Good afternoon, and welcome to HCI Group's fourth quarter 2016 earnings call. My name is Tim, 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 March 21st, 2017, starting later this evening. This call is also being broadcast live via webcast and available via webcast replay until March 21st, 2017, on the investor information section of the HCI Group website at www.hcigroup.com. I would now like to turn the call over to Mr. Kevin Mitchell, the Vice President of Investor Relations for the HCI Group. Sir, please proceed.
Thank you, and good afternoon. Welcome to HCI Group's fourth quarter and full year 2016 earnings call. With me today are Paresh Patel, our Chairman and Chief Executive Officer, and Richard Allen, our Chief Financial Officer. Following Paresh's opening remarks, Richard will review our financial performance for the quarter and then turn the call back to Paresh for an operational update and business outlook. Finally, we will answer questions. To access today's webcast, please visit the investor information section of our corporate website at hcigroup.com. Before we begin, I'd like to take an opportunity to remind our listeners that today's presentation 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 in 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, I would now like to turn the call over to Paresh Patel, our Chairman and CEO. Paresh.
Thank you, Kevin, and welcome everyone. As most of you know, HCI Group is a holding company with subsidiaries engaged in diversified complementary business activities. Our principal operating subsidiary is Homeowners Choice Property & Casualty Insurance Company, which provides homeowners insurance in the state of Florida. The newest addition to our company, which we introduced last year, is TypTap Insurance Company, which provides flood insurance to Florida homeowners. TypTap features typtap.com, our internally developed online platform for quoting and binding flood insurance policies. Accessible from any internet-capable device, including your mobile phone, typtap.com provides a quote in seconds and a policy in minutes. Thirdly, we have a Bermuda-based reinsurance subsidiary called Claddaugh Casualty Insurance Company, which participates in our reinsurance company. We also have an information technology operation called Exzeo, which develops innovative products and services for our insurance subsidiaries, including the technology that powers typtap.com.
We expect to find other means to leverage Exzeo technologies in the future. Finally, we have Greenleaf Capital, which owns and manages our diverse and growing portfolio of Florida real estate, which currently includes two office buildings, two parcels of Gulf Coast waterfront property, and two grocery-anchored shopping centers. I will have more to say about Greenleaf Capital in a moment. The fourth quarter was an eventful cap-off to an eventful year. I am pleased to tell you that it was HCI's 37th consecutive quarter of profitability. The most significant event during the fourth quarter was, of course, Hurricane Matthew. A Category 4 storm, Matthew had significant impact on the eastern seaboard of the United States, including Florida. For us, Hurricane Matthew ultimately represents approximately 2,500 claims and $21 million of losses.
The losses fall toward the low end of our $20 million-$25 million range, which we had discussed on our last earnings call. As previously announced, we did not trigger reinsurance recoveries from any third-party reinsurers. Matthew, however, did provide a number of positive takeaways. Firstly, it validated how well our staff and management planned and prepared for catastrophic events. Two, it demonstrated to our reinsurers, regulators, and others the value of our Atlas Viewer system. Atlas Viewer is a map-based real-time claim tracking platform, and it was the surest form of information as to what was happening in Matthew on the ground for the first few days after Matthew occurred. Finally, Matthew had an unexpected benefit of validating the TypTap business model because it verified both TypTap's underwriting prowess as well as claims handling capability and speed of payment.
On other subjects, also during the quarter, we paid a $0.30 per share dividend, marking our 25th consecutive quarter of paying a dividend. Our cumulative dividends paid since inception now total $6.15 per common share. Subsequent to the quarter's end, we increased our quarter dividend 16.7% to $0.35 a share beginning the first quarter of 2017. During the quarter, we repurchased a total of 68,852 common shares at an average price of $29.09 for a total cost of $2 million, which completed our repurchase plan for 2016. Later, we announced the $20 million repurchase plan for 2017. The dividend increase and the 2017 share repurchase plan reflect our board's continued confidence in HCI's future cash flows. The fourth quarter also marked the emergence of our real estate division, Greenleaf Capital, as an operating entity.
In December, Greenleaf acquired full ownership of one of its development projects, a 50,000 square foot shopping center in Melbourne, Florida. The shopping center is anchored by a unit of The Fresh Market, which is a chain of 137 gourmet supermarkets located across 27 states. Furthermore, the shopping center includes premium in-line retail tenants such as Jersey Mike's, Orangetheory Fitness, Supercuts, and Scottrade. As a result of the acquisition, HCI recognized a one-time remeasurement gain of $4 million. That remeasurement gain was in addition to a $2 million bargain purchase gain produced by Greenleaf in the third quarter of 2016 when it acquired a 61,000 square foot shopping center in Sorrento, Florida, which is a rapidly growing community outside of Orlando. That acquisition was structured as a buyout, prearranged as part of a construction loan from Greenleaf to the developer.
That center in Sorrento is anchored by Publix Super Market, and as many of you may not know Publix, it is one of the largest U.S. regional grocery chains and has over 1,000 stores throughout the Southeast. While both of these are one-time gains, they were the result of long-term planning and execution. We don't expect them to be repeated individually, but collectively we do. The acquisitions indicate that Greenleaf is evolving from maintaining and managing a portfolio of real estate properties to actively developing and creating value and establishing long-term revenue streams. Greenleaf now owns and manages a significant portfolio of properties, the value of which is not fully reflected on our balance sheet. You can expect to hear more about Greenleaf in the future.
Now, before I go further, I would like to invite our CFO, Richard Allen, to take us through our financial performance for the fourth quarter. Richard?
Thank you, Paresh, good afternoon, everyone. For the quarter ended December 31st, 2016, net income totaled $4.6 million, or $0.47 diluted earnings per share, compared with the same quarter in 2015 of $11.1 million, or $1.05 diluted earnings per share. Gross premiums earned for the quarter were $92.4 million, compared with $101.9 million for the fourth quarter of 2015, reflecting a decrease of 9.3%. This decrease is a result of policy attrition and a previously discussed rate decrease that was effective for policy renewals beginning in January of 2016. Net premiums earned in the fourth quarter were $63.4 million, compared with $61.6 million in the same period of 2015. This increase is a result of reduced reinsurance costs for the current treaty year and a slight impact from the November Citizens assumption, offset in part by the decrease in gross premiums earned.
Investment-related income in the fourth quarter of 2016 was $4.8 million, compared with $1.3 million in the same period in 2015. This increase was primarily due to $1.2 million of income from limited partnership investments in the current period, compared to losses of $0.4 million in the same quarter of 2015. Included in the current quarter are net realized gains from investment sales of $1.7 million, compared with $45,000 of net realized losses in the same period of 2015. The company recognized a remeasurement gain of approximately $4 million in the current quarter on the acquisition of full ownership of a shopping center in which it had held a 90% non-controlling interest during the development cycle. This gain was partially offset by an impairment charge of approximately $400,000 due to the unexpected closure of one tenant's business.
Losses and loss adjustment expenses incurred for the current quarter were $45.4 million, reflecting the impact of Hurricane Matthew, which accounted for approximately $21 million of our fourth quarter losses. This compares with $21.4 million of losses and loss adjustment expenses in the fourth quarter of 2015. Policy acquisition and other underwriting expenses were $10.1 million, a decrease of 8.6%, primarily the result of a reduction of premiums as discussed earlier. Salaries and wages were $2 million for the quarter, compared to the $5 million recorded in the fourth quarter of 2015. This decrease is a result of a reduction in incentive bonus payments, reflecting a reduction in pre-tax income for the year.
For the year ended December 31st, 2016, net income was $29 million, or $2.92 diluted earnings per share, as compared with net income of $65.9 million, or $5.90 diluted earnings per common share for the year ended December 31st, 2015. Gross earn premiums decreased to $378.7 million as compared with $423.1 million in the prior year. For the same periods, net premiums earned decreased to $243.6 million from $282.5 million. Investment related income during 2016 totaled $11.7 million, compared with $3.4 million in 2015. The increase in 2016 is primarily $1.2 million of income from limited partnership investments, compared to losses of $3.2 million in 2015, as well as net realized gains from investment sales of $2.6 million in 2016, compared to $0.6 million in net realized losses in 2015.
Additionally, the company recognized net non-cash charges of $2.5 million in 2016 as compared with $4.7 million during 2015 due to declines in the fair value of securities determined to be other than temporary. In 2016, the company recognized $2.1 million from a bargain purchase gain in a real estate acquisition in the third quarter of 2016 and the remeasurement gain in the fourth quarter, as previously discussed. Losses and loss adjustment expenses incurred increased to $124.7 million from $87.2 million. This increase was primarily due to Hurricane Matthew and reserve strengthening, the result of the trends in the assignments of benefits litigation impacting the current and prior accident years. In 2016, we used a conservative approach to establishment of the incurred for the current accident year and established an incurred amount of $83.1 million, excluding the impact of Matthew for accident year 2016.
We applied the same conservative approach to prior accident years and increased ultimate loss projections by $20.5 million for those prior accident years. Salaries and wages in 2016 were $19 million as compared with $20.1 million in 2015, primarily attributable to a decrease in the incentive pay, as described earlier, offset by an increase in staff count at the Tampa headquarters. Our combined ratio for the fourth quarter of 2016 was 104.9%, including the impact of Hurricane Matthew, compared with 74.3% for the prior period. Excluding Matthew, the combined ratio for the quarter, 71.8%. For the year ended December 31st, 2016, our combined ratio was 89.3%, including Hurricane Matthew, as compared with 63.6% for the prior year. Excluding Matthew, our combined ratio for the year was 80.7%. On the balance sheet, invested assets have increased to $298.7 million from $232.9 million at December 31st, 2015.
Cash and short-term investments increased to $280.5 million from $267.7 million a year ago. Total stockholders' equity increased to $243.7 million from $237.7 million at the prior year-end. Included in the balance sheet and income statement, and as discussed in prior calls, is the benefit of our multi-year reinsurance treaties. Recorded cash benefits for the year and as of December 31st, 2016, were $13.6 million and $5.8 million respectively. We collected $43.5 million during 2016, resulting from the terminated multi-year reinsurance contracts. Book value per share was $25.23 at December 31st, 2016, compared with $23.10 at December 31st, 2015. In closing, despite the significant impact from Hurricane Matthew, we are pleased to report a profitable quarter and $29 million of net income for the full year of 2016. Thank you. Paresh?
Thank you, Richard. The fourth quarter was significant for HCI Group as it illustrated the value of our long-term strategic plans to do, A, manage our risks, B, manage our costs and expenses, C, diversify our business operations, D, develop and deploy new technologies, E, maintain a strong balance sheet, and F, pursue accretive growth opportunities as they arise. When we say diversified, that could be by geography, meaning the regions in which we operate, both inside and outside of Florida, or it could be by product mix, such as flood, or it could be by industry, such as software. Our diverse operations contributed to our success in the fourth quarter, which by the way, was our 37th quarter of profitability. Looking at individual subsidiaries, our insurance subsidiary, Homeowners Choice Property & Casualty Insurance Company, continues to be our largest and most meaningful operation.
Since the inception of this business, we are focused on strict underwriting. We continue to assess the quality and diversification of the book. We look for diversification both geographically and across product types. Outside of the recent major weather events, our gross loss ratio has been relatively stable on a year-over-year basis near the 25% mark, which we believe reflects our commitment to underwriting and distribution of risk. Our efforts to manage our risks are in part the reason gross premiums have declined in recent periods. Traditionally, insurance companies have grown when times were good and retrenched when times were bad. We have followed this approach slavishly. I've often said that we're more interested in the bottom line than the top line, and when opportunities for appropriate policy growth arise, we will pursue them aggressively and that we have the financial strength to do so.
Our efforts at managing risks have enabled us to reduce reinsurance costs, which is by far our largest expense. To give you a comparison as to what this means, a comparison of changes in gross premiums earned to changes in net premiums earned might make this very apparent. For example, year-over-year gross premiums earned in the fourth quarter from 2015 to 2016 decreased by $9.5 million. Yet, the year-over-year net premiums for the same comparable periods increased by $1.8 million. Our captive reinsurance subsidiary, Claddaugh, also plays a significant role in managing our reinsurance costs. Since its inception, Claddaugh has contributed in excess of $76 million in savings for Homeowners Choice. Even during the fourth quarter, Claddaugh was profitable despite Hurricane Matthew claims from Homeowners Choice totaling about $5 million. That profit represents a savings to Homeowners Choice.
Without Claddaugh, Homeowners Choice would have been required to purchase reinsurance from outside the HCI Group. Having our own captive reinsurance company gives us flexibility in securing reinsurance coverage. Another element of our strategic plan has been to develop and deploy new technologies. Our Exzeo subsidiary develops products that improve underwriting, policy production, and claims handling. We believe that we have the best technology in the industry. For example, Atlas Viewer that I mentioned earlier, developed by Exzeo, is a map-based technology that allows us, in real time, to identify and track and manage daily claims, as well as claims associated with catastrophic events. Exzeo is also the developer of the online quoting and binding technology that supports TypTap. Speaking of TypTap, we believe that TypTap's simple, easy-to-use online platform is the model for how insurance will be purchased in the future.
TypTap exemplifies both our investment in technology and our efforts at product diversification. Flood insurance is a new product for us. The flood insurance market has been controlled by the NFIP for over 40 years. We think we can successfully compete in this market. Further, the TypTap platform can be expanded to sell different types of insurance in different geographic regions. To date, TypTap has sold some 3,000 flood policies. We are very excited about long-term prospects for TypTap. Our other division, Greenleaf Capital, I've already discussed. I will only add that it is an example of our strategic plan for diversification by industry. Another aspect of our strategic plan is to maintain a strong balance sheet. At year-end, we had over $579 million of investable assets and over 48% of which is sitting in cash.
As we have done in the past, we will be patient with this capital and allocate it appropriately as opportunities present themselves. We have maintained a conservative investment approach over the past few years, which we believe has produced a prudent return on our investments. Homeowners Choice and TypTap, because of all of our actions, are solid financially and have no immediate need for capital. In fact, surplus in both companies increased during the fourth quarter. That said, we will be opportunistic in pursuing additional funds to improve our balance sheet if the pricing and other terms are appropriate. We believe we are well positioned for future opportunities. Speaking of future opportunities, looking forward to 2017. Homeowners Choice, our biggest subsidiary, is looking forward to a bright future because in 2016, we challenged ourselves through a rate decrease.
2016-2017, we're looking for a rate increase, which has been filed but not yet been approved. Also, given the dislocations in the industry, we expect Citizens to grow in 2017. It may yield potential takeout opportunities at the end of the year. Finally, because of the disruptions in the industry over the last year, we think there will be acquisition opportunities during the course of 2017. If any are appropriate, we intend to pursue them and acquire them. Looking at our other subsidiary, TypTap, it's coming up on its first year anniversary of being in operation. It has been a tremendous success. It looks forward in 2017 to expand to both additional states and do additional lines of business. The NFIP continues to lose money. Congress is going to relook at the whole flood insurance program before 2017.
This, too, could be a wonderful growth opportunity for TypTap. In summary, as we look forward, we are very bullish on the future. We expect at the end of 2017 to be larger than we were at the beginning of 2017. With that, we are ready to open the call for questions. Operator, please provide the appropriate instructions.
At this time, we will be conducting the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions. Our first question comes from the line of Matthew Carletti of JMP Securities. Please proceed with your question.
Hey, thanks. Good afternoon, guys.
Good afternoon.
A few questions. Paresh, maybe we could start with just an AOB update from what you guys are seeing, particularly as we think about some of the most impacted Tri-County area. From a claims perspective, what are you guys seeing in terms of trends? Secondly, what have the trends been in terms of your PIF count there?
Thanks, Matt. We've been operating in Tri-County for most of our existence, so we know the area very well. The AOB issue is generally confined to Dade and Broward Counties, and it seems to predominantly center around the HO3 book, the homeowners policies. Knowing those things, we monitor those things very carefully. What we have noticed in the course of 2016 is that policies generate claims, and claims generate lawsuits, and all of those things lead to expenses. By tracking policies, we can track claims, and by tracking claims, we can track lawsuits. The lawsuits take up to 18 months to two years to appear after the date of the loss. This is a very long-tailed event that is now occurring. Having said all of that, what we seem to see is a stabilization in terms of the amount of AOB that's going on.
It is at extremely elevated levels, it is stable. What we are saying is, for every 100 claims we are getting in HO3 in Dade and Broward, we are seeing ultimately about 35 lawsuits. These are all measurable trends, and we can see that they're steadied out. I think there are other people in the industry who have just expanded to Dade and Broward, and they're seeing the uptick. Eventually, what we are seeing is it's stabilizing out into those kind of numbers. In terms of how we look at it on an overall basis, I will tell you two things. One is AOB is a problem in 67 counties that we operate in, and it's in one product line out of five product lines we operate in. We have taken active steps to corral that problem area, and we manage it. That's our business.
That's what we're supposed to do, risk management. To that effect, what we've done is reduce our HO3 exposure in Dade and Broward County. We did this quickly and early on in 2016, and what we are now seeing is a decline in the claims rate, in the absolute number of claims we are getting on a weekly basis from Dade and Broward for HO3 policies. This means we will eventually see a decrease in lawsuits and everything else. It's too early to tell yet, the actions we've taken make us very optimistic that, at a minimum, the AOB problem for us has stabilized, and at a maximum, it may actually go into decline because of some of the underwriting actions that we've taken. Long-winded answer, hopefully, that gives you some clarity.
Very helpful. Very helpful to hear the progression of events. Kind of separate topic, be curious your thoughts on Demotech, which rates yourselves and a lot of your peers in Florida, recently announced some news about potential ratings changes on some companies. It was clearly focused more on, I'd say, some smaller balance sheet competitors of yours and others that might have been a little more impacted by Matthew. Along those lines, could you tell us what thoughts you think that might have on the market, and if there might be any opportunities for HCI that come out of that?
Absolutely. I think there will be opportunities that come out for HCI for that. Let me start by reiterating one more time that both of our insurance subsidiaries, TypTap, as well as Homeowners Choice, neither one of them needed any capital infusions in 2016, nor are they subject to any requirements for Demotech currently of needing additional capital. Demotech has other things that they wish to discuss, which gladly we will in due course. What the Demotech actions have illustrated, really, I think they're merely the final straw in what's been going on for the last year. You have a number of weaker players and smaller players, or newer entrants in the market, who have neither the capital base nor the large and distributed book to enable them to sustain the losses that they're currently taking.
I think where this is ultimately going to lead to is a number of players will exit the market, I think by exiting the market, they will probably sell either the company or the book of business. We are very well positioned to buy those books of business because we know how to operate and manage these books. We think 2017 could be a very good year for us to grow by acquisition. I think the number of participants in the Florida market is going to shrink meaningfully over the course of the year.
Great. Thanks. Very helpful. Just a couple numbers. Apologies if I missed them in the comments, just gross written and net written premiums for the quarter.
Richard?
Gross written for the quarter was $58,000,886. Gross written for the year is $367,000,191. Net written for the quarter, $29,000,832. For the year, $232,000,140.
Great. Thank you for the answers and best of luck in 2017.
Thank you.
Thank you.
Our next question comes from the line of Brian Hollenden of Sidoti & Company. Please proceed with your question.
Hi, guys. Thanks for taking my call.
Thank you.
Can you give us an update on, and sorry if I missed this, but can you give us an update on flood insurance? What does the opportunity look like for 2017 in terms of gross premiums?
Brian, I know it looks bright. I just can't tell you how bright it may get. The reason for that is depending on what Congress does when the NFIP comes up for reauthorization, it could really open the opportunity for TypTap. It requires on Congress to do what they want to do. Then it becomes speculation. Assuming 2017 continues just like 2016, this big thing that is out there that has to be handled over the year, assuming it's a non-event, which is a big assumption, I think TypTap will continue to grow because we are seeing it gaining traction in the Florida marketplace, and it's a system that even agents love. We're getting 80% of our business from independent agents. With every passing month, we see more and more production coming in. Of course, once it comes in, it sticks with us.
Because there's a big Homeowners Choice sitting next to it looks small. Over the course of the next few months, we expect by the end of the year, this thing will be close to about $10 million premium in force if nothing happens. If things go slightly haywire in Washington, it could be a much larger number.
Okay, thank you. Are you seeing broad signs of premium rate increases in the market since Hurricane Matthew? You mentioned earlier, what increases are you asking for?
Okay. As far as broad rate increases in the market, I think we were seeing that even before Matthew. I think 2016 was a particularly tough year for the industry, there were already lots of rate increases being filed for, and some have already been approved. It's not a Matthew event, a related item. I think it was there more AOB and other causes. As for ourselves, we have done our annual rate filing. We expect to probably get a rate increase somewhere in the low single digits, is what we think we would get. It may be greater than that, all we are banking on at this moment is something in the low single digits.
Okay, one last question from me.
Sure.
Is there a price to book level that you guys will hold off on share buybacks? How should we probably think about that?
There is a price at which we would hold back on buybacks, absolutely. Given all of our diverse operations, that's why I went to some length today to go through all the different things that we own, I think price to book may not be the only measure that we should be valued at. For example, if I was to look at some, you've got two insurance subsidiaries that you might apply price to book, you have Greenleaf, which has lots of real estate, which is on the books at purchase prices and has a lot of unrealized appreciation that is not on the books. That should be factored into the price. Then you have both Claddaugh which you couldn't assign a value to, and then Exzeo, which is turning out to be quite a nice Insurtech startup.
Insurtech startups are a valuation that is nothing to do with price to book. It's to do with the potential of the business. When you look at the sum of the parts, you have to come to a conclusion as to what do you think is a bargain for this company. The other way, just as an aside that we look at valuation and do we do a buyback or not is return on earnings. We have a very high ROE, most people go off and look for businesses with these kinds of ROEs to buy. We look at ourselves as an investment, just like we look at other things, sometimes the best investment is in HCI. We know the management, we know the business, and we like the returns.
All right. Thank you for the color.
I would like to remind all of our participants at this time, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from the line of Mark Hughes of SunTrust. Please proceed with your question.
Yeah. Thank you. Good afternoon. Do you have an updated
Good afternoon, Mark.
Good afternoon. Do you have an updated estimate on the real estate value? As you pointed out, the current valuation is not really reflected on the balance sheet, when you publish the K, will you give an update? If so, can you give us a sense of what that is?
Mark, before I answer that question, I'm just being told something that I have to correct. When Brian asked the things that we look at when we do a buyback, I meant return on equity, not return on earnings. Materially different things. I'm sorry, I misspoke. As far as your question about what we estimate the unrealized gains are on the properties, our current estimates are somewhere in the neighborhood of $35 million-$40 million.
Thank you. How about the pipeline at Greenleaf? What do you think of the real estate valuations that you see out there? I think you talked about a growing capability to do development. What do you see coming in the next 12 months?
Well, I think there's a couple of projects that are under development within Greenleaf. They have to mature out. Given the high valuation that people now put on real estate, I don't necessarily know there's much in the pipeline for us to just go acquire straight off the bat kind of thing, because the cap rates are so low that it doesn't make sense for us to acquire those. The method we've been doing with developing and then acquiring obviously has proven well, given the bargain one-time gains we've had to book when we bought these things. We will continue to look for more of those opportunities, but they are more of a longer nature of opportunity, which is fine by us because we are doing this for the long haul.
How about policyholder retention? Any change in those trends in the fourth quarter?
Not even in the fourth quarter. We've previously said that policyholder retention has been very high since the second half of last year, that's been occurring because of all the turmoil in the market. We are a very steady player. We're very responsive to our policyholders, et cetera, we tend to get a very high retention rate, around the 90% mark.
I think you had said you expect to end the 2017 being bigger than you started the year. Do you need to do a deal or two in order for that to happen?
We need a break or two, whether we do a deal or two. Given our range of opportunities, we could get bigger because TypTap does really well because of disruption in the flood market, we could get bigger because Homeowners Choice buys another insurance company. We could get bigger because we buy an insurance company in some other state. We could get bigger because Greenleaf buys some real estate. There are a number of different ways we could do this. It will be more of a step function as opposed to every day we write five more policies or something. It's just the nature of how we grow. It's kind of lumpy.
Understood. I think you gave the $20.5 million as the amount for the reserve strengthening for the full year. What was it for the fourth quarter?
Fourth quarter was, I think there was about $3 million in the quarter for prior periods, including approximately $21 million for Matthew.
About $3 million? Okay. Final question on, I assume there was a reversal on comp accrual in the quarter. Your salary and benefits was fairly low. Was there some amount that was reversed, and if so, how much?
The incentive compensation was reduced due to the reduced pre-tax income of approximately-
Right. Was there a reversal from prior quarters or just lower year-over-year?
It was lower year-over-year, we reversed the accrual in the fourth quarter down to actual.
Okay. The magnitude of that?
Approximately $2 million.
Okay. Great. Thank you very much.
Our next question is from Arash Soleimani of KBW. Please proceed with your question.
Hi. Thanks. Just wanted to ask a few. How much In terms of the variable compensation, what are the loss ratio thresholds where the variable pay starts to decrease? What are the sensitivities after the threshold is met?
Are you talking about the incentive plans and the bonus schemes and stuff?
Yeah. Since you guys have mentioned that the compensation was impacted by the higher losses from Hurricane Matthew, I was just wondering what the loss ratio sensitivity is there, the threshold that you have to hit.
I think, Arash, the bonus scheme is entirely discretionary. At the end of the year, I think the board and the compensation committee decides what they feel is appropriate given the performance for the year, et cetera. I think the finance department accrues throughout the year based on previous years, et cetera, the outcome is what the outcome is. They true it up for the end of the year, which is what I think Richard said when he said there was a $2 million reversal. Putting in English, they accrued $2 million more than was eventually paid out, and they had to reverse it.
Arash, it's based on pre-tax income.
Okay. Oh, go ahead. Sorry.
Okay.
Oh.
No, go ahead.
Sorry, I thought Richard was saying something else. Then the TypTap current premium in force, I think you said you have 3,000 policies right now. What are the premiums in force there?
I would say probably around $3 million-$4 million, $3 million-ish.
$3 million-$4 million. Okay. Then the goal was by the end of the year to hit $10 million?
That's the stretch goal, yes. Assuming the Congress doesn't help in any way.
Okay. If Congress helps, I guess, how much more optimistic do you get for the end of the year?
Arash, I wouldn't like to speculate because I don't know how much help they will provide.
Okay. No, that's fair. Also, in terms of the TypTap, what were the TypTap losses from Matthew, if any?
I think there were one or two claims. For clarification, I think we had more Hermine claims for TypTap than we had Matthew claims. There were a handful of claims across the two hurricanes.
Okay. Can you provide, just a couple numbers questions, share count for the quarter and also the PIF count?
The PIF count at the end of the year was around 150,000. I'm talking about Homeowners Choice, yeah?
Okay. Yep.
The diluted share count for the quarter was 9,152. For the year, it was 9,152,000. For the year, it was 10,873,000.
Thanks. Sorry, you said for the quarter it was 9,152?
Yes.
Okay, thanks. The other question I had on other operating expenses specifically, just looking at that as a percentage of gross premiums earned. It increased not by much, by about 50 basis points. I was just wondering what's going in there that's bumping that up?
That's got a little bit of everything in there. No one major item accounted for the increase.
Okay. That was it for me. Thank you very much for the answers.
At this time, this concludes our question and answer session. I would now like to turn the call back over to Kevin Mitchell, who has a few closing remarks.
On behalf of the entire management team, I'd like to express our appreciation for the continued support we receive from our shareholders, employees, agents, and most importantly, our policyholders. We look forward to updating you on our progress in the near future.
This concludes today's conference. Thank you for your participation. You may disconnect your lines at this time. Have a wonderful rest of your day.