Heritage Reports Second Quarter 2024 Results
Second Quarter 2024 Result Highlights
- Net income of
$18.9 million or$0.61 per diluted share, improved from net income of$7.8 million or$0.30 per diluted share in the prior year quarter. - Gross premiums earned of
$350.1 million , up 6.1% from$330.0 million in the prior year quarter. - Net premiums earned of
$190.3 million , up 7.6% from$176.8 million in the prior year quarter. - Net loss ratio of 55.7%, an improvement of 4.6 points from 60.3% in the prior year quarter.
- Net expense ratio of 36.8%, up 2.0 points from 34.8% in the prior year quarter.
- Net combined ratio of 92.5%, an improvement of 2.6 points from 95.1% in the prior year quarter.
"First, on behalf of the entire Heritage family, we wish a swift and complete recovery to all of those impacted by Hurricane Debby. Our team has been responding to policyholder needs and remains ready to provide outstanding claim service. With regard to the second quarter, our strong results demonstrate the continued execution of our underwriting and rate adequacy initiatives over the last three years," remarked
Strategic Profitability Initiatives
The following provides an update to the Company's strategic initiatives aimed at achieving consistent long-term quarterly earnings and driving shareholder value. The Supplemental Information table included in this earnings release demonstrates progress made compared to second quarter 2023.
Generate underwriting profit through rate adequacy and more selective underwriting.
- Significant and consistent rating actions across the book of business have had a favorable impact, resulting in higher average premium per policy.
- Maintaining rate adequacy is a core principle for our business and we expect our net income to grow and build off our first quarter results, having a positive impact on future earnings.
- Gross premiums earned increased 6.1% over the prior year quarter, driven by rate actions as well as organic growth in commercial residential business, while net income grew by 143%.
- Premiums-in-force of
$1.4 billion are up 6.1% from the prior year quarter, driven primarily by growth in commercial residential business and rate increases throughout the book of business. - Continued focus on enhancing underwriting criteria including assessment of agent and agency performance has benefited the attritional loss ratio.
Allocate capital to products and geographies that maximize long-term returns.
- We selectively increased the commercial residential premium in force by 29.4% compared to the second quarter of 2023, while the total insured value ("TIV") only increased by 9.9%. The commercial residential business, which tends to have a significantly lower attritional loss ratio, generates materially higher premiums. Commercial residential business accounts for 21.3% of the in-force premium, compared to 17.5% in the prior year period.
- As part of our targeted exposure management strategy, we continue to grow our policy count in products and geographies which are profitable and reduce our policy count in unprofitable and over concentrated areas.
- In-Force premium grew nearly
$30.0 million or 177.0% year over year for our Excess & Surplus ("E&S") business where we can more nimbly adjust rates and coverage. This business was written inCalifornia ,Florida , and South Carolina. We will continue to evaluate other states for E&S and other products as we focus on our controlled growth strategy. - This disciplined underwriting approach resulted in a policy count reduction of just over 69,000 or 14.1% throughout our footprint from second quarter 2023, while premium in force increased by
$81.2 million or 6.1%. We expect the headwind from declining policies to moderate. - Given improved rate adequacy across our regions, we will begin underwriting new policies in
Florida and the Northeast as we pursue a controlled growth strategy designed to accelerate revenue growth. - Competitor dislocation in many markets has opened new business opportunities to Heritage, specifically in
New York as several competitors have exited the market. - Expect to leverage our existing sales and marketing teams that are in place in both
Florida and the Northeast.
Maintain a balanced and diversified portfolio.
- Selective diversification of the portfolio by product and state, which can change based on market conditions, serves to reduce performance volatility.
- No state represents over 27.3% of the Company's TIV.
Capital Management
Heritage's Board of Directors has decided to continue its suspension of the quarterly shareholder dividend to prioritize financial stability and strategic growth. The Board of Directors will continue to evaluate dividend distribution and stock repurchases on a quarterly basis. No shares of common stock were repurchased during the quarter.
Results of Operations
The following table summarizes results of operations for the three and six months ended
|
|
Three Months Ended |
|
Six Months Ended |
|
||||||||
|
|
2024 |
|
2023 |
|
Change |
|
2024 |
|
2023 |
|
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ 203,571 |
|
$ 185,313 |
|
9.9 % |
|
$ 394,873 |
|
$ 362,234 |
|
9.0 % |
|
Net income |
|
$ 18,869 |
|
$ 7,779 |
|
142.5 % |
|
$ 33,094 |
|
$ 21,787 |
|
51.9 % |
|
Earnings per share |
|
$ 0.61 |
|
$ 0.30 |
|
103.3 % |
|
$ 1.08 |
|
$ 0.85 |
|
27.1 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share |
|
$ 8.32 |
|
$ 6.27 |
|
32.7 % |
|
$ 8.32 |
|
$ 6.27 |
|
32.7 % |
|
Return on equity * |
|
30.8 % |
|
19.7 % |
|
11.1 |
pts |
27.8 % |
|
29.9 % |
|
(2.1) |
pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting summary |
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross premiums written |
|
424,530 |
|
396,559 |
|
7.1 % |
|
781,214 |
|
706,868 |
|
10.5 % |
|
Gross premiums earned |
|
350,073 |
|
330,015 |
|
6.1 % |
|
691,462 |
|
647,037 |
|
6.9 % |
|
Ceded premiums |
|
(159,757) |
|
(153,211) |
|
4.3 % |
|
(321,720) |
|
(304,204) |
|
5.8 % |
|
Net premiums earned |
|
190,316 |
|
176,804 |
|
7.6 % |
|
369,742 |
|
342,833 |
|
7.8 % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded premium ratio |
|
45.6 % |
|
46.4 % |
|
(0.8) |
pts |
46.5 % |
|
47.0 % |
|
(0.5) |
pts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Net Premiums Earned: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss ratio |
|
55.7 % |
|
60.3 % |
|
(4.6) |
pts |
56.2 % |
|
59.5 % |
|
(3.3) |
pts |
Expense ratio |
|
36.8 % |
|
34.8 % |
|
2.0 |
pts |
36.9 % |
|
35.3 % |
|
1.6 |
pts |
Combined ratio |
|
92.5 % |
|
95.1 % |
|
(2.6) |
pts |
93.1 % |
|
94.8 % |
|
(1.7) |
pts |
* Return on equity represents annualized net income for the period divided by average stockholders' equity during the period.
Note: Percentages and sums in the table may not recalculate precisely due to rounding.
Ratios
Ceded premium ratio represents ceded premiums as a percentage of gross premiums earned.
Net loss ratio represents net losses and loss adjustment expenses ("LAE") as a percentage of net premiums earned.
Net expense ratio represents policy acquisition costs ("PAC") and general and administrative ("G&A") expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of PAC and G&A expenses.
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 a key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results.
Second Quarter 2024 Results:
Second quarter 2024 net income of
Premiums-in-force were
Gross premiums written of
Gross premiums earned of
Net premiums earned of
Ceded premium ratio of 45.6%, down 0.8 points from 46.4% in the prior year quarter driven by growth in gross premiums earned which offset higher catastrophe excess of loss reinsurance costs. Due to improvements in our reinsurance program from a cost and structure standpoint, coupled with growing gross premiums earned, we expect to have a meaningful reduction in our ceded premium ratio going forward.
Net loss ratio decreased to 55.7%, a 4.6 point decline from 60.3% in the same quarter last year reflecting higher net premiums earned, coupled with slightly lower net losses and LAE driven by lower weather losses which were partly offset by higher adverse development. Net weather losses for the current accident quarter were
The net expense ratio was 36.8%, a 2.0 point increase from the prior year quarter amount of 34.8%, primarily due to higher underwriting costs associated with the increase in gross premiums written and a reduction in ceding commission income, as well as and higher general and administrative costs as described above, which were partly offset by the increase in net premiums earned.
Net combined ratio of 92.5% improved 2.6 points from 95.1% in the prior year quarter, driven by a lower net loss ratio and partly offset by a higher net expense ratio as described above.
Net investment income, was
The effective tax rate of 24.1% compared to 43.0% in the prior year quarter. The effective tax rate for the prior year quarter was impacted by an increase of
Supplemental Information:
Policies-in-force: |
Q2 2024 |
|
Q2 2023 |
|
% Change |
|
142,591 |
|
165,761 |
|
(14.0) % |
Other States |
277,653 |
|
323,629 |
|
(14.2) % |
Total |
420,244 |
|
489,390 |
|
(14.1) % |
|
|
|
|
|
|
Premiums-in-force: |
|
|
|
|
|
|
$ 734,698,077 |
|
$ 665,169,364 |
|
10.5 % |
Other States |
687,638,190 |
|
675,983,599 |
|
1.7 % |
Total |
$ 1,422,336,267 |
|
$ 1,341,152,963 |
|
6.1 % |
|
|
|
|
|
|
Total Insured Value: |
|
|
|
|
|
|
$ 104,426,161,222 |
|
$ 105,826,117,271 |
|
(1.3) % |
Other States |
278,666,369,312 |
|
297,901,382,470 |
|
(6.5) % |
Total |
$ 383,092,530,534 |
|
$ 403,727,499,741 |
|
(5.1) % |
Book Value Analysis:
Book Value Per Share |
|
As Of |
||||
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
Common stockholders' equity |
|
$ 255,333 |
|
$ 220,280 |
|
$ 160,627 |
Denominator: |
|
|
|
|
|
|
Total Shares Outstanding |
|
30,684,198 |
|
30,218,938 |
|
25,622,495 |
Book Value Per Common Share |
|
$ 8.32 |
|
$ 7.29 |
|
$ 6.27 |
Book value per share of
Conference Call Details:
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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Condensed Consolidated Balance Sheets |
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(Amounts in thousands, except share amounts) |
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|||
|
|
|
|
ASSETS |
(unaudited) |
|
|
Fixed maturities, available-for-sale, at fair value |
$ 698,853 |
|
$ 560,682 |
Equity securities, at fair value, |
1,936 |
|
1,666 |
Other investments, net |
6,790 |
|
7,067 |
Total investments |
707,579 |
|
569,415 |
Cash and cash equivalents |
480,930 |
|
463,640 |
Restricted cash |
10,956 |
|
9,699 |
Accrued investment income |
5,148 |
|
4,068 |
Premiums receivable, net |
100,832 |
|
89,490 |
Reinsurance recoverable on paid and unpaid claims, net |
536,888 |
|
482,429 |
Prepaid reinsurance premiums |
505,180 |
|
294,222 |
Income tax receivable |
12,066 |
|
13,354 |
Deferred income tax asset, net |
12,694 |
|
11,111 |
Deferred policy acquisition costs, net |
114,818 |
|
102,884 |
Property and equipment, net |
34,510 |
|
33,218 |
Right-of-use lease asset, finance |
16,337 |
|
17,606 |
Right-of-use lease asset, operating |
6,357 |
|
6,835 |
Intangibles, net |
39,464 |
|
42,555 |
Other assets |
15,590 |
|
12,674 |
Total Assets |
$ 2,599,349 |
|
$ 2,153,200 |
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
Unpaid losses and loss adjustment expenses |
$ 822,271 |
|
$ 845,955 |
Unearned premiums |
765,632 |
|
675,921 |
Reinsurance payable |
504,291 |
|
159,823 |
Long-term debt, net |
120,780 |
|
119,732 |
Advance premiums |
26,262 |
|
23,900 |
Accrued compensation |
6,278 |
|
9,461 |
Lease liability, finance |
19,250 |
|
20,386 |
Lease liability, operating |
7,528 |
|
8,076 |
Accounts payable and other liabilities |
71,724 |
|
69,666 |
Total Liabilities |
$ 2,344,016 |
|
$ 1,932,920 |
Stockholders' Equity: |
|
|
|
Common stock, |
3 |
|
3 |
Additional paid-in capital |
361,789 |
|
360,310 |
Accumulated other comprehensive loss, net of taxes |
(34,770) |
|
(35,250) |
|
(130,900) |
|
(130,900) |
Retained earnings |
59,211 |
|
26,117 |
Total Stockholders' Equity |
255,333 |
|
220,280 |
Total Liabilities and Stockholders' Equity |
$ 2,599,349 |
|
$ 2,153,200 |
|
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Condensed Consolidated Statements of Operations and Other Comprehensive Income |
|||||||
(Amounts in thousands, except share amounts) |
|||||||
(Unaudited) |
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|
|||||||
|
For the three months ended |
|
For the six months ended |
||||
|
2024 |
|
2023 |
|
2024 |
|
2023 |
REVENUES: |
|
|
|
|
|
|
|
Gross premiums written |
$ 424,530 |
|
$ 396,559 |
|
$ 781,214 |
|
$ 706,868 |
Change in gross unearned premiums |
(74,457) |
|
(66,544) |
|
(89,752) |
|
(59,831) |
Gross premiums earned |
350,073 |
|
330,015 |
|
691,462 |
|
647,037 |
Ceded premiums |
(159,757) |
|
(153,211) |
|
(321,720) |
|
(304,204) |
Net premiums earned |
190,316 |
|
176,804 |
|
369,742 |
|
342,833 |
Net investment income |
9,769 |
|
6,599 |
|
18,320 |
|
12,181 |
Net realized gains (losses) and impairment |
12 |
|
(1,568) |
|
11 |
|
330 |
Other revenue |
3,474 |
|
3,478 |
|
6,800 |
|
6,890 |
Total revenues |
203,571 |
|
185,313 |
|
394,873 |
|
362,234 |
EXPENSES: |
|
|
|
|
|
|
|
Losses and loss adjustment expenses |
105,928 |
|
106,646 |
|
207,963 |
|
204,098 |
Policy acquisition costs, net |
47,224 |
|
41,451 |
|
94,153 |
|
81,776 |
General and administrative expenses, net |
22,780 |
|
20,058 |
|
42,414 |
|
39,111 |
Intangible asset impairment |
— |
|
767 |
|
— |
|
767 |
Total expenses |
175,932 |
|
168,922 |
|
344,530 |
|
325,752 |
Operating income |
27,639 |
|
16,391 |
|
50,342 |
|
36,482 |
Interest expense, net |
2,780 |
|
2,740 |
|
5,610 |
|
5,621 |
Income before income taxes |
24,859 |
|
13,651 |
|
44,733 |
|
30,861 |
Provision for income taxes |
5,990 |
|
5,872 |
|
11,639 |
|
9,074 |
Net income |
$ 18,869 |
|
$ 7,779 |
|
$ 33,094 |
|
$ 21,787 |
OTHER COMPREHENSIVE INCOME |
|
|
|
|
|
|
|
Change in net unrealized gains (losses) on investments |
924 |
|
(2,986) |
|
641 |
|
9,158 |
Reclassification adjustment for net realized investment (gains) losses |
(12) |
|
9 |
|
(11) |
|
11 |
Income tax (expense) benefit related to items of other comprehensive income (loss) |
(216) |
|
698 |
|
(150) |
|
(2,158) |
Total comprehensive income |
$ 19,565 |
|
$ 5,500 |
|
$ 33,574 |
|
$ 28,798 |
Weighted average shares outstanding |
|
|
|
|
|
|
|
Basic |
30,649,732 |
|
25,567,157 |
|
30,513,207 |
|
25,562,731 |
Diluted |
30,708,995 |
|
25,626,420 |
|
30,572,470 |
|
25,621,994 |
Earnings per share |
|
|
|
|
|
|
|
Basic |
$ 0.62 |
|
$ 0.30 |
|
$ 1.08 |
|
$ 0.85 |
Diluted |
$ 0.61 |
|
$ 0.30 |
|
$ 1.08 |
|
$ 0.85 |
About Heritage
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 the expected positive impact of our strategic initiatives on our future financial results, including our strategy of controlled growth anchored by continued risk management, stringent and selective underwriting, rating action, including the impact of rate adequacy on future financial results; capital allocation; targeted exposure management and strategic reduction of policy count, where appropriate, in certain geographies; the impact of our reinsurance program and earned premium growth on our future ceded premium ratio; our expectation that the headwind from declining policies will moderate; our expectation regarding selective underwriting in
Investor Contact:
Chief Financial Officer
klusk@heritagepci.com
investors@heritagepci.com
Zack Mukewa
Investor Relations
Lambert
HRTG@lambert.com
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