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Heritage Reports Second Quarter 2020 Results

CLEARWATER, Fla., Aug. 3, 2020 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a property and casualty insurance holding company, today reported second quarter 2020 financial results.

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

Second Quarter 2020 Highlights

  • Net income for the quarter was $4.1 million, or $0.15 per diluted share.

  • Book value per share increased to $16.67, up 11.2% from June 30, 2019 and 6.4% (12.9% annualized growth rate) from year-end 2019.

  • Gross premiums written of $290.4 million, up 14.0% year-over-year.

  • Favorable prior year reserve development of $5.0 million, representing the eighth consecutive quarter of favorable prior year reserve development.

  • Net current accident quarter weather losses of $26.8 million, including $17.6 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather losses were $21.5 million, including catastrophe losses of $13.4 million.

  • Repurchased 163,456 shares for $2.0 million at an average price of $12.31 per share, 26.2% below second quarter 2020 book value per share. Total capital returned to shareholders of $3.7 million, including $0.06 per share regular quarterly dividend.

  • Began writing homeowners insurance in Mississippi.

Bruce Lucas, the Company's Chairman and CEO, said, "The growth in our organic gross premiums written has accelerated every quarter since returning to positive growth in the third quarter of 2019 and we achieved double digit organic growth in the second quarter of 2020. Our strong agent relationships and auto carrier partnerships are paying off, as demonstrated in our numbers this quarter. More importantly, given our de-risking efforts in prior years, we're able to grow profitably, a testament to our underwriting discipline.

COVID-19 Update
We are currently monitoring the short- and long-term impacts of COVID-19. During the first half of 2020, we saw virtually no impact to our business. As a residential property insurer, we view our business as relatively insulated from a short-term economic slowdown, as property owners and renters generally view our products as a necessity.

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, 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 six months ended June 30, 2020 and 2019 (amounts
in thousands, except percentages and per share amounts):




Three Months Ended June 30,




Six Months Ended June 30,





2020



2019



Change




2020



2019



Change

























Total revenues



$     136,012




$   122,843




10.7  %





$     268,719




$       241,104




11.5   %



Net Income



$         4,132




$          721




473.1  %





$       11,752




$           7,685




52.9   %



Per Share



$           0.15




$         0.02




650.0  %





$           0.42




$             0.26




61.5   %






























Book value per share



$         16.67




$        14.99




11.2  %





$         16.67




$            14.99




11.2   %



Return on equity*



3.6  %




0.7   %




2.9  pts





5.2   %




3.6   %




1.6   pts






























Underwriting summary



























Gross premiums written



$     290,432




$    254,840




14.0   %





$     519,534




$       465,188




11.7   %



Gross premiums earned



$     241,792




$    229,958




5.1  %





$     476,508




$       458,548




3.9   %



Ceded premiums



$    (112,735)




$   (115,875)




(2.7)  %





$    (221,445)




$      (234,774)




(5.7)   %



Net premiums earned



$     129,057




$    114,083




13.1  %





$     255,063




$       223,774




14.0   %






























Ceded premium ratio



46.6  %




50.4  %




(3.8)  pts





46.5  %




51.2   %




(4.7)   pts






























Ratios to Net Premiums Earned:



























Loss ratio



61.1  %




65.1  %




(4.0)  pts





57.7   %




61.0   %




(3.3)   pts



Expense ratio



38.9  %




39.9  %




(1.0)  pts





40.0   %




40.3    %




(0.3)   pts



Combined ratio



100.0  %




105.0  %




(5.0)  pts





97.6   %




101.3    %




(3.7)   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
Second quarter 2020 net income was $4.1 million, up from $0.7 million in the prior year quarter. The increase primarily reflects higher net premiums earned, lower net loss and expense ratios and a lower effective tax rate, partly offset by lower investment gains.

Gross premiums written of $290.4 million, up 14.0% year-over-year, including 69.0% commercial residential growth, 11.3% personal residential growth outside Florida and 6.1% personal residential growth in Florida.

Premiums-in-force were $994.6 million in second quarter 2020, representing a 15.3% annualized growth rate from first quarter 2020. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were $241.8 million in second quarter 2020, up 5.1% from $230.0 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.

The ceded premium ratio was 46.6% in second quarter 2020, down 3.8 points from 50.4% in the prior year quarter. The decrease is primarily attributable to a reduction in the cost of our 2019-2020 catastrophe reinsurance program and a reduction in overall quota share reinsurance coverage, partly offset by the higher cost of our 2020-2021 catastrophe reinsurance program.

The net loss ratio was 61.1% in second quarter 2020, down 4.0 points from 65.1% in the prior year quarter. The decrease primarily stems from higher favorable prior year reserve development and a lower ceded premium ratio, partly offset by lower income from vertically integrated operations and a higher current accident year weather net loss ratio. 

The net expense ratio was 38.9% in second quarter 2020, down 1.0 point from 39.9% in the prior year quarter. The decrease primarily stems from modestly lower net PAC and G&A ratios, which benefited from a lower ceded premium ratio.

The net combined ratio was 100.0% in second quarter 2020, down 5.0 points from 105.0% 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 increased to $16.67 at June 30, 2020, up 11.2% year-over-year.


As Of


Book Value Per Share

June 30, 2020



December 31, 2019



June 30, 2019


Numerator:












Common stockholders' equity

$

462,499



$

448,799



$

438,850


Denominator:












Total Shares Outstanding


27,738,062




28,650,918




29,274,577


Book Value Per Common Share

$

16.67



$

15.66



$

14.99


 

Conference Call Details:
Tuesday, August 4, 20208:30 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, 2020



December 31, 2019


ASSETS


(unaudited)






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


$

698,277



$

587,256


Equity securities, at fair value



1,599




1,618


Other investments



6,374




6,375


Total investments



706,250




595,249


Cash and cash equivalents



288,342




268,351


Restricted cash



11,849




14,657


Accrued investment income



4,833




4,377


Premiums receivable, net



66,188




63,685


Reinsurance recoverable on paid and unpaid claims



374,709




428,903


Prepaid reinsurance premiums



361,256




224,102


Income taxes receivable



4,651




3,171


Deferred policy acquisition costs, net



81,590




77,211


Property and equipment, net



19,998




20,753


Intangibles, net



65,461




68,642


Goodwill



152,459




152,459


Other assets



28,804




18,110


Total Assets


$

2,166,390



$

1,939,670


LIABILITIES AND STOCKHOLDERS' EQUITY









Unpaid losses and loss adjustment expenses


$

620,718



$

613,533


Unearned premiums



529,321




486,220


Reinsurance payable



296,606




156,351


Long-term debt, net



126,056




129,248


Deferred income tax, net



20,957




12,623


Advance premiums



30,870




16,504


Accrued compensation



11,250




5,347


Accounts payable and other liabilities



68,113




71,045


Total Liabilities


$

1,703,891



$

1,490,871











Commitments and contingencies









Stockholders' Equity:









Common stock



3




3


Additional paid-in capital



332,037




329,568


Accumulated other comprehensive income



20,263




7,330


Treasury stock



(115,365)




(105,368)


Retained earnings



225,561




217,266


Total Stockholders' Equity



462,499




448,799


Total Liabilities and Stockholders' Equity


$

2,166,390



$

1,939,670


 

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,




2020



2019



2020



2019


REVENUES:

















Gross premiums written


$

290,432



$

254,840



$

519,534



$

465,188


Change in gross unearned premiums



(48,640)




(24,882)




(43,026)




(6,640)


Gross premiums earned



241,792




229,958




476,508




458,548


Ceded premiums



(112,735)




(115,875)




(221,445)




(234,774)


Net premiums earned



129,057




114,083




255,063




223,774


Net investment income



3,296




3,830




6,966




7,502


Net realized and unrealized gains (losses)



(38)




1,303




22




2,327


Other revenue



3,697




3,627




6,668




7,501


Total revenues



136,012




122,843




268,719




241,104


EXPENSES:

















Losses and loss adjustment expenses



78,869




74,299




147,050




136,438


Policy acquisition costs



30,237




27,087




60,284




53,107


General and administrative expenses



19,943




18,384




41,661




36,988


Total expenses



129,049




119,770




248,995




226,533


Operating income



6,963




3,073




19,724




14,571


Interest expense, net



1,721




1,984




3,688




4,101


Other non-operating loss, net












48


Income before income taxes



5,242




1,089




16,036




10,422


Provision for income taxes



1,110




368




4,284




2,737


Net income


$

4,132



$

721



$

11,752



$

7,685


OTHER COMPREHENSIVE INCOME

















Change in net unrealized gains on investments



14,823




7,068




16,850




15,104


Reclassification adjustment for net realized investment
(gains) losses



38




59




(22)




394


Income tax expense related to items of other
comprehensive income



(3,440)




(1,304)




(3,895)




(3,712)


Total comprehensive income


$

15,553



$

6,544



$

24,685



$

19,471


Weighted average shares outstanding

















Basic



27,876,801




29,346,234




28,212,735




29,442,363


Diluted



27,913,696




29,352,796




28,231,273




29,447,668


Earnings per share

















Basic


$

0.15



$

0.02



$

0.42



$

0.26


Diluted


$

0.15



$

0.02



$

0.42



$

0.26


 

About Heritage
Heritage Insurance Holdings, Inc. is a super-regional property and casualty insurance holding company headquartered in Clearwater, Florida. Through its insurance subsidiaries and a large network of experienced agents, the Company writes approximately $1 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) our ability to continue to grow profitably. 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, 2019 filed with the Securities and Exchange Commission on March 10, 2020. 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

Cision
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SOURCE Heritage Insurance Holdings, Inc.