TAMPA,
Fla., May 4, 2023 /PRNewswire/ -- Heritage
Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the
"Company"), a super-regional property and casualty insurance
holding company, today reported first quarter of 2023 financial
results.
First Quarter 2023 Result Highlights
- First quarter net income of $14.0
million or $0.55 per diluted
share, up from a net loss of $30.8
million or ($1.15) per diluted
share in the prior year quarter primarily due to higher net earned
premium and significantly lower weather losses.
- Premiums-in-force exceeded $1.3
billion, up 10.9% year-over-year driven by rate increases
across the portfolio, while policy count was down 9.0%, resulting
in average premium per policy increasing 21.9%.
- Gross premiums written of $310.3
million, up 9.6% from $283.2
million in the prior year quarter.
- Gross premiums earned of $317.0
million, up 10.3% from $287.4
million in the prior year quarter.
- Net loss ratio of 58.7%, down 32.9 points from 91.6% in the
prior year quarter.
- Net expense ratio of 35.8%, down 2.1 points from 37.9% in the
prior year quarter.
- Net combined ratio of 94.5%, down 35.0 points from 129.5% in
the first quarter 2022.
- Continued successful exposure management with Florida admitted market personal line
policies-in-force intentionally declining by 10.4%, as compared to
the prior year period.
"I am pleased to report a second consecutive quarter with net
income and continued improvement in our financial results this
quarter, which were bolstered by the continued implementation of
our strategic profitability initiatives across the organization,"
said Heritage CEO Ernie Garateix.
"We anticipate the impact of rate increases and underwriting
changes made in 2022, and those we will make in 2023, will continue
to have a favorable impact on our financial position throughout the
year. We remain committed to allocating capital toward products and
geographies that maximize long-term returns. An example is the
selective growth of our commercial residential business, which
increased substantially over the prior year quarter. The impact of
higher reinsurance costs is being mitigated by making appropriate
rate adjustments and managing exposure. We are focused on
generating an underwriting profit through rate adequacy and more
selective underwriting. We remain optimistic in achieving
consistent long-term quarterly earnings and sustainable shareholder
value through our strategic profitability initiatives."
Strategic Profitability Initiatives
The following provides an update to the Company's strategic
initiatives that are expected to enable Heritage to achieve
consistent long-term quarterly earnings and drive shareholder
value. The Supplemental Information table included in this earnings
release demonstrates progress made compared to the first quarter
2022.
- Generate underwriting profit through rate adequacy and more
selective underwriting.
-
- Continued significant rating actions throughout the book of
business resulting in an increase in average premium per policy
throughout the book of 5.9% from fourth quarter 2022, and 21.9%
over first quarter 2022.
- Premiums-in-force of $1.3 billion
are up 10.9% from the prior year quarter, while policy count is
down 9.0%, resulting from prior underwriting efforts.
- Continued focus on tightening underwriting criteria while also
restricting new business for policies written in over-concentrated
markets or products.
- Allocate capital to products and geographies that maximize
long-term returns.
-
- Increased commercial residential premium-in-force by 69.6% over
the prior year quarter while total insured value ("TIV") only
increased 39.9% and policies in force increased by only 11.8%.
- Reduction of policy count for the Florida personal lines product remains a key
focus and will continue until the positive impact of recent
legislation to reduce abusive claims practices is realized. Policy
count for Florida personal lines
business intentionally declined by 16.8% as compared to the prior
year period.
- This disciplined underwriting approach resulted in a policy
count reduction of 5.2% in other states while generating an 8.8%
increase in premiums-in-force.
- Maintain a balanced and diversified portfolio.
-
- Even with the substantial increase in commercial business, no
state represents over 26% of the Company's TIV.
- The top four states grew TIV by an average of 3.7% while the
smallest five states grew by 38.8%.
- As a result of diversification efforts, the top five personal
lines states represented 71.5% of all TIV at first quarter 2023
compared to 73.3% of all TIV at first quarter 2022.
- Florida TIV increased 1.8% related to the use of inflation
guard, which increases the insured value of a property to reflect
the inflationary impact on costs to repair, and growth of the
Company's commercial residential product.
- TIV in other states increased 3.1% compared to the prior year
period, largely driven by inflation guard.
- Excluding Florida, TIV
represented 74.3% of the entire portfolio, compared to 74.0% as of
the first quarter of 2022.
- Provide coverage suitable to the market and return
targets.
-
- Expansion of Excess & Surplus lines ("E&S")
premium-in-force in California and
Florida.
- Continued plan for expansion to South
Carolina during second quarter of 2023.
- Continue to evaluate other strategic states for E&S
products.
Capital Management
Heritage's Board of Directors has decided to continue its
temporary suspension of the quarterly dividend to shareholders. The
Board of Directors will continue to evaluate dividend distribution
and stock repurchases on a quarterly basis. No shares of common
stock were repurchased during the quarter.
Results of Operations
The following table summarizes results of operations for the
three months ended March 31, 2023 and
2022 (amounts in thousands, except percentages and per share
amounts):
|
|
Three Months Ended
March 31,
|
|
|
|
|
|
|
|
2023
|
|
|
2022
|
|
|
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenues
|
|
$
|
176,921
|
|
|
$
|
158,608
|
|
|
|
11.5
|
|
%
|
Net income
(loss)
|
|
$
|
14,008
|
|
|
$
|
(30,759)
|
|
|
|
(145.5)
|
|
%
|
Earnings (loss) per
share
|
|
$
|
0.55
|
|
|
$
|
(1.15)
|
|
|
|
(147.6)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Book value per
share
|
|
$
|
6.05
|
|
|
$
|
10.65
|
|
|
|
(43.2)
|
|
%
|
Return on
equity
|
|
|
39.2
|
|
%
|
|
(39.4)
|
|
%
|
|
78.6
|
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting
summary
|
|
|
|
|
|
|
|
|
|
|
Gross premiums
written
|
|
$
|
310,309
|
|
|
$
|
283,196
|
|
|
|
9.6
|
|
%
|
Gross premiums
earned
|
|
$
|
317,022
|
|
|
$
|
287,368
|
|
|
|
10.3
|
|
%
|
Ceded
premiums
|
|
$
|
(150,993)
|
|
|
$
|
(134,439)
|
|
|
|
12.3
|
|
%
|
Net premiums
earned
|
|
$
|
166,029
|
|
|
$
|
152,929
|
|
|
|
8.6
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premium
ratio
|
|
|
47.6
|
|
%
|
|
46.8
|
|
%
|
|
0.8
|
|
pts
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Net Premiums
Earned:
|
|
|
|
|
|
|
|
|
|
|
Loss ratio
|
|
|
58.7
|
|
%
|
|
91.6
|
|
%
|
|
(32.9)
|
|
pts
|
Expense
ratio
|
|
|
35.8
|
|
%
|
|
37.9
|
|
%
|
|
(2.1)
|
|
pts
|
Combined
ratio
|
|
|
94.5
|
|
%
|
|
129.5
|
|
%
|
|
(35.0)
|
|
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.
First Quarter 2023 Results
- First quarter net income of $14.0
million or $0.55 per diluted
share, compared to a net loss of $30.8
million or ($1.15) per diluted
share in the prior year quarter driven primarily by higher net
premiums earned and investment income, as well as lower current
accident year weather losses.
- Premiums-in-force of $1.3 billion
as of first quarter 2023, represented a 10.9% increase from first
quarter 2022 due to continued proactive underwriting and rate
actions, despite a policy count reduction of approximately 50,000
policies. In addition, selective growth of the Company's commercial
product and use of inflation guard favorably impacted
premiums-in-force. Concurrently, TIV increased only 2.8%.
- Gross premiums written were $310.3
million, up 9.6% year-over-year, reflecting higher average
premium per policy throughout the book of business, partly offset
by intentional exposure management related reductions in
Florida personal lines business
and business outside of Florida of
10.0% and 1.0%, respectively, and a strategic increase in
Florida commercial lines
business.
- Gross premiums earned of $317.0
million were up 10.3% from $287.4
million in the prior year quarter, reflecting higher gross
premiums written over the last twelve months driven by a higher
average premium per policy and organic growth of the commercial
residential business.
- Net premiums earned of $166.0
million increased 8.6% from $153.0
million in the prior year quarter, reflecting higher gross
premiums earned outpacing the increase in ceded premiums earned for
the quarter.
- Ceded premium ratio of 47.6%, up 0.8 points from 46.8% in the
prior year quarter driven by a higher cost of the 2022-2023
catastrophe excess of loss program, stemming from both higher costs
and higher TIV, partly offset by higher gross premiums earned.
- Net loss ratio of 58.7%, 32.9 points lower than the prior year
quarter of 91.6%, driven primarily by lower weather losses. Net
current accident year weather losses of $12.8 million, down substantially from
$63.8 million in the prior year
quarter. Current accident year weather losses include $5.0 million of net current accident quarter
catastrophe losses, down from $45.0
million in the prior year quarter, and $7.8 million of other weather losses, down from
$18.8 million in the prior year
quarter.
- Net expense ratio of 35.8%, down 2.1 points from the prior year
quarter amount of 37.9%, with slightly higher policy acquisition
costs that were more than offset by the benefit of higher gross
premiums earned over the prior year quarter.
- Net combined ratio of 94.5%, down 35.0 points from 129.5% in
the prior year quarter, driven by lower net loss and net expense
ratios as described above.
- Effective tax rate was 18.6% compared to 25.7% in the prior
year quarter, driven by the impact of permanent differences in
relation to the pre-tax income or loss each quarter. In addition,
the Company reduced its valuation allowance from fourth quarter
2022 by $1.7 million, favorably
impacting the effective tax rate for the quarter. The valuation
allowance relates to certain tax elections made by Osprey Re, the
Company's captive reinsurer domiciled in Bermuda.
Supplemental Information:
Policies in
force:
|
|
Q1
2023
|
|
|
Q1
2022
|
|
|
%
Change
|
|
|
Florida
|
|
|
172,425
|
|
|
|
204,406
|
|
|
|
(15.6)
|
|
%
|
Other States
|
|
|
336,647
|
|
|
|
355,090
|
|
|
|
(5.2)
|
|
%
|
Total
|
|
|
509,072
|
|
|
|
559,496
|
|
|
|
(9.0)
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Premiums in
force:
|
|
|
|
|
|
|
|
|
|
|
Florida
|
$
|
|
624,931,522
|
|
$
|
|
551,962,357
|
|
|
|
13.2
|
|
%
|
Other States
|
|
|
681,407,015
|
|
|
|
626,010,221
|
|
|
|
8.8
|
|
%
|
Total
|
$
|
|
1,306,338,537
|
|
$
|
|
1,177,972,578
|
|
|
|
10.9
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total Insured
Value:
|
|
|
|
|
|
|
|
|
|
|
Florida
|
$
|
|
104,735,498,939
|
|
$
|
|
102,863,325,053
|
|
|
|
1.8
|
|
%
|
Other States
|
|
|
302,701,975,889
|
|
|
|
293,478,796,893
|
|
|
|
3.1
|
|
%
|
Total
|
$
|
|
407,437,474,828
|
|
$
|
|
396,342,121,946
|
|
|
|
2.8
|
|
%
|
Book Value Analysis
Book value per share of $6.05 at
March 31, 2023, ended the quarter up
from $5.13 in the fourth quarter of
2022, and down 43.2% from first quarter 2022. The decrease from
first quarter 2022 is attributable to underwriting losses during
2022, coupled with large unrealized losses on the Company's fixed
income securities portfolio, and a non-cash goodwill impairment
charge of $90.8 million, net of
taxes, made in the second quarter of 2022. The unrealized losses
were unrelated to credit risk but due to a higher interest rate
environment. The increase from fourth quarter 2022 is driven by net
income generated in first quarter 2023, coupled with a reduction of
unrealized losses resulting from maturities during the quarter and
the re-investment of proceeds primarily in Treasury bills and money
market funds, which also improved liquidity and yields. Heritage
does not anticipate a need to sell the investments in advance of
maturity. As such, the Company expects unrealized losses to
continue to roll as investments mature.
Book Value Per
Share
|
As Of
|
|
|
March 31,
2023
|
|
|
December 31,
2022
|
|
|
March 31,
2022
|
|
Numerator:
|
|
|
|
|
|
|
|
|
Common stockholders'
equity
|
$
|
154,724
|
|
|
$
|
131,039
|
|
|
$
|
281,766
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Total Shares
Outstanding
|
$
|
25,558,751
|
|
|
$
|
25,539,433
|
|
|
$
|
26,444,720
|
|
Book Value Per Common
Share
|
$
|
6.05
|
|
|
$
|
5.13
|
|
|
$
|
10.65
|
|
Conference Call Details:
Friday, May 5, 2023 – 9:00 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)
|
|
|
|
|
|
March 31,
2023
|
|
|
December 31,
2022
|
|
ASSETS
|
|
(unaudited)
|
|
|
|
|
Fixed maturities,
available-for-sale, at fair value
|
|
$
|
613,176
|
|
|
$
|
635,572
|
|
Equity securities, at
fair value
|
|
|
1,495
|
|
|
|
1,514
|
|
Other investments,
net
|
|
|
14,283
|
|
|
|
16,484
|
|
Total
investments
|
|
|
628,954
|
|
|
|
653,570
|
|
Cash and cash
equivalents
|
|
|
329,965
|
|
|
|
280,881
|
|
Restricted
cash
|
|
|
6,699
|
|
|
|
6,691
|
|
Accrued investment
income
|
|
|
3,536
|
|
|
|
3,817
|
|
Premiums receivable,
net
|
|
|
80,775
|
|
|
|
92,749
|
|
Reinsurance
recoverable on paid and unpaid claims, net
|
|
|
681,844
|
|
|
|
805,059
|
|
Prepaid reinsurance
premiums
|
|
|
188,760
|
|
|
|
306,977
|
|
Income tax
receivable
|
|
|
4,264
|
|
|
|
12,118
|
|
Deferred income tax
asset, net
|
|
|
17,962
|
|
|
|
16,841
|
|
Deferred policy
acquisition costs, net
|
|
|
98,035
|
|
|
|
99,617
|
|
Property and
equipment, net
|
|
|
27,603
|
|
|
|
25,729
|
|
Right-of-use lease
asset, finance
|
|
|
19,490
|
|
|
|
20,132
|
|
Right-of-use lease
asset, operating
|
|
|
7,563
|
|
|
|
7,335
|
|
Intangibles,
net
|
|
|
47,987
|
|
|
|
49,575
|
|
Other
assets
|
|
|
15,344
|
|
|
|
11,509
|
|
Total
Assets
|
|
$
|
2,158,781
|
|
|
$
|
2,392,600
|
|
LIABILITIES AND
STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Unpaid losses and loss
adjustment expenses
|
|
$
|
980,992
|
|
|
$
|
1,131,807
|
|
Unearned
premiums
|
|
|
649,864
|
|
|
|
656,641
|
|
Reinsurance
payable
|
|
|
95,900
|
|
|
|
199,803
|
|
Long-term debt,
net
|
|
|
126,700
|
|
|
|
128,943
|
|
Advance
premiums
|
|
|
39,642
|
|
|
|
26,516
|
|
Accrued
compensation
|
|
|
5,349
|
|
|
|
6,594
|
|
Lease liability,
finance
|
|
|
22,012
|
|
|
|
22,557
|
|
Lease liability,
operating
|
|
|
8,890
|
|
|
|
8,690
|
|
Accounts payable and
other liabilities
|
|
|
74,708
|
|
|
|
80,010
|
|
Total
Liabilities
|
|
$
|
2,004,057
|
|
|
$
|
2,261,561
|
|
Stockholders'
Equity:
|
|
|
|
|
|
|
Common stock, $0.0001
par value
|
|
|
3
|
|
|
|
3
|
|
Additional paid-in
capital
|
|
|
335,098
|
|
|
|
334,711
|
|
Accumulated other
comprehensive loss, net of taxes
|
|
|
(44,295)
|
|
|
|
(53,585)
|
|
Treasury stock, at
cost
|
|
|
(130,900)
|
|
|
|
(130,900)
|
|
Retained
deficit
|
|
|
(5,182)
|
|
|
|
(19,190)
|
|
Total Stockholders'
Equity
|
|
|
154,724
|
|
|
|
131,039
|
|
Total Liabilities
and Stockholders' Equity
|
|
$
|
2,158,781
|
|
|
$
|
2,392,600
|
|
HERITAGE INSURANCE
HOLDINGS, INC.
Condensed
Consolidated Statements of Operations and Other Comprehensive
Income (Loss)
(Amounts in
thousands, except share amounts)
(Unaudited)
|
|
|
|
For the Three
Months Ended
March 31,
|
|
|
|
2023
|
|
|
2022
|
|
REVENUES:
|
|
|
|
|
|
|
Gross premiums
written
|
|
$
|
310,309
|
|
|
$
|
283,196
|
|
Change in gross
unearned premiums
|
|
|
6,713
|
|
|
|
4,172
|
|
Gross premiums
earned
|
|
|
317,022
|
|
|
|
287,368
|
|
Ceded
premiums
|
|
|
(150,993)
|
|
|
|
(134,439)
|
|
Net premiums
earned
|
|
|
166,029
|
|
|
|
152,929
|
|
Net investment
income
|
|
|
5,582
|
|
|
|
2,000
|
|
Net realized gains
(losses)
|
|
|
1,898
|
|
|
|
(16)
|
|
Other
revenue
|
|
|
3,412
|
|
|
|
3,695
|
|
Total
revenues
|
|
|
176,921
|
|
|
|
158,608
|
|
EXPENSES:
|
|
|
|
|
|
|
Losses and loss
adjustment expenses
|
|
|
97,452
|
|
|
|
140,038
|
|
Policy acquisition
costs, net
|
|
|
40,324
|
|
|
|
38,257
|
|
General and
administrative expenses, net
|
|
|
19,054
|
|
|
|
19,724
|
|
Total
expenses
|
|
|
156,830
|
|
|
|
198,019
|
|
Operating income
(loss)
|
|
|
20,091
|
|
|
|
(39,411)
|
|
Interest expense,
net
|
|
|
2,881
|
|
|
|
1,972
|
|
Income (loss) before
income taxes
|
|
|
17,210
|
|
|
|
(41,383)
|
|
Provision (benefit)
for income taxes
|
|
|
3,202
|
|
|
|
(10,624)
|
|
Net income
(loss)
|
|
$
|
14,008
|
|
|
$
|
(30,759)
|
|
OTHER COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
|
Change in net
unrealized gains (losses) on investments
|
|
|
12,143
|
|
|
|
(31,770)
|
|
Reclassification
adjustment for net realized investment losses
|
|
|
2
|
|
|
|
16
|
|
Income tax (expense)
benefit related to items of other comprehensive income
(loss)
|
|
|
(2,855)
|
|
|
|
7,433
|
|
Total comprehensive
income (loss)
|
|
$
|
23,298
|
|
|
$
|
(55,080)
|
|
Weighted average
shares outstanding
|
|
|
|
|
|
|
Basic
|
|
|
25,558,305
|
|
|
|
26,787,379
|
|
Diluted
|
|
|
25,617,568
|
|
|
|
26,787,379
|
|
Earnings (loss) per
share
|
|
|
|
|
|
|
Basic
|
|
$
|
0.55
|
|
|
$
|
(1.15)
|
|
Diluted
|
|
$
|
0.55
|
|
|
$
|
(1.15)
|
|
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 $1.3 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 the expected positive impact of our strategic
initiatives on our future financial results, including focus on
profitability, optimizing capital allocation, exposure management
and strategic reduction of policy count in certain geographies,
rate adequacy and our ability to create value for our shareholders;
impact of rate increases, including the ability to mitigate the
expected impact of increased reinsurance costs through rate
adjustments; ability to achieve consistent long-term quarterly
earnings and drive shareholder value; continued increase in average
premium per policy; future dividend payments and stock repurchases;
the impact of legislation on the homeowner's insurance marketplace
and litigious practices in Florida; and expectations regarding our fixed
income investment portfolio. The risks and uncertainties that could
cause our actual results to differ from those expressed or implied
herein include, without limitation: the success of the Company's
underwriting and profitability initiatives; inflation and other
changes in economic conditions (including changes in interest rates
and financial and real estate markets), including changes that may
impact demand for our products and our operations; the impact of
macroeconomic and geopolitical conditions, including the impact of
supply chain constraints, inflationary pressures, labor
availability and the conflict between Russia and Ukraine; the impact of new federal and state
regulations that affect the property and casualty insurance market;
the cost 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, 2022 filed with the Securities and
Exchange Commission on March 13,
2023, and subsequent filings. 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
Investor Contact:
Kirk
Lusk
Chief Financial Officer
klusk@heritagepci.com
investors@heritagepci.com
Mike Houston
Lambert
HRTG@lambert.com
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SOURCE Heritage Insurance Holdings, Inc.