Heritage Insurance Holdings, Inc. Reports Financial Results for Third Quarter of 2018

CLEARWATER, Fla., Oct. 31, 2018 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a property and casualty insurance holding company, today reported its financial results for the fiscal quarter ended September 30, 2018.

Third Quarter 2018 Highlights

• Third quarter 2018 net income of $6.0 million ($0.23 per diluted share) and GAAP operating income of $14.2 million
• Premiums in force increased 55% year-over-year to $923 million and gross premiums written increased 51% to $233.6 million over the same period, primarily reflecting inclusion of NBIC
• Personal lines Tri-County Florida TIV accounted for only 5.7% of companywide TIV, down 9.2 points year-over-year, reflecting exposure management efforts and diversification outside Florida
• New non-catastrophe Tri-County Florida claims count down 31% year-to-date
• $3.2 million of favorable prior year reserve development
• Expanded relationship with GEICO's insurance agency to all states (previously only NBIC states)
• Received licenses in Virginia and Maryland, bringing total licensed count to 15 states
• Book value per share of $15.16, up 18% year-over-year; $390.6 million of stockholders' equity
• Board of Directors declared a regular quarterly dividend of $0.06 per share

Bruce Lucas, the Company's Chairman and CEO, said, "We reported a solid third quarter despite retaining $16.6 million of catastrophe losses associated with Hurricanes Florence and Lane, as our vertically integrated structure continues to benefit results. We have continued our trend to diversify away from Florida's Tri-County, which reduces our exposure to the state's assignment of benefits crisis. Personal lines Tri-County Florida TIV only accounted for 5.7% of our overall third quarter 2018 book of business, down 9.2 points year-over-year. We're also continuing to expand outside Florida and recently received licenses in Maryland and Virginia, bringing our total licensed count to 15 states and look forward to new growth opportunities.

Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2018 and 2017 (amounts in thousands, except percentages and per share amounts):

Ratios

Ceded premium ratio. Our ceded premium ratio represents ceded premiums as a percentage of gross premiums earned.

Gross loss ratio. Our gross loss ratio represents net losses and loss adjustment expenses as a percentage of gross premiums earned.

Net loss ratio. Our net loss ratio represents net losses and loss adjustment expenses as a percentage of net premiums earned.

Gross expense ratio. Our gross expense ratio represents policy acquisition costs and general and administrative expenses ("G&A") as a percentage of gross premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.

Net expense ratio. Our net expense ratio represents policy acquisition costs and G&A expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.

Combined ratios. Our gross combined ratio represents the sum of ceded premiums, net losses and loss adjustment expenses, policy acquisition costs and G&A expenses as a percentage of gross premiums earned. Our net combined ratio represents the sum of net losses and loss adjustment expenses, policy acquisition costs and G&A expenses as a percentage of net premiums earned.  The combined ratio is the key measure of underwriting performance traditionally used in the property and casualty insurance industry. A combined ratio under 100% generally reflects profitable underwriting results.

Quarterly Financial Results

Net income (loss) for the third quarter of 2018 was $6.0 million compared to ($8.7) million for the third quarter of 2017. The increase primarily reflects net income associated with the inclusion of Narragansett Bay Insurance Company ("NBIC"), acquired on November 30, 2017, income from hurricane mitigation activity, the prior year quarter's inclusion of a $6.9 million non-cash charge associated with Heritage's convertible debt and a reduction in retained catastrophe losses ($16.6 million in third quarter of 2018 vs. $20.0 million in the prior year quarter).

Gross premiums written were $233.6 million in the third quarter of 2018, up 51.2% from $154.4 million in the prior year quarter.  The increase primarily stems from inclusion of NBIC, partly offset by a decrease in Florida premiums related to exposure management efforts aimed largely at Broward and Miami-Dade counties.

Gross premiums earned were $234.2 million in the third quarter of 2018, up 53.0% from $153.1 million in the prior year quarter. This increase stems from the same items impacting gross premiums written.

The ceded premium ratio was 49.5% in the third quarter of 2018, up 11.7 points from 37.8% in the prior year quarter. The increase is attributable to inclusion of NBIC, which has a higher ceded premium ratio than the legacy Heritage entity due to its quota share reinsurance agreements.  Excluding NBIC, but including reinsurance synergies, the Company's ceded premium ratio would have been 35.0% for the third quarter of 2018. 

The net loss ratio was 49.6% in the third quarter of 2018, down 17.7 points from 67.3% in the prior year quarter.  The decrease stems from increased hurricane mitigation activity and lower retained catastrophe losses in the current year quarter.

The Company's net expense ratio was 44.3% in the third quarter of 2018, up 6.1 points from 38.2% in the prior year quarter.  The increase stems from non-recurring business acquisition related expenses and NBIC-related integration costs, partly offset by $18.1 million of ceding commissions associated with NBIC's quota share reinsurance contracts.

The net combined ratio was 93.9% in the third quarter of 2018, down 11.6 points from 105.5% in the prior year quarter. The decrease stems from net loss ratio improvement, partly offset by net expense ratio deterioration, as described above.

Book Value Analysis

Third quarter 2018 book value per share increased 18% year-over-year to $15.16.

Conference Call Details:

Thursday, November 1, 2018 – 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.

About Heritage

Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Florida. Its insurance subsidiaries, Heritage Property & Casualty Insurance Company, Zephyr Insurance Company, and Narragansett Bay Insurance Company, write approximately $923 million of personal and commercial residential premium through a large network of experienced agents. The Company is currently writing property and casualty insurance policies in Alabama, Connecticut, Florida, Georgia, Hawaii, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, and South Carolina. Heritage Insurance Holdings, Inc. is led by a seasoned senior management team with an average of 25 years of insurance industry experience.

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 our estimate of retained catastrophe losses from Hurricane Michael and the related profit from our vertically integrated loss mitigation affiliates. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: the possibility that actual losses may exceed reserves; the concentration of our business in coastal states, which could be impacted by hurricane losses or other significant weather-related events such as northeastern winter storms; our exposure to catastrophic weather events; increased costs of reinsurance, non-availability of reinsurance, and non-collectability of reinsurance; our failure to effectively manage our growth and integrate acquired companies; increased competition, competitive pressures, and market conditions; our failure to accurately price the risks we underwrite; inherent uncertainty of our models and our reliance on such model as a tool to evaluate risk; the failure of our claims department to effectively manage or remediate claims; low renewal rates and failure of such renewals to meet our expectations; our failure to execute our diversification strategy; failure of our information technology systems and unsuccessful development and implementation of new technologies; a lack of redundancy in our operations; our failure to attract and retain qualified employees and independent agents or our loss of key personnel; our inability to generate investment income; our inability to maintain our financial stability rating; effects of emerging claim and coverage issues relating to legal, judicial, environmental and social conditions; the failure of our risk mitigation strategies or loss limitation methods; and changes in regulations and our failure to meet increased regulatory requirements; 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, 2017 filed with the Securities and Exchange Commission on March 15, 2018. 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.

Heritage Insurance Holdings Inc.

Investor Contact:
Arash Soleimani, CFA, CPA
Executive Vice President & Director of Investor Relations
727.871.0206
Email:  [email protected]

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SOURCE Heritage Insurance Holdings, Inc.