FNHC hasnt had a Citizen takeout in what, more than four years....five???? Thats because they stated five years back that the Citizens policies were higher risk and at the bottom of the barrel. HRTG started buying citizens policies hand over foot AFTER FNHC stated Citizen policies were junk and stopped buying.
Sure, HRTG made a ton....but a lot of thats b/c they take on much higher risk policies without getting the correct return for them. So 98% percent of the time things look good. Until a Hurricane occurs, or until someone takes a look under the hood.
And btw, UIHC has cut down to virtually nothing in recent years.
HCI is like HRTG...they keep on with these Citizen policies and they have a poor portfolio of policies
..on doing this summer. Otherwise metrics should get better for both emms and the industry.
HRTG...from the cc,
They got killed on litigated claims in the qtr....evidently, a bunch of their policyholders decided to go after these guys. They were not prepared for this, and I dont believe its a one time thing. I never heard of any other insurer blame attorney representation and I've listened to Fl insurer conf call for lots of years.
They believe it has stabilized but who knows.
Sure, they could post a real strong numbers next qtr, but I think w/this management team they will #$%$ up at some point.
The fact is, they have grown this company through #$%$ Citizen policies, which are riskier than most....b/c of older homes and they are more often in the tri-county storm prone areas. Heck, they just stated they are taking out another 20,000 Citizen policies.
To combat this they filed for a 15% rate increase with Citizens. Sounds good, but it also goes to show just how awful their claims and adjustment estimates have been. I think they just filed for a 5% last year. In the longer run, will their policyholders stick with them with these increases.
Yes, as they said, everyone is reporting filing for rate increases. But...none nearly a high as there own. Except maybe Citizens, the only carrier I know of with as risky a portfolio of policies as their own.
....a 15% rate increase with the State of Florida for their Citizen policies (which is the vast majority). It shows you just how bad these buys estimated what their claims losses on these policies would be....their portfolio of policies is far more risky than they expected. Thats because they've been adding these bottom of the barrel Citizen policies willy nilly for the past five years. And they just stated they will add more Citizen policies this year.
And will their policy holders stick with them with this rate increase, or will they leave for cheaper pastures?
I own a bit. Good news is they were profitable, and mid to long term outlook looks decent. Bad news is they were only profitable because of a reversal of $273,000 in bad debt. Would have been just bout break even which aint too bad. And in the conf call, they make it sound like q2 will be softer due to lumpiness in sales...with some positivity after that
well, I said this the day I sold half the first go round (although I was proven to be wrong next quarter, but got lucky the stock had fallen a ton).....and I have stated several times that I am leery about the repeatability of their earnings:
I've sold half my position this morning....
by fabulouspoodle • Dec 28, 2015 10:06 AM Remove
.....in the mid tens. Obvsiously huge momentum, hope it heads higher. Have been averaged in as mentioned here, at just under six bucks after buying into their q2 earnings report starting in August....so grabbed the 75% gain on those shares.
IMO, NAII deserves a somewhat lower than average p/e, due to its extreme customer concentration, and its history of lower valuation. And at current levels we are near a 15 p/e based on anualizing last quarters earnings. However, I don't think anyone has a real good idea on what next quarter will bring....it seems to me last quarter strength could have been more related to the lumpiness of their sales and one time ordering than anything else. So I do not expect earnings to increase sequentially, (I think it will decrease), while the share price seems to expect more earnings strength.
Anyways, I sold half, and will sell more, probably all prior to earnings. I could be wrong, but certainly if NAII strength continues, I think holding into the December earnings report is risky. Flip side is lots of momo, so who knows.
Everyone expected the tornado damage. It was bad, but basically as expected. The problem was with issues nonrelated to this quarters weather.
As they state in the pr. "the severe weather activity related to the tornadoes had a 6.7 percentage point impact on the loss ratio; actual development of prior year loss reserves in excess of expected development had a 5.5 percentage point impact; and reserve strengthening associated with prior year claims increased the loss ratio by 4.1 percentage points. These three factors had an 16.3 percentage point unfavorable impact on the loss ratio for the first quarter of 2016."
So 41% of the negative impact to the loss ratio (6.7/16.3) had to do with the bad weather in the March quarter. The majority of the negative impact was due to with, as they explain later, adverse development in prior qtrs fo 2015....they are getting lots of claims for prior qtrs from their policies. And its so bad, that they say they have to increase their reserves by alot, because their estimates are so bad.
Now, the stock is cheap...but this seems to show that either their properties have more risk than they thought (HRTG was picking up the bottom of the barrel Citizen policies at a willy-nilly pace), or their management teams aint up to it.
Just an awful quarter, for reasons that will hurt earnings into the future, all imo.
I guess it would be a negative for Mexican manufacturers if Trump becomes president, b/c of the wall thing, and the apparent dislike of Trump by Mexicans. I dont think thats a meaningful thought...but its all I could come up with...
...and might add a few more.
why fret?...they just gotta build a wall and everything will be hunky dory. Oh, and no American based manufacturers are allowed to move operations there. Or there will be consequences. Meaningful consequences.
matsky, UVE stated in their conf call that they felt their reserves were 100% fine, and they explain in their 10K why they have lowered their reserves so dramatically. I'm not saying anything is wrong with what they have done. I am saying that because they have lowered their reserves steadily, on almost a qtrly basis, for the past thirteen quarters, from $194 million to $85 million, a total of $109 million, they have benefited an average of about $8.5 million per quarter (and $14 million in the just released March quarter) to their earnings for something that has to stop at some point soon. Can they lower their reserves under $85 million? I dont know. But it cant go on much longer. And when it stops, earnings will decrease by about $8.5 million per quarter.
I'm not saying UVE is doing anything wrong. Just that this earnings benefit they have taken the past three years has to end. UVE may do well, and it still may be undervalued and it may do far better than FNHC.
But, imo, you have to account for the reserve adjustment UVE is taking when calculating what sustainable are earnings are.
I think the quarter was very strong. Ex cat losses, (to see potential) they made .90/share after tax, and cheap on a price to book basis. Obviously, they beat the street, and continue to grow. I mean this quarter was 4.12% sequential growth, which is 17.5% on a annual basis....thats still strong policy growth after the huge growth of the past four years. And FNHC is super cheap on a book value basis.
I'm using FNHC to better explain my prior points regarding why I sold UVE. Of course the market may well disagree with me.
FNHC $18.97 vs UVE ($17.32)
FNHC just posted strong earnings, imo, of .68/share.
FNHC took catastrophic losses of $4.9 million before tax, or about .21/share on an after tax basis. So ex cat losses (I'm not saying this is adjusted earnings...just a number to see potential), FNHC made .90/share.
And as opposed to UVE which sequentially lowered its 'Loss and Loss Adjustment Expense Reserve' by $14 million from the December '15 quarter, to the March '16 quarter; FNHC increased it reserve by $4.275 million, or 4.2% in response to sequential policy growth of 4.1%.
And, FNHC tangible book value is now $17.56/share. So, FNHC currently trades at only 1.08 time book value.
Compare FNHC to UVE, and imo, FNHC fared far better.
UVE posted .71/share (vs FNHC' .68/share), and ex cat losses, UVE would have posted .86/share (vs FNHC .90/share).
The amazing thing is inclusive of those numbers, FNHC took a .19/share hit to its earnings to increase its reserves along with policy growth, while UVE lowered its reserves in response to policy growth, and UVE took a .24/share benefit to both reserves and net income. That benefit, imo, should be considered an extraordinary event.
On an apples to apples basis, disregarding any sequential changes in reserves, FNHC made .87/share for the quarter while UVE made .47/share in earnings. If you look at earnings ex cat losses, FNHC made .99/share, while UVE made .62/share (keeping reserves flat).
And UVE trades at about 1.95 times tangible book value, while FNHC trades at 1.08 times tangible book value.
UVE does offer a far better dividend.
Seems to me FNHC is a far better value. I am no accounting expert, and everyone should verify their own numbers. Please feel free to correct or comment re my methods of calculation.
guppy, UVE, in the past several years, has a history of having their earnings beat estimates easily. Perhaps one reason is that the analyst has not considered the earnings due to decreases in reserves as real sustainable earnings. Perhaps, if UVE no longer lowers reserves they will no longer be able to beat estimates as easily.
Perhaps thats why the analyst lowered his '16 estimate recently below what it was last year. I dont know, you should look into it.
UVE has lowered the reserve Unpaid Losses and Loss Adjustment Expense by $108 million dollars over the past nine quarters. As I understand, that $108 million has been a boost to income over those same nine quarters, The reserve liability has decreases from $193 million nine quarters ago to a low of $85 million in the just reported March qtr on regular basis. It can't go much lower, right? So going forward, UVE will not have that added boost to earnings....which this quarter increased earnings by $14 million before taxes....just my lowering a reserve. Nothing nefarious. I am just saying this added boost to earnings that UVE has been achieving by lowering the reserve is not sustainable....imo, and as I understand it.
also, ucs, my main point is not who is better reserved and who deserves a better valuation or if its better for the company. The point is that UVE reduction in reserves has added to earnings non-trivially the past three plus years. And in this last qtr, it added $14 million to income. This cannot continue the liability is down to $85 mil from $193 million a few years back.
So, the point is, UVE will start to post earnings in the near future without the added income that the reserve decrease has provided the past three plus years. Even though UVE may still be a strong value.
I do not believe UVE 'better reinsured' on average then their Florida competitors. However, the loss reserve was far higher than the others in the past (on a per policy basis) so it is now coming down to a level that is more normal (although I think UVE has actually gone past normal at this point.)
Also, remember, that for the most part reinsurance is re-upped yearly, so any insurance company can change coverage dramatically on a yearly basis.
As you said, everyone should verify for themselves.
uscgrad, as I stated in my post, I am not claiming UVE is doing anything wrong at all...UVE explains why they are lowering the reserve, because of efficencies. I am saying that from UVE's filings, they have decreased the liability , 'Unpaid Losses and Loss Adjustment Expense'....which is a reserve agains claims, from $98.8 million to $85 million from the Dec 15 to the March 16 quarter. This $14 million goes to income.
UVE has been decreasing the reserve for years as shown below. The reserve decreases lead to an increase in earnings that is not really operational or related to that quarters earnings. So, for instance, the $14 million decrease in Unpaid Losses and Loss Adjustment Expenes this quarter, would lead to a $14 million increase in before tax income.
This liability has been coming down since it hit a high of $193.2 million in December of 2012. And it has added to earnings a non-trivial amount on an almost quarterly basis...if my understanding is correct.
The liability 'Loss and Loss Adj Expense' in Millions:
12/31/12 = $193.2
12/31/13 = $159.2
12/31/14 = $134.3
12/31/15 = $98.8
3/31/16 = $85.0
This reduction in reserves shouldnt be considered earnings which can be repeated. We see the Liability is down to $85 million currently, so it can't continue to come down too much more, right?
Other Florida insurers who are growing, and I just checked, show a steady increase in the liability 'Loss and Loss Adj Expense'...I just checked FNHC, and there's has been increasing each year as they grow.
Again, I'm not saying UVE is doing anything incorrect at all, just that this can't continue for much longer, and sometime soon UVE will not be getting the benefit of a decreasing reserve like they have for the past three years.
any increase or decrease in a reserve, result in a corresponding increase or decrease in results of operation.
No guppy, you are wrong, by the laws of accounting, if the balance sheet changes, for instance if a liability (like accounts payable decreases) then it flows through the income statement.