Homeowners Choice Inc. Reports Operating Results (10-Q)
HOMEOWNERS CHOICE, INC. is a Florida-based insurance holding company, headquartered in Clearwater, Fla. and founded by individuals who are Florida homeowners. Its wholly-owned subsidiary, Homeowners Choice Property & Casualty Insurance Company, Inc., which began operations in July 2007, provides property and casualty homeowners' insurance, condominium owners' insurance and tenants' insurance solely to Florida property owners. Homeowners Choice Inc. has a market cap of $57 million; its shares were traded at around $8.5 with a P/E ratio of 4 and P/S ratio of 1.2. Highlight of Business Operations: Homeowners Choice, Inc. is a property and casualty insurance holding company incorporated in Florida in 2006. Through our subsidiaries, we provide property and casualty homeowners insurance, condominium-owners insurance, and tenants insurance to individuals owning property in Florida. We offer these insurance products at competitive rates, while pursuing profitability using selective underwriting criteria. Our principal revenues are premiums, which are reported net of reinsurance costs, and investment income. Our principal expenses are claims from policyholders, policy acquisition costs, and other underwriting expenses. As of September 30, 2009, we had total assets of $145.9 million and stockholders equity of $46.0 million. Our net income was approximately $10.1 million, or $1.40 per diluted share, for the nine months ended September 30, 2009. Our book value per share increased to $6.99 as of September 30, 2009 compared to $5.43 as of December 31, 2008.
gross written premiums totaled $15.9 million and $10.2 million, respectively. This increase in premium was offset by an increase in our ceded reinsurance premiums, which totaled $13.2 million and $4.0 million for the three months ended September 30, 2009 and 2008, respectively. As a result, our Net Premiums Written during the three months ended September 30, 2009 and 2008 totaled $2.7 million and $6.2 million, respectively.
Net Premiums Earned of $53.0 million for the nine months ended September 30, 2009 reflect the revenue from policies assumed from Citizens in connection with six separate assumption transactions, and the revenue on the renewal of these policies, reduced by the appropriate reinsurance costs. In comparison, net premiums earned of $28.3 million for the nine months ended September 30, 2008 reflect only those revenues from policies assumed from Citizens in four assumption transactions and effective policy renewals, reduced by the appropriate reinsurance costs. Net Premiums Written during the nine months ended September 30, 2009 and 2008 totaled $59.1 million and $42.6 million, respectively.
Our losses and loss adjustment expense reserves (Reserves), which are more fully described below under Critical Accounting Policies and Estimates, are specific to homeowners insurance, which is our only line of business. These Reserves include both case reserves on reported claims and our reserves for incurred but not reported (IBNR) losses. At each period-end date, the balance of our Reserves is based on our best estimate of the ultimate cost of each claim for those known cases and the IBNR loss reserves are estimated based primarily on our historical experience. Our Reserves increased from $14.8 million at December 31, 2008 to $21.7 million at September 30, 2009. The $6.9 million increase in our Reserves during 2009 is comprised of a $17.5 million increase specific to the nine months ended September 30, 2009 offset by a reduction of $10.0 million and $0.6 million in our Reserves for 2008 and 2007, respectively. The $17.5 million increase in our Reserves for 2009 claims is due to the increase in our policy volume, which resulted in an increase in the amount of reported losses in 2009 and caused us to strengthen our Reserves for 2009 cases. The decrease of $10.6 million specific to our 2008 and 2007 accident-year Reserves is due to favorable development arising from lower than expected losses during 2009 relative to expectations used to establish our Reserve estimates at the end of 2008. Factors that are attributable to this favorable development may include a lower severity of claims than the severity of claims considered in establishing our Reserves and actual case development may be more favorable than originally anticipated.
Other Operating Expenses for the nine months ended September 30, 2009 and 2008 were $4.1 million and $2.7 million, respectively. Such expenses include administrative compensation and related benefits, corporate insurance, professional fees, office lease and related expenses, information system expense, and other general and administrative costs. The $1.4 million increase is primarily attributable to increases in 2009 for professional services fees, administrative compensation and related benefits, and net other operating expenses of $560,000, $460,000 and $370,000, respectively. The increase in professional fees primarily relates to our Sarbanes Oxley 404 compliance efforts as well as fees incurred with respect to regulatory filings. The increase attributable to compensation and related benefits relates primarily to new employees hired to manage the increase in our policy volume. As of September 30, 2009, we have 51 employees compared to 22 employees as of September 30, 2008.
Net cash provided by operating activities for the nine months ended September 30, 2009 was approximately $3.9 million, which consisted primarily of cash received from net written premiums less cash disbursed for operating expenses and losses and loss adjustment expenses. Net cash used in investing activities of $21.8 million was primarily due to our purchase of various fixed maturity securities and short-term investments. Additionally, we used $239,000 to purchase property and equipment. These amounts were offset by our receipt of $450,000 upon repayment of the note receivable and $862,000 from the sale of one investment. Net cash used in financing activities totaled $2.0 million, which was primarily due to $2.1 million used for our share repurchase program offset by $49,000 from the exercise of common stock options.
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