Investors

Heritage Reports Third Quarter 2019 Results

CLEARWATER, Fla., Oct. 31, 2019 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a property and casualty insurance holding company, today reported third quarter 2019 financial results.

Heritage Insurance (PRNewsFoto/Heritage Insurance Holdings, Inc)

Third Quarter 2019 Highlights

  • Net income for the quarter was $8.1 million, or $0.28 per diluted share.
  • Book value per share increased 6.5% (8.8% compound annual growth rate) from year-end 2018 and 2.5% (10.5% compound annual growth rate) from June 30, 2019 to $15.37 at September 30, 2019.
  • Gross premiums written were $237.3 million, up 1.6% year-over-year, including 7.9% growth outside Florida that was partly offset by a 4.8% exposure management driven decline in Florida, marking a return to positive organic growth for the consolidated entity.
  • Favorable prior year reserve development of $0.4 million, representing fifth consecutive quarter of favorable prior year reserve development.
  • Net current accident quarter weather losses of $18.7 million, including $6.7 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather and catastrophe losses were $23.6 million and $17.3 million, respectively.
  • Repurchased 316,383 shares for $4.5 million at a 6% discount to third quarter 2019 book value per share, resulting in total capital returned to shareholders of $6.3 million, including $0.06 per share regular quarterly dividend.
  • Percentage of litigated non-hurricane claims in Tri-County, Florida reached a new record low for the 12th consecutive quarter.

Bruce Lucas, the Company's Chairman and CEO, said, "We returned to positive organic growth in the third quarter, driven by solid new business, strong retention and a deceleration in our Florida de-risking efforts. Our business fundamentals have improved significantly and the steps we've taken to position the company for long-term success are paying off. We're better diversified than we've been at any point in our history – less than 7% of our total insured value (TIV) stems from Florida's Tri-County and the percentage of our southeast claims in litigation is down by 23 points since year-end 2017. Balance sheet metrics have similarly improved, with a 10.1-point* year-over-year reduction in our debt-to-capital ratio and five consecutive quarters of favorable prior year reserve development. Our multi-state footprint continues to expand with the addition of Virginia and new product offerings in Hawaii."

*Debt-to-capital calculated as debt principal divided by the sum of debt principal and stockholders' equity.

Results of Operations

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


Three Months Ended September 30,


Nine Months Ended September 30,


2019


2018


Change


2019


2018


Change

















Total revenues

$

131,699


$

125,295


5%


$

372,803


$

355,293


5%

Net Income

$

8,133


$

5,989


36%


$

15,818


$

23,227


(32)%

Per Share

$

0.28


$

0.23


21%


$

0.54


$

0.88


(39)%

















Book value per share

$

15.37


$

15.16


1%


$

15.37


$

15.16


1%

Return on equity**


7.4%



6.2%


1pts



4.8%



8.0%


(3)pts

















Underwriting summary
















Gross premiums written

$

237,303


$

233,613


2%


$

702,491


$

701,643


0%

Gross premiums earned

$

231,617


$

234,164


(1)%


$

690,165


$

692,298


(0)%

Ceded premiums

$

(107,755)


$

(115,926)


(7)%


$

(342,529)


$

(356,748)


(4)%

Net premiums earned

$

123,862


$

118,238


5%


$

347,636


$

335,550


4%

















Ceded premium ratio


46.5%



49.5%


(3)pts



49.6%



51.5%


(2)pts

















Ratios to Net Premiums Earned:
















Loss ratio


56.6%



49.6%


7pts



59.4%



53.0%


6pts

Expense ratio


38.9%



44.3%


(5)pts



39.8%



38.8%


1pts

Combined ratio


95.5%



93.9%


2pts



99.2%



91.8%


7pts


**Return on equity represents annualized net income for the period divided by average stockholders' equity during the period.

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

Third quarter 2019 net income was $8.1 million compared to $6.0 million in the prior year quarter. The increase primarily reflects higher net premiums earned, a lower net expense ratio and lower interest expense, partly offset by a higher net loss ratio.   

Gross premiums written were $237.3 million in third quarter 2019, up 1.6% from $233.6 million in the prior year quarter.  The increase reflects 7.9% growth outside Florida, partly offset by a 4.8% exposure management driven decline in Florida, particularly in the state's Tri-County region. The Florida decline reflects a deceleration from second quarter 2019's 11.9% decrease.

Premiums-in-force were $926.8 million, up 0.5% from second quarter 2019, with the increase stemming from 2.1% growth outside Florida, partly offset by a 1.0% decline in Florida. The Florida decline reflects a deceleration from 2Q19's 3.4% decline from first quarter 2019.

Gross premiums earned were $231.6 million in third quarter 2019, down 1.1% from $234.2 million in the prior year quarter. The decrease primarily reflects organic gross premiums written declines in second quarter 2019 and the third and fourth quarters of 2018, partly offset by positive organic gross premiums written growth in the first and third quarters of 2019.

The ceded premium ratio was 46.5% in third quarter 2019, down 3.0 points from 49.5% in the prior year quarter. The decrease is primarily attributable to reinsurance synergies associated with the renewal of remaining legacy NBIC reinsurance coverage on a consolidated basis and elimination of NBIC's 8.0% gross quota share reinsurance program as of June 1, 2019, 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 56.6% in third quarter 2019, up 7.0 points from 49.6% in the prior year quarter. The increase primarily relates to lower cost savings from vertically integrated operations, higher current accident year non-catastrophe weather losses and less favorable prior year reserve development, partly offset by lower current accident year catastrophe losses and the beneficial ceded premium ratio impact of NBIC-related reinsurance synergies. 

The net expense ratio was 38.9% in third quarter 2019, down 5.4 points from 44.3% in the prior year quarter. The decrease primarily stems from non-core business acquisition related expenses in the prior year quarter and the beneficial ceded premium ratio impact of NBIC-related reinsurance synergies in the current year quarter. 

The net combined ratio was 95.5% in third quarter 2019, up 1.6 points from 93.9% in the prior year quarter. The increase stems from a higher net loss ratio, partly offset by a lower net expense ratio, as described above.

Book Value Analysis

Book value per share increased 6.5% (8.8% compound annual growth rate) from year-end 2018 and 2.5% (10.5% compound annual growth rate) from June 30, 2019 to $15.37 at September 30, 2019.


As Of


Book Value Per Share

September 30, 2019



June 30, 2019



December 31, 2018


Numerator:












Common stockholders' equity

$

445,230



$

438,850



$

425,333


Denominator:












Total Shares Outstanding


28,963,841




29,274,577




29,477,756


Book Value Per Common Share

$

15.37



$

14.99



$

14.43


Conference Call Details:

Friday, November 1, 20198:30 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)




September 30, 2019



December 31, 2018


ASSETS


(unaudited)






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


$

616,084



$

509,649


Federal Home Loan Bank (FHLB) stock, at cost



1,618




1,422


Equity securities, at fair value






15,034


Other investments



27,372




2,488


Total investments



645,074




528,593


Cash and cash equivalents



229,996




250,117


Restricted cash



13,789




12,253


Accrued investment income



4,665




4,468


Premiums receivable, net



58,115




57,000


Reinsurance recoverable on paid and unpaid claims



274,116




317,930


Prepaid reinsurance premiums



270,645




233,071


Income taxes receivable



10,611




35,586


Deferred policy acquisition costs, net



75,613




73,055


Property and equipment, net



20,873




17,998


Intangibles, net



70,569




76,850


Goodwill



152,459




152,459


Other assets



16,354




9,333


Total Assets


$

1,842,879



$

1,768,713


LIABILITIES AND STOCKHOLDERS' EQUITY









Unpaid losses and loss adjustment expenses


$

417,586



$

432,359


Unearned premiums



484,849




472,357


Reinsurance payable



254,152




166,975


Long-term debt, net



130,849




148,794


Deferred income tax, net



14,278




7,705


Advance premiums



21,244




20,000


Accrued compensation



8,263




9,226


Accounts payable and other liabilities



66,428




85,964


Total Liabilities


$

1,397,649



$

1,343,380











Commitments and contingencies









Stockholders' Equity:









Common stock, $0.0001 par value, 50,000,000 shares authorized, 29,534,375 shares issued and 28,963,841 shares outstanding at September 30, 2019; 30,083,559 shares issued and 29,477,756 shares outstanding at December 31, 2018



3




3


Additional paid-in capital



331,558




325,292


Accumulated other comprehensive income (loss)



8,550




(6,527)


Treasury stock, at cost, 8,036,560 and 7,214,797 shares, respectively



(101,078)




(89,185)


Retained earnings



206,197




195,750


Total Stockholders' Equity



445,230




425,333


Total Liabilities and Stockholders' Equity


$

1,842,879



$

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
September 30,



For the Nine Months Ended
September 30,




2019



2018



2019



2018


REVENUES:

















Gross premiums written


$

237,303



$

233,613



$

702,491



$

701,643


Change in gross unearned premiums



(5,686)




551




(12,326)




(9,345)


Gross premiums earned



231,617




234,164




690,165




692,298


Ceded premiums



(107,755)




(115,926)




(342,529)




(356,748)


Net premiums earned



123,862




118,238




347,636




335,550


Net investment income



3,655




3,847




11,157




9,704


Net realized and unrealized gains (losses)



805




(123)




3,132




(1,234)


Other revenue



3,377




3,333




10,878




11,273


Total revenues



131,699




125,295




372,803




355,293


EXPENSES:

















Losses and loss adjustment expenses



70,052




58,695




206,490




177,775


Policy acquisition costs, net of ceding commission income
for the three and nine months ended September 30, 2019 of
$11.3 million and $36.8 million, respectively



26,686




26,569




79,793




58,167


General and administrative expenses, net of ceding
commission income for the three and nine months ended
September 30, 2019 of $3.7 million and $12 million,
respectively



21,477




25,815




58,465




72,167


Total expenses



118,215




111,079




344,748




308,109


Operating income



13,484




14,216




28,055




47,184


Interest expense, net



2,401




5,225




6,502




15,431


Other non-operating (income)/loss, net









48




(542)


Income before income taxes



11,083




8,991




21,505




32,295


Provision for income taxes



2,950




3,002




5,687




9,068


Net income


$

8,133



$

5,989



$

15,818



$

23,227


OTHER COMPREHENSIVE INCOME

















Change in net unrealized gains (losses) on investments



4,429




(2,895)




19,533




(9,918)


Reclassification adjustment for net realized investment
losses



(103)




(5)




291




307


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



(1,035)




1,665




(4,747)




3,249


Total comprehensive income


$

11,424



$

4,754



$

30,895



$

16,865


Weighted average shares outstanding

















Basic



29,109,962




25,631,871




29,329,742




25,663,415


Diluted



29,168,392




26,046,938




29,352,756




26,340,759


Earnings per share

















Basic


$

0.28



$

0.23



$

0.54



$

0.91


Diluted


$

0.28



$

0.23



$

0.54



$

0.88


 

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 third quarter of 2019 as well as long-term profitability, (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

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SOURCE Heritage Insurance Holdings, Inc.