Q2 2024 Heritage Insurance Holdings Inc Earnings Call
Speaker Change: Good morning and welcome to the Heritage Insurance Holdings second quarter 2024 earnings call.
Operator: on Quarter 2024 earnings call. For questions, please press star 1. Please note today's event has been recorded.
Operator: Register for earnings calls in 2020. For questions, please press star 1. Please note today's event is being recorded. I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.
Speaker Change: For questions, please press star 1. Please note today's event has been recorded. I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.
Kirk Lusk: I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.
Kirk Lusk: Good morning, and thank you for joining us today. We invite you to visit the Investors section of our website, investors.heritage, pci.com, where the earnings release and our earnings call will be archived. These materials are available for replay or review at your convenience.
Kirk Lusk: Good morning, and thank you for joining us today. We invite you to visit the Investors section of our website, investors.heritagepci.com, where the earnings release and our earnings call will be archived. These materials are available for replay or review at your convenience. Statements made during today's call may be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and are subject to uncertainty and changes in circumstances.
Kirk Lusk: Today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations, in subject to uncertainty and changes in circumstances. In our earnings response, press release, and our SEC filings, we detail 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.
Kirk Lusk: Today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and subject to uncertainty and changes in circumstances.
Kirk Lusk: In our earnings press release and our SEC filings, we detail 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 the risks that could cause our results to differ materially from those described in the forward-looking statements, please refer to our annual report on Form 10-K, earnings release, and other SEC filings. With me on the call today is Ernie Garateix, our Chief Executive Officer. I will now turn the call over to Ernie.
Speaker Change: In our earnings press release and our SEC filings, we detail material risks that may cause our future results to differ from our expectations.
Speaker Change: Our statements are as of today, and we have no obligation to update any forward-looking statements we may make.
Kirk Lusk: For a description of the forward-looking statements and the risks that could cause our results to differ materially from those described in the forward-looking statements, please refer to our annual report on Form 10-K, earnings release, and other SEC filings.
Speaker Change: For a description of the forward-looking statements and the risks that could cause our results to differ materially from those described in the forward-looking statements, please refer to our annual report on Form 10-K , earnings release, and other SEC filings.
Kirk Lusk: With me on the call today is Ernie Garatay, our Chief Executive Officer.
Ernie Garatay: I'll now turn the call over to Ernie. Thank you, Kirk. Good morning, everyone, and thank you for joining us today.
Ernesto Garateix: Thank you, Kirk. Good morning, everyone, and thank you for joining us today.
Ernie Garatay: Before I discuss the second quarter, I, in the entire Heritage family, wish a swift and complete recovery to all those impacted by Hurricane Debbie. Our team has been responding to policyholder needs and remains ready to provide outstanding claim service. With regard to the second quarter, we achieved another period of strong performance per heritage as we continued to execute on our strategic initiatives focused on achieving great adequacy, maintaining our underwriting discipline, and allocating capital to drive growth and returns as we strive to deliver solid financial results. As part of our strategic initiatives, we significantly curtailed writing personal new business in most of the Northeast, and in the majority of the states and the Southeast, starting in 2022.
Ernesto Garateix: Before I discuss the second quarter, I and the entire Heritage family wish a swift and complete recovery to all those impacted by Hurricane Debbie. Our team has been responding to policyholder needs and remains ready to provide outstanding claim service. With regard to the second quarter, we achieved another period of strong performance for Heritage as we continued to execute on our strategic initiatives focused on achieving rate adequacy, maintaining our underwriting discipline, and allocating capital to drive growth and returns as we strive to deliver solid financial results. As part of our strategic initiatives, we significantly curtailed writing personal new business in most of the Northeast and in the majority of the states in the South, starting in 2022.
Speaker Change: Before I discuss the second quarter, I and the entire Heritage family wish a swift and complete recovery to all those impacted by Hurricane Debbie.
Speaker Change: With regard to the second quarter, we achieved another period of strong performance for Heritage.
Speaker Change: as we continue to execute on our strategic initiatives.
Speaker Change: focus on achieving rate adequacy.
Speaker Change: maintaining our underwriting discipline and allocating capital to drive growth and returns as we strive to deliver solid financial results.
Speaker Change: As part of our strategic initiatives, we significantly curtailed writing personal new business in most of the Northeast and in the majority of the states in the Southeast, starting in 2022.
Ernie Garatay: Over the last two years, we have grown our top line through organic growth in our commercial residential portfolio and our EMS products, combined with rate actions across our personal lines portfolio. At the same time, we undertook significant underwriting initiatives ink at improving the quality of our portfolio. These efforts have significantly improved both our underwriting results and profitability in 2023 and through the first six months of 2024. Our results this quarter are indicative of these actions, with our top line growth written premium growing 28 million, or 7.1%. While our second quarter net income grew by 11 million, or 143%.
Ernesto Garateix: Over the last two years, we have grown our top line through organic growth in our commercial residential portfolio and our E&S product, combined with rate actions across our Personal Lines portfolio. At the same time, we undertook significant underwriting initiatives, including improving the quality of our portfolio. These efforts have significantly improved both our underwriting results and profitability in 2023 and through the first six months of 2024. Our results this quarter are indicative of these actions, with our top-line gross written premium growing $28 million, or 7.1%, while our second quarter net income grew by $11 million, or 143%, both as compared to the second quarter of 2023.
Speaker Change: Over the last two years, we have grown our top line through organic growth in our commercial residential portfolio and our E&S products, combined with rate actions across our personal lines portfolio.
Speaker Change: At the same time, we undertook significant underwriting initiatives in improving the quality of our portfolio.
Speaker Change: Our results this quarter are indicative of these actions with our top-line gross written premium growing 28 million or 7.1 percent while our second quarter net income grew by 11 million or a hundred and forty three percent.
Ernie Garatay: Both as compared to the second quarter of 2023. A key highlight of the quarter is the continued execution of our underwriting and rate adequacy, which have meaningfully benefited our bottom line. From an underwriting perspective, we continue strategically to reduce our exposure in over-concentrated and unprofitable areas while selectively increasing our presence in profitable geographies and products. This discipline underwriting approach resulted in a policy count reduction of just over 69,000 policies or 14.1% throughout our footprint compared to the second quarter of 2023, while our premium enforce increased by 81.2 million or 6.1%. Through our risk-based management of policy count in total-insured value and proactive engagement with our reinsurance partners, we have maintained a stable supply of indemnity-based reinsurance at manageable costs.
Speaker Change: both as compared to the second quarter of 2023.
Ernesto Garateix: A key highlight of the quarter is the continued execution of our Underwriting and Rate Adequacy Initiative, which has meaningfully benefited our bottom line. From an underwriting perspective, we continue to strategically reduce our exposure in overconcentrated and unprofitable areas while selectively increasing our presence in profitable geographies and products. This disciplined underwriting approach resulted in a policy count reduction of just over 69,000 policies, or 14.1% throughout our footprint, compared to the second quarter of 2023, while our premium in force increased by 81.2 million, or 6.1%.
Speaker Change: A key highlight of the quarter is the continued execution of our underwriting and rate adequacy initiatives.
Speaker Change: which have had meaningfully benefited our bottom line.
Speaker Change: From an underwriting perspective, we continue to strategically reduce our exposure in over-concentrated and unprofitable areas, while selectively increasing our presence in profitable geographies and products.
Speaker Change: This disciplined underwriting approach resulted in a policy count reduction of just over 69,000 policies, or 14.1% throughout our footprint, compared to the second quarter of 2023.
Speaker Change: while our premium in force increased by $81.2 million or 6.1%.
Ernesto Garateix: Through our risk-based management of policy count and total insured value and proactive engagement with our reinsurance partners, we have maintained a stable supply of indemnity-based reinsurance at manageable costs. Importantly, we expect the headwind from declining policies to begin to moderate as we look forward over the next few quarters.
Ernie Garatay: Importantly, we expect the headwind from declining policies to begin to moderate as we look forward over the next few quarters. Turning to our rate-added adequacy initiatives, they have delivered significant rate increases, which are earning through our portfolio in 2024, as evidenced by our growing under-imprimium balance. Looking to 2025, we anticipate an even more meaningful market rate to earn through our portfolio, which we believe will provide a healthy tailwind to our financial results. More importantly, we are reaching an inflection point in our business, which positions us to selectively resume writing new business in these geographies. As a result, we are now pivoting our strategy to one of controlled growth, anchored by our continued focus on risk management and stringent underwriting.
Ernesto Garateix: Turning to our rate adequacy initiatives, they have delivered significant rate increases which are earning through our portfolio in 2024, as evidenced by our growing unearned premium balance. Looking to 2025, we anticipate an even more meaningful amount of rates to earn through our portfolio, which we believe will provide a healthy tailwind to our financial results. More importantly, we have reached an inflection point in our business, which positions us to selectively resume writing new business in these geographies.
Speaker Change: Turning to our rate adequacy initiatives, they have delivered significant rate increases which are earning through our portfolio in 2024, as evidenced by our growing under-earned premium balance.
Speaker Change: Looking to 2025, we anticipate an even more meaningful amount of rate to earn through our portfolio, which we believe will provide a healthy tailwind to our financial results.
Speaker Change: More importantly, we have reached an inflection point in our business, which positions us to selectively resume writing new business in these geographies.
Ernesto Garateix: As a result, we are now pivoting our strategy to one of controlled growth, anchored by our continued focus on risk management and stringent underwriting. This is an opportune time to accelerate growth given the disruption in many of our markets that we expect will open up significant market share. Additionally, recent legislative changes in Florida are having a positive impact on the economics of writing new profitable business in the state.
Ernie Garatay: This is an opportune time to accelerate growth, given the disruption in many of our markets that we expect will open up significant market share. Additionally, recent legislative changes in Florida are having a positive impact on the economics of writing new profitable business in the state. In fact, we started writing business again in July and are optimistic with the growth perspectives that lie ahead. As we turn our new business engine back on, we expect to leverage our existing sales and marketing teams that have largely been in place and will not require incremental expense. Our E&S business is another growth lever for Heritage as premiums grew nearly 30 million or 177 percent as compared to the year-ago second quarter as we continue to write business in California, Florida, and South Carolina.
Speaker Change: Additionally, recent legislative changes in Florida are having a positive impact on the economics of writing new profitable business in the state.
Ernesto Garateix: In fact, we started writing business again in July and are optimistic about the growth perspectives that lie ahead. As we turn our new business engine back on, we expect to leverage our existing sales and marketing teams, which have largely been in place and will not require incremental expense. Our E&S business is another growth lever for Heritage as premiums grew nearly $30 million, or 177%, as compared to the year-ago's second quarter as we continue to write business in California, Florida, and South Carolina.
Speaker Change: As we turn our new business engine back on, we expect to leverage our existing sales and marketing teams that have largely been in place and will not require incremental expense.
Speaker Change: Our E&S business is another growth lever for Heritage as premiums grew nearly 30 million, or 177 percent as compared to the year ago's second quarter, as we continue to write business in California, Florida, and South Carolina.
Ernie Garatay: What makes this business so attractive is that we can more nimbly adjust our rates and coverages to the changing dynamics, state by state, to ensure that we continue to earn appropriate risk-adjusted returns. Looking forward, we will continue to evaluate more states for E&S opportunities as we focus on our controlled growth strategy. Importantly, we remain committed to maintaining a balance and diversified portfolio, as no single state represents over 27.3 percent of our total insured value. This selective diversification helps reduce performance volatility and ensures our long-term stability, which we will believe will be reflected in the value of our company over time.
Ernesto Garateix: What makes this business so attractive is that we can more nimbly adjust our rates and coverage to the changing dynamics state-by-state to ensure that we continue to earn appropriate risk-adjusted returns. Looking forward, we will continue to evaluate more states for E&S opportunities as we focus on our controlled growth strategy. Importantly, we remain committed to maintaining a balanced and diversified portfolio, as no single state represents over 27.3% of our total insured value.
Speaker Change: What makes this business so attractive is that we can more nimbly adjust our rates and coverages to the changing dynamics, state by state, to ensure that we continue to earn appropriate risk-adjusted returns.
Speaker Change: Importantly, we remain committed to maintaining a balanced and diversified portfolio, as no single state represents over 27.3% of our total insured value.
Ernesto Garateix: This selective diversification helps reduce performance volatility and ensures our long-term stability, which we believe will be reflected in the value of our company over time. We remain committed to maintaining our focus on disciplined growth, operational excellence, and effective capital management. We believe our strategic initiatives will continue to yield positive results, drive long-term profitability, and enhance shareholder value. With the improvements we have made to the portfolio, we expect our net income to grow and build off the first half results. To conclude, I would like to reiterate our dedication to navigating the complexity of our market with a strategic focus that prioritizes long-term profitability and shareholder value, driven by our dedicated workforce. Kirk, I'll turn it over to you.
Ernie Garatay: We remain committed to maintaining our focus on discipline growth, operational excellence, and effective capital management. We believe our strategic initiative will continue to yield positive results, drive long-term profitability, and enhance your other value. With the improvements we have made to the portfolio, we expect our net income to grow and build off the first path results.
Speaker Change: We remain committed to maintaining our focus on discipline growth, operational excellence, and effective capital management.
Speaker Change: We believe our strategic initiatives will continue to yield positive results, drive long-term profitability, and enhance shareholder value.
Speaker Change: With the improvements we have made to the portfolio, we expect our net income to grow and build off the first half results.
Ernie Garatay: To conclude, I would like to reiterate our dedication to navigating the complexity of our market with a strategic focus that prioritizes long-term profitability and surehold of value driven by our dedicated workforce.
Speaker Change: To conclude, I would like to reiterate our dedication to navigating the complexity of our market with a strategic focus that prioritizes long-term profitability and shareholder value driven by our dedicated workforce.
Kirk Lusk: Kirk, I'll turn it over to you. Thank you, running. And good morning, everyone. As Ernie highlighted, the second quarter of 2024 was reflective of our efforts and an indication of the earnings we expect to deliver in the future. Our results as quarter reflect the success of our strategic initiatives and the positive impact of our disciplined, underwriting, rate advocacy efforts, and prudent capital management. Starting with our financial highlights, we reported net income at 18.9 million or 61 cents per diluted share compared to 7.8 million or 30 cents per diluted share in the prior year quarter. This substantial increase in net income was driven primarily by higher net premiums earned and a significant increase in net investment income, which was partially offset by higher operating expenses.
Kirk Lusk: Thank you, Ernie, and good morning, everyone. As Ernie highlighted, the second quarter of 2024 was reflective of our efforts and an indication of the earnings we expect to deliver. Our results this quarter reflect the success of our strategic initiatives and the positive impact of our disciplined underwriting, rate adequacy efforts, and prudent capital management. Starting with our financial highlights, we reported net income of $18.9 million, or $0.61 per diluted share, compared to $7.8 million, or $0.30 per diluted share, in the prior year quarter.
Speaker Change: Kirk, I'll turn it over to you.
Kirk Lusk: Our results this quarter reflect the success of our strategic initiatives and the positive impact of our disciplined underwriting, great adequacy efforts, and prudent capital management.
Kirk Lusk: Starting with our financial highlights, we reported net income at $18.9 million, or $0.61 cents per diluted share, compared to $7.8 million, or $0.30 cents per diluted share in the prior year quarter.
Kirk Lusk: This substantial increase in net income was driven primarily by higher net premiums earned and a significant increase in net investment income, which was partially offset by higher operating costs. Our total revenues for the quarter were $203.6 million, up 9.9% from $185.3 million in the prior year quarter. This increase was driven by several factors.
Kirk Lusk: Our total revenues for the quarter were 203.6 million, up 9.9 percent from 185.3 million in the prior year quarter. This increase was driven by several factors. Growth premiums earned rose to 350 million of 6.1 percent from 330 million in the prior year quarter, reflecting our strategic focus on rate advocacy and organic growth in our commercial residential lines. Net premiums earned increased to 190.3 million of 7.6 percent from 176.8 million in the prior year quarter as the growth in growth premiums earned outpaced the increase in seated premiums. Our strategic focus on organic growth of our commercial residential business had paid off with substantial premium in the segment contributing positively to our overall profitability.
Kirk Lusk: Growth premiums earned rose to $350 million, up 6.1% from $330 million in the prior year quarter, reflecting our strategic focus on rate adequacy and organic growth in our commercial residential line. Net premiums earned increased to $190.3 million, up 7.6% from $176.8 million in the prior year quarter as the growth in gross premiums earned outpaced the increase in seeded premiums. Our strategic focus on organic growth of our commercial residential business paid off, with a substantial premium in the segment contributing positively to our overall profitability.
Kirk Lusk: The commercial residential business, which tends to have lower nutritional loss ratio, costs in forced premium grow by 29.4 percent compared to the second quarter of 2023, while the total ensured value only increased by 9.9 percent. This segment now accounts for 21.3 percent of our in forced premiums, up from 17.5 percent in the prior year period. Due to improvements in our reinsurance program from a cost and structure standpoint, coupled with growing growth premiums earned, we expect to have a meaningful reduction in our seated premium ratio going forward. We did incur reinstatement premiums from Hurricane E and this year, which were 8.7 million in the first quarter and 10 million in the second quarter for a full half-year impact of 18.7 million.
Kirk Lusk: The commercial residential business, which tends to have lower attritional loss ratios, saw its in-force premium grow by 29.4% compared to the second quarter of 2023, while the total insured value only increased by 9.9%. This segment now accounts for 21.3% of our in-force premiums, up from 17.5% in the prior year.
Kirk Lusk: The commercial residential business, which tends to have a lower attritional loss ratio, saw its in-force premium grow by 29.4% compared to the second quarter of 2023, while the total insured value only increased by 9.9%.
Kirk Lusk: Due to improvements in our reinsurance program from a cost and structure standpoint, coupled with growing growth premiums earned, we expect to have a meaningful reduction in our C to premium ratio going forward. We did incur reinstatement premiums from Hurricane Ian this year, which were $8.7 million in the first quarter and $10 million in the second quarter for a full half-year impact of $18.7 million. Net investment income was $9.8 million, up $3.2 million from $6.6 million in the prior-year quarter, reflecting actions to align the investments with the yield curve and take advantage of higher short-term yield.
Kirk Lusk: We did incur reinstatement premiums from Hurricane Ian this year, which were $8.7 million in the first quarter and $10 million in the second quarter, for a full half-year impact of $18.7 million.
Kirk Lusk: Net investment income was 9.8 million, of 3.2 million from 6.6 million in the prior year quarter, reflecting actions to align the investments with the yield curve and take advantage of higher short-term yields. Revenue in the prior year quarter was also impacted by realized loss of 1.6 million on equity investments. The net loss ratio for the quarter improved to 55.7%, down 4.6% from 60.3% in the same quarter last year. This improvement was driven by higher net premiums earn and slightly lower net losses than loss adjustment expense. Net weather losses for the current quarter were 19.7 million, a decrease of 14.1 million from 33.8 million in the prior year quarter.
Kirk Lusk: Net investment income was $9.8 million, up $3.2 million from $6.6 million in the prior year quarter, reflecting actions to align the investments with the yield curve and take advantage of higher short-term yields.
Kirk Lusk: Revenue in the prior year quarter was also impacted by a realized loss of $1.6 million on equity investments. The net loss ratio for the quarter improved to 55.7%, down 4.6% from 60.3% in the same quarter last year. This improvement was driven by higher net premiums earned and slightly lower net losses and loss adjustment. Net weather losses for the current quarter were $19.7 million, a decrease of $14.1 million from $33.8 million in the prior year quarter.
Kirk Lusk: This improvement was driven by higher net premiums earned and slightly lower net losses and loss adjustment expense.
Kirk Lusk: Additionally, the net loss ratio was impacted by net unfavorable loss development of 8.7 million during the second quarter of 2024 compared to net favorable development of 2.7 million in the second quarter of 2023. The loss ratio improvement reflects the positive impact on our underwriting efforts and the legislative changes in Florida and reducing claim abuse. We have continued to see renewable trends in the current year loss costs, attributable to legislative changes made in Florida and the improvements in our underlying portfolio in all states. We will continue to evaluate each state on an ongoing basis to make adjustments necessary to maintain rate adequacy and improved underwriting results.
Kirk Lusk: Additionally, the net loss ratio was impacted by net unfavorable loss development of $8.7 million during the second quarter of 2024 compared to net favorable development of $2.7 million in the second quarter of 2022. The loss-ratio improvement reflects the positive impact on our underwriting efforts and the legislative changes in Florida aimed at reducing claim abuse. We have continued to see favorable trends in the current year's loss costs attributable to legislative changes made in Florida and improvements in our underlying portfolio in Alaska.
Kirk Lusk: Additionally, the net loss ratio was impacted by net unfavorable loss development of 8.7 million during the second quarter of 2024 compared to net favorable development of 2.7 million in the second quarter of 2023.
Kirk Lusk: The loss ratio improvement reflects the positive impact on our underwriting efforts and the legislative changes in Florida aimed at reducing claim abuse.
Kirk Lusk: We will continue to evaluate each state on an ongoing basis to make adjustments necessary to maintain rate adequacy and improve underwriting results. Our net expense ratio increased to 36.8%, up from 34.8% in the prior year quarter. This increase is due to higher acquisition costs associated with the rise in gross premiums written, higher general administrative expenses from reduced Seeding Commission income, and higher technology spending. The higher investment in technology includes a new claim system and prudent spending on cybersecurity as well as higher costs for liability insurance.
Kirk Lusk: We will continue to evaluate each state on an ongoing basis to make adjustments necessary to maintain rate adequacy and improved underwriting results.
Kirk Lusk: Our net expense ratio increased to 36.8%, up from 34.8% in the prior year quarter. This increase was due to higher acquisition costs associated with the rise in gross premiums written, a higher general administrative expenses from reduced seed and commission income, and higher technology spent. The higher investment in technology includes a new claim system and prudent spending on cyber security, as well as higher costs for liability insurance. These strategic investments in technology and infrastructure are essential for our long-term growth. The net combined ratio for the quarter improved at 92.5%, down 2.6 points from 95.1% in the prior year quarter, driven by the lower net loss ratio, partially offset by higher net expense ratio.
Kirk Lusk: Our net expense ratio increased to 36.8%, up from 34.8% in the prior year quarter. This increase was due to higher acquisition costs associated with the rise in gross premiums written, higher general administrative expenses from reduced seeding commission income, and higher technology spent.
Kirk Lusk: A higher investment in technology includes a new claim system and prudent spending on cyber security as well as higher costs for liability insurance.
Kirk Lusk: These strategic investments in technology and infrastructure are essential for our long-term growth. The net combined ratio for the quarter improved at 92.5 percent, down 2.6 points from 95.1 percent in the prior quarter, driven by a lower net loss ratio, partially offset by higher net expense. Turning to our balance sheet, we ended the quarter with total assets of $2.6 billion and shareholders' equity of $255.3 million. Our book value per share increased to $8.32, up 32.7% from $6.27 in the prior year quarter.
Kirk Lusk: Turning to our balance sheet, we ended the quarter with total assets of 2.6 billion and shareholders' equity at 255.3 million. Our book value for share increased to $8.32, up 32.7% from $6.27 cents in the prior year quarter. This increase is primarily a contribute to our strong net income and a reduction in unrealized losses that are fixed in-term securities portfolio. We expect unrealized losses will continue to decline as bonds mature and with any reductions in overall interest rates. The average rating on our portfolio is 8 plus with a duration of 2.68 years. Our return on equity for the quarter was 30.8%, an improvement of 11.1 points from the 19.7 in the prior year quarter for selecting our increased profitability and effective capital management.
Kirk Lusk: Our book value per share increased to $8.32, up 32.7% from $6.27 in the prior year quarter. This increase is primarily attributable to our strong net income and a reduction in unrealized losses on our fixed income securities portfolio.
Kirk Lusk: This increase is primarily attributable to our strong net income and a reduction in unrealized losses on our fixed income securities portfolio. We expect unrealized losses will continue to decline as bonds mature and with any reductions in overall interest.
Kirk Lusk: We expect unrealized losses will continue to decline as bonds mature and with any reductions in overall interest rates.
Kirk Lusk: The average rating on our portfolio is A+, with a duration of 2.68 years. Our return on equity for the quarter was 30.8%, an improvement of 11.1 points from the 19.7 in the prior year quarter, reflecting our improved profitability and effective capital management. In terms of capital management, our Board of Directors has decided to continue the suspension of quarterly dividends. This decision aligns with our strategy to strengthen our financial position and support our long-term growth initiatives.
Kirk Lusk: In terms of capital management, our board of directors has decided to continue the suspension of the quarterly dividend. This assistance aligns with our strategy strength in our financial position and support our long-term growth initiatives. We will continue to evaluate our dividend distribution and stock repurchase strategies on a quarterly basis. Looking ahead, we remain focused on executing our strategic initiatives, which include achieving consistent long-term earnings, maintaining and writing discipline, and driving shareholder value. We believe that our proactive approach to managing exposure, enhancing rate adequacy, and investing in technology and infrastructure will position us well for continued success.
Kirk Lusk: We will continue to evaluate our dividend distribution and stock repurchase strategies on a quarterly basis. Looking ahead, we remain focused on executing our strategic initiatives, which include achieving consistent long-term earnings, maintaining underwriting discipline, and driving shareholder value. We believe that our proactive approach to managing exposure, enhancing rate adequacy, and investing in technology and infrastructure will position us well for continued success. Lastly, we are excited to embark on the next phase of our strategic initiatives as we initiate our controlled growth strategy and begin writing personalized policies in Florida and the North. We expect these to have a positive impact on our future earnings and build upon the results of the first half of the year. Thank you for your attention. We are now ready to take your questions.
Kirk Lusk: Looking ahead, we remain focused on executing our strategic initiatives, which include achieving consistent long-term earnings, maintaining underwriting discipline, and driving shareholder value.
Kirk Lusk: Lastly, we are excited to embark on the next phase of our strategic initiatives as we initiate our controlled growth strategy and begin writing personalized policies in Florida and the Northeast. We expect these to have a positive impact on our future earnings and build upon the results of the first half of the year.
Kirk Lusk: Lastly, we are excited to embark on the next phase of our strategic initiatives as we initiate our controlled growth strategy and begin writing personalized policies in Florida and the Northeast.
Kirk Lusk: We expect these to have a positive impact on our future earnings and build upon the results of the first half of the year.
Kirk Lusk: Thank you for your attention.
Operator: We are now ready to take your questions.
Kirk Lusk: Thank you for your attention. We are now ready to take your questions.
Operator: This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question, please press star and two. Please pick up the receiver when asking questions. Once again, is star one for questions? We will post for a moment as participants are joining the queue.
Operator: This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Once again, it's star one for questions. We will pause for a moment as participants join the queue. The first question is from Paul Newsome, who is with Piper Sander.
Speaker Change: This is the conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Once again, it is star 1 for questions.
Paul Newsome: The first question is from Paul Newsome with Piper Sandler. Please go ahead. Good morning. Congratulations on your quarter.
Kirk Lusk: We will pause for a moment as participants are joining the queue.
Speaker Change: The first question is from Paul Newsome with Piper Sandler. Please go ahead.
Jon Newsome: Good morning. Congratulations on your quarter. Thank you, Paul. Good morning, Jim.
Paul Newsome: Thank you, Paul.
Speaker Change: Good morning, congratulations on your quarter.
Paul Newsome: Good morning. A couple of questions here. I want to ask a little bit more about the new growth effort. There are multiple levers, one of which is just allowing the business to happen. The other is a whole host of non-rate actions that companies often do. Could you talk a little bit about where you are from? You know, do you essentially start from you weren't actually writing any at all? And then where you are from a non-rate action perspective in terms of turning on the speaker?
Jon Newsome: A couple of, two questions here. I wanted to ask a little bit more about the new growth effort. There are obviously multiple levers, one of which is just letting, you know, just allowing new business to happen. The other is a whole host of non-rate actions that companies often do. So could you talk a little bit about sort of where you are from, you know, you know, do you essentially start from where you weren't actually writing anything at all? and then where you are from a non-reaction perspective in terms of turning on the spigot.
Kip: Thank you, Paul. Thank you, Paul. Good morning, Jim.
Paul Newsome: A couple of quick questions here. I want to ask a little bit more about the new growth effort. There are obviously multiple levers, one of which is just letting you just allowing
Douglas Goldstein: to happen. The other is a whole host of non-rate actions that companies often do. So could you talk a little bit about sort of where you are from, you know, do you essentially start from, you weren't actually writing any at all?
Speaker Change: and then where you are from a non-radiation perspective in terms of turning on the spigot.
Ernie Garatay: Yeah, I could talk a little bit about that. So obviously we've taken some action over the past couple of years on our underwriting appetite and where we're writing, especially in geographic areas where we can see profitability. So, as we mentioned, is we will selectively be writing in those areas, anchored again by the underwriting criteria that we have. Some of it will be rate; some of it will non be rate on those portions of it. So we'll continue kind of doing that because that's proven to us that we can kind of make profit in those areas in the long term.
Speaker Change: appetite in where we're writing, especially in geographic areas, right? Where we can see probability. So, as we mentioned, is we will selectively be writing in those areas anchored again by the underwriting criteria that we have. Some of it will be rate. Some of it will not be rate.
Ernie Garatay: So it is very selective and strategic of what we're writing the new business. You're not trying to speak it on completely at this point. No, no, no, no. We are very directive and focused on where we're writing and making sure that, again from a long term perspective, you know, we are very focused on underwriting profitability. So we understand that as you take grade in some areas, we can write there quickly. Others is to take a little bit longer. So it is not turning on the fire hydrant. That's, that's great.
Speaker Change: So it is very selective and strategic of what we're writing the new business.
Speaker Change: Right, so you're not turning this bigot on completely at this point? No, no, no, no. We are very directive and focused on where we're writing and making sure that, again, from a long-term perspective, you know, we are very focused on underwriting profitability.
Speaker Change: So, we understand that as you take RAID in some areas, we can write there quickly. In other areas, it can take a little bit longer, so it is not turning on the fire hydrant.
Jon Newsome: That's great. Could you talk a little bit about the reserve development in the quarter and sources and pieces and what drove it?
Ernie Garatay: Can you talk a little bit about the reserve development in the quarter and sources and pieces, and what drove it? Yeah, we actually, yeah, there were basically that was due to, you know, Hurricane, you know, Burma. You know, we still have, you know, a few claims out saying on that we're about 99.2% closed on that one, but there still are a few outstanding claims that we're resolving. And it really had to do with those claims. Those are essentially case reserves that were due to the larger than you expected.
Speaker Change: That's great. Could you talk a little bit about the reserve development in the quarter and sources and pieces and what drove it?
Speaker Change: Yeah, we actually, yeah, there were, basically that was due to, you know, Hurricane, you know, Irma.
Speaker Change: We still have a few claims outstanding on that. We're about 99.2% closed on that one, but there still are a few outstanding claims that we're resolving, and it really had to do with those claims.
Jon Newsome: Well, those are essentially case reserves that were due to be larger than you expected. Correct. And then just one final question I'll let some other people ask.
Paul Newsome: Fantastic.
Paul Newsome: And then just to find a question of what some of the few left. Hurricane Gabby, obviously, not the worst hurricane, thank God. But is there anything similar to, you know, an event that in the past that you found that is similar to Hurricane Gabby? Yeah, so if you remember last year, Hurricane Idalia kind of took a similar path, stronger hurricane, but similar path is where it made landfall. But again, in that area is pretty rural, less populated. We don't have a large book in that area. Very early right now, now the difference between Debbie is Debbie seems to be larger, slower, but it's probably about a lot of rain.
Speaker Change: Fantastic.
Speaker Change: And then, just a final question, I'll let some other people ask. Hurricane Debbie, obviously, not the worst hurricane, thank God, but is there anything similar to, you know, an event in the past that you found that was similar to Hurricane Debbie?
Jon Newsome: Hurricane Debbie, obviously not the worst hurricane in history, thank God, but is there anything similar to an event in the past that you have found that was similar to Hurricane Debbie?
Speaker Change: But again, in that area is pretty rural, less populated. We don't have a large book in that area.
Speaker Change: Very early right now, now the difference between Debbie is Debbie seems to be larger, slower, less powerful, but a lot of rain, so we, you know, we expect more flooding type claims, not covered by this, but we still are taking those calls and helping people where we can.
Paul Newsome: So, you know, we expect more flooding type claims, not covered by us, but we still are taking those calls and helping people where we can make sense. Do you recall how big Adalia was just in general, obviously, the rough comparison, right? Yeah, our ultimate on Idalia ended up being just a little over 7 million.
Speaker Change: Makes sense. Do you recall how big a dahlia was, just in general? Obviously, it's a rough comparison, right?
Speaker Change: Yeah, our ultimate on Adelia ended up being just a little over $7 million.
Paul Newsome: Fantastic, I'll let some other folks ask questions, but I appreciate it.
Mark: Next question is from Mark. Wait, please go ahead. Yeah, thank you. Good morning.
Speaker Change: Thank you.
Speaker Change: The next question is from Mark Hughes with Truth. Please go ahead.
Mark Hughes: Yeah, thank you. Good morning.
Mark: Could you talk about the growth in the E and S. I think you've highlighted that's been a good, strong growth vector for you. I guess I'm thinking if you're seeing maybe more adequate rates in the admitted market, are you still seeing as much momentum in E and S?
Jon Newsome: Could you talk about the growth in E&S? I think you've highlighted that it's been a good, strong growth vector for you. I guess I'm wondering if you're seeing maybe more adequate rates in the admitted market, are you still seeing as much momentum in E&S? How are you seeing the interplay between the two different markets? Maybe it functions in different states, but if you could expand on that, that'd be great.
Ernie Garatay: How are you seeing that interplay between the two different markets and maybe a function of different states, but if you could expand on that, that would be great. Sure, so we have seen growth in the E and S market. As you know, we're in 16 different markets, and each of those markets is quite different. So we looked at as another tool and a tool set to address not just rate. There's coverage issues and other things that we can address. So we still see that E and S market continuing to grow, particularly in California, Florida, and South Carolina.
Ernesto Garateix: Sure, so we have seen growth in the E&S market. As you know, we're in 16 different markets, and each of those markets is quite different. So we look at it as another tool in the tool set to address not just rate; there are coverage issues and other things that we can address. So we still see the E&S market continuing to grow, particularly in California, Florida, and South Carolina. So, as you're right, in some admitted markets, we're getting the rate that's rate adequate, but we still see the E&S market growing for us in selective areas.
Ernie Garatay: So, as you're right in some admitted markets, we're getting the rate that's radatic with it, but we still see the E and S market growing for us and select the various.
Ernie Garatay: Yeah, what do you think the general trend is going to be in terms of rate increases? You're getting to a better spot. But as we think about save the next 12 months across your book of business, what would you anticipate? And I might ask Florida specifically, then maybe overall just kind of rough sense of how much rate you think you'll be pursuing. Okay, well, yeah, first of all, let me address the Northeast where I think that we are still going to be fairly substantial rate increases due to loss trends and also re-interest costs. I would say in the Florida market that is starting to moderate substantially due to the legislative changes and some of the other loss costs decreases we've seen.
Speaker Change: Okay, well, yeah, first of all, let me address the Northeast, where I think that, you know, we are still going to be seeing fairly substantial rate increases.
Ernie Garatay: So, from that standpoint, we think it's going to moderate, but I think that there still is some loss cost inflation that will probably be pushing rates modestly higher, but not significantly. And probably not to the level we've seen in the past several years. Yeah.
Speaker Change: lost cost decreases we've seen. So from that standpoint, we think it's going to moderate, but I think that, you know, there still is some lost cost inflation that will probably be pushing rates, you know, modestly higher but not significantly and probably not to the level we've seen in the past several years.
Ernie Garatay: I think your initial take on the legislative changes was kind of wait and see. If I'm interpreting the events over the last quarter or two, three. Yeah, real, real meaningful change and how that you've experienced then. Yeah, Mark. We've always said, I'll use the words right you've heard; we say cautiously optimistic, and that was because early on, there wasn't really any data. As we've now been through a couple of months, couple of quarters here, we've actually seen the data coming through the numbers. So, you know, we have said that, you know, those legislative reforms have made an impact.
Speaker Change: Yeah, yeah.
Ernesto Garateix: Yeah, Mark, I mean, we've always said, I'll use the words, right, you've heard me say cautiously optimistic, and that was because early on there wasn't really any data. As we've now been through a couple months, a couple quarters here, we've actually seen the data coming through the numbers. So, you know, we have said that, you know, those legislative reforms have made an impact. We can see it in the actual numbers, whereas a year ago, I would use the term cautiously optimistic. So I would now say that we're looking forwardly optimistic, right, to those trends continuing based on the data that we have.
Jon Newsome: Yeah, yeah, very good. Thank you.
Speaker Change: Yeah, Mark, I mean we've always said, I'll use the words right, you've heard me say cautiously optimistic and that was because early on there wasn't really any data. As we've now been through a couple months, couple quarters here, we've actually seen the data coming through the numbers. So, you know, we have said that, you know, those legislative reforms have made an impact.
Mark: We can see it in the actual numbers, whereas a year ago, I would use the term cautiously optimistic, so I would now say that we're looking forwardly optimistic, right, to those trends continuing through the data that we've seen. Yeah, yeah, very good. Thank you. Appreciate it. No, thank you.
Speaker Change: We can see it in the actual numbers, whereas a year ago, I would use the term cautiously optimistic. So I would now say that we're looking forwardly optimistic, right, to those trends continuing through the data that we've seen.
Karl Schmiel: The next question is from Karl Schmiel with JMP. Please go ahead. Yeah, hi, good morning. I got one question here regarding the investment income for the quarter. It was it was a nice beat and I read that it was mainly because of the the higher deals on the shore side of the yield curve that you utilize and I'm wondering is this is this yield run rate for the projections or do you think you will go longer duration assets going forward? Well, we are anticipating interest rates to drop. We are starting to go; we actually already started that. You know, it's the beginning of the quarter to start going out longer on the yield curve, you know, in anticipation of rates dropping.
Operator: The next question is from Carol Schmiel with JMP. Please go ahead.
Speaker Change: The higher the yields on the shorter side of the yield curve that you utilize. And I'm wondering...
Speaker Change: Is this yield a run rate for the projections or do you think you will go longer duration assets going forward?
Karl Schmiel: So, yeah, we are starting to go a little bit longer. You know, duration is still, you know, short; it is still under three years, it's like 2.69 years, a plus rated, but you know, we are trying to go a little bit out on the yield curve anticipating that the rates are going to drop.
Karl Schmiel: Okay, but do you think an investment income of 9 to 10 million per quarter would be a good run rate? Yes. Okay, great.
Karl Schmiel: And then just another question, just, you know, ran in question. I mean, I know you said that you're being cautious with Florida, and then in the past, you guys were always very cautious with tri-county and trying to get out of County. But do you think that the Florida dynamic has slowly changed in the favor of maybe looking into the possibility of trying county again?
Ernie Garatay: So what I would say to that is yes, there's a size for us, right, in the state, and we do believe that tri-county, there's a certain amount of concentration that we're comfortable with. As I mentioned earlier, to Paul, we're not turning on the fire hydrant and writing everything, you know, that comes across, but we will be selected, including into the tri-county area. Great. Thank you.
Operator: Ladies and gentlemen, this concludes our question-and-answer session.
Kirk Lusk: I'd like to turn the conference back over to the management team for the final remarks.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Operator: You may now disconnect your lines. .