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Federated National Holding Company Message Board

  • fabulouspoodle fabulouspoodle Jul 3, 2014 1:27 PM Flag

    Yikes! New reinsurance contract announced today raises costs dramatically! Please confirm.

    ..For the term 7/1/14 to 6/30/15, "The total estimated cost of $117.4 million to the Company is comprised of approximately $76.4 million for the herein referenced private reinsurance products including prepaid automatic premium reinstatement protection along with approximately $41.0 million payable to the Florida Hurricane Catastrophe Fund (''FHCF'')."(from todays 8-k)

    So thats $117.4 in reinsurance expense starting 7/1/14 though 6/30/15.

    The one year contract that just ended on 6/30/14, had a "total estimated cost of $54.3 million to the Company is comprised of approximately $36.1 million for the herein referenced private reinsurance products including the prepaid automatic premium reinstatement protection along with approximately $18.2 million payable to the Florida Hurricane Catastrophe Fund." (from their 8-k on 7-1-13)

    So their reinsurance expense is increasing from $54.3 million/year to $117.4 million/year. Its more than doubling....its increasing by $63.1 million year over year. At least that's what I get, maybe someone could confirm my numbers.

    That means each quarter, reinsurance expense is increasing by about $15.8 million.

    This past quarter, which was a great one, FNHC made $8.43 million, (.74/share). And now our reinsurance is going up near $16 million per quarter???????????????????

    I'm thinking I must have made a mistake with these numbers, because this seems crazy.

    Can anyone check and let me know if its right. I'll try to review again over the weekend.

    I knew reinsurance was going to go up due to the huge increase in business, but wasn't expecting this much.

    best.

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    • This doesn't affect q2. And going forward, this is a good thing. I can't tell from reading your post if you see it as good or bad.

      • 1 Reply to s12stocks
      • s12. imo, its bad for q2 and horrible going forward. Reinsurance expense increases more than anyone could have imagined if my numbers are correct.

        Their new 'policies' started on June 1, of 2014, so 1/3 of the increased expense will hit this quarter. So pre tax earnings will be decreased by $5.3 million off the top (or .46/share pre tax). But thats not the big point. Starting in the September quarter, pretax earnings will be negatively hit by $15.8 million, each quarter!

        I want someone to confirm or refute my numbers...b/c they seem crazy. A $15.8 million increase in reinsurance expense each quarter, means earnings would be hit by $1.40 each quarter!!!

        Sure, reinsurance expense went up last year vs the year before as well. But it only rose a total of about $14 million last year, or about $3.5 million/quarter. This year it rose $63.1 million, or nearly $16 million each quarter. That sixteen million each quarter is an expense FNHC did not have up till June 1, 2014.

        So, earnings should decrease somewhat (excluding any investment gains they may have) next quarter, and then take a huge hit in the September quarter.

        So, imo, if my math was correct, FNHC is worth a lot less now then before the new reinsurance program was announced on Thursday. Hard to say by how much, but is it really worth over $20 if earnings take this big a big a hit over the next four quarters? If my numbers are right..then imo, its certainly is a possibility that FNHC dips to 1.5 times tangible book value at some point over the next six months, to about $15 - $16/share.

        best.

 
FNHC
25.30+0.45(+1.81%)Dec 24 1:00 PMEST

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