Mark Hughes: Okay. Does that margin flow through? Is that 14 out of 23? And then if we just did a little simple math, would the other things be equal?
Mark Harmsworth: So keep in mind from now until May 31st, you’ve got no reinsurance in there, right? So the margin, initially the margin is about 65%. We’re reserving 35% on that book. So you’ve got 65% initially. There’s also no policy acquisition expense initially. Now as policies start to renew in March, some policy acquisition expense will start to creep in. So that’ll erode that margin a little bit. But for the first five months of the year, the margins are obviously very significant. And then when June 1 comes along and reinsurance kicks in, of course, the margins will deviate toward the norm of the rest of the book. But for Q4, Q1, and Q2, you’ve got a very significant amount of premium that’s coming in at a very high margin.
Mark Hughes: Yeah. Okay. Super helpful. Congratulations. Thank you.
Mark Harmsworth: Thanks, Mark.
Operator: [Operator Instructions] The next question comes from Casey Alexander with Compass Point. Please proceed.
Casey Alexander: Yeah. Hi. Good afternoon. I have — a couple questions here. You’re doing the CORE assumptions in April and June and just thinking about the company’s timing, normally they don’t do assumptions right ahead of the busiest storm season. Can you discuss the timing of those assumptions and why not wait until later in the year when you’re past the storm season before making those assumptions?
Paresh Patel: Yeah. Casey, great question of a true veteran, right? The reason for all of that stuff is that these are all the mechanics of depopulation ideas, meeting a new startup, and everything else. CORE started with $25 million of surplus. And because of that, we sort of put it, and we have to have reinsurance for it in place when we do the first depopulation in February 27th. So we had to put that into place. So we bought reinsurance for a certain size book, right? Other little things that go on is because of Citizens depopulation schedules, and blackouts times, et cetera, it’s difficult to hit that peak depopulation size all in one go because of renewal cycles and so on. So that’s why we’re going to do the April and June ones to top up what we already got in February, right?
So you are trying to over three takeouts do what — in theory, you could say you could do it all in one go, but in practice, it’s better to layer it in over three takeouts than to do it in one. So in reality, the April and the June takeouts can almost be thought of as delayed February takeout.
Casey Alexander: Understood. If you already have the reinsurance in place, then you’re covered for the upcoming season. So that makes perfect sense. Thank you for that. Secondly, your discussion about the declining reserves against Ian, the change over $200 million from the models, I’m just curious, the next time there’s a storm, would you again just go off the models first and then work it down, or is your experience with the book knowing that it tends to outperform the models, would you reserve it differently next time or would you do the same thing and just go by the models and then work it down?
Paresh Patel: So Casey, look, the item that happens, right, is the day after a storm everybody is going off the models and everybody uses those numbers, right? That’s kind of like what happened. And actually if you recall, right, vividly do the days after Ian happened, people were busily — the whole industry, modelers, et cetera, out. They say, oh, Ian’s going to be $30 million, then it became $40 million, then it became $50 million. I think it peaked out at over $70 billion was what Ian’s estimate was, right? And we were already looking at it within 10 days given our technology that given our market share, it would be virtually impossible to spend $70 billion on the claims that we had. But we are also subject to actuaries and industry models and everything else.
That’s why Mark is almost obligated to work with what the model is saying, right? It’s only when about five, six months go by and we start switching over to claims received, payments made, all those kinds of things that you can switch to your own experience model. And that is what’s going on, right? And Mark’s comments about having to reduce Ian, if you recall, he also said he’s at the top end of the range. I don’t think at this point the actuary is telling him he can’t put up more for Ian than that number, right? We have plenty of reinsurance left, but this is how this is going. And as I answered in one of the earlier questions, this is all not by accident. It is a result of the technology and how it curates a superior book and how it actually performs in the strong.
These things are now becoming inescapable as to how well this stuff is working.
Casey Alexander: That again makes perfect sense. Thank you. My last question is, TypTap has now generated four straight quarters of profit. You’ve kind of removed Centerbridge from the equation. So what else does TypTap have to do before you guys would be willing to create a capital transaction for the company?
Paresh Patel: Okay. Casey, I don’t necessarily know that TypTap has been hampered by things we have to do to create a capital transaction. I think we could do that reasonably well and reasonably short order, right? Don’t forget we did all the way to an S1 three years ago. But part of that whole situation is tempered by two items. One is market macro conditions out there in terms of IPOs and stuff and we watch and monitor that. So that’s what we are being told is the market is — conditions are very good for follow-on offerings, but they’re less favorable for IPOs. So that gives us some pause. And the second item is obviously where does — is TypTap actually in need of new capital? If it isn’t, do you want to keep enhancing its value and showing how what a great outfit — what a great company and technology it has and only when it’s fully appreciated by the market then have the capital event.
