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Q4 and Fiscal 2007 Year End FPIC Insurance Group, Inc. Earnings Conference Call - Final
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| Copyright: | CCBN, Inc. and FDCH e-Media, Inc. | | Source: | FD (FAIR DISCLOSURE) WIRE | | Wordcount: | 7653 |
OPERATOR: Good morning, everyone, and thank you for joining the FPIC
Insurance Group quarterly conference call. This morning we will first
make a brief presentation followed by an opportunity for questions
and answers. Please be reminded that our call today is being recorded
and a replay will be available at 1:00 this afternoon. A webcast
replay will also be available.
Before we begin our presentation, I would like to make a brief
statement about forward-looking statements and non-GAAP disclosures.
Today's presentation and the discussion that follows may include
statements about expected future events and future financial results
that are forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995.
Forward-looking statements are not guarantees of future performance
and actual results may differ materially as a result of risks and
uncertainties that we describe more fully in our earnings release and
in documents that we file with the Securities and Exchange
Commission. Our earnings release can be found in the Investor
Relations section of our website at fpic.com. We do not undertake to
revise forward-looking statements whether as a result of new
information, future events or otherwise, except as required by law.
Today's presentation may also includes certain non-GAAP financial
measures which we explain more fully in our earnings release
including a reconciliation of reported non-GAAP measures to the most
directly comparable GAAP measure.
Now let me introduce our participants this morning. We have John
Byers, President and Chief Executive Officer and Chuck Divita, Chief
Financial Officer. Also joining us this morning is Bob White,
President of our insurance subsidiary. We are now ready for our
presentation. Here is John Byers.
JOHN BYERS, CEO, FPIC INSURANCE GROUP: Thanks. Good morning,
everyone. We're very happy with our fourth-quarter results which top
off another strong year for us. We achieved operating earnings per
share for the quarter of $1.64, up 74% over fourth-quarter 2006
results. Our operating earnings per share for the year were also up
substantially over 2006 results. Our results for the quarter and year
benefited from our continued underwriting and pricing discipline and
the continuation of favorable claims trends and results.
At year-end, our book value per share reached its all-time high.
While our strong earnings continued to fuel significant capital
growth, we once again achieved an attractive return on average
equity, with the return on average equity from continuing operations
of 14.5% for the year excluding the gain from our first-quarter
commutation of our assumed reinsurance treaties with PRI. Including
this gain, we achieved a return on average equity of almost 18%.
We took advantage of our strong capital position to make substantial
share repurchases during the fourth quarter and year which we believe
benefit our shareholders going forward. Our revenues for the year
were down 11%, primarily driven by our moving our Florida premium
rates down in response to several years of favorable claims
experience. This revenue decline was expected in light of the
moderation rate in rates and the current market environment and in
our case reflects our continued adherence to our underwriting and
pricing standards and our commitment to sustainable long-term
financial strength and shareholder value.
Our strong claims experience of the past few years continued
throughout the fourth quarter and year. Overall, we certainly feel
good about our organization's achievements today and where things
stand. These accomplishments are a tribute to the dedication and
abilities of our management team, staff, and Board and reflect the
efficacy of our business strategies.
Looking ahead, we believe we are well positioned to continue to meet
our objectives. In this regard, we have strong capital and market
positions and remain committed to delivering attractive long-term
results. Operationally, we will continue to focus on our business
strategies, which have served us well over the years, including, one,
focusing on our core products and services; two, targeting markets
where we have competitive advantages; and three, focusing on our core
disciplines, including strict underwriting, reasoned pricing,
aggressive, effective claims management and efficient capital
utilization.
We'll also continue to seek and take advantage of growth
opportunities in our core markets, which our market position,
expertise, and relationships afford us as well as assess and take
advantage of growth opportunities in selected other markets.
With that overview, I will now turn the discussion over to Chuck to
review our fourth-quarter and year-end 2007 financial results.
CHUCK DIVITA, CFO, FPIC INSURANCE GROUP: Thanks, John, and good
morning, everyone. Our results again demonstrate our financial
strength and the probability of our business. I'll provide some
highlights of the quarter and the year with comparisons to 2006. Our
underwriting results continue to be strong, driving a 74% increase in
operating earnings per share for the quarter to $1.64. For the year,
we reported operating earnings of $5.27, a 71% increase over 2006.
Direct premiums written declined 17% for the quarter and 16% for the
year primarily due to lower premium rates in our Florida market and
to a lesser extent changes in our overall business mix. These factors
as well as lower net investment income contributed to an 11% decline
in total revenues for the quarter and year.
The favorable claim trends we've experienced in recent years continue
to have a moderating effect on rates. As such, we reduced our Florida
rates in December 2007 by a 11.7% and 11.4% in First Professionals
and APAC respectively. Beginning March 1, 2008, the recoupment of
prior guarantee fund assessments will bring these rate decreases to
around 8.5%.
Our retention of existing policyholders remained very strong in the
mid 90s for the year and our policyholder count at December 31, 2007
remained essentially level with the prior year.
We completed our year-end evaluation of reserves which continue to
benefit from the decline in frequency in recent years and our efforts
in the areas of underwriting, risk management, and claims. The
results of our year-end study and the continuation of favorable loss
trends led to a 2 percentage point reduction in our 2007 accident
year loss ratio and the recognition of $7 million of favorable prior
year reserve developments during the fourth quarter. This resulted in
a loss ratio for the quarter of 47.3%.
Excluding the positive impact of the PRI reinsurance commutation in
the first quarter 2007, we've recognized $16 million of favorable
prior year reserve development during in 2007. All in, our loss ratio
for the year was 52.2% and was 59.3% excluding the PRI commutation.
We continue to be an efficiently run organization with a stable
underlying expense structure. Our expense ratio for the quarter was
21% with the level of net premiums earned being main driver of the
ratio. We continue to be pleased with our claims metrics. Reported
claims and incidents for 2007 were 1% lower than 2006 with reported
claims 15% lower. When adjusted for the composition of our book,
frequency remained at historically low levels in 2007. Severity
continued to be essentially level and the percentage of claims with
an indemnity payment remained within our expectation.
When adjusted for the impact of commuted reinsurance agreements, net
paid losses and loss adjustment expenses for 2007 were 7% lower than
2006. Finally, our inventory of open claims and incidents at December
31, 2007 declined 14% from year-end 2006. We have substantial
financial strength with a high-quality investment portfolio,
appropriately conservative reserves, and a strong capital position.
Book value per common share grew 17% for the year to $33.03, as John
said, the highest in our Company's history.
The statutory surplus of our insurance subsidiaries at December 31,
2007 was $261.6 million and the ratio of net written premiums to
surplus at year-end excluding the PRI commutation was only 0.7 to 1.
Given our strong capital position, we continued to view share
repurchases as an attractive use of our capital during the quarter
repurchasing approximately 219,000 shares at an average price per
share of $42.31. For the year, repurchases totaled nearly 1.2 million
shares at an average price per share of $41.11. Since year-end, we've
continued to repurchase shares under our rule 10b5-1 trading plan.
Regarding our investment portfolio, our average quality continues to
be very high at AA as of December 31, 2007. We closely monitor the
performance of our investments and we remain comfortable with our
holdings.
With that, we are now ready for questions.
OPERATOR: (OPERATOR INSTRUCTIONS) David Lewis. (technical difficulty)
Paul Newsome.
PAUL NEWSOME, ANALYST, SANDLER O'NEILL: Good morning. I was hoping
you could give us just maybe some more details on the reserve release
in the fourth quarter. It was wonderfully high and kind of a pickup
from prior quarters. You know, should we be reading something into
that based upon claim counts in the fourth quarter or is that a
normal sort of true-up pattern in the fourth quarter? Just whatever
you can give us is great.
JOHN BYERS: Chuck, why don't you take that one.
CHUCK DIVITA: Sure. Good morning, Paul. What we did in the fourth
quarter obviously is complete our extensive year-end reserve study.
What we saw is a really a reaffirmation of what we've seen in prior
reserve analysis, frequency remaining at historically low levels, the
severity measures being well within our expectations. And so because
of those results, the study led us to lower our current year loss
ratio because of the results we've seen and also recognize additional
favorable prior year development.
In terms of the level and what we might see going forward, I think it
is important to point out that we've seen dramatically improved claim
results since 2003 and over 85% of our reserves sit in accident years
2004 through 2007. So assuming the claims trends continue, we could
see additional favorable development. I would not comment on what
specifically that might be or read into the quarter how much that
might be other than to say obviously we were very comfortable with
the favorable development we recognized, the change in the 2007 loss
ratio, and where we stand with reserves.
PAUL NEWSOME: Great, thank you.
OPERATOR: David Lewis. (technical difficulty) Mark Hughes.
MARK HUGHES, ANALYST, SUNTRUST ROBINSON HUMPHREY: I just wanted to
make sure I heard correctly that severity was level year-over-year in
the fourth quarter?
JOHN BYERS: Chuck, go ahead.
CHUCK DIVITA: Yes, the severity measures that are underlying the
reserves are -- they are level. In fact, they're probably stable and
even down some. In terms of our [quit] percentage overall, the paid
losses, the severity trends, etc., so that's what we mean by that.
The severity measures altogether continue to be very good.
MARK HUGHES: Right, how much of that is mix shift in favor of the
lower risk specialties versus the broader market trends?
JOHN BYERS: Bob, do you want to comment on that?
BOB WHITE, PRESIDENT, FPIC INSURANCE GROUP: Mark, that is really due
to the fact that our policy limits are relatively low compared to
other markets. 85% of our policyholders only carry limits of $500,000
per claim or less with the bulk of those, roughly 63% of our total
policyholder count at $250,000 per claim limit. That sort of caps
what severity can be in any given year.
MARK HUGHES: Got you. So one would think going forward severity
because of that cap ought to be relatively stable.
CHUCK DIVITA: Certainly in Florida, I think severity is not the
issues it is in most states, in the sense that most states the
standard policy limit is at least $1 million. As Bob said, a
substantial -- almost all of our policyholders have $500,000 or less,
and well in excess of half of our policyholders only have to $250,000
or less. And so we are shielded somewhat from our perspective as the
insurer from severity that's not the case in other states (technical
difficulty)
MARK HUGHES: Got you, then how much of likewise the claims
improvement -- if you could split that among the change in your risk
profile among your policyholders versus the broader market?
JOHN BYERS: Bob, again, why don't you take that.
BOB WHITE: I think it is mostly due to the broader market. We do have
the favorable impact of the fact that about 25% of our policyholders
are dentists and they have lower claims frequency to begin with. Plus
this mix of business change that we have been talking about over the
course of the last couple of years also has lower frequency
associated with it. But I would say a good 80% of what we were
experiencing is being experienced by everybody in the Florida market
at least.
MARK HUGHES: Got you. How about any thoughts on net premium earned
outlook for the Q1? You did quite well in this quarter relative to
the gross premium. What should we anticipate for the first quarter?
JOHN BYERS: Chuck, why don't you take that?
CHUCK DIVITA: Sure, I think that obviously what we are earning in for
2007 is a combination of '06 and '07 written premium and what we earn
in in '08 will be a combination of what we wrote in 2007 and what we
do in '08. So really it is going to be a function of what we write in
2008 and when we write it. So it is hard for me to say specifically,
although I'd tell you directionally obviously with the rate changes
and the decline in premiums in '07 versus '06, I would suspect you'll
continue to see a moderation in '08.
MARK HUGHES: Okay, and then finally acquisitions, what's your
appetite or what's the availability of potential opportunity?
JOHN BYERS: Well, certainly as you know from following the sector,
there's been a lot more commentary and discussion about acquisitions,
and I would say relative to the past, there has certainly been more
action and activity on that front. In terms of our -- in terms of the
reason for that, I think there are a lot of companies particularly in
the insurance sector that has excess capital; the medical
professional liability line seems to be performing better than most
other insurance sectors. So that is why I think you're seeing
increased interest in it.
In terms of our appetite, we systematically look at acquisitions. We
are very disciplined with it. But as we've said in the past, we
certainly will assess any acquisitions that make sense for our
Company and our shareholders and we will continue to do that. So we
will see. There's always -- there's always a good bit of talk in our
sector about acquisitions. The thing is they are all opportunistic. I
don't think you're going to see a rollup of med mal companies because
the companies have their own unique characteristics and each one
stands on its own.
But there is more talk. There is more interest. I think there's more
interest from sellers as well and we certainly have an interest in
looking at companies that might make sense for us.
MARK HUGHES: Thank you, nice quarter.
OPERATOR: David Lewis.
DAVID LEWIS, ANALYST, RAYMOND JAMES: Thank you, I'll try again. Can
you hear me, John?
JOHN BYERS: Sure, David. Thanks.
DAVID LEWIS: Just to follow-up on that M&A question, you said
more interest. Do you get a sense that some of the multiline carriers
would have an interest in this segment or is it primarily coming from
the existing players?
JOHN BYERS: Certainly, I think it's both. The existing players I
think continue to have an interest because the ones -- the buildup in
capital is something that other companies have seen, so the existing
players have that interest. Beyond that, somewhat from a multiline
but also the foreign companies have an interest right now. Some of
the Bermuda companies also tend to look at these companies as well.
So it's really across the board.
DAVID LEWIS: I haven't seen any transactions other than existing
players, have you?
JOHN BYERS: In terms of transactions, I think by and large that's
right. That's what you have seen. I think the others have played in
that market though and it just so happens that the transactions
you've seen are through the existing players. Really if you look at
it over last seven or eight years, as I calculate it, it only comes
out to about one acquisition a year.
Up until a couple of years ago, (technical difficulty) people already
the sector that had the interest. It has been in the last couple of
years that you have seen that outside interest come in and I would
say it is not a function that they're not interested. It is just so
far that the function that they have not been the ones that
ultimately prevailed in acquiring the company.
DAVID LEWIS: That helpful. Bob, I don't think these have been asked,
but can you maybe address any tort reform challenges in Florida if
there are any cases kind of working through the system that might
come up as a challenge here in the next year or two?
Secondly, just talk about some of the competitive pressures out there
that you're seeing in the Florida market in new business trends and
whether the startups are starting to feel any pain that might provide
some relief out there? And/or on that subject, if doctors are
starting to go back to carriers versus being bare?
BOB WHITE: David, first of all on the tort reform challenges, there
were two trial court level decisions in the latter part of 2007. In
other words, decisions by trial judges that the caps on noneconomic
damages were unconstitutional. One of those judges has since reversed
himself in a case we're involved in and said the issue is not ripe
until there's a verdict in excess of the amount of the cap. So there
is one trial court now that said the cap is unconstitutional and that
is just the law of that case.
I want to emphasize that it means nothing as far as the state of
Florida is concerned because all that judge has decided the cap does
not apply in that case. And that ruling is subject to Appellate Court
challenge if it were to continue in the case and there would be an
award in excess of the policy limits where he did not apply the cap
to. So that's all to be worked out and of course if there is a
defense verdict, it is totally meaningless. So we are nowhere closer
than we were a year ago to final Appellate determinations about tort
reform in Florida.
As far as the competitive pressures are concerned, things pretty much
continue to be the way they were at midyear or so where we have a
couple of legacy players in our market that are doing some things
that cause us to shake our heads a little bit in terms of pricing. Of
course we have several startups whose pricing is unexplainable as far
as we are concerned. But we have managed to hold our own because of
our strong reputation for service and quality with our pricing. And
as you see from the retention numbers, they are quite strong in a
very, very competitive marketplace.
We're seeing more opportunities for new business as we reported to
you for the last couple of quarters. We're quoting more. We're
winning more of those quotes. Some of the numbers we put out for the
fourth quarter, while they are accurate, are a tad bit misleading
because for example we wrote a policy on December 21 that had 123
doctors on it, but it only counted as one policy, and it represents
$1.4 million of premium. So while we -- the numbers make it appear as
if we are holding our own in terms of policyholder count, the trend
is actually up from our opinion in terms of our ability to gain
access to new accounts and our ability to win new business.
The startups are not feeling any pain yet. These are the best of
times in Florida and everybody is feasting on those times. That is
why we have folks out there who are charging some rates that are a
bit unrealistic and if they are not careful and don't judge the
turnaround appropriately, they can get hurt in the long run. But that
time has not come yet.
And as far doctors coming back into the marketplace, it just has not
happened yet. We are probably beginning to see the very start of that
occurring, but it is not occurring in any numbers sufficient to say
it is a trend at this point.
DAVID LEWIS: That's helpful. Bob, if we look at your policy counts
versus doctor counts, would you say the doctor counts are clearly up
on a year-over-year basis?
BOB WHITE: If you look at the number of doctors we're servicing,
which we don't really have an official number for, that is up. We
quoted this policy in a way that would have counted as 123 doctors.
They wanted it formed in a particular way that was good for them and
good for us, so it counts as one policy in the policyholder count,
but it is 123 doctors.
DAVID LEWIS: That's helpful. Chuck, a couple questions for you. If we
look at the excess capital levels, you're writing 0.7 to 1.0. You can
clearly write up to at least 1 to 1, maybe a little higher than that
with your current ratings. Would you -- can you give us an idea what
kind of cash you have at the holding company, if you have any
thoughts on what dividend levels you might be able to upstream to the
holding company?
CHUCK DIVITA: Sure. Well, At the holding company we have over $20
million of cash currently, or at least as of 12/31, and our dividend
capacity from the insurance subsidiaries without additional approval
for 2008 is $48.2 million. So we have substantial resources available
to us to do what we want to on the capital management front.
DAVID LEWIS: Okay. So we've got that as well -- now that dividend
capacity really doesn't take into bear the very high level of -- or
actually, low level of net written to surplus, does it?
CHUCK DIVITA: No, it does not take that into account. It is really a
function of what your profitability and surplus levels are at the end
of '07. If you do the math on the number that you quoted, the 1 to 1
versus where we are writing, about $80 million.
DAVID LEWIS: And that would be $80 million plus the dividend capacity
plus the $20 million at the holding company, though, correct?
CHUCK DIVITA: Well, the $80 million -- the $48.2 million is part of
the $80 million.
DAVID LEWIS: All right. Chuck, maybe give us an update on your muni
portfolio. What percentage of that is of the total portfolio and what
percent is maybe tied to the monoline insurers?
CHUCK DIVITA: In terms of our overall cash investment portfolio, it's
around 44% of the total. And municipal securities that have no
underlying rating, that are wrapped by a monoline insurer, are less
than 2% of the portfolio.
DAVID LEWIS: Less than 2% are not wrapped?
CHUCK DIVITA: Are wrapped that have no underlying rating.
DAVID LEWIS: Got you, thanks very much.
OPERATOR: Amit Kumar.
AMIT KUMAR, ANALYST, FOX-PITT, KELTON: I guess just going back to the
rate decrease number of 8.5%, if I look at '08, I take that number, I
look at the policyholders retention. Would it be fair to say that the
top line might be down close to 11% to maybe 14%? Is that the right
way to look at it?
JOHN BYERS: Let me just answer it and then I'll turn it over to Chuck
to answer. This is John. I guess if you just take -- if you assume
the 95% retention and we don't pick up new business, and you look at
that rate, I think that would give you a rough estimate of it. I
think what it doesn't take account is what we might do in terms of
new business.
Chuck, would you like to add to that?
CHUCK DIVITA: Yes, I would agree with that. I mean, obviously, we
have had excellent retention and we hope to sustain that. But as Bob
said and John touched on as well, we feel good about where we are on
the new business front. So I can't -- we'll see where it goes, but we
clearly like what we're seeing in that area.
AMIT KUMAR: When you say new business, are you talking about
expansion in Florida itself, or is it some other states?
JOHN BYERS: Well, I think it's both. Certainly every time that we
look for opportunities, we look at Florida and certainly we tend to
see opportunities here pretty consistently because of our market
position, our knowledge of the market and our strong relations we
have here. We certainly look at Florida as a place for opportunities
and we continue to see opportunities here. We see opportunities in
some of the other states that we are currently in. Arkansas is a good
example of that. Then we do look at selected new markets, so it is
really all of the above.
AMIT KUMAR: What about insurance management?
JOHN BYERS: That initiative is progressing. We are very disciplined
with it, as we are with everything. As we've reported, we have picked
up some business there. We are still seeing opportunities there. You
know, the opportunities we see are currently in other programs. They
roll off at different times. I think you take that together with our
inherent discipline and the fact that you put these programs together
appropriately takes some time to do, we've started to grow. We are
still seeing opportunities and we are very comparable where it is.
But we will certainly work in 2008 to continue to grow that program.
AMIT KUMAR: That's helpful. And I guess if I look at the expense
ratio, I think as we go ahead, maybe a point or two perhaps of
deterioration would be likely, right?
JOHN BYERS: I think that's reasonable. We ended -- we were around 21%
for the year excluding the (inaudible) assessment for the quarter. I
think it will have some pressure because of earned premiums but we
are very efficient and for example at the end of 2007, we had 11%
fewer employees than we had at the end of 2006, so we continue to
focus on efficiencies and I think we will do well in that regard. But
clearly the level of earned premiums is going to be a driver.
AMIT KUMAR: Got it. I guess going back and summing it up, combined
ratio if you ex out the reserve releases, I think the underlying
number was close to 82% and just looking at the numbers in the press
release and sort of reconciling it, would it be fair to say that
perhaps the underlying number for '08 might be closer to 84%? Is that
a good number?
CHUCK DIVITA: I think the thing I would point out there is if you
just look at the current year combined ratio, meaning taking out
prior year reserve releases, the PRI gain, we are around 89% for the
year. We were 87%, 88% the prior year. Obviously with what we've seen
with reserves and the actions taken we feel very good about the
pricing we're achieving and what our margins are. So I think heading
into 2008 I feel comfortable that we're going to be able to achieve
those very good margins on a current year basis. Beyond that in terms
of the impact of favorable prior year development, as I said before,
we will just have to see where that goes.
AMIT KUMAR: That's helpful. And then just final question, and
obviously claims trends are what they are and I know and some other
companies have talked about either reducing their staff or
reassigning them. What is -- what should we expect in terms of 2008
for you?
JOHN BYERS: This is John. As Chuck said, we are very efficient and we
are a very efficient operator. I mean if you look at our premium
levels, I think we only have 141 employees in all right now, so you
can see we're quite efficient relative to what most companies are in
terms of our levels of employees. And we have had some reductions
last year and I think that is appropriate. Really came throughout the
organization. We will just have to see where that goes.
We're not going to be foolish about it because I think we --
certainly if you look at those claims counts that we have open at the
end of the year, they've gone down 14%. They went down the year
before that and we're not going to go out and reduce our claims staff
or our underwriting staff right away for that sort of thing. We'll
look at it over time. We will assess each situation on its own and be
what we believe is appropriately efficient. But we are not -- I don't
see us making a wholesale cut there. It is just we will look at it on
a case-by-case basis and if there's opportunity to be more efficient
we will.
AMIT KUMAR: That is helpful. And one -- one final question if I may,
I guess just going back to the excess capital number and if I look at
the buyback, based on where the stock is trading at and I guess based
on how much is remaining, would it be fair to say that we should
expect a reload of the buyback?
CHUCK DIVITA: Yes, I think you should expect us to reload the
buyback. In terms of what we will do if the conditions are favorable
for additional buybacks, we will do them based on where our share
price is, what we see the outlook for our business going forward, and
what our capital needs are. If all of those are aligned, we will
continue to do buybacks. Just the reason I say I think you could
expect us to, as you say, reload it is simply because we're down to I
think 234,000 or thereabouts on our current authorization and it
would seem to me that we would go ahead almost under any
circumstances to get some additional share.
AMIT KUMAR: Got it, that there he helpful. That is all for now.
Thanks again and congrats on the quarter.
OPERATOR: Ron Bobman.
RON BOBMAN, ANALYST, CAPITAL RETURNS ADVISORS: Good morning,
gentlemen. Congrats. Bob White mentioned some unusual pricing action
from some startups. I'm wondering if Bob could just described -- are
these sort of a new wave of startups that have come to the market
like in the last six months or are they sort of the same actors that
have a little longer life to them? Also are they from the
doctor-sponsored mutual or co-op type startups? Or are they other
types of entity? That was my first question.
JOHN BYERS: Ron, there hadn't been a new startup in Florida since
2005 in terms of the folks I am talking about. They are of the same
cadre that got its start between 2003 and 2005. Really that is all
they have to sell folks is the low price. They are untested. They are
untried for the most part. They are undercapitalized for the most
part in the sense of having the resources it takes to try a case in
an environment like Florida and they would be risking the farm to try
any cases essentially. So that is who I was referring to.
RON BOBMAN: What is the risk, Bob, of a firm like that with obviously
less capital but maybe more importantly less experience defending a
case through the courts, doing it poorly, and sort of God forbid,
sort of the poor management of the case and the poor representation
leads to the state reforms being overruled, the constitutional
standing of the reforms being overturned? There would there be a sort
of correlation there, wouldn't it? They are less likely to do a good
job defending what may be a case of great import to the entire
Florida market?
BOB WHITE: I think they are all fairly capable. They don't have the
resources we have in terms of the personnel. They don't have the
balance sheet strength it takes to try the average Florida case. I
mean, taking the wrong case to trial for them could be a death
sentence if the case were to go badly. And it could be well defended.
That's the problem in Florida that we have to deal with on a
day-to-day basis. It could be well defended and you could have very,
very great confidence in your ability to win the case. But for some
reason you have missed something with that jury panel and that just
wasn't the right jury panel.
We frequently have cases that we would like to settle and we offer
money on but the plaintiff's lawyer wants to take a flyer over the
client that they represent, wants to take a flyer with the jury. And
even when you are dealing in a situation like that, there's a lot of
risk for the company. So they are at great risk in trying cases and a
lot of insureds realize what they are buying is truly a promise to
pay in the future. And they look at balance sheet strength. That's
one of the reasons our retention is so high. It is great service. It
is high-quality that we offer, but we also have the balance sheet
strength to backup our promise to be here to pay in three or five
years from the time they give us their money.
RON BOBMAN: Yes, I understand that, but it is unclear. You are not
particularly concerned with their having a lesser ability to manage a
case through the court system and it having a -- and the result in
the court system having an adverse impact on the entire industry
anymore than a sizable, more like firm like yourself.
JOHN BYERS: Ron, this is John. It seems to me if I understand your
question, the reality of it is if a case -- let's say a case that the
(inaudible), that was an appropriate one to appeal and to take up. If
we get to that point that that case comes along, once you get to the
appellate process, certainly at the point it got to the Florida
Supreme Court, it would be much more than just that company defending
that case in the sense of you would see people enter that and file
briefs in that case. Certainly all the major business groups here in
Florida, the insurance groups as well as probably us ourselves would
be involved in that case at that point to make sure that all the
appropriate things were said at the court level and we would file
briefs on that.
So it would not be on our own. We would not let it go with that. If
that is in fact what you are saying?
RON BOBMAN: Thanks a lot for that help. I had a question about
competitive rate filing. Of late without necessarily giving me the
name of who it is, but sort of any noteworthy rate filings pending
and/or approved of late that are significant in their size?
JOHN BYERS: Go ahead, Bob.
BOB WHITE: The one we just saw recently that has an April 1 effective
date was a 13.4% decrease and that follows on the heels of this
company filing for a 15.8% rate decrease in March of '07. So the
compound effect of that is pretty significant. Certainly out in front
of where we are.
JOHN BYERS: That's is one of the established carriers here in Florida
and I think another one of the established carriers if I remember
correctly, Bob, took a 12% decrease as of February 1 as well.
BOB WHITE: Yes, that's true.
JOHN BYERS: So what we're seeing is the established carriers with us
are certainly taking rate decreases, you know, in line but slightly
ahead of what we are taking, as Bob said.
RON BOBMAN: Thanks, guys. Good luck and I hope it continues.
OPERATOR: Amit Kumar.
AMIT KUMAR: Maybe just going back to Ron's question and those rate
decreases you mentioned, I was going to write them down. I think you
mentioned, what 13.4% from med pro and what is it -- like 12% for
PRA? Is that right?
JOHN BYERS: No, since you've mentioned the names, I'll go ahead and
say them, but, the 13.4 was Pro Assurance.
AMIT KUMAR: I'm sorry, okay.
JOHN BYERS: That is their overall rate decrease. That does not take
into account any sort of (inaudible). That was their rate filing.
[Mag Mutual] was the 12%.
AMIT KUMAR: Okay, that's helpful. Maybe just to -- you know we're
talking about the code system here and a lot of your peers have
talked about shock losses and I think some of them do an excellent
job in giving us more color on that. I was wondering, you know, as
you look back at 2007, what sort of shock losses did you see? Maybe
you could compare that to perhaps what did they eventually settle at?
JOHN BYERS: Okay, let us hit this question in two parts. Let me make
a couple of comments and then we'll turn it over to Bob and talk
about specific losses. Whether they are shock losses or just large
verdicts, I will let Bob touch on that. But what we're seeing there
in terms of excess verdicts, let me just say excess verdicts have
been a part of the Florida landscape for a long, long time. Certainly
with the policy limits seeing low and having come down over the last
few years, you would expect it is easy to have an excess verdict when
you have $250,000 policy.
Those aren't new in Florida. We have been here for over 30 years. Our
claims people average 26 years of Florida experience, so that is part
of the landscape. We believe we are best equipped in Florida to deal
with those issues and dealt with them as I said for many years. To
some extent, everybody who does business in Florida from time to time
will have them. We know that we contemplate them in our reserves. We
have some reinsurance coverage that helps us address that.
So we see it as really part of doing business in Florida and I
suspect that the commentary you get from other companies is based on
their experience. All we can give is commentary on our experience.
Bob, do you want comment further on that?
BOB WHITE: I'd be happy to, John. Amit, the reason you don't hear us
talk about them is because I'll tell you the three biggest verdicts
we took in 2007. One was $6.5 million. It was lowered by the trial
judge on a post trial motion to $5 million. It is still pending and
on appeal. There was a $6.2 million verdict that settled with that
verdict was in October. The case was settled just recently. I don't
want to talk about the amount, but it was somewhere in the
neighborhood of 50% to two-thirds of what the verdict was.
And the next largest verdict after that was $2.1 million. Beyond
that, there was nothing more than $1.2 million and that is the full
extent of our adverse trial results that were noteworthy in 2007.
JOHN BYERS: I would just say I would add that none of those were
shocks. I mean, that goes to what I was saying before. From our
perspective, we expect in Florida, we understand the risks in
Florida. We try many more cases in Florida than anyone else does
because we have such a such a larger market share here. It is an
issue in Florida, excess verdicts, but it is one that can be dealt
with. We deal with it.
I think if you went back on average over many years, you would see
that you are going to have one or two of those a year certainly when
you try the number of cases we have although we tend not to have many
of them and it is part of doing business here. It is for us it's a
competitive advantage because overall I think it means our results
are better than the market in general because of -- again, we've been
here 30 years. We focus so much here and our claims people average 26
years of experience.
AMIT KUMAR: That is extremely helpful. Maybe just sort of summarizing
that, I might have missed this in the opening remarks, but did you
disclose the actual claim count and how many you might have taken to
a jury verdict?
JOHN BYERS: Chuck, you've got those numbers.
CHUCK DIVITA: We have the open claims and incidents. We haven't
disclosed how many we take to trial or what the verdicts were.
AMIT KUMAR: Okay, I'm sorry. What is the number again? What is the
open claims number?
JOHN BYERS: It was down 14%.
CHUCK DIVITA: Yes, it is 3342 open claims and incidents at year end.
JOHN BYERS: Do the comparatives.
CHUCK DIVITA: Down 14% from 2006.
JOHN BYERS: And down about 35% from its peak at the end of December
2003.
AMIT KUMAR: December '03, this is extremely helpful. Thanks so much.
OPERATOR: Since there are no further questions, I'll turn our call
back over to John for his closing remarks.
JOHN BYERS: Thank you. In closing, we are gratified by our continued
progress and strong results in 2007 and over the past several years.
As I said earlier, these accomplishments are a tribute to the
dedication and abilities of our management team, staff, and Board,
and reflect the consistent application of our business strategies,
which have brought us to this point and will continue to serve us
well in the future.
Looking ahead, we are confident we are well-positioned to build on
our successes in that one, we offer products and services with which
we have deep expertise. Two, we have strong capital and market
positions. Three, we have competitive advantages in our core markets
resulting from our significant expertise, relationships, and market
positions, and we are well-positioned to take advantage of growth
opportunities and that make sense for us.
Lastly and most importantly, we have a management team, staff, and
Board committed to providing the best possible products and services
to our customers and to enhancing shareholder value.
With that, we will close the call. As always, thank you for your
continued support and we look forward to speaking with you on our
next call.
OPERATOR: Our conference will be available for replay beginning at
2:30 PM today and will run through Thursday, March 6. Callers in the
U.S. and Canada may access the replay by dialing 800-642-1687 and
international callers may dial 706-645-9291. The access code for both
U.S. and international callers is 33072695. A replay of the
conference call webcast will also be available on our corporate
website, fpic.com, beginning at 1:00 PM today.
That concludes our call for today. Thank you for joining us. We hope
you'll join us again next quarter. You may now disconnect.
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