8-K
Heritage Insurance Holdings, Inc. (HRTG)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 3, 2021
HERITAGE INSURANCE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 001-36462 | 45-5338504 |
|---|---|---|
| (State or other jurisdiction<br>of incorporation) | (Commission<br> <br>File Number) | (I.R.S. Employer<br> <br>Identification No.) |
| 2600 McCormick Drive, Suite 300<br> <br>Clearwater, Florida | 33759 | |
| --- | --- | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (727) 362-7202
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| --- | --- |
| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| --- | --- |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading<br>Symbol(s) | Name of each exchange<br> <br>on which registered |
|---|---|---|
| Common Stock, par value $0.0001 per share | HRTG | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
| Item 2.02 | Results of Operations and Financial Conditions. |
|---|
On March 3, 2021, Heritage Insurance Holdings, Inc. issued a press release announcing financial results for its fiscal quarter and year ended December 31, 2020. A copy of the press release is attached hereto as Exhibit 99.1.
The information furnished under this Item 2.02, including Exhibit 99.1, is being furnished and shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
| Item 9.01 | Financial Statements and Exhibits. |
|---|
(d) Exhibits. The following exhibit is being furnished as part of this Current Report on Form 8-K.
| No. | Exhibit |
|---|---|
| 99.1 | Press Release dated March 3, 2021. |
| 104 | Cover Page Interactive File (the cover page tags are embedded within the Inline XBRL document). |
2
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| HERITAGE INSURANCE HOLDINGS, INC. | ||
|---|---|---|
| Date: March 3, 2021 | By: | /s/ Kirk Lusk |
| Kirk Lusk <br>Chief Financial Officer |
3
EX-99.1
Exhibit 99.1
Heritage Reports Fourth Quarter 2020 Results
Clearwater, FL – March 3, 2021: Heritage Insurance Holdings, Inc. (NYSE: HRTG) (“Heritage” or the “Company”), a super-regional property and casualty insurance holding company, today reported fourth quarter 2020 financial results.
Fourth Quarter 2020 Highlights
| • | Net income of $2.8 million, or $0.10 per diluted share. |
|---|---|
| • | Book value per share of $15.94, up 1.8% year-over-year. |
| --- | --- |
| • | Gross premiums written of $282.3 million, up 19.9% year-over-year. |
| --- | --- |
| • | Launched partnership with The Hartford to offer bundled home and auto policies. |
| --- | --- |
| • | Favorable prior year reserve development of $4.7 million. |
| --- | --- |
| • | Net current accident quarter weather losses of $38.9 million, up substantially from $15.3 million in<br>the prior year quarter. Current accident quarter weather losses include $24.4 million of catastrophe losses and $14.5 million of other weather losses. |
| --- | --- |
| • | Total capital returned to shareholders of $1.7 million, reflecting $0.06 per share regular quarterly<br>dividend. |
| --- | --- |
| • | Began writing homeowners insurance in Maryland, representing sixteenth active state. |
| --- | --- |
Ernie Garateix, the Company’s CEO, said, “We were able to generate positive net income in the fourth quarter and full year and grow book value per share year-over-year despite experiencing unprecedented weather losses. I believe our solid organic growth platform and heightened focus on underwriting profitability position us well for 2021 and beyond.”
Quarterly Dividend
Heritage’s Board of Directors declared a quarterly cash dividend of $0.06 per share on the Company’s common stock. The dividend will be paid on April 6, 2021 to shareholders of record as of March 15, 2021.
COVID-19 Update
We continue to monitor the short- and long-term impacts of COVID-19 and through December 31, 2020, we saw virtually no impact to our business. As a residential property insurer, we view our business as relatively insulated from a short-term economic slowdown, as property owners and renters generally view our products as a necessity.
While we acknowledge uncertainties associated with future economic conditions, we do not expect a material impact to our business going forward. We will continue to monitor economic conditions and, in the case of a prolonged economic slowdown as a result of COVID-19, will take necessary actions to mitigate any negative impacts to our business, operations or financial results.
Results of Operations
The following table summarizes our results of operations for the three and twelve months ended December 31, 2020 and 2019 (amounts in thousands, except percentages and per share amounts):
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | Change | 2020 | 2019 | Change | |||||||||||||
| Revenue | $ | 159,548 | $ | 138,502 | 15.2 | % | $ | 593,385 | $ | 511,304 | 16.1 | % | ||||||
| Net income | $ | 2,808 | $ | 12,818 | (78.1 | )% | $ | 9,326 | $ | 28,636 | (67.4 | )% | ||||||
| Per share | $ | 0.10 | $ | 0.44 | (77.3 | )% | $ | 0.33 | $ | 0.98 | (66.3 | )% | ||||||
| Book value per share | $ | 15.94 | $ | 15.66 | 1.8 | % | $ | 15.94 | $ | 15.66 | 1.8 | % | ||||||
| Return on equity | 2.5 | % | 11.5 | % | (9.0 | )pts | 2.1 | % | 6.6 | % | (4.5 | )pts | ||||||
| Underwriting summary | ||||||||||||||||||
| Gross premiums written | $ | 282,324 | $ | 235,446 | 19.9 | % | $ | 1,080,100 | $ | 937,937 | 15.2 | % | ||||||
| Gross premiums earned | $ | 265,353 | $ | 234,082 | 13.4 | % | $ | 996,842 | $ | 924,247 | 7.9 | % | ||||||
| Ceded premiums earned | $ | (113,923 | ) | $ | (103,005 | ) | 10.6 | % | $ | (452,120 | ) | $ | (445,534 | ) | 1.5 | % | ||
| Net premiums earned | $ | 151,430 | $ | 131,077 | 15.5 | % | $ | 544,722 | $ | 478,713 | 13.8 | % | ||||||
| Ceded premium ratio | 42.9 | % | 44.0 | % | (1.1 | )pts | 45.4 | % | 48.2 | % | (2.8 | )pts | ||||||
| Ratios to Net Premiums Earned: | ||||||||||||||||||
| Loss ratio | 70.4 | % | 51.0 | % | 19.4 | pts | 68.5 | % | 57.1 | % | 11.4 | pts | ||||||
| Expense ratio | 38.3 | % | 38.3 | % | 0.0 | pts | 38.5 | % | 39.4 | % | (0.9 | )pts | ||||||
| Combined ratio | 108.7 | % | 89.3 | % | 19.4 | pts | 107.0 | % | 96.5 | % | 10.5 | pts | ||||||
| * | Return on equity represents annualized net income for the period divided by average stockholders’equity during the period. | |||||||||||||||||
| --- | --- |
Note: Percentages and sums in the table may not recalculate precisely due to rounding.
Ratios
Ceded premium ratio represents ceded premiums as a percentage of gross premiums earned.
Net loss ratio represents net losses and loss adjustment expenses (“LAE”) as a percentage of net premiums earned.
Net expense ratio represents policy acquisition costs (“PAC”) and general and administrative (“G&A”) expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of PAC and G&A expenses.
Net combined ratio represents the sum of net losses and LAE, PAC and G&A expenses as a percentage of net premiums earned. The net combined ratio is a key measure of underwriting performance traditionally used in the property and casualty industry. A combined ratio under 100% generally reflects profitable underwriting results.
Quarterly Financial Results Fourth quarter 2020 net income was $2.8 million, down from net income of $12.8 million in the prior year quarter. The decrease primarily stems from elevated weather losses, partly offset by a tax benefit in the current year quarter.
Gross premiums written were $282.3 million, up 19.9% year-over-year, including growth in all states and product lines. Growth was partly attributable to rate increases, particularly in Florida
Premiums-in-force were $1.1 billion in fourth quarter 2020, representing a 17.6% annualized growth rate from third quarter 2020. The sequential increase stems from the same items impacting gross premiums written.
Gross premiums earned were $265.4 million in fourth quarter 2020, up 13.4% from $234.1 million in the prior year quarter. The increase reflects higher gross premiums written over the last twelve months.
The ceded premium ratio was 42.9% in fourth quarter 2020, down 1.1 points from 44.0% in the prior year quarter. The decrease primarily stems from gross premiums earned growth that modestly outpaced ceded premium growth and from year-end true-ups that benefited the current year quarter.
The net loss ratio was 70.4% in fourth quarter 2020, up 19.4 points from 51.0% in the prior year quarter. The increase primarily stems from higher current accident year weather losses.
The net expense ratio was 38.3% in fourth quarter 2020, unchanged from the prior year quarter.
The net combined ratio was 108.7% in fourth quarter 2020, up 19.4 points from 89.3% in the prior year quarter. The increase stems from a higher net loss ratio, as described above.
Book Value Analysis
Book value per share increased to $15.94 at December 31, 2020, up 1.8% year-over-year.
| As Of | ||||||
|---|---|---|---|---|---|---|
| Book Value Per Share | December 31,2020 | December 31,2019 | December 31,2018 | |||
| Numerator: | ||||||
| Common stockholders’ equity | $ | 442,344 | $ | 448,799 | $ | 425,333 |
| Denominator: | ||||||
| Total Shares Outstanding | 27,748,606 | 28,650,918 | 29,477,756 | |||
| Book Value Per Common Share | $ | 15.94 | $ | 15.66 | $ | 14.43 |
Conference Call Details:
Wednesday, March 3, 2020 – 9:30 a.m. ET
Participant Dial-in Numbers Toll Free: 1-888-346-3095
Participant International Dial In: 1-412-902-4258
Canada Toll Free: 1-855-669-9657
Webcast:
To listen to the live webcast, please go to http://investors.heritagepci.com/. This webcast will be archived and accessible on the Company’s website.
HERITAGE INSURANCE HOLDINGS, INC.
Condensed Consolidated Balance Sheets
(Amounts in thousands, except share amounts)
(Unaudited)
| December 31, | ||||||
|---|---|---|---|---|---|---|
| 2020 | 2019 | |||||
| ASSETS | ||||||
| Fixed maturities,<br>available-for-sale, at fair value | $ | 561,011 | $ | 587,256 | ||
| Equity securities, at fair value | 1,599 | 1,618 | ||||
| Other investments | 26,409 | 6,375 | ||||
| Total investments | 589,019 | 595,249 | ||||
| Cash and cash equivalents | 440,956 | 268,351 | ||||
| Restricted cash | 5,427 | 14,657 | ||||
| Accrued investment income | 2,737 | 4,377 | ||||
| Premiums receivable, net | 77,471 | 63,685 | ||||
| Reinsurance recoverable on paid and unpaid claims, net | 355,037 | 428,903 | ||||
| Prepaid reinsurance premiums | 245,818 | 224,102 | ||||
| Income taxes receivable | 32,224 | 3,171 | ||||
| Deferred policy acquisition costs, net | 89,265 | 77,211 | ||||
| Property and equipment, net | 18,685 | 20,753 | ||||
| Intangibles, net | 62,277 | 68,642 | ||||
| Goodwill | 152,459 | 152,459 | ||||
| Other assets | 18,004 | 18,110 | ||||
| Total Assets | $ | 2,089,379 | $ | 1,939,670 | ||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
| Unpaid losses and loss adjustment expenses | $ | 659,341 | $ | 613,533 | ||
| Unearned premiums | 569,618 | 486,220 | ||||
| Reinsurance payable | 161,918 | 156,351 | ||||
| Long-term debt, net | 120,998 | 129,248 | ||||
| Deferred income tax, net | 18,477 | 12,623 | ||||
| Advance premiums | 18,268 | 16,504 | ||||
| Accrued compensation | 9,325 | 5,347 | ||||
| Accounts payable and other liabilities | 89,090 | 71,045 | ||||
| Total Liabilities | $ | 1,647,035 | $ | 1,490,871 | ||
| Commitments and contingencies | ||||||
| Stockholders’ Equity: | ||||||
| Common stock | 3 | 3 | ||||
| Additional paid-in capital | 331,867 | 329,568 | ||||
| Accumulated other comprehensive income, net of taxes | 6,057 | 7,330 | ||||
| Treasury stock | (115,365 | ) | (105,368 | ) | ||
| Retained earnings | 219,782 | 217,266 | ||||
| Total Stockholders’ Equity | 442,344 | 448,799 | ||||
| Total Liabilities and Stockholders’ Equity | $ | 2,089,379 | $ | 1,939,670 |
HERITAGE INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Other Comprehensive Income
(Amounts in thousands, except per share and share amounts)
(Unaudited)
| Three Months Ended December 31, | Year Ended December 31, | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2020 | 2019 | |||||||||
| REVENUE: | ||||||||||||
| Gross premiums written | $ | 282,324 | $ | 235,446 | $ | 1,080,100 | $ | 937,937 | ||||
| Change in gross unearned premiums | (16,971 | ) | (1,364 | ) | (83,258 | ) | (13,690 | ) | ||||
| Gross premiums earned | 265,353 | 234,082 | 996,842 | 924,247 | ||||||||
| Ceded premiums | (113,923 | ) | (103,005 | ) | (452,120 | ) | (445,534 | ) | ||||
| Net premiums earned | 151,430 | 131,077 | 544,722 | 478,713 | ||||||||
| Net investment income | 2,519 | 3,275 | 12,302 | 14,432 | ||||||||
| Net realized and unrealized gains | 2,018 | 1,031 | 22,395 | 4,163 | ||||||||
| Other revenue | 3,581 | 3,119 | 13,966 | 13,997 | ||||||||
| Total revenue | 159,548 | 138,502 | 593,385 | 511,305 | ||||||||
| EXPENSES: | ||||||||||||
| Losses and loss adjustment expenses | 106,618 | 66,798 | 373,387 | 273,288 | ||||||||
| Policy acquisition costs | 36,032 | 28,113 | 128,276 | 107,906 | ||||||||
| General and administrative expenses | 21,954 | 22,079 | 81,537 | 80,544 | ||||||||
| Total expenses | 164,604 | 116,990 | 583,200 | 461,738 | ||||||||
| Operating (loss) income | $ | (5,056 | ) | $ | 21,512 | $ | 10,185 | $ | 49,567 | |||
| Interest expense, net | 2,033 | 2,021 | 7,972 | 8,523 | ||||||||
| Other non-operating loss, net | 0 | 0 | 0 | 48 | ||||||||
| (Loss) Income before taxes | $ | (7,089 | ) | $ | 19,491 | $ | 2,213 | $ | 40,996 | |||
| (Benefit) Provision for income taxes | (9,897 | ) | 6,673 | (7,113 | ) | 12,360 | ||||||
| Net income | $ | 2,808 | $ | 12,818 | $ | 9,326 | $ | 28,636 | ||||
| OTHER COMPREHENSIVE INCOME: | ||||||||||||
| Change in net unrealized gains on investments | 1,408 | 232 | 20,738 | 19,765 | ||||||||
| Reclassification adjustment for net realized investment gains | (2,018 | ) | (2,025 | ) | (22,395 | ) | (1,734 | ) | ||||
| Income tax benefit (expense) related to items of other | ||||||||||||
| comprehensive income | 142 | 573 | 384 | (4,174 | ) | |||||||
| Total comprehensive income | $ | 2,340 | $ | 11,598 | $ | 8,053 | $ | 42,493 | ||||
| Weighted average shares outstanding | ||||||||||||
| Basic | 27,748,606 | 28,871,197 | 27,978,519 | 29,213,910 | ||||||||
| Diluted | 27,753,317 | 28,878,440 | 27,988,966 | 29,232,981 | ||||||||
| Earnings per share | ||||||||||||
| Basic | $ | 0.10 | $ | 0.44 | $ | 0.33 | $ | 0.98 | ||||
| Diluted | $ | 0.10 | $ | 0.44 | $ | 0.33 | $ | 0.98 |
About Heritage
Heritage Insurance Holdings, Inc. is a super-regional property and casualty insurance holding company headquartered in Clearwater, Florida. Through its insurance subsidiaries and a large network of experienced agents, the Company writes over $1 billion of gross personal and commercial residential premium across its multi-state footprint.
Forward-Looking Statements
Statements in this press release that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties that could cause actual events and results to differ materially from those discussed herein. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “would,” “estimate,” “or “continue” or the other negative variations thereof or comparable terminology are intended to identify forward-looking statements. This release includes forward-looking statements relating to (i) the impact of the COVID-19 pandemic on our business, results of operations and financial condition and our ability to navigate the uncertainty and mitigate the impact and (ii) our profitability position for 2021 and beyond given our solid organic growth platform and heightened focus on underwriting. The risks and uncertainties that could cause our actual results to differ from those expressed or implied herein include, without limitation: the success of the Company’s underwriting and profitability initiatives; the continued and potentially prolonged impact of the COVID-19 pandemic on the economy, demand for our products and our operations; inflation and other changes in economic conditions (including changes in interest rates and financial and real estate markets), including as a result of the COVID-19 pandemic; the impact of new federal and state regulations that affect the property and casualty insurance market; the costs of reinsurance, the collectability of reinsurance and our ability to obtain reinsurance coverage on terms and at a cost acceptable to us; assessments charged by various governmental agencies; pricing competition and other initiatives by competitors; our ability to obtain regulatory approval for requested rate changes, and the timing thereof; legislative and regulatory developments; the outcome of litigation pending against us, including the terms of any settlements; risks related to the nature of our business; dependence on investment income and the composition of our investment portfolio; the adequacy of our liability for losses and loss adjustment expense; our ability to build and maintain relationships with insurance agents; claims experience; ratings by industry services; catastrophe losses; reliance on key personnel; weather conditions (including the severity and frequency of storms, hurricanes, tornadoes and hail); changes in loss trends; acts of war and terrorist activities; court decisions and trends in litigation; and other matters described from time to time by us in our filings with the Securities and Exchange Commission, including, but not limited to, the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the Securities and Exchange Commission on March 10, 2020 and subsequent filings. The Company undertakes no obligations to update, change or revise any forward-looking statement, whether as a result of new information, additional or subsequent developments or otherwise.
Investor Contact:
Arash Soleimani, CFA, CPA
Executive Vice President
727.871.0206
Email: asoleimani@heritagepci.com