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Press Release

1347 Property Insurance Holdings, Inc. Announces 2018 Second Quarter Financial Results

Company Release - 8/14/2018 4:30 PM ET

Second quarter 2018 net income of $0.1 million despite catastrophes aggregating $5.0 million.

Year-to-date 2018 net income of $2.1 million compared to $1.2 million year-to-date 2017.

TAMPA, Fla.--(BUSINESS WIRE)-- 1347 Property Insurance Holdings, Inc. (NASDAQ: PIH) (the “Company”), a property and casualty insurance holding company offering specialty insurance to customers in Louisiana, Texas and Florida through its wholly-owned subsidiary, Maison Insurance Company (“Maison”), today announced financial results for its second quarter ended June 30, 2018.

Second Quarter 2018 Financial and Operating Highlights

(unless noted all financial comparisons are to the prior-year quarter)

  • Gross premiums earned increased 43.0% to $20.1 million from $14.0 million.
  • Net premiums earned increased 61.9% to $13.3 million from $8.2 million.
  • In-force policies increased from March 31, 2018 by 5,200 to nearly 57,100 as of June 30, 2018, an increase of 10.0%.
  • Net combined ratio was 104.7%, which included a 37.5% net loss ratio resulting from a catastrophe weather event; compared to a net combined ratio of 88.4% in the prior year quarter with no catastrophe weather events.
  • Net income was approximately $0.1 million, compared to $0.9 million in the prior year quarter.
  • Book value per share of $7.80 at June 30, 2018 versus $7.82 at December 31, 2017.

Management Comments

Doug Raucy, Chief Executive Officer, stated, “During the second quarter 2018, we continued our momentum from the first quarter by increasing our policy counts and improving the long-term margin potential in our business. Our portfolio continues to benefit from increasingly diversified geography, production sources, and products and we were able to produce an operating profit in spite of significant weather activity in the quarter. We are pleased that our continued investment in higher margin specialty products, such as manufactured homes and wind-only, is yielding increased production and margin potential. The market has also been receptive to a number of our initiatives aimed at increasing the margins in our book of business, which we expect to benefit operating results in the next twelve months and beyond. Our net income for the six months ended June 30, 2018 was $2.1 million, up approximately 79% from $1.2 million for the six months ended June 30, 2017, and our book value per share stands at $7.80. As we’ve consistently indicated, we manage our business for long term value creation and it is best measured in that context.”

       
Operating Review (Unaudited) (Unaudited)
($ in thousands, except per share data) Three Months Ended Six Months Ended
June 30, June 30,
  2018         2017       Change   2018         2017       Change
 
Gross premiums written $ 27,675 $ 18,820 47.1 % $ 44,296 $ 31,654 39.9 %
Ceded premiums written 9,432 4,500 109.6 % 15,518 10,375 49.6 %
Gross premiums earned 20,087 14,044 43.0 % 38,833 27,562 40.9 %
Ceded premiums earned 6,762 5,816 16.3 % 12,893 11,162 15.5 %
Net premiums earned 13,325 8,228 61.9 % 25,940 16,400 58.2 %
 
Total revenues 14,283 8,923 60.1 % 27,823 17,640 57.7 %
 
Gross losses and loss adjustment expenses 13,346 8,464 57.7 % 18,559 14,049 32.1 %
Ceded losses and loss adjustment expenses 6,487 6,081 6.7 % 7,441 8,035 (7.4 )%
Net losses and loss adjustment expenses 6,859 2,383 187.8 % 11,118 6,014 84.9 %
 
Amortization of deferred policy acquisition costs 3,617 2,590 39.7 % 6,912 5,112 35.2 %
General and administrative expenses 3,466 2,299 50.8 % 6,487 4,390 47.8 %
Total expenses 13,942 7,363 89.4 % 25,162 15,699 160.3 %
 
Income before income taxes 341 1,560 (78.1 )% 2,661 1,941 37.1 %
Net income $ 135 $ 921 (85.3 )% $ 2,086 $ 1,167 78.7 %
 
Weighted average diluted shares outstanding 6,115,522 5,956,766 2.7 % 6,104,371 5,956,766 2.5 %
 

Ratios to Gross Premiums Earned:(1)

Ceded ratio 1.4 % (1.9 )% 3.3 pts 14.0 % 11.3 % 2.7 pts
Gross loss ratio 66.4 % 60.3 % 6.1 pts 47.8 % 51.0 % (3.2) pts
DPAC ratio 18.0 % 18.4 % (0.4) pts 17.8 % 18.5 % (0.7) pts
G&A ratio 17.3 % 16.4 % 0.9 pts 16.7 % 15.9 % 0.8 pts
Combined gross ratio 103.1 % 93.2 % 9.9 pts 96.3 % 96.7 % (0.4) pts
 

Ratios to Net Premiums Earned:(1)

Net loss ratio 51.4 % 29.0 % 22.4 pts 42.9 % 36.7 % 6.2 pts
Net expense ratio 53.3 % 59.4 % (6.1) pts 51.8 % 57.9 % (6.1) pts
Net combined ratio 104.7 % 88.4 % 16.3 pts 94.7 % 94.6 % 0.1 pts
 
(1) See “Definitions of Non-U.S. GAAP Financial Measures” Section
 

Quarterly Financial Review

Premiums

Gross premiums written increased 47.1% to $27.7 million for the quarter ended June 30, 2018 compared with $18.8 million for the quarter ended June 30, 2017. Gross premiums earned increased 43.0% to $20.1 million for the quarter ended June 30, 2018 compared with $14 million for the quarter ended June 30, 2017. The increase for the three-month period was largely due to organic growth in voluntary production from the Company’s independent agents in Texas. As of June 30, 2018, approximately 75% of the Company’s 57,100 policies in force were from voluntary policies obtained from the Company’s independent agent network, with the remainder obtained from take-out policies.

Net premiums earned increased 61.9% to $13.3 million for the quarter ended June 30, 2018, compared with $8.2 million for the quarter ended June 30, 2017, largely due to the increase in gross premiums earned as previously discussed.

Losses and Loss Adjustment Expenses

The gross loss ratio for the quarter ended June 30, 2018 was 66.4% compared to 60.3% for the quarter ended June 30, 2017. The net loss ratio for the quarter ended June 30, 2018 was 51.4% compared to 29.0% for the same quarter last year. The increase to our net loss ratio was primarily driven by hail storms that our Texas and Louisiana policyholders experienced throughout the quarter as well as the timing of the events relative to our reinsurance program expiration dates. One hail storm in particular, PCS Event 1830, caused significant damage in the Dallas/Fort Worth metroplex during the first week of June 2018. We anticipate our net incurred losses from this storm to be approximately $5 million. In comparison, we did not experience any Catastrophe loss events which exceeded our internally defined threshold of $2.5 million in gross incurred losses for the quarter ended June 30, 2017.

We have also released reserves from prior accident years for both the quarters ended June 30, 2018 and 2017, resulting in a benefit to our current loss ratio of approximately 9.3% and 10.8%, respectively.

The following table reflects the four major components of our net loss ratio for the three and six months ended June 30, 2018 and 2017 that we use to analyze the Company’s loss experience.

   
($ amounts in thousands) Three months ended June 30,
2018       2017  
Losses ($)     Loss Ratio (%) Losses ($)     Loss Ratio (%)
Catastrophe losses(1) $ 5,000 37.5 % $ - - %
Weather-related non-cat losses 1,360 10.2 % 1,424 17.3 %
Non-weather related losses   1,732   13.0 %   1,852   22.5 %
Total current accident year losses 8,092 60.7 % 3,276 39.8 %
Prior period redundancy(2)   (1,233 ) (9.3 )%   (893 ) (10.8 )%
Total net losses and LAE incurred $ 6,859   51.4 % $ 2,383   29.0 %
 
Six months ended June 30,
2017   2016  
Losses ($) Loss Ratio (%) Losses ($) Loss Ratio (%)
Catastrophe losses(1) $ 5,000 19.3 % $ - - %
Weather-related non-cat losses 3,887 15.0 % 3,572 21.8 %
Non-weather related losses   4,030   15.5 %   3,664   22.4 %
Total current accident year losses 12,917 49.8 % 7,236 44.2 %
Prior period redundancy(2)   (1,799 ) (6.9 )%   (1,222 ) (7.5 )%
Total net losses and LAE incurred $ 11,118   42.9 % $ 6,014   36.7 %
 
1)   Property Claims Services (PCS) defines a catastrophic event as an event where the insurance industry is estimated to incur over $25,000 of insured property damage that also impacts a significant number of insureds. For purposes of the above table, we have defined a Catastrophe loss as a PCS event where our estimated gross incurred loss exceeds $2,500. In prior periods, we had defined a Catastrophe loss as an event where our estimated gross incurred loss exceeded $1,500. Due to the general increase in the premiums we write year over year, we have determined $2,500 gross incurred losses to be a better indicator of a catastrophic event with respect to the exposures we currently insure. Prior year loss data has been restated to reflect this new definition.
2) Prior period redundancy represents the ultimate actual loss settlement value which is less than the estimated and determined reserves recorded for a particular liability or loss.
 

Amortization of Deferred Policy Acquisition Costs

Amortization of deferred policy acquisition costs for the second quarter of 2018 was $3.6 million, a $1 million increase over $2.6 million in the second quarter of 2017. As a percentage of gross premiums earned, this expense decreased to 18.0% for the second quarter of 2018, compared to 18.4% for the second quarter of 2017. For the six-month periods ended June 30, 2018 and 2017, this ratio was 17.8% and 18.5%, respectively. This decrease was mainly driven by the assumption of premiums from Citizens Property Insurance Corporation of Florida during December 2017, which has no agent commissions associated with this business until it renews onto our policy forms.

General and Administrative Expenses

General and administrative expenses for the second quarter of 2018 were $3.5 million, a 50.8% increase from $2.3 million in the second quarter of 2017. General and administrative expenses as a percentage of gross premiums earned increased to 17.3% for the second quarter of 2018 compared to 16.4% for the prior year period. The largest driver in the increase in general and administrative expense were fees associated with preparing surveys and underwriting reports on the properties that we insure or potentially insure. We have also made undergone enhancements to our policy processing and administration systems which we expect to improve operating efficiency in the future.

Net Income

In the second quarter of 2018, the Company reported net income of $135, compared to a net income of $921 in the prior year period. After deducting the effect of dividends paid on its Series A Preferred Shares, the Company reported loss of $(0.04) per diluted share during the second quarter of 2018, based on approximately 6.1 million weighted average shares outstanding, compared to a net income of $0.15 per diluted share for the second quarter of 2017, based on approximately 6.0 million weighted average shares outstanding. For the six months ended June 30, 2018 and 2017, net income was $2,086, or $0.27 per diluted share and $1,167, or $0.20 per diluted share, respectively.

Balance Sheet / Investment Portfolio Highlights

At June 30, 2018, the Company held cash, cash equivalents and investments with a carrying value of $106.2 million. As of June 30, 2018, the Company’s investment in fixed maturities issued by the U.S. Government, government agencies and high-quality corporate issuers, including short-term investments, comprised approximately 92% of the investment portfolio.

DEFINITION OF NON-U.S. GAAP FINANCIAL MEASURES

The Company assesses its results of operations using certain non-U.S. GAAP financial measures, in addition to U.S. GAAP financial measures. These non-U.S. GAAP financial measures are defined below. The Company believes these non-U.S. GAAP financial measures provide useful information to investors and others in understanding and evaluating its operating performance in the same manner as management does.

The non-U.S. GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, any financial measures prepared in accordance with U.S. GAAP. The Company’s non-U.S. GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how the Company defines its non-U.S. GAAP financial measures.

The Company analyzes performance based on ratios common in the insurance industry such as loss ratio, expense ratio and combined ratio. The Company’s ratios are calculated as shown in the following table.

       
Ratio     Numerator     Divisor
Ceded ratio     Ceded premium earned minus ceded losses and loss adjustment expenses     Gross premium earned
Gross loss ratio     Gross losses and loss adjustment expenses     Gross premium earned
DPAC ratio     Amortization of deferred policy acquisition costs     Gross premium earned
G&A ratio     General and administrative expenses     Gross premium earned
Net loss ratio     Net losses and loss adjustment expenses     Net premium earned
Net expense ratio     Deferred policy acquisition costs plus general and administrative expenses     Net premium earned
 

The gross combined ratio is calculated as the sum of the ceded ratio, gross loss ratio, DPAC ratio, and G&A ratio. The net combined ratio is calculated as the sum of the net loss ratio and the net expense ratio. A combined ratio below 100% demonstrates underwriting profit whereas a combined ratio over 100% demonstrates an underwriting loss.

About 1347 Property Insurance Holdings, Inc.

1347 Property Insurance Holdings, Inc. is a specialized property and casualty insurance holding company incorporated in Delaware. The Company provides property and casualty insurance in Louisiana and Texas through its wholly-owned subsidiary Maison Insurance Company (“Maison”). Maison was recently licensed in the State of Florida and began covering risks in the state via the assumption of policies from Citizens Property Insurance Corporation of Florida on December 19, 2017. The Company’s insurance offerings for customers currently include homeowners, wind and hail only, manufactured home and dwelling fire policies.

Forward Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements are therefore entitled to the protection of the safe harbor provisions of these laws. These statements may be identified by the use of forward-looking terminology such as “anticipate,” “believe,” “budget,” “contemplate,” “continue,” “could,” “envision,” “estimate,” “expect,” “forecast,” “goal,” “guidance,” “indicate,” “intend,” “may,” “might,” “outlook,” “plan,” “possibly,” “potential,” “predict,” “probably,” “pro-forma,” “project,” “seek,” “should,” “target,” “will,” “would,” “will be,” “will continue,” “will likely result” or the negative thereof or other variations thereon or comparable terminology. We have based these forward-looking statements on our current expectations, assumptions, estimates, and projections. While we believe these to be reasonable, such forward-looking statements are only predictions and involve a number of risks and uncertainties, many of which are beyond our control. These and other important factors may cause our actual results, performance, or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Management cautions that the forward-looking statements in this press release are not guarantees of future performance, and we cannot assume that such statements will be realized or the forward-looking events and circumstances will occur. Factors that might cause such a difference include, without limitation: our limited operating history as a publicly traded company; our ability to obtain market share; our ability to access capital; changes in economic, business and industry conditions; legal, regulatory and tax developments; our ability to comply with regulations imposed by the states of Louisiana, Texas and Florida and the other states where we may do business in the future; Maison’s ability to meet minimum capital and surplus requirements; our ability to participate in take-out programs; our ability to expand our business to other states; the level of demand for our coverage and the incidence of catastrophic events related to our coverage; our ability to compete with other insurance companies; inadequate loss and loss adjustment expense reserves; effects of emerging claim and coverage issues; the failure of third party adjusters to properly evaluate claims or the failure of our claims handling administrator to pay claims fairly; investment losses; climate change and increasing occurrences of weather-related events; increased litigation in the insurance industry; non-availability of reinsurance; our ability to recover amounts due from reinsurers; the accuracy of models used to predict future losses; failure of risk mitigation strategies and/or loss limitation methods; Maison’s failure to maintain certain rating levels; our ability to establish and maintain an effective system of internal controls; the impact of our status as an “emerging growth company”; conflicts of interest between us and KFSI and its affiliates or between us and FGI and its affiliates; different interests of controlling stockholders; failure of our information technology systems, data breaches and cyber-attacks; the ability of our third-party policy administrator to properly handle our policy administration process; the requirements of being a public company; the success of our acquisition strategy; our ability to develop and implement new technologies; our ability to accurately price the risks that we underwrite; the amount of operating resources necessary to develop future new insurance policies; assumptions related to the rate at which our existing policies will renew; our status as an insurance holding company; the ability of our subsidiaries to pay dividends to us; our ability to attract and retain qualified personnel, including independent agents; the impact of tax reform; and restrictions imposed on our net operating loss carryforwards.

Our expectations may not be realized. If one of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results may vary materially from those expected, estimated or projected. You are cautioned not to place undue reliance on forward-looking statements. The forward-looking statements included in this press release are made only as of the date hereof and do not necessarily reflect our outlook at any other point time. We do not undertake and specifically decline any obligation to update any such statements or to publicly announce the results of any revisions to any such statements to reflect new information, future events or developments. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the section entitled "Risk Factors" in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Additional Information

Additional information about 1347 Property Insurance Holding, Inc., including its Quarterly Report on Form 10-Q for the fiscal second quarter ended June 30, 2018 and its Annual Report on Form 10-K for the fiscal year ended December 31, 2017, can be found at the U.S. Securities and Exchange Commission's website at www.sec.gov, or at PIH’s corporate website: www.1347pih.com.

 
1347 PROPERTY INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income

(in thousands, except share and per share data)

(Unaudited)

    Three months ended June 30,     Six months ended June 30,
  2018         2017   2018         2017
Revenue:
Net premiums earned $ 13,325 $ 8,228 $ 25,940 $ 16,400
Net investment income 449 284 827 452
Other income   509     411   1,056     788
Total revenue 14,283 8,923 27,823 17,640
 
Expenses:
Net losses and loss adjustment expenses 6,859 2,383 11,118 6,014
Amortization of deferred policy acquisition costs 3,617 2,590 6,912 5,112
General and administrative expenses 3,466 2,299 6,487 4,390
Accretion of discount on Series B Preferred Shares 91 33 183
Loss on repurchase of Series B Preferred Shares and

Performance Shares

        612    
Total expenses 13,942 7,363 25,162 15,699
 
Income before income tax expense 341 1,560 2,661 1,941
Income tax expense   206     639   575     774
Net income $ 135   $ 921 $ 2,086   $ 1,167
 
Net earnings (loss) per common share:
Basic $ (0.05 ) $ 0.15 $ 0.28 $ 0.20
Diluted $ (0.04 ) $ 0.15 $ 0.27 $ 0.20
Weighted average common shares outstanding:
Basic 5,984,766 5,956,766 5,984,766 5,956,766
Diluted 6,115,522 5,956,766 6,104,371 5,956,766
 
Consolidated Statements of Comprehensive Income (Loss)
 
Net income $ 135 $ 921 $ 2,086 $ 1,167
Unrealized gains (losses) on investments available for

sale, net of income taxes

  (193 )   14   (877 )   69
Comprehensive income (loss) $ (58 ) $ 935 $ 1,209   $ 1,236
 
 
1347 PROPERTY INSURANCE HOLDINGS INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except share and per share data)

   

June 30, 2018
(unaudited)

   

December 31,
2017

ASSETS
Investments:
Fixed income securities, at fair value (amortized cost of $69,614 and $51,503, respectively) $ 68,133 $ 51,122
Equity investments, at fair value (cost of $2,732 and $2,582, respectively) 2,847 2,707
Short-term investments, at cost 1,264 417
Other investments   3,246     945  
Total investments 75,490 55,191
Cash and cash equivalents 30,695 23,575
Deferred policy acquisition costs, net 8,675 6,785
Premiums receivable, net of allowance for credit losses of $45 and $33, respectively 2,992 10,831
Ceded unearned premiums 6,280 3,655
Reinsurance recoverable on paid losses 6,897 1,952
Reinsurance recoverable on loss and loss adjustment expense reserves 6,867 8,971
Funds deposited with reinsured companies 762 2,250
Current income taxes recoverable 905 64
Deferred tax asset, net 325 70
Property and equipment, net 381 205
Other assets   1,180     888  
Total assets $ 141,449   $ 114,437  
 
LIABILITIES
Loss and loss adjustment expense reserves $ 13,817 $ 13,488
Unearned premium reserves 44,987 39,523
Ceded reinsurance premiums payable 9,335 5,532
Agency commissions payable 1,419 695
Premiums collected in advance 2,648 1,078
Funds held under reinsurance treaties 161 206
Current income taxes payable
Accounts payable and other accrued expenses 4,905 4,273
Series B Preferred Shares, $25.00 par value, zero and 120,000

shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

      2,840  
Total liabilities $ 77,272   $ 67,635  
 
SHAREHOLDERS’ EQUITY
Series A Preferred Shares, $25.00 par value, 1,000,000 shares authorized, 700,000 and zero

shares issued and outstanding at June 30, 2018 and December 31, 2017, respectively

$ 17,500 $
Common stock, $0.001 par value; 10,000,000 shares authorized; 6,136,125 shares issued as of

both periods; 5,984,766 shares outstanding as of both periods

6 6
Additional paid-in capital 46,138 47,064
Retained earnings 2,621 910
Accumulated other comprehensive loss, net of tax   (1,079 )   (169 )
65,186 47,811
Less: treasury stock at cost; 151,359 shares for both periods   (1,009 )   (1,009 )
Total shareholders’ equity   64,177     46,802  
Total liabilities and shareholders’ equity $ 141,449   $ 114,437  
 

1347 Property Insurance Holdings, Inc.
Douglas N. Raucy, 813-579-6210
Chief Executive Officer
draucy@maisonins.com

Source: 1347 Property Insurance Holdings, Inc.