Heritage Reports Fourth Quarter 2020 Results

CLEARWATER, Fla., March 3, 2021 /PRNewswire/ – Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a super-regional property and casualty insurance holding company, today reported fourth quarter 2020 financial results.

Fourth Quarter 2020 Highlights

Net income of $2.8 million, or $0.10 per diluted share.
Book value per share of $15.94, up 1.8% year-over-year.
Gross premiums written of $282.3 million, up 19.9% year-over-year.
Launched partnership with The Hartford to offer bundled home and auto policies.
Favorable prior year reserve development of $4.7 million.
Net current accident quarter weather losses of $38.9 million, up substantially from $15.3 million in the prior year quarter. Current accident quarter weather losses include $24.4 million of catastrophe losses and $14.5 million of other weather losses.
Total capital returned to shareholders of $1.7 million, reflecting $0.06 per share regular quarterly dividend.
Began writing homeowners insurance in Maryland, representing sixteenth active state.

Ernie Garateix, the Company’s CEO, said, “We were able to generate positive net income in the fourth quarter and full year and grow book value per share year-over-year despite experiencing unprecedented weather losses. I believe our solid organic growth platform and heightened focus on underwriting profitability position us well for 2021 and beyond.”

Quarterly Dividend
Heritage’s Board of Directors declared a quarterly cash dividend of $0.06 per share on the Company’s common stock. The dividend will be paid on April 6, 2021 to shareholders of record as of March 15, 2021.

COVID-19 Update
We continue to monitor the short- and long-term impacts of COVID-19 and through December 31, 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 twelve months ended December 31, 2020 and 2019 (amounts in thousands, except percentages and per share amounts):

		Three Months Ended December 31,									Year Ended December 31,
		2020			2019		Change				2020			2019		Change

Revenue	$		159,548	$		138,502		15.2%		$		593,385	$		511,304		16.1%
Net income	$		2,808	$		12,818		(78.1)%		$		9,326	$		28,636		(67.4)%
Per share	$		0.10	$		0.44		(77.3)%		$		0.33	$		0.98		(66.3)%


Book value per share	$		15.94	$		15.66		1.8%		$		15.94	$		15.66		1.8%
Return on equity			2.5%			11.5%		(9.0)	pts			2.1%			6.6%		(4.5)	pts

Underwriting summary
Gross premiums written	$		282,324	$		235,446		19.9%		$		1,080,100	$		937,937		15.2%
Gross premiums earned	$		265,353	$		234,082		13.4%		$		996,842	$		924,247		7.9%
Ceded premiums earned	$		(113,923)	$		(103,005)		10.6%		$		(452,120)	$		(445,534)		1.5%
Net premiums earned	$		151,430	$		131,077		15.5%		$		544,722	$		478,713		13.8%

Ceded premium ratio			42.9%			44.0%		(1.1)	pts			45.4%			48.2%		(2.8)	pts

Ratios to Net Premiums Earned:
Loss ratio			70.4%			51.0%		19.4	pts			68.5%			57.1%		11.4	pts
Expense ratio			38.3%			38.3%		0.0	pts			38.5%			39.4%		(0.9)	pts
Combined ratio			108.7%			89.3%		19.4	pts			107.0%			96.5%		10.5	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 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
Fourth quarter 2020 net income was $2.8 million, down from net income of $12.8 million in the prior year quarter. The decrease primarily stems from elevated weather losses, partly offset by a tax benefit in the current year quarter.

Gross premiums written were $282.3 million, up 19.9% year-over-year, including growth in all states and product lines. Growth was partly attributable to rate increases, particularly in Florida

Premiums-in-force were $1.1 billion in fourth quarter 2020, representing a 17.6% annualized growth rate from third quarter 2020. The sequential increase stems from the same items impacting gross premiums written.

Gross premiums earned were $265.4 million in fourth quarter 2020, up 13.4% from $234.1 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.

The ceded premium ratio was 42.9% in fourth quarter 2020, down 1.1 points from 44.0% in the prior year quarter. The decrease primarily stems from gross premiums earned growth that modestly outpaced ceded premium growth and from year-end true-ups that benefited the current year quarter.

The net loss ratio was 70.4% in fourth quarter 2020, up 19.4 points from 51.0% in the prior year quarter. The increase primarily stems from higher current accident year weather losses.

The net expense ratio was 38.3% in fourth quarter 2020, unchanged from the prior year quarter.

The net combined ratio was 108.7% in fourth quarter 2020, up 19.4 points from 89.3% in the prior year quarter. The increase stems from a higher net loss ratio, as described above.

Book Value Analysis
Book value per share increased to $15.94 at December 31, 2020, up 1.8% year-over-year.

	As Of
Book Value Per Share	December 31, 2020		December 31, 2019		December 31, 2018
Numerator:
Common stockholders’ equity	$	442,344	$	448,799	$	425,333
Denominator:
Total Shares Outstanding		27,748,606		28,650,918		29,477,756
Book Value Per Common Share	$	15.94	$	15.66	$	14.43

Conference Call Details:
Wednesday, March 3, 2020 – 9:30 a.m. ET
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)

	*December 31,*
	2020		2019
ASSETS
Fixed maturities, available-for-sale, at fair value	$	561,011	$	587,256
Equity securities, at fair value		1,599		1,618
Other investments		26,409		6,375
Total investments		589,019		595,249
Cash and cash equivalents		440,956		268,351
Restricted cash		5,427		14,657
Accrued investment income		2,737		4,377
Premiums receivable, net		77,471		63,685
Reinsurance recoverable on paid and unpaid claims, net		355,037		428,903
Prepaid reinsurance premiums		245,818		224,102
Income taxes receivable		32,224		3,171
Deferred policy acquisition costs, net		89,265		77,211
Property and equipment, net		18,685		20,753
Intangibles, net		62,277		68,642
Goodwill		152,459		152,459
Other assets		18,004		18,110
Total Assets	$	2,089,379	$	1,939,670
LIABILITIES AND STOCKHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses	$	659,341	$	613,533
Unearned premiums		569,618		486,220
Reinsurance payable		161,918		156,351
Long-term debt, net		120,998		129,248
Deferred income tax, net		18,477		12,623
Advance premiums		18,268		16,504
Accrued compensation		9,325		5,347
Accounts payable and other liabilities		89,090		71,045
Total Liabilities	$	1,647,035	$	1,490,871

Commitments and contingencies
Stockholders’ Equity:
Common stock		3		3
Additional paid-in capital		331,867		329,568
Accumulated other comprehensive income, net of taxes		6,057		7,330
Treasury stock		(115,365)		(105,368)
Retained earnings		219,782		217,266
Total Stockholders’ Equity		442,344		448,799
Total Liabilities and Stockholders’ Equity	$	2,089,379	$	1,939,670

HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Other Comprehensive Income
(Amounts in thousands, except per share and share amounts)
(Unaudited)


	Three Months Ended December 31,				*Year Ended December 31,*
	2020		2019		2020		2019
REVENUE:
Gross premiums written	$	282,324	$	235,446	$	1,080,100	$	937,937
Change in gross unearned premiums		(16,971)		(1,364)		(83,258)		(13,690)
Gross premiums earned		265,353		234,082		996,842		924,247
Ceded premiums		(113,923)		(103,005)		(452,120)		(445,534)
Net premiums earned		151,430		131,077		544,722		478,713
Net investment income		2,519		3,275		12,302		14,432
Net realized and unrealized gains		2,018		1,031		22,395		4,163
Other revenue		3,581		3,119		13,966		13,997
Total revenue		159,548		138,502		593,385		511,305
EXPENSES:
Losses and loss adjustment expenses		106,618		66,798		373,387		273,288
Policy acquisition costs		36,032		28,113		128,276		107,906
General and administrative expenses		21,954		22,079		81,537		80,544
Total expenses		164,604		116,990		583,200		461,738
Operating (loss) income	$	(5,056)	$	21,512	$	10,185	$	49,567
Interest expense, net		2,033		2,021		7,972		8,523
Other non-operating loss, net		0		0		0		48
(Loss) Income before taxes	$	(7,089)	$	19,491	$	2,213	$	40,996
(Benefit) Provision for income taxes		(9,897)		6,673		(7,113)		12,360
Net income	$	2,808	$	12,818	$	9,326	$	28,636
OTHER COMPREHENSIVE INCOME:
Change in net unrealized gains on investments		1,408		232		20,738		19,765
Reclassification adjustment for net realized investment gains		(2,018)		(2,025)		(22,395)		(1,734)
Income tax benefit (expense) related to items of other
comprehensive income		142		573		384		(4,174)
Total comprehensive income	$	2,340	$	11,598	$	8,053	$	42,493

Weighted average shares outstanding
Basic		27,748,606		28,871,197		27,978,519		29,213,910
Diluted		27,753,317		28,878,440		27,988,966		29,232,981

Earnings per share
Basic	$	0.10	$	0.44	$	0.33	$	0.98
Diluted	$	0.10	$	0.44	$	0.33	$	0.98

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 over $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 profitability position for 2021 and beyond given our solid organic growth platform and heightened focus on underwriting. 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 underwriting and profitability initiatives; the continued and potentially prolonged impact of the COVID-19 pandemic on the economy, demand for our products and our operations; inflation and other changes in economic conditions (including changes in interest rates and financial and real estate 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 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 subsequent developments or otherwise.

Investor Contact:
Arash Soleimani, CFA, CPA
Executive Vice President
727.871.0206
Email: asoleimani@heritagepci.com

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