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 6, 2019

 

 

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.  ☒

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.0001 per share		HRTG		New York Stock Exchange

 

 

 

Item 2.02 Results of Operations and Financial Conditions.

On May 6, 2019, Heritage Insurance Holdings, Inc. issued a press release announcing financial results for its fiscal quarter ended March 31, 2019. 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 on Form 8-K.

 

No.		Exhibit
99.1		Press Release dated May 6, 2019.

 

2

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: May 6, 2019				By:		/s/ Bruce Lucas
						Bruce Lucas Chairman and Chief Executive Officer

 

3

Exhibit 99.1

Heritage Reports First Quarter 2019 Results

Clearwater, FL – May 6, 2019: Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported first quarter 2019 financial results.

First Quarter 2019 Highlights

 

•

Net income was $7.0 million, or $0.24 per diluted share. Investment gains contributed approximately $0.8 million* to net income, or $0.03 per diluted share.

 

•

Gross premiums written were $210.3 million, up 2.9% year-over-year, including 6.6% growth outside Florida and 0.1% growth in Florida.

 

•

Began writing personal residential business in Virginia and launched commercial residential product in New Jersey. Heritage is now actively writing personal residential business in twelve states (licensed in fifteen).

 

•

Favorable prior year reserve development of $0.6 million, representing third consecutive quarter of favorable development.

 

•

Net current accident year catastrophe losses of $15.0 million, including $10.2 million for Brevard County, FL hailstorm.

 

•

Repurchased 347,740 shares for $5.0 million at a 3% discount to first quarter 2019 book value per share, resulting in total capital returned to shareholders of $6.8 million in the quarter, including $0.06 per share regular quarterly dividend.

 

•

As previously disclosed, paid down $10.0 million of revolving credit facility debt and repurchased an incremental $5.8 million principal amount of convertible notes ($23.4 million principal amount of convertible notes remain outstanding with third parties), taking the debt-to-capital ratio to 24.1%, down 10.7 points year-over-year and 2.7 points sequentially.

Bruce Lucas, the Company’s Chairman and CEO, said, “In the first quarter, we continued to diversify our footprint outside Florida, with personal residential Tri-County, Florida TIV now representing just 5.2% of consolidated property TIV, a 1.2-point year-over-year reduction. We applaud the Florida legislature for passing much-needed reforms, which should help reduce abusive practices in the state. The first quarter represents our third consecutive quarter of favorable prior year reserve development, demonstrating that our thorough reserving review in the second quarter of 2018 is bearing fruit. We’re off to a solid start in 2019 – our organic growth turned positive, as we continue to gain traction across our fifteen-state footprint despite our exposure reduction actions in southeast Florida, and, our core underwriting operation remained profitable even though we sustained $15.0 million of retained catastrophe losses.”

*Assumes investment gains of $1.0 million were taxed at prevailing statutory rates of applicable jurisdictions.

Results of Operations

The following table summarizes our results of operations for the three months ended March 31, 2019 and 2018 (amounts in thousands, except percentages and per share amounts):

 

		Three Months Ended March 31,
		2019				2018				Change
Total revenues		$	118,261			$	112,026				6	%
Net Income		$	6,964			$	14,829				(53	)%
Per Share		$	0.24			$	0.55				(57	)%
Book value per share		$	14.78			$	15.09				(2	)%
Return on equity			6.5	%			15.4	%			(9	)pts
Underwriting summary
Gross premiums written		$	210,348			$	204,366				3	%
Gross premiums earned		$	228,590			$	227,163				1	%
Ceded premiums		$	(118,899	)		$	(121,055	)			(2	)%
Net premiums earned		$	109,691			$	106,108				3	%
Ceded premium ratio			52.0	%			53.3	%			(1	)pts
Ratios to Net Premiums Earned:
Loss ratio			56.6	%			50.0	%			7	pts
Expense ratio			40.7	%			32.2	%			9	pts
Combined ratio			97.3	%			82.2	%			15	pts

Ratios

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

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

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

Net combined ratio. Our net combined ratio represents the sum of net losses and LAE, PAC and G&A expenses as a percentage of net premiums earned. The net combined ratio is the key measure of underwriting performance traditionally used in the property and casualty insurance industry. A net combined ratio under 100% generally reflects profitable underwriting results.

Quarterly Financial Results

First quarter 2019 net income was $7.0 million compared to $14.8 million in the prior year quarter. The decrease primarily reflects a higher net expense ratio stemming from the favorable impact of NBIC-related purchase accounting on the prior year quarter and a higher net loss ratio.

Gross premiums written were $210.3 million in first quarter 2019, up 2.9% from $204.4 million in the prior year quarter. The increase reflects better diversification, as premiums grew 6.6% outside Florida, but only 0.1% in Florida. Premiums-in-force were $930.1 million, up 0.7% year-over-year, including 4.7% growth outside Florida and a 2.4% decline in Florida. Sequentially, premiums-in-force increased 0.7%, including 1.8% growth outside Florida and a 0.3% decline in Florida.

Gross premiums earned were $228.6 million in first quarter 2019, up 0.6% from $227.2 million in the prior year quarter. The increase stems from the same items impacting gross premiums written.

The ceded premium ratio was 52.0% in first quarter 2019, down 1.3 points from 53.3% in the prior year quarter. The decrease is attributable to NBIC-related reinsurance synergies and a decline in NBIC’s gross quota share reinsurance program from 18.8% to 8.0%, partly offset by an increase in NBIC’s net quota share program from 49.5% to 52.0%.

The net loss ratio was 56.6% in first quarter 2019, up 6.6 points from 50.0% in the prior year quarter. The increase relates to higher current accident quarter net losses and LAE, partly offset by better reserve development and a lower ceded premium ratio.

The net expense ratio was 40.7% in first quarter 2019, up 8.5 points from 32.2% in the prior year quarter. The increase primarily stems from the favorable impact of NBIC-related purchase accounting on the prior year quarter and reduced ceding commission income in the current year quarter associated with a reduction to NBIC’s overall quota share reinsurance programs, partly offset by a lower ceded premium ratio.

The net combined ratio was 97.3% in first quarter 2019, up 15.1 points from 82.2% in the prior year quarter. The increase stems from higher net loss and expense ratios, as described above.

Book Value Analysis

Book value per share decreased 2.1% year-over-year to $14.78 at March 31, 2019, reflecting Heritage’s previously disclosed December 2018 refinancing transactions, but increased 2.4% sequentially, reflecting first quarter 2019’s profitability.

 

		As Of
Book Value Per Share		March 31, 2019				December 31, 2018				March 31, 2018
Numerator:
Common stockholders’ equity		$	435,087			$	425,333			$	388,893
Denominator:
Total Shares Outstanding			29,432,217				29,477,756				25,769,806
Book Value Per Common Share		$	14.78			$	14.43			$	15.09

Conference Call Details:

Tuesday, March 7, 2019 – 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)

(unaudited)

 

		March 31, 2019				December 31, 2018
ASSETS
Fixed maturities, at fair value			527,940			$	509,649
Equity securities, at fair value			17,375				16,456
Other investments			21,693				—
Total investments			567,008				526,105
Cash and cash equivalents			279,720				250,117
Restricted cash			12,257				12,253
Accrued investment income			4,618				4,468
Premiums receivable, net			55,096				57,000
Reinsurance recoverable on paid and unpaid claims			263,266				317,930
Prepaid reinsurance premiums			161,015				233,071
Income taxes receivable			365				35,586
Deferred policy acquisition costs, net			69,883				73,055
Property and equipment, net			21,317				17,998
Intangibles, net			74,757				76,850
Goodwill			152,459				152,459
Other assets			15,232				11,821
Total Assets		$	1,676,993			$	1,768,713
LIABILITIES AND STOCKHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses		$	404,484			$	432,359
Unearned premiums			454,225				472,357
Reinsurance payable			114,263				166,975
Long-term debt, net			132,176				148,794
Deferred income tax			5,967				7,705
Advance premiums			27,892				20,000
Accrued compensation			7,752				9,226
Accounts payable and other liabilities			95,147				85,964
Total Liabilities		$	1,241,906			$	1,343,380
Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 30,013,018 shares issued and 29,432,217 outstanding at March 31, 2019 and 30,083,559 shares issued and 29,477,756 outstanding at December 31, 2018			3				3
Additional paid-in capital			328,937				325,292
Accumulated other comprehensive loss			(564	)			(6,527	)
Treasury stock, at cost, 7,562,537 shares at March 31, 2019 and 7,214,797 shares at December 31, 2018			(94,196	)			(89,185	)
Retained earnings			200,907				195,750
Total Stockholders’ Equity			435,087				425,333
Total Liabilities and Stockholders’ Equity		$	1,676,993			$	1,768,713

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive Income

(Amounts in thousands, except share amounts)

(Unaudited)

 

		For the Three Months Ended March 31,
		2019				2018
REVENUES:
Gross premiums written		$	210,348			$	204,366
Change in gross unearned premiums			18,242				22,797
Gross premiums earned			228,590				227,163
Ceded premiums			(118,899	)			(121,055	)
Net premiums earned			109,691				106,108
Net investment income			3,672				3,302
Net realized gains (losses)			1,024				(227	)
Other revenue			3,874				2,843
Total revenues			118,261				112,026
EXPENSES:
Losses and loss adjustment expenses			62,139				53,091
Policy acquisition costs			26,020				12,187
General and administrative expenses			18,604				21,931
Total expenses			106,763				87,209
Operating income			11,498				24,817
Interest expense, net			2,117				4,820
Other non-operating (income)/loss, net			48				—
Income before income taxes			9,333				19,997
Provision for income taxes			2,369				5,168
Net income		$	6,964			$	14,829
OTHER COMPREHENSIVE INCOME
Change in net unrealized gains (losses) on investments			8,036				(6,478	)
Reclassification adjustment for net realized investment losses			335				227
Income tax (expense) benefit related to items of other comprehensive income			(2,408	)			1,823
Total comprehensive income		$	12,927			$	10,401
Weighted average shares outstanding
Basic			29,540,514				25,727,553
Diluted			29,544,563				26,732,019
Earnings per share
Basic		$	0.24			$	0.58
Diluted		$	0.24			$	0.55

About Heritage

Heritage Insurance Holdings, Inc. is a super-regional property and casualty insurance holding company headquartered in Clearwater, Florida. Through its insurance subsidiaries and a large network of experienced agents, the Company writes over $900 million of gross personal and commercial residential premium across its multi-state footprint.

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 (i) expected positive financial effects in the first quarter of 2019, expected decline in business in Florida, (iii) anticipated continued improvement in our loss trends, (iv) developmdnt of losses from Brevard storm, (v) seasonality of income and expectations that the fourth quarter will be the strongest income quarter, and (vi) expected positive impact of geogrpaic diversification. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: our ability to comply with our obligations under the new credit facilities, including the financial and other covenants contained therein, 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 grow our business outside of Florida; our ability to obtain regulatory approval for requested rate changes and new licenses, 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, 2018 filed with the Securities and Exchange Commission on March 12, 2019. 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.

Investor Contact:

Arash Soleimani, CFA, CPA

Executive Vice President

727.871.0206

Email: [email protected]