FedNat Holding Company

Good morning, and welcome to FedNet Holding Company's first quarter 2022 conference call. My name is Howard, and I'll be your conference cooperator this morning. At this time, all participants will be in a listen-only mode. Before we begin today's call, I'd like to remind everyone that this conference call is being recorded as well as broadcast live via webcast. Additionally, today's call will be available via webcast replay later this afternoon. and accessible by visiting the Investor Relations section of FedNet's website at www.fednet.com. Now, I'd like to turn the call over to Bernie Kilkelly for FedNet's Investor Relations. Bernie?

Good morning, and thanks for joining FedNet's first quarter 2022 conference call. Our earnings release and prepared remarks today include references to non-GAAP measures such as adjusted operating income. We use these non-GAAP measures to provide greater transparency and a more meaningful, efficient comparison to prior year's results. Our non-GAAP and reconciliations from the GAAP measures to the non-GAAP measures are available in our earnings release. Statements in this conference call that are not historical facts are forward-looking statements. Words such as anticipate, estimate, expect, predict, project, and other similar words or phrases are intended to identify forward-looking statements. The matters discussed on this call that are forward-looking statements are based on current management expectations involving risks and uncertainties that may result in these expectations not being realized. Actual events, outcomes, and results may differ materially from what is expressed or forecasted in forward-looking statements made on this call due to numerous risks and uncertainties including, but not limited to, the risks and uncertainties described in this conference call, our press release issued yesterday, and other filings made by the company with the SEC from time to time. Forward-looking statements made during this conference call speak only as of today's date and FedNAT specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, future events, or circumstances or otherwise. Now, I will turn the call over to FedNAT's Chief Executive Officer, Mike Braun.

Thank you. Good morning and welcome to our first quarter 2022 conference call. Ron Jordan, our Chief Financial Officer, and Eric Hernandez, our Chief Accounting Officer, are on the call with me today. After my remarks, Ron will go into more detail on the financial results of the quarter, and then we'll be glad to take some questions. Before I review our first quarter results, I wanted to give an update on the proposed action plan that we submitted to the Florida Office of Insurance Regulation on April 29. The plan had been requested by the Florida OIR, following the downgrade by DemoTech, of its rating of FNIC, which inhibits their ability to maintain our books of business that are no longer acceptable to some in the secondary mortgage markets. We believe the lack of an A rating also prevents us from completing the appropriate Excessive Loss Reinsurance Program for the treating year beginning July 1, 2022. It is our proposed action plan, as approved by the Florida OIR, and other regulators in other impacted states, then it could result in the company becoming much smaller as a result of vacating our non-Florida states and significantly reducing policies in forests within Florida. The proposed plan may result in additional capital coming into the holding company or into our insurance carriers. If approved, the proposed action plan would be expected to enable us to obtain excessive loss reinsurance on a significantly smaller Florida-only book of business. Our action plan is currently being reviewed by the Florida OIR, and we will provide an update on the outcome of the review when it is available. We are, of course, disappointed with these latest developments. As we announced last November, our strategy is to exit our non-Florida markets, including the runoff of Mason Insurance Company, and to refocus on the improving homeowners market in Florida, where Fed Nat was established 30 years ago, and where we continue to have a significant market share, strong underwriting and claims processing capabilities, and strong agent relationships. Upon completion of this transition, if approved, we expect that Fed Nat would be a financially stronger company, right-sized to our current capital and surplus position, with less exposure to weather frequency, and therefore less volatility in our underwriting results. Turning to the quarter, our financial results were impacted by $31 million of net catastrophe losses, including $19 million in net catastrophe losses from severe weather events that impacted Florida, with the remaining pertaining to our non-Florida business, which we are in the process of exiting. While we ended the first quarter with $47 million of liquidity at the holding company, ongoing underwriting losses driven primarily by catastrophe weather losses, and the uncertain outlook for maintaining appropriate capital levels at FNIC with outside capital infusions led in part to the downgrade from Demotech and the action by the Florida OIR. During the first quarter, we continued the orderly runoff of Mason's insurance operations as part of our exit from our non-Florida market. In January, we began non-renewing Mason's Louisiana policies on the expiration dates of each appropriate policy, and in March, we began to non-renew Mason's Texas policies. The non-renewal of Mason's Florida's policies is currently planned to begin effective July 2022. FNIC's non-Florida book was written through our third-party managing general underwriter, and Sage Shore owns the renewal rights to those policies. As we discussed on our last conference call in March, Sage Shore began making offers of coverage in December 2021 to all FNIC policyholders in Texas and Louisiana to renew policies to alternative insurance carriers, partners of Sage Shore that are not affiliated with FedMap. A high percentage of such policyholders have been accepting the alternative coverage accelerating the reduction of our book of business in these states. During the first quarter, safe shore policies in all states continued to be non-renewed by FNIC to the extent that the policy holder did not accept the alternative coverage. I'm sorry, they would be renewed if they did not accept the alternative coverage. However, that is no longer the case beginning here in the second quarter. Beginning May 1st, 2022 in Texas and Louisiana, June 1 in Alabama and Mississippi, and July 1 in South Carolina, all policies not renewed on an alternative carrier partner of Sage Shore will be not renewed by FNIC. Beyond these actions, the future status of non-renewal of FNIC policies written through Sage Shore will depend on the approval of a proposed action plan by the Florida OIR and state regulators in Louisiana, Texas, South Carolina, Alabama, and Mississippi. I want to stress that FedNet's commitment to honoring all commitments to our policyholders, past, present, and future, and all policyholders and agents will receive the same professional service that they've always received from FedNet. Before I turn the call over to Ron to give more details on the first quarter's results, I would like to briefly discuss the environment in the Florida homeowners market and our performance during the first quarter. The environment continues to have its challenges, but as a result of dramatic actions taken by us with our underwriting and rate action over the past five years, we are now experiencing positive trends in our nutritional loss ratios in both new business and in renewal business, as it is renewed at increased rates. We benefited from our actions to shrink our floor-to-book until rates more accurately reflect the increase increased costs of doing business, including higher reinsurance costs. From the end of 2017, our Florida book has declined by over 44% from 272,000 policies in force to 152,000 policies at March 31st of this year. We increased FNIC's rates by a cumulative 90% over that same time period, restoring rate adequacy in our book. FNIC's average premium per policy in Florida increased by $176 in the first quarter compared to the fourth quarter of 2021 and $607 higher than the first quarter of 2021. This increase translates into approximately $83 million in more premiums on the 137,000 FNIC policies in Florida as of March 31st compared to last year. Most importantly, these rate increases helped improve the attritional loss ratio in FNIC's Florida book, which dropped to approximately 32% for the first quarter of 2022, as compared to 38% a year ago. This clearly demonstrates why we decided to shift our strategy to exit non-Florida markets and refocus on the Florida homeowner market. Now I'll turn the call over to Rod for more details on our first quarter of finances.