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Federated National Holding Co (NASDAQ:FNHC)

Q3 2012 Earnings Call

November 9, 2012 4:30 pm ET

Executives

Michael H. Braun – President and Chief Executive Officer

Peter J. Prygelski – Chief Financial Officer and Treasurer

Analysts

Douglas S. Ruth – Lenox Financial Services, Inc.

Operator

Good afternoon and welcome to Federated National Holding Company’s Third Quarter 2012 Financial Results Conference Call. My name is Ben and I will be your operator today. Please note that today’s call is being recorded. At this time all participants are in a listen-only-mode. Later we will conduct a question-and-answer session. (Operator Instructions)

Statements in this conference 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 these expectations not being realized. 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, or press release issued today and other filings made by the Company with the SEC from time to time.

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

Now at this time, I would like to turn the conference over to Mr. Michael Braun, Chief Executive Officer and President of the Federated National Holding Company. Please go ahead sir.

Michael H. Braun

Thank you. Good afternoon and thank you for joining us to discuss 21st Century Holding Company’s third quarter 2012 financial results. I’m 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. Third quarter net income improved to $800,000 or $0.09 per share compared with $400,000 or $0.05 per share for the same three-month period last year.

Net income for the 2012 nine-month period improved to $0.40 per share compared with a net loss of $0.30 per share in the same nine month period last year. Book value increased to $8.24 per share at September 30, 2012 compared with $7.01 at September 30, 2011. Gross written premium increased by $7.6 million or 43.5% compared with the same three month period last year. Net premiums earned increased by $2.2 million or 17% compared with the same three month period last year.

Homeowners’ policy counts have grown from 43,793 at the start of 2012 to 57,645 at September 30, 2012 or 32%. We continue to see significant growth in our gross written premium and our net earned premium while remaining true to our underwriting discipline. Our third quarter net income increased by 75% despite incurring approximately $700,000 of losses as a result of tropical storm Isaac in late August. Gross written premium during the quarter increased by approximately 44%, which will gradually convert to earned premium over the coming quarters. Our consecutive quarterly underwriting profits have contributed greatly to increasing our book value.

I’m also pleased to announce that the success we have achieved over the past year has led to the Board approving a regular quarterly dividend payable on December 28, 2012 to shareholders on record as of December 3, 2012 of $0.02 per share. This action reflects the Board’s commitment to returning capital to our shareholders which we will continue to evaluate on a quarterly basis.

With that we’re glad to open up the call to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question today comes from the line of Douglas Ruth from Lenox Financial Services. Your line is open, please go ahead.

Douglas S. Ruth – Lenox Financial Services, Inc.

Mike and Pete that was an absolute fabulous report, congratulations.

Michael H. Braun

Thank you very much

Peter J. Prygelski

Thank you

Douglas S. Ruth – Lenox Financial Services, Inc.

You both deserve a lot of accolades and it’s been a long time and we are also very grateful for the dividend. Can you offer any further colors as far as what you might think, what the Board might be thinking about future dividends?

Michael H. Braun

Well, we’re happy to do the dividend this quarter. We are absolutely going to re-evaluate that every quarter on a go forward basis, but we feel very good where we are at. So we think that we are on the right path, meaning our book continues to grow, profits look very good where we are at and have trended favorably versus prior year. And as we contribute more profitable business to the books, only good things can happen with it, is what I anticipate, which would lead to more earnings, which you could assume could lead to a healthy dividend. Our goal is to return capital to our shareholders, that's and we are happy to have that dividend in place.

Douglas S. Ruth – Lenox Financial Services, Inc.

That's great. Could you maybe talk some about the state of the industry and what you think, what you are seeing in Florida?

Michael H. Braun

Sure. Florida is a dynamic environment in terms of insurance. The largest carrier by far is Citizens. They have approximately 1.5 million policies. Their growth has slowed as of recently, but they just actually beef up considerable amount of policy, I think they are looking at approximately close to 300,000 policies for the month of November and December, so they are the largest by far. They continue on a glide path of their rate going up approximately 10% per year. There are at 10.8% effective to go, in January we had a recent rate increase of about 4%, so we feel that our 4% is obviously less than Citizens and we’re competitive in the marketplace with most carriers and our rate increase is not dramatic by any of you, so we feel that we’re going to be even more competitive, we are seeing some other rate increases that are significantly higher than us with some of our competitors.

In terms of our company we feel very low positioned to capitalize on opportunity. We have approximately $50 million of statutory surplus. We are writing less than $125 million of premium that’s approximately 2.5 to 1 gross, which is a very manageable number. I would feel comfortable as high as 5 to 1. There are some in the marketplace there are as high as 10 to 1. So I think that our capital is very good and in terms of our distribution, I think we have great agents. There are our partners. Our marketing team does a great job with them. I think our underwriting is disciplined, our risk management is disciplined. We hand all our claims fairly and accurately in a timely manner.

At the whole team that we have here I think does a great job from accounting to risk management, to those other different departments I would mention, we have a great team in place, so we are going to continue on the business that the plan that we have been working on for the last couple of years.

Douglas S. Ruth – Lenox Financial Services, Inc.

That sounds terrific. Now you’re saying that Citizens is going to, during November and December, they’re going to try to decrease the number of policies by a total of 300,000.

Michael H. Braun

Correct.

Douglas S. Ruth – Lenox Financial Services, Inc.

Yeah. That’s a huge number. And how about the growth rate as far as, is the trend sort of continuing now, that the phone is continuing to ring at a fast rate?

Michael H. Braun

Yeah.

Douglas S. Ruth – Lenox Financial Services, Inc.

We’re seeing revenue growth for the fourth quarter.

Michael H. Braun

Yeah. Right now, what we have is, we’ve been writing new business on top of existing business of approximately $1 million a week. And that trend continues. We have considerably more requests on National write business, we’ve remain disciplined. I said in the past, it’s not difficult to write business in Florida. the challenge is writing profitable business. So we feel we’re absolutely doing that. I think that I see no reason why our growth would slowdown in the near future, there’s nothing there to tell me that other, I actually believe it could pickup based on some of the things that we’ve done within the market. We’ve opened up some new areas as our forms have improved.

We don’t write a lot over in the Tampa-St. Pete area. we’ve had very little impact, because of sinkholes over there, because we haven’t written Tampa-St. Pete much in a number of years. And sinkholes have impacted a lot of carriers including Citizens and it’s been negligible on with us, it’s not a big issue. So, now that we’ve got good forms to ensure that we can write profitable business over there, I think that could actually help us ramp-up even more business.

Douglas S. Ruth – Lenox Financial Services, Inc.

That’s wonderful, where I’m personally very grateful that you are sticking to your guns and being very disciplined as far as the policies that you’re accepting and we are all about profitable business, and strategy of business, not for the sake of business.

Michael H. Braun

Absolutely, thank you very much, Doug.

Douglas S. Ruth – Lenox Financial Services, Inc.

You’re welcome. It’s a wonderful report and thank you for doing what you’ve done.

Michael H. Braun

Thank you.

Operator

Thank you. (Operator Instructions)

Michael H. Braun

Well, I guess, there is no more question. so I’m glad we had Doug’s question. Operator, is there any other questions come in?

Operator

I’m showing no further questions in queue.

Michael H. Braun

Okay. Well, thank you very much everyone for listening in on the call. Pete and I are always available, if other questions do come around. We’re going to continue to be working the business plan that we’ve stated on a go-forward basis. So, 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 all disconnect. Have a great rest of the day.

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