8-K
false 0001598665 0001598665 2020-08-03 2020-08-03

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 3, 2020

 

 

HERITAGE INSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-36462   45-5338504

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

 

2600 McCormick Drive, Suite 300

Clearwater, Florida

  33759
(Address of principal executive offices)   (Zip Code)

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

Not Applicable

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

 

 

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

 

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

 

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

 

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

 

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

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value $0.0001 per share   HRTG   New York Stock Exchange

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

Emerging growth company  

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

 

 

 


Item 2.02

Results of Operations and Financial Conditions.

On August 3, 2020, Heritage Insurance Holdings, Inc. issued a press release announcing financial results for its fiscal quarter ended June 30, 2020. A copy of the press release is attached hereto as Exhibit 99.1.

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

 

Item 9.01

Financial Statements and Exhibits.

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

 

No.

  

Exhibit

99.1    Press Release dated August 3, 2020.
104    Cover Page Interactive File (the cover page tags are embedded within the Inline XBRL document).


SIGNATURES

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

 

    HERITAGE INSURANCE HOLDINGS, INC.
Date: August 3, 2020     By:  

/s/ Bruce Lucas

     

Bruce Lucas

Chairman and Chief Executive Officer

 

3

EX-99.1

Exhibit 99.1

Heritage Reports Second Quarter 2020 Results

Clearwater, FL – August 3, 2020: Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported second quarter 2020 financial results.

Second Quarter 2020 Highlights

 

   

Net income for the quarter was $4.1 million, or $0.15 per diluted share.

 

   

Book value per share increased to $16.67, up 11.2% from June 30, 2019 and 6.4% (12.9% annualized growth rate) from year-end 2019.

 

   

Gross premiums written of $290.4 million, up 14.0% year-over-year.

 

   

Favorable prior year reserve development of $5.0 million, representing the eighth consecutive quarter of favorable prior year reserve development.

 

   

Net current accident quarter weather losses of $26.8 million, including $17.6 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather losses were $21.5 million, including catastrophe losses of $13.4 million.

 

   

Repurchased 163,456 shares for $2.0 million at an average price of $12.31 per share, 26.2% below second quarter 2020 book value per share. Total capital returned to shareholders of $3.7 million, including $0.06 per share regular quarterly dividend.

 

   

Began writing homeowners insurance in Mississippi.

Bruce Lucas, the Company’s Chairman and CEO, said, “The growth in our organic gross premiums written has accelerated every quarter since returning to positive growth in the third quarter of 2019 and we achieved double digit organic growth in the second quarter of 2020. Our strong agent relationships and auto carrier partnerships are paying off, as demonstrated in our numbers this quarter. More importantly, given our de-risking efforts in prior years, we’re able to grow profitably, a testament to our underwriting discipline.

COVID-19 Update

We are currently monitoring the short- and long-term impacts of COVID-19. During the first half of 2020, we saw virtually no impact to our business. As a residential property insurer, we view our business as relatively insulated from a short-term economic slowdown, as property owners and renters generally view our products as a necessity.

While we acknowledge uncertainties associated with future economic conditions, we do not expect a material impact to our business going forward. We will continue to monitor economic conditions and, in the case of a prolonged economic slowdown as a result of COVID-19, will take necessary actions to mitigate any negative impacts to our business, operations or financial results.


Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2020 and 2019 (amounts in thousands, except percentages and per share amounts):

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2020     2019     Change     2020     2019     Change  

Total revenues

   $ 136,012     $ 122,843       10.7   $ 268,719     $ 241,104       11.5

Net Income

   $ 4,132     $ 721       473.1   $ 11,752     $ 7,685       52.9

Per Share

   $ 0.15     $ 0.02       650.0   $ 0.42     $ 0.26       61.5

Book value per share

   $ 16.67     $ 14.99       11.2   $ 16.67     $ 14.99       11.2

Return on equity*

     3.6     0.7     2.9 pts      5.2     3.6     1.6 pts 

Underwriting summary

            

Gross premiums written

   $ 290,432     $ 254,840       14.0   $ 519,534     $ 465,188       11.7

Gross premiums earned

   $ 241,792     $ 229,958       5.1   $ 476,508     $ 458,548       3.9

Ceded premiums

   $ (112,735   $ (115,875     (2.7 )%    $ (221,445   $ (234,774     (5.7 )% 

Net premiums earned

   $ 129,057     $ 114,083       13.1   $ 255,063     $ 223,774       14.0

Ceded premium ratio

     46.6     50.4     (3.8 )pts      46.5     51.2     (4.7 )pts 

Ratios to Net Premiums Earned:

            

Loss ratio

     61.1     65.1     (4.0 )pts      57.7     61.0     (3.3 )pts 

Expense ratio

     38.9     39.9     (1.0 )pts      40.0     40.3     (0.3 )pts 

Combined ratio

     100.0     105.0     (5.0 )pts      97.6     101.3     (3.7 )pts 

* Return on equity represents annualized net income for the period divided by average stockholders’ equity during the period.

Note: Percentages and sums in the table may not recalculate precisely due to rounding.

Ratios

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

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

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

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


Quarterly Financial Results

Second quarter 2020 net income was $4.1 million, up from $0.7 million in the prior year quarter. The increase primarily reflects higher net premiums earned, lower net loss and expense ratios and a lower effective tax rate, partly offset by lower investment gains.

Gross premiums written of $290.4 million, up 14.0% year-over-year, including 69.0% commercial residential growth, 11.3% personal residential growth outside Florida and 6.1% personal residential growth in Florida.

Premiums-in-force were $994.6 million in second quarter 2020, representing a 15.3% annualized growth rate from first quarter 2020. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were $241.8 million in second quarter 2020, up 5.1% from $230.0 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.

The ceded premium ratio was 46.6% in second quarter 2020, down 3.8 points from 50.4% in the prior year quarter. The decrease is primarily attributable to a reduction in the cost of our 2019-2020 catastrophe reinsurance program and a reduction in overall quota share reinsurance coverage, partly offset by the higher cost of our 2020-2021 catastrophe reinsurance program.

The net loss ratio was 61.1% in second quarter 2020, down 4.0 points from 65.1% in the prior year quarter. The decrease primarily stems from higher favorable prior year reserve development and a lower ceded premium ratio, partly offset by lower income from vertically integrated operations and a higher current accident year weather net loss ratio.

The net expense ratio was 38.9% in second quarter 2020, down 1.0 point from 39.9% in the prior year quarter. The decrease primarily stems from modestly lower net PAC and G&A ratios, which benefited from a lower ceded premium ratio.

The net combined ratio was 100.0% in second quarter 2020, down 5.0 points from 105.0% in the prior year quarter. The decrease stems from lower net loss and expense ratios, as described above.

Book Value Analysis

Book value per share increased to $16.67 at June 30, 2020, up 11.2% year-over-year.

 

     As Of  
Book Value Per Share    June 30, 2020      December 31, 2019      June 30, 2019  

Numerator:

        

Common stockholders’ equity

   $ 462,499      $ 448,799      $ 438,850  
  

 

 

    

 

 

    

 

 

 

Denominator:

        

Total Shares Outstanding

     27,738,062        28,650,918        29,274,577  
  

 

 

    

 

 

    

 

 

 

Book Value Per Common Share

   $ 16.67      $ 15.66      $ 14.99  
  

 

 

    

 

 

    

 

 

 

Conference Call Details:

Tuesday, August 4, 2020 – 8:30 a.m. EDT

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

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

Canada Toll Free: 1-855-669-9657

Webcast:

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


HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

(Unaudited)

 

     June 30, 2020     December 31, 2019  
     (unaudited)        

ASSETS

    

Fixed maturities, available-for-sale, at fair value

   $ 698,277     $ 587,256  

Equity securities, at fair value

     1,599       1,618  

Other investments

     6,374       6,375  
  

 

 

   

 

 

 

Total investments

     706,250       595,249  

Cash and cash equivalents

     288,342       268,351  

Restricted cash

     11,849       14,657  

Accrued investment income

     4,833       4,377  

Premiums receivable, net

     66,188       63,685  

Reinsurance recoverable on paid and unpaid claims

     374,709       428,903  

Prepaid reinsurance premiums

     361,256       224,102  

Income taxes receivable

     4,651       3,171  

Deferred policy acquisition costs, net

     81,590       77,211  

Property and equipment, net

     19,998       20,753  

Intangibles, net

     65,461       68,642  

Goodwill

     152,459       152,459  

Other assets

     28,804       18,110  
  

 

 

   

 

 

 

Total Assets

   $ 2,166,390     $ 1,939,670  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Unpaid losses and loss adjustment expenses

   $ 620,718     $ 613,533  

Unearned premiums

     529,321       486,220  

Reinsurance payable

     296,606       156,351  

Long-term debt, net

     126,056       129,248  

Deferred income tax, net

     20,957       12,623  

Advance premiums

     30,870       16,504  

Accrued compensation

     11,250       5,347  

Accounts payable and other liabilities

     68,113       71,045  
  

 

 

   

 

 

 

Total Liabilities

   $ 1,703,891     $ 1,490,871  
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ Equity:

    

Common stock

     3       3  

Additional paid-in capital

     332,037       329,568  

Accumulated other comprehensive income

     20,263       7,330  

Treasury stock

     (115,365     (105,368

Retained earnings

     225,561       217,266  
  

 

 

   

 

 

 

Total Stockholders’ Equity

     462,499       448,799  
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 2,166,390     $ 1,939,670  
  

 

 

   

 

 

 


HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive Income

(Amounts in thousands, except share amounts)

(Unaudited)

 

     For the Three Months Ended
June 30,
    For the Six Months Ended
June 30,
 
     2020     2019     2020     2019  

REVENUES:

        

Gross premiums written

   $ 290,432     $ 254,840     $ 519,534     $ 465,188  

Change in gross unearned premiums

     (48,640     (24,882     (43,026     (6,640
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross premiums earned

     241,792       229,958       476,508       458,548  

Ceded premiums

     (112,735     (115,875     (221,445     (234,774
  

 

 

   

 

 

   

 

 

   

 

 

 

Net premiums earned

     129,057       114,083       255,063       223,774  

Net investment income

     3,296       3,830       6,966       7,502  

Net realized and unrealized gains (losses)

     (38     1,303       22       2,327  

Other revenue

     3,697       3,627       6,668       7,501  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     136,012       122,843       268,719       241,104  

EXPENSES:

        

Losses and loss adjustment expenses

     78,869       74,299       147,050       136,438  

Policy acquisition costs

     30,237       27,087       60,284       53,107  

General and administrative expenses

     19,943       18,384       41,661       36,988  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     129,049       119,770       248,995       226,533  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     6,963       3,073       19,724       14,571  

Interest expense, net

     1,721       1,984       3,688       4,101  

Other non-operating loss, net

     —         —         —         48  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     5,242       1,089       16,036       10,422  
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

     1,110       368       4,284       2,737  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 4,132     $ 721     $ 11,752     $ 7,685  
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME

        

Change in net unrealized gains on investments

     14,823       7,068       16,850       15,104  

Reclassification adjustment for net realized investment (gains) losses

     38       59       (22     394  

Income tax expense related to items of other comprehensive income

     (3,440     (1,304     (3,895     (3,712
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 15,553     $ 6,544     $ 24,685     $ 19,471  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

        

Basic

     27,876,801       29,346,234       28,212,735       29,442,363  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     27,913,696       29,352,796       28,231,273       29,447,668  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic

   $ 0.15     $ 0.02     $ 0.42     $ 0.26  

Diluted

   $ 0.15     $ 0.02     $ 0.42     $ 0.26  


About Heritage

Heritage Insurance Holdings, Inc. is a super-regional property and casualty insurance holding company headquartered in Clearwater, Florida. Through its insurance subsidiaries and a large network of experienced agents, the Company writes approximately $1 billion of gross personal and commercial residential premium across its multi-state footprint.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. This release includes forward-looking statements relating to (i) the impact of the COVID-19 pandemic on our business, results of operations and financial condition and our ability to navigate the uncertainty and mitigate the impact and (ii) our ability to continue to grow profitably. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: our ability to comply with our obligations under the new credit facilities, including the financial and other covenants contained therein; the success of the Company’s marketing initiatives; the continued and potentially prolonged impact of the COVID-19 pandemic on the economy, demand for our products and our operations, including measures taken by the governmental authorities to address COVID-19, which may precipitate or exacerbate other risks and/or uncertainties; inflation and other changes in economic conditions (including changes in interest rates and financial markets), including as a result of the COVID-19 pandemic; the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance, the collectability of reinsurance and our ability to obtain reinsurance coverage on terms and at a cost acceptable to us; assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; our ability to build and maintain relationships with insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 10, 2020. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

Investor Contact:

Arash Soleimani, CFA, CPA

Executive Vice President

727.871.0206

Email: asoleimani@heritagepci.com

v3.20.2
Document and Entity Information
Aug. 03, 2020
Cover [Abstract]  
Amendment Flag false
Entity Central Index Key 0001598665
Document Type 8-K
Document Period End Date Aug. 03, 2020
Entity Registrant Name HERITAGE INSURANCE HOLDINGS, INC.
Entity Incorporation State Country Code DE
Entity File Number 001-36462
Entity Tax Identification Number 45-5338504
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 FL
Entity Address, Postal Zip Code 33759
City Area Code (727)
Local Phone Number 362-7202
Written Communications false
Soliciting Material false
Pre Commencement Tender Offer false
Pre Commencement Issuer Tender Offer false
Security 12b Title Common Stock, par value $0.0001 per share
Trading Symbol HRTG
Security Exchange Name NYSE
Entity Emerging Growth Company false