PR Newswire | Aug 3, 2020 04:06PM EDT

08/03 15:05 CDT

Heritage Reports Second Quarter 2020 Results CLEARWATER, Fla., Aug. 3, 2020

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.

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 UpdateWe 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 sixmonths ended June 30, 2020 and 2019 (amountsin 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 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 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, June 30, 2019 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, 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)

June 30, December 2020 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 For the Six Months Ended

June 30, 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 38 59 (22) 394(gains) losses

Income tax expense related to items of other (3,440) (1,304) (3,895) (3,712)comprehensive income

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 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 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.