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0001598665
0001598665
2024-05-01
2024-05-01
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):
May 1, 2024
HERITAGE INSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware 001-36462 45-5338504
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
1401 N. Westshore Blvd
Tampa 33607
,
Florida
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(727)
362-7202
(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 Name of each exchange
Symbol(s) 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 ((s)230.405 of this chapter)
or Rule 12b-2 of the Securities Exchange Act of 1934 ((s)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.
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Item 2.02 Results of Operations and Financial Conditions.
On May 1, 2024, Heritage Insurance Holdings, Inc. (the "Company") issued a
press release announcing financial results for its fiscal quarter ended March
31, 2024. A copy of the press release is attached hereto as Exhibit 99.1.
The information furnished under this Item 2.02, including Exhibit 99.1, is
being furnished and shall not be deemed to be "filed" for the purposes of
Section 18 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or incorporated by reference in any filing under the Securities Act of
1933, as amended or the Exchange Act, except as shall be expressly set forth
by specific reference in such a filing.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits. The following exhibit is being furnished as part of this Current
Report on Form
8-K.
No. Exhibit
99.1 Press Release dated May 1, 2024.
104 Cover Page Interactive Data File (the cover page tags are embedded within the Inline XBRL document).
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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: May 1, 2024 By: /s/ Kirk Lusk
Kirk Lusk
Chief Financial Officer
3
Exhibit 99.1
Heritage Reports First Quarter 2024 Results
Tampa, FL - May
1, 2024
: Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the
"Company"), asuper-regional property and casualty insurance holding company,
today reported first quarter of 2024 financial results.
First Quarter 2024 ResultHighlights
. First quarter net income of $14.2 million or $0.47 per diluted share improved
from net income of$14.0 million or $0.55 per diluted share in the prior year
quarter, primarily driven by an increase in net premiums earned, and higher
net investment income, which is partly offset by higher operating expenses.
. Gross premiums earned of $341.4 million, up 7.7% from $317.0 million in the prior year quarter.
. Net premiums earned of $179.4 million, up 8.1% from $166.0 million in the prior year quarter.
. Net loss ratio of 56.9%, an improvement of 1.8 points from 58.7% in the prior year quarter.
. Net expense ratio of 37.1%, up 1.3 points from 35.8% in the prior year quarter.
. Net combined ratio of 94.0%, an improvement of 0.5 points from 94.5% in the prior year quarter.
"I'm pleased to see the momentum of our efforts to respond to market
conditions continues to produce our intendedresults," remarked Ernie Garateix,
CEO at Heritage. "Our average premium has increased across the book of
business, and we believe the quality of our book of business continues to
improve. We are successfully managing exposure, ourcost of catastrophe
reinsurance, and continue to build strong relationships with our valued
reinsurance partners. Weather losses are higher than last year but attritional
losses are down. We are managing expenses while implementingupgraded systems
to better manage our business and service our customers. The management team
is resolute in our focus to generate underwriting profits across our
footprint, maintain adequate rates, ensure selective underwriting, and
employmeticulous but fair claims handling."
Strategic Profitability Initiatives
The following provides an update to the Company's strategic initiatives that
are expected to enable Heritage to achieve consistent long-term quarterlyearning
s and drive shareholder value. The Supplemental Information table included in
this earnings release demonstrates progress made compared to first quarter
2023.
. Generate underwriting profit though rate adequacy and more selective underwriting.
. Significant rating actions across the book of business have had a
favorable impact, resulting in an increase inaverage premium per policy.
. Gross premiums earned increased 7.7% over the prior year quarter, driven by rate actions taken in 2022 and 2023across the
book of business, as well as growth in commercial residential business, which helps drive the higher average premium.
. Premiums-in-force
of$1.4 billion are up 6.2% from the prior year quarter, driven primarily by growth in
commercial residential business and rate increases throughout the book of business.
. Continued focus on timely rate actions, maintaining underwriting criteria,
and managing new business written inover-concentrated markets or products.
. Allocate capital to products and geographies that maximize long-term returns.
. We selectively increased the commercial residential premium in force by 44.4% compared to
the first quarter of2023, while the TIV only increased by 11.8%. The commercial residential
business, which tends to have a significantly lower attritional loss ratio, generates
materially higher premiums. Commercial residential business accounts for 19.9% of the
in-force
premium, compared to 14.7%
in the prior year period.
. As part of our exposure management strategy, we continue to grow our policy count in products and
geographieswhich are profitable and reduce our policy count in unprofitable and over concentrated areas.
. This disciplined underwriting approach resulted in a policy count reduction of just over 72,000
or 14.2% fromfirst quarter 2023, while premium in force increased by $80.7 million or 6.2%.
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. Maintain a balanced and diversified portfolio.
. Selective diversification of the portfolio by product and state, which can
change based on market conditions,serves to reduce performance volatility.
. No state represents over 26.7% of the Company's TIV.
. Provide coverage suitable to the market and return targets.
. Continuing to offer Excess & Surplus lines ("E&S") policies in
California, Florida, andSouth Carolina. This product allows greater
flexibility in product terms as well as speed to market. In force
premium for E&S business increased 182.5% quarter over quarter.
. Continuing to evaluate other states for E&S and other products.
Capital Management
Heritage's Board of Directorshas decided to continue its suspension of the
quarterly dividend to shareholders. The Board of Directors will continue to
evaluate dividend distribution and stock repurchases on a quarterly basis. No
shares of common stock were repurchased duringthe quarter.
Results of Operations
The followingtable summarizes results of operations for the three months ended
March 31, 2024 and 2023 (amounts in thousands, except percentages and per
share amounts):
Three Months Ended March 31,
2024 2023 Change
Total revenues $ 191,302 $ 176,921 8.1 %
Net income $ 14,225 $ 14,008 1.5 %
Earnings per share $ 0.47 $ 0.55 (14.5 )%
Book value per share $ 7.67 $ 6.05 26.8 %
Return on equity * 25.0 % 39.2 % (14.2 )pts
Underwriting summary
Gross premiums written $ 356,684 $ 310,309 14.9 %
Gross premiums earned $ 341,389 $ 317,022 7.7 %
Ceded premiums $ (161,963 ) $ (150,993 ) 7.3 %
Net premiums earned $ 179,426 $ 166,029 8.1 %
Ceded premium ratio 47.4 % 47.6 % (0.2 )pts
Ratios to Net Premiums Earned:
Loss ratio 56.9 % 58.7 % (1.8 )pts
Expense ratio 37.1 % 35.8 % 1.3 pts
Combined ratio 94.0 % 94.5 % (0.5 )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 cededpremiums as a percentage of gross premiums earned.
Net loss ratio
represents net losses and loss adjustment expenses ("LAE") as apercentage 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 combinedratio 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.
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First Quarter 2024 Results:
. First quarter 2024 net income of $14.2 million or $0.47 per diluted share, compared
to net income of$14.0 million or $0.55 per diluted share in the prior year quarter,
primarily driven by an increase in net premiums earned, and higher net investment
income, which is partly offset by higher operating expenses. This improvement
isattributable to the positive impact of rate actions, underwriting actions, and
exposure management taken during 2023 and 2022, which favorably impacted results during
first quarter 2024. These actions resulted in growth of 8.1% in net premiumsearned;
however, we experienced growth of 4.7% in net losses and LAE as described below.
A 53.2% increase in net investment income resulted from taking advantage of
higher short-term interest rates. Policy acquisition costs increased 16.4%, which
isattributable to costs that vary with gross premiums written as well as a reduction
in ceding commission income on the net quota share reinsurance contract. General and
administrative costs increased 3.0% driven primarily by costs associated withsoftware,
including a new claims system. Additionally, the decrease in earnings per share
was influenced by a higher weighted average number of shares outstanding than the
prior year quarter due to equity issuance and stock grants, net offorfeitures.
. Premiums-in-force
were$1.4 billion as of first quarter 2024, an increase of 6.2% compared to $1.3 billion as of
first quarter 2023. First quarter 2024 represents our ninth consecutive quarter of driving higher
in-force
premium.
. Gross premiums written of $356.7 million were up 14.9% from $310.3 million in the prior year quarter,reflecting
a strategic and substantial organic increase in Florida commercial residential lines business and
a higher average premium per policy throughout the book of business from rating actions and use of
inflation guard, which ensuresappropriate property values, mostly offset by targeted exposure management.
. Gross premiums earned of $341.4 million, up 7.7% from $317.0 million in the prior year
quarter,reflecting higher gross premiums written over the last twelve months as described above.
. Net premiums earned of $179.4 million, up 8.1% from $166.0 million in the prior year quarter,reflecting
higher gross premium earned outpacing the increase in ceded premiums for the quarter.
. Ceded premium ratio of 47.4%, down 0.2 points from 47.6% in the prior year quarter driven by
growth in grosspremiums earned which offset higher catastrophe excess of loss reinsurance costs.
. Net loss ratio decreased to 56.9%, a 1.8 point decline from 58.7% in the same quarter last year reflecting
highernet premiums earned which outpaced higher net losses and LAE driven by higher weather losses and
adverse development partly offset by lower attritional losses. Net weather losses for the current accident
quarter were $18.4 million, an increaseof $5.6 million from $12.8 million in the prior year quarter.
Catastrophe losses were $15.9 million compared to $5.0 million in the prior year quarter. Other weather
losses totaled $2.5 million, a reduction from the prioryear quarter amount of $7.8 million. Additionally,
the net loss ratio was impacted by net unfavorable loss development of $6.7 million during the first
quarter of 2024, compared to net favorable development of $1.5 million in thefirst quarter of 2023.
. The net expense ratio was 37.1%, a 1.3 point increase from the prior year quarter amount of 35.8%,
primarily dueto a reduction in ceding commission income which drove up policy acquisition costs.
. Net combined ratio of 94.0% improved 0.5 points from 94.5% in the prior year quarter, driven
by a lower net lossratio and partly offset by a higher net expense ratio as described above.
. Net investment income, inclusive of realized investment losses and unrealized losses (gains) on
equitysecurities, was $8.6 million up $1.1 million from $7.5 million in the prior year quarter reflecting
actions to align the investments with the yield curve and take advantage of higher short-term
yields. Realized gains in the prior yearquarter included a $1.9 million gain on a sale of stock.
. The effective tax rate of 28.4% compared to 18.6% in the prior year quarter. The effective
tax rate for the prioryear quarter includes the benefit from a downward adjustment
of $1.7 million to the valuation allowance related to Osprey Re which lowered the
effective tax rate for that period. There was no benefit nor detriment associated
with avaluation allowance in the current year quarter. The valuation allowance
relates to certain tax elections made by Osprey Re, the Company's captive reinsurer
domiciled in Bermuda. The effective tax rate can fluctuate throughout the year
asestimates used in the quarterly tax provision are updated with additional information.
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Supplemental Information:
Q1 2024 Q1 2023 % Change
Policies-in-force:
Florida 147,954 172,425 (14.2 )%
Other States 289,001 336,647 (14.2 )%
Total 436,955 509,072 (14.2 )%
Premiums-in-force:
Florida $ 716,867,957 $ 624,931,522 14.7 %
Other States 670,195,000 681,407,015 (1.6 )%
Total $ 1,387,062,957 $ 1,306,338,537 6.2 %
Total Insured Value:
Florida $ 103,796,187,233 $ 104,735,498,939 (0.9 )%
Other States 284,663,195,759 302,701,975,889 (6.0 )%
Total $ 388,459,382,992 $ 407,437,474,828 (4.7 )%
Book Value Analysis:
Book Value Per Share As Of
March 31, 2024 December 31, 2023 March 31, 2023
Numerator:
Common stockholders' equity $ 234,935 $ 220,280 $ 154,724
Denominator:
Total Shares Outstanding $ 30,636,496 $ 30,218,938 $ 25,558,751
Book Value Per Common Share $ 7.67 $ 7.29 $ 6.05
Book value per share of $7.67 at March 31, 2024, was up from 5.2% from fourth
quarter 2023 and up 26.8% from firstquarter 2023. The increase from the
comparable quarter of 2023 is primarily attributable to net income as well as
a reduction in unrealized losses on the Company's fixed income securities
portfolio since the first quarter of 2023. Theunrealized losses are unrelated
to credit risk but are instead attributable to rising interest rates. The
increase in book value per share from December 31, 2023 is attributable to 2024
year-to-date
net income. Heritage does not anticipate a need to sell investments in advance
of maturity. As such, the Company expects unrealized losses to continue to
roll off the portfolio as investmentsmature. The average duration of the fixed
income portfolio is 3.03 years.
Conference Call Details:
Thursday, May 2, 2024 - 9:00 a.m. ET
Participant
Dial-in
Numbers Toll Free:
1-800-836-8184
Participant International Dial In:
1-646-357-8785
Webcast:
To listen to the live webcast, please go to
http://investors.heritagepci.com
. This webcast will be archived and accessible on theCompany's website.
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HERITAGE INSURANCE HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
March 31, 2024 December 31, 2023
(unaudited)
ASSETS
Fixed maturities, $ 644,113 $ 560,682
available-for-sale,
at fair value
Equity securities, at fair value 1,936 1,666
Other investments, net 6,886 7,067
Total investments 652,935 569,415
Cash and cash equivalents 386,100 463,640
Restricted cash 11,365 9,699
Accrued investment income 4,583 4,068
Premiums receivable, net 94,326 89,490
Reinsurance recoverable on paid and unpaid claims, net 565,694 482,429
Prepaid reinsurance premiums 176,726 294,222
Income tax receivable 3,375 13,354
Deferred income tax asset, net 15,509 11,111
Deferred policy acquisition costs, net 104,217 102,884
Property and equipment, net 32,767 33,218
Right-of-use 16,971 17,606
leaseasset, finance
Right-of-use 6,662 6,835
leaseasset, operating
Intangibles, net 41,009 42,555
Other assets 17,895 12,674
Total Assets $ 2,130,134 $ 2,153,200
LIABILITIES AND STOCKHOLDERS' EQUITY
Unpaid losses and loss adjustment expenses $ 843,687 $ 845,955
Unearned premiums 691,174 675,921
Reinsurance payable 102,538 159,823
Long-term debt, net 123,007 119,732
Advance premiums 37,019 23,900
Accrued compensation 3,876 9,461
Lease liability, finance 19,830 20,386
Lease liability, operating 7,868 8,076
Accounts payable and other liabilities 66,200 69,666
Total Liabilities $ 1,895,199 $ 1,932,920
Stockholders' Equity:
Common stock, $0.0001 par value 3 3
Additional 360,956 360,310
paid-in
capital
Accumulated other comprehensive loss, net of taxes (35,466 ) (35,250 )
Treasury stock, at cost (130,900 ) (130,900 )
Retained earnings 40,342 26,117
Total Stockholders' Equity 234,935 220,280
Total Liabilities and Stockholders' Equity $ 2,130,134 $ 2,153,200
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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
March 31,
2024 2023
REVENUES:
Gross premiums written $ 356,684 $ 310,309
Change in gross unearned premiums (15,295 ) 6,713
Gross premiums earned 341,389 317,022
Ceded premiums (161,963 ) (150,993 )
Net premiums earned 179,426 166,029
Net investment income 8,551 5,582
Net realized (losses) gains (1 ) 1,898
Other revenue 3,326 3,412
Total revenues 191,302 176,921
EXPENSES:
Losses and loss adjustment expenses 102,035 97,452
Policy acquisition costs, net 46,929 40,324
General and administrative expenses, net 19,634 19,054
Total expenses 168,598 156,830
Operating income 22,704 20,091
Interest expense, net 2,830 2,881
Income before income taxes 19,874 17,210
Provision for income taxes 5,649 3,202
Net income $ 14,225 $ 14,008
OTHER COMPREHENSIVE INCOME
Change in net unrealized (losses) gains on investments (284 ) 12,143
Reclassification adjustment for net realized investment losses 1 2
Income tax benefit (expense) related to items of other comprehensive income (loss) 67 (2,855 )
Total comprehensive income $ 14,009 $ 23,298
Weighted average shares outstanding
Basic 30,376,682 25,558,305
Diluted 30,435,945 25,617,568
Earnings per share
Basic $ 0.47 $ 0.55
Diluted $ 0.47 $ 0.55
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About Heritage
Heritage Insurance Holdings, Inc. is a super-regional property and casualty
insurance holding company. Through its insurance subsidiaries and a large
networkof experienced agents, the Company writes approximately $1.4 billion of
gross personal and commercial residential premium across its multi-state
footprint covering the northeast, southeast, Hawaii and California excess and
surplus lines.
Forward-Looking Statements
Statements in thispress 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 thegenerality 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 the expected
positive impact of our strategicinitiatives on our future financial results,
including focus on profitability through rating action, selective underwriting
and selective growth, capital allocation, exposure management and strategic
reduction of policy count in certain geographies;impact of rate increases;
impact of policy count reduction; impact of our focus on long-term
relationships with reinsurers; expected future policy rate increases; impact
of legislative changes; and future dividend payments and stock repurchases.
Therisks and uncertainties that could cause our actual results to differ from
those expressed or implied herein include, without limitation: the success of
the Company's underwriting and profitability initiatives; inflation and other
changes ineconomic conditions (including changes in interest rates and
financial and real estate markets), including changes that may impact demand
for our products and our operations; lack of effectiveness of exclusions and
loss limitation methods in theinsurance policies we assume or write; inherent
uncertainty of our models and our reliance on such models as a tool to
evaluate risk; the impact of macroeconomic and geopolitical conditions,
including the impact of supply chain constraints,inflationary pressures, labor
availability and conflicts between Russia and Ukraine and in the Middle East;
the impact of new federal and state regulations that affect the property and
casualty insurance market and our failure to meet increasedregulatory
requirements, including minimum capital and surplus requirements; continued
and increased impact of abusive and unwarranted claims; the cost of
reinsurance, the collectability of reinsurance and our ability to obtain
reinsurance coverageon 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 investmentportfolio;
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 totime 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, 2023 filed with theSecurities and Exchange
Commission on March 13, 2024, and subsequent filings. The Company undertakes
no obligations to update, change or revise any forward-looking statement,
whether as a result of new information, additional or subsequentdevelopments
or otherwise.
Investor Contact:
KirkLusk
Chief Financial Officer
klusk@heritagepci.com
investors@heritagepci.com
Zack Mukewa
Investor Relations
Lambert
HRTG@lambert.com
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