Good morning, and welcome to Heritage Insurance Holdings' first quarter 2015 financial results conference call. My name is Anita, and I will be your operator today. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentations. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. As a reminder, this conference call is being recorded. The matters discussed on this call that are forward-looking statements based on current management expectations involving risks and uncertainties that may result in these expectations not being realized.
Actual events, outcomes, and results may differ materially from what is expressed or forecasted in forward-looking statements made on this call due to numerous risks and uncertainties, including but not limited to, the risks and uncertainties described in this conference call or press release issued yesterday and other filings made by the company from the SEC from time to time. Forward-looking statements made during this presentation speak only as of the date on which they are made. Heritage Insurance Holdings specifically disclaims any obligation to update or revise any forward-looking statements to reflect new information, future events, or circumstances or otherwise. At this time, I would now like to turn the conference over to Mr. Bruce Lucas, Chairman and Chief Executive Officer of Heritage Insurance Holdings. Please go ahead, sir.
Good morning to everyone joining us for the call. This is Bruce Lucas, Chairman and CEO of Heritage Insurance, and with me is Steve Rohde, our CFO. I would like to welcome all of you to our first quarter earnings call. Before we begin the discussion of our quarter, I would like to take a moment to thank all of our employees for their commitment to our company. We had the best quarter in the company's history and reported a record profit of $30.1 million. We have a strong business plan, and our quarterly results reflect our ability to execute on that plan and once again, outperform shareholder expectations. From a financial perspective, we had an incredible quarter. Our gross written premium and net operating income increased significantly.
Our personal lines voluntary production increased by 56% versus the fourth quarter of 2014, and our commercial residential production continues to outpace our expectations. We continue to have tremendous success in growing the company, as evidenced by a 94% increase in gross premiums written for the first quarter of 2015 as compared to the first quarter of 2014. 140% increase in net premiums earned for the first quarter of 2015 versus the first quarter of 2014. We also had a 57% increase in policy count compared to the first quarter of 2014. Net income of $30.1 million for the first quarter of 2015 represents an increase of 281% compared to the first quarter of 2014. We had a combined ratio of 64.6% for the quarter, and our shareholder equity increased 161% compared to the first quarter of 2014.
Additionally, Heritage was once again named the fastest-growing property and casualty insurer in the U.S. in 2014 by SNL. This is the second year in a row in which Heritage was named the top growth insurer in the U.S. This is an incredible accomplishment in and of itself, but it is even more impressive given the financial performance of the company to date. It is a real testament to the strength and vision of the company and our ability to identify market conditions before they arise and execute on them when the timing is right. We are very pleased with our growth to date and have exciting plans for the company in the near future. Now for more information on the financial results, I will turn the call over to Stephen Rohde, our Chief Financial Officer. Stephen?
Thank you, Bruce, good morning. Our policy count reached 220,000 policies at March 31st, which included approximately 2,750 commercial residential policies. Our total in-force premium on March 31st was $533 million, an increase of 104% over March 31st of 2014. During the quarter, we participated in Citizens depopulations each month, resulting in approximately $35.1 million of personal residential in-force premium and $11.8 million of commercial residential in-force premium. Gross premiums earned for the first quarter were $126 million compared to $60.9 million for the first quarter of 2014. Commercial residential represented $25.7 million and personal residential $100.3 million. The significant growth in gross premiums earned was a big reason for our growth in net income for the quarter. Additionally, our results were favorably impacted by significantly lower reinsurance costs as measured against gross premiums earned.
As a reminder, our reinsurance treaties renew on June 1st and run through May 31st. Ceded premiums in the first quarter relate to the reinsurance treaty that was put in place in the previous June. Our ceded premium ratio was 19.5% for the first quarter of 2015 compared to 30.6% for the first quarter of 2014. This decrease was twofold. First was last year's favorable reinsurance market conditions and the lower cost of reinsurance associated with the issuance of $200 million of catastrophe bonds by Citrus Re, as well as improved geographic spread of risk resulting from the Sunshine State policy acquisition. Second, our fourth quarter of 2014 and first quarter of 2015 Citizens depopulation activity had a positive impact on the ceded premium ratio. These depopulations increased growth premiums earned for the first quarter, while there is no corresponding increase in ceded premiums.
The first quarter of 2014 was also favorably impacted by growth, not as significantly as this year. An increase in ceded premiums will not occur until June 1st of 2015, when our reinsurance contracts renew. Our loss ratio, as measured against gross premiums earned, was 25.8% for the quarter, compared to 33.8% for the first quarter of 2014. Factors driving the improvement were, 1, favorable development of prior losses was approximately $4.5 million, with most of the favorable development coming from the third and fourth quarters of 2014. As we've discussed in past calls, as a new company with limited loss experience, we felt it was prudent to set our IBNR near the high end of the range as determined by our actuaries. More than 60% of our IBNR at December 31st related to the last two quarters of 2014.
Those two quarters in particular had favorable development during the first quarter of 2015. Despite the favorable development, we still increased IBNR by $4.2 million during the quarter. IBNR represented approximately 56% of our total loss reserves at March 31st, a level consistent with previous quarters, and accounted for 3.3 points of the loss ratio. In other words, it was not a change in reserving philosophy that caused the favorable development. It was our actual development being better than expected by the actuarial methods used in setting loss reserves. In addition to the favorable development, our introduction into commercial residential favorably impact our loss ratio, as this line of business historically for the industry has a very low non-catastrophe loss ratio. Our experience to date has been excellent. Through two quarters, a reported loss ratio for commercial residential is in the low single digits.
Lastly, in the first quarter of 2014, we strengthened our loss reserves. This had about a three-and-a-half point negative impact on the first quarter 2014 loss ratio. Our expense ratio as a percentage of gross earned premiums was 19.3% for the quarter, compared to 18.8% for the first quarter of 2014. The amortization of Sunshine State Policy acquisition cost accounted for 1.5 points during the quarter. The remaining unamortized balance of SSIC cost is $550,000, which will be expensed in the second quarter. Our expense ratios for the first quarters of both 2015 and 2014 were favorably impacted by the assumed earned premium from the Citizens takeouts, in which there are no acquisition expenses. This improved the Q1 expense ratios for 2015 and 2014 by approximately 5.0 points and 5.8 points, respectively.
Our combined ratio as a percentage of gross premiums earned was 64.6% for the quarter, compared to 83.3% for the first quarter of 2014. We are very pleased with these results. It was a tremendous quarter for us, especially considering each component of our combined ratio, reinsurance, losses, and expenses were in line or better than our expectations. We believe this underlying base of profitable business representing $533 million of in-force premium should position us well for the coming quarters. On the balance sheet side, stockholders' equity increased to $287.8 million compared to $255.1 million at December 31st of 2014. Statutory surplus in our insurance company subsidiary at March 31st was $194.1 million, an increase of $21.4 million for the quarter. Our invested assets at March 31st were $403 million with approximately $361 million invested in bonds with an average credit quality of A and a duration of 4.2.
Our cash position was $161 million, our total assets were $669 million at March 31st. Overall, we had an excellent quarter, one we are very proud of. With that, I will now turn it back to Bruce.
Thank you, Steve. We will now take questions from our analysts.
Thank you. At this time, we will now take questions. To ask a question, please press star then one on your telephone keypad. If you are using a speakerphone, please pick up the handset before pressing the keys. If your question has been addressed, you may withdraw your question from the queue by pressing star then two. At this time, we will pause momentarily to assemble the roster. The first question comes from Mark Hughes with SunTrust. Please go ahead.
Yeah, thank you. Good morning.
Morning, Mark.
Could you talk about your voluntary production in both the personal residential, commercial residential? How'd you do in the quarter? How do you expect that to trend over time?
Sure. Well, our personal residential production versus fourth quarter was up about 56%. I'll let Steve walk you through the actual PIF count in terms of line of business. We are seeing a nice upward trend that's ahead of our expectations.
Yeah. On the voluntary, we had 7,900 new policies bound, of which almost 6,600 were HO3s. I think that's about 83% was HO3s of the new business bound for the first quarter. We're averaging a little over 100 policies a day now. In the month of April, we were at 109 policies for production.
On the commercial residential side, we continue to run an average premium run rate of about $2 million a month, I'd say, give or take, a few hundred thousand dollars. That seems to be holding fairly steady. We are selective on where we are taking those new policies, given our tremendous success on the Citizens assumptions. We are tracking well ahead of our internal expectations on both the personal lines production and the commercial residential as well.
Can you just talk about the rate or pricing, how your latest filings have looked? What do you think the competitive environment is like in the state in terms of pricing?
Well, this is no news story. Pricing continues to go down with reinsurance price declines. You have to pass on some of those reinsurance savings to the end policyholder, and that's the prudent thing to do. Rates are, I think, fairly stable. We have not seen a big erosion in rates lately. We saw it more kind of last, say, fourth quarter, third quarter timeframe, which makes sense because it was following the 6-1 reinsurance renewal treaties. We think that the market right now is fairly stable from what we're seeing. Our production has been increasing steadily since the fourth quarter, which reflects some of the rate savings that we've passed on to our customers. We think it's overall a pretty solid market right now.
Where do you think reinsurance costs, kind of rate on line are going to come in for this renewal?
Yeah, we're still in negotiations on that, Mark, I don't know that it'd be proper to really comment on that right now, given that our program is with various reinsurers. I can tell you that the only pricing that we have announced was the pricing on our Citrus Re 2015 catastrophe bonds that we placed, those are out there, very public. We were happy with the pricing that we received on those layers.
How about on that front, Steve, any guidance you can give in terms of ceded premium ratio in Q2 and Q3 as kind of you see it now, given the mix of business you've got, at least as far as you can understand pricing at this point, what do you think those percentages will be like?
Sure. In the second quarter, the first two months, April and May, we'll have the same favorable impact we had for the first quarter. I would expect that the second quarter ratio would be around in the 24%-25% range. I think the third quarter, it'll be-
Hard to say
hard to say.
Yeah.
It'll be in the low 30s, I would say, but again, there's a range there.
Yep. With the stock trading where it's at, would you think a share buyback is appropriate? How are you looking at the stock now with this kind of valuation?
I think that's a really good question, Mark, because we look at where we are right now. For the quarter, we produced about a 44% annualized ROE, which I'm pretty confident would probably be tops of all the Florida companies. We look at the average of where our peers trade on a P/E basis, and that average is about 9.5, and we're trading at about a 6.5. We do think the stock is incredibly cheap at this price. We are going to look at all the options that are on the table in terms of increasing shareholder value. Certainly, when your stock is, in our opinion, undervalued to the extent that it is, it's something that you have to consider. We are also in growth mode. We are sitting on quite a bit of cash right now.
We are looking at some M&A opportunities, and we're in some due diligence processes as we speak. We're going to wait and see how those processes kind of filter out and see how the share price performs during the next couple of quarters. We'll make a decision as to whether or not a share buyback would be a prudent use of capital.
Thank you.
Thank you.
The next question comes from Matthew Carletti with JMP Securities. Please go ahead.
Hey, thanks. Good morning.
Good morning.
Just had two questions. The first one relates to personal residential depops, takeouts from Citizen. Has your appetite for that changed at all going forward based on the past several months of takeouts, whether it be on the hit rates you've seen and kind of the population of what's left in Citizens, whether that be for the better or for the worse?
Matt, this is Bruce. No, I don't think our appetite has changed. I mean, we've announced that our intent is to do smaller scale depops on a more frequent basis as we go through the year just to replace some of the attrition that we have. It's also a nice source of growth if the policies are there. We do tend to reduce the amount of policies we take as we head into wind season. That's just simply controlling your reinsurance costs. We are at a pretty good level where we are right now in terms of year-over-year growth being north of 100%. We like our current situation. We're looking at reinsurance season now, buying our cat cover.
Typically right now is a time when we would slow down in terms of depopulation activity and look to pick it up again more in, call it end of third and fourth quarter.
Okay. My only other question, it relates to the loss ratio on the personal residential side. Can you give us any color? Maybe you have the numbers or just some qualitative color around how the loss ratio might differ between your takeouts, your voluntary book, and say, M&A, so maybe Sunshine State. Is it a pretty tight range or are there some big variations in there?
On the HO3, it's a pretty tight range, and actually, I think the takeout book has a slightly better loss ratio than the voluntary. It's mainly because our premiums are higher on the takeout business. On a loss cost basis, the range is very tight. All our business, particularly the ones where we have significant concentrations of business, either in regions or particularly HO3 product, are running all very acceptable loss ratios for us.
Great. Well, thank you for the answers, and congrats on a nice start to the year.
Thanks, Matt.
The next question comes from Arash Soleimani with KBW. Please go ahead.
Thanks. Good morning.
Hi, Arash.
A couple of questions. What was the rate on line on the cap bonds for the portion that replaced your FHCF for 75?
Yeah, I think our fully loaded cost structure there was around 7.11%.
Exactly. With all the expenses associated with issuing a cap bond.
Okay. What were direct premiums written, I'm assuming premiums written in the quarter?
Direct written premium, just a second, I'm getting my thoughts here, Arash. The direct written premium for the quarter was 30-some million for the assumed business, and then the direct business then would've been about a little over $100 million.
Okay, thanks.
We can circle back with an exact number for you.
Sure. Thank you. I appreciate that. I think for annualized premiums in the quarter, annualized premiums assumed, was that around, I think you said $47 in the press release. I was just wondering what the difference between that was and the $60 million that you had mentioned before. I think on the last call you had mentioned.
Yeah, the last call, the opt-out rate, it was higher in first quarter takeouts, particularly the February and March takeouts had a higher opt-out rate than we had ever experienced before. That's what caused the lower premium being assumed from what we had announced at the fourth quarter call.
On a month-to-month basis, you kind of look at what you get in terms of a take-up rate on the Citizens process. Some months you have a pretty large number of opt-outs. Other months it's pretty light. So you just kind of got to look at it on an annualized basis. That's what we do. We kind of average all the takeouts and the take-up rates on a, just call it a 12-month basis. We did some smaller takeouts in the first quarter, and the smaller takeouts, they had a little bit of a higher opt-out rate than what we were projecting, but overall, we still came in ahead of our projections in terms of top-line revenue.
Okay. What is your retention currently?
Policies that come up for renewal, we are renewing about 86% on our voluntary business and slightly higher on our takeout business. We also have midterm cancels that result in about roughly 9%-10% of our policies on an annual basis leaving us.
Okay. You said the favorable development, that was the third and fourth quarter of 2014, if I heard correctly?
That was the primary quarters that had most of the favorable development. The first quarter of 2014 also had some significant favorable development, and a couple other quarters did too, but it was primarily the third and fourth quarters.
Arash, on that point, we've always kind of taken the position that management's best expectation and best estimate is to take a conservative approach to the reserves. It is always a great thing when you see that type of favorable development take place on the book of business. We still increased reserves for the quarter. We like where we are from a reserve standpoint, and favorable development is a real testament to the way that we're running the claims side of the model. That's always a good thing to see.
I think, yeah, I completely agree. Are you guys seeing, like within your reserves, are you being more conservative within, in terms of Tri-County water losses, I guess are there any trends there that you're seeing?
Well, trends, take the last 12 months, no. You have some months that are really high claim activity and higher severity, and other months that are lower, and you just got to look at it going back those caught on a rolling 12-month basis, no. I would say that the month of March, for example, was a little higher compared to January and February, which were right in line. You do see months that have a little bit of uptick and months that have a downtick, but overall, I think that we're handling the water pretty well. assignment of benefits is an issue down there. There is a tremendous amount of, let's just say, claim inflation that takes place in the Tri-County.
That's one of the reasons why we've been pretty good at limiting our personal line production in terms of policy count to a number that's in the, call it, mid to upper 20% of our personal lines policy base. We do manage things pretty well. We're taking good risks. Having an integrated water program, which is a real separator compared to everyone else in this business, it does help us to manage those loss costs and produce a better result for the customer.
Okay. In terms of other states, I know you said you're looking at some M&A opportunities now. I guess, is the other states more of a 2016 story?
Yes, I would say so. We are waiting on one thing from our in-state regulators that will complete our applications in other states so we can get those new business apps or new licenses filed. We are in the process of filing in four or five states. That should happen relatively soon. By the time you get approved in those states and ramp up production, et cetera, it's really a 2016 growth story.
Okay. I think you may have mentioned this before, but for the rest of the year, to what extent should, I guess, will Citizens play a role? How much activity is still possible to get out of Citizens?
Well, they still have over 600,000 policies at Citizens. You typically do see an increase in policy count at Citizens during hurricane season as private carriers tend to scale back the amount of business that they put on their books. We think that there's still some great policies there, and we're going to continue to explore those potential acquisitions. It's the same question that we've been hearing for three years. We continue to outperform and beat estimates along the way, and we're certainly bullish on the way 2015 is shaping up for us compared to the estimates that are out there for us.
Okay. I guess what I'm trying Is there a certain policy count of Citizens, like let's say Citizens is around 600. Is there a certain policy count where you say to yourself, okay, this is probably where Citizens should be? These are probably policies now that won't go to the private market. Is there a certain point where you feel that way?
It depends on what's there. If they had 600,000 policies that had a massively outdated or outsized claim history to them, then I would say the number is 600,000. If there are 600,000 policies that are really good policies and would fit our underwriting criteria, then it's a different equation. I'd say in general, kind of looking at the types of exposures that we're seeing and our current portfolio and how those policies fit in, there's probably several hundred thousand policies that are still there that are worth considering. That's just on the personal lines, and there may be some further opportunities on the commercial residential side as well.
Okay. Just one other question I had. In terms of the cap bonds that you had put a press release out on, does that provide coverage so if you expand outside Florida, will those cover perils outside Florida?
Yes, they will.
Okay. just on that front, it could be, I guess, more valuable also relative to the FHCF.
Yes, it was particularly valuable versus the FHCF, for sure. Given where the rate on line is at FHCF this year, our ability to identify, once again, the market trend before it happened and execute on it, is there. To place the bonds where we placed them with a fully loaded cost of 7.11 and then look at where the FHCF rate on line is at around 8.2, it's pretty good. We definitely led the market. It was an innovative bond. We worked closely with our ILS partners and had a favorable placement there, and it turned out to be the right decision for our policyholders.
was the 8.2 for the FHCF, is that because I know 7.6 was a number we'd gotten before. are they actually now charging 8.2 for the 2015-2016 coverage?
Yeah. We've been informed by our reinsurance broker, which is Willis, that given the purchase of private reinsurance by the FHCF, that cost is being passed through, and that cost resulted in a higher rate on line at the FHCF. They're also mitigating the risk of assessments to policyholders, right? You have to look at it from both sides. There is no right or wrong answer there. I think that the FHCF went and did something that they felt was in the best interest of Florida and Florida policyholders, and we certainly commend efforts for risk mitigation. If we can also help to pass on a few savings to our policyholders or make our product a little more competitive in the market, we're also happy to do that.
Great. Thank you. Final question, I know you said 6,600 policies were HO3. In terms of, I guess the new policies, were the rest just condos or dwelling fire policies?
Mainly DP3s and a little bit of HO6.
Okay. Did you have a policy count for the commercial residential? I know you said 7,900 was the personal residential, and then you said $2 million a month on the commercial residential voluntary. I just wanted to know if there's a policy count I could attach to new voluntary production there this quarter.
I do not have the policy count in front of me. We just go by premium because it's not like personal lines where you see a lot of the premium per policy kind of attached in a band based on the ratings. The way you rate a commercial policy is just starkly different from the way you would rate a personal lines policy. Policy count, no, I don't have that in front of me. We could always get that to you, but I think that $2 million a month kind of premium number is the run rate that we've been experiencing, and that again, is ahead of our projections.
Arash, I must apologize here. The 7,900 I gave you, that's through April. That includes-
Okay
April production as well.
Okay. Okay, perfect. Thank you for the answer, and congrats on the quarter.
Thank you, Arash.
The next question comes from Ron Bobman with Capital Returns. Please go ahead.
Hi, gentlemen. Great quarter.
Thank you.
Thank you.
You're describing it as an acceptable loss ratio as sort of a meaningful understatement. I have a variety of questions, so if you don't mind being patient. One number, I think you said, but I didn't hear it. I didn't get it down quick enough or clearly. Stat surplus at quarter end. Did you say 144 or 134 or something close to that?
Not even close.
194.
Oh, sorry.
$194.1 million.
All right. I tried to short sell you by $50. Sorry about that. How about cash at hold co?
We have roughly $60 million at the hold co.
Okay. Does the growth trajectory suggest that you'll downstream some portion of that in the next quarter or two, or at least not foreseen over that horizon?
I think our ratios are pretty solid where they are. We have about $530 million or so of in-force premium at the end of the quarter, and roughly $200 million in surplus. I would challenge anyone to find another of our publicly traded peers that maintain that type of ratio. It's a very conservative ratio that has a lot of growth still yet to come from existing statutory surplus. The fact that where we are in terms of our earnings means that statutory surplus by six one will be well north of $200 million.
Our statutory earnings for the first quarter were $21 million. That would support what Bruce just said as far as the growth in surplus we expect to continue to see.
Thanks. Okay, moving along to some of my other questions. G&A, I think was at about $11 million for the quarter. You mentioned the Sunshine State, I think DAC amortization. Basically, my question is, the sort of $11 million quarterly run rate for G&A, is that a good indicator for, let's say, the second quarter? Or is there anything that's particularly unusual that happened in the first quarter?
There was $1.5 million of stock-based compensation that was related to the options we issued last year. In the second quarter, that'll be virtually a very small number. We should see an improvement in the G&A expenses in the second quarter, I think.
Candidly, will there be a reloading of stock-based comp that'll sort of, in some respects, replace that drop off of the 14 award, or no? You're suggesting not, I guess.
I guess that's really something that is up to our compensation committee, and we do have an Omnibus Incentive Plan that's in place. Stock-based compensation is a way that we use not only to compensate key executives but also to increase retention because it is really a retention-focused exercise. You heard comments before about share buybacks and kind of how we view valuation. Just given a valuation that we think on a peer group basis is trading at, I don't know, maybe a 50% discount to the average P/E in our sector, stock-based compensation is something that's definitely at the tip of our tongue. We're bullish on where we are, and we're bullish on the rest of this year. I'm not going to preclude additional stock-based compensation awards as a way to compensate and retain key executives.
I'd just say that that's something that's being discussed internally.
Okay. The takeouts during Q1, could you break that out by individual takeout? In essence, the number of policies you got from each of the takeouts, the premium that you got Split it also by Personal Residential versus Commercial Residential? Or if not, can we-?
Yeah.
Get that otherwise? I guess I would just sort of broaden. Everyone's asking a variety of statistical questions. Would you think about adding some more disclosure next quarter or thereafter, maybe a supplement that would just sort of tackle some of these fairly straightforward backward figures? Maybe not the takeout stats, but things like surplus, cash and holding company, things like that maybe just more productive to include in a supplement.
Okay. We can do that.
Gotcha. Okay, I'm ready.
First quarter takeout, January was personal lines was about 8,000 policies, representing about $17.7 million of premium. This is annualized premium.
Got it.
The February one was about 4,200 policies, which represented about $8.6 million of premium. March was about 4,200 policies representing $8.7 million of premium. On the commercial side, January was 244 policies representing $9.0 million premium. February was 47 policies representing $2.2 million. March was 26 policies representing about $500,000 of premium.
Got you. From your voluntary production in the second quarter or for that matter, really maybe in the heart of the summer, in the storm season, will you do anything differently that you will be motivated to slow that down or you have no intention to sort of do anything differently to slow down the voluntary production during wind season, basically?
I think-
Short of a storm being on the horizon, which I'm sure you take action, but outside of that is what I'm asking.
No, I think we like where we are. We're getting a really, really good mix of business throughout the state, and that's just a kind of a focus of the underwriting guidelines that we have in place. As you get good diversification throughout Florida, it means that you're not overly loading in one particular area and driving your Probable Maximum Loss up during wind season. Given that you have natural attrition and then you add additional policies on a monthly basis, right now, we're not planning on taking any underwriting actions that would impact the voluntary production. Generally speaking, we will be taking out less policies from Citizens, of course, because that's a more of a larger scale depopulation activity and has more of a meaningful impact on the PMLs during wind season.
Right now, we just have to manage things to current expectations, and that includes kind of keeping voluntary production where it is. We're seeing consistently better results every month, well ahead of internal projections. We're happy with that. If we're going to manage the PMLs during cat season, it's going to be managing it from the takeout activity.
What visibility do you have for the, I guess, I presume just the second quarter as far as takeouts. Have you indicated to the state, or have you signed up for any particular takeouts on the personal side or the commercial residential side?
Well, the takeouts in the second quarter are more limited than the first quarter because we're heading into reinsurance season and hurricane season. We do have a takeout that's in place right now for April and May. We did not do one in June. They are of a smaller scale.
Order of magnitude, like your February or March, or even smaller than that?
Little smaller. I think we'll net between the two, maybe 4,500 policies, something of that nature.
Yeah. We've got to set the PMLs now and buy our reinsurance, we have to be careful on what we're doing there.
Okay. What would the premium correspond to the 45? Because obviously, it depends how much is the commercial and how much is the-
It's all personal.
It's all personal.
Represents a little over $10 million of premium.
Okay. Thanks for that color . That's adequate. My last question, thanks for being patient, is any change in the first quarter of 2015 for how you were picking the initial accident year loss ratios as compared to, and I know there was some favorable development that you booked, but putting that aside, from an accident year basis, any change in the accident year loss picks for either the personal lines or the commercial residential business that you wrote in Q1 as compared to either the average for all of 2014 or what the booking was in Q4 of 2014 without the favorable development?
Are you asking did we change our loss development factors?
That's a simple question. Did you change your loss picks in Q1 of 2015? Yep.
No, we did not change our loss development factors in Q1 for the first quarter. We did a little, as every quarter, when you get additional experience, we adjust some modestly the development factors, it's really out in the further quarters. The Q1 to Q2, there was no change in the factor this quarter compared to last quarter.
Thanks, gentlemen. Best of luck. Hope it continues.
Thank you.
Once again, to ask a question, please press star one on your phone. The next question comes from John Barnidge with Sandler O'Neill. Please go ahead.
Good morning, congrats on the results. Most of my questions have been answered. Just have a quick one. As you look at investment income, how would you see that as a run rate going forward? I know it's going to be growing, but any directionality you could give us would be great.
Yeah. Our yield is running about 1.7%, and our invested assets continue to expect to grow as our premium base grows. Let me think about that for a second, John. I think invested assets growing 10% for the rest of the year would not be unreasonable. I think investment income for the year, I would suggest that we should be seeing, again, in relation to revenue, it's still very small. I wouldn't call it quite a doubling every month or every quarter, I'd say. I'd say it's more modest than that.
In terms of the overall return, I think that we're still targeting the same type of return because we're employing the same diversification across the investment portfolio. I don't even think we're running a 2% return on our invested assets at this point, and that just reflects the conservative nature of the investment portfolio. We are fairly short duration on the bonds. We do have a lot of cash that still needs to be deployed. We are a very cash-rich company, and our exposures to equities and MLPs that you have to adjust on a mark-to-market basis remains fairly low.
All right, great. Thanks a lot.
Thank you.
The next question comes from Casey Alexander with Gilford Securities. Please go ahead.
My question's well answered. Thank you.
Thank you, Casey.
That does conclude the question and answer session. I would like to turn the conference over to Mr. Bruce Lucas for any closing remarks.
I would just like to thank everyone for participating in the first quarter earnings call, and thank you again for your time.
The conference has now concluded. Thank you for your attendance. You may now disconnect your line.