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TMCNet:  1347 Property Insurance Holdings, Inc. Announces 2017 Second Quarter Financial Results

[August 10, 2017]

1347 Property Insurance Holdings, Inc. Announces 2017 Second Quarter Financial Results

1347 Property Insurance Holdings, Inc. (NASDAQ: PIH) (the "Company"), a property and casualty insurance holding company offering specialty insurance to individual and commercial customers in Louisiana and Texas through its wholly-owned subsidiary, Maison Insurance Company ("Maison"), today announced financial results for its second quarter ended June 30, 2017.

Second Quarter 2017 Financial and Operating Highlights

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

  • Gross premiums written increased 27.9% to $18.8 million from $14.7 million.
  • Net premiums earned increased 9.5% to $8.2 million from $7.5 million.
  • Net combined ratio was 89.5%; compared with 76.4% in the prior year quarter.
  • Net income was approximately $0.9 million, or $0.15 per diluted share, compared to net income of $1.3 million, or $0.22 per diluted share.
  • Book value per share of $7.99 at June 30, 2017 versus $7.83 at March 31, 2017 and $7.85 a year ago.
  • In-force policy count at June 30, 2017 increased to 37,500 from 35,200 at March 31, 2017 and 30,800 a year ago.

Management Comments

Doug Raucy, Chief Executive Officer, stated, "We are pleased to have grown our book value another 16 cents per share in the second quarter to $7.99. We ended the second quarter with almost 37,500 policies in force, representing growth of over 21% from a year ago. As a result, our gross written premiums rose 27.9% as compared to the second quarter of 2016, primarily from our voluntary independent agencies. We focus intently on our independent agent network and work every day to create a win-win relationship for them and Maison." Mr. Raucy continued, "While we did not experience any CAT events in the second quarter, non-catastrophe weather losses were significant in the quarter, comprising more than half of our net loss ratio for the three month period due to a number of smaller wind/hail events in Texas and Louisiana which occurred primarily in April and May. Even after the impact of these storms, our resulting net combined ratio for the quarter was 89.5%, which was still solidly profitable and proof again in the resilience of our business model."



         

Operating Review

(Unaudited) (Unaudited)
(amounts in thousands, except ratios) Three Months Ended Six Months Ended
June 30, June 30,
2017       2016       Change 2017       2016       Change
Gross premiums written $18,820 $14,714 27.9% $31,654 $25,518 24.0%
Ceded premiums written $4,500 $5,870 (23.3%) $10,375 $9,441 9.9%
Gross premiums earned $14,044 $11,708 20.0% $27,562 $23,276 18.4%
Ceded premiums earned $5,816 $4,196 38.6% $11,162 $7,543 48.0%
Net premiums earned $8,228 $7,512 9.5% $16,400 $15,733 4.2%
 
Total revenues $8,923 $7,893 13.0% $17,640 $16,492 7.0%
 
Gross losses and loss adjustment expenses $8,464 $5,616 50.7% $14,049 $15,480 (9.2%)
Ceded losses and loss adjustment expenses $6,081 $3,778 61.0% $8,035 $7,006 14.7%
Net losses and loss adjustment expenses $2,383 $1,838 29.7% $6,014 $8,474 (29.0%)
 
Amortization of deferred policy acquisition costs $2,590 $2,063 25.5% $5,112 $4,053 26.1%
General and administrative expenses $2,299 $1,746 31.7% $4,390 $3,324 32.1%
Amortization charges on Series B Preferred Shares $91 $86 5.8% $183 $174 5.2%
 
Net income $921 $1,340 (31.3%) $1,167 $225 418.7%
Weighted average diluted shares outstanding 5,957 6,097 (2.3%) 5,957 6,104 (2.4%)
 

Ratios to Gross Premiums Earned:(1)

Ceded ratio (1.9%) 3.6% (5.5) pts 11.3% 2.3% 9.0 pts
Gross loss ratio 60.3% 48.0% 12.3 pts 51.0% 66.5% (15.5) pts
DPAC ratio 18.4% 17.6% 0.8 pts 18.5% 17.4% 1.1 pts
G&A ratio 16.4% 14.9% 1.5 pts 15.9% 14.3% 1.6 pts
Combined gross ratio 93.2% 84.1% 9.1 pts 96.7% 100.5% (3.8) pts
 

Ratios to Net Premiums Earned:(1)

Net loss ratio 29.0% 24.5% 4.5 pts 36.7% 53.9% (17.2) pts
Net expense ratio 60.5% 51.9% 8.6 pts 59.1% 48.0% 11.1 pts
Net combined ratio 89.5% 76.4% 13.1 pts 95.8% 101.9% (6.1) pts

(1) See "Definition of Non-U.S. GAAP Financial Measures" below.

 

Quarterly Financial Review

Premiums

Gross premiums written increased 27.9% to $18.8 million for the quarter ended June 30, 2017 compared with $14.7 million for the quarter ended June 30, 2016. Gross premiums earned increased 20.0% to $14.0 million for the quarter ended June 30, 2017 compared with $11.7 million for the quarter ended June 30, 2016. The increase for the three-month period was largely due to organic growth in voluntary production from the Company's independent agents, particularly in the State of Texas. As of June 30, 2017, approximately 77% of the Company's 37,500 policies in force were from voluntary policies obtained from the Company's independent agent network, with the remainder obtained from take-out policies from Louisiana Citizens. Gross premiums written for the quarter ended June 30, 2017 also included approximately $0.9 million in premium assumed through our depopulation from the Texas Windstorm Insurance Association ("TWIA") for which there were no corresponding premiums in the quarter ended June 30, 2016.

Net premiums earned increased 9.5% to $8.2 million for the quarter ended June 30, 2017 compared with $7.5 million for the quarter ended June 30, 2016.

Losses and Loss Adjustment Expenses

The gross loss ratio for the quarter ended June 30, 2017 was 60.3% compared to 48.0% for the quarter ended June 30, 2016. The net loss ratio for the quarter ended June 30, 2017 was 29.0% compared to 24.5% for the quarter ended June 30, 2016. Core losses (as defined in the table below) contributed most heavily to the loss ratio in the second quarter of 2017 compared with the second quarter of 2016 where recoveries generated from our aggregate reinsurance treaty provided a negative loss ratio for non-catastrophe weather related claims. The following table sets forth the components of our net incurred losses and net loss ratios for the three and six months ended June 30, 2017 and 2016.

     
(amounts in thousands) Three months ended June 30,
2017     2016
Losses ($)     Loss Ratio (%) Losses ($)     Loss Ratio (%)
Non-catastrophe weather losses $ 1,421 17.3% $ (1,272) (16.9)%
Non-weather losses   1,852 22.5%   2,055 27.4%
Core loss(1) 3,273 39.8% 783 10.5%
Catastrophe loss(2) 3 -% 1,007 13.4%
Prior period (redundancy) development(3)   (893) (10.8)%   48 0.6%
Net losses and LAE incurred $ 2,383 29.0% $ 1,838 24.5%
 
Six months ended June 30,
2017 2016
Losses ($) Loss Ratio (%) Losses ($) Loss Ratio (%)
Non-catastrophe weather losses $ 1,872 11.4% $ 379 2.4%
Non-weather losses   3,664 22.4%   3,228 20.5%
Core loss(1) 5,536 33.8% 3,607 22.9%
Catastrophe loss(2) 1,700 10.4% 4,986 31.7%
Prior period (redundancy) development(3)   (1,222) (7.5)%   (119) (0.7)%
Net losses and LAE incurred $ 6,014 36.7% $ 8,474 53.9%
 
(1)     We define Core Loss as net losses and LAE less the sum of catastrophe losses and prior period development/redundancy.
(2) 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 as a PCS event where the Company's estimated gross incurred cost (before recovery from reinsurance) exceeds $1,500.
(3) Prior period development is the amount of ultimate actual loss settlement value which is more than the estimated reserves recorded for a particular liability or loss, while 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 2017 was $2.6 million, a $0.5 million increase over $2.1 million for the second quarter of 2016. As a percentage of gross premiums earned this expense was 18.4% for the second quarter of 2017, compared to 17.6% for the second quarter of 2016. This change was mainly driven by an increase in the effective rate of premium taxes we pay due to a change in the Louisiana insurance code limiting the credits allowed on premium tax returns filed with the state.

General and Administrative Expenses

General and administrative expenses for the second quarter of 2017 were $2.3 million, a 31.7% increase from $1.7 million for the second quarter of 2016. General and administrative expenses as a percentage of gross premiums earned rose to 16.4% for the second quarter of 2017 compared to 14.9% for the prior year period, primarily due to an increase in staffing and professional fees.

Net Income

In the second quarter of 2017, the Company reported net income of $0.9 million, compared to net income of $1.3 million in the prior year period. The Company reported net income of $0.15 per diluted share during the second quarter of 2017, based on approximately 6.0 million weighted average shares outstanding, compared to net income of $0.22 per diluted share during the prior year period, based on approximately 6.1 million weighted average shares outstanding.

Balance Sheet / Investment Portfolio Highlights

At June 30, 2017, the Company held cash, cash equivalents and investments with a carrying value of $79.0 million. As of June 30, 2017, 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 95% of the investment portfolio.

Conference Call Details

Date: Friday, August 11, 2017

Time: 10:00 a.m. Eastern Time

Participant Dial-In Numbers:

Domestic callers: (877) 407-0619

International callers: (412) 902-1012

Access by Webcast

The call will also be simultaneously webcast over the Internet via the "Investor Relations" section of PIH's website at www.1347pih.com or by clicking on the conference call link: http://1347pih.equisolvewebcast.com/q2-2017. An audio recording of the call will be archived on the Company's website.

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 plus loss
and amortization charges related to MSA termination

  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, but has not yet started writing business in the state. The Company's insurance offerings for personal and commercial 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 Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended. We use words such as "anticipate," "estimate," "plan," "project," "continuing," "ongoing," "expect," "believe," "intend," "may," "will," "should," "could," and other similar expressions to identify forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. Although we believe that the plans, objectives, expectations, and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements express or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations, and prospects will be achieved.

Important factors that may cause our actual results to differ materially from the results contemplated by the forward looking statements are contained in Item 1A. Risk Factors and elsewhere on the Company's Form 10-K for the year ended December 31, 2016 and in our subsequent filings with the SEC, and include, among others, the following: (i) our limited operating history and status as an emerging growth company; (ii) lack of future opportunities to participate in take-out programs; (iii) the level of demand for our coverage and the incidence of catastrophic events related to such coverage, including the impact of climate change and our lack of geographic diversification; (iv) our ability to successfully implement our business strategy and expand our operations, including through acquisitions and development of new products; (v) changes in general economic, business, and industry conditions, including cyclical changes in the insurance industry; (vi) our ability to grow and remain profitable in the competitive insurance industry, including our lack of a rating from A.M. Best; (vii) legal, regulatory, and tax developments, including the effects of emerging claim and coverage issues and increased litigation against the insurance industry; (viii) legal actions brought against us; (ix) damage to our reputation; (x) adequacy of our insurance reserves; (xi) availability of reinsurance and ability of reinsurers to pay their obligations; (xii) the failure of our risk mitigation strategies or loss limitation methods; (xiii) our reliance on independent agents to write our insurance and other third parties; (xiv) our ability to maintain our public company status, exchange listing and effective internal control systems; (xv) potential conflicts of interest due to our affiliation with KFSI; (xvi) data security breaches and other factors affecting our information technology systems; (xvii) our ability to attract and retain qualified employees, independent agents and brokers; (xviii) our ability to meet our obligations or obtain additional capital on favorable terms, or at all; (xix) our ability to accurately price the risks that we underwrite; and (xx) restrictions on the use of our net operating loss carryforwards.

We disclaim any obligation to update or revise any forward-looking statements as a result of new information, future events, or for any other reason.

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, 2017 and its Annual Report on Form 10-K for the fiscal year ended December 31, 2016, 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 Operations and Comprehensive Income
(in thousands, except share and per share data)
(Unaudited)
  Three months ended June 30,   Six months ended June 30,
2017   2016 2017   2016
Revenue:
Net premiums earned $ 8,228 $ 7,512 $ 16,400 $ 15,733
Net investment income 284 127 452 242
Other income   411   254   788   517
Total revenue 8,923 7,893 17,640 16,492
 
Expenses:
Net losses and loss adjustment expenses 2,383 1,838 6,014 8,474
Amortization of deferred policy acquisition costs 2,590 2,063 5,112 4,053
General and administrative expenses 2,299 1,746 4,390 3,324
Accretion of discount on Series B Preferred Shares   91   86   183   174
Total expenses 7,363 5,733 15,699 16,025
 
Income before income tax expense 1,560 2,160 1,941 467
Income tax expense   639   820   774   242
Net income $ 921 $ 1,340 $ 1,167 $ 225
 
Net earnings per common share:
Basic $ 0.15 $ 0.22 $ 0.20 $ 0.04
Diluted $ 0.15 $ 0.22 $ 0.20 $ 0.04
Weighted average common shares outstanding:
Basic 5,956,766 6,097,043 5,956,766 6,104,061
Diluted 5,956,766 6,097,043 5,956,766 6,104,061
 
Consolidated Statements of Comprehensive Income
 
Net income $ 921 $ 1,340 $ 1,167 $ 225
Unrealized gains on investments available for sale, net of income taxes   14   93   69   321
Comprehensive income $ 935 $ 1,433 $ 1,236 $ 546
 
 
1347 PROPERTY INSURANCE HOLDINGS INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share and per share data)
 

June 30, 2017
(unaudited)

 

December 31,
2016

ASSETS
Investments:
Fixed income securities, at fair value (amortized cost of $40,272 and $26,793, respectively) $ 40,203 $ 26,559
Equity investments, at fair value (cost of $1,182 and $1,000, respectively) 1,258 1,136
Short-term investments, at cost 1,459 196
Other investments, at cost   945   505
Total investments 43,865 28,396
Cash and cash equivalents 35,133 43,045
Deferred policy acquisition costs, net 5,545 4,389
Premiums receivable, net of allowance for credit losses of $32 and $38, respectively 2,263 2,923
Ceded unearned premiums 4,060 4,847
Reinsurance recoverable on paid losses 4,539 444
Reinsurance recoverable on loss and loss adjustment expense reserves 6,012 3,652
Funds deposited with reinsured companies - 500
Current income taxes recoverable 47 1,195
Deferred tax asset, net 247 420
Property and equipment, net 226 250
Other assets   768   788
Total assets $ 102,705 $ 90,849
 
LIABILITIES
Loss and loss adjustment expense reserves $ 9,583 $ 6,971
Unearned premium reserves 29,913 25,821
Ceded reinsurance premiums payable 6,304 5,229
Agency commissions payable 921 497
Premiums collected in advance 2,226 1,128
Funds held under reinsurance treaties 50 73
Accounts payable and other accrued expenses 3,451 2,065

Series B Preferred Shares, $25.00 par value, 1,000,000 shares authorized, 120,000 shares
issued and outstanding for both periods

  2,651   2,708
Total liabilities $ 55,099 $ 44,492
 
Commitments and contingencies
 
SHAREHOLDERS' EQUITY

Common stock, $0.001 par value; 10,000,000 shares authorized; 6,108,125 shares issued and 5,956,766
shares outstanding for both periods

$ 6 $ 6
Additional paid-in capital 46,822 46,809
Retained earnings 1,783 616
Accumulated other comprehensive income (loss)   4   (65)
48,615 47,366
Less: treasury stock at cost; 151,359 shares for both periods   (1,009)   (1,009)
Total shareholders' equity   47,606   46,357
Total liabilities and shareholders' equity $ 102,705 $ 90,849
 


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