Heritage Reports Fourth Quarter and Full-Year 2019 Results

CLEARWATER, Fla., Feb. 27, 2020 /PRNewswire/ — Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a super-regional property and casualty insurance holding company, today reported fourth quarter 2019 financial results.

Heritage Insurance (PRNewsFoto/Heritage Insurance Holdings, Inc)

Fourth Quarter 2019 Highlights

  • Net income for the quarter was $12.8 million, or $0.44 per diluted share.
  • Book value per share increased to $15.66, up 8.5% from year-end 2018.
  • Gross premiums written were $235.4 million, up 6.2% year-over-year, including 9.4% growth outside Florida and 3.5% growth in Florida, reflecting positive organic growth across all states and lines of business.
  • Favorable prior year reserve development of $1.4 million, representing the sixth consecutive quarter of favorable prior year reserve development.
  • Net current accident quarter weather losses of $15.3 million, including $5.1 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather and catastrophe losses were $23.3 million and $16.8 million, respectively.
  • Repurchased 312,923 shares for $4.3 million at an average price of $13.71 per share, 12.5% below fourth quarter 2019 book value per share. Total capital returned to shareholders was $6.0 million, including $0.06 per share regular quarterly dividend.
  • Percentage of litigated non-hurricane claims stemming from Tri-County, Florida declined by 830 basis points year-over-year.

Bruce Lucas, the Company’s Chairman and CEO, said, “I’m really proud of our fourth quarter results, which included an acceleration to 6.2% organic gross premiums written growth, as our de-risking efforts are basically complete, while our new business generation and retention remain strong. Underwriting performance was solid and we reported our sixth consecutive quarter of favorable reserve development. I believe we are well positioned for 2020 and look forward to the year ahead.”

Results of Operations
The following table summarizes our results of operations for the three and twelve months ended December 31, 2019 and 2018 (amounts in thousands, except percentages and per share amounts):

Three Months Ended December 31,

Year Ended December 31,

2019

2018

Change

2019

2018

Change

Revenue

$

138,502

$

124,878

11%

$

511,304

$

480,171

6%

Net income

$

12,818

$

3,928

226%

$

28,636

$

27,155

5%

Per share

$

0.44

$

0.15

193%

$

0.98

$

1.04

(6)%

Book value per share

$

15.66

$

14.43

9%

$

15.66

$

14.43

9%

Return on equity*

11.5%

3.9%

7.6pts

6.6%

6.7%

(0.1) pts

Underwriting summary

Gross premiums written

$

235,446

$

221,706

6%

$

937,937

$

923,349

2%

Gross premiums earned

$

234,082

$

234,028

0%

$

924,247

$

926,326

(0)%

Ceded premiums earned

$

(103,005)

$

(115,396)

(11)%

$

(445,534)

$

(472,144)

(6)%

Net premiums earned

$

131,077

$

118,632

10%

$

478,713

$

454,182

5%

Ceded premium ratio

44.0%

49.3%

(5.3) pts

48.2%

51.0%

(2.8) pts

Ratios to Net Premiums Earned:

Loss ratio

51.0%

50.3%

0.7 pts

57.1%

52.3%

4.8 pts

Expense ratio

38.3%

36.1%

2.2 pts

39.4%

38.1%

1.3 pts

Combined ratio

89.3%

86.4%

2.9 pts

96.5%

90.4%

6.1 pts

 

*Return on equity represents annualized net income for the period divided by average stockholders’ equity during the period.

 

Ratios
Ceded premium ratio represents ceded premiums earned 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 expenses (G&A) as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs 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 insurance industry. A net combined ratio under 100% generally reflects profitable underwriting results.

Quarterly Financial Results
Fourth quarter 2019 net income was $12.8 million, up from $3.9 million in the prior year quarter. The increase primarily reflects $11.3 million of non-core pre-tax charges in the prior year quarter associated with debt refinancing.   

Gross premiums written were $235.4 million in fourth quarter 2019, up 6.2% from $221.7 million in the prior year quarter. The increase reflects 9.4% growth outside Florida and 3.5% growth in Florida, reflecting positive organic growth across all states and lines of business.

Premiums-in-force were $940.6 million, representing a 6.1% compound annual growth rate from third quarter 2019. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were $234.1 million in fourth quarter 2019, basically in line with $234.0 million in the prior year quarter.

The ceded premium ratio was 44.0% in fourth quarter 2019, down 5.3 points from 49.3% in the prior year quarter. The decrease is primarily attributable to a reduction in overall quota share reinsurance coverage and reinsurance synergies, partly offset by additional catastrophe excess-of-loss reinsurance coverage. Effective December 31, 2019, net quota share reinsurance coverage, which only applies to a portion of the Company’s business, increased from 52.0% to 56.0%.

The net loss ratio was 51.0% in fourth quarter 2019, up 70 basis points from 50.3% in the prior year quarter. The increase primarily reflects higher attritional current accident year losses and lower income from vertically integrated operations, partly offset by lower weather-related losses.

The net expense ratio was 38.3% in fourth quarter 2019, up 2.2 points from 36.1% in the prior year quarter. The increase primarily stems from the timing of variable compensation accruals and higher expenses associated with insurance licenses and fees, partly offset by a lower ceded premium ratio.

The net combined ratio was 89.3% in fourth quarter 2019, up 2.9 points from 86.4% in the prior year quarter. The increase primarily stems from a higher net expense ratio, as described above.

Full Year Financial Results
Full-year 2019 net income was $28.6 million, compared to $27.2 million for the prior year. The increase primarily reflects higher non-core pre-tax charges in the prior year and lower interest expense in the current year, mostly associated with debt refinancing, partly offset by higher net loss and expense ratios in the current year.

Book Value Analysis
Book value per share increased to $15.66 at December 31, 2019, up 8.5% from year-end 2018.

As Of

Book Value Per Share

December 31, 2019

December 31, 2018

December 31, 2017

Numerator:

Common stockholders’ equity

$

448,799

$

425,333

$

379,816

Denominator:

Total Shares Outstanding

28,650,918

29,477,756

25,885,004

Book Value Per Common Share

$

15.66

$

14.43

$

14.67

 

Conference Call Details:
Friday, February 28, 2020 – 8:30 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,

2019

2018

ASSETS

Fixed maturities, available-for-sale, at fair value

$

587,256

$

509,649

Equity securities, at fair value

15,034

Other investments

7,993

3,910

Total investments

595,249

528,593

Cash and cash equivalents

268,351

250,117

Restricted cash

14,657

12,253

Accrued investment income

4,377

4,468

Premiums receivable, net

63,685

57,000

Reinsurance recoverable on paid and unpaid claims

428,903

317,930

Prepaid reinsurance premiums

224,102

233,071

Income taxes receivable

3,171

35,586

Deferred policy acquisition costs, net

77,211

73,055

Property and equipment, net

20,753

17,998

Intangibles, net

68,642

76,850

Goodwill

152,459

152,459

Other assets

18,110

9,333

Total Assets

$

1,939,670

$

1,768,713

LIABILITIES AND STOCKHOLDERS’ EQUITY

Unpaid losses and loss adjustment expenses

$

613,533

$

432,359

Unearned premiums

486,220

472,357

Reinsurance payable

156,351

166,975

Long-term debt, net

129,248

148,794

Deferred income tax

12,623

7,705

Advance premiums

16,504

20,000

Accrued compensation

5,347

9,226

Accounts payable and other liabilities

71,045

85,964

Total Liabilities

$

1,490,871

$

1,343,380

Commitments and contingencies

Stockholders’ Equity:

Common stock, $0.0001 par value, 50,000,000 shares authorized, 28,996,452
shares issued and 28,650,918 outstanding at December 31, 2019 and
30,083,559 shares issued and 29,477,756 outstanding at December 31, 2018

3

3

Additional paid-in capital

329,568

325,292

Accumulated other comprehensive loss

7,330

(6,527)

Treasury stock, at cost, 8,349,483 shares and 7,214,797 shares

(105,368)

(89,185)

Retained earnings

217,266

195,750

Total Stockholders’ Equity

448,799

425,333

Total Liabilities and Stockholders’ Equity

$

1,939,670

$

1,768,713

 


 

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,

2019

2018

2019

2018

REVENUE:

Gross premiums written

$

235,446

$

221,706

$

937,937

$

923,349

Change in gross unearned premiums

(1,364)

12,322

(13,690)

2,977

Gross premiums earned

234,082

234,028

924,247

926,326

Ceded premiums

(103,005)

(115,396)

(445,534)

(472,144)

Net premiums earned

131,077

118,632

478,713

454,182

Net investment income

3,275

3,576

14,432

13,280

Net realized and unrealized gains (losses)

1,031

(1,242)

4,163

(2,477)

Other revenue

3,119

3,912

13,997

15,186

Total revenue

138,502

124,878

511,305

480,171

EXPENSES:

Losses and loss adjustment expenses

66,798

59,650

273,288

237,425

Policy acquisition costs

28,113

26,499

107,906

84,666

General and administrative expenses

22,079

16,377

80,544

88,544

Total expenses

116,990

102,526

461,738

410,636

Operating income

$

21,512

$

22,352

$

49,567

$

69,536

Interest expense, net

2,021

4,584

8,523

20,015

Other non-operating loss, net

11,069

48

10,527

Income before taxes

$

19,491

$

6,699

$

40,996

$

38,994

Provision for income taxes

6,673

2,771

12,360

11,839

Net income

$

12,818

$

3,928

$

28,636

$

27,155

OTHER COMPREHENSIVE INCOME:

      Change in net unrealized (losses) gains on investments

232

1,904

19,765

(5,700)

      Reclassification adjustment for net realized investment losses

       (gains)

(2,025)

2,170

(1,734)

163

      Income tax benefit (expense) related to items of other

       comprehensive income

573

(1,017)

(4,174)

2,232

Total comprehensive income

$

11,598

$

6,985

$

42,493

$

23,850

Weighted average shares outstanding

Basic

28,871,197

26,350,098

29,213,910

25,941,253

Diluted

28,878,440

26,363,457

29,232,981

26,095,874

Earnings per share

Basic

$

0.44

$

0.15

$

0.98

$

1.05

Diluted

$

0.44

$

0.15

$

0.98

$

1.04

 

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 $900 million 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) being well-positioned for solid organic growth in 2020, (ii) the level of de-risking in future quarters, (iii) impact of steps taken regarding pricing and underwriting, (iv) our go-forward ceded premium run rate (v) expected positive impact of rates on the P&L, (vi) trends with respect to growth, pricing and reserves, (vii) the potential reinsurance rate increase and (viii) our share repurchase program. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: our ability to comply with our obligations under the new credit facilities, including the financial and other covenants contained therein, 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, 2018 filed with the Securities and Exchange Commission on March 12, 2019. 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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SOURCE Heritage Insurance Holdings, Inc.

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