UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 1, 2019

 

 

HERITAGE INSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		001-36462		45-5338504
(State or other jurisdiction of incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)
2600 McCormick Drive, Suite 300 Clearwater, Florida		33759
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (727) 362-7202

Not Applicable

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

☐	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		HRTG		New York Stock Exchange

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

 

 

 

Item 2.02

Results of Operations and Financial Conditions.

On August 1, 2019, Heritage Insurance Holdings, Inc. issued a press release announcing financial results for its fiscal quarter ended June 30, 2019. A copy of the press release is attached hereto as Exhibit 99.1.

The information furnished under this Item 2.02, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits. The following exhibit is being furnished as part of this Current Report on Form 8-K.

 

No.		Exhibit
99.1		Press Release dated August 1, 2019.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

						HERITAGE INSURANCE HOLDINGS, INC.
Date: August 1, 2019						By:		/s/ Bruce Lucas
								Bruce Lucas Chairman and Chief Executive Officer

Exhibit 99.1

Heritage Reports Second Quarter 2019 Results

Clearwater, FL – August 1, 2019: Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported second quarter 2019 financial results.

Second Quarter 2019 Highlights

 

•

Net income for the quarter was $0.7 million, or $0.02 per diluted share.

 

•

Record personal lines new business premium and growth rates. Non-Florida states generated 64% of all personal lines new business premium.

 

•

Premiums-in-force were $922.5 million, down 0.9% year-over-year, reflecting strong new business sales across our platform, offset by strategic derisking in Florida’s Tri-County.

 

•

Began writing commercial residential business in New Jersey. Heritage is actively writing personal residential business in twelve states, commercial residential business in two states and has licenses in sixteen states.

 

•

Favorable prior year reserve development of $1.3 million, representing fourth consecutive quarter of favorable prior year reserve development.

 

•

Net current accident quarter weather losses of $21.5 million – mostly stemming from Florida and North Carolina – including $13.4 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather and catastrophe losses were $9.4 million.

 

•

Repurchased 157,640 shares for $2.3 million at a 1% discount to first quarter 2019 book value per share, resulting in total capital returned to shareholders of $4.1 million, including $0.06 per share regular quarterly dividend.

Bruce Lucas, the Company’s Chairman and CEO, said, “Our second quarter operating results were very strong as we continue to diversify away from Florida, especially the Tri-County region which is highly prone to fraud. Non-Florida states contributed 64% of all personal lines new business premium in the quarter. Premium growth in these states has been rapidly accelerating and reached an all-time high in the quarter. Tri-County claims metrics continue to improve and our percentages of Tri-County claims and litigation have reached an all-time low. Year-over-year, we reduced our Tri-County total insured value (TIV) by $6.2 billion, but maintained relatively flat premiums-in-force, mainly because of our acceleration in growth outside of Florida.”

Results of Operations

The following table summarizes our results of operations for the three & six months ended June 30, 2019 and 2018 (amounts in thousands, except percentages and per share amounts):

 

		Three Months Ended June 30,												Six Months Ended June 30,
		2019				2018				Change				2019				2018				Change
Total revenues		$	122,843			$	117,972				4	%		$	241,104			$	229,998				5	%
Net Income		$	721			$	2,408				(70	)%		$	7,685			$	17,238				(55	)%
Per Share		$	0.02			$	0.09				(73	)%		$	0.26			$	0.65				(60	)%
Book value per share		$	14.99			$	14.98				0	%		$	14.99			$	14.98				0	%
Return on equity			0.7	%			2.5	%			(2	) pts			3.6	%			9.0	%			(5	) pts
Underwriting summary
Gross premiums written		$	254,840			$	263,664				(3	)%		$	465,188			$	468,030				(1	)%
Gross premiums earned		$	229,958			$	230,971				(0	)%		$	458,548			$	458,134				0	%
Ceded premiums		$	(115,875	)		$	(119,767	)			(3	)%		$	(234,774	)		$	(240,822	)			(3	)%
Net premiums earned		$	114,083			$	111,204				3	%		$	223,774			$	217,312				3	%
Ceded premium ratio			50.4	%			51.9	%			(1	) pts			51.2	%			52.6	%			(1	) pts
Ratios to Net Premiums Earned:
Loss ratio			65.1	%			59.3	%			6 pts				61.0	%			54.8	%			6 pts
Expense ratio			39.9	%			39.4	%			0 pts				40.3	%			35.9	%			4 pts
Combined ratio			105.0	%			98.7	%			6 pts				101.3	%			90.7	%			11 pts

Ratios

Ceded premium ratio represents ceded premiums earned as a percentage of gross premiums earned.

Net loss ratio represents net losses and loss adjustment expenses (LAE) as a percentage of net premiums earned.

Net expense ratio represents policy acquisition costs (PAC) and general and administrative expenses (G&A) as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.

Net combined ratio represents the sum of net losses and LAE, PAC and G&A expenses as a percentage of net premiums earned. The net combined ratio is a key measure of underwriting performance traditionally used in the property and casualty insurance industry. A net combined ratio under 100% generally reflects profitable underwriting results.

Quarterly Financial Results

Second quarter 2019 net income was $0.7 million compared to $2.4 million in the prior year quarter. The decrease primarily reflects a higher net loss ratio stemming from higher catastrophe and non-catastrophe weather losses in the current year quarter.

Gross premiums written were $254.8 million in second quarter 2019, down 3.3% from $263.7 million in the prior year quarter. The decrease reflects an 11.9% exposure management driven decline in Florida, particularly in the Tri-County region, partly offset by 8.4% growth outside Florida. Premiums-in-force were $922.5 million, down 0.9% year-over-year, with the decrease stemming from a 16.3% decline in Tri-County, Florida, partly offset by 6.3% growth outside Florida and 0.8% growth in non-Tri-County, Florida.

Gross premiums earned were $230.0 million in second quarter 2019, down 0.4% from $231.0 million in the prior year quarter. The decrease stems from the same items impacting gross premiums written.

The ceded premium ratio was 50.4% in second quarter 2019, down 1.5 points from 51.9% in the prior year quarter. The decrease is primarily attributable to NBIC-related reinsurance synergies and a reduction in NBIC’s gross quota share reinsurance program, which decreased from 18.8% to 8.0% as of June 1, 2018 and was eliminated as of June 1, 2019. NBIC’s gross quota share reduction was partly offset by additional catastrophe excess-of-loss reinsurance coverage and an increase in NBIC’s net quota share reinsurance program from 49.5% to 52.0% as of December 31, 2018.

The net loss ratio was 65.1% in second quarter 2019, up 5.8 points from 59.3% in the prior year quarter. The increase largely relates to higher catastrophe and non-catastrophe weather losses in the current year quarter, partly offset by better reserve development and a lower ceded premium ratio.

The net expense ratio was 39.9% in second quarter 2019, up 0.5 points from 39.4% in the prior year quarter. The increase primarily stems from the favorable impact of NBIC-related purchase accounting on the prior year quarter and reduced ceding commission income in the current year quarter associated with a reduction to NBIC’s overall quota share reinsurance programs, partly offset by a lower ceded premium ratio.

The net combined ratio was 105.0% in second quarter 2019, up 6.3 points from 98.7% in the prior year quarter. The increase stems from higher net loss and expense ratios, as described above.

Book Value Analysis

Book value per share increased 3.9% from year-end 2018 to $14.99 at June 30, 2019.

 

		As Of
		June 30, 2019				December 31, 2018				June 30, 2018
Book Value Per Share
Numerator:
Common stockholders’ equity		$	438,850			$	425,333			$	386,080
Denominator:
Total Shares Outstanding			29,274,577				29,477,756				25,769,804
Book Value Per Common Share		$	14.99			$	14.43			$	14.98

Conference Call Details:

Friday, August 2, 2019 – 8:30 a.m. EDT

Participant Dial-in Numbers Toll Free: 1-888-346-3095

Participant International Dial In: 1-412-902-4258

Canada Toll Free: 1-855-669-9657

Webcast:

To listen to the live webcast, please go to http://investors.heritagepci.com/. This webcast will be archived and accessible on the Company’s website.

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

(unaudited)

 

		June 30, 2019				December 31, 2018
		(unaudited)
ASSETS
Fixed maturities, available-for-sale, at fair value			553,619			$	509,649
Equity securities, at fair value			1,618				16,456
Other investments			22,761				2,488
Total investments			577,998				528,593
Cash and cash equivalents			262,489				250,117
Restricted cash			13,784				12,253
Accrued investment income			4,549				4,468
Premiums receivable, net			57,045				57,000
Reinsurance recoverable on paid and unpaid claims			330,406				317,930
Prepaid reinsurance premiums			331,543				233,071
Income taxes receivable			17,731				35,586
Deferred policy acquisition costs, net			74,064				73,055
Property and equipment, net			21,110				17,998
Intangibles, net			72,663				76,850
Goodwill			152,459				152,459
Other assets			18,144				9,333
Total Assets		$	1,933,985			$	1,768,713
LIABILITIES AND STOCKHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses		$	430,412			$	432,359
Unearned premiums			479,162				472,357
Reinsurance payable			324,834				166,975
Long-term debt, net			132,449				148,794
Deferred income tax, net			17,535				7,705
Advance premiums			24,463				20,000
Accrued compensation			4,758				9,226
Accounts payable and other liabilities			81,522				85,964
Total Liabilities		$	1,495,135			$	1,343,380
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 29,855,378 shares issued and 29,274,577 shares outstanding at June 30, 2019; 30,083,559 shares issued and 29,477,756 shares outstanding at December 31, 2018			3				3
Additional paid-in capital			330,281				325,292
Accumulated other comprehensive income (loss)			5,259				(6,527	)
Treasury stock, at cost, 7,720,177 and 7,214,797 shares, respectively			(96,529	)			(89,185	)
Retained earnings			199,836				195,750
Total Stockholders’ Equity			438,850				425,333
Total Liabilities and Stockholders’ Equity		$	1,933,985			$	1,768,713

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive Income

(Amounts in thousands, except share amounts)

(Unaudited)

 

		For the Three Months Ended June 30,								For the Six Months Ended June 30,
		2019				2018				2019				2018
REVENUES:
Gross premiums written		$	254,840			$	263,664			$	465,188			$	468,030
Change in gross unearned premiums			(24,882	)			(32,693	)			(6,640	)			(9,896	)
Gross premiums earned			229,958				230,971				458,548				458,134
Ceded premiums			(115,875	)			(119,767	)			(234,774	)			(240,822	)
Net premiums earned			114,083				111,204				223,774				217,312
Net investment income			3,830				2,555				7,502				5,857
Net realized gains (losses)			1,303				(85	)			2,327				(312	)
Other revenue			3,627				4,298				7,501				7,141
Total revenues			122,843				117,972				241,104				229,998
EXPENSES:
Losses and loss adjustment expenses			74,299				65,989				136,438				119,080
Policy acquisition costs, net of ceding commission income for the three and six months ended June 30, 2019 of $12.1 million and $25 million, respectively			27,087				19,411				53,107				31,598
General and administrative expenses, net of ceding commission income for the three and six months ended June 30, 2019 of $4 million and $8.3 million, respectively			18,384				24,422				36,988				46,352
Total expenses			119,770				109,822				226,533				197,030
Operating income			3,073				8,150				14,571				32,968
Interest expense, net			1,984				5,386				4,101				10,206
Other non-operating (income)/loss, net			—				(542	)			48				(542	)
Income before income taxes			1,089				3,306				10,422				23,304
Provision for income taxes			368				898				2,737				6,066
Net income		$	721			$	2,408			$	7,685			$	17,238
OTHER COMPREHENSIVE INCOME
Change in net unrealized gains (losses) on investments			7,068				(545	)			15,104				(7,023	)
Reclassification adjustment for net realized investment losses			59				85				394				312
Income tax (expense) benefit related to items of other comprehensive income			(1,304	)			(239	)			(3,712	)			1,584
Total comprehensive income		$	6,544			$	1,709			$	19,471			$	12,111
Weighted average shares outstanding
Basic			29,346,234				25,631,871				29,442,363				25,679,448
Diluted			29,352,796				26,316,597				29,447,668				26,480,707
Earnings per share
Basic		$	0.02			$	0.09			$	0.26			$	0.67
Diluted		$	0.02			$	0.09			$	0.26			$	0.65

About Heritage

Heritage Insurance Holdings, Inc. is a super-regional property and casualty insurance holding company. Through its insurance subsidiaries and a large network of experienced agents, the Company writes over $900 million of gross personal and commercial residential premium across its multi-state footprint.

Forward-Looking Statements

Statements in this press release and related presentation that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. This release includes forward-looking statements relating to (i) expectations related to positive financial effects in the second quarter of 2019 as well as long-term profitiability, (ii) our expectations and strategy related to declining in business in tri-county Florida, (iii) anticipated continued improvement in our loss trends, (iv) (expected positive impact of geographic diversification and strategic partnerships, (v) expectations related to our capital management strategy, including anticipated share repurchases and (vi) anticipated reductions in ceded premiums in the third quarter of 2019 and the related full-quarter effects of such reductions. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: our ability to comply with our obligations under the new credit facilities, including the financial and other covenants contained therein, the success of the Company’s marketing initiatives; inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectability of reinsurance; assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to grow our business outside of Florida; our ability to obtain regulatory approval for requested rate changes and new licenses, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; our ability to build and maintain relationships with insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on March 12, 2019. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

Investor Contact:

Arash Soleimani, CFA, CPA

Executive Vice President

727.871.0206

Email: asoleimani@heritagepci.com