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Form 8-K Heritage Insurance Holdi For: Aug 03

August 3, 2016 5:06 PM

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of

the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): August 3, 2016

 

 

HERITAGE INSURANCE HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-36462   45-5338504

(State or other jurisdiction

of incorporation)

 

(Commission

File Number)

 

(I.R.S. Employer

Identification No.)

Heritage Insurance Holdings, Inc.

2600 McCormick Drive, Suite 300

Clearwater, Florida

  33759
(Address of principal executive offices)   (Zip Code)

(727) 362-7202

(Registrant’s telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

  ¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

  ¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

  ¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

  ¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 


Item 2.02 Results of Operations and Financial Condition.*

On August 3, 2016, Heritage Insurance Holdings, Inc. (the “Company”) issued a press release announcing financial results for its fiscal quarter ended June 30, 2016. A copy of the press release is attached hereto as Exhibit 99.1.

 

Item 8.01 Other Events.

On August 3, 2016, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.06 per share on the Company’s common stock. The dividend will be paid on October 3, 2016 to stockholders of record on the close of business on September 15, 2016.

A copy of the press release announcing the dividend is attached hereto as Exhibit 99.1.

 

Item 9.01 Financial Statements and Exhibits.

 

  (d) Exhibits:

 

Exhibit No.

  

Description

99.1*    Press Release dated August 3, 2016

 

* The information furnished under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.


SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  HERITAGE INSURANCE HOLDINGS, INC.
Dated: August 3, 2016   By:  

/s/ Bruce Lucas

  Name:   Bruce Lucas
  Title:   Chairman & Chief Executive Officer


Exhibit Index

 

Exhibit No.

  

Description

99.1*    Press Release dated August 3, 2016

 

* The information furnished under Item 2.02 of this Current Report on Form 8-K, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.

Exhibit 99.1

 

LOGO

Heritage Insurance Holdings, Inc. Reports Financial Results for Second Quarter of 2016

Clearwater, FL. – August 3, 2016 - Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported its financial results for the fiscal quarter ended June 30, 2016.

Second Quarter Highlights

 

    31% increase year over year in gross premiums written for 2Q16 as compared to 2Q15

 

    29% increase in gross premiums earned for 2Q16 as compared to 2Q15

 

    49% increase in policy count in 2Q16 as compared to 2Q15

 

    Net income of $18.4 million for 2Q16

 

    Gross combined ratio declined to 85.7% in 2Q16 from 95.5% in 1Q16

 

    Return on average equity of 20.2% for 2Q16

 

    Repurchased 527,989 shares for a total of $6.9 million in 2Q16; $53.4 million remains in repurchase authorization

 

    Continued traction in North Carolina with more than 2,300 policies-in-force at the end of 2Q16

Bruce Lucas, the Company’s Chairman and CEO, said, “I am pleased to report a significant increase in profitability and return on equity in the second quarter. As compared to the first quarter, we had substantial growth across the business including gross premiums written and earned, net income and return on average equity. We are continuing to exceed our internal expectations in North Carolina and Hawaii, we recently launched operations in South Carolina, and we are now writing roughly half of our new policies outside of Florida. Looking ahead, we are extremely excited about our business prospects as we continue our strategic diversification. We are focused on delivering the highest returns to stockholders through continued organic growth, strategic M&A and capital return.”

Announces Quarterly Dividend

The Company announced that its Board of Directors has declared a quarterly cash dividend on the Company’s common stock of $0.06 per share. The third quarter dividend of $0.06 per share is payable on October 3, 2016 to stockholders of record as of September 15, 2016. The declaration and payment of any future dividends will be subject to the discretion of the Board of Directors and will depend on a variety of factors including the Company’s financial condition and results of operations.

Results of Operations

The following table summarizes our results of operations for the three and six months ended June 30, 2016 and 2015 (in thousands, except percentages and per share amounts):


     Three Months Ended
June 30,
                 Six Months Ended
June 30,
             
     2016      2015     Change            2016      2015     Change        

Revenue

                   

Gross premiums written

   $ 177,295       $ 135,597        31%          $ 324,561       $ 269,565        20%      

Gross premiums earned

   $ 163,637       $ 127,101        29%          $ 315,580       $ 253,102        25%      

Ceded premiums

   $ (54,719)       $ (32,255)        70%          $ (100,320)       $ (56,767)        77%      

Net premiums earned

   $ 108,918       $ 94,846        15%          $ 215,260       $ 196,335        10%      

Total operating revenue

   $ 85,524       $ 58,098        47%          $ 185,049       $ 114,934        61%      

Income before taxes

   $ 29,757       $ 40,990        (27%)         $ 41,797       $ 89,282        (53%)     

Net income

   $ 18,368       $ 25,400        (28%)         $ 25,791       $ 55,456        (53%)     

Per Share Data:

                   

Book value per share

   $ 12.71       $ 10.40        22%          $ 12.71       $ 10.40        22%      

Earnings per diluted share

   $ 0.62       $ 0.84        (26%)         $ 0.86       $ 1.84        (53%)     

Return on average equity

     20.2%         33.9%        (13.7)        pts         14.2%         39.1%        (24.9)        pts   

Ratios to Gross Premiums Earned:

                   

Ceded premium ratio

     33.5%         25.4%        8.1        pts         31.8%         22.4%        9.4        pts   

Loss ratio

     29.8%         26.7%        3.1        pts         36.7%         26.3%        10.4        pts   

Expense ratio

     22.4%         19.0%        3.4        pts         22.0%         19.2%        2.8        pts   

Combined ratio

     85.7%         71.1%        14.6        pts         90.5%         67.9%        22.6        pts   

Ratios to Net Premiums Earned:

                   

Loss ratio

     44.8%         35.8%        9.0        pts         53.8%         33.8%        20.0        pts   

Expense ratio

     33.7%         25.5%        8.2        pts         32.2%         24.7%        7.5        pts   

Combined ratio

     78.5%         61.3%        17.2        pts         86.0%         58.5%        27.5        pts   

Quarterly Financial Results

Net income for the second quarter of 2016 was $18.4 million compared to $25.4 million for the second quarter of 2015. In the second quarter of 2015, the ceded premium and expense ratios were lower benefitting from larger Citizen assumptions in the fourth quarter of 2014 and first quarter of 2015 when compared to the assumptions in the fourth quarter of 2015 and first quarter of 2016. And despite the improvement from the first quarter of 2016, the loss ratio negatively impacted the second quarter compared to the previous year. Zephyr contributed $3.2 million to net income for the second quarter of 2016.

Gross premiums written were $177.3 million for the second quarter of 2016 compared to $135.6 million for the second quarter of 2015. Part of the growth resulted from Zephyr’s gross premiums written of $14.8 million and our expansion into North Carolina, which produced $2.4 million of gross premiums written.

Gross premiums earned were $163.6 million for the second quarter of 2016 compared to $127.1 million for the second quarter of 2015. Our consolidated premiums in force as of June 30, 2016 and 2015 were approximately $659.6 million and $510.2 million, respectively.

Ceded premiums as a percentage of gross premiums earned were 33.5% for the second quarter of 2016 compared to 25.4% for the second quarter of 2015. Ceded premiums in the second quarter of 2016 included one month’s cost of our catastrophe reinsurance program that renewed on June 1, 2016 and two months of the 2015-2016 program. The cost of the 2016-2017 reinsurance program was approximately $240 million and provides coverage we believe is suited to our changing mix of business including more wind-only policies and commercial residential policies. Our 2016-2017 reinsurance program provides first event coverage up to $1.9 billion in Florida, first event coverage up to $1.1 billion in Hawaii, and multiple


event coverage up to $3.0 billion. As previously disclosed when we announced our new reinsurance program, our expectations for the ceded premium ratio were in the 37% range. The ceded premium ratio could increase slightly by 1 to 2 percentage points depending on the level of Citizens policies assumed over this timeframe.

The loss ratio on a gross basis increased to 29.8% for the second quarter of 2016 from 26.7% for the second quarter of 2015, primarily due to the continued heightened level of water claims we have experienced this year related to the assignment of benefits trend we have seen in the Florida marketplace and attorney involvement in the process.

The Company’s expense ratio on a gross basis was 22.4% for the second quarter of 2016 compared to 19.0% for the second quarter of 2015. The second quarter of 2015 expense ratio benefited from the larger Citizens assumption activity.

Overall, Heritage’s combined ratio on a gross basis was 85.7% for the second quarter of 2016 compared to 71.1% for the second quarter of 2015. The combined ratio for the second quarter of 2016 saw a sequential improvement as compared to 95.5% reported in the first quarter, which was impacted by adverse weather and adverse loss development.

Book Value Analysis

Book value per share increased by 9% from $11.71 at December 31, 2015 to $12.71 at June 30, 2016. The Company repurchased 527,989 shares of common stock in the second quarter pursuant to the Company’s repurchase program.

 

     As Of  
Book Value Per Share    June 30, 2016      December 31, 2015      June 30, 2015  

Numerator:

        

Common stockholders’ equity

   $ 372,367       $ 356,553       $ 312,100   
  

 

 

    

 

 

    

 

 

 

Denominator:

        

Total Shares Outstanding

     29,301,121         30,441,410         29,995,560   
  

 

 

    

 

 

    

 

 

 

Book Value Per Common Share

   $ 12.71       $ 11.71       $ 10.40   
  

 

 

    

 

 

    

 

 

 

Conference Call Details:

Thursday, August 4, 2016 – 8:30 a.m. EDT

Participant Dial-in Numbers Toll Free: 1-888-346-3095

Participant International Dial In: 1-412-902-4258

Canada Toll Free: 1-855-669-9657

Webcast:

To listen to the live webcast, please go to http://investors.heritagepci.com/. This webcast will be archived and accessible on the Company’s website.


HERITAGE INSURANCE HOLDINGS, INC.

Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

 

     June 30, 2016     December 31, 2015  
     (unaudited)        

ASSETS

    

Fixed maturity securities, available for sale, at fair value (amortized cost of $507,091 and $370,967 in 2016 and 2015, respectively)

   $ 518,211      $ 371,783   

Equity securities, available for sale, at fair value (cost of $33,998 and $32,439 in 2016 and 2015, respectively)

     31,856        28,313   
  

 

 

   

 

 

 

Total investments

     550,067        400,096   

Cash and cash equivalents

     142,952        236,277   

Restricted cash

     18,644        13,085   

Accrued investment income

     4,329        3,409   

Premiums receivable, net

     34,856        30,565   

Prepaid reinsurance premiums

     226,627        78,517   

Income taxes receivable

     2,969        —     

Deferred income taxes

     —          7,964   

Deferred policy acquisition costs, net

     42,568        34,800   

Property and equipment, net

     17,873        17,111   

Intangibles, net

     28,467        2,120   

Goodwill

     48,845        8,028   

Other assets

     4,768        5,426   
  

 

 

   

 

 

 

Total Assets

   $ 1,122,965      $ 837,398   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Unpaid losses and loss adjustment expenses

   $ 117,485      $ 83,722   

Unearned premiums

     340,818        302,493   

Reinsurance payable

     237,020        60,210   

Deferred income taxes

     7,616        —     

Income tax payable

     —          2,092   

Advance premiums

     23,827        12,138   

Accrued compensation

     6,238        2,305   

Other liabilities

     17,594        17,885   
  

 

 

   

 

 

 

Total Liabilities

     750,598        480,845   
  

 

 

   

 

 

 

Stockholders’ Equity:

    

Common stock, $0.0001 par value, 50,000,000 shares authorized, 30,426,121 shares issued and 29,301,121 outstanding at June 30, 2016 and 30,441,410 outstanding at December 31, 2015

     3        3   

Additional paid-in capital

     205,036        202,628   

Accumulated other comprehensive income (loss)

     5,563        (2,033

Treasury stock, at cost, 1,140,289 shares at June 30, 2016

     (16,562     —     

Retained earnings

     178,327        155,955   
  

 

 

   

 

 

 

Total Stockholders’ Equity

     372,367        356,553   
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 1,122,965      $ 837,398   
  

 

 

   

 

 

 


HERITAGE INSURANCE HOLDINGS, INC.

Consolidated Statements of Income and Other Comprehensive Income

(Amounts in thousands, except per share and share amounts)

Unaudited

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2016     2015     2016     2015  

REVENUE:

        

Gross premiums written

   $ 177,295      $ 135,597      $ 324,561      $ 269,565   

Change in gross unearned premiums

     (13,658     (8,496     (8,981     (16,463
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross premiums earned

     163,637        127,101        315,580        253,102   

Ceded premiums

     (54,719     (32,255     (100,320     (56,767
  

 

 

   

 

 

   

 

 

   

 

 

 

Net premiums earned

     108,918        94,846        215,260        196,335   

Net investment income

     2,223        2,090        4,260        3,723   

Net realized gains (losses)

     263        (116     644        (119

Other revenue

     3,877        2,268        6,682        4,277   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenue

     115,281        99,088        226,846        204,216   

EXPENSES:

        

Losses and loss adjustment expenses

     48,794        33,909        115,757        66,448   

Policy acquisition costs

     20,753        12,253        38,881        25,346   

General and administrative expenses

     15,977        11,936        30,411        23,140   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     85,524        58,098        185,049        114,934   
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     29,757        40,990        41,797        89,282   

Provision for income taxes

     11,389        15,590        16,006        33,826   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

   $ 18,368      $ 25,400      $ 25,791      $ 55,456   
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE INCOME:

        

Change in net unrealized gains (losses) on investments

     8,928        (2,663     13,010        (5,470

Reclassification adjustment for net realized investment (gains) losses

     (263     116        (644     119   

Income tax (expense) benefit related to items of other comprehensive income (loss)

     (3,348     983        (4,770     2,064   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

   $ 23,685      $ 23,836      $ 33,387      $ 52,169   
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

        

Basic

     29,653,668        29,877,636        30,010,776        29,838,322   
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     29,653,668        30,268,496        30,072,624        30,192,216   
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share

        

Basic

   $ 0.62      $ 0.85      $ 0.86      $ 1.86   

Diluted

   $ 0.62      $ 0.84      $ 0.86      $ 1.84   

About Heritage

Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Florida. Its subsidiaries, Heritage Property & Casualty Insurance Company and Zephyr Insurance Company, write approximately $600 million and $60 million, respectively, of personal and commercial residential premium through a large network of experienced agents. The Company is currently writing property and casualty insurance policies in Florida, Hawaii, North Carolina and South Carolina. Heritage Insurance Holdings, Inc. is led by a seasoned senior management team with an average of 30 years of insurance industry experience.


Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: the success of the Company’s marketing initiatives; inflation and other changes in economic conditions (including changes in interest rates and financial markets); the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance and the collectability of reinsurance; assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our reserves for losses and loss adjustment expense; our ability to build and maintain relationships with insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 8, 2016. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.

Heritage Insurance Holdings Inc.

Investor Contact:

Steve Martindale, CFO

727-362-7203

[email protected]

or

Melanie Skijus, Investor Relations Director

727-362-7262

[email protected]

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