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Federated National Holding (NASDAQ:FNHC)
Q1 2019 Earnings Call
May. 08, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning and welcome to the FedNat Holding Company's first-quarter 2019 financial results conference call. My name is Bella, and I will be your operator today. Please note that today's call is being recorded. [Operator instructions] Statements in this conference call that are not historical facts are forward-looking statements.

Words such as anticipate, believe, budget, contemplate, continue, could, envision, estimate, expect, guidance, indicate, intend, may, might, plan, possibly, potential, predict, probably, pro forma, project, seek, should, target or will 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 Holding Company specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, future events or circumstances or otherwise.

Now at this time, I would like to turn the conference over to Mr. Michael Braun, chief executive officer and president of FedNat Holding Company. Please go ahead, sir.

Michael Braun -- Chief Executive Officer and President

Thank you. Good morning and welcome to our first-quarter earnings call. With me this morning is Ron Jordan, our chief financial officer; and Erick Fernandez, our chief accounting officer. I will provide an overview of the quarter's performance and then Ron will give some additional financial details.

We entered 2019 with positive momentum coming off a transformative year for FedNat with increased earnings as a result of our focused strategy and driving profitable growth in our core homeowners business. We became much leaner and significantly reduced our overall cost structure to scale our business and build shareholder value. Our fundamental momentum continued in Q1 with strong underlying performance. But our reported results were disappointing, due to an unusual large hail storm that impacted Brevard County on Florida's east coast late in the quarter.

To date, we have serviced over 700 hail claims and have recorded a gross ultimate loss estimate of $20.5 million, which translates to $18.7 million net of our quota share reinsurance program. Brevard County is an area of Florida that we have intentionally targeted over the years, as we have diversified our business away from South Florida. It is in fact FedNat's fifth largest county in the state driven with almost a 10% market share that we enjoy. The unusual nature and intensity of this weather events, which was the worst hail event we've ever experienced at FedNat, has resulted in an estimated severity and a number of claims that has significantly increased for us over the short 6 weeks, since the event occurred.

Most importantly, relative to our primary mission, I am pleased to state that once again we have dispatched the appropriate resources to quickly provide quality service to our policyholders and to our trusted agents. We are there for them in their time of need and work very hard to live up to the excellent reputation that we enjoy. Despite the weather related event, we are off to a good start for the year. I will share the great progress we are making on our growth objectives, particularly in our geographic diversification strategy, which includes the Maison acquisition announced during the quarter.

I'll provide a brief overview of our financial results, and then Ron will give you a more detailed review. In keeping with our mandate to provide our investment community with a high level of transparency, we itemize in our news release the non-reoccurring items that impacted GAAP earnings in the quarter. Ron will comment further on the non-GAAP measures we introduced in the quarter. We continue to benefit from the decision to wind down auto and commercial general liability, our noncore business lines, which were a drag on earnings again in the quarter.

We also captured additional savings of approximately $7.5 million in the quarter from our reinsurance program that originated last July, due to our prudent exposure management, which has protected capital and helped us manage risk responsibly. Overall, our net expense ratio improved by more than 500 basis points to 38.9% from 44.2% year-over-year, driven in part by the benefit of the reinsurance save on net earned premiums. Net premiums earned grew to $88.8 million compared to $82.1 million in last year's first quarter, driven by strong performance in our core homeowners business in which premiums increased 13%. We had $19 million in weather-related losses in the quarter with all but $300,000 coming from the Brevard hailstorm.

We reported a loss of $3.9 million or a loss of $0.30 per share. Total revenue was $101.2 million for the quarter, including $2.3 million in unrealized investment gains. We are continuing to execute well and taking a disciplined approach in our home market of Florida while diversifying our book and overall risk profile by growing more quickly in neighboring coastal states. In Florida, the market remains competitive and fragmented and we are continuing to be prudent.

We continue to diligently grow share and take advantage of the large opportunity in our non-Florida business. Gross written premiums were up 75%, led by Texas, the second largest state in the U.S., which tripled premiums to over $10 million while doubling gross premiums earned to over $4 million compared to last year's quarter. We continue to target Tier 1 and Tier 2 coastal counties, especially in and around the Houston area. Two weeks ago, the Florida market received very welcome news with the passage of legislation to reform AOB, assignment of benefits.

We would like to thank the state legislators plus Florida's Chief Financial Officer Jimmy Patronis and Insurance Commissioner David Altmaier for the diligent work and support on the issue for the last few years. This is a very big win for all policyholders in the State of Florida and it will help eliminate AOB abuse by an unscrupulous subset of vendors and attorneys that have gamed the system to align their own pockets at the expense of homeowners across the state. The long overdue reform will lead to increased competition among insurance carriers, lower premiums for homeowners and lower cost to insurers and catastrophe reinsurers. It will ultimately restore rational pricing to the market and the handling of claims.

For our shareholders, I believe we will see our improved financial results as we will be better able to contain plaintiff's legal expenses that we have to pay under the assignment of benefits. I should caution everyone that until the new rules go into effect on or before July 1, we have seen and continue to see an increase in the AOB activity as AOB plaintiff's look to get claims in under the wire. But in the big picture, it's a watershed moment for Florida homeowners and I think -- I share the sentiment of all our peers when I say, we are excited to finally be moving forward. AOB has been a major disruption in the Florida market, one that we face since 2016.

To date, we've been able to soften the financial impact through improved underwriting and claims management, market education effort and rate increases. New rate increase of 4.6% went into effect on April 20th and will have a positive impact on our financial performance starting in the second quarter. The better rates, combined with a more rational environment, bode well for the future of FedNat. Outside of Florida, we continue to make great strides in executing our diversification strategy in Texas, South Carolina, Louisiana and Alabama.

We continue to penetrate these neighboring coastal markets and grow share in these states, which offer a great opportunity for continued strong growth. Non-Florida gross premiums earned increased by over $7.5 million or 55% from last year's first quarter. Following the anticipated close of Maison's acquisition, almost 30% of our homeowners book will be outside of Florida. The Maison acquisition is moving forward as scheduled and is expected to close before June 30th, though obviously subject to continued regulatory review.

It's a great fit for both -- FedNat from both an operating and financial perspective. It's a bolton deal that is approximately 15% the size of our company and increases our market share in Louisiana and Texas, markets that we know well and are eager to facilitate additional growth. The addition of Maison should be immediately accretive to earnings, and we'll provide necessary scale will help drive strong financial performance. And finally, we are operating more efficiently and continuing to invest in and use the latest technology to become ever more productive, as we continue to look to manage staff as part of our overall cost reduction plan.

In the quarter, we again lowered our net combined ratio, excluding the 21-point impact on the Brevard hailstorm to approximately 93% from the 100% in last year's first quarter. I will now turn the call over to Ron for a closer look at our financial results. Ron?

Ron Jordan -- Chief Financial Officer

Thank you, Mike and welcome again everyone to our Q1 earnings call. As Mike mentioned, in the first quarter, a single unusual hailstorm impacted what was otherwise strong underlying core homeowners performance. In light of this continued strong performance, looking beyond Q1, we believe we're in a good position to build on the momentum we established last year. This first quarter also included several other non-recurring items.

As a result, we took the step this quarter of introducing a non-GAAP measure or two to facilitate discussion of the underlying operating fundamentals in our results. The primary one being titled adjusted operating income. We included these non-GAAP measures to provide greater transparency and a more meaningful comparison to prior year's results in a more efficient manner. Definitions of the non-GAAP measures can be found on Page 3 of our release and reconciliations from the GAAP measures to the related non-GAAP measures can be found on Page 11.

As we look ahead to closing on our acquisition of the Maison during the second quarter, we believe the non-GAAP measures will increase even more in their utility. So the non-operating items that I'm referring to in the quarter include the following; all on a pre-tax basis. $3.6 million of prepayment fees on the repayment of our old debt, including the write-off of the old debt issuance costs, $700,000 of non-recurring expenses primarily related to the Maison acquisition, and on the plus side $2.3 million of unrealized investment portfolio gains. After tax, these items result in our adjusted operating income loss coming in approximately $1.5 million favorable to GAAP net income.

As Mike mentioned, the quarter's results include $19 million of weather-related losses, including $18.7 million from the Brevard County hailstorm. The bottom line impact of this storm was $14 million or $1.09 per share. As a result, we reported a loss in the quarter of $0.30 per diluted share with an adjusted operating loss of $0.19. Excluding the Brevard storm, our adjusted operating income would have been approximately $11.6 million or $0.90 per share, which represents an annualized ROE of over 23%.

Adjusted operating revenue, our other non-GAAP measure is defined as total revenues adjusted to exclude the $2.3 million in unrealized gains from the investment portfolio, and that figure was $98.9 million in the quarter, up 5.1% versus 1Q '18 with growth of over 12% in our homeowners line of business. Our net loss ratio was 75% in the quarter compared with 79% in the preceding quarter and 56% in last year's first quarter. As I mentioned, the Brevard storm added 21 points, otherwise, the net loss ratio would have come in at 54%, a number we feel good about and two points lower than 1Q '18, which was a very clean quarter with no severe weather. This 54% ex-Brevard storm loss ratio is flat with where the net loss ratio came in during 4Q backing out the impact of Hurricane Michael.

As you may recall, 1Q is typically a seasonally lower quarter for us in terms of loss experience. So let me hasten to say that the flat ex-storm loss ratio in 1Q19 versus the fourth quarter of '18 is not indicative of worse than usual claims experience in the first quarter of '19, rather we have applied a stronger initial loss ratio pick to the current accident quarter within the reasonable range of losses with more of an eye toward our full-year loss ratio expectation than we have applied in the past. I think this is an important point to bear in mind as one evaluates our results for the quarter and the earnings quality thereof. Our first-quarter '19 net expense ratio was flat with 2018's fourth quarter at 38.9%, both of which were down significantly from last year's first-quarter expense ratio of over 44%.

I'll start my brief review of the lines of business with homeowners, our core business. As GAAP net loss and adjusted operating loss were essentially the same at $1.4 million for the quarter, excluding the Brevard storm impact, homeowners would have made $12.6 million. Gross written premiums were down approximately 4% in Florida and up roughly 75% in our non-Florida book, reflecting our disciplined diversification strategy and representing an overall increase of over 5% for the homeowners line of business. The homeowners combined ratio, ex-Brevard, was 88% compared to 96% in first-quarter '18, reflecting lower cat reinsurance spend and rate increases.

We recorded favorable prior year development in homeowners of approximately $1.6 million in the quarter. Auto and commercial general liability written and earned premiums declined as planned. Gross written premiums were 0 for both lines of business. Net earned premiums in auto were essentially 0, $5,000 to be precise and CGL net earned premiums were approximately $1 million as we continue to wind down.

We have approximately $750,000 of CGL unearned premium reserves left, the last of which will earn out during the third quarter. In auto, we continue to resolve open claims and has significantly reduced claims inventory. On the bottom line, auto resulted in a loss of $700,000, which was driven by $600,000 of adverse prior year reserve development. The other line of business had an adjusted operating loss of approximately $300,000 driven by $1.7 million of prior year development in the commercial general line of business.

That roughly offset the favorable prior year development in homeowners, such that the $600,000 of auto development is essentially what fell to the bottom line. Net investment income increased to $3.7 million in the quarter, up versus 1Q and 4Q of '18 due to rising interest rates and portfolio repositioning, and now represents an almost $15 million pre-tax contribution to our earnings on an annualized basis. Investment gains, which we exclude from our non-GAAP measures were $2.3 million driven by strong equity market performance in the quarter. I'll now turn briefly to the balance sheet.

In March, we put financing in place for our pending acquisition of Maison and further secured our long-term capital position in the process. Long-term debt stands at $98.4 million at the end of the first quarter. Interest expense in 1Q19 includes the prepayment expenses related to the refinancing, as already detailed. Via that transaction, we lowered our average cost of borrowing by over 170 basis points.

Go forward interest expense will be approximately $1.9 million per quarter representing the coupon on the new debt plus a little bit of debt issuance cost amortization. Book value per share rose roughly 1% from December 31 to $16.98 per share despite the $1.09 per share impact of the Brevard storm due to unrealized gains on our fixed income portfolio, which were driven by declining interest rates in the first quarter. Our investment portfolio remain short term with a duration of 4.1 and highly rated a composite S&P A minus with a total carrying value of $469 million. We ended the first quarter with $101 million of cash on hand and non-insurance company liquidity of approximately $96 million, both of which are elevated in the interim period leading up to the closing of the Maison acquisition.

We were not active with our stock repurchase plan in the quarter due to activities involving Maison. In conclusion, the Brevard storm put quite a damper on our first-quarter results. However, the underlying fundamentals in our core business continued to improve in the quarter. We believe we are in a great position to deliver healthy profitability in 2019.

Our go-forward results will benefit from the 4.6% Florida state wide average rate increase that kicked in on April 20th on top of rate increases from prior years. We also anticipate relief in the second half of 2019 from the AOB headwinds that have challenged our Florida book for the past several years. Our non-Florida coastal states business continues to show strong growth and will benefit from the scale, synergies and accretion of Maison starting in the third quarter. The earnings drag from both auto and CGL will continue to diminish as we progress through the year.

And finally, we are better structured to leverage operations due to our 2018 staffing reductions and continued investment in technology to drive productivity. So with that, I will turn the call back over to Mike.

Michael Braun -- Chief Executive Officer and President

All right. Thank you, Ron. Operator, we're ready for questions. If you can open up the line?

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Doug Ruth from Lenox. Your line is open.

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

Mike, I appreciate the -- and Ron, appreciate the reduction in the expense ratio. Could you talk a little bit about what you're seeing with reinsurance and what you think might happen with that?

Michael Braun -- Chief Executive Officer and President

Yes. Good morning, Doug. Yes, reinsurance is obviously a hot topic. Our company in the last three years have had over $1 billion in cat losses and our reinsurance partners are a big part of that. So they experienced a lot of that pain.

They've also felt the pain in other parts of the country, the wildfires in California and so on. So there's clearly pressure on reinsurance pricing. It's well documented and I believe that they are holding firm that they're going to want an increase for the cost of their capital. So, we're under way with our reinsurance conversations.

I anticipate that we'll have a lot of movement here in the next two, three, four weeks, but pricing is under pressure and we do expect that it will increase.

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

OK. And then is there -- are there any hurdles? Do you feel that you need to overcome for the Maison acquisition to happen or is it -- do we need something from the Florida OIR or what do we need to know that this is going? And is there any tangible things that you can give us since you last updated us?

Michael Braun -- Chief Executive Officer and President

Yes. We have obviously completed all the paperwork and everything resides with the regulators, both in Florida and Louisiana, and we are currently licensed in our own business in both of those states. So I have no reason to be concerned on either of those states, conducting a thorough review and I think that we should be able to close this in the second quarter. We're very hopeful for that, whether it's in the middle of June or shortly thereafter.

But I have no reason to be concerned. It's just a formality and the state does a thorough review and analysis and that process is well under way. We do continue to talk among our management team and make the plans to facilitate the integration. They have a staff of about 10% of our staff.

Their premium is about 15% of our premium. We are very comfortable with the integration of how this will occur. And I think that it -- once again, these are two states, the regulators that we're already dealing with. Their business that we're interested in is Louisiana and Texas primarily, once again two states that we're in.

So it's a relatively small acquisition. It's same states, no new lines of business. There's a lot of work to be done, but we feel good where we're at in the process.

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

And then also sort of on a related matter, how do you feel about -- once the acquisition is completed, how do you feel about the reinsurance save between the two combined companies?

Michael Braun -- Chief Executive Officer and President

There is clearly some overlap in terms of our exposure, meaning that they have exposure in Florida, Texas and Louisiana, as do we. So there's a lot of moving pieces to that Doug that we're working through, as we speak, but we believe that there is value there. And as we've stated in the past, we believe there are synergies on the reinsurance programs. But once again, there is pressure on reinsurance pricing, more so on the Florida exposed business than the non-Florida, so we're going through that process as we speak.

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

OK. Well, thank you for the reduction in the expense ratio and we're looking for a further improvement throughout 2019. And I appreciate you answering my questions.

Operator

Your next question comes from the line of Marcos Holanda with Raymond James. Your line is open.

Marcos Holanda -- Raymond James -- Analyst

Hi. Good morning. Let me ask you, start off with a question on the underlying combined ratio, Mike and what we're seeing from some of your close competitors, most of them reported deteriorating results. And understand the five points of the improvement was doing -- was from the expense ratio, and I'm assuming the reinsurance cost saves.

But if you can just give us some more color there, because I think there's two points in addition to that improvement. So, any color there would be great, Mike.

Michael Braun -- Chief Executive Officer and President

Yes. In terms of where we're at, I mean, we continue -- the driver obviously in our business is cat costs, the reinsurance costs and so on. So we've really attacked that over the last few years, and to refresh everyone's memory on that, the cat costs have been favorable for the last three or four years, and now we're entering a new phase. But at the same time, our attritional losses have been under significant pressure.

So over the last three years, we've dropped well in excess of 40,000 policies in the State of Florida. We've dropped $20 billion of exposure, and yet our premiums in Florida only dropped about $10 million. So let me say that that AOB absolutely impacted our attritional losses and it impacted our desire and appetite to write business in Florida, and therefore, a lot of policies have been non-renewed. And we just haven't been writing as much new business and that has driven savings in our attritional losses as well as savings in our cat.

Now with the recent passage of AOB reform, which is yet to be signed by the Governor, I think that changes our reliance on Florida. I think that it's going to increase people, their appetite to write Florida business. There's a lot to be worked out. And we have to see how this all plays out.

But Barry Gilway, who runs Citizens, which is the state entity, has indicated that he sees their rates dropping anywhere from 10% to 25%, but on average 15% across the state. These are his numbers. We're extremely encouraged with what we're seeing on this AOB reform. It doesn't cure and fix everything, but it's a big step in the right direction.

So I think that you're going to see our attritional losses improve on a go-forward basis, which will increase our appetite, and quite honestly with the reinsurance costs, clearly going to be -- going up, we believe we have our rates can support that. And once again, that will be taking -- this AOB reform will be taking pressure off our attritional side, which will help shoulder some of that responsibility on the reinsurance side. Clearly there's a lot more work to be done in that regard and we'll monitor our rates.

Ron Jordan -- Chief Financial Officer

Yeah, I guess, I would just add on. We talked a lot last year about the reductions in our overall staffing, that's a meaningful item in terms of the combined ratio, I think like about a $5 million, $6 million a year run rate in terms of those staffing reductions. Also just the mix of our business as we shift more toward non-Florida, as Mike mentioned, with the Maison transaction, will be up to almost 30% non-Florida beginning in the third quarter and that will tend to pull down our blended core loss ratio as well.

Marcos Holanda -- Raymond James -- Analyst

Got it. Thanks for that. And then just on the reinsurance savings, $7.5 million in the quarter, we still have one more quarter for this to flow through right? Should we be looking at $7.5 million for the second quarter of this year?

Michael Braun -- Chief Executive Officer and President

Yes. So Marcos, to bring it back to you, last July, our reinsurance spend dropped from 180 to 150, $180 million to $150 million, so that was a savings of $30 million, so, yes that's allocated over the four quarters. I would tell you that our reinsurance spend in a flat world, would be going down, a lot this year. Our Florida exposure since last year is down probably another 11%.

So once again, with -- in a flat world, that $150 million would be going down, I would say, perhaps by $10 million, $15 million additional. Now, let me clarify. There's two pieces to that. Our non-Florida book is growing.

So that will impact that, and once again reinsurance pricing is going up. But our reinsurance cost, as a percentage of premium is approximately 30%. There's talk at the market -- we don't know where the market is going to go, but let's just give you some examples. If it goes up 5%, that's 1.5 points, if it goes up 10%, it's three points, 15 points is 4.5 points, 20 points is six points.

So my point is, the pressure that we are going to experience on this renewal, I believe to be manageable and I believe we're well situated with our reinsurance partners. We've got a robust panel and we -- once again 75-plus reinsurers, but there is pricing and these folks need to have a return on their capital and we respect that and we have a long trading relationship and partnership with them. So we think we're in good shape for our renewal.

Marcos Holanda -- Raymond James -- Analyst

OK. And then just finally, Mike, if you could comment on what you've seen so far here in the second quarter. I think this is one of the big non-cat loss quarters, how is losses shaping up so far here going into the second quarter?

Michael Braun -- Chief Executive Officer and President

We have no information at this point, that's adverse. So the second quarter, we feel pretty good. Once again, I think Q1 would have been a real strong had it not been for Brevard, and I understand the limitations of that statement because once -- you can always exclude bad things from your book and say how great you are. I get the limitations of that statement.

This was a very big event. We like Brevard. We've been in Brevard for many years. We have about 10% of that market and I do believe that Brevard is going to have pressure on it because people are going to be getting in under the wire.

These contractors, these vendors, the attorney that really facilitated AOB has went and put out a new video out there online that is encouraging everyone to game the system up until the very last minute, and the great work of the CFO of the state, he's identified that and they're trying to remedy that and resolve it and incorporate AOB before July 1. So it's -- once again, I think we're set up for success on a go-forward basis. Our book is performing, our core business of homeowners in Florida and homeowners in non-Florida were very pleased with it.

Marcos Holanda -- Raymond James -- Analyst

Thank you for your insight, guys.

Operator

Your next question comes from the line of Christopher Campbell with KBW. Your line is open.

Christopher Campbell -- KBW -- Analyst

Good morning, gentlemen. I guess, just starting off on loss creep, I guess, what are the latest gross Irma and Michael losses for you guys?

Michael Braun -- Chief Executive Officer and President

Yes. Those are big events. So Irma, we're looking at gross, a big number of $785 million, and I will tell you that is a direct correlation with AOB. So let me clarify.

Irma impacted most, every county in the state experienced wind and these vendors are out there in force, knocking on doors, were continuing to this day, 18 months plus out of getting 90 new, what we call, FNOL, first notice of loss. We're still getting about 90 losses new per week. It's massive, and that's a direct result, in my opinion, of AOB. Michael is up to [ $404 million ] that's -- have some development on it.

Once again, those vendors are up there -- the AOB is a big part of it. So those two storms were big and AOB has really amplified those losses.

Christopher Campbell -- KBW -- Analyst

Got it. And then I guess, just as you like, if AOB reform kind of comes in, how are the reinsurer -- like how are your discussions with reinsurers going so far in terms of AOB reform? And how that could impact the upcoming reinsurance renewals?

Michael Braun -- Chief Executive Officer and President

When we visited our reinsurers, it was prior to AOB reform, and I will tell you, I personally -- the reform has exceeded my expectations. I'm impressed with the leadership of the CFO of the State as well as the Insurance Commissioner, they've really put the effort to get the situation -- to inform the legislators, and I'm proud to say, I think they did what was right for the policyholders in the State of Florida throughout. So our conversations with the reinsurers were prior to that, our formal underwriting marketing trip. However, where we are on these events, you look at industry events, Irma has moved not only massively for us, and in your document, you always illustrate the five Florida public companies.

But let me remind everybody, the entire industry has moved materially on Irma. Michael is an unusual -- not unusual, but it's different in the sense of we could -- some of the other Florida companies really have thrived on it, what we call depop business are taking policies from Citizens. Citizens is not in the Panhandle. So these folks had no exposure or minimal exposure in the Panhandle and we recognize that.

But the reinsurers understand that AOB has impacted our storm losses. And I think the reinsurers also understand how AOB is going to impact us on the attritional side and us on the cat side, but also them on the cat side. So I think it's all part of that equation. But nonetheless, there is pressure on pricing, Chris, on the reinsurance.

Christopher Campbell -- KBW -- Analyst

Got it. And then digging into a little bit of that pricing pressure, I think you had given out some numbers, and I just kind of want to think through these, is that -- I think you said, last year your reinsurance spend went from like $180 million to $150 million, is that correct?

Michael Braun -- Chief Executive Officer and President

Correct. Excessive loss approximately $180 million down to $150 million because of how we shrunk the book and tightened up underwriting and non-renewed policies. Correct.

Christopher Campbell -- KBW -- Analyst

Got it. And then -- all right. So and then you said like, all else equal, would have been down $15 million if there weren't rate increases. So that takes it down to about 90.

And so if I just bump that up to like one, right, because it sounds like you're implying, there is going to be reinsurance rate increases, right? And then I'm thinking you're going to have to pay more and just absolute ceded premiums. So that gets me to about 11% rate increase, does that sound about right?

Michael Braun -- Chief Executive Officer and President

Well, I don't want to say it that way, Chris. And what I mean by that is, there's multiple moving pieces. Our Florida book yet again has shrunk. Therefore, our reinsurance demand needs in Florida have shrunk, so that's one piece.

No. 2, and this is where it gets more complicated, our non-Florida book continues to grow. No. 3, we have a pending acquisition with Maison, that has exposure in Florida and non-Florida.

And the last is, there is pricing increase on -- coming on reinsurance, it's not -- there's no certainties in life, but I'm very confident pricing is increasing. What everyone is trying to understand is how much is it going to increase. So what I would -- what -- the way I would prefer to say it you, Chris, is roughly 30% of our premium goes to cat XOL, which is our reinsurance. If you subscribe to a 10% increase, then that could translate to a 33%, if you subscribe to a 5%, it could be a 31.5% and you can extrapolate the math from there as well.

Christopher Campbell -- KBW -- Analyst

OK. Got it. And then just, I'm thinking, you were talking about like just the reinsurance market in general, and prominent like reinsurance CEO said that like his impression is that the Florida market is kind of taking a pause right now. I guess, just from -- that's the reinsurers perspective.

I guess, how are you guys seeing it as their customer right now? Just in terms of how are these renewals shaping up versus last year, which was -- Irma was a big event back then, and then you know prior years? I guess just --

Michael Braun -- Chief Executive Officer and President

Yeah. So it's an unusual renewal. By far, the worst market ever went through was 2006 when we did that reinsurance program. And I'll say this is an unusual one where there's a lot of delay in pricing and there's a lot of gamesmanship going on.

I mean, let's be real clear. So the way I believe that they're looking at it is, some people want -- some of the reinsurers want some massive increases, others want some increases and yet there's others that are looking to grow their book and/or enter the market. There's a lot of dynamics going on, Chris. We don't know the number until we know the number, but there's a lot of dynamics going on.

And once again the pricing, the reinsurance pricing in Florida has been very soft based on traditional terms over the last decade and we recognize that our partners need to make money. We understand that. We subscribe to that. We also have a robust panel, very proud to say that, no one reinsurer is out of weight or disproportionate that can dominate our renewal pricing.

We've got a very robust panel. So I think we're well situated. What we hear from the reinsurers on our loss from Irma and Michael, no one likes that development. But what they're seeing with us is not inconsistent with the industry, and so once again, I think we're well situated.

Christopher Campbell -- KBW -- Analyst

Got it. And then just -- OK. That's all I have. Thanks for all the answers.

Best of luck in the second quarter.

Operator

We have a follow-up question from Marcos Holanda with Raymond James. Your line is open.

Marcos Holanda -- Raymond James -- Analyst

Hey guys. Just a quick final one. Just on -- I understand I got from your remarks you guys are now repurchasing share. I was just wondering if the Maison deal closes, if we could see some repurchasing at the back half of the year, especially with the stock now trading below book? And then if you could just remind me what the authorization is, that'll be great.

Michael Braun -- Chief Executive Officer and President

Yes. Marcos, it's unfortunate that our stock is where it is and we have not been in the market, because we have a pending acquisition that includes using our stock. I cannot speak for the Board, but I can tell you that my personal opinion is that, we need to utilize the capital on hand to be much more active in our buyback, and I believe that to be consistent with the Board. However, we will entertain that decision at the appropriate time.

So we do have a pending deal, and unfortunately, we've been out of the market for an extended period of time. We've been talking with the good folks over there at Maison since really last summer. So we've been out of the market for a long time. I think there's a great opportunity for us to utilize our capital.

Last December, we did have the Board authorize up to $10 million of capital specifically in a buyback. I'm anxious to deploy that capital, very anxious. There's a lot of -- we do have a committee that does that. We do meet on -- at the appropriate times to decide what terms we want to do and so on.

I'm very anxious to make that happen. Unfortunately, we're not in the market right now. And as soon as we can, I'm going to do everything possible to make it happen.

Marcos Holanda -- Raymond James -- Analyst

OK. Great. Thank you. 

Operator

We have another follow-up question from Doug Ruth of Lenox Financial. Your line is open.

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

Hi, Mike. Would there be an opportunity once the governor signs the legislation that you could issue a policy that cannot have AOB attached to it?

Michael Braun -- Chief Executive Officer and President

Yeah, Doug, it's a great question. There's a lot of pieces to the AOB and reform. Number one, there's a lot of protection now that will help the consumer, no matter what company they're with, no matter what the situation is, these consumers have been taken advantage of by a small subset of unscrupulous folks, they absolutely have been, and obviously that's led to us paying inflated claims, the whole industry, and that reform is coming through. So there's a lot of pieces to it.

But once again, let me stress, there's lot of protections for the consumer, who is not always the most sophisticated individual. So now back to the insurance company side, there is something that will contain the legal expenses. So, in many cases, we'll pay out a very fair claim, could be $20,000, could be $100,000, whatever the situation maybe, and then when we get pulled into litigation later, and it could be a very small contested amount. So literally, a small as a $1.

And then we owe fees to the attorneys and so on, that can be many tens of thousands and there's documented situations where you have hundreds and hundreds of thousands of dollars of legal fees. So, the table has been unfair that we and the industry have been pressured to pay claims and remedy claims knowing that this litigation is very expensive. So this absolutely will level the playing field effective July 1 or perhaps if the Governor is able to initiate that sooner, that would help. The second piece of it, is correct, Doug as well, but it's going to take some more time.

And what we're looking to do is, is to add language to our policy that will exclude the assignment. So this will allow the consumer, the policyholder to be protected by our contract and they -- and if they are unhappy with the situation, litigation can occur. However, the lack of assigning is that they cannot assign this to a vendor and so on, and we're going to give that policyholder a discount for that right. So you may have an opportunity where a consumer may have a $2,000 policy and suddenly, now they have -- and I'm making up numbers, it could be a $1,500 renewal without the assign ability.

So there's a lot of pieces to it. These vendors are going to have to sit for EUOs, there is a lot of information out there on the AOB. I think it's very positive and I think it's going to help the good citizens in the state of Florida, no matter what company they're with.

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

And do you think this also -- could this be an opportunity, where you would consider perhaps writing more policies in the State of Florida?

Michael Braun -- Chief Executive Officer and President

Absolutely. Absolutely, I believe that it's a very -- it will create more appetite from us, and I think it's -- yes, absolutely, I think there's great opportunities for us to grow. As you know, we have shrunk the book significantly over the last three years because of AOB and it's a component of rate and we would need to go on this escalator of analyst rate increases to combat AOB and these legislators have taken the approach to remedy a good portion of this AOB abuse, which is great news, which increases our appetite and others appetite as well. So yes, I anticipate that, from my lens, I don't see us shrinking the Florida book anymore once this kind of -- we get more clarity on it after July 1 and absolutely renews my interest to growing the Florida book.

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

OK. Well, thank you very much, Mike, and thank you for answering questions. 

Operator

I'm showing no further questions at this time. I would now like to turn the conference back to Mr. Michael Braun.

Michael Braun -- Chief Executive Officer and President

Yes. Thank you everyone. We appreciate your interest in FedNat and thank you for being on the call. While we still have much work to do, we continue to make good headway on our growth strategies.

Once the new AOB legislation is enacted, we will be operating in a more favorable environment, in our local Florida market with further benefit from the recent rate increases we have implemented. Our coastal book continues to show impressive growth, as we continue to add market share and build a greater presence in Texas, Louisiana, South Carolina and Alabama, states that we already have a presence in and know well. The integration of Maison is progressing as planned and we believe we are scheduled and are on track to close late in the second quarter. There are multiple positive developments on the near-term horizon, along with the heavy lifting we have done to improve the profitability profile of our business.

This sets us up well for a sustained performance improvement and profitable growth as we progress throughout the year. So I want to thank everyone today and have a great day. Thank you.

Operator

[Operator signoff]

Duration: 48 minutes

Call participants:

Michael Braun -- Chief Executive Officer and President

Ron Jordan -- Chief Financial Officer

Douglas Ruth -- Lenox Financial Services, Inc. -- Analyst

Marcos Holanda -- Raymond James -- Analyst

Christopher Campbell -- KBW -- Analyst

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