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8-K - FORM 8-K - Heritage Insurance Holdings, Inc.d76472d8k.htm

Exhibit 99.1

Heritage Insurance Holdings, Inc. Reports Financial Results for Second Quarter of 2015

Clearwater, Fla., August 5, 2015 - Heritage Insurance Holdings, Inc. (NYSE:HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported its financial results for its second fiscal quarter ended June 30, 2015.

Second Quarter Highlights

 

    37% increase in gross premiums written in Q2 2015 as compared to Q2 2014

 

    114% increase in net premiums earned in Q2 2015 as compared to Q2 2014

 

    30% increase in policy count compared to Q2 2014

 

    Net income of $25.4 million for Q2 2015, an increase of 166% as compared to Q2 2014

 

    Gross combined ratio of 71.1% for the quarter

Bruce Lucas, the Company’s Chairman and CEO, said, “We are pleased to report another quarter of growth and above market average returns for our investors. Despite some modest headwinds in our assumed business and general market softening, we are continuing to execute our voluntary business strategy while keeping an eye on the profitable diversification of our business. Importantly, personal residential policies in force during the quarter posted the largest sequential increase since our inception and commercial residential voluntary premiums in force increased nearly $7 million since the end of the first quarter. The Company remains focused on continued growth in Florida while simultaneously expanding into multiple new markets and delivering on these opportunities.”

Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2015 and 2014 (in thousands, except percentages and per share amounts):

 

     Three Months Ended           Six Months Ended        
     June 30,           June 30,        
     2015     2014     Change     2015     2014     Change  

Revenue:

    

Gross premiums written

   $ 135,597      $ 99,269        37   $ 269,565      $ 168,172        60

Gross premiums earned

   $ 127,101      $ 64,125        98   $ 253,102      $ 124,985        103

Ceded premiums

   $ (32,255   $ (19,830     63   $ (56,767   $ (38,454     48

Net premiums earned

   $ 94,846      $ 44,295        114   $ 196,335      $ 86,531        127

Total operating revenue

   $ 99,088      $ 46,539        113   $ 204,216      $ 90,417        126

Income before taxes

   $ 40,990      $ 15,110        171   $ 89,282      $ 26,931        232

Net income

   $ 25,400      $ 9,566        166   $ 55,456      $ 17,454        218

Per Share Data:

            

Book value per share

   $ 10.42      $ 7.44        40   $ 10.40      $ 7.44        40

Earnings per diluted share

   $ 0.84      $ 0.39        115   $ 1.84      $ 0.80        130

Return on average equity

     33.9     22.3     12.0 pts        39.1     23.1     16.0 pts   

Ratios to Gross Premiums Earned:

            

Ceded premium ratio

     25.4     30.9     (5.5) pts        22.4     30.8     (8.4) pts   

Loss ratio

     26.7     30.0     (3.3) pts        26.3     31.9     (5.6) pts   

Expense ratio

     19.0     19.0     —         19.2     18.9     0.3 pts   

Combined ratio

     71.1     79.9     (8.8) pts        67.8     81.6     (13.8) pts   

Ratios to Net Premiums Earned:

            

Loss ratio

     35.8     43.4     (7.6) pts        33.8     46.0     (12.2) pts   

Expense ratio

     25.5     27.5     (2.0) pts        24.7     27.3     (2.6) pts   

Combined ratio

     61.3     71.0     (9.7) pts        58.5     73.4     (14.9) pts   

Second Quarter 2015 Results

Net income for the second quarter of 2015 was $25.4 million compared to $9.6 million for the second quarter of 2014. The increase is primarily due to continued growth in gross premiums earned, and improvement in both the ceded premium and the gross loss ratio.


Gross premiums written were $135.6 million for the second quarter of 2015 compared to $99.3 million for the second quarter of 2014. Direct premiums written were $134.8 million. Assumed premiums written were $0.8 million, reflecting the modest Citizens take-out activity, net of opt-outs, in personal lines in the second quarter and approximately $2.3 million of premiums returned to Citizens due to mid-term cancellations and late-opt-outs from the first quarter commercial lines take-outs. Additionally, non-renewal activity in commercial lines due to competitive market conditions during the second quarter had a negative impact on direct premiums written.

Gross premiums earned were $127.1 million for the second quarter of 2015 compared to $64.1 million for the second quarter of 2014. Our premiums in force as of June 30, 2015 and 2014 were approximately $510.2 million and $316.8 million, respectively, contributing to the increase in gross premiums earned. $23.8 million of gross premiums earned during the quarter were attributable to commercial residential, a business line we started in the second half of 2014.

Ceded premiums as a percentage of gross premiums earned were 25.4% for the second quarter of 2015 compared to 30.9% for the second quarter of 2014. Ceded premiums in the second quarter included one month’s cost of our catastrophe reinsurance program that renewed on June 1, 2015 and two months cost of the 2014-2015 program. The cost of the 2015-2016 reinsurance program was approximately $177.0 million. Our new reinsurance program provides coverage for $1.77 billion of losses and loss adjustment expenses, of which $477.5 million was placed using catastrophe bonds. Additionally, we purchased reinstatement premium protection for an additional $440 million of coverage. Our 2014-2015 program provided $990 million of coverage, including $200 million of catastrophe bonds, and approximately $200 million of reinstatement coverage. The increase in the amount of coverage is due to our significant increase in premiums in force and total insured value, including the addition of commercial residential policies, which were not part of the 2014-2015 program. The pricing of the new program, on a risk adjusted basis, was modestly lower than last year’s program. Additionally, on June 1, 2015 we renewed our Per Risk reinsurance treaty, which had a cost of approximately $2.1 million.

The Company’s ceded premium ratio has benefitted the past three quarters from the significant Citizens take-outs during the fourth quarter of 2014 and the first quarter of 2015, as these policies required no additional catastrophe reinsurance coverage until June 1, 2015. The cost of our 2015-2016 castrophe reinsurance program represents approximately 34.7% of our in force premium at June 30, 2015.

The Company’s loss ratio on a gross basis decreased to 26.7% in the second quarter of 2015 from 30.0% in the second quarter of 2014 due to the continued benefit of commercial residential business, which has a lower non-catastrophe loss ratio.

The Company’s expense ratio on a gross basis remained flat at 19.0% for the second quarters of 2015 and 2014.

Overall, Heritage’s combined ratio on a gross basis improved to 71.1% for the second quarter of 2015 from 79.9% for the second quarter of 2014 as a result of decreases in the ceded premium ratio and the loss ratio, as discussed above.

First Half 2015 Financial Results

Net income in the first half of 2015 was $55.5 million as compared to $17.5 million for the first half of 2014. The first half of 2015 results, similar to the second quarter, were favorably impacted by the continued growth in gross premiums earned, and improvement in the ceded premium ratio and the gross loss ratio.

Book Value Analysis

Book value per share increased 22% from $8.56 at December 31, 2014 to $10.42 at June 30, 2015. The increase in the Company’s book value per share resulted from the Company’s growth in net income.

 

     As Of  
Book Value Per Share    June 30, 2015      Dec 31, 2014      June 30, 2014  

Numerator:

        

Common stockholders’ equity

   $ 312,100       $ 255,089       $ 221,607   
  

 

 

    

 

 

    

 

 

 

Denominator:

        

Total Shares Outstanding

     29,995,560         29,794,960         29,794,960   
  

 

 

    

 

 

    

 

 

 

Book Value Per Common Share

   $ 10.42       $ 8.56       $ 7.44   
  

 

 

    

 

 

    

 

 

 


Conference Call Details:

Thursday, August 6, 2015 – 10:00 a.m. EDT

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 the investor section of the company’s website. This webcast will be archived and available for replay.

HERITAGE INSURANCE HOLDINGS, INC AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME

(In thousands, except share data and per share)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2015     2014     2015     2014  

REVENUE:

        

Gross premiums written

   $ 135,597      $ 99,269      $ 269,565      $ 168,172   

Increase in gross unearned premiums

     (8,496     (35,144     (16,463     (43,187
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross premiums earned

     127,101        64,125        253,102        124,985   

Ceded premiums

     (32,255     (19,830     (56,767     (38,454
  

 

 

   

 

 

   

 

 

   

 

 

 

Net premiums earned

     94,846        44,295        196,335        86,531   

Net investment income

     2,090        719        3,723        1,337   

Net realized gains (losses)

     (116     24        (119     (18

Other revenue

     2,268        1,501        4,277        2,567   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     99,088        46,539        204,216        90,417   

EXPENSES:

        

Losses and loss adjustment expenses

     33,909        19,244        66,448        39,831   

Policy acquisition costs

     12,253        6,384        25,346        10,857   

General and administrative expenses

     11,936        5,801        23,140        12,798   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     58,098        31,429        114,934        63,486   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     40,990        15,110        89,282        26,931   

Provision for income taxes

     15,590        5,544        33,826        9,477   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 25,400      $ 9,566      $ 55,456      $ 17,454   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME:

        

Change in net unrealized gains (losses) on investments

     (2,663     2,908        (5,470     4,918   

Reclass adjustment for net realized investment gains (losses)

     116        (24     119        18   

Income tax (expense) benefit related to items of other comprehensive income

     983        (1,112     2,064        (1,904
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 23,836      $ 11,338      $ 52,169      $ 20,486   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

        

Basic

     29,877,636        22,119,754        29,838,322        19,256,172   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     30,268,496        24,333,476        30,192,216        21,684,230   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share

        

Basic

   $ 0.85      $ 0.43      $ 1.86      $ 0.91   

Diluted

   $ 0.84      $ 0.39      $ 1.84      $ 0.80   

About Heritage

Heritage Insurance Holdings, Inc. (NYSE: HRTG) is a property and casualty insurance holding company headquartered in Clearwater, Florida. Its subsidiary, Heritage Property & Casualty Insurance Company, writes over $500 million of personal and commercial residential premium through a large network of experienced agents. Heritage is led by an experienced senior management team with an average of 28 years of insurance industry experience.


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. 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; 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, 2014 filed with the Securities and Exchange Commission on March 18, 2015. In addition, investors should be aware that generally accepted accounting principles prescribe when a company may reserve for particular risks, including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore appear to be volatile in certain accounting periods. 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.

Heritage Insurance Holdings Inc.

Investor Contact:

Stephen Rohde, CFO

727-362-7204

srohde@heritagepci.com

or

Melanie Skijus, Investor Relations Director

727-362-7262

mskijus@heritagepci.com