Heritage Reports Second Quarter 2020 Results

CLEARWATER, Fla., Aug. 3, 2020 /PRNewswire/ — Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported second quarter 2020 financial results.

Heritage Insurance (PRNewsFoto/Heritage Insurance Holdings, Inc) (PRNewsfoto/Heritage Insurance Holdings, In)

Second Quarter 2020 Highlights

  • Net income for the quarter was $4.1 million, or $0.15 per diluted share.
  • Book value per share increased to $16.67, up 11.2% from June 30, 2019 and 6.4% (12.9% annualized growth rate) from year-end 2019.
  • Gross premiums written of $290.4 million, up 14.0% year-over-year.
  • Favorable prior year reserve development of $5.0 million, representing the eighth consecutive quarter of favorable prior year reserve development.
  • Net current accident quarter weather losses of $26.8 million, including $17.6 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather losses were $21.5 million, including catastrophe losses of $13.4 million.
  • Repurchased 163,456 shares for $2.0 million at an average price of $12.31 per share, 26.2% below second quarter 2020 book value per share. Total capital returned to shareholders of $3.7 million, including $0.06 per share regular quarterly dividend.
  • Began writing homeowners insurance in Mississippi.

Bruce Lucas, the Company’s Chairman and CEO, said, “The growth in our organic gross premiums written has accelerated every quarter since returning to positive growth in the third quarter of 2019 and we achieved double digit organic growth in the second quarter of 2020. Our strong agent relationships and auto carrier partnerships are paying off, as demonstrated in our numbers this quarter. More importantly, given our de-risking efforts in prior years, we’re able to grow profitably, a testament to our underwriting discipline.

COVID-19 Update
We are currently monitoring the short- and long-term impacts of COVID-19. During the first half of 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 six months ended June 30, 2020 and 2019 (amounts
in thousands, except percentages and per share amounts):

Three Months Ended June 30,

Six Months Ended June 30,

2020

2019

Change

2020

2019

Change

Total revenues

$     136,012

$   122,843

10.7  %

$     268,719

$       241,104

11.5   %

Net Income

$         4,132

$          721

473.1  %

$       11,752

$           7,685

52.9   %

Per Share

$           0.15

$         0.02

650.0  %

$           0.42

$             0.26

61.5   %

Book value per share

$         16.67

$        14.99

11.2  %

$         16.67

$            14.99

11.2   %

Return on equity*

3.6  %

0.7   %

2.9  pts

5.2   %

3.6   %

1.6   pts

Underwriting summary

Gross premiums written

$     290,432

$    254,840

14.0   %

$     519,534

$       465,188

11.7   %

Gross premiums earned

$     241,792

$    229,958

5.1  %

$     476,508

$       458,548

3.9   %

Ceded premiums

$    (112,735)

$   (115,875)

(2.7)  %

$    (221,445)

$      (234,774)

(5.7)   %

Net premiums earned

$     129,057

$    114,083

13.1  %

$     255,063

$       223,774

14.0   %

Ceded premium ratio

46.6  %

50.4  %

(3.8)  pts

46.5  %

51.2   %

(4.7)   pts

Ratios to Net Premiums Earned:

Loss ratio

61.1  %

65.1  %

(4.0)  pts

57.7   %

61.0   %

(3.3)   pts

Expense ratio

38.9  %

39.9  %

(1.0)  pts

40.0   %

40.3    %

(0.3)   pts

Combined ratio

100.0  %

105.0  %

(5.0)  pts

97.6   %

101.3    %

(3.7)   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
Second quarter 2020 net income was $4.1 million, up from $0.7 million in the prior year quarter. The increase primarily reflects higher net premiums earned, lower net loss and expense ratios and a lower effective tax rate, partly offset by lower investment gains.

Gross premiums written of $290.4 million, up 14.0% year-over-year, including 69.0% commercial residential growth, 11.3% personal residential growth outside Florida and 6.1% personal residential growth in Florida.

Premiums-in-force were $994.6 million in second quarter 2020, representing a 15.3% annualized growth rate from first quarter 2020. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were $241.8 million in second quarter 2020, up 5.1% from $230.0 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.

The ceded premium ratio was 46.6% in second quarter 2020, down 3.8 points from 50.4% in the prior year quarter. The decrease is primarily attributable to a reduction in the cost of our 2019-2020 catastrophe reinsurance program and a reduction in overall quota share reinsurance coverage, partly offset by the higher cost of our 2020-2021 catastrophe reinsurance program.

The net loss ratio was 61.1% in second quarter 2020, down 4.0 points from 65.1% in the prior year quarter. The decrease primarily stems from higher favorable prior year reserve development and a lower ceded premium ratio, partly offset by lower income from vertically integrated operations and a higher current accident year weather net loss ratio. 

The net expense ratio was 38.9% in second quarter 2020, down 1.0 point from 39.9% in the prior year quarter. The decrease primarily stems from modestly lower net PAC and G&A ratios, which benefited from a lower ceded premium ratio.

The net combined ratio was 100.0% in second quarter 2020, down 5.0 points from 105.0% in the prior year quarter. The decrease stems from lower net loss and expense ratios, as described above.

Book Value Analysis

Book value per share increased to $16.67 at June 30, 2020, up 11.2% year-over-year.

As Of

Book Value Per Share

June 30, 2020

December 31, 2019

June 30, 2019

Numerator:

Common stockholders’ equity

$

462,499

$

448,799

$

438,850

Denominator:

Total Shares Outstanding

27,738,062

28,650,918

29,274,577

Book Value Per Common Share

$

16.67

$

15.66

$

14.99

 

Conference Call Details:
Tuesday, August 4, 2020 – 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, 2020

December 31, 2019

ASSETS

(unaudited)

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

$

698,277

$

587,256

Equity securities, at fair value

1,599

1,618

Other investments

6,374

6,375

Total investments

706,250

595,249

Cash and cash equivalents

288,342

268,351

Restricted cash

11,849

14,657

Accrued investment income

4,833

4,377

Premiums receivable, net

66,188

63,685

Reinsurance recoverable on paid and unpaid claims

374,709

428,903

Prepaid reinsurance premiums

361,256

224,102

Income taxes receivable

4,651

3,171

Deferred policy acquisition costs, net

81,590

77,211

Property and equipment, net

19,998

20,753

Intangibles, net

65,461

68,642

Goodwill

152,459

152,459

Other assets

28,804

18,110

Total Assets

$

2,166,390

$

1,939,670

LIABILITIES AND STOCKHOLDERS’ EQUITY

Unpaid losses and loss adjustment expenses

$

620,718

$

613,533

Unearned premiums

529,321

486,220

Reinsurance payable

296,606

156,351

Long-term debt, net

126,056

129,248

Deferred income tax, net

20,957

12,623

Advance premiums

30,870

16,504

Accrued compensation

11,250

5,347

Accounts payable and other liabilities

68,113

71,045

Total Liabilities

$

1,703,891

$

1,490,871

Commitments and contingencies

Stockholders’ Equity:

Common stock

3

3

Additional paid-in capital

332,037

329,568

Accumulated other comprehensive income

20,263

7,330

Treasury stock

(115,365)

(105,368)

Retained earnings

225,561

217,266

Total Stockholders’ Equity

462,499

448,799

Total Liabilities and Stockholders’ Equity

$

2,166,390

$

1,939,670

 

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,

2020

2019

2020

2019

REVENUES:

Gross premiums written

$

290,432

$

254,840

$

519,534

$

465,188

Change in gross unearned premiums

(48,640)

(24,882)

(43,026)

(6,640)

Gross premiums earned

241,792

229,958

476,508

458,548

Ceded premiums

(112,735)

(115,875)

(221,445)

(234,774)

Net premiums earned

129,057

114,083

255,063

223,774

Net investment income

3,296

3,830

6,966

7,502

Net realized and unrealized gains (losses)

(38)

1,303

22

2,327

Other revenue

3,697

3,627

6,668

7,501

Total revenues

136,012

122,843

268,719

241,104

EXPENSES:

Losses and loss adjustment expenses

78,869

74,299

147,050

136,438

Policy acquisition costs

30,237

27,087

60,284

53,107

General and administrative expenses

19,943

18,384

41,661

36,988

Total expenses

129,049

119,770

248,995

226,533

Operating income

6,963

3,073

19,724

14,571

Interest expense, net

1,721

1,984

3,688

4,101

Other non-operating loss, net

48

Income before income taxes

5,242

1,089

16,036

10,422

Provision for income taxes

1,110

368

4,284

2,737

Net income

$

4,132

$

721

$

11,752

$

7,685

OTHER COMPREHENSIVE INCOME

Change in net unrealized gains on investments

14,823

7,068

16,850

15,104

Reclassification adjustment for net realized investment
(gains) losses

38

59

(22)

394

Income tax expense related to items of other
comprehensive income

(3,440)

(1,304)

(3,895)

(3,712)

Total comprehensive income

$

15,553

$

6,544

$

24,685

$

19,471

Weighted average shares outstanding

Basic

27,876,801

29,346,234

28,212,735

29,442,363

Diluted

27,913,696

29,352,796

28,231,273

29,447,668

Earnings per share

Basic

$

0.15

$

0.02

$

0.42

$

0.26

Diluted

$

0.15

$

0.02

$

0.42

$

0.26

 

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 approximately $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 ability to continue to grow profitably. 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; the continued and potentially prolonged impact of the COVID-19 pandemic on the economy, demand for our products and our operations, including measures taken by the governmental authorities to address COVID-19, which may precipitate or exacerbate other risks and/or uncertainties; inflation and other changes in economic conditions (including changes in interest rates and financial 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. 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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