Mar 6, 2018
Executives
Kevin Mitchell - VP, IR Paresh Patel - Chairman & CEO Mark Harmsworth - CFO
Analysts
Mark Hughes - SunTrust Brian Hollenden - Sidoti & Company Arash Soleimani - KBW
Operator
Good afternoon, and welcome to HCI Group’s Fourth Quarter and Full Year Earnings Call. My name is Darren, and I will be your conference operator this afternoon.
At this time, all participants will be in a listen-only mode. Before we begin today's call, I would like to remind everyone that this conference call is being recorded and will be available for replay through April 06, 2018, starting later this evening.
This call is also being broadcast live via webcast and available via webcast replay until April 06, 2018, on the Investor Information section of the HCI Group website at www.hcigroup.com. I would now like to turn the call over to Kevin Mitchell, Vice President of Investor Relations for HCI Group.
Sir, please proceed.
Kevin Mitchell
Thank you, and good afternoon. Welcome to HCI Group’s fourth quarter and full year 2017 earnings call.
With me today are Paresh Patel, our Chairman and Chief Executive Officer; and Mark Harmsworth, our Chief Financial Officer. Following Paresh’s opening remarks, Mark will review our financial performance for the quarter and year and then turn the call back to Paresh for an operational update and business outlook.
Finally, we will take your questions. To access today’s webcast, please visit the Investor Relations section of our corporate website at hcigroup.com.
Before we begin, I would like to take the opportunity to remind our listeners that today’s presentations and responses to questions may contain forward-looking statements made pursuant to the Private Securities Litigation Reform Act of 1995. Words such as anticipate, estimate, expect, intend, plan and project and other similar words and expressions are intended to signify forward-looking statements.
Forward-looking statements are not guarantees of future results and conditions but rather are subject to various risks and uncertainties. Some of these risks and uncertainties are identified in the company’s filings with the Securities and Exchange Commission.
Should any risks or uncertainties develop into actual events, these developments could have material adverse effects on the company’s business, financial conditions and results of operations. HCI Group, Inc.
disclaims all the obligations to update any forward-looking statements. With that said, I would now like to turn the call over to Paresh Patel, our Chairman and CEO.
Paresh?
Paresh Patel
Thank you, Kevin, and welcome, everyone. As our results indicate, Q4 returned HCI to its normal profitability after Hurricane Irma.
We earned a healthy diluted EPS of $1.14. Here are some of the fourth quarter highlights.
We worked to resolve the claims from 18,000 policyholders who had damages from Hurricane Irma. The claims continue to trickle into this day.
However, all but 250 claims have been closed at least once. As of today, about 2,000 previously closed claims have currently been reopened as is normal in the course of claims handling process.
During the quarter, we expanded our licensing into our three additional states; North Carolina, Ohio and California, completing our nine-state expansion that we began last June. We expect to begin selling flood insurance to some of these states later this year.
We also did a modest assumption of about 1500 our policies from citizens to become familiar with their new assumption process and as normal, we paid a $0.35 per share dividend, which is our 29th consecutive quarterly dividend. And finally, in October, our real estate division, Greenleaf Capital added another property to its portfolio.
This property is a 70,000 square foot office building on eight acres of land. The building is fully leased to a national nonaffiliated banking institution on our long-term lease.
And this time, I'll turn it over to our CFO, Mark Harmsworth who will take us through our financial performance for the fourth quarter and full year. Mark?
Mark Harmsworth
Thanks Paresh. So as Paresh mentioned, fully diluted earnings per share in the fourth quarter were $1.14, which is more than double that of the same quarter last year.
The biggest quarter-over-quarter change was a significant reduction in loss expenses. In the fourth quarter of 2016, our loss expense included a provision for the impact of Hurricane Matthew as well as adverse development from prior quarter -- prior years.
In the fourth quarter of this year, we had no adverse development and no weather-related losses. Our loss expense for the quarter is 26%, which is in the range of our historic loss ratio despite some positive claim trends.
Claims per week, lawsuits, and incurred claims are all down. While we're obviously pleased with this trend, it's too soon to know if it will continue and so with that in mind, we booked what we believe is a conservative loss provision for the quarter and the year and we will monitor it as it matures.
When looking at our income tax expense you'll notice that we had a lower than average effective tax rate this quarter. Normally this would be around 37.5%, but it was 28.5%.
This reflects a $1.4 million benefit from a one-time reduction in our deferred tax liabilities resulting from enacted changes in federal income tax rates. More importantly our effective income tax rate will be significantly lower in the future.
A number of things can impact the rate, but we have generally been around 37% to 38%. We expect this to drop to around 26% starting in 2018.
This should have a significant positive impact on future earnings per share. While the impact will vary from quarter-to-quarter, we estimate that the lower rate will increase fully diluted earnings per share by about 20% from what it otherwise would have been.
Speaking of changes, you may have heard that for GAAP purposes there will be a change in the way that equity investments are accounted for. In the past, changes in market value of equity securities have generally run through the balance sheet, however starting in 2018, any such changes will run through the income statement.
This may result in quarterly swings in net income that could be material in periods of equity market volatility. Before turning to the balance sheet, I wanted to make a quick comment on a change we made to the presentation of the income statement.
In the past, we've had a line called salaries and wages. This included salary expenses, but other personnel-related expenses like stock-based compensation, employment taxes and employment benefits, were included on the line other operating expenses.
Starting this quarter, we've taken these other employment-related expenses, combined them with salaries and wages and changed the name of the income statement line to general and administrative personnel expenses, which now includes all personnel expenses. This is simply a reclassification from one income statement line to another and has no impact on net income or any income statement ratios.
Looking now to the balance sheet, as I mentioned on our last call, after Hurricane Irma, we had no need to raise additional capital or to put any money into any of our insurance companies. As of December 31, 2017, we have a surplus of $152 million in homeowners choice, $24 million in TypTap, and have a $100 million of cash and investments at the holding company level.
The RBC ratio for homeowners choice is just over 480% and TypTap is just under 3,000%. Both are well in excess of the required 300%.
In the fourth quarter as part of our 2017 buyback program, we repurchased 270,000 shares for a total consideration of $8.95 million. The total shares bought back under the 2017 plan were 433,000 and the total consideration was $15.1 million.
As we've mentioned before, we have been capitalizing on our strong cash position and liquidity by investing more in fixed income equities and real estate. During the year, we have increased these investments by just over $80 million.
Continuing to invest more in cash, combining with -- combined with higher investment yields, should drive higher investment income going forward. Just a few other quick numbers here.
Book value per share was $22.14, up from $21.37 at the end of the third quarter. The basic number of shares outstanding was 8,762,400 and the number of fully diluted shares outstanding at the end of the year was 12,091,900.
In summary, it was a good quarter for us and we look forward to some of the tailwinds being provided by improving claims trends, higher investment yields as we deploy more cash and lower income tax rates. With that, I'll turn it back to Paresh.
Paresh Patel
Okay. Thank you, Mark.
Looking ahead, we are very optimistic about 2018 and beyond why? Well, firstly as the events and financial numbers of Q3 and Q4 2017 show, we have eliminated two major uncertainties about the company.
First that it can withstand the financial and operational stress of a major hurricane and more importantly, that it can revert back to normal healthy pump operations promptly thereafter. Q3 was the hurricane, Q4 back to profitability and healthy operations.
Secondly, we always mention our dividend and our share buyback every quarter. Any individual quarter does not appear to be big, but consistent steady progress adds up, let me elaborate.
We have grown book value per share to over $22 from $2.50 when the company started in 2007. In addition, we have paid $7.55 per share in dividends, inception to date, and finally, over the past five years, we have reduced our share count by about 2.7 million shares.
We don't see the numbers in any given quarter, but as you add them up, this is what has been achieved and we do these things so consistently, that it often goes unnoticed, but when you look over the long haul, the gains are very evident. Furthermore, these days are produced in an environment with very low interest rates and a high tax rate.
Going forward, things improved tremendously. Interest rates are higher and rising and the tax rate is much lower and we already have a formula for success that is improving over the long-term in less favorable conditions that exists today.
In conclusion, we have removed major uncertainties from the business and picked up some very positive outcomes in the last few months. This bodes well for the future and that is why we are optimistic.
And with that, we ready to open the call for questions. Operator, please provide the appropriate instructions?
Operator
Thank you, Sir. At this time, we'll be conducting a question-and-answer session.
[Operator instructions] Our first question comes from Mark Hughes of SunTrust. Please proceed with your question.
Mark Hughes
Yes, thank you. Good afternoon.
Could you talk a little more about the favorable claims experience here in the fourth quarter? Is there any impact on lawsuits from the storms, is some of that energy being expended elsewhere and so you're missing some of that or do you think that is underlying improvement in the market that may be sustainable?
Paresh Patel
Mark, it's Paresh. I'd add to the question in two different parts.
In terms of actual claims coming in, there has been a decrease pretty much since Irma and this is a non-Irma claim, and that is occurring I think largely because the weather has been very favorable. We had good weather.
The winter has come and pretty much gone, and we haven't really had any thunderstorms or anything else that have normally occurred in the winter to affect the claims count. So that we can't take credit for that, and it's a weather-related event.
We do see some improvement because of some of the underwriting changes we made over the last couple of years, but the biggest bulk of daily claims is because of the weather. As far as lawsuits go, it's very early days, but what we're noticing is that the lawyers are focusing their efforts more on Irma than they were before Irma in terms of daily claims.
So, the focus is shifting away from daily claims lawsuits over towards Irma lawsuits, and Irma lawsuits are starting to decline, but it's the numbers that we see.
Mark Harmsworth
And just Mark, just to elaborate on something Paresh mentioned about claims dropping and related to weather the biggest, we've had this fairly steady drop in claims per week and the biggest drop was actually in the first quarter of 2017 versus the same quarter last year. Sorry…
Paresh Patel
First quarter 2018.
Mark Harmsworth
Q1 2017 versus Q1 2016. So, we've have a drop off since Irma, but it's been going on throughout the year.
Mark Hughes
Right. Okay.
The 2,000 that have reopened, is that, I think you've described that as sort of normal course of business, is that, does that trend pretty consistently or is that more reopened this time around, but presumably the reinsurers that's going to be just their issue?
Paresh Patel
Yeah, so look, the early reopens and this is where the situation we're in at the moment, occur in normal course of business, so for example, we've paid a claim and closed it, we usually pay [indiscernible] when they do the repairs and they get the final bill. They usually send them in and there may be some additional payments that are due.
So, we have to reopen the claim, make the additional payment and reclose the claim. So, there is a lot of that activity going on because these 18,000 claims, there is work being done on those houses individually.
So, a lot of that goes on. Other times we get the claims reopened because when homeowners go to actually make the repairs they may find the additional damage that wasn't evident until they start doing the repair.
So, there is various reasons like this that occur. Of course, they also open if somebody sues us and lawsuits and things start that as well.
So, there's various reasons they start, but the early numbers we're seeing are what we would've expected to occur at this point in time.
Mark Hughes
Can you give us some thoughts here on how you think reinsurance costs will trend once we hit June 1? What do you think the impact is going to be year-over-year?
Paresh Patel
Mark, our reinsurance program restarts in June 1, and it's just too early to tell as to what the eventual outcome would be. I would easily presume that the rates will be going up.
The question obviously is how much and time will tell I guess.
Mark Hughes
You don't care to venture a range perhaps.
Paresh Patel
I am really bad in the speculation part of it, but I suspect what's going to happen is going to be a lesser number than the reinsurers want and a greater number than the insurers want, right. So, pick a range between 0% and 20%.
Mark Hughes
Yes, okay. And then how do we think about the topline in 2018?
First, I am curious you are sort of testing citizens, testing the waters there to understand the new process, what's your result there? And then do you think, do you pick up a little bit of share maybe because there is some capital constraints among your competition?
How is that going to net out with the topline here in 2018?
Paresh Patel
From a topline perspective, I think we're hoping to have a flattish 2018. At least that's the initial plan.
It may change dramatically if an acquisition or something of that nature gets done or we get a book of business or something of that nature, but short of that, we are being reasonably cautious in the matter because obviously our current book of business is performing well. Before we go and add lots of new policies that may or may not perform as well, we have to be mindful of how well our current portfolio is performing.
I say that because there are a lot of people who expanded a lot over the last few years and I think are now regretting some of that expansion because of their loss ratios and combined ratios and leverages.
Mark Hughes
And how about the new citizens…?
Paresh Patel
We kind of don’t want to repeat the mistake.
Mark Hughes
How about the new citizens process, any early observations there?
Paresh Patel
Yeah, and actually I should elaborate as to what we were trying to do. Citizens had a major re-overhaul of their assumption process at the end of 2016.
So, starting 2017. We had never participated in new process.
So, we thought it would just be prudent for us to be familiar with it. So Q4 we did a very small take out and we got even fewer policies, just to learn how that process works.
It wasn't that we were suddenly passing any opinion as to take us a suddenly great or anything else of that nature. It was just us planning that should an opportunity come in the future, it was a large citizens [depop], we want to be familiar with the process.
So that's all it was and we now know the process and how it works and it's from our perspective it's much more streamlined and efficient. Citizens I think does a lot more of the work in the new process, but it's by their design.
Mark Hughes
Thank you, very much.
Paresh Patel
Thank you.
Mark Harmsworth
Thanks Mark.
Operator
Our next question comes from Brian Hollenden of Sidoti. Please proceed with your question.
Brian Hollenden
Hi and thanks for taking my call.
Paresh Patel
Thank you, Brian.
Brian Hollenden
Can you give us an update on slide, where you stood at the end of '17 and now with nine states approved, what can gross rate and premium grow to by the end of '18?
Paresh Patel
Okay. So, I'll give it to you in five different timeframes.
Last week was our two-year anniversary of TypTap being in business. We are well over 7,000 policies and over 9 million premium in force.
We've written more policies and all the other kinds of things that go on with it. But it is done very well over that timeframe.
Obviously, we have zero policies in the other nine states at this, as of this moment. But the expectation is that, if we can keep this going we're trying to set for the next milestone which is how do we get to $20 million in business, $30 million of premium in for us, obviously across multiple states.
The big debate is obviously in which timeframe will we achieve that? And some of that is dependent on other things beyond us, such as what the NFIB does etcetera.
Brian Hollenden
And then just switching gears a little bit are you seeing anything interesting on the acquisition front and what has been maybe the biggest impediment to getting a transaction done?
Paresh Patel
Well on the second part is easy. It’s the same problem that’s always been there.
The difference between what we think is a fair value for the business and what the current owner of the business wants to be paid for it. Deals get done when people come together on price.
So, we've been very disciplined about overpaying for stuff, so that's always the issue. The other item that there, is I think we're going through an interesting phase at the moment where there are a lot of people who I suspect will eventually exit the business, but they haven't come to that realization yet.
And I say that because how many years do you go without earning serious income before your shareholders ask you to look at alternatives. Some management teams believe they have lots more a lot more time to do that than they will have in reallocate suspect.
Brian Hollenden
All right. And then last one for me.
Can you talk little bit about the expense ratio? If this is 40% sort of annualized rate the right way to think about that ratio moving forward?
And then just on you know premium pricing, can I just talk you know where you are now versus where you were a year ago?
Mark Harmsworth
I'll just talk about expenses for a minute. I mean, if you if you if you see for the full year our expenses are actually down a little bit other than the interest expense.
The expense ratio, I think it's up a little bit just because net premiums earned are down. I tend to think more in terms of the sort of the total combined ratio and if you look at that in fourth quarter that was about 80%.
If you normalized some of the noise for the full year, it's about 82% and that's sort of in the range of what I would see going forward, absent any really crazy changes in reinsurance costs. But that sort of that sort of somewhere between 80 and 85 is what I would see going forward in terms of a combined ratio.
Paresh Patel
And what was the nature of your previous question, you're asking my rate changes or premium in force or what?
Brian Hollenden
Yeah. Just rate changes.
Paresh Patel
Okay. So, our basic philosophy is that we run the business expecting no rate changes whatsoever.
And especially not rate increases and it just makes us very healthy in terms of what policies we take on which ones we don't. Going forward at least our plans are that we will do our annual rate filings when they are due over the course of late summer and early fall.
And the actuaries at the IRR will help us decide what our rates are going to be going forward. We are not rushing to file for rate increases or anything else of that nature because at least as far as we could see AOB has been around for long enough and we've already sort of reflected that in our rates.
And Irma was a hurricane that should have been expected because we were in the hurricane prone state. So, we are very much comfortable with exactly where we are at the moment.
Brian Hollenden
Thank you.
Operator
Our next question comes from Arash Soleimani of KBW. Please proceed with your question.
Arash Soleimani
Thanks. Was there any prior year development in the fourth quarter either favorable or adverse?
Mark Harmsworth
No.
Arash Soleimani
And was there any current accident year development?
Mark Harmsworth
No.
Arash Soleimani
Okay. And in your statutory financials for homeowners’ choice it looks like there was an adverse development contract between Homeowners’ Choice in Claddaugh.
So, two questions there, one, is it correct to assume that on a GAAP basis if that transaction never happened, it was completely eliminated? And then the second question is, yes and then the second part of the question is what was the purpose of that transaction?
Paresh Patel
Yeah. Just to be clear on the first one there is no impact on the consolidated GAAP statement because everything is eliminated on consolidation.
Mark Harmsworth
And the second part of the question is, we pride ourselves with the conservative nature we run Homeowners Choice. Case in point after Irma, we didn't need any capital contributions etcetera.
And you know we looked at what's going on and we're very comfortable with the AOB and where we are in our reserves etcetera. But a little bit of additional insurance wouldn't be all bad and we can afford it.
But we think we've got our reserves correctly, we didn't want to do that with a third party, so we have plenty of capital within and we did it with Claddaugh. But just to make sure that the Homeowners Choice financials....
Operator
Ladies and gentlemen please stand by. We appear to be experiencing some technical difficulties.
Again, please standby please. Our speakers have rejoined.
Paresh Patel
Sorry about that. Something have gone wrong here, but we are back online.
Arash, you still there?
Arash Soleimani
Yes, I'm here.
Paresh Patel
So hopefully you get my answer to the question?
Arash Soleimani
I mean was the gist of it basically that you know it's not that you needed to add any capital to the statutory entity, it was where it needed to be to make the regulator and everyone happy, but just to be extra conservative. You did this to make it look even that much stronger from a capital perspective is that correct?
Paresh Patel
Yeah. Same reason...
Arash Soleimani
You just want to have an extra cushion basically like it was there anything they gave you just maybe a little bit of, I guess was there anything that pushed you to say, hey we want to be a bit more conservative. Does look like when you said the RBC number for a Homeowner Choice was like 480% and I think you said 300 is the minimum.
So, I guess what like what would it be without this adverse development cover? Like would you be - it would have gone to 350 or something like how close to?
Paresh Patel
We actually paid a price to the adverse development, fire cover. Because my pay premium for it to do that.
Right.
Arash Soleimani
Right.
Mark Harmsworth
You the RBC ratio would have been even higher than it was. It didn't have anything to do with trying to make this look surplus higher or make the RBC ratio look higher enough, nothing like that.
It was really just to deal with where future adverse development would let. But it actually reduced the surplus of HDPC.
Arash Soleimani
Okay. So basically, you're saying the whole point was, just in case there would be more adverse development in the future from what's just like, let's say AOB gets crazy, even crazier than it already is.
This was protect HCPC in that situation?
Paresh Patel
Yes, because Claddaugh will take the lawsuit, not HCPC
Arash Soleimani
Okay. That makes sense.
Paresh Patel
And Arash to really drive home the point. That's why when you ask the question to market the whole co-level the answer is that everything was zero and we did that in the quarter, where that was absolutely the case.
So, it doesn't appear that we were doing this to - for any other reason than just safety.
Arash Soleimani
Right, right. And for TypTap I think that the 300% that you mentioned, so would you need to put any more in there because if it's right at 300, once you start right, is there?
Mark Harmsworth
Arash its 3000%....
Arash Soleimani
I thought you said 300, okay.
Mark Harmsworth
I apologize, if that didn’t come you clearly, we got more than enough surplus in TypTap.
Arash Soleimani
And the, yes, the citizen stuff that you mentioned, so can you break out for the quarter just direct written premium and a sundried premium?
Paresh Patel
I didn’t tell you this, you are going to get really, the assumed written premium wasn't that much and the direct written premium is also affecting the fourth quarter because that moratorium that had gone on in terms of non-cash policies. So, I think you're going to see some volatility in written premium – direct written premium because you are going to get the reversal effect from Q3.
But I don't perceive just got the numbers.
Mark Harmsworth
Yeah assume was very, very low. Growth rate and premium was 46.6 and assume I think was like $2 million.
Yeah. So....
Arash Soleimani
But you said, so gross like direct cost assume was 46.6?
Mark Harmsworth
Yeah. And assumed was like 2.1.
Arash Soleimani
Okay. And then on the expense ratio, looking at it on a gross spaces and taking out policy acquisition cost and not including interest expense, so if I'm just looking at basically the other operating or the other expenses that you have broken out and the personnel and general wages you get something in the neighborhood it looks like 8%.
And the rest of the year was probably closer to 11. So that's just seasonality, if I look back in the fourth quarter of 2016, I seem to see that same trend.
So, on a gross basis sort of kind of in the 11% percent range, 1Q to 3Q and then 8% 4Q?
Mark Harmsworth
Yeah, I mean when you talk about percentages, I think it confuses a little bit. So, let me take that apart.
So, the fourth quarter you know you're chewing up expenses. The main one chewing up is bonus expense and so that will often end up with lower expense in fourth quarter.
So that’s way its lower in the fourth quarter, first three quarters. But if you look at it on a go forward basis that 10% to 11% is probably closer what you're going to see.
It comes out to typically about - if you combine those two together it’s always in the neighborhood of about $10 million in quarter for personnel expense and OpEx. And that's been fairly consistent overtime, if it's dropping slightly of course, its lower this year than last year but if you're assuming that $10 million range for quarter you are probably not surprised.
Arash Soleimani
Thanks. And the reason it's lower in the fourth quarter is that because of the storms we had this year and last year?
Mark Harmsworth
Yes.
Arash Soleimani
And just back onto the reinsurance question, I know you put out a range of, I mean you said 0% to 20%. Looks like most of what we're hearing these days is that, it's considerably below the levels that market participants were talking about a few months ago.
So realistically speaking, does it seem like we're probably more in the 0-to-5 range, or I guess why are you going as high as 20. Is 0-to-5 more realistic based on what you're hearing more recently?
Paresh Patel
Arash, I was putting a wide range assets so that I wouldn't fall outside the range. If you’ve talk to people stuff and you better numbers, I'm very happy to go with your numbers but it’s – the outcome, its early in the season and until things get done you always worry about what the final outcome will be.
Arash Soleimani
And it's fair to say...
Paresh Patel
I think it is early days and the reason I'm being cautious is years of experience and some of this stuff. In back in 2011 the Japanese earthquake changed reinsurance rates.
There isn't like rates can be agreed too right now it’s what do you do when you do it. So, I'm optimistic like you are in the 5% range, but I like to do it when the numbers have been signed.
Arash Soleimani
Sure, that makes sense. What was the - did you mentioned, I know you said you expect to start writing flood this year or did you stay like roughly what quarter you expect to start in?
Paresh Patel
No, we haven’t. There's a few steps we have to go through and we want to, we're doing this more as a marathon than a sprint so we're trying to make sure we're comfortable when we start writing these policies.
Arash Soleimani
And what are the current policies enforcing premium's enforced for a TypTap?
Paresh Patel
I think I said earlier, 7000 policies and about over 9 million in force.
Arash Soleimani
Okay. And what the AOB stuff, do you have a percentage of the 18,000 that haven't AOB associated with them?
Paresh Patel
Arash I think when you ask AOB question, is not really just the AOB part but its also policy, litigation and everything else which is also going to occur. That stuff is just started.
So, we know the starting because every month we're getting - we've seen the numbers tick up. So, what that number is going to be, is nowhere near peak yet.
And we are watching it but we expect that that number will peak sometime mid to late this year.
Arash Soleimani
Do you - like the ones that did reopen when it was 2000 the number you said?
Paresh Patel
We eventually expect - yes, 2000 to reopen. Yes, but these are reopens, what happens in the course of one of these events is that, you get the claims you close them, they will reopen.
At first reopen wave because normal work being done etcetera. We are now anticipating the second wave of reopens which will be much smaller numbers, but much more significant which is when the lawsuits and all of that it will be stuff etcetera arise.
And that like I said, we're expecting to peak in mid to late this year. So, we received a little bit over 100 Irma related losses so far.
It's a meaningless number because you have to extrapolate a lot further out as to what the ultimate number is going to be.
Arash Soleimani
Right. Well you say the first wave is more I guess legitimate.
So, you're saying that that first wave of 2000 is not really AOB in litigation oriented. It's more - it's reopened because it actually makes sense to reopen it or you know for non-shady reasons?
Paresh Patel
One comment on last part of that but yes, those claims are open, not real but very little to do with AOB or PAs or litigation, the bulk of them.
Arash Soleimani
Okay. So, the hundred Irma related loss that you mentioned are those associated with those 2000 or not necessarily?
Mark Harmsworth
Well that’s part of 2000, but that also just illustrate the same point again, right. If you've got a hundred that have been because others those losses that we see today that tells you 1900 of them have nothing to do with lawsuits.
Arash Soleimani
Right.
Mark Harmsworth
That mixture will change overtime.
Arash Soleimani
And when - just back to the citizens process change. So, are you just trying to be ready in case, you know, there's another storm and 2018 and you know, it knocks, some of the firmly capitalize companies out and it is just kind be prepared or do you have any other reason to believe citizens might get bigger again and provide that opportunity?
Mark Harmsworth
Arash, look when citizen put processing place we think it sort of survives for about a decade or so. We had the old process dialed in very well because we've been using it since 2007.
It just seem prudent that their revenue process we should be familiar with it should need it sometimes over the next decade. We weren't doing it because we were anticipating something imminently that we were going to do with the new process, but we just wanted to be familiar with it.
Arash Soleimani
No, that makes sense. Okay, I think that's everything I have.
Thanks very much for the answers.
Mark Harmsworth
Absolutely. Thank you.
Operator
Our next question is a follow up from Mark Hughes of SunTrust. Please proceed with your question.
Mark Hughes
Yeah, thank you. To the extent that you do have higher reinsurance costs, I assume you will re-file and incorporate those costs into your rate.
You had made the point that the rates already sort of contemplated that the wind would blow eventually. So just wanted to clarify, if reinsurance rates are up 5% or what have you, will you re-file your rates or incorporate that 5% into your new rates?
Paresh Patel
Mark, I should say difficult question asked for a simple reason. If the rates go up hopefully just 5% or something we probably would just absorb that if the rates go up 20% that may require a rate filing.
So, it's just a question of where we are on the scale.
Mark Hughes
And then I think at least in one rate filing, I saw some policy language that seemed to restrict water damages to the extent that a policyholder didn't evidence back there or use a contractor, I can't remember precisely the language, but am I right that there is maybe some policy language that has some limitations around water damage? And if so, how prevalent is that in the policies?
And is there a strategy to roll that out more widely? And also, what impact on rate if you're able to get some kind of language like that.
Paresh Patel
So, Mark, that's a very insightful and complicated question that require that kind of an answer. We had contemplated and we had got the rates approved and filed for the question that you just asked.
But as Irma has developed and as we relooked at our business etcetera and watching the claims trend and the lawsuit trends, we are trying and we're in the process of trying to see if we can just remove that rate filing so that there will be no change to our portfolio. And part and parcel of this stuff that we're doing is given all the effects that Irma has had on our share -- on our policyholders, it just didn't seem prudent at this moment in time to add more uncertainty and change to our policyholder because, on these calls we talked about what's there for the business etcetera, but we're always very mindful that we have 135,000 customers and it's their single biggest asset that we are providing them peace of mind on.
So, at a time when people have gone through some trauma, we do not wish to create further uncertainty if we can avoid it. So, we are trying to work with the department to repeal that rate file if you like.
Mark Hughes
Am I right in recalling that the associated rate was unchanged even with that policy language or was there a reduction?
Paresh Patel
There was a reduction because when we do these things, they have to make it actuarially neutral in making that change. So, there was some rate adjustment in that course of doing that.
But it would have created a lot of angst that doesn't seem appropriate given that we've just gone through Irma as a state-wide event.
Mark Hughes
Understood. What was the magnitude of the rate offset?
Paresh Patel
Well and actually we would tell you, it was flat because they expected that the language will reduce losses by a certain amount. And we were passing those savings in reduced rates, less [ready] and kind of thing yeah, but that doesn’t necessarily, so its neutral.
Mark Hughes
Right, neutral from a I guess loss ratio perspective but what was the impact on premium?
Paresh Patel
I think the premium would have been in the high-single digits maybe low on a 10% plus or minus a couple of points and about the fact that about both, right. It wasn’t entirely across our entire portfolio, it's one particular type of policy which is a portion of our overall portfolio.
Mark Hughes
Did you think that was a reasonable reduction for the change in coverage and you just didn't want to be disruptive or did you think that was too much of a reduction?
Paresh Patel
No. We thought it was reasonable and everything else.
It was -- we had started the process long before Irma kind of showed up and we were walking through it when it came time to implement it, we sort of looked at all the daily stuff that we see. And obviously with the 18,000 claims etcetera, we are quite in constant contact with our policyholders and our agents because when we start making these coverage changes it creates additional work for our agents as well and it doesn’t seem appropriate to do it at this moment in time.
That doesn't mean at a future point we won't bring it back, but at the moment we just said, let's not try to do anything to disrupt the steady -- how steadily we treat our policyholders.
Mark Hughes
Then a final question Mark, you had mentioned I think that claims trends have been improving since Q1 of last year. Did I hear that properly and so the fourth quarter was just maybe a continuation of what was a pre-existing trend?
Mark Harmsworth
It's been something that's been going on throughout the year. I think our claims per week have dropped about 12% from 2006 into 2017.
The biggest drop was in the first quarter as I mentioned, but it's been something that's going on through the year.
Mark Hughes
Thank you very much.
Operator
We've reached the end of our question-and-answer session. I would now like to turn the call back over to Kevin Mitchell who has a few closing comments.
Kevin Mitchell
On behalf of the entire management team, I'd like to express our appreciation for the continued support we received from our shareholders, employees, agents and most importantly, our policyholders. We look forward to updating you on our progress in the near future.
Operator
Thank you for joining us today for our presentation. This concludes today's call.
You may now disconnect.