Heritage Insurance Q1 2025 Earnings Report

Heritage Insurance EPS Results

• Actual EPS: $0.99
• Consensus EPS: $0.46
• Beat/Miss: Beat by +$0.53
• One Year Ago EPS: N/A

Heritage Insurance Revenue Results

• Actual Revenue: $211.52 million
• Expected Revenue: $213.68 million
• Beat/Miss: Missed by -$2.16 million
• YoY Revenue Growth: N/A

Heritage Insurance Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 9:00AM ET

Heritage Insurance (NYSE:HRTG) (NYSE: HRTG) is a property and casualty insurance holding company principally engaged in underwriting and issuing personal residential property insurance policies in the state of Florida. Through its primary subsidiary, Heritage Property & Casualty Insurance Company, it offers a range of homeowners’ products, including dwelling fire, homeowners multiple peril, condominium unitowners and wind-only coverage. The company’s focus on high-quality underwriting and disciplined risk selection has helped it establish a significant market presence in regions prone to severe weather events.

Since its founding in 2013 and subsequent public listing, Heritage Insurance has built a reputation for responsive claims handling and proactive catastrophe management. Its in-house catastrophe team monitors emerging storm threats and collaborates with reinsurance partners to mitigate potential losses. Policyholders benefit from streamlined online services for policy issuance, billing and claims reporting, supported by a network of independent agents and direct customer service representatives.

Headquartered in Jacksonville, Florida, Heritage Insurance operates regional offices across the state to facilitate local market knowledge and rapid storm response. While Florida remains its core market, the company continually evaluates opportunities to expand into other coastal states with similar exposure profiles. This strategic approach is designed to balance growth with prudent risk management and reinsurance protection.

Leadership at Heritage is anchored by President and Chief Executive Officer John J. Gallagher, whose three decades of property and casualty experience guide the company’s underwriting and operational strategies. Supported by a seasoned management team and board of directors with deep insurance expertise, Heritage Insurance continues to prioritize financial strength, regulatory compliance and customer satisfaction as it navigates the evolving landscape of residential property insurance.

Heritage Insurance Q1 2025 Earnings Call Transcript

Key Takeaways

• In Q1 2025, Heritage achieved net income of $30.5 million and 39% ROE, up from $14.2 million and 25% ROE a year ago despite $31.8 million in California wildfire losses.
• The company has attained rate adequacy across 90% of its footprint and plans to ramp personal lines capacity from 30% to 100% by year-end, expecting premiums-in-force growth in H2 2025.
• This marks the third consecutive quarter of profitable results despite catastrophe losses, reflecting successful exposure management, underwriting discipline, and strategic initiatives.
• Heritage bolstered its reinsurance program by increasing limits by $285 million with a cost increase of less than $8 million, maintaining a stable indemnity-based structure.
• While new competitors have entered personal and commercial markets, management emphasizes selective underwriting and rate discipline to protect margins.

Presentation

[Operator]

Good morning and welcome to the Heritage Insurance Holdings First Quarter twenty twenty five Earnings Conference Call. Please note today's event is being recorded. I would now like to turn the conference over to Kirk Lusk, Chief Financial Officer for the company. Please go ahead, sir.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Good morning, and thank you for joining us today. We invite you to visit the Investors section of our website, investors.heritagepci.com, where the earnings release and our earnings call will be archived. These materials are available for replay or review at your convenience. Today's call may contain forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations and subject to uncertainty and changes in circumstances.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

In our earnings press release and our SEC filings, we detail material risks that may cause our future results to differ from our expectations. Our statements are as of today, and we have no obligation to update any forward looking statements we may make. For a description of the forward looking statements and the risks that could cause our results to differ materially from those described in the forward looking statements, please refer to our annual report on Form 10 ks, earnings release and other SEC filings. Our comments today will also include non GAAP financial measures. The reconciliations of and other information regarding these measures can be found in our press release.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

With me on the call today is Ernie Guerite, our Chief Executive Officer. I will now turn the call over to Ernie.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Thank you, Kirk. Good morning, everyone, and thank you for joining us today. I'm very pleased to be here this morning to discuss our first quarter results as they clearly demonstrate that Heritage is performing at a high level from both a financial and operational perspective. During the quarter, we achieved a net income of $30,500,000 or $0.99 per diluted share, which includes $31,800,000 of net pretax losses and loss adjustment expenses related to the California wildfires. This compares favorably to the first quarter last year where we delivered net income of $14,200,000 or $0.47 per diluted share with no major weather events.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Q1 represents the third consecutive quarter that we have been impacted by catastrophe losses and maintained our profitability. This is a direct result of the successful implementation of our strategic initiatives over several years designed to attain rate adequacy, manage exposure, and enhance our underwriting discipline. In fact, we have achieved rate adequacy across more than 90% of the regions where we do business, which positions us to return to growing our personal lines policies in force. I am also proud of the support that our heritage employees have provided to our insureds through such challenging times. We have worked diligently over the last several years to provide our insureds with quality customer service and an efficient and thorough claims handling experience, which can be seen in our response to Hurricanes Debbie, Helene, and Milton, as well as the wildfires in Hawaii and California.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Our dedicated staff have provided outstanding support to our policyholders as they recover from these tragic events, demonstrating our unwavering support to our customers. Looking at our first quarter results in more detail, our efforts to attain rate adequacy are having a positive effect on our financials and will continue to earn through our book through the balance of 2025. Our policy count from the fourth quarter of twenty twenty four is down 3%, primarily due to normal attrition and the seasonality of our business, partially offset by the early ramping up of our new personal lines business production. While we have had success in the commercial residential market, we are also seeing more competition in the space. That said, we will continue to ensure rate adequacy for this product and will not sacrifice the bottom line for top line growth.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Looking at the balance of this year, I expect our premiums in force to increase in the second half of the year. Over the last several years, we have carefully managed our exposure, worked to achieve rate adequacy, and diversify our business. This has positioned us to pivot our strategy to one that is focused on managed growth as we open territories for new personal lines business. To put this in perspective and based upon historical production, we only had 30% of our production capacity opened for new business last June. Since then, we have been slowly opening capacity for growth across our geographies and now have nearly 75% of our production capacity open at the April 2025, with the expectation that we will have the balance of our production open by the end of this year.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

To prudently grow the top line, we are selectively writing new personal lines business, anchored by a continued focus on risk management and stringent underwriting. As a result, we expect the pace of new business production to slowly accelerate through the year. This new business growth will earn into our financials in 2025 and future years. Looking to 2026, we expect growth to accelerate as our new business production is fully ramped up across all geographies and the headwind from our exposure management initiatives is fully behind us. Additionally, the legislative changes in Florida are having a positive impact on the economics of writing new, profitable business and where we have seen a market decline in frivolous lawsuits.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

We also believe that the impact of this necessary legislation will be favorable to the consumer in terms of the cost of insurance. We expect the reinsurance market will see the tangible benefits of this legislation as Hurricane Milton claims mature through this year and into next year, which could reduce reinsurance pricing in 2026. Our E and S business provides us with options in our product offering as we continue to evaluate states and markets for E and S opportunities. What makes this business so attractive is that we can adjust our rates and coverages to the changing dynamics state by state to ensure we continue to earn appropriate risk adjusted returns while providing consumers in those states with needed insurance protection. Due to the current dislocation that exists in California, we expect more of the homeowners business to move from admitted carriers to E and S, which provides business opportunities for Heritage.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Turning to reinsurance, we have maintained a stable, indemnity based reinsurance program at manageable costs through our rate adequacy and exposure management initiatives, while also proactively engaging with our reinsurance partners. This can be seen in our sixone renewal, which we completed earlier than expected. Overall, we increased the amount of limit that we purchased by $285,000,000 while our overall cost increased by less than $8,000,000 I would like to thank our dedicated reinsurance partners who have supported our business through multiple catastrophic events over the last several years and look forward to their continued partnership as we work to further expand the company. To conclude, we continue to believe that we have the foundation in place to deliver solid profitable growth in 2025 and future years as we continue to execute our strategy aimed at generating shareholder value. I would also like to reiterate our dedication to navigating the complexities of our market with a strategic focus that prioritizes long term profitability, shareholder value, and customer service driven by our dedicated workforce. Kirk, over to you.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Thank you, Ernie, and good morning, everyone. Starting with our financial highlights, we reported net income of $30,500,000 or $0.99 per diluted share in the first quarter, which generated an annualized rate on average equity of 39%. This compares to $14,200,000 or $0.47 per diluted share and a return on average equity of 25% in the prior year quarter. The increase in net income was primarily driven by an increase in net premiums earned and relatively flat expenses and loss adjustment expense, despite the pretax impact of $31,800,000 of California wildfires. Our first quarter results continued to demonstrate the successful execution of improving our portfolio and continuing to generate positive returns.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Gross premiums earned rose to $353,800,000 up 3.6% from $341,400,000 in the prior year quarter, reflecting higher gross premiums written over the last twelve months from business growth and rating actions. As we ramp up on recently opened geographies and open more geographies, we expect our growth to accelerate at a managed pace. Our new business for the first quarter is slightly above plan and bodes well for our expectations for the remainder of the year. Net premiums earned increased to 200,000,000 up 11.5% from $179,400,000 in the prior year quarter, reflecting growth in gross premiums earned as well as a reduction in ceded premiums for the quarter. The reductions in ceded premium was driven by an $8,700,000 reinstatement premium during the first quarter of twenty twenty four for Hurricane Ian, coupled with a reduction in previously accrued reinstatement premiums of $1,400,000 during the first quarter of twenty twenty five.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Our net investment income for the quarter was $8,600,000 flat from the prior year quarter. This reflects our continued actions to align the investments with the yield curve, while maintaining a high quality portfolio of short duration assets. Our total revenues for the quarter were $211,500,000 up 10.6% from $191,300,000 in the prior year quarter. This improvement was driven by the change in net premiums earned. Our loss ratio for the quarter improved 7.2 points to 49.7% as compared to 56.9% in the same quarter last year, reflecting higher net premiums earned, coupled with a 2.6% reduction in net losses and LAE, even with the California wildfires.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Net weather and cat losses for the first quarter were $43,500,000 an increase of 25,100,000.0 from $18,400,000 in the prior year quarter. Net losses in the current year quarter include non hurricane cat losses of 31,800,000 from the California wildfires, which was a $15,900,000 increase over the non hurricane cat losses of 15,900,000.0 incurred in the prior year quarter. Other weather losses totaled 11,700,000.0, an increase of 9,200,000.0 from the prior year quarter of $2,500,000 The higher cat and weather losses were more than offset by significantly lower attritional losses, reflecting the quality of our portfolio. In addition, we experienced favorable reserve development compared to the prior year quarter. Favorable net loss development was $7,800,000 in the current year quarter compared to adverse development of $6,700,000 in the prior year quarter.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Our net expense ratio for the quarter was 34.8%, a 2.3 improvement from 37.1% in the prior year quarter. This was driven primarily by growth in net premiums earned, coupled with higher ceding commission income, which decreased the net policy acquisition cost ratio by 3.3%. The reduction in policy acquisition ratio was partially offset by a 1% increase in net general and administrative expense ratio. The net combined ratio for the quarter was 84.5%, down 9.5 points from 94% in the prior year quarter, driven by a lower net loss ratio and lower net expense ratio as just described. Turning to our balance sheet.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

We ended the quarter with total assets of $2,200,000,000 and shareholders' equity of $329,000,000 Our book value per share increased to $10.62 at 03/31/2025, up 11.8% from the fourth quarter of twenty twenty four and up 38.5% from the first quarter of twenty twenty four. The increase from 12/31/2024 is primarily attributable to net income as well as a $6,500,000 net of tax reduction in unrealized losses on the company's fixed income securities portfolio. Looking forward, we expect our unrealized losses in the portfolio to continue to roll off as investments mature. The average duration of the fixed income core portfolio was three point one years as the company has extended duration to take advantage of higher yields further out on the yield curve while still maintaining a short duration, high credit quality portfolio. Looking ahead, we remain focused on executing our strategic initiatives aimed at driving long term shareholder value and providing our policyholders and agents with the service they deserve and expect.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

We believe that our proactive approach to managing exposure, enhancing rate adequacy, and investing in technology and infrastructure will position us well for continued success. Thank you for your time today. Operator, we are now ready to take your questions.

[Operator]

We will now begin the question and answer session. Our first question will come from Mark Hughes with Truist. You may now go ahead.

[Mark Hughes, Analyst at Truist Securities]

Yeah, thank you very much. Congratulations on the quarter. Kirk, the ceded premium dollars that we can expect in Q2 and Q3, do you have some thoughts on that, some guidance?

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Yes. Yes. And looking at that, it's kind of going forward and that type of stuff. It's going to be up slightly for the remainder of the year. The ratio probably go up a little bit, but not significantly for the rest of year.

[Mark Hughes, Analyst at Truist Securities]

Okay. So ratio up a little bit, not significantly. Same on dollars, I guess?

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Yes, correct.

[Mark Hughes, Analyst at Truist Securities]

Okay. And then 39% ROE is pretty good stuff with the cat losses in the quarter. Ernie, how do you think rates are going to play out when we think over the next six months, year, two years, trajectory of rates given your strong returns and good profitability. What do you think this is going to mean in terms of pricing?

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Yes, I think good question, Mark. I think one of things is we've been working hard to be rate adequate and we are in 90% of our geography. So one of the things we'll do is keep up with that and maintain with that. I think the regulatory environment in general realizes that keeping up with rate is good for everybody involved. So again, we'll consistently look at where we're at from a rate perspective and go to certain areas if we need more rate, we'll go ahead and do that.

[Mark Hughes, Analyst at Truist Securities]

Now, do you think what's the risk because it goes the other direction? And obviously, even if rates were down a bit, return to profitability would still be excellent.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Yeah, and we've said this. We're okay if rates go down as long losses are going down correspondingly in those markets, right? And I think a testament to Florida last year, we filed for a 3% rate decrease, but we've also seen losses go down in Florida. So obviously keeping those margins in place is what's key there.

[Mark Hughes, Analyst at Truist Securities]

Yeah, okay. And then in personal lines, as you're getting more active in opening up new distribution, How do you see the competition? Is there much competition out there? Are others following suit?

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Yeah, so one comment I'll make. It's really not new distribution, the existing distribution that we've had and then reopening with the agents so they know us. I think one thing we said is we're gradually opening with the agents so they understand the underwriting discipline that we want to maintain. There are new companies that have come in. Obviously, that's known to everybody out there.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

I think most of the new companies are starting off with takeouts and then moving over to new business. But again, we're ready to compete with folks out there as well as there's responsible competition.

[Mark Hughes, Analyst at Truist Securities]

Yeah. And then if you look at your underlying loss, take out the weather, take out the cats, that has continued to improve. Anything about this level that's not sustainable? Is this a pretty good benchmark? I know you get a little more weather activity in other quarters, this level of loss, is that a reasonable baseline?

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Yes. I think when you look at it, again, barring the major storms and that type of stuff, I mean, the loss trends are, I would say, very favorable. I will tell you that the legislative impacts that Ernie mentioned, that type of stuff are having a favorable impact. And if the trends continue, I think that you are going to see them flat for sure. So even with a little bit of claims inflation, I think just that the trends are looking very good right now.

[Mark Hughes, Analyst at Truist Securities]

Yeah, very good. Thank you.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

All right,

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

thank you.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Thank you, Mark.

[Operator]

Our next question will come from Carol Camel with Citizens. You may now go ahead.

[Karol Chmiel, Analyst at Citizens]

Yes, good morning and also congrats on the quarter. And I just have a question here. Yeah, I just have a question here about the supplemental information that you provided with the TIVs, the PIFs and the premiums. And I'm just trying to maybe have a better understanding of the Florida market in terms of PIFs going down, but PIFs are going down also in other states. TIVs basically flattish, but then the premiums are down.

[Karol Chmiel, Analyst at Citizens]

Is this really because of the what you said earlier was the rate coming down in Florida? Or is this a different dynamic?

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Yes, it's really the premium is the rate increases are not as substantial as they have been in the past. And so there's a

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

PIP decrease is decreasing that a little bit. Also, we are seeing a little bit of competition in the commercial markets, which is having a little bit of impact on our premiums. Again, one of the things, as Ernie mentioned, we've been closed in a lot of our territories that we've just started reopening. And so we're anticipating that that's going to start accelerating starting in the second half of this year.

[Karol Chmiel, Analyst at Citizens]

All right. Got it. Thank you. That's it for me.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

All right. Thank you.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Thank you.

[Operator]

Our next question will come from Paul Newsome with Piper Sandler. You may now go ahead.

[Paul Newsome, MD & Senior Research Analyst at Piper Sandler Companies]

Good morning. Thanks for the call, guys.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Good morning, Paul.

[Kirk Lusk, Chief Financial Officer at Heritage Insurance]

Good morning, Paul.

[Paul Newsome, MD & Senior Research Analyst at Piper Sandler Companies]

Could you give us maybe a little bit more color on the competitive environment by state? My sense is that Florida is very different than East Coast, different than California. What's your view on the differences between the various states?

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Yeah, well, I mean, think everybody's heard about all the new entrants coming As you mentioned, in other areas, we're not seeing that level of new entrants coming into the other 15 states that we do business. California, like you said, is another exception where admitted carriers are more leaving the state. So there's more opportunity there as we grow our ENS book. I would say the remaining states are pretty stable.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Again, with the existing agent distribution that we have there, they know us well, Narragansett Bay, SEFRA Insurance. Florida seems always to be where there's new entrants coming in and then there's a pause. But we have seen new entrants come in in the last year.

[Paul Newsome, MD & Senior Research Analyst at Piper Sandler Companies]

Can you talk a little bit about admitted versus non admitted in some of these states as well? Clearly, you've seen at least a little bit in Florida where non admitted is there and a lot more in California. Think you're you're only not admitted in California. Can you talk about how that's swinging back and forth?

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Yeah. So where you're seeing a lot of dislocation, you are seeing more not admitted or E and S carriers going in there because they have the flexibility to increase rates, which is why we use E and S as well. I will say that I think you're seeing more E and S carriers throughout the footprint in general. Just again, as markets change pretty quickly and dynamically, E and S gives you the opportunity to kind of respond to that in a much quicker fashion than the admitted. More stable environments, I think the admitted is fine.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

But I think in some of the larger states, you are seeing more E and S carriers enter into the market that we've seen. The E and S market in general has grown, but it is not your specialty E and S. You're seeing kind of a bit of a switch for your typical homeowners under an E and S carrier.

[Paul Newsome, MD & Senior Research Analyst at Piper Sandler Companies]

Appreciate the help as always.

[Ernie Garateix, Chief Executive Officer at Heritage Insurance]

Thank Paul. You.

Participants

Executives

• Kirk Lusk, Chief Financial Officer
• Ernie Garateix, Chief Executive Officer

Analysts

• Mark Hughes, Analyst at Truist Securities
• Karol Chmiel, Analyst at Citizens
• Paul Newsome, MD & Senior Research Analyst at Piper Sandler Companies