Heritage Reports Second Quarter 2019 Results

CLEARWATER, Fla., Aug. 1, 2019 /PRNewswire/ — Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported second quarter 2019 financial results.

Heritage Insurance (PRNewsFoto/Heritage Insurance Holdings, Inc)

Second Quarter 2019 Highlights

  • Net income for the quarter was $0.7 million, or $0.02 per diluted share.
  • Record personal lines new business premium and growth rates. Non-Florida states generated 64% of all personal lines new business premium.
  • Premiums-in-force were $922.5 million, down 0.9% year-over-year, reflecting strong new business sales across our platform, offset by strategic derisking in Florida’s Tri-County.
  • Began writing commercial residential business in New Jersey. Heritage is actively writing personal residential business in twelve states, commercial residential business in two states and has licenses in sixteen states.
  • Favorable prior year reserve development of $1.3 million, representing fourth consecutive quarter of favorable prior year reserve development.
  • Net current accident quarter weather losses of $21.5 million – mostly stemming from Florida and North Carolina – including $13.4 million of net current accident quarter catastrophe losses.  In the prior year quarter, net current accident quarter weather and catastrophe losses were $9.4 million.
  • Repurchased 157,640 shares for $2.3 million at a 1% discount to first quarter 2019 book value per share, resulting in total capital returned to shareholders of $4.1 million, including $0.06 per share regular quarterly dividend.

Bruce Lucas, the Company’s Chairman and CEO, said, “Our second quarter operating results were very strong as we continue to diversify away from Florida, especially the Tri-County region which is highly prone to fraud.  Non-Florida states contributed 64% of all personal lines new business premium in the quarter.  Premium growth in these states has been rapidly accelerating and reached an all-time high in the quarter.  Tri-County claims metrics continue to improve and our percentages of Tri-County claims and litigation have reached an all-time low.  Year-over-year, we reduced our Tri-County total insured value (TIV) by $6.2 billion, but maintained relatively flat premiums-in-force, mainly because of our acceleration in growth outside of Florida.”

Results of Operations

The following table summarizes our results of operations for the three & six months ended June 30, 2019 and 2018 (amounts in thousands, except percentages and per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

2019

2018

Change

2019

2018

Change

Total revenues

$

122,843

$

117,972

4%

$

241,104

$

229,998

5%

Net Income

$

721

$

2,408

(70)%

$

7,685

$

17,238

(55)%

Per Share

$

0.02

$

0.09

(73)%

$

0.26

$

0.65

(60)%

Book value per share

$

14.99

$

14.98

0%

$

14.99

$

14.98

0%

Return on equity

0.7%

2.5%

(2)

pts

3.6%

9.0%

(5)

pts

Underwriting summary

Gross premiums written

$

254,840

$

263,664

(3)%

$

465,188

$

468,030

(1)%

Gross premiums earned

$

229,958

$

230,971

(0)%

$

458,548

$

458,134

0%

Ceded premiums

$

(115,875)

$

(119,767)

(3)%

$

(234,774)

$

(240,822)

(3)%

Net premiums earned

$

114,083

$

111,204

3%

$

223,774

$

217,312

3%

Ceded premium ratio

50.4%

51.9%

(1)

pts

51.2%

52.6%

(1)

pts

Ratios to Net Premiums Earned:

Loss ratio

65.1%

59.3%

6

pts

61.0%

54.8%

6

pts

Expense ratio

39.9%

39.4%

0

pts

40.3%

35.9%

4

pts

Combined ratio

105.0%

98.7%

6

pts

101.3%

90.7%

11

pts

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

Second quarter 2019 net income was $0.7 million compared to $2.4 million in the prior year quarter. The decrease primarily reflects a higher net loss ratio stemming from higher catastrophe and non-catastrophe weather losses in the current year quarter.   

Gross premiums written were $254.8 million in second quarter 2019, down 3.3% from $263.7 million in the prior year quarter. The decrease reflects an 11.9% exposure management driven decline in Florida, particularly in the Tri-County region, partly offset by 8.4% growth outside Florida.  Premiums-in-force were $922.5 million, down 0.9% year-over-year, with the decrease stemming from a 16.3% decline in Tri-County, Florida, partly offset by 6.3% growth outside Florida and 0.8% growth in non-Tri-County, Florida.

Gross premiums earned were $230.0 million in second quarter 2019, down 0.4% from $231.0 million in the prior year quarter. The decrease stems from the same items impacting gross premiums written.

The ceded premium ratio was 50.4% in second quarter 2019, down 1.5 points from 51.9% in the prior year quarter. The decrease is primarily attributable to NBIC-related reinsurance synergies and a reduction in NBIC’s gross quota share reinsurance program, which decreased from 18.8% to 8.0% as of June 1, 2018 and was eliminated as of June 1, 2019. NBIC’s gross quota share reduction was partly offset by additional catastrophe excess-of-loss reinsurance coverage and an increase in NBIC’s net quota share reinsurance program from 49.5% to 52.0% as of December 31, 2018.

The net loss ratio was 65.1% in second quarter 2019, up 5.8 points from 59.3% in the prior year quarter. The increase largely relates to higher catastrophe and non-catastrophe weather losses in the current year quarter, partly offset by better reserve development and a lower ceded premium ratio.

The net expense ratio was 39.9% in second quarter 2019, up 0.5 points from 39.4% in the prior year quarter. The increase primarily stems from the favorable impact of NBIC-related purchase accounting on the prior year quarter and reduced ceding commission income in the current year quarter associated with a reduction to NBIC’s overall quota share reinsurance programs, partly offset by a lower ceded premium ratio.

The net combined ratio was 105.0% in second quarter 2019, up 6.3 points from 98.7% in the prior year quarter. The increase stems from higher net loss and expense ratios, as described above.

Book Value Analysis

Book value per share increased 3.9% from year-end 2018 to $14.99 at June 30, 2019.

As Of

Book Value Per Share

June 30, 2019

December 31, 2018

June 30, 2018

Numerator:

Common stockholders’ equity

$

438,850

$

425,333

$

386,080

Denominator:

Total Shares Outstanding

29,274,577

29,477,756

25,769,804

Book Value Per Common Share

$

14.99

$

14.43

$

14.98

Conference Call Details:

Friday, August 2, 2019 – 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.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

(unaudited)

June 30, 2019

December 31, 2018

ASSETS

(unaudited)

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

553,619

$

509,649

Equity securities, at fair value

1,618

16,456

Other investments

22,761

2,488

Total investments

577,998

528,593

Cash and cash equivalents

262,489

250,117

Restricted cash

13,784

12,253

Accrued investment income

4,549

4,468

Premiums receivable, net

57,045

57,000

Reinsurance recoverable on paid and unpaid claims

330,406

317,930

Prepaid reinsurance premiums

331,543

233,071

Income taxes receivable

17,731

35,586

Deferred policy acquisition costs, net

74,064

73,055

Property and equipment, net

21,110

17,998

Intangibles, net

72,663

76,850

Goodwill

152,459

152,459

Other assets

18,144

9,333

Total Assets

$

1,933,985

$

1,768,713

LIABILITIES AND STOCKHOLDERS’ EQUITY

Unpaid losses and loss adjustment expenses

$

430,412

$

432,359

Unearned premiums

479,162

472,357

Reinsurance payable

324,834

166,975

Long-term debt, net

132,449

148,794

Deferred income tax, net

17,535

7,705

Advance premiums

24,463

20,000

Accrued compensation

4,758

9,226

Accounts payable and other liabilities

81,522

85,964

Total Liabilities

$

1,495,135

$

1,343,380

Commitments and contingencies

Stockholders’ Equity:

Common stock, $0.0001 par value, 50,000,000 shares authorized,
29,855,378 shares issued and 29,274,577 shares outstanding at June 30,
2019; 30,083,559 shares issued and 29,477,756 shares outstanding at
December 31, 2018

3

3

Additional paid-in capital

330,281

325,292

Accumulated other comprehensive income (loss)

5,259

(6,527)

Treasury stock, at cost, 7,720,177 and 7,214,797 shares, respectively

(96,529)

(89,185)

Retained earnings

199,836

195,750

Total Stockholders’ Equity

438,850

425,333

Total Liabilities and Stockholders’ Equity

$

1,933,985

$

1,768,713

 

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive Income

(Amounts in thousands, except share amounts)

(Unaudited)

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2019

2018

2019

2018

REVENUES:

Gross premiums written

$

254,840

$

263,664

$

465,188

$

468,030

Change in gross unearned premiums

(24,882)

(32,693)

(6,640)

(9,896)

Gross premiums earned

229,958

230,971

458,548

458,134

Ceded premiums

(115,875)

(119,767)

(234,774)

(240,822)

Net premiums earned

114,083

111,204

223,774

217,312

Net investment income

3,830

2,555

7,502

5,857

Net realized gains (losses)

1,303

(85)

2,327

(312)

Other revenue

3,627

4,298

7,501

7,141

Total revenues

122,843

117,972

241,104

229,998

EXPENSES:

Losses and loss adjustment expenses

74,299

65,989

136,438

119,080

Policy acquisition costs, net of ceding commission
income for the three and six months ended June 30,
2019 of $12.1 million and $25 million, respectively

27,087

19,411

53,107

31,598

General and administrative expenses, net of ceding
commission income for the three and six months ended
June 30, 2019 of $4 million and $8.3 million,
respectively

18,384

24,422

36,988

46,352

Total expenses

119,770

109,822

226,533

197,030

Operating income

3,073

8,150

14,571

32,968

Interest expense, net

1,984

5,386

4,101

10,206

Other non-operating (income)/loss, net

(542)

48

(542)

Income before income taxes

1,089

3,306

10,422

23,304

Provision for income taxes

368

898

2,737

6,066

Net income

$

721

$

2,408

$

7,685

$

17,238

OTHER COMPREHENSIVE INCOME

Change in net unrealized gains (losses) on investments

7,068

(545)

15,104

(7,023)

Reclassification adjustment for net realized investment
losses

59

85

394

312

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

(1,304)

(239)

(3,712)

1,584

Total comprehensive income

$

6,544

$

1,709

$

19,471

$

12,111

Weighted average shares outstanding

Basic

29,346,234

25,631,871

29,442,363

25,679,448

Diluted

29,352,796

26,316,597

29,447,668

26,480,707

Earnings per share

Basic

$

0.02

$

0.09

$

0.26

$

0.67

Diluted

$

0.02

$

0.09

$

0.26

$

0.65

About Heritage
Heritage Insurance Holdings, Inc. is a super-regional property and casualty insurance holding company. 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 and related presentation 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) expectations related to positive financial effects in the second quarter of 2019 as well as long-term profitiability, (ii) our expectations and strategy related to declining in business in tri-county Florida, (iii) anticipated continued improvement in our loss trends, (iv) (expected positive impact of geographic diversification and strategic partnerships, (v) expectations related to our capital management strategy, including anticipated share repurchases and (vi) anticipated reductions in ceded premiums in the third quarter of 2019 and the related full-quarter effects of such reductions. 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 grow our business outside of Florida; our ability to obtain regulatory approval for requested rate changes and new licenses, 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

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/heritage-reports-second-quarter-2019-results-300895426.html

SOURCE Heritage Insurance Holdings, Inc.

Categories

Archives