What Heritage Insurance (HRTG) Said on Its Q3 Earnings Call

Key Points

• Heritage Insurance grew earnings despite higher weather losses: Third-quarter net income rose to $51.1 million, while catastrophe and weather losses increased significantly. Favorable prior-year reserve development, lower expenses and stronger investment income helped offset the losses.
• Reinsurance savings supported profitability: The ceded premium ratio fell to 41.7% following the company’s June reinsurance restructuring, which management said provides approximately $63 million in annualized savings. Heritage expects further potential pricing relief during upcoming renewals.
• Management is prioritizing disciplined growth amid Florida competition: Heritage is reducing underpriced Florida commercial business while expanding in other states and entering Texas’s excess-and-surplus market. The company also strengthened its balance sheet, repurchased shares and reported a 42.9% year-over-year increase in book value per share.

Heritage Insurance NYSE: HRTG reported third-quarter net income of $51.1 million, or $1.72 per diluted share, as the insurer absorbed higher catastrophe and weather losses while benefiting from lower reinsurance costs, favorable reserve development and investment-income growth.

Net income increased modestly from $50.4 million, or $1.63 per diluted share, in the prior-year quarter. For the first nine months of 2026, net income rose nearly 16% to $149.3 million, while diluted earnings per share increased 18.5% to $4.94.

Chief Executive Officer Ernie Garateix said the quarter demonstrated the company’s efforts to improve profitability, reduce volatility and diversify its operations. “We absorbed $15.8 million of pre-tax catastrophe losses, compared with none in the third quarter of last year, and still grew diluted earnings per share,” Garateix said.

Weather Losses and Underwriting Results

Heritage reported $33.6 million in current accident-quarter weather and catastrophe losses, compared with $13.8 million a year earlier. The total included $9.1 million from Hurricanes Lala and Lowell, $6.7 million from a September nor’easter, and $17.8 million of non-catastrophe weather losses.

Chief Financial Officer Kirk Lusk said the non-catastrophe weather losses primarily reflected smaller storms, including hail and wind events. He said the company recorded just under $6 million of such losses in the Northeast and a little more than $12 million in the Southeast, predominantly Florida.

Net losses and loss-adjustment expenses rose to $81.4 million from $74.8 million, and the net loss ratio increased to 39.6% from 38.3%. However, Heritage recognized $14 million of favorable prior-year reserve development, up from $5 million in the previous year’s third quarter. Lusk said the favorable development was spread across several accident years and reflected stable claim frequency, manageable severity and claims closing below expectations.

Excluding catastrophes, weather and prior-year development, Garateix said the company’s loss ratio improved by nearly four points. He attributed the result to disciplined pricing, risk selection, claims management and Florida’s improved legal environment.

The net combined ratio was essentially unchanged at 73.0%, compared with 72.9% in the prior-year quarter. The net expense ratio improved 1.2 percentage points to 33.4%.

Reinsurance Savings Support Earnings

Heritage’s ceded premium ratio declined to 41.7% from 46.1% a year earlier, reflecting the first full quarter of savings from the catastrophe excess-of-loss reinsurance program placed in June and a reduction in the company’s Northeast net quota share at the end of 2025.

Ceded premiums fell 11.8% to $147.2 million, while net premiums earned increased 5.4% to $205.6 million. Garateix said the June reinsurance program included more than $2.2 billion of limit and approximately $63 million in annualized savings, while maintaining what management considers a manageable net retention.

Lusk said the current ceded-premium ratio is a reasonable run rate, although it could decline somewhat further in the second half of 2027 depending on renewal conditions. Management said it was hearing that reinsurance pricing could decline by roughly 5% to 7% next year, after an approximately 20% reduction this year.

Florida Competition Pressures Commercial Pricing

Gross premiums written declined 3.1% to $322.8 million, primarily due to lower Florida commercial residential premiums. That decline was partly offset by growth in personal lines and commercial markets outside Florida.

Garateix said Florida’s commercial residential market has become increasingly competitive because of new capacity and aggressive pricing. Commercial premium in force in the state declined about 16% from a year earlier, despite increases in policy count and insured values.

“We will not chase underpriced business,” Garateix said, adding that Heritage has walked away from accounts where pricing no longer supports an adequate return.

Lusk said Florida commercial residential renewal pricing is expected to continue declining, potentially by 10% to 18% next year based on current market conditions. He said that despite price reductions, loss ratios in the business have not risen materially and the book remains profitable.

Outside Florida, Heritage said it is expanding commercial operations in markets including New York, New Jersey, Hawaii and South Carolina. Commercial premium in force in New Jersey has grown about 12% this year, according to Garateix.

Personal residential trends also improved during the quarter. Heritage lost about 2,900 personal-lines policies, less than half the decline recorded a year earlier. Premium in force increased slightly and average premium per policy rose nearly 5%. Management continues to expect personal-lines policy count growth to return in 2027.

Capital Position and Expansion Plans

Heritage ended the quarter with shareholders’ equity of $599.1 million and book value per share of $20.22, up 23.4% from year-end and 42.9% from a year ago. The company’s annualized return on average equity was 35.1% for the quarter and 36.1% for the first nine months.

The insurer repurchased 100,000 shares for $3.3 million during the quarter. Year-to-date, it has repurchased approximately 1.1 million shares for $27.9 million, representing roughly 3.6% of shares outstanding at the start of the year. Heritage had $34.1 million remaining under its authorization through Dec. 31, 2026.

Long-term debt was $70.4 million, down $8 million from year-end, and the debt-to-capital ratio improved to 10.5% from 15.3% a year earlier. Cash and invested assets totaled $1.4 billion at quarter-end.

In Texas, Heritage wrote its first excess-and-surplus-lines policy in July and issued 86 policies during the third quarter. Lusk said the contribution will be modest initially but described the state as a potentially attractive long-term growth opportunity supported by existing agent relationships.

Management said it plans to prioritize profitable organic growth, share repurchases when it views the stock as trading below intrinsic value, and maintenance of a balance sheet capable of absorbing weather events.

About Heritage Insurance (NYSE:HRTG)

Heritage Insurance Holdings, Inc NYSE: HRTG is a property and casualty insurance company focused primarily on residential insurance. Through its insurance subsidiaries, the company provides coverage for homeowners, condominium owners, renters and other residential property owners, including protection against risks such as wind, fire and other covered losses.

Heritage distributes its products through independent agents and other insurance distribution channels. Its business has historically been concentrated in catastrophe-exposed coastal markets, particularly Florida, and has also included operations in additional states across the southeastern United States.

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