HRTG 10-Q
Heritage Insurance Holdings, Inc. (HRTG)
10-Q
2025-08-08
For: 2025-06-30
View Original
Added on
April 09, 2026
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Form 10-Q
For the quarterly period ended June 30, 2025
OR
Commission File Number
(Exact name of Registrant as specified in its charter)
| (State of Incorporation) | (IRS Employer Identification No.) | |||||||
(Address, including zip code, of principal executive offices)
(727 ) 362-7200
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | ☒ | Emerging growth company | ||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting 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. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
The aggregate number of shares of the Registrant’s Common Stock outstanding on August 3, 2025 was 31,017,570 .
HERITAGE INSURANCE HOLDINGS, INC.
Table of Contents
Page | ||||||||
FORWARD-LOOKING STATEMENTS
Statements in this Quarterly Report on Form 10-Q (“Form 10-Q”) or in documents incorporated by reference that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements, expectations or beliefs regarding: (i) our core strategy and ability to fully execute our business plan; (ii) our growth, including by geographic expansion, new lines of business, additional policies and new products and services, competitive strengths, proprietary capabilities, processes and new technology, results of operations and liquidity; (iii) strategic initiatives and their impact on shareholder value; (iv) projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; (v) management’s goals and objectives, including intentions to pursue certain business and the handling of certain claims; (vi) updated accounting guidance and its impact on disclosure; (vii) potential for rising costs of materials and labor; (ix) assumptions underlying our accounting policies and estimates; (x) assumptions underlying statements regarding us and our business; (xi) the impact of legislation; (xii) claims and related expenses, and our reinsurers’ obligations; (xiii) pending legal proceedings and their effect on our financial position; (xiv) effects of updated claims, policy, and billing systems; and (xv) other similar expressions concerning matters that are not historical facts. These forward-looking statements are subject to risks and uncertainties that could cause actual results and events to differ. A detailed discussion of these and other risks and uncertainties that could cause actual results and events to differ materially from such forward-looking statements is included throughout this filing and particularly in Item 1A: "Risk Factors" set forth in our 2024 Annual Report on Form 10-K and Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” set forth in this quarterly report on Form 10-Q. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to revise or publicly release any revision to any such forward-looking statement, except as may otherwise be required by law.
These statements are based on current expectations, estimates and projections about the industry and market in which we operate, and management’s beliefs and assumptions. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” or “continue” or the negative variations thereof or comparable terminology are intended to identify forward-looking statements. 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 include, without limitation:
•the possibility that actual losses may exceed reserves, which are based on estimates;
•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-related events, including hurricanes and wildfires;
•our failure to adequately assess and price the risks we underwrite;
•the fluctuation in our results of operations, including as a result of factors outside of our control;
•increased costs of reinsurance, non-availability of reinsurance, non-collectability of reinsurance and our ability to obtain reinsurance on terms and at a cost acceptable to us;
•inherent uncertainty of our models and our reliance on such models as a tool to evaluate risk;
•increased competition, competitive pressures, industry developments and market conditions;
•continued and increased impact of abusive and unwarranted claims;
•our inability to effectively manage our growth and integrate acquired companies;
•our failure to execute our diversification strategy;
•our reliance on independent agents to write insurance policies for us on a voluntary basis and our ability to attract and retain agents;
•the failure of our claims department to effectively manage or remediate claims;
•the failure of policy renewals to meet our expectations;
•our inability to maintain our financial stability rating;
•our ability to access sufficient liquidity or obtain additional financing to fund our operations and expand our business;
•our inability to generate investment income;
•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;
•lack of effectiveness of exclusions and loss limitation methods in the insurance policies we assume or write;
•the regulation of our insurance operations;
•changes in regulations and our failure to meet increased regulatory requirements, including minimum capital and surplus requirements;
•climate change, health crisis, severe weather conditions and other catastrophe events;
•litigation or regulatory actions;
•regulation limiting rate increases or that require us to participate in loss sharing or assessments;
•the terms of our indebtedness, including restrictions that limit our flexibility in operating our business, and our inability to comply with the financial and other covenants of our debt facilities;
•our ability to maintain effective internal controls over financial reporting;
•certain characteristics of our common stock;
•failure of our information technology systems or those of our key service providers and unsuccessful development and implementation of new technologies;
•a lack of redundancy in our operations; and
•our failure to attract and retain qualified employees and independent agents or our loss of key personnel.
Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results. The forward-looking statements speak only as of the date on which they are made, and, except as required by law, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrences of anticipated events. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in the forward-looking statements. Consequently, you should not place undue reliance on forward-looking statements.
PART I – FINANCIAL INFORMATION
Item 1 – Financial Statements
HERITAGE INSURANCE HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share and share amounts)
| June 30, 2025 | December 31, 2024 | |||||||||||||
| ASSETS | (unaudited) | |||||||||||||
Fixed maturities, available-for-sale, at fair value (amortized cost of $ | $ | $ | ||||||||||||
Equity securities, at fair value, (cost $ | ||||||||||||||
| Other investments, net | ||||||||||||||
| Total investments | ||||||||||||||
| Cash and cash equivalents | ||||||||||||||
| Restricted cash | ||||||||||||||
| Accrued investment income | ||||||||||||||
| Premiums receivable, net | ||||||||||||||
Reinsurance recoverable on paid and unpaid claims, net of allowance for credit losses of $ | ||||||||||||||
| Prepaid reinsurance premiums | ||||||||||||||
Income taxes receivable | ||||||||||||||
| Deferred income tax asset, net | ||||||||||||||
| Deferred policy acquisition costs, net | ||||||||||||||
| Property and equipment, net | ||||||||||||||
| Right-of-use lease asset, finance | ||||||||||||||
| Right-of-use lease asset, operating | ||||||||||||||
| Intangibles, net | ||||||||||||||
| Other assets | ||||||||||||||
| Total Assets | $ | $ | ||||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||
| Unpaid losses and loss adjustment expenses | $ | $ | ||||||||||||
| Unearned premiums | ||||||||||||||
| Reinsurance payable | ||||||||||||||
| Long-term debt, net | ||||||||||||||
| Advance premiums | ||||||||||||||
| Income taxes payable | ||||||||||||||
| Accrued compensation | ||||||||||||||
| Lease liability, finance | ||||||||||||||
| Lease liability, operating | ||||||||||||||
| Accounts payable and other liabilities | ||||||||||||||
| Total Liabilities | $ | $ | ||||||||||||
| Commitments and contingencies (Note 17) | ||||||||||||||
| Stockholders’ Equity: | ||||||||||||||
Common stock, $ | ||||||||||||||
| Additional paid-in capital | ||||||||||||||
| Accumulated other comprehensive income, net of taxes | ( | ( | ||||||||||||
Treasury stock, at cost, | ( | ( | ||||||||||||
| Retained earnings | ||||||||||||||
| Total Stockholders' Equity | ||||||||||||||
| Total Liabilities and Stockholders' Equity | $ | $ | ||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
2
HERITAGE INSURANCE HOLDINGS, INC.
Condensed Consolidated Statements of Operations and Other Comprehensive Income
(Unaudited)
(Amounts in thousands, except per share and share amounts)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| REVENUES: | ||||||||||||||||||||||||||
| Gross premiums written | $ | $ | $ | $ | ||||||||||||||||||||||
| Change in gross unearned premiums | ( | ( | ( | ( | ||||||||||||||||||||||
| Gross premiums earned | ||||||||||||||||||||||||||
| Ceded premiums | ( | ( | ( | ( | ||||||||||||||||||||||
| Net premiums earned | ||||||||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||||
| Net realized gains | ||||||||||||||||||||||||||
| Other revenue | ||||||||||||||||||||||||||
| Total revenues | ||||||||||||||||||||||||||
| EXPENSES: | ||||||||||||||||||||||||||
| Losses and loss adjustment expenses | ||||||||||||||||||||||||||
Policy acquisition costs, net of ceding commission income (1) | ||||||||||||||||||||||||||
General and administrative expenses, net of ceding commission income (2) | ||||||||||||||||||||||||||
| Total expenses | ||||||||||||||||||||||||||
| Operating income | ||||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Income before income taxes | ||||||||||||||||||||||||||
Income tax expense | ||||||||||||||||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||||||||||||
| OTHER COMPREHENSIVE INCOME | ||||||||||||||||||||||||||
| Change in net unrealized gains on investments | ||||||||||||||||||||||||||
| Reclassification adjustment for net realized investment gains | ( | ( | ( | |||||||||||||||||||||||
| Income tax expense related to items of other comprehensive income | ( | ( | ( | ( | ||||||||||||||||||||||
| Total comprehensive income | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||||
| Basic | ||||||||||||||||||||||||||
| Diluted | ||||||||||||||||||||||||||
| Earnings per share | ||||||||||||||||||||||||||
| Basic | $ | $ | $ | $ | ||||||||||||||||||||||
| Diluted | $ | $ | $ | $ | ||||||||||||||||||||||
(1)Policy acquisition costs includes $13.1 million and $24.8 million of ceding commission income for the three and six months ended June 30, 2025 and $9.4 million and $18.7 million of ceding commission income for the three and six months ended June 30, 2024, respectively.
(2)General and administration includes $4.3 million and $8.2 million of ceding commission income for the three and six months ended June 30, 2025 and $3.1 million and $6.1 million of ceding commission income for the three and six months ended June 30,2024, respectively.
See accompanying notes to unaudited condensed consolidated financial statements.
3
HERITAGE INSURANCE HOLDINGS, INC.
Condensed Consolidated Statements of Stockholders’ Equity
(Unaudited)
(Amounts in thousands, except share amounts)
| Common Shares | Par Value | Additional Paid-In Capital | Retained Earnings | Treasury Shares | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Net unrealized change in investments, net of tax | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on restricted stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Net unrealized change in investments, net of tax | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Issued restricted stock | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on restricted stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2025 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Common Shares | Par Value | Additional Paid-In Capital | Retained Earnings | Treasury Shares | Accumulated Other Comprehensive Loss | Total Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Net unrealized change in investments, net of tax | — | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on restricted stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Additional costs associated to public offering | — | — | ( | — | — | — | ( | |||||||||||||||||||||||||||||||||||||
| Unallocated dividends on restricted stock forfeitures | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net Income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
| Net unrealized change in investments, net of tax | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Issued restricted stock | — | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||
| Stock-based compensation on restricted stock | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Balance at June 30, 2024 | $ | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||||||||||
See accompanying notes to unaudited condensed consolidated financial statements.
4
HERITAGE INSURANCE HOLDINGS, INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands)
| For the Six Months Ended June 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| OPERATING ACTIVITIES | ||||||||||||||
| Net income | $ | $ | ||||||||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Bond amortization and accretion | ( | ( | ||||||||||||
| Expected credit allowance on reinsurance | ||||||||||||||
| Amortization of original issuance discount on debt | ||||||||||||||
| Depreciation and amortization | ||||||||||||||
| Allowance for bad debt | ( | |||||||||||||
| Net realized gains | ( | |||||||||||||
| Gain on sale of fixed assets, net | ( | |||||||||||||
| Deferred income taxes | ( | ( | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||
| Accrued investment income | ( | |||||||||||||
| Premiums receivable, net | ( | |||||||||||||
| Prepaid reinsurance premiums | ( | ( | ||||||||||||
| Reinsurance recoverable on paid and unpaid claims | ( | |||||||||||||
| Income taxes receivable | ( | |||||||||||||
| Deferred policy acquisition costs, net | ( | ( | ||||||||||||
| Right of use leased asset, net | ||||||||||||||
| Other assets | ( | ( | ||||||||||||
| Unpaid losses and loss adjustment expenses | ( | ( | ||||||||||||
| Unearned premiums | ||||||||||||||
| Reinsurance payable | ||||||||||||||
| Accrued interest | ( | ( | ||||||||||||
| Accrued compensation | ( | ( | ||||||||||||
| Advance premiums | ||||||||||||||
| Income tax payable | ( | |||||||||||||
| Leased liabilities, net | ( | ( | ||||||||||||
| Other liabilities | ( | |||||||||||||
| Net cash provided by operating activities | ||||||||||||||
| INVESTING ACTIVITIES | ||||||||||||||
| Fixed maturity securities sales, maturities and paydowns | ||||||||||||||
| Fixed maturity securities purchases | ( | ( | ||||||||||||
| Redemption of equity securities | ||||||||||||||
| Return on other investments | ||||||||||||||
| Equity securities reinvestment of dividends | ( | ( | ||||||||||||
| Proceeds from for sale of asset | ||||||||||||||
| Cost of property and equipment acquired | ( | ( | ||||||||||||
| Net cash provided by (used in) investing activities | ( | |||||||||||||
| FINANCING ACTIVITIES | ||||||||||||||
| Repayment of term note | ( | ( | ||||||||||||
| Mortgage loan payments | ( | ( | ||||||||||||
| Payment on loan agreement | ( | |||||||||||||
| Proceeds from loan agreement | ||||||||||||||
| Additional costs associated with public offering | ( | |||||||||||||
| Dividends forfeited | ||||||||||||||
| Net cash (used in) provided by financing activities | ( | |||||||||||||
| Increase in cash, cash equivalents, and restricted cash | ||||||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | ||||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | ||||||||||||
5
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||||||||
| Income taxes paid | $ | $ | ||||||||||||
| Interest paid | $ | $ | ||||||||||||
Reconciliation of cash, cash equivalents, and restricted cash to condensed consolidated balance sheets.
| June 30, 2025 | December 31, 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||
| Restricted cash | ||||||||||||||
| Total | $ | $ | ||||||||||||
Restricted cash represents funds held to meet regulatory requirements in certain states in which the Company operates as well as deposits related to reinsurance transactions using catastrophe bonds.
See accompanying notes to unaudited condensed consolidated financial statements.
6
HERITAGE INSURANCE HOLDINGS, INC.
Notes to Unaudited Condensed Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Enactment of the One Big Beautiful Bill Act of 2025
On July 4, 2025, new U.S. tax legislation was signed into law (knows as the “One Big Beautiful Bill Act” or “OBBBA”) which makes permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were set to expire at the end of 2025. In addition, the OBBBA makes changes to certain U.S. corporate tax provisions, but many are generally not effective until 2026. The Company is currently evaluating the impact of the new legislation but does not expect it to have a material impact on the results of operations.
Significant accounting policies
The accounting policies of the Company are set forth in Note 1 to the consolidated financial statements contained in the Company’s 2024 Form 10-K.
Segment Information
Nature of Operations
The Company's results are reported as a single operating and reportable segment - residential property insurance. Operating segments represent components of an enterprise for which separate financial information is available that is regularly evaluated by the chief operating decision maker in determining how to allocate resources and in assessing performance. For more information regarding the Company's nature of operations, refer to Note 22. "Segment Information" in addition to the "Business Segment" section of Note 1. to the consolidated financial statements in the 2024 Form 10-K.
Accounting Pronouncements adopted
Accounting Standards Update No. 2023-09. In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2023-09 (“ASU 2023-09”) Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This update enhances income tax disclosures by requiring public entities to report income tax expense disaggregated by federal, state, and foreign taxes, with further detail on specific jurisdictions over a quantitative threshold. In addition, public entities must also separately disclose reconciling items equal to or greater than five percent of pretax income from operations by the applicable federal statutory rate. The Company has adopted this guidance on a prospective basis for the fiscal year beginning on January 1, 2025 and will result in enhanced income tax disclosures beginning with the Company's consolidated financial statements for the year ending December 31, 2025.
Accounting Pronouncements not yet adopted
ASU 2025-01 and 2024-03 Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40). This ASU requires disaggregated disclosure of certain income statement expenses, such as employee compensation and depreciation, for public business entities. The ASU does not change the expense captions an entity presents on the face of the income statement; rather, it requires disaggregation of certain expense captions into specified categories in disclosures within the footnotes to the financial statements. The ASU also requires disclosure of a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2025-01 amends the effective date of ASU 2024-03, clarifying that "public business entities are required to adopt the guidance in annual reporting beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027." In addition, early adoption of the ASU
7
is permitted. The Company is evaluating the guidance impact on the current presentation of the Company's income statement and expects the adoption to result in additional disclosures for certain expenses.
NOTE 2. INVESTMENTS
Securities Available-for-Sale
The amortized cost, gross unrealized gains and losses, and fair value of the Company’s debt securities available-for-sale are as follows for the periods presented:
| June 30, 2025 | Cost or Adjusted / Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| Debt Securities Available-for-sale | (In thousands) | |||||||||||||||||||||||||
U.S. government and agency securities (1) | $ | $ | $ | $ | ||||||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
Mortgage-backed securities (1) | ||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
(1)Includes securities at June 30, 2025 with a carrying amount of $3.9 million that were pledged as collateral for the advance agreements entered into with a financial institution in 2024. The Company is permitted to withdraw or exchange any portion of the pledged collateral over the minimum requirement at any time.
| December 31, 2024 | Cost or Adjusted / Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||
| Debt Securities Available-for-sale | (In thousands) | |||||||||||||||||||||||||
U.S. government and agency securities (1) | $ | $ | $ | $ | ||||||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
Mortgage-backed securities (1) | ||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||
(1)Includes securities at December 31, 2024 with a carrying amount of $23.9 million and $6.7 million that were pledged as collateral for the advance agreement entered into with a financial institution in 2018 and 2024, respectively. The Company is permitted to withdraw or exchange any portion of the pledged collateral over the minimum requirement at any time.
The table below summarizes the Company's debt securities at June 30, 2025, by contractual maturity periods. Actual results may differ as issuers may have the right to call or prepay obligations, with or without penalties, prior to the contractual maturity of those obligations.
| As of June 30, 2025 | ||||||||||||||||||||||||||
| Cost or Amortized Cost | Percent of Total | Fair Value | Percent of Total | |||||||||||||||||||||||
| Maturity dates: | (In thousands) | (In thousands) | ||||||||||||||||||||||||
| Due in one year or less | $ | % | $ | % | ||||||||||||||||||||||
| Due after one year through five years | % | % | ||||||||||||||||||||||||
| Due after five years through ten years | % | % | ||||||||||||||||||||||||
| Due after ten years | % | % | ||||||||||||||||||||||||
| Total | $ | % | $ | % | ||||||||||||||||||||||
8
Net Realized Gains
Net realized gains for the three months ended June 30, 2025 totaled $4,000 comprised of $6,000 in realized gains with no fair value offset by $2,000 in realized losses with a fair value of $35,000 for the comparable period of 2024, there was a total of $12,000 net realized gains comprised of $13,000 realized gains offset by $1,000 realized losses with an aggregate fair value of $1.0 million. The Company recorded no net realized gains for the six months ended June 30, 2025 as the gains $10,000 were offset by $10,000 realized losses which provided a $0 realized gain (loss) for the period. For the comparable period of 2024, the Company recognized a total of $11,000 of net realized gains comprised of $13,000 in realized gains offset by $2,000 in realized losses with a fair value in aggregate of $2.9 million.
Net Investment Income
The following table summarizes the Company’s net investment income by major investment category for the three and six months ended June 30, 2025 and 2024, respectively:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Equity securities | ||||||||||||||||||||||||||
| Cash and cash equivalents | ||||||||||||||||||||||||||
| Other investments | ||||||||||||||||||||||||||
| Net investment income | ||||||||||||||||||||||||||
| Less: Investment expenses | ||||||||||||||||||||||||||
| Net investment income, less investment expenses | $ | $ | $ | $ | ||||||||||||||||||||||
The following tables present, for all debt securities available-for-sale in an unrealized loss position (including securities pledged) and for which no credit loss allowance has been established to date, the aggregate fair value and gross unrealized loss by length of time the security has continuously been in an unrealized loss position at June 30, 2025 and December 31, 2024 (in thousands), respectively:
| Less Than Twelve Months | Twelve Months or More | |||||||||||||||||||||||||||||||||||||
| June 30, 2025 | Number of Securities | Gross Unrealized Losses | Fair Value | Number of Securities | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||||
| Debt Securities Available-for-sale | ||||||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
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| Less Than Twelve Months | Twelve Months or More | |||||||||||||||||||||||||||||||||||||
| December 31, 2024 | Number of Securities | Gross Unrealized Losses | Fair Value | Number of Securities | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||||||||||
| Debt Securities Available-for-sale | ||||||||||||||||||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||||
The Company’s unrealized losses on debt securities have not been recognized because the securities are of a high credit quality with investment grade ratings. After reviewing the Company's portfolio, if (i) the Company does not have the intent to sell, or (ii) it is more likely than not it will not be required to sell the security before its anticipated recovery, then the Company's intent is to hold the investment securities to recovery, or maturity if necessary to recover the decline in valuation as prices accrete to par. However, the Company's intent may change prior to maturity due to certain types of events, which include, but are not limited to, changes in the financial markets, the Company's analysis of an issuer’s credit metrics and prospects, changes in tax laws or the regulatory environment, or as a result of significant unforeseen changes in liquidity needs. As such, the Company may, from time to time, sell invested assets subsequent to the balance sheet date that it did not intend to sell at the balance sheet date. Conversely, the Company may not sell invested assets that the Company asserted it intended to sell at the balance sheet date. Such changes in intent are due to unforeseen events occurring subsequent to the balance sheet date.
The Company evaluated the available for sale investments that were in an unrealized loss position at June 30, 2025 and determined that the unrealized losses were caused by rising interest rates in previous periods, resulting in no credit loss allowance recorded as of and as of the quarter ended June 30, 2025.
Other Investments
Non-Consolidated Variable Interest Entities (“VIEs”)
The Company makes passive investments in limited partnerships (“LPs”), which is accounted for using the equity method, with income reported in net realized and unrealized gains and losses. The Company also makes passive investments in a Real Estate Investment Trust (“REIT”), which are accounted for using the measurement alternative method, which is reported at cost less impairment (if any), plus or minus changes from observable price changes, as described in the table below.
The following table summarizes the carrying value and maximum loss exposure of the Company’s non-consolidated VIEs at June 30, 2025 and December 31, 2024 (in thousands), respectively:
| As of June 30, 2025 | As of December 31, 2024 | |||||||||||||||||||||||||
| Carrying Value | Maximum Loss Exposure | Carrying Value | Maximum Loss Exposure | |||||||||||||||||||||||
| Investments in non-consolidated VIEs - Equity Method | $ | $ | $ | $ | ||||||||||||||||||||||
| Investments in non-consolidated VIEs -Method Alternative | $ | $ | $ | $ | ||||||||||||||||||||||
| Total non-consolidated VIEs | $ | $ | $ | $ | ||||||||||||||||||||||
The Company’s maximum exposure to loss with respect to these investments is limited to the investment carrying amounts reported as “other investments” in the Company’s consolidated balance sheet. No agreements exist requiring the Company to provide additional funding to any of the non-consolidated VIEs in excess of the Company’s initial investment.
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NOTE 3. FAIR VALUE OF FINANCIAL MEASUREMENTS
Fair value is determined based on the exchange price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date.
The Company is required to use an established hierarchy for fair value measurements based upon the inputs to the valuation and degree to which they are observable or not observable in the market. The three levels in the hierarchy are as follows:
•Level 1 – Unadjusted quoted prices are available in active markets for identical assets/liabilities as of the reporting date.
•Level 2 – Valuations based on observable inputs, such as quoted prices for similar assets or liabilities at the measurement date; quoted prices in the markets that are not active; or other inputs that are observable, either directly or indirectly.
•Level 3 – Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.
The highest priority is assigned to Level 1 inputs and the lowest priority to Level 3 inputs. At June 30, 2025 and December 31, 2024, there were no transfers in or out of Level 1, 2, and 3.
The following table presents information about the Company’s assets measured at fair value on a recurring basis. The Company assesses the levels for the investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer in accordance with the Company’s accounting policy regarding the recognitions of transfers between levels of the fair value hierarchy.
The tables below present the balances of the Company’s invested assets measured at fair value on a recurring basis:
| June 30, 2025 | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Financial assets: | (In thousands) | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash | $ | $ | ||||||||||||||||||||||||
| Total assets: | $ | $ | $ | $ | ||||||||||||||||||||||
| Debt Securities Available-for-sale | ||||||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | $ | ||||||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Equity Securities | ||||||||||||||||||||||||||
| Common stock | ||||||||||||||||||||||||||
| Total debt securities and equity securities | $ | $ | $ | $ | ||||||||||||||||||||||
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| December 31, 2024 | Total | Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | ||||||||||||||||||||||
| Financial assets: | (In thousands) | |||||||||||||||||||||||||
| Cash and cash equivalents | $ | $ | $ | $ | ||||||||||||||||||||||
| Restricted cash | ||||||||||||||||||||||||||
| Total assets: | $ | $ | $ | $ | ||||||||||||||||||||||
| Debt Securities Available-for-sale | ||||||||||||||||||||||||||
| U.S. government and agency securities | $ | $ | $ | $ | ||||||||||||||||||||||
| States, municipalities and political subdivisions | ||||||||||||||||||||||||||
| Corporate bonds | ||||||||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||||||||
| Asset-backed securities | ||||||||||||||||||||||||||
| Other | ||||||||||||||||||||||||||
| Total debt securities | $ | $ | $ | $ | ||||||||||||||||||||||
| Equity Securities | ||||||||||||||||||||||||||
| Common stock | ||||||||||||||||||||||||||
| Total debt securities and equity securities | $ | $ | $ | $ | ||||||||||||||||||||||
Financial Instruments excluded from the fair value hierarchy
The carrying value of premium receivables, accounts payable, accrued expense, revolving loans and borrowings under the Company’s senior secured credit facility approximate their fair value. The rate at which revolving loans and borrowings under the Company’s senior secured credit facility bear interest resets periodically at market interest rates.
Non-recurring fair value measurements
Assets and liabilities that are measured at fair value on a non-recurring basis include intangible assets which are recognized at fair value during the period in which an acquisition is completed, from updated estimates and assumptions during the measurement period, or when they are considered to be impaired. For the three and six months ended June 30, 2025, there were no assets or liabilities that were measured at fair value on a non-recurring basis.
NOTE 4. OTHER COMPREHENSIVE INCOME
The following table summarizes other comprehensive income and discloses the tax impact of each component of other comprehensive income for the three and six months ended June 30, 2025 and 2024, respectively:
| For the Three Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | |||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Change in unrealized gains on investments, net | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Reclassification adjustment of realized gains included in net income | ( | ( | ( | ( | ||||||||||||||||||||||||||||||||||
| Effect on other comprehensive income | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
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| For the Six Months Ended June 30, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | |||||||||||||||||||||||||||||||||||||
| Pre-tax | Tax | After-tax | Pre-tax | Tax | After-tax | |||||||||||||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||||||||||||||
| Change in unrealized gains on investments, net | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
| Reclassification adjustment of realized gains included in net income | ( | ( | ||||||||||||||||||||||||||||||||||||
| Effect on other comprehensive income | $ | $ | ( | $ | $ | $ | ( | $ | ||||||||||||||||||||||||||||||
NOTE 5. LEASES
The Company has entered into operating and financing leases primarily for real estate and vehicles. The Company will determine whether an arrangement is a lease at inception of the agreement. The operating leases have terms of to ten years , and often include one or more options to renew. These renewal terms can extend the lease term from to ten years and are included in the lease term when it is reasonably certain that the Company will exercise the option. The Company considers these options in determining the lease term used in establishing the Company’s right-of-use assets and lease obligations. The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Because the rate implicit in each operating lease is not readily determinable, the Company uses its incremental borrowing rate to determine present value of the lease payments. The Company used the implicit rates within the finance leases.
Components of the Company’s lease costs were as follows (in thousands):
| For The Six Months Ended June 30, | ||||||||||||||
| 2025 | 2024 | |||||||||||||
| Operating lease cost, included in General & Administrative expenses on the Consolidated Statements of Operations | $ | $ | ||||||||||||
| Finance lease cost: | ||||||||||||||
| Amortization of assets, included in General & Administrative expenses on the Consolidated Statements of Operations | ||||||||||||||
| Interest on lease liabilities, included in Interest expense on the Consolidated Statements of Operations | ||||||||||||||
| Total finance lease cost | $ | $ | ||||||||||||
| Variable lease cost, included in General & Administrative expenses on the Consolidated Statements of Operations | $ | $ | ||||||||||||
| Short-term lease cost, included in General & Administrative expenses on the Consolidated Statements of Operations | $ | $ | ||||||||||||
Supplemental balance sheet information related to the Company’s operating and financing leases for the periods presented below were as follows (in thousands):
| Operating Leases | June 30, 2025 | December 31, 2024 | ||||||||||||
| Right of use assets | $ | $ | ||||||||||||
| Lease liability | $ | $ | ||||||||||||
| Finance Leases | ||||||||||||||
| Right of use assets | $ | $ | ||||||||||||
| Lease liability | $ | $ | ||||||||||||
Weighted-average remaining lease term and discount rate for the Company’s operating and financing leases for the periods presented below were as follows:
| Weighted-average remaining lease term | June 30, 2025 | December 31, 2024 | |||||||||||||||
| Operating lease | yrs. | yrs. | |||||||||||||||
| Finance lease | yrs. | yrs. | |||||||||||||||
| Weighted-average discount rate | |||||||||||||||||
| Operating lease | % | % | |||||||||||||||
| Finance lease | % | % | |||||||||||||||
13
Maturities of lease liabilities by fiscal year for the Company’s operating and financing leases were as follows (in thousands):
| Financing Lease | Operating Lease | |||||||||||||
| 2025 - remaining | $ | $ | ||||||||||||
| 2026 | ||||||||||||||
| 2027 | ||||||||||||||
| 2028 | ||||||||||||||
| 2029 | ||||||||||||||
| 2030 and thereafter | ||||||||||||||
| Total lease payments | ||||||||||||||
| Less: imputed interest | ||||||||||||||
| Present value of lease liabilities | $ | $ | ||||||||||||
Supplemental cash flow information related to the Company's operating and financing leases for the six months ended June 30, 2025 and 2024 were as follows (in thousands):
| Operating Leases | June 30, 2025 | June 30, 2024 | ||||||||||||
| Lease liability payments | $ | ( | $ | ( | ||||||||||
| Finance Leases | ||||||||||||||
| Lease liability payments | $ | ( | $ | ( | ||||||||||
| Total lease liability payments | $ | ( | $ | ( | ||||||||||
NOTE 6. PROPERTY AND EQUIPMENT, NET
Property and equipment, net consisted of the following at June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | |||||||||||||
| (In thousands) | ||||||||||||||
| Land | $ | $ | ||||||||||||
| Building | ||||||||||||||
| Computer hardware and software | ||||||||||||||
| Office furniture and equipment | ||||||||||||||
| Tenant and leasehold improvements | ||||||||||||||
| Vehicle fleet | ||||||||||||||
| Total, at cost | ||||||||||||||
| Less: accumulated depreciation and amortization | ( | ( | ||||||||||||
| Property and equipment, net | $ | $ | ||||||||||||
For the six months ended June 30, 2025, the Company capitalized an additional $3.6 million of internal-use software development for the new policy, billing, and claims system. The Company is incurring additional costs as the Company continues to add new capabilities and products to the system which will be capitalized as appropriate. With the addition of the Company's commercial products to the system, the Company estimates completion of the system development by the end of 2026. The Company amortizes the capitalized internally developed software costs over the estimated useful life of 7 years, on a straight-line basis.
Depreciation and amortization expense for property and equipment was approximately $1.1 million and $718,800 for the three months ended June 30, 2025 and 2024, respectively. Depreciation and amortization expense for property and equipment was approximately $2.4 million and $1.4 million for the six months ended June 30, 2025 and 2024, respectively. The Company owns real estate consisting of 13 acres of land, two buildings with a gross area of 88,378 square feet and a parking garage. The carrying value of the property is approximately $9.6 million with accumulated depreciation of approximately $2.9 million at June 30, 2025.
NOTE 7. INTANGIBLE ASSETS, NET
At June 30, 2025 and December 31, 2024, intangible assets were $33.3 million and $36.4 million, respectively. The Company has determined the useful life of its intangible assets to range between 2.5 -15 years. Intangible assets include $1.3 million relating to insurance licenses which is classified as an indefinite lived intangible and is subject to annual impairment testing.
The Company’s intangible assets consist of brand, agent relationships, renewal rights, customer relations, trade names and insurance licenses.
14
Amortization expense of the Company’s intangible assets for each of the respective three and six month periods ended June 30, 2025 and 2024 was $1.6 3.1 No
Estimated annual pretax amortization of intangible assets for each of the next five years and thereafter is as follows (in thousands):
| Year | Amount | |||||||
| 2025 − remaining | $ | |||||||
| 2026 | $ | |||||||
| 2027 | $ | |||||||
| 2028 | $ | |||||||
| 2029 | $ | |||||||
| Thereafter | $ | |||||||
| Total | $ | |||||||
NOTE 8. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per share (“EPS”) for the periods indicated (amounts in thousands, except share and per share amounts).
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
Basic earnings per share: | ||||||||||||||||||||||||||
Net income attributable to common stockholders | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||||
Basic earnings per share: | $ | $ | $ | $ | ||||||||||||||||||||||
Diluted earnings per share: | ||||||||||||||||||||||||||
Net income attributable to common stockholders | $ | $ | $ | $ | ||||||||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||||||||||||
| Add: Effect of dilutive securities | ||||||||||||||||||||||||||
| 5.875% Convertible Notes | ||||||||||||||||||||||||||
| Diluted weighted average common shares outstanding | ||||||||||||||||||||||||||
Diluted earnings per share: | $ | $ | $ | $ | ||||||||||||||||||||||
NOTE 9. DEFERRED REINSURANCE CEDING COMMISSION
The Company defers ceding commission earned in connection with its quota share reinsurance contracts, which is earned subject to the terms of the reinsurance agreements. Ceding commission on quota share agreements generally includes a provisional ceding rate, subject to sliding scale adjustments based on the loss experience of the reinsurers. Adjustments to estimated ceding commission income are reflected in current operations. The Company allocates 75 % of ceding commission income to policy acquisition costs and 25 % of ceding commission income to general and administrative expenses. For the three months ended June 30, 2025 and 2024, the Company allocated ceding commission income of $13.1 million and $9.4 million to policy acquisition costs, respectively, and $4.3 million and $3.1 million to general and administrative expense, respectively. For the six months ended June 30, 2025 and 2024, the Company allocated ceding commission income of $24.8 million and $18.7 million to policy acquisition costs, respectively and $8.2 million and $6.1 million to general and administrative expense, respectively.
The table below depicts the activity regarding deferred reinsurance ceding commission during the three and six months ended June 30, 2025 and 2024.
15
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Beginning balance of deferred ceding commission income | $ | $ | $ | $ | ||||||||||||||||||||||
| Ceding commission deferred | ||||||||||||||||||||||||||
| Less: ceding commission earned | ( | ( | ( | ( | ||||||||||||||||||||||
| Ending balance of deferred ceding commission income | $ | $ | $ | $ | ||||||||||||||||||||||
Deferred ceding commission income is recorded as an offset to deferred policy acquisition costs in the Company's Condensed Consolidated Balance Sheet.
NOTE 10. DEFERRED POLICY ACQUISITION COSTS
The Company defers certain costs in connection with written policies, called deferred policy acquisition costs (“DPAC”), which are amortized over the effective period of the related insurance policies. As described in Note 9. Deferred Reinsurance Ceding Commission, the Company records provisional ceding commission that it receives in connection with the Company's reinsurance contracts as an offset to deferred policy acquisition costs. Therefore, deferred policy acquisition costs are presented net of deferred reinsurance ceding commission.
The Company anticipates that its DPAC will be fully recoverable in the near term. The table below depicts the activity regarding DPAC for the three and six months ended June 30, 2025 and 2024.
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Beginning Balance | $ | $ | $ | $ | ||||||||||||||||||||||
| Policy acquisition costs deferred | ||||||||||||||||||||||||||
| Amortization | ( | ( | ( | ( | ||||||||||||||||||||||
| Unearned ceding commission | ( | ( | ( | ( | ||||||||||||||||||||||
| Ending Balance | $ | $ | $ | $ | ||||||||||||||||||||||
NOTE 11. INCOME TAXES
For the three months ended June 30, 2025 and 2024, the Company recorded income tax expense of $15.0 million and $6.0 million, respectively, which corresponds to effective rates of 23.8 % and 24.1 %, respectively. For the six months ended June 30, 2025 and 2024, the Company recorded income tax provision of $24.5 million and $11.6 million, respectively, which corresponds to effective tax rates of 23.8 % and 26.0 %, respectively. The effective tax rate for the first two quarters of 2025 was lower than the effective tax rate for the first two quarters of 2024, largely driven by higher projected pre-tax income for the year 2025 compared to the projection for the year 2024. This had a dilutive effect on the rate impacts of permanent tax differences compared to the prior year tax provisions.
The table below summarizes the significant components of the Company’s net deferred tax assets:
16
| June 30, 2025 | December 31, 2024 | |||||||||||||
| Deferred tax assets: | (In thousands) | |||||||||||||
| Unearned premiums | $ | $ | ||||||||||||
| Net operating loss | ||||||||||||||
| Tax-related discount on loss reserve | ||||||||||||||
| Property and equipment | ||||||||||||||
| Stock-based compensation | ||||||||||||||
| Accrued expenses | ||||||||||||||
| Convertible note | ||||||||||||||
| Leases | ||||||||||||||
| Unrealized losses | ||||||||||||||
| Other | ||||||||||||||
| Total deferred tax asset | $ | $ | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Deferred acquisition costs | ||||||||||||||
| Prepaid expenses | ||||||||||||||
| Basis in purchased investments | ||||||||||||||
| Basis in purchased intangibles | ||||||||||||||
| Other | ||||||||||||||
| Total deferred tax liabilities | $ | $ | ||||||||||||
| Net deferred tax assets | $ | $ | ||||||||||||
The Company has recorded its deferred tax assets and liabilities using the statutory federal tax rate of 21%. The Company believes it is more likely than not that all deferred tax assets will be recovered, given the carry back availability as well as the result of future operations, which the Company believes will generate sufficient taxable income to realize the deferred tax asset.
The statute of limitations related to the Company’s federal and state income tax returns remains open from the Company’s filings for 2021 through 2024. There are currently no tax years under examination.
At June 30, 2025 and December 31, 2024, the Company had no
NOTE 12. REINSURANCE
Overview
In order to limit the Company’s potential exposure to individual risks and catastrophic events, the Company purchases significant reinsurance from third party reinsurers. Purchasing reinsurance is an important part of the Company’s risk strategy, and premiums ceded to reinsurers is one of the Company’s largest costs. The Company has strong relationships with reinsurers, which it attributes to its management’s industry experience, disciplined underwriting, and claims management capabilities. For each of the twelve months beginning June 1, 2025 and 2024, the Company purchased catastrophe excess of loss reinsurance from the following sources: (i) the Florida Hurricane Catastrophe Fund, a state-mandated catastrophe fund (“FHCF”) which provides reinsurance for Florida personal residential and commercial residential admitted policies only, (ii) private reinsurers, all of which were rated “A-” or higher by A.M. Best Company, Inc. (“A.M. Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized, and (iii) the Company’s wholly-owned reinsurance subsidiary, Osprey Re Ltd. (“Osprey”). The Company also sponsored catastrophe bonds in 2025 and 2024 through Citrus Re Ltd. In addition to purchasing excess of loss catastrophe reinsurance, the Company also purchases quota share, property per risk and facultative reinsurance from reinsurers who are either rated “A-” or higher by A.M. Best Company, Inc. (“A.M. Best”) or Standard & Poor’s Financial Services LLC (“S&P”) or were fully collateralized. The Company’s quota share program limits its exposure on catastrophe and non-catastrophe losses and provides ceding commission income. The Company’s per risk programs limit its net exposure in the event of a severe non-catastrophe loss impacting a single location or risk. The Company also utilizes facultative reinsurance to supplement its per risk reinsurance program where the Company’s capacity needs dictate.
Purchasing a sufficient amount of reinsurance to cover catastrophic losses from single or multiple events or significant non-catastrophe losses is an important part of the Company’s risk strategy. Reinsurance involves transferring, or “ceding”, a portion of the risk exposure on policies the Company writes to another insurer, known as a reinsurer. To the extent that the Company’s reinsurers are
17
unable to meet the obligations they assume under the Company’s reinsurance agreements, the Company remains liable for the entire insured loss.
The Company’s insurance regulators require all insurance companies, like us, to have a certain amount of capital and reinsurance coverage in order to cover losses and loss adjustment expenses upon the occurrence of a catastrophic event. The Company’s reinsurance program provides reinsurance in excess of its state regulator requirements, which are generally based on the probable maximum loss that it would incur from an individual catastrophic event estimated to occur once in every 100 years based on its portfolio of insured risks. The nature, severity and location of the event giving rise to such a probable maximum loss differs for each insurer depending on the insurer’s portfolio of insured risks, including, among other things, the geographic concentration of insured value within such portfolio. As a result, a particular catastrophic event could be a one-in-100-year loss event for one insurance company while having a greater or lesser probability of occurrence for another insurance company. The Company also purchases reinsurance coverage to protect against the potential for multiple catastrophic events occurring in the same year. The Company shares portions of its reinsurance program coverage among its insurance company affiliates.
2025 - 2026 Reinsurance Program
Catastrophe Excess of Loss Reinsurance
Effective June 1, 2025, the Company entered into catastrophe excess of loss reinsurance agreements for 2025-2026 covering Heritage Property & Casualty Insurance Company (“Heritage P&C”), Zephyr Insurance Company (“Zephyr”) and Narragansett Bay Insurance Company (“NBIC”). As described above, the catastrophe reinsurance programs are allocated among traditional reinsurers, the Florida Hurricane Catastrophe Fund (“FHCF”), Citrus Re and Osprey Re. The FHCF covers Florida admitted market risks only and the Company elected to participate at 90.0 % for the 2025 hurricane season. The Company's affiliate Osprey Re will provide reinsurance for a portion of the Heritage P&C, NBIC and Zephyr programs. The Company’s third-party reinsurers are either rated “A-” or higher by A.M. Best or S&P or are fully collateralized, to reduce credit risk. Osprey Re and Citrus Re are fully collateralized programs.
The reinsurance program, which is segmented into layers of coverage, protects the Company for excess property catastrophe losses and loss adjustment expenses. The 2025-2026 reinsurance program provides first event coverage up to $1.6 billion for Heritage P&C, first event coverage up to $1.1 billion for NBIC, and first event coverage up to $865.0 million for Zephyr. The Company’s first event retention in a 1 in 100-year event would include retention for the respective insurance company as well as any retention by Osprey. The first event maximum retention up to a 1 in 100-year event for each insurance company subsidiary is as follows: Heritage P&C – $50.0 million, of which $50.0 million would be ceded to Osprey in a shared contract with NBIC and Zephyr; NBIC – $39.3 million of which the entire amount would be ceded to Osprey in a shared contract with Heritage P&C and Zephyr; and Zephyr — $50.0 million, of which $50 million would be ceded to Osprey in a shared contract with Heritage P&C and NBIC.
The Company is responsible for all losses and loss adjustment expenses in excess of the Company's reinsurance program. For second or subsequent catastrophic events, the Company’s total available coverage depends on the magnitude of the first event, as the Company may have coverage remaining from layers that were not previously fully exhausted. An aggregate of $3.75 billion of limit is available in 2025, which includes reinstatement through the purchase of reinstatement premium protection. The amount of coverage, however, will be subject to the severity and frequency of such events.
Additionally, on December 31, 2024, the Company placed occurrence contracts for business underwritten by NBIC which covers all catastrophe losses excluding named storms which contracts expire December 31, 2025. One contract which is 55% placed has a $15.0 million limit in excess of a retention of $25.0 million while another contract provides the remaining 45% with a $20.0 million limit in excess of a retention of $20.0 million. Each contract has one reinstatement available.
Net Quota Share Reinsurance
The Company’s Net Quota Share coverage is proportional reinsurance, which applies to business underwritten by NBIC, for which certain of the Company’s other reinsurance (property catastrophe excess of loss and general excess of loss) inures to the quota share program. The amount and rate of ceding commissions slide, within a prescribed minimum and maximum, depending on loss performance. The Net Quota program has a term of one year. The Net Quota Share program which renewed on December 31, 2023 ceded 41 % of the net premiums, with an occurrence limit of $20.0 million for catastrophe losses, subject to certain aggregate loss limits that vary by reinsurer. The Net Quota Share program which renewed on December 31, 2024 ceded 46.0 % of the net premiums, with an occurrence limit of $20.0 -$25.0 million for catastrophe losses is in effect on the current year quota share program, subject to certain aggregate loss limits that vary by reinsurer.
Per Risk Coverage
For losses arising from business underwritten by Heritage P&C losses arising from commercial residential business underwritten by NBIC, and southeastern U.S. surplus lines business underwritten by NBIC, excluding losses from named storms, the Company
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purchased property per risk coverage. For the contract period from June 15, 2024 through June 30, 2025, which was 100 % placed, the program covered losses and loss adjustment expenses in excess of $1.5 million per claim. The limit recoverable for an individual loss is $8.5 million and total limit for all losses is $25.5 million. There are two reinstatements available with additional premium due based on the amount of the layer exhausted. For losses arising from commercial residential business underwritten by NBIC, the Company also purchased property per risk coverage for losses and loss adjustments expenses in excess of $1.0 million per claim. The limit recovered for an individual loss is $500,000 and total limit for all losses is $1.5 million. This property per risk program was renewed for the period of July 1, 2025 through June 30, 2026, which was 100 % placed. Under this new program, the limit recoverable for an individual loss in excess of $2.0 million per claim is $8.0 million and total limit for all losses is $24.0 million. There are two reinstatements available with additional premium due based on the amount of the layer exhausted. For losses arising from commercial residential business underwritten by NBIC, the Company also purchased property per risk coverage for losses and loss adjustments expenses in excess of $1 million per claim. The limit recovered for an individual loss is $1.0 million and total limit for all losses is $3.0 million.
In addition, the Company purchased facultative reinsurance for losses in excess of $10.0 million for any properties it insured where the total insured value exceeded $10.0 million. The maximum limit for this coverage is $80.0 million. This coverage applies to losses arising from business underwritten by Heritage P&C and losses arising from commercial residential business underwritten by NBIC, excluding losses from named storms. The Company also purchased facultative reinsurance for losses underwritten by NBIC in excess of $3.5 million.
General Excess of Loss
The Company’s general excess of loss reinsurance protects personal residential multi-peril business underwritten by NBIC and Zephyr from single risk losses. For the contract period of July 1, 2024 through June 30, 2025, the coverage is $2.5 million excess $1.0 million for property losses and $1.0 million excess $1.0 million for casualty losses, and is 50.0 % placed. For the contract period of July 1, 2025 through June 30, 2026, the coverage is $2.5 million excess $1.0 million for property losses and $1.0 million excess $1.0 million for casualty losses, and is 47.5 % placed.
For a detailed discussion of the Company’s 2024-2025 Reinsurance Program refer to Part II, Item 8, “Financial Statements and Supplementary Data” and “Note 12. Reinsurance” in the Company’s 2024 Form 10-K.
Effect of Reinsurance
The Company’s reinsurance arrangements had the following effect on certain items in the condensed consolidated statement of income for the three and six months ended June 30, 2025 and 2024:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||||
| Premium written: | ||||||||||||||||||||||||||
| Direct | $ | $ | $ | $ | ||||||||||||||||||||||
| Ceded | ( | ( | ( | ( | ||||||||||||||||||||||
| Net | $ | ( | $ | ( | $ | $ | ||||||||||||||||||||
| Premiums earned: | ||||||||||||||||||||||||||
| Direct | $ | $ | $ | $ | ||||||||||||||||||||||
| Ceded | ( | ( | ( | ( | ||||||||||||||||||||||
| Net | $ | $ | $ | $ | ||||||||||||||||||||||
| Loss and Loss Adjustment Expenses | ||||||||||||||||||||||||||
| Direct | $ | $ | $ | $ | ||||||||||||||||||||||
| Ceded | ( | ( | ||||||||||||||||||||||||
| Net | $ | $ | $ | $ | ||||||||||||||||||||||
During each of the Company's June 30, 2025 and March 31, 2025 quarterly assessment of losses reserves, the ultimate catastrophe loss estimates for certain hurricane events were adjusted downward based upon loss development. The reduction in ultimate catastrophe losses reduced both the reserve for unpaid losses and the amount of reinsurance recoverable on unpaid claims by the same amount. The resultant change on a net basis was neutral because the losses were fully ceded under the Company's catastrophe excess of loss reinsurance coverage. This caused the ceded losses during the first and second quarters of 2025 to be positive in the table above.
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NOTE 13. RESERVE FOR UNPAID LOSSES
The Company determines the reserve for unpaid losses on an individual-case basis for all incidents reported. The liability also includes amounts which are commonly referred to as incurred but not reported, or “IBNR”, claims as of the balance sheet date. The Company estimates its IBNR reserves by projecting its ultimate losses using industry accepted actuarial methods and then deducting actual loss payments and case reserves from the projected ultimate losses.
The table below summarizes the activity related to the Company’s reserve for unpaid losses:
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||||||||||||
| (In thousands) | ||||||||||||||||||||||||||
| Balance, beginning of period | $ | $ | $ | $ | ||||||||||||||||||||||
| Less: reinsurance recoverable on unpaid losses | ||||||||||||||||||||||||||
| Net balance, beginning of period | ||||||||||||||||||||||||||
| Incurred related to: | ||||||||||||||||||||||||||
| Current year | ||||||||||||||||||||||||||
| Prior years | ( | ( | ||||||||||||||||||||||||
| Total incurred | ||||||||||||||||||||||||||
| Paid related to: | ||||||||||||||||||||||||||
| Current year | ||||||||||||||||||||||||||
| Prior years | ||||||||||||||||||||||||||
| Total paid | ||||||||||||||||||||||||||
| Net balance, end of period | ||||||||||||||||||||||||||
| Plus: reinsurance recoverable on unpaid losses | ||||||||||||||||||||||||||
| Balance, end of period | $ | $ | $ | $ | ||||||||||||||||||||||
The Company believes that the reserve for unpaid losses reasonably represents the amount necessary to pay all claims and related expenses which may arise from incidents that have occurred as of the balance sheet date.
As of June 30, 2025, the Company reported $328.3 million in unpaid losses and loss adjustment expenses, net of reinsurance which included $252.7 million attributable to IBNR net of reinsurance recoverable, or 77.0 % of net reserves for unpaid losses and loss adjustment expenses.
NOTE 14. LONG-TERM DEBT
Convertible Senior Notes
In August 2017 and September 2017, the Company issued in aggregate $136.8 5.875 11.7 million of its outstanding Convertible Senior Notes. Payment was made in cash and the Convertible Notes were retired at the time of repurchase. In addition, the Company expensed $242,700 which was the proportionate amount of the unamortized issuance and debt discount costs associated with this repurchase.
As of December 31, 2024 and June 30, 2025, the Company had approximately $885,000 21.1 25,115
Senior Secured Credit Facility
The Company was party to a credit agreement dated as of December 14, 2018 (as amended from time to time, the “Credit Agreement”) with a syndicate of lenders as of June 30, 2025
As of June 30, 2025, the Credit Agreement, as amended, provided for (1) a five-year senior secured term loan facility in an aggregate principal amount of $100 million (the “Term Loan Facility”) and (2) a five-year senior secured revolving credit facility in an aggregate principal amount of $50 million (inclusive of a sublimit for the issuance of letters of credit equal to the unused amount of
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the revolving credit facility and a sublimit for swingline loans equal to the lesser of $25 million and the unused amount of the revolving credit facility) (the “Revolving Credit Facility” and together with the Term Loan Facility, the “Credit Facilities”).
Term Loan Facility. The principal amount of the Term Loan Facility amortizes in quarterly installments, which began with the close of the fiscal quarter ending March 31, 2019, in an amount equal to $1.9 million per quarter, payable quarterly, decreasing to $875,000 per quarter commencing with the quarter ending December 31, 2021, and increasing to $2.4 million per quarter commencing with the quarter ending December 31, 2022, with the remaining balance payable at maturity. The Term Loan Facility matures on July 28, 2026. As of December 31, 2024 and June 30, 2025, there was $70.1 million and $65.4 million, respectively, in aggregate principal outstanding under the Term Loan Facility, and after giving effect to the additional term loan advance that was used to refinance amounts outstanding under the Revolving Credit Facility and to pay fees, costs and expenses related thereto, there was $10 million in aggregate principal outstanding under the Revolving Credit Facility.
For the six months ended June 30, 2025 and 2024, the Company made principal payments of approximately $4.8 million and $4.8 million, respectively, and interest payments of $2.6 million and $3.3 million, respectively, on the Term Loan Facility.
Revolving Credit Facility. The Revolving Credit Facility allows for borrowings of up to $50 million inclusive of a sublimit for the issuance of letters of credit equal to the unused amount of the Revolving Credit Facility and a sublimit for swingline loans equal to the lesser of $25 million and the unused amount of the Revolving Credit Facility. At June 30, 2025 and December 31, 2024, the Company had $10.0 24.4 million with a maturity date of March 16, 2025. As of December 31, 2024, the letters of credit remained outstanding and there were no draws as of such date. The letters of credit were not drawn upon during the first quarter of 2025 and were cancelled effective on their maturity date of March 16, 2025. At June 30, 2025 and 2024, there were no 413,668 on the Revolving Credit Facility and $66,535 relating to unused availability commitment fees. For the six months ended June 30, 2025, the Company made interest payments in aggregate of approximately $362,783 on the Revolving Credit Facility and $194,730 relating to letters of credit and unused availability commitment fees.
At the Company's option, borrowings under the Credit Facilities bear interest at rates equal to either (1) a rate determined by reference to SOFR, plus an applicable margin and a credit adjustment spread equal to 0.10 % or (2) a base rate determined by reference to the highest of (a) the “prime rate” of Regions Bank, (b) the federal funds rate plus 0.50 %, and (c) the adjusted term SOFR in effect on such day for an interest period of one month plus 1.00 %, plus an applicable margin.
At June 30, 2025, the effective interest rate for the Term Loan Facility and Revolving Credit Facility was 7.177 % and 7.177 %, respectively. The Company monitors the rates prior to the reset date which allows it to establish if the payment is monthly or quarterly payment based on the most beneficial rate used to calculate the interest payment.
Mortgage Loan
In October 2017, the Company and its subsidiary, Skye Lane Properties LLC, jointly obtained a commercial real estate mortgage loan in the amount of $12.7 million, bearing interest of 4.95 % per annum and maturing on October 30, 2027. Pursuant to the terms of the mortgage loan, on October 30, 2022, the interest rate adjusted to an interest rate equal to the annualized interest rate of the United States 5-year Treasury Notes as reported by the Federal Reserve on a weekly average basis plus 3.10 %, which resulted in an increase of the rate from 4.95 % to 7.42 % per annum, paid monthly. For the six months ended June 30, 2025 and 2024, the Company made principal and interest payments of $548,746 and $548,746 on the mortgage loan, respectively.
FHLB Loan Agreements
In December 2018, a subsidiary of the Company received a 3.094 % fixed interest rate cash loan of $19.2 million from the Federal Home Loan Bank Atlanta (“FHLB-ATL”). On September 29, 2023, the Company restructured the December 2018 agreement to extend the maturity date to March 28, 2025, with a 5.109 % fixed interest rate payable quarterly commencing on December 28, 2023. In connection with the initial loan agreement, the subsidiary became a member of the FHLB-ATL. Membership in the FHLB-ATL required an investment in FHLB-ATL’s common stock which was purchased in December 2018 and valued at $1.4 million. Additionally, the transaction required the acquired FHLB-ATL common stock and certain other investments to be pledged as collateral. In March 2025, the Company repaid the loan and released the investments from pledged collateral. As of June 30, 2025, the Company's membership in FHLB-ATL was reduced to $570,000 . For the six months ended June 30, 2025, and 2024, the Company made quarterly interest payments as per the terms of the loan agreement of approximately $239,780 and $498,828 , respectively.
As of June 30, 2025 and at December 31, 2024, the Company also holds other common stock from FHLB Boston for a value of $177,197
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In December 2018, a subsidiary of the Company became a member of the FHLB Des Moines (“FHLB-DM”). Membership in the FHLB-DM required an investment in FHLB-DM’s common stock which was purchased in December 2018 and valued at $133,200 . In January 2024, the insurance subsidiary of the Company received a 4.23 % fixed interest rate cash loan of $5.5 million from the FHLB-DM. Additionally, the transaction required the acquired FHLB-DM common stock and certain other investments to be pledged as collateral. As of June 30, 2025, the fair value of the collateralized securities and term certificate deposits was $5.8 million and the equity investment in FHLB common stock was $316,300 .
For the three months ended June 30, 2025 and 2024, the Company made monthly interest payments as per the terms of the loan agreement in aggregate of $58,809 , and $58,809 , respectively. For the six months ended June 30, 2025 and 2024, the Company made monthly interest payments in aggregate of $116,971 and $117,103 , respectively.
The following table summarizes the Company’s long-term debt and credit facilities as of June 30, 2025 and December 31, 2024:
| June 30, 2025 | December 31, 2024 | |||||||||||||
| (in thousands) | ||||||||||||||
| Convertible debt | $ | $ | ||||||||||||
| Mortgage loan | ||||||||||||||
| Term loan facility | ||||||||||||||
| Revolving credit facility | ||||||||||||||
| FHLB loan agreements | ||||||||||||||
| Total principal amount | $ | $ | ||||||||||||
| Deferred finance costs | $ | $ | ||||||||||||
| Total long-term debt | $ | $ | ||||||||||||
As of the date of this report, the Company was in compliance with the applicable terms of all its covenants and other requirements under the Credit Agreement, Convertible Notes, cash borrowings and other loans. The Company’s ability to secure future debt financing depends, in part, on its ability to remain in such compliance. The covenants in the Credit Agreement may limit the Company’s flexibility in connection with future financing transactions and in the allocation of capital in the future, including the Company’s ability to pay dividends and make stock repurchases, and contribute capital to its insurance subsidiaries that are not parties to the Credit Agreement.
The schedule of principal payments on long-term debt as of June 30, 2025 is as follows:
| Year | Amount | |||||||
| (In thousands) | ||||||||
| 2025 remaining | $ | |||||||
| 2026 | ||||||||
| 2027 | ||||||||
| 2028 | ||||||||
| 2029 | ||||||||
| Thereafter | ||||||||
| Total | $ | |||||||
NOTE 15. ACCOUNTS PAYABLE AND OTHER LIABILITIES
Accounts payable and other liabilities consist of the following:
| Description | June 30, 2025 | December 31, 2024 | ||||||||||||
| (In thousands) | ||||||||||||||
| Accounts payable and other payables | $ | $ | ||||||||||||
| Accrued interest and issuance costs | ||||||||||||||
| Other liabilities | ||||||||||||||
| Premium tax | ||||||||||||||
| Commission payables | ||||||||||||||
| Total other liabilities | $ | $ | ||||||||||||
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NOTE 16. STATUTORY ACCOUNTING AND REGULATIONS
State laws and regulations, as well as national regulatory agency requirements, govern the operations of all insurers such as the Company’s insurance subsidiaries. The various laws and regulations require that insurers maintain minimum amounts of statutory surplus and risk-based capital, restrict insurers’ ability to pay dividends, restrict the allowable investment types and investment mixes, and subject the Company’s insurers to assessments.
The Company’s insurance subsidiaries Heritage Property & Casualty Insurance Company (“Heritage P&C)”, Narragansett Bay Insurance Company (“NBIC”), and Zephyr Insurance Company (“Zephyr”) must maintain capital and surplus ratios or balances as determined by the regulatory authority of the states in which they are domiciled. Heritage P&C is required to maintain capital and surplus equal to the greater of $15.0 million or 10 % of its respective liabilities. Zephyr is required to maintain a deposit of $750,000 in a federally insured financial institution. NBIC is required to maintain capital and surplus of $3.0 million. The combined statutory surplus for Heritage P&C, Zephyr, and NBIC was $329.6 million at June 30, 2025 and $285.5 million at December 31, 2024. State law also requires the Company’s insurance subsidiaries to adhere to prescribed premium-to-capital surplus ratios, and risk-based capital requirements with which the Company's insurance subsidiaries are in compliance. At June 30, 2025, the Company’s insurance subsidiaries met the financial and regulatory requirements of each of the states in which they conduct business.
NOTE 17. COMMITMENTS AND CONTINGENCIES
The Company is involved in claims-related legal actions arising in the ordinary course of business. The Company accrues amounts resulting from claims-related legal actions in unpaid losses and loss adjustment expenses during the period that it determines an unfavorable outcome becomes probable and it can estimate the amounts. Management makes revisions to its estimates based on its analysis of subsequent information that the Company receives regarding various factors, including: (i) per claim information; (ii) company and industry historical loss experience; (iii) judicial decisions and legal developments in the awarding of damages; and (iv) trends in general economic conditions, including the effects of inflation.
NOTE 18. RELATED PARTY TRANSACTIONS
From time to time the Company has been party to various related party transactions involving certain of its officers, directors and significant stockholders, including as set forth below. The Company has entered into each of these arrangements without obligation to continue its effect in the future and the associated expense was immaterial to its results of operations or financial position as of June 30, 2025 and 2024.
In July 2019, the Board of Directors appointed Mark Berset to the Board of Directors of the Company. Mr. Berset is also the Chief Executive Officer of Comegys Insurance Agency, Inc. (“Comegys”), an independent insurance agency that writes policies for the Company. The Company pays commission to Comegys based upon standard industry rates consistent with those provided to the Company’s other insurance agencies. There are no arrangements or understandings between Mr. Berset and any other persons with respect to his appointment as a director. For the three months ended June 30, 2025 and 2024, the Company paid agency commission to Comegys of $35,445 and $39,280 , respectively. For the six months ended June 30, 2025 and 2024, the Company paid agency commission to Comegys of $75,145 and $80,088 , respectively.
NOTE 19. EMPLOYEE BENEFIT PLANS
The Company provides a 401(k) plan for all qualifying employees. The Company provides a matching contribution of 100 % on the first 3 % of employees’ contribution and 50 % on the next 2 % of the employees’ contribution to the plan. The maximum match is 4 %. For the three months ended June 30, 2025 and 2024, the matching contributions made to the plan on behalf of the participating employees were approximately $556,800 and $368,500 , respectively. For the six months ended June 30, 2025 and 2024, the matching contributions made to the plan on behalf of the participating employees were $965,100 and $821,700 , respectively. In addition to the matching contribution, the Company also made a profit sharing contribution to the 401(k) plan in aggregate of $490,000 during the first quarter of 2025. This amount was included in accrued compensation at December 31, 2024.
The Company offers employees a flex healthcare plan which allows employees the choice of three medical plans with a range of coverage levels and costs. For the three months ended June 30, 2025 and 2024, the Company incurred medical premium costs including healthcare premiums of $1.6 million and $1.5 million, respectively. For the six months ended June 30, 2025 and 2024, the Company incurred medical premium costs including healthcare premiums of $3.3 million and $2.7 million, respectively.
NOTE 20. EQUITY
The total amount of authorized capital stock consists of 50,000,000 shares of common stock and 5,000,000 shares of preferred stock. As of June 30, 2025, the Company had 31,017,570 shares of common stock outstanding, 12,231,674 treasury shares of common stock and 1,690,840 shares of unvested restricted common stock outstanding reflecting additional paid-in capital of $365.6 million as of such date.
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As of December 31, 2024, the Company had 30,607,039 shares of common stock outstanding, 12,231,674 treasury shares of common stock and 1,334,923 shares of unvested shares of restricted common stock outstanding reflecting additional paid-in capital of $362.6 million as of such date.
Common Stock
Holders of common stock are entitled to one vote for each share held on all matters subject to a vote of stockholders, subject to the rights of holders of any outstanding preferred stock. Accordingly, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election, subject to the rights of holders of any outstanding preferred stock. Holders of common stock will be entitled to receive ratably any dividends that the board of directors may declare out of funds legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. Upon the Company’s liquidation, dissolution or winding up, the holders of common stock will be entitled to receive ratably the Company's net assets available after the payment of all debts and other liabilities and subject to the prior rights of holders of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. There is no redemption or sinking fund provisions applicable to the common stock. All outstanding shares of the Company’s capital stock (excluding restricted stock) are fully paid and non-assessable.
Stock Repurchase Program
On March 11, 2024, the Board of Directors established a new share repurchase plan which commenced upon the expiration of the prior share repurchase plan on December 31, 2023, for the purpose of repurchasing up to an aggregate of $10.0 million of common stock, through the open market or in such other manner as will comply with the terms of applicable federal and state securities laws and regulations, including without limitation, Rule 10b-18 under the Securities Act at any time or from time to time on or prior to December 31, 2024 (the "2024 Share Repurchase Plan"). There were no shares repurchased under the 2024 Share Repurchase Plan for the year ended December 31, 2024.
On December 9, 2024, the Board of Directors established a new share repurchase program plan which commenced upon the expiration of the 2024 Share Repurchase Plan on December 31, 2024, for the purpose of repurchasing up to an aggregate of $10.0 million of common stock, through the open market or in such other manner as will comply with the terms of applicable federal and state securities laws and regulations, including without limitation, Rule 10b-18 under the Securities Act at any time or from time to time on or prior to December 31, 2025 (the "2025 Share Repurchase Plan"). There were no shares repurchased under the 2025 Share Repurchase Plan for the for the three and six months ended June 30, 2025.
Dividends
The declaration and payment of any future dividends will be subject to the discretion of the Board of Directors and will depend on a variety of factors including the Company’s financial condition and results of operations.
The Board of Directors elected not to declare any dividends during the six months ended June 30, 2025 and 2024.
NOTE 21. STOCK-BASED COMPENSATION
Restricted Stock
The Company adopted the Heritage Insurance Holdings, Inc., 2023 Omnibus Incentive Plan (the “2023 Plan”), which became effective on June 7, 2023. The 2023 Plan authorized 2,125,000 shares of common stock for issuance under the Plan for future grants. In June 2025, the 2023 Plan was amended, effective on June 10, 2025 to increase the authorized shares by 1,800,000 shares of common stock for issuance under the Plan for future grants. Upon effectiveness of the original 2023 Plan, no new awards may be granted under the prior Omnibus Incentive Plan, which will continue to govern the terms of awards previously made under such plan.
At June 30, 2025, there were 2,026,449 shares available for grant under the Plan. The Company recognizes compensation expense under ASC 718 for its stock-based payments based on the fair value of the awards.
In June 2025, the Company awarded to non-employee directors an aggregate of 15,300 shares of stock with a fair value at the time of grant of $23.53 per share. The stock fully vested upon issuance on June 10, 2025, the date of the annual meeting of the Company's stockholders.
On April 15, 2025, the Company awarded 9,000 shares of time-based restricted stock, with a fair value at the time of grant of $17.30 per share under the 2023 Plan to certain employees. The time-based restricted stock will fully vest on December 15, 2025.
On March 11, 2025, the Company awarded an aggregate of 99,246 shares of time-based restricted stock and 285,985 shares of performance-based restricted stock, with a fair value at the time of grant of $11.88
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restricted stock has a three-year performance period beginning on January 1, 2025 and ending on December 31, 2027 and will vest following the end of the performance period but no later than March 31, 2028.
On January 10, 2025, the Company awarded 1,000 shares of time-based restricted stock, with a fair value at the time of grant of $10.86
In January 2025, the Company evaluated the restricted stock performance criteria and determined that based on the Company’s results measured against the performance conditions under the awards, the maximum percentage would most likely be met by each of the recipients at the end of the vesting period for the 2024 awards, which were issued at target. Therefore, additional shares of restricted stock are expected to be earned upon vesting and beginning the first quarter of 2025, the Company began to recognize stock-based compensation on the additional 217,877 shares of performance-based restricted stock, as a result of the expected maximum achievement of the performance conditions under the awards.
In June 2024, the Company awarded to non-employee directors an aggregate of 39,312 shares of restricted stock with a fair value at the time of grant of $8.14 per share. The restricted stock vested on June 10, 2025, the date of the annual meeting of the Company's stockholders.
In March 2024, the Company awarded an aggregate of 8,390 shares of time-based restricted stock, with a fair value at the time of grant of $7.15 per share to certain employees. The time-based restricted stock fully vested on December 15, 2024.
On February 26, 2024, the Company awarded an aggregate of 163,640 shares of time-based restricted stock and an aggregate of 253,918 shares of performance-based restricted stock, with a fair value at the time of grant of $7.02 three equal installments commencing on December 15, 2024. The performance based restricted stock has a three-year performance period beginning on January 1, 2024 and ending on December 31, 2026 and will vest following the end of the performance period but no later than March 31, 2027.
For the shares of performance-based restricted stock that are issued at target, the number of shares that will be earned at the end of the performance period is subject to increase or decrease based on the results of the performance condition. However, for those issued at the maximum, the number of shares that will be earned at the end of the performance period is subject to decrease based on the results of the performance condition under the awards.
The Plan authorizes the Company to grant stock options at exercise prices equal to the fair market value of the Company’s stock on the dates the options are granted. The Company has not granted any stock options since 2015 and all unexercised stock options have since been forfeited.
Restricted stock activity for the six months ended June 30, 2025 is as follows:
| Weighted-Average Grant-Date Fair Value per Share | ||||||||||||||
| Number of shares | ||||||||||||||
| Non-vested, at December 31, 2024 | $ | |||||||||||||
| Granted - Performance-based restricted stock | $ | |||||||||||||
| Granted - Time-based restricted stock | $ | |||||||||||||
| Vested | ( | $ | ||||||||||||
| Canceled and surrendered | ||||||||||||||
| Non-vested, at June 30, 2025 | $ | |||||||||||||
Awards are being amortized to expense over the - to three-year vesting period. The Company recognized $1.7 million and $833,000 of compensation expense for the three months ended June 30, 2025 and 2024, respectively. The Company recognized $2.9 million and $1.4 million of stock compensation expense for the six months ended June 30, 2025 and 2024, respectively. For the three and six months ended June 30, 2025, a total of 54,612 77,296
At June 30, 2025, there was approximately $1.8 million unrecognized expense related to time-based non-vested restricted stock and an additional $5.4 million for performance-based restricted stock, net of expected forfeitures which is expected to be recognized over the remaining restriction periods as described in the table below. For the comparable period in 2024, there was in aggregate $5.2 million of unrecognized expense.
Additional information regarding the Company’s outstanding non-vested time-based restricted stock and performance-based restricted stock at June 30, 2025 is as follows:
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| Grant date | Restricted shares unvested | Share Value at Grant Date Per Share | Remaining Restriction Period (Years) | |||||||||||||||||
| February 27, 2024 | ||||||||||||||||||||
| February 27, 2024 | ||||||||||||||||||||
| July 11, 2023 | ||||||||||||||||||||
| July 11, 2023 | ||||||||||||||||||||
| January 10, 2025 | ||||||||||||||||||||
| March 11, 2025 | ||||||||||||||||||||
| March 11, 2025 | ||||||||||||||||||||
| April 15, 2025 | ||||||||||||||||||||
NOTE 22. SEGMENT INFORMATION
The Company's business is reported as one
As mentioned above, the Company operates as one reportable segment, all significant expenses presented to the CODM are presented on the face of the Consolidated Statements of Income and Comprehensive Income. The CODM uses net income to evaluate income generated from segment assets, such as return on assets, in deciding whether to reinvest profits into the business or other parts of the entity, such as for acquisitions or to pay dividends.
| For the Three Months Ended June 30, | For the Six Months Ended June 30, | ||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Revenues: | (in thousands) | (in thousands) | |||||||||||||||||||||
Net premiums earned | $ | $ | $ | $ | |||||||||||||||||||
| Net investment income | |||||||||||||||||||||||
| Net realized losses | |||||||||||||||||||||||
| Other revenue | |||||||||||||||||||||||
| Total revenues | |||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||
| Losses and loss adjustment expense - current year | |||||||||||||||||||||||
| Losses and loss adjustment expense - prior year | ( | ( | |||||||||||||||||||||
| Policy acquisition costs | |||||||||||||||||||||||
General and administration costs (1) | |||||||||||||||||||||||
| Depreciation & amortization | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Income tax expense | |||||||||||||||||||||||
| Segment net income | |||||||||||||||||||||||
| Reconciliation of profit or loss: | |||||||||||||||||||||||
| Adjustment and reconciling items: | |||||||||||||||||||||||
| Consolidated net income | $ | $ | $ | $ | |||||||||||||||||||
NOTE 23. SUBSEQUENT EVENTS
The Company performed an evaluation of subsequent events through the date the condensed consolidated financial statements were issued and determined there were no recognized or unrecognized subsequent events that would require an adjustment or additional disclosure in the condensed consolidated financial statements as of June 30, 2025, other than events described below.
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On July 22, 2025, the Company and its subsidiary guarantors entered into the Amended and Restated Credit Agreement (the “Amended and Restated Credit Agreement”) with lenders from time to time party thereto and Regions Bank, as administrative agent and collateral agent. The Amended and Restated Credit Agreement amended and restated in its entirety the Credit Agreement dated as of December 31, 2018 (as subsequently amended from time to time).
The Amended and Restated Credit Agreement, among other things, (i) increases the overall size of the senior secured credit facilities to an aggregate principal amount of up to $200.0 million, consisting of (a) a revolving credit facility that continues to have an aggregate principal amount of up to $50.0 million (inclusive of a $25.0 million sublimit for swingline loans), but with an extended maturity of July 2030, (b) a term loan facility for an aggregate of $75 million principal amount outstanding as of the date of the Amended and Restated Agreement, with an extended maturity of July 2030, and (c) a $75 million committed delayed draw term loan that may be advanced to finance specified permitted acquisitions and investments, subject to satisfaction of conditions to borrowing and compliance with a specified consolidated leverage ratio, in up to five separate installments during the two year period following the effective date of the Amended and Restated Credit Agreement with a maturity of July 2030, (ii) reduces the applicable margin for loans from (a) the prior range of 2.75 % to 3.25 % (plus the 0.10 % credit adjustment spread) to a range from 2.50 % to 3.00 % per annum for SOFR loans (and removes the 0.10 % SOFR credit adjustment spread) and (b) the prior range of 1.75 % to 2.25 % per annum for base rate loans to a range from 1.50 % to 2.00 %, in each case based on a consolidated leverage ratio ranging from less than or equal to 1-to-1 to greater than 1.5-to-1 and (iii) amend the terms of specified financial and negative covenants, which will generally allow the Company more flexibility, including to sell certain real estate assets located in Clearwater, Florida. All other material terms remain unchanged in the Amended and Restated Credit Agreement.
The net proceeds from the advance, along with cash on hand, were used to repay approximately $78 million in principal amount outstanding under the Prior Credit Agreement, including to pay accrued interest, fees, costs and expenses in connection with the closing of the Amended and Restated Credit Agreement.
On July 23, 2025, the Company sold its Clearwater property to a non-affiliated party at a purchase price of $16.0 million less fees and commission of approximately $833,230 . In addition, the Company issued a Promissory Note to the buyer for $11.0 million with a maturity date of one year from effective date at which time all outstanding principal and any unpaid accrued interest and other charges shall be due and payable. Interest shall accrue daily at a rate of 7 % per annum, compounded annually with monthly interest payments due to the Company. In conjunction with this transaction the Company paid in full the outstanding 7.42 % mortgage loan balance and the unpaid accrued interest in the amount of $10.6 million. The Company is anticipating recognizing approximately $2.5 million pre-tax gain from this transaction during the third quarter of 2025.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion in conjunction with our condensed consolidated financial statements and related notes and other information included elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year ended December 31, 2024 (as amended, the “2024 Form 10-K”). Unless the context requires otherwise, as used in this Form 10-Q, the terms “we”, “us”, “our”, “the Company”, “our Company”, and similar references refer to Heritage Insurance Holdings, Inc., a Delaware corporation, and its subsidiaries.
Overview
We are a super-regional property and casualty insurance holding company that primarily provides personal and commercial residential insurance products across our multi-state footprint. We provide personal residential insurance in Alabama, California, Connecticut, Delaware, Florida, Georgia, Hawaii, Maryland, Massachusetts, Mississippi, New Jersey, New York, North Carolina, Rhode Island, South Carolina, and Virginia and commercial residential insurance in Florida, New Jersey, and New York. We provide personal residential insurance in Florida and South Carolina on both an admitted and non-admitted basis and in California on a non-admitted basis. As a vertically integrated insurer, we control or manage substantially all aspects of risk management, underwriting, claims processing and adjusting, actuarial rate making and reserving, customer service, and distribution. Our financial strength ratings are important to us in establishing our competitive position and can impact our ability to write policies.
Recent Developments
Economic and Market Factors
We continue to monitor the effects of general changes in economic and market conditions on our business. As a result of general inflationary pressures, we have experienced, and may continue to experience, increased cost of materials and labor needed for repairs and to otherwise remediate claims throughout all states in which we conduct business. We mitigate the impact of inflation by implementation of rate increases and the use of inflation guard, which ensures appropriate replacement cost values for our business to reflect the inflationary impact on costs to repair properties. Use of inflation guard impacts both premium and total insured value ("TIV"). To the extent that reinsurance costs rise, we may seek to recoup the cost of reinsurance in future rate filings as well as mitigate the cost through exposure management.
Supplemental Information
The Supplemental Information table below demonstrates progress on our initiatives by providing policy count, premiums-in-force, and TIV for Florida and all other states as of June 30, 2025 and comparing those metrics to June 30, 2024.
| Policies-in-force: | Q2 2025 | Q2 2024 | % Change | |||||||||||||||||
| Florida | 127,772 | 142,591 | (10.4) | % | ||||||||||||||||
| Other States | 242,337 | 277,653 | (12.7) | % | ||||||||||||||||
| Total | 370,109 | 420,244 | (11.9) | % | ||||||||||||||||
| Premiums-in-force: | (in thousands) | |||||||||||||||||||
| Florida | $ | 687,883 | $ | 734,698 | (6.4) | % | ||||||||||||||
| Other States | 741,608 | 687,638 | 7.8 | % | ||||||||||||||||
| Total | $ | 1,429,491 | $ | 1,422,336 | 0.5 | % | ||||||||||||||
| Total Insured Value: | (in thousands) | |||||||||||||||||||
| Florida | $ | 105,385,166 | $ | 104,426,161 | 0.9 | % | ||||||||||||||
| Other States | 259,649,177 | 278,666,369 | (6.8) | % | ||||||||||||||||
| Total | $ | 365,034,343 | $ | 383,092,530 | (4.7) | % | ||||||||||||||
Florida policies-in-force declined from the prior year quarter by 10.4% while premiums-in-force decreased 6.4%, and TIV was up by less than 1.0%. The decrease in Florida premium-in-force was driven primarily by a reduction in our personal lines policy count related to intentional exposure management during the last several years. The exposure management goals were met and given the Company's achievement of rate adequacy in a majority of our territories, the Company is expanding its Florida territories which are open for new business, with an expectation of modest growth by the end of 2025. The in-force premium for our Florida commercial
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lines business is also down, driven by competitive market conditions. Compared to the quarter ended March 31, 2025, our policy count is down 2.0%, with a 0.2% reduction in premiums-in-force, and a 0.4% increase in total insured value.
Strategic Profitability Initiatives
The Company has focused on three main strategic initiatives over the past few years aimed at achieving consistent, long-term quarterly earnings and driving shareholder value, which include:
•Generating underwriting profit through rate adequacy and more selective underwriting.
•Allocating capital to products and geographies that maximize long-term returns.
•Maintaining a balanced and diversified portfolio.
These three initiatives will remain in place while we also expand our strategy to include our 2025 initiatives.
Strategic Initiatives for 2025
•Re-opening profitable geographies and allocating capital to sustain profits and margins on a measured basis.
•Persistent underwriting discipline and focus on rate adequacy.
•Continued data driven analytics.
•Enhancing customer service and claims capabilities.
•Leveraging infrastructure and capabilities to foster future growth.
Trends
Inflation, Underwriting and Pricing
We address reinsurance and loss costs trends in the property insurance sector through rates and inflation guard factors which resulted in an increase in the average premium per policy of 14.1% for the quarter ended June 30, 2025 as compared to the prior year quarter. The higher average premium is driven by rate changes, inclusion of inflation guard, and by the mix of business written. We experienced intentional growth of our commercial residential business during 2024, with in-force premium in that line of business expected to flatten during 2025. New rates, which are subject to approval by our regulators, become effective when a policy is written or renewed, and the premium is earned pro rata over the policy period of one year. As a result of this timing, it can take up to twenty-four months for the complete impact of a rate change to be fully earned in our financial statements. For that reason, we account for inflation in our rate indications and filings with our regulators.
We invest in data analytics, using software and experienced personnel, to continuously evaluate our underwriting criteria and manage exposure to catastrophe and other losses. Our retention has remained steadily in the range of 90%,which we believe is driven in large part due to a challenging property insurance market in many of the regions in which we operate, as well as our agency relationships and policyholder service. While we believe our rates are generally competitive with private market insurers operating in our space, we are focused on managing exposure and achieving rate adequacy throughout our book of business as we prudently grow our business in 2025.
We continue to experience rising inflation in the form of increased labor and material costs, which drive up claim costs throughout all states in which we conduct business. However, the rate at which inflation is increasing is at a lower point than what we have experienced in the last several years. Florida personal lines claim costs associated with litigated claims have decreased due to favorable legislation over the last several years aimed to curtail claims abuse. This was a significant driver of our Florida exposure reduction in 2024 and previous years. The special legislative session of December 2022 included a number of additional provisions aimed at driving down claims abuses and stabilizing the Florida property insurance market. The legislation continues to be having the intended impact and has improved our outlook on conducting business in Florida, such that we intend to grow modestly in Florida in 2025.
Our industry had experienced significantly higher reinsurance costs and more constrained availability for catastrophe excess of loss reinsurance in 2022 and 2023. For the 2024 hurricane season, the supply of catastrophe excess of loss reinsurance for the Company was ample and pricing began to moderate. For the 2025 hurricane season, we observed increased reinsurance supply at competitive pricing as the reinsurance market continues to stabilize and improve.
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Overview of Financial Results
In the following section, we discuss our financial condition and results of operations for the three months ended June 30, 2025 compared to the three months ended June 30, 2024.
The discussion of our financial condition and results of operations that follows provides information that will assist the reader in understanding our consolidated financial statements, the changes in certain key items in those financial statements from quarter to quarter, including certain key performance indicators such as net combined ratio, ceded premium ratio, net expense ratio and net loss ratio, and the primary factors that accounted for those changes, as well as how certain accounting principles, policies and estimates affect our consolidated financial statements. This discussion should be read in conjunction with our consolidated financial statements and the related notes included under Item 1 of this Quarterly Report on Form 10-Q.
•Second quarter ended 2025 net income was $48.0 million or $1.55 per diluted share, compared to net income of $18.9 million or $0.61 per diluted share in the prior year quarter, primarily driven by a significant reduction in losses and loss adjustment expenses, an increase in net premiums earned, and a reduction in operating expenses. The improvement in net income is attributable to the positive impact of rate actions, underwriting actions, and targeted exposure management taken over the last several years, which continue to favorably impact results. These and other actions resulted in growth of 3.2% in net premiums earned while investment income was down due to a lower interest rate environment, particularly our money market funds and sweep accounts. As described below losses and LAE decreased by 28.6% from the prior year quarter, driven by a reduction in weather losses, favorable loss development and lower attritional losses. Policy acquisition costs decreased 8.6%, driven by an increase in ceding commission on the net quota share reinsurance contract, which offsets higher costs that vary with gross premiums written. General and administrative costs increased 7.1% driven primarily by human capital costs, with the net general and administrative expense ratio one-half point higher than the prior year quarter.
•Gross premiums written of $411.0 million were down 3.2% from $424.5 million in the prior year quarter, reflecting exposure management trends over the last several years for personal lines business for which the trend is anticipated to reverse by the end of 2025 based on new business written trends and expectations. Additionally, we experienced a reduction of written premium for commercial residential business associated with competitive market conditions.
•Gross premiums earned were $353.6 million, up 1.0% from $350.1 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months primarily from rating actions.
•Net premiums earned were $196.3 million, up 3.2% from $190.3 million in the prior year quarter, reflecting higher gross premium earned, as well as a reduction in ceded premiums from the prior year quarter. The reduction in ceded premiums is driven primarily by a $10.0 million reinstatement premium for Hurricane Ian which increased the reinsurance cost for the prior year quarter, which was partly offset by higher ceded premium in 2025 on our net quota share reinsurance program. Ceded premiums on the net quota share reinsurance program were higher than the prior year quarter driven by a higher ceding rate than the prior year as well as higher premium subject to that contract than the prior year quarter.
•Ceded premium ratio was 44.5%, down 1.1 points from 45.6% in the prior year quarter driven by growth in gross premiums earned and less ceded premium as described above.
•Net loss ratio decreased to 38.5%, a 17.2 point improvement from 55.7% in the same quarter last year, reflecting significantly lower net losses and LAE, coupled with higher net premiums earned. Net weather losses for the current year quarter were $12.5 million, a decrease of $7.2 million from $19.7 million in the prior year quarter. There were no catastrophe losses in the current or prior year quarters. The reduction in weather losses was coupled with a reduction in attritional losses and favorable reserve development compared to the prior year quarter. Favorable net loss development was $2.3 million in the current year quarter compared to adverse development of $8.7 million in the prior year quarter.
•The net expense ratio was 34.4%, a 2.4 point improvement from the prior year quarter amount of 36.8%, driven by growth in net premiums earned, coupled with higher ceding commission income which decreased the net policy acquisition cost ratio by 2.8%. Higher ceding commission income was associated with both a larger amount of premium ceded under the net quota share program and a higher ceding commission rate driven by favorable loss experience for that program. This offset a one-half point increase in the net general and administrative expense ratio.
•Net combined ratio of 72.9% improved 19.6 points from 92.5% in the prior year quarter, driven by primarily by a lower net loss ratio as well as a lower net expense ratio as described above.
•Net investment income was $9.0 million, a decrease from $9.8 million in the prior year quarter, primarily driven by a lower interest rate environment for our sweep accounts and money market funds. We continue to manage our investment portfolio, while maintaining a conservative portfolio with high quality investments and duration liability matched.
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•The effective tax rate was 23.8% compared to 24.1% in the prior year quarter. We calculate the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year. The effective tax rate is lower than the prior year quarter due to higher projected pre-tax income for the year 2025 compared to the projection for the year 2024. This had a dilutive effect on the rate impacts of permanent tax differences compared to the prior year quarter income tax provision. The effective tax rate can fluctuate throughout the year as estimates used in each quarterly tax provision are updated with additional information.
Results of Operations
Comparison of the Three Months Ended June 30, 2025 and 2024
Revenue
| For the Three Months Ended June 30, | ||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||
| (Unaudited) | (in thousands) | |||||||||||||||||||||||||
| REVENUE: | ||||||||||||||||||||||||||
| Gross premiums written | $ | 410,968 | $ | 424,530 | $ | (13,562) | (3.2) | % | ||||||||||||||||||
| Change in gross unearned premiums | (57,374) | (74,457) | 17,083 | (22.9) | % | |||||||||||||||||||||
| Gross premiums earned | 353,594 | 350,073 | 3,521 | 1.0 | % | |||||||||||||||||||||
| Ceded premiums | (157,278) | (159,757) | 2,479 | (1.6) | % | |||||||||||||||||||||
| Net premiums earned | 196,316 | 190,316 | 6,000 | 3.2 | % | |||||||||||||||||||||
| Net investment income | 9,034 | 9,769 | (735) | (7.5) | % | |||||||||||||||||||||
| Net realized gains | 4 | 12 | (8) | (66.7) | % | |||||||||||||||||||||
| Other revenue | 2,681 | 3,474 | (793) | (22.8) | % | |||||||||||||||||||||
| Total revenue | $ | 208,035 | $ | 203,571 | $ | 4,464 | 2.2 | % | ||||||||||||||||||
Total revenue
Total revenue was $208.0 million, up 2.2% compared to $203.6 million in the prior year quarter. The increase primarily stems from higher net premiums earned as described below.
Gross premiums written
Gross premiums written were $411.0 million, down 3.2% from $424.5 million in the prior year quarter reflecting exposure management trends over the last several years for personal lines business which is expected to reverse during 2025 as our managed growth initiative is deployed. Additionally, we experienced a reduction of written premium for commercial residential business, primarily related to a reduction of the in-force premium for this business driven by competitive market conditions.
Premiums-in-force were $1.43 billion as of second quarter 2025, an increase of 0.5% compared to $1.42 billion as of second quarter 2024, driven by rate actions taken and a reduction in policies in force, while concurrently, TIV decreased by 4.7%.
Gross premiums earned
Gross premiums earned of $353.6 million were up 1.0% from $350.1 million in the prior year quarter, reflecting higher gross premiums written over the last twelve months, driven by rating actions and use of inflation guard.
Ceded premiums
Ceded premiums were $157.3 million in second quarter 2025, down 1.6% from $159.8 million in the prior year quarter. The decrease relates primarily to a $10.0 million reinstatement premium for Hurricane Ian during the second quarter of 2024 which did not recur in the current year quarter. To the extent the ultimate losses for Hurricanes Ian or Milton grow, additional reinstatement premiums may be incurred, depending upon the amount of additional reinsurance limit utilized. This was partly offset by higher ceded premium on our net quota share program, driven by a higher cession rate coupled with higher written premium subject to that program.
Net premiums earned
Net premiums earned were $196.3 million in second quarter 2025, up 3.2% from $190.3 million in the prior year quarter. The increase primarily stems from growth in gross premiums earned coupled with a reduction in ceded premiums, as described above.
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Net investment income
Net investment income was $9.0 million in second quarter 2025, down 7.5% from $9.8 million in the prior year quarter, driven primarily by lower yields on money market accounts in the current interest rate environment.
| For the Three Months Ended June 30, | ||||||||||||||||||||||||||
| (Unaudited) | 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||||
| EXPENSES: | (in thousands) | |||||||||||||||||||||||||
| Losses and loss adjustment expenses | 75,620 | 105,928 | (30,308) | (28.6) | % | |||||||||||||||||||||
| Policy acquisition costs | 43,146 | 47,224 | (4,078) | (8.6) | % | |||||||||||||||||||||
| General and administrative expenses | 24,399 | 22,780 | 1,619 | 7.1 | % | |||||||||||||||||||||
| Total expenses | 143,165 | 175,932 | (32,767) | (18.6) | % | |||||||||||||||||||||
Total expenses
Total expenses were $143.2 million in second quarter 2025, down 18.6% compared to $175.9 million in the prior year quarter. As described below, losses and LAE declined, policy acquisition costs declined, and general and administrative expenses increased.
Losses and loss adjustment expenses ("LAE")
Losses and LAE incurred were $75.6 million in second quarter 2025, down 28.6% from $105.9 million in the prior year quarter. The decrease primarily stems from lower attritional losses and favorable net loss development coupled with lower weather losses. Net weather losses for the current accident quarter were $12.5 million, a decrease from $19.7 million in the prior year quarter. There were no catastrophe losses in the current or prior year quarters. Net favorable prior year loss development was $2.3 million for the second quarter of 2025 compared to net unfavorable loss development of $8.7 million for the prior year quarter.
Policy acquisition costs
Policy acquisition costs were $43.1 million in second quarter 2025, down 8.6% from $47.2 million in the prior year quarter. The decrease is primarily attributable to higher ceding commission earned on the net quota share reinsurance contract, the income of which offsets other policy acquisition costs. Higher ceding commission income was associated with both a larger amount of premium ceded under the net quota share program and a higher ceding commission rate driven by favorable loss experience for that program.
General and administrative expenses
General and administrative expenses were $24.4 million in second quarter 2025, up 7.1% from $22.8 million in the prior year quarter. The increase was driven largely by higher human capital related costs including employee benefits and stock compensation.
| For the Three Months Ended June 30, | ||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||
| (Unaudited) | (in thousands, except per share amounts) | |||||||||||||||||||||||||
| Operating income | 64,870 | 27,639 | 37,231 | 134.7 | % | |||||||||||||||||||||
| Interest expense, net | 1,880 | 2,780 | (900) | (32.4) | % | |||||||||||||||||||||
| Income before income taxes | 62,990 | 24,859 | 38,131 | 153.4 | % | |||||||||||||||||||||
| Income tax expense | 14,966 | 5,990 | 8,976 | 149.9 | % | |||||||||||||||||||||
| Net income | $ | 48,024 | $ | 18,869 | $ | 29,155 | 154.5 | % | ||||||||||||||||||
| Basic earnings per share | $ | 1.55 | $ | 0.62 | $ | 0.93 | 150.0 | % | ||||||||||||||||||
| Diluted earnings per share | $ | 1.55 | $ | 0.61 | $ | 0.94 | 154.1 | % | ||||||||||||||||||
Net income
Second quarter 2025 net income was $48.0 million or $1.55 per diluted share, compared to net income of $18.9 million or $0.61 per diluted share in the prior year quarter, primarily driven by a significant reduction in losses and LAE, an increase in net premiums earned and a reduction in operating expenses. The improvement in net income is attributable to the positive impact of rate actions, underwriting actions, and targeted exposure management taken over the last several years, which continue to favorably impact results. These and other actions resulted in growth of 3.2% in net premiums earned while investment income was down due to a lower interest rate environment. Losses and LAE decreased by 28.6%, driven primarily from lower attritional losses and favorable net loss development coupled with lower weather losses. Policy acquisition costs decreased 8.6%, driven by an increase in ceding commission on the net quota share reinsurance contract, which offsets higher costs that vary with gross premiums written. General and
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administrative costs increased 7.1% driven primarily by human capital costs, with the net general and administrative expense ratio one-half point higher than the prior year quarter.
Interest expense, net
Interest expense, net was $1.9 million in the second quarter of 2025, lower than $2.8 million for the prior year quarter, driven by the reduction in debt obligations and a lower interest rate environment.
Income tax expense
Income tax expense was $15.0 million in second quarter 2025 compared to $6.0 million in the prior year quarter, with the higher provision in the current quarter driven by higher pre-tax earnings compared to the prior year quarter. The effective tax rate for the current year quarter was 23.8% compared to 24.1% in the prior year quarter. We calculate the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year. The effective tax rate is lower than the prior year quarter, which was driven primarily by differences in projected pre-tax income for the calendar year, which includes a dilutive effect on the rate impacts of permanent tax differences compared to the prior year quarter income tax provision. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.
Ratios
| For the Three Months Ended June 30, | ||||||||||||||
| (Unaudited) | 2025 | 2024 | ||||||||||||
| Ceded premium ratio | 44.5 | % | 45.6 | % | ||||||||||
| Net loss and LAE ratio | 38.5 | % | 55.7 | % | ||||||||||
| Net expense ratio | 34.4 | % | 36.8 | % | ||||||||||
| Net combined ratio | 72.9 | % | 92.5 | % | ||||||||||
Net combined ratio
The net combined ratio was 72.9% in second quarter 2025, a 19.6 point improvement from 92.5% in the prior year quarter. The decrease primarily stems from a lower net loss and LAE ratio and lower net expense ratio as described below.
Ceded premium ratio
The ceded premium ratio was 44.5% in second quarter 2025, a 1.1 point improvement from 45.6% in the prior year quarter, primarily driven by growth in gross premiums earned as well as lower reinsurance costs, as described above.
Net loss and LAE ratio
The net loss and LAE ratio was 38.5% in second quarter 2025, a 17.2 point improvement from 55.7% in the prior year quarter, reflecting higher net premiums earned and a significant decrease in net losses and LAE as described above.
Net expense ratio
The net expense ratio was 34.4%, a 2.4 point improvement from the prior year quarter amount of 36.8%, primarily driven by growth in net premiums earned which, coupled with higher ceding commission income, lowered the net policy acquisition costs ratio. This was partly offset by a half point higher net general and administrative expense ratio.
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Results of Operations
Comparison of the Six Months Ended June 30, 2025 and 2024
| For the Six Months Ended June 30, | ||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||
| (Unaudited) | (in thousands) | |||||||||||||||||||||||||
| REVENUE: | ||||||||||||||||||||||||||
| Gross premiums written | $ | 766,965 | $ | 781,214 | $ | (14,249) | (1.8) | % | ||||||||||||||||||
| Change in gross unearned premiums | (59,543) | (89,752) | 30,209 | (33.7) | % | |||||||||||||||||||||
| Gross premiums earned | 707,422 | 691,462 | 15,960 | 2.3 | % | |||||||||||||||||||||
| Ceded premiums | (311,072) | (321,720) | 10,648 | (3.3) | % | |||||||||||||||||||||
| Net premiums earned | 396,350 | 369,742 | 26,608 | 7.2 | % | |||||||||||||||||||||
| Net investment income | 17,609 | 18,320 | (711) | (3.9) | % | |||||||||||||||||||||
| Net realized gains | — | 11 | (11) | (100.0) | % | |||||||||||||||||||||
| Other revenue | 5,595 | 6,800 | (1,205) | (17.7) | % | |||||||||||||||||||||
| Total revenue | $ | 419,554 | $ | 394,873 | $ | 24,681 | 6.3 | % | ||||||||||||||||||
Total revenue
Total revenue was $419.6 million for the six months ended June 30, 2025, up 6.3% compared to $394.9 million in the prior year period. The increase primarily stems from higher net premiums earned as described below.
Gross premiums written
Gross premiums written were $767.0 million for the six months ended June 30, 2025, down 1.8% from $781.2 million in the prior year period reflecting exposure management trends over the last several years for personal lines business, which is expected to reverse during 2025 as our managed growth initiative is deployed Additionally, we experienced a reduction of written premium for commercial residential business, primarily related to a reduction of the in-force premium for this business driven by competitive market conditions.
Premiums-in-force were $1.43 billion as of second quarter 2025, an increase of 0.5% compared to $1.42 billion as of second quarter 2024, driven by rate actions taken and a reduction in policies in force, while concurrently, TIV decreased by 4.7%.
Gross premiums earned
Gross premiums earned were $707.4 million for the six month period ended June 30, 2025, an increase of 2.3% from $691.5 million in the prior year period. Rating actions and use of inflation guard contributed to this increase, which was partly offset by reductions in the southeast associated with fewer personal lines policies in force.
Ceded premiums
Ceded premiums were $311.1 million for the six month period ended June 30, 2025, down 3.3% from $321.7 million in the prior year period. The decrease relates primarily to an $18.7 million reinstatement premium for Hurricane Ian during the prior year period compared to a $1.4 million reduction in the Hurricane Ian reinstatement premium previously accrued for the current year period. To the extent the ultimate losses for Hurricanes Ian or Milton grow, additional reinstatement premiums may be incurred, depending upon the amount of additional reinsurance limit utilized. This was partly offset by higher ceded premium on our net quota share program, driven by a higher cession rate coupled with higher written premium subject to that program.
Net premiums earned
Net premiums earned were $396.4 million for the six month period ended June 30, 2025, up 7.2% from $369.7 million in the prior year period. The increase primarily stems from growth in gross premiums earned coupled with a decline in ceded premiums, as described above.
Net investment income
Net investment income was $17.6 million for the six month period ended June 30, 2025, down 3.9% from $18.3 million in the prior year period, driven primarily by lower yields on money market and our bank sweep accounts in the current interest rate environment.
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| For the Six Months Ended June 30, | ||||||||||||||||||||||||||
| (Unaudited) | 2025 | 2024 | $ Change | % Change | ||||||||||||||||||||||
| EXPENSES: | (in thousands) | |||||||||||||||||||||||||
| Losses and loss adjustment expenses | 175,027 | 207,963 | (32,936) | (15.8) | % | |||||||||||||||||||||
| Policy acquisition costs | 88,961 | 94,153 | (5,192) | (5.5) | % | |||||||||||||||||||||
| General and administrative expenses | 48,260 | 42,414 | 5,846 | 13.8 | % | |||||||||||||||||||||
| Total expenses | 312,248 | 344,530 | (32,282) | (9.4) | % | |||||||||||||||||||||
Total expenses
Total expenses were $312.2 million for the six month period ended June 30, 2025, down 9.4% compared to $344.5 million in the prior year period. As described below, losses and LAE declined, policy acquisition costs declined, and general and administrative expenses increased.
Losses and loss adjustment expenses ("LAE")
Losses and LAE incurred were $175.0 million for the six month period ended June 30, 2025, down 15.8% from $208.0 million in the prior year period. The decrease primarily stems from lower attritional losses and favorable net loss development which more than offset the impact of higher weather and catastrophe losses. Net weather and catastrophe losses for the current accident quarter were $56.1 million, an increase from $18.0 million from $38.1 million in the prior year period. Catastrophe losses were $31.8 million compared to $15.9 million in the prior year period. Other weather losses totaled $24.3 million, an increase from the prior year period amount of $22.2 million. Net favorable prior year loss development was $10.0 million for the six months of 2025 compared to net unfavorable loss development of $15.4 million for the prior year period.
Policy acquisition costs
Policy acquisition costs were $89.0 million for the six month period ended June 30, 2025, down 5.5% from $94.2 million in the prior year period. The decrease is primarily attributable to higher ceding commission earned on the net quota share reinsurance contract, the income of which offsets other policy acquisition costs. The increase in ceding commission income is due to changes in the program which incepted December 31, 2024 and included a higher ceded rate as well more written premium applicable to the program as well as a higher ceding commission rate driven by favorable loss experience for that program.
General and administrative expenses
General and administrative expenses were $48.3 million for the six month period ended June 30, 2025, up 13.8% from $42.4 million in the prior year period. The increase was driven largely by higher costs related to software and associated costs with the implementation of a new claims, billing and policy system, higher regulatory costs, and higher human capital related costs including medical insurance and stock compensation. The policy, billing and claims system was placed in service on a pilot basis late in the third quarter of 2024. Certain costs associated with the system are currently being capitalized as development is still in progress and the previously capitalized costs are now being amortized, which drives up general and administrative expenses. The Company’s implementation of enhanced and updated claims, policy, and billing systems is expected to achieve efficiencies, enhance customer service, and improve the timeliness and quality of data analytics used to drive underwriting income.
| For the Six Months Ended June 30, | ||||||||||||||||||||||||||
| 2025 | 2024 | $ Change | % Change | |||||||||||||||||||||||
| (Unaudited) | (in thousands, except per share amounts) | |||||||||||||||||||||||||
| Operating income | 107,306 | 50,343 | 56,963 | 113.1 | % | |||||||||||||||||||||
| Interest expense, net | 4,306 | 5,610 | (1,304) | (23.2) | % | |||||||||||||||||||||
| Income before income taxes | 103,000 | 44,733 | 58,267 | 130.3 | % | |||||||||||||||||||||
| Income tax expense | 24,502 | 11,639 | 12,863 | 110.5 | % | |||||||||||||||||||||
| Net income | $ | 78,498 | $ | 33,094 | $ | 45,404 | 137.2 | % | ||||||||||||||||||
| Basic earnings per share | $ | 2.54 | $ | 1.08 | $ | 1.46 | 135.2 | % | ||||||||||||||||||
| Diluted earnings per share | $ | 2.54 | $ | 1.08 | $ | 1.46 | 135.2 | % | ||||||||||||||||||
Net income
For the six months ended June 30, 2025 net income was $78.5 million or $2.54 per diluted share, compared to net income of $33.1 million or $1.08 per diluted share in the prior year period, primarily driven by a significant decrease in loss and LAE, an increase in net premiums earned, and lower operating expenses. The improvement in net income is attributable to the positive impact of rate actions, underwriting actions, and exposure management taken during the last several years, which favorably impacted results
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for the period ended June 30, 2025. These actions resulted in growth of 7.2% in net premiums earned, with a 15.8% decrease in net losses and LAE, as described above. Policy acquisition costs decreased 5.5%, primarily related to an increase in ceding commission income on the net quota share reinsurance contracts. General and administrative costs increased 13.8% driven primarily by costs associated with software, including a new claims, billing and policy system as well as an increase in certain human capital costs as described above.
Interest expense, net
Interest expense, net was $4.3 million for the six month period ended June 30, 2025, a decrease of 23.2% compared to $5.6 million for the prior year period, The decrease was attributed to the impact from the reduction of debt obligations accompanied with a lower interest rate environment.
Income tax expense
Income tax expense was $24.5 million for the six month period ended June 30, 2025 compared to $11.6 million in the prior year period, with the higher income tax provision in the current period driven by higher pre-tax earnings compared to the prior year period, coupled with a lower effective tax rate. The effective tax rate for the current year period was 23.8% compared to 26.0% in the prior year period. We calculate the provision for income taxes during interim reporting periods by applying an estimate of the effective tax rate for the full year. The effective tax rate is lower than the prior year period, which was driven primarily by differences in projected pre-tax income for the calendar year, which includes a dilutive effect on the rate impacts of permanent tax differences compared to the prior year quarter income tax provision. The effective tax rate can fluctuate throughout the year as estimates used in the quarterly tax provision are updated with additional information.
Ratios
| For the Six Months Ended June 30, | ||||||||||||||
| (Unaudited) | 2025 | 2024 | ||||||||||||
| Ceded premium ratio | 44.0 | % | 46.5 | % | ||||||||||
| Net loss and LAE ratio | 44.2 | % | 56.2 | % | ||||||||||
| Net expense ratio | 34.6 | % | 36.9 | % | ||||||||||
| Net combined ratio | 78.8 | % | 93.1 | % | ||||||||||
Net combined ratio
The net combined ratio was 78.8% for the six month period ended June 30, 2025, a 14.3 point improvement from 93.1% in the prior year period. The decrease primarily stems from a lower net loss and LAE ratio and lower net expense ratio as described below.
Ceded premium ratio
The ceded premium ratio was 44.0% for the six month period ended June 30, 2025, a 2.5 point improvement from 46.5% in the prior year period, primarily driven by growth in gross premiums earned as well as lower reinsurance costs, as described above.
Net loss and LAE ratio
The net loss and LAE ratio was 44.2% for the six month period ended June 30, 2025, a 12.0 point improvement from 56.2% in the prior year period, reflecting higher net premiums earned, coupled with a decrease in net losses and LAE as described above.
Net expense ratio
The net expense ratio was 34.6% for the six month period ended June 30, 2025, a 2.3 point improvement from the prior year period amount of 36.9%, primarily driven by growth in net premiums earned which, coupled with higher ceding commission income, lowered the net policy acquisition costs ratio and was partly offset by a higher net general and administrative expense ratio.
Financial Condition – June 30, 2025 compared to December 31, 2024
Cash and Cash Equivalents
At June 30, 2025, cash and cash equivalents increased by $20.8 million to $473.5 million from $452.7 million at December 31, 2024. The increase was primarily a result of net cash provided by operations, which was held in money market funds for liquidity.
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Fixed Maturity Securities
At June 30, 2025, fixed income securities increased by $9.8 million to $665.4 million from $655.6 million at December 31, 2024. The increase primarily relates to purchases of fixed income securities in longer duration to lock in interest rates.
Reinsurance Recoverable on Paid and Unpaid Claims
At June 30, 2025, reinsurance recoverable on paid and unpaid claims decreased by $216.2 million to $524.0 million from $740.2 million at December 31, 2024. The decrease was primarily driven by reinsurance reimbursements collected during the six months ended June 30, 2025, primarily associated with claims payments for Hurricanes Ian and Milton as well as a reduction in ultimate losses for certain catastrophic events which reduced reinsurance recoverable on unpaid claims as claims developed favorably during 2025.
Prepaid Reinsurance Premiums
At June 30, 2025, prepaid reinsurance premium increased by $220.5 million to $530.3 million from $309.8 million at December 31, 2024. The increase is driven by the June 1, 2025 inception of our catastrophe excess of loss reinsurance program which represents prospective contracts. We record an asset, prepaid reinsurance premiums, and a liability, reinsurance payable, for the entire contract amount upon commencement of these reinsurance agreements, which drove up prepaid reinsurance premiums at June 30, 2025.
Unpaid Losses and Loss Adjustment Expenses
At June 30, 2025, unpaid losses and loss adjustment expenses decreased by $329.5 million to $713.2 million from $1.04 billion at December 31, 2024. This amount represents unpaid loss and loss adjustment expenses excluding any reinsurance recoveries. The decrease was primarily due to payment of claims for Hurricanes Milton and Ian during the six months ended 2025, as well as a reduction in ultimate losses for certain catastrophic events as claims developed favorably during 2025.
Reinsurance Payable
At June 30, 2025, reinsurance payable increased by $275.2 million to $502.3 million from $227.1 million at December 31, 2024. The increase is driven by the June 1, 2025 inception of our catastrophe excess of loss reinsurance program as described above.
Long-term Debt
At June 30, 2025, long-term debt decreased by $24.0 million to $92.4 million from $116.3 million at December 31, 2024, driven by the payoff of a loan from the FHLB-ATL in March 2025 as well as principal payments on other long-term debt.
Total Shareholders’ Equity
At June 30, 2025, total shareholders’ equity increased by $92.5 million to $383.3 million from $290.8 million at December 31, 2024. The increase was primarily due to net income for the six month period ended June 30, 2025 as well as a benefit in accumulated other comprehensive loss driven by a reduction of unrealized losses during that period of 2025 in the amount of $11.1 million.
Liquidity and Capital Resources
Our principal sources of liquidity include cash flows generated from operations, existing cash and cash equivalents, our marketable securities balances and borrowings available under our Credit Facilities. As of June 30, 2025, we had $473.5 million of cash and cash equivalents and $671.3 million in investments, compared to $452.7 million and $663.4 million, respectively, as of December 31, 2024. As described above, the increase in cash and cash equivalents was primarily a result of net cash provided by operations, which was held in money market funds for liquidity.
We generally hold substantial cash balances to meet seasonal liquidity needs including amounts to pay quarterly reinsurance installments as well as meet the collateral requirements of Osprey Re, our captive reinsurance company, which is required to maintain a collateral trust account equal to the risk that it assumes from our insurance company affiliates.
We believe that our sources of liquidity are adequate to meet our cash requirements for at least the next twelve months.
We may increase capital expenditures consistent with our investment plans and anticipated business strategies. Cash and cash equivalents may not be sufficient to fund such expenditures. As such, in addition to the use of our existing Credit Facilities, we may need to utilize additional debt to secure funds for such purposes. For information regarding the Credit Facilities which was amended and restated on July 22, 2025 refer to Note 22. Subsequent Events in addition to the discussion under the section titled Financing Activities "Credit Facilities" below.
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Cash Flows
| For the Six Months Ended June 30, | ||||||||||||||||||||
| 2025 | 2024 | Change | ||||||||||||||||||
| (in thousands) | ||||||||||||||||||||
| Net cash provided by (used in): | ||||||||||||||||||||
| Operating activities | $ | 44,129 | $ | 156,538 | $ | (112,409) | ||||||||||||||
| Investing activities | 3,256 | (138,662) | 141,918 | |||||||||||||||||
| Financing activities | (24,098) | 671 | (24,769) | |||||||||||||||||
| Net increase in cash and cash equivalents | $ | 23,287 | $ | 18,547 | $ | 4,740 | ||||||||||||||
Operating Activities
Net cash provided by operating activities was $44.1 million for the six months ended June 30, 2025 compared to net cash provided by operating activities of $156.5 million for the comparable period in 2024. The decrease in cash provided by operating activities relates primarily to timing of cash flows associated with claim and reinsurance payments as well as reinsurance reimbursements during the six months ended June 30, 2025 compared to the six months ended June 30, 2024.
Investing Activities
Net cash provided by investing activities for the six months ended June 30, 2025 was $3.3 million as compared to net cash used in investing activities of $138.7 million for the comparable period in 2024. The change in cash used in investing activities relates primarily to timing of investment maturities and use of proceeds as well as availability of existing cash to invest in longer duration fixed income securities to lock in current interest rates.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2025 was $24.1 million, as compared to cash provided by financing activities of $0.7 million for the comparable period in 2024. The change in net cash from financing activities relates primarily to the repayment of the FHLB-ATL loan agreement for $19.2 million during the first quarter of 2025 as well $5.5 million of proceeds in the first quarter of 2024 from a FHLB Des Moines loan.
Credit Facilities
The Company is party to a Credit Agreement by and among the Company, as borrower, certain subsidiaries of the Company from time to time party thereto as guarantors, the lenders from time to time party thereto (the “Lenders”), and the administrative and collateral agents and other parties thereto (as amended or amended and restated from time to time, the “Credit Agreement”).
The Credit Agreement, which was amended and restated on July 22, 2025 (the “Amendment”), provides for (1) a five-year senior secured term loan facility in an aggregate principal amount of $75 million (the “Term Loan Facility”), (2) a $75 million committed delayed draw term loan that may be advanced to finance specified permitted acquisitions and investments (the “Delayed Draw Term Loan Facility”) and (3) a five-year senior secured revolving credit facility in an aggregate principal amount of $50 million (inclusive of a sublimit for the issuance of letters of credit equal to the unused amount of the revolving credit facility and a sublimit for swingline loans equal to the lesser of $25 million and the unused amount of the revolving credit facility) (the “Revolving Credit Facility” and together with the Term Loan Facility and the Delayed Draw Term Loan Facility, the “Credit Facilities”).
Term Loan Facility. Prior to the Amendment, the principal amount of the Term Loan Facility amortized in quarterly installments, which began with the close of the fiscal quarter ending March 31, 2019, in an amount equal to $1.9 million per quarter, payable quarterly, decreasing to $875,000 per quarter commencing with the quarter ending December 31, 2021, and increasing to $2.4 million per quarter commencing with the quarter ending December 31, 2022, with the remaining balance payable at maturity, which was July 28, 2026. As amended, the principal amount of the Term Loan Facility amortizes in quarterly installments, which begins with the close of the fiscal quarter ending December 31, 2025, in an amount equal to $937.5 million per quarter, payable quarterly, and increasing to $1.4 million per quarter commencing with the quarter ending September 30, 2028, with the remaining balance payable at maturity. As amended, the Term Loan Facility matures on July 22, 2030. As of June 30, 2025 and December 31, 2024, there was $65.4 million and $70.1 million, respectively, in aggregate principal outstanding under the Term Loan Facility, and as of the date of the Amendment, $75.0 million in aggregate principal amount was outstanding under the Term Loan Facility.
Revolving Credit Facility. The Revolving Credit Facility allows for borrowings of up to $50 million inclusive of a sublimit for the issuance of letters of credit equal to the unused amount of the Revolving Credit Facility and a sublimit for swingline loans equal to the lesser of $25.0 million and the unused amount of the Revolving Credit Facility. At June 30, 2025 and December 31, 2024, the outstanding balance under the Revolving Credit facility was $10.0 million, which amount was repaid in connection with the
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Amendment. During 2024, the Company secured letters of credit in aggregate of $24.4 million with a maturity date of March 16, 2025. As of December 31, 2024, the letters of credit remained outstanding and there were no draws as of such date. There were no draws on the letters of credit during 2025, which were cancelled effective on their maturity date of March 16, 2025. At June 30, 2025, the Company had no outstanding letters of credit issued from the Revolving Credit Facility.
At our option, borrowings under the Credit Facilities, as amended bear interest at rates equal to either (1) a rate determined by reference to SOFR, plus an applicable margin (described below) or (2) a base rate determined by reference to the highest of (a) the “prime rate” of Regions Bank, (b) the federal funds rate plus 0.50%, and (c) the adjusted term SOFR in effect on such day for an interest period of one month plus 1.00%, plus an applicable margin (described below).
The applicable margin for loans under the Credit Facilities, as amended, varies from 2.50% per annum to 3.00% per annum (for SOFR loans) and 1.50% to 2.00% per annum (for base rate loans) based on our consolidated leverage ratio ranging from less than or equal to 1-to-1 to greater than 1.5-to-1. Interest payments with respect to the Credit Facilities are required either on a quarterly basis (for base rate loans) or at the end of each interest period (for SOFR loans) or, if the duration of the applicable interest period exceeds three months, then every three months. As of June 30, 2025, the borrowings under the Term Loan Facility and Revolving Credit Facility accruing interest at a rate of 7.177% and 7.177% per annum, respectively.
In addition to paying interest on outstanding borrowings under the Revolving Credit Facility, we are required to pay a quarterly commitment fee based on the unused portion of the Revolving Credit Facility, which is determined by our consolidated leverage ratio.
We may prepay the loans under the Credit Facilities, in whole or in part, at any time without premium or penalty, subject to certain conditions including minimum amounts and reimbursement of certain costs in the case of prepayments of SOFR loans. In addition, we are required to prepay the loan under the Term Loan Facility with the proceeds from certain financing transactions, involuntary dispositions or asset sales (subject, in the case of asset sales, to reinvestment rights).
All obligations under the Credit Facilities are or will be guaranteed by each existing and future direct and indirect wholly owned domestic subsidiary of the Company, other than all of the Company’s current and future regulated insurance subsidiaries (collectively, the “Guarantors”).
The Company and the Guarantors are party to a Pledge and Security Agreement, (as amended from time to time the “Security Agreement”), in favor of a collateral agent. Pursuant to the Security Agreement, amounts borrowed under the Credit Facilities are secured on a first priority basis by a perfected security interest in substantially all of the present and future assets of the Company and each Guarantor (subject to certain exceptions), including all of the capital stock of the Company’s domestic subsidiaries, other than its regulated insurance subsidiaries.
The Credit Agreement contains, among other things, covenants, representations and warranties and events of default customary for facilities of this type. As amended by the Amendment, the Credit Agreement requires the Company to maintain, as of each fiscal quarter (1) a maximum consolidated leverage ratio of 2.00 to 1.00, (2) a minimum consolidated fixed charge coverage ratio of 1.20 to 1.00 and (3) a minimum consolidated tangible net worth for the Company and its subsidiaries, which is required to be not less than the sum of 75% of consolidated tangible net worth measured as of the fiscal quarter ended June 30, 2025 plus 25% of positive consolidated net income (including its subsidiaries and regulated subsidiaries) plus the net cash proceeds of any equity transactions. Events of default include, among other events, (i) nonpayment of principal, interest, fees or other amounts; (ii) failure to perform or observe certain covenants set forth in the Credit Agreement; (iii) breach of any representation or warranty; (iv) cross-default to other indebtedness; (v) bankruptcy and insolvency defaults; (vi) monetary judgment defaults and material nonmonetary judgment defaults; (vii) customary ERISA defaults; (viii) a change of control of the Company; and (ix) failure to maintain specified catastrophe retentions in each of the Company’s regulated insurance subsidiaries or observe specified reinsurer concentration limits.
Convertible Notes
On August 10, 2017, the Company and Heritage MGA, LLC (the “Notes Guarantor”) entered into a purchase agreement (the “Purchase Agreement”) with the initial purchaser party thereto (the “Initial Purchaser”), pursuant to which the Company agreed to issue and sell, and the Initial Purchaser agreed to purchase, $136.8 million aggregate principal amount of the Company’s 5.875% Convertible Senior Notes due 2037 (the “Convertible Notes”) in a private placement transaction pursuant to Rule 144A under the Securities Act, as amended (the “Securities Act”). The net proceeds from the offering of the Convertible Notes, after deducting discounts and commissions and estimated offering expenses payable by the Company, were approximately $120.5 million. The offering of the Convertible Notes was completed on August 16, 2017.
The Company issued the Convertible Notes under an Indenture (the “Convertible Note Indenture”), dated August 16, 2017, by and among the Company, as issuer, the Notes Guarantor, as guarantor, the trustee party thereto (the “Trustee”).
The Convertible Notes bear interest at a rate of 5.875% per year. Interest is payable semi-annually in arrears, on February 1 and August 1 of each year. The Convertible Notes are senior unsecured obligations of the Company that rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the Convertible Notes; equal in right of payment to the Company’s unsecured indebtedness that is not so subordinated; effectively junior to any of the Company’s secured
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indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness or other liabilities incurred by the Company’s subsidiaries other than the Notes Guarantor, which fully and unconditionally guarantee the Convertible Notes on a senior unsecured basis.
The Convertible Notes mature on August 1, 2037, unless earlier repurchased, redeemed or converted.
Holders may convert their Convertible Notes at any time prior to the close of business on the business day immediately preceding February 1, 2037, other than during the period from, and including, February 1, 2022 to the close of business on the second business day immediately preceding August 5, 2022, only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2017, if the closing sale price of the Company’s common stock, for at least 20 trading days (whether or not consecutive) in the period of 30 consecutive trading days ending on the last trading day of the calendar quarter immediately preceding the calendar quarter in which the conversion occurs, is more than 130% of the conversion price of the Convertible Notes in effect on each applicable trading day; (2) during the ten consecutive business-day period following any five consecutive trading-day period in which the trading price for the Convertible Notes for each such trading day was less than 98% of the closing sale price of the Company’s common stock on such date multiplied by the then-current conversion rate; (3) if the Company calls any or all of the Convertible Notes for redemption, at any time prior to the close of business on the second business day immediately preceding the redemption date; or (4) upon the occurrence of specified corporate events.
During the period from and including February 1, 2022 to the close of business on the second business day immediately preceding August 5, 2022, and on or after February 1, 2037 until the close of business on the second business day immediately preceding August 1, 2037, holders may surrender their Convertible Notes for conversion at any time, regardless of the foregoing circumstances.
Upon the occurrence of a fundamental change (as defined in the Convertible Note Indenture) (but not, at the Company’s election, a public acquirer change of control (as defined in the Convertible Note Indenture)), holders of the Convertible Notes may require the Company to repurchase for cash all or a portion of their Convertible Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Convertible Notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
At any time prior to February 1, 2037, the Company may redeem for cash all or any portion of the Convertible Notes, at the Company’s option, at a redemption price equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. No sinking fund is provided for the Convertible Notes, which means that the Company is not required to redeem or retire the Convertible Notes periodically. Holders of the Convertible Notes are able to cause the Company to repurchase their Convertible Notes for cash on any of August 1, 2022, August 1, 2027 and August 1, 2032, in each case at 100% of their principal amount, plus accrued and unpaid interest to, but excluding, the relevant repurchase date.
The Convertible Note Indenture contains customary terms and covenants and events of default. If an Event of Default (as defined in the Convertible Note Indenture) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Convertible Notes then outstanding by notice to the Company and the Trustee, may declare 100% of the principal of, and accrued and unpaid interest, if any, on, all the Convertible Notes to be immediately due and payable. In the case of certain events of bankruptcy, insolvency or reorganization (as set forth in the Convertible Note Indenture) with respect to the Company, 100% of the principal of, and accrued and unpaid interest, if any, on, the Convertible Notes automatically become immediately due and payable.
As of June 30, 2025 and December 31, 2024, there was $885,000 principal amount of outstanding Convertible Notes, net of $21.1 million of Convertible Notes held by an insurance company subsidiary.
FHLB Loan Agreements
In December 2018, a subsidiary of the Company received a 3.094% fixed interest rate cash loan of $19.2 million from the Federal Home Loan Bank Atlanta (“FHLB-ATL”) . On September 29, 2023, the Company restructured the December 2018 agreement to extend the maturity date to March 28, 2025, with a 5.109% fixed interest rate payable quarterly commencing on December 28, 2023. Membership in the FHLB-ATL required an investment in FHLB-ATL’s common stock which was purchased in December 2018 and valued at $1.4 million. In March 2025, the FHLB-ATL agreement was repaid and the securities were released from pledged collateral. As of June 30, 2025, the subsidiary continues to be a member in FHLB-ATL with its common stock valued at $570,000.
In December 2018, our insurance subsidiary became a member of the Federal Home Loan Bank Des Moines ("FHLB-DM"). Membership in the FHLB-DM required an investment in FHLB-DM’s common stock which was purchased in December 2018 and valued at $133,200. In January 2024, the insurance subsidiary of the Company received a 4.23% fixed interest rate cash loan of $5.5 million from the FHLB-DM. Additionally, the transaction required the acquired FHLB-DM common stock and certain other investments to be pledged as collateral. As of June 30, 2025, the fair value of the collateralized securities was $5.8 million and the equity investment in FHLB-DM common stock was $316,300.
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Critical Accounting Policies and Estimates
When we prepare our condensed consolidated financial statements and accompanying notes in conformity with U.S. generally accepted accounting principles (GAAP), we must make estimates and assumptions about future events that affect the amounts we report. Certain of these estimates result from judgments that can be subjective and complex. As a result of that subjectivity and complexity, and because we continuously evaluate these estimates and assumptions based on a variety of factors, actual results could materially differ from our estimates and assumptions if changes in one or more factors require us to make accounting adjustments. We have made no material changes or additions with regard to those policies and estimates as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2024.
Recent Accounting Pronouncements
The information set forth under Note 1 to the condensed consolidated financial statements under the caption “Basis of Presentation and Significant Accounting Policies” is incorporated herein by reference. We do not expect any recently issued accounting pronouncements to have a material effect on our condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The duration of the financial instruments held in our portfolio that are subject to interest rate risk was 3.0 years and 2.7 years at June 30, 2025 and 2024, respectively, and 3.1 years at December 31, 2024. To the extent interest rates decrease during 2025, we anticipate the fair value of our fixed rate debt securities to be subject to increase. Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. Credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio. As of June 30, 2025, the estimated weighted-average credit quality rating of the fixed maturity securities portfolio was A+, at fair value, at December 31, 2024 our average credit quality rating was an A.
We have not experienced a material impact when compared to the tabular presentations of our interest rate and market risk sensitive instruments in our Annual Report on Form 10-K for the year ended December 31, 2024.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) that are designed to assure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
As required by Exchange Act Rule 13a-15(b), as of the end of the period covered by this Quarterly Report, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of June 30, 2025.
Changes in Internal Control over Financial Reporting
There has been no change in our internal controls over financial reporting during our most recent quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. There were no significant changes to our internal control over financial reporting for the period ending June 30, 2025.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are subject to routine legal proceedings in the ordinary course of business. We believe that the ultimate resolution of these matters will not have a material adverse effect on our business, financial condition or results of operations.
Item 1A. Risk Factors
The Company documented its risk factors in Item 1A of Part I of its Annual Report on Form 10-K for the year ended December 31, 2024 filed on March 13, 2025. There have been no material changes to the Company’s risk factors since the filing of that report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Not Applicable
Item 5. Other Information
During the three months ended June 30, 2025, Richard Widdicombe , Chairman of the Company’s Board , Ernie Garateix, a Director of the Company and the Company's Chief Executive Officer and Kirk Lusk, the Company's Chief Financial Officer, each adopted a “Rule 10b5-1 trading arrangement” as defined in Regulation S-K Item 408 (each individually a "Rule 10b-1 Trading Plan"), as follows:
On May 17, 2025 , Mr. Widdicombe adopted a Rule 10b5-1 Trading Plan providing for the sale of the Company's Common Stock that is intended to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c). Mr. Widdicombe’s Rule 10b5-1 Trading Plan provides for the sale of up to 250,000 shares of Common Stock pursuant to one or more limit orders until January 22, 2026.
On June 13, 2025 Garateix adopted 100,000 shares of Common Stock pursuant to one or more limit orders until September 19, 2026. Mr. Lusk’s Rule 10b5-1 Trading Plan provides for the sale of up to 60,000 shares of Common Stock pursuant to one or more limit orders until May 12, 2026
No other officers or directors, as defined in Rule 16a-1(f), adopted and/or terminated
Item 6. Exhibits
The information required by this Item 6 is set forth in the Index to Exhibits accompanying this Quarterly Report on Form 10-Q.
Index to Exhibits
| 3.1 | |||||
| 3.2 | |||||
| 4 | |||||
| 10.32†* | |||||
| 31.1* | |||||
| 31.2* | |||||
| 32.1** | |||||
| 32.2** | |||||
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| 101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. | |||||||
| 101.SCH | Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents | |||||||
| 104 | The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2025, formatted in Inline XBRL (included in Exhibit 101) | |||||||
* Filed herewith
** Furnished herewith
† Management contract or compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| HERITAGE INSURANCE HOLDINGS, INC. | |||||||||||
| Date: August 8, 2025 | By: | /s/ ERNESTO GARATEIX | |||||||||
| Ernesto Garateix | |||||||||||
Chief Executive Officer (Principal Executive Officer and Duly Authorized Officer) | |||||||||||
| Date: August 8, 2025 | By: | /s/ KIRK LUSK | |||||||||
| Kirk Lusk | |||||||||||
Chief Financial Officer (Principal Financial Officer) | |||||||||||
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