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TAMPA, Fla., Nov. 8, 2022 /PRNewswire/ -- Heritage Insurance Holdings, Inc. (NYSE: HRTG) ("Heritage" or the "Company"), a super-regional property and casualty insurance holding company, today reported third quarter of 2022 financial results.
Third Quarter 2022 Result Highlights
"Hurricane Ian made landfall in Florida on September 28th. Our highest priority is our policyholders and all those who continue to be affected by Hurricane Ian remain in our thoughts. We are committed to fair and timely claim handling for our customers," said Heritage CEO Ernie Garateix. At the same time, we are focused on managing exposure and achieving rate adequacy throughout the book of business. We continue to de-risk products or geographies which are not producing appropriate margins, which includes being more selective on both new and renewal business. While I am disappointed with the loss in the quarter, the strategies outlined below are having a positive impact, as demonstrated by the Supplemental Information table included in this earnings release, and I expect that improvement to continue and be reflected in future quarters."
Strategic Profitability Initiatives
The following provides an update to the Company's strategic initiatives that we expect will enable Heritage to achieve consistent long-term quarterly earnings and drive shareholder value. The Supplemental Information table included in this earnings release demonstrates progress made since third quarter 2021.
Capital Management
Given that Heritage's stock is trading below tangible book value and the loss in the quarter, Heritage's Board of Directors has decided to temporarily suspend the quarterly dividend to shareholders. The Board of Directors will re-evaluate dividend distribution and stock repurchases on a quarterly basis.
Results of Operations
The following table summarizes results of operations for the three and nine months ended September 30, 2022 and 2021 (amounts in thousands, except percentages and per share amounts):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | |||||||||||||||||||||
Revenue | $ | 165,493 | $ | 167,408 | (1.1) | % | $ | 487,872 | $ | 464,849 | 5.0 | % | ||||||||||||||
Net loss | $ | (48,240) | $ | (16,410) | 194.0 | % | $ | (166,864) | $ | (25,509) | 554.1 | % | ||||||||||||||
Adjusted net loss [1] | $ | (48,240) | $ | (16,410) | 194.0 | % | $ | (76,090) | $ | (25,509) | 198.3 | % | ||||||||||||||
Loss per share | $ | (1.83) | $ | (0.59) | 210.1 | % | $ | (6.29) | $ | (0.91) | 587.8 | % | ||||||||||||||
Adjusted net loss [1] | $ | (1.83) | $ | (0.59) | 210.1 | % | $ | (2.87) | $ | (0.91) | 213.6 | % | ||||||||||||||
Book value per share | $ | 4.54 | $ | 14.57 | (68.8) | % | $ | 4.54 | $ | 14.57 | (68.8) | % | ||||||||||||||
Adjusted book value[1] | $ | 6.65 | $ | 14.55 | (54.3) | % | $ | 6.65 | $ | 14.55 | (54.3) | % | ||||||||||||||
Return on equity | (129.4) | % | (15.8) | % | (113.6) | pts | (96.6) | % | (8.0) | % | (88.6) | pts | ||||||||||||||
Adjusted return on equity*[1] | (129.4) | % | (15.8) | % | (113.6) | pts | (44.0) | % | (8.0) | % | (36.0) | pts | ||||||||||||||
Underwriting summary | ||||||||||||||||||||||||||
Gross premiums written | $ | 304,501 | $ | 274,178 | 11.1 | % | $ | 952,981 | $ | 886,059 | 7.6 | % | ||||||||||||||
Gross premiums earned | $ | 307,959 | $ | 294,409 | 4.6 | % | $ | 891,539 | $ | 850,466 | 4.8 | % | ||||||||||||||
Ceded premiums earned | $ | (148,266) | $ | (131,964) | 12.4 | % | $ | (420,645) | $ | (399,323) | 5.3 | % | ||||||||||||||
Net premiums earned | $ | 159,693 | $ | 162,445 | (1.7) | % | $ | 470,894 | $ | 451,143 | 4.4 | % | ||||||||||||||
Ceded premium ratio | 48.1 | % | 44.8 | % | 3.3 | pts | 47.2 | % | 47.0 | % | 0.2 | pts | ||||||||||||||
Ratios to Net Premiums Earned: | ||||||||||||||||||||||||||
Loss ratio | 97.6 | % | 79.8 | % | 17.8 | pts | 84.4 | % | 72.8 | % | 11.6 | pts | ||||||||||||||
Expense ratio | 35.7 | % | 32.7 | % | 3.0 | pts | 36.3 | % | 35.8 | % | 0.5 | pts | ||||||||||||||
Combined ratio | 133.3 | % | 112.5 | % | 20.8 | pts | 120.7 | % | 108.6 | % | 12.1 | pts |
[1] Represents a non-GAAP financial measure. Information regarding non-GAAP financial measures, including required reconciliations, are set forth below under the "Non-GAAP Financial Measures" section of this release. |
* Return on equity represents annualized net income for the period divided by average stockholders' equity during the period. |
Note: Percentages and sums in the table may not recalculate precisely due to rounding. |
Ratios
Ceded 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 net combined ratio under 100% generally reflects profitable underwriting results.
Third Quarter 2022 Results
Supplemental Information:
At September 30, | ||||||||||||
2022 | 2021 | % Change | ||||||||||
Policies in force: | ||||||||||||
Florida | 188,383 | 228,572 | -17.6 | % | ||||||||
Other States | 352,989 | 352,714 | 0.1 | % | ||||||||
Total | 541,372 | 581,286 | -6.9 | % | ||||||||
Premiums in force: | ||||||||||||
Florida | $ | 569,589,537 | $ | 584,994,491 | -2.6 | % | ||||||
Other States | 672,812,875 | 589,527,230 | 14.1 | % | ||||||||
Total | $ | 1,242,402,412 | $ | 1,174,521,721 | 5.8 | % | ||||||
Total Insured Value: | ||||||||||||
Florida | $ | 102,784,056,201 | $ | 114,537,338,974 | -10.3 | % | ||||||
Other States | 304,657,398,158 | 284,498,624,168 | 7.1 | % | ||||||||
Total | $ | 407,441,454,359 | $ | 399,035,963,142 | 2.1 | % | ||||||
Book Value Analysis
Book value per share decreased to $4.54 at September 30, 2022, down 64.6% from fourth quarter 2021. The decrease from December 31, 2021 is attributable to a year-to-date net loss, driven primarily by a non-cash goodwill impairment charge of $90.8 million made in the second quarter of 2022, and higher weather losses as described above, as well as unrealized losses on the Company's available-for-sale fixed income securities portfolio. The unrealized losses were due to the sharp decline in bond prices during 2022 as a result of the higher interest rate environment. The Company's fixed income portfolio average credit rating is A+ with a duration of 3.4 years at September 30, 2022.
Book Value Per Common Share | As Of | |||||||||||||||||||
Sept 30, 2022 | Jun 30, 2022 | Mar 31, 2022 | Dec 31, 2021 | Sep 30, 2021 | ||||||||||||||||
Numerator: | ||||||||||||||||||||
Common stockholders' equity | $ | 117,697 | $ | 180,546 | $ | 281,766 | $ | 343,051 | $ | 405,025 | ||||||||||
Denominator: | ||||||||||||||||||||
Total Shares Outstanding | 25,898,930 | 26,544,096 | 26,444,720 | 26,753,511 | 27,802,626 | |||||||||||||||
Book Value Per Common Share | $ | 4.54 | $ | 6.80 | $ | 10.65 | $ | 12.82 | $ | 14.57 | ||||||||||
Adjusted Book Value Per Common Share | $ | 6.65 | 8.35 | 11.75 | 12.99 | 14.55 | ||||||||||||||
Conference Call Details:
Wednesday, November 9, 2022– 9:00 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.
HERITAGE INSURANCE HOLDINGS, INC. | ||||||||
Condensed Consolidated Balance Sheets | ||||||||
(Amounts in thousands, except share amounts) | ||||||||
(Unaudited) | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
ASSETS | (unaudited) | |||||||
Fixed maturities, available-for-sale, at fair value | $ | 633,192 | $ | 669,354 | ||||
Equity securities, at cost | 1,514 | 1,415 | ||||||
Other investments | 17,084 | 23,929 | ||||||
Total investments | 651,790 | 694,698 | ||||||
Cash and cash equivalents | 297,548 | 359,337 | ||||||
Restricted cash | 6,265 | 5,415 | ||||||
Accrued investment income | 3,517 | 3,167 | ||||||
Premiums receivable, net | 76,126 | 71,925 | ||||||
Reinsurance recoverable on paid and unpaid claims, net | 866,625 | 269,391 | ||||||
Prepaid reinsurance premiums | 381,368 | 265,873 | ||||||
Income tax receivable | 13,760 | 11,739 | ||||||
Deferred income tax asset, net | 14,637 | — | ||||||
Deferred policy acquisition costs, net | 100,649 | 93,881 | ||||||
Property and equipment, net | 22,784 | 17,426 | ||||||
Right-of-use lease asset, net | 25,218 | 27,753 | ||||||
Intangibles, net | 51,163 | 55,926 | ||||||
Goodwill | — | 91,959 | ||||||
Other assets | 11,133 | 12,272 | ||||||
Total Assets | $ | 2,522,583 | $ | 1,980,762 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
Unpaid losses and loss adjustment expenses | $ | 1,209,352 | $ | 590,166 | ||||
Unearned premiums | 651,913 | 590,419 | ||||||
Reinsurance payable | 278,298 | 191,728 | ||||||
Long-term debt, net | 121,283 | 120,757 | ||||||
Deferred income tax liability, net | — | 9,426 | ||||||
Advance premiums | 37,855 | 24,504 | ||||||
Accrued compensation | 8,067 | 8,014 | ||||||
Lease liability | 28,901 | 31,172 | ||||||
Accounts payable and other liabilities | 69,217 | 71,525 | ||||||
Total Liabilities | $ | 2,404,886 | $ | 1,637,711 | ||||
Stockholders' Equity: | ||||||||
Common stock, | 3 | 3 | ||||||
Additional paid-in capital | 334,246 | 332,797 | ||||||
Accumulated other comprehensive loss, net | (54,573) | (4,573) | ||||||
Treasury stock | (130,286) | (123,557) | ||||||
Retained (deficit) earnings | (31,693) | 138,381 | ||||||
Total Stockholders' Equity | 117,697 | 343,051 | ||||||
Total Liabilities and Stockholders' Equity | $ | 2,522,583 | $ | 1,980,762 | ||||
HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES | ||||||||||||||||
Consolidated Statements of Income and Other Comprehensive Loss | ||||||||||||||||
(Amounts in thousands, except per share and share amounts) | ||||||||||||||||
(Unaudited) | ||||||||||||||||
For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
2022 | 2021 | 2022 | 2021 | |||||||||||||
REVENUES: | ||||||||||||||||
Gross premiums written | $ | 304,501 | $ | 274,178 | $ | 952,981 | $ | 886,059 | ||||||||
Change in gross unearned premiums | 3,458 | 20,231 | (61,442) | (35,593) | ||||||||||||
Gross premiums earned | 307,959 | 294,409 | 891,539 | 850,466 | ||||||||||||
Ceded premiums earned | (148,266) | (131,964) | (420,645) | (399,323) | ||||||||||||
Net premiums earned | 159,693 | 162,445 | 470,894 | 451,143 | ||||||||||||
Net investment income | 2,887 | 1,548 | 7,050 | 3,797 | ||||||||||||
Net realized losses | (3) | (6) | (121) | (926) | ||||||||||||
Other revenue | 2,916 | 3,421 | 10,049 | 10,835 | ||||||||||||
Total revenues | 165,493 | 167,408 | 487,872 | 464,849 | ||||||||||||
EXPENSES: | ||||||||||||||||
Losses and loss adjustment expenses | 155,849 | 129,632 | 397,409 | 328,376 | ||||||||||||
Policy acquisition costs, net | 39,194 | 35,984 | 115,826 | 109,183 | ||||||||||||
General and administrative expenses, net | 17,758 | 17,169 | 54,947 | 52,490 | ||||||||||||
Goodwill impairment | — | — | 91,959 | — | ||||||||||||
Total expenses | 212,801 | 182,785 | 660,141 | 490,049 | ||||||||||||
Operating loss | (47,308) | (15,377) | (172,269) | (25,200) | ||||||||||||
Interest expense, net | 2,027 | 2,150 | 5,750 | 5,953 | ||||||||||||
Loss before income taxes | (49,335) | (17,527) | (178,019) | (31,153) | ||||||||||||
Benefit for income taxes | (1,095) | (1,117) | (11,155) | (5,644) | ||||||||||||
Net loss | $ | (48,240) | $ | (16,410) | $ | (166,864) | $ | (25,509) | ||||||||
OTHER COMPREHENSIVE LOSS | ||||||||||||||||
Change in net unrealized losses on investments | (17,471) | (1,344) | (65,403) | (8,316) | ||||||||||||
Reclassification adjustment for net realized investment | 3 | 6 | 121 | (96) | ||||||||||||
Income tax expense related to items of other | 4,089 | 310 | 15,282 | 1,950 | ||||||||||||
Total comprehensive loss | $ | (61,619) | $ | (17,438) | $ | (216,864) | $ | (31,971) | ||||||||
Weighted average shares outstanding | ||||||||||||||||
Basic | 26,369,265 | 27,938,028 | 26,536,700 | 27,902,814 | ||||||||||||
Diluted | 26,369,265 | 27,938,028 | 26,536,700 | 27,902,814 | ||||||||||||
Loss earnings per share | ||||||||||||||||
Basic | $ | (1.83) | $ | (0.59) | $ | (6.29) | $ | (0.91) | ||||||||
Diluted | $ | (1.83) | $ | (0.59) | $ | (6.29) | $ | (0.91) | ||||||||
About Heritage
Heritage 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 approximately $1.24 billion of gross personal and commercial residential premium across its multi-state footprint.
Non-GAAP Financial Measures
We measure our performance with several financial and operating metrics. We use these metrics to assess the progress of our business, make decisions on where to allocate capital, time and investments and assess the long-term performance of our company. Certain of these financial metrics are reported in accordance with U.S. GAAP and certain of these metrics are considered non-GAAP financial measures. As our business evolves, we may make changes to our key financial and operating metrics used to measure our performance. For further information and a reconciliation to the most applicable financial measures under U.S. GAAP, refer to our reconciliations below.
Non-GAAP adjusted net income is a non-GAAP financial measure and the most directly comparable GAAP financial measure is net income. Non-GAAP adjusted net income is calculated by adding back the non-recurring, non-cash charges of $90.8 million, net of taxes related to impairment of goodwill for nine months ended September 30, 2022.
Non-GAAP adjusted earnings per share (EPS) is a non-GAAP measure and is calculated by dividing the non-GAAP adjusted net income by the number of fully diluted shares at the end of the period.
Non-GAAP adjusted return on equity is a non-GAAP measure and is calculated by using non-GAAP adjusted net income as the base for the calculation.
Non-GAAP adjusted book value per share is a non-GAAP measure and is calculated by dividing total stockholders' equity excluding accumulated other comprehensive loss, net of tax, by the total common shares outstanding.
We use these non-GAAP financial measures internally as performance measures and believe that these measures reflect the financial performance of the Company's ongoing business and core operations. As a supplement to the primary GAAP presentations, non-GAAP financial measures provide meaningful supplemental information about our operating performance. We believe that these non-GAAP financial measures facilitate comparisons with our historical results and with the results of peer companies who present similar measures (although other companies may define non-GAAP measures differently than we define them, even when similar terms are used to identify such measures). These metrics should only be considered as supplemental to net income, earnings per share and return on equity as measures of our performance. These measures should also not be used as a supplement to, or substitute for, cash flow from operating activities (computed in accordance with U.S. GAAP).
The following tables are reconciliations of adjusted net income, adjusted earnings per share and adjusted return on equity to the most directly comparable U.S. GAAP financial measures for the three and nine months ended September 30, 2022 and 2021, respectively:
Statement of Operations Non-GAAP | Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||
2022 | 2021 | Change | 2022 | 2021 | Change | ||||||||||||||||||||||
Income Statement Data | (in thousands except per share data) | ||||||||||||||||||||||||||
Net loss | $ | (48,240) | $ | (16,410) | 194.0 | % | $ | (166,864) | $ | (25,509) | $ | 554.1 | % | ||||||||||||||
Less: Goodwill impairment, net of tax | — | — | — | (90,774) | — | NM | |||||||||||||||||||||
Non-GAAP adjusted net loss | $ | (48,240) | $ | (16,410) | 194.0 | % | $ | (76,090) | $ | (25,509) | $ | 198.3 | % | ||||||||||||||
Diluted Earnings Per Share Data | |||||||||||||||||||||||||||
Net loss | $ | (1.83) | $ | (0.59) | (1.2) | % | $ | (6.29) | $ | (0.91) | (5.4) | % | |||||||||||||||
Less: Goodwill impairment, net of tax | — | — | — | (3.42) | — | NM | |||||||||||||||||||||
Non-GAAP adjusted net loss | $ | (1.83) | $ | (0.59) | (1.2) | % | $ | (2.87) | $ | (0.91) | (2.0) | % | |||||||||||||||
Return on Equity Data | |||||||||||||||||||||||||||
Return on Equity | (129.4) | % | (15.8) | % | (113.6) | pts | (96.6) | % | (8.0) | % | (88.6) | pts | |||||||||||||||
Less: Goodwill impairment, net of tax | — | % | — | % | — | pts | (52.5) | % | — | % | (52.5) | pts | |||||||||||||||
Non-GAAP adjusted return on equity | (129.4) | % | (15.8) | % | (113.6) | pts | (44.0) | % | (8.0) | % | (36.0) | pts |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
Return on Equity Non-GAAP Reconciliation | 2022 | 2021 | 2022 | 2021 | |||||||||||||
(in thousands except per share data) | |||||||||||||||||
Income Statement Data | (annualized) | ||||||||||||||||
Net loss | $ | (192,961) | $ | (65,640) | $ | (222,486) | $ | (34,012) | |||||||||
Adjusted net loss | $ | (192,961) | $ | (65,640) | $ | (101,454) | $ | (34,012) | |||||||||
Divided by Average Equity: | |||||||||||||||||
Shareholders' equity at the beginning of period | $ | 180,546 | $ | 424,873 | $ | 343,051 | $ | 442,344 | |||||||||
Shareholders' equity at the end of period | 117,697 | 405,025 | 117,697 | 405,025 | |||||||||||||
Average Shareholders' Equity | $ | 149,121 | $ | 414,949 | $ | 230,374 | $ | 423,685 | |||||||||
Return on equity | (129.4) | % | (15.8) | % | (96.6) | % | (8.0) | % | |||||||||
Adjusted return on equity | (129.4) | % | (15.8) | % | (44.0) | % | (8.0) | % |
As Of | ||||||||||||||||||||
Stockholders' Equity Reconciliation | 30-Sep-22 | 30-Jun-22 | 31-Mar-22 | 31-Dec-21 | 30-Sep-21 | |||||||||||||||
Common stockholders' equity | $ | 117,697 | $ | 180,546 | $ | 281,766 | $ | 343,051 | $ | 405,025 | ||||||||||
Add: Accumulated other comprehensive loss, net | 54,573 | 41,194 | 28,894 | 4,573 | 405 | |||||||||||||||
Non-GAAP adjusted common stockholders' equity | $ | 172,270 | $ | 221,740 | $ | 310,660 | $ | 338,478 | $ | 404,620 | ||||||||||
Weighted shares outstanding | 25,899 | 25,644 | 26,444 | 26,754 | 27,803 | |||||||||||||||
Book value per common share | $ | 4.54 | $ | 7.04 | $ | 10.66 | $ | 12.82 | $ | 14.57 | ||||||||||
Non-GAAP adjusted book value per common | $ | 6.65 | $ | 8.65 | $ | 11.75 | $ | 12.65 | $ | 14.55 |
Note: Percentages and sums in the tables may not recalculate precisely due to rounding |
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 the expected positive impact of our strategic initiatives on our future financial results, including focus on profitability, exposure management, rate adequacy and our ability to create value for our shareholders; ability to achieve consistent long-term quarterly earnings and drive shareholder value; continued increase in average premium per policy; expected continued changes in our portfolio to reduce exposure and generate long term returns; the expected benefits of excess and surplus insurance products; expected losses from Hurricane Ian; future dividend payments; the impact of legislation on the homeowner's insurance marketplace and litigious practices in Florida; our ability to successfully manage inflationary pressures; expectations regarding our fixed income investment portfolio; and our ability to successfully regain value in the Company and achieve our target return on equity. 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 underwriting and profitability initiatives; the continued and potentially prolonged impact of the COVID-19 pandemic on the economy, demand for our products and our operations; inflation and other changes in economic conditions (including changes in interest rates and financial and real estate markets), including as a result of the COVID-19 pandemic; the impact of macroeconomic and geopolitical conditions, including the impact of supply chain constraints, inflationary pressures, labor availability and the conflict between Russia and Ukraine; 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, 2021 filed with the Securities and Exchange Commission on March 14, 2022 and subsequent filings. 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:
Kirk Lusk
Chief Financial Officer
klusk@heritagepci.com
investors@heritagepci.com
Mike Houston and Julia Ward
Lambert
HRTG@lambert.com
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SOURCE Heritage Insurance Holdings, Inc.