Heritage Insurance Holdings, Inc. Reports Financial Results for Second Quarter of 2017

Heritage Insurance Holdings, Inc. Reports Financial Results for Second Quarter of 2017

CLEARWATER, Fla., Aug. 8, 2017 /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, 2017.

Heritage Insurance (PRNewsFoto/Heritage Insurance Holdings, Inc)

Second Quarter Highlights

  • Non-catastrophe loss ratio improved 1.4 points to 28.4% in Q2 2017 as compared to Q2 2016
  • Net income of $6.6 million for Q2 2017
  • Book value per share increased 2% as compared to Q2 2016 to $12.97
  • Stockholders’ equity of $365.3 million at June 30, 2017
  • Repurchased 322,811 shares for a total of $4.1 million in Q2 2017
  • Wrote first policy in Alabama

Bruce Lucas, the Company’s Chairman and CEO, said, “Heritage achieved several important milestones in the second quarter. Our underwriting and exposure management program saved the Company nearly $20.0 million on our annual catastrophe reinsurance spend. We have continued to take underwriting actions this quarter to strengthen the quality of our Florida book of business. For example, we have implemented rate increases in the geographic areas exposed to Assignment of Benefit practices, and we continue to apply insurance scoring metrics to attract high-quality business. While Tri-County continues to lead Florida in assignment of benefits and other abusive claims practices, which drives increases in property insurance costs for Florida consumers, we are optimistic the Florida OIR will approve form changes aimed at addressing this epidemic in the near term. The Company continued its multi-state expansion and wrote its first policy in Alabama.”

Results of Operations

The following table summarizes our results of operations for the three and six  months ended June 30, 2017 and 2016 (in thousands, except percentages and per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

2017

2016

Change

2017

2016

Change

Revenue

Gross premiums written

$

159,255

$

177,295

(10)

%

$

301,490

$

324,561

(7)

%

Gross premiums earned

$

152,354

$

163,637

(7)

%

$

306,962

$

315,580

(3)

%

Ceded premiums

$

(61,902)

$

(54,719)

13

%

$

(124,334)

$

(100,320)

24

%

Net premiums earned

$

90,452

$

108,918

(17)

%

$

182,628

$

215,260

(15)

%

Total operating revenue

$

96,938

$

115,281

(16)

%

$

196,231

$

226,846

(13)

%

Operating income

$

13,062

$

29,757

(56)

%

$

24,952

$

41,797

(40)

%

Income before taxes

$

10,831

$

29,757

(64)

%

$

20,540

$

41,797

(51)

%

Net income

$

6,642

$

18,368

(64)

%

$

12,625

$

25,791

(51)

%

Per Share Data:

Book value per share

$

12.97

$

12.71

2.1

%

$

12.97

$

12.71

2.1

%

Earnings per diluted share

$

0.23

$

0.62

(63)

%

$

0.44

$

0.86

(49)

%

Return on average equity

7.3

%

20.2

%

(12.9)

pts

7.0

%

14.2

%

(7.2)

pts

Ratios to gross premiums earned:

Ceded premium ratio

40.6

%

33.5

%

7.1

pts

40.5

%

31.8

%

8.7

pts

Loss ratio

30.2

%

29.8

%

0.4

pts

30.2

%

36.7

%

(6.5)

pts

Operating expense ratio

24.9

%

22.4

%

2.5

pts

25.6

%

22.0

%

3.6

pts

Combined ratio

95.7

%

85.7

%

10.0

pts

96.3

%

90.5

%

5.8

pts

Ratios to net premiums earned:

Loss ratio

50.9

%

44.8

%

6.1

pts

50.8

%

53.8

%

(3.0)

pts

Operating expense ratio

41.8

%

33.7

%

8.1

pts

43.0

%

32.2

%

10.8

pts

Combined ratio

92.7

%

78.5

%

14.2

pts

93.8

%

86.0

%

7.8

pts

Quarterly Financial Results

Net income for the second quarter of 2017 was $6.6 million compared to $18.4 million for the second quarter of 2016. The decrease in net income is largely due to a decrease in gross premiums earned, coupled with an increase in the combined ratio. Additionally, the second quarter of 2017 included interest and amortization expense of $2.2 million on the Secured Notes that we issued in December 2016.

Gross premiums earned were $152.4 million for the second quarter of 2017 compared to $163.6 million for the second quarter of 2016.  This decrease was driven by underwriting and exposure management aimed at improving underwriting results, including not participating in the assumption of Citizens policies since the first quarter of 2016 and discontinuing writng new business in the Tri-County area.  Second quarter 2016 gross earned premiums benefited by $16.0 million from Citizins take-outs.

Ceded premiums as a percentage of gross premiums earned were 40.6% for the second quarter of 2017 compared to 33.5% for the second quarter of 2016.  Citizens take-outs provided a 3.3 percentage point benefit to the second quarter 2016 ratio. The reduction in gross earned premium in the second quarter of 2017, and a reinstatement premium related to a large loss, increased the ratio by approximately 2.5 percentage points. On June 1, 2017, we placed our 2017-2018 catastrophe resinsurance program, at an estimated cost of $225.0 million.

The loss ratio as measured against gross premiums earned was fairly consistent for the second quarters of 2017 and 2016 at 30.2% and 29.8%, respectively. The non-catastrophe loss ratio improved 1.4 points to 28.4% in Q2 2017 as compared to Q2 2016.

The Company’s operating expense ratio on a gross basis was 24.9% for the second quarter of 2017 compared to 22.4% for the second quarter of 2016. The second quarter of 2016 expense ratio benefited from the Citizens assumption activity by approximately 1.4 percentage points, due to the lack of acquisition expenses associated with the assumptions. 

Heritage’s combined ratio on a gross basis was 95.7% for the second quarter of 2017 compared to 85.7% for the second quarter of 2016.  The combined ratio increased due to the increases in the ceded premium ratio, loss ratio and the gross operating expense ratio, as described above.

Book Value Analysis

Book value per share increased by 4.5% from $12.41 at December 31, 2016 to $12.97 at June 30, 2017. The increase in the Company’s book value reflects the repurchase of 684,022 shares of common stock in the first six months of 2017 pursuant to the Company’s repurchase program, coupled with a reduction in unrealized losses on the investment portfolio in the second quarter due to improved pricing on the fixed income portfolio.

As of

Book Value Per Share

June 30, 2017

December 31, 2016

June 30, 2016

Numerator:

Common stockholders’ equity

$                             365,267

$                             357,959

$                             372,367

Denominator:

Total shares outstanding

28,156,421

28,840,443

29,301,121

Book value per common share

$                                 12.97

$                                 12.41

$                                 12.71

Conference Call Details:

Wednesday, August 9, 2017 – 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.

Consolidated Statements of Income and Other Comprehensive Income
(In thousands, except share and per share amounts)
(unaudited)

Three Months Ended June 30,

 Six Months Ended June 30,

2017

2016

2017

2016

REVENUE:

Gross premiums written

$      159,255

$      177,295

$      301,490

$      324,561

Change in gross unearned premiums

(6,901)

(13,658)

5,472

(8,981)

Gross premiums earned

152,354

163,637

306,962

315,580

Ceded premiums

(61,902)

(54,719)

(124,334)

(100,320)

Net premiums earned

90,452

108,918

182,628

215,260

Net investment income

2,973

2,223

5,475

4,260

Net realized (losses) gains

(125)

263

646

644

Other revenue

3,638

3,877

7,482

6,682

Total revenue

96,938

115,281

196,231

226,846

OPERATING EXPENSES:

Losses and loss adjustment expenses

46,046

48,794

92,693

115,757

Policy acquisition costs

21,738

20,753

45,180

38,881

General and administrative expenses

16,092

15,977

33,406

30,411

Total operating expenses

83,876

85,524

171,279

185,049

Operating income

13,062

29,757

24,952

41,797

Interest expense, net

1,990

3,934

Amortization of debt issuance costs

241

478

Income before income taxes

10,831

29,757

20,540

41,797

Provision for income taxes

4,189

11,389

7,915

16,006

Net income

6,642

18,368

12,625

25,791

OTHER COMPREHENSIVE INCOME:

Change in net unrealized gains on investments

3,899

8,928

7,880

13,010

Reclassification adjustment for net realized investment   losses (gains)

125

(263)

(646)

(644)

Income tax expense related to items of other comprehensive income

(1,549)

(3,348)

(2,785)

(4,770)

Total comprehensive income

$          9,117

$        23,685

$        17,074

$        33,387

Weighted average shares outstanding

Basic

28,283,587

29,653,668

28,543,703

30,010,776

Diluted

28,283,587

29,653,668

28,543,703

30,072,624

Earnings per share

Basic

$              0.23

$              0.62

$              0.44

$              0.86

Diluted

$              0.23

$              0.62

$              0.44

$              0.86

Consolidated Balance Sheets
(In thousands, except share and per share amounts)

June 30, 2017

December 31, 2016

ASSETS

(unaudited)

Fixed maturity securities, available for sale, at fair value (amortized
  cost of $567,937 and $576,911 in 2017 and 2016, respectively)

$                  569,052

$                    571,011

Equity securities, available for sale, at fair value (cost of $34,175  
  and $34,190 in 2017 and 2016, respectively)

32,139

31,971

Total investments

601,191

602,982

Cash and cash equivalents

134,176

105,817

Restricted cash

18,381

20,910

Accrued investment income

5,105

4,764

Premiums receivable, net

38,960

42,720

Prepaid reinsurance premiums

213,009

106,609

Income taxes receivable

2,297

10,713

Deferred policy acquisition costs, net

41,792

42,779

Property and equipment, net

16,547

17,179

Intangibles, net

23,526

26,542

Goodwill

46,454

46,454

Other assets

7,197

5,775

Total Assets

$               1,148,635

$                 1,033,244

LIABILITIES AND STOCKHOLDERS’ EQUITY

Unpaid losses and loss adjustment expenses

$                  122,785

$                    140,137

Unearned premiums

312,552

318,024

Reinsurance payable

224,807

96,667

Note payable, net of issuance costs

73,276

72,905

Deferred income taxes

4,651

3,003

Income tax payable

Advance premiums

25,884

18,565

Accrued compensation

5,479

4,303

Other liabilities

13,934

21,681

Total Liabilities

$                  783,368

$                    675,285

Commitments and contingencies

Stockholders’ Equity:

Common stock, $0.0001 par value, 50,000,000 shares authorized, 
  29,056,421 shares issued and 28,156,421 outstanding at June 30, 2017
  and 29,740,441 shares issued and 28,840,443 outstanding at
  December 31, 2016

3

3

Additional paid-in capital

208,135

205,727

Accumulated other comprehensive loss

(569)

(5,018)

Treasury stock, at cost, (2,443,352) shares at June 30, 2017 and 
  (1,759,330) shares at December 31, 2016

(34,169)

(25,562)

Retained earnings

191,867

182,809

Total Stockholders’ Equity

365,267

357,959

Total Liabilities and Stockholders’ Equity

$               1,148,635

$                 1,033,244

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 personal and commercial residential premium through a large network of experienced agents in Florida, Hawaii, North Carolina, South Carolina, Georgia and Alabama. 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 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, 2016 filed with the Securities and Exchange Commission on March 15, 2017. 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
Joseph Peiso, Investor Relations Director
727-362-7261
jpeiso@heritagepci.com

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SOURCE Heritage Insurance Holdings, Inc.