PR Newswire | Aug 5, 2021 04:06PM EDT

08/05 15:05 CDT

Heritage Reports Second Quarter 2021 Results CLEARWATER, Fla., Aug. 5, 2021

CLEARWATER, Fla., Aug. 5, 2021 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a super-regional property and casualty insurance holding company, today reported second quarter 2021 financial results.

Second Quarter 2021 Highlights

* Net loss of $4.0 million, or $0.14 per share. * Book value per share of $15.20, down 0.8% from first quarter 2021. * Gross premiums written of $337.7 million, up 16.3% year-over-year. * Favorable prior year reserve development of $0.6 million. * Net current accident quarter weather losses of $35.5 million, up from $26.8 million in the prior year quarter. Current accident quarter weather losses include $24.5 million of net catastrophe losses, up from $17.6 million in the prior year quarter, and $11.0 million of other weather losses, up from $9.2 million in the prior year quarter. * Additional ceded premium of $9.4 million, reflecting reinstatement of severe convective storm reinsurance coverage, which contributed 6.3 points to the net combined ratio. * Total capital returned to shareholders of $1.7 million, reflecting $0.06 per share regular quarterly dividend.

Ernie Garateix, the Company's CEO, said, "I'm encouraged that despite a $9.4 million reinstatement premium in the quarter and a $4.1 million uptick in weather losses relative to the first quarter of this year, net income improved sequentially, suggesting the benefits of our underwriting and pricing actions are starting to show."

Quarterly DividendHeritage's Board of Directors declared a quarterly cash dividend of $0.06 per share on the Company's common stock. The dividend will be paid on October 6, 2021 to shareholders of record as of September 15, 2021.

COVID-19 UpdateWe continue to monitor the short- and long-term impacts of COVID-19, and through June 30, 2021, we continue to see 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 or its variants, will take necessary actions to mitigate any negative impacts to our business, operations or financial results.

Results of OperationsThe following table summarizes our results of operations for the three and six months ended June 30, 2021 and 2020 (amounts in thousands, except percentages and per share amounts):

Three Months Ended June 30, Six Months Ended June 30,

2021 2020 Change 2021 2020 Change

Total $ 150,197 $ 136,012 10.4 % $ 297,441 $ 268,719 10.7 %revenues

Net (loss) $ (3,950) $ 4,132 (195.6) % $ (9,097) $ 11,752 (177.4) %income

Per Share $ (0.14) $ 0.15 (193.3) % $ (0.33) $ 0.42 (178.6) %

Book value $ 15.20 $ 16.67 (8.8) % $ 15.20 $ 16.67 (8.8) %per share

Return on (3.7) % 3.6 % (7.3) pts (4.2) % 5.2 % (9.4) ptsequity

Underwritingsummary

Grosspremiums $ 337,700 $ 290,432 16.3 % $ 611,881 $ 519,534 17.8 %written

Grosspremiums $ 285,646 $ 241,792 18.1 % $ 556,057 $ 476,508 16.7 %earned

Ceded $ (139,147) $ (112,735) 23.4 % $ (267,359) $ (221,445) 20.7 %premiums

Net premiums $ 146,499 $ 129,057 13.5 % $ 288,698 $ 255,063 13.2 %earned

Cededpremium 48.7 % 46.6 % 2.1 pts 48.1 % 46.5 % 1.6 ptsratio

Ratios toNet PremiumsEarned:

Loss ratio 68.8 % 61.1 % 7.7 pts 68.8 % 57.7 % 11.1 pts

Expense 36.4 % 38.9 % (2.5) pts 37.6 % 40.0 % (2.4) ptsratio

Combined 105.2 % 100.0 % 5.2 pts 106.4 % 97.7 % 8.7 ptsratio

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

Note: Percentages and sums in the table may not recalculate precisely due torounding.

RatiosCeded 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 ResultsSecond quarter 2021 net loss was $4.0 million, down from net income of $4.1 million in the prior year quarter. The decrease primarily stems from higher weather losses, a $9.4 million reinstatement premium and lower investment income, partly offset by higher net premiums earned and a lower net expense ratio.

Gross premiums written were $337.7 million, up 16.3% year-over-year, including 20.3% growth outside Florida and 12.8% growth in Florida. Rate increases benefited topline results, particularly in Florida.

Premiums-in-force were $1.2 billion as of second quarter 2021, representing a 17.2% annualized growth rate from first quarter 2021. The increase stems from the same items impacting gross premiums written. Policies in force were 593,786 representing a 1.3% annualized growth rate from first quarter 2021. Premium growth outpacing policy growth largely stems from rate increases.

Gross premiums earned were $285.6 million in second quarter 2021, up 18.1% from $241.8 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.

The ceded premium ratio was 48.7% in second quarter 2021, up 2.1 points from 46.6% in the prior year quarter. The increase is primarily attributable to higher costs associated with our catastrophe excess-of-loss reinsurance program and a $9.4 million reinstatement premium associated with our severe convective storm reinsurance coverage, partly offset by higher gross premiums earned.

The net loss ratio was 68.8% in second quarter 2021, up 7.7 points from 61.1% in the prior year quarter. The increase primarily stems from higher weather losses, lower favorable reserve development and the impact of a higher ceded premium ratio.

The net expense ratio was 36.4% in second quarter 2021, down 2.5 points from 38.9% in the prior year quarter. The decrease primarily stems from a lower G&A expense ratio, partly offset by a higher PAC expense ratio and the impact of a higher ceded premium ratio.

The net combined ratio was 105.2% in second quarter 2021, up 5.2 points from 100.0% 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 AnalysisBook value per share decreased to $15.20 at June 30, 2021, down 0.8% from March 31, 2021.

As Of

Book Value Per Share June 30, 2021 December 31, 2020 June 30, 2020

Numerator:

Common stockholders' equity $ 424,873 $ 442,344 $ 462,499

Denominator:

Total Shares Outstanding 27,946,941 27,748,606 27,738,062

Book Value Per Common Share $ 15.20 $ 15.94 $ 16.67

Conference Call Details:Friday, August 6, 2021 - 9:30 a.m. ETParticipant Dial-in Numbers Toll Free: 1-888-346-3095Participant International Dial In: 1-412-902-4258Canada 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, 2021 December 31, 2020

ASSETS (unaudited)

Fixed maturities, available-for-sale, at $ 643,559 $ 561,011fair value

Equity securities, at cost 1,415 1,599

Other investments 24,786 26,409

Total investments 669,760 589,019

Cash and cash equivalents 446,956 440,956

Restricted cash 5,414 5,427

Accrued investment income 3,002 2,737

Premiums receivable, net 83,648 77,471

Reinsurance recoverable on paid and unpaid 314,918 355,037claims, net

Prepaid reinsurance premiums 416,630 245,818

Income taxes receivable 40,000 32,224

Deferred policy acquisition costs, net 95,967 89,265

Property and equipment, net 18,565 18,685

Right of use lease asset, net 29,349 6,461

Intangibles, net 59,102 62,277

Goodwill 152,459 152,459

Other assets 15,856 11,544

Total Assets $ 2,351,626 $ 2,089,379

LIABILITIES AND STOCKHOLDERS' EQUITY

Unpaid losses and loss adjustment expenses $ 625,979 $ 659,341

Unearned premiums 625,512 569,618

Reinsurance payable 392,783 161,918

Long-term debt, net 119,801 120,998

Deferred income tax, net 19,617 18,477

Advance premiums 36,625 18,268

Accrued compensation 8,740 9,325

Lease liability 31,840 8,155

Accounts payable and other liabilities 65,856 80,935

Total Liabilities $ 1,926,753 $ 1,647,035

Commitments and contingencies

Stockholders' Equity:

Common stock 3 3

Additional paid-in capital 332,287 331,867

Accumulated other comprehensive income 623 6,057

Treasury stock (115,365) (115,365)

Retained earnings 207,325 219,782

Total Stockholders' Equity 424,873 442,344

Total Liabilities and Stockholders' Equity $ 2,351,626 $ 2,089,379

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 For the Six Months Ended June 30, June 30,

2021 2020 2021 2020

REVENUES:

Gross premiums $ 337,700 $ 290,432 $ 611,881 $ 519,534written

Change in gross (52,054) (48,640) (55,824) (43,026)unearned premiums

Gross premiums 285,646 241,792 556,057 476,508earned

Ceded premiums (139,147) (112,735) (267,359) (221,445)

Net premiums earned 146,499 129,057 288,698 255,063

Net investment 956 3,296 2,249 6,966income

Net realized andunrealized (losses) (1,000) (38) (920) 22gains

Other revenue 3,742 3,697 7,414 6,668

Total revenues 150,197 136,012 297,441 268,719

EXPENSES:

Losses and loss 100,834 78,869 198,743 147,050adjustment expenses

Policy acquisition 37,833 30,237 73,199 60,284costs

General andadministrative 15,520 19,943 35,320 41,661expenses

Total expenses 154,187 129,049 307,262 248,995

Operating (loss) (3,990) 6,963 (9,821) 19,724income

Interest expense, 1,925 1,721 3,803 3,688net

(Loss) income (5,915) 5,242 (13,624) 16,036before income taxes

(Benefit) provision (1,965) 1,110 (4,527) 4,284for income taxes

Net (loss) income $ (3,950) $ 4,132 $ (9,097) $ 11,752

OTHER COMPREHENSIVEINCOME

Change in netunrealized (losses) 3,625 14,823 (6,972) 16,850gains oninvestments

Reclassificationadjustment for net (22) 38 (102) (22)realized investment(gains) losses

Income tax(expense) benefitrelated to items of (835) (3,440) 1,640 (3,895)other comprehensiveincome

Total comprehensive $ (1,182) $ 15,553 $ (14,531) $ 24,685(loss) income

Weighted averageshares outstanding

Basic 27,904,923 27,876,801 27,866,364 28,212,735

Diluted 27,904,923 27,913,696 27,866,364 28,231,273

(Loss) earnings pershare

Basic $ (0.14) $ 0.15 $ (0.33) $ 0.42

Diluted $ (0.14) $ 0.15 $ (0.33) $ 0.42

About HeritageHeritage 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 $1.2 billion of gross personal and commercial residential premium across its multi-state footprint.

Forward-Looking StatementsStatements 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, CPAExecutive Vice President 727.871.0206Email: asoleimani@heritagepci.com

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SOURCE Heritage Insurance Holdings, Inc.