Q2 2025 Heritage Insurance Holdings Inc Earnings Call
Good morning and welcome to the Heritage Insurance Holdings. Second quarter 2025 earnings conference call. Please note, today's event is being recorded.
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After today's presentation, there will be an opportunity to ask questions to ask a question. You may press star then 1 on your touchtone phone,
And at this time, I would like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead.
Good morning and thank you for joining us. Today we invite you to visit the investor 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.
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 72 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
for a description of the 4-link statements in 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. 10K earnings release and other SEC filings
With me on the call today is Ernie garete. Our chief executive officer. I'll now turn the call over to Ernie.
Thank you Kirk, good morning, everyone. And thank you for joining us today.
We delivered strong second quarter results, having achieved net income of 48, million up from 18.9 million second quarter a year ago, and maintain the positive trajectory of our earnings.
As we have been discussing on our earning calls over the last year, we continue to see the tangible results from the successful implementation of our strategic initiatives, designed to generate positive, and consistent shareholder returns by attaining rate adequacy managing exposure and enhancing our underwriting discipline.
This is created a significant level of earnings power within Heritage, which has fully shown through this quarter.
as part of that strategy, we re-enter Road, our personal lines book, while taking needed rate increases to achieve adequate rates,
This led to a steady contraction in our policies, enforced, over the last 4 years of over 200,000 policies.
during the same time frame, our enforce premium has increased from approximately 1.1 billion dollars to 1.4 billion dollars, and the diversity of our book has improved
In the second quarter, our policies enforced decreased by just over 7,700 policies, which was the smallest decrease since we started the initiative in June of 2021.
As previously mentioned, we are in an inflection point in our business, where we expect our personal lines policies, enforced to slowly, increase through the second half of this year. As our new business production, continues to ramp up.
new business is up, 46% over the second quarter of 2024 and that is at the highest level since the second quarter of 2022,
Looking to 2026. We expect growth to accelerate as our new business production is fully ramped up across all of our geographies and our exposure management initiatives are fully behind us.
The Catalyst has been achieving great adequacy across the majority of our markets and correspondingly opening. Those areas up for new business.
There are a few select areas that are still closed but nearly all of our producing capacity is open for new business.
While it takes time to open our territories and onboard agents, we are seeing good new business momentum across our regions in the Northeast particularly in New York, as well as the Mid-Atlantic. We're Virginia is seen strong new business trends.
Florida is also a stand-up market for Heritage given the recent legislative reforms, which are having a positive impact on the economics of writing new profitable business, and where we have seen a market, a marked decline in frivolous lawsuits.
Looking forward, we see significant room for growth and expansion. As we continue to build our market share across the Northeast Mid-Atlantic southeast west and Pacific regions.
Additionally, we see opportunities to expand in new regions of the country, as we deliver new products to our insureds over time.
Taken together. This presents an open-ended growth opportunity to Heritage in our shareholders.
All that said, we will maintain our disciplined underwriting processes. As we open new territories, and and embark on managed growth strategy, which also resulted in a lower net loss ratio this quarter.
As we grow, we're also continuing to invest in and enhance customer service claims and claims quality management as well as technology resources.
We are in our third year of an IT conversion to a guidewire platform.
Our conversion has been going well, and is expected to be completed next year.
Once we are fully on the guidewire platform, we will be able to scale the business more efficiently as well as increase our speed of execution.
Turning to reinsurance, we have maintained a stable Indemnity based reinsurance program at manageable cost with the excellent panel, highly rated and collateralized reinsurers.
Overall, we increased the amount of limit that we purchased by $285 million, while our overall costs increased by less than $8 million.
Looking forward. We expect the reinsurance market to see the positive impact of the legislative changes in Florida as hurricane Milton's claims mature through this year and into next year,
This could have a favorable impact on. Reinsurance pricing in 2026.
We also believe that the impact of this necessary legislation will be favorable to the consumer in terms of the cost of insurance.
The strength of our results and momentum in our business can also be seen in our recent refinancing of our senior credit facilities, which Kirk will comment on.
We had strong support from our banking partners and upsized our facility while simultaneously achieving more attractive terms, given the demand, which exceeded our expectations.
As we look to the second half of the year, we also expect to build Capital, which will not only position us for accelerating organic growth but also to consider our Capital allocation strategy.
To conclude our business is at an inflection point as we pivot and manage growth strategy, which will return our policies, enforced to moderate growth through the back half of this year before accelerating in 2026.
We are excited with the many opportunities that we see to grow the value of our business.
I would also like to reiterate our dedication to navigating the complexities of our Market with a strategic Focus, that prioritizes long-term possibility, shareholder value and customer service, all driven by our dedicated Workforce.
Kirk over to you.
Thank you, Ernie. And good morning everyone.
55 cents per diluted share in the second quarter. This represents a sharp increase from the 1 8. 9, 1 4.
Increases primarily driven by decreases in losses and other operating expenses and an increase in net premiums earned.
Gross premiums earned Rose to 353.6 million up 1% from 350.1 million in the prior year quarter reflecting higher gross premiums written over the last 12 months from business growth and rating actions as we ramp up on recently opened geographies, we expect our growth to accelerate at a managed pace.
Net premiums earned increased to 196.3 million up, 3.2% from 1, 1990.3 million in the prior quarter, reflecting higher gross premiums earned as well as a reduction in seeded premiums from the prior year quarter.
the reductive seeded premiums was driven primarily by 10 million, reinstatement, premiums for a hurricane Ian for the prior year quarter and which was partially offset by higher seated premiums in 2025 on our net, quota share reinsurance program
Our net investment income for the quarter was $9 million and $800,000 decrease from the 9.8%. Primarily driven by lower interest rate environment for our sweep accounts and money market funds. We continue to manage our Investment Portfolio. While maintaining a conservative high-quality Investments with duration, liability matched.
Our total revenues for the quarter, were 208 million up, 2.2% from 203.6 million. In the prior year quarter, this Improvement was driven by higher net premiums earned.
Our net loss ratio for the quarter improved 17.2 points to 38.5% as compared to 55.7% in the same quarter last year. Reflecting significantly lower net losses in Lae coupled with higher net premiums earned.
Netweather and catastrophe losses for the current year quarter for 12.5 million. A decrease of 7.2 million from 19.7 million in the prior year quarter.
There were no capacity losses in the current quarter or prior year quarters.
The reduction in weather losses was coupled with the reduction in attritional losses. Our traditional losses have been trending favorably, which we believe is associated with the enhanced underwriting strategy over the last several years.
Additionally, the quarter benefited from favorable Reserve development compared to the prior year quarter.
Favorable, net loss development, was 2.3 million in the current year quarter compared to adverse development or 8.7 million in the prior year quarter.
our net expense ratio for the quarter was 34.4%, a 2.4 Point improvement from 36.8% in the prior year quarter, this was driven primarily by growth in net, premium earned coupled, with higher seed and commissioning income, which decreased the net policy acquisition costs,
Higher seeding. Commission income was associated with both, a large amount of Premium seated, and a higher seeding commission rate driven by favorable loss experience for the net, quotas share program.
This offset a 1/2 Point increase in the net GNA.
Expense ratio.
The net combined ratio for the quarter was 72.9% and Improvement of 19.6 points from 92.5%. In the prior year quarter driven by a lower, net loss ratio and lower net expense ratio as described.
Turning to our balance sheet, we ended the quarter with total assets of 2.5 billion dollars and shareholders Equity of 383.3 million.
Our book value per share increased to 12.36 at June 30th 2025.
Up 30.1% from the fourth quarter of 2024 and up 48.6% from the second quarter of 2024.
The increase from December. 31st, 2024 is primary attributable to the net income for the year to date as well as a 11.1 million. Net of tax benefit associated with a 14.6 million reduction in unrealized losses on the company's fixed income securities portfolio.
The average duration of a fixed income portfolio is 3.04 years as the company is extended duration from the prior year quarter to take advantage of higher yields further out on the yield curve while still maintaining a short duration, high quality portfolio,
100 million from the previous 150 million facility while extending the maturity to July 2030 from July 2026. Additionally, our new facilities are at a lower cost and provide more flexibility than our previous facility. I would like to thank our bank Partners who are supporting Heritage as we return to growth.
46.3 million. In addition statutory Capital at quarter end, was 329.6 Million, which is up 7, 6. 6, 6, 4,
The increase in statutory Surplus provides additional growth capacity as we open more territories for new business.
Looking ahead. We remain focused on executing. Our strategic initiatives is aimed at driving long-term shareholder value and providing our policyholders and agents with the service they deserve and expect
We believe our proactive approach, to managing exposures, enhancing rate adequacy and investing in technology and infrastructure will position us. Well,
as for continued success.
Thank you for your time today. Operator, we are now ready for questions.
Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone to withdraw your question. Please press star. Then 2 at this time we will pause momentarily to assemble our roster.
And the first question will be from Mark Hughes with truist. Please go ahead.
Yeah, thank you. Uh, good morning.
Good morning, Mark, good morning morning. I wonder if you could talk about kind of the attritional loss trajectory as you've seen a develop over the last year and through the second quarter,
if we look at your loss ratio, taking out the cats and other weather,
Um, a little bit of an uptick this quarter. I, I don't know that. That's, uh, we can read much into that given the, uh, you know, all the other moving Parts, but I'm, I'm just sort of curious from a nutritional loss perspective, Where Do We Stand now? Is it still trending downward from your perspective is it stabilized? Um have we kind of achieved the benefits of some of these regulatory reforms and your underwriting actions or is there still
Potentially more to come. How, how would you describe it?
Yeah, I I'd say it's it's uh, somewhat that stabilizing now. Um, and and and again, I mean we received right adequacy. And when you look at it, I mean frequency, um, has continued to be down and then, you know, our severity, um, is, is running at a, a relatively modest rate, um, which we which you would expect with inflation. But you know, frequent a lot of this has been frequency driven, uh, and the frequency has been down, um, you know, but I but I must been I I think that the you know, that probably is going to start our leveling off. And so I think that we're probably running into a point where we're you're bringing into some stabilization
Yeah, I guess they should have started out saying, Buck 555 is, is a big quarter and so, uh, stabilization of the buck 55 would be a pretty good.
Um, but I know you're, uh, targeting growth and, and on that point, the, uh, how do you see the competition? There's been some kind of a public Equity offering activity in Florida.
Uh, obviously losses have improved, uh, substantially. Um, you were opening up for growth. What are you finding in terms of agent, enthusiasm level of competition. Any, uh,
anything that you're seeing is uh, is you're going out to the market and uh,
I'm looking for new business. Yeah. What I'd start to say is the agents are enthusiastic that we've opened up. I think we've said we've uh, been closed for quite a bit. And now we're about 90%. Open 199995 open in our Geographic areas. As far as competition is concerned. We've always said we welcome, you know, responsible competition. I think everyone is aware that there are new carriers in the state.
Which is good for the public. Uh, but that being said, most of those carriers are focusing on the citizens takeout that the population program. Um, and we see that and still focusing on that, at least for the next year.
Yeah. How uh, how do you see your rates trending kind of the next, uh,
For, for the balance of this year. And if you think about next year, I know you made some comments about you expect. Uh,
Either yours, or if you want to broaden it up and say, kind of across the states or across the state in here, I'm thinking Florida, you know, but you can talk nationally as well. How you think that'll trend?
Yeah, I I I think the the the trend there is going to be, um, it's going to be up in most uh, geographies. Although not to the extent, it has been in the past simply from the standpoint of, you know, with a starting to hit rate adequacy. You know, we really don't need the substantial rates to catch up. I would say, you know, uh, you know, almost cross the boards or Regulators have been very good as far as, you know, us getting adequate rates. Um, and now that that's occurred, I mean, I think that, you know, the rate increases are going to be moderated, you know. There there are a few areas here and there where we, where we're still needed to catch up a little bit. But I would say that, uh, even in those geographies, uh, that, you know, the the discussions there have been very positive and we're getting there very quickly. So, from that standpoint, I think it it's very positive. Um, you know, we do have a fair amount of rate, still earning through the portfolio. Um, obviously this year, you know, in the next year, but I do think it is going to moderate
yeah, and 1 more if I might, uh,
The Northeast New York. I think Virginia where you're seeing policy growth. Um,
How was the last experience? Been in in those markets? If you see a little more growth oriented to the Northeast,
what will that do for the overall loss ratio?
Um, yeah, actually that will um, you know, be be be positive from the perspective. Of that is an area where we're still getting, probably, you know, a little bit more rate than in the Southeast. Uh, so it's a little bit of catch up in the Northeast but, you know, we're nearly there. Um, I would say we we recently got some rates approved in the Northeast which are really going to kind of help that, you know, process quite a bit, and accelerate it. Um, so the Northeast is probably getting a little bit more rate in southeast, but you know, uh, that's going to, you know, help us into next year.
Appreciate it. Thank you. Thank you. Thanks Mark. And our next question is from Carol chimel from citizens. Please go ahead.
Yes. Hi. Good morning and congrats on the great quarter. Thank you. And uh know and my first question is regarding the catastrophe and whether losses I'm just curious. If you can maybe compare it to the prior Year's quarter and maybe the the quarter from 2 years ago. Are you seeing any change for that quarter? I know that quarter is a lot of Southeast convective storms, you know, historically, but can you maybe explain the the difference between the past 2 years
Yeah. Well, you know, so, so for example, year-over-year, you know, our non-cat weather for the quarter was down about, you know, 7 million dollars. Um, a lot of that, you know, we we do think has to do with, uh, the underwriting uh, of the portfolio where we do think we have better risks, you know, newer roofs. Um you know and just the you know we've been inspecting and so therefore from that perspective, you know we think it is a is a better performing book so therefore it is not as susceptible to some of the severe convective storms. Um, I think that they, you know, have been a little bit lighter, but I also think that some of it has been just indicative of the underwriting for performance of the portfolio.
Great. Thank you. And then the second question is regarding the prior period development. Can you calm? Uh, go into detail if this was from the, the strengthening of the reserves from last year.
Uh yeah, yeah. Some of
Is from from that strengthening from from last year. Um, and again, you know we did uh, you know, look at strengthening reserves last year. We wanted to make sure that we were, you know, adequate at year end that type of stuff. And you know in in again we we don't mind, you know, slight movements here in our reserves, you know, up or down. That's kind of expected but you know, we want to be as close. So I think that, you know, when we look at the the favorable development now, um, for the quarter I think that that is is very positive. And actually, we're favorable for the full year to date also. So um, you know that that that's the trend we like to see. Um and and again I think it, you know, some of it does have is reflective of the
Just strengthening we took last year.
Understood. Thank you very much. Thank you. Thank you.
And as a reminder, if you'd like to ask a question, please press star then 1.
The next question is from Paul gnome from Piper Sandler. Please go ahead.
Well, good morning. Um,
Maybe you could.
Impact a little bit more.
Some of the expected. Um, statistical. Um
By region. Um and you know, where are you think uh opportunistically?
Do this, you will get better from a policy perspective.
And um, you start with that.
Yeah, so let's start with the uh, Mid-Atlantic right? Virginia is the state we entered a couple years ago. That's big performing pretty well and we, we do see pip growth coming from Virginia, as well as we opened up New York. Uh, again, we, we received some right there. Uh, that put us at rate adequacy. We've opened that up in the Agents of, uh, really kind of going on to, you know, writing new business there. So the Northeast will see growth in pit, um, as well as the Mid-Atlantic in Florida. As we mentioned, we are reopened, uh, and we're seeing the decline in, you know, the policy Count Their leveling off. But, we accept expect that to be a positive number growing up here in the next quarter, um, again, California is growing from a pith count. Uh, and why has also opened up again, uh, again since we're rate adequate. So we do see the total pipe ground coming from various sectors of the different regions that we're in.
Great. That that's when it's pretty helpful. Any thought on underlying um you know property? Um,
Plane trends that just from a, a, a claim Trend perspective. Um, is it fairly stable at this point?
Yeah. Yeah. I would say it definitely is. So looking at our at our 3 year, you know, frequency Transit that's going down about 0.9%. So I mean that that that's almost, you know, you know pretty flat severity on a 3 year basis is up about 5.4. If you look at a 5-year basis it's up about 4.4%. So really those are, you know, I would say, you know, numbers that are, you know, very solid and very manageable um, as opposed to, you know, some of the co years which were clicking up rather substantially. So, um, it's it's really started to moderate in and look very positive at this point.
All right. Thanks, I appreciate it. Thank you, Paul. Thank you. And ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back to Ernesto Garateix for any closing remarks.
We appreciate everybody drove me a call today, and I hope everyone has a great day.
And thank you sir. The conference has. Now concluded, thank you for attending today's presentation. You may now disconnect