Financial

Earnings Results under Review: Federated National Holding (NASDAQ: FNHC)

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Federated National Holding (NASDAQ: FNHC) closed with decline of -0.13% to $23.16. Recent traded volume was 40,745 million shares versus to it an average volume of 89,631 million shares. The company holds 13.13M million shares outstanding and market cap of 304.024M billion. The stock’s day range was recorded between a low of $22.77 and a high $23.41. The one year high of the company is $24.37 and the one year low is $9.78.

After the last closing session, the bid price was seen at 0.00 x 800. The bid price represents the higher price that a buyer or buyers are willing to pay for a security. The ask price was registered at 0.00 x 1800. The ask price indicates the lower price that a seller or sellers are willing to receive for the security.

Federated National Holding (NASDAQ: FNHC) stated results for the three months ended March 31, 2018.

Consolidated

Net income of $7.5M or $0.58 per diluted share during the first quarter of 2018, as contrast to net income of $2.4M or $0.18 per diluted share during the first quarter of 2017.  The current quarter results include investment losses of $1.1M or $0.8M after tax, which reduced net income by $0.06 per diluted share.

Book value per share increased $0.07 in the first quarter of 2018, to $16.36 at March 31, 2018.  Book value per share increased based on net income of $0.58 per share, as noted above, offset by the decrease in unrealized gains (losses) within other comprehensive income of $0.33 per share, driven by the impact of rising interest rates on bond valuations, and a decrease of $0.18 per share from dividends and the acquisition of Monarch’s non-controlling interests.

Revenues

Total revenues remained steady at $93.1M for the three months ended March 31, 2018 and 2017.

Gross written premiums reduced $11.7M, or 8%, to $134.4M in the quarter, contrast with $146.1M for the same three-month period last year.  Gross premiums written reduced Because of a $12.9M, or 67%, decline in Automobile and, to a lesser extent, homeowners Florida offset by the growth in homeowners non-Florida.  The lower premiums in Automobile was Because of our decision to exit this line of business.  The increase in gross premiums written in homeowners non-Florida was Because of continued expansion and growth in market share, allowing us to leverage personnel and diversify insurance risk.  Homeowners Florida written premiums benefited from the 10.0% rate increase that became effective on August 1, 2017.

Gross premiums earned reduced $1.5M, or 1%, to $146.4M for the three months ended March 31, 2018, as contrast to $148.0M for the three months ended March 31, 2017.  Gross premiums earned in Automobile reduced $7.3MBecause of lower premiums written in Automobile over the past six to nine months, offset by $5.8M higher gross premiums earned in Homeowners, Because of higher premiums written over the past twelve to eighteen months.

Ceded premiums reduced $2.0M, or 3%, to $64.3M in the quarter, contrast to $66.3M in the same three-month period last year, with the majority of the decline coming from lower gross earned premiums in Automobile.  Ceded premiums earned included the effect of the 10% Florida-only property quota share treaty, which became effective on July 1, 2017, offset by the impact by the expiration of the 10% and 30% Florida-only property quota share treaties, which ended on July 1, 2017 and 2016, respectively.  The ceded premiums associated with the 2017-2018 excess of loss reinsurance program in the first quarter of 2018 were in line with the costs associated with the 2016-2017 excess of loss reinsurance program in the first quarter of 2017.

Net realized and unrealized investment losses were $1.1M for the three months ended March 31, 2018, contrast to $0.1M in the previous year period.  The result for the first quarter of 2018 was Because of the decision to re-position portions of the fixed income portfolio, including positions related to tax-free municipal securities, as well as to align our investment strategy for Monarch (“MNIC”) with that of the rest of the Company.

FedNat Holding Company’s (FNHC) price volatility for a month noted as 3.01% however its price volatility for a week documented as 2.27%. The corporation holds 12.67 million outstanding shares and its 9.76 million shares were floated in the market. The stock established a positive trend of 0.74% in last week and indicated rise of 0.96% in previous month.

Direct written policy fees reduced by $1.1M, or 24.1%, to $3.6M for the three months ended March 31, 2018, contrast with $4.7M in the same period in 2017.  The decrease in direct written policy fees is driven by issuance of fewer policies as contrast to the previous year period, primarily in Automobile and to a lesser extent, in Homeowners as we focus on the profitability of our business.

Other income increased $1.0M, or 23.1%, to $5.5M in the quarter, contrast with the same three-month period last year.  The increase in other income was Because of higher brokerage revenue, which as the result of a raise in the amount of our homeowners reinsurance placed, the type of reinsurance purchased and the commissions paid on these reinsurance contracts in place during the three months ended March 31, 2018 as contrast to during the three months ended March 31, 2017.  In addition, the Company earned additional brokerage revenue related to premiums paid for the reinstatement of catastrophe reinsurance layers that were pierced by losses from Hurricane Irma.

Expenses

Losses and loss adjustment expenses (“LAE”) reduced $10.8M, or 19.0%, to $46.1M for the three months ended March 31, 2018, contrast with $56.9M for the same three-month period last year.  In the first quarter of 2018, the Company experienced reduced losses of about $7.0M in Automobile Because of lower premiums earned and a lower net loss ratio as contrast to the first quarter of 2017.  Additionally, the homeowners Florida loss ratio benefited from earning in more of the August 1, 2017 10.0% rate increase, which resulted in about $1.0M of lower losses.  In the quarter, we had no severe weather events and $0.7M of favorable loss and LAE reserve redundancy in accident year 2017. The redundancy was the result of additional ceded losses to reinsurers associated with Hurricane Irma.  Lastly, in the first quarter of 2017, the Company recorded $5.2M of gross losses related to severe weather events offset by $2.3M of higher ceded losses related to homeowners’ quota share treaties in the first quarter of 2017 as contrast to the current quarter.

The net expense ratio increased 4.8%, to 44.2% in the current quarter, as contrast to 39.4% in the first quarter of 2017.  The increased level was driven by the homeowners non-Florida 50% profit share provision, as a result of higher profitability this quarter as contrast to first quarter of 2017 and other recent quarters.  The higher profitability is the direct result of continued earned premium growth, together with good loss experience in these states.  The increase in the ratio was also driven by higher legal and professional fees, including audit, tax and actuarial fees, related to work associated with year-end activities.  The operational expenses this quarter also include $0.4M of severance and other related costs from management’s initiatives to exit the Automobile business as well as headcount reduction initiatives.

Interest expense increased $1.0M to $1.1M for the three months ended March 31, 2018, contrast with $0.1M in the previous year period. The increase in interest expense is the result of the Company issuing $45.0M of senior notes in late December 2017.  During the first quarter of 2017, the Company only had $5.0M of debt on its balance sheet.

Stock Repurchase Program

During the first quarter of 2018, the Company repurchased 322,865 shares of ordinary stock for $5.0M at an average price per share of $15.49.  To date, share repurchases in the second quarter of 2018 have been minimal.

Line of Business Results

Homeowners’ net income for the current quarter was $6.9M, which included 9.6% growth in net premiums earned contrast to the first quarter of 2017, the combined ratio for the current quarter was 95.9%.  Additionally, the Florida homeowners 10.0% rate increase, which became effective on August 1, 2017, continues to earn in.

Automobile results for the first quarter of 2018 was breakeven, representing a important improvement in operational results versus 2017.  The improvement was a direct result of the Company’s decision to close down this line of business and importantly lower gross and net premiums earned.

Other’s net income of $0.6M in the first quarter of 2018, included $1.1M of realized losses and $1.0M of interest expense.  Additionally, net investment income continued to increase, amounting to $2.9M for the quarter.

 

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