HRTG - Earnings call transcript Q4 2017 | Heritage Insurance Holdings, Inc.

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Operator

Good morning, and welcome to Heritage Insurance Holdings’ Fourth Quarter 2017 Financial Results Conference Call. My name is Rocco [ph] and I will be the operator today. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note, this event is being recorded. to conference like Peiso. to now would turn over the Joe I go Please ahead.

Joseph Peiso

invite statements. the release to our morning. These you Good We for available visit call be subject uncertainties. to at our where update, your replay forward-looking current materials current call are to earnings we and website, which judgment may Today’s the investors review quarter’s statements, undertake are our earnings and will archived. heritagepci.com of section risks, represent assumptions or contain and convenience. These no obligation

defined differ during Chairman could and call I For XX-K financial from a the the GAAP quarter's or turn our the course CFO on SEC risks forward-looking our measures Officer. Bruce and Chief the and in and description to Kirk Financial the call, disclosures, Lusk, be now CEO; press discussing statements, with measures. including will Also Form on other described required more in of to of reconciliations today's comparable Bruce. filings Lucas, one cause Annual our over today release that our please Report refer us along made results call to with Chairman will our those this the SEC. non-GAAP are With materially the earnings

Bruce Lucas

you, I call. fourth to would XXXX welcome like quarter all Thank earnings Joe. our of you to

income to million. all had our record our in of we of net thank like company's quarter nearly for I'd report call, am I and company. to the the very their best $XX.X posted employees begin dedication we happy adjusted Before our history that XXX to

net decisions quarter XX.X%. returned This clearly the to XX%. shareholder's value share as third was apparent the adjusted quarter, in equity average income by management would shareholder accelerate returns. fourth annualized in is for quarter increased As an book per fourth the Also our strategic mentioned capital

away our loss from XX benefit widespread. to as Assignment decline where Florida's loss consolidated the to production of past we continue we the of ratios tri-county stated Fraud some have consolidated months believe improve levels ratios the will lowest continue diversify market. area Over I in to Florida is that our Indeed

loss consolidated and the the and of fourth strengthen This XX given quarter point our for the Florida year fourth XXXX for $XX in million in fourth XX.X% are is XXXX particularly Our XX.X% to an ratios in quarter. quarter of claims past impressive the decision IBNR by improvement. the environment meaningful

to we two and model attributable to experience a Our repair favorable first, our unique losses enhance and to quickly customers. is factors; and directly contract to strength unique that by abuses AOB prevent allows model claims third-party. get is us have claims handling customer and process. Heritage allows This to the the integrated helps construction vertically the us This control with

a and Second, ago. we months to decision XX bold about in stop are underwriters disciplined voluntary tri-county sales made the

Despite our numbers Our in first the claims we reached stop correct in to major metropolitan the in belief the area, decision major the on dampen in because to able carrier stop and impact voluntary region. were accelerated tri-county our were sales results that abuses we accelerate have financial XXXX. the to production record consistently would our production proved

look Consolidated XX% in billion to For in by in our $X million the threshold to the by the future. increased $XXX.X near XXXX policies force forward end full-year we XX%. the we premium increased of crossing force at and

ratio and of diversified have reduces better and our our of Our economies cost drives loss production and improves our acquisitions footprint which scale. consistently reinsurance

total $X a marked year and dividends. million this XX.X% number return total shareholder per exceptional Irma when returns be XX.X% for an and back Our would the adding value than back expenses, retention is to hurricane. are adding year the share increased equally XX.X%. When return by shareholder impressive. our higher This even Book M&A Florida major a increases year-over-year of in nonrecurring

not accurately GAAP economics a strong Our reported basis. on are

the As December the associated mentioned related in a third in no convertible GAAP a option new us the a was is for the cash to a Absent negative price shareholder for We $X.X bond negative shareholder X, stock. book year million, million on basis. a $X charge, non-cash of the economic in required just settle versus quarter. until shareholder liability the income X, the the on until versus to $XX as in charge, December our quarter, third to a approved. company was and has the approval obtained. vote third earnings million the because negatively hypothetical needed $XX.X book obtained that we was impacted approval it full liability It a income non-cash net option issued hypothetical quarter end income when or the taxes, equaled Absent vote quarter the impact statement on did record was our liability non-cash the the the the and from in $XX.X quarter net quarter. this fourth This GAAP share for GAAP basis. value million the increased GAAP million on

operating our XXXX income for was $XX.X Additionally, million.

and As mentioned, nonrecurring M&A our quarterly to Hurricane related full-year even acquisition. and approximately recent be absent $X higher million our would retentions expenses our earnings Irma for in

will impact Shareholders through shareholder to taxes running has earnings. have or liabilities no on stock, of settle value, ignore statement cash non-cash more charge income completely option quarter should fourth there our no the fictional going approval we book be that the Now forward.

of of November to The working The insured reinsurance balanced organization savings. per to to the organization. are and announcement. Moving adds projected this. by NBIC end in value. the substantially Likewise of Bay premium the more the been we of across enhance $X.X $XX transaction difference total total price company's operational the over much our ROI was shareholders $XX convertible of time million share. opportunities, organization has XXXX. based $XX.XX XXXX reduced at we spread settlement and diversifies represents bonds related million and considerably the synergies was on acquisition versus pricing the insured and per the $XXX and be Florida considerably the the NBIC, closed of actual XX% seamless value number only of partnerships, shares. to the The of growth the acquisition in brings strategic the or economics. the consolidated issued and northeast. together of is equity We of our to $XX common Insurance This sellers transaction for at issued acquisition stock assumed Narragansett NBIC at integration The on sellers the was on to to Company, the the of factors At close sellers. dilution XX, was million share closing issued we shares total announcement several the due better equity time million overstated are There understated the of to

at opportunistic after share. very offerings and were average repurchased stock we of of Second, $XX.XX and bond per $XX million an the price at

not returns. of Our retire leverage X.XX shares to and the outsized decision absurd issued at is to sellers the the producing million an valuation number to fix shares transaction to

extremely were share efficient attractive count As of outstanding able management, at XX% our reduce we XXXX in valuations. by capital a our to result

per will book on income per count. NBIC accretive value lower Additionally of In and get additional because shareholder to transaction on returns. NBIC there will continue these much increases value The and a significantly share earnings share we share combination outside factors net increase Most drive in income summary, were future returns notably, positive XX%. acquisition. an increased book developments net the several tax change XXXX the that by rates effective

will at are Florida. million loss our is CAN I company record has launch We $XXX Contractors multifaceted, Heritage we over fourth success accomplishments an Network and division expanding in to our division the grew In operations positive across of our in its organization. of states posted offices states our with revenue CAN. in additional consolidated have CAN for incredible a overwhelming for first We in consecutive the this extremely or XXXX. NBIC at construction the year ratio the and mitigation history. with am on a time and The XXXX believe to growth. Alliance impact the proud rate grown will full-service

to that we value our no value. in significant book our has have I CAN plans believe reflected spin immediate not intrinsic off division, is Although construction

to our able approximately claims. stated increase we As across East we continue At the will significantly sale Coast, to value. operations XX,XXX potential a was of Irma could over end expand evaluate our we to book claims. of continue had CAN respond XXXX to which division quarter the construction the the Irma

after network damage water mitigate remove remove responded day immediately and away debris. trees, tarp to to haul began claims the storm the Our roofs, and and

management. separates time This number pack With Florida. This us produce again and our helped them in when Irma proved three we put comes time loss. to to it this estimating environment catastrophe our customer are could first over claims we the network the exceptional a reinsurance the next reinsurance, given strength to increase of in of the from protection. service that ultimate once $XXX years At Our customers respect need. million their will

XX.X% force a However, six XXXX an ago employees, will of multistate startup premium business all coverage. cutting-edge only have five we were the loss five $XXX little years of extremely we the insurance surpass build years this plan employees, a company's over million projected and we erodes construction and In in XXXX. By billion XXX reinsurance that only accounts company approximately of with to had consolidated $X grown [indiscernible] no we believe in revenue. operating division a conglomerate

maintaining exception virtually market growth Heritage still industry outperformed is I while believe especially, is tremendous of that there XXXX. of a strong With ahead competitor unheard in us. our in of, of opportunity profit margins the magnitude the Florida have growth since every Insurance, this

products, partnerships into new strong and footprint. offering our sales, states, accelerating are We new forging across our expanding

ask just outperformed as reflect times composite stock know about fair remotely of another its versus company. our have value. does of trading and our book in yesterday's our the In Florida capital this all deployment our XXXX with of top-X shareholders difference not ended virtually year invested value peers, the which a of X.XX the times wherein justified a I me shares me routinely this of shares future. X.X shareholder and tremendous of Despite value and routinely heavily purchased value we our plans. book of million average makes approximately are we in common I organization Our close company. have at not is X.X north opinion

our As at value continue deployment. produce shares forms discount our will underperformed comps because shareholders returns our trading and is to years, we several for for a will capital long share results of at outsized fair as substantial it market price to versus other purchase

share related reflects our to repurchases this will continue we and management XXXX trend our contributed mentioned, in share decisions As fair to value. returns capital price with our strategic exceptional until

for his two years. that over talented Martindale has Steve would executive thank I service the to Finally, an incredibly profitability. like our to contributed Steve is past and growth

grateful director. Steve we Kirk the his with remain will details the as financials. to best now over will While wish our I turn I in the that to on more ventures, am call provide organization he a career

Kirk Lusk

Thank morning. you Bruce, and good

completed Heritage of $XXX November $XX million in with X.X and price transaction. in on XX, million mentioned, Insurance Bruce As which shares the million million for of Holdings share cash stock. The in issued stock the a was $XX $XX per resulted acquisition of NBIC at issued

deal As to a excited this you be year-end part the of of give about XXXX XXXX, heritage. premiums end million team geographic thrilled overview increase to to brings now to XX%. opportunities million from would like up of I diversification say very $XXX $XXX the part the and of an this I'm morning. In Heritage of synergies, to the like acquisition, were the at I'm I with force company. brief the and diversification be at of the

will Heritage growth share of Since quarter. synergies. Even opportunities income the will that results statements X% the policies incorporates percentage for provide November premiums. At quota our at additional through the New in Just dropped XX, XXX, state the the has consolidated though have XX% York totaled flow only Massachusetts the operating NBIC's and reinsurance geographic as distribution meaningful and is to various the a in the reinsurance XXXX, gross X% ratios has shift impact premiums program are was closing results, in the month results various the NBIC's the year-end earned. with XX% in XX%. XXXX, XXXX with premium was by it on reinsurance. XXX. significant one percentage force Overall to with Traditionally the At year-end one measured use and Jersey of against each. New in with diversification highest is approximately NBIC's Florida The on of next force followed month does ratios. Hawaii of reported as and year-end then

and treaties net Therefore, to share quota we the to results reporting, are earned report that analyze as useful premiums it this is in transitioning denominator the the ratios. on our we quarter's using believe in net the With using ratios.

premiums to continue some provide quarter written to fourth to million were gross last premiums of same quarter ratios for contributed a written million the quarter $XXX.X $XX.X quarter the the premium fourth period $XXX.X last million the were the XXXX. period for million XX.X% The the will for NBIC's ago. NBIC year for year. for earned consolidated $XXX.X of when increase for compared which compared We from NBIC earned gross million of quota for part current same relates Ceded meaningful. the share gross to quarter million premiums were was Gross to $XX.X XXXX period $XX.X fourth against ratio XX.X% large same compared as million $XXX.X of the policies included premiums A measured Gross quarter. earned earned for compared for $XX.X million on the acquired the to arrangements. ceded year. premiums

by and is Excluding arrangements ratio The a on costs. fourth of $X.X of The from for Hurricane December. of negatively earned ceded quarter by commission period year are million impacted losses ago. ratably to up the to reinsurance for loss and Matthew. XX.X%. would XXXX been million programs. month approximately the ceded acquisition the period the commission quarter reported of in fourth was NBIC's contract XXXX $XX.X and quarter expenses ceded same ratio $XX to of have non-catastrophe $XX.X was offsets share NBIC million Loss due adjustment XXXX over quota million for to decreased through X as premium earned deferred was The points the results negatively the compared impacted The of approximately a fourth the

against of last was of year. period measured as net XXXX quarter ratio XX net Matthew premiums the net ratios. XX% loss earned for XX.X% and to XQ fourth to same compared net Our for loss reinsurance Hurricane points recoveries XXXX about added the the

net ratio declined points impressive Excluding year-over-year. X.X Hurricane Matthew, our an loss

were the the Approximately of $XX.X the expenses, for million million XXXX of benefit Our the in excluding XXXX. operating $X.X to commissions million million period compared fourth $X.X $XX.X of ceding M&A quarter of for expenses quarter December. NBIC million month intangible for $X the XXXX amortization $X.X expenses million were the of approximately NBIC's of of of of and expenses expenses fourth The to also includes related acquisition. same

excluding ceding X related against measured operating the gross percentage the expense of XX.X% was for quarter As ratio benefit for quarter of XX.X% of over The compared expenses fourth to the the commissions premiums XXXX. M&A XXXX earned, for the points. fourth accounted

the reflects with same loss fourth ratio the and the operating Operating the earned income to NBIC's expense which combined quarter the was decrease improvement XXXX by $X.X of of year-over-year million offset the expenses quarter XXXX to percentage for keeping losses Our M&A net for a quarter favorable The of the a the ratio the $XX.X fourth contribution improvement was premiums flat. experience the while Hurricane the the driven one compared compared as for in in Matthew was for in XX.X% The fourth quarter of additional an XXX.X% the fourth loss impacting of associated quarter interest quarter partially in and results XXXX year-over-year operating XXXX. XXXX, period positive from month million. acquisition. relatively

during income confirming million $XX.X company the confidence For quarter. full-year stated the third of the generated the operating

rules the a in required for change we adjustment with The approval to associated received notes quarter notes the in value are the shareholder the our option market shares. $XX.X of convertible under As the of GAAP was conversions to until settle non-operating earlier, report Bruce related fair to any million financing. non-cash accounting required mentioned was charge

of be that approval required shareholder recorded Although to on as still adjustment was December X, was obtained day. the

For to million. comparing and was reasonable when option and it to to $XX.X results accounting the earnings years adverse We impact it prior is believe to year, our this peers. our in analyzing to convertible eliminate related the the entry

reporting the of $XX.X have release $XX.X this in million XXXX. made and net the change adjusted quarter non-GAAP We in earnings for for the income million full-year

of fact for recently to nonrecurring reform quarter the have we enacted quarter absent and non-GAAP large utilizing XX%. net income adjusted income quarter quarter return would net and favorable year earnings even of impact and tax note million $XX.X Irma from that The deferred X% income M&A the weighted the share expenses. full and valuation the $X.XX profit higher adjusting of primarily on XX% Our in shares. would retention adjusted for have a the diluted fourth our for XXXX had benefit net convertible the been adjusted for yields the for The Hurricane related and equity combined ratio The tax activity. average per M&A tax liabilities the reflects average net a the the of resulted and of annualized

fixed average paid increased $XXX of XXXX AA at of million $XXX maturities million with invested On at X.X the stockholders repurchased share assets XX million also an average shareholders. we years. million XXXX. In curious have in compared balance and of sheet to were which XX, at of December X.X to $X.X an $XXX December price the $XX.XX and was last million side shares credit per equity XX average XX, to dividends Total December million duration $XXX.X invested out an in at months quality

$XXX.X $XX of and entities. cash approximately non-regulated held by XX December position million cash as million was Our of was

XX, I available December from With over take your was XXXX. were and total assets to million Bruce Our are $X.X which billion questions. up $XXX that,

Operator

ahead. Please Barnidge Today's Instructions] from comes John question Thank of Sandler first go you. [Operator O'Neill.

John Barnidge

we congrats talk in a moving higher contractor Thank you My Florida? question, expanding you be this of territories, can out expense ratio employees new and long much are or them are on hiring bit, new first expand a about quarter. the the network save much and you how this should you'll over very in the simply tick you term? anticipated Should these on

Bruce Lucas

Yes, thanks John.

We to There network Network in South we new to particular, that in there margins Contractors in networks. further states, so the NBIC into year the Alabama. are Carolina, of also onboard Carolina, We're than have expansion with and the a states the outweigh rollout There all Alliance southeast, this come Georgia make going the North will we that; five those associated G&A employees profit however, the our are Northeast. that more expense G&A. expanding is

So we though believe G&A. to for dollars we're that is the spending even additional net-net accretive company some

John Barnidge

And January you reinsurance to and Boston and exposed could I that program. because couldn’t I much in what a talk because with great. early are you robust there very have Okay, maybe far I York maybe know winter now was New snow? and too seen they about year you've weather. then Narragansett to know was But go to this go so supposed

Bruce Lucas

the the Bay in two, and typically you're correct. quarter first quarter four. three The loses the volatile money That's most all company Narragansett quarter. absolutely is Yes, profits if its first quarters for and in makes

excess You are the that year coldest hedge We storm a in year correct. exposures. in against winter had We heavily XX%. of quarter's

growth on top We have an share of that. quota XX.X%

is extremely to bit higher We for Narragansett a it's several at little Bay years layer what all. the This this builds drops and that done an something retentions. that have past well we shocking than storm year in aggregate but activity expected, us in nothing has is also and

risk mitigating had programs place that Narragansett reinsurance we downside the are So at any Bay. in

John Barnidge

re-queue new on I'll in run would and you how through some takes claims last you Florida but it then give the that's to an to maybe these on talked question, Obviously which then forums progressing? my $XX,XXX. cap could in renewal, time non-network us putting Okay update probably about market is,

Bruce Lucas

claims now $XX,XXX. Yes, that in cap so citizens' at there are forum right certain forums the in marketplace does it's water the particular

those are forums available. So

it for to couple you provisions. the keen bad a to of there increases changes consumers major it benefit. time are trying as with They is are this, guys can discussions skirt those that approach trying But regulators I'll easier market, are to don’t up. very to that think very our really are all issues regulators little I We rate issue. the bit keep make forums how curb a fraudulent in find with receptive and benefit they give proactive abuses. improve cap are that in to it We to it line can the of of challenge in them. helps view a They that Florida kind and are worked so get this takes to a companies to

John Barnidge

have in, how should through, through I you a would way, inning rolling it these in be the what be new categorize say May applicable asked you forums that? of are may if different to kind book you were these out

Bruce Lucas

Seventh ending, ending. eight

John Barnidge

thank you much. Okay, great, very

Bruce Lucas

John. Thanks

Operator

And our Mark question Hughes, from Please today comes ahead. SunTrust. go next

Mark Hughes

Yes thank you, good morning.

Bruce Lucas

Good morning, Mark.

Mark Hughes

were what there parts network, contractor quarter? ratio any loss the in the year development is moving On terms the from accident benefit the current in of the

Bruce Lucas

the from doorknockers we margins hurricanes at Well, the our and strength a Irma are part Obviously that an was reported on related And of to additional loss had $X our up reserve drum we check. reserve a of in fact low. million basis. years and us for so of then ratios moving extremely and the million quarter numbers our day-to-day the prior kind reflection that's Matthew that's Network. mainly fourth saves on That money us or of biggest keep really we in about and The some some Alliance in report was claims due our $X going Contractors losses rates there trying in to strengthening helps consolidated or door-to-door additional quarter had business.

approach and in case to But a seen took our the should but we in that haven’t year-over-year. the very them are trends up our additional cover Mark, arrive. claims we quarter-over-quarter quarter, they fourth we put lower overall IBR moving so here And conservative still consistently

Mark Hughes

at financial that Narragansett you transaction. you terms guidance the in then, or time projections announced And provided had outlook, some at initial of

what out on thoughts seeing your think of things we some turned of the latest issued get your will terms XXXX? – we're to side reinsurance curious synergies the I'm about meet better is that think you in still earlier with what do shares when the think do expectations more some of then and guidance the early sort reinsurance have good broadly, you on think I

Bruce Lucas

Yes, question so Mark. great

we So, the are still and a no part in anything, CAT when transaction, in announced net easily somewhere low around of That's you projecting a year income full good are we of XXs there. $XX or really season doubt about it.

Those to as XX what say a synergies for, hearing really well. that Florida crazy that have accelerate Heritage in reinsurance rate out We transaction. can't kick pretty I some mean June than rates increases the were hard driving moving you jury on you months a with things is for increases potential reinsurance from you over we lower to a hard couple tell are substantial that some I that XXXX this, would gains that are lot that and up ratably the have on think obviously There do will pick unique is overall market. were expect will up in say rate synergies following then We're out much, the there market earned heading and – for reinsurance unique still there losses, market. reinsurance market higher. several by that will cap That's how renewals and of our contracts I'll are them but synergies. you there in a with then I pick calls rate but can actually I that pricing. I know there increases in the as you were are some tell into start reinsurance happens. the I'd we X to synergies additional multiyear in

rates massive that The lower reinsurance to we prices at first capacity prior-year multiyear so helping is is, online. of fill and needs us amount have a at

our saved adjustment from about market that Our price event. There loss be put place Indeed low. comment an a we've reinsurance not competitors. are I'll millions are loss program. seeing they XXs years working now they and hedging of And had quotes, Florida I also four expenses is in to flat of our big already is write that on already of lot fact strategy taken major that in half expenses. heard partners we've the from that that the of we're Hurricane extremely are extremely right adjustment s into our of ago we've well, they reinsurers had our account We at we in bottom and to Matthew, of pricing. dollars millions ones, at absolutely line XXs our when mean, going XXX what

LAE we improves we're so, outlook than we And lowest as place. I'm forward. reinsurance to reinsurance are in aware move optimistic the have be that This because in that really pricing multiyear better Florida control reinsurance able have our we synergies, peers we going of to Florida treaties our the market and

Mark Hughes

million think ask net on in And measure. you are you could the was - I I that may you look if - good income just $XX

would we consistent? tax the of of be provided is assume guidance that higher, reform prior to some number was net think I reform That's pretax post sort reform. Would the and the i.e. so benefits tax question. from

Bruce Lucas

confident organization. forward pricing. because we a from single expense tax you are or reinsurance Right? largest so don't I that reluctant will to Yes, we benefit benefit. there kind is what that to we I get the higher on don't considerable whether about that the you some determine offset and And you but reinsurance lower the know we get and move do do our number mean, increase reform, baseline rate, feel so pricing now eat are tax extremely but from the right of is on upside think insurance guidance concerned pricing the is we outperform reinsurance meeting get above that of not But all. that And a that's the XX rates know into that at what going number that to be in number, give not

Mark Hughes

thank Understood, you.

Bruce Lucas

Thank you, Mark.

Operator

go Please is from question next Sandler our followup O'Neill. ahead. John a And of Barnidge

John Barnidge

think than Should effective rate we lower in could Thanks. actually or you modeling a be do bit come tax that? XX% a it

Bruce Lucas

effective looking the tax yes, taxes a there, rate higher can we’re little actually at you the when no Yes, contemplate they’re range. let impact be the of that XX% XX%, around state than probably

John Barnidge

on utilizing helpful you've back talked to a I you say previously an us current that's England that link then provide or that? the could Okay, beachhead New and as very thoughts southeast, on your update about NBIC think

Kirk Lusk

longer that's our NBIC license the northeast, because we well. also southeast to the that in that Atlantic market filling to the they Pennsylvania filing so launch for with license as our as to steps in Heritage is presence so have Heritage have in those areas a four there have so in a Mississippi we we just we Narragansett a underway. will Sure, Tennessee well Bay and remain in speak have roll are something then mid as goes new that player. plan are we're probably territories we brand business to way is Virginia and Bay region, stronger take the all And and Narragansett And out still in we really we will that plan

that year. start seven this about up the and going we're added XXXX. in see really rolling you probably So, operations of We're you going plus to have to benefit where new states total out in

John Barnidge

of And you be or long what business deal lines types think an then acquisition the kind perspective future? the would NBIC how sideline in, from you interested and maybe the in of then on areas do you puts

Bruce Lucas

discussions cash a of really line, so on couple us based we depends tell on I of equity the think you acquisitions can the just deals that I it in are already it puts side as more don't based, an a of at on other but versus speak. we transaction the mechanics Yes,

add in good is So that on guidance we It and diversify we're are sector every opportunities transaction shareholder is strict higher return I than on strategic on substantially resting our not certainly investment. at an basis. P&Cs trade, produced do, what would the a It returns. just very on have annual

now that return going then if couple have an We're that look field. returns. and shareholder picked but acquisitions as accretive and would products. need due umbrella very on do other we've commercial what at enhancements some pretty the I to looking about our at lines new we're products homeowner a well? the up, so look been And diligence And they at forward right be to We've going products, are move to of and we selective outsider's currently limits

John Barnidge

Okay, that where and at see you and settling do speak ’XX ratio can ceded then all. to premium the then and ‘XX in you if that

Bruce Lucas

we Yes, come I that pricing. mean with it's hard up number know until to reinsurance

John Barnidge

like your construction of Is even last event very is that economics that a to valuating question, to term talking was how the bit integration? fair surprised the Now something more you My longer that that I that's and could sell business. that, change were or would a be related a point. about potential the then XXXX vertical

Bruce Lucas

of construction mean, Crawford PE there. a waiting. if want disclose have on what a and unique we've at something well so transaction if for that highly we paid now going XX offset organization, I net earnings absolutely and of so a growing would now be that we're to that that's would ratio, Company it’s group the grow that we it very to we Yes, that our they their is right to but want route. don't for could division value and our I and earnings I to to to being spend it’s sell offset - because you're unique XXX% it to we to ‘XX, to had our looking somebody hedge if but in model upfront were more it's $XXX tell it impact peer there going earnings. are just been accretive now the you not like we’re easy us go we off were it it million make do right out look equity I'm a do would that no and loss an not future that

something just have we So it's our on radar. that

scale disclosure approached not been the profitability we an on is substantial there have I who had We that don't in division. currently, the do full the in think by there and especially we people value but interest people network. that really have understand, the have market in that It's

John Barnidge

Great, lot. right. a All thanks

Bruce Lucas

John. Thanks

Operator

from Please And ahead. next go Ross? question Hello of comes today [indiscernible] KBW. our

Unidentified Analyst

me? hear you can Hi,

Bruce Lucas

are Hey you? Ross, how

Unidentified Analyst

Hi, sorry that. about

Bruce Lucas

worries. No

Unidentified Analyst

was check, DTL the I just a down thing said wanted there to one just [ph] is rate, that so double tax you clear So be right? write to

Bruce Lucas

yes. correct, That's

Unidentified Analyst

the and what down? write amount was of the Okay

Bruce Lucas

some our marking net-net bottom were downs Well assets on there basis the to quarter then there a that and was other but up some the in change some write had of we line. income $XX tax added million

Unidentified Analyst

you you CFO something why some detail, have the that question I on clarity but know and can and answer there transition? in can't provide other was a might I this be Okay

Bruce Lucas

on continuing mean et wouldn't a great Directors or I Sure, cetera. be a the obviously relationship have member Audit and Steve, with our of with we company as he the Committee,

step to have Steve his choice quality That opportunities and We down bit with that's of fit willing have to some a time. freedom little kind it's his wanted other that was just we because Kirk expectations a lifestyle more. consulting had but that really really two okay more to pursue fit Clearwater, opportunities in to personal and it, and CFOs. pursue move really his

do the he's no has So I our Board but field of pleased as stay am consulting on going doubt to Directors. member he at of that a to great it, about in agreed financial least

Unidentified Analyst

given of in how count, should and accounting? we the think going increases, of the that Thanks as treasury just terms share price the forward method share

Bruce Lucas

It as a outstanding Yes, formula. diluted obviously increased of share the mathematical our average price kind is will count share complex increase.

have a tool. We

you and the to you dilution as best to and expected it tells it price plug That that given you the that it. in well. we That's analysts I the tool have may you price assumptions way calculate probably would shareholders occur. think as certain helps had other do if

Unidentified Analyst

if you that thanks. so what guess adverse business terms the impact business, by to I extent Okay, you that did losing have in would sell And the I the generates? an of that construction savings guess

Bruce Lucas

I don't we've blueprint That's getting do been that peer to group negatively we past want on our closely require loss me It no is would the we years. because on five doubt. a profit guard impact for something ratios Yes, the to it disclose business. margin our that what that working would mean then would, same thing

have some expected is that loss to offset modeling that go like. with I And would ratios that increase more price would that kind of along the we than purchase so, of kind what on looks know the point our and get in – done there I've this. that

You're looking were at we a if slight increase in ahead the asset. spend loss to and value go to the ratios, off but huge increase book

Unidentified Analyst

Okay the million what’s a represent? revenue and like your that estimate $XXX that number is $XXX million that

Bruce Lucas

a in - of million did was revenue we That XXXX. actual $XXX

Unidentified Analyst

you in the network were just of Okay Heritage? and CAN saying terms to internally then billing

Bruce Lucas

That's correct.

Unidentified Analyst

income to same and third one Okay I that Irma? the competitors did thing quarter, adjusting that, with be we storm able in know the do off the had in of generate of with CAN your

Bruce Lucas

repairing LAE handle at on our million the mean, internal used profit I some that efficient we $XX resources focus what the Adjusting the some houses along and of number outside on keep really made kind combination low, looked revenue, was the mean but most got I what’s LAE X,XXX didn't Irma we all charge CAN resources construction. We but it, way to was we us. real so the to profit, generated profit homes. of of out, for

Unidentified Analyst

sense. makes that Okay,

I now? you In guess terms excess much have you, would cash estimate that cash how of

Bruce Lucas

penetrated the entities $Xmillion. Yes, we non-regulated had

Unidentified Analyst

the Okay the hold-co cash quarter? and fourth you old what provide at of can end the

Bruce Lucas

in non-regulated. million $XX the

Unidentified Analyst

do RBC guess ratios terms of was for I each know in in change of a the calculation, satisfactory I have and Thanks there RBC you entities? can you your,

Bruce Lucas

now. was NBICX the pulling little that Yes, was over they over the the right XXX. little Heritage a Yes, $XXX, are

Unidentified Analyst

thank Bruce, said six plus mentioned that Okay, confirm six you were to IBNR, but the wanted just prepared think I couple and your added was then remarks development think I I you in million mentioned $XX to numbers you there you later.

I data I what down sure had So, actual and written I correctly wasn't… and that understood just the wanted to make

Bruce Lucas

additional quarter was that top $X XX that million the for Yes, other disclosed. I up of on an put the because

Unidentified Analyst

go And all with development? prior sorry year, this Prior I’m year ahead.

Bruce Lucas

Yes, was million $XX development. year there about look at for of the year prior

Unidentified Analyst

in So was million $XX all quarter? the reflected fourth that

Bruce Lucas

was, Hermine, not was yes that of The half bulk activity. of Hurricanes day day to claim it yes and Matthew about and

Unidentified Analyst

in Hermine then in your development the fourth quarter. was that Okay, hit hit $XX so the action in that from about any Matthew and there and fourth million quarter current

Bruce Lucas

X.X Hermine and Yes, year. that was in the in it’s actually was earlier like the Matthew earlier year a

Unidentified Analyst

can you sorry, I'm that? repeat

Unidentified Analyst

earlier Yes development and about the million. Matthew was in It was year. the $X.X Hermien

Unidentified Analyst

was the be the, so earlier not clear XQ say when that quarter both. was didn't because Okay, you in fourth in impact you you just to mean

Bruce Lucas

Correct.

Unidentified Analyst

you I sure make have of can want did to written in just have Okay, terms just, a hit so I just of what fourth the lot numbers right? it down quarter I

Bruce Lucas

fourth like $XX if Yes, it quarter hit the you want million. about when

Unidentified Analyst

million development. $XX Okay, prior year of

Bruce Lucas

and what ratio impacted have we're we're Ross conservative quarter. fourth count that IBNR and know gets to claim an a would additional much we fourth going I overall over develop strengthening - hurricane, quarter strong that to in because a time. it the of development. book loss in normally expected. We that $XXX is we us. Right, to be that not here, really reserve our millions the absurd just million that's will that’s of that close of premium positive by so what thing, most that's of book lower stuff over for going negative quarter is on It's had pretty and what up we mean we so Yes, the caught the than we expected. most in because do that a we're put of not believe in the business end That's to consensually with handful talking cautious, being

Unidentified Analyst

you say of that the of XQ And XXXX XXXX? did fourth from was you strengthened to anything in there quarter XQ

Bruce Lucas

No.

Unidentified Analyst

the to of that the was get net $XX in million if back and you XX%, million quarter you had mentioned back loss $XX sort Okay, if I the about ratio you XX%. I out out that

was huge a there that's like else seems is the a fourth that, very on just still after quiet there the improvement anything driving core quarter because basis, in that it So is storm?

Bruce Lucas

up trend put the lot forget outperformed actually ratio, claims. guided we loss fourth that. cash, We ratio we quarter XXXX our a single loss our for was if day-to-day loss you improved I had So balances declining every our year, IBNR over ratio and had in that the but and improved to loss a Right? mean, out. past we quiescence. Well, quarter all at is ratios look quiet we that

Kirk Lusk

look the it even was and there, that fourth to in so lower the when it much a was yes yes. booked that was we seeing to Yes, quarter, at that number coming fourth quiet so than that lower actually were you actually it that in you very than quarter, it

Bruce Lucas

Yes.

Unidentified Analyst

ratios, think we how a on since but use of you should forward? we with how of some loss the know the I the think going us basis direction Okay, ratios? net gross ratios quarter, on used should kind of to loss we give can't the those net guys

Bruce Lucas

to pulling now you help We're the on stops out. it

Kirk Lusk

tri-county. with loss hard net are look shares and lawsuits if writing you and last in the fairly the the at year of an helping I'll tell fewer loss like of that outside Yes, tri-county claims looks downward know we're quota ratios. you give our the NBIC that it policy we're because things away consistent there, net ratios lower Florida, with that’s from to de-risk record to AOB that but it’s in that. additional the and outside get fewer now, And is gross drive as of continued everything and production had what but that projecting overall again what lower. to problem we abuses don't distorts to tri-county we've historically we and We way tri-county, trend we by reported the area want every number

to head. of to quota Florida continual on book a the our the want in hard if projecting But numbers improvement shares turns exact are XXXX. all look give absolutely its the because guidance into ratios you So we an it loss at

Unidentified Analyst

your entity? total Okay, in you of of quota would of in share the what percentage with shares in and now at terms quota perfect see consolidated terms the premiums -

Bruce Lucas

the that that's $XXX about have of do and at then an XX.X% MBIC and also number share we million times basis will be XX% premium net quota XX% that we in Well, place. gross on

to quota share, some two add massive so Narragansett against don't then aggregate of earnings cede premium picture quarter. full first Bay we the the out at get of pieces that have yes So, And are protection we only also winter company. those storms, kind up at moving the that the volatility we the shares but those for quota have in

Kirk Lusk

Yes, get so XX% think will so, it you was is the yes. I XX.XX%

Unidentified Analyst

the what’s I - between want the mechanics? when net you can the difference you understand to and sure make gross right I just so share, those quota the say and All

Bruce Lucas

gross at so going it and the applies, net one basically gross is the ground board, it be it’s hurricane everything, the it across is then is of to Yes, up.

Unidentified Analyst

is that Oh just ex-CAT? you're then okay, and saying one

Bruce Lucas

it your That to is against correct, well. protect but helps retentions as

Unidentified Analyst

Sure, from professional like okay was it fees and million [indiscernible]? and such the expense ratio, you $X.X said

Bruce Lucas

is over [indiscernible] $X in you think for I million time one the M&A expenses quarter.

Kirk Lusk

fourth Yes, full number was the been year it have as the that for would higher. quarter like

Bruce Lucas

Yes.

Unidentified Analyst

and aside Yes, from ways amortization I'm whether looking of hit fourth I think professional because issuance debt that but was, mentioned I know in transaction, the of interest the I release anything specifically like that fees, fees, you its quarter? like legal

Bruce Lucas

million $X was plus. quarter fourth Yes,

Kirk Lusk

but so lawyers, that non-recurring. paid there fees to we are and NBIC, to professionals to close Because had are

Unidentified Analyst

around No, million saw just what’s…? I $X to see I want

Kirk Lusk

of approximately Yes, just was north there. it yes,

Unidentified Analyst

north, Just okay.

see just And what from anything premium, release earned I in much quarter? know the in gross how me gross remind me can you premium Sawgrass premiums and the Let this were if you the impacts else. earned put NBIC just

Kirk Lusk

quarter X.X the for was for Sawgrass Sawgrass. and XX was NBIC Yes,

Unidentified Analyst

for and quarter? have ratios isolation you Okay, the loss and expense thanks Heritage and do for the of net NBIC each and

Bruce Lucas

it at Pretty a to like Yes, at signal we out big Ross as difference so breaking as level. material a opposed issues. as look between segment there, look think separately, at that I those no there's close better group

Unidentified Analyst

expecting the reinsurance combined terms pretty profile whole even the you similar to improvement were basically ratio of with exception maybe the before the transaction from of it synergies? of should company But what stay in

Bruce Lucas

I is for there think potential upside for there's than for more Yes, sure. downside

the gave would million reinsurance had until $XX to that you my give net the in just can’t over. we lock our optimistic number, guidance so I I our over is but in costs. income, And take if take I under any view clear I definitely It’s

Unidentified Analyst

a share. consolidated again When loss or historically excess before? like do be it quota exclusively Right was buy a share of basis and anticipate will would of know reinsurance program weren’t purchasing it Bruce, quota you guys I you an purchaser you on

Bruce Lucas

Narragansett Bay protections. for that quota forward you tell can going maintain share plan I game to is Well, our

first hedge do that quarter hedge importantly continue storms XXXX If first there. you of half big have decimate in in volatility We year's lot believe risk, that a earnings your up in to have that it that a a it. so risk. will quarter. out because to we're retention to wipe it the to want too events winter the in you couple quarter the going first of most had that much profit, going and we're the have fair wouldn't earnings, northeast to don't massive I at We makes not pricing sense a

that And northeast. so, we're going the to in maintain structure

giving because away For Florida quota if never simply economic share ratio. consistently outperform a the we ratio on loss margin loss you're the done we've and outperforming net you're actually on

more take it and for the that CAT so to just makes So well. sense risk us retain

Unidentified Analyst

said tax Right, that makes you upside sense. taxes And on reform XX% from the rate?

Kirk Lusk

XX% the No, XX%, basically down yes if seeing you're keep, net by that's you’re increase. the we're you between rate, increase XX% the was even the look what keeping and tax that's effective at XX%, XX% the in XX% went When a now XX%. around tax you keeping though income before difference rate and

Bruce Lucas

how right always XX%. up lot it that’s my with them swap. and heck reform, XX, went a it the we I surplus. that’s what modeled in of you get acquisitions, million better one I on good have model million like the pay a Yes acquisition look model company goodwill $XX $XXX I book has If the values side, when and things at on will? But back, all tax even XX I it is so, ROI. hard That’s ROI is I

what meaningful, we And in better so really have it’s it shareholders thought than would it had transaction when terms August. means the back re-announced substantially believe deal the closed, I

Unidentified Analyst

for you and okay, model is to XX Sure XX said XXXX? we then what so should

Bruce Lucas

of tax income because well. Yes, as state

Unidentified Analyst

right, okay. of I perfect asked appreciate very it. Right, questions, so All I lot a much, thanks I know

Bruce Lucas

but You it. appreciate we do, always Thanks Ross.

Unidentified Analyst

Thank you.

Operator

a Please followup Barnidge John go next gentlemen Ladies from ahead. question and from is Sandler O'Neill.

John Barnidge

you. Thank

pricing you benefit on you must networks think that? because reinsurance reinsured it construction Your and closes love since on any give they claims quicker, fraud your do of cuts down

Bruce Lucas

going this year. They to are

times roof costs have hole I'm and the are, where are were we're something If a Hurricane to we've I indeed do next got battle. underwriters and ideas storm get dry And payments, go it's some not saves and one we on to their loss panel. know immediately our and out. out we efficiency as on on increase as lot and tarping we fix and Matthew, fantastic it Irma demonstrate you it's plus because those what look reinsurance know getting this proved LAE. time the scale quality of and to just customer hey it the it a side what they adjustment of out it to And go on reinsurers but not got They on that basis by across no up loss they a house out fix spend to the and board sign credit and there's event. much have someone's So then we've claim into save It's of and network to a the able is us, and the in after control the the only what large and that I to the percent say removing roof things repair look do they does company on tree, indemnity an XX eye and a expense. the able who a day did, takes the in team, it, scope pressing repair the sending

that LAE. our average that now. LAE in the Florida driver so, XXs record we're is in industry major seeing low mean that And that to repair XX%, mid low network the know companies some a and XXs XX% right teens. mid is I I'd we're are say really

type Bermuda closed said, have our that flat has outperformance already so, And people's I of on attention of in parts of huge program, and really a lines big pricing. lot like at grabbed we

John Barnidge

doesn't I you have then I just it of in it in time know ever, year Florida deal Thanks think to question any the be, have And the my Cats if in did I fourth speak closed list would after but that NBIC you NBIC portion during all? snow or at quarter Giving, the the on to last

Bruce Lucas

really seasons first Cat no No, quarter.

John Barnidge

thanks quarter. lot on great congrats the Okay, a and

John Barnidge

thanks John. Great,

John Barnidge

today ahead. the SunTrust. is And go followup Hughes, next Mark from question a Please

Mark Hughes

of jump on Yes, but don’t at the you second, touched the off share the year, diluted thank side a I what is know for count the you the count? start whether share

Bruce Lucas

click just going tab. on, to Hang we’re that

Mark Hughes

this a Okay. if Bruce, No, you I ask talked up didn’t lot. come

Bruce Lucas

of XXXX the XX.X shares at $XX.X call were we end outstanding total Yes, it the XX.X. the at ended year and

Mark Hughes

it the XX.X when So what is I’m sorry the XX.X about and that what and in we was think XX.X? first we're the is quarter difference

Bruce Lucas

XX.X was the end XXXX. of

Mark Hughes

Okay.

Bruce Lucas

XX.X is end of the ’XX.

Mark Hughes

Yes, very good. okay

Kirk Lusk

after shares the million that's number. NBIC, million of sellers to X true issuing so net Down $XX a consideration at

Bruce Lucas

Yes, so count. that’s ending share

Kirk Lusk

Yes.

Mark Hughes

Right of I can how underlying you is about the surpassing and there NBICs in billion and some think kind a in expect then reasonable about with see timeframe, talk potential revenue premium the synergies production, mark what combined of you quickly be voluntary it the now, you would entity? in growth the you'd some

Kirk Lusk

look comes A the you've there's growth. to amount mean segments where of growth lot I of Yes, tremendous a from. of the is, at growth the got

That’s is yesterday book in filings. got our that and Florida segment approved HDX May. the just We largest legacy our Florida. in example by in, far kicks citizens here For XX.X% biggest for

other as market moving rates higher. got are getting we've this creases rating that everybody's justified are are which well and lines in So

lot in and now So a We're those seven market of we're this you're states eight new we're in or and filing year. recently so the as Georgia increases products it to baked call territories, the we from new get excited into writing just are and in Alabama get and mentioned rate seven growth going to system. launched I that

of So, this a $X billion in very up topline the get year. in we feel can the but them confident better, excess faster we

Mark Hughes

Very good. you. Thank

Kirk Lusk

you, Thank Mark.

Operator

question Please Naklicki of And next ahead. go comes our Citi. from James

James Naklicki

what the is so around in second got the year? the the the the here, that pardon at look you first a year business I for the $XXX if half My half million. I'm the revenue the second CAN Thanks. curious, year, cold gave of from question was of me you revenue

Bruce Lucas

or Yes, roughly. it's so revenue the probably about half

James Naklicki

was to from benefit Okay, Irma? no business hurricane that so there

Bruce Lucas

We I year. was a throughout there benefit. do X,XXX up additional were benefit. to lot network. robust the No, we but able business a we've a It absolutely got was get of to claims, mean, pretty a

James Naklicki

Got you.

tax the think benefit beyond a reform sense get for, XXXX, pricing into tax or get from the if the to On trying passed I'm will rate? through lower is you that sustainable it

Bruce Lucas

but that's forward, and a damping could to but a they pressure, think could have There's think really offsets, in more the move up. will claim be effective anything we're mitigation doubt but moving market to inflation we got some would mean Yes, no not so we financial you've And about happens very results They be as, I because are really go tax. down I really as rates it. don't on decisions surprise our going vast heading we've network, in go remember reassurance hard out been a Florida. downward good that I in that me. repair market a and it’s made I race little, around that That are it than down prices underwriting mean and tri-county much built offsets higher.

James Naklicki

you. you Thank Got very much.

Bruce Lucas

Thanks.

Operator

is our gentlemen from and question [indiscernible]. a next Ross go ladies And followup Please ahead.

Unidentified Analyst

Thanks.

On residential you from part there. improvement came exposure of the commercial mentioned business, think reducing loss I that the ratio

So you there, business about how looking a or is excited I some have talked I about lot wanted still get there. now? it that to companies competition know of more clarity you're are

Bruce Lucas

at will competition the of from to spot Yes, commercial happy we're our surplus They book. I the at we're line we a I of and at pretty sweet where want going end carriers. in mainly book in residential ton got write rates is day. look we've very mean mean it. the There our price with it low a right

fixated not growth. are line on solely We top

We are topline in profitable not a point fixated the margin. no making it on if taking is definitely getting risk but business. up, number There's one you're

$XXX, And standpoint. than standpoint have had a in move that's and several so, from hurricane at gosh, we don't risk the some else responsible spot of that and one TIV in and activity is that as look million forward. to think there anything say $XXX that rate are both and policies just type I large were non-renew we risk a policies that from decided we We honestly more management strategically concentration

non-renew us. for they So profitable in who we them were did large policies very

some of an And and it overall to protection, right thus to less on so concentration, pricing, have lower margins, offset you is impact but so at lowering offsetting now. has that our has probable book better reinsurance with happy the sleep a losses operating but we're it also benefit it night our maximum decision corresponding that, in there risk insurance

Unidentified Analyst

answers. the thanks Perfect, for

Bruce Lucas

in The up. in of we're thing just area of billion is follow XXXX. one because tri-county focused de-risking main Ross TIV down We've the I’d that's that dropped Yes. in there. $X activity tri-county the TIV some on the almost in

from of So pricing. is reinsurance some it and from volatility away gives reserving improved our also diversifies and from line, volatility commercial/residential, claims, some substantially of personnel a is further footprint that away abuses, but it that away the tri-county

Operator

Thank any to This like to management back turn remarks. team conference I’d question-and-answer over concludes our for session. the closing the you.

Bruce Lucas

to conference I'd everyone like call. the fourth just joining thank for quarter

Operator

presentation. you all thank And now attending has today’s for We Today's thank you sir. concluded. conference

and may lines day. disconnect You your have wonderful a now

Heritage Insurance (HRTG) 8 Mar 182017 Q4 Earnings call transcript