Heritage Insurance Holdings, Inc. Reports Financial Results for Second Quarter of 2016

Heritage Insurance Holdings, Inc. Reports Financial Results for Second Quarter of 2016

CLEARWATER, Fla., Aug. 3, 2016 /PRNewswire/ — Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported its financial results for the fiscal quarter ended June 30, 2016.

heritage_PCI

Second Quarter Highlights

  • 31% increase year over year in gross premiums written for 2Q16 as compared to 2Q15
  • 29% increase in gross premiums earned for 2Q16 as compared to 2Q15
  • 49% increase in policy count in 2Q16 as compared to 2Q15
  • Net income of $18.4 million for 2Q16
  • Gross combined ratio declined to 85.7% in 2Q16 from 95.5% in 1Q16
  • Return on average equity of 20.2% for 2Q16
  • Repurchased 527,989 shares for a total of $6.9 million in 2Q16; $53.4 million remains in repurchase authorization
  • Continued traction in North Carolina with more than 2,300 policies-in-force at the end of 2Q16

Bruce Lucas, the Company’s Chairman and CEO, said, “I am pleased to report a significant increase in profitability and return on equity in the second quarter. As compared to the first quarter, we had substantial growth across the business including gross premiums written and earned, net income and return on average equity. We are continuing to exceed our internal expectations in North Carolina and Hawaii, we recently launched operations in South Carolina, and we are now writing roughly half of our new policies outside of Florida. Looking ahead, we are extremely excited about our business prospects as we continue our strategic diversification. We are focused on delivering the highest returns to stockholders through continued organic growth, strategic M&A and capital return.”

Announces Quarterly Dividend

The Company announced that its Board of Directors has declared a quarterly cash dividend on the Company’s common stock of $0.06 per share. The third quarter dividend of $0.06 per share is payable on October 3, 2016 to stockholders of record as of September 15, 2016. 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.

Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2016 and 2015 (in thousands, except percentages and per share amounts):

                                 
   

Three Months Ended June 30,

             

Six Months Ended June 30,

           
   

2016

   

2015

   

Change

     

2016

   

2015

   

Change

   

Revenue

                               

Gross premiums written

 

$

177,295

   

$

135,597

     

31

%

   

$

324,561

   

$

269,565

     

20

%

 

Gross premiums earned

 

$

163,637

   

$

127,101

     

29

%

   

$

315,580

   

$

253,102

     

25

%

 

Ceded premiums

 

$

(54,719)

   

$

(32,255)

     

70

%

   

$

(100,320)

   

$

(56,767)

     

77

%

 

Net premiums earned

 

$

108,918

   

$

94,846

     

15

%

   

$

215,260

   

$

196,335

     

10

%

 
                                                     

Total operating revenue

 

$

85,524

   

$

58,098

     

47

%

   

$

185,049

   

$

114,934

     

61

%

 

Income before taxes

 

$

29,757

   

$

40,990

     

(27%)

     

$

41,797

   

$

89,282

     

(53%)

   

Net income

 

$

18,368

   

$

25,400

     

(28%)

     

$

25,791

   

$

55,456

     

(53%)

   
                                                     

Per Share Data:

                                                   

Book value per share

 

$

12.71

   

$

10.40

     

22

%

   

$

12.71

   

$

10.40

     

22

%

 

Earnings per diluted share

 

$

0.62

   

$

0.84

     

(26%)

     

$

0.86

   

$

1.84

     

(53%)

   
                                                     

Return on average equity

   

20.2

%

   

33.9

%

   

(13.7)

   

pts

 

14.2

%

   

39.1

%

   

(24.9)

 

pts

                                                     

Ratios to Gross Premiums Earned:

                                                   

Ceded premium ratio

   

33.5

%

   

25.4

%

   

8.1

   

pts

 

31.8

%

   

22.4

%

   

9.4

 

pts

Loss ratio

   

29.8

%

   

26.7

%

   

3.1

   

pts

 

36.7

%

   

26.3

%

   

10.4

 

pts

Expense ratio

   

22.4

%

   

19.0

%

   

3.4

   

pts

 

22.0

%

   

19.2

%

   

2.8

 

pts

Combined ratio

   

85.7

%

   

71.1

%

   

14.6

   

pts

 

90.5

%

   

67.9

%

   

22.6

 

pts

                                                     

Ratios to Net Premiums Earned:

                                                   

Loss ratio

   

44.8

%

   

35.8

%

   

9.0

   

pts

 

53.8

%

   

33.8

%

   

20.0

 

pts

Expense ratio

   

33.7

%

   

25.5

%

   

8.2

   

pts

 

32.2

%

   

24.7

%

   

7.5

 

pts

Combined ratio

   

78.5

%

   

61.3

%

   

17.2

   

pts

 

86.0

%

   

58.5

%

   

27.5

 

pts

Quarterly Financial Results

Net income for the second quarter of 2016 was $18.4 million compared to $25.4 million for the second quarter of 2015.  In the second quarter of 2015, the ceded premium and expense ratios were lower benefitting from larger Citizen assumptions in the fourth quarter of 2014 and first quarter of 2015 when compared to the assumptions in the fourth quarter of 2015 and first quarter of 2016. And despite the improvement from the first quarter of 2016, the loss ratio negatively impacted the second quarter compared to the previous year. Zephyr contributed $3.2 million to net income for the second quarter of 2016.

Gross premiums written were $177.3 million for the second quarter of 2016 compared to $135.6 million for the second quarter of 2015. Part of the growth resulted from Zephyr’s gross premiums written of $14.8 million and our expansion into North Carolina, which produced $2.4 million of gross premiums written.

Gross premiums earned were $163.6 million for the second quarter of 2016 compared to $127.1 million for the second quarter of 2015. Our consolidated premiums in force as of June 30, 2016 and 2015 were approximately $659.6 million and $510.2 million, respectively. 

Ceded premiums as a percentage of gross premiums earned were 33.5% for the second quarter of 2016 compared to 25.4% for the second quarter of 2015. Ceded premiums in the second quarter of 2016 included one month’s cost of our catastrophe reinsurance program that renewed on June 1, 2016 and two months of the 2015-2016 program. The cost of the 2016-2017 reinsurance program was approximately $240 million and provides coverage we believe is suited to our changing mix of business including more wind-only policies and commercial residential policies. Our 2016-2017 reinsurance program provides first event coverage up to $1.9 billion in Florida, first event coverage up to $1.1 billion in Hawaii, and multiple event coverage up to $3.0 billion. As previously disclosed when we announced our new reinsurance program, our expectations for the ceded premium ratio were in the 37% range. The ceded premium ratio could increase slightly by 1 to 2 percentage points depending on the level of Citizens policies assumed over this timeframe.

The loss ratio on a gross basis increased to 29.8% for the second quarter of 2016 from 26.7% for the second quarter of 2015, primarily due to the continued heightened level of water claims we have experienced this year related to the assignment of benefits trend we have seen in the Florida marketplace and attorney involvement in the process.

The Company’s expense ratio on a gross basis was 22.4% for the second quarter of 2016 compared to 19.0% for the second quarter of 2015. The second quarter of 2015 expense ratio benefited from the larger Citizens assumption activity.

Overall, Heritage’s combined ratio on a gross basis was 85.7% for the second quarter of 2016 compared to 71.1% for the second quarter of 2015. The combined ratio for the second quarter of 2016 saw a sequential improvement as compared to 95.5% reported in the first quarter, which was impacted by adverse weather and adverse loss development.

Book Value Analysis

Book value per share increased by 9% from $11.71 at December 31, 2015 to $12.71 at June 30, 2016. The Company repurchased 527,989 shares of common stock in the second quarter pursuant to the Company’s repurchase program.

 

As Of

Book Value Per Share

June 30, 2016

 

December 31, 2015

 

June 30, 2015

Numerator:

         

Common stockholders’ equity

$             372,367

 

$                 356,553

 

$            312,100

Denominator:

         

Total Shares Outstanding

29,301,121

 

30,441,410

 

29,995,560

Book Value Per Common Share

$                 12.71

 

$                     11.71

 

$                10.40

Conference Call Details:

Thursday, August 4, 2016 – 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.

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

 
   

June 30, 2016

   

December 31, 2015

 

ASSETS

 

(unaudited)

         

Fixed maturity securities, available for sale, at fair value (amortized cost of $507,091 and $370,967 in 2016 and 2015, respectively)

 

$

518,211

   

$

371,783

 

Equity securities, available for sale, at fair value (cost of $33,998 and $32,439 in 2016 and 2015, respectively)

   

31,856

     

28,313

 

Total investments

   

550,067

     

400,096

 

Cash and cash equivalents

   

142,952

     

236,277

 

Restricted cash

   

18,644

     

13,085

 

Accrued investment income

   

4,329

     

3,409

 

Premiums receivable, net

   

34,856

     

30,565

 

Prepaid reinsurance premiums

   

226,627

     

78,517

 

Income taxes receivable

   

2,969

     

 

Deferred income taxes

   

     

7,964

 

Deferred policy acquisition costs, net

   

42,568

     

34,800

 

Property and equipment, net

   

17,873

     

17,111

 

Intangibles, net

   

28,467

     

2,120

 

Goodwill

   

48,845

     

8,028

 

Other assets

   

4,768

     

5,426

 

Total Assets

 

$

1,122,965

   

$

837,398

 
                 

LIABILITIES AND STOCKHOLDERS’ EQUITY

               

Unpaid losses and loss adjustment expenses

 

$

117,485

   

$

83,722

 

Unearned premiums

   

340,818

     

302,493

 

Reinsurance payable

   

237,020

     

60,210

 

Deferred income taxes

   

7,616

     

 

Income tax payable

   

     

2,092

 

Advance premiums

   

23,827

     

12,138

 

Accrued compensation

   

6,238

     

2,305

 

Other liabilities

   

17,594

     

17,885

 

Total Liabilities

   

750,598

     

480,845

 
                 
                 

Stockholders’ Equity:

               

Common stock, $0.0001 par value, 50,000,000 shares authorized, 30,426,121 shares issued and 29,301,121 outstanding at June 30, 2016 and 30,441,410 outstanding at December 31, 2015

   

3

     

3

 

Additional paid-in capital

   

205,036

     

202,628

 

Accumulated other comprehensive income (loss)

   

5,563

     

(2,033)

 

Treasury stock, at cost, 1,140,289 shares at June 30, 2016

   

(16,562)

     

 

Retained earnings

   

178,327

     

155,955

 

Total Stockholders’ Equity

   

372,367

     

356,553

 

Total Liabilities and Stockholders’ Equity

 

$

1,122,965

   

$

837,398

 

HERITAGE INSURANCE HOLDINGS, INC.

Consolidated Statements of Income and Other Comprehensive Income

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

Unaudited

 
   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2016

   

2015

   

2016

   

2015

 

REVENUE:

                               

Gross premiums written

 

$

177,295

   

$

135,597

   

$

324,561

   

$

269,565

 

Change in gross unearned premiums

   

(13,658)

     

(8,496)

     

(8,981)

     

(16,463)

 

Gross premiums earned

   

163,637

     

127,101

     

315,580

     

253,102

 

Ceded premiums

   

(54,719)

     

(32,255)

     

(100,320)

     

(56,767)

 

Net premiums earned

   

108,918

     

94,846

     

215,260

     

196,335

 

Net investment income

   

2,223

     

2,090

     

4,260

     

3,723

 

Net realized gains (losses)

   

263

     

(116)

     

644

     

(119)

 

Other revenue

   

3,877

     

2,268

     

6,682

     

4,277

 

Total revenue

   

115,281

     

99,088

     

226,846

     

204,216

 

EXPENSES:

                               

Losses and loss adjustment expenses

   

48,794

     

33,909

     

115,757

     

66,448

 

Policy acquisition costs

   

20,753

     

12,253

     

38,881

     

25,346

 

General and administrative expenses

   

15,977

     

11,936

     

30,411

     

23,140

 

Total expenses

   

85,524

     

58,098

     

185,049

     

114,934

 

Income before income taxes

   

29,757

     

40,990

     

41,797

     

89,282

 

Provision for income taxes

   

11,389

     

15,590

     

16,006

     

33,826

 

Net income

 

$

18,368

   

$

25,400

   

$

25,791

   

$

55,456

 

 

OTHER COMPREHENSIVE INCOME:

                               

Change in net unrealized gains (losses) on investments

   

8,928

     

(2,663)

     

13,010

     

(5,470)

 

Reclassification adjustment for net realized investment (gains) losses

   

(263)

     

116

     

(644)

     

119

 

Income tax (expense) benefit related to items of other comprehensive income (loss)

   

(3,348)

     

983

     

(4,770)

     

2,064

 

Total comprehensive income

 

$

23,685

   

$

23,836

   

$

33,387

   

$

52,169

 

 

Weighted average shares outstanding

                               

Basic

   

29,653,668

     

29,877,636

     

30,010,776

     

29,838,322

 

Diluted

   

29,653,668

     

30,268,496

     

30,072,624

     

30,192,216

 

Earnings per share

                               

Basic

 

$

0.62

   

$

0.85

   

$

0.86

   

$

1.86

 

Diluted

 

$

0.62

   

$

0.84

   

$

0.86

   

$

1.84

 

About Heritage

Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Florida. Its subsidiaries, Heritage Property & Casualty Insurance Company and Zephyr Insurance Company, write approximately $600 million and $60 million, respectively, of personal and commercial residential premium through a large network of experienced agents. The Company is currently writing property and casualty insurance policies in Florida, Hawaii, North Carolina and South Carolina. Heritage Insurance Holdings, Inc. is led by a seasoned senior management team with an average of 30 years of insurance industry experience.

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. The risks 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 marketing initiatives; inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectability of reinsurance; assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to 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 reserves 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, 2015 filed with the Securities and Exchange Commission on March 8, 2016. 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.

Heritage Insurance Holdings Inc.

Investor Contact:
Steve Martindale, CFO
727-362-7203
smartindale@heritagepci.com 
or
Melanie Skijus, Investor Relations Director
727-362-7262
mskijus@heritagepci.com

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SOURCE Heritage Insurance Holdings, Inc.