Heritage Reports First Quarter 2020 Results

CLEARWATER, Fla., May 4, 2020 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a property and casualty insurance holding company, today reported first quarter 2020 financial results.

First Quarter 2020 Highlights

• Net income for the quarter was $7.6 million, or $0.27 per diluted share.
• Book value per share increased to $16.11, up 9.0% from March 31, 2019 and 2.9% (11.5% annualized growth rate) from year-end 2019.
• Gross premiums written of $229.1 million, up 8.9% year-over-year, including 12.0% growth outside Florida and 6.4% growth in Florida.
• Favorable prior year reserve development of $4.1 million, representing seventh consecutive quarter of favorable prior year reserve development.
• Net current accident quarter weather losses of $21.2 million, including $17.0 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather and catastrophe losses were $20.5 million and $15.0 million, respectively.
• Repurchased 766,900 shares for $8.0 million at an average price of $10.41 per share, 35.4% below first quarter 2020 book value per share. Total capital returned to shareholders of $9.7 million, including $0.06 per share regular quarterly dividend.
• Began writing homeowners insurance in California on an excess & surplus lines basis.

Bruce Lucas, the Company's Chairman and CEO, said, "I want to thank healthcare workers and other essential personnel, including our employees, for supporting our communities during these unprecedented times. As a super-regional property insurer that's prevailed through multiple hurricanes, we're well equipped to operate in the current environment and continue to provide our policyholders and agency partners with the high levels of service they're accustomed to. Homeowners insurance, our core focus, is a must-have product for most consumers, positioning us well in uncertain economic times. Given our confidence in the resilience of our business model, in the first quarter we repurchased 766,900 shares, representing over 3% of year-end 2019 float."

COVID-19 Update
We are currently monitoring the short- and long-term impacts of COVID-19. During first quarter 2020, we saw virtually no impact to our business. As a residential property insurer, we view our business as relatively insulated from an economic slowdown, as property owners and renters generally view our products as a necessity. The majority of our gross and net premiums written are from renewals of expiring policies. New business, which accounts for a smaller proportion of our sales volume, could be impacted if consumers are not buying as many new homes in our geographies, but this could be partially or fully offset by increased retention in our renewal portfolio.

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 months ended March 31, 2020 and 2019 (amounts in thousands, except percentages and per share amounts):

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
First quarter 2020 net income was $7.6 million, up from $7.0 million in the prior year quarter. The increase primarily reflects higher net premiums earned and a lower net combined ratio, partly offset by lower investment gains and other income and a higher effective tax rate.

Gross premiums written were $229.1 million in first quarter 2020, up 8.9% from $210.3 million in the prior year quarter, including 12.0% growth outside Florida and 6.4% growth in Florida. All states and lines of business experienced positive growth.

Premiums-in-force were $958.1 million in first quarter 2020, representing a 7.4% annualized growth rate from year-end 2019. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were $234.7 million in first quarter 2020, up 2.7% from $228.6 million in the prior year quarter. The increase primarily reflects higher gross premiums written, as described above.

The ceded premium ratio was 46.3% in first quarter 2020, down 5.7 points from 52.0% in the prior year quarter. The decrease is primarily attributable to a reduction in overall quota share reinsurance coverage and reinsurance synergies, partly offset by additional catastrophe excess-of-loss reinsurance coverage.

The net loss ratio was 54.1% in first quarter 2020, down 2.5 points from 56.6% in the prior year quarter. The decrease primarily stems from lower current accident year attritional and weather net loss ratios and higher favorable prior year reserve development, partly offset by lower income from vertically integrated operations. Catastrophe and weather losses in the current year quarter primarily stemmed from February hail, tornado and wind events in the southeast.

The net expense ratio was 41.1% in first quarter 2020, up 0.4 points from 40.7% in the prior year quarter. The increase primarily stems from a modestly higher G&A expense ratio.

The net combined ratio was 95.2% in first quarter 2020, down 2.1 points from 97.3% in the prior year quarter. The decrease stems from a lower net loss ratio, partly offset by a higher net expense ratio, as described above.

Book Value Analysis
Book value per share increased to $16.11 at March 31, 2020, up 9.0% from March 31, 2019.

Conference Call Details:
Tuesday, May 5, 2020 – 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 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 over $950 million 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, (ii) our core focus on homeowners' policies and its impact on our ability to mitigate the impact of the economic effects of the COVID-19 pandemic, (iii) our beliefs with respect to the drivers of our performance relative to our peers, (iv) our intent to continue our share repurchase program, and (v) our expectations regarding organic growth in 2020. 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 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); 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; our ability to continue our stock repurchase program, which will depend on, among other things, the trading price, which may be positively or negatively impacted by the repurchase program, market, business  and economic conditions, including the impact of the COVID-19 pandemic, the availability of stock, our financial performance or determinations following the date of this announcement in order to use our funds for other purposes; 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, 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: [email protected]

SOURCE Heritage Insurance Holdings, Inc.