Q3 2024 Heritage Insurance Holdings Inc Earnings Call

Operator: Good afternoon and welcome to the Heritage Insurance Holdings 3rd Quarter 2024 Earnings Conference Call. Please note, today's event is being recorded.

Good afternoon, and welcome to the Heritage Insurance Holdings third quarter 2024 earnings Conference call.

Please note today's event is being recorded.

Operator: I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.

I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company.

Kirk Lusk: 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.heritagepci.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.

Kirk Lusk: Might you to visit the investors section of our website investors Dot heritage PCI Dot 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: 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. 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.

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 in our earnings press release, and our SEC filings, we detail material risks that may cause our future results to differ from.

Kirk Lusk: Our expectations 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.

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.

Kirk Lusk: Our comments today will also include non-GAAP financial measures. The reconciliations of, and other information regarding these measures can be found in our press release.

Kirk Lusk: Our comments today will also include non-GAAP financial measures the reconciliations of and other information regarding these measures can be found in our press release.

Kirk Lusk: With me on the call today is Ernie Garateix, our Chief Executive Officer.

Speaker Change: With me on the call today as Ernie guarantee our Chief Executive Officer, I'll now turn the call over to Ernie.

Ernesto Garateix: I will now turn the call over to Thank you, Kurt. Good afternoon, everyone, and thank you for joining us today. To start, our thoughts and support are with the many people who were impacted by the devastating hurricanes that affected so many communities across the South. This has been a difficult storm season that has left millions with significant damage and loss. At Heritage, we are working tirelessly to support our policyholders and communities to ensure they have the necessary resources to quickly rebuild. I am especially proud of our employees from across our company who have been providing a rapid response to our value policyholders as well as hundreds of adjusters and emergency service providers that we have in the field to support our customers daily.

Ernie: Thank you Kirk good afternoon, everyone and thank you for joining us today.

Ernie: To start our thoughts and support with the many people who were impacted by the devastating hurricanes that affected so many communities across the south east.

Kirk Lusk: This has been a difficult storm season is left millions with significant damage and loss.

Kirk Lusk: At Heritage, we are working tirelessly to support our policyholders and communities to ensure they have the necessary resources to quickly rebuilt.

Kirk Lusk: I am, especially proud of our employees from across our company, who have been providing a rapid response to our ballroom valued policyholders as well, it's hundreds, but gestures and emergency service providers that we have in the field to support our customers daily.

Ernesto Garateix: To ensure we are offering the support that our policyholders expect, we track a series of metrics to ensure our operational effectiveness. As an example, at 21 days following Hurricane Milton, we received 6,352 claims, with the average wait time for policyholders calling in their claims of under one minute. We had over 230 employees throughout our footprint taking first notice of lost calls while we also have over 200 vendors ready and responding to emergency services. I would like to thank our employees, many of whom themselves were impacted by the hurricanes, for their incredible effort during this challenging time.

Kirk Lusk: To ensure we are offering to support our policyholders expect we track a series of metrics to ensure our operational effectiveness.

Kirk Lusk: An example at 21 days following Hurricane Milton We received 6352 claims with the average wait time for policyholders, calling in their claims under one minute.

Kirk Lusk: We had over 230 employees throughout our footprint take first notice of loss calls, while we also have over 200 vendors ready and responding to emergencies surfaces.

Kirk Lusk: I would like to thank our employees many of whom themselves were impacted by the hurricanes for their incredible effort. During this challenging time.

Ernesto Garateix: Their commitment to our policyholders has been remarkable and a testament to the culture at Heritage. while I am proud of our support to our policy.

Kirk Lusk: Their commitment to our policyholders has been remarkable and a testament to the culture and heritage.

Kirk Lusk: While I am proud of our support to our policyholders I'm also very proud of our financial results.

Ernesto Garateix: I am also very proud of our financial results, which clearly demonstrate the successful execution of our strategic initiatives that I laid out when I was appointed CEO of Heritage three years ago. Our initiatives have been focused on achieving rate adequacy, enhancing our underwriting discipline, and allocating capital to drive growth and return. as we strive to deliver solid financial results. Through these efforts, we have positioned Heritage to absorb a full retention loss while maintaining profitability and delivering results to our shareholders. Looking at our third quarter results in more detail, we have achieved net income of $8.2 million or $0.27 per share.

Kirk Lusk: Clearly demonstrate the successful execution of our strategic initiatives that I laid out when I was appointed CEO of heritage three years ago.

Kirk Lusk: Our initiatives have been focused on achieving rate adequacy.

Speaker Change: Hansen, our underwriting discipline.

Speaker Change: Allocating capital to drive growth and returns as we strive to deliver solid financial results.

Speaker Change: Through these efforts, we have positioned heritage to absorb a full retention loss, while maintaining profitability and delivering results to our shareholders.

Speaker Change: Looking at our third quarter results in more detail. We have achieved net income of $8 2 million or 27 cents per share.

Ernesto Garateix: is a sharp improvement from a year ago third quarter, where our results produced a net ink loss of 7.4 million. or a 28% loss per share. Importantly, our current quarter results include approximately 48 million of hurricane losses from Debbie and Halit. on a year-to-date basis, we achieved net income of $41.2 million, or $1.35 per share. representing a strong increase from our 2023 net nine-month net income of $14.4 million or $0.55 per share. our ability to maintain profitability in the face of significant catastrophe losses. is the result of a multi-year effort where we have focused on executing our underwriting and rate adequacy initiative.

Speaker Change: A sharp improvement from a year ago third quarter, where our results produced a net loss of $7 4 million or a 28% loss per share.

Speaker Change: Importantly, our core current quarter results include approximately $48 million hurricane losses from Debbie and elite.

Speaker Change: On a year to date basis, we achieved net income of $41 2 million or $1 35 per share.

Speaker Change: Representing a strong increase from our 2023 net nine month net income of $14 4 million or 55 per share.

Kirk Lusk: Our ability to maintain profitability in the face of significant catastrophe losses.

Kirk Lusk: Is the result of a multi year effort, where we are focused on executing our underwriting and rate adequacy initiatives.

Ernesto Garateix: From an underwriting perspective, we continue to strategically reduce our exposures in over-concentrated and unprofitable areas, while increasing our presence in profitable geographies and products. This disciplined underwriting approach resulted in a further policy count reduction of just over 66,000 policies, or 14.2%, throughout our footprint compared to the third quarter of 2023, while our premium in force increased by 80.6 million, or 6%. As we have discussed on prior earnings We expect declining policies to moderate over the next few quarters as we open territories for new business while maintaining our underwriting discipline. We have also maintained a stable, indemnity-based reinsurance program at manageable costs through our policy count and exposure management initiatives, while also proactively engaging with our reinsurance partners.

Kirk Lusk: From an underwriting perspective, we continued to strategically reduce our exposures in over concentrated and unprofitable areas, while increasing our presence in profitable geographies and products.

Kirk Lusk: This disciplined underwriting approach resulted in a further policy count reduction of just over 66000 policies or 14, 2%.

Kirk Lusk: Our footprint compared to the third quarter of 2023, while our premium in force increased by $80 6 million or 6%.

Kirk Lusk: And as we have discussed on prior earnings calls, we expect declining policies to moderate over the next few quarters as we open territories through new business, while maintaining our underwriting discipline.

Kirk Lusk: We have also maintained a stable indemnity based reinsurance program at manageable costs through our policy count and exposure management initiatives, while also proactively engaging with our reinsurance partners.

Ernesto Garateix: In fact, we met with 28 of our reinsurance partners just prior to Hurricane Milton making landfall. each of whom reiterated their continued support of heritage both near and long.

Kirk Lusk: In fact, we met with 28 of our reinsurance partners just prior to hurricane Milton making landfall.

Kirk Lusk: Each of whom reiterated their continued support of heritage, both near and long term.

Ernesto Garateix: turning to a rate adequacy initiative. These efforts have resulted in a significant rate increases which are earning through our portfolio in 2024. as evidenced by our growing unearned premium value. Looking to 2025, we anticipate an even more meaningful amount of rate to earn through our portfolio, which we expect will provide a healthy tailwind to our financial results. More importantly, we have selectively started writing personal lines business throughout our as we pivot our strategy to one of controlled growth. anchored by our continued focus on risk management and stringent underwriting. This is an important change in our strategy, given that we significantly curtailed writing personal lines new business beginning in 2022.

Kirk Lusk: Turning to our rate adequacy initiatives.

Kirk Lusk: These efforts have resulted in he said navigate rate increases which are earning through our portfolio in 2024.

Kirk Lusk: As evidenced by our growing unearned premium balance.

Kirk Lusk: Looking to 2025, we anticipate an even more meaningful amount of freight to earn through our portfolio, which we expect will provide a healthy tailwind to our financial results.

Kirk Lusk: More importantly, we have selectively started writing personal lines business throughout our footprint as we pivoted our strategy to one of controlled growth.

Kirk Lusk: Incurred by our continued focus on risk management and stringent underwriting.

Kirk Lusk: This is an important change in our strategy given that we significantly curtailed writing personal lines new business beginning in 2022.

Ernesto Garateix: Over this period of time, we have been growing our top line through organic growth in our commercial residential portfolio and our E&S products, combined with the rate action that we have taken in our personalized portfolio. 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 believe Hurricane Milton will further demonstrate that the legislative changes will mitigate frivolous lawsuits, shorten the claim closure cycle, and bring more re-insurers back to the market. Taken together, we expect our improved rate to continue to earn in through 2025, the headwind from our policy reduction efforts to mitigate through the first half of 2025, and our new business production to continue to ramp up through the year ahead.

Kirk Lusk: Over this period of time, we have been growing our top line through organic growth and our commercial residential portfolio in our E&S products combined with the rate action that we have taken in our personal lines portfolio.

Kirk Lusk: Additionally, recent legislative changes in Florida are having a positive impact.

Kirk Lusk: The impact on the economics of writing new profitable business in the state.

Kirk Lusk: In fact, we believe hurricane Milton will further demonstrate that the legislative changes will mitigate frivolous lawsuits shortened the clean closure cycle and bring more reinsurers back to the market.

Kirk Lusk: Taken together, we expect our improved rate to continue to earn in through 2020 five the headwind from our policy reduction efforts to mitigate through the first half of 2025.

Kirk Lusk: And our new business production to continue to ramp up through the year ahead.

Ernesto Garateix: We believe we have the foundation in place to deliver solid, profitable growth in 2025 as we execute our controlled growth strategy. Our E&S business has been a growth lever for Heritage as enforced premiums grew nearly $25 million or 116% as compared to the year ago third quarter as we continue to write this business in California, Florida, and South Carolina. 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 we continue to earn appropriate risk-adjusted returns. Looking forward, we plan to continue to evaluate more states for E&S opportunities as we focus on our controlled growth strategy.

Kirk Lusk: We believe we have the foundation in place to deliver solid profitable growth in 2020 five as we execute our controlled growth strategy.

Kirk Lusk: Yeah.

Kirk Lusk: Our E&S business has been a growth lever for heritage.

Kirk Lusk: Its in force premiums grew nearly $25 million or 116% as compared to the year ago third quarter. As we continue to write this business in California, Florida, and South Carolina.

Kirk Lusk: What makes this business. So attractive is that we can more nimbly adjust our rates and coverages to the gene changing dynamics state by state to ensure we continue to earn appropriate risk adjusted returns.

Kirk Lusk: Looking forward, we plan to continue to evaluate more states for E&S opportunities as we focus on our controlled growth strategy.

Ernesto Garateix: Importantly, we remain resolute in maintaining a balanced and diversified portfolio. as no single state represents over 30% of our total insured value. 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. Importantly, our strategic initiatives are yielding the positive results, as evidenced by our ability to remain profitable through a challenging cash Looking forward, I remain optimistic as we pivot to our controlled growth strategy designed to prudently accelerate premium growth while maintaining our margin.

Kirk Lusk: Importantly, we remain resolute and maintaining a balanced and diversified portfolio.

Kirk Lusk: No single state represents over 30% of our total insured value.

Kirk Lusk: It's 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.

Kirk Lusk: We remain committed to maintaining our focus on disciplined growth.

Kirk Lusk: Operational excellence and effective capital management.

Kirk Lusk: Importantly, our strategic initiatives are yielding positive results as evidenced by our ability to remain profitable through a challenging cat season.

Kirk Lusk: Looking forward I remain optimistic as we pivot to a controlled growth strategy designed to prudently accelerate premium growth, while maintaining our margins.

Ernesto Garateix: To conclude, I would like to reiterate our dedication to navigating the complexities of the market with a strategic focus that prioritizes long-term profitability and shareholder value, driven by our dedicated workers.

Kirk Lusk: To conclude I would like to reiterate our dedication to navigating the complexities of their market with a strategic focus that prioritizes long term profitability and shareholder value driven by our dedicated workforce.

Kirk Lusk: Kirk, over to you. Thank you, Ernie, and good afternoon, everyone. As Ernie highlighted, our results this quarter reflect the success of our strategic initiative. Starting with our financial highlights, we reported net income of $8.2 million or $0.27 per diluted share compared to a net loss of $7.4 million or a loss of $0.28 per diluted share in the prior year. The increase in net income was driven by the positive impact of our rate actions, our underwriting actions, and our targeted exposure management taken over the last several years, which continue to favorably impact our results. Demonstrating the improvement to the portfolio, and to put that into context, in the third quarter of 2022, with Hurricane Ian, we incurred a full $40 million retention loss and reported a net loss in the quarter of $48 million.

Kirk Lusk: Kirk over to you.

Kirk Lusk: Thank you Ernie and good afternoon, everyone.

Speaker Change: Is there any highlighted our results this quarter reflect the success of our strategic initiatives.

Speaker Change: Starting with our financial highlights we reported net income of $8 2 million or 27 cents per diluted share compared to a net loss of $7 4 million or a loss of 28 cents per diluted share in the prior year quarter.

Kirk Lusk: The increase in net income was driven by the positive impact of our rate actions, our underwriting actions and our targeted exposure management taken over the last several years, which continue to favorably impact our results.

Kirk Lusk: Demonstrating the improvement to the portfolio and to put that into context in the third quarter of 2022 with hurricane and we incurred a full $40 million retention loss and reported a net loss in the quarter of $48 million.

Kirk Lusk: In 2023, with the Maui fires and Hurricane Adelia, we also had $40 million of cat losses and reported a $7 million net loss in the quarter, while this year we sustained $48 million of cat losses in the quarter with Hurricanes Debbie and Helene and reported net income of $8 million. Our total revenues for the quarter were $211.9 million, up 13.7% from $186.3 million in the prior year quarter. This increase was driven by the increase in net earned premiums and investment income. Gross premiums earned rose to $354.2 million, up 5.1 percent from $337 million in the prior year quarter, reflecting our strategic focus on rate adequacy and organic growth in our commercial residential line.

Kirk Lusk: In 2023, with the Maui fires and Hurricanes Italia, we also had $40 million of cat losses, and reported a $7 million net loss in the quarter well this year.

Kirk Lusk: Sustained 48 million of cat losses in the quarter with Hurricane Debbie and Helene and reported net income of $8 million.

Kirk Lusk: Our total revenues for the quarter were $211 9 million up 13, 7% from $186 3 million in the prior year quarter. This increase was driven by the increase in net earned premiums and investment income.

Kirk Lusk: Gross premiums earned rose to $354 2 million up five 1% from $337 million in the prior year quarter, reflecting our strategic focus on rate adequacy, and our organic growth and our commercial residential lines.

Kirk Lusk: Net premiums earned increased to $198.8 million, up 12.6% from $176.6 million in the prior year quarter as the growth in gross premiums earned outpaced the increase in seeded premiums. Our strategic focus on expanding profitable products and markets includes the organic growth of our commercial residential business, for which we selectively increase the premium in force by 23.6% compared to the third quarter of 2023, while the total insured value only increased by 9.5%. The commercial residential business tends to have lower attritional losses while generating material higher average premiums. This segment now accounts for 21.4% of our total in-force premium compared to 18.4% in the prior year period.

Kirk Lusk: Net premiums earned increased to $198 8 million up 12, 6% from $176 6 million in the prior year quarter as the growth in gross premiums earned outpaced the increase in ceded premiums.

Kirk Lusk: Our strategic focus on expanding profitable products and markets includes organic growth of our commercial residential business for which we selectively increased the premium in force by 23, 6% compared to the third quarter of 2023, while the total insured value only increased by nine 5%.

Kirk Lusk: The commercial residential business tends to have lower attritional losses, while generating material higher average premiums.

Kirk Lusk: Now accounts for 21, 4% of our total enforced premium compared to 18, 4% in the prior year period.

Kirk Lusk: Overall, we are in a strong financial position and backed by a $1.3 billion reinsurance tower for the Southeast. We experienced Hurricanes Debbie and Helene during the third quarter with a combined loss of $48.7 million, with Debbie being a much smaller storm. We expect gross losses from Hurricane Milton to possibly reach into the third layer of our reinsurance tower, which starts at $450 million and goes to $914 million. We continue to maintain a robust level of reinsurance coverage through year-end 2024, while the strategic actions we have taken over the last three years have helped to mitigate our losses from significant events like the three recent hurricanes.

Kirk Lusk: Overall, we are in a strong financial position and backed by a 1.3 billion reinsurance tower for the South East, we experienced hurricanes, Debbie and Helene during the third quarter with a combined loss of $48 7 million with Debbie being a much smaller storm we.

Kirk Lusk: We expect gross losses from Hurricane Milton, possibly reach into the third layer of our reinsurance tower, which starts at $450 million and goes to $914 million. We continue to maintain a robust level of reinsurance coverage through year end 'twenty 'twenty four why the strategic actions we have taken over the last three years have helped to mitigate our losses.

Kirk Lusk: From significant events like the three recent hurricanes.

Kirk Lusk: Our net investment income, inclusive of realized gains, losses, and impairment for the quarter was $9.8 million, an increase of 42% from $6.9 million in the prior year quarter. This increase reflects our actions to align the investments with the yield curve while maintaining a high-quality portfolio of short-duration assets. The net loss ratio for the quarter improved to 65.4%, an improvement of 9 points from the 74.4% in the same quarter last year, reflecting higher net premiums earned coupled with slightly lowered net losses in the LEE. The reduction in net losses in LE was driven primarily by a reduction of attritional losses, which was partially offset by higher weather losses and adverse development.

Kirk Lusk: Our net investment income inclusive of realized gains losses and impairments for the quarter was $9 8 million an increase of 42% from $6 9 million in the prior year quarter. This increase reflects our actions to align the investments with the yield curve, while maintaining a high quality portfolio of short duration.

Kirk Lusk: Assets.

Kirk Lusk: The net loss ratio for the quarter improved to 65, 4% an improvement of nine points from the 74, 4% in the same quarter last year.

Kirk Lusk: Higher net premiums earned coupled with slightly lowered net losses and LAE.

Kirk Lusk: The reduction in net losses, and LAE was driven primarily by a reduction of Attritional losses, which was partially offset by higher weather losses and adverse development net.

Kirk Lusk: Net weather losses for the current accident quarter were $63 million, an increase of $11.4 million from $51.6 million in the prior year quarter. Catastrophe losses in the quarter were $48.7 million compared to $40.1 million in the prior year quarter. Other wireless losses totaled $14.3 million, an increase in the prior quarter amount of $11.5 million. Additionally, the net loss ratio was impacted by net unfavorable loss development of $6.3 million during the third quarter of 2024 compared to net unfavorable loss development of $800,000 in the third quarter of 2020. We have continued to see favorable trends in the current year loss cost attributable to the legislative changes made in Florida and the improvements in our underwriting portfolio across all 16 states in which we conduct business.

Kirk Lusk: Net weather losses, the current accident quarter were $63 million, an increase of $11 4 million from $51 6 million in the prior year quarter.

Kirk Lusk: Catastrophe losses in the quarter were $48 7 million compared to $40 1 million in the prior year quarter.

Kirk Lusk: Otherwise the losses totaled $14 3 million an increase from the prior year core amount of $11 5 million.

Kirk Lusk: Additionally, the net loss ratio was impacted by net unfavorable loss development of $6 3 million during the third quarter of 2024 compared to net unfavorable loss of 800000 in the third quarter of 2023.

Kirk Lusk: We have continued to see favorable trends in the current year loss costs attributable to the legislative changes made in Florida and the improvements in our underlying portfolio across all 16 states in which we conduct business. We continue to evaluate each state on an ongoing basis to make adjustments as necessary to maintain rate adequacy and.

Kirk Lusk: We continue to evaluate each state on an ongoing basis to make adjustments as necessary to maintain rate adequacy and improved underwriting results. Our net expense ratio for the quarter was 35.2%, a decrease of 1.2 points from 36.4% in the prior year's quarter. The decrease was driven primarily by the increase in net premiums earned, which offset higher policy acquisitions. The net combined ratio for the quarter was 100.6 down 10.2 points from 110.8 in the prior year quarter, driven by the lower net loss ratio and lower net expense. Turning to our balance sheet, we ended the quarter with total assets of $2.4 billion and shareholders' equity of $279.3 million.

Kirk Lusk: Fruit underwriting results.

Kirk Lusk: Our net expense ratio for the quarter was 35.2% a decrease of 1.2 points from 36, 4% in the prior year's quarter. The decrease was driven primarily by the increase in net premiums earned which offset higher policy acquisition costs.

Kirk Lusk: The net combined ratio for the quarter was 100.6 down 10.2 points from $110 eight in the prior year quarter, driven by the lower net loss ratio and lower net expense ratio.

Kirk Lusk: Turning to our balance sheet, we ended the quarter with total assets of 2.4 billion and shareholders' equity of $279 3 million.

Kirk Lusk: Our book value per share increased to $9.10, up 61.1% from $5.65 in the prior year quarter. The increase from the comparable quarter of 2023 is primarily attributable to net income as well as a reduction in unrealized losses on the company's fixed income securities portfolio. Remaining unrealized losses are attributable to interest rates and not to credit risk. The reduction in unrealized losses is correspondingly driven by the recent decline in interest rates. We expect unrealized losses will continue to decline as bonds mature, but recognize that changing interest rates will impact unrealized losses or gains. The average rating of our portfolio is AA- with a duration of 3.19 years as we have extended the portfolio's duration to take advantage of higher yields further out on the yield curve while still maintaining a short duration, high credit quality portfolio.

Kirk Lusk: Our book value per share increased to $9.10 up 61.1% from $5 65.

Kirk Lusk: In the prior year quarter.

Kirk Lusk: The increase from the comparable quarter of 2023 is primarily attributable to net income as well as a reduction in unrealized losses on the Companys fixed income securities portfolio.

Kirk Lusk: The remaining unrealized losses are attributable to interest rates and not to credit risk.

Kirk Lusk: The reduction in unrealized losses is correspondingly driven by the recent decline in interest rates, we expect unrealized losses will continue to decline decline as bonds mature, but recognize the changing interest rates will impact unrealized losses or gains.

Kirk Lusk: The average rating of our portfolio is double a minus with a duration of 319 years as we have extended the portfolio's duration to take advantage of higher yields further out on the yield curve, while still maintaining a short duration high credit quality portfolio.

Kirk Lusk: Our annualized return on equity for the quarter was 12.2 percent, an improvement of 31.2 points from a negative 19 percent in the prior year quarter, affecting our improved profitability and effective capital.

Kirk Lusk: Our annualized return on equity for the quarter was 12, 2% an improvement of 31.2 points from a negative 19% in the prior year quarter, reflecting our improved profitability and effective capital management.

Kirk Lusk: In terms of capital management, our Board of Directors has decided to continue the suspension of the quarterly dividend. This decision aligns with our strategy to support our long-term growth initiatives with related robust returns on equity. 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 aimed at 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: In terms of capital management, our board of Directors has decided to continue the suspension of the quarterly dividend. This decision aligns with our strategy to support our long term growth initiatives with related robust returns on equity.

Kirk Lusk: We will continue to evaluate our dividend distribution and stock repurchase strategies on a quarterly basis.

Kirk Lusk: Looking ahead, we remain focused on executing our strategic initiatives aimed at driving shareholder value.

Kirk Lusk: 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 a controlled growth strategy and begin writing personal lines policy in the south.

Kirk Lusk: Lastly, we are excited to embark on the next phase of our strategic initiative as we initiate our controlled growth strategy and begin writing personal lines policies in the southeast and north. We expect these to have a positive impact on our earnings as we look to the year ahead.

Kirk Lusk: The northeast we expect these to have a positive impact on our earnings as we look to year ahead. Thank you.

Kirk Lusk: Thank you for your time today.

Operator: Operator, we are now ready for questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been addressed and you would like to withdraw your question, please press star then two.

Speaker Change: For your time today, operator, we are now ready for questions.

Speaker Change: We will now begin the question and answer session.

Kirk Lusk: To ask a question you May Press Star then one on your Touchtone phone.

Kirk Lusk: If you are using a speakerphone please pick up your handset before pressing the keys.

Kirk Lusk: Is it any time your question has been addressed and you would like to withdraw your question. Please press Star then two.

Operator: At this time, we will pause momentarily to assemble our roster.

Speaker Change: At this time, we will pause momentarily to assemble our roster.

Speaker Change: Okay.

Mark Hughes: The first question today comes from Mark Hughes with Truist. Please go ahead. Yeah, thank you. Good morning. Good afternoon.

Speaker Change: The first question today comes from Mark Hughes with sure. Please go ahead.

Speaker Change: Yeah. Thank you good morning, good afternoon.

Mark Hughes: Bye-bye.

Speaker Change: I'm sorry, what.

Mark Hughes: The morning, the loss ratio, excluding the weather, excluding the cast was really striking. And particularly when you take into account the prior year development, you've talked to quite a bit on the call about the initiatives that you've undertaken to help achieve that and the regulatory help.

Speaker Change: Good morning.

Kirk Lusk: Loss ratio, excluding the weather excluding the cat was.

Kirk Lusk: Really striking.

Kirk Lusk: And particularly when you take into account the Oh.

Speaker Change: What are your development you've talked to.

Speaker Change: Quite a bit on the call about the initiatives that you've undertaken to help achieve that in the regulatory helped.

Kirk Lusk:

Mark Hughes: Is this level, is this sustainable? Is this a new normal? How much of this was just at a pretty good quarter aside from the major events? Or is this kind of the starting point that we... you know, think about the other factors that might drive it going ahead.

Kirk Lusk: Is this level is this sustainable or is this a new normal how much of this was just a had a pretty good quarter aside from the the major events or is this the kind.

Kirk Lusk: Kind of the starting point that we are.

Kirk Lusk: You know think about the other factors that might drive it going ahead.

Ernesto Garateix: Yeah, Mark, thank you. Great, great question. I think it's a little of both. I mean, but when you look at it, I mean, it was typically the third quarter is a pretty good quarter, followed by the fourth quarter, which is typically our best quarter in the year. But we are seeing some very favorable trends on the attritional loss ratio, the underwriting actions we've taken, the rating actions we've taken over the last several years, you know, on top of the legislative reforms are having a very favorable impact on our results. So we think that, you know, there is a bit of favorability in the third quarter, but it is, you know, more close to a new norm.

Speaker Change: Yeah, Hey, Mark.

Speaker Change: Great Great question.

Speaker Change: I think it's a little of both I mean, but when you look at it I mean, it was typically the third quarter is a pretty good quarter followed.

Speaker Change: Followed by the fourth quarter, which is typically our best quarter in the year, but.

Speaker Change: We are seeing some very favorable trends on the attritional loss ratio the underwriting actions we've taken the the rating actions we've taken over the last several years.

Speaker Change: Top of the legislative reforms are having a very favorable impact on our results. So we think that.

Kirk Lusk: There is a bit of favorability in the third quarter, but it is more close to like a new norm I think as we go forward as far as kind of how we're looking at it from a profitability standpoint.

Mark Hughes: I think, as we go forward, as far as kind of, you know, how we're looking at it from a profitability perspective. Right, okay.

Speaker Change: Right Okay.

Mark Hughes: Um, how about that you talked about the rate momentum as you earn that or continue to earn that through? How much more of a tailwind is there, you know, you've taken a lot of rate actions and... You know, considering the trajectory of those and how much has already been earned through, where are we in that process of having it flow through the P&L?

Speaker Change: How about you talked about the rate momentum as you earn that or continue to earn that through how much more of a tailwind is there you know you've taken a lot of rate action.

Kirk Lusk: You know considering the trajectory of those and how much has already been earned through where are we in that process of.

Kirk Lusk: So having a flow through the P&L.

Ernesto Garateix: Yeah, Mark, this is Ernie. So there's quite a bit still to come in 2025 that we plan for, but the one thing I'll make a comment about is we're always looking in each of the geographies and products to make sure they're rate adequate. So that's always going to be an ongoing effort. And again, we've said this over the earnings calls, we're going to, you know, aim to be profitable in every single state in which we do business and under the products that we offer there. So there's a constantly looking at those rate adequacy, you know, products to make sure, you know, they are adding to the bottom line.

Kirk Lusk: Yeah, Mark this is Ernie so theres quite a bit still to come in 2025 that we planned for it but the one thing I'll make a comment about is we're always looking at each of the geographies and products and make sure. They are rate adequate. So that's always going to be an ongoing effort and again. We've said this over the earnings calls we're going to aim to be profitable in every single state in which we do business in under the.

Kirk Lusk: Products that we offer there so theres a constantly looking at those rate adequacy, you know products to make sure you know they are adding to the bottom line.

Mark Hughes: Yeah. And Mark, you get an idea just as far as the tailwind, we are expecting more earned rate coming through in 2025 than we had in 2024. Right, more on an absolute basis coming through in 2025, not necessarily a rate of change but just on an absolute basis. Correct, yes. Yeah, okay.

Kirk Lusk: And Mark just as far as the tailwind we are expecting more earned rate coming through in 'twenty five than we had in 'twenty for sure.

Speaker Change: Right more on an absolute basis.

Kirk Lusk: Tony.

Kirk Lusk: Right correct, not necessarily a rate of change, but just on an absolute basis.

Kirk Lusk: Correct, yes.

Speaker Change: Yeah Okay.

Ernesto Garateix: And then what do you see as the more attractive geographies at this point, you've got lot to choose from seemingly. How do you view Florida versus the Northeast or other markets? So we do think that Florida, again, with the legislative changes and the rate adequacy is attractive to us, but again, we look at the Northeast as well. The Northeast has been taking rate in New York, New Jersey, and other states up there. So those are getting closer to rate adequacy and then looking at doing some, running some more business up there. But again, the overall theme is looking at rate adequacy and having a managed diversified portfolio across, and that gives us plenty of options.

Speaker Change: And then what do you see as the more attractive geographies at this point you've got.

Speaker Change: Lots to choose from seemingly how do you view, Florida versus the north east or other markets.

Speaker Change: Yeah.

Speaker Change: So we do think that Florida again with the legislative changes in the rate adequacy is attractive to us.

Speaker Change: But again, we look at the the northeast as well the northeast has been taking rate in New York, New Jersey, and other states out there. So those are getting closer to rate adequacy and then looking at doing some writing some more business up there.

Speaker Change: But again the overall theme is looking at rate adequacy, and having advantage diversified portfolio crossing that gives us plenty of options.

Mark Hughes: Yeah. Okay, great.

Speaker Change: Yeah.

Mark Hughes: Thank you very much. All right. Thank you.

Speaker Change: Okay, great. Thank you very much.

Speaker Change: Alright. Thank you. Thank you.

Paul Newsome: The next question comes from Paul Newsome with Piper Fandler. Please go ahead. Thank you. Congrats on the quarter. I was hoping you could give us a little bit more details on the reserve development, just, you know, actually your sources. It's a little bit, I think, sometimes in contrast with the fact that it looks like the tort reform should make the reserves go the other way, potentially. But anyways, the additional color would be fantastic. Yeah, I appreciate that. And that actually has to do with IRMA, which I mean, again, you know, we only have a couple hundred claims remaining, you know, to basically, you know, get that thing completely settled.

Speaker Change: The next question comes from Paul Newsome with Piper Sandler. Please go ahead.

Speaker Change:

Speaker Change: Thank you congrats on the quarter was hoping you could give us a little bit more detail on the reserve development just accident.

Speaker Change: Accident years sources.

Speaker Change: It's a little bit I think sometimes in contrast.

Speaker Change: It looks like tort reform, maybe reserves go the other way.

Speaker Change:

Speaker Change: Essentially the.

Speaker Change: Additional color would be fantastic.

Speaker Change: Yeah, I appreciate that and that actually has to do with Irma.

Speaker Change: Which I mean again, we only have a couple of hundred claims remaining.

Speaker Change: It's basically you know get that thing completely settled however, just due to the.

Kirk Lusk: However, just due to the, you know, legal environment that those fall under, you know, that there is some volatility still associated with with some of those. So that is really the biggest driver of that fact, actually, it's almost all of it is the hurricane.

Speaker Change: Legal environment that those fall under that there is some volatility still associated with with some of those so that is really the biggest driver of that FX hit almost all of it is that I thought I'd just hurricane Irma.

Kirk Lusk: Is there any concern or should we be watching for any potential re-statement premiums related to? know me if it creeps in a certain way. Yeah, we've actually already included that in the latest estimate there, as far as when we indicated the, you know, we anticipated about $57 million for Milton, that type of stuff. That included kind of the retention and then plus the reinstatement premium.

Speaker Change: Is there any concern or should we be watching for any potential reinstatement premiums related to mill.

Speaker Change: No.

Speaker Change: Creeps into certain layers.

Speaker Change: Yeah, we've actually already.

Speaker Change: Excluded that.

Speaker Change: In the latest estimate there as far as when we indicated.

Speaker Change: We anticipate about 57 million are.

Speaker Change: That type of stop adding that included kind of the the retention and then plus reinstatement premiums.

Kirk Lusk: And then finally, also, are there any potential for unrelated... Claim Management Fees Related to the Hurricanes that become forth in the fourth quarter. The, say again, can you repeat that, Paul, the claim management fee? Sometimes the other income includes, you know, revenues that are gained off of management. of claims that, you know, essentially you're doing it for the re-insurers, it can be a little bit of an offset. Is there anything in there potentially for the fourth quarter? Yeah. Yeah, Paul, good question on that. I mean, there could be some, but it's not going to be material.

Speaker Change: And then.

Speaker Change: Finally also are there any potential for unrelated.

Speaker Change: Management fees related to the hurricanes that become.

Speaker Change: Hum.

Speaker Change: That's cool.

Speaker Change: The.

Speaker Change: So again can you repeat that so the claim mandatory.

Speaker Change: Sometimes the other income includes revenues in <unk>.

Speaker Change: <unk> mentioned.

Speaker Change: Claims.

Speaker Change: Essentially you reintroduce them it can be ruble.

Speaker Change: Is there anything in there.

Speaker Change: Contention for them to school yet.

Speaker Change: Yeah, well Paul good question on that I mean, there could be some but it's it's not going to be material.

Speaker Change: Well I appreciate the help thank you.

Paul Newsome: Appreciate the help, as always. Thank you. Great. Thank you, Paul. Appreciate it.

Speaker Change: Okay, great well, thank you Paul I appreciate it.

Operator: As a reminder, if you would like to ask a question, please press star, then 1 to enter the question queue.

Speaker Change: As a reminder, if you would like to ask a question. Please press Star then one to enter the question queue.

Operator: This concludes our question-and-answer session.

Speaker Change: This concludes our question and answer session I would like to turn the conference back over for any closing remarks.

Kirk Lusk: I would like to turn the conference back over for any closing remarks. Thank you again for joining the call today. We hope everyone has a great afternoon.

Speaker Change: Thank you again for joining the call today, and we hope everyone has a great afternoon.

Operator: The conference has now concluded. Thank you for attending today's presentation.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Operator: You may now disconnect.

Speaker Change: Okay.

Speaker Change: Yeah.

Speaker Change: [music].