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

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

CLEARWATER, Fla., Nov. 8, 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 September 30, 2016.

Heritage Insurance

Third Quarter Highlights

  • 28% increase in gross premiums earned for 3Q16 as compared to 3Q15
  • 36% increase in policy count at September 30, 2016 as compared to September 30, 2015
  • Net income of $10.9 million for 3Q16 and $36.7 million YTD 2016
  • Stockholders’ equity of $377.2 million at September 30, 2016 increased 14% compared to September 30, 2015
  • Return on average equity of 11.7% in 3Q16
  • Repurchased 284,377 shares for a total of $4.0 million in 3Q16; $49 million remains in share repurchase authorization
  • Continued growth in voluntary personal lines aided by expansion in North Carolina with 4,899 policies-in-force at September 30, 2016
  • Began writing policies in South Carolina with production showing steady growth month over month

Bruce Lucas, the Company’s Chairman and CEO, said, “Florida experienced its first hurricane in over ten years during the third quarter. Our vertically integrated claims department was instrumental in our response to Hurricane Hermine and we were able to respond efficiently to the needs of our policyholders. Our ability to quickly service policyholders, many within hours of the storm, demonstrates the benefits of our unique approach to managing claims. Losses from the storm were contained, and our current estimate for losses related to Hurricane Hermine is $4 million. Despite the hurricane, I am pleased to report net income of $10.9 million and return on average equity of 11.7 percent for the quarter.”

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 fourth quarter dividend of $0.06 per share is payable on January 4, 2017 to stockholders of record as of December 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 nine months ended September 30, 2016 and 2015 (in thousands, except percentages and per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

2016

2015

Change

2016

2015

     Change

Revenue

Gross premiums written

$

147,232

$

148,993

(1%)

$

471,793

$

418,558

13

%

Gross premiums earned

$

164,696

$

128,234

28

%

$

480,276

$

381,336

26

%

Ceded premiums

$

(63,141)

$

(45,873)

38

%

$

(163,461)

$

(102,640)

59

%

Net premiums earned

$

101,555

$

82,361

23

%

$

316,815

$

278,696

14

%

Total operating revenue

$

109,306

$

89,244

22

%

$

336,151

$

293,460

15

%

Income before taxes

$

18,612

$

27,715

(33%)

$

60,408

$

116,997

(48%)

Net income

$

10,930

$

16,813

(35%)

$

36,720

$

72,269

(49%)

Per Share Data:

Book value per share

$

13.00

$

10.98

18

%

$

13.00

$

10.98

18

%

Earnings per diluted share

$

0.37

$

0.55

(33%)

$

1.23

$

2.39

(49%)

Return on average equity

11.7

%

20.9

%

(9.2)

pts

20.0

%

32.8

%

(12.8)

pts

Ratios to Gross Premiums Earned:

Ceded premium ratio

38.4

%

35.8

%

2.6

pts

34.0

%

26.9

%

7.1

pts

Loss ratio

32.7

%

27.9

%

4.8

pts

35.3

%

26.8

%

8.5

pts

Expense ratio

22.3

%

20.1

%

2.2

pts

22.1

%

19.5

%

2.6

pts

Combined ratio

93.4

%

83.8

%

9.6

pts

91.4

%

73.2

%

18.2

pts

Ratios to Net Premiums Earned:

Loss ratio

53.1

%

43.5

%

9.6

pts

53.6

%

36.7

%

16.9

pts

Expense ratio

36.2

%

31.3

%

4.9

pts

33.4

%

26.6

%

6.8

pts

Combined ratio

89.3

%

74.8

%

14.5

pts

87.0

%

63.3

%

23.7

pts

Third Quarter Financial Results

Net income for the third quarter of 2016 was $10.9 million compared to $16.8 million for the third quarter of 2015. 

Gross premiums written were $147.2 million for the third quarter of 2016 compared to $149.0 million for the third quarter of 2015. The roll-out of personal residential business in North Carolina and South Carolina continues with $3.3 million and $200,000 respectively, in gross premium written for the third quarter. This voluntary business expansion in addition to the contribution from Zephyr during the quarter were offset by a lack of Citizens assumption activity as compared to the third quarter of 2015, in which $33.1 million in assumed premiums written was booked.

Gross premiums earned were $164.7 million for the third quarter of 2016 compared to $128.2 million for the third quarter of 2015. Our consolidated premiums in force as of September 30, 2016 and 2015 were approximately $646.0 million and $542.1 million, respectively, and this year-over-year increase had a favorable impact on gross premiums earned.

Ceded premiums as a percentage of gross premiums earned were 38.4% for the third quarter of 2016 compared to 35.8% for the third quarter of 2015. The increase in ceded premium ratio reflects our changing business mix to more wind-only policies and commercial residential business that carry a higher reinsurance expense but lower attritional losses. In the third quarter of 2016, wind-only and commercial residential business represented approximately 33% of our gross premiums earned versus 17% in the third quarter of 2015.

The loss ratio on a gross basis increased to 32.7% for the third quarter of 2016 from 27.9% for the third quarter of 2015, primarily due to severe weather activity, including $4 million in insured losses from Hurricane Hermine, and the impact of litigated and attorney represented claims.

The Company’s expense ratio on a gross basis was 22.3% for the third quarter of 2016 compared to 20.1% for the third quarter of 2015, primarily due to the favorable impact the larger Citizens takeout activity had on the third quarter 2015 acquisition costs.

Overall, Heritage’s combined ratio on a gross basis was 93.4% for the third quarter of 2016 compared to 83.8% for the third quarter of 2015.

First Nine Months of 2016 Financial Results

Net income for the first nine months of 2016 was $36.7 million as compared to $72.3 million for the first nine months of 2015. The decrease in net income was primarily due to the favorable ceded premium ratio recorded in 2015 resulting from larger Citizens’ take-out activity and an increase in the Company’s incurred loss ratio in 2016 due to severe weather activity in the first and third quarters, and adverse development related primarily to litigated and attorney represented claims.

Book Value Analysis

Book value per share increased by 11% from $11.71 at December 31, 2015 to $13.00 at September 30, 2016. The Company repurchased approximately 1.4 million shares of common stock in the first nine months of 2016 pursuant to the Company’s repurchase program.

As Of

Book Value Per Share

Sep 30, 2016

Dec 31, 2015

Sep 30, 2015

Numerator:

Common stockholders’ equity

$             377,244

$                 356,553

$            332,400

Denominator:

Total Shares Outstanding

29,016,744

30,441,410

30,285,410

Book Value Per Common Share

$                 13.00

$                     11.71

$                10.98

Subsequent Event: Hurricane Matthew

During the fourth quarter of 2016, Hurricane Matthew impacted Florida and North Carolina where Heritage writes property insurance. Heritage teams have been working diligently to address claims of insureds that were impacted by the storm. Heritage has received approximately 2,500 claims to date related to Hurricane Matthew. At this time, the Company expects pre-tax catastrophe losses could reach approximately $30 million, less than its full retention of $40 million.

Conference Call Details:

Wednesday, November 9, 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)

September 30, 2016

December 31, 2015

ASSETS

(unaudited)

Fixed maturity securities, available for sale, at fair value (amortized
 
cost of $509,184 and $370,967 in 2016 and 2015, respectively)

$

517,573

$

371,783

Equity securities, available for sale, at fair value (cost of $33,935 and
$32,439 in 2016 and 2015, respectively)

32,205

28,313

Total investments

549,778

400,096

Cash and cash equivalents

130,835

236,277

Restricted cash

19,261

13,085

Accrued investment income

4,624

3,409

Premiums receivable, net

35,161

30,565

Prepaid reinsurance premiums

168,650

78,517

Income taxes receivable

5,280

Deferred income taxes

7,964

Deferred policy acquisition costs, net

42,129

34,800

Property and equipment, net

17,600

17,111

Intangibles, net

26,402

2,120

Goodwill

48,267

8,028

Other assets

5,727

5,426

Total Assets

$

1,053,714

$

837,398

LIABILITIES AND STOCKHOLDERS’ EQUITY

Unpaid losses and loss adjustment expenses

$

125,695

$

83,722

Unearned premiums

323,354

302,493

Reinsurance payable

177,867

60,210

Deferred income taxes

6,966

Income tax payable

2,092

Advance premiums

20,382

12,138

Accrued compensation

5,500

2,305

Other liabilities

16,706

17,885

Total Liabilities

676,470

480,845

Commitments and contingencies

Stockholders’ Equity:

Common stock, $0.0001 par value, 50,000,000 shares authorized,
30,141,742 shares issued and 29,016,744 outstanding at September 30, 2016
and 30,441,410 outstanding at December 31, 2015

3

3

Additional paid-in capital

206,240

202,628

Accumulated other comprehensive income (loss)

4,116

(2,033)

Treasury stock, at cost, 1,424,666 shares at September 30, 2016

(20,562)

Retained earnings

187,447

155,955

Total Stockholders’ Equity

377,244

356,553

Total Liabilities and Stockholders’ Equity

$

1,053,714

$

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 September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

REVENUE:

Gross premiums written

$

147,232

$

148,993

$

471,793

$

418,558

Change in gross unearned premiums

17,464

(20,759)

8,483

(37,222)

Gross premiums earned

164,696

128,234

480,276

381,336

Ceded premiums

(63,141)

(45,873)

(163,461)

(102,640)

Net premiums earned

101,555

82,361

316,815

278,696

Net investment income

2,326

1,973

6,586

5,696

Net realized gains

1,119

1,946

1,762

1,827

Other revenue

4,306

2,964

10,988

7,241

Total revenue

109,306

89,244

336,151

293,460

EXPENSES:

Losses and loss adjustment expenses

53,906

35,791

169,663

102,239

Policy acquisition costs

22,597

15,512

61,478

40,858

General and administrative expenses

14,191

10,226

44,602

33,366

Total expenses

90,694

61,529

275,743

176,463

Income before income taxes

18,612

27,715

60,408

116,997

Provision for income taxes

7,682

10,902

23,688

44,728

Net income

$

10,930

$

16,813

$

36,720

$

72,269

OTHER COMPREHENSIVE INCOME:

Change in net unrealized gains (losses) on
investments

(1,237)

(1,168)

11,773

(6,638)

Reclassification adjustment for net realized
investment (gains) losses

(1,119)

(1,946)

(1,762)

(1,827)

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

908

1,201

(3,862)

3,265

Total comprehensive income

$

9,482

$

14,900

$

42,869

$

67,069

Weighted average shares outstanding

Basic

29,213,222

30,177,633

29,742,984

29,952,668

Diluted

29,213,222

30,483,553

29,786,156

30,289,328

Earnings per share

Basic

$

0.37

$

0.56

$

1.23

$

2.41

Diluted

$

0.37

$

0.55

$

1.23

$

2.39

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 $587 million and $58 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: weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); 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 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; 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.