Q1 2021 Heritage Insurance Holdings Inc Earnings Call

Yeah.

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Good morning, and welcome to Heritage Insurance Holdings first quarter, 2021 and financial results Conference call. My name is Karen and I'll be the operator today at this time all participants are in a listen only mode. A brief question and answer session will follow the formal.

Presentation. Please note. This event is being recorded I would now like to turn the conference over to a rash and Soleimani Executive Vice President and Heritage. Please go ahead.

Good morning, and thanks for joining US today, we invite you to visit the investors section of our web site investors that heritage GCI Dot com, where the earnings release and our earnings call will be archived these.

These materials are available for replay or review at your convenience.

Today's call May contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Statements are based on management's current expectations and are subject to uncertainty and changes in circumstances.

And our earnings press release and in our SEC filings.

Material risks that may cause our future results to differ from our expectations. Our statements are as of today and we have no obligation to update any forward looking statements we may make.

For a description of the forward looking statements and risks that could cause our results to differ materially from those described and the forward looking statements. Please refer to our annual report on form 10-K earnings release and other SEC filings with.

With us on the call today are already Gareth day, our Chief Executive Officer, and Kirk Lusk, Our Chief Financial Officer, I will now turn the call over to Ernie.

Thank you rush.

Everyone. Thank you for joining us today.

We have been very fortunate that COVID-19 has had virtually no impact and our business and much of that has to do with our employee's productivity.

<unk> remains high and we continue to provide our policyholders and distribution partners with the service. They have come to expect from heritage, who would like to thank our employees for their dedication to the organization.

We were disappointed with the quarter's results, which included weather losses that were up over $10 million year over year.

The uptake and weather losses stand and large part from a high number of small events, which precluded us from receiving any reinsurance recoveries has gross and net weather losses in the quarter were identical at $31 4 million.

With that said, we see light at the end of the tunnel and are aggressively raising rates and taking underwriting actions to improve our profitability and get us to a double digit ROE profile over a long term underwriting cycle.

While it's difficult to see our measured progress over one or two quarters, given the inherent lag of rate increases we expect to see some improvement emerge by the end of the year with more meaningful improvement in 2020 two.

I will now turn the call over to Kirk to provide more details on our financials.

Thank you Ernie and good morning overall, our focus is on margin expansion.

Year over year, our in force premiums grew by 17, 5% while policies in force for the same timeframe grew by 10%.

As rate increases and underwriting actions are implemented we would expect that growth to slow throughout 2021, we believe that the rate and underwriting changes being implemented will have an impact on this year, but will have a more pronounced impact on 'twenty two.

And beyond as volatility of loss costs are reduced and produce meaningful improvement and the bottom line.

We think that the litigated claims environment has made the Florida market very difficult and we are taking rating and underwriting actions that we believe will position the company to return to double digit Roe and the future <unk>.

And there could impact our future growth and the Florida market.

The ceded premium ratio was 47, 4% and the first quarter up one 1% for the first quarter of 2020 of $46 one per cent.

The increase was driven by an increase and the 2020 to 2020, one cat ex ol reinsurance program and also the purchase of a severe convective storm cover that is effective from one 121 through 531 21.

As we mentioned the first quarter weather losses were 31, 4 million, which is approximately $10 3 million higher than the first quarter of last year.

Additionally, our attritional losses were also higher than the first quarter of 2020.

The net loss ratio at 68, 9% is higher than the prior year quarter loss net loss ratio of 54, 1% and was significantly impacted by the Q1 weather events and the Attritional losses just mentioned.

We continue to focus on rate adequacy and have over a 14% rate increase effective one 121 impacting our Florida voluntary H O three portfolio as well as rate increases and Massachusetts, Rhode Island, and California during the first quarter during.

During the remainder of the year, we expect rate increases and all our licensed states.

Our net expense ratio decreased by two 3%, reflecting senior management restructuring completed in the fourth quarter of 2020.

The net combined ratio for the first quarter of 2021 was 107, six which is up from 95, 3% and the prior year period, reflecting a higher net loss ratio, partially offset by a lower expense ratio.

Over the past few years, we have improved our capital structure continue to refine our exposures and Florida expanded our footprint into other states and saw a fairly rapid growth in 2020. We are now focused on increasing our margins were and.

And now available to take your questions.

Excellent. Thank you, ladies and gentlemen, and the floor is now open for questions.

Have a question. Please press star one on your telephone keypad at this time and are using a speaker phone and we ask that while posing a question. Let me just pick up the handset to provide favorable found quality once again, ladies and gentlemen, if you do have a question or comment. Please press star one on your telephone keypad at this time please hold.

As we poll for questions.

And our first question actually comes from Marla Backer from Sidoti. Please go ahead.

Yeah.

Hello.

Given the focus on margin expansion now.

Uh huh.

Does that mean that you might forego entering new markets and many.

Near term more in 2020 one.

Thank you for your question Mara there so what we would be looking at new markets is only if there was profitability that would add to the bottom line and those markets and.

Obviously, we're in 16 states right now and as Kirk mentioned, our focus is the bottom line and profitability. So it won't be that we won't consider them, but we will do a hard due diligence on it and it would have to be accretive to.

And to the bottom line.

Mhm, Okay, and then also how does this impact the potential for picking up some you know selectively some of the policies from citizens.

<unk> been talking about.

Referring to the takeout program.

It doesn't take us.

So our citizens takeout program has always been in place we continue to monitor what is going on and citizens and the number of policies that increase there.

So we will continue to monitor and take a look at that and it.

The timing is right and again adds to our profitability, we would take a look at that doing another take out into the future.

And and model I would just add to that citizens right. Now has about 570000 policies. If you go to their website. That's the latest figure they have up but they're estimating that it's going to go out probably about another 20%. This year. So the comments we've made in the past or does it if citizens continues to grow and there could be and opportunity there too.

Due to the very selectively take out policies and it would be very slight.

Okay. Thank you.

Thank you.

Thank you and our next question comes from Mark <unk> from JM Swank Pete. Please go ahead.

Thanks, Macrobiotic and.

And hoping to get your thoughts on the recent legislation passed in Florida, and and what impact you think that will have both on the environment and your book in particular and and specifically if it goes far enough to kind of.

Correct the situation or if it's just a smaller step in the right direction.

Okay. Thanks, Matt for the question. So any legislation that passes that helps the market and we're very appreciative of however, we're also cautiously optimistic to the impact that would have on the book there are some things there we're glad to see such as the reporting period being taken down from three years to two years I'm sure.

Folks and the reinsurance market are happy to see that and we are as well, but as we kind of look at the legislation and go through it which we're doing currently at this point and time, we're seeing what the impact may be to the book.

We're always again appreciative of any legislation that helps you know the overall, Florida insurance market, but we have yet to kind of determine how far that goes into our book.

Okay, Great and then my other question just centers around our capital and you know clearly it across a lot of your peers there has been capital struggles.

Can you speak a little bit to your view of heritage as capital position.

You know and and how that situates us for both continued growth.

And or what you know capital management options.

There might be at your disposal.

Yeah, well, we do have a fairly flexible capital structure, we do have a group of syndicate banks, and we recapitalize the company and the debt structure and 2018, Yeah, we do focus on capital and maintaining a very strong position going forward.

With the some of the market dynamics, we are focusing again on being a very profitable and and focusing on margin. So therefore that could impact you know the the top line growth, which then puts us even a little bit better capital position.

Alright, great. Thank you.

Thank you Matt.

Once again, ladies and gentlemen that star one if you do have a question or comment.

Okay.

And there appear to be no further questions at this time.

Okay.

Yeah.

Ladies and gentlemen, if you do have a question. Please press star one on your telephone keypad.

Well if there are no questions on behalf of everyone at heritage. Thank you for your time. Thank you for joining the call today.

Thank you, ladies and gentlemen, and this does conclude today's teleconference. We thank you for your participation you may disconnect. Your lines at this time and have a great day.

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