Letter to Shareholders

Bruce Lucas

Dear Fellow Shareholders:

I am pleased to report another year of record results in 2015 as we build a track record of growth and above average market returns for shareholders.

For 2015, Heritage posted significant growth on both the top and bottom line as compared to 2014:

Growing our direct book of business is a focal point for Heritage, and our voluntary business continued to gain traction in 2015. Importantly, we saw significant growth in our voluntary commercial residential business with an acceleration in the second half of the year. Our voluntary personal inforce written premium increased 64% for the full year while our commercial lines voluntary production increased nine-fold. The Company’s underwriting capabilities were a strong point as reflected in an impressive 74.9% gross combined ratio. This substantial growth provided us with the financial flexibility to put plans in place during 2015 to return capital to shareholders. Our board approved a share buyback authorization and we announced the Company’s first ever quarterly dividend.

Balancing Business Development with Capital Return

We commenced a dividend to return capital to shareholders while simultaneously laying the groundwork for future growth initiatives. During 2015, we began our multi-state expansion initiatives outside of Florida, filing applications to write property and casualty insurance in North Carolina, South Carolina, Massachusetts, Georgia, Alabama and Mississippi. We are now approved in both Carolinas, Alabama, Mississippi and Georgia and are actively issuing new policies in North Carolina. Our team is focused on appointing agents and streamlining our systems to achieve maximum performance and efficiencies as we expand in new states. Our relationship with National General in North Carolina made this state a natural starting point as we leverage their automobile portfolio with our homeowners’ products.

Beyond our organic growth initiatives, we remain active in M&A where opportunities for profitable growth are present. We identified an attractive asset in Zephyr Insurance Company (Zephyr) and announced our acquisition of its parent company in September 2015. The transaction closed in March 2016 and it has provided us an immediate presence in Hawaii as Zephyr accounts for approximately 30% of the wind-only share of the market. The business is highly complementary, the deal is immediately accretive, and we expect reinsurance synergies to be achieved within the first year of closing. We look forward to a seamless integration with the Zephyr team and working alongside such a strong group of insurance professionals.

Differentiated Approach

Heritage’s outlook and approach to the marketplace is different from its peer group and 2015 was once again marked by innovation in how we look at the business: innovation in the handling and resolution of claims; innovation in new business production; innovation in our ability to secure alternative channels of reinsurance coverage; and innovation in how we assume policies from Citizens Insurance. First and foremost, our business success stems from the treatment of policyholders and how quickly they are helped in their time of need. We had the idea for in-house claim mitigation early in our history and acquired water mitigation assets from SVM in 2014. Our thinking was that we could provide quicker, better and more satisfactory claims resolution by doing it ourselves instead of outsourcing to third parties.

Our water mitigation program was instantly successful and we decided to add to our capabilities with the acquisition of BRC Restoration Specialists (BRC) in August 2015. The addition of BRC’s professionals, trucks and materials further expanded our internal water mitigation services and provided new reconstruction capabilities. All of this was executed in an effort to better serve our policyholders. We pride ourselves as a company on our rapid response times and getting to the policyholder within hours of a call.

Our solutions-oriented approach to claims mitigation contributes to customer satisfaction, and ultimately policyholder retention, but also mitigates run-away costs. Heritage will continue to emphasize and evolve our claims-resolution initiatives, as we believe this will serve as a competitive differentiator for years to come. For example, we are currently training and certifying our repair technicians to become licensed claims adjustors. We believe the continued development of our technicians will allow Heritage to capture additional efficiencies.

As it relates to our largest expense, reinsurance, we once again secured multi-year reinsurance coverage through a catastrophe bond issuance. This practice helps to insulate Heritage from yearly reinsurance price swings and, with the attractive pricing in the reinsurance marketplace over the last few years, positions Heritage well in the coming years. The multi-year insurance cover allows Heritage to achieve greater stability with reinsurance costs, which allows the Company to keep prices more stable for policyholders. Because of this market-leading business practice, Insurance Insider recognized Heritage as the 2015 Insurer of the Year.

Amid market speculation about state-run Citizens’ take-out pool as a long-term viable growth channel, Heritage continued to identify attractive policies in 2015 that met our underwriting requirements. For the year, we assumed approximately 68,200 personal residential policies and approximately 860 commercial residential policies representing roughly $139 million and $21 million of annualized premium, respectively. We will continue to assess whether additional Citizens policies meet our underwriting requirements. At the same time, we are focused on new channels of growth. This was evidenced over the past year as we experienced growth in voluntary policies, with notable success within our commercial residential business. We are also exploring new product introductions, including general liability insurance, which launched in March 2016. We will continue to explore strategic expansion initiatives, including M&A and strategic partnerships.

Solid Risk Management and Sustainability

We were founded on an entrepreneurial mindset coupled with sound risk management principles. Our strict underwriting guidelines continue to drive our success in capturing the right new business. Heritage conducts its underwriting with the support of an in-house actuarial team, and the Company strives to offer the most competitively priced products commensurate with the risk undertaken. In addition, our in-house claims and customer services teams support all policyholders.

Heritage’s focus is identifying attractive policies that are additive to the book of business. Our underwriting expertise will be a key variable to our success in new regions.

Financial Strength Translates into Outperformance

Heritage continues to stand out not only amongst peers but also amongst the broader market. With a return on average equity of 30.2% in 2015, the Company ranked in the top 20% of companies in the S&P 500. Our share price performance also surpassed the broader market with a 12% return in 2015 over the previous year. We closed 2015 with $216 million in statutory surplus, no debt and no quota share reinsurance putting us in a unique position within our industry. We are focused on long-term shareholder returns by concentrating on highly profitable and disciplined growth initiatives. The Zephyr transaction is the most recent example of the synergistic initiatives designed to enhance shareholder value.

As we progress through 2016, I remain very excited about our prospects and the team here at Heritage that will lead the company forward. We are just scratching the surface on the many coastal state opportunities where we feel Heritage can bring a value-added solution to agents and policyholders. Our hands-on approach and our vertically integrated claims resolution model resonates with the marketplace. And we will continue to strive to develop attractive coverage solutions that meet the demands of these regions. With our proven track record in Florida, a dynamic market with unique demands, we are optimistic about our growth opportunities in these new markets.

The commercial residential business has performed above our expectations and we believe this market will continue to be a growth avenue for the Company. Relationships built on mutual trust and experience are key to success in this space, and we have an outstanding and experienced commercial team. We have 22 dedicated professionals focused exclusively on our commercial customers.