EX-99.1 2 d774360dex991.htm EX-99.1 EX-99.1

Exhibit 99.1

Heritage Reports Second Quarter 2019 Results

Clearwater, FL – August 1, 2019: Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported second quarter 2019 financial results.

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  
     June 30, 2019      December 31, 2018      June 30, 2018  

Book Value Per Share

         

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		  
     (unaudited)        

ASSETS

     

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