Good morning, and welcome to Heritage Insurance Holdings’ Fourth Quarter 2017 Financial Results Conference Call. My name is Rocco [ph] and I will be the operator today. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this event is being recorded. I would now like to turn the conference over to Joe Peiso. Please go ahead.

Good morning. We invite you to visit the investors section of our website, heritagepci.com where the current quarter’s earnings release and our earnings call will be archived. These materials are available for replay or review at your convenience. Today’s call may contain forward-looking statements. These statements, which we undertake no obligation to update, represent our current judgment and are subject to risks, assumptions and uncertainties. For a description of the risks that could cause our results to differ materially from those described in the forward-looking statements, please refer to our Annual Report on Form 10-K and other filings made with the SEC. Also during the course of today's call, our Chairman and CFO will be discussing one or more non-GAAP financial measures defined in this quarter's earnings press release along with the SEC required disclosures, including reconciliations comparable GAAP measures. With us on the call today are Bruce Lucas, our Chairman and CEO; and Kirk Lusk, our Chief Financial Officer. I will now turn the call over to Bruce.

Thank you, Joe. I would like to welcome all of you to our fourth quarter 2017 earnings call. Before we begin the call, I'd like to thank all of our nearly 450 employees for their dedication to our company. I am very happy to report that we had our best quarter in the company's history and posted record adjusted net income of $30.3 million. As mentioned in the third quarter, our strategic capital management decisions would accelerate shareholder returns. This is clearly apparent in the fourth quarter as book value per share increased by 14.3%. Also for the fourth quarter adjusted net income returned to average shareholder's equity was an annualized 36%. Over the past 18 months I have stated that our consolidated loss ratios will continue to improve as we diversify production away from Florida's tri-county area where Assignment of benefit Fraud is widespread. Indeed we believe our consolidated loss ratios continue to decline to some of the lowest levels in the Florida market. Our consolidated loss ratios for the past year are 43.3% in the fourth quarter of 2016 and 24.4% for the fourth quarter of 2017 an impressive 19 point improvement. This is particularly meaningful given the claims environment in Florida and our decision to strengthen IBNR by $15 million in the fourth quarter. Our favorable claims strength is attributable to two factors; first, we have a unique vertically integrated construction and repair model that allows us to get the losses quickly and contract directly with our customers. This allows us to enhance the customer experience and control the claims handling process. This model is unique to Heritage and helps to prevent AOB abuses by third-party. Second, we are disciplined underwriters and made a bold decision to stop voluntary sales in the tri-county about 18 months ago.…

Thank you Bruce, and good morning. As Bruce mentioned, on November 30, Heritage Insurance Holdings completed the acquisition of NBIC for $200 million in cash and $40 million of stock. The $40 million in stock was issued at a price of $18 per share which resulted in 2.2 million shares issued with the transaction. As part of the acquisition, I like to say I'm thrilled to now be part of the Heritage team and to be with you this morning. I'm very excited about the synergies, opportunities and the diversification this deal brings to heritage. I would like to give a brief overview of the geographic diversification of the company. In force premiums at year-end 2017 were $941 million up from $635 million at the end of 2016, an increase of 48%. Just as significant is the distribution shift in the in force premiums. At year-end 2016, 89% of the premium was in Florida and at year-end 2017 that percentage has dropped to 57%. The next state with the highest percentage is New York with 19% followed by New Jersey with 8% and then Massachusetts and Hawaii with 6% each. At year-end 2017, our policies in force totaled approximately 524, 000. Overall the geographic diversification will provide additional growth opportunities and reinsurance to synergies. Since the closing was on November 30, one month of NBIC's results will flow through the income statements for the quarter. NBIC's reinsurance program incorporates the use of quota share reinsurance. Even though only one month of NBIC's results are in the consolidated results, it does have a meaningful impact on the various operating ratios. Traditionally Heritage has reported the various ratios as measured against gross premiums earned. With the quota share treaties we believe that it is useful to report on and analyze our results…

Thank you. [Operator Instructions] Today's first question comes from John Barnidge of Sandler O'Neill. Please go ahead.

Thank you very much and congrats on the quarter. My first question, you talk about expanding the contractor network in new territories, can you expand on this a bit, how much should this save over the long term? Should we anticipated a tick higher in expense ratio and are these new employees you'll be hiring or are you simply moving them out of Florida?

Yes, thanks John. We are expanding the network into the southeast, so we have in particular, North Carolina, South Carolina, Georgia and Alabama. We're also going to rollout Contractors Alliance Network this year in all of the NBIC states, those five states in the Northeast. There are new employees that will come onboard to further our expansion networks. There is a G&A expense associated with that; however, the profit margins that we make there more than outweigh the G&A. So we believe that is net-net accretive to the company even though we're spending some additional dollars for G&A.

Okay, great. And then with Narragansett you are now exposed to winter weather. I know they have a very robust reinsurance program. But could you talk about that maybe and maybe what you've seen so far this year because I know in early January I was supposed to go to New York and Boston and couldn’t go because there was too much snow?

Yes, you're absolutely correct. That's the most volatile quarter for Narragansett Bay is the first quarter. The company typically loses money in the first quarter and makes all if its profits in quarters two, three and four. You are correct. We heavily hedge against the winter storm exposures. We had a coldest year in that quarter's year in excess of 50%. We have an 18.5% growth quota share on top of that. We have an aggregate layer that also drops in and builds in retentions. This is something that Narragansett Bay has done extremely well for the past several years and storm activity this year is a little bit higher than what we expected, but it's nothing shocking to us at all. So the reinsurance programs that we had in place are mitigating any downside risk at Narragansett Bay.

Okay and then my last question, then I'll probably re-queue is, you talked about putting in new forums in the Florida market which would cap non-network claims to $10,000. Obviously it takes some time to run these through on renewal, but could you give us an update on maybe how that's progressing?

Yes, so there are forums in the marketplace right now in particular it's the citizens' forum that does cap certain water claims at $10,000. So those forums are available. We are in discussions with regulators is to how to improve them. We think that there are a couple of issues with those forums that kind of make it easier for the bad guys to skirt the cap provisions. But I'll give you this, our Florida regulators are very keen to the issue. They are trying to curb fraudulent abuses. They are very receptive to changes and they are trying to find a proactive approach that helps keep rate increases in line so that consumers can benefit and companies can benefit. I really don’t view it as a major challenge in this market, it takes a little bit of time to get it all worked up.

May be I should have asked it a different way, if you were to say what inning are you in, in kind of rolling these through, these new forums out through the applicable book how would you may be categorize that?

Seventh ending, eight ending.

Okay, great, thank you very much.

Thanks John.

And our next question today comes from Mark Hughes, SunTrust. Please go ahead.

Yes thank you, good morning.

Good morning, Mark.

On the loss ratio what were the moving parts there in terms of current accident year is the benefit from the contractor network, any development in the quarter?

Well, we report our numbers on a consolidated basis. Obviously there are some margins at Contractors Alliance Network. That saves us money on our loss ratios and helps us keep our rates in check. The biggest moving part was we had about $6 million of reserve strength in the related hurricanes Matthew and Irma from prior years and that's really a reflection of doorknockers kind of going door-to-door or trying to drum up some business. And then we had an additional $6 million or so of additional reserve strengthening in the quarter and that's mainly due to the fact that our reported claims in the fourth quarter for day-to-day losses was extremely low. And so we took a very conservative approach here that we haven’t seen the claims in the fourth quarter, but we should still put up additional IBR to cover them in case they arrive. But overall our Mark, our trends are consistently moving lower quarter-over-quarter and year-over-year.

And then, in terms of outlook, you had provided some initial financial guidance or projections at the time that you announced at Narragansett transaction. I think some of the – some things have turned out better in terms of the shares issued with what we're seeing on the reinsurance side I'm sort of curious to get your latest thoughts on what do you think the reinsurance synergies will meet your early expectations and then more broadly, do you think that earlier guidance is still good when we think about 2018?

Yes, so great question Mark. So, when we announced the transaction, and you are really a part of CAT season or anything, we are projecting a full year of around $70 in net income low 70s somewhere in there. That's easily good still no doubt about it. We have obviously a potential for rate increases for reinsurance losses, but you couple that with reinsurance synergies that we pick up on the transaction. That's pretty unique in our market. We're actually heading into a hard cap market and a hard reinsurance market with substantial synergies. Those synergies will start to kick in the June 1 renewals and then you have earned them out ratably over the following 12 months and then there were some additional synergies on multiyear contracts that will pick up in 2019 that will accelerate some gains there as well. I'd say overall in reinsurance there is – you know the jury is still out as to what happens. There were a lot of calls for, I mean some really crazy rate increases that we were hearing from reinsurance pricing. I'll say this, I do think rates are moving higher. I can't tell you by how much, but I can tell you that there are several things that are unique to Heritage that are driving lower rate increases than I would expect in the Florida market. The first is, we have a massive amount of multiyear reinsurance at prior-year prices and so that is helping us to fill capacity needs at lower rates online. Our hedging strategy that we put in place four years ago is working extremely well, now that we've had an event. I'll also comment that our loss adjustment expenses on Hurricane Matthew, they are right at the bottom of the market and in fact they are extremely low. There are about half of what we're seeing from our Florida competitors. We saved our reinsurance partners 10s and 10s of millions of dollars in loss adjustment expenses. And we've already heard from a lot of our major reinsurers that that is absolutely going to be taken into account when they price not to write our program. Indeed we've already had line quotes, I mean, big ones, 100 s of millions at flat pricing. And so, we are optimistic that we're going to be able to control our reinsurance pricing better than our Florida peers because we have reinsurance synergies, lowest LAE that I'm aware of in the Florida market and we have multiyear reinsurance treaties in place. This really improves the outlook as we move forward.

And may I ask the $70 million in net income I think was if you could just - you are - you look good on that measure. I think that was provided prior to tax reform. Would we assume some benefits from tax reform and so the net number of post reform would be higher, i.e. sort of the pretax guidance is consistent? That's the question.

Yes, so I mean, you get a benefit from tax reform, but the insurance rates move higher and eat into some of that benefit. Right? And so we don't know what the pricing is on reinsurance to determine whether or not the offset you get from a lower tax rate, will outperform the increase that you get on reinsurance pricing. But we do feel extremely confident that that baseline 70 number we are not concerned about meeting that number at all. And I do think that there is considerable upside above that number, but we are kind of reluctant to give forward guidance right now because we don't know what the reinsurance pricing is going to be and that's our single largest expense in the organization.

Understood, thank you.

Thank you, Mark.

And our next question is a followup from John Barnidge of Sandler O'Neill. Please go ahead.

Thanks. Should we be modeling a 21% effective tax rate or do you think it could actually come in a bit lower than that?

Yes, no actually the effective tax rate can be a little higher than that when you contemplate the impact of state taxes let there, we’re looking at yes, they’re probably around the 24%, 25% range.

Okay, that's very helpful and then I think you've previously talked about utilizing NBIC back as a beachhead say link New England to the southeast, could you provide us an update on that or your current thoughts on that?

Sure, so we are filling Narragansett Bay in four new territories as we speak and so our business plan is that Narragansett Bay will take Virginia all the way to the northeast, Heritage will remain a southeast player. And that really just goes to market brand in those areas in the mid Atlantic is probably stronger with NBIC because they have a longer presence in the region, so that's something that we have underway. And then we're steps to launch in Pennsylvania as well we have a license there and we are also filing in Tennessee for Heritage and we still have our Mississippi license that we plan to roll out as well. So, you added up in total and you probably have about seven plus new states where we're going to start rolling out operations this year. We're really going to see the benefit of that in 2019.

And then how long do you think the NBIC deal puts you on the sideline from an acquisition perspective and then what kind of areas maybe or types of lines business would you be interested in, in the future?

Yes, so I don't really think it puts us on the side line, it just depends on the mechanics of the deals at a more of an equity based transaction versus cash based, but I can tell you that we are already in discussions on a couple of other acquisitions as we speak. So we're certainly not resting on good strategic opportunities at diversify and add shareholder returns. It is just that every transaction we do, I have a very strict guidance on the return on investment. It is substantially higher than what P&Cs in our sector would trade, are produced on an annual basis. And so I need an outsider's return and that limits the field. We've been pretty selective about what we've picked up, but we are currently looking at a couple of other acquisitions right now that if they do move forward and have due diligence would be very accretive to shareholder returns. And then the new products, we're going to look at some enhancements on our homeowner products. We're going to look at umbrella products and commercial lines as well?

Okay, and then where do you see the ceded premium ratio settling in that and then ’18 and ‘19 if you can speak to that at all.

Yes, I mean it's hard to come up with that number until we know reinsurance pricing.

Now that is a very fair point. My last question, I was a bit surprised you were talking about valuating the potential to sell your construction business. Is that something that's more longer term or could that even be a 2018 event and then related to that, how would that like change the economics of the vertical integration?

Yes, so that's something that we've been waiting. I mean, we have $100 million construction division right now and growing and it would be a unique transaction if we were to spend off that organization, look at somebody like a Crawford and Company they had a 15 PE on their earnings. I'm not going to disclose what our earnings are now because it’s a unique hedge to us it’s we do very well there. I just don't want to make it easy for our peer group to 100% our model but I could tell you that no we're not looking to do that right now in ‘18, we want to grow it more and if we were to sell it that would - it would impact out net loss ratio, so there is an earnings offset but if you're being paid upfront for the future value of that offset and it's highly accretive of the equity we’re absolutely going to go that route. So it's just something that we have on our radar. We have been approached by people who had an interest in the network. It's not on the market currently, but in full disclosure I do think there is substantial value there that people don't really understand, especially the scale we have and the profitability that we have in that division.

All right. Great, thanks a lot.

Thanks John.

And our next question today comes from [indiscernible] of KBW. Please go ahead. Hello Ross?

Hi, can you hear me?

Hey Ross, how are you?

Hi, sorry about that.

No worries.

So one thing I wanted to just double check, is the tax rate, so you said that there was a DTL [ph] write down just to be clear right?

That's correct, yes.

Okay and what was the amount of the write down?

Well there were some write downs and then there was some marking up of some other assets that we had but on a net-net basis our income tax change in the quarter added $12 million to the bottom line.

Okay and the other question I have and I know this might be something that you can't answer in detail, but can you provide some clarity on why there was a CFO transition?

Sure, I mean we have a great relationship with Steve, obviously or he wouldn't be continuing with the company as a member of our Directors and on the Audit Committee, et cetera. We have two really quality CFOs. Steve wanted to pursue some consulting opportunities and have a little bit more freedom with his time. That kind of fit okay because we had Kirk that was willing to step in and move down to Clearwater, but that's really it, it's really just a personal choice to pursue other opportunities that fit his lifestyle and his expectations more. So he's going to do great in the financial consulting field no doubt about it, but I am pleased that he has agreed to at least stay on as a member of our Board of Directors.

Thanks and in terms of the share count, how should we think of that going forward as the share price increases, just given the treasury method accounting?

Yes, obviously as our share price increased the diluted average outstanding share count will increase. It is kind of a complex mathematical formula. We have a tool. I think we may have given you that tool and other analysts and shareholders as well. That helps you to calculate it. That's probably the best way to do it if you had certain price assumptions as plug in the price it tells you the expected dilution that would occur.

Okay, thanks. And in terms of the construction business, so if you did sell that to what extent would you I guess have an adverse impact by losing that I guess the savings that the business generates?

Yes, it would, I mean that would require me then to disclose what our profit margin is on that business. That's something we closely guard because we don't want our peer group getting a blueprint to do the same thing that we've been working on for the past five years. It would negatively impact loss ratios no doubt. And so, the expected purchase price that we would get would have to more than offset that the increase in our loss ratios that go along with that and there is kind of – I've done some modeling on this. I kind of know what that point looks like. You're looking at a slight increase in the loss ratios, but huge increase to book value if we were to go ahead and spend off the asset.

Okay and that $100 million is that like a revenue number that your estimate what’s the $100 million represent?

That was - we did a $100 million of actual revenue in 2017.

Okay and then you were just saying in terms of the CAN network billing internally to Heritage?

That's correct.

Okay and in the storm that we had in the third quarter, I know one of your competitors with be able to generate adjusting income off of that, did CAN do the same thing with Irma?

I mean, CAN made some profit on repairing homes. We got the 9,000 houses that really what generated some profit for us. Adjusting revenue, I mean we didn't charge out, $45 million of profit, but all we kind of looked at along the LAE was what’s the most efficient way to handle it, so we used the combination of outside resources and internal resources to keep the LAE number low, but our real focus on Irma was construction.

Okay, that makes sense. In terms of cash how much excess cash would you, I guess estimate that you have now?

Yes, the non-regulated entities we had penetrated $3million.

Okay and can you provide what the old hold-co cash at the end of the fourth quarter?

$56 million in the non-regulated.

Thanks and in terms of RBC I know there was a change in the calculation, can you do you have RBC ratios for each of your, I guess satisfactory entities?

Yes, they are pulling that right now. Yes, the Heritage was the little over $322, the NBIC1 was a little over 440.

Okay, thank you and I just wanted to confirm Bruce, you mentioned the couple development numbers I think in your prepared remarks you mentioned $15 million that was added to IBNR, but then I think you said there were six plus six later. So, I just wanted to make sure I understood and I had that written down correctly what the actual data and wasn't…

Yes, because an additional $3 million for the quarter that was put up on top of the other 12 that I disclosed.

And with this all prior year development? Prior year, I’m sorry go ahead.

Yes, look at for the year there was about $12 million of prior year development.

So was that $12 million all reflected in the fourth quarter?

The bulk of it was, yes and about half of that was Hurricanes Matthew and Hermine, yes not day to day claim activity.

Okay, so about $12 million from Matthew and Hermine that hit in the fourth quarter and then was there any current action in your development that hit in the fourth quarter.

Yes, Hermine and Matthew it’s actually earlier in the year was like a 6.5 that was earlier in the year.

I'm sorry, can you repeat that?

Yes the Matthew and Hermien development was earlier in the year. It was about $6.5 million.

Okay, so just to be clear because when you say was earlier in the, that was not in 4Q you mean you didn't impact the fourth quarter both.

Correct.

Okay, so just in terms of what did hit the fourth quarter can you just, I have a lot of numbers written down I just want to make sure I have it right?

Yes, if you want like when it hit the fourth quarter about $10 million.

Okay, $10 million of prior year development.

Yes, and most of that - and Ross most of that reserve is strengthening because we had a much lower claim count in the fourth quarter than we expected. Right, so we're going to be conservative and not book an absurd loss ratio in the fourth quarter. We know that that stuff gets impacted by the hurricane, so we're going to put up additional IBNR over what we would have to normally do in the quarter because we believe that it will develop over time. That's just being cautious, that's not a negative thing, that's a really strong positive for us. I mean overall on our book of business with caught $600 million in premium is that consensually what we're talking handful of millions here, that’s the end of development. It's pretty close to what we expected.

And did you say there was anything from 1Q to 3Q of 2017 that you strengthened in the fourth quarter of 2017?

No.

Okay, and if I back out that $10 million that you mentioned sort of the net loss ratio you had in the quarter was 44%, if I back out the $10 million you get to about 34%. So that still seems like a huge improvement on a core basis, is there anything else in there that's driving that, is it just because the fourth quarter was very quiet after the storm?

Well, fourth quarter was quiet but we put up a lot IBNR for that quiescence. Right? So that all balances out. I mean, if you look at our loss ratios is over the past year, we had improved our loss ratio, forget the cash, day-to-day claims. We had improved our loss ratio every single quarter and we guided to a declining loss ratio trend in 2017 and we actually outperformed that.

Yes, when you look at it in the fourth quarter, yes it was actually coming in much lower than that and we booked to that to the number that you were seeing there, so that it actually was even lower than that so it was a very quiet fourth quarter, yes.

Yes.

Okay, how should we think of the loss ratios on a net basis going forward? I know you guys used to kind of give us some direction on the gross loss ratios, but since we can't use those with the quarter, how should we think of the net ratios?

We're pulling the stops on it now to help you out.

Yes, the problem with NBIC is that it distorts everything because of the net gross quota shares and it’s hard to give that. I'll tell you that things are fairly consistent there, but if you want to look at historically what we reported in Florida, we're projecting an additional downward trend in our net loss ratios. We don't know what that number looks like now, but as we've continued to de-risk away from tri-county, we get fewer and fewer tri-county claims with AOB abuses and lawsuits and every policy that we're writing outside of the tri-county area by the way we had record production again last year outside of the tri-county. And that’s helping to drive the overall loss ratios lower and lower. So hard to give an exact guidance because the quota shares it absolutely turns all of the numbers on its head. But if you want to look at the Florida book we are projecting a continual improvement in our loss ratios into 2018.

Okay, perfect and in terms of the quota share what percentage of your total premiums would you see in now at quota shares with - in terms of the consolidated entity?

Well, we do about 55% on the net basis at MBIC and that will be $130 million times 55% and then of that premium number we also have an 18.5% gross quota share that's in place. So, yes that kind of add those two moving pieces up to get the full picture of the quota share, but those are the only quota shares we have at the company. And then we also cede out some premium at Narragansett Bay for aggregate protection against winter storms, so that we don't have massive earnings volatility in the first quarter.

Yes, so I think you will get it was the 18.75% is 50% so, yes.

All right and can you - what’s the difference between those when you say the net and the gross quota share, so I just want to make sure I understand the mechanics?

Yes, one it is going to be net at the hurricane and then the gross is basically it is gross of everything, so it applies, it’s across the board, ground up.

Oh okay, and then that one you're just saying is ex-CAT?

That is correct, but it helps to protect against your retentions as well.

Sure, okay and the expense ratio, you said it was $4.3 million from like professional fees and such [indiscernible]?

I think you [indiscernible] is over $5 million for one time M&A expenses in the quarter.

Yes, that would have been as like the fourth quarter number for the full year it was higher.

Yes.

Yes, I think because I know in the release you mentioned amortization of debt issuance and interest ways of transaction, but I was, I'm looking specifically like aside from that like whether its legal fees, professional fees, anything that hit the fourth quarter?

Yes, fourth quarter was $5 million plus.

Because we had to close NBIC, so there are fees that are paid to professionals and to lawyers, but non-recurring.

No, I saw around $5 million I just want to see what’s…?

Yes, approximately yes, it was just north of there.

Just north, okay. Let me just see if anything else. And how much premium, I know you put in the release the gross earned premiums from Sawgrass and NBIC can you just remind me what were the gross earned premium impacts in this quarter?

Yes, NBIC was 28 and Sawgrass was for the quarter 7.3 for Sawgrass.

Okay, thanks and do you have the net loss and expense ratios for each of Heritage and NBIC and isolation for the quarter?

Yes, we look at that as a signal segment as opposed to breaking out separately, so I think as like a better look at it at group level. Pretty close Ross there, there's no big material difference between those issues.

But basically in terms of the combined ratio profile of the whole company it should stay pretty similar to what you were expecting even before the transaction with the exception of maybe improvement from reinsurance synergies?

Yes, I think there's more potential for upside than there is for downside for sure. And so we gave our number, $70 million in net income, but our optimistic view is that if I had to take the over under I would definitely take the over. It’s just I can’t give you any clear guidance until I lock in my reinsurance costs.

Right and I know historically Bruce, you would weren’t a purchaser of quota share. When you guys buy a consolidated reinsurance program do you anticipate purchasing quota share again or will it be on an excess of loss basis exclusively like it was before?

Well, I can tell you that for Narragansett Bay our game plan going forward is to maintain quota share protections. If you don't do that you have massive earnings volatility in the first quarter. We had a lot of winter storms up there. I wouldn't want to have a big retention in 2018 in the northeast because it will decimate your first quarter earnings, so we're going to continue to hedge the risk, it makes sense to hedge it. We believe that at fair pricing and most importantly we're not going to have a couple of events in the first quarter that wipe out half a year's profit, that that too much risk. And so, we're going to maintain that structure in the northeast. For Florida we've never done a net quota share simply because we consistently outperform on the loss ratio and you're actually giving away economic margin if you're outperforming on the loss ratio. So it makes more sense for us to retain that risk and just take the CAT so well.

Right, that makes sense. And on the taxes you said 22% upside from tax reform rate?

No, yes the 22% was the increase in the net income and basically that's the difference between what you keep, even though tax rate went down by 14%, if you're keeping 61% before and now you’re keeping 75% that's a 22% increase. When you look at the effective tax rate, we're seeing around 24%, 25%.

Yes and so, like when I model acquisitions, one of the things I look at is goodwill ROI. If I have a company that’s $100 million on the acquisition side, has $50 million in hard book values you surplus. I pay them 50, I get 50 back, all right that’s even swap. But what is my ROI on the good will? That’s how we always model it and it modeled heck a lot better with tax reform, it went up 22%. And so it’s meaningful, it means the transaction had substantially better terms than what I believe shareholders really thought it would have when we closed, re-announced the deal back in August.

Sure okay, so and then 24 to 25 is what you said we should model for 2018?

Yes, because of state income tax as well.

Right, okay. All right, perfect I know I asked a lot of questions, so thanks very much, I appreciate it.

You always do, but we appreciate it. Thanks Ross.

Thank you.

Ladies and gentlemen next question is a followup from John Barnidge from Sandler O'Neill. Please go ahead.

Thank you. Your reinsured must love your construction networks since it cuts down on fraud and closes claims quicker, do you think they give you any benefit on reinsurance pricing because of that?

They are going to this year. So it's one of those things where and look into our credit we've got a fantastic reinsurance battle. They are, I look across the board and say who is on the panel. It's quality underwriters and they spend time getting to know this company and it's something that we were able to demonstrate Hurricane Matthew, but hey what do you do on a large scale basis and we proved that in Irma and we've got some ideas to increase the efficiency by as much as 30 plus percent on the next event. And what the repair network did, not only does it control claim costs and save the reinsurers on indemnity payments, it saves on LAE. If I go out to someone's house the day after the storm and they have a hole in their roof and I'm removing the tree, tarping the roof and sending out a dry out team, they are not pressing us, immediately to have an eye and go out. And indeed a lot of times we're able just to get a scope of loss on the repair side because we know what it takes to fix it, sign up the customer and fix it and then there's no loss adjustment expense. And so, that that repair network is a major driver in our really record low LAE that we're seeing in the industry right now. I know some companies that are 40%, 45% LAE. I'd say the Florida mean average is mid 20s to mid 30s and we're low teens. And so, that type of outperformance has really grabbed a lot of people's attention in Bermuda and like I said, we already have closed on big parts of our program, huge lines at flat pricing.

And then I think the last question I have on my list would be, you closed the NBIC deal just after Thanks Giving, I know in Florida it doesn't snow during that time of year or if it ever, but did you have any Cats in the NBIC portion in the fourth quarter to speak to at all?

No, no Cat seasons really first quarter.

Okay, great thanks a lot and congrats on the quarter.

Great, thanks John.

And the next question today is a followup from Mark Hughes, SunTrust. Please go ahead.

Yes, thank you I don’t know whether you touched on the side jump off for a second, but what is the share count at the start of the year, the diluted share count?

Hang on, just we’re going to click that tab.

Okay. No, I ask if this didn’t come up Bruce, you talked a lot.

Yes, the total outstanding shares at the end of 2016 were $28.8 and we ended the year at 25.8 call it 25.9.

So when we think about the first quarter is it the 25.9 is that what we're and I’m sorry what was the difference in 28.8 and 25.9?

28.8 was the end of 2016.

Okay.

25.9 is the end of ’17.

Yes, okay very good.

Down 3 million shares after issuing $40 million of consideration to the sellers at NBIC, so that's a true net number.

Yes, so that’s ending share count.

Yes.

Right and then the voluntary production, I think you would expect some quickly about some of the revenue synergies with NBICs and you'd be surpassing the billion in premium mark in a reasonable timeframe, can you talk about how you see it now, what kind of underlying growth potential there is in the combined entity?

Yes, I mean there's a tremendous amount of growth. A lot of the growth is, you've got to look at the segments of where the growth comes from. For example our largest Florida book is our legacy citizens HD3 filings. We just got approved yesterday for 14.5% and that kicks in, in May. That’s by far the biggest segment here in Florida. So we've got other lines as well that are getting rating creases which are justified and in this market everybody's rates are moving higher. So you're going to get a lot of growth just from the rate increases that are baked into the system. We're writing in new states now and we recently launched Georgia and Alabama and so we're excited to get those products in market and as I mentioned we're filing in call it seven new territories, seven or eight this year. So, the faster we can get them up the better, but we feel very confident in excess of a $1 billion in topline this year.

Very good. Thank you.

Thank you, Mark.

And our next question comes from James Naklicki of Citi. Please go ahead.

Thanks. My first question is around the CAN revenue that you gave for the year, the $100 million. I'm curious, pardon me I got a cold here, so if you look at the second half of the year what was the revenue from the business in the second half of the year?

Yes, it's probably about half the revenue or so roughly.

Okay, so there was no benefit to that business from hurricane Irma?

No, there was a benefit. I mean, we were able to get up to 9,000 additional claims, but we've got a pretty robust network. We do a lot of business throughout the year. It was absolutely a benefit.

Got you. On the tax reform beyond 2018, I'm trying to get a sense for, if you think that is sustainable or will it get passed through into pricing the benefit from the lower tax rate?

Yes, I mean I don't think that's going to be heading race as we move forward, that would really surprise me. I mean they could go down so much a little, but you've got to remember we're in a hard market and reassurance prices go up. That offsets, more than offsets anything that happens on effective tax. And we are in a claim inflation market in Florida. There's no doubt about it. They will be as, not that it’s been damping down our financial results because we've made really good underwriting decisions around the tri-county and built out a very vast repair and mitigation network, but it could have some downward pressure, but I really think rates are moving higher.

Got you. Thank you very much.

Thanks.

And ladies and gentlemen our next question is a followup from Ross [indiscernible]. Please go ahead.

Thanks. On the commercial residential business, I think you mentioned that part of the loss ratio improvement came from reducing exposure there. So I wanted to get some more clarity there. I know lot of companies have talked about competition there, is that still a business you're excited about or how are you looking it now?

Yes, I mean we're pretty happy with our book. I mean we've got our book right in the sweet spot where we want it. There is a ton of competition in commercial residential mainly from surplus line carriers. They will write rates at a very low price and we're going to look at it at the end of the day. We are not fixated solely on top line growth. We are fixated on definitely getting the topline up, but number one is it profitable business. There's no point in taking risk if you're not making a margin. And so, there are some policies that we have strategically decided to non-renew and that's both from a rate standpoint and honestly more than anything else from a risk management standpoint. We had several large policies that were $500, $750 million in TIV in one spot and we look at the hurricane activity and say gosh, I just don't think that that type of risk concentration is responsible as we move forward. So we did non-renew them in very large policies who they were profitable for us. And so it has some of the impact on our operating margins, but it also has an offsetting benefit in that, you have better sleep at night protection, less risk concentration, lower probable maximum losses to reinsurance and thus lowering insurance pricing, so there is a corresponding offset to that decision but overall it we're happy with our book right now.

Perfect, thanks for the answers.

Yes. I’d Ross one follow up. The main thing that we're focused on is de-risking TIV in the tri-county just because of some of the activity that's down there. We've dropped almost $8 billion in TIV in the tri-county area in 2017. So some of that is personnel line, some of that is commercial/residential, but it further diversifies our footprint away from the tri-county away from claims, volatility and abuses, away from reserving volatility and it also gives a substantially improved reinsurance pricing.

Thank you. This concludes our question-and-answer session. I’d like to turn the conference back over to the management team for any closing remarks.

I'd just like to thank everyone for joining the fourth quarter conference call.