Heritage Insurance Holdings, Inc. Reports Financial Results for Third Quarter of 2017
Third Quarter Highlights
- Gross premiums written of
$154.4 million compared to$147.2 million for Q3 2016 - Operating income of
$1.4 million - Book value per share of
$12.84 - Stockholders' equity of
$301.6 million - Announced entry into a definitive agreement to acquire
NBIC Holdings, Inc. ("NBIC"), the parent ofNarragansett Bay Insurance Company , a company with over$300 million of premiums in force - Issued
$136.8 million of convertible senior notes - Repurchased a total of 4,656,245 shares for a total of
$53 million in Q3 2017 - Hurricane Irma gross losses estimated at
$388 million , Company retention of$20 million before tax - Acquired approximately
$30 million of premiums in force fromSawgrass Mutual Insurance Company ("Sawgrass")
Results of Operations
The following table summarizes our results of operations for the three and nine months ended
Three Months Ended |
Nine Months Ended |
||||||||||||||
2017 |
2016 |
Change |
2017 |
2016 |
Change |
||||||||||
Revenue Gross premiums written |
$ |
154,355 |
$ |
147,232 |
5% |
$ |
455,845 |
$ |
471,793 |
(3)% |
|||||
Gross premiums earned |
$ |
153,063 |
$ |
164,696 |
(7)% |
$ |
460,025 |
$ |
480,276 |
(4)% |
|||||
Ceded premiums |
$ |
(57,855) |
$ |
(63,141) |
(8)% |
$ |
(182,189) |
$ |
(163,461) |
11% |
|||||
Net premiums earned |
$ |
95,208 |
$ |
101,555 |
(6)% |
$ |
277,836 |
$ |
316,815 |
(12)% |
|||||
Total revenue |
$ |
101,774 |
$ |
109,306 |
(7)% |
$ |
298,005 |
$ |
336,151 |
(11)% |
|||||
Operating income |
$ |
1,413 |
$ |
18,612 |
(92)% |
$ |
26,365 |
$ |
60,408 |
(56)% |
|||||
(Loss)/income before taxes |
$ |
(9,221) |
$ |
18,612 |
(150)% |
$ |
11,319 |
$ |
60,408 |
(81)% |
|||||
Net (loss)/income |
$ |
(8,696) |
$ |
10,930 |
(180)% |
$ |
3,929 |
$ |
36,720 |
(89)% |
|||||
Per Share Data: |
|||||||||||||||
Book value per share |
$ |
12.84 |
$ |
13.00 |
(1)% |
$ |
12.84 |
$ |
13.00 |
(1)% |
|||||
(Deficit)/earnings per diluted share |
$ |
(0.34) |
$ |
0.37 |
(192)% |
$ |
0.14 |
$ |
1.23 |
(89)% |
|||||
Return on average equity - Net Income |
(10.4)% |
11.7% |
(22.1) |
pts |
1.6% |
13.3% |
(11.7) |
pts |
|||||||
Ratios to gross premiums earned: |
|||||||||||||||
Ceded premium ratio |
37.8% |
38.4% |
(0.6) |
pts |
39.6% |
34.0% |
5.6 |
pts |
|||||||
Loss ratio |
41.8% |
32.7% |
9.1 |
pts |
34.1% |
35.3% |
(1.2) |
pts |
|||||||
Operating expense ratio |
23.8% |
22.3% |
1.5 |
pts |
25.0% |
22.1% |
2.9 |
pts |
|||||||
Combined ratio |
103.4% |
93.4% |
10.0 |
pts |
98.7% |
91.4% |
7.3 |
pts |
|||||||
Ratios to net premiums earned: |
|||||||||||||||
Loss ratio |
67.3% |
53.1% |
14.2 |
pts |
56.4% |
53.6% |
2.8 |
pts |
|||||||
Operating expense ratio |
38.2% |
36.2% |
2.0 |
pts |
41.4% |
33.4% |
8.0 |
pts |
|||||||
Combined ratio |
105.5% |
89.3% |
16.2 |
pts |
97.8% |
87.0% |
10.8 |
pts |
|||||||
Quarterly Financial Results
Operating income was
The Company recorded a net loss of
Gross premiums earned were
Ceded premiums as a percentage of gross premiums earned were 37.8% for the third quarter of 2017 compared to 38.4% for the third quarter of 2016. A decrease in ceded premium as a percentage of gross written premium was realized despite reducing the Company's retention from
The loss ratio as measured against gross premiums earned was 41.8% and 32.7% for the third quarters of 2017 and 2016, respectively. The increase in the loss ratio was primarily due to retained losses associated with Hurricane Irma.
The Company's operating expense ratio on a gross basis was 23.8% for the third quarter of 2017 compared to 22.3% for the third quarter of 2016. The increase was due to
Heritage's combined ratio on a gross basis was 103.4% for the third quarter of 2017 compared to 93.4% for the third quarter of 2016. The combined ratio increased primarily due to the retained losses from Hurricane Irma.
Book Value Analysis
The Company's stockholders' equity decreased from
Over the twelve month period ended
The fair value of the conversion option liability will be added back to stockholders' equity if stockholder approval is received at the special meeting scheduled for
Operating income, offset by the provision for income taxes, increased stockholders' equity by
The stockholders' equity roll forward for the three months ended
9 Mo. Change |
3 Mo. Change |
||
|
|
||
(In thousands) |
|||
Beginning Balance |
$ 357,959 |
$ 377,244 |
|
Stock buy-back |
(61,624) |
(5,000) |
|
Stock-based compensation |
3,611 |
1,204 |
|
Shares tendered for income tax withholding |
- |
(977) |
|
Excess tax expense on stock-based compensation |
- |
(739) |
|
Dividends declared on common stock |
(6,790) |
(1,784) |
|
Net unrealized change in investments, net of tax |
4,596 |
(9,134) |
|
Operating Income |
26,365 |
(3,643) |
|
Interest Expense |
(7,010) |
(321) |
|
Amortization of debt issuance costs |
(1,153) |
(41) |
|
Change in valuation of convertible note option |
(6,883) |
- |
|
Provision for Income Taxes |
(7,390) |
1,150 |
|
Ending Balance |
$ 301,681 |
$ 357,959 |
Book value per share increased by 3.5% from
As of |
|||||
Book Value Per Share |
|
|
|
||
Numerator: |
|||||
Common stockholders' equity |
|
|
|
||
Denominator: |
|||||
Total shares outstanding |
23,500,174 |
28,840,443 |
29,016,744 |
||
Book value per common share |
|
|
|
Conference Call Details:
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.
Consolidated Statements of Income and Other Comprehensive Income |
||||||||
(In thousands, except share and per share amounts) |
||||||||
(unaudited) |
||||||||
Three Months Ended |
Nine Months Ended |
|||||||
2017 |
2016 |
2017 |
2016 |
|||||
REVENUE: |
||||||||
Gross premiums written |
$ 154,355 |
$ 147,232 |
$ 455,845 |
$ 471,793 |
||||
Change in gross unearned premiums |
(1,292) |
17,464 |
4,180 |
8,483 |
||||
Gross premiums earned |
153,063 |
164,696 |
460,025 |
480,276 |
||||
Ceded premiums |
(57,855) |
(63,141) |
(182,189) |
(163,461) |
||||
Net premiums earned |
95,208 |
101,555 |
277,836 |
316,815 |
||||
Net investment income |
2,735 |
2,326 |
8,210 |
6,586 |
||||
Net realized gains |
365 |
1,119 |
1,011 |
1,762 |
||||
Other revenue |
3,466 |
4,306 |
10,948 |
10,988 |
||||
Total revenue |
101,774 |
109,306 |
298,005 |
336,151 |
||||
OPERATING EXPENSES: |
||||||||
Losses and loss adjustment expenses |
64,035 |
53,906 |
156,728 |
169,663 |
||||
Policy acquisition costs |
20,906 |
22,597 |
66,086 |
61,478 |
||||
General and administrative expenses |
15,420 |
14,191 |
48,826 |
44,602 |
||||
Total operating expenses |
100,361 |
90,694 |
271,640 |
275,743 |
||||
Operating income |
1,413 |
18,612 |
26,365 |
60,408 |
||||
Interest expense, net |
3,076 |
— |
7,010 |
— |
||||
Amortization of debt issuance costs |
675 |
— |
1,153 |
— |
||||
Other non-operating expense, net |
6,883 |
— |
6,883 |
— |
||||
(Loss) income before income taxes |
(9,221) |
18,612 |
11,319 |
60,408 |
||||
(Benefit) Provision for income taxes |
(525) |
7,682 |
7,390 |
23,688 |
||||
Net (loss) income |
(8,696) |
10,930 |
3,929 |
36,720 |
||||
OTHER COMPREHENSIVE INCOME: |
||||||||
Change in net unrealized (losses) gains on investments |
593 |
(1,237) |
8,473 |
11,773 |
||||
Reclassification adjustment for net realized investment gains |
(365) |
(1,119) |
(1,011) |
(1,762) |
||||
Income tax benefit related to items of other comprehensive income |
(81) |
908 |
(2,866) |
(3,862) |
||||
Total comprehensive (loss) income |
$ (8,549) |
$ 9,482 |
$ 8,525 |
$ 42,869 |
||||
Weighted average shares outstanding |
||||||||
Basic |
25,883,267 |
29,213,222 |
27,647,146 |
29,742,984 |
||||
Diluted |
25,883,267 |
29,213,222 |
27,647,146 |
29,786,156 |
||||
(Deficit) earnings per share |
||||||||
Basic |
$ (0.34) |
$ 0.37 |
$ 0.14 |
$ 1.23 |
||||
Diluted |
$ (0.34) |
$ 0.37 |
$ 0.14 |
$ 1.23 |
Consolidated Balance Sheets |
||||
(In thousands, except share and per share amounts) |
||||
(unaudited) |
||||
|
|
|||
ASSETS |
(unaudited) |
|||
Fixed maturity securities, available for sale, at fair value (amortized |
$ 494,484 |
$ 571,011 |
||
Equity securities, available for sale, at fair value (cost of |
25,396 |
31,971 |
||
Total investments |
519,880 |
602,982 |
||
Cash, cash equivalents |
352,321 |
105,817 |
||
Restricted cash |
19,853 |
20,910 |
||
Accrued investment income |
4,635 |
4,764 |
||
Premiums receivable, net |
35,326 |
42,720 |
||
Reinsurance recoverable |
370,751 |
— |
||
Prepaid reinsurance premiums |
153,955 |
106,609 |
||
Income taxes receivable |
1,649 |
10,713 |
||
Deferred policy acquisition costs, net |
41,888 |
42,779 |
||
Property and equipment, net |
16,198 |
17,179 |
||
Intangibles, net |
22,967 |
26,542 |
||
|
46,454 |
46,454 |
||
Other assets |
13,107 |
5,775 |
||
Total Assets |
$ 1,598,984 |
$ 1,033,244 |
||
LIABILITIES AND STOCKHOLDERS' EQUITY |
||||
Unpaid losses and loss adjustment expenses |
$ 489,580 |
$ 140,137 |
||
Unearned premiums |
313,843 |
318,024 |
||
Reinsurance payable |
158,122 |
96,667 |
||
Long-term debt |
188,634 |
72,905 |
||
Deferred income taxes |
4,493 |
3,003 |
||
Funds held by company under reinsurance treaties |
61,732 |
— |
||
Advance premiums |
20,397 |
18,565 |
||
Accrued compensation |
6,955 |
4,303 |
||
Accrued interest payable and other liabilities |
53,547 |
21,681 |
||
Total Liabilities |
$ 1,297,303 |
$ 675,285 |
||
Commitments and contingencies |
||||
Stockholders' Equity: |
||||
Common stock, |
2 |
3 |
||
Additional paid-in capital |
209,338 |
205,727 |
||
Accumulated other comprehensive income (loss) |
(422) |
(5,018) |
||
|
(87,185) |
(25,562) |
||
Retained earnings |
179,948 |
182,809 |
||
Total Stockholders' Equity |
301,681 |
357,959 |
||
Total Liabilities and Stockholders' Equity |
$ 1,598,984 |
$ 1,033,244 |
About Heritage
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. Forward-looking statements, including, without limitation, statements about the proposed NBIC acquisition by Heritage and the receipt of stockholder approval relating to the issuance of common stock upon conversion of our convertible senior notes, relate to Heritage's current expectations, beliefs, projections and similar expressions concerning matters that are not historical facts and are not guarantees of future performance. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: the success of the Company's marketing initiatives; 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 and the collectability of reinsurance; 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
Investor Contact:
727-362-7261
[email protected]
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