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): May 7, 2018

 

 

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))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company ¨  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨  ☒

 

 

 

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Item 2.02 Results of Operations and Financial Condition.*

On May 7, 2018, Heritage Insurance Holdings, Inc. (the “Company”) issued a press release announcing financial results for its fiscal quarter ended March 31, 2018. A copy of the press release is attached hereto as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

 

(d)

Exhibits:

 

Exhibit No.		Description
99.1*		Press Release dated May 7, 2018.

 

*

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.

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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: May 7, 2018				By:		/s/ Bruce Lucas
				Name:		Bruce Lucas
				Title:		Chairman and Chief Executive Officer

Exhibit 99.1

Heritage Insurance Holdings, Inc. Reports Financial Results for First quarter of 2018

Clearwater, FL: 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 March 31, 2018.

First Quarter Highlights

 

•

Book value per share increased 19.1% quarter-over-quarter to $15.09 as of March 31, 2018

 

•

Operating income of $24.8 million

 

•

$1.6 million of dividends paid in Q1 2018

 

•

Q1 2018 net income of $14.8 million and earnings per share of $0.58

 

•

Net combined ratio declined to 82.2% in Q1 2018 from 94.8% in Q1 2017

 

•

Stockholders’ equity of $388.9 million at March 31, 2018

 

•

Premiums in force increased by 48% to $923.3 million at March 31, 2018 compared to $622.4 million at March 31, 2017

 

•

Repurchased 115,200 shares of our common stock in Q1 for an aggregate purchase price of $2 million

 

•

Board of Directors declared a first quarter dividend of $0.06 per share

 

•

Hurricane Irma

 

•

Closed 92% of approximately 32,000 Irma Claims

 

•

Vertically integrated repair division continues to perform services related to Hurricane Irma claims

Bruce Lucas, the Company’s Chairman and CEO, said, “We believe our diversified business plan is paying off, as evidenced by our results. Year-over-year, our consolidated gross loss ratio declined 6.8 points to 23.4%. Our vertically integrated claims model and diversification away from AOB prone areas are favorably impacting our consolidated loss ratio, and were key factors in lowering our net combined ratio from 94.8% to 82.2% year-over-year. We are taking active steps to expand Contractors Alliance Network to all states, which we believe will positively impact future consolidated loss ratios. Additionally, we began an initiative in 2015 to diversify our business, which has been highly successful. We are no longer a Florida-only insurer and have transformed the company into a Super Regional Insurer, which is evident when looking at our consolidated total insured value by region, especially Florida, where the percentage of Florida TIV declined from 70.1% to 31.8% year-over-year. Finally, we have completed our 2018-2019 reinsurance program with favorable results. Year-over-year, our reinsurance costs only increased less than 1% on a risk adjusted basis, substantially better than our initial projections.”

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Results of Operations

The following table summarizes our results of operations for the three months ended March 31, 2018 and 2017 (in thousands, except percentages and per share amounts):

 

		Three Months Ended March 31,
		2018				2017				Change
Revenue
Gross premiums written		$	204,366			$	142,235				44	%
Gross premiums earned		$	227,163			$	154,608				47	%
Ceded premiums		$	(121,055	)		$	(62,432	)			94	%
Net premiums earned		$	106,108			$	92,176				15	%
Total revenues		$	112,026			$	99,293				13	%
Operating income		$	24,817			$	11,890				109	%
Income before income taxes		$	19,997			$	9,709				106	%
Net income		$	14,829			$	5,983				148	%
Per Share Data:
Book value per share		$	15.09			$	12.67				19	%
Earnings per diluted share		$	0.55			$	0.21				162	%
Return on average equity - Net Income			15.4	%			6.7	%			8.7	pts
Ratios to Gross Premiums Earned:
Ceded premium ratio			53.3	%			40.3	%			13.0	pts
Gross loss ratio			23.4	%			30.2	%			(6.8	)pts
Gross expense ratio			15.0	%			26.4	%			(11.4	)pts
Combined expense ratio - Gross			91.7	%			96.9	%			(5.2	)pts
Ratios to Net Premiums Earned:
Net loss ratio			50.0	%			50.6	%			(0.6	)pts
Net expense ratio			32.2	%			44.2	%			(12.0	)pts
Combined expense ratio - Net			82.2	%			94.8	%			(12.6	)pts

Ratios

Ceded premium ratio. Our ceded premium ratio represents ceded premiums as a percentage of gross premiums earned.

Gross loss ratio. Our gross loss ratio represents losses and loss adjustment expenses net of reinsurance recoveries as a percentage of gross premiums earned.

Net loss ratio. Our net loss ratio represents losses and loss adjustment expenses as a percentage of net premiums earned.

Gross expense ratio. Our gross expense ratio represents policy acquisition costs and general and administrative expenses as a

percentage of gross premiums earned. Ceding commission income is reported as a reduction of policy acquisition and general and administrative costs.

Net expense ratio. Our net expense ratio represents policy acquisition costs plus general and administrative expenses as a

percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition and general and administrative costs.

Combined ratios. Our combined ratio on a gross basis represents the sum of ceded premiums, losses and loss adjustment expenses, policy acquisition costs and general and administrative expenses as a percentage of gross premiums earned. Our combined ratio on a net basis represents the sum of losses and loss adjustment expenses, policy acquisition costs and general and administrative expenses as a percentage of net premiums earned.

The combined ratio is the key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results.

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Quarterly Financial Results

Net income for the first quarter of 2018 was $14.8 million compared to $6.0 million for the first quarter of 2017. The increase is attributable to inclusion of Narragansett Bay Insurance Company (“NBIC”), which we acquired on November 30, 2017, coupled with an increase in net income from our legacy Heritage companies.

Gross premiums written were $204.3 million for the first quarter of 2018 compared to $142.2 million for the first quarter of 2017. The increase is due to inclusion of NBIC premiums, partially offset by the impact of selective underwriting and exposure management at Heritage P&C aimed at improving Florida underwriting results.

Gross premiums earned were $227.2 million for the first quarter of 2018 compared to $154.6 million for the first quarter of 2017. This increase was primarily driven by the inclusion of NBIC gross premiums earned, partially offset by selective underwriting and exposure management aimed at improving underwriting results in Florida.

Ceded premiums as a percentage of gross premiums earned were 53.3% for the first quarter of 2018 compared to 40.3% for the first quarter of 2017. The increase is a result of the quota share reinsurance agreements that NBIC has in place. Excluding the results of NBIC, the Company’s ceded premium ratio would have been 38.3% for the first quarter of 2018.

The loss ratio on a net basis was 50.0% for the first quarter of 2018 compared to 50.6% for the first quarter of 2017. While the net loss ratio was relatively consistent, we did experience higher loss ratios at Heritage P&C and NBIC, which was mitigated by profitability arising from utilization of our vertically integrated affiliate, Contractors Alliance Network.

The Company’s expense ratio on a net basis was 32.2% for the first quarter of 2018 compared to 44.2% for the first quarter of 2017. The first quarter of 2018 expense ratio benefited from ceding commission income earned by NBIC. We have included NBIC’s first quarter ceding commission earned of approximately $19.0 million from its quota share agreements as a reduction to policy acquisition costs and general and administrative expenses in the Condensed Consolidated Statements of Operations and Other Comprehensive Income. Excluding the impact of NBIC, the expense ratio increased slightly to 45.5% in the first quarter of 2018 from 44.2% for the first quarter of 2017.

Our combined ratio on a gross and net basis for the first quarter of 2018 was 91.7% and 82.2%, respectively. Our combined ratio on a gross and net basis for the first quarter of 2017 was 96.9% and 94.8%, respectively. The decrease in the gross and net combined ratios relates primarily to a lower loss ratio and a lower expense ratio driven by the favorable impact of ceding commission income on operating expenses.

Book Value Analysis

Book value per share increased 19.1% to $15.09 at March 31, 2018 compared to March 31, 2017.

 

		As of
		March 31, 2018				December 31, 2017				March 31, 2017
Book Value Per Share
Numerator:
Common stockholders’ equity		$	388,893			$	379,816			$	360,831
Denominator:
Total Shares Outstanding			25,769,806				25,885,006				28,479,232
Book Value Per Common Share		$	15.09			$	14.67			$	12.67

Conference Call Details:

Tuesday, May 8, 2018 – 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.

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Heritage Insurance Holdings, Inc.

Consolidated Balance Sheets

(In thousands, except share data and per share)

 

		March 31, 2018				December 31, 2017
		(unaudited)
ASSETS
Fixed maturity securities, available for sale, at fair value (amortized cost of $496,812 and $552,458 in 2018 and 2017, respectively)		$	486,678			$	549,796
Equity securities, available for sale, at fair value (cost of $17,395 and $17,548 in 2018 and 2017, respectively)			16,235				17,217
Total investments			502,913				567,013
Cash and cash equivalents			193,641				153,697
Restricted cash and cash equivalents			20,836				20,833
Accrued investment income			4,241				5,057
Premiums receivable, net			66,734				67,757
Reinsurance recoverable on paid and unpaid claims			553,823				357,357
Prepaid reinsurance premiums			164,061				227,764
Income taxes receivable			17,523				37,338
Deferred policy acquisition costs, net			53,862				41,678
Property and equipment, net			18,417				18,748
Intangibles, net			94,999				101,626
Goodwill			152,459				152,459
Other assets			22,902				19,883
Total Assets		$	1,866,411			$	1,771,210
LIABILITIES AND STOCKHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses		$	547,735			$	470,083
Unearned premiums			452,537				475,334
Reinsurance payable			56,008				17,577
Long-term debt, net			185,138				184,405
Deferred income tax			18,280				34,333
Advance premiums			37,738				23,648
Accrued compensation			7,328				16,477
Accounts payable and other liabilities			172,754				169,537
Total Liabilities		$	1,477,518			$	1,391,394
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 26,569,806 shares issued and 25,769,806 outstanding at March 31, 2018 and 26,560,004 shares issued and 25,885,004 outstanding at December 31, 2017			3				3
Additional paid-in capital			297,112				294,836
Accumulated other comprehensive loss			(7,649	)			(3,064	)
Treasury stock, at cost, 7,214,797 shares at March 31, 2018 and 7,099,597 shares at December 31, 2017			(89,184	)			(87,185	)
Retained earnings			188,611				175,226
Total Stockholders’ Equity			388,893				379,816
Total Liabilities and Stockholders’ Equity		$	1,866,411			$	1,771,210

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Heritage Insurance Holdings, Inc.

Consolidated Statements of Comprehensive Income

(In thousands, except share data and per share)

(Unaudited)

 

		For the Three Months Ended March 31,
		2018				2017
REVENUES:
Gross premiums written		$	204,366			$	142,235
Change in gross unearned premiums			22,797				12,373
Gross premiums earned			227,163				154,608
Ceded premiums			(121,055	)			(62,432	)
Net premiums earned			106,108				92,176
Net investment income			3,302				2,502
Net realized (losses) gains			(227	)			771
Other revenue			2,843				3,844
Total revenues			112,026				99,293
EXPENSES:
Losses and loss adjustment expenses			53,091				46,647
Policy acquisition costs, net of ceding commission income of $14.3 million and $0, respectively			12,187				23,442
General and administrative expenses, net of ceding commission income of $4.7 million and $0, respectively			21,931				17,314
Total expenses			87,209				87,403
Operating income			24,817				11,890
Interest expense, net			4,820				2,181
Income before income taxes			19,997				9,709
Provision for income taxes			5,168				3,726
Net income		$	14,829			$	5,983
OTHER COMPREHENSIVE INCOME
Change in net unrealized (losses) gains on investments			(6,478	)			3,981
Reclassification adjustment for net realized investment losses (gains)			227				(771	)
Income tax benefit (expense) related to items of other comprehensive income			1,823				(1,236	)
Total comprehensive income		$	10,401			$	7,957
Weighted average shares outstanding
Basic			25,727,553				28,806,709
Diluted			26,732,019				28,806,709
Earnings per share
Basic		$	0.58			$	0.21
Diluted		$	0.55			$	0.21

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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, Zephyr Insurance Company, and Narragansett Bay Insurance Company, had combined premium in force at March 31, 2018 of approximately $923 million. This includes personal and commercial residential premium which is written through a large network of experienced agents. The Company is currently writing property and casualty insurance policies in Alabama, Connecticut, Florida, Georgia, Hawaii, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, and South Carolina. Heritage Insurance Holdings, Inc. is led by a seasoned senior management team with an average of 25 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 liability 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, 2017 filed with the Securities and Exchange Commission on March 15, 2018. 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:

Kirk Lusk, CFO

727-362-7211

[email protected]

or

Joseph Peiso, Vice President - Compliance

727-362-7261

[email protected]

SEC Filings