Form 8-K Heritage Insurance Holdi For: Oct 31

October 31, 2018 4:37 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): October 31, 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.)

2600 McCormick Drive, Suite 300  
Clearwater, Florida   33759
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (727) 362-7202

Not Applicable

(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. ☒

 

 

 


Item 2.02

Results of Operations and Financial Condition.

On October 31, 2018, Heritage Insurance Holdings, Inc. (the “Company”) issued a press release announcing financial results for its fiscal quarter ended September 30, 2018. A copy of the press release is attached hereto as Exhibit 99.1.

The information furnished under this Item 2.02, 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.

 

Item 9.01

Financial Statements and Exhibits.

(d) Exhibits. The following exhibit is being furnished as part of this Current Report.

 

No.

  

Exhibit

99.1    Press Release dated October 31, 2018.


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.
Date: October 31, 2018     By:   /s/ Bruce Lucas
       

Bruce Lucas

Chairman and Chief Executive Officer

Exhibit 99.1

Heritage Insurance Holdings, Inc. Reports Financial Results for Third 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 September 30, 2018.

Third Quarter 2018 Highlights

 

   

Third quarter 2018 net income of $6.0 million ($0.23 per diluted share) and GAAP operating income of $14.2 million

 

   

Premiums in force increased 55% year-over-year to $923 million and gross premums written increased 51% to $233.6 million over the same period, primarily reflecting inclusion of NBIC

 

   

Personal lines Tri-County Florida TIV accounted for only 5.7% of companywide TIV, down 9.2 points year-over-year, reflecting exposure management efforts and diversification outside Florida

 

   

New non-catastrophe Tri-County Florida claims count down 31% year-to-date

 

   

$3.2 million of favorable prior year reserve development

 

   

Expanded relationship with GEICO’s insurance agency to all states (previously only NBIC states)

 

   

Received licenses in Virginia and Maryland, bringing total licensed count to 15 states

 

   

Book value per share of $15.16, up 18% year-over-year; $390.6 million of stockholders’ equity

 

   

Board of Directors declared a regular quarterly dividend of $0.06 per share

Bruce Lucas, the Company’s Chairman and CEO, said, “We reported a solid third quarter despite retaining $16.6 million of catastrophe losses associated with Hurricanes Florence and Lane, as our vertically integrated structure continues to benefit results. We have continued our trend to diversify away from Florida’s Tri-County, which reduces our exposure to the state’s assignment of benefits crisis. Personal lines Tri-County Florida TIV only accounted for 5.7% of our overall third quarter 2018 book of business, down 9.2 points year-over-year. We’re also continuing to expand outside Florida and recently received licenses in Maryland and Virginia, bringing our total licensed count to 15 states and look forward to new growth opportunities.


Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2018 and 2017 (amounts in thousands, except percentages and per share amounts):

 

     Three Months Ended September 30,          Nine Months Ended September 30,      
     2018     2017     Change          2018     2017     Change      

Revenue

                 

Gross premiums written

   $ 233,613     $ 154,355       51      $ 701,643     $ 455,845       54  

Gross premiums earned

   $ 234,164     $ 153,063       53      $ 692,298     $ 460,025       50  

Ceded premiums

   $ (115,926   $ (57,855     100      $ (356,748   $ (182,189     96  

Net premiums earned

   $ 118,238     $ 95,208       24      $ 335,550     $ 277,836       21  

Total revenues

   $ 125,295     $ 101,774       23      $ 355,293     $ 298,005       19  

Operating income

   $ 14,216     $ 1,413       906      $ 47,184     $ 26,365       79  

Income (loss) before income taxes

   $ 8,991     $ (9,221     NM        $ 32,295     $ 11,319       185  

Net income (loss)

   $ 5,989     $ (8,696     NM        $ 23,227     $ 3,929       491  

Per Share Data:

                 

Book value per share

   $ 15.16     $ 12.84       18        $ 15.16     $ 12.84       18  

Earnings (loss) per diluted share

   $ 0.23     $ (0.34     NM        $ 0.88     $ 0.14       520  

Return on average equity - Net Income

     6.2     (10.4 )%      16.6     pts      8.0     1.6     6.4     pts

Ratios to Gross Premiums Earned:

                 

Ceded premium ratio

     49.5     37.8     11.7     pts      51.5     39.6     11.9     pts

Gross loss ratio

     25.1     41.8     (16.7   pts      25.7     34.1     (8.4   pts

Gross expense ratio

     22.4     23.8     (1.4   pts      18.8     25.0     (6.2   pts

Combined expense ratio - Gross

     97.0     103.4     (6.4   pts      96.0     98.7     (2.7   pts

Ratios to Net Premiums Earned:

                 

Net loss ratio

     49.6     67.3     (17.7   pts      53.0     56.4     (3.4   pts

Net expense ratio

     44.3     38.2     6.1     pts      38.8     41.4     (2.6   pts

Combined expense ratio - Net

     93.9     105.5     (11.6   pts      91.8     97.8     (6.0   pts

*NM = not meaningful

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 net losses and loss adjustment expenses as a percentage of gross premiums earned.

Net loss ratio. Our net loss ratio represents net 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 (“G&A”) as a percentage of gross premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.

Net expense ratio. Our net expense ratio represents policy acquisition costs and G&A expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.

Combined ratios. Our gross combined ratio represents the sum of ceded premiums, net losses and loss adjustment expenses, policy acquisition costs and G&A expenses as a percentage of gross premiums earned. Our net combined ratio represents the sum of net losses and loss adjustment expenses, policy acquisition costs and G&A 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 insurance industry. A combined ratio under 100% generally reflects profitable underwriting results.


Quarterly Financial Results

Net income (loss) for the third quarter of 2018 was $6.0 million compared to ($8.7) million for the third quarter of 2017. The increase primarily reflects net income associated with the inclusion of Narragansett Bay Insurance Company (“NBIC”), acquired on November 30, 2017, income from hurricane mitigation activity, the prior year quarter’s inclusion of a $6.9 million non-cash charge associated with Heritage’s convertible debt and a reduction in retained catastrophe losses ($16.6 million in third quarter of 2018 vs. $20.0 million in the prior year quarter).

Gross premiums written were $233.6 million in the third quarter of 2018, up 51.2% from $154.4 million in the prior year quarter. The increase primarily stems from inclusion of NBIC, partly offset by a decrease in Florida premiums related to exposure management efforts aimed largely at Broward and Miami-Dade counties.

Gross premiums earned were $234.2 million in the third quarter of 2018, up 53.0% from $153.1 million in the prior year quarter. This increase stems from the same items impacting gross premiums written.

The ceded premium ratio was 49.5% in the third quarter of 2018, up 11.7 points from 37.8% in the prior year quarter. The increase is attributable to inclusion of NBIC, which has a higher ceded premium ratio than the legacy Heritage entity due to its quota share reinsurance agreements. Excluding NBIC, but including reinsurance synergies, the Company’s ceded premium ratio would have been 35.0% for the third quarter of 2018.

The net loss ratio was 49.6% in the third quarter of 2018, down 17.7 points from 67.3% in the prior year quarter. The decrease stems from increased hurricane mitigation activity and lower retained catastrophe losses in the current year quarter.

The Company’s net expense ratio was 44.3% in the third quarter of 2018, up 6.1 points from 38.2% in the prior year quarter. The increase stems from non-recurring business acquisition related expenses and NBIC-related integration costs, partly offset by $18.1 million of ceding commissions associated with NBIC’s quota share reinsurance contracts.

The net combined ratio was 93.9% in the third quarter of 2018, down 11.6 points from 105.5% in the prior year quarter. The decrease stems from net loss ratio improvement, partly offset by net expense ratio deterioration, as described above.

Book Value Analysis

Third quarter 2018 book value per share increased 18% year-over-year to $15.16.

 

     As Of  
Book Value Per Share    September 30, 2018      December 31, 2017      September 30, 2017  

Numerator:

        

Common stockholders’ equity

   $ 390,556      $ 379,816      $ 301,681  
  

 

 

    

 

 

    

 

 

 

Denominator:

        

Total Shares Outstanding

     25,769,804        25,885,004        23,500,174  
  

 

 

    

 

 

    

 

 

 

Book Value Per Common Share

   $ 15.16      $ 14.67      $ 12.84  
  

 

 

    

 

 

    

 

 

 

Conference Call Details:

Thursday, November 1, 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.


HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Balance Sheets

(Amounts in thousands, except share amounts)

 

     September 30,
2018
    December 31,
2017
 
ASSETS    (unaudited)        

Fixed maturity securities, available for sale, at fair value (amortized

cost of $528,139 and $552,458 in 2018 and 2017, respectively)

     515,541     $ 549,796  

Equity securities, available for sale, at fair value (cost of $16,906 and $17,548 in 2018 and 2017, respectively)

     15,709       17,217  
  

 

 

   

 

 

 

Total investments

     531,250       567,013  

Cash and cash equivalents

     221,524       153,697  

Restricted cash

     12,250       20,833  

Accrued investment income

     3,753       5,057  

Premiums receivable, net

     68,621       67,757  

Reinsurance recoverable on paid and unpaid claims

     324,826       357,357  

Prepaid reinsurance premiums

     282,649       227,764  

Income taxes receivable

     36,249       37,338  

Deferred policy acquisition costs, net

     75,702       41,678  

Property and equipment, net

     18,480       18,748  

Intangibles, net

     81,911       101,626  

Goodwill

     152,459       152,459  

Other assets

     15,653       19,883  
  

 

 

   

 

 

 

Total Assets

   $ 1,825,327     $ 1,771,210  
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

    

Unpaid losses and loss adjustment expenses

   $ 421,095     $ 470,083  

Unearned premiums

     484,680       475,334  

Reinsurance payable

     217,022       17,577  

Long-term debt, net

     178,330       184,405  

Deferred income tax

     11,963       34,333  

Advance premiums

     33,435       23,648  

Accrued compensation

     10,486       16,477  

Accounts payable and other liabilities

     77,760       169,537  
  

 

 

   

 

 

 

Total Liabilities

   $ 1,434,771     $ 1,391,394  
  

 

 

   

 

 

 

Commitments and contingencies

    

Stockholders’ Equity:

    

Common stock, $0.0001 par value, 50,000,000 shares authorized, 26,569,804 shares issued and 25,769,804 outstanding at September 30, 2018 and 26,560,004 shares issued and 25,885,004 outstanding at December 31, 2017

     3       3  

Additional paid-in capital

     295,500       294,836  

Accumulated other comprehensive loss

     (9,583     (3,064

Treasury stock, at cost, 7,214,797 shares at September 30, 2018 and 7,099,597 shares at December 31, 2017

     (89,185     (87,185

Retained earnings

     193,821       175,226  
  

 

 

   

 

 

 

Total Stockholders’ Equity

     390,556       379,816  
  

 

 

   

 

 

 

Total Liabilities and Stockholders’ Equity

   $ 1,825,327     $ 1,771,210  
  

 

 

   

 

 

 


HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive (Loss) Income

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

(Unaudited)

 

     For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
     2018     2017     2018     2017  
REVENUES:                         

Gross premiums written

   $ 233,613     $ 154,355     $ 701,643     $ 455,845  

Change in gross unearned premiums

     551       (1,292     (9,345     4,180  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross premiums earned

     234,164       153,063       692,298       460,025  

Ceded premiums

     (115,926     (57,855     (356,748     (182,189
  

 

 

   

 

 

   

 

 

   

 

 

 

Net premiums earned

     118,238       95,208       335,550       277,836  

Net investment income

     3,847       2,735       9,704       8,210  

Net realized gains (losses)

     5       365       (307     1,011  

Other revenue

     3,205       3,466       10,346       10,948  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total revenues

     125,295       101,774       355,293       298,005  

EXPENSES:

        

Losses and loss adjustment expenses

     58,695       64,035       177,775       156,728  

Policy acquisition costs, net of ceding commission income for the three and nine months ended September 30, 2018, of $13,781 and $42,097 respectively

     26,569       20,906       58,167       66,086  

General and administrative expenses, net of ceding commission income for the three and nine months ended September 30, 2018, of $4,526 and $13,772 respectively

     25,815       15,420       72,167       48,826  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total expenses

     111,079       100,361       308,109       271,640  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     14,216       1,413       47,184       26,365  

Interest expense, net

     5,225       3,751       15,431       8,163  

Other non-operating income, net

           6,883       (542     6,883  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before income taxes

     8,991       (9,221     32,295       11,319  
  

 

 

   

 

 

   

 

 

   

 

 

 

Provision for income taxes

     3,002       (525     9,068       7,390  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 5,989     $ (8,696   $ 23,227     $ 3,929  
  

 

 

   

 

 

   

 

 

   

 

 

 

OTHER COMPREHENSIVE (LOSS) INCOME

        

Change in net unrealized (losses) gains on investments

     (2,895     593       (9,918     8,473  

Reclassification adjustment for net realized investment (gains) losses

     (5     (365     307       (1,011

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

     1,665       (81     3,249       (2,866
  

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive (loss) income

   $ 4,754     $ (8,549   $ 16,865     $ 8,525  
  

 

 

   

 

 

   

 

 

   

 

 

 

Weighted average shares outstanding

        

Basic

     25,631,871       25,883,267       25,663,415       27,647,146  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

     26,046,938       25,883,267       26,340,759       27,647,146  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share

        

Basic

   $ 0.23     $ (0.34   $ 0.91     $ 0.14  

Diluted

   $ 0.23     $ (0.34   $ 0.88     $ 0.14  


About Heritage

Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Florida. Its insurance subsidiaries, Heritage Property & Casualty Insurance Company, Zephyr Insurance Company, and Narragansett Bay Insurance Company, write approximately $923 million of personal and commercial residential premium 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. This release includes forward-looking statements relating to our estimate of retained catastrophe losses from Hurricane Michael and the related profit from our vertically integrated loss mitigation affiliates. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: the possibility that actual losses may exceed reserves; the concentration of our business in coastal states, which could be impacted by hurricane losses or other significant weather-related events such as northeastern winter storms; our exposure to catastrophic weather events; increased costs of reinsurance, non-availability of reinsurance, and non-collectability of reinsurance; our failure to effectively manage our growth and integrate acquired companies; increased competition, competitive pressures, and market conditions; our failure to accurately price the risks we underwrite; inherent uncertainty of our models and our reliance on such model as a tool to evaluate risk; the failure of our claims department to effectively manage or remediate claims; low renewal rates and failure of such renewals to meet our expectations; our failure to execute our diversification strategy; failure of our information technology systems and unsuccessful development and implementation of new technologies; a lack of redundancy in our operations; our failure to attract and retain qualified employees and independent agents or our loss of key personnel; our inability to generate investment income; our inability to maintain our financial stability rating; effects of emerging claim and coverage issues relating to legal, judicial, environmental and social conditions; the failure of our risk mitigation strategies or loss limitation methods; and changes in regulations and our failure to meet increased regulatory requirements; 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:

Arash Soleimani, CFA, CPA

Executive Vice President & Director of Investor Relations

727.871.0206

Email: asoleimani@heritagepci.com

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