are very efficient and we are a (inaudible) operator. If you look at our premium levels, I think we only have 141 employees in all right now, so you can see we're quite efficient relative to what most companies are in terms of our levels of employees and we have had some reductions last year and I think that is appropriate. Really came throughout the organization.

We will just have to see where that goes. We're not going to be foolish about it because I think certainly if you look at those claims counts that we have open at the end of the year, they've gone down 14%. They went down the year before that and we're not going to go out and reduce our claims staff or our underwriting staff right away for that sort of thing.

We'll look at it over time. We will assess each situation on its own and be what we believe is appropriately efficient, but I don't see us making a wholesale cut there. It is just we will look at it on a case-by-case basis and if there's opportunity to be more efficient we will.

Amit Kumar – Fox-Pitt Kelton

That is helpful and one final question if I may, just going back to the excess capital number and if I look at the buyback, based on where the stock is trading at and based on how much is remaining, would it be fair to say that we should expect a reload of the buyback?

John Byers

Yes, I think you should expect us to reload the buyback. In terms of what we will do if the conditions are favorable for additional buybacks, we will do them. Based on where our share price is, what we see the outlook for our business going forward, and what our capital needs are. If all of those are aligned, we will continue to do buybacks.

Just the reason I say I think you could expect us to, as you say, reload it is simply because we're down to I think 234,000 or thereabout on our current authorization and it would seem to me that we would go ahead almost under any circumstances to get some additional shares.

Amit Kumar – Fox-Pitt Kelton

Got it, that’s very helpful. Thanks again and congrats on the quarter.

Operator

Your next question comes from Ron Bobman - Capital Returns.

Ron Bobman - Capital Returns

Good morning, gentlemen. Congrats.

William White Jr. mentioned some unusual pricing action from some startups and I'm wondering if Bob could just describe, are these a new wave of startups that have come to the market like in the last six months or are they the same actors that have a little longer life to them and also are they from the doctor-sponsored mutual or co-op type startups? Or are they other types of entity? That was my first question.

John Byers

Ron, there hasn't been a new startup in Florida since 2005 in terms of the folks I am talking about. They are of the same cadre that got it’s start between 2003 and 2005. Really that is all they have to sell folks is the low price. They are untested, they are untried for the most part; they are undercapitalized for the most part in the sense of having the resources it takes to try a case in an environment like Florida and they would be risking the farm to try any case essentially. So that is who I was referring to.

Ron Bobman - Capital Returns

What is the risk, Bob, of a firm like that with obviously less capital but maybe more importantly less experience defending a case through the courts, doing it poorly and through the poor management of the case and the poor representation leads to the state reforms being overruled, the constitutional standing of the reforms being overturned.

There would there be a correlation there, wouldn't it? They are less likely to do a good job defending what may be a case of great import to the entire Florida market?

William White Jr.

I think they are all fairly capable. They don't have the resources we have in terms of the personnel. They don't have the balance sheet strength it takes to try the average Florida case. Taking the wrong case to trial for them could be a death sentence if the case were to go badly.

And it could be well defended, that's the problem in Florida that we have to deal with on a day-to-day basis. It could be well defended and you could have very, very great confidence in your ability to win the case, but for some reason you have missed something with that jury panel and that just wasn't the right jury panel.

We frequently have cases that we would like to settle and we offer money on but the plaintiff's lawyer wants to take a flyer over the client that they represent, wants to take a flyer with the jury and even when you are dealing in a situation like that, there's a lot of risk for the company.

So they are at great risk in trying cases and a lot of insured realize what they are buying is truly a promise to pay in the future and they look at balance sheet strength. That's one of the reasons our retention is so high. It is great service and it is high-quality that we offer, but we also have the balance sheet strength to backup our promise to be here to pay in three or five years from the time they give us their money.

Ron Bobman - Capital Returns

I understand it, but it isn’t clear. You are not particularly concerned with their having a lesser ability to manage a case through the court system and the result in the court system having an adverse impact on the entire industry any more than a sizable, more like firm like yourself.

John Byers

It seems to me if I understand your question, the reality of it is let's say a case the trial (inaudible), that was an appropriate one to appeal and to take up. If we get to that point that that case comes along, once you get to the appellate process, certainly at the point it got to the Florida Supreme Court, it would be much more than just that company defending that case in the sense of you would see people enter that and file briefs in that case.

Certainly all the major business groups here in Florida, the insurance groups as well as probably us ourselves would be involved in that case at that point to make sure that all the appropriate things were said at the court level and we would file briefs on that. So it wouldn’t be on our own, we would not let it go with that.

Ron Bobman - Capital Returns

Thanks a lot for that help. I had a question about competitive rate filings. Of late without necessarily giving me the name of who it is, but any noteworthy rate filings pending and/or approved of late that are significant in their size?

William White Jr.

The one we just saw recently that has an April 1 effective date was a 13.4% decrease and that follows on the heels of this company filing for a 15.8% rate decrease in March of 2007. So the compound effect of that is pretty significant. Certainly out in front of where we are.

John Byers

That's one of the established carriers here in Florida and I think another one of the established carriers if I remember correctly, Bob, took a 12% decrease as of February 1 as well.

William White Jr.

Yes, that's true.

John Byers

So what we're seeing is the established carriers with us are certainly taking rate decreases, in line but slightly ahead of what we are taking, as Bob said.

Ron Bobman - Capital Returns

Thanks. Good luck and I hope it continues.

Operator

Next question comes from Amit Kumar – Fox-Pitt Kelton.

.

Amit Kumar – Fox-Pitt Kelton

Thanks. Maybe just going back to Ron's question and those rate decreases you mentioned, I was going to write them down. I think you mentioned 13.4% from med pro and what is it, like 12% for PRA? Is that right?

John Byers

No, since you've mentioned the names, I'll go ahead and say them. The 13.4% was ProAssurance.

Amit Kumar – Fox-Pitt Kelton

I'm sorry, okay.

John Byers

That is their overall rate decrease. That does not take into account any (inaudible) recoup. That was their rate filing. MAG Mutual was the 12%.

Amit Kumar – Fox-Pitt Kelton

Okay, that's helpful and maybe just, talking about the court system here and a lot of your peers have talked about shock losses and I think some of them do an excellent job in giving us more color on that. I was wondering, as you look back at 2007, what shock losses did you see and maybe you could compare that to perhaps what did they

eventually settle at?

John Byers

Okay, let us hit this question in two parts. Let me make a couple of comments and then we'll turn it over to Bob and talk about specific losses. Whether the shock losses are just large verdicts, I will let Bob touch on that.

But what we're seeing there in terms of excess verdicts, let me just say, excess verdicts have been a part of the Florida landscape for a long, long time. Certainly with the policy limits being low and having come down over the last few years, you would expect it’s easy to have an excess verdict when you have a $250,000 policy.

Those aren't new in Florida. We have been here for over 30 years. Our claims people average 26 years of Florida experience, so that’s part of the landscape. We believe we are best equipped in Florida to deal with those issues and we dealt with them as I said for many years.

To some extent, everybody who does business in Florida from time to time will have them. We know that we contemplate them in our reserves. We have some reinsurance coverage that helps us address that and so we see it as really part of doing business in Florida and I suspect that the commentary you get from other companies is based on their experience. All we can give is the commentary on our experience.

Bob, do you want comment further on that?

William White Jr.

I'd be happy to, John. Amit, the reason you don't hear us talk about them is because I'll tell you the three biggest verdicts we took in 2007; one was $6.5 million, it was lowered by the trial judge on a post trial motion to $5 million. It is still pending and on appeal.

There was a $6.2 million verdict that settled, but that verdict was in October, the case was settled just recently. I don't want to talk about the amounts, but it was somewhere in the neighborhood of 50% to two-thirds of what the verdict was and the next largest verdict after that was $2.1 million and beyond that, there was nothing more than $1.2 million, and that is the full extent of our adverse trial results that were noteworthy in 2007.

John Byers

And I would add that none of those were shocks. That goes to what I was saying before from our perspective. We expect in Florida, we understand the risks in Florida. We tried many more cases in Florida than anyone else has because we have such a larger market share here.

It is an issue in Florida, excess verdicts, but it is one that can be dealt with. We deal with it and I think if you went back on average over many years, you would see that you are going to have one or two of those a year certainly when you try the number of cases we have although we tend not to have many of them and it is part of doing business here.

For us it's a competitive advantage because overall I think it means our results are better than the market in general. Again, we've been here 30 years, we focus so much here and our claims people average 26 years of experience.

Amit Kumar – Fox-Pitt Kelton

That is extremely helpful and maybe just summarizing that, I might have missed this in the opening remarks, but did you disclose the actual claim count and how many you might have taken to a jury verdict?

Charles Divita

The open claims and incidents. We haven't disclosed how many we take to trial or what the verdicts were.

Amit Kumar – Fox-Pitt Kelton

Okay and then I'm sorry, what’s the number again? What is the open claims number?

John Byers

It was down 14%.

Charles Divita

Yes, it is 3342 open claims and incidents at year end. Down 14% from 2006.

John Byers

And down about 35% from its peak at the end of December 2003.

Amit Kumar – Fox-Pitt Kelton

This is extremely helpful. Thanks so much.

Operator

Since there are no further questions, I'll turn our call back over to John for his closing remarks

John Byers

Thank you. In closing, we are gratified by our continued progress and strong results in 2007 and over the past several years. As I said earlier, these accomplishments are a tribute to the dedication and abilities of our management team, staff and board and reflect the consistent application of our business strategies, which have brought us to this point and will continue to serve us well in the future.

Looking ahead, we are confident we are well-positioned to build on our successes in that one; we offer products and services with which we have deep expertise; two, we have strong capital and market positions; three, we have competitive advantages in our core markets resulting from our significant expertise, relationships and market positions and we are well-positioned to take advantage of growth opportunities and that make sense for us.

And lastly and most importantly, we have a management team, staff and board committed to providing the best possible products and services to our customers and to enhancing shareholder value.

With that, we will close the call. As always, thank you for your continued support and we look forward to speaking with you on our next call.

Operator

Our conference will be available for replay beginning at 2:30 pm today and will run through Thursday, March 6. Callers in the U.S. and Canada may access the replay by dialing 800-642-1687 and international callers may dial 706-645-9291. The access code for both U.S. and international callers is 33072695.

A replay of the conference call webcast will also be available on our corporate website, www.fpic.com, beginning at 1:00 pm today.

That concludes our call for today. Thank you for joining us. We hope you'll join us again next quarter. You may now disconnect.

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Source: FPIC Insurance Group Q4 2007 Earnings Call Transcript
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