Universal Insurance Holdings, Inc. (UVE) Q4 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen and welcome to Universal Insurance Holdings Inc. Fourth Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later, we will conduct a question-and-answer session and instruction will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to welcome and turn the conference over to your host Vice President of Investor Relations, Mr. Dean Evans. Sir, you may begin.

Thank you. Good morning everyone. Welcome to the fourth quarter 2017 earnings conference call for Universal Insurance Holdings Inc. My name is Dean Evans and I’m the Vice President of Investor Relations here at Universal. With me in the room today are Chairman and Chief Executive Officer, Sean Downes; President and Chief Risk Officer, Jon Springer; and Chief Financial Officer, Frank Wilcox. Following Sean’s opening remarks, Jon will provide an update on several important current topics and Frank will review financial results. The call will then be reopened for questions. Yesterday afternoon we issued our earnings press release, which is available under the press release’s section of our website at www.universalinsurancehodlings.com. A replay of this presentation will be available on the homepage of our website until March 8, 2018. Before we begin, please note that this presentation may contain forward-looking statements about our business and financial results. Forward-looking statements reflect our current view of future events and are typically associated with words such as believe, expect and anticipate or similar expressions. We caution those listening, including investors, not to rely solely on forward-looking statements as they imply risks and uncertainties, some of which cannot be predicted or quantified and future results can differ materially from our expectations. We encourage you to carefully consider the risks described in our filings with the Securities and Exchange Commission, which are available on the SEC's website or SEC filing section of our website. We do not undertake any obligation to update or correct any forward-looking statements. With that, I would like to turn the presentation over to our Chairman and Chief Executive Officer, Sean Downes.

Thank you Dean, and thank you everyone for joining us today. before we begin, all of us at Universal would like to send our heartfelt condolences to the victims and families of the Marjory Stoneman Douglas High School shooting. Parkland is part of our community, where our employees and families reside and we are all deeply saddened by this tragedy. We ask that all of you keep the great people of this community in your prayers. I will begin by providing some highlights in the quarter and we will then review our growth initiatives and strategy. Jon will cover several important current topics and Frank will conclude by discussing financial results. We were pleased with our results for the fourth quarter and for that matter for the full-year of 2017. Overall, we reported net income of 36.4 million and diluted EPS of $1.03 for the fourth quarter of 2017, which equates to an ROE of 33% for the quarter. For the full-year, we generated net income of $106.9 million diluted EPS of $2.99 and 25.7% ROE. Although Hurricane Irma made landfall during the third quarter, there are numerous moving parts in the fourth quarter related to the storm, which Jon and Frank will discuss in more detail later in the call. However, I would like to briefly tough on a few high level thoughts related to the event. In the months since Hurricane Irma made landfall, Universal has demonstrated the true value of our business model. Our Comprehensive Reinsurance program substantially limited net losses incurred from one of Florida’s largest hurricanes in over a decade. Our vertically integrated structure produced various income streams in the months following the storm, and our superior claims handling and catastrophe response teams delivered excellent service to our policyholders in the aftermath of the devastating storm closing claims in a timely and orderly manner. In addition to our strong performance during Hurricane Irma, we are also pleased with the underlying results for the fourth quarter. We reported excellence top-line growth in the quarter with 12.5% growth in direct premiums written including 9.4% growth within Florida and 36.8% growth in other states. Our underwriting profitability was also strong with a 77.6% combined ratio for the quarter and 84.4% combined ratio for the full-year. The latter of which is particularly notable given that this was a year that saw the largest Hurricane make landfall in Florida and over a decade. Additionally, during the fourth quarter, we took decisive action to strength in our loss reserve for both current and prior accident years. This strengthen was driven primarily by the assignment of benefits related claims within our Florida book, including the increased litigation frequency experienced during 2017 surrounding the AOB issue. Following this adjustment, we believe our loss reserves are appropriately set at current levels. I would like to now briefly discuss our growth outlook heading forward. We believe we have positioned Universal well for the future by pursuing various organic growth avenues, which are resulted in a more stable, diversified and balance business. Our core Florida book continues to produce strong organic growth with direct written premiums up 9.4% in the fourth quarter and 7.4% in the full-year 2017. We continue to believe that we can profitably grow on an organic basis in Florida using both our robust agency network and our direct-to-consumer platform Universal Direct. Our 3.4% average statewide rate increase was improved by the Florida OIR in early December and we begin using the new rates for a new business on December 7th and for renewals on January 26th. Geographic expansion remain the key element of our growth strategy and direct premiums written with in our other states books grew a strong 36.8% in the fourth quarter and 40.4% for the full-year 2017. After writing our first policy in New York in October Universal is currently running business in 16 states and is licensed in additional four states Illinois, Iowa, New Hampshire and West Virginia. Universal direct, our unique direct-to-consumer online home owners insurance platform is available in all of our active space and continues to demonstrate a solid growth trajectory. Since launch, we have nearly 8000 policies in force for more than $9 million in premium. We remain confident that this multipart organic growth strategy positions us well to deliver profitable growth going forward. After a year that posted numerous challenges in the insurance industry including Hurricane Irma, several other significant hurricanes and a few other substantial catastrophic events, we feel extremely confident that Universal is well positioned for the future. We have a proven organic growth strategy with a focus on underwriting discipline and writing profitable and rate-adequate business. We distributed our products within both Florida and our 15 other active states that were a robust network of independent Asian partners as well as our unique direct to consumer platform Universal Direct. Our vertically integrated structure allows us to provide superior customer service, reduced cost for both ourselves and our reinsurance partners that remain extremely nimble. Our first-class claims operation is focused on timely claims handling and providing outstanding service to our policyholders. We have a strong balance sheet protected by a comprehensive reinsurance program in last, but certainly not least we have a deep and experienced management team that guides are more than 550 dedicated employees as we collectively strive to continue building Universal until a world-class organization. With that, I will turn the call over to Jon Springer.

Thank you, Sean. I would like to start with some additional color surrounding the impact from Hurricane Irma, then talk a little bit about our reserve position and lastly touch on the reinsurance pricing environment. Hurricane Irma made land fall in Florida on September 10th as a category force form and with a devastating event throughout the state despite Irma causing substantial losses, the ultimate net financial impact to Universal was substantially limited by both our comprehensive reinsurance program and benefits received as a result of our vertically integrated structure. We currently estimate $447 million of gross loss in LAE from Hurricane Irma including $445 million from Universal property in casualty and $2 million from American Platinum property and casualty. Our all states reinsurance program performed as expected limiting net losses and loss adjustment expenses from Hurricane Irma to $37 million of maximum retention. In addition because growth losses in LAE in states outside of Florida, are projected to be $12.8 million or 7.8 million above our $5 million retention. Additional recoveries from our other states reinsurance program during the fourth quarter served to reduce Universal’s aggregate retention from $35 million to $27.2 million or an overall retention of $29.2 million when you include American Platinum’s retention of $2 million. Further because Hurricane Irma satisfied and otherwise recoverable provision of our other states reinsurance program, our retention in states outside of Florida was reduced from $5 million to $1 million from non-Irma events. This change resulted in an effective savings of $1.4 million recorded in the fourth quarter of 2017 due to the Minnesota hailstorm, which had occurred in June of 2017. Our other states reinsurance program will continue to have a net retention of $1 million for events through May 31, 2018 as a result of this otherwise recoverable provision having been satisfied. As is the close of business yesterday, we have had 69,449 reported Irma claims with current paid adjustment expense and case reserves of $392 million. From a severity perspective, on the nearly 60,000 claims closed to date, we are averaging $4,733 of loss and loss adjustment expense per claim. These numbers include 24,000 claims that have been adjusted, reviewed and closed with no indemnity payment primarily due to the loss following below the policies hurricane deductable. As we previously discussed, Universal benefits from our vertically integrated structure by retaining certain revenues and/or fees paid to our subsidiary, service providers from various services provided including reinsurance brokerage, claims adjusting and other services. This benefit is particularly notable during large catastrophe event such as Hurricane Irma, which resulted in a substantial number of claims leading to increased activity at our service company subsidiaries. As a result of Hurricane Irma, the fourth quarter and full-year 2017 included the benefit of additional revenues within our service provider subsidiaries, which led to a higher level of profitability than would otherwise be the case in a normal quarter or year. In particular, Universal adjusting corporation, which manages our claims processing and adjustment functions experienced a significant increase in workflow, revenues and net profit in the months following the storm due to a substantial increase in level of claims activity. Additionally, Blue Atlantic Reinsurance Corporation generated approximately $2 million related to reinstatement premium commissions. In total, we estimate these additional revenues at service company subsidiaries resulted an approximately $35 million of net pre-tax benefit during the fourth quarter of 2017. Lastly, Hurricane Irma resulted in various other effects on our ongoing business and in particular, we experienced an increase level of both new and renewal business as well as a corresponding increase in policy fee income during the quarter ending September 30, 2017 and quarter ending December 31, 2017. Stepping back for a moment to tie all these moving parts together. The initial net loss in LAE, we reported in the third quarter of 2017 related to Hurricane Irma was $37 million. This amount was partially offset during the fourth quarter by favorable revisions to ceded loss and LAE of $9.2 million to reflect recoveries related to our other states reinsurance program. Our service company subsidiaries generated substantial additional revenues following Hurricane Irma that led to approximately $35 million of estimated pre-tax profit during the fourth quarter of 2017. In total for the year ending December 31, 2017, we estimate that Hurricane Irma had an aggregate net benefit on our financial results of approximately $7.2 million on a pre-tax basis. Turning now to loss reserves. Fourth quarter 2017 results include $26.2 million of unfavorable prior year reserve development related to accident years 2013, 2015, and 2016, driven primarily by Assignment of Benefits related claims within our Florida book, including the increased litigation frequency experienced during 2017 surrounding the AOB issue. Additionally, fourth quarter 2017 results also include $18.3 million of current accident year reserve strengthening also driven primarily by AOB related claims. We believe our loss reserves are appropriately set at current levels following these adjustments. The 2013 through 2016 accident years are well seasoned at this point. In total as of year-end, we had less than 1700 non-Cat claims reported an outstanding for the 2013 through 2016 accident years, which is only 1.57% of the total claims received for those four accident years in the aggregate. In looking closer, at the open claims for these four accident years, it is important to appreciate that we have already paid out $19.2 million in the form of partial payments on these claims and have an additional $9.3 million of case reserves attributable to them. On average, we are setting aside 17,000 per claim for these open claims, which compares to our total average claim cost of 9,340 during the same four accident years. Also beyond these specific case reserves, we have an additional $10 million set aside for IBNR to handle claims yet to be reported. To put some further context around these numbers, the expected amount of ultimate incurred loss and LAE for the 2013 through 2016 accident years is $991 million including this adjustment. We have increased the loss picks for these accident years by 0.8 percentage points on average from the lost pick that was established at the end of 2016. This is on a direct earned premium base of $3.3 billion during the accident years 2013 through 2016. The total prior year reserve adjustment we recorded in the fourth quarter accounts for 1.5% of the total net earned premiums of $1.7 billion during that same timeframe. Our reserve adjustments during the fourth quarter bring us to a level that is 5 million above the best estimate of our outside actuaries. Lastly, regarding a reinsurance pricing environment, we are in the early stages of the 2018 reinsurance renewal, so that continues to be some uncertainty around how catastrophe pricing levels will change, but as a reminder, we have significant capacity with predetermined pricing already secured. As we discussed on last quarter’s conference call, 35% of our total open market catastrophe capacity has pricing fixed at 2017 or prior pricing levels. More importantly, nearly 60% of the capacity in the layers estimated to be impacted by Hurricane Irma as pricing levels fixed at 2017 or prior pricing levels. This continues to be the area most likely to see pricing changes. This multi-year strategy will significantly minimize the financial impact of any upward pressure on catastrophe reinsurance pricing. Taking into account, this multi-year capacity and the coverage we purchased from the state run Florida Hurricane catastrophe fund, we will have just 32% of our total reinsurance premium budget subject to any effect on pricing of open market catastrophe for the 2018-2019 reinsurance program. With that, I will now turn the discussion over to Frank Wilcox for our financial highlights.

Thank you, Jon. For the fourth quarter of 2017, net income totaled $36.4 million, an increase of 166.5% compared to the fourth quarter of 2016 in large part as the prior year’s quarters’ results included the impact of Hurricane Matthew. Diluted EPS was $1.03 up from $0.38 for the fourth quarter of 2016. We reported strong total revenue growth 12.4% for the quarter with increases in every major category of revenue compared to the prior year’s quarter. Direct premiums earned of $263.4 million offset by ceded premiums earned of $79.7 million generated $183.7 million of net earned premiums for the fourth quarter of 2017 compared to $164 million in the fourth quarter of 2016. The increase was the result of organic growth from both Florida and other state growth initiatives as well as increase new and renewal premiums in both in the third quarter and fourth quarter in our Florida book surrounding Hurricane Irma. Ceded premiums earned as a percent of direct premiums earned was 30.3% during the fourth quarter of 2017, compared to 31.3% in the fourth quarter of 2016. Commission revenue of $6.7 million for the quarter grew $1.9 million or 39.5% compared to the same quarter in 2016, driven by the benefit of $2 million of fee income related to reinstatement commissions receive by Blue Atlantic during the fourth quarter of 2017. Policy fees of $4.2 million for the quarter grew 12.1% year-over-year reflecting an increase in the number policies written compared to the prior year’s quarter. Other revenues were $2.1 million growth of 30% or $0.5 million from the prior year’s quarter. Net investment income for the quarter was $4.4 million, growth of 27.5% from the fourth quarter of 2016. This increase reflects actions taken to maximize yield, while maintaining high credit quality as securities mature, as well as the growing size of our investment portfolio and the beneficial impact of rising interest rates. We realized $100,000 of investment gains during the quarter compared to $1 million of realized gains in the fourth quarter of 2016. We generated a net combined ratio of 77.6% in the fourth quarter of 2017 compared to 95% in the fourth quarter of 2016. The net loss in LAE ratio was 45.3% compared to 61.9% in the prior year’s quarter. The fourth quarter of 2017 included a benefit of $9.2 million or five points of recoveries receive from our reinsurance program related to Hurricane Irma compared to $26.6 million or 16.2 points in the fourth quarter of 2016 from Hurricane Matthew. The fourth quarter of 2017 results includes $26.2 million or 14.3 points of unfavorable prior year reserve development. As Jon discussed earlier, the development related to accident years 2013, 2015 and 2016 driven primarily by assigning a benefit related claims with in Florida book including increased litigation frequency experience during 2017 surrounding the AOB issue. Fourth quarter 2016 results included $4.5 million or 2.8 points of favorable prior year reserve development. Lastly the fourth quarter of 2017 results include 18.3 or 9.9 point of current accident year reserves strengthening also driven by AOB related claims while the fourth quarter of 2016 included $16.8 million or 10.2 points of current accident year reserve strengthening. Our net expense ratio was 32.3% n the fourth quarter of 2017 compared to 33.1% from the fourth quarter of 2016. Our net positive acquisition cost ratio remain relatively flat at 20.7% in the fourth quarter of 2017 compared to 28.4% in fourth quarter of 2016. Our other operating expense ratio was 11.6 in the fourth quarter of 2017 versus 12.7 in the prior year’s quarter which continues to reflect economics of scale as well as increased earned premium volume in the fourth quarter of 2017 relative to the fourth quarter of 2016. Efficiently our service company’s subsidiaries generated substantial additional revenues following hurricane Irma that led to approximately $35 million or 19.1 points of estimated pre-tax profit generated by service company subsidiaries during the fourth quarter of 2017 which will reflect predominantly in loss adjustment expenses into a much lesser extent and general and administrative expenses. The effective tax rate for the fourth quarter of 2017 was 37.9% compared to 39.9% in the prior year’s quarter. The current year’s quarter includes several discrete items which in the aggregate reduced our income taxes by approximately 200,000 or an impact of 0.3 percentage points for the quarter. Discrete items include a credit to income tax expense of $5 million for excess cash benefits resulting from stock base awards divested and or were exercised during the fourth quarter largely offset by a deferred tax asset remeasurement of $4.7 million related to Tax Reform legislation passed in December 2017. In late December, the Tax Cut and Jobs act of 2017 was signed in to law which among other items included a reduction in the Federal Corporate Tax rate from 355 to 21% effective January 1 2018. Although we anticipate an overall benefit from this lower corporate tax rate in 2018 we are unable to make definitive estimates on the impact of the reduction due to changes, interpretations assumptions and additional guidance that maybe issued by the IRS and/or the Financial Accounting Standards Board. Our balance sheet remains strong and conservatively positioned total unrestricted cash and invested assets were $943.5 million at December 31, 2017 growth of $24.6 million from December 31, 2016. We continue to maintain the high quality investment portfolio composed primarily of fixed maturity securities which are 99% investment grade and we take a conservative approach to managing our investments. The weighted average duration have a fixed maturity investments in our available for sale portfolio at December 31st 2017 with 2.6 years while the annualized investment portfolio yield to find as net investment income divided by average total invested assets and unrestricted cash was 1.81% for the fourth quarter of 2017 versus 1.74% in the fourth quarter of ’16. Stockholder’s equity was $440 million at December 31, 2017, growth of 4.6% from September 30, 2017 and 18.5% from December 31, 2016. Combined surplus for our insurance subsidiaries was $324 million at December 31, 2017, compared to $336 million at September 30, 2017 and $331 million at December 31, 2016. Book value per common share was $12.67 as of December 31, 2017, growth of 3.7% from September 30, 2017, a 19.6% from December 31, 2016. We remain committed to actively managing our capital position and continue to take actions on that front during both the fourth quarter and full-year 2017. During the fourth quarter 2017, we repurchased 10,000 shares for approximately 300,000 at an average cost of $25.71 per share. For the year ended December 31, 2017, we repurchased 770,559 shares for $18.1 million at an average costs of $23.54 per share. Our current share repurchase authorization program has 19.8 million remaining and run through December 31, 2018. During the fourth quarter, we paid both regular quarterly dividend of $0.14 per share and an additional special dividend of $0.13 per share. In aggregate, we paid a total of $0.69 per share of dividends during 2017, which equates to an annual dividend of yield of 2.8% based on the average UVE share price throughout the year. Return on average common equity was 33% for the fourth quarter of 2017 and 25.7% for the full-year 2017. We remain dedicated to providing value to our shareholders and believe this level of return on equity, particularly during a quarter that saw the most costly hurricane make landfall in our core market of Florida in over a decade to be an excellent result. At this point, I would like to turn the call back to the operator.

Thank you. [Operator Instructions]. Our first question is from Arash Soleimani with KBW. Your line is now open.

Thanks. Just first question, in terms of the $35 million, I know $2 million of it come Blue Atlantic. From that $33 million, can you just breakout exactly how much was in the loss and LAE line how much was in the other operating expense line?

Yes. Arash, this is Frank. The vast majority if not all it was generated by our subsidiary Universal Adjusting Corporation, which generated $33 million. There was some moving parts in G&A, but they were very largely offset.

So, it’s fair to just assume all of the 33 just goes to loss now even?

Correct.

And then finally, I do that – if I back out that entire amount of $33 million from loss if I back out the development both from the current accident year and prior accident years, and I backed out the $9.2 million recovery. I think I get to a 29.5% core or underlying direct loss ratio for the quarter, which seems better than that kind of like 30% to 32% range that I think you guys have guided to in the past. So, I guess two questions there, is one given that you had this adverse development and you are saying there is like some heightened litigation and so forth. What’s the new run rate kind of on a direct basis? Does that 30% to 32% still hold or do you think it will be a bit higher than that going forward? What’s the right way to look at that?

Arash, this is Sean. Number one, obviously after a large catastrophic event, the attritional loss ratio was historically always lower, that’s why you are seeing at 29-ish number I believe Q4 or going forward, we will be running at 33 that’s one and a quarter point higher than we have been running. That takes us in line basically to where we looked at our past years that are fully baked in and we believe that’s the current loss ratio we will be using for 2018.

Okay, thanks. And I think you may have touched on this last quarter a bit also but when we think about Irma I mean are you seeing AOB play a part in those claims or not really?

Yes. We are looking at roughly right now about 12% of the 69 odd thousand claims so far have some sort of AOB connotation connected to them. So, if you guys are right a little bit over 8,000 claims either has some sort of rep on it, contractor or public adjustment.

Okay. And I think Jon mentioned the average amount per claims something in the – I think in the 400 range. What’s the average if we are looking for the average for claims closed with payment rather than all claims?

How about going ahead for the next question, I can take that out from here quickly, Arash.

Sure, sure. So, one of the questions I think a lot people have been asking with a storm like Irma, obviously, Irma could have been worse and if it hit Miami and maintaining that kind of Cat 4, Cat 5 speed. Does that change how you look at your reinsurance spend? Does it make you say hey if it did hit there is a possibility could have exhausted the tower or so. So, going forward we might want to buy to a higher return period, is that something that you look at differently now?

You are supposed to ask your question for somebody else, and you were back in there. No, I’m sorry. That’s fine. Does it change how we look at it, no probably not. I mean obviously, we license both catastrophe models, so we are analyzing things. I mean when you look at Hurricane Irma, that Hurricane Irma was a very significant storm and we are talking about utilizing approximately 15% of our catastrophe tower. So, that’s a long way from the top, obviously the direction can change that once we could change that, but we will continue to do a similar type of evaluation and we will look at the efficiency of the spend at the top-end. If pricing levels are such that somebody offers us capacity at a level that makes sense, we may purchase some additional at the top. But we are pretty comfortable, I know we were comfortable as Irma was out there and we are pretty comfortable about the decisions we have made in the past.

And I will give you a break in both Frank real quick. I just wanted to touch based on the tax again; I know you said that you guys are necessarily comfortable giving a hard and fast number for the tax rate going forward. But I mean is there like ballpark range. You could give us how we should be thinking about the impact of tax reforms?

I will tell you what I can tell you and tell you what I can’t, why I can’t. So, let’s just start out with the blended statutory federal and tax rate. So we know that the federal rate went down 14 percentage points. The benefit that on your federal income tax from your deduction of state income taxes goes the other direction a little bit. So the net benefit from the statutory rate is 13.3%, now what I can’t tell you are a lot of the unknowns, and those unknowns include continued guidance that might come from the IRS and how to interpret this new law, and the effective that might have on our transactions as well as guidance that may come out from the FASB that could change how we account for certain elements of taxes going forward. In addition to certain unknowns about our transactions, which are affected by these changes in tax laws? As far as the rate going forward, what we did has been exercised using 2017 as a proxy and while I wouldn’t hang your head on this. If we were to take the tax law structure and apply that to 2017, we saw that there was a net reduction in the effective tax rate of around 10%. But I would put a wide range around that.

Okay. And obviously, I know you guys can’t speak for the OIR per se. But obviously in California, there is talk of the regulators sort of pressuring or potentially pressuring insurers to share tax reform with the policyholders. Do you think there is a risk of that in Florida or based on the AOB environment and how everyone’s kind of raising rates now. Does it look like regardless of tax reform? AOB will continue to result in the OIR being kind of lenient in the sense of allowing rate increases to continue?

I think it’s too early really to determine that. Obviously, we are in the middle of the legislative session currently right now, Arash. We are not in the predictive business, but what I would tell you that obviously, right now there doesn’t seem anything to be solid right now that is gaining any ground as it relates to any type of AOB reform. That’s really all I could give you as it relates to that.

Okay. That’s fair. Yes. Go ahead.

To answer your earlier question, we have closed 34,500 claims with payment for an average loss and LAE of just over 7,400 per claim.

That’s helpful. And I just remembered one other thing. I wanted to ask in terms of your reinsurance spend that what you are looking at for June 1. You mentioned on the last call that, a lot of your program is on a multi-year basis, so a lot of that won’t be exposed to any potential rate increases. Obviously, the kind of momentum that the reinsurers have had has kind of died down lately. I mean, do you even expect to get a rate increase on the portion of your program that is subject to market rate?

It really is too early to tell. I mean, as I said in my pre-prepared remarks is what we know for certain and that said a little less than a third of our reinsurance spend is all that would be subject to any upward adjustment. We also know that reinsurers are looking closely at how companies handle this past event. And obviously, we feel very confident and our response to Hurricane Irma. So we feel like, we will do as well as anybody will in this upcoming renewal.

And how likely is the FHCF to raise rates or is that something that would be probably stay flat, because it’s not really subject to market forces?

We wouldn’t expect any changes in the FHCF rates for this upcoming year.

Okay, awesome. Thanks for the answers, guys.

Thank you.

Our next question comes from Ron Bobman with Capital Returns. Your line is now open.

Hi. Thanks a lot. Congrats on a strength at a great result.

Thanks, Ron.

I had a question on the – I guess this is sort driven by the AOB reserving action that you took. Is that going to drive your rate need indications, I guess particularly in Tri-County and drive you to put in for additional rate increase by request with the state?

Well, certainly additional losses go into the rate making formula. As Sean alluded to, we did just secure a rate increase that we just started charging on your business in December and renewals in January that included a meaningful increase in the Tri-County. So, we will have to play through the next set of data to know for sure. But obviously, increased losses can drive additional rating.

Okay. I will sort of jump around a little bit. What’s the holdco cash balance, cash invested?

Ron, I will be back. Hang on a moment here.

I can move on and try to ask someone else a question while you do that.

Yes please.

The subrogation reserving process, I’m just wondering is there any changes to your assumptions there as that program is sort of rolled out and developed and progressed?

No. This was our second full-year of analyzing that our outside actuaries analyzing that. So although some minor adjustments here and there, but we are very encouraged with our subro collection process, we were able to secure 20% more recoveries in 2017 and 2016, and we have an expectation that that percentage will be even higher in 2018.

Just for some clarity, Ron. We brought and closed roughly $24 million so far the last two years and we feel that number again as Jon said, we will continue to trend positively, because of the work we have done early in the last couple of years. And we will start to see that work and actually, the final number baked in, so that we are pleased with the results.

Okay. Yes. I’m sorry.

I’m sorry to interrupt. I just wanted to give you the answer to your question. It was $67.5 million of cash at the holding company.

Okay. Sean, the 24, is that a two year number or 24 each year?

24 is a two year number as, basically as of the end of 2017.

Got you. Okay. In the press release, there is a reference to the reserves being set above the actuarial best estimate. I assume for you making a noteworthy comment that it’s not just a hair over the, a hair above the best estimate. Would you quantify or get some indication of the magnitude of conservatism above the best estimate?

$5 million.

Okay. Thanks. Sean do you mentioned that sort of the AOB, the incident of AOB in the Irma claim population was about 12% currently. In the ordinary course or sort of typical attrition losses non-cat losses. What’s that sort of comparable incident percentage.

20%.

20%, so it’s higher in a non-cat scenario. Okay.

Yes. The large deductable plays a role in that on the cat side. The, whoever it may be is not as eager to participate in that claim due to the large size of the deductible.

Oh I see. Okay. That makes sense. Thanks. And my last question is, could you talk about the direct initiatives this states where you are forecasting or experiencing the greatest amount of growth and traction. And obviously there is been some losses for example California is going through a brutal year with the wildfires, and I’m sure there is sort of some degree of dislocation there. As well as in other states where there is been cat events, Texas, I presume, with Harvey. Are those geographies or others I’m not thinking of that are particularly sort of fertile ground for 2018 and 2019 as a result? Thanks. And I’m done.

Yes. Obviously from a direct perspective, Florida is our biggest market, obviously then Georgia, Pennsylvania and South Carolina falling behind there. We haven’t really come to a final conclusion and how we are really going to pursue Universal Direct, we have had a lot of different potential offers with Universal Direct to figure out the best way to fully implement that and the best way obviously that we feel that it will be benefit the parent company. So moving forward, we are open to many different avenues and cross-selling different products, as well as products that are the same as ours from competitors. So to give you exact answer that we have a lot of things that we are working on, but nothing I can give it to you right now concrete.

And I’m sorry, there was, I just had one more question. You mentioned in the press release, the impact on premium volume in Q4 by virtue of the DFS order of non, prohibiting non-cancellations. Do you think there is a sort of the secondary adverse impact on the business that you were force to renew or maintain that would have otherwise cancelled. Is there any sort of adverse underwriting margin that we should be thinking about, you are thinking about you already experience in the fourth quarter as a result of that? And then somewhat related, what would your estimate to be on premium growth, if that order had not been put in place? Thanks a lot.

I don’t think that the order necessarily drove material increase. I mean, if you look at how we are growing the first three quarters. The fourth quarter was marginally larger in terms of any adverse impact on that type of business that remains to be seen. You have to ask that question in another year or so. I don’t think given the size of our book of business and the number of policies that we are talking about. I don’t think it would ever be anything that would be material to our results.

Okay. Thank you again and a great result in the past year. Good bye.

Thanks, Ron.

And that does conclude our Q&A session for today. I would now like to turn the call back to Mr. Sean Downes for any further remarks.

As always in closing, I would personally like to thank all of our shareholders, employees, board of directors, policyholders and my management team for their hard work and loyalty to Universal. This concludes the call. Thank you.

Ladies and gentleman, thank you for your participation in today’s conference. This concludes the program. You may all disconnect. Everyone, have a great day.