Heritage Insurance (HRTG) 8-K Heritage Insurance Holdings, Inc. Reports Financial Results for Third Quarter of 2018

Exhibit 99.1

Heritage Insurance Holdings, Inc. Reports Financial Results for Third Quarter of 2018

Clearwater, FL: Heritage Insurance Holdings, Inc. (NYSE:HRTG) (“Heritage” or the “Company”), a property and casualty insurance holding company, today reported its financial results for the fiscal quarter ended September 30, 2018.

Third Quarter 2018 Highlights

• Third quarter 2018 net income of $6.0 million ($0.23 per diluted share) and GAAP operating income of $14.2 million

• Premiums in force increased 55% year-over-year to $923 million and gross premums written increased 51% to $233.6 million over the same period, primarily reflecting inclusion of NBIC

• Personal linesTri-County Florida TIV accounted for only 5.7% of companywide TIV, down 9.2 points year-over-year, reflecting exposure management efforts and diversification outside Florida

• Newnon-catastropheTri-County Florida claims count down 31%year-to-date

• $3.2 million of favorable prior year reserve development

• Expanded relationship with GEICO’s insurance agency to all states (previously only NBIC states)

• Received licenses in Virginia and Maryland, bringing total licensed count to 15 states

• Book value per share of $15.16, up 18% year-over-year; $390.6 million of stockholders’ equity

• Board of Directors declared a regular quarterly dividend of $0.06 per share

Bruce Lucas, the Company’s Chairman and CEO, said, “We reported a solid third quarter despite retaining $16.6 million of catastrophe losses associated with Hurricanes Florence and Lane, as our vertically integrated structure continues to benefit results. We have continued our trend to diversify away from Florida’sTri-County, which reduces our exposure to the state’s assignment of benefits crisis. Personal linesTri-County Florida TIV only accounted for 5.7% of our overall third quarter 2018 book of business, down 9.2 points year-over-year. We’re also continuing to expand outside Florida and recently received licenses in Maryland and Virginia, bringing our total licensed count to 15 states and look forward to new growth opportunities.

Results of Operations

The following table summarizes our results of operations for the three and nine months ended September 30, 2018 and 2017 (amounts in thousands, except percentages and per share amounts):

	Three Months Ended September 30,										Nine Months Ended September 30,
	2018			2017			Change				2018			2017			Change
Revenue
Gross premiums written	$	233,613		$	154,355			51	%		$	701,643		$	455,845			54	%
Gross premiums earned	$	234,164		$	153,063			53	%		$	692,298		$	460,025			50	%
Ceded premiums	$	(115,926	)	$	(57,855	)		100	%		$	(356,748	)	$	(182,189	)		96	%
Net premiums earned	$	118,238		$	95,208			24	%		$	335,550		$	277,836			21	%
Total revenues	$	125,295		$	101,774			23	%		$	355,293		$	298,005			19	%
Operating income	$	14,216		$	1,413			906	%		$	47,184		$	26,365			79	%
Income (loss) before income taxes	$	8,991		$	(9,221	)		NM			$	32,295		$	11,319			185	%
Net income (loss)	$	5,989		$	(8,696	)		NM			$	23,227		$	3,929			491	%
Per Share Data:
Book value per share	$	15.16		$	12.84			18			$	15.16		$	12.84			18	%
Earnings (loss) per diluted share	$	0.23		$	(0.34	)		NM			$	0.88		$	0.14			520	%
Return on average equity - Net Income		6.2	%		(10.4	)%		16.6		pts		8.0	%		1.6	%		6.4		pts
Ratios to Gross Premiums Earned:
Ceded premium ratio		49.5	%		37.8	%		11.7		pts		51.5	%		39.6	%		11.9		pts
Gross loss ratio		25.1	%		41.8	%		(16.7	)	pts		25.7	%		34.1	%		(8.4	)	pts
Gross expense ratio		22.4	%		23.8	%		(1.4	)	pts		18.8	%		25.0	%		(6.2	)	pts
Combined expense ratio - Gross		97.0	%		103.4	%		(6.4	)	pts		96.0	%		98.7	%		(2.7	)	pts
Ratios to Net Premiums Earned:
Net loss ratio		49.6	%		67.3	%		(17.7	)	pts		53.0	%		56.4	%		(3.4	)	pts
Net expense ratio		44.3	%		38.2	%		6.1		pts		38.8	%		41.4	%		(2.6	)	pts
Combined expense ratio - Net		93.9	%		105.5	%		(11.6	)	pts		91.8	%		97.8	%		(6.0	)	pts

*NM = not meaningful

Ratios

Ceded premium ratio. Our ceded premium ratio represents ceded premiums as a percentage of gross premiums earned.

Gross loss ratio. Our gross loss ratio represents net losses and loss adjustment expenses as a percentage of gross premiums earned.

Net loss ratio. Our net loss ratio represents net losses and loss adjustment expenses as a percentage of net premiums earned.

Gross expense ratio. Our gross expense ratio represents policy acquisition costs and general and administrative expenses (“G&A”) as a percentage of gross premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.

Net expense ratio. Our net expense ratio represents policy acquisition costs and G&A expenses as a percentage of net premiums earned. Ceding commission income is reported as a reduction of policy acquisition costs and G&A expenses.

Combined ratios. Our gross combined ratio represents the sum of ceded premiums, net losses and loss adjustment expenses, policy acquisition costs and G&A expenses as a percentage of gross premiums earned. Our net combined ratio represents the sum of net losses and loss adjustment expenses, policy acquisition costs and G&A expenses as a percentage of net premiums earned. The combined ratio is the key measure of underwriting performance traditionally used in the property and casualty insurance industry. A combined ratio under 100% generally reflects profitable underwriting results.

Quarterly Financial Results

Net income (loss) for the third quarter of 2018 was $6.0 million compared to ($8.7) million for the third quarter of 2017. The increase primarily reflects net income associated with the inclusion of Narragansett Bay Insurance Company (“NBIC”), acquired on November 30, 2017, income from hurricane mitigation activity, the prior year quarter’s inclusion of a $6.9 millionnon-cash charge associated with Heritage’s convertible debt and a reduction in retained catastrophe losses ($16.6 million in third quarter of 2018 vs. $20.0 million in the prior year quarter).

Gross premiums written were $233.6 million in the third quarter of 2018, up 51.2% from $154.4 million in the prior year quarter. The increase primarily stems from inclusion of NBIC, partly offset by a decrease in Florida premiums related to exposure management efforts aimed largely at Broward and Miami-Dade counties.

Gross premiums earned were $234.2 million in the third quarter of 2018, up 53.0% from $153.1 million in the prior year quarter. This increase stems from the same items impacting gross premiums written.

The ceded premium ratio was 49.5% in the third quarter of 2018, up 11.7 points from 37.8% in the prior year quarter. The increase is attributable to inclusion of NBIC, which has a higher ceded premium ratio than the legacy Heritage entity due to its quota share reinsurance agreements. Excluding NBIC, but including reinsurance synergies, the Company’s ceded premium ratio would have been 35.0% for the third quarter of 2018.

The net loss ratio was 49.6% in the third quarter of 2018, down 17.7 points from 67.3% in the prior year quarter. The decrease stems from increased hurricane mitigation activity and lower retained catastrophe losses in the current year quarter.

The Company’s net expense ratio was 44.3% in the third quarter of 2018, up 6.1 points from 38.2% in the prior year quarter. The increase stems fromnon-recurring business acquisition related expenses and NBIC-related integration costs, partly offset by $18.1 million of ceding commissions associated with NBIC’s quota share reinsurance contracts.

The net combined ratio was 93.9% in the third quarter of 2018, down 11.6 points from 105.5% in the prior year quarter. The decrease stems from net loss ratio improvement, partly offset by net expense ratio deterioration, as described above.

Book Value Analysis

Third quarter 2018 book value per share increased 18% year-over-year to $15.16.

	As Of
Book Value Per Share	September 30, 2018		December 31, 2017		September 30, 2017
Numerator:
Common stockholders’ equity	$	390,556	$	379,816	$	301,681
Denominator:
Total Shares Outstanding		25,769,804		25,885,004		23,500,174
Book Value Per Common Share	$	15.16	$	14.67	$	12.84

Conference Call Details:

Thursday, November 1, 2018 – 8:30 a.m. EDT

ParticipantDial-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 tohttp://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)

	September 30, 2018			December 31, 2017
ASSETS	(unaudited)
Fixed maturity securities, available for sale, at fair value (amortized cost of $528,139 and $552,458 in 2018 and 2017, respectively)		515,541		$	549,796
Equity securities, available for sale, at fair value (cost of $16,906 and $17,548 in 2018 and 2017, respectively)		15,709			17,217
Total investments		531,250			567,013
Cash and cash equivalents		221,524			153,697
Restricted cash		12,250			20,833
Accrued investment income		3,753			5,057
Premiums receivable, net		68,621			67,757
Reinsurance recoverable on paid and unpaid claims		324,826			357,357
Prepaid reinsurance premiums		282,649			227,764
Income taxes receivable		36,249			37,338
Deferred policy acquisition costs, net		75,702			41,678
Property and equipment, net		18,480			18,748
Intangibles, net		81,911			101,626
Goodwill		152,459			152,459
Other assets		15,653			19,883
Total Assets	$	1,825,327		$	1,771,210
LIABILITIES AND STOCKHOLDERS’ EQUITY
Unpaid losses and loss adjustment expenses	$	421,095		$	470,083
Unearned premiums		484,680			475,334
Reinsurance payable		217,022			17,577
Long-term debt, net		178,330			184,405
Deferred income tax		11,963			34,333
Advance premiums		33,435			23,648
Accrued compensation		10,486			16,477
Accounts payable and other liabilities		77,760			169,537
Total Liabilities	$	1,434,771		$	1,391,394
Commitments and contingencies
Stockholders’ Equity:
Common stock, $0.0001 par value, 50,000,000 shares authorized, 26,569,804 shares issued and 25,769,804 outstanding at September 30, 2018 and 26,560,004 shares issued and 25,885,004 outstanding at December 31, 2017		3			3
Additionalpaid-in capital		295,500			294,836
Accumulated other comprehensive loss		(9,583	)		(3,064	)
Treasury stock, at cost, 7,214,797 shares at September 30, 2018 and 7,099,597 shares at December 31, 2017		(89,185	)		(87,185	)
Retained earnings		193,821			175,226
Total Stockholders’ Equity		390,556			379,816
Total Liabilities and Stockholders’ Equity	$	1,825,327		$	1,771,210

HERITAGE INSURANCE HOLDINGS, INC.

Condensed Consolidated Statements of Operations and Other Comprehensive (Loss) Income

(Amounts in thousands, except per share and share amounts)

(Unaudited)

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017
REVENUES:
Gross premiums written	$	233,613		$	154,355		$	701,643		$	455,845
Change in gross unearned premiums		551			(1,292	)		(9,345	)		4,180
Gross premiums earned		234,164			153,063			692,298			460,025
Ceded premiums		(115,926	)		(57,855	)		(356,748	)		(182,189	)
Net premiums earned		118,238			95,208			335,550			277,836
Net investment income		3,847			2,735			9,704			8,210
Net realized gains (losses)		5			365			(307	)		1,011
Other revenue		3,205			3,466			10,346			10,948
Total revenues		125,295			101,774			355,293			298,005
EXPENSES:
Losses and loss adjustment expenses		58,695			64,035			177,775			156,728
Policy acquisition costs, net of ceding commission income for the three and nine months ended September 30, 2018, of $13,781 and $42,097 respectively		26,569			20,906			58,167			66,086
General and administrative expenses, net of ceding commission income for the three and nine months ended September 30, 2018, of $4,526 and $13,772 respectively		25,815			15,420			72,167			48,826
Total expenses		111,079			100,361			308,109			271,640
Operating income		14,216			1,413			47,184			26,365
Interest expense, net		5,225			3,751			15,431			8,163
Othernon-operating income, net		—			6,883			(542	)		6,883
Income (loss) before income taxes		8,991			(9,221	)		32,295			11,319
Provision for income taxes		3,002			(525	)		9,068			7,390
Net income (loss)	$	5,989		$	(8,696	)	$	23,227		$	3,929
OTHER COMPREHENSIVE (LOSS) INCOME
Change in net unrealized (losses) gains on investments		(2,895	)		593			(9,918	)		8,473
Reclassification adjustment for net realized investment (gains) losses		(5	)		(365	)		307			(1,011	)
Income tax (expense) benefit related to items of other comprehensive income		1,665			(81	)		3,249			(2,866	)
Total comprehensive (loss) income	$	4,754		$	(8,549	)	$	16,865		$	8,525
Weighted average shares outstanding
Basic		25,631,871			25,883,267			25,663,415			27,647,146
Diluted		26,046,938			25,883,267			26,340,759			27,647,146
Earnings (loss) per share
Basic	$	0.23		$	(0.34	)	$	0.91		$	0.14
Diluted	$	0.23		$	(0.34	)	$	0.88		$	0.14

About Heritage

Heritage Insurance Holdings, Inc. is a property and casualty insurance holding company headquartered in Clearwater, Florida. Its insurance subsidiaries, Heritage Property & Casualty Insurance Company, Zephyr Insurance Company, and Narragansett Bay Insurance Company, write approximately $923 million of personal and commercial residential premium through a large network of experienced agents. The Company is currently writing property and casualty insurance policies in Alabama, Connecticut, Florida, Georgia, Hawaii, Massachusetts, New Jersey, New York, North Carolina, Rhode Island, and South Carolina. Heritage Insurance Holdings, Inc. is led by a seasoned senior management team with an average of 25 years of insurance industry experience.

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 our estimate of retained catastrophe losses from Hurricane Michael and the related profit from our vertically integrated loss mitigation affiliates. 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 that could cause our actual results to differ from those expressed or implied herein include, without limitation: the possibility that actual losses may exceed reserves; 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 events; increased costs of reinsurance,non-availability of reinsurance, andnon-collectability of reinsurance; our failure to effectively manage our growth and integrate acquired companies; increased competition, competitive pressures, and market conditions; our failure to accurately price the risks we underwrite; inherent uncertainty of our models and our reliance on such model as a tool to evaluate risk; the failure of our claims department to effectively manage or remediate claims; low renewal rates and failure of such renewals to meet our expectations; our failure to execute our diversification strategy; failure of our information technology systems and unsuccessful development and implementation of new technologies; a lack of redundancy in our operations; our failure to attract and retain qualified employees and independent agents or our loss of key personnel; our inability to generate investment income; our inability to maintain our financial stability rating; 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; and changes in regulations and our failure to meet increased regulatory requirements; 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 Form10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on March 15, 2018. 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.

Heritage Insurance Holdings Inc.

Investor Contact:

Arash Soleimani, CFA, CPA

Executive Vice President & Director of Investor Relations

727.871.0206

Email:asoleimani@heritagepci.com