Heritage Reports Fourth Quarter and Full-Year 2019 Results

CLEARWATER, Fla., Feb. 27, 2020 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a super-regional property and casualty insurance holding company, today reported fourth quarter 2019 financial results.

Fourth Quarter 2019 Highlights

• Net income for the quarter was $12.8 million, or $0.44 per diluted share.
• Book value per share increased to $15.66, up 8.5% from year-end 2018.
• Gross premiums written were $235.4 million, up 6.2% year-over-year, including 9.4% growth outside Florida and 3.5% growth in Florida, reflecting positive organic growth across all states and lines of business.
• Favorable prior year reserve development of $1.4 million, representing the sixth consecutive quarter of favorable prior year reserve development.
• Net current accident quarter weather losses of $15.3 million, including $5.1 million of net current accident quarter catastrophe losses. In the prior year quarter, net current accident quarter weather and catastrophe losses were $23.3 million and $16.8 million, respectively.
• Repurchased 312,923 shares for $4.3 million at an average price of $13.71 per share, 12.5% below fourth quarter 2019 book value per share. Total capital returned to shareholders was $6.0 million, including $0.06 per share regular quarterly dividend.
• Percentage of litigated non-hurricane claims stemming from Tri-County, Florida declined by 830 basis points year-over-year.

Bruce Lucas, the Company's Chairman and CEO, said, "I'm really proud of our fourth quarter results, which included an acceleration to 6.2% organic gross premiums written growth, as our de-risking efforts are basically complete, while our new business generation and retention remain strong. Underwriting performance was solid and we reported our sixth consecutive quarter of favorable reserve development. I believe we are well positioned for 2020 and look forward to the year ahead."

Results of Operations
The following table summarizes our results of operations for the three and twelve months ended December 31, 2019 and 2018 (amounts in thousands, except percentages and per share amounts):

	Three Months Ended December 31,								Year Ended December 31,
	2019			2018			Change		2019			2018			Change
Revenue	$	138,502		$	124,878		11%		$	511,304		$	480,171		6%
Net income	$	12,818		$	3,928		226%		$	28,636		$	27,155		5%
Per share	$	0.44		$	0.15		193%		$	0.98		$	1.04		(6)%
Book value per share	$	15.66		$	14.43		9%		$	15.66		$	14.43		9%
Return on equity*		11.5%			3.9%		7.6pts			6.6%			6.7%		(0.1) pts
Underwriting summary
Gross premiums written	$	235,446		$	221,706		6%		$	937,937		$	923,349		2%
Gross premiums earned	$	234,082		$	234,028		0%		$	924,247		$	926,326		(0)%
Ceded premiums earned	$	(103,005)		$	(115,396)		(11)%		$	(445,534)		$	(472,144)		(6)%
Net premiums earned	$	131,077		$	118,632		10%		$	478,713		$	454,182		5%
Ceded premium ratio		44.0%			49.3%		(5.3) pts			48.2%			51.0%		(2.8) pts
Ratios to Net Premiums Earned:
Loss ratio		51.0%			50.3%		0.7 pts			57.1%			52.3%		4.8 pts
Expense ratio		38.3%			36.1%		2.2 pts			39.4%			38.1%		1.3 pts
Combined ratio		89.3%			86.4%		2.9 pts			96.5%			90.4%		6.1 pts

Ratios
Ceded premium ratio represents ceded premiums earned 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 expenses (G&A) as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs 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 insurance industry. A net combined ratio under 100% generally reflects profitable underwriting results.

Quarterly Financial Results
Fourth quarter 2019 net income was $12.8 million, up from $3.9 million in the prior year quarter. The increase primarily reflects $11.3 million of non-core pre-tax charges in the prior year quarter associated with debt refinancing.   

Gross premiums written were $235.4 million in fourth quarter 2019, up 6.2% from $221.7 million in the prior year quarter. The increase reflects 9.4% growth outside Florida and 3.5% growth in Florida, reflecting positive organic growth across all states and lines of business.

Premiums-in-force were $940.6 million, representing a 6.1% compound annual growth rate from third quarter 2019. The increase stems from the same items impacting gross premiums written.

Gross premiums earned were $234.1 million in fourth quarter 2019, basically in line with $234.0 million in the prior year quarter.

The ceded premium ratio was 44.0% in fourth quarter 2019, down 5.3 points from 49.3% 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. Effective December 31, 2019, net quota share reinsurance coverage, which only applies to a portion of the Company's business, increased from 52.0% to 56.0%.

The net loss ratio was 51.0% in fourth quarter 2019, up 70 basis points from 50.3% in the prior year quarter. The increase primarily reflects higher attritional current accident year losses and lower income from vertically integrated operations, partly offset by lower weather-related losses.

The net expense ratio was 38.3% in fourth quarter 2019, up 2.2 points from 36.1% in the prior year quarter. The increase primarily stems from the timing of variable compensation accruals and higher expenses associated with insurance licenses and fees, partly offset by a lower ceded premium ratio.

The net combined ratio was 89.3% in fourth quarter 2019, up 2.9 points from 86.4% in the prior year quarter. The increase primarily stems from a higher net expense ratio, as described above.

Full Year Financial Results
Full-year 2019 net income was $28.6 million, compared to $27.2 million for the prior year. The increase primarily reflects higher non-core pre-tax charges in the prior year and lower interest expense in the current year, mostly associated with debt refinancing, partly offset by higher net loss and expense ratios in the current year.

Book Value Analysis
Book value per share increased to $15.66 at December 31, 2019, up 8.5% from year-end 2018.

Conference Call Details:
Friday, February 28, 2020 – 8:30 a.m. ET
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 $900 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) being well-positioned for solid organic growth in 2020, (ii) the level of de-risking in future quarters, (iii) impact of steps taken regarding pricing and underwriting, (iv) our go-forward ceded premium run rate (v) expected positive impact of rates on the P&L, (vi) trends with respect to growth, pricing and reserves, (vii) the potential reinsurance rate increase and (viii) our share repurchase program. 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; 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 Securities and Exchange Commission, including, but not limited to, the Company's Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission on March 12, 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]

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SOURCE Heritage Insurance Holdings, Inc.