PR Newswire | Nov 2, 2020 04:05PM EST

11/02 15:05 CST

Heritage Reports Third Quarter 2020 Results CLEARWATER, Fla., Nov. 2, 2020

CLEARWATER, Fla., Nov. 2, 2020 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a super-regional property and casualty insurance holding company, today reported third quarter 2020 financial results.

Third Quarter 2020 Highlights

* Net loss of $5.2 million, or $0.19 per diluted share. Realized investment gains contributed approximately $15.6 million to net income, or $0.56 per diluted share. * Book value per share increased to $15.97, up 3.9% year-over-year. * Gross premiums written of $278.2 million, up 17.3% year-over-year. * Favorable prior year reserve development of $5.8 million. * Net current accident quarter weather losses of $47.3 million, up substantially from $18.7 million in the prior year quarter. Current accident quarter weather losses include $24.5 million of catastrophe losses and $22.8 million of other weather losses. * Total capital returned to shareholders of $1.7 million, reflecting $0.06 per share regular quarterly dividend. * Began writing homeowners insurance in Delaware, representing fifteenth active state.

Bruce Lucas, the Company's Chairman and CEO, said, "While we had an unprecedented level of weather losses in the third quarter, we grew book value per share year-over year and saw strong organic growth throughout our footprint. Our top priority is bottom line profitability and we're continuing to pursue rate increases following recent years' elevated weather trends.

Capital Management UpdateHeritage's Board of Directors extended the Company's existing share repurchase authorization by one year to a December 31, 2021 expiration and increased the authorization from the $23.8 million remaining to $50.0 million.

Additionally, Heritage'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 January 5, 2021 to shareholders of record as of December 15, 2020.

COVID-19 UpdateWe are currently monitoring the short- and long-term impacts of COVID-19. Through September 30, 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 OperationsThe following table summarizes our results of operations for the three and nine months ended September 30, 2020 and 2019 (amounts in thousands, except percentages and per share amounts):

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 Change 2020 2019 Change

Total revenues $ 165,119 $ 131,699 25.4 % $ 433,837 $ 372,803 16.4 %

Net (loss) income $ (5,233) $ 8,133 (164.3) % $ 6,519 $ 15,818 (58.8) %

Per Share $ (0.19) $ 0.28 (167.9) % $ 0.23 $ 0.54 (57.4) %

Book value per share $ 15.97 $ 15.37 3.9 % $ 15.97 $ 15.37 3.9 %

(Loss) Return on equity (4.6) % 7.4 % (12.0) pts 1.9 % 4.8 % (2.9) pts

Underwriting summary

Gross premiums written $ 278,242 $ 237,303 17.3 % $ 797,776 $ 702,491 13.6 %

Gross premiums earned $ 254,982 $ 231,617 10.1 % $ 731,489 $ 690,165 6.0 %

Ceded premiums $ (116,752) $ (107,755) 8.3 % $ (338,197) $ (342,529) (1.3) %

Net premiums earned $ 138,230 $ 123,862 11.6 % $ 393,292 $ 347,636 13.1 %

Ceded premium ratio 45.8 % 46.5 % (0.7) pts 46.2 % 49.6 % (3.4) pts

Ratios to Net Premiums Earned:

Loss ratio 86.6 % 56.6 % 30.0 pts 67.8 % 59.4 % 8.4 pts

Expense ratio 36.1 % 38.9 % (2.8) pts 38.6 % 39.8 % (1.2) pts

Combined ratio 122.7 % 95.5 % 27.2 pts 106.4 % 99.2 % 7.2 pts



*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 ResultsThird quarter 2020 net loss was $5.2 million, down from net income of $8.1 million in the prior year quarter. The decrease primarily stems from elevated weather losses, partly offset by higher realized investment gains and net premiums earned.

Gross premiums written were $278.2 million, up 17.3% year-over-year, including 18.1% growth outside Florida and 16.3% growth in Florida. All personal residential Florida growth was outside the Tri-County region and rate increases benefited top line results.

Premiums-in-force were $1.0 billion in third quarter 2020, representing a 16.9% annualized growth rate from second quarter 2020. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were $255.0 million in third quarter 2020, up 10.1% from $231.6 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.

The ceded premium ratio was 45.8% in third quarter 2020, down 0.7 points from 46.5% in the prior year quarter. The decrease primarily stems from strong gross premiums earned growth, which modestly outpaced ceded premium growth.

The net loss ratio was 86.6% in third quarter 2020, up 30.0 points from 56.6% in the prior year quarter. The increase primarily stems from unusually high weather losses and worse current accident year reserve development, partly offset by better prior year reserve development.

The net expense ratio was 36.1% in third quarter 2020, down 2.8 points from 38.9% in the prior year quarter. The decrease primarily stems from a lower G&A expense ratio.

The net combined ratio was 122.7% in third quarter 2020, up 27.2 points from 95.5% 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 increased to $15.97 at September 30, 2020, up 3.9% year-over-year.

As Of

Book Value Per Share September 30, December 31, September 30, 2020 2019 2019

Numerator:

Common stockholders' $ 443,140 $ 448,799 $ 445,230equity

Denominator:

Total Shares Outstanding 27,748,606 28,650,918 28,963,841

Book Value Per Common $ 15.97 $ 15.66 $ 15.37Share

Conference Call Details:Tuesday, November 3, 2020 - 8:30 a.m. EDTParticipant 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)



September 30, December 31, 2020 2019

ASSETS (unaudited)

Fixed maturities, available-for-sale, at $ 445,481 $ 587,256fair value

Equity securities, at fair value 1,599 1,618

Other investments 26,774 6,375

Total investments 473,854 595,249

Cash and cash equivalents 509,596 268,351

Restricted cash 5,437 14,657

Accrued investment income 2,637 4,377

Premiums receivable, net 70,038 63,685

Reinsurance recoverable on paid and unpaid 424,157 428,903claims

Prepaid reinsurance premiums 307,997 224,102

Income taxes receivable 16,250 3,171

Deferred policy acquisition costs, net 86,140 77,211

Property and equipment, net 19,134 20,753

Intangibles, net 63,864 68,642

Goodwill 152,459 152,459

Other assets 16,827 18,110

Total Assets $ 2,148,390 $ 1,939,670

LIABILITIES AND STOCKHOLDERS' EQUITY

Unpaid losses and loss adjustment expenses $ 662,997 $ 613,533

Unearned premiums 552,627 486,220

Reinsurance payable 240,857 156,351

Long-term debt, net 122,589 129,248

Deferred income tax, net 12,448 12,623

Advance premiums 31,618 16,504

Accrued compensation 11,617 5,347

Accounts payable and other liabilities 70,497 71,045

Total Liabilities $ 1,705,250 $ 1,490,871

Commitments and contingencies

Stockholders' Equity:

Common stock 3 3

Additional paid-in capital 333,332 329,568

Accumulated other comprehensive income 6,525 7,330

Treasury stock, at cost (115,365) (105,368)

Retained earnings 218,645 217,266

Total Stockholders' Equity 443,140 448,799

Total Liabilities and Stockholders' Equity $ 2,148,390 $ 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 For the Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

REVENUES:

Gross premiums written $ 278,242 $ 237,303 $ 797,776 $ 702,491

Change in gross unearned premiums (23,260) (5,686) (66,287) (12,326)

Gross premiums earned 254,982 231,617 731,489 690,165

Ceded premiums (116,752) (107,755) (338,197) (342,529)

Net premiums earned 138,230 123,862 393,292 347,636

Net investment income 2,817 3,655 9,783 11,157

Net realized and unrealized gains 20,355 805 20,377 3,132

Other revenue 3,717 3,377 10,385 10,878

Total revenues 165,119 131,699 433,837 372,803

EXPENSES:

Losses and loss adjustment expenses 119,718 70,052 266,769 206,490

Policy acquisition costs 31,960 26,686 92,243 79,793

General and administrative expenses 17,923 21,477 59,583 58,465

Total expenses 169,601 118,215 418,595 344,748

Operating (loss) income (4,482) 13,484 15,242 28,055

Interest expense, net 2,251 2,401 5,939 6,502

Other non-operating loss, net - - - 48

(Loss) Income before income taxes (6,733) 11,083 9,303 21,505

(Benefit) provision for income taxes (1,500) 2,950 2,784 5,687

Net (loss) income $ (5,233) $ 8,133 $ 6,519 $ 15,818

OTHER COMPREHENSIVE INCOME

Change in net unrealized gains on investments 2,480 4,429 19,330 19,533

Reclassification adjustment for net realized investment (gains) losses (20,355) (103) (20,377) 291

Income tax (expense) benefit related to items of other comprehensive income 4,137 (1,035) 242 (4,747)

Total comprehensive (loss) income $ (18,971) $ 11,424 $ 5,714 $ 30,895

Weighted average shares outstanding

Basic 27,739,839 29,109,962 28,053,959 29,329,742

Diluted 27,739,839 29,168,392 28,073,570 29,352,756

(Loss) Earnings per share

Basic $ (0.19) $ 0.28 $ 0.23 $ 0.54

Diluted $ (0.19) $ 0.28 $ 0.23 $ 0.54

About HeritageHeritage 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 over $1 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, (ii) our ability to continue to grow profitably and (iii) our ability to successfully pursue rate increases. 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.