Fort Lauderdale May 3, 2016 (Thomson StreetEvents) -- Edited Transcript of Universal Insurance Holdings Inc earnings conference call or presentation Tuesday, May 3, 2016 at 2:00:00pm GMT
Good day, ladies and gentlemen and welcome to the Universal Insurance Holdings, UVE, Q1 2016 earnings conference call.
At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference may be recorded.
I would now like to turn the conference over to our host of today's call, Mr. Matt Palmieri. You may begin.
Thank you and good morning. Welcome to the first quarter of 2016 earnings conference call for Universal Insurance Holdings, Inc.
With me today are Sean Downes, Chairman and Chief Executive Officer; Jon Springer, our Director, President and Chief Risk Officer; and Frank Wilcox, Chief Financial Officer. Following Sean's opening remarks, Jon will provide an operational update and Frank will review financial results for the first quarter of 2016. The call will then be reopened for questions.
Before we begin, please note that this presentation may contain forward-looking statements about our business and financial results. Forward-looking statements reflect our current views regarding future events and are typically associated with the words such as believe, expect, anticipate, and similar expressions. We caution those listening, including investors, not to rely solely on forward-looking statements as they imply risks and uncertainties, some of which cannot be predicted or quantified and future results can differ materially from our expectations. We encourage you to carefully consider the risks described in our SEC filings with the SEC, which are available on the SEC's website or the SEC filing section of our website. We do not undertake any obligation to update or correct any forward-looking statements.
With that said, I would like to turn the presentation over Sean Downes. Sean?
Before I begin reviewing the quarter, I'd like to tell everyone with a heavy heart that we lost a member of the Universal family last week. Mr. Norman Meier. Norman was a Board of Director for Universal for many years before his retirement in 2013. He was a great mentor to all of us and will be greatly missed. Our heartfelt sympathies go out to his wife and family.
I'd like to thank all of you today for joining us as we review our results for the first quarter of 2016. I'd like to begin by providing some highlights from the quarter and then take a moment to review our strategy and growth initiatives. Jon will then discuss our operational highlights and Frank will conclude by discussing our financial results.
We are pleased to have delivered another record quarter in the first quarter which we achieved notwithstanding the severe weather events in Florida during the quarter. For the first quarter, net income was $25.2 million, an increase of 13% over the first quarter of 2015, and diluted EPS was $0.71, an increase of 14.5% over the first quarter of 2015. These outstanding results which follow on a record year in 2015 highlight the consistent execution of our growth strategy across all aspects of our business and the hard work of our employees and our network of approximately 7,800 independent agents. Thanks to their efforts, our subsidiary UPCIC is the largest private homeowners' insurance provider in Florida with an expanding presence in 17 states outside of Florida.
In the first quarter of 2016, we wrote our first homeowners' policy in Michigan and received certificates of authority both in New York and in New Jersey. Supporting our success is our consistent focus on maintaining disciplined underwriting standards as we seek to grow our business on an entirely organic basis. We have seen a consistent increase in policy count and premium in all states in which we operate over the past two years. A key factor in our success has been our commitment to providing high-quality service to our policyholders and independent agency force through our vertically integrated structure. We have continued to invest in our business in areas including underwriting, policy issuance, general administration and claims processing.
I would now like to take a moment to showcase our new direct-to-consumer online platform for homeowners' insurance, which we began beta testing in April. It is now available to consumers in Pennsylvania, and we anticipate adding other states in the coming months. Universal Direct is a culmination of many years of work with our great Universal IT professionals who with our help are now letting us tap into the power of the Internet to reach customers directly. Customers will have the ability to manage their policies, bind, select payment plans and make payments online, while also having access to live customer support agents by phone or online for additional assistance as needed. I am very happy to report today that we have written our first policy using Universal Direct and we anticipate many more to come in the future.
Our consistent execution in operational performance has resulted in a robust financial position allowing the Company to continue returning capital to shareholders. In April, the Board declared a dividend of $0.14 per share of common stock. This is in addition to the $0.14 per share dividend announced in January. Our ongoing share repurchase program and dividend payments highlight our continuing track record of prudent capital deployment and commitment to returning value to our shareholders.
As we look ahead, we remain focused executing on our core strategy to drive profitable growth. First, we continue to drive high-quality service to our vertically integrated structure. Second, we will continue to increase our policies in-force in Florida by seeking profitable and rate-adequate and 100% organic growth. Third, we will continue to diversify our revenue base and risk by increasing our policies in-force in states outside of Florida through our geographic expansion strategy. And fourth, we will continue to optimize our reinsurance program as our risk profile changes. Our record results for the first quarter of 2016 highlight the merits of our strategy, we remain committed to executing on our plans to drive profitable growth and enhance value for our shareholders.
Finally, since a short attack on our common stock last November, we've now reported two full quarters of record results. We've had a clean audit of our 2015 financial statements and internal control by our independent auditor and our independent opining actuary, Towers Watson, has completed its most recent review which included Company data through 12/31/2015, and that's concluded that the Company's carried reserves make a reasonable provisions for losses and are within the actuary's range of estimates in book at the actuary's best selection.
I am proud of our performance in 2015 and continuing into 2016, everyone at the Company more than ever is focused on our goal of driving profitable growth and increasing shareholder value.
I would like to share a few specifics regarding the first quarter changes in exposures and also touch on where we are in the June 1, 2016 reinsurance renewal process. First from a growth perspective, before I start, I would like to point out that we express our growth numbers as true net growth, new policies written, less policies that have left us for one reason or another.
In the first quarter of 2016, we continued to successfully add profitable organically grown policies in each and every state. Overall, during the first quarter, UPCIC grew policies in-force by 2.1% to now insuring over 637,000 policies and in-force premium grew by 1.8% to total now of nearly $900 million. This successful first quarter brings the UPCIC growth rate over the past 12 months, 1Q 2015 to 1Q 2016, to 11.65% for policy count and 11.5% for in-force premium, all organically written one policy at a time.
During the first quarter, we were again successful in growing policy count organically in Florida by over 1% and in-force premium by 1.25%. The corresponding growth rate for Florida over the past 12 months was 7.6% for policy count and 9.2% for in-force premium. In addition, the portfolio business outside of Florida continues to develop nicely experiencing first quarter policy count growth of over 10% and in-force premium growth of 9%. Corresponding growth rate for business outside of Florida over the past 12 months was 51% for policy count and 47% for in-force premium.
Lastly from a reinsurance perspective, we are currently deep into the process of renewing our catastrophe reinsurance coverage to be effective June 1, 2016. We are pleased to report that as of today, we have secured authorizations to complete over 90% of our core Allstates catastrophe excess of loss tower. In addition, as part of this tower, we have secured some additional multi-year capacity below the attachment level of the Florida Hurricane Catastrophe Fund, bringing the total of our program below the Florida Hurricane Catastrophe Fund that is truly multi-year to just over 50%. As we have in the past, we will release additional details when all of our placement efforts are complete and coverage is bound.
With that, I'll now turn it over to Frank Wilcox for our financial highlights.
Net income for the first quarter of 2016 totaled $25.2 million, which is an increase of 13% compared to $22.3 million in the same period of 2015. As our earnings release states, our results for the quarter include $8.5 million in pre-tax losses and LAE related to severe weather events occurring during the first quarter of 2016. These losses and LAE were incremental to amounts provided for in the underlying loss ratio based on historical experience for such events. Notwithstanding these charges, our results reflect improvements in multiple measures driven by our efforts to increase profitability through rate-adequate organic growth.
Earned premiums, total revenues, net income and diluted EPS were higher than any other first quarter in the Company's history. Diluted EPS for the first quarter was $0.71, which was up $0.09 or 14.5% from the same quarter in 2015. We increased net earned premiums by $58.1 million or [61.2%] for the first quarter compared to the same period in 2015. This stemmed from both an increase in direct earned premiums of $24.6 million and a decrease in ceded earned premiums of $33.5 million. The increase in directed earned premiums reflects our ability to drive organic growth both inside and outside of Florida as previously discussed. The elimination of quota share reinsurance contracts was the driver behind the decrease in ceded earned premiums.
Net investment income for the quarter of $1.6 million was $743,000 greater than the first quarter of 2015. This reflects both an increase in our invested assets and actions taken to maximize yield as securities mature. Total invested assets reached $704.4 million as of March 31, 2016, compared to $591 million one year prior, a 19% increase.
We generated $667,000 of realized gains in the first quarter of 2016, compared to $171,000 for the same period in 2015. We realized gains from time to time when opportunities arise. Commission revenue of $4.1 million for the quarter was up by $940,000 as a result of overall changes in the structure of our reinsurance programs, including the amount of premiums paid for reinsurance and the types of reinsurance contracts used in each program. Policy fees of $4.1 million for the quarter were up $282,000 or 7.3% year-over-year as a result of the increase in the number of policies written.
Losses in LAE were $66.1 million for the three months ended March 31, 2016, compared to $33.6 million during the same period in 2015. The largest portion of the increase in net losses in LAE of $32.5 million was driven by the absence of losses in LAE ceded to reinsurers during the quarter as a result of the elimination of our quota share reinsurance arrangements in June of 2015. During the three months ended March 31, 2015, we ceded $15.4 million, none in the current quarter. Direct losses in LAE also grew by $8.6 million due to organic growth and by the $8.5 million previously mentioned. Our net loss ratio for the first quarter of 2016 was 43.4% compared to 35.6% for the same period in 2015. The key driver behind the increase in the net loss ratio was the severe weather events.
General and administrative expenses were $57.2 million for the first quarter of 2016, compared to $32.2 million for the same quarter in 2015, an increase of $25 million. The majority of the increase resulted from additional amortization of net deferred acquisition cost of $19.2 million, $16.6 million of which represents the absence of ceding commission from the elimination of quota share reinsurance arrangements effective June 2015. The remaining increase in amortization of $2.6 million was driven by organic growth.
Our expense ratio, which is G&A has a percentage of net earned premiums for the first quarter of 2016 was 37.5% compared to 34.1% for the same period in 2015. This was caused mostly by the increase in the amortization of net deferred acquisition costs, which increased the expense ratio about 8.4 percentage points, and that was mostly offset by economies of scale.
The effective income tax rate decreased to 38.6% in the first quarter of [2006] compared to 41.3% for the same period in 2015. Our effective tax rate has been decreasing from reductions in the amount of non-deductible executive compensation and lower state income taxes as we diversify outside of Florida.
Stockholders' equity and book value per common share reached all-time highs of $314.3 million and $9.03 respectively as of March 31, 2016.
At this point, I'd like to turn the call back to the operator.
Just a few questions here. Just to start off, can you talk about how you're achieving strong organic growth numbers within Florida just given that you are the largest insurer in the state already and given the level of price competition we're seeing?
We've had over a decade cultivated the relationships we (technical difficulty) agency force, and we take that very seriously. And also, we've improved the efficiencies in our underwriting department and claims department over that same time frame. So the transaction process between the agent and us, we think, is very favorable for the agent. So again, we've put a lot of time and effort in cultivating that relationship and we think that's the key driver behind our success in writing organic business.
And how does the rate environment look from your perspective? I know you had a 2.2% rate increase in 2015. What is 2016 looking like, have you filed anything or what you see?
We haven't filed anything yet. We are in the process currently right now, we are currently determining our rate indication. We've seen obviously some of our competitors that have come in with some pretty high rates, but as we like to say, everybody has a different starting point. Currently right now, we don't believe that we're going to really have any real material change or currently either direction, but again we'll be filing that within the next two weeks.
And then moving to outside Florida, how are you achieving growth in those states given that you're new in those markets, as you've said in Florida, you've had the relationships for years. So outside Florida how are you getting those relationships going and what confidence do you have that you're not being adversely selected against?
That's a good question. What we've been able to do is leverage our relationships that we currently have in place and a lot of the agencies we have in place in Florida have agencies in other states as well as relationships. So that's the first thing we've done to cultivate that relationship in other states and then it really becomes a grassroots movement where we're putting our marketing reps on the ground, visiting agencies to get appointed with Universal. So that's really how that process starts off.
As far as being adversely selected against, we use our own internal profitability measure to underwrite all of our business before even selecting rates. So we have a clear understanding of what type of policies is creating our binding guidelines, etcetera, which we believe would prohibit that adverse selection happening.
Some of your Florida peers have also been expanding outside of Florida as you know, but they focus exclusively on coastal states. The UVE is a little bit different in that, in addition to the Coastal States, you also growing in some inland states as well. Can you just talked about what competitive advantage you think you have in those states and why you'll be able to compete in those types of states, whereas some of your competitors don't seem to think they can?
We go through a fairly detailed process of evaluating which states might make sense for us, looking at things like resent cat loss history in those states. The overall regulatory environment from a rate and a form perspective, also taking into account the overall size of the state and the potential contiguous nature to other states that we're already active in. After we've analyzed all of that, we make our decisions in terms of which states we want to file for our certificate of authority and then as Sean alluded to a moment ago, the process is rather detailed for us to get up and running within a state as we're going in and meeting with agents and understanding the overall need from mono-line carrier and the specifics of that state. Long before we ever write that first policy, we've done a fair amount of homework within those states.
Bottom line is obviously, the other states have a slight incremental increase in loss ratio, but the way in which we have our reinsurance structured, we're kind of getting that reinsurance savings in those other states. So it's running relatively flat our combined ratio in Florida as well as the other states.
How about an A.M. Best rating, do you think you need one in the near future or do you think it's unnecessary that you are able to grow -- given that you are able to grow without it?
Not having and A.M. Best rating has not prohibited us from growing, but I think like any company when you want to become more of a well-respected national firm, you seek to get and A.M. Best rating. A.M. Best is going through a criteria change now. We've seen some of the methodology that they've been coming out with, but it hasn't been finalized yet. Once that is completed, then we will analyze how bad when compared to our capital base, etcetera and move forward with that. But I think long-term, it's the goal of any company to get an A.M. Best rating.
Hopping back to the underwriting margins, how should we think about your loss and expense ratio trajectory in 2016, do you think you can maintain 2015's margins?
Yes, I do. There isn't anything to make us think right now that everything won't remain constant. With the efficiencies and everything we put in place, we spoke about and released earlier with our Fast Track, etcetera, we believe that we're very confident in the way in which our claims process has progressed since mid of last year and the expenses really we believe too will be on the same line parallel.
I had a question on, so accident year 2014's initial loss pick on a gross direct basis had gone from 28.2% initially to 30% a year later. Can you just talk about what caused that uptick and then given that accident year 2015's initial loss pick is 28.8%. What gives you confidence that they won't develop closer to 30%?
Yes. We really noticed a big spike in 2014 as it related to the AOB/EMS situation that all Florida carriers are experiencing. So because of that, we had had a full complete methodology change in how we are going to be treating those AOB claims. And we created a Fast Track division as you're fully aware of and then we took our internal and external adjusters and they got them WRT certified, so that's the IIRC which basically makes them professionals in the water extraction environment.
So that we're treating the claim now almost as two claims where we have an expert who works for us, who can speak-to-speak if you will of an expert water extraction company and look at the individual AOB loss and say okay, why had this loss adversely developed. And normally there's a lot of fraud embedded in the loss and our experts are able to determine where that fraud lays out within the claim and reduce it. Second, we take our Fast Track team and we then go ahead and have them handle the damage that is the result of a covered peril. So by handling both of these at the same time simultaneously, we are noticing a significant discount for us from a loss adjustment expense as well as an indemnity expense and an EMS expense.
So I think the answer to your question simply is the change that we made in 2015 -- mid-2015 is a key driver of why we are confident in our 2015 loss pick and the adverse development on 2014 is because of the AOB situation.
Can you talk a little bit more about the direct insurance platform that you've launched? I mean obviously consumers are going to be familiar with international names such as GEICO or Progressive, but how are you get the word out about your direct platform?
Obviously, we're going to be using a lot of like Google/Yahoo analytics to drive leads to our website. But number one, just so you understand, this really is an evolution of our internal platform that we use as a company and then we're going to be sending out to our agency force. So that really we've just created a new back-end and that we're creating two new user interfaces, one for the consumer from a direct perspective and then one for the agent and one/the underwriter inside our office.
So it's been an evolution that we have tried to figure out how we can combine both from one platform, just by changing two user interfaces and it's been a long arduous task, but we're pretty pleased with the results and we will continue as I said to look at the best ways to drive traffic to this new website. We are in the infantile stages of it, we've just ended the beta testing process, and we have actually started to write a few policies.
So we're excited about the potential for this, it's new obviously and we're eager to see what the results are going to be.
You talked a little bit about your reinsurance renewals coming up and that you're putting about 50% of your program on a multi-year basis. Can you talk or is the pricing looking any different this year versus last year? And just kind of going forward, even looking out a little more, should the multi-year portion of your programs continue to increase, given where we are in the pricing cycle?
Just to clarify what I said in the opening remarks, we are adding to the multi-year capacity that we already had purchased some of last year. So in our disclosures last year, you'll have noted that we purchased some below the cat fund for -- on a three-year basis. And now, we've added some new three-year capacity. So we're facing in some multi-year capacity. We think it makes sense to do that, it gives us additional stability, especially when you're talking about the property cat costs below the Florida Hurricane Cat Fund, it ends up being a meaningful portion of what we buy.
Just touching back on assignment of benefits, you mentioned how you manage that. Do you expect this issue from what you're seeing to improve or get worse over the next year or so?
Just touching back to assignment of benefits you were talking about how you manage it at Universal, just a quick follow-up on that, do you expect the issue with assignment of benefits to improve or get worse over the next year or so?
We're already seeing a decrease in frequency as far as our AOB is concerned and as well as, as a severity metric. Obviously, with the new change to citizen's language, obviously we're going to be looking to adopt 16-02737 and me too. So I think that will obviously help us out as it relates to the beginning stages, if you will, they'd be -- where there will be the minor limits, $3,000 limit before the insurer and/or the AOB independent can go ahead and make the EMS portion of a loss greater, plus the provision where the notification of timing is 72 hours now.
So I think those things right now will help and we're just going to keep trying to run our department as efficient as we can and with some of these changes, hopefully, it will continue to progress in a positive light.
My question is regarding the tax rate which is being paid by UVE versus other companies in Florida. Could you compare what is the tax rate with other companies in Florida and going forward what tax rate you are looking forward will be effective for 2016 and 2017?
Appreciate the question, Vimal and just before I answer the question, I think I'd like to point out that the Company along with its compensation committee has been taking very active measures in restructuring its executive compensation beginning in 2015 where the Company began awarding restricted stock with attached performance measures and when you compare year-over-year, what you're seeing is last year some run-off of amortization of older awards, whereas this year we're amortizing those awards with performance measures. So when you look at our effective tax rate year-over-year and the change which is about 269 basis points, about 190 basis points of that relates to those actions that we've taken.
In addition to that, as we expand outward into other states, you've got different tax structures in different jurisdictions. For instance, in Florida, you have both income taxes and premium taxes. Now to the extent that you're paying Florida state income taxes, you get a credit on your premium taxes, but the income tax survives and it shows up in your effective rate. In other states, you may pay premium taxes in lieu of income taxes. So as we expand outward, we are reducing the state income tax burden and that accounts for about 50 basis points.
And of course, we got some other items and really those are economies of scale. When you think about what's happening is our taxable income is growing as we grow our net income. And so those amounts that are non-deductible become less as a percentage of the overall tax burden. Now, as far as the other companies are concerned, I see them some below us, some above us and to be honest with you, I just don't know enough about what their tax strategies are to really talk to them.
So, as you know with a transaction like this, the Board, the management team, we're looking at these transactions as opportunities present themselves. So this opportunity presented itself to us as a means to enter into this transaction with RenaissanceRe and we felt comfortable doing it at the time that we did it. We have not yet disclosed and we're not going to at this moment what the proceeds will be used for.
Are there any additional terms and conditions [afforded to] RenRe and if you could comment on after this transaction, what their total ownership of the Company is?
Yes, we did have seven events that we logged as small to medium size cat events, four of which where our claim count exceeded 150 impacted policyholders.
I think you guys said something earlier about adverse development in 2014, but I wasn't sure if that was about -- regarding this quarter, was there any reserve development in this quarter and if so from what and what accident years?
Frank was talking about the repositioning or re-risking of the investment portfolio to enhance yields. I noticed that your equities have decreased by about 25%. Can you just give us the progress on that and where you guys are (multiple speakers) in the first quarter?
So, we in the first quarter, we sold a few investments. We sold GE, Facebook, Apple, Berkshire Hathaway, we realized about $667,000 gain I believe. The base of those securities was somewhere in the $20 million range and that represented a significant portion of our equity portfolio. Given the volatility in the market right now, we're kind of sitting on the sidelines to wait and see what happens. And I guess in the future, we'll decide when we want to get in and to what extent, but I don't see that the equity portfolio is going to grow as a significant percent of the overall portfolio.
You have a trade day before the end of the period and they settle after the end of the period in the New Year. So it's really nothing more than receivables for securities sold.
On the AOB conversation, you guys said you guys are seeing a decrease in frequency. Do you think that's an industry-wide phenomena or do you think that's Universal specific given your initiatives?
I really couldn't expound upon our competitors and what they're doing as it relates to AOB. But I think again, we've put a lot of efficiencies in place. I've seen a lot of people talk about this being a tri-county issue. Rally in 2015, more than 50% of our overall frequency was outside of Dade Broward and Palm Beach. So, I think each company has different structures. Obviously, it's different portfolios, so it's hard to really figure out why some companies may have more losses in other areas than others. But I couldn't really expound upon how like if it's industry-wide, all I can really speak to is that I think the time and effort that we have spent in training our personnel to handle these claims has really been a strong driver of our success so far.
You guys talked about how you guys treat AOB claims, kind of as two claims, one as the attritional and one as the water part of the claim. Purposes of your reports in the annual statement, do you guys count that as one or two claims?
[Theoretically], look at it as if there is two experts in their field handling the claim at the same time being as efficient as they can and what their expertise is. It's not driving the LAE cost up at all, but it's helping us in keeping these claims out of the litigious environment which would obviously have adverse development down the road.
Approximately 7,000 claims have been processed through Fast Track traditionally. See what we've liked to say is Fast Track, claims are actually being closed within a five-day period. So, that number would be that, but some of the claims sometimes just because of the evolution of the claim, go outside that five-day range. So it's not considered Fast Track, but more claims are being touched, if you will, by Fast Track hands than independents and/or other departments we have currently.
Yes, we're looking at about $1,800 per claim severity improvement with our own internal Fast Track folks handling claims force compared to outside independents.
No, we've been reserving the same because it's still green yet, but we're seeing a lot of favorable results, and we're going to wait until our mid-year actuarial review because we have two actuarial reviews per year. And we'll see exactly how everything plays out with comparing the numbers from our 2015 recent actuarial review.
We have two per year. The state requires you to do one a year, we do two per year. We just recently did obviously our end of 2015 actuarial review with Towers Watson, and we'll be doing another one at mid-year 2016.
(inaudible) asked about the competitive environment in Florida, what are you guys seeing in terms of a change in average commissions or other acquisition costs paid to agents?
We really haven't seen anything. I mean obviously, we've been doing it a long time. So we consistently see new players that come into the market. Sometimes you see some people that are chasing policies with low rate in certain areas. We've just been consistent using our internal profitability model to determine what's rate-adequate for this company and that's a business that we seek and because of our agency relationships, we've been able to attain that business and continue to see some positive growth.
Some of your competitors, [they've set out] partnerships with other carriers or auto carriers to augment their growth, is that something that you guys are looking to do inside or outside Florida?
We've had opportunities to do that with some folks. We've actually had a relationship with GEICO in some other states. But I think right now we're just kind of trying to get our hands around our direct-to-consumer platform and with that be able to really pair-up with the right folks around the country using that platform and I think once we do that, I think that's going to give us a competitive advantage.
How about M&A, is that something you guys have an appetite for inside or outside Florida, and are there any dynamics that are giving way to opportunity for properties as you'd like?
There's been a few M&A deals that we've looked at, nothing has materialized really, past stage one or two. But we are always open to anything that'll create an increase in shareholder value, and if it makes sense for us and the Board, it's something that we would definitely pursue.
Just on the reinsurance progress, if you guys -- if there is any savings come, [fixed one], is it your intention to pass those savings on to the bottom line or would you guys look to buy more limit?
As you know, Samir, we have a full team of reinsurance professionals. So we're constantly evaluating the most efficient way to spend our reinsurance dollars. The first thing we do (technical difficulty) in my opening remarks is to establish that core catastrophe tower and after we have determined the cost of that along with the cost of the Florida Hurricane Catastrophe Fund protection, then we look at those remaining dollars within our budget and decide if it makes sense to make other efficient purchases. So no final decisions have been made, quite frankly nor will they be made until we evaluated and exhausted the different types of reinsurance products that are available at different cost levels.
As you guys continue to grow significantly out of state, does it make sense to, given the aggregate that helps with cats in other states other than Florida?
(technical difficulty) the aggregate products whether structured as excess of loss or aggregate stop loss, they can make a lot of sense. I think what's very important though is you need to understand the cost of those. If you're spending $0.80 to buy $1 worth of coverage, then the aggregate doesn't make a whole lot of sense. So, it's all about the efficient use of those dollars. So we have looked at aggregate products, actually each of the last two years when the other states portfolio was much smaller than it is now and came to the conclusion that it didn't make sense at least the opportunities that were available at that time and we'll be looking at those type of products between now and June 1.
Just on the direct initiative, I just wanted to go over the economics of the product. So we just basically think about the combined ratio as being similar to other business less commissions or other acquisition costs?
No, I think you can look at it as being relatively same. Obviously, we've said in the past that the backbone of our business is our agency force and we are going to be pulling the commissions less marketing expenses to drive traffic to our direct-to-consumer platform. And then we will be then disbursing those commissions based upon the levels of business/territories that the [current agents we have].
We're buying right now our core catastrophe tower which will have limits available for a single event up to $2.4 billion. So our responsibility would be our retention for any single event up to $2.4 billion. If we were in a situation where we have multiple events with the manner in which our program is structured both having some limits that reinstate, as well as limits that cascade down, just to give you an example, Michael, we would be able to withstand two storms of approximately $1.6 billion. If we were in a three storms scenario, all three of those storms could be approximately $1.1 billion, or if we had a repeat four storm scenario like 2004, we could have four storms, each of which could have the magnitude of $850 million and we would still be looking at just our retention as our responsibility.
Just to put a little bit around that in terms of what those numbers mean, a repeat of Hurricane Andrew modeled through RMS using our 3/31 data produces a loss of approximately $800 million. So, in those examples I gave, all of those lost scenarios would have to be something greater than a repeat of Hurricane Andrew.
You might have answered this already, but can you give me a sense of what your estimated losses would be if we had repeated the major storms in 2004 and 2005?
I mentioned Andrew, if we had a repeat of Hurricane Wilma, again using RMS modeling in our most recent data as of 3/31/2016, a repeat of Hurricane Wilma would be $345 million; the 2004 storms Jeanne, $263 million, Charlie $220 million, Ivan $147 million and Frances $134 million. So those should help you view in terms of evaluating the amount of reinsurance that we have available from our property cat standpoint, given that none of the 2004 or 2005 storms would get anywhere near exhausting the amount of coverage that we have available.
And I am showing no further questions at this time. I would now like to turn the conference back over to Sean Downes, Chairman and CEO for closing remarks.
We are pleased with our performance in the first quarter of 2016 and believe we have the right strategy in place to drive continued profitable growth and shareholder value creation. Our experienced and dedicated team, focused underwriting discipline, robust internal capabilities, superior claims operations and strong independent agent distribution network are all competitive advantages that we believe will allow us to capitalize on the future growth prospects.
We hope you have found this information useful and as always, we welcome feedback from our shareholders.
In closing, I would like to thank our independent agents and employees for their hard work and dedication, as well as our Board of Directors and management team.
News 
Market Data 
Discover 
