UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number

001-36462

 

Heritage Insurance Holdings, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware

 

45-5338504

(State of Incorporation)

 

(IRS Employer

Identification No.)

2600 McCormick Drive, Suite 300

Clearwater, Florida 33759

(Address, including zip code, of principal executive offices)

(727) 362-7200

(Registrant’s telephone number, including area code)

 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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes   No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

Accelerated filer

Emerging growth company

Non-accelerated filer

Smaller reporting 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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes No

The aggregate number of shares of the Registrant’s Common Stock outstanding on July 31, 2019 was 29,855,378

 

 

 


HERITAGE INSURANCE HOLDINGS, INC.

Table of Contents

 

 

 

Page

PART I – FINANCIAL INFORMATION

 

 

Item 1 Unaudited Financial Statements

 

 

Condensed Consolidated Balance Sheets: June 30, 2019 (unaudited) and December 31, 2018

 

2

Condensed Consolidated Statements of Operations and Other Comprehensive Income: Three and Six months ended June 30, 2019 and 2018 (unaudited)

 

3

Condensed Consolidated Statements of Stockholders’ Equity: Three and Six months ended June 30, 2019 and 2018 (unaudited)

 

4

Condensed Consolidated Statements of Cash Flows: Six months ended June 30, 2019 and 2018 (unaudited)

 

6

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

Item 2 Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

29

Item 3 Quantitative and Qualitative Disclosures about Market Risk

 

39

Item 4 Controls and Procedures

 

40

PART II – OTHER INFORMATION

 

 

Item 1 Legal Proceedings

 

41

Item 1A Risk Factors

 

41

Item 2 Unregistered Sales of Equity Securities and Use of Proceeds

 

41

Item 4 Mine Safety Disclosures

 

41

Item 6 Exhibits

 

41

Signatures

 

43

 

 

 

 


 

FORWARD-LOOKING STATEMENTS

Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) or in documents incorporated by reference that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements about (i) our ability to meet our investment objectives and to manage and mitigate market risk with respect to our investments; (ii) the adequacy of our reinsurance program and our ability to diversify risk and safeguard our financial position; (iii) our estimates with respect to tax and accounting matters; (iv) future dividends, if any; (v) our expectations related to our financing activities; (vi) the sufficiency of our liquidity to pay our insurance company affiliates’ claims and expenses, as well as to satisfy commitments in the event of unforeseen events; (vii) the sufficiency of our capital resources, together with cash provided from our operations, to meet currently anticipated working capital requirements; (viii) the potential effects of the seasonality of our business, including effects on our reinsurance business and financial results and (ix) the potential effects of our current legal proceedings.

These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management’s beliefs and assumptions. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties include, without limitation:

 

 

the possibility that actual losses may exceed reserves;

 

the concentration of our business in coastal states, which could be impacted by hurricane losses or other significant weather-related events such as northeastern winter storms;

 

our exposure to catastrophic weather events;

 

the fluctuation in our results of operations;

 

increased costs of reinsurance, non-availability of reinsurance, and non-collectability of reinsurance;

 

our failure to identify suitable acquisition candidates; effectively manage our growth and integrate acquired companies;

 

increased competition, competitive pressures, and market conditions;

 

our failure to accurately price the risks we underwrite;

 

inherent uncertainty of our models and our reliance on such model as a tool to evaluate risk;

 

the failure of our claims department to effectively manage or remediate claims;

 

low renewal rates and failure of such renewals to meet our expectations;

 

our failure to execute our diversification strategy;

 

failure of our information technology systems and unsuccessful development and implementation of new technologies;

 

a lack of redundancy in our operations;

 

our failure to attract and retain qualified employees and independent agents or our loss of key personnel;

 

our inability to generate investment income;

 

our inability to maintain our financial stability rating;

 

effects of emerging claim and coverage issues relating to legal, judicial, environmental and social conditions;

 

the failure of our risk mitigation strategies or loss limitation methods;

 

our reliance on independent agents to write voluntary insurance policies;

 

changes in regulations and our failure to meet increased regulatory requirements;

 

our ability to maintain effective internal controls over financial reporting;

 

our status as an “emerging growth company”;

 

the regulation of our insurance operations; and

 

certain characteristics of our common stock.

 


 

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.

These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us described in our filings with the Securities and Exchange Commission (the “SEC”). The forward-looking statements we make in our Form 10-Q are valid only as of the date of our Form 10-Q and may not occur in light of the risks, uncertainties and assumptions that we describe from time to time in our filings with the SEC. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from our forward-looking statements is included in the section entitled “Risk Factors” in Part I, Item 1A in our Annual Report on Form 10-K for the year ended December 31, 2018. Except as required by applicable law, we undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

 

 


 

 

PART I – FINANCIAL INFORMATION

Item 1 – Financial Statements

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except per share and share amounts)

 

 

 

June 30, 2019

 

 

December 31, 2018

 

ASSETS

 

(unaudited)

 

 

 

 

 

Fixed maturities, available-for-sale, at fair value (amortized cost of $546,687 and $518,391)

 

 

553,619

 

 

$

509,649

 

Equity securities, at fair value (cost of $1,618 and $18,698)

 

 

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 (Note 17)

 

 

 

 

 

 

 

 

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

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

2

 


 

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive Income

(Unaudited)

(Amounts in thousands, except per share and share amounts)

 

 

 

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

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 

 

3

 


 

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(Amounts in thousands, except share amounts)

 

 

 

 

Common Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Treasury Shares

 

 

Accumulated

Other Comprehensive Income (Loss)

 

 

Total

Stockholders'

Equity

 

Balance at December 31, 2018

 

 

29,477,756

 

 

$

3

 

 

$

325,292

 

 

$

195,750

 

 

$

(89,185

)

 

$

(6,527

)

 

$

425,333

 

Net unrealized change in investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,963

 

 

 

5,963

 

Restricted stock vested, net of surrendered shares

 

 

17,000

 

 

 

 

 

 

(118

)

 

 

 

 

 

 

 

 

 

 

 

(118

)

Stock-based compensation on vested restricted stock

 

 

 

 

 

 

 

 

1,345

 

 

 

 

 

 

 

 

 

 

 

 

1,345

 

Convertible Option debt extinguishment

 

 

 

 

 

 

 

 

(1,840

)

 

 

 

 

 

 

 

 

 

 

 

(1,840

)

Stock issued on convertible note conversion

 

 

285,201

 

 

 

 

 

 

4,210

 

 

 

 

 

 

 

 

 

 

 

 

4,210

 

Stock buy-back

 

 

(347,740

)

 

 

 

 

 

 

 

 

 

 

 

(5,011

)

 

 

 

 

 

(5,011

)

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

(1,807

)

 

 

 

 

 

 

 

 

(1,807

)

Tax rate change

 

 

 

 

 

 

 

 

48

 

 

 

 

 

 

 

 

 

 

 

 

48

 

Net income

 

 

 

 

 

 

 

 

 

 

 

6,964

 

 

 

 

 

 

 

 

 

6,964

 

Balance at March 31, 2019

 

 

29,432,217

 

 

$

3

 

 

$

328,937

 

 

$

200,907

 

 

$

(94,196

)

 

$

(564

)

 

$

435,087

 

Net unrealized change in investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,823

 

 

 

5,823

 

Stock-based compensation on vested restricted stock

 

 

 

 

 

 

 

 

1,344

 

 

 

 

 

 

 

 

 

 

 

 

1,344

 

Convertible Option debt extinguishment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock buy-back

 

 

(157,640

)

 

 

 

 

 

 

 

 

 

 

 

(2,333

)

 

 

 

 

 

(2,333

)

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

(1,792

)

 

 

 

 

 

 

 

 

(1,792

)

Net income

 

 

 

 

 

 

 

 

 

 

 

721

 

 

 

 

 

 

 

 

 

721

 

Balance at June 30, 2019

 

 

29,274,577

 

 

$

3

 

 

$

330,281

 

 

$

199,836

 

 

$

(96,529

)

 

$

5,259

 

 

$

438,850

 

 

4

 


 

 

 

Common Shares

 

 

Par Value

 

 

Additional

Paid-In

Capital

 

 

Retained

Earnings

 

 

Treasury Shares

 

 

Accumulated

Other Comprehensive Loss

 

 

Total

Stockholders'

Equity

 

Balance at December 31, 2017, as previously reported

 

 

25,885,006

 

 

$

3

 

 

$

294,836

 

 

$

175,226

 

 

$

(87,185

)

 

$

(3,064

)

 

$

379,816

 

Cumulative effective of change in accounting principle (ASU 2016-01), net of tax

 

 

 

 

 

 

 

 

 

 

 

(267

)

 

 

 

 

 

267

 

 

 

 

Balance at December 31, 2017, as adjusted

 

 

25,885,006

 

 

 

3

 

 

 

294,836

 

 

 

174,959

 

 

 

(87,185

)

 

 

(2,797

)

 

 

379,816

 

Stock buy-back

 

 

(115,200

)

 

 

 

 

 

 

 

 

 

 

 

(2,000

)

 

 

 

 

 

(2,000

)

Stock-based compensation

 

 

 

 

 

 

 

 

1,306

 

 

 

 

 

 

 

 

 

 

 

 

1,306

 

Reclassification of income taxes upon early adoption of ASU 2018-02

 

 

 

 

 

 

 

 

 

 

 

424

 

 

 

 

 

 

(424

)

 

 

 

Tax effect of warrant reclassification

 

 

 

 

 

 

 

 

970

 

 

 

 

 

 

 

 

 

 

 

 

970

 

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

(1,601

)

 

 

 

 

 

 

 

 

(1,601

)

Net unrealized change in investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(4,428

)

 

 

(4,428

)

Net income

 

 

 

 

 

 

 

 

 

 

 

14,830

 

 

 

 

 

 

 

 

 

14,830

 

Balance at March 31, 2018

 

 

25,769,806

 

 

$

3

 

 

$

297,112

 

 

$

188,612

 

 

$

(89,185

)

 

$

(7,649

)

 

$

388,893

 

Net unrealized change in investments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(699

)

 

 

(699

)

Stock-based compensation on vested restricted stock

 

 

 

 

 

 

 

 

1,306

 

 

 

 

 

 

 

 

 

 

 

 

1,306

 

Convertible Option debt extinguishment

 

 

 

 

 

 

 

 

(4,235

)

 

 

 

 

 

 

 

 

 

 

 

(4,235

)

Dividends declared on common stock

 

 

 

 

 

 

 

 

 

 

 

(1,593

)

 

 

 

 

 

 

 

 

(1,593

)

Net income

 

 

 

 

 

 

 

 

 

 

 

2,408

 

 

 

 

 

 

 

 

 

2,408

 

Balance at June 30, 2018

 

 

25,769,806

 

 

$

3

 

 

$

294,183

 

 

$

189,427

 

 

$

(89,185

)

 

$

(8,348

)

 

$

386,080

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

5

 


 

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(Amounts in thousands)

 

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

Net income

 

$

7,685

 

 

$

17,238

 

Adjustments to reconcile net income to net cash  provided by (used in) operating

   activities:

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

2,689

 

 

 

2,612

 

Bond amortization and accretion

 

 

2,514

 

 

 

3,454

 

Amortization of original issuance discount on debt

 

 

730

 

 

 

2,050

 

Depreciation and amortization

 

 

5,492

 

 

 

14,041

 

Net realized losses

 

 

394

 

 

 

312

 

Net unrealized investment gains

 

 

(2,721

)

 

 

 

Net loss from repurchase of debt

 

 

(48

)

 

 

(542

)

Deferred income taxes

 

 

4,525

 

 

 

(15,579

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accrued investment income

 

 

(81

)

 

 

751

 

Premiums receivable, net

 

 

(45

)

 

 

(411

)

Prepaid reinsurance premiums

 

 

(98,472

)

 

 

(68,160

)

Reinsurance recoverable on paid and unpaid claims

 

 

(12,476

)

 

 

(110,500

)

Income taxes receivable

 

 

17,855

 

 

 

(5,154

)

Deferred policy acquisition costs, net

 

 

(1,009

)

 

 

(27,970

)

Other assets

 

 

(8,811

)

 

 

(3,356

)

Unpaid losses and loss adjustment expenses

 

 

(1,947

)

 

 

18,527

 

Unearned premiums

 

 

6,805

 

 

 

9,896

 

Reinsurance payable

 

 

157,859

 

 

 

258,930

 

Accrued interest

 

 

128

 

 

 

(3,148

)

Accrued compensation

 

 

(4,468

)

 

 

(9,723

)

Advance premiums

 

 

4,463

 

 

 

12,173

 

Income taxes payable

 

 

(14,396

)

 

 

 

Other liabilities

 

 

9,751

 

 

 

(47,109

)

Net cash provided by operating activities

 

 

76,415

 

 

 

48,332

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

Fixed maturity securities sales

 

 

61,290

 

 

 

158,251

 

Fixed maturity securities purchases

 

 

(95,336

)

 

 

(127,701

)

Proceeds from sales of equity securities

 

 

26,529

 

 

 

5,360

 

Purchase of equity securities

 

 

(4,833

)

 

 

(4,605

)

Limited partnership interest

 

 

(20,006

)

 

 

 

Proceeds from sale of assets

 

 

71

 

 

 

 

Cost of property and equipment acquired

 

 

(4,487

)

 

 

(367

)

Net cash (used in) provided by investing activities

 

 

(36,772

)

 

 

30,938

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Repayment of term note

 

 

(11,875

)

 

 

 

Mortgage loan payments

 

 

(138

)

 

 

(131

)

Repurchase of convertible notes

 

 

(2,869

)

 

 

(13,248

)

Purchase of treasury stock

 

 

(7,344

)

 

 

(2,000

)

Tax withholdings on share-based compensation awards

 

 

(118

)

 

 

 

Dividends paid

 

 

(3,396

)

 

 

(3,194

)

Net cash used in financing activities

 

 

(25,740

)

 

 

(18,573

)

Increase in cash, cash equivalents, and restricted cash

 

 

13,903

 

 

 

60,697

 

Cash, cash equivalents and restricted cash, beginning of period

 

 

262,370

 

 

 

174,530

 

Cash, cash equivalents and restricted cash, end of period

 

$

276,273

 

 

$

235,227

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Income taxes paid

 

$

13,728

 

 

$

5,406

 

Interest paid

 

$

3,529

 

 

$

8,317

 

Issuance of shares on conversion of convertible notes

 

$

4,210

 

 

 

 

 

6

 


 

Reconciliation of cash, cash equivalents, and restricted cash to the condensed consolidated balance sheets

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Cash and cash equivalents

 

$

262,489

 

 

$

250,117

 

Restricted cash

 

 

13,784

 

 

$

12,253

 

Total

 

$

276,273

 

 

$

262,370

 

Restricted cash primarily presents funds held to meet our contractual obligations related to the catastrophe bonds issued by Citrus Re bonds and certain states in which the Company’s insurance subsidiaries conduct business to meet regulatory requirements.

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 


7

 


 

HERITAGE INSURANCE HOLDINGS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Heritage Insurance Holdings, Inc. (together with its subsidiaries, the “Company”). These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain financial information that is normally included in annual consolidated financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. In the opinion of the Company’s management, all material intercompany transactions and balances have been eliminated and all adjustments consisting of normal recurring accruals which are, necessary for a fair statement of the financial condition and results of operations for the interim periods have been reflected. The accompanying interim condensed consolidated financial statements and related footnotes should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

Significant accounting policies

The Accounting policies of the Company are set forth in Note 1 to Condensed Consolidated Financial Statements contained in the Company’s 2018 Annual Report on Form 10-K. We include herein certain updates to those policies.

Leases

At the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on (1) whether the contract involves the use of distinct identified assets, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

All significant lease arrangements are generally recognized at lease commencement. A right of use (“ROU”) asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and we recognize lease expense for these leases as incurred over the lease term.

ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Operating lease ROU assets and liabilities are recognized based on the present value of the lease term. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in determining the lease liability. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the term of the lease. We have lease agreements with lease and non-lease components, which are generally accounted for separately.

We primarily use our incremental borrowing rates for our operating leases (rates are not readily determinable) and implicit rates for our financing leases in determining the present value of leases payments.

In the first quarter of 2019, the Company adopted ASU 2016 -02 and did not recognize an opening adjustment to retained earnings as a result of the adoption of FASB 842. Refer to Note 5-Leases herein for further information.

8

 


 

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) Lease Accounting, which requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting for leases by lessors largely unchanged from previous GAAP.

At the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on (1) whether the contract involves the use of distinct identified assets, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

All significant lease arrangements are generally recognized at lease commencement. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and we recognize lease expense for these leases as incurred over the lease term.

ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Operating lease ROU assets and liabilities are recognized based on the present value of the lease term. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in determining the lease liability. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the term of the lease. We have lease agreements with lease and non-lease components, which are generally accounted for separately.

We primarily use our incremental borrowing rates for our operating leases (rates are not readily determinable) and implicit rates for our financing leases in determining the present value of leases payments.

We adopted the guidance prospectively during the first quarter of 2019. As part of our adoption, we elected not to reassess historical lease classification or recognize short-term leases on our balance sheet. At implementation, we recorded approximately $2.8 million as right-of-use operating and financing leased assets in other assets and approximately $2.8 million of lease liabilities in accounts payable and other liabilities. We did not recognize an opening adjustment to retained earnings. Adoption of this standard did not materially impact the Company’s Condensed Consolidated Statements of Operations and Other Comprehensive Income and Statements of Cash Flows. See Note 5 to the condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provided certain improvements to ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) and ASU 2016-13. As the Company adopted ASU 2016-01 on January 1, 2018, the improvements in ASU 2019-04 are effective in the first quarter of 2020. Early adoption is permitted. The Company expects to adopt ASU 2016-13 in the first quarter of 2020 and the improvements in ASU 2019-04 will be adopted concurrently. The Company is currently evaluating the impact of adopting ASU 2019-04 on its condensed consolidated financial statements and related disclosures.

For information regarding other accounting standards that the Company has not yet adopted, refer to our Annual Report on Form 10-K, filed on March 12, 2019, the section of Note 1 of the notes to the consolidated financial statements entitled the “Accounting Pronouncement Not Yet  Adopted”.

9

 


 

NOTE 2. INVESTMENTS

Securities Available-for-Sale

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at June 30, 2019 and December 31, 2018:

 

June 30, 2019

 

Cost or Adjusted /

Amortized Cost

 

 

Gross Unrealized

Gains

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities (1)

 

$

56,395

 

 

$

260

 

 

$

68

 

 

$

56,587

 

States, municipalities and political subdivisions

 

 

72,313

 

 

 

1,373

 

 

 

29

 

 

 

73,657

 

Special revenue

 

 

250,062

 

 

 

3,193

 

 

 

440

 

 

 

252,815

 

Industrial and miscellaneous

 

 

167,917

 

 

 

2,794

 

 

 

151

 

 

 

170,560

 

Total

 

$

546,687

 

 

$

7,620

 

 

$

688

 

 

$

553,619

 

 

December 31, 2018

 

Cost or Adjusted /

Amortized Cost

 

 

Gross Unrealized

Gains

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities (1)

 

$

48,739

 

 

$

40

 

 

$

738

 

 

$

48,041

 

States, municipalities and political subdivisions

 

 

60,028

 

 

 

46

 

 

 

785

 

 

 

59,289

 

Special revenue

 

 

249,026

 

 

 

210

 

 

 

3,881

 

 

 

245,355

 

Industrial and miscellaneous

 

 

155,678

 

 

 

81

 

 

 

3,302

 

 

 

152,457

 

Redeemable preferred stocks

 

 

4,920

 

 

 

 

 

 

413

 

 

 

4,507

 

Total

 

$

518,391

 

 

$

377

 

 

$

9,119

 

 

$

509,649

 

 

(1)

U.S. government and agency securities include pledged fixed maturity securities with an estimated fair value of $24.4 million and $31.0 million under the terms and condition of the advance agreement entered into with a financial institution as of June 30, 2019 and December 31, 2018, respectively. The Company is permitted to withdraw or exchange any portion of the pledged collateral over the minimum requirement at any time.

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. The Company determines the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the three and six months ended June 30, 2019 and 2018.

 

 

2019

 

 

2018

 

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

Three Months Ended June 30,

 

(In thousands)

 

Fixed maturity securities

 

$

975

 

 

$

29,359

 

 

$

2

 

 

$

70,401

 

Equity securities

 

 

1,255

 

 

 

17,253

 

 

 

1

 

 

 

169

 

Total realized gains

 

 

2,230

 

 

 

46,612

 

 

 

3

 

 

 

70,570

 

Fixed maturity securities

 

 

(140

)

 

 

6,406

 

 

 

(39

)

 

 

7,487

 

Equity securities

 

 

(1,079

)

 

 

5,517

 

 

 

(49

)

 

 

1,517

 

Total realized losses

 

 

(1,219

)

 

 

11,923

 

 

 

(88

)

 

 

9,004

 

Net realized gains and (losses)

 

$

1,011

 

 

$

58,535

 

 

$

(85

)

 

$

79,574

 

 

 

 

2019

 

 

2018

 

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

Six Months Ended June 30,

 

(In thousands)

 

Fixed maturity securities

 

$

968

 

 

$

42,387

 

 

$

76

 

 

$

233,874

 

Equity securities

 

 

2,447

 

 

 

23,413

 

 

 

1

 

 

 

169

 

Total realized gains

 

 

3,415

 

 

 

65,800

 

 

 

77

 

 

 

234,043

 

Fixed maturity securities

 

 

(204

)

 

 

13,089

 

 

 

(242

)

 

 

61,325

 

Equity securities

 

 

(1,176

)

 

 

1,792

 

 

 

(147

)

 

 

3,758

 

Total realized losses

 

 

(1,380

)

 

 

14,881

 

 

 

(389

)

 

 

65,083

 

Net realized gains and (losses)

 

$

2,035

 

 

$

80,681

 

 

$

(312

)

 

$

299,126

 

 

10

 


 

Gains (losses) on equity investments consists of realized and unrealized holding gains or losses on marketable equity investments and fair value adjustment, including, if any, impairments on nonmarketable equity investments. For the six months ended June 30, 2018, the Company reported changes in the fair value of equity investments in Other revenue.

For the three months ended June 30, 2019 and 2018, the Company received proceeds from the sale of marketable equity securities of approximately $2.3 million and $1.6 million, respectively. The Company recorded gross gains from these sales of $1.3 million and a gross loss of $1.1 million and a gross gain of $1,000 and gross loss of $49,300 for the comparable period for the prior year period.

For the six months ended June 30, 2019 and 2018, the Company received proceeds from the sale of its holdings in marketable equity securities of approximately $26.5 million and $5.4 million, respectively. These sales resulted in gross gains of $2.4 million and gross losses of $1.2 million, and a gross gain of $1,000 and a gross loss of $147,000 respectively, related primarily to unrealized holding gains or losses in certain marketable equity securities.

As of June 30, 2019, the Company has unrealized holding gains of $292,000 recognized on nonmarketable other investments still held at reporting date.

The following table provides the unrealized gains and losses recorded on equity securities and other investments from changes in fair value still held of the reporting period:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Unrealized gains (loss) recognized on equity securities still held at reporting date

 

$

292

 

 

$

(45

)

 

$

292

 

 

$

(405

)

 

The table below summarizes the Company’s fixed maturity securities at June 30, 2019 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.

 

 

At June 30, 2019

 

 

 

Cost or Amortized Cost

 

 

Percent of Total

 

 

Fair Value

 

 

Percent of Total

 

Maturity dates:

 

(In thousands)

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Due in one year or less

 

$

66,490

 

 

 

12

%

 

$

66,518

 

 

 

12

%

Due after one year through five years

 

 

173,670

 

 

 

32

%

 

 

175,086

 

 

 

32

%

Due after five years through ten years

 

 

135,901

 

 

 

25

%

 

 

139,352

 

 

 

25

%

Due after ten years

 

 

170,626

 

 

 

31

%

 

 

172,663

 

 

 

31

%

Total

 

$

546,687

 

 

 

100

%

 

$

553,619

 

 

 

100

%

 

The following table summarizes the Company’s net investment income by major investment category for the three and six months ended June 30, 2019 and 2018, respectively:

 

 

Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Fixed maturity securities

 

$

3,571

 

 

$

2,593

 

Equity securities

 

 

517

 

 

 

314

 

Cash and cash equivalents

 

 

197

 

 

 

204

 

Other investments

 

 

241

 

 

 

114

 

Net investment income

 

 

4,526

 

 

 

3,225

 

Less: Investment expenses

 

 

696

 

 

 

670

 

Net investment income, less investment expenses

 

$

3,830

 

 

$

2,555

 

 

 

11

 


 

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Fixed maturity securities

 

$

6,295

 

 

$

4,978

 

Equity securities

 

 

944

 

 

 

617

 

Cash and cash equivalents

 

 

938

 

 

 

1,243

 

Other investments

 

 

542

 

 

 

183

 

Net investment income

 

 

8,719

 

 

 

7,021

 

Less: Investment expenses

 

 

1,217

 

 

 

1,164

 

Net investment income, less investment expenses

 

$

7,502

 

 

$

5,857

 

 

Limited Partnerships and Limited Liability Company Investments

The Company has interests in limited partnerships (“LPs”) that are not registered or readily tradable on a securities exchange. The investments are private equity funds managed by general partners who make financial policy and operational decisions. The Company is not the primary beneficiary and does not consolidate these partnerships. As of June 30, 2019, the estimated fair value of our investments in the LPs interests was $20.3 million. The general partner's objective is to achieve capital appreciation through investments in marketable securities and broad markets, preferred stock, industry-focused and fixed income exchange-traded funds (ETFs).  

These funds are carried at net asset value, which approximates fair value with changes in fair value recorded in net realized gains (losses) on the Company’s condensed consolidated statement of income and comprehensive income. Sales of these investments are reported within net realized gains (losses).

The Company has an interest in a limited liability company (“LLC”) that is not registered or readily tradable on a securities exchange. The investment is in an LLCs that maintains a specific ownership account for each investor, similar to a partnership capital account structure, and is viewed as similar to an investment in a LP for purposes of determining whether a noncontrolling investment in an LLC shall be accounted for using the cost method or the equity method. The Company receives monthly returns of capital from the LLC which reduces the investment. As of June 30, 2019, the estimated fair value of the Company’s investments in the LLCs interest was $2.5 million. The expenses from these funds are recorded to net investment income.

For the six month ended June 30, 2019, the Company invested $20.3 million in LPs and LLCs. For the comparable period of 2018, the Company did not increase its investment portfolio for this category. For the period ended June 30, 2019, the Company recognized net investment gains in LPs in aggregate of $291,682. As of the second quarter of 2019 and 2018, the Company received total cash distributions from its LLC investments of $29,875 and $261,080, respectively, representing return of capital on its investments. The Company incurred $138,898 of allocated costs during the second quarter of 2019 and $1,329 for the comparable period of 2018.

The following tables present an aging of our unrealized losses on fixed maturity investments by investment class as of June 30, 2019 and December 31, 2018:

 

 

Less Than Twelve Months

 

 

Twelve Months or More

 

June 30, 2019

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities

 

 

2

 

 

$

 

 

$

646

 

 

 

39

 

 

$

68

 

 

$

8,367

 

States, municipalities and political subdivisions

 

 

1

 

 

 

 

 

 

531

 

 

 

13

 

 

 

29

 

 

 

8,898

 

Industrial and miscellaneous

 

 

10

 

 

 

1

 

 

 

2,561

 

 

 

97

 

 

 

150

 

 

 

27,032

 

Special revenue

 

 

15

 

 

 

6

 

 

 

1,913

 

 

 

220

 

 

 

434

 

 

 

52,484

 

Total fixed maturity securities

 

 

28

 

 

$

7

 

 

$

5,651

 

 

 

369

 

 

$

681

 

 

$

96,781

 

12

 


 

 

 

 

Less Than Twelve Months

 

 

Twelve Months or More

 

December 31, 2018

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities

 

 

17

 

 

$

129

 

 

$

10,485

 

 

 

66

 

 

$

609

 

 

$

20,488

 

States, municipalities and political subdivisions

 

 

13

 

 

 

103

 

 

 

12,864

 

 

 

42

 

 

 

682

 

 

 

39,979

 

Industrial and miscellaneous

 

 

214

 

 

 

1,479

 

 

 

70,156

 

 

 

232

 

 

 

1,822

 

 

 

70,375

 

Special revenue

 

 

105

 

 

 

1,260

 

 

 

76,335

 

 

 

323

 

 

 

2,621

 

 

 

108,319

 

Redeemable preferred stocks

 

 

55

 

 

 

193

 

 

 

2,541

 

 

 

27

 

 

 

221

 

 

 

1,965

 

Total fixed maturity securities

 

 

404

 

 

$

3,164

 

 

$

172,381

 

 

 

690

 

 

$

5,955

 

 

$

241,126

 

 

The Company is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations.

 

As of June 30, 2019, the Company evaluated its fixed maturity securities for impairment and determined that none of its investments in fixed maturity securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of the fixed maturity securities in which the Company invests continue to make interest payments on a timely basis and have not suffered any credit rating reductions. The Company does not intend to sell, nor is it likely that it would be required to sell, the fixed maturity securities before the Company recovers its amortized cost basis.

 

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Company’s investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, the Company obtains the fair values from its third-party valuation service and we evaluate the relevant inputs, assumptions, methodologies and conclusions associated with such valuations. The valuation service calculates prices for the Company’s investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, then adds final spreads to the U.S. Treasury curve as of quarter end. The inputs the valuation service uses in their calculations are not quoted prices in active markets, but are observable inputs, and therefore represent Level 2 inputs.

The following table presents information about the Company’s assets measured at fair value on a recurring basis. The Company assesses the levels for the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognitions of transfers between levels of the fair value hierarchy. As of June 30, 2019 and December 31, 2018, there were no transfers in or out of Level 1, 2, and 3.

The Company also invests in private limited partnerships and limited liability companies. This investment class has the potential for higher returns but also the potential for higher degrees of risk, including less than stable rates of returns and may provide less liquidity.

Investments excluded from the fair value hierarchy

Limited Partnerships and Limited Liability Companies. Fair value estimates of the LPs and LLCs are based on their net asset values, as reported by the manager of the LP or LLC. The fair value of these investments is measured at net asset value and is excluded from the fair value hierarchy. For the current LPs, the Company may, as of the last day of each calendar quarter, upon at least 65 days’ prior written notice, withdrawal all or any portion of the balance in its investment. There is a 3 percent withdrawal fee if made during the first year of investment.

13

 


 

 

June 30, 2019

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Invested Assets:

 

(In thousands)

 

Fixed maturity securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

56,587

 

 

$

365

 

 

$

56,222

 

 

$

 

States, municipalities and political subdivisions

 

 

73,657

 

 

 

 

 

 

73,657

 

 

 

 

Special revenue

 

 

252,815

 

 

 

 

 

 

252,815

 

 

 

 

Industrial and miscellaneous

 

 

170,560

 

 

 

 

 

 

170,560

 

 

 

 

Total fixed maturity securities

 

 

553,619

 

 

 

365

 

 

 

553,254

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

1,618

 

 

 

1,618

 

 

 

 

 

 

 

Total investments

 

 

555,237

 

 

 

1,983

 

 

 

553,254

 

 

 

 

Investment reported at NAV

 

 

22,761

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

577,998

 

 

$

1,983

 

 

$

553,254

 

 

$

 

 

December 31, 2018

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Invested Assets:

 

(In thousands)

 

Fixed maturity securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

48,041

 

 

$

354

 

 

$

47,687

 

 

$

 

States, municipalities and political subdivisions

 

 

59,289

 

 

 

 

 

 

59,289

 

 

 

 

Special revenue

 

 

245,355

 

 

 

 

 

 

245,355

 

 

 

 

Industrial and miscellaneous

 

 

152,457

 

 

 

 

 

 

152,457

 

 

 

 

Redeemable preferred stocks

 

 

4,507

 

 

 

4,507

 

 

 

 

 

 

 

Total fixed maturity securities

 

 

509,649

 

 

 

4,861

 

 

 

504,788

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

3,686

 

 

 

3,686

 

 

 

 

 

 

 

Non-redeemable preferred stock

 

 

12,770

 

 

 

12,770

 

 

 

 

 

 

 

Total equity securities

 

 

16,456

 

 

 

16,456

 

 

 

 

 

 

 

Investment reported at NAV

 

 

2,488

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

528,593

 

 

$

21,317

 

 

$

504,788

 

 

$

 

Non-recurring fair value measurements

Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill which are recognized at fair value during the period in which an acquisition is completed, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for intangible assets acquired, were based on Level 3 unobservable inputs. For the quarters ended June 30, 2019 and 2018, these non-recurring fair values inputs consisted of brand, agent relationships, renewal rights, customer relations, trade names, non-compete and goodwill. To evaluate such assets for a potential impairment, we determine the fair value of the goodwill and intangible assets using a combination of a discounted cash flow approach and market approaches, which contain significant unobservable inputs and therefore are considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate.

There were no non-recurring fair value adjustments to intangible assets and goodwill during the second quarters of 2019 and 2018. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.

14

 


 

NOTE 4. OTHER COMPREHENSIVE INCOME

Other comprehensive income (loss) was $11.8 million and $(5.1) million for the six months ended June 30, 2019 and 2018, respectively. The difference between net income as reported and comprehensive income was due to the changes in unrealized gains and losses, net of taxes on fixed maturities securities.

 

 

 

For the Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

 

(in thousands)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized losses on investments, net

 

$

7,068

 

 

$

(1,293

)

 

$

5,775

 

 

$

(545

)

 

$

(257

)

 

$

(802

)

Reclassification adjustment of realized losses (gains) included in net income

 

 

59

 

 

 

(11

)

 

 

48

 

 

 

85

 

 

 

18

 

 

 

103

 

Effect on other comprehensive income

 

$

7,127

 

 

$

(1,304

)

 

$

5,823

 

 

$

(460

)

 

$

(239

)

 

$

(699

)

 

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

 

(in thousands)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized losses on investments, net

 

$

15,104

 

 

$

(3,617

)

 

$

11,487

 

 

$

(7,023

)

 

$

1,518

 

 

$

(5,505

)

Reclassification adjustment of realized losses (gains) included in net income

 

 

394

 

 

 

(95

)

 

 

299

 

 

 

312

 

 

 

66

 

 

 

378

 

Effect on other comprehensive income

 

$

15,498

 

 

$

(3,712

)

 

$

11,786

 

 

$

(6,711

)

 

$

1,584

 

 

$

(5,127

)

 

NOTE 5. LEASES

The Company has entered into operating and financing leases primarily for real estate and vehicles. The Company will determine whether an arrangement is a lease at inception of the agreement. The operating leases have terms of one to ten years, and often include one or more options to renew. These renewal terms can extend the lease term from three to ten years, and are included in the lease term when it is reasonably certain that the Company will exercise the option. The Company considers these options in determining the lease term used in establishing our right-of-use asset and lease obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Because the rate implicit in each operating lease in not readily determinable, the Company uses its incremental borrowing rate to determine present value of the lease payments. The Company used the implicit rates within the finance leases.

Components of our lease costs for the three and six months ended June 30, 2019 are as follows (in thousands):

 

 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

 

Amortization of ROU assets - Finance leases

 

$

18

 

 

$

38

 

Interest on lease liabilities - Finance leases

 

 

7

 

 

 

14

 

Variable lease cost  (cost excluded from lease payments)

 

 

111

 

 

 

221

 

Operating lease cost (cost resulting from lease payments)

 

 

328

 

 

 

588

 

Total lease cost

 

$

464

 

 

$

861

 

Supplemental cash flow information and non-cash activity related to our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

 

June 30, 2019

 

Finance lease - Operating cash flows

 

$

16

 

Finance lease - Financing cash flows

 

$

47

 

 

 

 

 

 

Operating lease - Operating cash flows (fixed payments)

 

$

341

 

Operating lease - Operating cash flows (liability reduction)

 

$

276

 

15

 


 

Supplemental balance sheet information related to our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

Balance Sheet Classification

 

June 30, 2019

 

Right-of-use assets

 

Other assets

 

$

7,042

 

Lease Liability (1)

 

Accounts payable and other liabilities

 

$

(8,718

)

 

 

 

 

 

 

 

(1) Includes $1.3 million in lease incentives received in the first quarter of 2019.

 

Weighted-average remaining lease term and discount rate for our operating and financing leases as of June 30, 2019 are as follows:

 

 

June 30, 2019

 

Weighted average lease term - Finance leases

 

3.89 yrs.

 

Weighted average lease term - Operating leases

 

8.38 yrs.

 

Weighted average discount rate - Finance leases

 

 

9.24

%

Weighted average discount rate - Operating leases

 

 

5.32

%

Maturities of lease liabilities by fiscal year for our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

June 30, 2019

 

2019 remaining

 

$

681

 

2020

 

 

1,408

 

2021

 

 

1,376

 

2022

 

 

1,410

 

2023

 

 

1,359

 

2024 and thereafter

 

 

4,676

 

Total lease payments

 

 

10,910

 

Less: imputed interest

 

 

(2,192

)

Present value of lease liabilities

 

$

8,718

 

 

NOTE 6. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following at June 30, 2019 and December 31, 2018:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Land

 

$

2,582

 

 

$

2,582

 

Building

 

 

11,390

 

 

 

11,390

 

Computer hardware and software

 

 

5,303

 

 

 

4,901

 

Office furniture and equipment

 

 

1,973

 

 

 

1,397

 

Tenant and leasehold improvements

 

 

7,919

 

 

 

4,477

 

Vehicle fleet

 

 

783

 

 

 

854

 

Total, at cost

 

 

29,950

 

 

 

25,601

 

Less: accumulated depreciation and amortization

 

 

(8,840

)

 

 

(7,603

)

Property and equipment, net

 

$

21,110

 

 

$

17,998

 

 

Depreciation and amortization expense for property and equipment was $1.0 million and $372,000 for the three months ended June 30, 2019 and 2018 and $1.6 million and $786,000 for the six months ended June 30, 2019 and 2018, respectively. The Company’s real estate consists of 15 acres of land and five buildings with a gross area of 229,000 square feet and a parking garage.

16

 


 

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill and Intangible Assets

 

At June 30, 2019 and December 31, 2018 goodwill was $152.5 million and intangible assets were $72.7 million and $76.9 million, respectively. The Company has determined the useful life of the other intangible assets to range between 2.5-15 years. The Company has recorded $1.3 million relating to insurance licenses and has classified the licenses as an indefinite lived intangible which is subject to annual impairment testing concurrent with goodwill.

 

 

 

Goodwill

 

 

 

(in thousands)

 

Balance as of December 31, 2018

 

$

152,459

 

Goodwill acquired

 

 

Impairment

 

 

Balance as of June 30, 2019

 

$

152,459

 

 

Other Intangible Assets

Our intangible assets resulted primarily from the acquisitions of Zephyr Acquisition Company in March 2016 and NBIC Holdings, Inc. in November 2017 and consist of brand, agent relationships, renewal rights, customer relations, trade names, non-competes and insurance licenses. Finite-lived intangibles assets are amortized over their useful lives from one to fifteen years.

Amortization expense of our intangible assets for the three months ended June 30, 2019 and 2018 was $2.1 million and $6.6 million and $4.2 million and $13.3 million for the six months ended June 30, 2019 and 2018, respectively.  No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the three months ended June 30, 2019 or 2018.

Estimated annual pretax amortization of intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year

 

Amount(1)

 

2019 remaining

 

$

4,021

 

2020

 

$

6,365

 

2021

 

$

6,351

 

2022

 

$

6,351

 

2023

 

$

6,351

 

2024

 

$

6,351

 

Thereafter

 

$

35,558

 

Total

 

$

71,348

 

 

(1)

Excludes insurance licenses valued at $1.3 million and classified as an indefinite lived intangible which is subject to annual impairment testing and not amortized.

NOTE 8. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the periods indicated.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders (000's)

 

$

721

 

 

$

2,408

 

 

$

7,685

 

 

$

17,238

 

Weighted average shares outstanding

 

 

29,346,234

 

 

 

25,631,871

 

 

 

29,442,363

 

 

 

25,679,448

 

Basic earnings per share:

 

$

0.02

 

 

$

0.09

 

 

$

0.26

 

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders (000's)

 

$

721

 

 

$

2,408

 

 

$

7,685

 

 

$

17,238

 

Weighted average shares outstanding

 

 

29,346,234

 

 

 

25,631,871

 

 

 

29,442,363

 

 

 

25,679,448

 

Weighted average dilutive shares

 

 

6,562

 

 

 

684,726

 

 

 

5,305

 

 

 

801,259

 

Total weighted average dilutive shares

 

 

29,352,796

 

 

 

26,316,597

 

 

 

29,447,668

 

 

 

26,480,707

 

Diluted earnings per share:

 

$

0.02

 

 

$

0.09

 

 

$

0.26

 

 

$

0.65

 

 

17

 


 

NOTE 9. DEFERRED REINSURANCE CEDING COMMISSION

The Company defers reinsurance ceding commission income, which is amortized over the effective period of the related insurance policies. For the quarter ended June 30, 2019 and 2018, the Company allocated ceding commission income of $12.1 million and $13.5 million to policy acquisition costs and $4.0 million and $4.5 million to general and administrative expense, respectively. For the six months ended June 30, 2019 and 2018, the Company allocated ceding commission income of $25.0 million and $27.7 million to policy acquisition costs and $8.3 million and $9.2 million to general and administrative expense, respectively.

The table below depicts the activity with regard to deferred reinsurance ceding commission during the three and six months ended June 30, 2019 and 2018.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Beginning balance of deferred ceding commission income

 

$

40,474

 

 

$

47,841

 

 

$

44,996

 

 

$

51,277

 

Ceding commission deferred

 

 

10,389

 

 

 

12,986

 

 

 

23,036

 

 

 

28,542

 

Less: ceding commission earned

 

 

(16,158

)

 

 

(17,991

)

 

 

(33,327

)

 

 

(36,983

)

Ending balance of deferred ceding commission income

 

$

34,705

 

 

$

42,836

 

 

$

34,705

 

 

$

42,836

 

 

NOTE 10. DEFERRED POLICY ACQUISITION COSTS

The Company defers certain costs in connection with written policies, called deferred policy acquisition costs (“DPAC”), which are amortized over the effective period of the related insurance policies.

The Company anticipates that its DPAC costs will be fully recoverable in the near term. The table below depicts the activity with regard to DPAC during the three and six months ended June 30, 2019 and 2018.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Beginning Balance

 

$

69,883

 

 

$

53,862

 

 

$

73,055

 

 

$

41,678

 

Policy acquisition costs deferred

 

 

35,271

 

 

 

31,572

 

 

 

73,901

 

 

 

55,940

 

Amortization

 

 

(31,090

)

 

 

(15,786

)

 

 

(72,892

)

 

 

(27,970

)

Ending Balance

 

$

74,064

 

 

$

69,648

 

 

$

74,064

 

 

$

69,648

 

 

NOTE 11. INCOME TAXES

For the three months ended June 30, 2019 and 2018, the Company recorded $0.4 million and $0.9 million, respectively, of income tax expenses which corresponds to effective tax rates of 33.8% and 27.2%, respectively. Lower pre-tax income for the quarter had a significant adverse impact on the effective tax rate for the discrete quarter due to the impact of permanent tax differences. During the six months ended June 30, 2019 and 2018, the Company recorded $2.7 million and $6.1 million, respectively, of income tax expense which corresponds to an estimated annual effective tax rate of 26.3% and 26.0%, respectively. Effective tax rates are dependent upon components of pre-tax earnings and the related tax effects. The effective tax rate can fluctuate throughout the year as estimates used in the tax provision for the second quarter are updated as more information becomes available throughout the year.

18

 


 

The table below summarizes the significant components of our net deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Deferred tax assets:

 

(In thousands)

 

Unearned premiums

 

$

7,569

 

 

$

12,090

 

Unearned commission

 

 

8,309

 

 

 

10,733

 

Net operating loss

 

 

109

 

 

 

109

 

Tax-related discount on loss reserve

 

 

2,631

 

 

 

2,329

 

Unrealized loss

 

 

 

 

 

2,631

 

Investments

 

 

 

 

 

 

Stock-based compensation

 

 

859

 

 

 

297

 

Accrued expenses

 

 

844

 

 

 

2,321

 

Other

 

 

2,514

 

 

 

1,443

 

Total deferred tax asset

 

 

22,835

 

 

 

31,953

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Deferred acquisition costs

 

 

17,736

 

 

 

17,494

 

Prepaid expenses

 

 

173

 

 

 

112

 

Unrealized gains

 

 

1,734

 

 

 

 

Property and equipment

 

 

427

 

 

 

664

 

Note discount

 

 

502

 

 

 

710

 

Basis in purchased investments

 

 

129

 

 

 

163

 

Basis in purchased intangibles

 

 

18,037

 

 

 

18,982

 

Other

 

 

1,632

 

 

 

1,533

 

Total deferred tax liabilities

 

 

40,370

 

 

 

39,658

 

Net deferred tax liability

 

$

(17,535

)

 

$

(7,705

)

 

In April 2019, the Company was notified by the tax authority that the federal income tax returns for the years 2015, 2016 and 2017 will be examined. The Company does not believe the examination results will have an adverse impact on the condensed consolidated financial statements.

At June 30, 2019 and December 31, 2018, we had no significant uncertain tax positions or unrecognized tax benefits that, if recognized, would impact the effective income tax rate.

NOTE 12. REINSURANCE

Overview

The Company’s reinsurance program is designed, utilizing the Company’s risk management methodology, to address its exposure to catastrophes or large non-catastrophic losses. The Company’s program provides reinsurance protection for catastrophes including hurricanes, tropical storms, tornadoes and winter storms. The Company’s reinsurance agreements are part of its catastrophe management strategy, which is intended to provide its stockholders an acceptable return on the risks assumed in its property business, and to reduce variability of earnings, while providing protection to the Company’s policyholders.  

In order to limit our potential exposure to catastrophic events, we purchase significant reinsurance from third party reinsurers and sponsor catastrophe bonds issued by Citrus Re Ltd. The catastrophe reinsurance may be on an excess of loss or quota share basis. We also purchase reinsurance for non-catastrophe losses on a quota share, per risk or facultative basis. Purchasing a sufficient amount of reinsurance to consider catastrophic losses from single or multiple events or significant non-catastrophe losses is an important part of our risk strategy, and premiums paid (or ceded) to reinsurers is one of our largest cost components. Reinsurance involves transferring, or “ceding”, a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss.

19

 


 

Our reinsurance agreements are prospective contracts. We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new reinsurance agreements. We generally amortize our catastrophe reinsurance premiums over the 12-month contract period on a straight-line basis, which is June 1 through May 31. Our quota share reinsurance is amortized over the 12-month contract period and may be purchased on a calendar or fiscal year basis.

In the event that we incur losses and loss adjustment expenses recoverable under our reinsurance program, we record amounts recoverable from our reinsurers on paid losses plus an estimate of amounts recoverable on unpaid losses. The estimate of amounts recoverable on unpaid losses is a function of our liability for unpaid losses associated with the reinsured policies; therefore, the amount changes in conjunction with any changes to our estimate of unpaid losses. As a result, a reasonable possibility exists that an estimated recovery may change significantly in the near term from the amounts included in our condensed consolidated financial statements.

Our insurance regulators require all insurance companies, like us, to have a certain amount of capital and reinsurance coverage in order to cover losses and loss adjustment expenses upon the occurrence of a catastrophic event. Our reinsurance program provides reinsurance in excess of our state regulator requirements, which are based on the probable maximum loss that we would incur from an individual catastrophic event estimated to occur once in every 100 years based on our portfolio of insured risks. The nature, severity and location of the event giving rise to such a probable maximum loss differs for each insurer depending on the insurer’s portfolio of insured risks, including, among other things, the geographic concentration of insured value within such portfolio. As a result, a particular catastrophic event could be a one-in-100-year loss event for one insurance company while having a greater or lesser probability of occurrence for another insurance company. We also purchase reinsurance coverage to protect against the potential for multiple catastrophic events occurring in the same year. We share portions of our reinsurance program coverage among our insurance company affiliates.

Significant Reinsurance Contracts

2019-2020 Excess of Loss Reinsurance Programs

Catastrophe Excess of Loss Reinsurance

Effective June 1, 2019, we entered into catastrophe excess of loss reinsurance agreements covering Heritage Property & Casualty Insurance Company (“Heritage P&C”), Zephyr Insurance Company (“Zephyr”) and Narragansett Bay Insurance Company (“NBIC”). The catastrophe reinsurance programs are allocated amongst traditional reinsurers, catastrophe bonds issued by Citrus Re Ltd., a Bermuda special purpose insurer formed in 2014 (“Citrus Re”), the Florida Hurricane Catastrophe Fund (“FHCF”) and Osprey, our captive reinsurer. The FHCF covers Florida risks only and we participate at 90%. Our third-party reinsurers are either rated “A-” or higher by A.M. Best or S&P or are fully collateralized, to reduce credit risk.

The reinsurance program, which is segmented into layers of coverage, protects the Company for excess property catastrophe losses and loss adjustment expenses. The 2019-2020 reinsurance program provides first event coverage up to $1.5 billion for Heritage P&C, first event coverage up to $708.0 million for Zephyr, and first event coverage up to $936.0 million for NBIC. Our first event retention for each insurance company subsidiary follows: Heritage P&C - $20.0 million; Zephyr - $20.0 million; NBIC – $13.8 million.

Our program was placed on a cascading basis which provides greater horizontal protection in a multiple small events scenario and features additional coverage enhancements. This coverage exceeds the requirements established by the Companies’ rating agency, Demotech, Inc., the Florida Office of Insurance Regulation, the Hawaii Insurance Division, and the Rhode Island Department of Business Regulation.  

We are responsible for all losses and loss adjustment expenses in excess of our reinsurance program. For second or subsequent catastrophic events, our total available coverage depends on the magnitude of the first event, as we may have coverage remaining from layers that were not previously fully exhausted. An aggregate of $2.6 billion of limit purchased in 2019 includes reinstatement through the purchase of reinstatement premium protection. In total, we have purchased $2.6 billion of potential reinsurance coverage, including our retention, for multiple catastrophic events. Our ability to access this coverage, however, will be subject to the severity and frequency of such events.

The Company's estimated net cost for the 2019-2020 catastrophe reinsurance programs is approximately $249.2 million.

Gross Quota Share Reinsurance

NBIC did not enter into a gross quota share reinsurance program for the fiscal year beginning June 1, 2019. For the previous fiscal year, NBIC purchased an 8% gross quota share reinsurance treaty effective June 1, 2018 which provided ground up loss recoveries of up to $1.0 billion.

Net Quota Share Reinsurance

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NBIC’s Net Quota Share coverage is proportional reinsurance for which certain of our other reinsurance inures to the quota share (property catastrophe excess of loss and reinstatement premium protection and the second layer of the general excess of loss). An occurrence limit of $20.0 million for catastrophe losses is in effect on the quota share, subject to certain aggregate loss limits that vary by reinsurer. The amount and rate of reinsurance commissions slide, within a prescribed minimum and maximum, depending on loss performance. The Net Quota Share program was renewed on December 31, 2018 ceding 52% of the net premiums and losses and 10% of the prior year quota share will run off.

Aggregate Coverage

A $931.0 million of limit is structured on an aggregate basis (Top and Aggregate, Layer 1, Layer 2, Layer 3, Layer 4, Layer 5, Stub layers, Multi-Zonal and 2017-1 Notes). To the extent that this coverage is not fully exhausted in the first catastrophic event, it provides coverage commencing at its reduced retention for second and subsequent events where underlying coverage has been previously exhausted. The Company purchased reinstatement premium protection for $627.0 million of this coverage, which can be reinstated one time. Layers (with exception to FHCF) are “net” of a $40.0 million attachment point. Layers inure to the subsequent layers if the aggregate limit of the preceding layer(s) is exhausted, and the subsequent layer cascades down in its place.

NBIC placed 40% of an aggregate contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring May 31, 2019. The limit on the contract is $20.0 million, with a retention of $20.0 million and franchise deductible of $1.0 million.

NBIC placed 100% of an occurrence contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring December 31, 2019. The limit on the contract is $20.0 million with a retention of $20.0 million and has one reinstatement available.

Per Risk Coverage  

For southeast losses and northeast commercial residential losses, excluding losses from named storms, the Company purchased property per risk coverage for losses and loss adjustment expenses in excess of $1.0 million per claim. The limit recovered for an individual loss is $9.0 million and total limit for all losses is $27.0 million. There are two reinstatements available with additional premium due based on the amount of the layer exhausted. For Northeast commercial residential losses only, the Company purchased property per risk coverage for losses and loss adjustments expenses in excess of $750,000 per claim. The limit recovered for an individual loss is $250,000 and total limit for all losses is $750,000. There are two reinstatements available with additional premium due based on the amount of the layer exhausted.

In addition, the Company purchased facultative reinsurance for losses in excess of $10.0 million for any properties it insured where the total insured value exceeded $10.0 million. This coverage applies to Southeast losses and Northeast commercial residential losses, excluding losses from named storms.

General Excess of Loss

NBIC’s general excess of loss reinsurance protects NBIC from single risk losses, both property and casualty. The casualty coverage provided by this reinsurance contract also responds on a “Clash” basis, meaning that multiple policies involved in a single loss occurrence can be aggregated into one loss and applied to the reinsurance contract. The coverage is in two layers in excess of NBIC’s retention of the first $400,000 of loss. The first layer is $350,000 excess $400,000 and the second layer is $2.75 million excess $750,000 (Casualty second layer is $1.25 million excess $750,000). Both layers are 100% placed.

Semi-Automatic Facultative Excess of Loss

NBIC’s automatic property facultative reinsurance protects NBIC from single risk losses, for property risks with a total insured value excess of $3.5 million subject to a limit.

2018 – 2019 Reinsurance Program

Catastrophe Excess of Loss Reinsurance

Effective June 1, 2018, we entered into catastrophe excess of loss reinsurance agreements covering Heritage P&C, Zephyr and NBIC. The catastrophe reinsurance programs are allocated amongst traditional reinsurers, catastrophe bonds issued by Citrus Re and FHCF. The FHCF covers Florida risks only and we participate at 45%. Citrus Re, which provides fully collateralized multi-year coverage, covers catastrophe losses incurred by Heritage P&C only through the 2016 Class D and 2017-1 Notes, and covers catastrophe losses incurred by Heritage P&C, Zephyr and NBIC through the 2016 Class E Note. Our third-party reinsurers are either rated “A-” or higher by A.M. Best or S&P or are fully collateralized, to reduce credit risk.

The reinsurance program, which is segmented into layers of coverage, protects the Company for excess property catastrophe losses and loss adjustment expenses. The 2018-2019 reinsurance program provides first event coverage up to $1.6 billion for Heritage P&C,

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first event coverage up to $801.0 million for Zephyr, and first event coverage up to $1.0 billion for NBIC. Our first event retention for each insurance company subsidiary follows: Heritage P&C - $20.0 million; Zephyr - $20.0 million; NBIC – $12.8 million. Our second and third event retentions for each insurance company subsidiary follows: Heritage P&C - $16.0 million; Zephyr - $16.0 million; NBIC – $8.8 million.

Our program was placed on a cascading basis which provides greater horizontal protection in a multiple small events scenario and features additional coverage enhancements. This coverage exceeds the requirements established by the Companies’ rating agency, Demotech, Inc., the Florida Office of Insurance Regulation, the Hawaii Insurance Division, and the Rhode Island Department of Business Regulation. For the twelve months ending May 31, 2019, no single uncollateralized private reinsurer represented more than 10% of the overall limit purchased from our total reinsurance coverage.

We are responsible for all losses and loss adjustment expenses in excess of our reinsurance program. For second or subsequent catastrophic events, our total available coverage depends on the magnitude of the first event, as we may have coverage remaining from layers that were not previously fully exhausted. An aggregate of $3.4 billion of limit purchased in 2018 includes reinstatement through the purchase of reinstatement premium protection. In total, we have purchased $3.5 billion of potential reinsurance coverage, including our retention, for multiple catastrophic events. Our ability to access this coverage, however, will be subject to the severity and frequency of such events.

The Company's estimated net cost for the 2018-2019 catastrophe reinsurance programs is approximately $252.0 million.

Gross Quota Share Reinsurance

NBIC purchased an 8% gross quota share reinsurance treaty effective June 1, 2018 which provides ground up loss recoveries of up to $1.0 billion. Prior to this treaty, NBIC’s gross quota share treaty was 18.75%.

Net Quota Share Reinsurance

NBIC’s Net Quota Share coverage is proportional reinsurance for which certain of our other reinsurance inures to the quota share (property catastrophe excess of loss and reinstatement premium protection and the second layer of the general excess of loss). An occurrence limit of $20.0 million for catastrophe losses is in effect on the quota share, subject to certain aggregate loss limits that vary by reinsurer. The amount and rate of reinsurance commissions slide, within a prescribed minimum and maximum, depending on loss performance. NBIC ceded 49.5% of net premiums and losses during 2018 to the Net Quota Share and 8% of the 2017 Net Quota Share was in runoff. The Net Quota Share program was renewed on December 31, 2018 ceding 52% of the net premiums and losses and 10% of the prior year quota share will run off.

Aggregate Coverage

A $1.1 billion of limit is structured on an aggregate basis (Top and Aggregate, Layer 1, Layer 2, Layer 3, Layer 4, Stub layers, Multi-Zonal, 2017-1 Notes and 2016 Class E Notes). To the extent that this coverage is not fully exhausted in the first catastrophic event, it provides coverage commencing at its reduced retention for second and subsequent events where underlying coverage has been previously exhausted. The Company purchased reinstatement premium protection for $669.0 million of this coverage, which can be reinstated one time. Layers (with exception to FHCF and 2016 Class D Notes) are “net” of a $40.0 million attachment point. Layers inure to the subsequent layers if the aggregate limit of the preceding layer(s) is exhausted, and the subsequent layer cascades down in its place.

NBIC placed 42.5% of an aggregate contract, which covers all catastrophe losses excluding named storms, on May 31, 2018, expiring December 31, 2018. The limit on the contract is $20.0 million, with a retention of $3.0 million and franchise deductible of $1.5 million.

NBIC placed 92% of an occurrence contract, which covers all catastrophe losses excluding named storms, on May 31, 2018, expiring December 31, 2018. The limit on the contract is $20.0 million with a retention of $20.0 million.

NBIC placed 40% of an aggregate contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring May 31, 2019. The limit on the contract is $20.0 million, with a retention of $20.0 million and franchise deductible of $1.0 million.

NBIC placed 100% of an occurrence contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring December 31, 2019. The limit on the contract is $20.0 million with a retention of $20.0 million and has one reinstatement available.

Per Risk Coverage  

For southeast losses and northeast commercial residential losses, excluding losses from named storms, the Company purchased property per risk coverage for losses and loss adjustment expenses in excess of $1.0 million per claim. The limit recovered for an

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individual loss is $9.0 million and total limit for all losses is $27.0 million. There are two reinstatements available with additional premium due based on the amount of the layer exhausted. In addition, the Company purchased facultative reinsurance in excess of $10.0 million for any properties it insured where the total insured value exceeded $10.0 million. This coverage applied to Southeast losses and Northeast commercial residential losses, excluding losses from name storms.

General Excess of Loss

NBIC’s general excess of loss reinsurance protects NBIC from single risk losses, both property and casualty. The casualty coverage provided by this contract also responds on a “Clash” basis, meaning that multiple policies involved in a single loss occurrence can be aggregated into one loss and applied to the reinsurance contract. The coverage is in two layers in excess of NBIC’s retention of the first $300,000 of loss. The first layer is $450,000 excess $300,000 and the second layer is $2.75 million excess $750,000 (Casualty second layer is $1.25 million excess $750,000). Both layers are 92% placed with the gross quota share providing the additional 8% coverage.

Semi-Automatic Facultative Excess of Loss

NBIC’s automatic property facultative reinsurance protects NBIC from single risk losses, for property risks with a total insured value excess of $3.5 million subject to a limit.

 

The Company’s reinsurance arrangements had the following effect on certain items in the condensed consolidated statement of income for the three and six months ended June 30, 2019 and 2018:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

 

(In thousands)

 

Premium written:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

254,840

 

 

$

263,664

 

 

$

465,188

 

 

$

468,030

 

Ceded

 

 

(312,600

)

 

 

(251,632

)

 

 

(359,442

)

 

 

(308,982

)

Net

 

$

(57,760

)

 

$

12,032

 

 

$

105,746

 

 

$

159,048

 

Premiums earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

229,958

 

 

$

230,971

 

 

$

458,548

 

 

$

458,134

 

Ceded

 

 

(115,875

)

 

 

(119,767

)

 

 

(234,774

)

 

 

(240,822

)

Net

 

$

114,083

 

 

$

111,204

 

 

$

223,774

 

 

$

217,312

 

Loss and Loss Adjustment Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

162,390

 

 

$

216,261

 

 

$

274,566

 

 

$

551,990

 

Ceded

 

 

(88,091

)

 

 

(150,272

)

 

 

(138,128

)

 

 

(432,910

)

Net

 

$

74,299

 

 

$

65,989

 

 

$

136,438

 

 

$

119,080

 

 

NOTE 13. RESERVE FOR UNPAID LOSSES

The Company determines the reserve for unpaid losses on an individual-case basis for all incidents reported. The liability also includes amounts which are commonly referred to as incurred but not reported, or “IBNR”, claims as of the balance sheet date.

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The table below summarizes the activity related to the Company’s reserve for unpaid losses:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Balance, beginning of period

 

$

404,484

 

 

$

547,736

 

 

$

432,359

 

 

$

470,083

 

Less: reinsurance recoverable on unpaid losses

 

 

214,471

 

 

 

385,397

 

 

 

250,507

 

 

 

315,353

 

Net balance, beginning of period

 

 

190,013

 

 

 

162,339

 

 

 

181,852

 

 

 

154,730

 

Incurred related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current year

 

 

75,623

 

 

 

49,852

 

 

 

138,348

 

 

 

101,214

 

Prior years

 

 

(1,324

)

 

 

16,137

 

 

 

(1,910

)

 

 

17,866

 

Total incurred

 

 

74,299

 

 

 

65,989

 

 

 

136,438

 

 

 

119,080

 

Paid related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current year

 

 

34,793

 

 

 

23,068

 

 

 

43,155

 

 

 

21,816

 

Prior years

 

 

22,130

 

 

 

31,958

 

 

 

67,746

 

 

 

78,692

 

Total paid

 

 

56,923

 

 

 

55,026

 

 

 

110,901

 

 

 

100,508

 

Net balance, end of period

 

 

207,389

 

 

 

173,302

 

 

 

207,389

 

 

 

173,302

 

Plus: reinsurance recoverable on unpaid losses

 

 

223,023

 

 

 

315,308

 

 

 

223,023

 

 

 

315,308

 

Balance, end of period

 

$

430,412

 

 

$

488,610

 

 

$

430,412

 

 

$

488,610

 

 

As of June 30, 2019, the Company reported $207.4 million in unpaid losses and loss adjustment expenses, net of reinsurance which included $159.7 million attributable to IBNR net of reinsurance recoverable, or 77% of net reserves for unpaid losses and loss adjustment expenses.

The Company’s losses incurred for the second quarter ended June 30, 2019 and 2018 reflect favorable development of $1.3 million and unfavorable development of $16.1 million, respectively, associated with management’s best estimate of the actuarial loss and LAE reserves with consideration given to Company specific historical loss experience. While a portion of the 2018 development includes additional retention for hurricane losses, the majority of the 2018 loss development related to personal lines litigated and assignment of benefit claims from 2016 and 2017 accident years.

NOTE 14. LONG-TERM DEBT

Convertible Senior Notes

In August 2017 and September 2017, the Company issued in aggregate $136.8 million of 5.875% Convertible Senior Notes (“Convertible Notes”) maturing on August 1, 2037, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears, on February 1, and August 1 of each year, commencing in 2018.

As of June 30, 2019, the Company had $20.8 million of the Convertible Notes outstanding, net of issuance and debt discount costs in aggregate of approximately, $2.6 million. For six months ended 2019 and 2018, the Company made interest payments of approximately $856,700 and $3.7 million, respectively on the Convertible Notes.

Debt Extinguishment

On February 19, 2019, the Company reacquired $5.8 million of its outstanding Convertible Notes for approximately $2.9 million, which was paid in cash and the issuance of 285,201 shares of the Company’s common stock valued at $4.2 million. The repurchase resulted in a $48,000 non-operating loss.

Senior Secured Credit Facility

In December 2018, the Company entered into a five-year, $125.0 million credit agreement (the “Credit Agreement”) with a syndicate of lenders consisting of $75.0 million senior secured term loan facility (the “Term Loan Facility”) and a $50.0 million senior secured revolving credit facility (the “Revolving Credit Facility” and together with the  Term Loan Facility, the “Credit Facilities”).

Term Loan Facility: The principal amount of the Term Loan Facility amortizes in quarterly installments, beginning with the close of the fiscal quarter ending March 31, 2019, in an amount equal to $1.9 million per quarter, with the remaining balance payable at maturity. As of December 31, 2018, there was $75.0 million in aggregate principal outstanding on the Term Loan Facility. As of June 30, 2019, the balance of the term loan was $73.1 million. For the six months ended June 30, 2019, the Company made interest payments of approximately $1.8 million on the term loan.

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Revolving Credit Facility: The Revolving Credit Facility allows for borrowings of up to $50.0 million inclusive of a $5.0 million sublimit for the issuance of letters of credit and a $10.0 million sublimit for swingline loans. As of June 30, 2019, the Company had $10.0 million of borrowings and no letters of credit outstanding under the Revolving Credit Facility. For the six months ended June 30, 2019, the Company made interest payments of approximately $350,729 under the credit facility, respectively.

Mortgage Loan

In October 2017, the Company and its subsidiary, Skye Lane Properties LLC, jointly obtained a commercial real estate mortgage loan in the amount of $12.7 million, bearing interest of 4.95% per annum and maturing on October 30, 2027. On October 30, 2022, the interest rate shall adjust to an interest rate equal to the annualized interest rate of the United States 5-year Treasury Notes as reported by Federal Reserve on a weekly average basis plus 3.10%. The Company makes monthly principal and interest payments against the loan. For each of the respective six month periods ended June 30, 2019 and 2018, the Company made principal and interest payments of approximately $446,000 and on the mortgage loan.

FHLB Loan Agreements

In December 2018, a subsidiary of the Company received a fixed interest rate 3.094% cash loan of $19.2 million from the Federal Home Loan Bank (“FHLB”) Atlanta. In connection with the agreement, the subsidiary became a member of FHLB. Membership in the FHLB required an investment in FHLB’s common stock which was purchased in December 2018 and valued at $1.4 million. Additionally, the transaction required securities be pledged as collateral. As of June 30, 2019, the fair value of the collateralized securities was $24.2 million and the equity investment in FHLB common stock was $1.4 million. As of June 30, 2019, the Company made quarterly interest payments of approximately $300,325 per the terms of the agreement.

The following table summarizes the Company’s debt and credit facilities as of June 30, 2019 and December 31, 2018:

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Convertible debt

 

$

23,413

 

 

$

29,163

 

Mortgage loan

 

 

12,256

 

 

 

12,394

 

Term loan facility

 

 

73,125

 

 

 

75,000

 

Revolving credit facility

 

 

10,000

 

 

 

20,000

 

FHLB loan agreement

 

 

19,200

 

 

 

19,200

 

Total principal amount

 

$

137,994

 

 

$

155,757

 

Less: unamortized discount and issuance costs

 

$

5,545

 

 

$

6,963

 

Total long-term debt

 

$

132,449

 

 

$

148,794

 

 

As of the date of this report, we were in compliance with the applicable terms of all our covenants and other requirements under the Revolving agreement, Term Note, Convertible Debt, cash borrowings and other loans. Our ability to secure future debt financing depends, in part, on our ability to remain in such compliance. As long as there is no default or an event of default exist we are allowed to payout dividends in an aggregate amount not to exceed $10.0 million in any fiscal year.

 

The schedule of principal payments on long-term debt is as follows:

 

Year

 

Amount

 

 

 

(In thousands)

 

2019 remaining

 

$

5,764

 

2020

 

 

7,790

 

2021

 

 

7,806

 

2022

 

 

7,822

 

2023

 

 

74,589

 

Thereafter

 

 

34,223

 

Total

 

$

137,994

 

 

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NOTE 15. ACCOUNTS PAYABLE AND OTHER LIABILITIES

Accounts payable and other liabilities consist of the following as of June 30, 2019 and December 31, 2018:

 

Description

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Deferred ceding commission

 

$

34,705

 

 

$

44,996

 

Outstanding claim checks

 

 

13,612

 

 

 

15,360

 

Accounts payable and other payables

 

 

7,850

 

 

 

8,379

 

Lease obligations

 

 

8,718

 

 

 

 

Accrued interest and issuance costs

 

 

1,144

 

 

 

1,285

 

Accrued dividends

 

 

1,791

 

 

 

1,589

 

Premium tax

 

 

 

 

 

2,241

 

Other liabilities

 

 

 

 

 

460

 

Commission payables

 

 

13,702

 

 

 

11,654

 

Total other liabilities

 

$

81,522

 

 

$

85,964

 

 

NOTE 16. STATUTORY ACCOUNTING AND REGULATIONS

State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers’ ability to pay dividends, restrict the allowable investment types and investment mixes, and subject the Company’s insurers to assessments.

The Company’s insurance subsidiaries must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. Heritage P&C is required to maintain capital and surplus equal to the greater of $15 million or 10% of their respective liabilities. Zephyr is required to maintain a deposit of $750,000 in a federally insured financial institution. NBIC is required to maintain capital and surplus of $3.0 million. The combined statutory surplus for Heritage P&C, Zephyr and NBIC was $347.1  million at June 30, 2019. The combined statutory surplus for Heritage P&C, Zephyr and NBIC was $376.3 million at December 31, 2018. State law also requires the Company’s insurance subsidiaries to adhere to prescribed premium-to-capital surplus ratios, with which the Company is in compliance. At June 30, 2019, our insurance subsidiaries met the financial and regulatory requirements of the states in which they do business.

NOTE 17. COMMITMENTS AND CONTINGENCIES

The Company is involved in claims-related legal actions arising in the ordinary course of business. The Company accrues amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that it determines an unfavorable outcome becomes probable and it can estimate the amounts. Management makes revisions to its estimates based on its analysis of subsequent information that the Company receives regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation. When determinable, the Company discloses the range of possible losses in excess of those accrued and for reasonably possible losses.

NOTE 18. RELATED PARTY TRANSACTIONS

The Company has been party to various related party transactions involving certain of its officers, directors and significant stockholders as set forth below. The Company has entered into each of these arrangements without obligation to continue its effect in the future and the associated expense was immaterial to its results of operations or financial position as of June 30, 2019 and 2018.

 

In January 2017, the Company entered into a consulting agreement with Mrs. Shannon Lucas, the wife of the Chairman and CEO, in which she agreed to provide consulting services related to the Company’s catastrophe reinsurance and risk management program at a rate of $400 per hour. The consulting agreement has no specific term and either party may terminate the agreement upon providing written notice. Additionally, she serves as a director of Heritage P&C with an annual compensation of $150,000. For the six months ended June 30, 2019 and 2018, the Company paid consulting fees to Ms. Lucas of approximately $172,000 and $336,800, respectively.   

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NOTE 19. EMPLOYEE BENEFIT PLANS

The Company provides a 401(k) plan for substantially all employees. The Company provides a matching contribution of 100% on the first 3% of employees’ contribution and 50% on the next 2% of the employees’ contribution to the plan. The maximum match is 4%. For the three and six-months ended June 30, 2019 and 2018, the contributions made to the plan on behalf of the participating employees were approximately $292,500 and $548,200 and $245,200 and $803,500, respectively.

The Company provides for its employees a partially self-insured healthcare plan and benefits. For the three and six months ended June 30, 2019 and 2018, incurred medical premium costs amounted to an aggregate of $1.1 million and $1.8 million and $1.2 million and $2.2 million, respectively. An additional liability of approximately $333,000 is recorded for unpaid claims as of June 30, 2019. A stop loss reinsurance policy caps the maximum loss that could be incurred by the Company under the self-insured plan. The Company’s stop loss coverage per employee is $150,000 for which any excess cost would be covered by the reinsurer subject to an aggregate limit for losses in excess of $1.5 million which would provide up to $1.0 million of coverage. Any excess of the $1.5 million retention and the $1 million of aggregate coverage would be borne by the Company. The aggregate stop loss commences once our expenses exceed 125% of the annual aggregate expected claims.

NOTE 20. EQUITY

The total amount of authorized capital stock consists of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of June 30, 2019, the Company had 29,274,577 shares of common stock outstanding, 7,720,177 treasury shares of common stock and 580,801 unvested shares of restricted common stock issued reflecting total paid-in capital of $330.3 million as of such date.

As more fully disclosed in our audited consolidated financial statements for the year ended December 31, 2018, there were, as of December 31, 2018, 29,477,756 shares of common stock outstanding, 7,214,797 treasury shares of common stock and 605,801 unvested shares of restricted common stock, representing $325.3 million of additional paid-in capital.

Common Stock

Holders of common stock are entitled to one vote for each share held on all matters subject to a vote of stockholders, subject to the rights of holders of any outstanding preferred stock. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election, subject to the rights of holders of any outstanding preferred stock. Holders of common stock will be entitled to receive ratably any dividends that the board of directors may declare out of funds legally available therefore, subject to any preferential dividend rights of outstanding preferred stock. Upon the Company’s liquidation, dissolution or winding up, the holders of common stock will be entitled to receive ratably its net assets available after the payment of all debts and other liabilities and subject to the prior rights of holders of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of the Company’s capital stock are fully paid and nonassessable.

Stock Repurchase Program

On August 1, 2018, the Company announced that its Board of Directors authorized a stock repurchase program authorizing the Company to repurchase up to $50.0 million of its common stock through December 31, 2020 under our current Rule 10b5-1 trading plan, which allows the Company to purchase shares below a predetermined price per share. For the six months ended June 30, 2019, the Company purchased 157,640 shares of its common stock for $2.3 million. At June 30, 2019, the Company has the capacity to repurchase $42.7 million of its common shares until December 2020. As of June 30, 2019, the Company repurchased in aggregate 505,380 shares of its common stock for $7.3 million.

Dividends

On February 25, 2019, the Company’s Board of Directors declared a $0.06 per share quarterly dividend payable on April 3, 2019, to stockholders of record as of March 15, 2019. On May 6, 2019, the Company’s Board of Directors declared a $0.06 per share quarterly dividend payable on July 3, 2019 to stockholders of record as of June 14, 2019.

The declaration and payment of any future dividends will be subject to the discretion of the Board of Directors and will depend on a variety of factors including the Company’s financial condition and results of operations.

 

NOTE 21. STOCK-BASED COMPENSATION

Restricted Stock

The Company has adopted the Heritage Insurance Holdings, Inc., Omnibus Incentive Plan (the “Plan”) effective on May 22, 2014. The Plan authorized 2,981,737 shares of common stock for issuance under the Plan for future grants.

27

 


 

At June 30, 2019 there were 1,321,398 shares available for grant under the Plan. The Company recognizes compensation expense under ASC 718 for its stock-based payments based on the fair value of the awards.

In 2018, the Company granted 155,801 restricted shares vesting over three to five years, to the Company’s executives and other key employees. No restricted stock was granted during quarter ended June 30, 2019.

The Plan authorizes the Company to grant stock options at exercise prices equal to the fair market value of the Company’s stock on the dates the options are granted. Any options granted would typically have a maximum term of ten years from the date of grant and vest primarily in equal annual installments over a range of one to five-year periods following the date of grant for employee options. If a participant’s employment relationship ends, the participant’s vested awards would remain exercisable for the shorter of a period of 30 days or the period ending on the latest date on which such award could have been exercisable. The fair value of each option grant is separately estimated for each grant date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company estimates the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The Company has not granted any stock options since 2015 and all unexercised stock options have since been forfeited.   

The Company has also granted shares of its common stock subject to certain restrictions under the Plan. Restricted stock awards granted to employees vest in equal installments generally over a five-year period from the grant date subject to the recipient’s continued employment. The fair value of restricted stock awards is estimated by the market price at the date of grant and amortized on a straight-line basis to expense over the period of vesting. Recipients of restricted stock awards have the right to receive dividends.  

Restricted stock activity for the quarter ended June 30, 2019 is as follows:

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant-Date Fair

 

 

 

Number of shares

 

 

Value per Share

 

Non-vested, at December 31, 2018

 

 

605,801

 

 

$

20.41

 

Granted

 

 

 

 

 

 

Vested

 

 

(17,000

)

 

 

14.72

 

Canceled and surrendered

 

 

(8,000

)

 

 

14.72

 

Non-vested, at June 30, 2019

 

 

580,801

 

 

$

20.65

 

 

Awards are being amortized to expense over the three to five-year vesting period. The Company recognized $2.7 million and $2.6 million of compensation expense for the six months ended June 30, 2019 and 2018, respectively. There was approximately $8.2 million of unrecognized compensation expense related to the un-vested restricted stock at June 30, 2019. The Company expects to recognize substantially all of remaining compensation expense over the next 1.6 years. For the six months ended June 30, 2019, 25,000 shares of restricted stock were vested and released, all of which had been granted to employees. Of the shares released to employees, 8,000 shares were withheld by the Company to cover withholding taxes of $118,000. For the comparable period of 2018, no shares were vested and released.

NOTE 22. SUBSEQUENT EVENTS

The Company performed an evaluation of subsequent events through the date the condensed consolidated financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the condensed consolidated financial statements as of June 30, 2019.

On August 1, 2019, the Company announced that its Board of Directors declared a $0.06 per share quarterly dividend payable on October 3, 2019 to stockholders of record as of September 16, 2019.

28

 


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and information included and elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2018 (“2018 Form 10-K”). Unless the context requires otherwise, as used in this Form 10-Q, the terms “we”, “us”, “our”, “the Company”, “our Company”, and similar references refer to Heritage Insurance Holdings, Inc., a Delaware corporation, and its subsidiaries.

Financial Results Highlights for the Second Quarter of 2019

 

 

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

 

Gross premiums written were $254.8 million, down 3.3% year-over-year, including 8.4% growth outside Florida and an 11.9% exposure management driven decline in Florida.

 

Premiums-in-force were $922.5 million, down 0.9% year-over-year, including 6.3% growth outside Florida, 0.8% growth in non-Tri-County, Florida and a 16.3% decline in Tri-County, Florida.

 

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 our fourth consecutive quarter of favorable 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.  

 

Repurchased 157,640 shares for $2.3 million.

 

Unrestricted cash, cash equivalents and investments of $840.5 million, with total assets of $1.9 billion at June 30, 2019.

Critical Accounting Policies and Estimates

When we prepare our condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (GAAP), we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. During the three and six months ended June 30, 2019, we reassessed our critical accounting policies and estimates as disclosed within our 2018 Form 10-K; as disclosed in Note 1. Basis of Presentation and significant accounting policies we adopted on January 1, 2019, ASU 2016-02, Leases, we made no further material changes or additions with regard to such policies and estimates.

Results of Operations

Comparison of the Three Months Ended June 30, 2019 and 2018

 

 

For the Three Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

 

(in thousands)

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

254,840

 

 

$

263,664

 

 

$

(8,824

)

 

 

(3

)%

Change in gross unearned premiums

 

 

(24,882

)

 

 

(32,693

)

 

 

7,811

 

 

 

(24

)%

Gross premiums earned

 

 

229,958

 

 

 

230,971

 

 

 

(1,013

)

 

 

(0

)%

Ceded premiums

 

 

(115,875

)

 

 

(119,767

)

 

 

3,892

 

 

 

(3

)%

Net premiums earned

 

 

114,083

 

 

 

111,204

 

 

 

2,879

 

 

 

3

%

Net investment income

 

 

3,830

 

 

 

2,555

 

 

 

1,275

 

 

 

50

%

Net realized gains (losses)

 

 

1,303

 

 

 

(85

)

 

 

1,388

 

 

NM

 

Other revenue

 

 

3,627

 

 

 

4,298

 

 

 

(671

)

 

 

(16

)%

Total revenue

 

$

122,843

 

 

$

117,972

 

 

$

4,871

 

 

 

4

%

 

NM= Not Meaningful

Gross premiums written

Gross premiums written were $254.8 million in the 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

29

 


 

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

Gross premiums earned were $230.0 million in the second quarter 2019, down 0.4% from $231.0 million in the prior year quarter.

Ceded premiums earned

Ceded premiums earned were $115.9 million in the second quarter of 2019, down 3.2% from $119.8 million 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 18.75% 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.

Net premiums earned

Net premiums earned were $114.1 million in the second quarter of 2019, up 2.6% from $111.2 million in the prior year quarter. The increase resulted from a lower ceded premium ratio, partially offset by lower gross premiums written.    

Net investment income

Net investment income, inclusive of realized investment gains and unrealized gains on equity securities, was $5.1 million in the second quarter of 2019, up $2.7 million from the prior year quarter. The increase relates primarily to improved market value on equities and fixed income securities as well as a higher average monthly invested asset balance compared to the prior year quarter.

Other revenue

Other revenue was $3.6 million in the second quarter of 2019, down $0.7 million from $4.3 million in the prior year quarter. The decrease relates primarily to non-core project related income in the prior year quarter.

Total revenue

Total revenue was $122.8 million in the current year quarter, up 4.1% from $118.0 million in the prior year quarter. The increase primarily stems from higher net premiums earned and net investment income as described above.

 

 

 

For the Three Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

74,299

 

 

 

65,989

 

 

 

8,310

 

 

 

13

%

Policy acquisition costs

 

 

27,087

 

 

 

19,411

 

 

 

7,676

 

 

 

40

%

General and administrative expenses

 

 

18,384

 

 

 

24,422

 

 

 

(6,038

)

 

 

(25

)%

Total operating expenses

 

 

119,770

 

 

 

109,822

 

 

 

9,948

 

 

 

9

%

Losses and loss adjustment expenses

Losses and loss adjustment expenses (“LAE”) were $74.3 million in the second quarter of 2019, up $8.3 million from $66.0 million in the prior year quarter. The increase primarily stems from higher catastrophe and non-catastrophe weather losses and lower income from vertically integrated operations, partly offset by better prior year reserve development.

30

 


 

Policy acquisition costs

Policy acquisition costs were $27.1 million in the second quarter of 2019, up $7.7 million from $19.4 million in the prior year quarter. The increase primarily reflects the favorable impact of NBIC-related purchase accounting on the prior year quarter. The favorable 2018 purchase accounting impact occurred predominantly in the first two quarters and was limited thereafter, as acquisition costs increased with new business. Policy acquisition costs also increased related to reduced ceding commission income in the current year quarter associated with a reduction to NBIC’s overall quota share reinsurance programs. NBIC’s gross quota share reinsurance program was reduced  from 18.75% to 8.0% effective June 1, 2018 and was eliminated effective June 1, 2019, while NBIC’s net quota share reinsurance program increased from 49.5% to 52.0% effective December 31, 2018.  

General and administrative expenses

General and administrative expenses were $18.4 million in the second quarter of 2019, down $6.0 million from $24.4 million in the prior year quarter. The decrease is primarily attributable to higher general and administrative costs in the prior year quarter associated with infrastructure growth and post-acquisition costs associated with NBIC-related systems implementation, partly offset by reduced ceding commission income, as described above.

 

 

 

For the Three Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

Operating income

 

 

3,073

 

 

 

8,150

 

 

 

(5,077

)

 

 

(62

)%

Interest expense, net

 

 

1,984

 

 

 

5,386

 

 

 

(3,402

)

 

 

(63

)%

Other non-operating expense, net

 

 

 

 

 

(542

)

 

 

542

 

 

NM

 

Income before income taxes

 

 

1,089

 

 

 

3,306

 

 

 

(2,217

)

 

 

(67

)%

Provision for income taxes

 

 

368

 

 

 

898

 

 

 

(530

)

 

 

(59

)%

Net income

 

$

721

 

 

$

2,408

 

 

$

(1,687

)

 

 

(70

)%

Basic net income per share

 

$

0.02

 

 

$

0.09

 

 

$

(0.07

)

 

 

(73

)%

Diluted net income per share

 

$

0.02

 

 

$

0.09

 

 

$

(0.07

)

 

 

(73

)%

Interest and amortization of debt issuance costs

Interest expense and amortization of debt issuance costs were $2.0 million in the second quarter of 2019, down $3.4 million from $5.4 million in the prior year quarter. The decrease reflects a significant year-over-year reduction in long-term debt and a lower blended interest rate on outstanding debt associated with 2018 debt refinancing transactions.

Provision for income taxes

Provision for income taxes was $0.4 million and $0.9 million for second quarter 2019 and 2018, respectively. The effective tax rate for the current year quarter is 33.8%, 6.6 points above the prior year quarter 27.2% rate. Lower pre-tax income for the quarter had a significant adverse impact on the effective tax rate for the discrete quarter due to the impact of permanent tax differences. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information throughout the year.

Net income

Net income was $0.7 million ($0.02 per diluted share) in the second quarter of 2019, compared to $2.4 million ($0.09 per diluted share) in the prior year quarter. The decrease primarily reflects higher catastrophe and non-catastrophe weather losses.  

Ratio

 

 

For the Three Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

Gross ceded premium ratio

 

 

50.4

%

 

 

51.9

%

 

 

 

 

 

 

 

 

 

 

 

Net loss and LAE ratio

 

 

65.1

%

 

 

59.3

%

 

Net expense ratio

 

 

39.9

%

 

 

39.4

%

 

Net combined ratio

 

 

105.0

%

 

 

98.7

%

 

31

 


 

Gross ceded premium ratio

The gross ceded premium ratio was 50.4% in the second quarter 2019, down 1.5 points from 51.9% in the prior year period. The decrease is primarily attributable to NBIC-related reinsurance synergies and a decline in NBIC’s overall quota share reinsurance programs, as described above.

Net loss and LAE ratio

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

Net expense ratio

The net operating expense ratio was 39.9% in the second quarter 2019, up 5.0 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 an overall reduction to NBIC’s quota share reinsurance programs, partly offset by a lower ceded premium ratio.

Net combined ratio

The net combined ratio was 105.0% in the 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.

Comparison of the Six Months Ended June 30, 2019 and 2018

 

 

For the Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

 

 

(in thousands)

 

REVENUE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross premiums written

 

$

465,188

 

 

$

468,030

 

 

$

(2,842

)

 

 

(1

)%

Change in gross unearned premiums

 

 

(6,640

)

 

 

(9,896

)

 

 

3,256

 

 

 

(33

)%

Gross premiums earned

 

 

458,548

 

 

 

458,134

 

 

 

414

 

 

 

0

%

Ceded premiums

 

 

(234,774

)

 

 

(240,822

)

 

 

6,048

 

 

 

(3

)%

Net premiums earned

 

 

223,774

 

 

 

217,312

 

 

 

6,462

 

 

 

3

%

Net investment income

 

 

7,502

 

 

 

5,857

 

 

 

1,645

 

 

 

28

%

Net realized gains (losses)

 

 

2,327

 

 

 

(312

)

 

 

2,639

 

 

NM

 

Other revenue

 

 

7,501

 

 

 

7,141

 

 

 

360

 

 

 

5

%

Total revenue

 

$

241,104

 

 

$

229,998

 

 

$

11,106

 

 

 

5

%

Gross premiums written

Gross premiums written were $465.2 million for the six months ended June 30, 2019, down 0.6% from $468.0 million in the prior year period, as exposure management within Tri-County, Florida was only partly offset by growth outside the region. 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

Gross premiums earned were $458.5 million for the six months ended June 30, 2019, relatively flat compared to $458.1 million in the prior year period.

Ceded premiums earned

Ceded premiums earned were $234.8 million for the six months ended June 30, 2019, down 2.5% from $240.8 million 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 18.75% 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.

32

 


 

Net premiums earned

Net premiums earned were $223.8 million for the six months ended June 30, 2019, up 3.0% from $217.3 million in the prior year period. The increase primarily stems from lower ceded premiums earned, as described above.  

Net investment income

Net investment income, inclusive of realized investment gains and unrealized gains on equity securities for the six months ended June 30, 2019, was $9.8 million, up $4.3 million from the prior year period. The increase relates primarily to improved market value on equities and fixed income securities as well as a higher average monthly invested asset balance compared to the prior year quarter.

Other revenue

Other revenue was $7.5 million for the six months ended June 30, 2019, relatively flat compared to $7.1 million in the prior year period.

Total revenue

Total revenue was $241.1 million for the six months ended June 30, 2019, up 4.8% from $230.0 million in the prior year period. The increase primarily stems from higher net premiums earned and net investment income as described above.

Operating Expenses

 

 

For the Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses and loss adjustment expenses

 

 

136,438

 

 

 

119,080

 

 

 

17,358

 

 

 

15

%

Policy acquisition costs

 

 

53,107

 

 

 

31,598

 

 

 

21,509

 

 

 

68

%

General and administrative expenses

 

 

36,988

 

 

 

46,352

 

 

 

(9,364

)

 

 

(20

)%

Total operating expenses

 

 

226,533

 

 

 

197,030

 

 

 

29,503

 

 

 

15

%

Losses and loss adjustment expenses

Losses and loss adjustment expenses (“LAE”) were $136.4 million for the six months ended June 30, 2019, up $17.4 million from $119.1 million in the prior year period. The increase stems primarily from higher catastrophe and non-catastrophe weather losses and lower income from vertically integrated operations, partly offset by better prior year reserve development.

Policy acquisition costs

Policy acquisition costs were $53.1 million for the six months ended June 30, 2019, up $21.5 million from $31.6 million in the prior year period. The increase primarily reflects the favorable impact of NBIC-related purchase accounting on the prior year quarter. The favorable 2018 purchase accounting impact occurred predominantly in the first two quarters and was limited thereafter, as acquisition costs increased with new business. Policy acquisition costs also increased related to reduced ceding commission income in the current year period associated with a reduction to NBIC’s overall quota share reinsurance programs. NBIC’s gross quota share reinsurance program was reduced  from 18.75% to 8.0% effective June 1, 2018 and was eliminated effective June 1, 2019, while NBIC’s net quota share reinsurance program increased from 49.5% to 52.0% effective December 31, 2018.  

General and administrative expenses

General and administrative expenses were $37.0 million for the six months ended June 30, 2019, down $9.4 million from $46.4 million in the prior year period. The decrease is primarily attributable to higher general and administrative costs in the prior year quarter associated with infrastructure growth and post-acquisition costs associated with NBIC-related systems implementation, partly offset by reduced ceding commission income, as described above.

33

 


 

 

 

For the Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

$ Change

 

 

% Change

 

Operating income

 

 

14,571

 

 

 

32,968

 

 

 

(18,397

)

 

 

(56

)%

Interest expense, net

 

 

4,101

 

 

 

10,206

 

 

 

(6,105

)

 

 

(60

)%

Other non-operating expense, net

 

 

48

 

 

 

(542

)

 

 

590

 

 

NM

 

Income before income taxes

 

 

10,422

 

 

 

23,304

 

 

 

(12,882

)

 

 

(55

)%

Provision for income taxes

 

 

2,737

 

 

 

6,066

 

 

 

(3,329

)

 

 

(55

)%

Net income

 

$

7,685

 

 

$

17,238

 

 

$

(9,553

)

 

 

(55

)%

Basic net income per share

 

$

0.26

 

 

$

0.67

 

 

$

(0.41

)

 

 

(61

)%

Diluted net income per share

 

$

0.26

 

 

$

0.65

 

 

$

(0.39

)

 

 

(60

)%

Interest and amortization of debt issuance costs

Interest expense and amortization of debt issuance costs were $4.1 million for the six months ended June 30, 2019, down $6.1 million from $10.2 million in the prior year period. The decrease primarily reflects a significant year-over-year reduction in long-term debt and a lower blended interest rate on outstanding debt associated with 2018 debt refinancing transactions.

Provision for income taxes

Provision for income taxes was $2.7 million and $6.0 million for the six months ended June 30, 2019 and 2018, respectively. The effective tax rate for the current year is 26.3%, 3 points higher than the prior year’s 26.0%. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information throughout the year.

Net income

Net income for the six months ended June 30, 2019 was $7.7 million ($0.26 per diluted share) compared to $17.2 million ($0.65 cents per diluted share) in the prior year period. The decrease primarily reflects higher catastrophe and non-catastrophe weather losses in the current year period and the favorable impact of NBIC-related purchase accounting on the prior year period’s expenses.

Ratios

 

 

For the Six Months Ended June 30,

 

 

 

 

2019

 

 

2018

 

 

Gross ceded premium ratio

 

 

51.2

%

 

 

52.6

%

 

 

 

 

 

 

 

 

 

 

 

Net loss and LAE ratio

 

 

61.0

%

 

 

54.8

%

 

Net expense ratio

 

 

40.3

%

 

 

35.9

%

 

Net combined ratio

 

 

101.3

%

 

 

90.7

%

 

Gross ceded premium ratio

The gross ceded premium ratio was 51.2% for the six months ended June 30, 2019, down 1.4 points from 52.6% in the prior year period. The decrease is primarily attributable to NBIC-related reinsurance and a reduction to NBIC’s overall quota share reinsurance programs, as described above.

Net loss and LAE ratio

The net loss and LAE ratio was 61.0% for the six months ended June 30, 2019, up 6.2 points from 54.8% in the prior year period. The increase relates to higher current accident year catastrophe and non-catastrophe weather losses and lower income from vertically integrated operations, partly offset by better reserve prior year development and a lower ceded premium ratio.

Net expense ratio

The net expense ratio was 40.3% for the six months ended June 30, 2019, up 4.4 points from 35.9% in the prior year period. The increase primarily stems from the favorable impact of NBIC-related purchase accounting in the prior year period and reduced ceding commission income in the current year associated with an overall reduction to NBIC’s quota share reinsurance programs, partly offset by a lower ceded premium ratio.

34

 


 

Net combined ratio

The net combined ratio was 101.2% for six months ended June 30, 2019, up 10.6 points from 90.7% in the prior year period. The increase stems from higher net loss and expense ratios, as described above.

Liquidity and Capital Resources

As of June 30, 2019, we had $262.5 million of cash and cash equivalents, which primarily consisted of cash and money market accounts. We generally hold substantial cash balances to meet seasonal liquidity needs including amounts to pay quarterly reinsurance installments as well as meet the collateral requirements of Osprey Re Ltd. (“Osprey”), our captive reinsurance company. In addition, we have $13.8 million in restricted cash to meet our contractual obligations related to the catastrophe bonds issued by Citrus Re Ltd. as well as state insurance department depository requirements.

Osprey is required to maintain a collateral trust account equal to the risk that it assumes from our insurance company affiliates. At June 30, 2019, approximately $18 million was held in Osprey’s trust account.

Although we can provide no assurances, we believe that we maintain sufficient liquidity to pay our insurance company affiliates’ claims and expenses, as well as to satisfy commitments in the event of unforeseen events such as inadequate premium rates or reserve deficiencies. We believe our current capital resources, including funds available under our revolving credit facility (as described below), together with cash provided from our operations, will be sufficient to meet currently anticipated working capital requirements for at least the next twelve months. We maintain a comprehensive reinsurance program at levels management considers adequate to diversify risk and safeguard our financial position.

Cash Flows

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

Change

 

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

 

 

 

 

 

Operating activities

 

$

76,415

 

 

$

48,332

 

 

$

28,083

 

Investing activities

 

 

(36,772

)

 

 

30,938

 

 

 

(67,710

)

Financing activities

 

 

(25,740

)

 

 

(18,573

)

 

 

(7,167

)

Net increase (decrease) in cash and cash equivalents

 

$

13,903

 

 

$

60,697

 

 

$

(46,794

)

Operating Activities

Net cash provided by operating activities was $76.4 million for the six months ended June 30, 2019 compared to cash provided of $48.3 million for the comparable period in 2018. The increase in cash from operating activities relates primarily to collection of reinsurance on catastrophe claims and a reduction of unpaid losses and loss adjustment expenses during the first six months of 2019 compared to the first six months of 2018.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2019 was $36.8 million as compared to cash provided of $30.9 million for the comparable period in 2018. The cash provided by investing activities in the first six months of 2018 relates to investments sold during the quarter, primarily to fund payments of Hurricane Irma claims pending reinsurance recoveries whereas we increased invested assets during the first six months of 2019.

Financing Activities

Net cash used in financing activities for the six months ended June 30, 2019 was $25.7 million, as compared to cash used in financing activities of $18.6 million for the comparable period in 2018. The increase in cash used in financing activities is due primarily to stock repurchased under the stock repurchase program in the current year and principal payments on the revolving credit line during the first six months of 2019.

Credit Facilities

On December 14, 2018, Heritage Insurance Holdings, Inc. (the “Company”), as borrower, entered into a five-year, $125 million credit agreement (the “Credit Agreement”) by and among the Company, certain subsidiaries of the Company from time to time party thereto as guarantors, the lenders from time to time party thereto (the “Lenders”), Regions Bank, as Administrative Agent and Collateral Agent, BMO Harris Bank N.A., as Syndication Agent, Hancock Whitney Bank and Canadian Imperial Bank of Commerce,

35

 


 

as Co-Documentation Agents, and Regions Capital Markets and BMO Capital Markets Corp., as Joint Lead Arrangers and Joint Bookrunners. At June 30, 2019, the Company had in aggregate $83.1 million outstanding against the Credit Agreement.

Pursuant to the Credit Agreement, the participating Lenders agreed to provide (1) a senior secured term loan facility in an aggregate principal amount of $75 million (the “Term Loan Facility”) and (2) a senior secured revolving credit facility in an aggregate principal amount of $50 million (inclusive of a $5 million sublimit for the issuance of letters of credit and a $10 million sublimit for swingline loans) (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”).

At our option, borrowings under the Credit Facilities bear interest at rates equal to either (1) a rate determined by reference to LIBOR (based on one, two, three or six-month interest periods), adjusted for statutory reserve requirements, plus an applicable margin (equal to 3.25% as of the Closing Date) or (2) a base rate determined by reference to the greatest of (a) the “prime rate” of Regions Bank, (b) the federal funds rate plus 0.50%, and (c) the LIBOR index rate applicable for an interest period of one month plus 1.00%, plus an applicable margin (equal to 2.25%).

The applicable margin for loans under the Credit Facilities varies from 3.25% per annum to 3.75% per annum (for LIBOR loans) and 2.25% to 2.75% per annum (for base rate loans) based on our consolidated leverage ratio. Interest payments with respect to the Credit Facilities are required either on a quarterly basis (for base rate loans) or at the end of each interest period (for LIBOR loans) or, if the duration of the applicable interest period exceeds three months, then every three months. As of June 30, 2019, the borrowing under our Credit Facilities were accruing interest at a rate of 5.625% per annum.

In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is determined by our consolidated leverage ratio.

Each of the Revolving Credit Facility and the Term Loan Facility mature on December 14, 2023. The principal amount of the Term Loan Facility amortizes in quarterly installments, which began with the close of the fiscal quarter ended March 31, 2019, in an amount equal to $1,875,000 per quarter, payable monthly or quarterly, with the balance payable at maturity.

The Company may prepay the loans under the Credit Facilities, in whole or in part, at any time without premium or penalty, subject to certain conditions including minimum amounts and reimbursement of certain costs in the case of prepayments of LIBOR loans. In addition, the Company is required to prepay the loan under the Term Loan Facility with the proceeds from certain financing transactions, involuntary dispositions or asset sales (subject, in the case of asset sales, to reinvestment rights).

All obligations under the Credit Facilities are or will be guaranteed by each existing and future direct and indirect wholly-owned domestic subsidiary of the Company, other than all of the Company’s current and future regulated insurance subsidiaries (collectively, the “Guarantors”).

The Company and the Guarantors entered into a Pledge and Security Agreement, on December 14, 2018 (the “Security Agreement”), in favor of Regions Bank, as collateral agent. Pursuant to the Security Agreement, amounts borrowed under the Credit Facilities are secured on a first priority basis by a perfected security interest in substantially all of the present and future assets of the Company and each Guarantor (subject to certain exceptions), including all of the capital stock of the Company’s domestic subsidiaries, other than its regulated insurance subsidiaries.

The Credit Agreement contains, among other things, covenants, representations and warranties and events of default customary for facilities of this type. The Company is required to maintain, as of each fiscal quarter (1) a maximum consolidated leverage ratio of 3.25 to 1.00 for each fiscal quarter ending on or before December 31, 2019, stepping down on each of the three anniversaries thereafter; (2) a minimum consolidated fixed charge coverage ratio of 1.20 to 1.00 and (3) a minimum consolidated net worth for the Company and its subsidiaries. Events of default include, among other events, (i) nonpayment of principal, interest, fees or other amounts; (ii) failure to perform or observe certain covenants set forth in the Credit Agreement; (iii) breach of any representation or warranty; (iv) cross-default to other indebtedness; (v) bankruptcy and insolvency defaults; (vi) monetary judgment defaults and material nonmonetary judgment defaults; (vii) customary ERISA defaults; (viii) a change of control of the Company; and (ix) failure to maintain specified catastrophe retentions in each of the Company’s regulated insurance subsidiaries.

Convertible Notes

On August 10, 2017, the Company and Heritage MGA, LLC (the “Guarantor”) entered into a purchase agreement (the “Purchase Agreement”) with Citigroup Global Markets Inc., as the initial purchaser (the “Initial Purchaser”), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase, $125.0 million aggregate principal amount of the Company’s 5.875% Convertible Senior Notes due 2037 (the “Convertible Notes”) in a private placement transaction pursuant to Rule 144A under the Securities Act, as amended (the “Securities Act”) (the “Offering”). The Purchase Agreement contained customary representations, warranties and agreements of the Company and the Guarantor and customary conditions to closing, indemnification rights and obligations of the parties and termination provisions. The net proceeds from the Offering, after deducting discounts and

36

 


 

commissions and estimated offering expenses payable by the Company, were approximately $120.5 million. The Offering was completed on August 16, 2017.

The Company issued the Convertible Notes under an Indenture (the “Convertible Note Indenture”), dated August 16, 2017, by and among the Company, as issuer, the Guarantor, as guarantor, and Wilmington Trust, National Association, as trustee (the “Trustee”).

The Convertible Notes bear interest at a rate of 5.875% per year. Interest began accruing on August 16, 2017 and is payable semi-annually in arrears, on February 1 and August 1 of each year, starting on February 1, 2018. The Convertible Notes are senior unsecured obligations of the Company that rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness or other liabilities incurred by the Company’s subsidiaries other than the Guarantor, which fully and unconditionally guarantee the Convertible Notes on a senior unsecured basis.

The Convertible Notes mature on August 1, 2037, unless earlier repurchased, redeemed or converted.

Holders may convert their Convertible Notes at any time prior to the close of business on the business day immediately preceding February 1, 2037, other than during the period from, and including, February 1, 2022 to the close of business on the second business day immediately preceding August 5, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2017, if the closing sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the Convertible Notes in effect on each applicable trading day; (2) during the ten consecutive business-day period following any five consecutive trading-day period in which the trading price for the Convertible Notes for each such trading day was less than 98% of the closing sale price of the Company’s common stock on such date multiplied by the then-current conversion rate; (3) if the Company calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.

During the period from and including February 1, 2022 to the close of business on the second business day immediately preceding August 5, 2022, and on or after February 1, 2037 until the close of business on the second business day immediately preceding August 1, 2037, holders may surrender their Convertible Notes for conversion at any time, regardless of the foregoing circumstances.

The conversion rate for the Convertible Notes was initially 67.0264 shares of common stock per $1,000 principal amount of Convertible Notes (equivalent to an initial conversion price of approximately $14.92 per share of common stock). The conversion rate is subject to adjustment in certain circumstances, and is subject to increase for holders that elect to convert their Convertible Notes in connection with certain corporate transactions (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture)) that occur prior to August 5, 2022.

Upon the occurrence of a fundamental change (as defined in the Convertible Note Indenture) (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture)), holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

Except as described below, the Company may not redeem the Convertible Notes prior to August 5, 2022. On or after August 5, 2022 but prior to February 1, 2037, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes, which means that the Company is not required to redeem or retire the Convertible Notes periodically. Holders of the Convertible Notes are able to cause the Company to repurchase their Convertible Notes for cash on any of August 1, 2022, August 1, 2027 and August 1, 2032, in each case at 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.

The Convertible Note Indenture contains customary terms and covenants and events of default. If an Event of Default (as defined in the Indenture) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Convertible Notes then outstanding by notice to the Company and the Trustee, may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the Convertible Notes to be immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization (as set forth in the Convertible Note Indenture) with respect to the Company, 100% of the principal of, and accrued and unpaid interest, if any, on, the Notes automatically become immediately due and payable.

37

 


 

In the second quarter of 2018, the Company repurchased $10.6 million principal amount of Convertible Notes for cash. In the fourth quarter of 2018 and first quarter of 2019, the Company repurchased Convertible Notes in the aggregate principal amount of $81.6 million for a combination of cash and the issuance of an aggregate of 3,880,653 shares of the Company’s common stock, leaving $23.4 million in aggregate principal amount outstanding. There were no repurchases of Convertible Notes in the second quarter of 2019.

FHLB Loan Agreements

In December 2018, a subsidiary of the Company pledged U.S. government and agency fixed maturity securities with an estimated fair value of $31.0 million as collateral and received $19.2 million in a cash loan under an advance agreement with the Federal Home Loan Bank (“FHLB”) Atlanta. The loan originated on December 12, 2018 and bears a fixed interest rate of 3.094% with interest payments due quarterly commencing in March 2019. The principal balance on the loan has a maturity date of December 13, 2023. In connection with the agreement, the subsidiary became a member of FHLB. Membership in the FHLB required an investment in FHLB’s common stock which was purchased on December 31, 2018 and valued at $1.4 million. The subsidiary is permitted to withdraw any portion of the pledged collateral over the minimum collateral requirement at any time, other than in the event of a default by the subsidiary. The proceeds from the loan was used to prepay the Company’s Senior Secured Notes due 2023 (“Senior Notes”) in 2018. The Company does not have any Senior Notes outstanding as of June 30, 2019.

Contractual Obligations -

The following table represents our contractual obligations for which cash flows are fixed or determinable as of June 30, 2019:

 

 

Total

 

 

Less Than 1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

More than 5 Years

 

 

(In thousands)

 

Convertible debt

$

39,575

 

 

$

1,032

 

 

$

2,751

 

 

$

2,751

 

 

$

33,041

 

Note Payable (1)

 

97,856

 

 

 

6,051

 

 

 

22,942

 

 

 

68,863

 

 

 

 

Mortgage loan

 

20,833

 

 

 

446

 

 

 

1,786

 

 

 

1,786

 

 

 

16,815

 

FHLB agreement

 

21,913

 

 

 

302

 

 

 

1,206

 

 

 

20,405

 

 

 

 

Lease obligations

 

11,075

 

 

 

1,091

 

 

 

2,842

 

 

 

2,692

 

 

 

4,450

 

Total Contractual Obligations

$

191,252

 

 

$

8,922

 

 

$

31,527

 

 

$

96,497

 

 

$

54,306

 

 

 

(1)

Represents the principal and interest payments per the terms of the Credit Facility debt.

Seasonality of our Business

Our insurance business is seasonal as hurricanes typically occur during the period from June 1 through November 30 each year and winter storms generally impact the first and fourth quarters of each year. With our catastrophe reinsurance program effective on June 1 each year, any variation in the cost of our reinsurance, whether due to changes to reinsurance rates or changes in the total insured value of our policy base, will occur and be reflected in our financial results beginning June 1 of each year, subject to certain adjustments.

Off-Balance Sheet Arrangements

We do not have transactions with unconsolidated entities, such as entities often referred to as structured financial or special purpose entities, whereby we have financial guarantees, subordinated retained interest, derivative instruments, or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligation under a variable interest in an unconsolidated entity that provides financial, liquidity, market risk, or credit risk support to us.

Recent  Accounting Pronouncements

The information set forth under Note 1 to the condensed consolidated financial statements under the caption “Basis of Presentation and Significant Accounting Policies” is incorporated herein by reference.

JOBS Act

We qualify as an “emerging growth company” under the JOBS Act. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain

38

 


 

accounting standards until those standards would otherwise apply to private companies. We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies. We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if as an emerging growth company we choose to rely on such exemptions, we may not be required to, among other things, (i) provide an auditor’s attestation report on our systems of internal controls over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the condensed consolidated financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply until we no longer meet the requirements of being an emerging growth company. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.07 billion or (c) in which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our prior second fiscal quarter, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period. We expect that we will no longer qualify as an emerging growth company on December 31, 2019, as it will be the last day of the fiscal year following the fifth anniversary of the completion of our initial public offering.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our investment portfolios at June 30, 2019 included fixed maturity and equity securities, the purposes of which are not for trading or speculation. Our main objective is to maximize after-tax investment income and maintain sufficient liquidity to meet policyholder obligations while minimizing market risk, which is the potential economic loss from adverse fluctuations in securities’ prices. We consider many factors including credit ratings, investment concentrations, regulatory requirements, anticipated fluctuation of interest rates, durations and market conditions in developing investment strategies. Investment securities are managed by a group of nationally recognized asset managers and are overseen by the investment committee appointed by our board of directors. Our investment portfolios are primarily exposed to interest rate risk, credit risk and equity price risk. We classify our fixed maturity securities as available-for-sale and report any unrealized gains or losses, net of deferred income taxes, as a component of other comprehensive income within our stockholders’ equity. We classify our equity securities as available-for-sale and report any unrealized gains or losses in the income statement. As such, any material temporary changes in the fair value of such securities can adversely impact the carrying value of our stockholders’ equity.

Interest Rate Risk

Our fixed maturity securities are sensitive to potential losses resulting from unfavorable changes in interest rates. We manage the risk by analyzing anticipated movement in interest rates and considering our future capital needs.

The following table illustrates the impact of hypothetical changes in interest rates to the fair value of our fixed maturity securities at June 30, 2019 (in thousands):

Hypothetical Change in Interest rates

 

Estimated Fair Value After Change

 

 

Change In Estimated Fair

Value

 

 

Percentage Increase

(Decrease) in Estimated

Fair Value

 

300 basis point increase

 

$

499,347

 

 

$

(54,272

)

 

 

(9.8

)%

200 basis point increase

 

$

517,450

 

 

$

(36,169

)

 

 

(6.5

)%

100 basis point increase

 

$

535,540

 

 

$

(18,079

)

 

 

(3.3

)%

100 basis point decrease

 

$

571,663

 

 

$

18,044

 

 

 

3.3

%

200 basis point decrease

 

$

586,902

 

 

$

33,283

 

 

 

6.0

%

300 basis point decrease

 

$

593,145

 

 

$

39,526

 

 

 

7.1

%

Credit Risk

Credit risk can expose us to potential losses arising principally from adverse changes in the financial condition of the issuer of our fixed maturities. We mitigate this risk by investing in fixed maturities that are generally investment grade and by diversifying our investment portfolio to avoid concentrations in any single issuer or market sector.

39

 


 

The following table presents the composition of our fixed maturity portfolio by rating at June 30, 2019 (in thousands):

 

Comparable

Rating

 

Amortized

Cost

 

 

% of Total

Amortized

Cost

 

 

Estimated

Fair Value

 

 

% of total

Estimated

Fair Value

 

AAA

 

$

49,598

 

 

 

9.1

%

 

$

50,092

 

 

 

9.0

%

AA+

 

$

181,486

 

 

 

33.2

%

 

$

182,628

 

 

 

33.0

%

AA

 

$

62,506

 

 

 

11.4

%

 

$

63,470

 

 

 

11.5

%

AA-

 

$

39,594

 

 

 

7.2

%

 

$

40,403

 

 

 

7.3

%

A+

 

$

22,309

 

 

 

4.1

%

 

$

22,710

 

 

 

4.1

%

A

 

$

38,095

 

 

 

7.0

%

 

$

38,664

 

 

 

7.0

%

A-

 

$

51,468

 

 

 

9.4

%

 

$

52,018

 

 

 

9.4

%

BBB+

 

$

38,126

 

 

 

7.0

%

 

$

38,968

 

 

 

7.0

%

BBB

 

$

16,724

 

 

 

3.1

%

 

$

16,995

 

 

 

3.1

%

BBB-

 

$

1,231

 

 

 

0.2

%

 

$

1,241

 

 

 

0.2

%

BB

 

$

111

 

 

 

0.0

%

 

$

111

 

 

 

0.0

%

NA and NR

 

$

45,439

 

 

 

8.3

%

 

$

46,319

 

 

 

8.4

%

Total

 

$

546,687

 

 

 

100

%

 

$

553,619

 

 

 

100

%

Equity Price Risk

Our equity investment portfolio at June 30, 2019 consists of $1.6 million of Federal Home Loan Bank common stock, the investment is recorded at cost and adjusted, if and when subsequent price changes are provided by the institution. Such changes in the basis of the equity investment are recognized in net holding gains and losses on the Company’s consolidated statement of income. As of June 30, 2019, the Company has not recognized any price changes on the investment.

Foreign Currency Exchange Risk

At June 30, 2019, we did not have any material exposure to foreign currency related risk.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.

As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2019.

Changes in Internal Control over Financial Reporting

There has been no change in our internal controls over financial reporting during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We implemented internal controls to ensure we adequately assessed the impact of the new accounting standards related to leases on our condensed consolidated financial statements to facilitate their adoption on January 1, 2019. There were no significant changes to our internal control over financial reporting due to the adoption of the new standard.

 

40

 


 

 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is a party to claims and legal actions arising routinely in the ordinary course of our business. Although we cannot predict with certainty the ultimate resolution of the claims and lawsuits asserted against us, we do not believe that any currently pending legal proceedings to which we are a party will have a material adverse effect on our consolidated financial position results of operations or cash flow.

Item 1A. Risk Factors

The risk factors disclosed in the section entitled “Risk Factors” in our 2018 Form 10-K set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition and operating results. Those risk factors continue to be relevant to an understanding of our business, financial condition and operating results. No material changes have occurred with respect to those risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer purchases of equity securities

During the three months ended June 30, 2019, we purchased 157,640 shares of common stock for an aggregate purchase of $2,334,439 under our share repurchase program. A summary of our common stock repurchases during the three months ended June 30, 2019 under our share repurchase program is set forth in the table below (in thousands, except shares):

 

 

 

Total Number of Shares Purchased

 

 

Average Price Paid Per Share (1)

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)

 

 

Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs

 

April 1, 2019 through April 30, 2019

 

 

 

 

$

 

 

 

 

 

$

44,989

 

May 1, 2019 through May 31, 2019

 

 

157,640

 

 

$

14.78

 

 

 

157,640

 

 

$

42,655

 

June 1, 2019 through June 30, 2019

 

 

 

 

$

 

 

 

 

 

$

42,655

 

Total

 

 

157,640

 

 

 

 

 

 

 

157,640

 

 

 

 

 

 

 

(1)

Average price paid per share excludes cash paid for commissions.

 

(2)

On August 1, 2018, the Company announced that its Board of Directors authorized a stock repurchase program authorizing the Company to repurchase up to $50 million of its common stock through December 31, 2020 under our current Rule 10b5-1 trading plan, which allows the Company to purchase shares below a predetermined price per share.

Item 4. Mine Safety Disclosures

None

Item 6. Exhibits

The information required by this Item 6 is set forth in the Index to Exhibits accompanying this Quarterly Report on Form 10-Q.

41

 


 

Index to Exhibits

 

Exhibit

Number

 

Description

 

 

 

3.1

 

Certificate of Incorporation of Heritage Insurance Holdings, Inc. (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2014)

3.2

 

By-laws of Heritage Insurance Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q filed on August 6, 2014)

4

 

Form of Stock Certificate (Incorporated by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A (File No. 333-195409) filed on May 13, 2014)

4.1

 

Form of 5.875% Convertible Senior Notes due 2037 (included in Exhibit 4.1), incorporated by reference to 1.1 to our Form 8-K filed on August 16, 2017

4.2

 

Indenture, date as of August 16, 2017, by and among the Company. Heritage MGA, LLC as guarantor, and Wilmington Trust, National Association, as trustee, incorporated by reference to Exhibit 4.1 to our Form 8-K filed on August 16, 2017

31.1*

 

Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

31.2*

 

Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

 

 

32.1**

 

Certification of Chief Executive Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

32.2**

 

Certification of Chief Financial Officer pursuant to 18 U.SC. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

 

 

101.INS

 

XBRL Instance Document

 

 

 

101.SCH

 

101. SCH XBRL Taxonomy Extension Schema.

 

 

 

101.CAL

 

101. CAL XBRL Taxonomy Extension Calculation Linkbase.

 

 

 

101.DEF

 

101. DEF XBRL Taxonomy Extension Definition Linkbase.

 

 

 

101.LAB

 

101. LAB XBRL Taxonomy Extension Label Linkbase.

 

 

 

101.PRE

 

101. PRE XBRL Taxonomy Extension Presentation Linkbase.

 

* Filed herewith

** Furnished herewith

 

 

42

 


 

SIGNATURES

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

 

 

HERITAGE INSURANCE HOLDINGS, INC.

 

 

 

 

Date: August 7, 2019

By:

 

/s/ BRUCE LUCAS

 

 

 

Bruce Lucas

 

 

 

Chairman and Chief Executive Officer

(Principal Executive Officer and Duly Authorized Officer)

 

 

 

 

Date: August 7, 2019

By:

 

/s/ KIRK LUSK

 

 

 

Kirk Lusk

 

 

 

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

43

 

hrtg-ex311_7.htm

 

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT

I, Bruce Lucas, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heritage Insurance Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the end of the period covered by this report; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting  which are reasonably likely to  adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 7, 2019

 

By:

 

/s/ BRUCE LUCAS

Bruce Lucas

Chairman and Chief Executive Officer

(Principal Executive Officer and Duly Authorized Officer)

 

 

hrtg-ex312_6.htm

 

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE

SARBANES-OXLEY ACT

I, Kirk Lusk, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Heritage Insurance Holdings, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the end of the period covered by this report; and

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting  which are reasonably likely to  adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting.

Date: August 7, 2019

 

By:

 

/s/ KIRK LUSK

Kirk Lusk

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

 

hrtg-ex321_9.htm

Exhibit 32.1

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES–OXLEY ACT OF 2002

In connection the Quarterly Report on Form 10Q of Heritage Insurance Holdings, Inc. (the “Company”) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission (the “Report”), I, Bruce Lucas, the Chairman and Chief Executive Officer of the Company. hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

 

1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2019

 

By: 

/s/ BRUCE LUCAS

Bruce Lucas

Chairman and Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer)

 

hrtg-ex322_8.htm

Exhibit 32.2

CERTIFICATIONS PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES–OXLEY ACT OF 2002

In connection the Quarterly Report on Form 10Q of Heritage Insurance Holdings, Inc. (the “Company”) for the quarter ended June 30, 2019, as filed with the Securities and Exchange Commission (the “Report”), I, Kirk Lusk, the Chief Financial Officer of the Company. hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of his knowledge, that:

 

1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 7, 2019

 

By: 

/s/ KIRK LUSK

Kirk Lusk

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 31, 2019
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Jun. 30, 2019  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Trading Symbol HRTG  
Entity Registrant Name HERITAGE INSURANCE HOLDINGS, INC.  
Entity Central Index Key 0001598665  
Entity Current Reporting Status Yes  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company true  
Entity Ex Transition Period true  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   29,855,378
Entity File Number 001-36462  
Entity Tax Identification Number 455338504  
Entity Address, Address Line One 2600 McCormick Drive  
Entity Address, Address Line Two Suite 300  
Entity Address, City or Town Clearwater  
Entity Address, State or Province Florida  
Entity Address, Postal Zip Code 33759  
City Area Code 727  
Local Phone Number 362-7200  
v3.19.2
Condensed Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
ASSETS    
Fixed maturities, available-for-sale, at fair value (amortized cost of $546,687 and $518,391) $ 553,619 $ 509,649
Equity securities, at fair value (cost of $1,618 and $18,698) 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 (Note 17)
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
v3.19.2
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Statement Of Financial Position [Abstract]    
Fixed maturities, at amortized cost $ 546,687 $ 518,391
Equity securities, cost $ 1,618 $ 18,698
Common stock, par value $ 0.0001 $ 0.0001
Common stock, shares authorized 50,000,000 50,000,000
Common stock, shares issued 29,855,378 30,083,559
Common stock, shares outstanding 29,274,577 29,477,756
Treasury stock, shares 7,720,177 7,214,797
v3.19.2
Condensed Consolidated Statements of Operations and Other Comprehensive Income (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 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
v3.19.2
Condensed Consolidated Statements of Operations and Other Comprehensive Income (Parenthetical) (Unaudited) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2019
Ceding commission income $ 16,158 $ 33,327
Policy Acquisition Costs [Member]    
Ceding commission income 12,100 25,000
General and Administrative Expenses [Member]    
Ceding commission income $ 4,000 $ 8,300
v3.19.2
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) - USD ($)
$ in Thousands
Total
Common Shares [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Treasury Shares [Member]
Accumulated Other Comprehensive Income/(Loss) [Member]
Beginning Balance at Dec. 31, 2017 $ 379,816 $ 3 $ 294,836 $ 175,226 $ (87,185) $ (3,064)
Beginning Balance, Shares at Dec. 31, 2017   25,885,006        
Cumulative effective of change in accounting principle (ASU 2016-01), net of tax at Dec. 31, 2017       (267)   267
Beginning balance as adjusted at Dec. 31, 2017 379,816 $ 3 294,836 174,959 (87,185) (2,797)
Net unrealized change in investments, net of tax (4,428)         (4,428)
Stock-based compensation 1,306   1,306      
Reclassification of income taxes upon early adoption of ASU 2018-02       424   (424)
Stock buy-back (2,000)       (2,000)  
Stock buy-back, Shares   (115,200)        
Tax effect of warrant reclassification 970   970      
Dividends declared on common stock (1,601)     (1,601)    
Net income 14,830     14,830    
Ending balance at Mar. 31, 2018 388,893 $ 3 297,112 188,612 (89,185) (7,649)
Ending balance, Shares at Mar. 31, 2018   25,769,806        
Beginning Balance at Dec. 31, 2017 379,816 $ 3 294,836 175,226 (87,185) (3,064)
Beginning Balance, Shares at Dec. 31, 2017   25,885,006        
Cumulative effective of change in accounting principle (ASU 2016-01), net of tax at Dec. 31, 2017       (267)   267
Beginning balance as adjusted at Dec. 31, 2017 379,816 $ 3 294,836 174,959 (87,185) (2,797)
Net income 17,238          
Ending balance at Jun. 30, 2018 386,080 $ 3 294,183 189,427 (89,185) (8,348)
Ending balance, Shares at Jun. 30, 2018   25,769,806        
Beginning Balance at Mar. 31, 2018 388,893 $ 3 297,112 188,612 (89,185) (7,649)
Beginning Balance, Shares at Mar. 31, 2018   25,769,806        
Net unrealized change in investments, net of tax (699)         (699)
Restricted stock vested, net of surrendered shares 1,306   1,306      
Convertible Option debt extinguishment (4,235)   (4,235)      
Dividends declared on common stock (1,593)     (1,593)    
Net income 2,408     2,408    
Ending balance at Jun. 30, 2018 386,080 $ 3 294,183 189,427 (89,185) (8,348)
Ending balance, Shares at Jun. 30, 2018   25,769,806        
Beginning Balance at Dec. 31, 2018 425,333 $ 3 325,292 195,750 (89,185) (6,527)
Beginning Balance, Shares at Dec. 31, 2018   29,477,756        
Net unrealized change in investments, net of tax 5,963         5,963
Restricted stock vested, net of surrendered shares (118)   (118)      
Restricted stock vested, net of surrendered shares, Shares   17,000        
Stock-based compensation on vested restricted stock 1,345   1,345      
Convertible Option debt extinguishment (1,840)   (1,840)      
Stock issued on convertible note conversion 4,210   4,210      
Stock issued on convertible note conversion, Shares   285,201        
Stock buy-back (5,011)       (5,011)  
Stock buy-back, Shares   (347,740)        
Dividends declared on common stock (1,807)     (1,807)    
Tax rate change 48   48      
Net income 6,964     6,964    
Ending balance at Mar. 31, 2019 435,087 $ 3 328,937 200,907 (94,196) (564)
Ending balance, Shares at Mar. 31, 2019   29,432,217        
Beginning Balance at Dec. 31, 2018 425,333 $ 3 325,292 195,750 (89,185) (6,527)
Beginning Balance, Shares at Dec. 31, 2018   29,477,756        
Stock buy-back $ (2,300)          
Stock buy-back, Shares (157,640)          
Net income $ 7,685          
Ending balance at Jun. 30, 2019 438,850 $ 3 330,281 199,836 (96,529) 5,259
Ending balance, Shares at Jun. 30, 2019   29,274,577        
Beginning Balance at Mar. 31, 2019 435,087 $ 3 328,937 200,907 (94,196) (564)
Beginning Balance, Shares at Mar. 31, 2019   29,432,217        
Net unrealized change in investments, net of tax 5,823         5,823
Stock-based compensation on vested restricted stock 1,344   1,344      
Stock buy-back (2,333)       (2,333)  
Stock buy-back, Shares   (157,640)        
Dividends declared on common stock (1,792)     (1,792)    
Net income 721     721    
Ending balance at Jun. 30, 2019 $ 438,850 $ 3 $ 330,281 $ 199,836 $ (96,529) $ 5,259
Ending balance, Shares at Jun. 30, 2019   29,274,577        
v3.19.2
Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
OPERATING ACTIVITIES    
Net income $ 7,685 $ 17,238
Adjustments to reconcile net income to net cash provided by (used in) operating activities:    
Stock-based compensation 2,689 2,612
Bond amortization and accretion 2,514 3,454
Amortization of original issuance discount on debt 730 2,050
Depreciation and amortization 5,492 14,041
Net realized losses 394 312
Net unrealized investment gains (2,721)  
Net loss from repurchase of debt (48) (542)
Deferred income taxes 4,525 (15,579)
Changes in operating assets and liabilities:    
Accrued investment income (81) 751
Premiums receivable, net (45) (411)
Prepaid reinsurance premiums (98,472) (68,160)
Reinsurance recoverable on paid and unpaid claims (12,476) (110,500)
Income taxes receivable 17,855 (5,154)
Deferred policy acquisition costs, net (1,009) (27,970)
Other assets (8,811) (3,356)
Unpaid losses and loss adjustment expenses (1,947) 18,527
Unearned premiums 6,805 9,896
Reinsurance payable 157,859 258,930
Accrued interest 128 (3,148)
Accrued compensation (4,468) (9,723)
Advance premiums 4,463 12,173
Income taxes payable (14,396)  
Other liabilities 9,751 (47,109)
Net cash provided by operating activities 76,415 48,332
INVESTING ACTIVITIES    
Fixed maturity securities sales 61,290 158,251
Fixed maturity securities purchases (95,336) (127,701)
Proceeds from sales of equity securities 26,529 5,360
Purchase of equity securities (4,833) (4,605)
Limited partnership interest (20,006)  
Proceeds from sale of assets 71  
Cost of property and equipment acquired (4,487) (367)
Net cash (used in) provided by investing activities (36,772) 30,938
FINANCING ACTIVITIES    
Repayment of term note (11,875)  
Mortgage loan payments (138) (131)
Repurchase of convertible notes (2,869) (13,248)
Purchase of treasury stock (7,344) (2,000)
Tax withholdings on share-based compensation awards (118)  
Dividends paid (3,396) (3,194)
Net cash used in financing activities (25,740) (18,573)
Increase in cash, cash equivalents, and restricted cash 13,903 60,697
Cash, cash equivalents and restricted cash, beginning of period 262,370 174,530
Cash, cash equivalents and restricted cash, end of period 276,273 235,227
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION    
Income taxes paid 13,728 5,406
Interest paid 3,529 $ 8,317
Issuance of shares on conversion of convertible notes $ 4,210  
v3.19.2
Condensed Consolidated Statements of Cash Flows (Parenthetical) (Unaudited) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Jun. 30, 2018
Dec. 31, 2017
Statement Of Cash Flows [Abstract]        
Cash and cash equivalents $ 262,489 $ 250,117    
Restricted cash 13,784 12,253    
Total $ 276,273 $ 262,370 $ 235,227 $ 174,530
v3.19.2
Basis of Presentation and Significant Accounting Policies
6 Months Ended
Jun. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation and Significant Accounting Policies

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Heritage Insurance Holdings, Inc. (together with its subsidiaries, the “Company”). These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain financial information that is normally included in annual consolidated financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. In the opinion of the Company’s management, all material intercompany transactions and balances have been eliminated and all adjustments consisting of normal recurring accruals which are, necessary for a fair statement of the financial condition and results of operations for the interim periods have been reflected. The accompanying interim condensed consolidated financial statements and related footnotes should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

Significant accounting policies

The Accounting policies of the Company are set forth in Note 1 to Condensed Consolidated Financial Statements contained in the Company’s 2018 Annual Report on Form 10-K. We include herein certain updates to those policies.

Leases

At the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on (1) whether the contract involves the use of distinct identified assets, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

All significant lease arrangements are generally recognized at lease commencement. A right of use (“ROU”) asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and we recognize lease expense for these leases as incurred over the lease term.

ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Operating lease ROU assets and liabilities are recognized based on the present value of the lease term. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in determining the lease liability. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the term of the lease. We have lease agreements with lease and non-lease components, which are generally accounted for separately.

We primarily use our incremental borrowing rates for our operating leases (rates are not readily determinable) and implicit rates for our financing leases in determining the present value of leases payments.

In the first quarter of 2019, the Company adopted ASU 2016 -02 and did not recognize an opening adjustment to retained earnings as a result of the adoption of FASB 842. Refer to Note 5-Leases herein for further information.

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) Lease Accounting, which requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting for leases by lessors largely unchanged from previous GAAP.

At the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on (1) whether the contract involves the use of distinct identified assets, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

All significant lease arrangements are generally recognized at lease commencement. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and we recognize lease expense for these leases as incurred over the lease term.

ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Operating lease ROU assets and liabilities are recognized based on the present value of the lease term. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in determining the lease liability. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the term of the lease. We have lease agreements with lease and non-lease components, which are generally accounted for separately.

We primarily use our incremental borrowing rates for our operating leases (rates are not readily determinable) and implicit rates for our financing leases in determining the present value of leases payments.

We adopted the guidance prospectively during the first quarter of 2019. As part of our adoption, we elected not to reassess historical lease classification or recognize short-term leases on our balance sheet. At implementation, we recorded approximately $2.8 million as right-of-use operating and financing leased assets in other assets and approximately $2.8 million of lease liabilities in accounts payable and other liabilities. We did not recognize an opening adjustment to retained earnings. Adoption of this standard did not materially impact the Company’s Condensed Consolidated Statements of Operations and Other Comprehensive Income and Statements of Cash Flows. See Note 5 to the condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provided certain improvements to ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) and ASU 2016-13. As the Company adopted ASU 2016-01 on January 1, 2018, the improvements in ASU 2019-04 are effective in the first quarter of 2020. Early adoption is permitted. The Company expects to adopt ASU 2016-13 in the first quarter of 2020 and the improvements in ASU 2019-04 will be adopted concurrently. The Company is currently evaluating the impact of adopting ASU 2019-04 on its condensed consolidated financial statements and related disclosures.

For information regarding other accounting standards that the Company has not yet adopted, refer to our Annual Report on Form 10-K, filed on March 12, 2019, the section of Note 1 of the notes to the consolidated financial statements entitled the “Accounting Pronouncement Not Yet  Adopted”.

v3.19.2
Investments
6 Months Ended
Jun. 30, 2019
Investments Debt And Equity Securities [Abstract]  
Investments

NOTE 2. INVESTMENTS

Securities Available-for-Sale

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at June 30, 2019 and December 31, 2018:

 

June 30, 2019

 

Cost or Adjusted /

Amortized Cost

 

 

Gross Unrealized

Gains

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities (1)

 

$

56,395

 

 

$

260

 

 

$

68

 

 

$

56,587

 

States, municipalities and political subdivisions

 

 

72,313

 

 

 

1,373

 

 

 

29

 

 

 

73,657

 

Special revenue

 

 

250,062

 

 

 

3,193

 

 

 

440

 

 

 

252,815

 

Industrial and miscellaneous

 

 

167,917

 

 

 

2,794

 

 

 

151

 

 

 

170,560

 

Total

 

$

546,687

 

 

$

7,620

 

 

$

688

 

 

$

553,619

 

 

December 31, 2018

 

Cost or Adjusted /

Amortized Cost

 

 

Gross Unrealized

Gains

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities (1)

 

$

48,739

 

 

$

40

 

 

$

738

 

 

$

48,041

 

States, municipalities and political subdivisions

 

 

60,028

 

 

 

46

 

 

 

785

 

 

 

59,289

 

Special revenue

 

 

249,026

 

 

 

210

 

 

 

3,881

 

 

 

245,355

 

Industrial and miscellaneous

 

 

155,678

 

 

 

81

 

 

 

3,302

 

 

 

152,457

 

Redeemable preferred stocks

 

 

4,920

 

 

 

 

 

 

413

 

 

 

4,507

 

Total

 

$

518,391

 

 

$

377

 

 

$

9,119

 

 

$

509,649

 

 

(1)

U.S. government and agency securities include pledged fixed maturity securities with an estimated fair value of $24.4 million and $31.0 million under the terms and condition of the advance agreement entered into with a financial institution as of June 30, 2019 and December 31, 2018, respectively. The Company is permitted to withdraw or exchange any portion of the pledged collateral over the minimum requirement at any time.

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. The Company determines the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the three and six months ended June 30, 2019 and 2018.

 

 

2019

 

 

2018

 

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

Three Months Ended June 30,

 

(In thousands)

 

Fixed maturity securities

 

$

975

 

 

$

29,359

 

 

$

2

 

 

$

70,401

 

Equity securities

 

 

1,255

 

 

 

17,253

 

 

 

1

 

 

 

169

 

Total realized gains

 

 

2,230

 

 

 

46,612

 

 

 

3

 

 

 

70,570

 

Fixed maturity securities

 

 

(140

)

 

 

6,406

 

 

 

(39

)

 

 

7,487

 

Equity securities

 

 

(1,079

)

 

 

5,517

 

 

 

(49

)

 

 

1,517

 

Total realized losses

 

 

(1,219

)

 

 

11,923

 

 

 

(88

)

 

 

9,004

 

Net realized gains and (losses)

 

$

1,011

 

 

$

58,535

 

 

$

(85

)

 

$

79,574

 

 

 

 

2019

 

 

2018

 

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

Six Months Ended June 30,

 

(In thousands)

 

Fixed maturity securities

 

$

968

 

 

$

42,387

 

 

$

76

 

 

$

233,874

 

Equity securities

 

 

2,447

 

 

 

23,413

 

 

 

1

 

 

 

169

 

Total realized gains

 

 

3,415

 

 

 

65,800

 

 

 

77

 

 

 

234,043

 

Fixed maturity securities

 

 

(204

)

 

 

13,089

 

 

 

(242

)

 

 

61,325

 

Equity securities

 

 

(1,176

)

 

 

1,792

 

 

 

(147

)

 

 

3,758

 

Total realized losses

 

 

(1,380

)

 

 

14,881

 

 

 

(389

)

 

 

65,083

 

Net realized gains and (losses)

 

$

2,035

 

 

$

80,681

 

 

$

(312

)

 

$

299,126

 

 

Gains (losses) on equity investments consists of realized and unrealized holding gains or losses on marketable equity investments and fair value adjustment, including, if any, impairments on nonmarketable equity investments. For the six months ended June 30, 2018, the Company reported changes in the fair value of equity investments in Other revenue.

For the three months ended June 30, 2019 and 2018, the Company received proceeds from the sale of marketable equity securities of approximately $2.3 million and $1.6 million, respectively. The Company recorded gross gains from these sales of $1.3 million and a gross loss of $1.1 million and a gross gain of $1,000 and gross loss of $49,300 for the comparable period for the prior year period.

For the six months ended June 30, 2019 and 2018, the Company received proceeds from the sale of its holdings in marketable equity securities of approximately $26.5 million and $5.4 million, respectively. These sales resulted in gross gains of $2.4 million and gross losses of $1.2 million, and a gross gain of $1,000 and a gross loss of $147,000 respectively, related primarily to unrealized holding gains or losses in certain marketable equity securities.

As of June 30, 2019, the Company has unrealized holding gains of $292,000 recognized on nonmarketable other investments still held at reporting date.

The following table provides the unrealized gains and losses recorded on equity securities and other investments from changes in fair value still held of the reporting period:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Unrealized gains (loss) recognized on equity securities still held at reporting date

 

$

292

 

 

$

(45

)

 

$

292

 

 

$

(405

)

 

The table below summarizes the Company’s fixed maturity securities at June 30, 2019 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.

 

 

At June 30, 2019

 

 

 

Cost or Amortized Cost

 

 

Percent of Total

 

 

Fair Value

 

 

Percent of Total

 

Maturity dates:

 

(In thousands)

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Due in one year or less

 

$

66,490

 

 

 

12

%

 

$

66,518

 

 

 

12

%

Due after one year through five years

 

 

173,670

 

 

 

32

%

 

 

175,086

 

 

 

32

%

Due after five years through ten years

 

 

135,901

 

 

 

25

%

 

 

139,352

 

 

 

25

%

Due after ten years

 

 

170,626

 

 

 

31

%

 

 

172,663

 

 

 

31

%

Total

 

$

546,687

 

 

 

100

%

 

$

553,619

 

 

 

100

%

 

The following table summarizes the Company’s net investment income by major investment category for the three and six months ended June 30, 2019 and 2018, respectively:

 

 

Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Fixed maturity securities

 

$

3,571

 

 

$

2,593

 

Equity securities

 

 

517

 

 

 

314

 

Cash and cash equivalents

 

 

197

 

 

 

204

 

Other investments

 

 

241

 

 

 

114

 

Net investment income

 

 

4,526

 

 

 

3,225

 

Less: Investment expenses

 

 

696

 

 

 

670

 

Net investment income, less investment expenses

 

$

3,830

 

 

$

2,555

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Fixed maturity securities

 

$

6,295

 

 

$

4,978

 

Equity securities

 

 

944

 

 

 

617

 

Cash and cash equivalents

 

 

938

 

 

 

1,243

 

Other investments

 

 

542

 

 

 

183

 

Net investment income

 

 

8,719

 

 

 

7,021

 

Less: Investment expenses

 

 

1,217

 

 

 

1,164

 

Net investment income, less investment expenses

 

$

7,502

 

 

$

5,857

 

 

Limited Partnerships and Limited Liability Company Investments

The Company has interests in limited partnerships (“LPs”) that are not registered or readily tradable on a securities exchange. The investments are private equity funds managed by general partners who make financial policy and operational decisions. The Company is not the primary beneficiary and does not consolidate these partnerships. As of June 30, 2019, the estimated fair value of our investments in the LPs interests was $20.3 million. The general partner's objective is to achieve capital appreciation through investments in marketable securities and broad markets, preferred stock, industry-focused and fixed income exchange-traded funds (ETFs).  

These funds are carried at net asset value, which approximates fair value with changes in fair value recorded in net realized gains (losses) on the Company’s condensed consolidated statement of income and comprehensive income. Sales of these investments are reported within net realized gains (losses).

The Company has an interest in a limited liability company (“LLC”) that is not registered or readily tradable on a securities exchange. The investment is in an LLCs that maintains a specific ownership account for each investor, similar to a partnership capital account structure, and is viewed as similar to an investment in a LP for purposes of determining whether a noncontrolling investment in an LLC shall be accounted for using the cost method or the equity method. The Company receives monthly returns of capital from the LLC which reduces the investment. As of June 30, 2019, the estimated fair value of the Company’s investments in the LLCs interest was $2.5 million. The expenses from these funds are recorded to net investment income.

For the six month ended June 30, 2019, the Company invested $20.3 million in LPs and LLCs. For the comparable period of 2018, the Company did not increase its investment portfolio for this category. For the period ended June 30, 2019, the Company recognized net investment gains in LPs in aggregate of $291,682. As of the second quarter of 2019 and 2018, the Company received total cash distributions from its LLC investments of $29,875 and $261,080, respectively, representing return of capital on its investments. The Company incurred $138,898 of allocated costs during the second quarter of 2019 and $1,329 for the comparable period of 2018.

The following tables present an aging of our unrealized losses on fixed maturity investments by investment class as of June 30, 2019 and December 31, 2018:

 

 

Less Than Twelve Months

 

 

Twelve Months or More

 

June 30, 2019

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities

 

 

2

 

 

$

 

 

$

646

 

 

 

39

 

 

$

68

 

 

$

8,367

 

States, municipalities and political subdivisions

 

 

1

 

 

 

 

 

 

531

 

 

 

13

 

 

 

29

 

 

 

8,898

 

Industrial and miscellaneous

 

 

10

 

 

 

1

 

 

 

2,561

 

 

 

97

 

 

 

150

 

 

 

27,032

 

Special revenue

 

 

15

 

 

 

6

 

 

 

1,913

 

 

 

220

 

 

 

434

 

 

 

52,484

 

Total fixed maturity securities

 

 

28

 

 

$

7

 

 

$

5,651

 

 

 

369

 

 

$

681

 

 

$

96,781

 

 

 

 

Less Than Twelve Months

 

 

Twelve Months or More

 

December 31, 2018

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities

 

 

17

 

 

$

129

 

 

$

10,485

 

 

 

66

 

 

$

609

 

 

$

20,488

 

States, municipalities and political subdivisions

 

 

13

 

 

 

103

 

 

 

12,864

 

 

 

42

 

 

 

682

 

 

 

39,979

 

Industrial and miscellaneous

 

 

214

 

 

 

1,479

 

 

 

70,156

 

 

 

232

 

 

 

1,822

 

 

 

70,375

 

Special revenue

 

 

105

 

 

 

1,260

 

 

 

76,335

 

 

 

323

 

 

 

2,621

 

 

 

108,319

 

Redeemable preferred stocks

 

 

55

 

 

 

193

 

 

 

2,541

 

 

 

27

 

 

 

221

 

 

 

1,965

 

Total fixed maturity securities

 

 

404

 

 

$

3,164

 

 

$

172,381

 

 

 

690

 

 

$

5,955

 

 

$

241,126

 

 

The Company is required to maintain assets on deposit with various regulatory authorities to support its insurance and reinsurance operations.

 

As of June 30, 2019, the Company evaluated its fixed maturity securities for impairment and determined that none of its investments in fixed maturity securities that reflected an unrealized loss position were other-than-temporarily impaired. The issuers of the fixed maturity securities in which the Company invests continue to make interest payments on a timely basis and have not suffered any credit rating reductions. The Company does not intend to sell, nor is it likely that it would be required to sell, the fixed maturity securities before the Company recovers its amortized cost basis.

 

v3.19.2
Fair Value of Financial Instruments
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Fair Value of Financial Instruments

NOTE 3. FAIR VALUE OF FINANCIAL INSTRUMENTS

For the Company’s investments in U.S. government securities that do not have prices in active markets, agency securities, state and municipal governments, and corporate bonds, the Company obtains the fair values from its third-party valuation service and we evaluate the relevant inputs, assumptions, methodologies and conclusions associated with such valuations. The valuation service calculates prices for the Company’s investments in the aforementioned security types on a month-end basis by using several matrix-pricing methodologies that incorporate inputs from various sources. The model the valuation service uses to price U.S. government securities and securities of states and municipalities incorporates inputs from active market makers and inter-dealer brokers. To price corporate bonds and agency securities, the valuation service calculates non-call yield spreads on all issuers, uses option-adjusted yield spreads to account for any early redemption features, then adds final spreads to the U.S. Treasury curve as of quarter end. The inputs the valuation service uses in their calculations are not quoted prices in active markets, but are observable inputs, and therefore represent Level 2 inputs.

The following table presents information about the Company’s assets measured at fair value on a recurring basis. The Company assesses the levels for the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognitions of transfers between levels of the fair value hierarchy. As of June 30, 2019 and December 31, 2018, there were no transfers in or out of Level 1, 2, and 3.

The Company also invests in private limited partnerships and limited liability companies. This investment class has the potential for higher returns but also the potential for higher degrees of risk, including less than stable rates of returns and may provide less liquidity.

Investments excluded from the fair value hierarchy

Limited Partnerships and Limited Liability Companies. Fair value estimates of the LPs and LLCs are based on their net asset values, as reported by the manager of the LP or LLC. The fair value of these investments is measured at net asset value and is excluded from the fair value hierarchy. For the current LPs, the Company may, as of the last day of each calendar quarter, upon at least 65 days’ prior written notice, withdrawal all or any portion of the balance in its investment. There is a 3 percent withdrawal fee if made during the first year of investment.

 

June 30, 2019

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Invested Assets:

 

(In thousands)

 

Fixed maturity securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

56,587

 

 

$

365

 

 

$

56,222

 

 

$

 

States, municipalities and political subdivisions

 

 

73,657

 

 

 

 

 

 

73,657

 

 

 

 

Special revenue

 

 

252,815

 

 

 

 

 

 

252,815

 

 

 

 

Industrial and miscellaneous

 

 

170,560

 

 

 

 

 

 

170,560

 

 

 

 

Total fixed maturity securities

 

 

553,619

 

 

 

365

 

 

 

553,254

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

1,618

 

 

 

1,618

 

 

 

 

 

 

 

Total investments

 

 

555,237

 

 

 

1,983

 

 

 

553,254

 

 

 

 

Investment reported at NAV

 

 

22,761

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

577,998

 

 

$

1,983

 

 

$

553,254

 

 

$

 

 

December 31, 2018

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Invested Assets:

 

(In thousands)

 

Fixed maturity securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

48,041

 

 

$

354

 

 

$

47,687

 

 

$

 

States, municipalities and political subdivisions

 

 

59,289

 

 

 

 

 

 

59,289

 

 

 

 

Special revenue

 

 

245,355

 

 

 

 

 

 

245,355

 

 

 

 

Industrial and miscellaneous

 

 

152,457

 

 

 

 

 

 

152,457

 

 

 

 

Redeemable preferred stocks

 

 

4,507

 

 

 

4,507

 

 

 

 

 

 

 

Total fixed maturity securities

 

 

509,649

 

 

 

4,861

 

 

 

504,788

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

3,686

 

 

 

3,686

 

 

 

 

 

 

 

Non-redeemable preferred stock

 

 

12,770

 

 

 

12,770

 

 

 

 

 

 

 

Total equity securities

 

 

16,456

 

 

 

16,456

 

 

 

 

 

 

 

Investment reported at NAV

 

 

2,488

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

528,593

 

 

$

21,317

 

 

$

504,788

 

 

$

 

Non-recurring fair value measurements

Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets and goodwill which are recognized at fair value during the period in which an acquisition is completed, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. These non-recurring fair value measurements, primarily for intangible assets acquired, were based on Level 3 unobservable inputs. For the quarters ended June 30, 2019 and 2018, these non-recurring fair values inputs consisted of brand, agent relationships, renewal rights, customer relations, trade names, non-compete and goodwill. To evaluate such assets for a potential impairment, we determine the fair value of the goodwill and intangible assets using a combination of a discounted cash flow approach and market approaches, which contain significant unobservable inputs and therefore are considered a Level 3 fair value measurement. The unobservable inputs in the analysis generally include future cash flow projections and a discount rate.

There were no non-recurring fair value adjustments to intangible assets and goodwill during the second quarters of 2019 and 2018. We record any measurement period adjustments to the fair value of assets acquired and liabilities assumed, with the corresponding offset to goodwill.

v3.19.2
Other Comprehensive Income
6 Months Ended
Jun. 30, 2019
Comprehensive Income Net Of Tax [Abstract]  
Other Comprehensive Income

NOTE 4. OTHER COMPREHENSIVE INCOME

Other comprehensive income (loss) was $11.8 million and $(5.1) million for the six months ended June 30, 2019 and 2018, respectively. The difference between net income as reported and comprehensive income was due to the changes in unrealized gains and losses, net of taxes on fixed maturities securities.

 

 

 

For the Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

 

(in thousands)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized losses on investments, net

 

$

7,068

 

 

$

(1,293

)

 

$

5,775

 

 

$

(545

)

 

$

(257

)

 

$

(802

)

Reclassification adjustment of realized losses (gains) included in net income

 

 

59

 

 

 

(11

)

 

 

48

 

 

 

85

 

 

 

18

 

 

 

103

 

Effect on other comprehensive income

 

$

7,127

 

 

$

(1,304

)

 

$

5,823

 

 

$

(460

)

 

$

(239

)

 

$

(699

)

 

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

 

(in thousands)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized losses on investments, net

 

$

15,104

 

 

$

(3,617

)

 

$

11,487

 

 

$

(7,023

)

 

$

1,518

 

 

$

(5,505

)

Reclassification adjustment of realized losses (gains) included in net income

 

 

394

 

 

 

(95

)

 

 

299

 

 

 

312

 

 

 

66

 

 

 

378

 

Effect on other comprehensive income

 

$

15,498

 

 

$

(3,712

)

 

$

11,786

 

 

$

(6,711

)

 

$

1,584

 

 

$

(5,127

)

 

v3.19.2
Leases
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Leases

NOTE 5. LEASES

The Company has entered into operating and financing leases primarily for real estate and vehicles. The Company will determine whether an arrangement is a lease at inception of the agreement. The operating leases have terms of one to ten years, and often include one or more options to renew. These renewal terms can extend the lease term from three to ten years, and are included in the lease term when it is reasonably certain that the Company will exercise the option. The Company considers these options in determining the lease term used in establishing our right-of-use asset and lease obligations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Because the rate implicit in each operating lease in not readily determinable, the Company uses its incremental borrowing rate to determine present value of the lease payments. The Company used the implicit rates within the finance leases.

Components of our lease costs for the three and six months ended June 30, 2019 are as follows (in thousands):

 

 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

 

Amortization of ROU assets - Finance leases

 

$

18

 

 

$

38

 

Interest on lease liabilities - Finance leases

 

 

7

 

 

 

14

 

Variable lease cost  (cost excluded from lease payments)

 

 

111

 

 

 

221

 

Operating lease cost (cost resulting from lease payments)

 

 

328

 

 

 

588

 

Total lease cost

 

$

464

 

 

$

861

 

Supplemental cash flow information and non-cash activity related to our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

 

June 30, 2019

 

Finance lease - Operating cash flows

 

$

16

 

Finance lease - Financing cash flows

 

$

47

 

 

 

 

 

 

Operating lease - Operating cash flows (fixed payments)

 

$

341

 

Operating lease - Operating cash flows (liability reduction)

 

$

276

 

Supplemental balance sheet information related to our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

Balance Sheet Classification

 

June 30, 2019

 

Right-of-use assets

 

Other assets

 

$

7,042

 

Lease Liability (1)

 

Accounts payable and other liabilities

 

$

(8,718

)

 

 

 

 

 

 

 

(1) Includes $1.3 million in lease incentives received in the first quarter of 2019.

 

Weighted-average remaining lease term and discount rate for our operating and financing leases as of June 30, 2019 are as follows:

 

 

June 30, 2019

 

Weighted average lease term - Finance leases

 

3.89 yrs.

 

Weighted average lease term - Operating leases

 

8.38 yrs.

 

Weighted average discount rate - Finance leases

 

 

9.24

%

Weighted average discount rate - Operating leases

 

 

5.32

%

Maturities of lease liabilities by fiscal year for our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

June 30, 2019

 

2019 remaining

 

$

681

 

2020

 

 

1,408

 

2021

 

 

1,376

 

2022

 

 

1,410

 

2023

 

 

1,359

 

2024 and thereafter

 

 

4,676

 

Total lease payments

 

 

10,910

 

Less: imputed interest

 

 

(2,192

)

Present value of lease liabilities

 

$

8,718

 

v3.19.2
Property and Equipment, Net
6 Months Ended
Jun. 30, 2019
Property Plant And Equipment [Abstract]  
Property and Equipment, Net

NOTE 6. PROPERTY AND EQUIPMENT, NET

Property and equipment, net consisted of the following at June 30, 2019 and December 31, 2018:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Land

 

$

2,582

 

 

$

2,582

 

Building

 

 

11,390

 

 

 

11,390

 

Computer hardware and software

 

 

5,303

 

 

 

4,901

 

Office furniture and equipment

 

 

1,973

 

 

 

1,397

 

Tenant and leasehold improvements

 

 

7,919

 

 

 

4,477

 

Vehicle fleet

 

 

783

 

 

 

854

 

Total, at cost

 

 

29,950

 

 

 

25,601

 

Less: accumulated depreciation and amortization

 

 

(8,840

)

 

 

(7,603

)

Property and equipment, net

 

$

21,110

 

 

$

17,998

 

 

Depreciation and amortization expense for property and equipment was $1.0 million and $372,000 for the three months ended June 30, 2019 and 2018 and $1.6 million and $786,000 for the six months ended June 30, 2019 and 2018, respectively. The Company’s real estate consists of 15 acres of land and five buildings with a gross area of 229,000 square feet and a parking garage.

v3.19.2
Goodwill and Other Intangible Assets
6 Months Ended
Jun. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Goodwill and Other Intangible Assets

NOTE 7. GOODWILL AND OTHER INTANGIBLE ASSETS

 

Goodwill and Intangible Assets

 

At June 30, 2019 and December 31, 2018 goodwill was $152.5 million and intangible assets were $72.7 million and $76.9 million, respectively. The Company has determined the useful life of the other intangible assets to range between 2.5-15 years. The Company has recorded $1.3 million relating to insurance licenses and has classified the licenses as an indefinite lived intangible which is subject to annual impairment testing concurrent with goodwill.

 

 

 

Goodwill

 

 

 

(in thousands)

 

Balance as of December 31, 2018

 

$

152,459

 

Goodwill acquired

 

 

Impairment

 

 

Balance as of June 30, 2019

 

$

152,459

 

 

Other Intangible Assets

Our intangible assets resulted primarily from the acquisitions of Zephyr Acquisition Company in March 2016 and NBIC Holdings, Inc. in November 2017 and consist of brand, agent relationships, renewal rights, customer relations, trade names, non-competes and insurance licenses. Finite-lived intangibles assets are amortized over their useful lives from one to fifteen years.

Amortization expense of our intangible assets for the three months ended June 30, 2019 and 2018 was $2.1 million and $6.6 million and $4.2 million and $13.3 million for the six months ended June 30, 2019 and 2018, respectively.  No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the three months ended June 30, 2019 or 2018.

Estimated annual pretax amortization of intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year

 

Amount(1)

 

2019 remaining

 

$

4,021

 

2020

 

$

6,365

 

2021

 

$

6,351

 

2022

 

$

6,351

 

2023

 

$

6,351

 

2024

 

$

6,351

 

Thereafter

 

$

35,558

 

Total

 

$

71,348

 

 

(1)

Excludes insurance licenses valued at $1.3 million and classified as an indefinite lived intangible which is subject to annual impairment testing and not amortized.

v3.19.2
Earnings Per Share
6 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
Earnings Per Share

NOTE 8. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the periods indicated.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders (000's)

 

$

721

 

 

$

2,408

 

 

$

7,685

 

 

$

17,238

 

Weighted average shares outstanding

 

 

29,346,234

 

 

 

25,631,871

 

 

 

29,442,363

 

 

 

25,679,448

 

Basic earnings per share:

 

$

0.02

 

 

$

0.09

 

 

$

0.26

 

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders (000's)

 

$

721

 

 

$

2,408

 

 

$

7,685

 

 

$

17,238

 

Weighted average shares outstanding

 

 

29,346,234

 

 

 

25,631,871

 

 

 

29,442,363

 

 

 

25,679,448

 

Weighted average dilutive shares

 

 

6,562

 

 

 

684,726

 

 

 

5,305

 

 

 

801,259

 

Total weighted average dilutive shares

 

 

29,352,796

 

 

 

26,316,597

 

 

 

29,447,668

 

 

 

26,480,707

 

Diluted earnings per share:

 

$

0.02

 

 

$

0.09

 

 

$

0.26

 

 

$

0.65

 

 

v3.19.2
Deferred Reinsurance Ceding Commission
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Deferred Reinsurance Ceding Commission

NOTE 9. DEFERRED REINSURANCE CEDING COMMISSION

The Company defers reinsurance ceding commission income, which is amortized over the effective period of the related insurance policies. For the quarter ended June 30, 2019 and 2018, the Company allocated ceding commission income of $12.1 million and $13.5 million to policy acquisition costs and $4.0 million and $4.5 million to general and administrative expense, respectively. For the six months ended June 30, 2019 and 2018, the Company allocated ceding commission income of $25.0 million and $27.7 million to policy acquisition costs and $8.3 million and $9.2 million to general and administrative expense, respectively.

The table below depicts the activity with regard to deferred reinsurance ceding commission during the three and six months ended June 30, 2019 and 2018.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Beginning balance of deferred ceding commission income

 

$

40,474

 

 

$

47,841

 

 

$

44,996

 

 

$

51,277

 

Ceding commission deferred

 

 

10,389

 

 

 

12,986

 

 

 

23,036

 

 

 

28,542

 

Less: ceding commission earned

 

 

(16,158

)

 

 

(17,991

)

 

 

(33,327

)

 

 

(36,983

)

Ending balance of deferred ceding commission income

 

$

34,705

 

 

$

42,836

 

 

$

34,705

 

 

$

42,836

 

 

v3.19.2
Deferred Policy Acquisition Costs
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Deferred Policy Acquisition Costs

NOTE 10. DEFERRED POLICY ACQUISITION COSTS

The Company defers certain costs in connection with written policies, called deferred policy acquisition costs (“DPAC”), which are amortized over the effective period of the related insurance policies.

The Company anticipates that its DPAC costs will be fully recoverable in the near term. The table below depicts the activity with regard to DPAC during the three and six months ended June 30, 2019 and 2018.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Beginning Balance

 

$

69,883

 

 

$

53,862

 

 

$

73,055

 

 

$

41,678

 

Policy acquisition costs deferred

 

 

35,271

 

 

 

31,572

 

 

 

73,901

 

 

 

55,940

 

Amortization

 

 

(31,090

)

 

 

(15,786

)

 

 

(72,892

)

 

 

(27,970

)

Ending Balance

 

$

74,064

 

 

$

69,648

 

 

$

74,064

 

 

$

69,648

 

 

v3.19.2
Income Taxes
6 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Income Taxes

NOTE 11. INCOME TAXES

For the three months ended June 30, 2019 and 2018, the Company recorded $0.4 million and $0.9 million, respectively, of income tax expenses which corresponds to effective tax rates of 33.8% and 27.2%, respectively. Lower pre-tax income for the quarter had a significant adverse impact on the effective tax rate for the discrete quarter due to the impact of permanent tax differences. During the six months ended June 30, 2019 and 2018, the Company recorded $2.7 million and $6.1 million, respectively, of income tax expense which corresponds to an estimated annual effective tax rate of 26.3% and 26.0%, respectively. Effective tax rates are dependent upon components of pre-tax earnings and the related tax effects. The effective tax rate can fluctuate throughout the year as estimates used in the tax provision for the second quarter are updated as more information becomes available throughout the year.

The table below summarizes the significant components of our net deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Deferred tax assets:

 

(In thousands)

 

Unearned premiums

 

$

7,569

 

 

$

12,090

 

Unearned commission

 

 

8,309

 

 

 

10,733

 

Net operating loss

 

 

109

 

 

 

109

 

Tax-related discount on loss reserve

 

 

2,631

 

 

 

2,329

 

Unrealized loss

 

 

 

 

 

2,631

 

Investments

 

 

 

 

 

 

Stock-based compensation

 

 

859

 

 

 

297

 

Accrued expenses

 

 

844

 

 

 

2,321

 

Other

 

 

2,514

 

 

 

1,443

 

Total deferred tax asset

 

 

22,835

 

 

 

31,953

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Deferred acquisition costs

 

 

17,736

 

 

 

17,494

 

Prepaid expenses

 

 

173

 

 

 

112

 

Unrealized gains

 

 

1,734

 

 

 

 

Property and equipment

 

 

427

 

 

 

664

 

Note discount

 

 

502

 

 

 

710

 

Basis in purchased investments

 

 

129

 

 

 

163

 

Basis in purchased intangibles

 

 

18,037

 

 

 

18,982

 

Other

 

 

1,632

 

 

 

1,533

 

Total deferred tax liabilities

 

 

40,370

 

 

 

39,658

 

Net deferred tax liability

 

$

(17,535

)

 

$

(7,705

)

 

In April 2019, the Company was notified by the tax authority that the federal income tax returns for the years 2015, 2016 and 2017 will be examined. The Company does not believe the examination results will have an adverse impact on the condensed consolidated financial statements.

At June 30, 2019 and December 31, 2018, we had no significant uncertain tax positions or unrecognized tax benefits that, if recognized, would impact the effective income tax rate.

v3.19.2
Reinsurance
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Reinsurance

NOTE 12. REINSURANCE

Overview

The Company’s reinsurance program is designed, utilizing the Company’s risk management methodology, to address its exposure to catastrophes or large non-catastrophic losses. The Company’s program provides reinsurance protection for catastrophes including hurricanes, tropical storms, tornadoes and winter storms. The Company’s reinsurance agreements are part of its catastrophe management strategy, which is intended to provide its stockholders an acceptable return on the risks assumed in its property business, and to reduce variability of earnings, while providing protection to the Company’s policyholders.  

In order to limit our potential exposure to catastrophic events, we purchase significant reinsurance from third party reinsurers and sponsor catastrophe bonds issued by Citrus Re Ltd. The catastrophe reinsurance may be on an excess of loss or quota share basis. We also purchase reinsurance for non-catastrophe losses on a quota share, per risk or facultative basis. Purchasing a sufficient amount of reinsurance to consider catastrophic losses from single or multiple events or significant non-catastrophe losses is an important part of our risk strategy, and premiums paid (or ceded) to reinsurers is one of our largest cost components. Reinsurance involves transferring, or “ceding”, a portion of the risk exposure on policies we write to another insurer, known as a reinsurer. To the extent that our reinsurers are unable to meet the obligations they assume under our reinsurance agreements, we remain liable for the entire insured loss.

Our reinsurance agreements are prospective contracts. We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of our new reinsurance agreements. We generally amortize our catastrophe reinsurance premiums over the 12-month contract period on a straight-line basis, which is June 1 through May 31. Our quota share reinsurance is amortized over the 12-month contract period and may be purchased on a calendar or fiscal year basis.

In the event that we incur losses and loss adjustment expenses recoverable under our reinsurance program, we record amounts recoverable from our reinsurers on paid losses plus an estimate of amounts recoverable on unpaid losses. The estimate of amounts recoverable on unpaid losses is a function of our liability for unpaid losses associated with the reinsured policies; therefore, the amount changes in conjunction with any changes to our estimate of unpaid losses. As a result, a reasonable possibility exists that an estimated recovery may change significantly in the near term from the amounts included in our condensed consolidated financial statements.

Our insurance regulators require all insurance companies, like us, to have a certain amount of capital and reinsurance coverage in order to cover losses and loss adjustment expenses upon the occurrence of a catastrophic event. Our reinsurance program provides reinsurance in excess of our state regulator requirements, which are based on the probable maximum loss that we would incur from an individual catastrophic event estimated to occur once in every 100 years based on our portfolio of insured risks. The nature, severity and location of the event giving rise to such a probable maximum loss differs for each insurer depending on the insurer’s portfolio of insured risks, including, among other things, the geographic concentration of insured value within such portfolio. As a result, a particular catastrophic event could be a one-in-100-year loss event for one insurance company while having a greater or lesser probability of occurrence for another insurance company. We also purchase reinsurance coverage to protect against the potential for multiple catastrophic events occurring in the same year. We share portions of our reinsurance program coverage among our insurance company affiliates.

Significant Reinsurance Contracts

2019-2020 Excess of Loss Reinsurance Programs

Catastrophe Excess of Loss Reinsurance

Effective June 1, 2019, we entered into catastrophe excess of loss reinsurance agreements covering Heritage Property & Casualty Insurance Company (“Heritage P&C”), Zephyr Insurance Company (“Zephyr”) and Narragansett Bay Insurance Company (“NBIC”). The catastrophe reinsurance programs are allocated amongst traditional reinsurers, catastrophe bonds issued by Citrus Re Ltd., a Bermuda special purpose insurer formed in 2014 (“Citrus Re”), the Florida Hurricane Catastrophe Fund (“FHCF”) and Osprey, our captive reinsurer. The FHCF covers Florida risks only and we participate at 90%. Our third-party reinsurers are either rated “A-” or higher by A.M. Best or S&P or are fully collateralized, to reduce credit risk.

The reinsurance program, which is segmented into layers of coverage, protects the Company for excess property catastrophe losses and loss adjustment expenses. The 2019-2020 reinsurance program provides first event coverage up to $1.5 billion for Heritage P&C, first event coverage up to $708.0 million for Zephyr, and first event coverage up to $936.0 million for NBIC. Our first event retention for each insurance company subsidiary follows: Heritage P&C - $20.0 million; Zephyr - $20.0 million; NBIC – $13.8 million.

Our program was placed on a cascading basis which provides greater horizontal protection in a multiple small events scenario and features additional coverage enhancements. This coverage exceeds the requirements established by the Companies’ rating agency, Demotech, Inc., the Florida Office of Insurance Regulation, the Hawaii Insurance Division, and the Rhode Island Department of Business Regulation.  

We are responsible for all losses and loss adjustment expenses in excess of our reinsurance program. For second or subsequent catastrophic events, our total available coverage depends on the magnitude of the first event, as we may have coverage remaining from layers that were not previously fully exhausted. An aggregate of $2.6 billion of limit purchased in 2019 includes reinstatement through the purchase of reinstatement premium protection. In total, we have purchased $2.6 billion of potential reinsurance coverage, including our retention, for multiple catastrophic events. Our ability to access this coverage, however, will be subject to the severity and frequency of such events.

The Company's estimated net cost for the 2019-2020 catastrophe reinsurance programs is approximately $249.2 million.

Gross Quota Share Reinsurance

NBIC did not enter into a gross quota share reinsurance program for the fiscal year beginning June 1, 2019. For the previous fiscal year, NBIC purchased an 8% gross quota share reinsurance treaty effective June 1, 2018 which provided ground up loss recoveries of up to $1.0 billion.

Net Quota Share Reinsurance

NBIC’s Net Quota Share coverage is proportional reinsurance for which certain of our other reinsurance inures to the quota share (property catastrophe excess of loss and reinstatement premium protection and the second layer of the general excess of loss). An occurrence limit of $20.0 million for catastrophe losses is in effect on the quota share, subject to certain aggregate loss limits that vary by reinsurer. The amount and rate of reinsurance commissions slide, within a prescribed minimum and maximum, depending on loss performance. The Net Quota Share program was renewed on December 31, 2018 ceding 52% of the net premiums and losses and 10% of the prior year quota share will run off.

Aggregate Coverage

A $931.0 million of limit is structured on an aggregate basis (Top and Aggregate, Layer 1, Layer 2, Layer 3, Layer 4, Layer 5, Stub layers, Multi-Zonal and 2017-1 Notes). To the extent that this coverage is not fully exhausted in the first catastrophic event, it provides coverage commencing at its reduced retention for second and subsequent events where underlying coverage has been previously exhausted. The Company purchased reinstatement premium protection for $627.0 million of this coverage, which can be reinstated one time. Layers (with exception to FHCF) are “net” of a $40.0 million attachment point. Layers inure to the subsequent layers if the aggregate limit of the preceding layer(s) is exhausted, and the subsequent layer cascades down in its place.

NBIC placed 40% of an aggregate contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring May 31, 2019. The limit on the contract is $20.0 million, with a retention of $20.0 million and franchise deductible of $1.0 million.

NBIC placed 100% of an occurrence contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring December 31, 2019. The limit on the contract is $20.0 million with a retention of $20.0 million and has one reinstatement available.

Per Risk Coverage  

For southeast losses and northeast commercial residential losses, excluding losses from named storms, the Company purchased property per risk coverage for losses and loss adjustment expenses in excess of $1.0 million per claim. The limit recovered for an individual loss is $9.0 million and total limit for all losses is $27.0 million. There are two reinstatements available with additional premium due based on the amount of the layer exhausted. For Northeast commercial residential losses only, the Company purchased property per risk coverage for losses and loss adjustments expenses in excess of $750,000 per claim. The limit recovered for an individual loss is $250,000 and total limit for all losses is $750,000. There are two reinstatements available with additional premium due based on the amount of the layer exhausted.

In addition, the Company purchased facultative reinsurance for losses in excess of $10.0 million for any properties it insured where the total insured value exceeded $10.0 million. This coverage applies to Southeast losses and Northeast commercial residential losses, excluding losses from named storms.

General Excess of Loss

NBIC’s general excess of loss reinsurance protects NBIC from single risk losses, both property and casualty. The casualty coverage provided by this reinsurance contract also responds on a “Clash” basis, meaning that multiple policies involved in a single loss occurrence can be aggregated into one loss and applied to the reinsurance contract. The coverage is in two layers in excess of NBIC’s retention of the first $400,000 of loss. The first layer is $350,000 excess $400,000 and the second layer is $2.75 million excess $750,000 (Casualty second layer is $1.25 million excess $750,000). Both layers are 100% placed.

Semi-Automatic Facultative Excess of Loss

NBIC’s automatic property facultative reinsurance protects NBIC from single risk losses, for property risks with a total insured value excess of $3.5 million subject to a limit.

2018 – 2019 Reinsurance Program

Catastrophe Excess of Loss Reinsurance

Effective June 1, 2018, we entered into catastrophe excess of loss reinsurance agreements covering Heritage P&C, Zephyr and NBIC. The catastrophe reinsurance programs are allocated amongst traditional reinsurers, catastrophe bonds issued by Citrus Re and FHCF. The FHCF covers Florida risks only and we participate at 45%. Citrus Re, which provides fully collateralized multi-year coverage, covers catastrophe losses incurred by Heritage P&C only through the 2016 Class D and 2017-1 Notes, and covers catastrophe losses incurred by Heritage P&C, Zephyr and NBIC through the 2016 Class E Note. Our third-party reinsurers are either rated “A-” or higher by A.M. Best or S&P or are fully collateralized, to reduce credit risk.

The reinsurance program, which is segmented into layers of coverage, protects the Company for excess property catastrophe losses and loss adjustment expenses. The 2018-2019 reinsurance program provides first event coverage up to $1.6 billion for Heritage P&C, first event coverage up to $801.0 million for Zephyr, and first event coverage up to $1.0 billion for NBIC. Our first event retention for each insurance company subsidiary follows: Heritage P&C - $20.0 million; Zephyr - $20.0 million; NBIC – $12.8 million. Our second and third event retentions for each insurance company subsidiary follows: Heritage P&C - $16.0 million; Zephyr - $16.0 million; NBIC – $8.8 million.

Our program was placed on a cascading basis which provides greater horizontal protection in a multiple small events scenario and features additional coverage enhancements. This coverage exceeds the requirements established by the Companies’ rating agency, Demotech, Inc., the Florida Office of Insurance Regulation, the Hawaii Insurance Division, and the Rhode Island Department of Business Regulation. For the twelve months ending May 31, 2019, no single uncollateralized private reinsurer represented more than 10% of the overall limit purchased from our total reinsurance coverage.

We are responsible for all losses and loss adjustment expenses in excess of our reinsurance program. For second or subsequent catastrophic events, our total available coverage depends on the magnitude of the first event, as we may have coverage remaining from layers that were not previously fully exhausted. An aggregate of $3.4 billion of limit purchased in 2018 includes reinstatement through the purchase of reinstatement premium protection. In total, we have purchased $3.5 billion of potential reinsurance coverage, including our retention, for multiple catastrophic events. Our ability to access this coverage, however, will be subject to the severity and frequency of such events.

The Company's estimated net cost for the 2018-2019 catastrophe reinsurance programs is approximately $252.0 million.

Gross Quota Share Reinsurance

NBIC purchased an 8% gross quota share reinsurance treaty effective June 1, 2018 which provides ground up loss recoveries of up to $1.0 billion. Prior to this treaty, NBIC’s gross quota share treaty was 18.75%.

Net Quota Share Reinsurance

NBIC’s Net Quota Share coverage is proportional reinsurance for which certain of our other reinsurance inures to the quota share (property catastrophe excess of loss and reinstatement premium protection and the second layer of the general excess of loss). An occurrence limit of $20.0 million for catastrophe losses is in effect on the quota share, subject to certain aggregate loss limits that vary by reinsurer. The amount and rate of reinsurance commissions slide, within a prescribed minimum and maximum, depending on loss performance. NBIC ceded 49.5% of net premiums and losses during 2018 to the Net Quota Share and 8% of the 2017 Net Quota Share was in runoff. The Net Quota Share program was renewed on December 31, 2018 ceding 52% of the net premiums and losses and 10% of the prior year quota share will run off.

Aggregate Coverage

A $1.1 billion of limit is structured on an aggregate basis (Top and Aggregate, Layer 1, Layer 2, Layer 3, Layer 4, Stub layers, Multi-Zonal, 2017-1 Notes and 2016 Class E Notes). To the extent that this coverage is not fully exhausted in the first catastrophic event, it provides coverage commencing at its reduced retention for second and subsequent events where underlying coverage has been previously exhausted. The Company purchased reinstatement premium protection for $669.0 million of this coverage, which can be reinstated one time. Layers (with exception to FHCF and 2016 Class D Notes) are “net” of a $40.0 million attachment point. Layers inure to the subsequent layers if the aggregate limit of the preceding layer(s) is exhausted, and the subsequent layer cascades down in its place.

NBIC placed 42.5% of an aggregate contract, which covers all catastrophe losses excluding named storms, on May 31, 2018, expiring December 31, 2018. The limit on the contract is $20.0 million, with a retention of $3.0 million and franchise deductible of $1.5 million.

NBIC placed 92% of an occurrence contract, which covers all catastrophe losses excluding named storms, on May 31, 2018, expiring December 31, 2018. The limit on the contract is $20.0 million with a retention of $20.0 million.

NBIC placed 40% of an aggregate contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring May 31, 2019. The limit on the contract is $20.0 million, with a retention of $20.0 million and franchise deductible of $1.0 million.

NBIC placed 100% of an occurrence contract, which covers all catastrophe losses excluding named storms, on December 31, 2018, expiring December 31, 2019. The limit on the contract is $20.0 million with a retention of $20.0 million and has one reinstatement available.

Per Risk Coverage  

For southeast losses and northeast commercial residential losses, excluding losses from named storms, the Company purchased property per risk coverage for losses and loss adjustment expenses in excess of $1.0 million per claim. The limit recovered for an individual loss is $9.0 million and total limit for all losses is $27.0 million. There are two reinstatements available with additional premium due based on the amount of the layer exhausted. In addition, the Company purchased facultative reinsurance in excess of $10.0 million for any properties it insured where the total insured value exceeded $10.0 million. This coverage applied to Southeast losses and Northeast commercial residential losses, excluding losses from name storms.

General Excess of Loss

NBIC’s general excess of loss reinsurance protects NBIC from single risk losses, both property and casualty. The casualty coverage provided by this contract also responds on a “Clash” basis, meaning that multiple policies involved in a single loss occurrence can be aggregated into one loss and applied to the reinsurance contract. The coverage is in two layers in excess of NBIC’s retention of the first $300,000 of loss. The first layer is $450,000 excess $300,000 and the second layer is $2.75 million excess $750,000 (Casualty second layer is $1.25 million excess $750,000). Both layers are 92% placed with the gross quota share providing the additional 8% coverage.

Semi-Automatic Facultative Excess of Loss

NBIC’s automatic property facultative reinsurance protects NBIC from single risk losses, for property risks with a total insured value excess of $3.5 million subject to a limit.

 

The Company’s reinsurance arrangements had the following effect on certain items in the condensed consolidated statement of income for the three and six months ended June 30, 2019 and 2018:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

 

(In thousands)

 

Premium written:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

254,840

 

 

$

263,664

 

 

$

465,188

 

 

$

468,030

 

Ceded

 

 

(312,600

)

 

 

(251,632

)

 

 

(359,442

)

 

 

(308,982

)

Net

 

$

(57,760

)

 

$

12,032

 

 

$

105,746

 

 

$

159,048

 

Premiums earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

229,958

 

 

$

230,971

 

 

$

458,548

 

 

$

458,134

 

Ceded

 

 

(115,875

)

 

 

(119,767

)

 

 

(234,774

)

 

 

(240,822

)

Net

 

$

114,083

 

 

$

111,204

 

 

$

223,774

 

 

$

217,312

 

Loss and Loss Adjustment Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

162,390

 

 

$

216,261

 

 

$

274,566

 

 

$

551,990

 

Ceded

 

 

(88,091

)

 

 

(150,272

)

 

 

(138,128

)

 

 

(432,910

)

Net

 

$

74,299

 

 

$

65,989

 

 

$

136,438

 

 

$

119,080

 

 

v3.19.2
Reserve For Unpaid Losses
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Reserve for Unpaid Losses

NOTE 13. RESERVE FOR UNPAID LOSSES

The Company determines the reserve for unpaid losses on an individual-case basis for all incidents reported. The liability also includes amounts which are commonly referred to as incurred but not reported, or “IBNR”, claims as of the balance sheet date.

The table below summarizes the activity related to the Company’s reserve for unpaid losses:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Balance, beginning of period

 

$

404,484

 

 

$

547,736

 

 

$

432,359

 

 

$

470,083

 

Less: reinsurance recoverable on unpaid losses

 

 

214,471

 

 

 

385,397

 

 

 

250,507

 

 

 

315,353

 

Net balance, beginning of period

 

 

190,013

 

 

 

162,339

 

 

 

181,852

 

 

 

154,730

 

Incurred related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current year

 

 

75,623

 

 

 

49,852

 

 

 

138,348

 

 

 

101,214

 

Prior years

 

 

(1,324

)

 

 

16,137

 

 

 

(1,910

)

 

 

17,866

 

Total incurred

 

 

74,299

 

 

 

65,989

 

 

 

136,438

 

 

 

119,080

 

Paid related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current year

 

 

34,793

 

 

 

23,068

 

 

 

43,155

 

 

 

21,816

 

Prior years

 

 

22,130

 

 

 

31,958

 

 

 

67,746

 

 

 

78,692

 

Total paid

 

 

56,923

 

 

 

55,026

 

 

 

110,901

 

 

 

100,508

 

Net balance, end of period

 

 

207,389

 

 

 

173,302

 

 

 

207,389

 

 

 

173,302

 

Plus: reinsurance recoverable on unpaid losses

 

 

223,023

 

 

 

315,308

 

 

 

223,023

 

 

 

315,308

 

Balance, end of period

 

$

430,412

 

 

$

488,610

 

 

$

430,412

 

 

$

488,610

 

 

As of June 30, 2019, the Company reported $207.4 million in unpaid losses and loss adjustment expenses, net of reinsurance which included $159.7 million attributable to IBNR net of reinsurance recoverable, or 77% of net reserves for unpaid losses and loss adjustment expenses.

The Company’s losses incurred for the second quarter ended June 30, 2019 and 2018 reflect favorable development of $1.3 million and unfavorable development of $16.1 million, respectively, associated with management’s best estimate of the actuarial loss and LAE reserves with consideration given to Company specific historical loss experience. While a portion of the 2018 development includes additional retention for hurricane losses, the majority of the 2018 loss development related to personal lines litigated and assignment of benefit claims from 2016 and 2017 accident years.

v3.19.2
Long-Term Debt
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Long-Term Debt

NOTE 14. LONG-TERM DEBT

Convertible Senior Notes

In August 2017 and September 2017, the Company issued in aggregate $136.8 million of 5.875% Convertible Senior Notes (“Convertible Notes”) maturing on August 1, 2037, unless earlier repurchased, redeemed or converted. Interest is payable semi-annually in arrears, on February 1, and August 1 of each year, commencing in 2018.

As of June 30, 2019, the Company had $20.8 million of the Convertible Notes outstanding, net of issuance and debt discount costs in aggregate of approximately, $2.6 million. For six months ended 2019 and 2018, the Company made interest payments of approximately $856,700 and $3.7 million, respectively on the Convertible Notes.

Debt Extinguishment

On February 19, 2019, the Company reacquired $5.8 million of its outstanding Convertible Notes for approximately $2.9 million, which was paid in cash and the issuance of 285,201 shares of the Company’s common stock valued at $4.2 million. The repurchase resulted in a $48,000 non-operating loss.

Senior Secured Credit Facility

In December 2018, the Company entered into a five-year, $125.0 million credit agreement (the “Credit Agreement”) with a syndicate of lenders consisting of $75.0 million senior secured term loan facility (the “Term Loan Facility”) and a $50.0 million senior secured revolving credit facility (the “Revolving Credit Facility” and together with the  Term Loan Facility, the “Credit Facilities”).

Term Loan Facility: The principal amount of the Term Loan Facility amortizes in quarterly installments, beginning with the close of the fiscal quarter ending March 31, 2019, in an amount equal to $1.9 million per quarter, with the remaining balance payable at maturity. As of December 31, 2018, there was $75.0 million in aggregate principal outstanding on the Term Loan Facility. As of June 30, 2019, the balance of the term loan was $73.1 million. For the six months ended June 30, 2019, the Company made interest payments of approximately $1.8 million on the term loan.

Revolving Credit Facility: The Revolving Credit Facility allows for borrowings of up to $50.0 million inclusive of a $5.0 million sublimit for the issuance of letters of credit and a $10.0 million sublimit for swingline loans. As of June 30, 2019, the Company had $10.0 million of borrowings and no letters of credit outstanding under the Revolving Credit Facility. For the six months ended June 30, 2019, the Company made interest payments of approximately $350,729 under the credit facility, respectively.

Mortgage Loan

In October 2017, the Company and its subsidiary, Skye Lane Properties LLC, jointly obtained a commercial real estate mortgage loan in the amount of $12.7 million, bearing interest of 4.95% per annum and maturing on October 30, 2027. On October 30, 2022, the interest rate shall adjust to an interest rate equal to the annualized interest rate of the United States 5-year Treasury Notes as reported by Federal Reserve on a weekly average basis plus 3.10%. The Company makes monthly principal and interest payments against the loan. For each of the respective six month periods ended June 30, 2019 and 2018, the Company made principal and interest payments of approximately $446,000 and on the mortgage loan.

FHLB Loan Agreements

In December 2018, a subsidiary of the Company received a fixed interest rate 3.094% cash loan of $19.2 million from the Federal Home Loan Bank (“FHLB”) Atlanta. In connection with the agreement, the subsidiary became a member of FHLB. Membership in the FHLB required an investment in FHLB’s common stock which was purchased in December 2018 and valued at $1.4 million. Additionally, the transaction required securities be pledged as collateral. As of June 30, 2019, the fair value of the collateralized securities was $24.2 million and the equity investment in FHLB common stock was $1.4 million. As of June 30, 2019, the Company made quarterly interest payments of approximately $300,325 per the terms of the agreement.

The following table summarizes the Company’s debt and credit facilities as of June 30, 2019 and December 31, 2018:

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Convertible debt

 

$

23,413

 

 

$

29,163

 

Mortgage loan

 

 

12,256

 

 

 

12,394

 

Term loan facility

 

 

73,125

 

 

 

75,000

 

Revolving credit facility

 

 

10,000

 

 

 

20,000

 

FHLB loan agreement

 

 

19,200

 

 

 

19,200

 

Total principal amount

 

$

137,994

 

 

$

155,757

 

Less: unamortized discount and issuance costs

 

$

5,545

 

 

$

6,963

 

Total long-term debt

 

$

132,449

 

 

$

148,794

 

 

As of the date of this report, we were in compliance with the applicable terms of all our covenants and other requirements under the Revolving agreement, Term Note, Convertible Debt, cash borrowings and other loans. Our ability to secure future debt financing depends, in part, on our ability to remain in such compliance. As long as there is no default or an event of default exist we are allowed to payout dividends in an aggregate amount not to exceed $10.0 million in any fiscal year.

 

The schedule of principal payments on long-term debt is as follows:

 

Year

 

Amount

 

 

 

(In thousands)

 

2019 remaining

 

$

5,764

 

2020

 

 

7,790

 

2021

 

 

7,806

 

2022

 

 

7,822

 

2023

 

 

74,589

 

Thereafter

 

 

34,223

 

Total

 

$

137,994

 

 

v3.19.2
Accounts Payable and Other Liabilities
6 Months Ended
Jun. 30, 2019
Other Liabilities Disclosure [Abstract]  
Accounts Payable and Other Liabilities

NOTE 15. ACCOUNTS PAYABLE AND OTHER LIABILITIES

Accounts payable and other liabilities consist of the following as of June 30, 2019 and December 31, 2018:

 

Description

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Deferred ceding commission

 

$

34,705

 

 

$

44,996

 

Outstanding claim checks

 

 

13,612

 

 

 

15,360

 

Accounts payable and other payables

 

 

7,850

 

 

 

8,379

 

Lease obligations

 

 

8,718

 

 

 

 

Accrued interest and issuance costs

 

 

1,144

 

 

 

1,285

 

Accrued dividends

 

 

1,791

 

 

 

1,589

 

Premium tax

 

 

 

 

 

2,241

 

Other liabilities

 

 

 

 

 

460

 

Commission payables

 

 

13,702

 

 

 

11,654

 

Total other liabilities

 

$

81,522

 

 

$

85,964

 

 

v3.19.2
Statutory Accounting and Regulations
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Statutory Accounting and Regulations

NOTE 16. STATUTORY ACCOUNTING AND REGULATIONS

State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as our insurance subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers’ ability to pay dividends, restrict the allowable investment types and investment mixes, and subject the Company’s insurers to assessments.

The Company’s insurance subsidiaries must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. Heritage P&C is required to maintain capital and surplus equal to the greater of $15 million or 10% of their respective liabilities. Zephyr is required to maintain a deposit of $750,000 in a federally insured financial institution. NBIC is required to maintain capital and surplus of $3.0 million. The combined statutory surplus for Heritage P&C, Zephyr and NBIC was $347.1 million at June 30, 2019. The combined statutory surplus for Heritage P&C, Zephyr and NBIC was $376.3 million at December 31, 2018. State law also requires the Company’s insurance subsidiaries to adhere to prescribed premium-to-capital surplus ratios, with which the Company is in compliance. At June 30, 2019, our insurance subsidiaries met the financial and regulatory requirements of the states in which they do business.

v3.19.2
Commitments and Contingencies
6 Months Ended
Jun. 30, 2019
Commitments And Contingencies Disclosure [Abstract]  
Commitments and Contingencies

NOTE 17. COMMITMENTS AND CONTINGENCIES

The Company is involved in claims-related legal actions arising in the ordinary course of business. The Company accrues amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that it determines an unfavorable outcome becomes probable and it can estimate the amounts. Management makes revisions to its estimates based on its analysis of subsequent information that the Company receives regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation. When determinable, the Company discloses the range of possible losses in excess of those accrued and for reasonably possible losses.

v3.19.2
Related Party Transactions
6 Months Ended
Jun. 30, 2019
Related Party Transactions [Abstract]  
Related Party Transactions

NOTE 18. RELATED PARTY TRANSACTIONS

The Company has been party to various related party transactions involving certain of its officers, directors and significant stockholders as set forth below. The Company has entered into each of these arrangements without obligation to continue its effect in the future and the associated expense was immaterial to its results of operations or financial position as of June 30, 2019 and 2018.

 

In January 2017, the Company entered into a consulting agreement with Mrs. Shannon Lucas, the wife of the Chairman and CEO, in which she agreed to provide consulting services related to the Company’s catastrophe reinsurance and risk management program at a rate of $400 per hour. The consulting agreement has no specific term and either party may terminate the agreement upon providing written notice. Additionally, she serves as a director of Heritage P&C with an annual compensation of $150,000. For the six months ended June 30, 2019 and 2018, the Company paid consulting fees to Ms. Lucas of approximately $172,000 and $336,800, respectively.   

v3.19.2
Employee Benefit Plans
6 Months Ended
Jun. 30, 2019
Compensation And Retirement Disclosure [Abstract]  
Employee Benefit Plans

NOTE 19. EMPLOYEE BENEFIT PLANS

The Company provides a 401(k) plan for substantially all employees. The Company provides a matching contribution of 100% on the first 3% of employees’ contribution and 50% on the next 2% of the employees’ contribution to the plan. The maximum match is 4%. For the three and six-months ended June 30, 2019 and 2018, the contributions made to the plan on behalf of the participating employees were approximately $292,500 and $548,200 and $245,200 and $803,500, respectively.

The Company provides for its employees a partially self-insured healthcare plan and benefits. For the three and six months ended June 30, 2019 and 2018, incurred medical premium costs amounted to an aggregate of $1.1 million and $1.8 million and $1.2 million and $2.2 million, respectively. An additional liability of approximately $333,000 is recorded for unpaid claims as of June 30, 2019. A stop loss reinsurance policy caps the maximum loss that could be incurred by the Company under the self-insured plan. The Company’s stop loss coverage per employee is $150,000 for which any excess cost would be covered by the reinsurer subject to an aggregate limit for losses in excess of $1.5 million which would provide up to $1.0 million of coverage. Any excess of the $1.5 million retention and the $1 million of aggregate coverage would be borne by the Company. The aggregate stop loss commences once our expenses exceed 125% of the annual aggregate expected claims.

v3.19.2
Equity
6 Months Ended
Jun. 30, 2019
Equity [Abstract]  
Equity

NOTE 20. EQUITY

The total amount of authorized capital stock consists of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of June 30, 2019, the Company had 29,274,577 shares of common stock outstanding, 7,720,177 treasury shares of common stock and 580,801 unvested shares of restricted common stock issued reflecting total paid-in capital of $330.3 million as of such date.

As more fully disclosed in our audited consolidated financial statements for the year ended December 31, 2018, there were, as of December 31, 2018, 29,477,756 shares of common stock outstanding, 7,214,797 treasury shares of common stock and 605,801 unvested shares of restricted common stock, representing $325.3 million of additional paid-in capital.

Common Stock

Holders of common stock are entitled to one vote for each share held on all matters subject to a vote of stockholders, subject to the rights of holders of any outstanding preferred stock. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election, subject to the rights of holders of any outstanding preferred stock. Holders of common stock will be entitled to receive ratably any dividends that the board of directors may declare out of funds legally available therefore, subject to any preferential dividend rights of outstanding preferred stock. Upon the Company’s liquidation, dissolution or winding up, the holders of common stock will be entitled to receive ratably its net assets available after the payment of all debts and other liabilities and subject to the prior rights of holders of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There are no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of the Company’s capital stock are fully paid and nonassessable.

Stock Repurchase Program

On August 1, 2018, the Company announced that its Board of Directors authorized a stock repurchase program authorizing the Company to repurchase up to $50.0 million of its common stock through December 31, 2020 under our current Rule 10b5-1 trading plan, which allows the Company to purchase shares below a predetermined price per share. For the six months ended June 30, 2019, the Company purchased 157,640 shares of its common stock for $2.3 million. At June 30, 2019, the Company has the capacity to repurchase $42.7 million of its common shares until December 2020. As of June 30, 2019, the Company repurchased in aggregate 505,380 shares of its common stock for $7.3 million.

Dividends

On February 25, 2019, the Company’s Board of Directors declared a $0.06 per share quarterly dividend payable on April 3, 2019, to stockholders of record as of March 15, 2019. On May 6, 2019, the Company’s Board of Directors declared a $0.06 per share quarterly dividend payable on July 3, 2019 to stockholders of record as of June 14, 2019.

The declaration and payment of any future dividends will be subject to the discretion of the Board of Directors and will depend on a variety of factors including the Company’s financial condition and results of operations.

v3.19.2
Stock-Based Compensation
6 Months Ended
Jun. 30, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Stock-Based Compensation

NOTE 21. STOCK-BASED COMPENSATION

Restricted Stock

The Company has adopted the Heritage Insurance Holdings, Inc., Omnibus Incentive Plan (the “Plan”) effective on May 22, 2014. The Plan authorized 2,981,737 shares of common stock for issuance under the Plan for future grants.

At June 30, 2019 there were 1,321,398 shares available for grant under the Plan. The Company recognizes compensation expense under ASC 718 for its stock-based payments based on the fair value of the awards.

In 2018, the Company granted 155,801 restricted shares vesting over three to five years, to the Company’s executives and other key employees. No restricted stock was granted during quarter ended June 30, 2019.

The Plan authorizes the Company to grant stock options at exercise prices equal to the fair market value of the Company’s stock on the dates the options are granted. Any options granted would typically have a maximum term of ten years from the date of grant and vest primarily in equal annual installments over a range of one to five-year periods following the date of grant for employee options. If a participant’s employment relationship ends, the participant’s vested awards would remain exercisable for the shorter of a period of 30 days or the period ending on the latest date on which such award could have been exercisable. The fair value of each option grant is separately estimated for each grant date. The fair value of each option is amortized into compensation expense on a straight-line basis between the grant date for the award and each vesting date. The Company estimates the fair value of all stock option awards as of the date of the grant by applying the Black-Scholes-Merton multiple-option pricing valuation model. The application of this valuation model involves assumptions that are judgmental and highly sensitive in the determination of compensation expense. The Company has not granted any stock options since 2015 and all unexercised stock options have since been forfeited.   

The Company has also granted shares of its common stock subject to certain restrictions under the Plan. Restricted stock awards granted to employees vest in equal installments generally over a five-year period from the grant date subject to the recipient’s continued employment. The fair value of restricted stock awards is estimated by the market price at the date of grant and amortized on a straight-line basis to expense over the period of vesting. Recipients of restricted stock awards have the right to receive dividends.  

Restricted stock activity for the quarter ended June 30, 2019 is as follows:

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant-Date Fair

 

 

 

Number of shares

 

 

Value per Share

 

Non-vested, at December 31, 2018

 

 

605,801

 

 

$

20.41

 

Granted

 

 

 

 

 

 

Vested

 

 

(17,000

)

 

 

14.72

 

Canceled and surrendered

 

 

(8,000

)

 

 

14.72

 

Non-vested, at June 30, 2019

 

 

580,801

 

 

$

20.65

 

 

Awards are being amortized to expense over the three to five-year vesting period. The Company recognized $2.7 million and $2.6 million of compensation expense for the six months ended June 30, 2019 and 2018, respectively. There was approximately $8.2 million of unrecognized compensation expense related to the un-vested restricted stock at June 30, 2019. The Company expects to recognize substantially all of remaining compensation expense over the next 1.6 years. For the six months ended June 30, 2019, 25,000 shares of restricted stock were vested and released, all of which had been granted to employees. Of the shares released to employees, 8,000 shares were withheld by the Company to cover withholding taxes of $118,000. For the comparable period of 2018, no shares were vested and released.

v3.19.2
Subsequent Events
6 Months Ended
Jun. 30, 2019
Subsequent Events [Abstract]  
Subsequent Events

NOTE 22. SUBSEQUENT EVENTS

The Company performed an evaluation of subsequent events through the date the condensed consolidated financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the condensed consolidated financial statements as of June 30, 2019.

On August 1, 2019, the Company announced that its Board of Directors declared a $0.06 per share quarterly dividend payable on October 3, 2019 to stockholders of record as of September 16, 2019.

v3.19.2
Basis of Presentation and Significant Accounting Policies (Policies)
6 Months Ended
Jun. 30, 2019
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Basis of Presentation

Basis of Presentation

The condensed consolidated financial statements include the accounts of the Heritage Insurance Holdings, Inc. (together with its subsidiaries, the “Company”). These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain financial information that is normally included in annual consolidated financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted. In the opinion of the Company’s management, all material intercompany transactions and balances have been eliminated and all adjustments consisting of normal recurring accruals which are, necessary for a fair statement of the financial condition and results of operations for the interim periods have been reflected. The accompanying interim condensed consolidated financial statements and related footnotes should be read in conjunction with the Company’s audited consolidated financial statements and related footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018 (the “2018 Form 10-K”).

Leases

Leases

At the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on (1) whether the contract involves the use of distinct identified assets, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

All significant lease arrangements are generally recognized at lease commencement. A right of use (“ROU”) asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and we recognize lease expense for these leases as incurred over the lease term.

ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Operating lease ROU assets and liabilities are recognized based on the present value of the lease term. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in determining the lease liability. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the term of the lease. We have lease agreements with lease and non-lease components, which are generally accounted for separately.

We primarily use our incremental borrowing rates for our operating leases (rates are not readily determinable) and implicit rates for our financing leases in determining the present value of leases payments.

In the first quarter of 2019, the Company adopted ASU 2016 -02 and did not recognize an opening adjustment to retained earnings as a result of the adoption of FASB 842. Refer to Note 5-Leases herein for further information.

Reclassification

Reclassification

Certain prior year amounts have been reclassified to conform to the current year presentation.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) Lease Accounting, which requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. As with previous guidance, there continues to be a differentiation between finance leases and operating leases, however this distinction now primarily relates to differences in the manner of expense recognition over time and in the classification of lease payments in the statement of cash flows. Lease assets and liabilities arising from both finance and operating leases will be recognized in the statement of financial position. ASU 2016-02 leaves the accounting for leases by lessors largely unchanged from previous GAAP.

At the inception of a contract, we assess whether the contract is, or contains, a lease. The assessment is based on (1) whether the contract involves the use of distinct identified assets, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the period, and (3) whether the Company has the right to direct the use of the asset.

All significant lease arrangements are generally recognized at lease commencement. A ROU asset and corresponding lease liability are not recorded for leases with an initial term of 12 months or less (short term leases) and we recognize lease expense for these leases as incurred over the lease term.

ROU assets represent our right to use an underlying asset during the reasonably certain lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Our lease terms include options to extend or terminate the lease when it is reasonably certain that we will exercise the option.

Operating lease ROU assets and liabilities are recognized based on the present value of the lease term. Lease payments may be fixed or variable, however, only fixed payments or in-substance fixed payments are included in determining the lease liability. Variable lease payments are recognized in operating expenses in the period in which the obligation for those payments are incurred. The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments and excludes lease incentives. Lease expense is recognized on a straight-line basis over the term of the lease. We have lease agreements with lease and non-lease components, which are generally accounted for separately.

We primarily use our incremental borrowing rates for our operating leases (rates are not readily determinable) and implicit rates for our financing leases in determining the present value of leases payments.

We adopted the guidance prospectively during the first quarter of 2019. As part of our adoption, we elected not to reassess historical lease classification or recognize short-term leases on our balance sheet. At implementation, we recorded approximately $2.8 million as right-of-use operating and financing leased assets in other assets and approximately $2.8 million of lease liabilities in accounts payable and other liabilities. We did not recognize an opening adjustment to retained earnings. Adoption of this standard did not materially impact the Company’s Condensed Consolidated Statements of Operations and Other Comprehensive Income and Statements of Cash Flows. See Note 5 to the condensed consolidated financial statements.

Accounting Pronouncements Not Yet Adopted

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which provided certain improvements to ASU 2016-01, Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01) and ASU 2016-13. As the Company adopted ASU 2016-01 on January 1, 2018, the improvements in ASU 2019-04 are effective in the first quarter of 2020. Early adoption is permitted. The Company expects to adopt ASU 2016-13 in the first quarter of 2020 and the improvements in ASU 2019-04 will be adopted concurrently. The Company is currently evaluating the impact of adopting ASU 2019-04 on its condensed consolidated financial statements and related disclosures.

For information regarding other accounting standards that the Company has not yet adopted, refer to our Annual Report on Form 10-K, filed on March 12, 2019, the section of Note 1 of the notes to the consolidated financial statements entitled the “Accounting Pronouncement Not Yet  Adopted”.

v3.19.2
Investments (Tables)
6 Months Ended
Jun. 30, 2019
Investments Debt And Equity Securities [Abstract]  
Schedule of Difference between Cost or Adjusted/Amortized Cost and Estimated Fair Value, by Major Investment Category

Securities Available-for-Sale

The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at June 30, 2019 and December 31, 2018:

 

June 30, 2019

 

Cost or Adjusted /

Amortized Cost

 

 

Gross Unrealized

Gains

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities (1)

 

$

56,395

 

 

$

260

 

 

$

68

 

 

$

56,587

 

States, municipalities and political subdivisions

 

 

72,313

 

 

 

1,373

 

 

 

29

 

 

 

73,657

 

Special revenue

 

 

250,062

 

 

 

3,193

 

 

 

440

 

 

 

252,815

 

Industrial and miscellaneous

 

 

167,917

 

 

 

2,794

 

 

 

151

 

 

 

170,560

 

Total

 

$

546,687

 

 

$

7,620

 

 

$

688

 

 

$

553,619

 

 

December 31, 2018

 

Cost or Adjusted /

Amortized Cost

 

 

Gross Unrealized

Gains

 

 

Gross Unrealized

Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities (1)

 

$

48,739

 

 

$

40

 

 

$

738

 

 

$

48,041

 

States, municipalities and political subdivisions

 

 

60,028

 

 

 

46

 

 

 

785

 

 

 

59,289

 

Special revenue

 

 

249,026

 

 

 

210

 

 

 

3,881

 

 

 

245,355

 

Industrial and miscellaneous

 

 

155,678

 

 

 

81

 

 

 

3,302

 

 

 

152,457

 

Redeemable preferred stocks

 

 

4,920

 

 

 

 

 

 

413

 

 

 

4,507

 

Total

 

$

518,391

 

 

$

377

 

 

$

9,119

 

 

$

509,649

 

 

(1)

U.S. government and agency securities include pledged fixed maturity securities with an estimated fair value of $24.4 million and $31.0 million under the terms and condition of the advance agreement entered into with a financial institution as of June 30, 2019 and December 31, 2018, respectively. The Company is permitted to withdraw or exchange any portion of the pledged collateral over the minimum requirement at any time.

Schedule of Net Realized Gains (Losses) by Major Investment Category

The Company calculates the gain or loss realized on the sale of investments by comparing the sales price (fair value) to the cost or adjusted/amortized cost of the security sold. The Company determines the cost or adjusted/amortized cost of the security sold using the specific-identification method. The following tables detail the Company’s net realized gains (losses) by major investment category for the three and six months ended June 30, 2019 and 2018.

 

 

2019

 

 

2018

 

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

Three Months Ended June 30,

 

(In thousands)

 

Fixed maturity securities

 

$

975

 

 

$

29,359

 

 

$

2

 

 

$

70,401

 

Equity securities

 

 

1,255

 

 

 

17,253

 

 

 

1

 

 

 

169

 

Total realized gains

 

 

2,230

 

 

 

46,612

 

 

 

3

 

 

 

70,570

 

Fixed maturity securities

 

 

(140

)

 

 

6,406

 

 

 

(39

)

 

 

7,487

 

Equity securities

 

 

(1,079

)

 

 

5,517

 

 

 

(49

)

 

 

1,517

 

Total realized losses

 

 

(1,219

)

 

 

11,923

 

 

 

(88

)

 

 

9,004

 

Net realized gains and (losses)

 

$

1,011

 

 

$

58,535

 

 

$

(85

)

 

$

79,574

 

 

 

 

2019

 

 

2018

 

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

 

Gains

(Losses)

 

 

Fair Value at Sale

 

Six Months Ended June 30,

 

(In thousands)

 

Fixed maturity securities

 

$

968

 

 

$

42,387

 

 

$

76

 

 

$

233,874

 

Equity securities

 

 

2,447

 

 

 

23,413

 

 

 

1

 

 

 

169

 

Total realized gains

 

 

3,415

 

 

 

65,800

 

 

 

77

 

 

 

234,043

 

Fixed maturity securities

 

 

(204

)

 

 

13,089

 

 

 

(242

)

 

 

61,325

 

Equity securities

 

 

(1,176

)

 

 

1,792

 

 

 

(147

)

 

 

3,758

 

Total realized losses

 

 

(1,380

)

 

 

14,881

 

 

 

(389

)

 

 

65,083

 

Net realized gains and (losses)

 

$

2,035

 

 

$

80,681

 

 

$

(312

)

 

$

299,126

 

 

Schedule of Unrealized Gains and Losses Recorded on Equity Securities and Other Investments

The following table provides the unrealized gains and losses recorded on equity securities and other investments from changes in fair value still held of the reporting period:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(In thousands)

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Unrealized gains (loss) recognized on equity securities still held at reporting date

 

$

292

 

 

$

(45

)

 

$

292

 

 

$

(405

)

 

Schedule of Amortized Cost and Fair Value of Investment Securities by Contractual Maturity

The table below summarizes the Company’s fixed maturity securities at June 30, 2019 by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.

 

 

At June 30, 2019

 

 

 

Cost or Amortized Cost

 

 

Percent of Total

 

 

Fair Value

 

 

Percent of Total

 

Maturity dates:

 

(In thousands)

 

 

 

 

 

 

(In thousands)

 

 

 

 

 

Due in one year or less

 

$

66,490

 

 

 

12

%

 

$

66,518

 

 

 

12

%

Due after one year through five years

 

 

173,670

 

 

 

32

%

 

 

175,086

 

 

 

32

%

Due after five years through ten years

 

 

135,901

 

 

 

25

%

 

 

139,352

 

 

 

25

%

Due after ten years

 

 

170,626

 

 

 

31

%

 

 

172,663

 

 

 

31

%

Total

 

$

546,687

 

 

 

100

%

 

$

553,619

 

 

 

100

%

 

Summary of Net Investment Income

The following table summarizes the Company’s net investment income by major investment category for the three and six months ended June 30, 2019 and 2018, respectively:

 

 

Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Fixed maturity securities

 

$

3,571

 

 

$

2,593

 

Equity securities

 

 

517

 

 

 

314

 

Cash and cash equivalents

 

 

197

 

 

 

204

 

Other investments

 

 

241

 

 

 

114

 

Net investment income

 

 

4,526

 

 

 

3,225

 

Less: Investment expenses

 

 

696

 

 

 

670

 

Net investment income, less investment expenses

 

$

3,830

 

 

$

2,555

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Fixed maturity securities

 

$

6,295

 

 

$

4,978

 

Equity securities

 

 

944

 

 

 

617

 

Cash and cash equivalents

 

 

938

 

 

 

1,243

 

Other investments

 

 

542

 

 

 

183

 

Net investment income

 

 

8,719

 

 

 

7,021

 

Less: Investment expenses

 

 

1,217

 

 

 

1,164

 

Net investment income, less investment expenses

 

$

7,502

 

 

$

5,857

 

Aging of Gross Unrealized Losses on Fixed Maturity Investments

The following tables present an aging of our unrealized losses on fixed maturity investments by investment class as of June 30, 2019 and December 31, 2018:

 

 

Less Than Twelve Months

 

 

Twelve Months or More

 

June 30, 2019

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities

 

 

2

 

 

$

 

 

$

646

 

 

 

39

 

 

$

68

 

 

$

8,367

 

States, municipalities and political subdivisions

 

 

1

 

 

 

 

 

 

531

 

 

 

13

 

 

 

29

 

 

 

8,898

 

Industrial and miscellaneous

 

 

10

 

 

 

1

 

 

 

2,561

 

 

 

97

 

 

 

150

 

 

 

27,032

 

Special revenue

 

 

15

 

 

 

6

 

 

 

1,913

 

 

 

220

 

 

 

434

 

 

 

52,484

 

Total fixed maturity securities

 

 

28

 

 

$

7

 

 

$

5,651

 

 

 

369

 

 

$

681

 

 

$

96,781

 

 

 

 

Less Than Twelve Months

 

 

Twelve Months or More

 

December 31, 2018

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

 

Number of Securities

 

 

Gross Unrealized Losses

 

 

Fair Value

 

Fixed maturity securities, available-for-sale

 

(In thousands)

 

U.S. government and agency securities

 

 

17

 

 

$

129

 

 

$

10,485

 

 

 

66

 

 

$

609

 

 

$

20,488

 

States, municipalities and political subdivisions

 

 

13

 

 

 

103

 

 

 

12,864

 

 

 

42

 

 

 

682

 

 

 

39,979

 

Industrial and miscellaneous

 

 

214

 

 

 

1,479

 

 

 

70,156

 

 

 

232

 

 

 

1,822

 

 

 

70,375

 

Special revenue

 

 

105

 

 

 

1,260

 

 

 

76,335

 

 

 

323

 

 

 

2,621

 

 

 

108,319

 

Redeemable preferred stocks

 

 

55

 

 

 

193

 

 

 

2,541

 

 

 

27

 

 

 

221

 

 

 

1,965

 

Total fixed maturity securities

 

 

404

 

 

$

3,164

 

 

$

172,381

 

 

 

690

 

 

$

5,955

 

 

$

241,126

 

 

v3.19.2
Fair Value of Financial Instruments (Tables)
6 Months Ended
Jun. 30, 2019
Fair Value Disclosures [Abstract]  
Schedule of Fair Value of Financial Instruments

The following table presents information about the Company’s assets measured at fair value on a recurring basis. The Company assesses the levels for the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognitions of transfers between levels of the fair value hierarchy. As of June 30, 2019 and December 31, 2018, there were no transfers in or out of Level 1, 2, and 3.

 

June 30, 2019

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Invested Assets:

 

(In thousands)

 

Fixed maturity securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

56,587

 

 

$

365

 

 

$

56,222

 

 

$

 

States, municipalities and political subdivisions

 

 

73,657

 

 

 

 

 

 

73,657

 

 

 

 

Special revenue

 

 

252,815

 

 

 

 

 

 

252,815

 

 

 

 

Industrial and miscellaneous

 

 

170,560

 

 

 

 

 

 

170,560

 

 

 

 

Total fixed maturity securities

 

 

553,619

 

 

 

365

 

 

 

553,254

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

1,618

 

 

 

1,618

 

 

 

 

 

 

 

Total investments

 

 

555,237

 

 

 

1,983

 

 

 

553,254

 

 

 

 

Investment reported at NAV

 

 

22,761

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

577,998

 

 

$

1,983

 

 

$

553,254

 

 

$

 

 

December 31, 2018

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Invested Assets:

 

(In thousands)

 

Fixed maturity securities, available-for-sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

48,041

 

 

$

354

 

 

$

47,687

 

 

$

 

States, municipalities and political subdivisions

 

 

59,289

 

 

 

 

 

 

59,289

 

 

 

 

Special revenue

 

 

245,355

 

 

 

 

 

 

245,355

 

 

 

 

Industrial and miscellaneous

 

 

152,457

 

 

 

 

 

 

152,457

 

 

 

 

Redeemable preferred stocks

 

 

4,507

 

 

 

4,507

 

 

 

 

 

 

 

Total fixed maturity securities

 

 

509,649

 

 

 

4,861

 

 

 

504,788

 

 

 

 

Equity securities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock

 

 

3,686

 

 

 

3,686

 

 

 

 

 

 

 

Non-redeemable preferred stock

 

 

12,770

 

 

 

12,770

 

 

 

 

 

 

 

Total equity securities

 

 

16,456

 

 

 

16,456

 

 

 

 

 

 

 

Investment reported at NAV

 

 

2,488

 

 

 

 

 

 

 

 

 

 

Total investments

 

$

528,593

 

 

$

21,317

 

 

$

504,788

 

 

$

 

v3.19.2
Other Comprehensive Income (Tables)
6 Months Ended
Jun. 30, 2019
Comprehensive Income Net Of Tax [Abstract]  
Effect on Other Comprehensive Income due to Changes in Unrealized Gains and Losses, Net of Tax on Available-for-sale Fixed Maturities Securities The difference between net income as reported and comprehensive income was due to the changes in unrealized gains and losses, net of taxes on fixed maturities securities.

 

 

 

For the Three Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

 

(in thousands)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized losses on investments, net

 

$

7,068

 

 

$

(1,293

)

 

$

5,775

 

 

$

(545

)

 

$

(257

)

 

$

(802

)

Reclassification adjustment of realized losses (gains) included in net income

 

 

59

 

 

 

(11

)

 

 

48

 

 

 

85

 

 

 

18

 

 

 

103

 

Effect on other comprehensive income

 

$

7,127

 

 

$

(1,304

)

 

$

5,823

 

 

$

(460

)

 

$

(239

)

 

$

(699

)

 

 

 

For the Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

Pre-tax

 

 

Tax

 

 

After-tax

 

 

 

(in thousands)

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in unrealized losses on investments, net

 

$

15,104

 

 

$

(3,617

)

 

$

11,487

 

 

$

(7,023

)

 

$

1,518

 

 

$

(5,505

)

Reclassification adjustment of realized losses (gains) included in net income

 

 

394

 

 

 

(95

)

 

 

299

 

 

 

312

 

 

 

66

 

 

 

378

 

Effect on other comprehensive income

 

$

15,498

 

 

$

(3,712

)

 

$

11,786

 

 

$

(6,711

)

 

$

1,584

 

 

$

(5,127

)

 

v3.19.2
Leases (Tables)
6 Months Ended
Jun. 30, 2019
Leases [Abstract]  
Components of Lease Costs

Components of our lease costs for the three and six months ended June 30, 2019 are as follows (in thousands):

 

 

 

Three Months Ended June 30, 2019

 

 

Six Months Ended June 30, 2019

 

Amortization of ROU assets - Finance leases

 

$

18

 

 

$

38

 

Interest on lease liabilities - Finance leases

 

 

7

 

 

 

14

 

Variable lease cost  (cost excluded from lease payments)

 

 

111

 

 

 

221

 

Operating lease cost (cost resulting from lease payments)

 

 

328

 

 

 

588

 

Total lease cost

 

$

464

 

 

$

861

 

Supplemental Cash Flow Information and Non-Cash Activity Related to Operating and Financing Leases

Supplemental cash flow information and non-cash activity related to our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

 

June 30, 2019

 

Finance lease - Operating cash flows

 

$

16

 

Finance lease - Financing cash flows

 

$

47

 

 

 

 

 

 

Operating lease - Operating cash flows (fixed payments)

 

$

341

 

Operating lease - Operating cash flows (liability reduction)

 

$

276

 

Supplemental Balance Sheet Information Related to Operating and Financing Leases

Supplemental balance sheet information related to our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

Balance Sheet Classification

 

June 30, 2019

 

Right-of-use assets

 

Other assets

 

$

7,042

 

Lease Liability (1)

 

Accounts payable and other liabilities

 

$

(8,718

)

 

 

 

 

 

 

 

(1) Includes $1.3 million in lease incentives received in the first quarter of 2019.

 

Weighted-Average Remaining Lease Term and Discount Rate for Operating and Financing Leases

Weighted-average remaining lease term and discount rate for our operating and financing leases as of June 30, 2019 are as follows:

 

 

June 30, 2019

 

Weighted average lease term - Finance leases

 

3.89 yrs.

 

Weighted average lease term - Operating leases

 

8.38 yrs.

 

Weighted average discount rate - Finance leases

 

 

9.24

%

Weighted average discount rate - Operating leases

 

 

5.32

%

Maturities of Lease Liabilities by Fiscal Year for Operating and Financing Leases

Maturities of lease liabilities by fiscal year for our operating and financing leases as of June 30, 2019 are as follows (in thousands):

 

 

June 30, 2019

 

2019 remaining

 

$

681

 

2020

 

 

1,408

 

2021

 

 

1,376

 

2022

 

 

1,410

 

2023

 

 

1,359

 

2024 and thereafter

 

 

4,676

 

Total lease payments

 

 

10,910

 

Less: imputed interest

 

 

(2,192

)

Present value of lease liabilities

 

$

8,718

 

v3.19.2
Property and Equipment, Net (Tables)
6 Months Ended
Jun. 30, 2019
Property Plant And Equipment [Abstract]  
Schedule of Property and Equipment, Net

Property and equipment, net consisted of the following at June 30, 2019 and December 31, 2018:

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Land

 

$

2,582

 

 

$

2,582

 

Building

 

 

11,390

 

 

 

11,390

 

Computer hardware and software

 

 

5,303

 

 

 

4,901

 

Office furniture and equipment

 

 

1,973

 

 

 

1,397

 

Tenant and leasehold improvements

 

 

7,919

 

 

 

4,477

 

Vehicle fleet

 

 

783

 

 

 

854

 

Total, at cost

 

 

29,950

 

 

 

25,601

 

Less: accumulated depreciation and amortization

 

 

(8,840

)

 

 

(7,603

)

Property and equipment, net

 

$

21,110

 

 

$

17,998

 

v3.19.2
Goodwill and Other Intangible Assets (Tables)
6 Months Ended
Jun. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]  
Schedule of Goodwill

 

 

 

Goodwill

 

 

 

(in thousands)

 

Balance as of December 31, 2018

 

$

152,459

 

Goodwill acquired

 

 

Impairment

 

 

Balance as of June 30, 2019

 

$

152,459

 

 

Schedule of Estimated Amortization of Intangible Assets

Estimated annual pretax amortization of intangible assets for each of the next five years and thereafter is as follows (in thousands):

Year

 

Amount(1)

 

2019 remaining

 

$

4,021

 

2020

 

$

6,365

 

2021

 

$

6,351

 

2022

 

$

6,351

 

2023

 

$

6,351

 

2024

 

$

6,351

 

Thereafter

 

$

35,558

 

Total

 

$

71,348

 

 

(1)

Excludes insurance licenses valued at $1.3 million and classified as an indefinite lived intangible which is subject to annual impairment testing and not amortized.

v3.19.2
Earnings Per Share (Tables)
6 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
Schedule of Computation of Basic and Diluted Earnings Per Share (EPS)

The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the periods indicated.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Basic earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders (000's)

 

$

721

 

 

$

2,408

 

 

$

7,685

 

 

$

17,238

 

Weighted average shares outstanding

 

 

29,346,234

 

 

 

25,631,871

 

 

 

29,442,363

 

 

 

25,679,448

 

Basic earnings per share:

 

$

0.02

 

 

$

0.09

 

 

$

0.26

 

 

$

0.67

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to common stockholders (000's)

 

$

721

 

 

$

2,408

 

 

$

7,685

 

 

$

17,238

 

Weighted average shares outstanding

 

 

29,346,234

 

 

 

25,631,871

 

 

 

29,442,363

 

 

 

25,679,448

 

Weighted average dilutive shares

 

 

6,562

 

 

 

684,726

 

 

 

5,305

 

 

 

801,259

 

Total weighted average dilutive shares

 

 

29,352,796

 

 

 

26,316,597

 

 

 

29,447,668

 

 

 

26,480,707

 

Diluted earnings per share:

 

$

0.02

 

 

$

0.09

 

 

$

0.26

 

 

$

0.65

 

v3.19.2
Deferred Reinsurance Ceding Commission (Tables)
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Schedule of Activity with Regard to Deferred Reinsurance Ceding Commission

The table below depicts the activity with regard to deferred reinsurance ceding commission during the three and six months ended June 30, 2019 and 2018.

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Beginning balance of deferred ceding commission income

 

$

40,474

 

 

$

47,841

 

 

$

44,996

 

 

$

51,277

 

Ceding commission deferred

 

 

10,389

 

 

 

12,986

 

 

 

23,036

 

 

 

28,542

 

Less: ceding commission earned

 

 

(16,158

)

 

 

(17,991

)

 

 

(33,327

)

 

 

(36,983

)

Ending balance of deferred ceding commission income

 

$

34,705

 

 

$

42,836

 

 

$

34,705

 

 

$

42,836

 

 

v3.19.2
Deferred Policy Acquisition Costs (Tables)
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Summary of Activity in Deferred Policy Acquisition Costs (DPAC) The table below depicts the activity with regard to DPAC during the three and six months ended June 30, 2019 and 2018.

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Beginning Balance

 

$

69,883

 

 

$

53,862

 

 

$

73,055

 

 

$

41,678

 

Policy acquisition costs deferred

 

 

35,271

 

 

 

31,572

 

 

 

73,901

 

 

 

55,940

 

Amortization

 

 

(31,090

)

 

 

(15,786

)

 

 

(72,892

)

 

 

(27,970

)

Ending Balance

 

$

74,064

 

 

$

69,648

 

 

$

74,064

 

 

$

69,648

 

 

v3.19.2
Income Taxes (Tables)
6 Months Ended
Jun. 30, 2019
Income Tax Disclosure [Abstract]  
Components of Deferred Tax Assets (Liabilities)

The table below summarizes the significant components of our net deferred tax assets (liabilities):

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

 

December 31, 2018

 

Deferred tax assets:

 

(In thousands)

 

Unearned premiums

 

$

7,569

 

 

$

12,090

 

Unearned commission

 

 

8,309

 

 

 

10,733

 

Net operating loss

 

 

109

 

 

 

109

 

Tax-related discount on loss reserve

 

 

2,631

 

 

 

2,329

 

Unrealized loss

 

 

 

 

 

2,631

 

Investments

 

 

 

 

 

 

Stock-based compensation

 

 

859

 

 

 

297

 

Accrued expenses

 

 

844

 

 

 

2,321

 

Other

 

 

2,514

 

 

 

1,443

 

Total deferred tax asset

 

 

22,835

 

 

 

31,953

 

Deferred tax liabilities:

 

 

 

 

 

 

 

 

Deferred acquisition costs

 

 

17,736

 

 

 

17,494

 

Prepaid expenses

 

 

173

 

 

 

112

 

Unrealized gains

 

 

1,734

 

 

 

 

Property and equipment

 

 

427

 

 

 

664

 

Note discount

 

 

502

 

 

 

710

 

Basis in purchased investments

 

 

129

 

 

 

163

 

Basis in purchased intangibles

 

 

18,037

 

 

 

18,982

 

Other

 

 

1,632

 

 

 

1,533

 

Total deferred tax liabilities

 

 

40,370

 

 

 

39,658

 

Net deferred tax liability

 

$

(17,535

)

 

$

(7,705

)

 

v3.19.2
Reinsurance (Tables)
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Schedule of Effect of Reinsurance Arrangements in Consolidated Statement of Income

 

The Company’s reinsurance arrangements had the following effect on certain items in the condensed consolidated statement of income for the three and six months ended June 30, 2019 and 2018:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

 

(In thousands)

 

Premium written:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

254,840

 

 

$

263,664

 

 

$

465,188

 

 

$

468,030

 

Ceded

 

 

(312,600

)

 

 

(251,632

)

 

 

(359,442

)

 

 

(308,982

)

Net

 

$

(57,760

)

 

$

12,032

 

 

$

105,746

 

 

$

159,048

 

Premiums earned:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

229,958

 

 

$

230,971

 

 

$

458,548

 

 

$

458,134

 

Ceded

 

 

(115,875

)

 

 

(119,767

)

 

 

(234,774

)

 

 

(240,822

)

Net

 

$

114,083

 

 

$

111,204

 

 

$

223,774

 

 

$

217,312

 

Loss and Loss Adjustment Expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Direct

 

$

162,390

 

 

$

216,261

 

 

$

274,566

 

 

$

551,990

 

Ceded

 

 

(88,091

)

 

 

(150,272

)

 

 

(138,128

)

 

 

(432,910

)

Net

 

$

74,299

 

 

$

65,989

 

 

$

136,438

 

 

$

119,080

 

v3.19.2
Reserve for Unpaid Losses (Tables)
6 Months Ended
Jun. 30, 2019
Insurance [Abstract]  
Summary of Reserve for Unpaid Losses

The table below summarizes the activity related to the Company’s reserve for unpaid losses:

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

 

 

(In thousands)

 

Balance, beginning of period

 

$

404,484

 

 

$

547,736

 

 

$

432,359

 

 

$

470,083

 

Less: reinsurance recoverable on unpaid losses

 

 

214,471

 

 

 

385,397

 

 

 

250,507

 

 

 

315,353

 

Net balance, beginning of period

 

 

190,013

 

 

 

162,339

 

 

 

181,852

 

 

 

154,730

 

Incurred related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current year

 

 

75,623

 

 

 

49,852

 

 

 

138,348

 

 

 

101,214

 

Prior years

 

 

(1,324

)

 

 

16,137

 

 

 

(1,910

)

 

 

17,866

 

Total incurred

 

 

74,299

 

 

 

65,989

 

 

 

136,438

 

 

 

119,080

 

Paid related to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current year

 

 

34,793

 

 

 

23,068

 

 

 

43,155

 

 

 

21,816

 

Prior years

 

 

22,130

 

 

 

31,958

 

 

 

67,746

 

 

 

78,692

 

Total paid

 

 

56,923

 

 

 

55,026

 

 

 

110,901

 

 

 

100,508

 

Net balance, end of period

 

 

207,389

 

 

 

173,302

 

 

 

207,389

 

 

 

173,302

 

Plus: reinsurance recoverable on unpaid losses

 

 

223,023

 

 

 

315,308

 

 

 

223,023

 

 

 

315,308

 

Balance, end of period

 

$

430,412

 

 

$

488,610

 

 

$

430,412

 

 

$

488,610

 

v3.19.2
Long-Term Debt (Tables)
6 Months Ended
Jun. 30, 2019
Debt Disclosure [Abstract]  
Schedule of Company's Debt and Credit Facilities

The following table summarizes the Company’s debt and credit facilities as of June 30, 2019 and December 31, 2018:

 

 

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(in thousands)

 

Convertible debt

 

$

23,413

 

 

$

29,163

 

Mortgage loan

 

 

12,256

 

 

 

12,394

 

Term loan facility

 

 

73,125

 

 

 

75,000

 

Revolving credit facility

 

 

10,000

 

 

 

20,000

 

FHLB loan agreement

 

 

19,200

 

 

 

19,200

 

Total principal amount

 

$

137,994

 

 

$

155,757

 

Less: unamortized discount and issuance costs

 

$

5,545

 

 

$

6,963

 

Total long-term debt

 

$

132,449

 

 

$

148,794

 

 

Schedule of Principal Payments on Long-Term Debt

The schedule of principal payments on long-term debt is as follows:

 

Year

 

Amount

 

 

 

(In thousands)

 

2019 remaining

 

$

5,764

 

2020

 

 

7,790

 

2021

 

 

7,806

 

2022

 

 

7,822

 

2023

 

 

74,589

 

Thereafter

 

 

34,223

 

Total

 

$

137,994

 

 

v3.19.2
Accounts Payable and Other Liabilities (Tables)
6 Months Ended
Jun. 30, 2019
Other Liabilities Disclosure [Abstract]  
Schedule of Accounts Payable and Other Liabilities

Accounts payable and other liabilities consist of the following as of June 30, 2019 and December 31, 2018:

 

Description

 

June 30, 2019

 

 

December 31, 2018

 

 

 

(In thousands)

 

Deferred ceding commission

 

$

34,705

 

 

$

44,996

 

Outstanding claim checks

 

 

13,612

 

 

 

15,360

 

Accounts payable and other payables

 

 

7,850

 

 

 

8,379

 

Lease obligations

 

 

8,718

 

 

 

 

Accrued interest and issuance costs

 

 

1,144

 

 

 

1,285

 

Accrued dividends

 

 

1,791

 

 

 

1,589

 

Premium tax

 

 

 

 

 

2,241

 

Other liabilities

 

 

 

 

 

460

 

Commission payables

 

 

13,702

 

 

 

11,654

 

Total other liabilities

 

$

81,522

 

 

$

85,964

 

v3.19.2
Stock-Based Compensation (Tables)
6 Months Ended
Jun. 30, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]  
Schedule of Restricted Stock Activity

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

Grant-Date Fair

 

 

 

Number of shares

 

 

Value per Share

 

Non-vested, at December 31, 2018

 

 

605,801

 

 

$

20.41

 

Granted

 

 

 

 

 

 

Vested

 

 

(17,000

)

 

 

14.72

 

Canceled and surrendered

 

 

(8,000

)

 

 

14.72

 

Non-vested, at June 30, 2019

 

 

580,801

 

 

$

20.65

 

 

v3.19.2
Basis of Presentation and Significant Accounting Policies - Additional Information (Detail)
$ in Millions
Mar. 31, 2019
USD ($)
Organization Consolidation And Presentation Of Financial Statements [Abstract]  
Right-of-use assets $ 2.8
Lease liabilities $ 2.8
v3.19.2
Investments - Schedule of Difference between Cost or Adjusted/Amortized Cost and Estimated Fair Value, by Major Investment Category (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Cost or Adjusted / Amortized Cost $ 546,687 $ 518,391
Available-for-sale, Fair Value 553,619 509,649
Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Cost or Adjusted / Amortized Cost 546,687 518,391
Available-for-sale, Gross Unrealized Gains 7,620 377
Available-for-sale, Gross Unrealized Losses 688 9,119
Available-for-sale, Fair Value 553,619 509,649
U.S. government and agency securities [Member] | Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Cost or Adjusted / Amortized Cost 56,395 48,739
Available-for-sale, Gross Unrealized Gains 260 40
Available-for-sale, Gross Unrealized Losses 68 738
Available-for-sale, Fair Value 56,587 48,041
States, Municipalities and Political Subdivisions [Member] | Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Cost or Adjusted / Amortized Cost 72,313 60,028
Available-for-sale, Gross Unrealized Gains 1,373 46
Available-for-sale, Gross Unrealized Losses 29 785
Available-for-sale, Fair Value 73,657 59,289
Special Revenue [Member] | Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Cost or Adjusted / Amortized Cost 250,062 249,026
Available-for-sale, Gross Unrealized Gains 3,193 210
Available-for-sale, Gross Unrealized Losses 440 3,881
Available-for-sale, Fair Value 252,815 245,355
Industrial and Miscellaneous [Member] | Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Cost or Adjusted / Amortized Cost 167,917 155,678
Available-for-sale, Gross Unrealized Gains 2,794 81
Available-for-sale, Gross Unrealized Losses 151 3,302
Available-for-sale, Fair Value $ 170,560 152,457
Redeemable Preferred Stocks [Member] | Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Cost or Adjusted / Amortized Cost   4,920
Available-for-sale, Gross Unrealized Losses   413
Available-for-sale, Fair Value   $ 4,507
v3.19.2
Investments - Schedule of Difference between Cost or Adjusted/Amortized Cost and Estimated Fair Value, by Major Investment Category (Parenthetical) (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Schedule of Available-for-sale Securities [Line Items]    
Fair Value $ 553,619 $ 509,649
Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Fair Value 553,619 509,649
U.S. government and agency securities [Member] | Fixed Maturity Securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Fair Value 56,587 48,041
U.S. government and agency securities [Member] | Fixed Maturity Securities [Member] | Pledged securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Fair Value $ 24,400 $ 31,000
v3.19.2
Investments - Schedule of Net Realized Gains (Losses) by Major Investment Category (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Schedule of Available-for-sale Securities [Line Items]        
Total realized gains $ 2,230 $ 3 $ 3,415 $ 77
Total realized losses (1,219) (88) (1,380) (389)
Net realized gains and (losses) 1,011 (85) 2,035 (312)
Total realized gains, Fair Value at Sale 46,612 70,570 65,800 234,043
Total realized losses, Fair Value at Sale 11,923 9,004 14,881 65,083
Net realized gain and (losses), Fair Value at Sale 58,535 79,574 80,681 299,126
Fixed Maturity Securities [Member]        
Schedule of Available-for-sale Securities [Line Items]        
Total realized gains 975 2 968 76
Total realized losses (140) (39) (204) (242)
Total realized gains, Fair Value at Sale 29,359 70,401 42,387 233,874
Total realized losses, Fair Value at Sale 6,406 7,487 13,089 61,325
Equity Securities [Member]        
Schedule of Available-for-sale Securities [Line Items]        
Total realized gains 1,255 1 2,447 1
Total realized losses (1,079) (49) (1,176) (147)
Total realized gains, Fair Value at Sale 17,253 169 23,413 169
Total realized losses, Fair Value at Sale $ 5,517 $ 1,517 $ 1,792 $ 3,758
v3.19.2
Investments - Additional Information (Detail) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Investments [Line Items]          
Proceeds from sale of marketable securities $ 2,300,000 $ 1,600,000 $ 26,529,000 $ 5,360,000  
Gross realized gains (losses) from sales of marketable securities 1,300,000 (1,100,000) 2,400,000 (1,200,000)  
Gross unrealized gains or (losses) from sales of marketable securities 1,000,000 (49,300,000) 1,000,000 (147,000,000)  
Unrealized gain on investment securities 292,000 (45,000) 292,000 (405,000)  
Other Investments, estimated fair value 22,761,000   22,761,000   $ 2,488,000
Investments 577,998,000   577,998,000   $ 528,593,000
Total cash distributions received 29,875 261,080      
Investment allocated cost 696,000 670,000 1,217,000 $ 1,164,000  
LLCs [Member]          
Investments [Line Items]          
Other Investments, estimated fair value 2,500,000   2,500,000    
LPs [Member]          
Investments [Line Items]          
Other Investments, estimated fair value 20,300,000   20,300,000    
LPs and LLCs [Member]          
Investments [Line Items]          
Investments 20,300,000   20,300,000    
Investment allocated cost $ 138,898 $ 1,329      
Net investment gains     $ 291,682    
v3.19.2
Investments - Schedule of Unrealized Gains and Losses Recorded on Equity Securities and Other Investments (Detail) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Investments Debt And Equity Securities [Abstract]        
Unrealized gains (loss) recognized on equity securities still held at reporting date $ 292,000 $ (45,000) $ 292,000 $ (405,000)
v3.19.2
Investments - Schedule of Amortized Cost and Fair Value of Investment Securities by Contractual Maturity (Detail) - USD ($)
$ in Thousands
6 Months Ended
Jun. 30, 2019
Dec. 31, 2018
Investments Debt And Equity Securities [Abstract]    
Maturity date Due in one year or less, Cost or Amortized Cost $ 66,490  
Maturity date Due after one year through five years, Cost or Amortized Cost 173,670  
Maturity date Due after five years through ten years, Cost or Amortized Cost 135,901  
Maturity date Due after ten years, Cost or Amortized Cost 170,626  
Available-for-sale, Cost or Adjusted / Amortized Cost $ 546,687 $ 518,391
Maturity date Due in one year or less, Percentage of Total 12.00%  
Maturity date Due after one year through five years, Percentage of Total 32.00%  
Maturity date Due after five years through ten years, Percentage of Total 25.00%  
Maturity date Due after ten years, Percentage of Total 31.00%  
Maturity date Total, Percentage 100.00%  
Maturity date Due in one year or less, Fair Value $ 66,518  
Maturity date Due after one year through five years, Fair Value 175,086  
Maturity date Due after five years through ten years, Fair Value 139,352  
Maturity date Due after ten years, Fair Value 172,663  
Maturity date Total, Fair Value $ 553,619 $ 509,649
Maturity date Due in one year or less, Percentage of Total 12.00%  
Maturity date Due after one year through five years, Percentage of Total 32.00%  
Maturity date Due after five years through ten years, Percentage of Total 25.00%  
Maturity date Due after ten years, Percentage of Total 31.00%  
Maturity date Total, Percentage 100.00%  
v3.19.2
Investments - Summary of Net Investment Income (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Schedule of Available-for-sale Securities [Line Items]        
Gross investment income (loss) $ 4,526 $ 3,225 $ 8,719 $ 7,021
Less: Investment expenses 696 670 1,217 1,164
Net investment income, less investment expenses 3,830 2,555 7,502 5,857
Fixed Maturity Securities [Member]        
Schedule of Available-for-sale Securities [Line Items]        
Gross investment income (loss) 3,571 2,593 6,295 4,978
Equity Securities [Member]        
Schedule of Available-for-sale Securities [Line Items]        
Gross investment income (loss) 517 314 944 617
Cash and Cash Equivalents [Member]        
Schedule of Available-for-sale Securities [Line Items]        
Gross investment income (loss) 197 204 938 1,243
Other Investments [Member]        
Schedule of Available-for-sale Securities [Line Items]        
Gross investment income (loss) $ 241 $ 114 $ 542 $ 183
v3.19.2
Investments - Aging of Gross Unrealized Losses on Fixed Maturity Investments (Detail) - Fixed Maturity Securities [Member]
$ in Thousands
Jun. 30, 2019
USD ($)
Security
Dec. 31, 2018
USD ($)
Security
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Less Than Twelve Months, Number of Securities | Security 28 404
Available-for-sale, Less Than Twelve Months, Gross Unrealized Losses $ 7 $ 3,164
Available-for-sale, Less Than Twelve Months, Fair Value $ 5,651 $ 172,381
Available-for-sale, Twelve Months or More, Number of Securities | Security 369 690
Available-for-sale, Twelve Months or More, Gross Unrealized Losses $ 681 $ 5,955
Available-for-sale, Twelve Months or More, Fair Value $ 96,781 $ 241,126
U.S. government and agency securities [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Less Than Twelve Months, Number of Securities | Security 2 17
Available-for-sale, Less Than Twelve Months, Gross Unrealized Losses   $ 129
Available-for-sale, Less Than Twelve Months, Fair Value $ 646 $ 10,485
Available-for-sale, Twelve Months or More, Number of Securities | Security 39 66
Available-for-sale, Twelve Months or More, Gross Unrealized Losses $ 68 $ 609
Available-for-sale, Twelve Months or More, Fair Value $ 8,367 $ 20,488
States, Municipalities and Political Subdivisions [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Less Than Twelve Months, Number of Securities | Security 1 13
Available-for-sale, Less Than Twelve Months, Gross Unrealized Losses   $ 103
Available-for-sale, Less Than Twelve Months, Fair Value $ 531 $ 12,864
Available-for-sale, Twelve Months or More, Number of Securities | Security 13 42
Available-for-sale, Twelve Months or More, Gross Unrealized Losses $ 29 $ 682
Available-for-sale, Twelve Months or More, Fair Value $ 8,898 $ 39,979
Special Revenue [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Less Than Twelve Months, Number of Securities | Security 15 105
Available-for-sale, Less Than Twelve Months, Gross Unrealized Losses $ 6 $ 1,260
Available-for-sale, Less Than Twelve Months, Fair Value $ 1,913 $ 76,335
Available-for-sale, Twelve Months or More, Number of Securities | Security 220 323
Available-for-sale, Twelve Months or More, Gross Unrealized Losses $ 434 $ 2,621
Available-for-sale, Twelve Months or More, Fair Value $ 52,484 $ 108,319
Industrial and Miscellaneous [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Less Than Twelve Months, Number of Securities | Security 10 214
Available-for-sale, Less Than Twelve Months, Gross Unrealized Losses $ 1 $ 1,479
Available-for-sale, Less Than Twelve Months, Fair Value $ 2,561 $ 70,156
Available-for-sale, Twelve Months or More, Number of Securities | Security 97 232
Available-for-sale, Twelve Months or More, Gross Unrealized Losses $ 150 $ 1,822
Available-for-sale, Twelve Months or More, Fair Value $ 27,032 $ 70,375
Redeemable Preferred Stocks [Member]    
Schedule of Available-for-sale Securities [Line Items]    
Available-for-sale, Less Than Twelve Months, Number of Securities | Security   55
Available-for-sale, Less Than Twelve Months, Gross Unrealized Losses   $ 193
Available-for-sale, Less Than Twelve Months, Fair Value   $ 2,541
Available-for-sale, Twelve Months or More, Number of Securities | Security   27
Available-for-sale, Twelve Months or More, Gross Unrealized Losses   $ 221
Available-for-sale, Twelve Months or More, Fair Value   $ 1,965
v3.19.2
Fair Value of Financial Instruments - Additional Information (Detail) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]      
Investment exit load percentage within one year     3.00%
Nonrecurring [Member]      
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]      
Non-recurring fair value adjustments $ 0 $ 0  
v3.19.2
Fair Value of Financial Instruments - Schedule of Fair Value of Financial Instruments (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value $ 553,619 $ 509,649
Available for sale equity securities 1,618 16,456
Total investments 555,237  
Investment reported at NAV 22,761 2,488
Total investments 577,998 528,593
Level 1 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total investments 1,983  
Total investments 1,983 21,317
Level 2 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Total investments 553,254  
Total investments 553,254 504,788
Fixed Maturity Securities [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 553,619 509,649
Fixed Maturity Securities [Member] | U.S. government and agency securities [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 56,587 48,041
Fixed Maturity Securities [Member] | States, Municipalities and Political Subdivisions [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 73,657 59,289
Fixed Maturity Securities [Member] | Special Revenue [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 252,815 245,355
Fixed Maturity Securities [Member] | Industrial and Miscellaneous [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 170,560 152,457
Fixed Maturity Securities [Member] | Redeemable Preferred Stocks [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value   4,507
Fixed Maturity Securities [Member] | Level 1 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 365 4,861
Fixed Maturity Securities [Member] | Level 1 [Member] | U.S. government and agency securities [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 365 354
Fixed Maturity Securities [Member] | Level 1 [Member] | Redeemable Preferred Stocks [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value   4,507
Fixed Maturity Securities [Member] | Level 2 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 553,254 504,788
Fixed Maturity Securities [Member] | Level 2 [Member] | U.S. government and agency securities [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 56,222 47,687
Fixed Maturity Securities [Member] | Level 2 [Member] | States, Municipalities and Political Subdivisions [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 73,657 59,289
Fixed Maturity Securities [Member] | Level 2 [Member] | Special Revenue [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 252,815 245,355
Fixed Maturity Securities [Member] | Level 2 [Member] | Industrial and Miscellaneous [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available-for-sale, Fair Value 170,560 152,457
Equity Securities [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available for sale equity securities   16,456
Equity Securities [Member] | Common Stock [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available for sale equity securities 1,618 3,686
Equity Securities [Member] | Nonredeemable Preferred Stocks [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available for sale equity securities   12,770
Equity Securities [Member] | Level 1 [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available for sale equity securities   16,456
Equity Securities [Member] | Level 1 [Member] | Common Stock [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available for sale equity securities $ 1,618 3,686
Equity Securities [Member] | Level 1 [Member] | Nonredeemable Preferred Stocks [Member]    
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]    
Available for sale equity securities   $ 12,770
v3.19.2
Other Comprehensive Income - Additional Information (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Comprehensive Income Net Of Tax [Abstract]        
Other comprehensive income $ 5,823 $ (699) $ 11,786 $ (5,127)
v3.19.2
Other Comprehensive Income - Effect on Other Comprehensive Income due to Changes in Unrealized Gains and Losses, Net of Taxes on Fixed Maturities Securities (Details) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Other comprehensive income        
Change in unrealized losses on investments, net, Pre-tax $ 7,068 $ (545) $ 15,104 $ (7,023)
Reclassification adjustment of realized losses (gains) included in net income, Pre-tax 59 85 394 312
Effect on other comprehensive income, Pre-tax 7,127 (460) 15,498 (6,711)
Change in unrealized losses on investments, net, Tax (1,293) (257) (3,617) 1,518
Reclassification adjustment of realized losses (gains) included in net income, Tax (11) 18 (95) 66
Effect on other comprehensive income, Tax (1,304) (239) (3,712) 1,584
Change in unrealized losses on investments, net, After-tax 5,775 (802) 11,487 (5,505)
Reclassification adjustment of realized losses (gains) included in net income, After-tax 48 103 299 378
Effect on other comprehensive income, After-tax $ 5,823 $ (699) $ 11,786 $ (5,127)
v3.19.2
Leases - Additional Information (Detail)
6 Months Ended
Jun. 30, 2019
Lessee Lease Description [Line Items]  
Lease renewal, Description one or more options to renew.
Minimum [Member]  
Lessee Lease Description [Line Items]  
Lease terms 1 year
Renewal terms of lease 3 years
Maximum [Member]  
Lessee Lease Description [Line Items]  
Lease terms 10 years
Renewal terms of lease 10 years
v3.19.2
Leases - Components of Lease Costs (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2019
Leases [Abstract]    
Amortization of ROU assets - Finance leases $ 18 $ 38
Interest on lease liabilities - Finance leases 7 14
Variable lease cost (cost excluded from lease payments) 111 221
Operating lease cost (cost resulting from lease payments) 328 588
Total lease cost $ 464 $ 861
v3.19.2
Leases - Supplemental Cash Flow Information and Non-Cash Activity Related to Operating and Financing Leases (Detail)
$ in Thousands
6 Months Ended
Jun. 30, 2019
USD ($)
Leases [Abstract]  
Finance lease - Operating cash flows $ 16
Finance lease - Financing cash flows 47
Operating lease - Operating cash flows (fixed payments) 341
Operating lease - Operating cash flows (liability reduction) $ 276
v3.19.2
Leases - Supplemental Balance Sheet Information Related to Operating and Financing Leases (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Mar. 31, 2019
Lessee Lease Description [Line Items]    
Right-of-use assets   $ 2,800
Lease Liability   $ (2,800)
Other Assets [Member]    
Lessee Lease Description [Line Items]    
Right-of-use assets $ 7,042  
Accounts Payable and Other Liabilities [Member]    
Lessee Lease Description [Line Items]    
Lease Liability $ (8,718)  
v3.19.2
Leases - Supplemental Balance Sheet Information Related to Operating and Financing Leases (Parenthetical) (Detail)
$ in Millions
3 Months Ended
Mar. 31, 2019
USD ($)
Leases [Abstract]  
Lease incentives received $ 1.3
v3.19.2
Leases - Weighted-Average Remaining Lease Term and Discount Rate for Operating and Financing Leases (Detail)
Jun. 30, 2019
Leases [Abstract]  
Weighted average lease term - Finance leases 3 years 10 months 20 days
Weighted average lease term - Operating leases 8 years 4 months 17 days
Weighted average discount rate - Finance leases 9.24%
Weighted average discount rate - Operating leases 5.32%
v3.19.2
Leases - Maturities of Lease Liabilities by Fiscal Year for Operating and Financing Leases (Detail)
$ in Thousands
Jun. 30, 2019
USD ($)
Leases [Abstract]  
2019 remaining $ 681
2020 1,408
2021 1,376
2022 1,410
2023 1,359
2024 and thereafter 4,676
Total lease payments 10,910
Less: imputed interest (2,192)
Present value of lease liabilities $ 8,718
v3.19.2
Property and Equipment, Net - Schedule of Property and Equipment, Net (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Property, Plant and Equipment [Line Items]    
Total, at cost $ 29,950 $ 25,601
Less: accumulated depreciation and amortization (8,840) (7,603)
Property and equipment, net 21,110 17,998
Land [Member]    
Property, Plant and Equipment [Line Items]    
Total, at cost 2,582 2,582
Building [Member]    
Property, Plant and Equipment [Line Items]    
Total, at cost 11,390 11,390
Computer Hardware and Software [Member]    
Property, Plant and Equipment [Line Items]    
Total, at cost 5,303 4,901
Office Furniture and Equipment [Member]    
Property, Plant and Equipment [Line Items]    
Total, at cost 1,973 1,397
Tenant and Leasehold Improvements [Member]    
Property, Plant and Equipment [Line Items]    
Total, at cost 7,919 4,477
Vehicle Fleet [Member]    
Property, Plant and Equipment [Line Items]    
Total, at cost $ 783 $ 854
v3.19.2
Property and Equipment, Net - Additional Information (Detail)
3 Months Ended 6 Months Ended
Jun. 30, 2019
USD ($)
Building
Jun. 30, 2018
USD ($)
Jun. 30, 2019
USD ($)
a
ft²
Building
Jun. 30, 2018
USD ($)
Property Plant And Equipment Useful Life And Values [Abstract]        
Depreciation and amortization expense | $ $ 1,000,000 $ 372,000 $ 1,600,000 $ 786,000
Number of acres of land purchased | a     15  
Number of buildings | Building 5   5  
Gross area of acquired property | ft²     229,000  
v3.19.2
Goodwill and Other Intangible Assets - Additional Information (Details) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Finite Lived Intangible Assets [Line Items]          
Goodwill $ 152,459,000   $ 152,459,000   $ 152,459,000
Intangibles, net 72,663,000   72,663,000   $ 76,850,000
Indefinite lived intangible, insurance licenses 1,300,000   1,300,000    
Amortization of intangible assets 2,100,000 $ 6,600,000 $ 4,200,000 $ 13,300,000  
Impairment of amortizing intangible assets 0 0      
Impairment of non-amortizing intangible assets $ 0 $ 0      
Minimum [Member]          
Finite Lived Intangible Assets [Line Items]          
Useful life of intangible asset     2 years 6 months    
Finite-lived intangible assets useful lives     1 year    
Maximum [Member]          
Finite Lived Intangible Assets [Line Items]          
Useful life of intangible asset     15 years    
Finite-lived intangible assets useful lives     15 years    
v3.19.2
Goodwill and Other Intangible Assets - Schedule of Goodwill (Details)
$ in Thousands
Jun. 30, 2019
USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]  
Beginning balance $ 152,459
Ending balance $ 152,459
v3.19.2
Goodwill and Other Intangible Assets - Schedule of Estimated Amortization of Intangible Assets (Details)
$ in Thousands
Jun. 30, 2019
USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]  
2019 remaining $ 4,021
2020 6,365
2021 6,351
2022 6,351
2023 6,351
2024 6,351
Thereafter 35,558
Total $ 71,348
v3.19.2
Goodwill and Other Intangible Assets - Schedule of Estimated Amortization of Intangible Assets (Parenthetical) (Details)
$ in Millions
Jun. 30, 2019
USD ($)
Goodwill And Intangible Assets Disclosure [Abstract]  
Indefinite lived intangible, insurance licenses $ 1.3
v3.19.2
Earnings Per Share - Schedule of Computation of Basic and Diluted Earnings Per Share (EPS) (Detail) - USD ($)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Basic earnings per share:        
Net income attributable to common stockholders (000's) $ 721 $ 2,408 $ 7,685 $ 17,238
Weighted average shares outstanding 29,346,234 25,631,871 29,442,363 25,679,448
Basic earnings per share: $ 0.02 $ 0.09 $ 0.26 $ 0.67
Diluted earnings per share:        
Net income attributable to common stockholders (000's) $ 721 $ 2,408 $ 7,685 $ 17,238
Weighted average shares outstanding 29,346,234 25,631,871 29,442,363 25,679,448
Weighted average dilutive shares 6,562 684,726 5,305 801,259
Total weighted average dilutive shares 29,352,796 26,316,597 29,447,668 26,480,707
Diluted earnings per share: $ 0.02 $ 0.09 $ 0.26 $ 0.65
v3.19.2
Deferred Reinsurance Ceding Commission - Additional Information (Details) - USD ($)
$ in Millions
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Policy Acquisition Costs [Member]        
Deferred Reinsurance Ceding Commission [Line Items]        
Ceding commission income $ 12.1 $ 13.5 $ 25.0 $ 27.7
General and Administrative Expenses [Member]        
Deferred Reinsurance Ceding Commission [Line Items]        
Ceding commission income $ 4.0 $ 4.5 $ 8.3 $ 9.2
v3.19.2
Deferred Reinsurance Ceding Commission - Schedule of Activity with Regard to Deferred Reinsurance Ceding Commission (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Insurance [Abstract]        
Beginning balance of deferred ceding commission income $ 40,474 $ 47,841 $ 44,996 $ 51,277
Ceding commission deferred 10,389 12,986 23,036 28,542
Less: ceding commission earned (16,158) (17,991) (33,327) (36,983)
Ending balance of deferred ceding commission income $ 34,705 $ 42,836 $ 34,705 $ 42,836
v3.19.2
Deferred Policy Acquisition Costs - Summary of Activity in Deferred Policy Acquisition Costs (DPAC) (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Insurance [Abstract]        
Beginning Balance $ 69,883 $ 53,862 $ 73,055 $ 41,678
Policy acquisition costs deferred 35,271 31,572 73,901 55,940
Amortization (31,090) (15,786) (72,892) (27,970)
Ending Balance $ 74,064 $ 69,648 $ 74,064 $ 69,648
v3.19.2
Income Taxes - Additional Information (Detail) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Income Tax Disclosure [Abstract]          
Provision for income taxes $ 368,000 $ 898,000 $ 2,737,000 $ 6,066,000  
Annual effective tax rate 33.80% 27.20% 26.30% 26.00%  
Uncertain tax positions $ 0   $ 0   $ 0
v3.19.2
Income Taxes - Components of Deferred Tax Assets (Liabilities) (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Deferred tax assets:    
Unearned premiums $ 7,569 $ 12,090
Unearned commission 8,309 10,733
Net operating loss 109 109
Tax-related discount on loss reserve 2,631 2,329
Unrealized loss   2,631
Stock-based compensation 859 297
Accrued expenses 844 2,321
Other 2,514 1,443
Total deferred tax asset 22,835 31,953
Deferred tax liabilities:    
Deferred acquisition costs 17,736 17,494
Prepaid expenses 173 112
Unrealized gains 1,734  
Property and equipment 427 664
Note discount 502 710
Basis in purchased investments 129 163
Basis in purchased intangibles 18,037 18,982
Other 1,632 1,533
Total deferred tax liabilities 40,370 39,658
Net deferred tax liability $ (17,535) $ (7,705)
v3.19.2
Reinsurance - 2019-2020 Excess of Loss Reinsurance Programs - Catastrophe Excess of Loss Reinsurance - Additional information - (Detail) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Purchase of reinsurance from third party $ 115,875,000 $ 119,767,000 $ 234,774,000 $ 240,822,000  
Reinsurance payable 324,834,000   324,834,000   $ 166,975,000
2019-2020 Excess of Loss Reinsurance Programs [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Reinsurance purchase limit 2,600,000,000   2,600,000,000    
Purchase of reinsurance from third party     2,600,000,000    
Reinsurance payable 249,200,000   249,200,000    
2019-2020 Excess of Loss Reinsurance Programs [Member] | NBIC [Member] | First Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
First event retention for insurance company subsidiary 13,800,000   13,800,000    
2019-2020 Excess of Loss Reinsurance Programs [Member] | NBIC [Member] | First Catastrophic Event [Member] | Maximum [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage     936,000,000    
2019-2020 Excess of Loss Reinsurance Programs [Member] | Heritage P&C [Member] | First Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
First event retention for insurance company subsidiary 20,000,000   20,000,000    
2019-2020 Excess of Loss Reinsurance Programs [Member] | Heritage P&C [Member] | First Catastrophic Event [Member] | Maximum [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage     1,500,000,000    
2019-2020 Excess of Loss Reinsurance Programs [Member] | Zephyr [Member] | First Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
First event retention for insurance company subsidiary $ 20,000,000   20,000,000    
2019-2020 Excess of Loss Reinsurance Programs [Member] | Zephyr [Member] | First Catastrophic Event [Member] | Maximum [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage     $ 708,000,000    
FHCF [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Percentage comprising aggregate participation     90.00%   45.00%
v3.19.2
Reinsurance - Additional information (Detail)
6 Months Ended
Jun. 30, 2019
Catastrophe [Member]  
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]  
Reinsurance premium, amortization period 12 months
Quota Share [Member]  
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]  
Reinsurance premium, amortization period 12 months
v3.19.2
Reinsurance - 2019-2020 Excess of Loss Reinsurance Programs - Gross Quota and Net Quota Share Reinsurance - Additional information - (Detail) - NBIC [Member] - USD ($)
$ in Millions
5 Months Ended 6 Months Ended 7 Months Ended 12 Months Ended
May 31, 2018
Jun. 30, 2019
Dec. 31, 2018
Dec. 31, 2018
Dec. 31, 2017
Gross Quota Share [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Percentage of gross quota share 18.75%   8.00%    
Reinsurance recoveries on paid losses     $ 1,000.0 $ 1,000.0  
Net Quota Share Reinsurance [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Net lines quota share occurrence limit   $ 20.0   $ 20.0  
Percentage of renewed ceded net premium and losses     52.00% 52.00% 10.00%
v3.19.2
Reinsurance - 2019-2020 Excess of Loss Reinsurance Programs - Aggregate Coverage - Additional information - (Detail)
$ in Thousands
6 Months Ended 12 Months Ended
Dec. 31, 2018
USD ($)
Reinsurer
Jun. 30, 2019
USD ($)
Reinsurer
Dec. 31, 2018
USD ($)
Reinsurer
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]      
Prepaid reinsurance premiums $ 233,071 $ 331,543 $ 233,071
Net of prepaid reinsurance premium as attachment point 317,930 $ 330,406 $ 317,930
Number of reinstatements available | Reinsurer   2 2
Aggregate Coverage [Member] | Catastrophe [Member]      
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]      
Purchased aggregate reinstatement premium   $ 931,000 $ 1,100,000
Prepaid reinsurance premiums 669,000 627,000 669,000
Net of prepaid reinsurance premium as attachment point 40,000 $ 40,000 $ 40,000
40.00% Aggregate Coverage [Member] | NBIC [Member]      
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]      
Aggregate contract coverage limit 20,000    
Primary retention 20,000    
Franchise deductible amount $ 1,000    
Aggregate contract expiration date May 31, 2019    
Percentage of aggregate contract 40.00%   40.00%
100.00% Aggregate Coverage [Member] | NBIC [Member]      
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]      
Aggregate contract coverage limit $ 20,000    
Primary retention $ 20,000    
Aggregate contract expiration date Dec. 31, 2019    
Percentage of aggregate contract 100.00%   100.00%
Number of reinstatements available | Reinsurer 1    
v3.19.2
Reinsurance - 2019-2020 Excess of Loss Reinsurance Programs - Additional information - (Detail)
6 Months Ended 12 Months Ended
Jun. 30, 2019
USD ($)
Reinsurer
Layer
Dec. 31, 2018
USD ($)
Reinsurer
Mar. 31, 2019
USD ($)
Jun. 30, 2018
USD ($)
Mar. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Unpaid losses and loss adjustment expenses $ 430,412,000 $ 432,359,000 $ 404,484,000 $ 488,610,000 $ 547,736,000 $ 470,083,000
Reinsurance payable $ 324,834,000 $ 166,975,000        
Number of reinstatements available | Reinsurer 2 2        
Facultative Reinsurance [Member] | Maximum [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Reinsurance payable $ 10,000,000 $ 10,000,000        
Facultative Reinsurance [Member] | Minimum [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Facultative reinsurance purchase amount $ 10,000,000 10,000,000        
General Excess of Loss 2019-2020 Reinsurance Program [Member] | NBIC [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Number of loss applied to reinsurance contract | Reinsurer 1          
Number of layers in excess of rentention loss | Layer 2          
Retention under program to provide reinsurance coverage $ 400,000          
General Excess of Loss 2019-2020 Reinsurance Program [Member] | NBIC [Member] | First Layer Coverage [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Retention under program to provide reinsurance coverage 350,000          
Primary retention 400,000          
General Excess of Loss 2019-2020 Reinsurance Program [Member] | NBIC [Member] | Second Layer Coverage            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Retention under program to provide reinsurance coverage 2,750,000          
Primary retention 750,000          
General Excess of Loss 2019-2020 Reinsurance Program [Member] | NBIC [Member] | Casualty Second Layer [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Retention under program to provide reinsurance coverage 1,250,000          
Primary retention $ 750,000          
General Excess of Loss 2019-2020 Reinsurance Program [Member] | NBIC [Member] | First and Second Layer Coverage [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Percentage of gross quota share 100.00%          
Facultative 2019 - 2020 Excess of Loss Reinsurance Program [Member] | Minimum [Member] | NBIC [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Reinsurance payable $ 3,500,000          
Northeast Commercial Residential Losses [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Number of reinstatements available | Reinsurer 2          
Insurance Claims [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Unpaid losses and loss adjustment expenses $ 1,000,000 1,000,000        
Insurance Claims [Member] | Northeast Commercial Residential Losses [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Unpaid losses and loss adjustment expenses 750,000          
Property Per Risk Coverage [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Coverage limit 9,000,000 9,000,000        
Reinsurance payable 27,000,000 $ 27,000,000        
Property Per Risk Coverage [Member] | Northeast Commercial Residential Losses [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Coverage limit 250,000          
Reinsurance payable $ 750,000          
v3.19.2
Reinsurance - 2018-2019 Reinsurance Programs - Catastrophe Excess of Loss Reinsurance - Additional information - (Detail) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Purchase of reinsurance from third party $ 115,875,000 $ 119,767,000 $ 234,774,000 $ 240,822,000  
Reinsurance payable $ 324,834,000   $ 324,834,000   $ 166,975,000
FHCF [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Percentage comprising aggregate participation     90.00%   45.00%
2018 - 2019 Reinsurance Program [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Reinsurance purchase limit         $ 3,400,000,000
Purchase of reinsurance from third party         3,500,000,000
Reinsurance payable         252,000,000
2018 - 2019 Reinsurance Program [Member] | NBIC [Member] | First Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
First event retention for insurance company subsidiary         12,800,000
2018 - 2019 Reinsurance Program [Member] | NBIC [Member] | First Catastrophic Event [Member] | Maximum [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage         1,000,000,000
2018 - 2019 Reinsurance Program [Member] | NBIC [Member] | Second Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage         8,800,000
2018 - 2019 Reinsurance Program [Member] | Heritage P&C [Member] | First Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
First event retention for insurance company subsidiary         20,000,000
2018 - 2019 Reinsurance Program [Member] | Heritage P&C [Member] | First Catastrophic Event [Member] | Maximum [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage         1,600,000,000
2018 - 2019 Reinsurance Program [Member] | Heritage P&C [Member] | Second Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage         16,000,000
2018 - 2019 Reinsurance Program [Member] | Zephyr [Member] | First Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
First event retention for insurance company subsidiary         20,000,000
2018 - 2019 Reinsurance Program [Member] | Zephyr [Member] | First Catastrophic Event [Member] | Maximum [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage         801,000,000
2018 - 2019 Reinsurance Program [Member] | Zephyr [Member] | Second Catastrophic Event [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Retention under program to provide reinsurance coverage         $ 16,000,000
v3.19.2
Reinsurance - 2018-2019 Reinsurance Programs - Gross Quota and Net Quota Share Reinsurance - Additional information - (Detail) - NBIC [Member] - USD ($)
$ in Millions
5 Months Ended 6 Months Ended 7 Months Ended 12 Months Ended
May 31, 2018
Jun. 30, 2019
Dec. 31, 2018
Dec. 31, 2018
Dec. 31, 2017
Gross Quota Share [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Percentage of gross quota share 18.75%   8.00%    
Reinsurance recoveries on paid losses     $ 1,000.0 $ 1,000.0  
Net Quota Share Reinsurance [Member]          
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]          
Net lines quota share occurrence limit   $ 20.0   $ 20.0  
Percentage of ceded net premium and losses     49.50% 49.50% 8.00%
Percentage of renewed ceded net premium and losses     52.00% 52.00% 10.00%
v3.19.2
Reinsurance - 2018-2019 Reinsurance Programs - Aggregate Coverage - Additional information - (Detail)
$ in Thousands
6 Months Ended 12 Months Ended
Dec. 31, 2018
USD ($)
Reinsurer
May 31, 2018
USD ($)
Jun. 30, 2019
USD ($)
Reinsurer
Dec. 31, 2018
USD ($)
Reinsurer
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]        
Prepaid reinsurance premiums $ 233,071   $ 331,543 $ 233,071
Net of prepaid reinsurance premium as attachment point 317,930   $ 330,406 $ 317,930
Number of reinstatements available | Reinsurer     2 2
Aggregate Coverage [Member] | Catastrophe [Member]        
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]        
Purchased aggregate reinstatement premium     $ 931,000 $ 1,100,000
Prepaid reinsurance premiums 669,000   627,000 669,000
Net of prepaid reinsurance premium as attachment point 40,000   $ 40,000 $ 40,000
42.50% Aggregate Coverage [Member] | NBIC [Member]        
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]        
Aggregate contract coverage limit   $ 20,000    
Primary retention   3,000    
Franchise deductible amount   $ 1,500    
Aggregate contract expiration date   Dec. 31, 2018    
Percentage of aggregate contract   42.50%    
92.00% Aggregate Coverage [Member] | NBIC [Member]        
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]        
Aggregate contract coverage limit   $ 20,000    
Primary retention   $ 20,000    
Aggregate contract expiration date   Dec. 31, 2018    
Percentage of aggregate contract   92.00%    
40.00% Aggregate Coverage [Member] | NBIC [Member]        
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]        
Aggregate contract coverage limit 20,000      
Primary retention 20,000      
Franchise deductible amount $ 1,000      
Aggregate contract expiration date May 31, 2019      
Percentage of aggregate contract 40.00%     40.00%
100.00% Aggregate Coverage [Member] | NBIC [Member]        
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]        
Aggregate contract coverage limit $ 20,000      
Primary retention $ 20,000      
Number of reinstatements available | Reinsurer 1      
Aggregate contract expiration date Dec. 31, 2019      
Percentage of aggregate contract 100.00%     100.00%
v3.19.2
Reinsurance - 2018-2019 Reinsurance Programs - Additional information - (Detail)
6 Months Ended 12 Months Ended
Jun. 30, 2019
USD ($)
Reinsurer
Dec. 31, 2018
USD ($)
Reinsurer
Layer
Mar. 31, 2019
USD ($)
Jun. 30, 2018
USD ($)
Mar. 31, 2018
USD ($)
Dec. 31, 2017
USD ($)
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Unpaid losses and loss adjustment expenses $ 430,412,000 $ 432,359,000 $ 404,484,000 $ 488,610,000 $ 547,736,000 $ 470,083,000
Reinsurance payable $ 324,834,000 $ 166,975,000        
Number of reinstatements available | Reinsurer 2 2        
Facultative Reinsurance [Member] | Maximum [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Reinsurance payable $ 10,000,000 $ 10,000,000        
Facultative Reinsurance [Member] | Minimum [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Facultative reinsurance purchase amount 10,000,000 $ 10,000,000        
General Excess of Loss 2018-2019 Reinsurance Program [Member] | NBIC [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Number of loss applied to reinsurance contract | Reinsurer   1        
Number of layers in excess of rentention loss | Layer   2        
Retention under program to provide reinsurance coverage   $ 300,000        
General Excess of Loss 2018-2019 Reinsurance Program [Member] | NBIC [Member] | First Layer Coverage [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Retention under program to provide reinsurance coverage   450,000        
Primary retention   300,000        
General Excess of Loss 2018-2019 Reinsurance Program [Member] | NBIC [Member] | Second Layer Coverage            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Retention under program to provide reinsurance coverage   2,750,000        
Primary retention   750,000        
General Excess of Loss 2018-2019 Reinsurance Program [Member] | NBIC [Member] | Casualty Second Layer [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Retention under program to provide reinsurance coverage   1,250,000        
Primary retention   $ 750,000        
General Excess of Loss 2018-2019 Reinsurance Program [Member] | NBIC [Member] | First and Second Layer Coverage [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Percentage of gross quota share   92.00%        
Additional coverage percentage of gross quota share   8.00%        
Facultative 2018 - 2019 Reinsurance Program [Member] | Minimum [Member] | NBIC [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Reinsurance payable   $ 3,500,000        
Insurance Claims [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Unpaid losses and loss adjustment expenses 1,000,000 1,000,000        
Property Per Risk Coverage [Member]            
Reinsurance Premiums For Insurance Companies By Product Segment [Line Items]            
Coverage limit 9,000,000 9,000,000        
Reinsurance payable $ 27,000,000 $ 27,000,000        
v3.19.2
Reinsurance - Schedule of Effect of Reinsurance Arrangements in Consolidated Statement of Income (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Premiums Written        
Premiums Written, Direct $ 254,840 $ 263,664 $ 465,188 $ 468,030
Premiums Written, Ceded (312,600) (251,632) (359,442) (308,982)
Premiums Written, Net (57,760) 12,032 105,746 159,048
Premiums Earned        
Premiums Earned, Direct 229,958 230,971 458,548 458,134
Premiums Earned, Ceded (115,875) (119,767) (234,774) (240,822)
Net premiums earned 114,083 111,204 223,774 217,312
Losses and Loss Adjustment Expenses        
Losses and Loss Adjustment Expenses, Direct 162,390 216,261 274,566 551,990
Losses and Loss Adjustment Expenses, Ceded (88,091) (150,272) (138,128) (432,910)
Losses and Loss Adjustment Expenses, Net $ 74,299 $ 65,989 $ 136,438 $ 119,080
v3.19.2
Reserve for Unpaid Losses - Summary of Reserve for Unpaid Losses (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Insurance [Abstract]        
Balance, beginning of period $ 404,484 $ 547,736 $ 432,359 $ 470,083
Less: reinsurance recoverable on unpaid losses 214,471 385,397 250,507 315,353
Net balance, beginning of period 190,013 162,339 181,852 154,730
Incurred related to:        
Current year 75,623 49,852 138,348 101,214
Prior years (1,324) 16,137 (1,910) 17,866
Total incurred 74,299 65,989 136,438 119,080
Paid related to:        
Current year 34,793 23,068 43,155 21,816
Prior years 22,130 31,958 67,746 78,692
Total paid 56,923 55,026 110,901 100,508
Net balance, end of period 207,389 173,302 207,389 173,302
Plus: reinsurance recoverable on unpaid losses 223,023 315,308 223,023 315,308
Balance, end of period $ 430,412 $ 488,610 $ 430,412 $ 488,610
v3.19.2
Reserve for Unpaid Losses - Additional Information (Detail) - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Mar. 31, 2019
Dec. 31, 2018
Mar. 31, 2018
Dec. 31, 2017
Liability For Claims And Claims Adjustment Expense [Line Items]                
Unpaid losses and loss adjustment expenses $ 207,389 $ 173,302 $ 207,389 $ 173,302 $ 190,013 $ 181,852 $ 162,339 $ 154,730
Unpaid losses and loss adjustment expenses attributable to IBNR net of reinsurance recoverables $ 159,700   $ 159,700          
Net reserves for unpaid losses and loss adjustment expenses, percentage 77.00%   77.00%          
Losses incurred favorable and unfavorable development $ (1,324) 16,137 $ (1,910) $ 17,866        
Hurricane Claims [Member]                
Liability For Claims And Claims Adjustment Expense [Line Items]                
Losses incurred favorable and unfavorable development $ (1,300) $ 16,100            
v3.19.2
Long-Term Debt - Additional Information (Detail) - USD ($)
1 Months Ended 3 Months Ended 6 Months Ended
Feb. 19, 2019
Dec. 31, 2018
Oct. 31, 2017
Mar. 31, 2019
Jun. 30, 2019
Jun. 30, 2018
Sep. 30, 2017
Aug. 31, 2017
Debt Instrument [Line Items]                
Long-term debt, net   $ 148,794,000     $ 132,449,000      
Issuance and debt discount costs   $ 6,963,000     5,545,000      
Convertible notes converted into common stock       $ 4,210,000        
Payout dividends, aggregate amount         3,396,000 $ 3,194,000    
Maximum [Member]                
Debt Instrument [Line Items]                
Payout dividends, aggregate amount         10,000,000      
Federal Home Loan Bank Of Atlanta [Member]                
Debt Instrument [Line Items]                
Interest paid         300,325      
FHLB advance Interest rate   3.094%            
Cash loan received under advance from FHLB   $ 19,200,000            
Required fair value of reinvestment in FHLB common stock.   $ 1,400,000     1,400,000      
Estimated fair value of collateral with FHLB         $ 24,200,000      
Convertible Note [Member] | Heritage Insurance Holdings, Inc. [Member]                
Debt Instrument [Line Items]                
Repurchase of convertible notes $ 5,800,000              
Cash consideration paid for repurchase of debt $ 2,900,000              
Shares issued for consideration of repurchase debt 285,201              
Convertible notes converted into common stock $ 4,200,000              
Non-operating loss extinguishment of debt $ (48,000)              
Convertible Senior Notes [Member]                
Debt Instrument [Line Items]                
Aggregate principal amount             $ 136,800,000 $ 136,800,000
Interest rate             5.875% 5.875%
Notes maturity date         Aug. 01, 2037      
Interest payments term         Interest is payable semi-annually in arrears, on February 1, and August 1 of each year, commencing in 2018.      
Long-term debt, net         $ 20,800,000      
Issuance and debt discount costs         2,600,000      
Interest paid         856,700 3,700,000    
Senior Secured Credit Facility [Member]                
Debt Instrument [Line Items]                
Notes maturity period   5 years            
Maximum borrowing capacity   $ 125,000,000            
Senior Secured Credit Facility [Member] | Term Loan Facility [Member]                
Debt Instrument [Line Items]                
Aggregate principal amount   75,000,000   $ 1,900,000        
Interest paid         1,800,000      
Maximum borrowing capacity   75,000,000            
Aggregate principal amount         73,100,000      
Senior Secured Credit Facility [Member] | Revolving Credit Facility [Member]                
Debt Instrument [Line Items]                
Interest paid         350,729      
Maximum borrowing capacity   $ 50,000,000     50,000,000      
Outstanding borrowing capacity amount         10,000,000      
Letters of credit outstanding amount         0      
Senior Secured Credit Facility [Member] | Standby Letters of Credit [Member]                
Debt Instrument [Line Items]                
Maximum borrowing capacity         5,000,000      
Senior Secured Credit Facility [Member] | Swingline Loan [Member]                
Debt Instrument [Line Items]                
Maximum borrowing capacity         $ 10,000,000      
Collateral Financial Arrangement [Member] | Skye Lane Properties LLC [Member] | Mortgage Loan [Member]                
Debt Instrument [Line Items]                
Aggregate principal amount     $ 12,700,000          
Interest rate     4.95%          
Notes maturity date     Oct. 30, 2027          
Frequency of periodic principal and interest payments         monthly      
Payment of principal and interest         $ 446,000 $ 446,000    
Collateral Financial Arrangement [Member] | Skye Lane Properties LLC [Member] | Mortgage Loan [Member] | 5-year Treasury Security [Member]                
Debt Instrument [Line Items]                
Debt instrument, basis spread on variable rate     3.10%          
v3.19.2
Long-Term Debt - Schedule of Company's Debt and Credit Facilities (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Debt Instrument [Line Items]    
Principal amount $ 137,994 $ 155,757
Less: unamortized discount and issuance costs 5,545 6,963
Total long-term debt 132,449 148,794
Term Loan Facility [Member]    
Debt Instrument [Line Items]    
Principal amount 73,125 75,000
Revolving Credit Facility [Member]    
Debt Instrument [Line Items]    
Principal amount 10,000 20,000
Convertible Debt [Member]    
Debt Instrument [Line Items]    
Principal amount 23,413 29,163
FHLB Loan Agreement [Member]    
Debt Instrument [Line Items]    
Principal amount 19,200 19,200
Mortgage Loan [Member]    
Debt Instrument [Line Items]    
Principal amount $ 12,256 $ 12,394
v3.19.2
Long-Term Debt - Schedule of Principal Payments on Long-Term Debt (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Debt Instrument [Line Items]    
Total long-term debt $ 132,449 $ 148,794
Long-term Debt Agreements [Member]    
Debt Instrument [Line Items]    
2019 remaining 5,764  
2020 7,790  
2021 7,806  
2022 7,822  
2023 74,589  
Thereafter 34,223  
Total long-term debt $ 137,994  
v3.19.2
Accounts Payable and Other Liabilities - Schedule of Accounts Payable and Other Liabilities (Detail) - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Other Liabilities Disclosure [Abstract]    
Deferred ceding commission $ 34,705 $ 44,996
Outstanding claim checks 13,612 15,360
Accounts payable and other payables 7,850 8,379
Lease obligations 8,718  
Accrued interest and issuance costs 1,144 1,285
Accrued dividends 1,791 1,589
Premium tax   2,241
Other liabilities   460
Commission payables 13,702 11,654
Total other liabilities $ 81,522 $ 85,964
v3.19.2
Statutory Accounting and Regulations - Additional Information (Detail) - USD ($)
6 Months Ended
Jun. 30, 2019
Dec. 31, 2018
Heritage P&C [Member]    
Statutory Accounting Practices [Line Items]    
Statutory accounting practices, capital and surplus requirements of insurance subsidiary Greater of $15 million or 10% of their respective liabilities.  
Minimum required amount of capital and surplus maintained by the insurance subsidiary $ 15,000,000  
Statutory capital and surplus requirements, percentage 10.00%  
Zephyr [Member]    
Statutory Accounting Practices [Line Items]    
Deposits held $ 750,000  
NBIC [Member]    
Statutory Accounting Practices [Line Items]    
Statutory capital and surplus 3,000,000  
Heritage P&C, Zephyr, and NBIC [Member]    
Statutory Accounting Practices [Line Items]    
Statutory capital and surplus $ 347,100,000 $ 376,300,000
v3.19.2
Related Party Transactions - Additional Information (Detail) - USD ($)
1 Months Ended 6 Months Ended
Jan. 31, 2017
Jun. 30, 2019
Jun. 30, 2018
Mrs. Shannon Lucas [Member]      
Related Party Transaction [Line Items]      
Consulting fees hourly rate $ 400    
Immediate Family Member of Management or Principal Owner [Member]      
Related Party Transaction [Line Items]      
Consulting fees   $ 172,000 $ 336,800
Heritage P&C [Member] | Director [Member]      
Related Party Transaction [Line Items]      
Director annual compensation $ 150,000    
v3.19.2
Employee Benefit Plans - Additional Information (Detail) - USD ($)
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Defined Contribution Plan Disclosure [Line Items]        
Contribution for participating employees $ 292,500 $ 245,200 $ 548,200 $ 803,500
Defined Contribution Plan, Plan Name     401(k)  
Medical premium cost 1,100,000 $ 1,200,000 $ 1,800,000 $ 2,200,000
Additional liability for unpaid claims $ 333,000   333,000  
Stop loss coverage per employee     150,000  
Defined contribution plan, aggregate limit for losses     $ 1,500,000  
Defined contribution plan, aggregate stop loss commences threshold percentage     125.00%  
Maximum [Member]        
Defined Contribution Plan Disclosure [Line Items]        
Percentage of contribution on employee salary     4.00%  
Defined contribution plan, aggregate limit for losses in provided amount     $ 1,000,000  
First 3% of Employees [Member]        
Defined Contribution Plan Disclosure [Line Items]        
Percentage of contribution on employee salary     100.00%  
Next 2% of the Employees [Member]        
Defined Contribution Plan Disclosure [Line Items]        
Percentage of contribution on employee salary     50.00%  
v3.19.2
Equity - Additional Information (Detail) - USD ($)
3 Months Ended 6 Months Ended 11 Months Ended
May 06, 2019
Feb. 25, 2019
Aug. 01, 2018
Jun. 30, 2019
Mar. 31, 2019
Mar. 31, 2018
Jun. 30, 2019
Jun. 30, 2019
Dec. 31, 2018
Class Of Stock [Line Items]                  
Common stock, shares authorized       50,000,000     50,000,000 50,000,000 50,000,000
Preferred stock, shares authorized       5,000,000     5,000,000 5,000,000  
Common stock, shares outstanding       29,274,577     29,274,577 29,274,577 29,477,756
Treasury stock, shares       7,720,177     7,720,177 7,720,177 7,214,797
Additional paid-in capital       $ 330,281,000     $ 330,281,000 $ 330,281,000 $ 325,292,000
Common stock voting rights             one vote    
Stock repurchase program, authorized amount     $ 50,000,000 42,700,000     $ 42,700,000 $ 42,700,000  
Stock repurchase program, expiration date     Dec. 31, 2020       Dec. 31, 2020    
Treasury shares repurchased, shares             157,640 505,380  
Treasury shares repurchased, value       $ 2,333,000 $ 5,011,000 $ 2,000,000 $ 2,300,000 $ 7,300,000  
Cash dividend per common share $ 0.06 $ 0.06              
Cash dividend, payable date Jul. 03, 2019 Apr. 03, 2019              
Dividend payable, record date Jun. 14, 2019 Mar. 15, 2019              
Restricted Stock [Member]                  
Class Of Stock [Line Items]                  
Unvested restricted common stock issued       580,801     580,801 580,801 605,801
v3.19.2
Stock-Based Compensation - Additional Information (Detail) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended
Jun. 30, 2019
Jun. 30, 2019
Jun. 30, 2018
Dec. 31, 2018
May 22, 2014
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Maximum tenure of stock option from the date of grant   10 years      
Exercisable period of vested awards   30 days      
Minimum [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Stock options, vesting period   1 year      
Maximum [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Stock options, vesting period   5 years      
Restricted Stock [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Restricted stock awards granted 0        
Stock-based compensation expense   $ 2,700,000 $ 2,600,000    
Unrecognized stock compensation expense $ 8,200,000 $ 8,200,000      
Unrecognized stock compensation expense, weighted average period   1 year 7 months 6 days      
Restricted stock vested and released   25,000 0    
Shares withheld to cover withholding taxes   8,000      
Shares withheld to cover withholding taxes, value   $ 118,000      
Restricted Stock [Member] | Minimum [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Stock options, vesting period   3 years      
Restricted Stock [Member] | Maximum [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Stock options, vesting period   5 years      
Restricted Stock [Member] | Employee [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Restricted stock awards granted       155,801  
Restricted Stock [Member] | Employee [Member] | Minimum [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Stock options, vesting period       3 years  
Restricted Stock [Member] | Employee [Member] | Maximum [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Stock options, vesting period       5 years  
Omnibus Incentive Plan [Member]          
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]          
Common stock reserved for issuance         2,981,737
Shares available for grant 1,321,398 1,321,398      
v3.19.2
Stock-Based Compensation - Schedule of Restricted Stock Activity (Detail) - Restricted Stock [Member] - $ / shares
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2019
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]    
Beginning balance, Number of shares   605,801
Granted, Number of shares 0  
Vested, Number of shares   (17,000)
Canceled and surrendered, Number of shares   (8,000)
Ending balance, Number of shares 580,801 580,801
Beginning balance, Weighted-Average Grant-Date Fair Value per Share   $ 20.41
Vested, Weighted-Average Grant-Date Fair Value per Share   14.72
Canceled and surrendered, Weighted-Average Grant-Date Fair Value per Share   14.72
Ending balance, Weighted-Average Grant-Date Fair Value per Share $ 20.65 $ 20.65
v3.19.2
Subsequent Events - Additional Information (Detail) - $ / shares
Aug. 01, 2019
May 06, 2019
Feb. 25, 2019
Subsequent Event [Line Items]      
Cash dividend per common share   $ 0.06 $ 0.06
Cash dividend, payable date   Jul. 03, 2019 Apr. 03, 2019
Dividend payable, record date   Jun. 14, 2019 Mar. 15, 2019
Subsequent Event [Member]      
Subsequent Event [Line Items]      
Cash dividend, declared date Aug. 01, 2019    
Cash dividend per common share $ 0.06    
Cash dividend, payable date Oct. 03, 2019    
Dividend payable, record date Sep. 16, 2019