Heritage Reports Third Quarter 2021 Results

CLEARWATER, Fla., Nov. 4, 2021 /PRNewswire/ — Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a super-regional property and casualty insurance holding company, today reported third quarter 2021 financial results.

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

Third Quarter 2021 Highlights

  • Net loss of $16.4 million, or $0.59 per diluted share.
  • Book value per share of $14.57, down 4.1% from second quarter 2021 and 8.8% year-over-year.
  • Gross premiums written of $274.2 million, down 1.5% year-over-year, reflecting planned exposure management.
  • Favorable prior year reserve development of $0.8 million.
  • Net current accident quarter weather losses of $51.4 million, up from $47.3 million in the prior year quarter. Current accident quarter weather losses include $16.0 million of net catastrophe losses, down from $24.5 million in the prior year quarter, and $35.5 million of net other weather losses, up from $22.8 million in the prior year quarter.
  • Repurchased 148,109 shares for $1.0 million at an average price of $6.78 per share. Total capital returned to shareholders of $2.7 million, including $0.06 per share regularly quarterly dividend.

Ernie Garateix, the Company’s CEO, said, “While we were disappointed with the loss in the quarter, I’m encouraged by underlying signs of improvement that I expect will continue next quarter and throughout 2022. For example, year-over-year premiums-in-force growth significantly outpaced policies-in-force growth.”

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 January 6, 2022 to shareholders of record as of December 15, 2021.

COVID-19 Update
We continue to monitor the short- and long-term impacts of the COVID-19 virus and its variants. For the year ended December 31, 2020, we saw negligible impact to our business, and that trend has continued through the third quarter of 2021. As a residential property insurer, we view our business revenue as somewhat insulated because property owners and renters generally view our products as a necessity. The majority of our gross and net premiums written are from renewals of expiring policies. New business, which accounts for a smaller portion of our revenue, may be impacted if consumers are not buying as many new homes in our geographies, but this could be partially or fully offset by increased retention in our renewal portfolio. In a prolonged recessionary and social-distancing environment, we could experience disruptions to our independent agency distribution channel, which may have a negative impact on our revenues and financial condition. Changes in the cost of materials and labor for home repairs can influence our loss costs associated with claims. The Company has implemented return-to-office and hybrid programs, with the latter including a combination of in-office and remote work.

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 or its variants, 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 nine months ended September 30, 2021 and 2020 (amounts in thousands, except percentages and per share amounts):

Three Months Ended September 30,

Nine Months Ended September 30,

2021

2020

Change

2021

2020

Change

Total revenues

$

167,408

$

165,119

1.4%

$

464,849

$

433,837

7.1%

Net (loss) income

$

(16,410)

$

(5,233)

(213.6)%

$

(25,509)

$

6,519

(491.3)%

Per Share

$

(0.59)

$

(0.19)

(210.5)%

$

(0.91)

$

0.23

(495.7)%

Book value per share

$

14.57

$

15.97

(8.8)%

$

14.57

$

15.97

(8.8)%

Return on equity

(15.8)%

(4.6)%

(11.2)

pts

(8.0)%

1.9%

(9.9)

pts

Underwriting summary

Gross premiums written

$

274,178

$

278,242

(1.5)%

$

886,059

$

797,776

11.1%

Gross premiums earned

$

294,409

$

254,982

15.5%

$

850,466

$

731,489

16.3%

Ceded premiums

$

(131,964)

$

(116,752)

13.0%

$

(399,323)

$

(338,197)

18.1%

Net premiums earned

$

162,445

$

138,230

17.5%

$

451,143

$

393,292

14.7%

Ceded premium ratio

44.8%

45.8%

(1.0)

pts

47.0%

46.2%

0.8

pts

Ratios to Net Premiums Earned:

Loss ratio

79.8%

86.6%

(6.8)

pts

72.8%

67.8%

5.0

pts

Expense ratio

32.7%

36.1%

(3.4)

pts

35.8%

38.6%

(2.8)

pts

Combined ratio

112.5%

122.7%

(10.2)

pts

108.6%

106.4%

2.2

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
Third quarter 2021 net loss was $16.4 million, versus a net loss of $5.2 million in the prior year quarter. The year-over-year change primarily stems from lower realized capital gains, partly offset by a smaller underwriting loss.

Gross premiums written were $274.2 million, down 1.5% year-over-year, reflecting a 12.4% exposure management related reduction in Florida that was partly offset by 8.0% growth in other states. Rate increases meaningfully benefited written premiums, particularly in Florida.

Premiums-in-force were $1.2 billion as of quarter-end, relatively flat from second quarter 2021. Year-over-year, premiums-in-force were up 13.3%, while policies-in-force were up 3.0%, with the delta largely stemming from rate increases.

Gross premiums earned were $294.4 million, up 15.5% from $255.0 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.

The ceded premium ratio was 44.8%, down 1.0 points from 45.8% in the prior year quarter. The decrease primarily stems from gross premiums earned growth outpacing ceded premium growth. 

The net loss ratio was 79.8%, down 6.8 points from 86.6% in the prior year quarter. The decrease primarily stems from a lower current accident year attritional net loss ratio, partly offset by a lower favorable prior year development ratio.

The net expense ratio was 32.7%, down 3.4 points from 36.1% in the prior year quarter. The decrease primarily stems from a lower G&A expense ratio.

The net combined ratio was 112.5%, down 10.2 points from 122.7% 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 decreased to $14.57 at September 30, 2021, down 4.1% from second quarter 2021 and 8.8% from September 30, 2020.

As Of

Book Value Per Share

September 30, 2021

December 31, 2020

September 30, 2020

Numerator:

Common stockholders’ equity

$

405,025

$

442,344

$

443,140

Denominator:

Total Shares Outstanding

27,802,626

27,748,606

27,748,606

Book Value Per Common Share

$

14.57

$

15.94

$

15.97

Conference Call Details:
Friday, November 5, 2021 – 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)

September 30, 2021

December 31, 2020

ASSETS

(unaudited)

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

$

660,819

$

561,011

Equity securities, at cost

1,415

1,599

Other investments

23,887

26,409

Total investments

686,121

589,019

Cash and cash equivalents

393,411

440,956

Restricted cash

5,415

5,427

Accrued investment income

3,042

2,737

Premiums receivable, net

74,877

77,471

Reinsurance recoverable on paid and unpaid claims, net

346,374

355,037

Prepaid reinsurance premiums

338,172

245,818

Income taxes receivable

35,490

32,224

Deferred policy acquisition costs, net

95,425

89,265

Property and equipment, net

17,950

18,685

Right-of-use lease asset, net

28,652

6,461

Intangibles, net

57,514

62,277

Goodwill

152,459

152,459

Other assets

13,220

11,544

Total Assets

$

2,248,122

$

2,089,379

LIABILITIES AND STOCKHOLDERS’ EQUITY

Unpaid losses and loss adjustment expenses

$

636,146

$

659,341

Unearned premiums

605,304

569,618

Reinsurance payable

324,730

161,918

Long-term debt, net

121,481

120,998

Deferred income tax liability, net

13,665

18,477

Advance premiums

33,341

18,268

Accrued compensation

9,430

9,325

Lease liability

31,964

8,155

Accounts payable and other liabilities

67,036

80,935

Total Liabilities

$

1,843,097

$

1,647,035

Stockholders’ Equity:

Common stock,

3

3

Additional paid-in capital

332,562

331,867

Accumulated other comprehensive income

(405)

6,057

Treasury stock

(116,370)

(115,365)

Retained earnings

189,235

219,782

Total Stockholders’ Equity

405,025

442,344

Total Liabilities and Stockholders’ Equity

$

2,248,122

$

2,089,379

 

HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES

Consolidated Statements of Income and Other Comprehensive Income

 (Amounts in thousands, except per share and share amounts)

 (Unaudited)

For the Three Months Ended
September 30,

For the Nine Months Ended
September 30,

2021

2020

2021

2020

REVENUES:

Gross premiums written

$

274,178

$

278,242

$

886,059

$

797,776

Change in gross unearned premiums

20,231

(23,260)

(35,593)

(66,287)

Gross premiums earned

294,409

254,982

850,466

731,489

Ceded premiums

(131,964)

(116,752)

(399,323)

(338,197)

Net premiums earned

162,445

138,230

451,143

393,292

Net investment income

1,548

2,817

3,797

9,783

Net realized and unrealized (losses) gains

(6)

20,355

(926)

20,377

Other revenue

3,421

3,717

10,835

10,385

Total revenues

167,408

165,119

464,849

433,837

EXPENSES:

Losses and loss adjustment expenses

129,632

119,718

328,376

266,769

Policy acquisition costs, net of ceding commission income

35,984

31,960

109,183

92,243

General and administrative expenses, net of ceding commission income

17,169

17,923

52,490

59,583

Total expenses

182,785

169,601

490,049

418,595

Operating (loss) income

(15,377)

(4,482)

(25,200)

15,242

Interest expense, net

2,150

2,251

5,953

5,939

(Loss) income before income taxes

(17,527)

(6,733)

(31,153)

9,303

(Benefit) provision for income taxes

(1,117)

(1,500)

(5,644)

2,784

Net (loss) income

$

(16,410)

$

(5,233)

$

(25,509)

$

6,519

OTHER COMPREHENSIVE (LOSS) INCOME

Change in net unrealized (losses) gains on investments

(1,344)

2,480

(8,316)

19,330

Reclassification adjustment for net realized investment losses (gains)

6

(20,355)

(96)

(20,377)

Income tax benefit related to items of other comprehensive income

310

4,137

1,950

242

Total comprehensive (loss) income

$

(17,438)

$

(18,971)

$

(31,971)

$

5,714

Weighted average shares outstanding

Basic

27,938,028

27,739,839

27,902,814

28,053,959

Diluted

27,938,028

27,739,839

27,902,814

28,073,570

(Loss) earnings per share

Basic

$

(0.59)

$

(0.19)

$

(0.91)

$

0.23

Diluted

$

(0.59)

$

(0.19)

$

(0.91)

$

0.23

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 approximately $1.2 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) the trend of premiums-in-force growth outpacing policies-in-force growth and its impact on our future results. 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, 2020 filed with the Securities and Exchange Commission on March 9, 2021. 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: [email protected]

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SOURCE Heritage Insurance Holdings, Inc.

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